Foreign Relations of the United States, 1969–1976, Volume E–11, Part 2, Documents on South America, 1973–1976

282. Memorandum From the Acting Assistant Secretary of Defense for International Security Affairs (Eagleburger) to Secretary of Defense Richardson¹

Washington, March 19, 1973.

SUBJECT

• Peru

The purpose of this memorandum is to review broad USG policy toward Peru, to request your affirmation of OSD policy positions—particularly with regard to the response to NSSM 158 (Review of US Policy Toward Peru)—and to inform you of proposed DOD initiatives.

In 1968, the Peruvian military took control of their government after a dispute with the elected President over, among other things, the terms of settlement of an expropriation action against International Petroleum Company (IPC), a subsidiary of Standard Oil Company of New Jersey. Since that time the Government of Peru (GOP) has implemented policies that have as an objective the achievement of a measure of independence from previously established ties to the US. The GOP began to formulate foreign policies on the basis of universality; its economic policies stressed state control of internal centers of economic power and the diversification of the country’s external trade patterns. The GOP has continued to express its sense of affinity to the US; but inevitably the trend of its nationalistic policies has created conflicts with domestic political content for both countries. The two most significant disputes at this moment concern IPC and the seizure of US fishing boats. This latter dispute is having a serious impact on US security interests. (Tab A)

The Fisheries Dispute. Large-scale fishing by US commercial interests occurs annually off the coasts of Peru and Ecuador from November through March. These countries claim sovereignty out to 200 miles from their coastlines and have intermittently been seizing US fishing boats in that area. The frustration over this lengthy dispute has produced a body of US legislation imposing sanctions against countries seizing these boats. Such provisions are found in the Fishermen’s Protective Act (FPA); the Naval Loan Extension Act (unclear); and the Foreign Military Sales Act (Pelly Amendment). In addition, the Foreign Assistance Act requires boat seizures be considered in decisions concerning resistance.

As you know, the Pelly Amendment to the Foreign Military Sales (FMS) Act of 1968 requires the suspension of FMS to a country which seizes or fines an American-owned fishing boat for engaging in fishing more than 12 miles off that country’s coastline. In 1969, the US Military Group was expelled from Peru following public disclosure of the suspension of FMS to that country. A small seven-man Military Assistance Advisory Group (MAAG) remained and is still functioning. In 1971, Peru began to exercise considerable restraint and did not interfere with US tuna boats throughout the 1971–72 fishing season.

In 1972, the US Congress passed a strengthening amendment to the Fishermen’s Protective Act (FPA)—a law that provides for (1) the USG to reimburse fishing boat owners for fines levied in connection with fishing activities in international waters and (2) withholding an amount equal to that of the fines from foreign assistance funds (including MAP funds) programmed for the offending country if that country fails to reimburse the USG in the amount of the fines. This latter provision has never been applied to assistance funds for Peru. Although the 1972 amendment did not change the basic provisions of the FPA, it strengthened the clauses relating to collection of claims against foreign countries and to deductions from foreign assistance funds. The provisions of the amendment have not been implemented as yet because Congress has failed to provide certain start-up funds. Nevertheless, the FPA is correctly interpreted by Peru as potentially punitive, and the passage of the recent amendment was given wide publicity in that country evoking anti-US demonstrations. In an apparent change of policy after 20 months of restraint, Peru seized a US boat on 12 December 1972 and, in return, the US immediately suspended FMS without stating so publicly. Since the beginning of January 1973, Peru has gone on to capture 23 additional boats and levied fines of $742,860. The USG has been unsuccessful in efforts to achieve a temporary fishing agreement for an interim period pending negotiation of the broader matter of off-shore sovereignty to be addressed by the forthcoming Law of the Sea Conference.

The fallacy of the Pelly Amendment is that it posits the availability of FMS from the US as adequate leverage to preclude a foreign country’s engaging in seizure of US fishing boats. Clearly, this assumption has been demonstrated to be false. Yet the legislation has made US security interests in Peru and in the hemisphere hostage to an economic-political issue.

The IPC Case. One of the first acts of the Peruvian military upon assuming control of the government in 1968 was to nationalize IPC without providing compensation. In response to this expropriation and to bring the Peruvian government to a reasonable negotiating position, NSDMs 11 and 21 of 1969 approved a strategy to:

—Maximize non-overt economic pressures on Peru to induce agreement on a satisfactory settlement.

Defer applying the Hickenlooper Amendment (cutoff of foreign assistance in response to expropriation) as long as a plausible basis could be found.

—Explore all possibilities for a settlement.

Although assets of other US firms have been expropriated, the Peruvian government has emphasized a general policy of paying compensation. However, in the case of IPC, the GOP maintains an uncompromising position while publicly portraying the matter as one of national honor. The settlement of this issue is generally considered to be central to normalization of US-Peruvian relations. (Tab B)

NSSM 158. It was under the above conditions that NSSM 158, Review of US Policy Toward Peru, was addressed by the Senior Review Group (SRG) in November 1972. The central issue was to determine the optimum strategy which would serve the full range of US interests in Peru in the context of our global and hemispheric policies and interests. The Treasury Department and Overseas Private Investment Corporation dissented from that focus by stating that the central issue concerned the effect of any change in policy in the IPC case on our worldwide expropriation policy. Three courses of action were considered:

Option 1. Continue the current policy of non-overt economic pressure with variations in pressures keyed to the IPC case.

Option 2. Move to a tougher policy by applying all or some of the relevant legislative restraints.

Option 3. Conclude that the IPC case is not going to be settled in the short run and relax the sanctions in order to reduce the damage to other interests, while keeping future options open.

Defense supported Option 3 as best designed to protect US security interests; State initially supported Option 3, but was willing to accept a variant of Option 1; and Treasury took a strong position in favor of delaying a final decision pending exploration of what was characterized as hopeful indications for a settlement of the IPC case. The members agreed to delay consideration for a 90-day exploratory period. If by the end of February 1973 development of an approach for initiating talks with the Peruvians did not prove feasible, the SRG was to reconsider the options. To date, the SRG has not been reconvened.

A subissue concerning our military relations with Peru was not addressed. At the time of the SRG meeting, the Peruvians had refrained for a lengthy period from any action against US tuna boats which would bring on sanctions. Hence, US-Peruvian military relations were considered to be improving, resumption of FMS credits for Peru was under study, and the USG was taking action on several Peruvian requests for commercial purchase of military items. It was shortly thereafter, December 1972, that the Peruvian Navy began again to seize US boats.

US Security Interests. As you know, during World War II a unified concept of security interests arose among the individual countries in the western hemisphere. This mutual security relationship was formalized in 1947 by the Inter-American Treaty of Reciprocal Assistance—subsequently ratified by the US and Peru along with 19 other Latin American states. The agreement has been strengthened by resolutions of the Foreign Ministers of the Organization of American States in 1948, 1951, and 1962. In this regard, US security interests related to Peru include:

• —Maintenance of a stable, friendly government.
• —Prevention of hostile alignments or installation of hostile forces, bases, or matériel.
• —Continuance of US-Peruvian military cooperation.
• —Continued success, with Peruvian participation, of the Inter-American security system.
• —Achievement of support for security aspects of US Law of the Sea position, i.e., narrow territorial sea (no greater than 12 miles) coupled with free transit through and over international straits.

These security interests and the important professional relationship which our military has arduously developed with the Peruvian armed forces over a number of years are now under severe strain. Application of the Pelly Amendment in reaction to these recent seizures is jeopardizing sales of US manufactured military equipment, to include A–37B and F–5 aircraft, in excess of $85 million. (Tab C) An indication of the scope of Peruvian interest in obtaining US military equipment was their request for price and availability data totalling almost $300 million submitted in 1972. Should legislative sanctions cause the US to be unable to respond to at least a portion of the Peruvian needs for modernizing their armed forces equipment inventories, the Peruvians will of necessity come to accept as fact the unreliability of the US as a source of equipment. In addition to other third countries, the Soviets have made continued overtures toward Peru for the sale of military equipment, including MiG–21 aircraft, with attractive terms. Reports indicate that the Soviets recently convinced the GOP to purchase Mi–8 helicopters for use in oil exploration rather than US-built Bell helicopters. Should Peru purchase MiGs, the Chilean Air Force would likely be forced to accede to Soviet pressures and also accept these high performance aircraft. Major Soviet sales could be accompanied by Soviet or Soviet-sponsored advisors and technicians whose influence and presence could only be counter to US hemispheric security interests. (Tab D) A high level Soviet military mission visited Peru during this past week.

Inability to proceed with FMS since December 1972 has also delayed the proposed sale of US ships (including the destroyer Isherwood) presently on loan to Peru. A US decision to sell the loaned ships had been informally accepted by Peru just prior to FMS being placed under review. Continued Congressional antipathy toward the current ship loan program as well as the probability of a confrontation with Peru over return of the Isherwood could be avoided if FMS were resumed allowing Peru to purchase these ships.

In addition to the negative effect on US interests that application of the Pelly Amendment creates, I am concerned by our Country Team’s assessment that, if the recent FPA Amendment is activated requiring deductions to be made from our military assistance training program, the small US MAAG of seven men will be asked to leave. The vacuum created by the loss of the MAAG’s influence on Peru’s military government and armed services could be filled by third country advisors pursuing interests which, in some cases, would be in conflict with or damaging to our own. Application of the FPA Amendment would not only greatly damage US-Peruvian relations, but would also assist in coalescing anti-US regional attitudes.

Considering the above, it appears that OSD policy should emphasize the importance of US security interests in this region without compromising USG efforts to resolve other conflicts. Implied therein is the requirement to separate matters pertaining to US security interests from other lower order disputes when actions to resolve those disputes imperil our security relationships. By waiving those legislative sanctions which reduce FMS and military assistance to functions of the fisheries dispute, the USG would signal its readiness to do so. It is recognized that in the US this policy may initially involve a domestic political cost for the administration.

With your approval, the following actions will be taken with regard to Peru:

1. I will sign the letter to State at Tab E requesting a Presidential waiver of the Pelly Amendment to the FMS Act.

2. Should the deduct provisions of the Fishermen’s Protective Act be implemented, I will seek a determination that military assistance funds will not be used for this purpose.

3. Should either of these waivers not be forthcoming, I will request the SRG be reconvened to address the response to NSSM 158.

Lawrence Eagleburger

Acting Assistant Secretary

1. Summary: Eagleburger informed Richardson of the broad outlines of the U.S. Government’s policy towards Peru. He requested approval for presidential waivers of congressionally-mandated withholding of FMS for Peru and an SRG meeting if the waivers were denied.

   Source: Washington National Records Center, OSD Files: FRC 330–78 0001, Peru 1973. Secret. Richardson approved the actions on March 20. NSSM 158 is published in Foreign Relations, 1969–1976, vol. E–10, Documents on American Republics, 1969–1972, as Document 637. National Security Decision Memorandum 11 and 19 are ibid., Documents 593 and 607, respectively. Attached but not published at Tab A is a February 23 telegram from Belcher to the Secretary of State; at Tab B is Belcher’s undated overview to the FY 1974–75 CASP for Peru; at Tab C is a March 8 Memorandum for the Record from LeBailly; at Tab D is a February 20 telegram from Belcher to the Secretary of State; and at Tab E is a undated draft letter to Crimmins from Eagleburger. On April 14, Eagleburger informed Richardson that he had sent the letter to Crimmins on March 22, and that a request for a Presidential Determination issuing the waiver to the Pelly Amendment was being processed at the Department. (Ibid.) No SRG meeting on Peru was held.