You will recall that you asked how we might take advantage of Secretary
Regan’s request for transfer of
the debt rescheduling billet to Treasury to bring about better coordination.
I, in turn, asked Chuck Meissner for his views; they are attached.
If, in the end, you decide to shift the debt rescheduling job to Treasury we
can still propose the other steps Meissner recommends.
While the memo has some action recommendations at the end, I suggest you
decide nothing now.2
Attachment
Action Memorandum From the Under Secretary of State for Political
Affairs (Eagleburger) to
Secretary of State Shultz3
Washington, March 21, 1983
SUBJECT
- Improving the Department of State’s Influence in the Formulation
of Foreign Economic Policy
Summary
The Secretary of Treasury has asked the Secretary of State for the
diplomatic portfolio associated with the rescheduling of official debt.
This memo addresses how State should respond and if there is a way to
use this response to strengthen State’s role in the formulation of
U.S. foreign economic policy. This
memo recommends that we preserve our present role in formulating
bilateral and regional economic policy. Within this framework State
should keep its debt rescheduling responsibilities.
Over the past 20 years, there has been a slow evolution of foreign
economic policy decision making. What we now have is the systemic issues
dominated by Treasury (international monetary, IMF and multilateral development banks) and USTR (trade, commodities and some
investment).
Bilateral and regional economic matters—including the application of
systemic issues in the regional/bilateral context—are largely controlled
by State (debt rescheduling, East-West, aid, ESF, military assistance, some investment, EC and OECD relations, bilateral aviation, FCN treaties, etc.). This is essential
because of the interaction between our strategic, political and economic
interests in individual countries and regions.
The memo concludes that it is not practical to challenge the systemic
responsibilities of Treasury and USTR
or attempt to take over institutional coordination now in the CCEA, CCCT, SIG–IEP and
TPC. The best solution for State to
gain influence is to solidify our bilateral and regional economic policy
role and strengthen our bureaucracy to do a good job as well as
substantively contribute on systemic issues. The last section of the
memo deals with implementing this option.
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Attached is a draft letter to Secretary Regan responding to his request and reflecting the
conclusions of this memo.4
The Treasury Request
The Secretary of Treasury has requested of the Secretary of State that
the debt renegotiating portfolio now held in EB be transferred to Treasury. This is not a new request
and talks have been held previously with Treasury on the Assistant
Secretary level. Treasury has no complaint about the arrangement except
that the portfolio is at State. This portfolio was passed to State from
Treasury in 1972 or 1973 because debt reschedulings were of a highly
political nature. It was agreed that all negotiating positions would be
mutually agreed between Treasury and State. The agreement has been
observed.
Treasury’s main observation is that other Finance Ministries have this
portfolio and they do not. In reality, only about half of the head
delegates at a debt rescheduling are from Finance Ministries, the other
half are from various official agencies. FRG is represented by their Economic Ministry; UK by their export credit agency (except at
larger reschedulings such as Poland and Yugoslavia, when the UK Treasury was in charge); Swiss by their
Economics Ministry; Sweden, Denmark and Italy by the Foreign Ministry;
Norway by their Trade Ministry.
Agreeing with Secretary Regan on
the basis of promised future cooperation would be an error. The Treasury
bureaucratic motto is “Cooperation is what you ask of others”. The
International Monetary Group (IMG) has not met in nine months. The
National Advisory Council only meets on a staff level. There is little
desire by Treasury leadership or staff to coordinate except at cabinet
levels. (The only bright spot is that the Treasury/State lunches at the
Under Secretary level have been revived.) A verbal agreement between
cabinet officers on coordination will have some short-term effect but it
will fade away and finally disappear when one of the cabinet members
party to the agreement leaves office.
There are very strong reasons for retaining the debt rescheduling
portfolio in the State Department. Such reschedulings are inseparable
from our broader foreign policy interests in individual countries and
they need to be controlled by State to assure that these interests
(political, strategic, regional security) are taken account adequately.
Other western countries, which do not have our global security role, can
afford to treat debt rescheduling as a more technical economic matter.
We cannot.
Present U.S.
Foreign Economic Policy Decision Making System
The system of formulation of U.S. foreign
economic policy is diverse as it is complex. There is no center of
policy but many centers. Policy
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making is split among numerous bodies and among a number of major
agencies: Treasury, USTR, State,
Commerce, Defense, Agriculture and NSC.
In theory broad policy decisions are made by consensus through cabinet
councils or interagency groups. Once policy is formulated, lead agencies
proceed to implement with minimal interagency clearance.
The attached chart, Exhibit 2, reflects the present organization, varied
subjects entailed and those agencies interested.5 However, the IMG functions have been assumed by the
SIG–IEP. The other financial
coordinating mechanism, NAC, only meets at staff level.
Conceptually it is easier to understand the formulation of U.S. foreign economic policy if it is
divided into systemic issues and bilateral/regional issues. The prime
systemic issue is trade and trade cannot exist without the international
monetary system. USTR and Treasury,
respectively, provide the lead roles in these fields. USTR uses the Trade Policy Committee
(TPC) but this overlaps with the
CCCT chaired by Commerce.
(Commerce should actually be limited to the trade enforcement function.
Policy and enforcement should not be in the same agency). Agriculture
also plays a major role in trade.
Treasury manages the international monetary policy through the CCEA, the SIG–IEP (replacing the IMG) and the NAC. In these bodies
they coordinate policy for the IMF,
G–10, G–5, international credit agreements and the multilateral
development banks (MDBs). The credit arrangements and the MDBs,
especially the IBRD, have both
systemic as well as bilateral and regional impact.
State Department controls bilateral and regional foreign economic policy.
The primary vehicle for coordination is the NSC (e.g. East/West economic policy) but we also use forums
chaired by other agencies. Under State purview, for example, are AID, ESF,
military assistance, EC and OECD relations as well as debt
rescheduling. The bilateral and political nature of reschedulings make
this an appropriate State Department responsibility. Probably most
important for involving State in the broad economic policy function is
our organizational role for the Economic Summits.
How Can the Department Increase its Leadership
Role?
The key point to remember is that trade and services reflect the only
flow of real resources internationally. They are the heart of foreign
economic policy. All other issues, including international monetary
policy, are part of this exchange process in that they enhance, inhibit
or specify
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the terms on which
these flows will take place. State Department has three options to
increasing its influence over the conduct of U.S. foreign economic policy: reasserting control over
trade, taking over the umbrella policy coordination function or
strengthening its position in the status quo.
The Trade Option
Over the last 20 years foreign economic policy has become increasingly
more important in foreign policy, but the Department’s role has
declined. The policy function has been increasingly fragmented in the
Executive Branch. Now Congress is pushing for further dilution by
forming a Trade and Commerce Department designed to be parochial and
responsive to domestic interests on trade issues. The fact that six
U.S. cabinet officers participated
in EC/US consultations indicates the attraction of other departments to
the foreign policy function.
If trade lays at the heart of foreign economic policy, then the key issue
in foreign economic policy is control of the trade policy function
housed at USTR. Congressional
sentiment to have this function returned to State is minimal and in fact
the opposite. USTR is created by law
and the head of USTR is designated by
law to be of cabinet rank. The USTR
staff have been very careful to write into legislation or legislative
history their responsibilities and prerogatives.
The evolution of USTR has caused
numerous problems:
- —
- Overlap of responsibility with State and Commerce.
- —
- Establishment of Ambassadors and a Mission abroad not under
the authority of the Secretary of State (and with little desire
to coordinate).
- —
- Lack of adequate personnel—few of those they have are of
superior caliber and they borrow heavily from State. A majority
of USTR officers in Geneva (to
include the DCM and the
Ambassador, Mike Smith)
are FSOs, seconded to USTR.
- —
- Duplication of functions between the Trade Policy Committee
(TPC) and the Cabinet
Council on Commerce and Trade (CCCT).
These problems could be solved by integration of USTR into State. There is no possibility
of turning the clock back to 1960. There might be a possibility
(admittedly slim) that USTR could be
taken out of the White House and constituted as a special agency under
the Secretary of State. This would reassert the role of the Department
and solve many of the overlapping jurisdictional problems with USTR. Under this scheme Commerce would
retain trade enforcement. All agencies would coordinate through cabinet
councils and Under Secretary-level SIGs. The TPC would become such a SIG.
The Institutional Option
The institutional option for returning influence to the Department in the
formulation of foreign economic policy focuses on the control of
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the coordinating function
rather than control over a major substantive issue such as trade. At
present there is no umbrella structure charged with coordinating foreign
economic policy. The SIG–IEP handles
some issues (mainly finance) while the TPC and the CCCT split
the trade portfolio. Occasionally the NSC will deal with economic issues, especially in the area
of East/West economic relations (pipeline, energy, credits, debt) or
where our strategic/political interests are affected. Treasury does its
best to discuss these economic issues in the SIG–IEP before they are discussed in the NSC.
The best solution would have been for the Secretary of State to have
chaired the SIG–IEP under the NSC structure. This would have allowed the
NSC to be the umbrella body. This
option has now passed. There are five cabinet groups charged with
foreign economic policy co-ordination: NSC, SIG–IEP, CCEA, TPC, and CCCT. Treasury
chairs two of these groups but responsibility for others is spread over
the other lead agencies. Coordination between groups takes place through
the same cabinet members serving on almost all the groups or through
more informal channels.
An attempt by State to pull these groups under the NSC or a new umbrella organ would be
poorly received and not worth the political cost. What could be
considered is expanding the State/Treasury breakfast to include other
key cabinet members from time to time to get a policy consensus on
important issues.
The Status Quo Option
Any general reorganization of foreign economic policy in the USG will take time and may not result in a
solution satisfactory to State. However, State can work to solidify its
lead in bilateral and regional policy and there is much that can be done
in State to improve its own organization to deal with economic
issues.
- 1.
- Continue to appoint knowledgeable and respected individuals to the
key posts of E and EB.
- 2.
- Build effective liaison with Treasury and USTR. (Reactivating the
State/Treasury lunches is an excellent start.) Ask that IMG and NAC
begin to meet as subgroups of the SIG–IEP so there is more staff preparation of
issues.
- 3.
- Carry out well, and don’t give up present bilateral and regional
responsibilities, to include debt rescheduling.
- 4.
- Consider reorganizing economics in the Department to reflect our
functions.
- a.
- Establish a Deputy Assistant Secretary for economics in
each regional bureau to assure well developed regional
policies.
- b.
- Build support in EB for
the economic summit role of E
and its East/West economic coordinating function.
- c.
- Consider moving the OECD
function to EB but
strengthening the EC
function in EUR.
- 5.
- Assure high quality economic officers in the Foreign Service;
assure they have a career and assure they work on economics, but
understand the broader strategic and political considerations
involved with economic issues.
I would like to expand on this last point. State competes against
permanent bureaucracies at USTR and
Treasury. Economics is a discipline that benefits by consistency and
study. Present Departmental rules rotate all officers out of Washington
every four years. You cannot build institutional expertise with this
type of rotation. The economic career path must be designed to fit the
needs of the Department in economics, not some arbitrary personnel
management rules.
Second, officers in the economic cone must be allowed good slots abroad,
when they go abroad. The system favors the political cone in senior
officer positions. Many top economic officers leave the Service because
they cannot be placed at the DCM or
Ambassadorial level. Certain posts should be designated as economic
posts (USEC, USOECD as well as key DCM
posts with major trade partners and certain UN posts).
Third, the Economic Bureau should be allowed “stretch assignments”
(placing officers in posts designated for individuals of higher rank) to
put well qualified younger officers in positions of responsibility. Rank
should not be the only consideration—again substantive need over
personnel theory.
Fourth, the FSI courses on economics
should be continued but with more emphasis on industrial organization,
institutional economics and political economy rather than its present
emphasis on quantitative methods.
Fifth, a strong research function should be built into EB using a mix of qualified FSO’s, term contracts, and external
consulting.
Sixth, efforts should be made to keep and hold a qualified critical mass
of economic analysts in the Economic Bureau and in the Policy Planning
Staff. A similar potential could be built over time in INR. The four year rule should not
apply.
Seventh, the economic sections in specific designated embassies abroad
should be strengthened and the economic talent in certain regions pooled
(Caribbean, Central America, East Africa, Sahel region, etc.) to improve
reporting capabilities. (The splitting off of the Commercial function to
the Department of Commerce has reduced the manpower available for
economic reporting and our talent training and recruiting base.)
Eighth, there should be a rotation in Washington between the regional
bureaus and EB to get more qualified
people on country desks.
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Ninth, key country desks in the regional bureaus should have economic
slots added. EB cannot follow all the
countries that need attention.
Conclusion
The trade option and institutional option are not real alternatives at
this time. The Department must concentrate on keeping, and improving on,
its regional and bilateral foreign economic policy emphasis while
contributing to the debate on broader systemic issues in trade and money
and finance. This means rejecting Secretary Regan’s request for the debt rescheduling portfolio and
concentrating internally on building up the Department in the economics
field.
Recommendations:
That you approve the following two initiatives:
- 1.
- That the responsible officers in the Department respond to the
suggestions made in the paragraphs on strengthening State
economic capabilities and add any ideas they may have. A report
should come back to you under M
guidance in two weeks or so.
- 2.
- That you sign the attached letter to Secretary Regan at Attachment 1.6
