Foreign Relations of the United States, 1977–1980 Volume XXIV, South America; Latin America Region

346. Memorandum of Conversation¹

Caracas, March 29, 1978, 9:15–10 a.m.

SUBJECT

• North-South Dialogue, Energy, the Caribbean and Law of the Sea

PARTICIPANTS

• President Jimmy Carter
• Secretary of State Cyrus R. Vance
• Dr. Zbigniew Brzezinski, Assistant to the President for National Security Affairs
• Terence A. Todman, Assistant Secretary of State for Inter-American Affairs
• W. Anthony Lake, Director, Policy Planning Staff
• Robert A. Pastor, NSC Staff Member
• Ambassador Viron P. Vaky
• Guy F. Erb, NSC Staff Member

• Venezuela

  • Carlos Andres Perez, President
  • Simon Bottaro Consalvi, Minister of Foreign Affairs
  • Manuel Perez Guerrero, Minister of State for International Economic Affairs
  • Valentin Acosta Hernandez, Minister of Energy and Mines
  • Carmelo Lesseur Lauria, Minister, Secretariat of the Presidency
  • Hector Hurtado, Minister of State, President of the Investment Fund
  • Ambassador Ignacio Iribarren
  • Dr. Reinaldo Figuerido, Director of Foreign Trade Institute

North/South

Saying he would like to exchange ideas on North-South matters, Perez observed that President Carter’s administration had given another cast to the dialogue. Recalling that the developing nations waited for President Carter to take office before concluding the CIEC talks, Perez noted that while the termination of CIEC was not entirely satisfactory, nevertheless new perspectives opened up on such items as the Common Fund and the debt problem. Even though the proposals agreed upon were relatively modest, the U.S. had showed understanding.

Since that time, however, virtually nothing has happened, and he felt very pessimistic. Perez said he would be meeting with European Chiefs of State in Jamaica in June. They would try to move the “hard heart” of Germany’s Schmidt. The U.S. position, however, would be key and the attitude of the United States could support other U.S. policies, in Africa, for example. Perez said he would like to have President Carter’s evaluation of the situation.

President Carter said he had of course been in office a little more than one year. He has nevertheless seen a common desire on part of both the North and South to reach goals which were not incompatible among themselves: Common Fund, commodity prices, debt forgiveness, increased aid. But our mutual desires have been frustrated by the inability of the DC’s to negotiate with any semblance of order or mutual understanding with 90 different nations. Each leader acted politically for his audience back home. Attention focused on the most radical demands or proposals. News media concentrated on leaders who abused us the most. President Carter said he had discussed this problem with Manley. There was an obvious need for a forum that could work in a calm and objective atmosphere. This was the case, for example, with the Common Fund. We were eager to contribute. We felt that there was a major responsibility on the shoulders of those who buy and sell commodities to reach agreements on these issues. But this was almost impossible in a large group of over a hundred nations.

Until a procedural system could be set up to permit quiet negotiations, differences will continue to be emphasized rather than cooperation. We have, however, been unsuccessful so far. President Carter said he was prepared to use his influence with the DC’s, and even the USSR, to persuade them to contribute to solution of all these problems. We feel frustrated, however, because of the desire, which we recognize is legitimate, of everyone for a voice in the deliberations.

President Carter suggested that there could be two stages: a small committee which could discuss these issues reasonably, draw up the general lines of a proposal, and then make a presentation to a larger group.

Perez Guerrero, speaking for Perez, noted that they shared President Carter’s perceptions, and especially those described in his speech to the Venezuelan Congress.² The world was in a profound crisis, not one which would pass easily. It required mutual cooperation. You need us, he said, and we certainly need you. He described the move in the UN for adequate machinery and the eventual decision to move to the committee of the whole. He appreciated the need for some kind of two-step procedure and this is something to be considered.

Perez Guerrero then noted that Perez’ reference to Schmidt’s “hard heart” should not be taken as meaning that was the only problem. We have the impression, he said, that even the U.S. at times was more inclined to defend the status quo than create new solutions. There seemed to be at times those who looked to poverty as the problem rather than to structural changes. But while poverty and the need for aid should be attended to, a change in the rules of the game to permit nations to develop more equitably was also important. The necessary changes could take place gradually.

Attention necessarily focused on the U.S. and on how it handled economic and fiscal problems. How was the U.S. handling the critical monetary problem, for example? Can you do that and balance the budget?

President Carter said that we had to move from confrontation to negotiation. We have seemed defensive because we have had to respond to loud attacks. Many past Presidents, including Nixon and Ford, were prepared to cooperate more with the developing world than the Congress. The Congress, very sensitive to the mood of the people, reacted to condemnations of us. When they heard such attacks their perception was that aid was not only not appreciated but not wanted. Hence, they were unwilling to authorize some major moves that were needed.

President Carter, responding directly to the question of the monetary crisis, said that the U.S. has a sound and strong economy with no basic weakness. He cited GNP and other indicators. We have deliberately tried, he said, to keep growth high. OPEC nations, he noted, had a positive trade balance of $40 billion. This had to be absorbed by the rest of the world. Germany and Japan had positive balances. Our trade, he noted, was negative by over $30 billion.

President Carter noted several factors that should lead to a strengthening of the dollar. Interest rates would be higher in the U.S. this year, leading to greater investment in-flows. There would be no increase in oil import levels in 78. Last year our economic growth averaged three percent higher than our major trading partners. This year that gap will narrow because other nations’ economies are growing faster. We are more aware of the need to act to stabilize the dollar in times of market disorder, and we have worked out agreements with Germany and Japan in this regard. Had oil prices been pegged to the SDR during recent years, President Carter noted, OPEC would have earned less.

The U.S. will seek continued growth; we expect to balance the budget by 1980, but it may not be balanced before that. We hope to have an energy bill passed shortly giving us an overall energy policy for the first time.

We have confidence in the strength of the U.S. economy, Perez said. What worries us is that the North/South dialogue has stagnated. We have talked about ways of moving the dialogue forward in the UN. The G–77 has pressed for an open forum. No decisions have been made to carry out the limited agreements of CIEC. Concern over the poor is understood, but poverty is a symptom not a cause. We understand, Perez continued, the U.S. efforts to decrease consumption of oil; it is difficult to become more austere. But concretely, Perez said, how do we put our mutual ideas into practice? How do we make progress on such items as the Common Fund or debt?

President Carter said that the U.S. for its part often has the impression that the G–77 wants all or nothing. Its demands often seem so strict, its condemnation so severe, that it apparently does not understand the practical limitations that do exist. We would welcome, he said, through under Secretary Cooper or the Secretary of State or some other official to describe what we have done, what our plans are, what our practical problems and limitations are so that mutual understanding will be enhanced. We are prepared, for example, to make various types of aid available such as food. Perhaps we could work out a plan that the DC’s could carry out sequentially. But we feel that our limits have not been comprehended by others.

Perez said that we are in a vicious cycle. Whenever the LDC’s talk of cooperation, the U.S. talks of aid. The U.S. concept is anchored to aid. This is important, of course, but more important is to cooperate on changing relationships, so that countries can overcome the need for aid. Charity is not the answer. Cooperation to establish better relationships in major economic interactions is what is needed. What is needed is not always food, but technology to grow it. Often with food aid, purchasing and production power is reduced. Perez cited trade as an example. While on the one hand the U.S. spoke of loaning money or providing aid, protectionism seemed to be rising in the U.S. Increased trade barriers will only make imbalances and poverty worse and the need for aid greater.

President Carter noted that the U.S. had taken the lead in the MTN. Negotiations were being pushed by us. LDC support of our efforts to lower trade barriers would be helpful. The French would not even discuss the issue until after the elections. The Japanese and the Germans have been reluctant to get involved. If the U.S. Congress knew that the LDC’s were willing to cooperate, they might take a different view.

At the President’s request, Secretary Vance then reviewed the various items in the North/South agenda. On debt, he noted that limited progress had been made at the recent UNCTAD meeting; more could have been made had there been better preparation by the participants. But progress here would depend upon working out possible formulae in smaller groups.

On the Common Fund, the Secretary said, the trouble is the “second window”. We are fairly close together on the “first window”. Some work was done in UNCTAD, but the next step is to work on the second window concept, since this was symbolic as well as substantive. Here again perhaps a smaller group could get things started. We should make that the next step due to the importance of the Common Fund.

On the financial side, replenishments for the IFI’s were of major importance. Support for this would assist in persuading Congress to take favorable action on these replenishments. In trade, the key sector was the MTN. LDC support in this was important. (Perez Guerrero interjected that the U.S. had worked more with the other DC’s on this than with the LDC’s.) Finally, there should be some cooperation and consideration for refining the structure of the overview committee.

President Carter suggested that Undersecretary Cooper might meet with comparable officials of a few other nations, including Venezuela and Jamaica, for quiet consultations. At this staff level issues could be defined and analyzed for the information of the leaders in a quiet way.

Perez said that was a good idea, but it should be done with discretion so that others could not accuse us of “running things”. In this connection, Perez said, the role of Algeria, as Chairman of the Overview Committee, is important. Despite some of their strong views, its leaders were responsible and practical and should be included.

President Carter mentioned that several other leaders, even the Saudis and Sadat, had suggested that we work with Boumediene.

Energy

Perez said that the recent talks in Washington between Secretary Schlesinger and Minister Hernandez were useful, significant, and very positive.³ We should now like to push ahead on concrete cooperation more rapidly. We were worried, Perez said, because our productive oil capacity is declining. Production limits were in the neighborhood of 2.5 million BPD. Thus, Venezuela’s capacity to help in an emergency, such as the 1973 embargo, was limited, and it could not do now what it did then.

Venezuela has reserves, Perez went on. The tar belt was one of the world’s largest reserves of non-conventional oil. The nation’s capacity to expand exploration and productive capacity is limited because its access to technology and capital is limited. Perez said he hoped that the USG could cooperate in helping Venezuela advance its productive capacity for the future, since such capacity would be strategically important to the U.S. as a safe source of future hydrocarbons.

Perez explained that the Japanese had made a proposal to invest a billion dollars in a pilot project for developing the tar belt. The GOV accepted it in principle. It would like to consider similar cooperation with Europeans and the U.S. This may be possible with the Europeans. Unfortunately, there is no U.S. state entity, and it was politically impossible to deal with the private companies.

One thought that has occurred to us, Perez said, was a possible joint venture with the U.S. and Canada. Petrocan, as a state entity, could be the channel for funneling technology and capital. U.S. capital through private companies could associate with Petrocan. Trudeau, Perez said, would be willing to cooperate.

Venezuela was also worried, Perez continued, about plans to increase domestic refining capacity and to reduce imports of refined products. (This referred to the Haskell Amendment.)⁴ This would present a serious problem to Venezuelan exports of residuals. There was also concern about imposition of tariffs on imports.

Director of Foreign Trade Figueredo, at Perez’ request, explained a situation in which the U.S. may have violated the U.S.-Venezuelan commercial agreement on tariffs on oil. He provided an Aide Memoire on this item.⁵

Minister Hernandez elaborated on Perez’ remarks and covered the same ground asking in effect how can the U.S. and Venezuela cooperate to develop reserves and obtain technology and financial help, bearing in mind the political problem of being unable to deal directly with the TNC’s.

Hernandez also pointed out that while Venezuelan crude makes up only about 10 percent of U.S. crude imports, Venezuelan fuel oil makes up about 40 percent of imports of that product. Therefore, Venezuelan residuals were important to the U.S. He asked whether it would not be possible for the USG to purchase fuel oil for its strategic reserve. He also asked: “Can we count on a stable market?” He suggested that some long-term arrangements might be in order to guarantee a stable market in return for a secure and assured supply, perhaps some sort of Western Hemisphere preference.

Perez said that the strategic reserves of the U.S. were important to Venezuela as well, and he wondered if the U.S. and Venezuela cannot cooperate now, then it might be even more difficult in the future. After the Presidential elections in December, Perez said that he planned to raise prices of gasoline. It would be very unpopular to do now, but Venezuela’s problem is that it is consuming so much gasoline that it has too little to export while having too much residuals.

Hernandez said that Venezuela’s refineries were built to fit the needs of the U.S. East Coast, but Venezuela’s principal goal is to have a mechanism which will permit greater stability for supplying petroleum and residuals.

Perez said that the Dutch Antilles would soon be independent. There are two refineries on those islands, one owned by Exxon, the other by Shell. The GOV intends to “associate” itself with these refineries making arrangements to guarantee crude supplies. Because an independent Antilles will need this industry, this complex will have political importance for the Caribbean. The U.S. should therefore consider giving some assurance of a market for these refineries.

President Carter said that the U.S. had to pass an energy program first. As far as the U.S. is concerned, the only major investment for the Orinoco would have to come from the U.S. companies. These companies would be eager to invest if they could have some stability for their contracts. They are disturbed about the nationalizations and outstanding law suits. Right now, the oil companies were busy lobbying the Congress, but perhaps after the energy bill passed, they may have time to invest in Venezuela.

President Carter said that he welcomed the development of the Orinoco by Japan, Canada and others. The U.S. is not competing against them. They have national oil companies, and Japan has a lot of capital to invest. He said that he was not aware of any effort in the Congress to restrict refineries in the U.S., but that if it were introduced, he doesn’t think it would pass. Jim Schlesinger would know, and he’ll find out.

President Carter said that he was aware that Venezuela wanted a long-term agreement, and he thinks it’s a good idea. The President said that he would take this proposal up with Secretary Schlesinger aggressively when he returned. Meanwhile, he suggested to Perez that he might want to send Minister Hernandez to the U.S. to talk with the companies about research and development on oil shale and tar sands.

Caribbean

Perez said that it was very important for the U.S. and Venezuela to move forward on helping the Caribbean Group set up by the World Bank’s conference.⁶

Law of the Sea

Perez expressed his concern about the LOS Conference and specifically the prospect that the U.S. would act unilaterally in seabed mining.⁷ This would open Pandora’s box and other nations would feel justified in acting unilaterally. The situation would be chaotic. He said that it would be bad for the U.S. to show impatience in this area when the developing countries have been so patient in the North-South dialogue.

President Carter said he was also deeply worried. It was difficult for him to restrain the Congress from passing legislation authorizing unilateral mining of seabeds since we have the capability. While he would do the best he can, legislation is a possibility. This was not a threat; he just wanted Perez to know how serious the situation was.

President Carter went on to say that our differences are deep. In particular a change of the LOS Conference President bothers us. There is a great investment in time up to now. To change the leadership would delay things a year. Perhaps more than in any other subject, the issues of LOS have been aired and intensely debated. He hoped, President Carter said, that there would be flexibility on both sides.

President Carter said he wanted to make two points: (a) We will try to avoid unilateral actions on seabed mining; (b) if we do pass legislation, he would do his best to see that such action is not prejudicial to the interests of the LDC’s. He said that he would try to see that there was a fair distribution of the benefits to other countries.

Perez said that if the U.S. takes unilateral action that this would open the North-South dialogue to attacks on North American imperialism.

President Carter said he will do all he can to try to reach agreement in the Conference, but if it fails, and we need to take unilateral action, I will try to see that the benefits of mining are apportioned as fairly as possible and compatible with existing proposals in the LOS discussion.

Perez said that he was not worried just because of deep seabeds mining, but because of its possible effect on the North-South dialogue.

President Carter ended the conversation by suggesting that it might be useful to have quiet bilateral talks as early as next week at a high level on LOS issues to define them and explore solutions. President Perez agreed.

1. Source: Carter Library, National Security Affairs, Staff Material, North/South, Pastor, Subject Files, Box 63, President’s Visit to Brazil and Venezuela (3/78), 1-5/78. Confidential. The meeting took place in the Miraflores Palace. No drafting information appears on the memorandum.
2. For Carter’s March 29 remarks before the Venezuelan Congress, see Public Papers: Carter, 1978, Book I, pp. 619–623.
3. In telegram 60227 to Caracas, March 9, the Department reported on the discussions between Schlesinger and Hernandez regarding U.S. energy legislation, the development of the Orinoco Tar Belt, and a potential bilateral program of energy cooperation. (National Archives, RG 59, Central Foreign Policy File, D780105-0913)
4. See Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980, footnote 3, Document 146.
5. Not found.
6. In a June 16 letter to Perez, Carter wrote that Perez’s “decision to supply 10 percent of the financing for the Caribbean Development Facility (CDF) proposed by the World Bank is a welcome one,” and that the USG planned “to channel much of the development assistance we will provide to the new facility via the Caribbean Development Bank.” (Carter Library, National Security Affairs, Brzezinski Material, President’s Correspondence with Foreign Leaders File, Box 21, Venezuela: President Carlos Andres Perez, 6/78-3/79)
7. For the Carter Administration approach to U.S. seabed mining legislation after the 6th Session of the Law of the Sea Conference, see Foreign Relations, 1977–1980, vol. XXV, Global Issues; United Nations Issues, which is scheduled for publication.