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

5. Memorandum From Vice President Mondale to President Carter ¹

Washington, February 4, 1977

SUBJECT

• Results of Visit to Europe and Japan

I. Introduction

The leaders of Western Europe and Japan responded most positively to your initiative in launching high-level and substantive consultations in the first week of your Administration.²

As a result of my conversations in the various capitals:

• —each leader has received a clear and firm statement of your commitment to the collective defense;
• —each understands your determination to tackle successfully the economic and political problems confronting the industrialized democracies—and your determination to make progress on such issues as non-proliferation and reduction of international arms sales, which have thus far been neglected;
• —each is looking forward to participating with you in the summit this spring;
• —Prime Ministers Callaghan and Fukuda were extremely pleased to receive your invitations to visit the United States; and
• —the visit to Japan, based on my warm reception there, has served to highlight the importance your Administration attaches to Japan’s role in the front ranks of world leadership and responsibility.

As a result of the visit your Administration has confirmed the United States’ commitment to the North Atlantic Alliance. My talks with the members of the European Commission and with Secretary-General van Lennep of the OECD have already extended, beyond the actions of past Administrations, your commitment to working more closely with a unifying Europe and with the principal multilateral institutions of the industrialized democracies. With these initial consultations, momentum has been established.

The following paragraphs outline findings in each of the major subject areas discussed during the visit. The different points of emphasis in my conversations with Chancellor Schmidt, Andreotti, Callaghan, Giscard d’Estaing, Fukuda and others are summarized and policy recommendations are included.

II. Findings ³

—The Summit: A tentative consensus is emerging on a mid-May date for the summit in London, following the NATO Ministerial Meeting.⁴ A consensus is also emerging that it would be acceptable if the summit were to include political as well as economic issues, although both the French and the Japanese are extremely sensitive as to how this is handled.

I recommend that you now communicate to Giscard the following proposals on the Summit. They are based on my conversations with other principal Summit attendees and reflect the area of consensus I found. ⁵

Location and Timing: The meetings should be held in London in May following the NATO Ministerial meeting with a gap of two or three days.

London is acceptable to everyone including the Japanese if we press them slightly. The timing I have recommended is acceptable to everyone, although it creates a few problems for the Japanese who would like to wait until the Diet is over on May 28, but who will be willing to go along.

Participation: The participants should be France, the Federal Republic of Germany, the United Kingdom, Italy, Canada, Japan, and a representative of the EC as determined by the European Community.

—As agreed on February 2, I called Prime Minister Trudeau and had the State Department contact Ambassador Togo. Thus, we have given the Canadian and Japanese governments your considered views on summit site and timing.

Both Schmidt and Giscard wanted tight meetings but they recognized the importance of Italy being there and our need to have Canada represented. How they will come out on the European Commission is not clear, particularly since Callaghan is not enthusiastic about having Roy Jenkins there on a more or less co-equal basis. We favor European Community participation, with the Europeans working out arrangements. It is up to them to sort out their intra-European politics.

Agenda: The agenda should be developed by personal representatives of the heads of government. They should not be Ministers (e.g., Foreign Secretaries or Treasury Secretaries). The purpose of the preparations should be, insofar as possible, to develop an agenda and the agreed Summit outcome for each agenda item.

It is clear that Fukuda, Schmidt and Giscard do not want to have Foreign Ministers or Finance Ministers in charge of the preparations. It apparently raises political problems within each of their governments.

Everyone wants a well prepared Summit. This means we are embarking on a very complicated program of negotiations on substantive issues leading to joint policy decisions to be announced at the Summit. Establishing the agenda should feature those issues on which the Summit is likely to produce results. You have indicated a desire to name your representative after we agree on the agenda. Instead, I recommend that you promptly name a specific individual or individuals as your representative who can draw on different departments and agencies as appropriate to develop the agenda and serve as the focus for developing the United States’ substantive position on each of the agenda items.⁶

There is no consensus that the Summit should deal with political and security issues. Both the French and Japanese have demurred. This is a subject which we can dodge for now and leave to the preparatory phase, while we maintain our own position.

Four Power Side Meeting: You should indicate to Giscard that you are willing to participate in a quadripartite meeting at the Summit if it can be arranged discreetly, on the fringe of the main meetings, with Berlin discussions as the nominal purpose.⁷

At the same time you communicate your views to Giscard, you should also communicate them to the other potential members so that they know what you are proposing. In informing Giscard, you will suggest that Callaghan take the lead in coordinating the text and timing of the announcement. The next step beyond that may be slightly disorderly, but the objective should be a more or less simultaneous announcement in all capitals about the time and place.⁸

The Economic Issues

Global Management: Our economic effort was premised on the concept that the three “locomotive economies”—the United States, Germany and Japan—must at present share responsibility for management of an increasingly global economy. There was widespread and favorable interest in your program to stimulate the U.S. economy, and we explained it in some depth.

Our specific goals were (a) significantly more German expansion and (b) full Japanese achievement of their stated targets, which seem roughly acceptable. We noted that your program for the United States, and Fukuda’s for Japan, each approximately 1 percent of our respective GNPs—but that Schmidt’s equalled only 0.25 percent of Germany’s. Germany is also running larger external surpluses and has far less inflation. Hence we calibrated our encouragement, aiming much more at Germany (and the Dutch, when I saw their Foreign Minister) than at Japan. Neither indicated any hostility toward our offering such advice, and both accepted the basic concept. The Japanese, incidentally, were delighted to learn that we were not singling them out in this area, and that the U.S. was no longer focusing on bilateral balances.

I am encouraged by the prospects, though both countries had lots of excuses and one could not expect an immediate response. Schmidt has explicitly left open both the size and pace of his program. Fukuda is negotiating with his opposition on a larger tax cut. By the time of the summit, or even sooner, I would not be surprised to see some additional action by both.

Aides to Schmidt invited further pressure on his government for greater economic stimulus.⁹ He explained it on the basis of having to convince the German Central Bank (Bundesbank) of the importance of stimulus, but I believe it was also aimed at his coalition partner, the Free Democratic Party (FDP), which is more conservative and is dragging its heels on stimulus.

We encouraged the weaker economies to hang tough in dampening inflation and stabilizing their currencies. Britain’s stabilization plan and IMF loan have already been completed. They are taking in foreign exchange at a record clip—$2 billion in January alone—and have thus bought time to try to deal with their fundamental difficulties (low productivity, an anti-growth tax structure, etc.). The “Barre plan” is starting to bite in France, but the municipal elections in March could bring new speculations against the franc. The underlying situation is shaky in both countries, and unemployment will remain high. Close surveillance by the U.S. will be essential.

Multilateral Trade Negotiations (MTN): We strongly advocated rapid and comprehensive revival of the Multilateral Trade Negotiations (MTN) in Geneva as a major element—along with more rapid economic growth in the stronger economies—in avoiding protectionism.

I recommend that you promptly appoint a permanent Special Trade Representative. ¹⁰

He should begin early consultation with the major protagonists—probably bilaterally—to begin developing a negotiating package.

The U.S. should press the negotiations as fast as possible while avoiding a commitment to the end-1977 deadline.

I remain convinced that we must make a major push to move the MTN or protectionist pressures will grow. There was a notable lack of enthusiasm for pressing MTN on the part of everyone I talked to except the Japanese. On the other hand, all countries are worried about our own possible protectionist moves in the next few months—on steel, shoes, color TV—which could set a pattern. The British and Italians say it would put them under “irresistible pressure” to restrict imports. I believe that the new leadership here and in the European Community in Brussels may open the possibility for movement on agriculture—which has been the major stumbling block so far with MTN.

International Monetary Issues: No problems arose over the fundamentals of the existing system, based on flexible exchange rates. We stressed the need to assure adequate international financing capabilities, to tide over the sizable payments deficits which will continue to arise, but offered no specific proposals—except to suggest that Saudi Arabia, and perhaps a couple of other OPEC countries, might be brought into the picture. There was general enthusiasm for the latter idea, and we may be able to draw on British and French expertise in the Middle East to develop a specific approach. (However, we were cautioned—by the debtor countries—against creating any new “creditor’s club”.) In response to questions all over, we indicated that we had not yet decided whether to seek Congressional approval for Kissinger’s OECD “safety net” or go an alternative route.

Our discussions provided many opportunities to express support for a wide range of important international institutions: EC, IMF, OECD, GATT (for MTN) and the multilateral aid agencies (notably the World Bank/IDA). The institutional framework for world economic management seems to be holding up quite well.

North-South: All countries were intensely interested in whether your Administration will be “more forthcoming” to the LDCs, on commodity agreements and other issues, as the LDCs expect. The French hope/believe we might be moving toward them; the others basically fear that we may “leave them alone,” and hence looking negative.

We indicated that no new policies had been adopted, that we were hard at work on the issues, and that we would consult with them before adopting any new policies. I did note your intention to increase U.S. contributions to the multilateral aid agencies, and hit the French—possibly with some success—on the proposed cutback in their share. One specific issue is timing of the pending Ministerial meeting.

You should keep your options open on whether CIEC should be held before or after the Summit. Though all the other countries, including Canada, favor a CIEC meeting before the Summit, Giscard argued strongly against it being held before the Summit. He feared it would reveal splits among the Allies on North-South issues and create a crisis atmosphere for the Summit. This is essentially a tactical issue and you should reserve your position in CIEC timing to see how the developing countries’ position and Summit preparations develop.¹¹

The Europeans and Japanese are looking to us for leadership and it is important to engage in a more intensive consultative process, working toward a common position among the industrialized nations.

[Omitted here is discussion of NATO and security issues, non-proliferation, reduction of arms sales, the Middle East, Cyprus, Berlin, Concorde, Iceland, Italy, U.S.-Vatican relations, and Portugal.]

Japan: Fukuda’s March 21–22 visit to Washington can have more than symbolic meaning if we use the next 7 weeks to prepare to move forward on several matters of substantive concern to them.

My trip allowed the Japanese to place their positions on such hot domestic Japanese issues as nuclear proliferation, Korean troop withdrawals, China policy, potential US countervailing duties, fisheries—they feel that the fees we will be charging under our new domestic legislation are too high—and civil aviation on the record before our own policies are set irrevocably. This satisfies their domestic political needs and will prepare the ground for more productive discussions in March. In return, we gently put their feet to the fire on matters such as US citrus exports, the EC/GOJ steel agreement and Japanese color television exports.

Items which require further work prior to Fukuda’s visit include:

—closer monitoring of each others’ economies. I proposed in both Bonn and Tokyo that the three big engines of the world economy need not only to work more closely together, but also to monitor each other’s progress in achieving sufficiently expansionary goals. The Japanese appear receptive to this and, I suspect, Fukuda would in some ways, even welcome pressure delicately applied. I would propose that you instruct the State and Treasury Department to use OECD forums and the “Group of Five” Deputy Finance Ministers, to do the monitoring in a more systematic way.

—nuclear technology. I see real difficulties coming up here. The Japanese feel that they signed the NPT in good faith, expecting full access to an assured supply of nuclear fuel and a complete fuel cycle. Now they fear they are being lumped in with Brazilians and Pakistanis and face new obstacles to the achievement of greater energy independence. I suggested that we consult in detail on this question in the near future—a suggestion to which they appear responsive. If a GOJ team could come to the US before the Fukuda visit, it might be possible for that visit to result in some progress. But I must point out that we urgently need a clear definition of US policy on this matter.

Prime Minister Fukuda is imposing some administrative constraints on the exports of color TVs; their economic stimulus program is roughly equivalent in scale to ours. They told me in confidence that the government of Japan will probably remove some impediments to US citrus exports before Fukuda’s visit. The two areas of greatest concern to the Japanese are your Korean policy and the impact of US non-proliferation policy on their search for greater energy independence.¹² In addition, the Japanese desire:

• (1) Some access to Alaskan oil;
• (2) a US contribution ($10 million) to the United Nations University;
• (3) rapid and satisfactory completion of the fisheries negotiations;
• (4) Greater balance in US-Japan civil air arrangements;
• (5) the avoidance of countervailing duties on their color TV exports.

I recommend that we utilize the time prior to Fukuda’s visit to establish clear policy guidelines toward Korean troop withdrawals and nuclear technology. In addition, we should initiate a study of Alaskan oil and review other matters mentioned above.

—Korea. Fukuda, who has been very conservative on security matters, displayed anxiety over our intent to withdraw ground forces from Korea. Essentially they want the status quo. I think I was able to alleviate some GOJ concerns, but we have not heard the end of this. The Prime Minister will want to discuss this with you in some detail when he visits. They can adjust to withdrawals provided they are slow, are accompanied by continued assistance to South Korea and provided U.S. air units are left in Korea. Done under a prudent timetable and without pressure from Congress, a gradual reduction in US conventional forces in Korea could serve US interests and objectives. The PRM process now underway on Korea must be directed toward the development of sensible guidelines for the timing and modalities of troop withdrawals which adequately reflect the concerns of close allies like the Japanese and the situation on the Peninsula. We should seek to be in a position to lay out our thoughts in some detail to Fukuda by March 21. The Korean Foreign Minister will be in Washington March 7; some clear direction of our intentions conveyed to him in private at that time will be an essential prerequisite to fruitful consultations.

—China. Fukuda did not conceal his preference for the status quo in our China policy. But, while the GOJ is apprehensive about precipitate moves in the direction of normalization, I do not believe the Japanese expect to impede US efforts to normalize relations with Peking on the basis of the Shanghai principles. They wish to be spared any “surprises.” I recommend that you keep the GOJ informed in advance of any significant initiatives.

—trade. We made some progress here. Fukuda told me in confidence that he feels his government can give us satisfaction on the citrus fungicide problem within six weeks, though he cannot allow this to be discussed in public yet. I suspect he hopes to present this to you as a gift just prior to his trip. He announced publicly that Japan would restrain its exports of color TV’s to US, and his aides told me this meant a 10 percent cutback in 1977 from 1976. We need to follow up on steel, though the real impact on us of the EC-Japan deal is minimal.

—the US in Asia. The stop in Tokyo had major regional implications. The Asians needed to hear that we intend to remain a Pacific Asian power, that despite Vietnam we do not intend to turn our backs on the area. We need to find ways to demonstrate that we will preserve our substantial interests in Asia, not as in the Vietnam-dominated past, but through new forms of involvement and support for regional initiatives.

I did not raise defense matters but at an appropriate time we should remind Japan about our desire to see qualitative improvements in their air and naval defense capabilities.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 31, Vice President, Europe and Japan, 1/23/77–2/1/77: 1/14–28/77. Top Secret. Carter initialed “C” at the top of the page and wrote: “Comments given on previous memos. J.” On February 2, Mondale sent Carter two memoranda: the first was on “Europe/Japan Visit—Personal Appraisal of Leaders;” the second was on “Recommended Actions Stemming from My Visit to Europe and Japan.” Both memoranda are ibid.
2. Daily reports on Mondale’s trip are in the Carter Library, National Security Affairs, Staff Material, Special Projects, Henry Owen, Box 29, Summit: London: (VP Trip): 1–3/77; Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 31, Vice President, Europe and Japan, 1/23/77–2/1/77: 1/14–28/77; and Carter Library, National Security Affairs, Brzezinski Material, VIP Visit File, Box 8, Japan: Prime Minister Fukuda, 3/21–22/77: Briefing Book [II].
3. Most of the findings in this memorandum were previously submitted to Carter (in an abbreviated, usually verbatim, form) in the February 2 memorandum from Mondale entitled “Recommended Actions Stemming from My Visit to Europe and Japan.” Carter’s decisions on Mondale’s recommendations are recorded on that February 2 memorandum. (Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 31, Vice President, Europe and Japan, 1/23/77–2/1/77: 1/14–28/77)
4. A NATO Ministerial meeting took place in London May 10–11.
5. On Mondale’s February 2 memorandum (see footnote 3 above), Carter wrote “Have State do so” in the margin adjacent to this recommendation. Telegram 32620 to Paris, February 12, transmitted Carter’s views on the Summit to be conveyed to Giscard. (National Archives, RG 59, Central Foreign Policy File, D770050–0593) Carter also approved the recommendations below on location and timing, participation, agenda, and a four-power side meeting.
6. On Mondale’s February 2 memorandum (see footnote 3 above), Carter wrote in the margin adjacent to his approval: “proceed to give me recommended names for a) political b) economic leader.”
7. On Mondale’s February 2 memorandum (see footnote 3 above), Carter underlined the phrase “Berlin discussions” and wrote “OK” in the adjacent margin.
8. On Mondale’s February 2 memorandum (see footnote 3 above), Carter wrote “OK, State coordinate notices” in the margin adjacent to this recommendation.
9. In his February 2 memorandum to Carter (see footnote 3 above), Mondale recommended that Carter telephone Schmidt “to encourage him to increase the size and pace of his stimulus package.” Carter wrote “done 2/3” in the margin adjacent to this recommendation. Carter spoke to Schmidt by telephone on February 3 from 1:48 until 2:02 p.m. (Carter Library, Presidential Materials, President’s Daily Diary) No memorandum of conversation of this telephone conversation was found.
10. On Mondale’s February 2 memorandum (see footnote 3 above), Carter wrote “VP take lead” in the margin adjacent to this recommendation.
11. On Mondale’s February 2 memorandum (see footnote 3 above), Carter wrote “Let Canada & Venezuela co-chmn take lead—CIEC before Summit seems better” in the margin adjacent to a slightly different version of this recommendation.
12. On Mondale’s February 2 memorandum (see footnote 3 above), Carter blocked off the section that begins with this sentence and ends with the sentence “In addition, we should initiate a study of Alaskan oil and review other matters mentioned above,” and wrote “Zbig” in the adjacent margin.