Foreign Relations of the United States, 1969–1976, Volume XXXI, Foreign Economic Policy, 1973–1976

309. Memorandum From the Deputy Secretary of State (Robinson) to Secretary of State Kissinger¹

Washington, November 15, 1976.

SUBJECT

• Foreign Policy Directions and Issues: The Expanding Economic Dimension

This memorandum:

• —lays out a rationale for an expanding role for the State Department in the conduct of international economic policy,
• —reviews your major initiatives in this field, and
• —outlines current international economic issues which must be dealt with promptly.

International Economic Policy

The design and direction of U.S. foreign policy in the years ahead must be founded on a recognition of the growing economic interdependence of nations. The evolution of the world political order has become inseparable from the evolution of the international economic system. Foreign policy thus has become inseparable from economic policy.

No longer can we leave to chance the orchestration of independent economic agencies of government or of private business in their activities critically affecting our international economic relations. The effects of misguided domestic economic policies no longer can be confined within national borders. Similarly, misguided foreign political policies quickly send shock waves through the interdependent economic system, threatening access to oil and other essential commodities, or restricting the growth of trade and production, sometimes undermining confidence in currencies and triggering destructive counter-measures, even hostile confrontations.

Landmark Actions

As Secretary of State you have spurred greater recognition of these realities. We have strengthened the economic dimensions of our own foreign policy and energized international bodies dealing with these issues. At the same time, the State Department has become more sensitive to the economic issues and competent in the innovation and coordination of U.S. international economic policy.

While permeating all of our foreign relations, this integration of economic and political aspects of our foreign relations has been highlighted in these major, and continuing, efforts.

• —Harmonization of economic policies among the major industrial nations. In two economic summits, intensified consultation through OECD organs, and other ways we have started the difficult process of reconciling and coordinating national economic growth planning and measures dealing with inflation, recession, export subsidies, monetary growth—the “domestic” policies that impact on our partners of the industrial world and the opportunities of the developing nations. This effort has laid the foundation for multilateral efforts to shore up the economies of several key industrial nations.
• —Cooperation in dealing with energy problems. We have provided crucial leadership in building cooperation among industrial countries to meet the threat of an Arab oil embargo and to reduce vulnerability to cartel-dictated price increases. We have developed closer bilateral relations with key OPEC nations. Last week we launched a joint effort in the IEA to set international and national targets for reducing consumption of oil, a process that will require difficult U.S. decisions next week.
• —Building economic and technical links with Eastern Europe and the USSR. We have sought, in consultation with our western partners, to develop mutually beneficial commercial and technical ties with the East. Although extraneous factors interrupt this aspect of détente from time to time, this trend towards increasing economic ties is irreversible.
• —Global cooperation in prevention of famine. From your initiative in calling the World Food Conference of 1974 has flowed a series of international actions to expand food aid, enlarge agricultural development assistance, and undertake to create a system of food reserves to reduce vulnerability to major crop failures. Conclusion of a five-year grain agreement with the USSR was an important step in our efforts to stabilize international grains trade and require the Soviets to share the burden of maintaining reserves in good crop years.²
• —Rationalizing the North-South dialogue. Seeing a hundred new nations turning, in their frustration with unrelieved poverty and global economic inequalities, toward radical bloc politics, you undertook at the U.N. Seventh Special Session, at UNCTAD IV and in the design (with France) of the CIEC, to establish a non-confrontational dialogue with the South. Many of the challenges we face in the months and years ahead have been defined in this dialogue.
• —Defining reciprocal responsibilities of government and multinational corporations. State Department initiatives under your direction have brought about the OECD Investment Guidelines, which will influence constructively the drafting of a U.N. code of investor-government relations. We also have launched the drafting of a U.N. code to curb extortion and bribery in international business. Your proposal for an International Resources Bank represents an added initiative which could encourage more responsible MNC policies in resource development.
• —Technological cooperation. Recognizing the great potential of U.S. technology as a tool of foreign policy and a factor in development, you have laid out a comprehensive program of expanded technological cooperation with the developing nations at UNCTAD IV and initiated (November 17) a year-long series of planning sessions among U.S. public and private leaders in preparation for the 1978–79 U.N. conferences.³
• —Establishment of comprehensive international law and agreements governing the use of the seas and the seabeds. The LOS Treaty negotiations are a major piece of unfinished business which dramatizes the confluence of political and economic aspects of international relations.
• —Joint economic commissions. To broaden and deepen our relationships with selected key countries, you established bilateral commissions for economic and technical cooperation. These are paralleled in some cases by joint businessmen’s councils.

Pending Issues

This listing of recent landmark actions suggests many of the international economic challenges that will face the U.S. Government in the months ahead:

1. Financial crises in Britain, Italy, and Mexico, and economic instability in Portugal. The severe illness of these industrial and middle-income economies requires the combined ministrations of the IMF and other international economic bodies and the U.S. and other governments, coupled with painful self-help measures. Close State–Treasury coordination in these efforts must be maintained, and action must proceed now, without waiting for a new administration in Washington. The UK requires two imminent decisions—on whether to defer repayment due December 9 on the outstanding U.S. credit and on the conditions to be extracted for the final IMF drawdown of $3.9 billion. Further ahead is likely to be a new decision: what do we do for an encore?

2. OPEC price and Saudi oil production decisions. You have launched a comprehensive campaign to discourage a destructive price increase at the December 21 OPEC meeting, that is, in the widely predicted range of 10–15 percent. We are building on the longer-term educational effort mounted in the CIEC Energy Commission and bilateral contacts with OPEC leaders to reinforce Saudi resistance to a large price increase. Immediately ahead, the key to OPEC decisions will be Saudi willingness to increase production so as to maintain a threat to flood the market against price-maximizers. This will depend, in turn, on (a) Saudi belief in the will of consumer country governments to impose constraint on wasteful use of oil, (b) assurances against inflationary erosion of the value of Saudi financial surpluses, and (c) our actions in such political areas as Middle East peace-making and cooperation in Arab industrial and military development.

3. North-South relations. Here we face a set of politico-economic demands by the OPEC-reinforced bloc of LDCs. Common to their diverse demands is the goal of creating a more automatic system of resource-transfers from the rich to the poor nations. The LDCs seek to avoid deepening dependence on the uncertain and inadequate economic support of the industrial nations and of the multilateral financial institutions controlled by the major donors. Instead, they are pressing for a new international economic order that recognizes many of the LDCs’ claims as rights and puts the beneficiaries in charge of more of the allocations. We face early decisions on these issues:

(a) Commodity price support, stabilization, and production. The UNCTAD majority’s demand for a system of international management of commodity markets will come to a climax at the planned March 1977 UNCTAD negotiating session, preceded by two preparatory sessions and a series of preliminary meetings on individual basic commodities. The United States and Germany, with a few nervous allies, face an almost solid alignment of over 100 nations pressing for an integrated system of buffer stocks and market controls.

(b) Debt-relief. We have had some success in the CIEC in weakening the LDC–OPEC cabal’s demand for wholesale debt-relief for LDCs. We have offered new, more liberal guidelines for international creditor-club action to ease crushing debt burdens; we hope to reach agreement shortly with the other developed countries on an offer of additional aid to support the balance of payments of the poorest countries. However, debt-rescheduling is certain to be a prominent feature of our relations with LDCs in the years ahead. We must find ways to get greater participation by wealthier oil-producing countries in bearing this financial burden.

(c) Expanded economic and technical assistance. You recently presented to President Ford your closing summation of the case for reversing the downward trend in U.S. economic assistance to the developing nations. This is central to a successful North-South strategy. We cannot hold the line against the radical forces agitating for a global economic dirigism managed by LDC bureaucrats if we fail to demonstrate greater responsiveness to the acute inequalities of opportunity that are stoking fires of frustration in the poor countries. We cannot deal cooperatively with the great global problems of hunger, rampant population growth, inadequate human and physical infrastructure, and severe balance of payments deficits without a substantially bigger, continuing investment in LDC development. We cannot carry out programs of continuing strategic importance to our regional peace aims—such as in Egypt, Rhodesia and Zaire—without a more substantial and flexible assistance program. Most of our allies are making a bigger effort, in relation to their economic capacity, than we; the U.S. share of GNP devoted to economic aid has dropped to 0.24 percent, compared with 0.39 percent by other OECD countries. Congressional recalcitrance has put us nearly two years behind schedule in paying our subscriptions to the major international development banks.

(d) IRB for energy and mineral investment. Our domestic economic interests as well as the interests of the LDCs would be served by the creation of an international mechanism that would encourage both private and public investment in the more extensive development of the energy and hard mineral resources in LDCs. This investment is discouraged now by political risks compounded by high capital costs. You have proposed in several forums the establishment of an International Resources Bank—in effect a special program of the World Bank—to provide incentives for both foreign investor and host government to proceed with these projects.

(e) CIEC denouement. All of these issues in North-South relations are joined in the CIEC. Its concluding ministerial meeting is scheduled for mid-December. Postponement until next spring now appears likely, deferring the acid test of industrialized nation intent but with the consequent prospect of heightened LDC expectation of concessions by the United States and other advanced countries.

4. Trade regulation. A multitude of trade issues are pending, many of great bearing on our relations with key countries, with the European Community or with the LDCs as a group. Among them are: the final rounds in 1977 of the Multilateral Tariff Negotiations in Geneva, at which special concessions to tropical products and other exports of LDCs must be agreed; the imminent U.S. decision on a voluntary or mandatory program of meat import controls for 1977; and U.S. review early next year of the appeal by U.S. shoe manufacturers for import restraints.

5. Law of the Sea. We are at a critical point in the protracted effort to achieve a comprehensive international treaty. Progress at the next LOS conference next May–July probably depends on our credibly establishing the position that we seek but do not require an international regime for exploiting the seabed mineral deposits. We must proceed during the present intersessional period to develop an overall strategy and start implementing it through diplomatic consultations supported by appropriate use of the threat of unilateral U.S. seabed legislation. Prompt attention to organizational deficiencies also is essential.

6. Organization of U.S. Government for international economic policy management. Critical to wise decisions on these and other issues is the design and direction of the Administration’s system of foreign economic policy management, responsive to the President and in responsible liaison with the Congress. Each President and his key cabinet officers will have different views of what is wrong with their predecessor’s system. Your experience and observations on the past eight years from both the White House and State Department vantage points should be of great value to the new Administration. The key point, as you have often noted, is that the foreign policy management must comprehend and orchestrate all U.S. economic policy decisions and programs having a major impact on the world economic-political system.

1. Source: Library of Congress, Manuscript Division, Kissinger Papers, Box CL 336, Department of State, Economic Affairs, Oct.–Dec. 1976. Confidential. Attached to a December 23 memorandum from Robinson to Kissinger that reads: “In response to your request, I have set out below the economic and energy initiatives you have undertaken since becoming Secretary of State.” A detailed list of these initiatives is attached but not printed.
2. See footnote 3, Document 104.
3. On November 17, the Department of State hosted a “National Meeting on Science, Technology, and Development” for leaders in the U.S. corporate, labor, academic, and non-governmental organization communities. (The New York Times, November 18, 1976, p. 61) For the text of Kissinger’s remarks to the meeting, see Department of State Bulletin, December 20, 1976, pp. 725–729.