57. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon 1

SUBJECT

  • German Offset Negotiations

Issue

The Under Secretaries Committee has forwarded a memorandum (Tab A)2 proposing an opening position for our negotiations with [Page 242]Germany to replace the current offset agreement, which expires on June 30. It examines how well any practicable offset arrangement would meet U.S. objectives, and concludes:

1. The U.S. balance of payments situation and a marginally favorable impact on Congress argue for continuation of the offset arrangements. The negotiation need not impair our relations with the Federal Republic, which expects us to seek continuation.

2. The offset arrangement should focus first on those elements contributing to increased NATO strength, and second on those offering real economic benefits to the U.S. (Both the Executive Branch and the Congress recognize that some elements of previous offset arrangements are relatively valueless on either count, since they have only temporary effects or would have taken place even without formal arrangement.)

Committee Recommendations

The Committee recommends that we seek a two-year offset package totaling about $850 million annually. We would shoot for inclusion of the following items, which add up to more than the desired total in order to leave room for fallback positions:

—Direct German support for U.S. budgetary costs in Germany ($300 million).

—German takeover of costs of U.S. military assistance to Turkey ($75–90 million).

—German military procurement in the U.S. ($300 million).

—German procurement of civilian items in the U.S., such as stockpile surpluses ($100 million).

—Financial measures: German loans to the U.S. Government at subsidized (hopefully zero) interest rates, sales of Export-Import Bank assets to Germany, and freezing of German funds already on deposit with the Treasury ($200–250 million).

The first three components are much more useful to us than are the others, because they help our budget as well as our balance of payments, and because at least the first two would be wholly additional to what we would get without an agreement. However, we will have to aim at the broader range of measures to get a total annual package which will compare favorably with the $810 million which we get under the current arrangement, and to maximize our bargaining position. We would consider the offset arrangement as additional to the $125 million German annual contribution to the new European Defense Improvement Program, which the allies proposed after your decision to seek force improvements rather than straight budgetary payments for maintenance of our forces. This would bring total German contributions to about $975 million annually, or about 80 percent of the $1.2 billion current balance of payments costs of U.S. forces in Germany.

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In negotiating the package, the U.S. would stress the importance of military procurement, German budget support for our activities, and German military aid to Turkey. The Committee asks that the negotiators be authorized to reduce the total package to $700 million or so if necessary to improve its quality.

Comment

The proposal is reasonable. The Germans expect a new offset agreement on the same order of magnitude as the present one. A new agreement along the recommended lines would have positive effects on the U.S. balance of payments, Congressional sentiment, and therefore on our ability to maintain our NATO force levels. Its effects would not be of great significance in any of these areas, however.

The paucity of reward plus the risk of exacerbating our German relations at this particularly delicate time call for caution in the negotiations. However, we will not know the sensitive areas until we get the German reaction to our proposal. I expect that the major issue will not be the dollar total of the package, but how hard we should press certain of the constituent elements more attractive to us. I am dubious that the Germans will agree to anything like $300 million of support costs, for example; they have never accepted any such payments before, but they have recently done so for the British and appear ready to do so for us to at least some limited extent.

My staff and I will follow the negotiations closely to monitor potentially serious difficulties, however, and I plan to insist that the agencies submit such problems to you for subsequent decision. In addition, Deputy Under Secretary of State Samuels will be doing the negotiating, and can be counted on to handle the talks in a low-key way.

Recommendation3

I recommend that you accept the Under Secretaries Committee recommendations for an initial position in our forthcoming offset negotiations with Germany. State, Defense, Treasury and all other agencies support the recommendations.

  1. Source: Library of Congress, Manuscript Division, Kissinger Papers, Box CL 307, Under Secretaries Committee. Confidential. Sent for action.
  2. January 19, attached but not printed.
  3. Nixon initialed his approval. Kissinger informed the Under Secretaries Committee on February 17. (Library of Congress, Manuscript Division, Kissinger Papers, Box CL 307, Under Secretaries Committee) The negotiations began in March and finally concluded in December. See Document 77.