267. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon1
- Balance of Payments Offset Negotiations with the FRG
We have recently begun renegotiating the balance of payments offset arrangements with West Germany (FRG). Under the offset, the Germans take special actions to compensate the U.S. for the balance of payments cost of our troops in Germany. We are also seeking a multilateral arrangement whereby the NATO countries would join the FRG in contributing towards actions to offset fully our troop costs as well as to shift a greater share of the burden for the defense of Europe to our Allies. The basic objectives of this effort were spelled out by NSDM 214 (Tab A).
Improved offset and burdensharing arrangements are one of the major security-related objectives of the “Year of Europe”. They are important for two primary reasons:
(1) An improved offset and burdensharing arrangement is needed to place the economic aspects of our troops in Europe on a long-term footing compatible with the changed economic situation.
(2) A major factor in Congressional efforts to force unilateral cuts in our troop levels is the impact of deployments on our balance of payments.
We need to provide further guidance to our Embassy in Bonn and our NATO ambassador regarding our preferred offset and burden-sharing arrangements. In developing the guidance cable, we encountered sharp differences in views among the agencies. Treasury is pri[Typeset Page 832]marily concerned with maximizing the balance of payments and budgetary impact of the offset. Defense is more concerned with developing arrangements which give the appearance of broad coverage in order to undercut Congressional efforts to use this issue as a reason to reduce our forces. To give guidance to the negotiators, a decision is needed on the relative emphasis on the different types of offset actions the FRG might take.
The principal issue revolves around whether or not we should suggest to the FRG that we would be willing to consider loan arrangements as a viable means of offsetting our balance of payments costs. Loans have been used in the past, in part because it was expected that the balance of payments problem would be short-term. Since loans do not add to the FRG budget, they prefer this approach and would probably be willing to agree to a larger offset program if a loan provision is included.
The difficulty with loans is that they are only a short-term solution and must eventually be repaid. The political value of loans has also diminished as Congressional critics now understand their economic implications and are less willing to accept them as valid offsets.
There is general agreement that later in the negotiations we should consider incorporating loans of some type in the offset agreement in order to expand its scope and total dollar value. The immediate decision that is needed relates to the relative emphasis to be given to the loans in early discussions.
State, Treasury, and Defense believe that no mention should be made of loans until negotiations are well along and that loans should be accepted only after other hard offsets have been exhausted.
I agree with State, Treasury, and Defense that we should not mention loans until later in the negotiations. If we raise them early in the talks, the extent to which we are able to get the more economically valuable “hard” offsets will be limited. Moreover, most Congressmen now understand the shortcomings of loans, and, therefore, the value of an agreement with a heavy loan content in satisfying Congressional concerns is doubtful.
Delay the mention of loans (Rush, Shultz, Schlesinger, Ash, Timmons and Kissinger recommendation)
Allow loans to be discussed freely
Summary: Kissinger sought Nixon’s decision on the issue of loans in the U.S.–FRG bilateral offset negotiations.
Source: National Archives, Nixon Presidential Materials, NSC Files, Box 264, Agency Files, NATO July–Sept 73, Vol. XV (2 of 3). Confidential. Sent for action. Tab A is Document 13. The initial “P” was written next to the first recommendation; a note by Scowcroft in the same file reads, “Per John Bennett, the President approved the delay of the mention of loans in offset negotiations.”↩