35. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter 1

SUBJECT

  • Summit Follow-Up and Chancellor Schmidt

Some issues loom on Summit follow-up. I am writing you about them now, since you may want to raise them during Chancellor Schmidt’s visit.

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1. Growth Targets. At the Summit weaker countries committed themselves to effective stabilization policies, and they seem to be fulfilling this commitment. The US, Japan, and Germany committed themselves to achieve their growth targets for 1977, and to adopt further policies, if needed, to this end and to correct trade imbalances. This meant 5% growth for the US, 4½ to 5% for Germany, and 6.7% for Japan.

The US is likely to hit its target, or close to it. German government officials are now talking of 4–4.5% growth in 1977; Treasury estimates that there may be a significantly lower growth rate for 1978 unless additional measures are taken by Germany well before the end of this year. Japanese officials still talk of achieving close to 6.7% growth in 1977. Japan is running a large trade surplus, however, and recent figures on the German trade surplus are also disquieting.

At the recent OECD meeting,2 the German and Japanese governments indicated that they took their Summit commitments seriously and were seeking to achieve their targets. We have some influence with both and we should use it to reinforce their willingness to adopt needed policies, which would have an effect in 1978, if not before. It is important that we do this in order to:

—Create an economic environment in which worldwide economic growth can proceed and the US trade deficit can be reduced.

—Meet concerns of the UK, France, and Italy, which have kept their part of the bargain and are relying on the stronger economies to keep theirs.

—Maintain our credibility with the US media, to which the importance of these Summit growth commitments was stressed in high-level London briefings.

On the other hand, we do not want to go back to the situation that existed earlier this year, when German officials, from the Chancellor on down, felt that they were being subjected to undue US public pressure on economic policy. A tactful approach might be for you to tell the Chancellor about the measures that the US is taking to ensure fulfillment of the US Summit growth target (5% in 1977), and indicate why you think it is important to achieve this target. This would set the stage for asking what the prospects are for fulfillment of the German target, what additional measures the Chancellor has in mind if German growth seems likely to fall below 4.5% in 1977 or 1978, and how he ex[Page 132]pects to reduce the German trade surplus in order to fulfill the Summit commitment “to contribute to the adjustment of trade imbalances”.

2. Trade. The Summit Declaration says that “We will seek this year to achieve substantive progress in such key areas as:

“(i) A tariff reduction plan of broadest possible application . . .

“(ii) Codes, agreements, and other measures that will facilitate a significant reduction of non-tariff barriers . . .

“(iii) A mutually acceptable approach to agriculture . . .”

Bob Strauss is about to initiate discussions with the European Community, Japan, and Canada about means of achieving these goals. The outcome will depend critically on the European reaction. Jenkins has asked me to let you know that he is prepared to play a personal role in this matter.3 Whether he can achieve a European Community consensus in favor of progress will depend partly on how much pressure the Federal Republic exerts on its weaker and more reluctant Community partners, particularly France.

You may want to remind Schmidt of the concern which you voiced at the Summit that if progress is not achieved in trade negotiations, protectionist pressures will grow in this country as well as abroad. You might express your hope that he will exert his personal leadership in the European Community to achieve that progress—just as you have exerted your leadership to restrain protectionist pressures in the US.

I doubt that the Chancellor will resent the approaches proposed above. He is strongly interested in economic problems; US officials have spoken recently to German officials of our concerns about growth and trade; he will expect the same issues to be discussed with him.

I gather Schmidt may propose another Summit for February. From the standpoint of substance (and weather) April and May would be better, but he and Giscard may figure that a meeting just before the French election would be politically helpful.4 We should go along.

Meanwhile, we are making progress on other aspects of Summit follow-up:

The recent OECD Ministerial Meeting agreed that a high-level conference on youth unemployment should be held by the end of the year.

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—Negotiations regarding the IMF expansion are going forward.

—We are now trying to get ECOSOC to convene a diplomatic conference this fall to conclude an agreement banning illicit payments in 1978.5 In the pre-Summit ECOSOC working group, some of our European partners—especially the Germans—were lukewarm. We will need their support, and you may want to mention this to Schmidt. At the recent OECD meeting French opposition was evident.

—The international agreement on guidelines for export credits was renewed for another six months, and we will use this period to try to strengthen and extend these guidelines.

—A ministerial meeting of the International Energy Agency will be held this fall,6 at which the US will seek (i) concrete commitments to hold total oil import demand by member countries to not more than 26 million barrels per day by 1985; (ii) agreement on means of eliminating wasteful use of energy, greater coal utilization, expansion of nuclear power and appropriate controls, and increased research energy and development; (iii) agreement to review annually these group objectives and the contribution of each country toward achieving them. (State and ERDA are presently working with an IEA committee to develop specific joint projects in the areas of coal refining and solar and wind energy, and it is expected that these projects will be ready for approval at the fall Ministerial meeting.)

—You are familiar with the situation on the nuclear study.

—The North-South Summit items are moving forward, and you might want to mention to Schmidt your hope that the key industrial nations will continue to concert closely in this field. The World Bank general capital increase negotiations will probably begin in September. The substantial increase in US aid hinges on the inside and outside reviews of US aid now underway. The World Development Program to examine what is being done and needs to be done to spur development is now being launched by the World Bank staff. Work within the USG on the common fund proposal is being completed. The study of export price stabilization will probably be launched by the International Development [Page 134]Committee, which is chaired by the World Bank and IMF, in September. This study will consider a possible increase in IMF compensatory financing, as well as Chancellor Schmidt’s favorite STABEX scheme, of which State and Treasury take a dim view.

In all of this follow-up, Tony Solomon in Treasury, Dick Cooper at State, and Bob Strauss have been extremely helpful, as has Bob Hormats of the NSC staff. Each of these agencies takes its responsibilities for follow-up seriously and is working hard at it. Treasury is now putting together estimates of growth and trade imbalances for each of the Summit nations, which we will be sending you later.

Effective follow-up requires comparable action by the other governments, as well. I am proposing to my colleagues in the other six Summit governments that we meet at the end of September in Washington to review Summit implementation. Whether we have a good story to tell them will depend, in part, on what the strongest non-US country, Germany, does about some of the items indicated above. We cannot compel the Germans to do anything that they do not want to do. But they share with us an interest in a strong world economy and in maintaining the integrity of the Summit process; they know people will not take the next Summit, which they will host, seriously if progress has not been made in fulfilling decisions of the last Summit. The emphasis that you placed at London on effective follow-up was justified. Your conversations with Schmidt could be an important part of this process.

  1. Source: Carter Library, National Security Council, Institutional Files, Box 63, PRC 023, 7/9/77, Schmidt Visit. Confidential. Carter wrote at the top of the page: “Zbig—Include items on Schmidt agenda. J.”
  2. The OECD Ministerial meeting took place in Paris June 23–24. For remarks made by Vance and Blumenthal at the meeting and at a joint press conference after the meeting, see the Department of State Bulletin, July 25, 1977, pp. 105–117. The final communiqué, June 24, and a Declaration on Relations With Developing Countries, June 23, are ibid., pp. 118–120.
  3. In a June 20 memorandum to Carter, Owen noted that Jenkins had asked him to thank Carter for supporting EC participation at the London G–7 Summit; Jenkins also wanted Carter to “know that he will take a personal interest in the Tokyo Round.” Owen reported that he had requested that Jenkins “do just this—since only his leadership could persuade the Community bureaucracy to cooperate with us in trying to get the trade negotiations moving. His agreement to do this is partly a response to your support for Community representation at the Downing Street Summit.” (Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 17, European Communities: 3/77–3/80)
  4. Elections for the French National Assembly took place on March 12 and 19, 1978.
  5. On the afternoon of May 8, during the Summit’s final session, Carter said in reference to the Joint Declaration: “I think we need something on irregular practices in trade to avoid bribery. I would like to have your support.” Giscard replied: “I have had problems with the questions of Swiss secrecy on foreign assets. This is also an irregular practice. Is this referred to?” Carter responded: “I was referring to an international effort now taking place in the US [ UN ].” Schmidt commented: “I think we should have this here. I have a lot of headaches with banks in the Caribbean and Lipinstein [Lichtenstein?].” (Minutes of the London Economic Summit, May 8; Carter Library, National Security Affairs, Staff Material, Special Projects, Henry Owen, Box 27, Summit: London: 5/77)
  6. The IEA Ministerial Council met in Paris October 5–6; see Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980, Document 129.