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

25. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, April 29, 1977

SUBJECT

• Seven Nation Summit

I am transmitting a briefing book that includes:

—Three overall papers that Bob Hormats has prepared (drawing on work by Dick Cooper, Arthur Burns, and CIA) about the international economic setting, the international financial setting, and an overview of North-South issues;

—Six briefing papers on individual issues likely to arise at the Summit: macro-economic policy, financial indebtedness, trade, energy, North-South relations, and non-proliferation. The first five papers were prepared by Bob Hormats and the last by Roger Waldman (NSC staff); all draw on the work of other agencies.

The first step in preparing for the Summit is to ask: What are we trying to achieve?

In one sense, we are trying to achieve something intangible: a close personal understanding among the heads of government. This may be the Summit’s most important result, but it’s not one I can do much about, so I’ll simply note it and pass on to discuss our substantive objectives.

You defined these well when you said in answer to a recent press question about the London Summit: “Our own people are best served when we . . . have open and free trade, when we have proper concern about the less developed countries . . . when we have multilateral lending institutions like the World Bank that can function effectively, when we have a proper and multilateral approach to solving the chronic and rapidly deteriorating energy circumstances . . .”²

The main goal of the Summit is to strengthen international institutions for tackling these common problems, and to forge a strong international consensus about their solutions. Only heads of government can provide the political impetus required to this end—and thus persuade peoples in the industrial world that their governments are cooperating effectively to improve their destinies. There was general agreement on that purpose at the International Preparatory Group that met here earlier this week.³ The hard question is how to apply it to specific issues. I discuss that question below in relation to the Preparatory Group’s work on the Summit Declaration, not because its work is that important (it will surely be greatly changed by the heads of government), but because this is a convenient way to get at the specific issues involved and the attitudes of other countries.

Domestic Policy

The Preparatory Group did not agree on what the Summit should say about domestic economic policy. The disagreement focused on two issues:

1. The British want the Summit to lean on Germany (and implicitly the U.S. and Japan) to reflate more rapidly. They had support only from the French. Callaghan will no doubt urge you to join him in pressing Schmidt. You will recall that you agreed with Roy Jenkins that this would be counter-productive.⁴ I feel the same way: It won’t have any effect on German policy and will just irritate the FRG and trigger leaks of discord to the media.

2. The British want a long analytical section in the Declaration discussing the world economic situation and giving loud cries of alarm about it—presumably to encourage Germany, Japan, and the U.S. to do more to improve it. The rest of us (the French, again, excepted) felt things weren’t really that bad, and could see nothing but damage to business and investor confidence in saying otherwise.

The Preparatory Group, whose members will be in the anteroom at 10 Downing Street, can readily draft language for the Declaration on domestic economic policy, once the heads of government have reached substantive agreement. Most members of the Group believe this language should describe briefly the world economic progress that has been achieved since the last Summit and the problems that remain. It should stress the need for (i) the U.S., Germany, and Japan to keep their policies under review to ensure that they achieve their moderately expansionist target rates of growth; (ii) the UK, France, Italy, and Canada to continue to pursue their stabilization policies until they have brought inflation under control. The message should be that while we still have problems, we are implementing policies that will correct them. The Preparatory Group agreed that the Declaration should also say something encouraging about efforts to deal with youth unemployment. Callaghan may propose an international conference on this subject, which could be useful.

International Economic Policy

The Preparatory Group had no difficulty in agreeing on draft Declaration language dealing with international issues: financing, trade, energy, and North-South relations. I attach the agreed text,⁵ which is largely based on the U.S. draft; the British draft, which was more general, met little favor. The Group noted that this agreed language would have to be drastically revised to take account of whatever the heads of government decided at London. Herewith a few comments on the attached draft:

—Balance of Payments Financing. The draft supports the large IMF expansion that has been proposed by Witteveen and that would help both developed and developing countries. As of this writing, the IMF Interim Committee⁶ is discussing this issue. We will know in a day or two whether its discussions require change in the agreed draft language.

—Trade. The British and French, who favored blander language, were persuaded both to accept the proposed U.S. trade language. This language rejects protectionism in strong terms, indicates that the Tokyo Round should achieve results as important as the Kennedy Round, and pinpoints the areas in which the heads of government will seek progress in trade negotiations in 1977. These areas include an international system of national grain reserves (tactfully described as an agreed approach to grain stocks). The British were convinced by the argument that the only way for the industrial countries to avoid succumbing to growing protectionist pressures is by being able to show our peoples that the trade negotiations are making real progress: Hence the importance of each head of government being able to return from London saying that the Summit had achieved concrete results in reviving trade negotiations. This required a Declaration with specific commitments; generalities would not suffice. Bob Strauss made the same argument, with good results, in Brussels, London, and Tokyo—as I did in talking to Jenkins when he was here. At the Summit you may get either a frontal attack, i.e., an attempt to return to the original bland British draft, or some nibbling at the edges—e.g., an attempt to take out either the reference to the Kennedy Round, which knocks down the notion of a mini-package, or the reference to grain stocks, which is useful in giving a push to negotiations for an international system of national grain reserves. There was some resistance, by the way, to the last paragraph of the draft language, on illicit payments, as being beneath the dignity of heads of government; we argued for keeping it, in order to provide some moral content to the meeting and the Declaration.

—Energy. There was general agreement on the need to reduce energy consumption and increase energy production, and to press ahead with measures to exchange technology, which Jim Schlesinger had asked me to mention—as well as commendation for the new U.S. energy program.⁷ There was also agreement on the need to meet countries’ legitimate energy requirements, and to do this without enhancing nuclear proliferation, as well as on announcing our proposed program of studies as to how these objectives can best be achieved—except for the French delegate, who had not gotten the word as to whether his government was prepared to enter this program. The Italian delegate was mildly unhappy about singling out nuclear energy, which he said was essential to his country’s economic future, for special attention. The French delegate objected to the reference to coal which, he said, would make it more difficult for his government to close down uneconomic mines, and Giscard may raise this at the Summit.

—North-South. There was agreement on the need for the large general increase in the World Bank’s resources that Bob McNamara has in mind, and which he is most anxious to have the Summit support. The language is rather general, since McNamara hasn’t made a specific proposal and we don’t want to alarm the Congress while it is still considering the IDA appropriation. There was no disagreement on the commodity price stabilization language: All believe that commodity agreements should be negotiated individually, that prices should be stabilized around market trends, and there should be a common funding agreement for these individual agreements. This is not what the LDC’s want, but it’s as close as we can get without doing violence to their interests and ours. The Group put in some language about studying stabilization of export earnings; Schmidt will propose this and we see no harm in a study so long as it embraces not only his proposal but other means of achieving the same objective, e.g., an increase in the IMF compensatory financing facility (which would be additional to the general increase in IMF financing mentioned earlier). You will note that the penultimate paragraph of the North-South section refers in rather general language to the world development program and asks the World Bank and IMF to study it. We gave the other members of the Preparatory Group a memorandum on this subject (attached)⁸ which the World Bank had prepared. Before seeing this memo, some of them had worried as to whether this venture would generate new demands for increased aid; they now seem reassured, especially since the draft Declaration only proposes that the Summit ask the World Bank and IMF to study the idea—presumably for review by the IBRD–IMF Development Committee,⁹ which is interested in this subject and which includes both developing and developed countries.

General Statement

The Group agreed on the need for a general one page statement concerning the overall meaning and message of the Summit, which would precede the more detailed five page Declaration. The British and I will try our hands at drafting such a statement. Like all other parts of the draft Declaration, it will be revised in light of Summit discussions, as they progress.

European Community

The European Commission was represented at the preparatory session. British thinking is that Jenkins will attend the second day of the Summit, but not the first—when domestic economic policy, non-proliferation, and other subjects not thought by the French to be in the Commission’s competence will be discussed. This will create problems, since it will be difficult to dissociate non-proliferation from energy, which is to be discussed the second day. The British hope that Giscard will relent and let Jenkins come part of the first day, as well.

Conclusion

Except for domestic economic policy, the chief problem will be the inherent tendency of any meeting to water down controversial specifics and resort, instead, to generalities. Nothing would be more dismaying to the media than a Summit that produced only such bland generalities. We need specific content if our basic purpose—strengthening international institutions and giving a sense of hope and leadership to the industrial democracies—is to be achieved. The Declaration now has that content; I suspect that you will have to fight hard to keep it—e.g., in respect of the listing of trade issues to be settled in 1977, the reference to international grain reserves, the request to the World Bank and IMF to study the World Development Program, and the announcement of the international fuel cycle evaluation program studies.

To judge from the Preparatory Group meetings, you will find the Germans a strong ally in arguing for specificity; the Japanese generally feel the same way, but have to be prodded to say so. The Canadians are also generally on our side; the Italians were pretty much a cipher, but don’t seem anxious to disagree with any positions strongly held by the U.S. The push for blandness comes mainly from the British, with French support: The UK is now a weak country, and its representatives are wary of launching initiatives that imply new burdens. In the end, however, they recognize that world economic problems won’t wait and are ready to go along with realistic proposals, if strongly favored by the other participants.

Follow-Up

Effective follow-up was largely lacking after previous Summits. At the final session of the Summit, you might propose that there be a meeting of the Group that helped prepare the Summit, say five months after the Summit, to survey progress made in executing Summit decisions and to prepare a report for the heads of government on what has been done and what remains to be done to this end. You will encounter these objections:

—The follow-up takes place anyway in other forums: OECD, IMF, GATT, World Bank, etc. Answer: We need to be sure that our ministers in these forums are following Summit guidance, instead of allowing that guidance to be eroded by time and new events, as in the past.

—This would institutionalize Summitry and antagonize non-attending nations. Answer: There is no reason why this follow-up meeting could not be as private and free from publicity as the preparatory meetings have been. Countries will not be antagonized by a non-event.

—It would place an additional burden on busy officials. Answer: This burden would be small, compared to the advantages of ensuring that Summit decisions had some effect on what happened in the real world.¹⁰

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 1, President, Europe, 5/5–10/77: Memos and Cables, 4/29/77–5/4/77. Confidential. Sent for information. A handwritten notation at the top of the page reads: “DA—FYI.”
2. Carter made these remarks during an April 25 question-and-answer session with European newspaper journalists in the Oval Office; see Public Papers of the Presidents of the United States: Jimmy Carter, 1977, Book I, pp. 775–783.
3. The Preparatory Group met in Washington on April 25 and 26. (Letter from Carter to Schmidt, April 29; Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country Chron File, Box 13, Germany F R: 2–6/77)
4. On April 18, Carter, Jenkins, and other U.S. and EC officials met in the Cabinet Room from 11:40 a.m. until 12:27 p.m. (Carter Library, Presidential Materials, President’s Daily Diary) During the meeting, Jenkins told Carter that “further debate over the extent of stimulation appropriate for the stronger economies would be sterile.” Carter replied “that he did not view the Summit as an occasion for further argument over stimulation.” (Memorandum of conversation, April 18; Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 34, Memcons: President: 4/77)
5. Attached but not printed at Tab B are four undated papers on “Balance of Payments Financing,” “Trade,” “Energy,” and “North-South Relations.”
6. The IMF Interim Committee (formally known as the Interim Committee of the Board of Governors on the International Monetary System) was established in October 1974. It succeeded the Committee of Twenty as the primary international monetary reform group.
7. On April 18, Carter addressed the nation on the energy crisis; 2 days later, he presented his program of action to a joint session of Congress. For the text of both addresses, see Public Papers of the Presidents of the United States: Jimmy Carter, 1977, Book I, pp. 656–662 and 663–672. He transmitted the National Energy Act to Congress on April 29; see ibid., pp. 740–743. In an April 25 memorandum to Carter, Aaron reported that Schmidt, noting that the U.S. “energy program affected every country,” had recently asked him “why the key countries concerned had not been consulted. He said energy was to be a major subject at the Summit, but he asked what was the point now that the decisions had been made.” Schmidt made the same complaint about non-proliferation and U.S. economic stimulation. In the margin adjacent to this paragraph, Carter wrote, “We are not part of EC & still sovereign.” (Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 24, German Federal Republic: 4/77–3/78)
8. Tab A, attached but not printed, is an undated 3-page paper entitled “An Approach to a World Development Program.”
9. The IMF/IBRD Development Committee (formally known as the Joint Ministerial Committee of the Boards of Governors of the World Bank and the Fund on the Transfer of Real Resources to Developing Countries) was established in October 1974 to address the problems of developing countries.
10. On May 4, Brzezinski gave Carter a 2-page paper on U.S. objectives at the Summit, as well as talking points based on the Summit briefing book. (Memorandum from Hormats to Brzezinski, May 4; Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 1, President, Europe, 5/5–10/77: Memos and Cables, 4/29/77–5/4/77)