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

295. Memorandum From Guy Erb of the National Security Council Staff to the President’s Assistant for National Security Affairs (Brzezinski)¹

Washington, February 11, 1978

SUBJECT

• North-South Policies: Assessment and Recommendations

This memo responds to your request for a review and analysis of our current North-South policies and the possibilities for future actions.

The first point to bear in mind is that what we commonly describe as “North-South” issues, that is, the common fund, commodity agreements, technology transfer, poor-country debts, are only a part of a very complex set of relationships between the US and the developing world. We face important policy issues regarding:

• arms transfers to the more advanced developing countries—new demands are expected, not only for such items as AWACS and F–15s, but for all-weather and night fighting capabilities, standoff precision-guided bombs and rockets, coproduction agreements, and man-portable anti-aircraft missiles;

• nuclear non-proliferation—pressure points include heavy wa-ter technology, research reactors, and control of dual capability technology;

• economic policy—the US capacity to admit increasing exports from middle and upper-tier LDCs is primarily an issue of domestic policy, and is directly related to the overall economic and employment policies of the Administration. Our approach to those LDCs that take up our offer to negotiate in the Multilateral Trade Negotiations (MTN) will have a significant impact on our trade and financial relations with the key developing countries.

The reality of changing relations regarding arms, nuclear technology, and trade and investment interdependence underlies the rhetoric of the North-South dialogue. Yet there is no effective link between our bilateral concerns with specific developing countries and the implementation of international economic policy on the one hand, and “North-South” encounters on the other. For example, US Government discussions of debt policy focus on proposals to assist the poorest among the developing countries. The proposals could entail easing the terms of debt outstanding to the United States valued at anywhere from $1.0 to $8.0 billion. But in the wake of the debts incurred since 1973 by 14 “upper tier” developing countries, their annual interest payments are estimated at $7.0 billion and their annual payments on principal will rise 45 per cent to $16.0 billion (1978–79 over 1975–76). US trade policies and its reciprocal bargaining with the major developing countries will have to take into account the need of international debtors to increase their exports. Without an adaptation to that need we run the risk of threatening the viability of the international financial system. Yet even the upper tier of developing countries appear reluctant to break with the Group of 77 on trade and other issues that are related to this problem. For our part, Congressional pressures make it difficult to sustain the open trade policies that the situation requires.

Turning to our current approach to North-South trade, foreign assistance, commodity policy, and technology transfers I feel that we are in a defensive position on too many fronts. With two possible exceptions, our approaches to the MTN and foreign assistance, our policies can be described by one word, containment.² We seek to contain first those developed countries that wish to adopt more forthcoming approaches to negotiations with developing countries; and second, the leading developing countries, whose proposals are seen as a challenge to an economic system that has served our interests well and could also serve the interests of developing countries if given a chance. For the time being the Soviet Union and other Eastern European countries are at the margin of international consideration of North-South issues. The influence of the PRC is limited.

On a variety of issues the United States consciously adopts a conservative position within the Group of OECD countries. (See Tab A, p. 4)³ This is done because of (1) a conviction that in so doing we best serve our interests in a well functioning world economy, (2) concern that the Congress would oppose “concessions” to the developing world, (3) bureaucratic inertia, (4) the natural (and appropriate) conservatism of the Treasury Department, or (5) the responsiveness of State’s Bureau of Economic and Business Affairs (E/B) to the short-run concerns of the business community.

Statements by the President, Ambassador Young and yourself have described the political and economic changes that require leadership by the United States. But we have not translated your commitment to work towards a “broader political and economic international system” into clear guidance for US officials as they approach overall North-South issues and specific policy decisions.

As a consequence, our policies are fragmented and limited in scope. Moreover, there is no clear overall context for the evaluation and implementation of specific policies.

• We seek a more effective negotiation with developing countries in the MTN but the consequences of a possible response by them for other North-South issues and of our own importation of more LDC exports have not been adequately analyzed;

• Foreign assistance dominates US policies toward developing nations but our strategies for different types of LDCs and our funding goals have not yet been clearly explained to the American public,⁴ other OECD nations, and recipient countries;

• The US position for the forthcoming UNCTAD meeting on international debt is currently so modest that strains within the OECD group and a confrontation with the developing countries appear inevitable;

• Our willingness to negotiate producer/consumer commodity agreements offers evidence of a commitment to share responsibilities with developing nations. But we are perceived as being more negative than we really are because interagency squabbles delay constructive US approaches to international meetings on individual products;

• The common fund is a reminder of the danger of making a high-level commitment that is not backed up by a bureaucratic commitment to deliver the goods. Again, the United States is seen as a major obstacle to further progress;

• The US approach to technology issues is hampered by a reluctance to confer any legitimacy on the negotiations within UNCTAD and by an oversensitivity to the attitudes of American corporations.

US Government decisions on non-aid issues that affect developing countries, for example, the US offer of concessions in the MTN, stockpile policies, the contribution to the Tin Agreement, are not informed by an agreed approach to US relations with developing countries. The latter are variously viewed as 1) adversaries, 2) insignificant in the context of other factors, or 3) petitioners. The mutual gains that both the United States and the developing countries could receive from certain policies receive lip service, but little real consideration.

Within the OECD the United States is viewed 1) as a conservative force whose defense of economic principles will prevent the adoption of measures that some European countries are willing to accept, if only to defuse confrontations with developing countries (France, UK, Germany); or 2) as an obstacle to real progress in the North-South Dialogue (Nordic countries). Japan’s position is somewhat ambiguous; their government supports us on some issues, but not on others.

A striking element of the current situation in developed countries is a lack of mutual confidence between senior officials of the major Western countries and their political leadership.

• A recent cable from Ambassador Enders pointed out that Trudeau is far ahead of his Cabinet on North-South questions.⁵

• Recently, several officials from England, France and Germany expressed concern that a Summit, an EC Council meeting, or some other gathering of political leaders might lead to advances in North-South issues that the officials would find uncongenial.

But the responsibility for the impasse on North-South issues is clearly not ours alone. The Group of 77 is in difficult straits. On both debt and common fund issues—the two main planks of the present platform of the developing countries—their unity is sustained only by extreme demands. Disagreements within the group forced the suspension of the Common Fund negotiations in November, since any move toward the OECD proposal would have fractured their unified front. Disagreements within the 77 will also hamper their ability to negotiate on debt in March.⁶

Unfortunately, the very fragility of the cohesion of LDCs leads them to adopt extreme positions. Those positions, in my view, increase the likelihood of confrontations between the developing and developed countries. However, the CIA downplays the likelihood of a major confrontation in 1978 with the Group of 77 (Tab A). The CIA analysis does stress the frustrations that are building up within the Group of 77 and we must therefore look beyond the next twelve months to the UNCTAD meeting in 1979 and the Special Session of the UN in 1980.⁷ Both offer the G–77 considerable opportunities for a return to the confrontation tactics of 1974–75.

In 1974 and 1975 the United States found itself isolated from its allies and facing a hostile majority in the United Nations. The outcome was the Kissinger speech to the UNGA in 1975 (delivered by Moynihan).⁸ The conciliatory tone of that speech ended the rhetorical fireworks at the UN, led to the creation of CIEC, and, in effect, bought nearly three years for the beleaguered OECD countries. That string has just about run out. I trace the disquiet that you, and indeed, all of us in the North-South Cluster, feel with current North-South policies to an increasing discomfort with the stagnation of economic policies that has followed Kissinger’s forty-one initiatives.

The challenge before us is to make our policies reflect our need to adapt to political/economic changes in the developing world. We have a choice: to lead the way toward improved economic and political relationships, or to try to prevent or slow down drastically the changes that are occurring. In my view, we now run the risk of taking the latter course. Piecemeal protective measures abound. The OECD commitment to an open world economy may be faltering, and I sense an unwillingness to take the international and the domestic steps that would give the US the leading role it should have in restoring the world’s economic health.⁹

A new approach to the North-South issues would not turn around the world economy but it could contribute to a US policy that aimed at reversing the present economic trends. More positive economic policies toward LDCs might also balance the hard line that the United States should take on arms transfers and non-proliferation issues.

There are three options for North-South policies that we should consider:

1. The United States can muddle through the North-South dialogue, hoping that divisions within the Group of 77 will prevent strong pressures on us and that verbal accommodation can defuse any confrontational situation that does develop. Although I reveal my own biases by my terminology, this is by no means a phony option. Maintenance of the separation between the “soft” North-South issues and US bilateral relations with key developing countries is a course that many senior and working level US officials would favor.

2. We could attempt to make a tactical advance by using rhetoric and proposing a long list of initiatives comparable to those contained in the 1975 speech by Secretary Kissinger. Such a policy might buy some time, but our credibility would be immediately questioned, and we would be correctly perceived as retreating from stated objectives.

3. The President could sharpen the cooperation and shared responsibility theme of the proposed Caracas speech¹⁰ and emphasize the leadership role that the United States can play in moving the world toward a more just and more fully employed world economy. The elements of this approach could include:

• a statement that the US faces hard choices that constrain our ability to meet the demands of the developing countries coupled with a serious effort to move toward mutually beneficial policy initiatives wherever possible;

• constructive criticism of the current approach of the Group of 77;

• a commitment to work with developing and other developed countries to end the current impasse. US actions in the United Nations, functional organizations (the IMF, IBRD, GATT, UNCTAD, etc.), and bilateral contacts would all be part of the implementation of that commitment;¹¹

• a strong defense of the foundations on which new economic relationships can be built, the Bretton Woods institutions and an open trade policy;

• announcement of the President’s decision to reach poor people effectively with our foreign assistance;

• an enumeration of the specifics of possible cooperative actions with developing countries on food and energy development, and on science and technology.

Choice and implementation of this final option would provide the guidance on specific North-South negotiations that US Government officials now need. At best, this option could break the deadlock in which the OECD countries and Group of 77 now find themselves. Short of that outcome, this option could clear the air and allow more fruitful US relationships with individual or groups of developing countries. Firm implementation of this option would entail some bureaucratic upheavals but without a commitment to take that risk I see little prospect that our North-South policies will be any different in 1980 than they are now.

RECOMMENDATION:

That you approve the third option.

Approve (Prepare draft of Caracas speech and policy guidelines in specific sectors, such as trade, debt, commodities, foreign assistance-basic human needs, etc.)¹²

Disapprove (Other action?)

1. Source: Carter Library, National Security Council, Institutional Files, Box 25, PRM–08, 1 of 3, [1]. Confidential. Copies were sent to Owen and the North/South Cluster of the NSC Staff. Aaron initialed at the top of the page.
2. Brzezinski highlighted the first two sentences of the paragraph. He also underlined the words “to the MTN and” and “word, containment.”
3. Tab A, attached but not printed, is a January 25 memorandum prepared by the CIA National Foreign Assessment Center entitled “The International Setting for North-South Relations in 1978.”
4. In a February 8 memorandum to Christopher on “A Program to Educate the American Public on Foreign Aid,” Lake discussed a recent request by Carter that Vance and Jordan confer “on the possibility of a public campaign to educate the public on our foreign assistance programs.” Lake noted that “[s]ome work has already been done by S/P, the NSC, and others on developing a public education campaign on foreign assistance. This effort, however, has been progressing very slowly. We must formulate a concrete strategy and begin to act immediately, if we want to undertake a public education effort during the legislative cycle.” (National Archives, RG 59, Office of the Secretariat Staff, Official Working Papers of S/P Director Anthony Lake, 1977–January 1981, Lot 82D298, Box 3, S/P-Lake Papers—2/1–2/15/78)
5. Telegram 536 from Ottawa, February 3. (National Archives, RG 59, Central Foreign Policy File, D780052–0246)
6. Brzezinski highlighted this paragraph. Reference is to the discussion of international debt at the March meeting of the UNCTAD Trade and Development Board.
7. UNCTAD V took place in Manila from May 7–June 3, 1979; the Eleventh Special Session of the UN General Assembly took place August 25–September 15, 1980.
8. See footnote 3, Document 257.
9. Brzezinski highlighted this paragraph.
10. Carter addressed the Venezuelan Congress on March 29; for the text of his remarks, see Public Papers of the Presidents of the United States: Jimmy Carter, 1978, Book I, pp. 619–623. Carter visited Caracas March 28–29; see Document 303.
11. Brzezinski highlighted this option up to the end of this point.
12. Brzezinski checked this option and wrote “Speak to me.” According to the NSC Correspondence Profile attached to this memorandum, Brzezinski met with Owen, Thornton, Pastor, and Erb to discuss Carter’s speech in Caracas and Pastor and Erb were directed to prepare an outline. (Carter Library, National Security Council, Institutional Files, Box 25, PRM–8 (1 of 3)) No memorandum of conversation of this meeting was found.