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

308. Paper Prepared in the Department of State¹

Washington, undated

Outline of Major North/South Issues

I. Trade

US and G–77 agree on desirability of maintaining open trading system with expanded opportunities for LDC exports. Disagreement focuses on the following:

(1) Improved market access for LDC exports. LDCs want all barriers to their trade removed; US believes that improved market access is desirable but at times we must adopt measures to prevent disruptions of US domestic market and allow industry to adjust.

(2) Special and differential treatment (S&D). LDCs want preferential access to DC markets; US agrees this is useful means of facilitating LDC trade but that eventually preferential treatment should be phased out.

(3) Reciprocity. US expects LDCs to make contributions by July 15 to Multilateral Trade Negotiations (MTN) which are consistent with their development needs; LDCs are reluctant to make contributions until July 15 when other offers may be judged.

II. Resource Transfers

Consensus exists that economic development is in interest of all countries and that it will be expedited by a net transfer to LDCs of economic resources. At issue on official aid are:

(1) Volume—Will US and other DCs accept target of transferring 0.7 percent of GNP annually to LDCs in the form of official development assistance (ODA)? Presently US ODA is about .23 percent of GNP.

(2) Quality—Can quality of US assistance be improved?

(3) Automaticity—Will US agree to provide resource transfers automatically, irrespective of annual OMB budget process, Congressional procedures, or concern for efficient and effective use of the funds?

(4) Conditionality—Will US alter concern that aid be specifically targeted to meet needs of poor in LDCs, by providing direct budget and BOP support rather than project loans and grants?

III. Commodity Trade

Trade in commodities has been important issue in North/South dialogue since Seventh Special Session of UNGA and subsequent adoption of UNCTAD’s Integrated Program for Commodities.² Major issues are:

(1) Need to further liberalize conditions for IMF Compensatory Finance Facility (CFF) loans to offset declines in foreign exchange earnings caused by depressed world market commodity prices.

(2) Inclusion in new Wheat Agreement provisions for financing of stocks to be held by LDCs.³

(3) Number of commodities for which price stabilization agreements may be feasible.

(4) The weight to be given economic feasibility in judging desirability of negotiating new international commodity agreements.

(5) Source of capital for a Common Fund; appropriate capital structure for a Fund; need to give such a Fund a role in financing non-stabilization measures (second window); and design of an acceptable decision-making structure for a Fund.

IV. Debt

March 1978 UNCTAD Ministerial meeting produced broad agreement on DC debt.⁴ At issue are:

(1) In debt rescheduling, whether debt relief should be provided by creditors not only in situations of imminent default but also as aid device to enhance economic growth and help LDCs achieve development targets.

(2) Extent to which debt relief should be conditioned upon debtor country undertaking comprehensive economic development and/or stabilization program.

V. Monetary Issues

US has fostered reforms which allow international monetary system to be more responsive to individual country needs. Yet LDC’s believe present monetary arrangements operate to their disadvantage and they therefore seek greater access to official BOP financing on favorable terms. At issue are:

(1) Nature and extent of conditions on IMF loans.

(2) Whether LDCs should be given a larger share of IMF quotas and of IMF decision-making, irrespective of their financial contributions to the Fund.

(3) Whether SDRs should be issued on automatic basis to LDCs as a mechanism to transfer economic resources.

(4) Whether new provisions for flexible exchange rates operate to disadvantage of LDCs.

VI. Illicit Payments

Consensus for international agreement on illicit payments appears to be developing in UN working group on corrupt practices.

No important substantive difference between US the LDCs exists. However, in 1976 and 1977 the G–77 were not ready to schedule diplomatic conference to include agreement on illicit payments. Issues are:

(1) Priority and importance of the issue.

(2) Timing of a diplomatic conference.

(3) Efforts by some members of G–77 to link illicit payments agreement to conclusion of negotiations on a code of conduct.

VII. Technology for Development

Dialogue on technology thus far has focused on regulation of proprietary technology and conduct of enterprises and governments. Fundamental issues are:

(1) Whether a code will be legally binding.

(2) Whether propositions of G–77 will sustain flows of relevant technology to LDCs.

(3) How LDCs will improve capabilities to receive and effectively apply technology, and move toward self-sustaining technological capability.

VIII. Transnational Enterprises and Investment Climate

Foreign direct investments are important source of economic resources and technology for LDCs. However, value of this investment to DCs and LDCs has been open to debate. For more than a year UN Commission on Transnational Corporations has sought to elaborate code of conduct as a means to establish international framework within which TNCs should operate. Major issues are:

(1) Whether code should apply both to responsibilities of governments as well as TNCs.

(2) Whether the code should be binding or voluntary.

(3) Whether the code should have a follow-up mechanism, and if so, what kind.

(4) Whether the transnational enterprises covered by code should include state-owned and mixed ownership enterprises.

(5) Definition of standards for expropriation and compensation.

(6) Availability of international dispute settlement mechanisms for arbitration under international law.

(7) Respect for contractual obligations and other agreements, and standards in event of renegotiation of contacts.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 19, Evening Reports (State): 7/78. No classification marking. Carter wrote at the top of the page: “Most of LDC demands seem unreasonable. JC.” The paper was originally sent to Carter under cover of the June 28 Evening Report from Vance, who noted: “You requested an outline of the issues involved between the US and the Group of 77. [See Document 307.] Such an outline is attached, indicating what we believe to be the areas of agreement and disagreement. It was drawn from the papers presented to the Government of Jamaica by Dick Cooper.” Carter wrote in the margin adjacent to Vance’s comment: “Retained.” (Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 19, Evening Reports (State): 6/78) Brzezinski returned the paper to Vance under cover of a July 8 memorandum. (Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 19, Evening Reports (State): 7/78)
2. Adopted on May 30, 1976, in UNCTAD Resolution 93(IV).
3. Nations were negotiating a new agreement to replace the 1971 International Wheat Agreement. No agreement was reached in 1978 and the negotiations were suspended.
4. On March 11, the UNCTAD Trade and Development Board issued Resolution 165 (S. IX), which, among other things, reflected agreement that donor governments would endeavor to revise the terms of previous development assistance loans in keeping with the more lenient terms of contemporary loans. The resolution also called for international expert consideration of how the way in which previous debt issues were addressed might offer lessons for the future. See Yearbook of the United Nations, 1978, p. 429; see also “Developing Nations Agree to Reduce Debt Relief,” The New York Times, March 12, 1978, p. 10.