291. Memorandum From Denis Clift of the National Security Council Staff to Secretary of State Kissinger 1

SUBJECT

  • Contacts with FRG on Offset

I would like to comment on the memorandum at Tab I which poses for you several options for dealing with the FRG on Offset.

To me it is clear that Chancellor Schmidt, an offset veteran and expert, is reserving the offset issue for his personal attention. It is also evident from his conversations with you in May and July that Schmidt does not want to take this up with the President again until some mutually satisfactory new approach is found. For these reasons I rule out the proposals that the President, Secretary Schlesinger or Ambassador Hillenbrand take the next step on offset with Schmidt. As Schmidt has chosen to pursue this issue personally with you on two occasions since the President’s letter of May 3, I believe he would be most receptive if the next U.S. approach to the FRG were to be made by you to him, further to your recent conversations.

The Sonnenfeldt/Lodal memorandum attaches a DPRC working group paper with five policy options for a new US/FRG Offset Agreement. I recommend that you task the DPRC working group with developing an approach that would combine Option Two, a scaled-back bilateral agreement with the FRG, and Option Five, Approach the Allies [Typeset Page 899] on a NATO-wide basis with a new multiple-phase transitional agreement or understanding which would include targets of achievement for rationalization/standardization and force improvement measures in the near and longer term, preceded by a transitional bilateral agreement with the FRG which emphasizes budgetary support while providing some balance of payments relief. This combined approval would form the content of a message from you to Chancellor Schmidt proposing a way of breaking the current offset impasse.

Attachment

Memorandum From Jan Lodal and Helmut Sonnenfeldt of the National Security Council Staff to Secretary of State Kissinger

Washington, September 5, 1975.

SUBJECT

  • Contacts with the FRG on Another Offset Agreement

The FY 74–75 US/FRG Offset Agreement expired on June 30. We have not received a formal reply to the President’s letter of May 3 (Tab A) suggesting to Chancellor Schmidt that we begin negotiations on a new offset agreement. However, Schmidt has indicated to you privately on two occasions that he sees no need for another agreement.

We have been relatively free from Congressional troop cut pressures this year, but there is some risk that these pressures would be revived if we appear to have dropped the idea of pursuing a new agreement. In June, when a New York Times article suggested that the Administration had decided not to press the Germans on the offset issue, Senators Mansfield and Nunn threatened to sponsor legislation that would require a unilateral troop reduction or at least full balance of payments offset from the Allies (a new Jackson-Nunn Amendment). Evans and Novak are expected to discuss the lack of progress toward a new US/FRG offset agreement in their column sometime next week. Their column will reportedly include the fact that the President sent a letter to which Schmidt has not replied. We can expect some reaction from Mansfield and Nunn, but it is unclear how concerned the rest of the Congress will be with this issue.

Schmidt’s resistance to a new agreement is understandable. He has domestic economic and budgetary difficulties, and recent changes in the international monetary order make our past emphasis on “offsetting” US military balance of payments costs particularly objectionable [Typeset Page 900] to him. But we are prepared to be flexible on the components of a new agreement. Further, there are costs the FRG will incur even without another formal agreement (procurement of US military hardware for the FRG armed forces, provision of facilities for the new US combat brigades stationed in northern and central Germany), and we might as well use them to advantage with the Congress. As to the balance of payments aspect, even Senator Nunn has acknowledged that BOP offset no longer makes economic sense. But he insists that we obtain some form of support arrangement bilaterally from the Germans. In the paper at Tab B, the DPRC Working Group has analyzed a range of options that could satisfy Nunn’s concern but at minimum cost to the FRG.

Aside from the Congressional aspect, the offset issue is not important enough to be allowed to become a major irritant in our bilateral relations with the FRG. On the other hand, Schmidt has so far refused to give a fair hearing to our position. We have received some informal reports that the Germans would consider a new offset agreement as long as it did not impose significant additional burdens on them. Finally, even if it is ultimately decided to drop offset altogether, we will want to have made our best efforts on the issue and to defer this decision as long as possible in hopes of minimizing its impact on the Congress.

For these reasons, we should consider how best to follow up on offset with the Germans. We have several options:

Keep the issue at the highest levels between the two governments, and hold off on raising it until the next meeting between you or the President and Chancellor Schmidt. This approach assumes that we need Schmidt’s personal approval before it makes any sense to initiate lower level discussions.

Ask Secretary Schlesinger to raise the offset issue in his meetings with Defense Minister Leber later this month. Schlesinger could point to the costs that the FRG will incur anyway (procurement, support for the new US combat brigades) and suggest an offset arrangement as a way of getting political credit for these expenditures. Leber might then become a sponsor for offset within the German Government.

Have Ambassador Hillenbrand see Chancellor Schmidt or Foreign Minister Genscher and outline to him a “scaled-down” offset arrangement that avoids imposing any major additional burden on the FRG. This would give Schmidt a better idea of what we have in mind and should allay some of his fears. However, he may give Hillenbrand short shrift. If you adopt this approach, we can have the DPRC Working Group develop an offset proposal, drawing from the paper at Tab B.

Have Hillenbrand make a pro forma intervention at the sub-cabinet level expressing our continued interest in offset and our desire to begin discussions. This approach would indicate that we hadn’t given up on offset, [Typeset Page 901] but in view of the high level of our earlier offset interventions the Germans would probably conclude that we attach only limited importance to the issue.

Avoid any further discussions with the Germans at this time and await developments on the Hill that might clarify the mood of Congress on the offset/troop cut issue. This approach might be preliminary to dropping the issue of another offset agreement altogether.

Your Decision

Wait until our next high level meeting with Chancellor Schmidt.

Ask Secretary Schlesinger to raise it with Leber on his visit to the FRG. (Brent could call Wickham and arrange it.)

Have the DPRC Working Group prepare a “scaled-down” offset arrangement for presentation by Amb. Hillenbrand to either Schmidt or Genscher.

Prepare an intervention by our ambassador at the sub-cabinet level expressing our continued desire to begin discussions on offset.

Plan no further discussions with the FRG at this time.

Other.

  1. Summary: Clift discussed the possibility of another approach to the FRG on the issue of a U.S.–FRG bilateral offset agreement.

    Source: Ford Library, National Security Adviser, Kissinger-Scowcroft West Wing Office Files, Box 35, West Germany (4) (6/7/75–12/10/75). Confidential. Sent for action. Tab A of the Sonnenfeldt/Lodal memorandum is Document 285. Attached but not published is Tab B of the same memorandum, an undated paper entitled, “US Policy Options for a New US/FRG Offset Agreement.” An undated note from Scowcroft attached to Clift’s memorandum reads, “HAK wishes to follow Denis Clift’s recommendation at Tab I.” Schmidt replied to Ford’s May 3 letter on September 26, suggesting that they discuss offset during their October 3 talk in Washington. (Letter from Von Staden to Ford, September 26; Ford Library, National Security Adviser, Kissinger-Scowcroft West Wing Office Files, Box 35, West Germany (4) (6/7/75–12/10/75))