Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

146. Memorandum From the Chairman of the Council on International Economic Policy Operations Group (Samuels) to the President’s Assistant for International Economic Affairs (Flanigan)¹

Washington, March 3, 1972.

SUBJECT

• CIEP Study Memorandum 16 UNCTAD III

The third United Nations Conference on Trade and Development (UNCTAD III) is scheduled for April 13-May 19 in Santiago, Chile. It will be an important event in the evolution of DC-LDC relations.

Attached is the general strategy and position paper for that Conference requested in CIEP Study Memorandum No. 16. There is general inter-agency agreement on U.S. positions to be taken on all major UNCTAD III issues except debt relief and an interest equalization fund where Treasury has expressed opposition.² The dissenting Treasury positions on these two issues are spelled out in the paper.

The study calls for a generally forthcoming but low key approach to the Conference. We are not proposing major new initiatives on behalf of the LDCs, but plan to support LDC requests when these are reasonable and consistent with U.S. economic and political objectives. The proposed position is designed to make the best of a difficult situation in which demands of the LDCs are excessive and the prospects for new DC measures are not promising. Our general approach appears to be consistent with the strategy which other developed countries will follow at the Conference.

At UNCTAD III, we can expect the LDCs to press the U.S. hard on a number of issues: aid volumes, LDC participation in monetary reform, the SDR link, negotiation of a cocoa agreement, improved market access for LDC exports, investment problems, etc. What the U.S. does or does not do on GSP will have a particularly important impact on our posture and image at the Conference.

Significant U.S. positions contained in the attached paper are as follows:

1. SDR Link—In parallel with other DCs, the U.S. should indicate at UNCTAD III support for a study in the IMF of the relevance and desirability of a link between the creation of new reserve assets and development finance within the context of international monetary reform.

2. Debt Relief—The U.S. should be prepared to support further IBRD work on general guidelines for debt relief so as to make it as consistent as possible with development needs if this is sought by the developing countries, it being understood that such guidelines are not intended to indicate a broad policy of debt rescheduling. (Treasury does not support this position.)

3. Adjustment Assistance—The U.S. can accept recommendations at UNCTAD III, couched in general terms, that developed countries should seek to develop programs for adjustments to deal with the problems caused by increasing imports from the developing countries.

4. Export Development—As part of our planning for the Conference, the U.S. is exploring opportunities for expanding technical and financial assistance for export development. However, the U.S. would oppose recommendations which call on DC Governments to develop domestic programs designed specifically to encourage and promote the sale of imports from developing countries.

5. Foreign Private Investment—Without highlighting private investment as an issue in the UNCTAD forum, we should make clear the contribution of private investment to the development process.

6. AID Untying—We have indicated the current international trade and monetary situation must be clarified before negotiating a final untying agreement. Under present circumstances we cannot be forthcoming on this issue at the Conference.

7. Multilateral Interest Equalization Fund—The U.S. should oppose resolutions calling for the establishment of a multilateral Interest Equalization Scheme. However the U.S. could support an LDC initiated and supported resolution calling for the IBRD to study the feasibility of establishing a modest fund to subsidize interest-cost differentials. (Treasury supports the first but not the second position.)

8. Institutional—The U.S. should continue to recognize and support UNCTAD as an institution for discussion and consultation on problems and policies connected with trade and development. We should firmly resist pressures to make it more operational and a forum for negotiations.

9. Least developed—The U.S. should be willing to assist the least developed countries in terms of program proposals and to consider financial contributions possibly through the UNDP, the regional banks, or through bilateral programs

Nathaniel Samuels

Attachment

CIEP STUDY MEMORANDUM 16—UNCTAD III

I. Situation

1) UNCTAD III (April 13-May 19 in Santiago, Chile) will be one of the longest and largest international economic Conferences of recent years. Like UNCTAD I in 1964 and UNCTAD II in 1968, it will be a major event in the evolving dialogue between developed and developing countries. The LDCs have a long list of grievances and demands to present which were agreed to in November, 1971 at the LDC Ministerial level preparatory meeting in Lima.³ They have prepared carefully for UNCTAD III, attach great importance to it, and will press hard for new DC actions.

2) We do not expect major new agreements to be reached at the Conference to relieve the economic frustrations which now exist in the developing world. The developed countries generally do not appear prepared to undertake important new development commitments at this time of uncertainty and transition—over future aid levels, trade arrangements, the new monetary system, etc. Many LDCs understand the situation and have adopted realistic expectations for the Conference. However, some LDCs will adopt a very hard line with many of their sharpest attacks directed against the United States. There is a possibility that the Conference will be marked by confrontation between rich and poor along the lines proposed by the radical LDCs. We hope this situation can be avoided. With appropriate co-operation by all members, the Conference can make a constructive contribution to the development process.

3) The developed countries have been co-ordinating their positions for the Conference in the OECD and at Geneva. It is clear that they are not prepared to take major new initiatives for the LDCs, although certain DCs could propose surprise concessions at Santiago. Most DCs are prepared to be forthcoming on a number of relatively less important issues (least developed, export development) where they can demonstrate good will at little cost, but this clearly will not be enough to satisfy the LDCs. Cooperation among developed countries has been good. In contrast, the Group of 77 is widely split over issues such as special measures for the least developed, tactics for the Conference, and influence in international organizations such as UNCTAD. In general, US preparations and proposed positions are in step with those or other major developed countries. However, we can expect some criticism from other developed countries over our failure to implement GSP and our role in cocoa negotiations. We also can expect sharply divergent views on commodity issues; the US favors a commodity by commodity approach emphasizing market access whereas the Europeans, and particularly the French, support commodity arrangements to stabilize and raise prices.

4) The August 15 action by the President imposing the import surcharge and the ten percent aid cut drew criticism from the LDCs. The negotiations in the Group of Ten leading up the December 18 currency realignment decision brought forth LDC demands for greater participation in the decision making process affecting the international monetary order. The lifting of the surcharge and Secretary Rogers’ announcement of our intention to submit GSP legislation to Congress early in 1972 have improved the atmosphere somewhat.⁴ What the US does or does not do on GSP will have a particularly important impact on our posture and image at the Conference. In any event, we expect the LDCs will press the US hard on a number of difficult issues: aid volumes, GSP, cocoa, investment problems, the SDR-link, participation in monetary reform, etc.

5) Although currency realignment is a positive development, the mood of the country and Congress is not favorable to new trade and aid measures for the developing countries at this time. This general climate, together with the timing and site of the Conference and other economic policy considerations, will make it especially difficult for the United States to adopt, and later defend, forthcoming positions in response to LDC requests. We believe our participation at the Conference will have a significant, if short term, impact on our relations with the developing world. We should keep in mind that UNCTAD III is partly a Latin American event, and consequently the nature of our participation will have repercussions on our hemispheric economic and political relations.

II. General Strategy

The US should adopt a generally forthcoming but low key approach to UNCTAD III. We should carefully examine the issues and support new initiatives that have merit and are consistent with US political and economic interests. We should continue to seek a unified Group B position on major conference issues and cooperate in the OECD to achieve this objective.

At the Conference, the US should avoid confrontation with radical LDCs where possible and seek to win the cooperation and support of moderate elements. US statements at UNCTAD should be low keyed, emphasizing the economic merits of issues, and avoiding political polemics. Where there are reasonable grounds for LDC requests, we should support these. We should not highlight the private foreign investment issue in this forum, but should make clear the contribution of private investment to the development process.

In addition to responding to LDC initiatives, we should be prepared to offer sound initiatives of our own and to encourage other DCs to be forthcoming. An important US objective should be increased UNCTAD and LDC attention to LDC trade and development policies to promote their trade and development. This would be in accord with the self-help principle and their recognition in the Lima Declaration that the primary responsibility for the economic development of the developing countries rests upon themselves. Other important objectives should be to keep political attacks against the US out of the UNCTAD forum when possible, and to appropriately underscore our many past contributions to the welfare of the LDCs. To the extent possible, we should continue to recognize and support UNCTAD as an institution for discussion and consultation on problems and policies connected with LDC trade and development, while at the same time firmly resisting pressures to make it more operational and a forum for negotiations.

The proposed US position is designed to face the realities of a difficult situation since it is neither politically nor economically feasible to satisfy most of the LDC demands. However, if we demonstrate we are prepared to consider and discuss reasonable proposals and where possible to take action to support these, our posture will be defensible and in addition will make some contribution to development. Such an approach may discourage some polemics and acrimony; it should at least encourage constructive discussion of the issues and possibly even some atmosphere of good will.

As part of our preparation for the Conference, we believe the Administration should press for prompt and favorable Congressional action on International Financial Institutions (IFI) legislation including the IDA replenishment, Special Funds for the ADB and ordinary capital as well as the Fund for Special Operations (FSO) of the IDB. Approval of these requests would fulfill past and current US commitments to IFIs and reduce LDC criticism of US assistance levels.

[Omitted here are Section III, “Conference Issues,” and three attachments: an 8-page “Item by Item Review of UNCTAD III Agenda,” an 11-page paper entitled “UNCTAD III—Group of 77—Declaracion de Lima,” and a 3-page paper summarizing UNCTAD I (Geneva, 1964) and UNCTAD II (New Delhi, 1968).]

1. Source: National Archives, RG 59, S/S Files: Lot 73 D 288, Box 835, CIEPSM 16. Confidential.
2. According to a March 27 memorandum from Flanigan, the CIEP Review Group was scheduled to meet on March 29 to discuss debt relief and interest equalization issues, which needed further interagency discussion. Flanigan also suggested other issues the Group might take up. (Washington National Records Center, Department of the Treasury, Files of Under Secretary Volcker: FRC 56 79 A 15, CIEP Study Memoranda)
3. Reference is to the G-77 meeting in Lima October-November 1971.
4. Following the Smithsonian Agreement of December 1971 (see Foreign Relations, 1969–1976, vol. III, Document 221), President Nixon announced the lifting of the 10 percent import surcharge during his Summit meeting with Prime Minister Heath in Bermuda on December 20, 1971. See Department of State Bulletin, January 17, 1972, p. 63. Secretary Rogers, at his press conference on December 23, 1971, expressed satisfaction with “the measures we have been able to take this week which will benefit the developing nations, especially those of Latin America. I refer to the lifting of the 10-percent surcharge and the President’s decision to present legislation to the next Congress establishing generalized trade preferences.” (Ibid., p. 49)