103. Information Memorandum From the Chairman of the Policy Planning Council (Bosworth) to Secretary of State Shultz1
SUBJECT
- U.S. Participation in UNCTAD–VI (June 6–30 in Belgrade)
You have received separately an options memorandum on U.S. participation in UNCTAD–VI.2 I support strongly the recommendation in that memorandum that we play an active role in the conference. UNCTAD can be a circus, but the political tone of North-South relations set there affects the atmosphere in other institutions that are important to us. We therefore have to present a constructive stance.
The Administration has a coherent, positive and defensible approach to development questions, and it is important that we advocate it forcefully in the forum the LDCs have chosen as their preferred instrument. If we fail to do so, we cede the field to the more radical LDCs and the Soviet bloc. We also create new pressures on the LDCs to establish alternative forums which would be no more manageable, such as the now-moribund global negotiations. We make it more difficult for moderate LDCs—whose numbers have increased with hard economic times—to support us in the forums which we prefer, such as the IMF and the GATT. Finally, we unnecessarily create problems for ourselves with our OECD allies, who will be participating actively.
[Page 270]Used constructively, the UNCTAD can provide a forum to gain support for our development philosophy and policies. We need to drive home our view that the problem of development is best approached not through more government intervention and unlimited amounts of concessional aid, but rather through a policy of open markets and actions to improve the flow of private goods and investment.
Because of space limitations, the options memorandum unfortunately does not sufficiently address the substantive content of active U.S. participation. I think it is important to understand this as a basis for your decision on our UNCTAD participation. I draw your particular attention to the section below on commodities and compensatory financing, since I understand the Department of the Treasury favors tightening up rather than liberalizing the IMF Compensatory Financing Facility and will be in touch with us next week on this subject.
Trade
We have a good record, for example, on trade liberalism and opposition to additional protectionist moves. This latter point is going to be particularly important in the light of the great improvement in trade balances many key LDCs need to achieve. The pressures this process will create may make it the right moment to launch a North-South trade round.
We suggested this in the GATT Ministerial last fall, but received an unenthusiastic response. The Europeans were suspicious about any further liberalization during economic recession, and the advanced LDCs are averse to anything other than unilateral trade concessions by the developed countries applicable to all developing countries. The idea of reciprocity in concessions for the newly industrialized LDCs was rejected by these states.
There is also the problem of obtaining a Congressional mandate for a new round in the current protectionist climate. I know that the view last fall when the proposal was introduced was that there was no additional risk and actually some advantage in introducing the subject into the Congress. The reasoning was that the GSP renewal raises the issue anyway, and the reciprocal concessions by the newly-industrialized countries (NICs) envisaged for the proposed North/South round should present a sellable package.
I understand Bill Brock has instructed his staff at STR to look at the proposal further to see whether it could be a useful initiative at the May OECD Ministerial and the Williamsburg Summit. A positive statement at Williamsburg, followed by strong advocacy of the proposal at the UNCTAD meeting (but making clear that it would be negotiated and implemented in the GATT) could give some momentum to our proposal.
[Page 271]Investment
Similarly, I feel that we need to be very positive at UNCTAD about the role that private investment plays in development. There is still far too much emphasis in the attitudes of developing country leaders on the role of the state, and official capital flows. I believe that the recession of the last two years, which even with an upturn this year in the Western economies could persist into 1984 for the developing countries, may have softened LDC attitudes on foreign investment. This might be an excellent opportunity to get a better understanding, and maybe even constructive statements from the developing countries on the tricky issues of fair treatment for foreign enterprises operating in these countries. Perhaps an endorsement by the UNCTAD of the World Bank scheme, newly pushed by Claussen, to guarantee such investments against political risk is a possibility in this present climate. Resuscitating earlier ideas about a GATT study of trade issues resulting from impediments to investment is another possibility.
Commodities
Our challenge here is to demonstrate that there are constructive responses, not involving price fixing, to the plight of low-income LDCs devastated by depressed commodities markets. My staff has been working with EB on modest changes in the IMF system of compensatory financing for commodity earnings shortfalls which could greatly benefit the poorest of the LDCs, many of which are located in Africa. Basically, this scheme would build on the present IMF Compensatory Financing Facility, opening up additional access on a non-discriminatory basis but at the same time insisting that conditionality be maintained or even increased.
Our studies show that by using the new quota increase in the Fund and raising the current limitations in the IMF’s Facility, we could increase the ability of the poorest countries to draw up to $1 billion in the next several years from the Facility to cover their shortfalls. Given the amount of social and political uncertainty on the African continent at present, that additional sum could be important. Obviously, we would have to play carefully any proposal on IMF resources to make sure we do not encumber Congressional consideration of the quota increase.
None of these schemes is world-shaking by itself. They all need further refinement. But combined with other actions we are already taking, they present a constructive and evolving approach to enhancing the benefits LDC’s derive from international trade and finance. Furthermore, they are consistent with our self interest in enhancing LDC’s capacity to purchase more U.S. exports and their climate for U.S. investments.
[Page 272]Head of Delegation for UNCTAD–VI
The options memorandum also addresses briefly the issue of who should represent the U.S. at the UNCTAD meeting. It suggests, correctly, that we should not address that issue until we know more about what types of initiatives we might wish to pursue at the Conference (assuming, of course, that you choose the active participation option).
The Deputy Secretary would be a good choice if he can afford the time. Bill Brock of STR could be another possibility if we decide to make a serious push on the trade issue. Both understand the trade problems of the developing countries and could effectively encourage LDC interest in the proposal (which is a prerequisite for moving the Europeans).
The time commitment would not be too great, probably involving only a few days at the meeting to give the opening U.S. address at the Conference, which sets the tone of our participation, and to consult with leading LDC figures.
It seems to me that the Vice President would not be a good choice to head the delegation, in spite of a suggestion to this effect from the host Yugoslavs and our Embassy in Belgrade. Such a high-level appearance by the U.S. would be unusual for an UNCTAD Conference, and would inevitably raise the ante in terms of anticipated changes in U.S. policy.
- Source: Department of State, Executive Secretariat, S/P Records, Memoranda/Correspondence From the Director of the Policy Planning Staff to the Secretary and Other Seventh Floor Principals, Lot 89D149: April 1–15, 1983. Confidential. Drafted by Michael Boerner (S/P).↩
- See footnote 2, Document 102.↩