Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

140. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, July 3, 1978

SUBJECT

• Summit Strategy

1. The essential US goal at Bonn is to strengthen world economy. More specifically we want:

a. German and Japanese economic expansion, which will help other European countries and the US.

b. European and Japanese MTN concessions, which will benefit the US and other industrial and developing countries.

c. Increased aid to LDCs—particularly by those with large surpluses, i.e., Japan and perhaps Germany.

d. Stepped up action on energy research, development, and production by all the Summit countries.

2. To assess the likelihood of these goals being achieved, we need to review the attitudes of other Summiteers. These are summarized below, on the basis of impressions that I formed at Preparatory Group meetings.

3. Schmidt wants a success, both because he is host and because of his domestic political difficulties. He is prepared to pay for that success with some German economic expansion (we don’t know exactly how much), if he can get what he wants from other countries in return:

a. He wants the US to limit oil imports. He believes that continuing heavy US oil imports will hurt Germany’s economy and would offset any German expansion.

b. He wants reduced trade barriers. He knows this is particularly difficult for the British and French.

He is also concerned about US inflation, but my impression is that he isn’t looking for any new US action—only for you to describe the existing program, which he will applaud; he wants to be convinced that you will stick to it, despite political costs.

He also wants a general US blessing for European monetary unification and US assurances that nuclear fuel supply will not be interrupted while INCFE is underway. This may provide us with some US bargaining leverage on other issues.

Schmidt (and others) may wish to stress the role of private investment in stimulating growth; this is in the draft Declaration; it makes sense and would be welcome to the business community.

4. Callaghan has a large stake in the Summit’s success, since he has spoken a good deal in the US about his role in producing a package Summit result. The main element in that package, as far as the US is concerned, is German growth.

Callaghan says that he is prepared to pay for that growth with trade concessions. It is not clear what or how significant these concessions will be. He probably has in mind that the MTN negotiations will fail to resolve key issues before Bonn, and that the Summit will give a political directive to shape their resolution in post-Summit negotiations.

Callaghan shares the general European concern about US energy policy.

He would like some apparent Summit progress on North-South issues; there is no evidence he is prepared to contribute more than forgiveness of some past LDC debts to the UK to achieve it.

5. Fukuda’s main goal is to do something about the problem that worries him most: the weakening US dollar. He also wants to turn back the protectionist tide in Europe. And he is anxious to get the industrial countries off his back on the Japanese surplus issue. In short, he wants a substantive success.

To achieve these goals, he may be prepared to pledge additional expansion measures; this depends on whether his present optimism about achieving 7% growth continues right up to the Summit and on whether Fukuda decides for electoral reasons to convene a special Diet session to which he might propose additional stimulus. Fukuda also says that he will improve Japan’s MTN offer, and that he will pledge additional aid to developing countries. This could be a fraud or a real increase depending on whether the base for his projected doubling of aid is 1976 (bad) or 1977 (good), and whether the comparison is in dollars (bad) or yen (good). He will want the other Summit countries to welcome these Japanese measures as an effective response to Japan’s surplus problem.

Fukuda is anxious to secure European concessions in MTN, and US assurances about energy and inflation.

Fukuda may invite the Summit to be held in Tokyo next year. This prospect would have a healthy effect on Japanese economic policy between now and then. My guess is that post-INCFE nuclear energy issues will also figure largely in the next Summit.

6. Giscard shares some of the other European countries’ concerns: Like the UK, he wants German growth; like Germany and the UK, he wants to know whether the US will limit oil imports; like Germany, he wants a general US blessing for European monetary unificiation; and like the UK and others, he would like some progress on North-South issues.

Giscard is not the host, like Schmidt; he has not talked up what he hopes to achieve, as Callaghan has; and he is not as hard pressed at home as Fukuda is. But he has goals he wants to fulfill, and the Germans believe he is prepared to make some trade concessions to this end. His representatives say that this would be France’s contribution to a successful Summit.

7. Andreotti’s representatives seldom speak at preparatory meetings, and then only to echo other European views.

8. Trudeau has a special interest in North-South relations. He will support aid to LDCs, particularly to help them produce more energy.

9. This run-down suggests that other leaders’ goals are, in varying degree, congruent with our own: Schmidt and Fukuda want a good MTN result; so do we. Callaghan and, to a lesser extent, Giscard want German and Japanese growth; so do we. Most of the other heads of government want to see more energy research, development, and production in the industrial world, and more aid to developing countries; so do we. They are likely to welcome your anti-inflation program and expressions of strong intent to prosecute it, such as you have voiced in recent US speeches.

Even on US energy policy what the other heads of government want you to do is what you may well want to do: pass the bill at this session or take administrative action in January. The question is how far you can go in committing yourself at the Summit to such action without eliciting a counter-productive domestic response. The other heads of government face somewhat similar problems: Schmidt and Fukuda on growth, and Callaghan and Giscard on trade. So all will want to agree on commitments that foreshadow progress without being so phrased as to reduce their margin for maneuver in overcoming domestic obstacles to that progress. You may be able to lead them toward greater specificity or generality in their pledges, depending on how you want to handle energy; their tendency will probably be to settle on more general language, given the problems that they face—particularly on trade, where large EC concessions are still needed.

Reaching agreement will be eased by the fact that at least three leaders—Schmidt, Callaghan, and Fukuda—want very much to achieve an evident success. Your Friday meeting with Schmidt² will provide an opportunity to work out an understanding about the types of agreement that would serve this purpose. Schmidt will breakfast with Fukuda just before the Summit, and could then share any conclusions that you and he had reached with the Prime Minister.

My guess is that what will emerge is a Declaration that contains rather general pledges on growth by Germany and Japan and on energy and inflation by the US, plus confirmation of any MTN progress and a directive to complete trade negotiations by a date certain (hopefully with some indication of likely movement in such key areas as subsidies). The Preparatory Group will be sitting as the heads of government meet; it could revise and amplify the draft Declaration along these lines, if that is the direction Summit discussion takes.

Such a Declaration would be less specific than some (including me) had hoped for. Fortunately, most of the press here—and according to our Embassy, in Germany—have been expecting even less. We will work to keep the expectations low. Nonetheless, there would probably be some press reports pointing out the contrast between such a Declaration and more specific outcome that Callaghan, Lambsdorff, and others had forecast. (If so, our answer should be that the test will be post Summit performance, not Declaration language.)

In addition to whatever is said about the more controversial items of trade, growth, and energy, the others will probably be ready to agree on the draft Declaration language stressing the need for expanded research, development, and investment in energy in the industrial countries, and the desirability of more aid to developing countries, including aid for energy production. These last two issues are important:

—We need increased energy investment in the industrial world; the pre-Summit energy working group that we set up developed some useful ideas on follow-up.

—Bob McNamara would welcome the draft Declaration’s strong support for IDA replenishment and the invitation for the World Bank to examine proposals for improving aid for energy production in developing countries. A strong Summit stand on foreign aid should help us with the US aid bill, which will be voted on after the Summit.

You may want to press for making these parts of the Declaration as strong as possible, and for effective follow-up.

10. Bob Strauss spoke to me of the need to avoid placing you in the position of being made to seem responsible for any lack of progress. I don’t see why this should happen, if we play our cards sensibly—since political considerations will probably constrain the other heads of governments’ pledges as much as yours, and since all of them will be more interested in taking credit for what they will portray as a success than in blaming others for a failure that would damage them all.

11. Nonetheless, you will be the leading figure, because of dominant US power. As in NATO, others will look to you to speak to the common interest, to the need for according it priority over more parochial concerns, and to the US willingness to play its full part in mutually reinforcing actions to this end. The other heads of government know of your problems with the Congress; they don’t expect the Summit to make them go away. But they want to be reassured about your own constancy in pursuing the larger goals that you and they share; they want to know that you will not be diverted, even if you are delayed, by obstacles along the way.

For this you don’t need briefing papers—only to speak your mind, as I have heard you do in meetings in the Executive Branch and with members of the Congress. If you do, the most important prerequisite to a successful Summit will be fulfilled.

What will it all add up to?

Mike Blumenthal said in his speech to the Press Club that the measure of a successful Summit is what happens in the year that follows.³

The measure of the Bonn Summit will be:

—whether the Germans and Japanese propose additional expansion to their parliaments this fall, and if so how much;

—whether the British and French make MTN trade concessions—either before or after the Summit;⁴

—whether your energy program prospers—having been more helped than hurt by what you did at the Summit;

—whether increased energy R&D and investment by Summit countries follows;

—whether the pledges for increased aid to LDCs are fulfilled.

I’m more worried about whether these later actions will take place than I am about the ability (which I suspect will be considerable) of the heads of government at Bonn to portray what they have achieved as a success. Limited and ineffective follow-up could lead to growing recrimination and divisions and, more importantly, to lost opportunities after the Summit.

It is trite to say that we are at a turning point, but in this case it seems to be true. The industrial world is poised between a relapse into protectionism and an advance which will, if it is to take place at all, have to extend to growth and energy, as well as trade. Bonn may not decide the issue, but it could give things a substantial impulse one way or another—not only by what is said in Declaration, but even more by what you and the other heads of government agree about effective follow-up.

At best, Bonn will be a modest success. But even a modest success could make a considerable difference in determining what directions things take in the year that follows.

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 13, President, Germany, 7/13–17/78: Economic Summit [I]. Confidential. Sent for information. Sent to Carter as Tab A of Owen’s July 3 cover memorandum forwarding briefing materials for the Bonn G–7 Summit. (Ibid.) Owen sent additional Summit briefing materials to Carter under cover of a July 11 memorandum. (Carter Library, National Security Affairs, Brzezinski Material, Trip File, Box 13, President, Germany, 7/13–17/78: Economic Summit [II])
2. Carter met with Schmidt on Friday, July 14, from 10:32 a.m. to 12:05 p.m. in the Chancellor’s office in Bonn. (Carter Library, Presidential Materials, President’s Daily Diary)
3. Blumenthal spoke before the National Press Club on June 30; a report on his remarks was published in the July 1 edition of The Washington Post. (Hobart Rowen, “Blumenthal Sees Danger in Fed Policy,” The Washington Post, July 1, 1978, p. D8)
4. Under cover of a July 4 memorandum, Owen forwarded three letters on the multilateral trade negotiations to Carter for his signature: one to Giscard, one to Schmidt, and one to Jenkins. Noting that Strauss had requested that Carter send the letters, Owen reminded him that “a large gap still separates the US from EC positions in these negotiations and a powerful political impulse will be required to close it.” Carter signed the letters, which are dated July 5. In the letter to Giscard, Carter expressed hope that the EC and the United States could reach “agreement on key issues in the Geneva trade negotiations prior to the Bonn Summit.” In the letter to Schmidt, Carter expressed hope that Schmidt could “convince your colleagues that the Community must be sufficiently flexible to negotiate a mutually satisfactory multilateral trade agreement.” In the letter to Jenkins, Carter asserted the need for Jenkins’ leadership to secure U.S.–EC agreement on a trade deal. (Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country Chron File, Box 12, Europe: 1978)