110. Memorandum From Timothy Deal of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)1

SUBJECT

  • Export Credits: Gentlemen’s Agreement

On February 22, the 20 member states participating in the present “consensus” on export credits (the Gentlemen’s Agreement) concluded a new international Arrangement on Officially Supported Export Credits, which will take effect on April 1.2 The arrangement provides for some improvement over the existing “consensus” in reporting requirements, definitions, and procedures for notification of other participants when a country intends to derogate from the guidelines.

We did not achieve our goals on minimum interest rates. Originally, we had proposed an increase in the rate structure, particularly for longer term credits (more than 8.5 years) to developing countries. The EC would not buy that proposal. The EC also refused to provide annual reports on mixed (those with a substantial grant element) and tied credits, which we had sought. Nonetheless, we did succeed in closing some troublesome loopholes.

Other participants were simply unwilling to raise minimum interest rates and shorten repayment terms. They were concerned about the reaction among LDCs. Forcing through tougher standards, even if [Page 335]possible, would have been an illusory achievement. The EXIMBANK would observe the guidelines but our competitors would not. As under the existing “consensus,” the Italians, French, Japanese et al would ignore their commitments if the price were right. But the expanded reporting requirements will at least force governments to notify other participants so that they may offer matching terms.

The Arrangement applies to credits for both rich and poor countries as well as Communist states, most of which fit in the so-called “intermediate” category. The main objective of the “consensus” was to avert counterproductive competition in providing export credits to the USSR and East Europe. It largely accomplished its purpose, although most of the reported violations of the “consensus” involved sales to the Soviet Union. As the financial value of these transactions is frequently large, and because the Soviets are especially hard bargainers, there will be continuing pressure on the Europeans to shave interest rates and lengthen repayment terms to meet the demands of the Soviet borrowers. The Arrangement we have just concluded will not stop such practices entirely, but it will force them out into the open—maybe.

  1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 16, Economic Assistance Strategy: 10/77–5/78. Confidential. Sent for information.
  2. The original “consensus” on export credits was reached in 1976. It was designed to regulate the terms under which governments would offer official financial assistance for exports in order to avoid excessive competition in the realm of export financing.