280. Memorandum From Guy Erb of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)1
- PRC Meeting on the Negotiations on a Common Fund, 4 November 1977, 3:30–5:00 p.m.
Summary of Main Issues
The US is involved in a complicated negotiation with developing countries on a common fund for commodity price stabilization. The PRC meets to consider these negotiations on 4 November 1977. The main question before the PRC will be: (1) is the US prepared to continue the negotiations and contemplate compromises which may be necessary to bring them to a successful conclusion? If the answer to (1) is yes, other important questions are: (2) can possible changes in the US nego[Page 856]tiating position be examined during November, (a) on foreign policy grounds (given the importance of the negotiation to the overall North-South relationship) and (b) in relation to the credibility of the OECD proposals and the viability of a common fund itself; and (3) should consultations with the Congress be undertaken on US objectives and proposals within the negotiations.
If the PRC answers question (1) negatively we will have to consider urgently a series of steps that might minimize the damage to US relationships with other OECD members and the LDCs.
The PRC has received a discussion paper on the negotiations on a common fund (Tab A). The negotiations, which will take place from 7 November through 2 December,2 are the fourth major North-South encounter on the common fund: previous meeting occurred at UNCTAD IV in Nairobi in 1976, at an UNCTAD meeting in March of this year; and at the CIEC meeting last June when it was decided that a common fund “should be established.”
President Carter has referred twice to the US intent to negotiate a common fund. The proposed mechanism has become, for better or worse, the touchstone of the UNCTAD commodity proposals and a critical factor in the overall North-South relationship.
Since April 1977 the USG has worked with other OECD countries to develop an OECD proposal to make to the Group of 77 developing countries. The US approach has been guided by an April 1977 EPG submission of recommendations on common fund issues (Tab B).3 At that time, the President approved the following paragraph in which you summarized the EPG recommendations:
Issue 1. All agencies agree that the US should support a common fund which permits pooling of the fund of various buffer stocks and includes a provision for World Bank lending to supplement these funds. This will be seen as a demonstration of US flexibility, although it will not meet all the demands of the LDCs. (See your memorandum to the President, April 14, 1977, No. 2059.) (Tab C)4
With considerable ingenuity, US officials have followed up that Presidential guideline by crafting a proposal for a pooling arrangement which has become the basis for an OECD opening position for the negotiations.[Page 857]
The US Proposal
The US proposal is summarized on pp. 1–3 of the discussion paper. In my view, the pooling concept on which it is based has serious technical and political shortcomings:
My critique of the financial viability of the pooling proposal includes the following points:
—a pooling arrangement without a back-up facility based on direct government contributions or guarantees would not offer a significant incentive to producer/consumer commodity agreements to join the pool;
—a common fund without its own financial resources would not be able to convince private bankers of its credit-worthiness and consequently would have a weak borrowing capacity on private capital markets. Note: The World Bank lending proposed by the EPG was an attempt to respond to this issue.
—the pooling mechanism envisages a complex way of using the callable capital of commodity agreements and some existing agreements might not be able to participate in the pool as presently defined.
On political grounds the pooling proposal:
—risks splitting the group of developed countries in November since some of the smaller European countries are not satisfied with the proposal as it stands.
—may well provoke a confrontation with developing countries because it falls far short of the Group of 77 proposals.
The Proposal of the Developing Countries
The common fund proposals of the Group of 77 now include: (1) creation of a central source of funds for international commodity price stabilization agreements between producers and consumers; (2) support by a common fund for “other measures” which would include improvements in productivity, marketing and diversification; (3) financing for stocks and other measures for commodities not covered by international commodity agreements.
Only the first of the above proposals offers us a reasonable prospect for compromise. This is so because the US cannot at this time responsibly support a new institution for financing “other measures” when we must still deliver on commitments of $800 million to existing international development lending institutions. Moreover, support by a common fund for commodities not covered by agreements would only be possible if the US and other developed countries had agreed with producers to international guidelines which were comparable to those in formal international agreements.
The Group of 77 is not united solidly behind their proposals, a factor which lends considerable uncertainty to interpretations of their possible reaction to the OECD proposal. My best guess is that the LDC [Page 858] moderates will not be able to contain sharply critical LDC statements during the early stages of the November meeting. The ability of the US to respond constructively to that criticism may determine whether or not we will be able to channel the common fund negotiations toward technical working groups following the November meeting. Such groups would be preferable to another high-level, highly politicized negotiating session.
The major European countries have been informed of the possibility that the US might have to revise its position in the light of events during the November meeting. An improved US response might:
—force the Group of 77 to react to a constructive proposal rather than maintain their maximum demands in a confrontational manner.
—enable the US to resist pressure to make more changes in its proposals.
The following are my recommendations related to the main questions posed at the beginning of this memo:
Is the US prepared to continue the negotiations and contemplate compromises which may be necessary to bring them to a successful conclusion?
The President has approved your suggestion of a US approach to the LDCs based on cooperation and shared responsibility. That approach justifies a serious US intent to negotiate a common fund.5
Can possible changes in the US negotiation position be examined during November, (a) on foreign policy grounds (given the importance of the negotiation to the overall North-South relationship) and (b) in relation to the credibility of the OECD proposals and the viability of a common fund itself?
We should seek from the PRC policy guidelines which authorize the serious exploration of improvements in the US position, for example those found in paragraphs 9–15 of the discussion paper. A PRC request to explore urgently those, and other, possible changes in the US position could aim at providing our representatives in Geneva with the negotiating flexibility that they may use as needed.6[Page 859]
Should consultation with the Congress be undertaken on US objectives and proposals within the negotiations?
As we determine the substance of possible changes in the US position, the Congress should be consulted on the evolving US position. In our consultations on Capitol Hill the objective of price stabilization (not price rigging, not more foreign aid) must be continually borne in mind.
- Source: Carter Library, National Security Council, Institutional Files, Box 66, PRC 042 11/4/77 Common Fund Negotiations. Confidential. Sent for action. Copies were sent to Owen and Thornton. In a November 3 note to Brzezinski, Thornton indicated his concurrence in Erb’s memorandum. (Ibid.) In another note to Brzezinski, also dated November 3, Owen wrote that he had “not followed this as closely as Guy. In general he seems to me to be on the right track.” (Ibid.)↩
- For more information on this second session of the UN Negotiating Conference on a Common Fund, see Yearbook of the United Nations, 1977, p. 472.↩
- Tab B was not attached. For more information, see Tab A to Document 263.↩
- Printed as Document 263.↩
- Brzezinski did not indicate his preference with respect to any of the recommendations. On Question 1, the Disapprove option includes the action to “Prepare steps to contain damage to US relations with OECD countries and LDCs.”↩
- The Disapprove option under Question 2 includes the query “other action?”↩
- Carter was scheduled to travel to nine countries November 22–December 3, but the trip was postponed in early November. (Charles Mohr, “Carter Postpones Foreign Tour To Deal With Energy Legislation,” The New York Times, November 5, 1977, p. 1)↩