Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

1. Memorandum From the President’s Assistant for National Security Affairs (Allen) to Secretary of the Treasury Regan¹

Washington, February 16, 1981

SUBJECT

• The Ottawa Economic Summit (U)

I have spoken briefly with Al Haig about the Ottawa Economic Summit in July.² It is essential that we begin now to reorient the agenda of the Ottawa Economic Summit (July 19–21) so as to assure that the President will be able to advance his own strategic objectives there. We will know better how to proceed after Mike Rashish and his delegation have participated in the preparatory meeting in London next week.³ I suggest that we meet shortly thereafter with Ed Meese and Murray Weidenbaum, prior to seeking the President’s views. (C)

The present intention of Prime Minister Trudeau—encouraged by former President Carter—to focus this Summit on North/South issues and pledges of increased development aid is out of line with our priorities. In order to change this focus in time to permit thorough preparatory negotiations, we need to put forward new concepts and proposals, starting next week.⁴ (C)

I know that Mike and his team share this viewpoint and have initiated a broad canvassing of ideas. I also have asked my staff for conceptual papers on key topics. Three preliminary drafts are attached:

1. Strategy for International Energy Cooperation (Tab A)—defines a broader framework for discussing energy issues, with greater emphasis on energy security.⁵ It suggests possible trade-offs between our commitments on nuclear energy and European/Japanese commitments on oil stockpile coordination and between our commitments toward defense of the Persian Gulf oil sources and their support of US diplomacy on Arab–Israeli issues. (C)

2. Strategy for East/West Trade and Technology Cooperation (Tab B)—seeks to capitalize on contingency planning for Poland to generate greater commitments among the Allies to consider the requirements of strategic and economic security in trade with the East, in particular, the need to protect against vulnerability that results from excessive levels of dependence on Soviet resources (e.g., natural gas from Siberia) or markets.⁶ (C)

3. Strategy for Relations With Developing Countries (Tab C)—seeks to shift the emphasis of past Summits and the Carter Administration from multilateral aid initiatives to coordinated bilateral initiatives which gives the Summit countries more direct credit for aid (something the British and French strongly desire) and will be more in line with the emphasis of our own foreign aid budget on bilateral programs. (C)

Other subjects will need to be developed: macroeconomic policy harmonization, monetary coordination, trade policy, etc. Traditionally, the Chairman of the US Council of Economic Advisers has taken the lead in developing a joint position paper on macroeconomic issues. (C)

I believe President Reagan will want to use this annual meeting of the main industrial allies to concert broad political and security strategies that bear on our common economic interests. I have been encouraged by a review of the history of economic summitry (briefly summarized at Tab D) to believe that this evolution of the summit process is feasible and would be welcomed by most of the other heads of government.⁷ (C)

Richard V. Allen

Tab C

Paper Prepared in the National Security Council⁸

Washington, February 5, 1981

OVERALL STRATEGY FOR RELATIONS WITH DEVELOPING COUNTRIES

1. Conceptual Framework

US relations with developing countries occur at several levels:

— The base of these relations is bilateral security and economic relations with key countries in the developing world. These relations are the most important means of defending and expressing American values: political democracy, economic entrepreneurship and individual human rights.

— A more inclusive level is US responses to change in the developing world. Change creates new stakes for US security and economic interests. Thus the United States has a political interest in ensuring both that change occurs in a manner consistent with our values (hence a strong US opposition in terrorism) and that it results in governments and societies that are not hostile to fundamental US values.

— The peak of US relations with developing countries is cooperation through global and regional institutions and rules. This cooperation seeks to include developing countries in a healthy world economy, adapting rules to benefit these countries (e.g., GSP) and imposing mutual obligations on them (e.g., urging membership in GATT). It supports development objectives and institutions (e.g., the Multilateral banks) and addresses common global issues (food, energy, population, etc.); it embraces a pluralism of social mores and customs (e.g., recognizing the rich and historic culture of Islam); and it acknowledges the need to enhance the participation and role of developing countries in post-war international institutions.

The North/South nomenclature does more to confuse than illuminate these various levels of US relations with developing countries. Indeed, it tends to focus attention on issues at the peak of US relations with developing countries, which have been defined primarily by spokesmen for the LDC bloc, rather than at the base of these relations which involve US security and economic interests. It diverts attention from support of basic US security, economic and political interests, and it distorts our foreign aid budget so that is increasingly unsustainable in the Congress.

By concentrating policy and resources now on building a strong bilateral base of security and economic ties with key countries of the developing world, we will be in a better position later to justify Congressional support for multilateral cooperation to address global problems.

In recent years, the base has been seriously eroded. US bilateral aid programs cannot work with many of the developing countries that are most critical for US security and economic interests. Meanwhile, multilateral institutions are being attacked increasingly by radical forces in the third world and risk losing their greater acceptability and legitimacy, which have made them preferred instruments of aid over the past decade.

2. New Policy Directions

The formulation of US policy toward developing countries must be grounded in the new domestic and foreign policy directions of the Reagan Administration. These include:

— overriding priority for enhancing national security and strengthening the national economy;

— restraint on the foreign aid budget with priority given to bilateral accounts that offer flexible resources to implement new directions in US foreign policy (e.g., in Central America and Middle East);

— cultivating special ties with key developing countries (often the more advanced developing countries), utilizing small aid programs and bilateral commodities to promote much larger flows of private trade and investment (e.g., expanding the Trade and Development Program),

— coordinating bilateral foreign assistance with industrialized country allies as alternative to new multilateral institutions;

— as the base of US relations with developing countries is rebuilt, continuing support for multilateral development institutions and programs;

— positive expression of US values and interests in all international institutions, negotiations, and economic arrangements;

3. Action Events

A. Rebuilding the base of US relations with developing countries:

a. restructuring the foreign aid program;

(1) budget revisions—February 1–15;

(2) FY–82 budget submissions—February 17;

(3) reorganization of IDCA/AID—April–June;

(4) rationalizing legislation restrictions on foreign assistance—FY–83 budget preparations.

b. follow-up on key bilateral visits:

(1) Jamaica;⁹

(2) South Korea;¹⁰

(3) Others.

c. identifying key countries for intensified relations

B. Advancing US values and interests in international institutions and global political discussions:

a. North/South Summit-Planning Group Meeting (March 13–15)¹¹
Action: Explore prior to March 1 with Canada, Austria and Germany the feasibility of inducing the co-sponsors (Austria and Mexico) of the proposed North/South Summit meeting, tentatively scheduled for Mexico City in mid-June, to fix the procedures of the meeting so that risks of President Reagan’s attendance would be minimal and the prospect of realistic, constructive discussion is enhanced; if this is not assured, advise key allies that the United States will not participate and request that they either decline to attend or, at least, insist on postponing the meeting until after the Ottawa Summit when they would concert with us the substantive positions they intend to take at Mexico City.

b. PLO Observer in World Bank IMF Annual Meeting (March 1 and following)
Action: Seek extension of the March 1 deadline for the World Bank and IMF Boards of Directors’ reports to their Governors on how to resolve the postponed issue of seating PLO observers; resist any urgency to find compromise solution until US Middle East policy is set; determine future policy on this issue in the context of our overall Middle East policy.

c. UN Global Negotiations—(May–June)
Action: Coordinate with British and Germans to forestall Global Negotiations at least until after Ottawa Summit and opportunity for new Administration to influence perceptions and agenda of allied countries on developing country issues; seek wider adherence by industrial countries to the position that Global Negotiations should be rejected so long as the G–77 insists that policies adopted there bind the specialized international agencies such as IMF and IBRD.

C. Reshaping the agenda of global economic discussions.

a. London Preparatory Meeting for Ottawa Summit—February 17–18)¹²
Generally, discourage Canadian emphasis on global institutions and issues, and seek solutions to key development problems primarily through coordinated bilateral action.
Specifically, with regard to the North/South portion of the Summit:

(1) energy—idea of a consortium of Summit countries coordinating bilateral energy programs with World Bank participation, as possible substitute for converting World Bank program into a new affiliate.

(2) technical assistance, particularly manpower training—idea of coordinated bilateral action among donors, including multilateral institutions, to enhance and improve technical collaboration on key problems among industrialized and developing countries (perhaps asking Canadian IDRC to take lead on designing modes of R&D collaboration).

(3) food—idea of coordinated bilateral action among allies to enhance food production and food security in poor countries starting with fresh approach to the international grain reserve scheme at IWC meetings in March and June (below).

(4) external imbalances—consideration of coordinated bilateral action in support of IMF emergency borrowing to assist LDCs with acute payments problems.

b. International Wheat Council (IWC) (March 3–6 and June)

(1) consult with IWC staff and EC Commission and seek simplified approach to goal of international emergency wheat reserve;

(2) convey to Trudeau our intention to get this issue on the Summit agenda, if necessary to overcome Canadian Wheat Board’s continuing opposition to a food security system for food-short nations.

c. All Occasions
Maintain the GATT/MTN gains and further open international markets to competition, subject to limited exceptions; offer to negotiate further trade concessions to those developing nations that offer reciprocal advantages in trade or other fields to the United States. Specifically, in negotiating extension of the Multifiber Agreement (textile import restraints), seek to maintain the present level of LDC access to US textile markets and negotiate with allies to enlarge LDC access to more protected OECD markets.

1. Source: Reagan Library, Executive Secretariat, NSC Trip File, Ottawa Economic Summit July 19–21, 1981; NLR–755–12–8–1–1. Confidential. Copies were sent to Meese and Weidenbaum.
2. Allen sent a nearly identical memorandum to Haig. A copy of this memorandum, also dated February 16, is in the Reagan Library, Executive Secretariat, NSC Trip File, Ottawa Economic Summit July 19–21, 1981; NLR–755–12–8–2–0.
3. The preparatory meeting took place the week of February 16 in London; see Documents 2 and 3.
4. The week of February 23.
5. Tab A, dated January 28, is attached but not printed.
6. Tab B, dated February 5, is attached but not printed.
7. Tab D, undated, is attached but not printed.
8. Confidential. No drafting information appears on the paper.
9. Reagan hosted Prime Minister Seaga of Jamaica and his wife at the White House on January 28. (Reagan Library, President’s Daily Diary)
10. Reagan hosted President Chun Doo Hwan of the Republic of Korea at the White House on February 2. (Reagan Library, President’s Daily Diary)
11. See Document 7.
12. See Documents 2 and 3.