Foreign Relations of the United States, 1977–1980, Volume XIII, China

232. Memorandum From Secretary of the Treasury Blumenthal to President Carter¹

Washington, March 22, 1979

SUBJECT

• U.S.–China Economic Calendar

We are moving ahead with the Chinese on several fronts at the same time and face the prospect of a number of agreements coming to conclusion in the next two months. After reviewing the situation with my Cabinet colleagues, we are in agreement that events should shape up along the following lines:

—Trade Agreement. Through diplomatic channels we are continuing negotiations on a trade agreement begun during my visit and have already sent the Chinese draft provisions for their comment. While a few of the provisions will require some negotiating time, none should prove too great a hurdle. The Chinese are pushing this much harder than I originally anticipated. Their goal—attainment of MFN—is vital for their trade policy. We expect to follow the exchange of provisions at an appropriate early date with direct negotiations in Beijing—probably in April. It is barely conceivable though not likely that a full trade agreement will be ready for signature at the time of Juanita’s visit. If not, we should certainly have the negotiations concluded by summer. In any case, we anticipate that she will at least be able to sign separate provisions covering the business facilitation as part of a full trade agreement. This in itself will be an important step forward and a concrete achievement of her visit.

— Jackson–Vanik Amendment. Negotiation of the trade agreement brings us face to face with the Jackson–Vanik Amendment and how we deal with it. As you know, Cy and I have been consulting on this on the Hill and have made a recommendation to you.² We will be reviewing this matter with you further.

—Textile Agreement. We have been negotiating textile restraints in a number of sensitive categories and will have a negotiating team in Beijing April 11. The textile negotiations have made very slow progress, but we are pressing the Chinese hard for an agreement, and one could conceivably be ready in the same general time-frame as a trade agreement. We have not linked these two agreements in our discussions, but favorable Congressional action on MFN and a trade agreement is jeopardized without a textile agreement.

—U.S. Government Credits. USG credits are not legally dependent upon a trade agreement, but do hinge upon resolution of the Jackson–Vanik question and, in China’s case, involve some EXIM loans in the late 1940’s to the previous Chinese government. This could prove troublesome. It involves a principled position on their part to refuse acknowledgement of commitments undertaken by the predecessor government they overthrew and our insistence that the PRC as successor to that government has a legal and moral obligation to pay for assets presumably left behind on the mainland for its use. The Chinese have also implied they have official claims against us that they have refrained from raising since they are looking at the question from a “political” perspective. Here we may not have as much leverage on the Chinese as it at first appeared. (Our exporters and the U.S. economy would be the greatest losers in a market where the foreign competition has government financial support and the Chinese are selective on terms.) This question of whether we can get a reasonable settlement of the old EXIM Bank claims will probably not come to a head until after we conclude a trade agreement.

—Aviation Agreement. Both sides have agreed in principle to move forward on this, we have given the Chinese background material on an agreement, and have indicated readiness to begin negotiations. While active discussions could begin at any time, the Chinese are proceeding deliberately, possibly because they will not have any planes capable of flying economically to the U.S. until 1980. An aviation agreement will be difficult to negotiate given our conflicting—liberal-restrictive—aviation philosophies, but it is important for both sides, since aviation ties will be restricted without it.

—Shipping. Unlike aviation, ships can sail between our two countries without an agreement. The first U.S. flag vessel has already arrived in Shanghai. At this point there is no vital need served by seeking a shipping agreement and there is no consensus within the government behind one. The Maritime Administration, representing shipping and labor interests, is pushing for a restrictive cargo sharing agreement. Depending on its terms such an agreement could adversely affect trade—particularly in agriculture—our strong point. I think this may be a good item to keep in low profile until the more critical issues are dealt with.

The above points cover the most critical bilateral economic issues between us. Multilateral issues, such as Chinese participation in the International Financial Institutions may also come to a head in the coming months and could naturally affect domestic (Congressional) perception of our bilateral relationship. We have sought to preclude precipitate Chinese action in these multilateral bodies by explaining the obligations and complexities of membership. Our long-term interest would be served by Chinese participation, but we must be careful that it does not damage the fabric of the institutions or Taiwan’s economic interests.

—Visits. There is a great deal of interest and pressure from virtually every Cabinet member, as well as others, for individual trips to China. This bears careful watching. The present schedule calls for Juanita to go in early May. Their Minister of Finance, who was my host, will come here this summer, probably in June, and the Vice Premier of State Planning, my co-chairman on the Joint Economic Committee, will come this fall.

I’m working closely with Zbig to coordinate further visits from our side to China and to select these in terms of the requirements of the above agenda of substantive issues. We must insure that our emerging economic relationships with China develop in a logical, orderly manner. Clearly, no one should go before Juanita, and thereafter, further visits from our side should be arranged depending on the status of the trade agreement and our desire to develop further bilateral contacts in other areas.

Much of this economic schedule has a momentum of its own, but we can influence the speed of development. Please let me know your views on the above scenario.³

W. Michael Blumenthal⁴

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Agency File, Box 22, Treasury Department: 3/79–3/80. Secret. Oksenberg sent the memorandum to Brzezinski under a March 28 covering letter, which noted that Blumenthal “has left out our on-going effort to expedite decisions on export licenses to the PRC without prejudice to outcome. But this is an internal matter and probably does not deserve to be placed on the calendar. In addition, while presenting the calendar of issues, he does not mention the real underlying issue involved in the development of our economic relations with China—namely whether we should allow the nature of our relations with the Soviet Union to affect the pace at which we improve our economic relations with China.” Oksenberg then noted that “the calendar is basically uncontroversial and deserves Presidential endorsement.” (Ibid.)
2. In a March 16 memorandum to Carter, Blumenthal and Vance had recommended using the waiver authority under the 1974 Trade Act to normalize commercial relations with China and the Soviet Union. (Ibid.) Carter, acting on the advice of his domestic political advisers, disapproved this recommendation in a memorandum of March 21. (Memorandum from Oksenberg to Clift, March 29; Carter Library, National Security Affairs, Brzezinski Material, Country File, Box 9, China (PRC): 1–3/79) Instead, Carter directed that the issue be deferred “until after SALT and the MTN package are through the Congress.” In the meantime, Carter instructed Vance and Blumenthal to ask the Department of Justice to study the legality of the waiver authority, consult with interested members of Congress and the American Jewish community, and consider whether to support amendment of the Trade Act. Carter also instructed Vance and Blumenthal to “Proceed with ongoing efforts to conclude a trade agreement with China under existing legislative authority.” (Memorandum from Brzezinski to Vance and Blumenthal, March 21; Carter Library, National Security Affairs, Brzezinski Material, Agency File, Box 22, Treasury Department: 3/79–3/80)
3. Brzezinski forwarded Blumenthal’s memorandum to Carter under his own memorandum, March 30, which recommended that the President “approve Blumenthal’s report” and “indicate to him the importance you attach to reaching a trade agreement (without prejudging the outcome of the MFN issue).” Carter indicated neither his approval nor disapproval. (Ibid.)
4. Blumenthal signed “Mike” above this typed signature.