270. Memorandum From Helmut Sonnenfeldt and John Knubel of the National Security Council Staff to Secretary of State Kissinger 1

SUBJECT

  • Offset Arrangements with the NATO Allies

The first two rounds of the offset negotiations with the Germans have been completed with little progress beyond the initial German offer of 2.5 billion DM ($1.04B) to cover total outlays of $3.3B in FY 74–75. (This would constitute a 33% hard offset without loans.)

At the second round [1 Attended by Casey, Shultz and held in Bonn. (The next round is likely to take place in Washington in some two to three weeks.)] the U.S. proposed increased military procurement by some $300—which would bring the “hard” offset to about 40%. The FRG also showed some interest in buying about $70 million worth of uranium enrichment services.

Even if all U.S. proposals are accepted, it is now clear that we will not come close to the full offset called for by Congress unless some loans are included. [2 The intelligence is that the FRG would add about $2.77B more in loans that would take us close to a “full” 80% offset.] If the FRG agreement falls short, we cannot expect to get full coverage from the multilateral effort (although this will provide some additional relief).

Meanwhile, Treasury remains opposed to including loans on any basis.

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While loans have no economic value, their importance has been greatly increased now that the Jackson-Nunn amendment has been adopted. Moreover, Secretary Schlesinger is firmly committed to including loans. Since the proposed NSSM study directive has not yet been signed, we have made little progress in resolving this issue. (Copy is at Tab A.)

It is critical that this loans issue be resolved soon. Schlesinger and Shultz are far apart in their views and last week Shultz asked his staff to set up a meeting between Schlesinger, Shultz, and yourself.

Assuming you plan to sign the study directive previously requested, you have two options:

—Meet with Shultz and Schlesinger to seek resolution of the issue. The meeting will be called after a paper based on the NSSM is coordinated between agencies.

—Authorize us to prepare a memo to the President based on the NSSM study.

We do not believe you should be placed in a position of adjudicating between Shultz and Schlesinger on this technical economic issue in a meeting. The two have met in the past without resolution and we doubt resolution will be accomplished without a Presidential decision.

We, therefore, recommend you sign the study directive at Tab A and authorize us to prepare a memo to the President based on it.

The study would be based on an NSC paper (Tab B) which has been received favorably by all agencies and would enable us to prepare a memo to the President in a week or so. Chuck Cooper concurs.

Your decision, assuming you sign the study directive at Tab A:

Prepare the memo to the President

Plan the meeting with Shultz and Schlesinger

Donald Rumsfeld recently sent a cable (Tab C) outlining his frustration with our inability to coordinate support in Washington on burdensharing and recommending that the President appoint a special ambassador for burdensharing. In view of the Jackson-Nunn amendment, this idea has a great deal of appeal. Burdensharing is a very broad topic covering not only offset but also the full range of logistics and deployments issues. For example, some have suggested that the Allies agree to fill certain wartime logistics functions thus allowing reductions in the U.S. budget.

If you approve, we will prepare a list of possible candidates.

Approve, prepare the list

Disapprove

  1. Summary: Sonnenfeldt and Knubel briefed Kissinger on the status of the U.S.–FRG bilateral offset negotiations and the NATO multilateral burdensharing discussions.

    Source: National Archives, Nixon Presidential Materials, NSC Files, Box 265, Agency Files, NATO Oct 73–Dec 73, Vol. XVI (3 of 3). Confidential. Sent for urgent action. All brackets were printed as footnotes in the original. Tab A is an earlier draft of Document 271. Attached but not published is Tab B, an undated paper on “Loans in the German Offset;” and Tab C, telegram Brussels 439 from Rumsfeld to Kissinger, October 6. Kissinger did not indicate his preferences among the options presented in Sonnenfedlt’s and Knubel’s memorandum; see, however, Document 271.