Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

148. Minutes of the Bonn Economic Summit Meeting¹

Bonn, July 17, 1978

BONN SUMMIT

Session 4

Schmidt: Let’s now turn to the declaration.

Giscard: (to Schmidt)—Regarding the growth paragraph, I would hope that you could add some additional language of greater specificity on growth. If possible, it would give greater strength to the text. Perhaps indicate anticipated growth increase of ½–1% of GNP.

Schmidt: We would indicate a willingness to say this but others had criticized mention of this figure.

Carter: What is the most exciting figure, the highest figure, you would be willing to mention?

Schmidt: I would be willing to say ½% to 1% increase in expenditure. But your delegation turned this down.

Carter: I agree with up to 1%.

Callaghan: I am sure that if the phrase is left in a general way, we will be asked what was said in the meeting. I therefore agree with Giscard and Carter.

Schmidt: The U.S. Delegation requested the figure be taken out. Do I now understand that the U.S. President has changed the mind of the U.S. Delegation?

Carter: About how much is 1%?

Schmidt: 13 billion deutsche marks.

Giscard: Yesterday Fukuda used the figure of 7% growth. Since others are using figures in their paragraphs, we might remind people in the declaration that the Japanese target is 7%.

Fukuda: Others have not mentioned specific growth targets. Therefore it is not appropriate for Japan to give specific figures. The Japanese people may feel that Japan has been singled out. The word “significantly higher” implies 7%. If asked, you can say 7% growth target is what was meant. You can quote me.

Trudeau: If it helps in this exercise, I can include for Canada a figure of up to 5%.

Giscard: Now that we have a Canadian figure, we need a Japanese figure.

Fukuda: But that is not a figure which represents a growth target for the economy. If Japan is the only one to give a growth target, I can’t do it. You can tell people that the Japanese Prime Minister has used the figure of 7%.

Carter: Would you be willing to set a percentage of increase that you will set as a goal?

Fukuda: Last year our growth was 5.4%.

Carter: Would you be willing to indicate a net increase in growth of about 1.5%.

Fukuda: The present phrase is all right. If we set a target, we will be the only country to do so. People will add up 5.4% and 1.5% and it would be almost the same thing as setting a target.

Schmidt: Canada has indicated its intention to achieve a 5% growth rate in 1978. Germany has said it will take additional measures to increase growth of up to 1% of GNP. Giscard said France will increase its budget deficit by ½% of GNP. Italy has indicated that it will do 1.5% better than in 1978. In light of the foregoing four countries which have made quantitative pledges, it would be useful if Japan were to do likewise. Carter has used the phrase “which is 1.5% higher than the previous year.” This would not single you out. It would be similar to the foregoing four countries.

Fukuda: In the case of the U.S., it did not spell out its growth rate. There would be certain criticisms within Japan when we are asked questions of why we said in the declaration 7% growth.

Schmidt: Maybe we should look for another kind of language which avoids mentioning the growth rate such as “measures toward the expansion of domestic demand on the order of 1.5% of GNP.

Fukuda: Last year we had 5.5% growth. If you add 1.5, you will be setting a target in a different way. We will not oppose the other countries’ paragraphs, which are somewhat vague. We can say that we will do higher than last year’s 5.5%. We will obtain our real growth target for FY ’78. This means 7%. It is quite clear that for FY ’78 our target is announced. This satisfies your intention, doesn’t it?

Schmidt: Could we say Japan will achieve its real growth target as already announced for FY ’78?

Fukuda: I could agree to buy Carter’s suggestion that we indicate we will do 1.5 above the previous year.

Callaghan: The press is likely to say what does this all add up to on unemployment and growth.

Carter: We can say that we all have made several strides forward. Germany and Japan agreed to greater growth and we agreed to restrict oil consumption and inflation. It is a brave new world.

Schmidt: We cannot calculate the effect of these measures. We cannot foretell the results; the situation looks a little brighter.

Giscard: A slightly more scientific answer is needed. The origin of this effort was in the OECD Working Group, under Charlie Schultze, working with the European Commission. The OECD indicated that if growth were 4.5% there would be a certain fall in unemployment because 4.2% seems to be the threshold in Europe above which unemployment declines. All figures for the Schultze group except those for the FRG seem to have been taken up here. We will ask the OECD to assess the impact. But the net results should enable us to pursue an increased growth rate and a decrease in unemployment.

Schmidt: There seems also to be some issue of subsidies and discipline.

Carter: We think we should say we will look for greater discipline in the use of subsidies so that they do not distort the normal flows of world trade. We would like to add a sentence to this effect.

Callaghan: It depends on how we interpret this. I am not ready to see firms destroyed by world recession when they require subsidies to keep them going.

Jenkins: Suddenly to insert this at this stage when this is a complex MTN issue is very difficult.

Giscard: Countries using subsidies feel they do not distort world trade. We do not believe this sentence would have practical content; in fact we believe it will have no meaning.

Schmidt: I see this as an instrument for countries to avoid pressures for new subsidies. I do not think it is being pointed against participants here.

Callaghan: I don’t particularly want this wording at all.

Schmidt: The UK has not been mentioned.

Callaghan: If anything would be mentioned, it would be the common agricultural policy.

Giscard: It is a question of method. We can’t open the door on subsidies at 4:30. We can accept this because it has no practical consequences. But this would not be honest on our part. U.S. firms for instance have favorable contracts on defense production. Is this a subsidy? Let’s put this on the agenda for the next Summit.

Carter: I will yield on this issue but I do not accept the French argument. We are concerned about the excessive use of subsidies. We tried in our phrasing to be as innocuous as possible but apparently this caused some embarrassment to some countries. We will not insist on it, but we are concerned about excessive and perhaps growing subsidies.

Schmidt: We must not [now] spend some time on North/South issues.

Fukuda: We are surrounded by LDCs. We enjoy a close relationship with ASEAN, whose views and philosophy we find compatible with industrialized nations. The developing countries want us to suppress protectionism and there are a number of institutional matters on which the developing countries request our decisions. They want expanded imports by the developed countries. They also want establishment of a common fund and want specific consideration by developed countries of commodities. They urgently want a conclusive attitude on the common fund to achieve results by next year’s UNCTAD meeting in Manila.² It is important for the developed countries to take some improved philosophy or posture. On the common fund, we should show an attitude of determination to work on the common fund idea to provide a conclusive idea by the end of the year. This would be a meaningful gesture to the LDCs.

As for Japan, we will double aid in 3 years. We are also trying to improve our growth and to provide co-financing through the international financial institutions. Some success resulted from the UNCTAD meeting last March,³ but we must still deal with the mounting debt problem of LDCs and develop a conclusive attitude on rising debt.

Schmidt: In addition to the general evaluation of the situation, do you want to alter the communique?

Fukuda: I do not propose any changes, but you mentioned common fund. In addition to the draft, I suggest that we approach our experts to come up with conclusions by the end of the year. The communique is, however, okay in draft.

Andreotti: I am not proposing any changes, but I have two comments. It is important that in addition to concerning ourselves with the problems of the developed countries we also concern ourselves with the problems of the developing countries. I was impressed with what Prime Minister Fukuda said about the problems of the future, such as the water and arable land. We should study in the future our approach to the LDCs. It is important to remind people in the developed countries, particularly our young people, of the problems of the developing countries—to remind them that 1.5 billion people in this world earn less than $90 a year. Maybe it will make us more willing to sacrifice in our own countries if we do not forget world poverty.

Carter: I would like to add on the common fund point in the communique that we should pursue negotiations to a successful conclusion. We should get going on the common fund and make clear that we are going to go ahead and wrap it up.

Giscard: There is considerable emphasis on multilateral aid in this paper. It is also important that we give attention to bilateral aid for political reasons. We should highlight our own aid to indicate the progress we have made in dealing with the problems of the LDCs.

Schmidt: I see no problem adding Carter’s four words. However, I support Giscard on aid. Most people in LDCs have no idea of where the aid they get comes from when it comes from the World Bank. It is also difficult to raise appreciation for foreign aid when LDCs criticize my country. LDCs should not see aid as coming out of the vaults of the World Bank. Aid depends on national legislatures. What Giscard said was important; not too much aid should be multilateral. We should make it clear to LDCs where the aid comes from.

With respect to the Eastern countries, I do not agree that we should say “invite.” We invited them at London to provide more aid and nothing happened. Instead, they stepped up their deliveries of weapons and advisers to Africa—including military advisers from the GDR. Invite is meaningless. We should spell out that the 7 countries here reproach COMECON for not contributing substantially to LDCs.

The last section of this declaration is meaningless on commodities. There are no direct German interests involved. There are no Germanophone countries. I am talking from a general economic point of view. I am concerned about and question whether the common fund is essential, as well as certain commodity agreements. To my mind, stability of export earnings is even more important for LDCs. A copper agreement would be good for the Soviet Union and give it a lot of profits. But a common fund should not enable the rich to get richer. A copper agreement would help Zaire, Zambia and Chile, but it would be better for the U.S. and the Soviet Union. Commodity agreements are of more use to developed than to developing countries. I don’t think my consumers and taxpayers should be asked to contribute to the well-being of large developed countries rather than poor LDCs.

I am extremely dissatisfied with the way in which examination of stabilization of export earnings has been handled so far. The common fund and commodity agreements mean large rich countries get more benefits than poor countries. The great majority of LDCs derive no benefit whatsoever. This is what I feel. We will say this in international fora about this approach.

I also repeat that I find the language on COMECON too friendly.

Trudeau: You speak from the heart, but you also speak for a lot of us.

Carter: We should say we deeply regret the failure of COMECON to assist developing countries.

Trudeau: On the point above, the common fund and STABEX, we are all growing impatient with the failure to find methods to achieve this objective. We all want to transfer resources to LDCs. But when we gave lots of bilateral aid there was a great deal of overlap and confusion.

On the common fund, LDCs want to stabilize prices and price increases. If third world countries rely on one commodity, they face very real problems. People may use less sisal, but we can’t be blamed for that. We should use the time between now and the next Summit to clarify our objectives and not mix in the common fund, Lome, etc. The 77⁴ always try to do everything at the same instant. The LDCs want something because it sounds good.

Callaghan: I support Pierre’s point about the risk of countries going from multilateral to bilateral aid. We can influence governments a bit when aid is bilateral but very few changes are made as a result. The common fund idea has changed a lot since 1974 and 1975. It now has become a political necessity.

Schmidt: I acknowledge that although it will not help 90% of LDCs.

Callaghan: We must maintain our position on the common fund until the developing countries move, but when they do, it would be advisable for us to support the second window. If the price is to give in on the second window and some direct contributions—if that is required to get it out of the way, we should move at an appropriate moment.

I would like to see agreement to double the capital of the World Bank, which is $31 billion now. The World Bank handles its affairs well. I would like to see the World Bank used as the main instrument for the development process. I hope we can return to this. Also, the level of aid as a percentage of GNP has substantially declined. This is a bad sign.

On retroactive terms adjustment, we have reduced debt. Let’s face it, the LDCs will never repay their loans. It would have some meaning in LDC eyes if we move more in this direction.

Schmidt: This is the first time we are discussing the LDC issue. You should feel free to put up new ideas on this new subject.

Giscard: At the next meeting we should give more time to North/South policy. Regarding the paragraph on COMECON, we should say we invited once more COMECON to do their share in assisting LDCs.

Carter: We should say we deeply regret the failure of COMECON countries to do their share of financial assistance to LDCs and invite them once more to do so.

Schmidt: I have a proposal to make outside of the text—that is a joint procedure among ourselves envisaging further action. Our notetakers will bring to our attention proposals made in this field. We should evaluate our situation in the field of development aid. In less than two years the developing countries will become aware that the common fund would not really help them. We should prepare for this.

I should also say that nothing has been done on the study of export earnings since our meeting at Rambouillet.

Trudeau: We should say that we will meet before the next Summit to tackle this problem. Were you counting on our aides to assess progress in the next 6 months?

Schmidt: Yes. They should assess progress across the board.

Carter: I would like to propose that we meet in Japan before the end of June next year.

Schmidt: Our notetakers and aides should follow up our discussion.

Giscard: We should say that our officials will meet toward the end of the year to review progress. We should not announce a date for another Summit because the economic situation may make a meeting necessary at one time or another. We should say that the next meeting will take place as and when circumstances make it desirable.

Fukuda: Followup is an important matter. I would like to urge on you that we say we will followup in an appropriate phrase in the communique.

Schmidt: I agree. We should also say we have instructed our Ministers to, by the end of ’78, convene in order to review progress in carrying out the provisions of this declaration and that we intend also in 1979 to have a similar meeting between ourselves.

Giscard: We have not said this in the past. We do not want to institutionalize this. There are two advantages of announcing our intention to come together in the spring of ’79. If we announce today, people will not think that such a meeting when called is a signal of urgent danger. And there will not be such great expectations.

Callaghan: I agree. I would like to institutionalize this body so that it meets every twelve months. It also reduces pressures from others to get in.

Giscard: Let’s not be bureaucratic. Let’s keep some flexibility and say that we have decided to meet again when the situation seems appropriate. We can say we reflected on the invitation of Japan to meet next year. In the declaration we can say we envisage a similar meeting between ourselves at an appropriate time next year. We should also say that we instructed our representatives to, by the end of 1978, convene in order to review progress in carrying out this declaration.

Schmidt: I think this was an excellent meeting. Let’s now adjourn and then we can go over to the press building.⁵

1. Source: Department of State, Office of the Secretariat Staff, Records of Cyrus Vance, Secretary of State, 1977–1980, Lot 84D241, Box 9, Vance NODIS Memcons 1978. Secret. Drafted on August 9. For more information on the drafting of these minutes and a list of Summit participants, see footnote 1, Document 145. This fourth session of the Summit, which took place in the Palais Schaumberg, began at 3:34 p.m. and ended at 6:18 p.m. (Carter Library, Presidential Materials, President’s Daily Diary)
2. UNCTAD V took place in Manila May 7–June 3, 1979.
3. The negotiating conference on the Common Fund, agreed to at UNCTAD IV in May 1976, held a preliminary meeting in Geneva March 6–April 3, 1977.
4. Reference is to the Group of 77, or G–77, the developing countries group established at the conclusion of the first UN Conference on Trade and Development in 1964. For the Lomé Convention, see footnote 6, Document 24.
5. For the final text of the Bonn G–7 Summit Declaration issued on July 17, see Public Papers of the Presidents of the United States: Jimmy Carter, 1978, Book II, pp. 1310–1315. Carter’s remarks to the press at the conclusion of the Summit are ibid., pp. 1309–1310.