15. Telegram From the Department of State to the Embassies in Japan and West Germany1

241954. Subject: Camp David Followup.

1. Following is text of an informal paper for Enders and Cooper discussions next week. Request that Tokyo pass to Miyazaki and Yoshida and Bonn to Poehl and Hermes. Please stress to recipients that this paper is of the highest sensitivity and is for their eyes only. Request that no distribution be made in Embassy.

2. Begin text. A Proposal for More Comprehensive Collaboration Among the Industrialized Countries.

3. In light of the dangerous situation facing them, particularly as a result of the oil price increases, the industrialized countries should undertake a more comprehensive collaboration with the objectives of: bringing about lower costs for their oil supplies; reducing the damage to their economies caused by the higher costs of their imports; preventing disruption of the basic cohesion of the countries of the Free World; and creating procedures to improve their capacity to respond to unforeseen future events.

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4. In undertaking this more comprehensive collaboration, the industrialized countries must build upon what has already been accomplished and is already being undertaken in various existing international bodies, including the IMF, the OECD, and the IEA.

5. As the next step toward this desired collaboration, further discussions should be held among the Foreign and Finance Ministers of the five major nations in an effort to reduce differences in their perceptions of problems and opportunities before formal discussions of closer cooperation are undertaken with a wider group of industrialized countries.

6. A program of additional cooperation is desirable: one in which the different parts reinforce one another both politically and economically.

7. Included in the program should be: (A) An internationally agreed set of additional measures intended to reduce reliance by the industrial countries on imports of oil from outside the group, to be referred to below as “conservation measures”; (B) A new set of commitments and procedures by which the group could provide economic support, as needed, in the form of loans to those members of the group which would otherwise suffer acute economic damage as a result of international economic developments, to be referred to below as “financial solidarity measures”; and (C) An undertaking to attempt to develop various other forms of collaboration on measures supportive of the activities included in A and B, referred to below as “other supportive measures”.

8. Conservation measures. Additional measures by the major industrialized countries to reduce their reliance on high cost oil imports are desirable: to reduce vulnerability to future interruptions in supply; to limit the real burden being placed on their economies by the necessity of paying either currently for the costly imports or ultimately for amortization of debt being undertaken to finance the current consumption of energy; to reduce the danger of potential disruption to the world’s financing system as a result of concentration of large holdings of financial assets in the hands of a small number of producing country governments; and to demonstrate to the producers more promptly the damage which will be done to their economic welfare, as well as that of the consuming nations, by attempts to prolong current high oil prices.

9. The most appropriate mix of additional conservation measures will vary from country to country. Among the important types of measures are likely to be removal of official restraints on the cost of energy to consumers, imposition of additional taxation on consumption of imported energy, and inducements to switch from oil to other sources of energy.

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10. The higher prices which have been allowed to take effect in the market place have already reduced oil consumption. Not only have the 5% to 10% increases forecast earlier for consumption growth in 1974 not taken place, but recent consumption levels in the major industrial countries have been running 5% to 10% below the levels before the outbreak of the Mid-East war in October 1973. Some of the reductions in consumption are attributable, however, to the slower overall rates of economic growth being experienced in the industrialized countries, and there is no assurance that in the absence of new government measures there will be no resurgence of demand in 1975 when higher rates of economic growth resume and when the shock of the sudden move to higher prices is further in the past. Under the circumstances, additional conservation and production-encouraging measures are desirable in all countries, and probably in every country it will be easier to gain legislative and popular acceptance of additional measures if they are taken in the context of an equitably shared comprehensive program of international cooperation.

11. It is probably neither practical nor desirable to expect governments to commit their countries to specific maximum amounts of oil imports in 1975 or to adopt identical programs or standards of conservation measures. But individual country programs for 1975 should be collated into a total international program, which would then be reviewed for the adequacy of its total impact and for the equity of distribution of national contributions, and adjusted as necessary. It should be useful to establish an agreed timetable for the development of national programs and their international review and adjustment. Based on experience, in the course of 1975 additional measures could be considered, if necessary, for implementation later in 1975 or in 1976.

12. As a first approximation, it is suggested that measures be sought which would result in total member country imports in the third quarter of 1975 of at least 20%, about 5½ million barrels a day, below their imports of about 27½ million barrels a day in the third quarter of 1973. Already, by the third quarter of 1974, their imports had been reduced to almost half the amount proposed for the third quarter of 1975. The cutback in consumption could alternatively be expressed in terms of reduction in consumption below levels which would have prevailed in the absence of new conservation measures.

13. Financial solidarity. Despite the reduction in oil import costs which can be achieved by additional conservation measures, and despite the desirable impact which such conservation may have in preventing further increases in oil prices and possibly in bringing about some price reductions, the industrialized countries are likely to be faced, in 1975 and later years, with enormous oil import bills. Vast changes in the pattern of international trade and investment flows will [Page 67] result. Adjustment of these flows is likely to take place in many different ways, both through the many existing channels of contact between the oil-producing countries and the industrialized countries and through various new channels.

14. In this process, however, there is the danger that—in the absence of new measures of international cooperation—particular industrialized countries might be faced with acute economic hardship or with the necessity to rely on financial help from producing countries on terms which should be considered politically or economically unacceptable to the community of industrialized nations. To counter this danger, it would seem highly desirable that the industrialized countries develop among themselves a new set of commitments and procedures by which the group could provide economic support in the form of loans, when appropriate, to individual member countries of the group. What is needed is more likely to prove a safety net than an artificial limb, but the safety net would need to be designed for use in any emergency which might arise in order to provide countries in advance with a confidence which would allow them to avoid internationally disruptive economic policies which might otherwise be undertaken out of extreme fear of the future.

15. To be effective in combatting fear, the potentially available loans would have to be very large. On the other hand, such loans could not be promised to any member of the group automatically. The availability of the loans would have to be conditioned upon judgment on behalf of the group that a prospective borrowing nation was following reasonable policies of self-help.

16. As a preliminary proposal to meet the need for a safety net, it is suggested that consideration be given to an agreement among industrialized countries that they would—in the context of a larger program of collaboration on conservation and other energy matters—agree to undertake loan commitments callable on demand by a common fund when loan assistance was needed and approved for a particular member country.

17. The principles on which the fund would be based could be as follows: (A) The total size of the fund would be related to the estimated annual combined deficit on current account of participating countries vis-à-vis outside oil suppliers (an appropriate number for the first year might be one half, which would provide a fund on the order of $20 or $25 billion). (B) Each country’s maximum lending obligation and maximum borrowing limit would be identical. (C) These limits would be determined basically by reference to an appropriate formula incorporating relevant considerations; an appropriate formula might be based on oil imports from outside the group, participation in foreign trade, [Page 68] and GNP. (D) Participants would share in financing loans on the basis of their shares in the fund.

18. Additional commitments would be anticipated for 1976. Each loan from the common fund would be approved by a board of trustees acting on a qualified weighted voting basis on behalf of the member nations in the group. The discretion of the board should probably be limited by agreed guidelines. The board might well be associated with the OECD. Presumably, the loans to and from the common fund would be on commercial terms. Loan assistance from the common fund should probably be made conditional on the borrower making appropriate use of other assets available to it and making efforts to obtain capital from other sources on reasonable terms. Borrowers would also be expected not to take trade or other restrictive measures inconsistent with their GATT, IMF, and OECD obligations.

19. An important feature of the financial safety net, as described above, would be that the assistance to any particular nation would neither be, nor appear to be, dependent on the approval of one or more of the oil-producing countries. The assistance would be on a mutual self-help basis among the industrialized countries. Each of those countries could raise the funds for its contribution as it saw fit: from cash on hand, from taxation, or from new borrowing. Such new borrowing could, in effect, be from an oil-producing government if an oil producer happened to purchase the debt obligations sold by the borrowing government on the market, or if a loan were arranged directly by the borrowing country government from an oil producer. But, in the usual—and preferable—case, lending to the common fund would be but one of the many ways in which an industrialized country government was disbursing funds, and it would not be possible to make an unambiguous connection between one source of funds for the government and one use of funds by that government.

20. It would also be possible to provide that the trustees of the common fund would be empowered to make investments in promising internationally significant research and development projects when appropriate.

21. As an alternative to loans to the common fund, consideration could be given to borrowing by the fund on the strength of guaranties provided by the cooperating governments, presumably in about the same proportions as loans might be made to the common fund. In some countries, it might be that such guaranties would appear less onerous to legislatures than direct loans to a common fund, even though the risk exposure to the governments would be the same by either method. On the other hand, the guaranty method would have a significant political disadvantage in that the political credit for the assistance might tend to accrue in large measure to the provider of the loan funds, quite possibly [Page 69] an oil producer, rather than to the providers of the guaranties who would be the real bearers of the risk. The guaranty route would also have the disadvantage that the rate of interest paid on the guaranteed borrowings would probably be higher than that paid on average by governments borrowing their separate shares of the needed funds directly on their own separate full legal obligations. In view of frequent public failure to understand the nature of guaranties, there would also be some danger that the guaranty route would be treated as a “something for nothing” method and would thus lead to less careful monitoring of the assistance involved.

22. It would also be possible, as an alternative to the common fund outlined above, to consider attempting to use the International Monetary Fund as the provider of the desired safety net for the industrialized countries. That alternative would have the advantage of making use of an existing institution without requiring establishment of a new common fund. On the other hand, there would be a number of disadvantages of attempting to use the IMF. Establishment within the IMF of a safety net of the large size necessary to accomplish the desired objective for the major industrialized countries would lead to extreme pressures within the IMF for large, comparable facilities for the less-developed countries, even though such facilities would not be appropriate to the needs of most such countries. For many of them, concessional lending in smaller amounts would be appropriate. It would also be more difficult to develop an integrated program of conservation, financial solidarity, and other supportive measures, if the safety net were attempted in the IMF, which includes in its membership both the oil-producing countries and many other countries which would not be likely participants in the proposed integrated program.

23. In any event, whatever method of financial support is chosen for industrial countries, the need to provide additional concessional assistance to developing countries will need to be considered. To the extent that financial solidarity leads to improved economic performance in industrial countries, lesser amounts of direct financial assistance to developing nations will be required however.

24. Other supportive measures. Although conservation efforts and financial solidarity would be the two most important individual components of a comprehensive program of cooperation, there are likely to be many other individual forms of cooperation which, in combination, could be significantly supportive of the two main measures. A comprehensive program should, therefore, include an undertaking by the governments involved to attempt cooperation in other ways contributing to the same objectives.

25. For this purpose economic relations with producers would be reviewed in an effort to identify ways and means in which oil company [Page 70] policies on pricing and the distribution of liftings, consuming country import and export policies, export credits, and loans and policies of international financial institutions could be managed to yield a better balance of bargaining power with the producers. Timing and context of bilateral and eventual multilateral producer/consumer contacts should also be studied.

  1. Source: Ford Library, National Security Adviser, Presidential Country Files for East Asia and the Pacific, Box 8, Japan—State Department Telegrams from SECSTATE–NODIS (1). Secret; Priority; Nodis. Drafted by Enders on November 2.