191. Memorandum From the Deputy Secretary of State (Robinson) to the Under Secretary of State for Political Affairs (Habib)1
SUBJECT
- State–Treasury Relations
You have requested my views on State and Treasury roles in international economic matters. Accordingly, I have outlined below:
- —a rationale for State Department involvement in international economic policies,
- —the need for more effective interagency coordination on economic matters, and
- —my views on the respective roles of State and Treasury on specific economic issues.
International Economic Policy
The design and direction of U.S. foreign policy must be founded on the reality of an expanding economic interdependence between nations. The development of the world political order has become inseparable from the evolution of the international economic system; thus foreign policy has become inseparable from economic policy.
Organization of the Executive Branch for the conduct of foreign policy must recognize the increasing difficulty in distinguishing between:
[Page 644]- —what is domestic and what is international in economic issues, and
- —what is political (or strategic) in the traditional sense and what is economic in the conduct of foreign policy.
Thus we are faced with the dilemma of how to adjust traditional State Department approaches to foreign policy which has an increasingly important economic component. Only with major adjustment can we moderate the natural tendency for other key agencies (such as Treasury) to encroach on State’s coordinating role in foreign affairs.
Need for Interagency Coordination
It is clear that the White House should be increasingly involved in key international economic issues where basic U.S. interests are at stake. Thus regardless of the respective roles of State and Treasury in this area, there is need for a more effective mechanism within the White House to assure proper coordination of the interests of all agencies involved. This could be achieved by various alternative means:
- (a) a modified NSC with an economic staff to balance the political (or strategic) staff, thus providing for a fully coordinated foreign policy;
- (b) a revitalized Council on International Economic Policy (CIEP) reporting to the President to coordinate with an NSC limited to political (or strategic) policies.
- (c) an Economic Policy Board—chaired by Treasury as employed during the Ford administration. (Treasury domination during the Ford administration prevented this from serving as an effective coordinating mechanism on foreign economic issues.)
- (d) a more active and involved Council of Economic Advisors to coordinate domestic and international considerations in economic policies.
Whatever the mechanism, it should serve only for coordination and should not inhibit State (or Treasury, where appropriate) in the generation of economic policy initiatives; nor should it interfere with the implementation of these policies by the appropriate agency.
I would favor alternative (b) with an active and effective CIEP providing the necessary coordination on economic policy issues. This could provide the added benefit of bringing the Special Trade Representative (STR) under appropriate Administration control—the lack of which created serious problems for the Ford administration.
This approach would clearly serve State’s interest; however, I suspect that alternative (a)—an expanded NSC—is a much more likely solution.
State/Treasury Relationship
It is difficult to generalize on State/Treasury relationships on economic policies as these cover a wide range of issues, each requiring a [Page 645] somewhat different blend of responsibilities. To illustrate, there are listed below a series of issues involving varying State/Treasury roles.
In most international economic issues, State should lead with Treasury playing a supporting role. These include:
1. Harmonization of economic policies among the major industrialized nations. Interdependency has generated the need for a more cooperative effort amongst the industrialized nations to harmonize national economic policies. This can be accomplished through:
- —Economic summit meetings in which the six or seven key industrialized nations are represented at the highest levels;
- —Effective use of OECD for intensified consultation for coordinating national economic growth planning; and,
- —Expanded bilateral contacts between key industrialized nations at foreign policy and economic planning levels.
2. Cooperation in dealing with energy problems. Both Treasury and a new Energy Czar2 will push for increased control of our relations with industrialized and OPEC nations on energy issues. Their participation is essential to assure coordination of domestic and international considerations, but in view of the important foreign relations implications, State should provide the leadership in both planning and implementation of international energy policies.
3. Building economic and technical links with Eastern Europe and the USSR. This calls for both consultation and coordination with our Western partners and increasing contact with the Soviet Union and its satellites, both bilaterally and through multilateral negotiations, with State having the primary responsibility.
4. Global Food Issues. Both Treasury and increasingly the USDA will push for an expanded role in dealing with global food problems. However, this effort must fulfill U.S. moral obligations to support the needy and serve U.S. foreign policy objectives which argues for a continued leadership role for State.
5. Rationalizing the North-South dialogue. The quadrupling of the number of independent nation states since the end of World War II has created the need for a new structural relationship between industrialized and developing nations. This is one of the critical challenges of our time and the future of our world can well depend on our successful response. State has taken the lead in confronting these issues—including bilateral programs for economic assistance, through the UN and its agencies such as UNCTAD and in the Conference on International Economic Cooperation (CIEC). State should continue this leadership role [Page 646] in the future. (There are specific issues such as debt rescheduling in which Treasury must lead.) This will call for a new and more effective mechanism for coordinating State/Treasury positions in the future.
6. Commodity Issues. These involve negotiation of individual commodity agreements and participation in multilateral efforts to establish a common fund to support commodity buffer stocks.
7. International Trade. Although STR has prime responsibility for actual negotiations and Treasury is directly involved in administering protective provisions of U.S. law, State must have over-all responsibility in foreign trade policies. This is an area which demands more effective coordination than has been the case to date to assure protection of domestic interests, but in a manner which also serves our international objectives.
8. Other important issues in which State must lead but with important Treasury participation include:
- —Multi-national corporations—investment guidelines and codes of conduct;
- —Technological cooperation to support economic and social development abroad;
- —Law of the Sea treaty negotiations where Committee One on deep seabeds exploitation involves complex economic problems; and,
- —Joint economic commissions established to strengthen our relations with selected countries in the Middle East through expanded economic and technical cooperation.
Although close coordination is essential in all international economic programs, there are certain areas in which Treasury must lead:
1. Monetary Affairs
Treasury has the prime responsibility for representing the U.S. in multilateral monetary issues. However, State should have a more important participation in these activities than in the recent past to assure effective coordination of foreign policy.
Treasury has dominated decisions in the IMF and IBRD which has resulted in U.S. positions which, although fiscally sound, do not reflect over-all foreign policy goals. State must select Alternate Directors for—and direct and influence the policies of these institutions—if they are to serve broader U.S. interests.
Beyond current operating policies we face a major challenge in adjusting the current system to the demands of a changing world. Our global monetary structure—born three decades ago at Bretton Woods—has served us well; however, it is simply inadequate to deal with the financial stresses resulting from:
- —the sudden rise in energy costs,
- —the proliferation of independent nations with at best, marginal economic viability, and
- —the inflationary pressures which appear to be endemic in our global political structure.
The U.S. must lead the way in developing new multilateral institutions with increased “shock absorbing” capacity to deal with world wide financial strains. Treasury will lead in this effort but State must play an important part to assure full consideration of foreign policy objectives in both planning and implementation.
2. Debt Rescheduling
State and Treasury must coordinate closely in this area which is destined to become increasingly important in our relations with the developing world; however, the actual negotiation of debt rescheduling is an appropriate task for Treasury.
3. Capital Flows
We face a major problem in moderating the political risks which now inhibit capital flows into the developing nations, and thus prevent rational development of the earth’s resources. State has proposed the International Resources Bank to meet this challenge; however, Treasury is the appropriate agency to lead in the planning and implementation of this program.
4. National Financial Crises
Critical financial problems such as those faced by the UK, Italy and Portugal today call for innovative solutions to preserve international economic stability. Treasury must be responsible for negotiating solutions but these should be closely coordinated with State to insure proper consideration of sensitive political issues.
Summary
With global interdependency, comes increasing government involvement in international economic (and energy) affairs. It is inevitable that all government agencies will seek to expand their involvement in the international dimension. This will continue to challenge State’s traditional role in the conduct of foreign policy. It appears likely that this problem will be magnified in the Carter administration with an aggressive internationally oriented Treasury organization—a strengthened NSC, a new Energy Czar and determined experienced leadership in the CEA.
To assure a proper State role in the coordination of all foreign policy it is first essential to develop an effective internal organization. No longer can State win the day by crying “foul” on foreign policy terms. It must develop a new capability to tackle all economic (and energy) issues across a broader front. There is need for strengthened analytical capability in the economic area—greater sensitivity to the needs of a changing world—and more creativity in resolving increasingly complex international economic problems.
[Page 648]To achieve these objectives, it is essential to develop a seventh floor capacity to anticipate impending economic problems and an ability to organize an effective response. State must also mobilize existing resources more effectively:
- —for planning new approaches to economic problems,
- —to direct interagency coordinating efforts, and
- —to implement new policies abroad.
Failure to achieve these goals will lead to serious erosion of State’s proper role in the conduct of foreign policy.
- Source: National Archives, RG 59, Records of the Deputy Secretary of State Charles W. Robinson, 1976–1977, Entry 5176, Box 4, D—Chron, December 1976 and January 1977. Confidential. Printed from an unsigned copy; a handwritten notation indicates that Robinson signed the memorandum on December 24.↩
- The heads of the various offices managing energy policy, beginning with John Love in 1973 (see footnote 3, Document 161), were known as the Energy Czar.↩