Foreign Relations of the United States, 1977–1980, Volume XXII, Southeast Asia and the Pacific

254. Telegram From the Embassy in Australia to the Department of State¹

Canberra, May 11, 1978, 0059Z

3619. EA for Assistant Secretary Holbrooke only. Subject: Vice President’s Trip: Uncleared Memorandum of Conversation With Fraser.

Place: Parliament House, Cabinet Room.

Date: May 8, 1978—1040–1200 hours.

Participants:

• US

  • The Vice President
  • Ambassador Alston
  • R. Moe
  • D. Aaron
  • J. Johnson
  • D. Clift
  • A. Eisele
  • Asst. Sec. Richard Holbrooke
  • M. Armacost
  • Dep. Asst. Sec. M. Abramowitz
  • Dep. Asst. Sec. E. Heginbotham
  • Christopher A. Squire

• Australian

  • Malcolm Fraser, Prime Minister
  • Douglas Anthony, Deputy P.M., and Minister of Trade
  • Ian Sinclair, Minister of Primary Industry
  • Peter Nixon, Minister of Transport
  • John Howard, Treasurer
  • Andrew Peacock, Minister for Foreign Affairs
  • James Killen, Minister of Defense
  • Michael MacKellar, Minister for Immigration & Ethnic Affairs
  • Geoffrey Yeend, Secretary, P.M. and Cabinet
  • John Stone, Dep. Secretary to the Treasury
  • Sir Arthur Tange, Secretary, Department of Defense
  • Nicholas Parkinson, Secretary, Department of Foreign Affairs
  • Jim Scully, Secretary, Department of Trade & Resources

1. The Prime Minister welcomed the Vice President and stated the importance he attached to being able to discuss in detail various matters during the Vice President’s visit. He felt that economic issues were central to Australia and the U.S. at this time. Paramount perhaps were successful trade negotiations, particularly those being conducted at the multilateral trade negotiations (MTN). The U.S., whether it liked it or not, had an enormous role to play in world economic matters. The Prime Minister added that later they might also get to bilateral matters, but first it would be a great help if the Vice President would describe his visits to the three countries of Southeast Asia he had just visited, and any observations he might wish to make.

2. The Vice President thanked the Prime Minister on behalf of himself, his family and his party. He was delighted to be in Australia. It was an enormous opportunity to come to Australia where there was such a close emotional connection between our respective societies which both began on the same principles of justice and human liberties. It was, added the Vice President, a great honor to be in Australia.

3. The purpose of this visit which the Vice President was making on behalf of President Carter was to underscore the continuity of the U.S. presence in Asia, and the constancy of that presence.

4. Saying he would comment briefly, the Vice President noted that the U.S. had been a Pacific power from its inception, is and would continue to be. In Manila discussions continued around the control of American military bases—some progress was made in separating out issues which could not be solved right away—and compensation.² The Filipinos desire jurisdiction for crimes committed by American military in line of duty—something which Congress would never countenance. Progress was made, and a new atmosphere created.

5. In Thailand the visit had been very successful.³ There too our objective was to be seen, to demonstrate the permanency of our commitment. We reconfirmed to the Thais our commitment under the Manila Pact. We were told that it was not our words which were important, but the way we responded to tangible needs. We signed a major aid agreement concerning rural electrification. We discussed providing them a squadron of A–4’s. We believe the Thais felt much better after our visit about U.S. interest in the region. They asked us curiously whether we were committed to ANZUS, we told them we were totally committed. One thing we might do, incidentally, would be to announce a joint naval exercise off the west Australian coast. This might make SEA nations aware of the tangible nature of our commitment. We would be seeking to reaffirm and in a tangible way to demonstrate clearly to all our firm interest. Secretary of Defense Brown, National Security Administrator Brzezinski had recently given speeches on the permanency of our interest in Asia. Brzezinski intended to go to China soon,⁴ as the Prime Minister knew. The U.S. was trying by many ways to demonstrate this permanency.

6. The Prime Minister said he was encouraged by the Vice President’s point of view that actions not merely statements were necessary. There could be a number of ways to follow up statements with action. It was the substance that the United States displayed that was important.

7. The Vice President said he anticipated that this fact would be misrepresented by the press. He had in Indonesia thanked the Australian Government for its help on refugees—this had been distorted by the press to a criticism of Australia for not doing enough.

8. The Prime Minister noted that since the Vice President was visiting Southeast Asia and the Western Pacific, it would be helpful if they discussed these countries for a while. Afterwards, they could take up bilateral issues and economic ones. He said that in their earlier meeting the Vice President had mentioned energy research. His understanding, continued the Prime Minister, was that the Rand Corporation or one of its subsidiaries was trying to organize such research in Hawaii at the local or village level. At the Commonwealth Heads of Government Regional Meeting (CHOGRM) at Sydney a working group had been formed, at India’s suggestion, on energy research specifically involving the local and village level. Ways should be found to coordinate such types of research; it would be to everyone’s advantage.

9. The Vice President asked what the Prime Minister would recommend to that end; energy had been a component of the talks held with almost every country the Vice President had visited so far.

10. The Prime Minister said that what was needed was consultations between officials, to find out what was happening and see if the separate efforts could be brought together.

11. Deputy Prime Minister Anthony said that there were already some joint studies, particularly in coal research. If U.S. and Australian officials got together, probably a statement of joint goals could be evolved.

12. The Vice President said that applied both to coal conversion and to solar energy.

13. The Prime Minister said that although the boundaries were somewhat wider, coal conversion and solar energy were more related to Australian needs than village or local level energy studies.

14. The Vice President said he got the point. The two countries should share their research, and he would so recommend.

15. Deputy Prime Minister Anthony said that since the subject of energy had arisen, he noticed that the U.S. had imposed an embargo against the use of foreign uranium in the U.S. This he understood was a clearly political act to protect American suppliers.

16. The Vice President said that this was the first he had heard of an embargo on non-U.S. uranium. He found it hard to believe, but he would check and get back to the Australian side.

17. The Prime Minister noted that Iran-Australian talks on purchase by Iran of Australian uranium had just broken down. Iran was insisting on automatic approval for reprocessing. Some 15,000 tons of Australian uranium were involved, so it was not easy for Australia to forego the deal.

18. The Vice President said he had heard about this and very much appreciated Australia holding the line on reprocessing.

19. The Prime Minister said the Iranians were pushing Australia very hard.

20. The Vice President said the U.S. greatly appreciated this fact. He doubted that there was any issue the President felt more deeply about than inadequate safeguards for uranium and the diversion of weapons grade material. The U.S. had encountered great domestic resentment already during the present administration by government shutting down the plants producing plutonium. He would, he said, check immediately on the matter of a uranium embargo.

21. Deputy Prime Minister Anthony urged strongly that the U.S. should either change its rules on reprocessing, or state categorically that it was not going to change. Talk that the U.S. was perhaps reconsidering made it very difficult for countries such as Australia.

22. The Vice President said that our position remained as stated on reprocessing, and now there was U.S. legislation as well which would render any change even more difficult.

23. The Prime Minister said that Iran was implying to Australia that the U.S. had now granted it prior consent on reprocessing. The Vice President noted that quite evidently Iran was trying to play one country off against the other. He said the U.S. would get an official document into the hands of the Prime Minister spelling out the U.S. position.

24. The Prime Minister called on Foreign Minister Peacock to begin discussion of political issues in the geographical areas just visited by the Vice President.

25. Peacock said that the Indian Ocean talks affected in Australia land based aircraft as well as the ANZUS effort.⁵ The holding of exercises off Australia’s west coast in spite of the June 1977 baseline date for “normal” strength comparisons had been Australia’s strong desire. The territory of Australia delineated as “Indian Ocean” had also been a concern. While some concern remained, the recent Australian-American consultations in Washington on the Indian Ocean had been extraordinarily effective in reducing the level of that concern.⁶ It was the very linchpin of U.S.-Australian cooperation that the two sides stay in touch. Peacock knew that Assistant Secretary Holbrooke would go to visit the PRC within 3 weeks. Was this a signal of forward movement on China, and what was congressional opinion?

26. The Vice President said that in his personal view there was a good deal of receptivity in Congress. They would say “normalize relations with the PRC, continue good relations with Taipei, and get on with it!” It was an interesting issue in American life, that uniquely, in relation to a Communist country, both conservatives and liberals in large numbers espoused recognition.

27. Assistant Secretary Holbrooke noted it was most interesting to see that Congress was divided three ways on the issue. There were the Taiwan irreconcilables (Barry Goldwater, for example); there were those strongly for moving ahead right away with recognition, such as Ted Kennedy, Scoop Jackson and Allan Cranston. Then there were a large middle group who identified with what the Vice President had just said about Congress. These included Jacob Javits and Edward Brooke. The PRC still insisted on its three conditions. It would not be as difficult to get recognition of the PRC through Congress as were the Panama Canal Treaties, in that 67 votes were not needed in the Senate, but it would still be difficult. It was now recognized in Washington that apart from an executive branch decision, there would have to be a legislative branch component for normalizing relations with the PRC.

28. The Vice President said that Mr. Brzezinski would soon be visiting the PRC. Normalization of U.S. relations with the PRC was not the goal of the visit, but while there he would test the temperature, and get an indication of where things stood.

29. Assistant Secretary Holbrooke emphasized that every scenario the U.S. was considering for normalization of relations with the PRC called for continuance of all ties with Taiwan, save diplomatic, a U.S. military presence and a defense treaty. There was absolutely no intention of abandoning Taiwan.

30. The Vice President said that as a matter of policy the U.S. would not dump Taiwan.

31. The Prime Minister said he had become convinced that the U.S. ease in normalizing relations with the PRC on most favorable terms for the U.S. depended largely on the Chinese perception of U.S. military strength. The Chinese perception of U.S. strength in the Indian Ocean and elsewhere still was of critical importance in getting any satisfactory agreement with them.

32. Peacock noted the PRC was now quite stridently supporting ASEAN in the last few weeks. The Chinese would then welcome the Vice President’s visit to SEA on those terms. It showed that the U.S. was stepping up its involvement with ASEAN in an ASEAN-U.S. format. The Philippines support this strongly.

33. The Vice President noted that the Thais were somewhat more reluctant, the Malaysians were more nuanced. The Thais claim to be worried about appearances; they would prefer that the proposed US-ASEAN Cabinet meeting be held in Asia, as it would be easier for the U.S. to come to the Five, they claim. We are, of course, talking about the whole U.S. Cabinet, which could not go to Asia.

34. Peacock said that closer ties with ASEAN are distinctly in the U.S. and Australian interest.

35. The Prime Minister said that while ASEAN generally wanted the U.S. security insurance to be available, at the same time they were very much interested in maintaining their own independence.

36. Assistant Secretary Holbrooke said there had been an ASEAN proposal that the Cabinet level meeting take place during, and under the cover of, the UN General Assembly meeting in New York. The U.S. would prefer an earlier date.

37. The Vice President said that the U.S. saw ASEAN as a very helpful institution.

38. Deputy Prime Minister Anthony said that the Vice President had mentioned his very satisfactory trip to Thailand. A lot of Communist SEA intrusions were being made in Thailand. Could the Vice President give his assessment of how the U.S. could help the Thais?

39. Insurgency was never raised during the Thai-U.S. talks, answered the Vice President. A lot of economic problems had been discussed, their huge gas reservoirs. Refugees had also been discussed, but not insurgency.

40. Assistant Secretary Holbrooke noted that their trip was the first time since about 1963 that any important American figure had visited Thailand without such a discussion. No real changes in the Thai internal security situation were evident.

41. The Prime Minister said the Thais always believed they could handle their own security—and they have always demonstrated their lack of ability to do so.

42. Turning to economic matters, the Prime Minister said there was no doubt that what was achieved in trade talks this year would set the pattern for a long period ahead.⁷ There were signs of protectionism rising in Europe; the Japanese had expressed their concerns to him about it and the extent of Japanese penetration into European markets was not all that great. There were some protectionist signs in the U.S. Congress. He supposed, added the Prime Minister, that the MTN would achieve something if it stopped the U.S. and the EEC going further down the protectionist track. But Australia thought such negative achievements were insufficient. An expansion of the world market had to be sought, or increased tensions could be developed between developed countries, and between LDC’s and DC’s.

43. During the Kennedy Round⁸ we had all insisted that agriculture be part of the arrangements, but what had happened? “Europe” had successfully fought to keep agriculture out. So it had been a failure. Under MTN a 40 per cent lowering of industrial tariffs over 8 years starting in 1980 equates to ½ of 1 per cent per year—a lowering which can be more than wiped out by currency fluctuations. Industrial tariff reductions cover 40 per cent of American, European and Japanese exports—but only 5 per cent of Australian. Australia believes it should reevaluate its position on MTN, and Australia is prepared to do so, but only with reciprocity. There are non tariff barriers (NTB’s) on over 25 per cent of total Australian exports; NTB’s on 9 per cent of her imports. As in the Common Fund, Australia deliberately moved towards the B Group countries⁹ recently. At the Sydney CHOGRM meeting, but more importantly at the London Commonwealth Economic Conference, several Commonwealth developed countries moved closer to the Australian position.

44. These two issues, continued the Prime Minister, namely the MTN and the future of UNCTAD, are interrelated. The expansion of markets seems to Australia to be vital. It seems to us time for a sharp major economic reassessment; we must come up with a major change between now and July,¹⁰ or else we will go to the final negotiations in a pretty rigid situation. That is why we saw the Manley-Schmidt meeting,¹¹ which now appears to have disintegrated—as advantageous.

45. Another concern to Australia is the continuing decline in value of the U.S. dollar. Nothing is more central than that the U.S. dollar be strong, and be seen to be strong. Devaluation is seen by Australia as destabilizing. There are many things the U.S. could do, such as enact an energy policy, and make sure there is no further inflation. The next two or three months are a watershed. If the actions to stabilize the dollar are of the wrong dimensions, it could be a long time before we could recover. Australia had already set in motion a reexamination of her MTN policy; this has to be seen against a background of reciprocity, NTB’s which are more balanced, and Australia’s tariff reduction since 1973.

46. The Vice President noted that the condition of the U.S. currency compared favorably with about every currency of the world. The real growth of 5 per cent appears to have been sustained. Unemployment dropped to 6 per cent, 5½ million jobs had been added to the labor market since the present administration had been in power, which was a record, and the tax and business incentive package under preparation would give added help. The U.S. was not suffering from inflation caused by excess demand, but rather by cost push. There had been an urgent, major program to ride down inflationary tendencies to a much more stable level; this had been directed by the President. For example, there was stepped up sale of timber off Federal lands to bring down lumber and thus housing costs. The U.S. has put into play a major effort that the U.S. dollar not be inflated beyond that level that every industrialized society seems to suffer.

47. Another key is a fundamental long range energy policy; we are stepping up conversion to coal of oil and gas fired plants. This we see as very important. The value of the dollar was challenged primarily because of the current balance deficit, which has been entirely energy related. Even absent a National Energy Act, during the past year industrial and private users’ savings of energy has brought about a much better growth-to-energy use ratio. Now Alaska oil is on line, which is a tremendous help. We have started a policy of selling gold; the dollar is firm and has appreciated again versus the yen. While there are difficulties, the U.S. would not want to trade its economic problems for what other nations face.

48. The Vice President continued that he was not bragging, but major economies ought to bear part of the burden that increased oil debts have on undeveloped countries; America has. On trade, we’ve called our GATT offer “generous”. The U.S. would effect a 40 per cent reduction on tariffs overall. We estimate that towards Australia that would be $520 million in U.S. imports. We have long sought more liberal agricultural trade policies with the EEC but with only limited success. Your STR representative Garland and ours, Strauss, recently talked about cooperating more closely.¹² We think movement likely this year. We have tried to make our offers especially responsive to the LDC’s. For instance, on mahogany plywood and coconut oil for Manila. All products have strong domestic competition, and we have fought off protectionist tendencies domestically. Industrial nations must take the lead in pushing the MTN forward. If they fail to do so, protectionism will quickly gain ground. The time to make progress is this year. If we do not, the U.S. is fairly pessimistic on what will follow.

49. The Prime Minister said that Australia agrees. A 40pc tariff cut sounds good. At an average of 8–10pc starting in 1980, this means ½pc for 8 years. Monetary changes would probably wipe this out. This is really not much liberalization. This in addition applies over only 20pc of world trade. The only way we can get liberalized trade is by countries being prepared to make sure agriculture is included, as a condition of reducing industrial tariffs. The U.S. is very firm in its view that agriculture will be included. In the Kennedy Round, this attitude did not finally prevail. It is a very unequal equation. It is 40pc for the U.S., Europe and Japan, and only 5pc for Australia. Many LDC’s would gain even less than 5pc, and there will be no way to cover up an MTN failure.

50. The Vice President said the U.S. was the most liberal of all nations in trade, and should not feel itself embarrassed.

51. The Prime Minister said it was not his intention to embarrass the U.S.; his intention was broader based. He wished to make sure that there was a greater discussion and understanding of the limitations of the MTN industrial proposals. It would not solve world trading problems.

52. The Vice President said that Strauss and Garland had agreed to crack that nut, that is, the agricultural nut. How they developed their strategy might make a difference. We agreed clearly that the EEC had to be as forthcoming on agricultural products as on industrial goods. How do we achieve this?

53. The Prime Minister answered that there was no chance if the EEC believed that if it remained firm, agricultural products would be pushed aside again. It all gets back to the fact that, if all that happens is that the MTN makes 40pc industrial tariff cuts, MTN’s limitations will be pointed out as no one will see world expansion of trade markets much affected. The Japanese at our recent meeting understood this; they are reassessing their Common Fund attitude; they agreed to cooperate on an export code for agriculture. The (Japanese) machine works slowly, but it seems to understand. It shows that Japan is a responsible international citizen. If we let the MTN go on its present track, it will not be successful. We need to try to reassess, to get greater content. Our governments can make this effort successful. People tend to get stuck in positions. It will take hard bargaining, and it is moreover not an environment for big movement.

54. The Vice President said he would welcome any suggestions for the upcoming conference. Any suggestions, he repeated, would be gratefully received.

55. The Prime Minister said that one suggestion would be the complete determination on the U.S. part not to let “Europe” push the agriculture question aside. The U.S. could make it all or nothing. Probably only the U.S. carried enough weight to make this stick.

56. Deputy Prime Minister Anthony said that Australia knew if the U.S. did not push, there would be no hope. Australia had told Strauss they would stick right beside him. Australia was waiting to see if the U.S. ratified the International Sugar Agreement (ISA). If America could finalize that, it would really be a weapon with which to wallop into the EEC. They were quite recalcitrant on joining. It was a critical time.

57. The Vice President said the U.S. agreed; it had every intention of signing the ISA, but there were temporary troubles which would take a little time to resolve.

58. Deputy Prime Minister Anthony said that Australia had submitted its offer. Since 1971 and Britain’s joining the EEC Australian agricultural trade with the EEC had plummeted. In fact these products had been completely excluded in these markets. This was causing increasing resentment, both with LDC’s and with Australia. He did not think that Australia would be successful in breaking through the Common Agricultural Policy (CAP), but they might get a code established.

59. The Prime Minister confided that three or four weeks ago, he had said very critical things about the Common Market. That had been done on the basis of heretofore undisclosed information, namely that the French were pushing to foreclose negotiations with Australia over meat before the negotiations had even started.

60. The Vice President said he would review the MTN situation with Strauss, and impart to him the intensity of the Prime Minister’s feeling on the matter. He thought there was no problem in principle, if we had been unsuccessful in breaking down the agricultural barriers, we had to keep at it. It had been the same with the Japanese—there had been a very successful test run in Osaka.

61. Deputy Assistant Secretary Heginbotham explained that as an experiment, in the face of Japanese claims that there would be no market, the U.S. sent 10 tons of high grade beef to Osaka by air. With all extra costs involved, the beef was sold for $7/lb, local market beef was $15/lb., such a rush developed that ration cards had to be issued to keep sales orderly.

62. The Prime Minister said Australia could airlift its meat to all countries and sell, at Australian domestic price plus extra costs, in all countries below local costs. He added he did not like the sound of some U.S. suggestions for cyclical meat programs. He noted that the Europeans could be very wearing, with 7–8 participants at a conference versus one foreigner. “When Strauss is there we’ll be right beside him”, added the Prime Minister.

63. The Vice President said he understood.

64. The Prime Minister said he feared that there would be no break-through at present—that MTN would not succeed. With the requisite will and resolution a clash between LDC’s and DC’s would be averted—else sour relations would taint the air for years to come. The only hope remaining is through firm U.S. efforts. No one else carries the weight.

65. The Vice President said the U.S. was willing to try to do its best. It has been very, very difficult. The EEC just does not want to talk about anything but more access to U.S. markets. He would report the intensity of the Prime Minister’s views fully to Strauss. He added he would like to make two more points. First, it would be helpful that Australia’s MTN reoffer be made as soon as possible. We have tabled the U.S. offer, and frankly since there have been few counter offers there was pressure in Congress to take back what the U.S. had already done. On plywood, for instance, a strong U.S. group was trying to counter the U.S. offer. The second matter was refugees, and the Vice President hoped to talk about refugees during the working lunch. Andrew Peacock had made useful suggestions which the Vice President had raised with the Indonesian Government.

66. The Prime Minister said his trade figures showed that Australia had made U.S. trade concessions of $35 million to Australia’s U.S. concessions of $10 million.

67. The Vice President said his figures cited the U.S. offer as “generous”, but agreed that this discrepancy was for the statisticians to resolve among themselves. On wool, the U.S. had proposed 40 per cent reduction in tariff which was about $30–40 million/year on present trade.

68. Treasurer Howard said he would like to reinforce the Prime Minister’s comments on how he welcomed the President’s statement on inflation. He knew it was a domestic problem, but he agreed entirely with President Carter’s renewed emphasis on containing inflationary pressure. He was very pleased to see the President’s emphasis.

69. The Vice President concluded that the U.S. was dead serious. The Federal Reserve Board had increased interest rates, gold sales had been started and America was doing everything it could to dampen inflation.

Alston

1. Source: Carter Library, Donated Historical Material, Mondale Papers, Foreign Trip Files, Box 131, [Vice President’s Visit to Asia, 4/29–5/10/78]: Australia—[Diplomatic Trip Cables], [5/2–5/31/78]. Confidential; Exdis.
2. See Documents 321 and 322.
3. See Documents 167 and 168.
4. May 20–23. For the memoranda of conversation, see Foreign Relations, 1977–1980, vol. XIII, China, Documents 108–111.
5. A fourth round of U.S.-Soviet talks was held in Bern February 7–17. See Foreign Relations, 1977–1980, vol. XVIII, Middle East Region; Arabian Peninsula, Document 120.
6. A report on the discussions, held in Washington April 11–13, see Foreign Relations, 1977–1980, vol. XVIII, Middle East Region; Arabian Peninsula, Document 122.
7. Reference is to the ongoing Tokyo Round of multilateral trade negotiations under the GATT, which began in 1973.
8. The Kennedy Round of negotiations began in 1963 and ended in 1967.
9. Group B was the developed country negotiationg group in the Common Fund negotiations.
10. Representatives of the countries participating in the multilateral trade negotiations met in Geneva before the July 15 deadline to complete the negotiations. See Foreign Relations, 1977–1980, vol. III, Foreign Economic Policy, Document 144.
11. See footnote 3, Document 259.
12. A report on the April 10 meeting is in telegram 5475 from the Mission in Geneva, April 12. (National Archives, RG 59, Central Foreign Policy File, D780157–0448) Documentation on Carter administration policies in the MTN is in Foreign Relations, 1977–1980, vol. III, Foreign Economic Policy.