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

318. Memorandum From the Director of the Office of Management and Budget (McIntyre) and the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, October 18, 1978

SUBJECT

• The Common Fund

1. State Proposal. In the attached memo (Tab A) Secretary Vance reports to you on the results of the Congressional consultations about the Common Fund that you directed, and seeks authority to take a new approach in the negotiations in Geneva. State would like to send out a telegram of instructions tomorrow (Thursday), since preliminary discussions will conclude shortly.

The Secretary reports that Congressional consultations produced a yellow light: Some members were skeptical, some friendly, and some in between. In light of these diverse reactions, and since a proposal for a Common Fund Treaty would not go to the Congress until the fall of 1979 or, more likely, early 1980, he concludes that it is impossible to predict how the Congress would respond. He is clear, however, on one point: The Congress would insist that a Common Fund only come into being when an adequate number of commodity agreements are in place and are working effectively. (This is not yet the case, but the US is working on it; it will take time.)

The Secretary concludes that the US can proceed with caution to the next step of negotiations. He recommends two changes in the US position: The US should be prepared to make a direct contribution of up to $60 million for the first window of the Fund, and should agree to creation of a narrowly circumscribed second window to which the US would not contribute, at least initially. Creation of the Fund should depend on participation of an adequate number of effective commodity agreements.

2. Treasury View. Mike Blumenthal concurs (Tab B)² with Secretary Vance’s recommendation, making clear that he only does so because (i) creation of the Common Fund is to be tied to the existence of four or five effective commodity agreements, and (ii) any direct contributions to the first window are only to be used to enhance the credit worthiness of the Common Fund. (He mentions using direct contributions as a contingency reserve, but agrees that this is only one of the ways in which the Fund’s credit worthiness could be enhanced.) He recommends further Congressional consultations as the negotiations evolve; and this is intended. He believes that the proposals that Secretary Vance is putting to you go to the limit of what would ultimately be supported by the Congress.

3. Our View. We also concur in Secretary Vance’s proposal.

Although there is always some risk that the tentative US commitment to a direct contribution would become only a first bargaining chip, to be followed by others, Secretary Vance clearly has this risk in mind: He indicates in his memo that he assumes there will be no further significant changes in the US negotiating position, and that he will conduct the negotiations accordingly. We agree with him on both points: The US should not go beyond this proposal, and this should be made clear to LDCs. It would be less than honest, however, not to point out that some risk of an unfavorable outcome to the negotiations is inherent in the course proposed in Tab A. There is also, of course, some risk of an eventual Congressional turn-down of a Common Fund proposal, even if the US does not go beyond Vance’s proposal.

While direct contributions to the Fund’s first window would not have great economic value, the developing countries will not set up a Common Fund without such contributions. And while the Fund is not essential from an economic standpoint, it would significantly assist the effective functioning of commodity agreements, which can be very useful in stabilizing prices. Moreover, the Fund has acquired great symbolic importance for LDCs. On balance, the advantages warrant proceeding.

4. Frank Moore concurs.

RECOMMENDATION

That you approve the proposals in the attached memorandum from Secretary Vance.³

Tab A

Memorandum From Secretary of State Vance to President Carter ⁴

Washington, October 13, 1978

SUBJECT

• Common Fund

Last August you approved the recommendation in our memorandum of August 18⁵ that we move forward to achieve a timely and successful conclusion of the Common Fund negotiations, but that we take a firm position on the issue of a direct U.S. contribution only after consultations with the Congress.

We have now carried out a portion of those consultations and the response we have gotten is essentially a yellow light. The following points emerged:

—The Senators, Representatives and staffers we have spoken with all emphasize that it is impossible to predict the mood of the Congress 18 months ahead when a specific proposal for a Common Fund involving a direct contribution to finance buffer stocks (first window) and a voluntary second window might come up for consideration.

—Four Senators—Church, Ribicoff, Stevenson, and Javits—were agreed that a Common Fund on the scale envisaged—that is, with a US contribution of $50–60 million—would not jeopardize or compete with our other foreign assistance programs.

—A condition of Congressional support for a Common Fund would be making its entry into force—though not its negotiation—subject to the existence of an adequate number of effective international commodity agreements prepared to accede to the Fund. There are now four commodity agreements—coffee, sugar, tin, and cocoa (the U.S. is not a member of the latter), and one in prospect, rubber. For diverse reasons, none are functioning effectively.

—It would be easier to secure Congressional approval for a $40–60 million US contribution than $100 million, which would be much more visible, but even a $40–60 million contribution would have to be seen to offer specific benefits to the United States; it could not be sold on “political” grounds alone.

The Congressional consultations we have carried out so far are inconclusive in that we cannot predict the chances for success or failure on the Hill. At the same time nothing we learned in the consultations would preclude us from proceeding to adopt a negotiating position that would meet the basic stipulations laid down by the ASEAN countries in our meetings with them last August, namely, scaled down direct contributions to the first window, and a narrowly circumscribed second window based on voluntary contributions.

We will have further informal consultations in Geneva October 19–20 to set the stage for a resumed negotiating conference beginning November 14. Our preference is to cut a deal at that conference, but we recognize this may not be possible and therefore anticipate subsequent negotiating sessions.

To participate constructively in the meetings through November, we need a negotiating mandate that will enable us to tell the 77 that we are prepared to negotiate seriously, but that we are not going to move unless they show convincing signs that they are able and willing to reciprocate. We would not necessarily reveal our full position this month or even in November but rather would adjust our tactics to our assessment of the prospects for G–77 willingness to accept a package deal.

A flexible, forthcoming US position would permit us to regain the initiative in seeking a successful outcome to the negotiations. Even so, there is a good chance the 77 might not meet our position, either because they consider it inadequate or because they lack the flexibility to compromise.

As necessary we will seek more specific authority from you on particular issues as the talks progress and possible trade-offs become clear.

Recommendations

I recommend you authorize us to negotiate a Common Fund with a direct US contribution to the first window of up to $60 million. The use of such a contribution would be tightly defined. This amount need not be contributed all at once but could be linked to the establishment of individual commodity agreements and their accession to the Fund. In any case the Fund would only become operative on the condition that an adequate number of agreements were prepared to join.⁶

I further recommend that you give us authority to accept a tightly defined second window, based on voluntary contributions, with the understanding that the US would not intend to contribute to such a second window, at least at the outset.

If you approve these recommendations I will assume that no further significant changes in the US negotiating position are intended, and direct that our negotiations about the Common Fund be conducted accordingly.

1. Source: Carter Library, Records of the Office of the Staff Secretary, Presidential File, Box 107, 10/20/78. Confidential. Sent for information. Carter initialed “C” at the top of the page. Brzezinski also initialed the memorandum. An attached undated note from Hutcheson and “Bill” (not further identified) indicates that Schultze concurred with McIntyre and Owen.
2. Tab B, attached but not printed, is an October 17 memorandum to Carter in which Blumenthal wrote that while he still harbored “serious reservations about the whole enterprise,” he could “generally concur” with the proposed amended Common Fund negotiating instructions.
3. Brzezinski wrote at the bottom of the page: “I concur; this has become a test of our ability to fashion a forthcoming North/South economic policy, matching the political progress that you + Andy [Young] have made. ZB.”
4. Confidential. Carter initialed “C” at the top of the page.
5. See Document 314
6. Carter indicated his approval of both recommendations and initialed “J” in the margin adjacent to each.