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

54. Memorandum of Conversation¹

Washington, September 16, 1977, 10:34–11:35 a.m.

SUBJECT

• Summary of the President’s Meeting with French Prime Minister Raymond Barre

PARTICIPANTS

• President Jimmy Carter
• Vice President Walter F. Mondale
• Secretary of State Cyrus Vance
• Secretary of the Treasury Michael Blumenthal
• Dr. Zbigniew Brzezinski, Assistant to the President for National Security Affairs
• Arthur A. Hartman, U.S. Ambassador to France
• George Vest, Assistant Secretary of State for European Affairs
• Henry Owen, NSC Staff Member
• Robert Hormats, NSC Staff Member
• Robert Hunter, NSC Staff Member (Notetaker)
• Alec Toumayan, Department of State Interpreter
• Raymond Barre, Prime Minister of the French Republic
• Louis de Guiringaud, Minister of Foreign Affairs
• Jacques Kosciusko-Morizet, Ambassador of France to the United States
• Francois de Laboulaye, Under Secretary for Political Affairs
• Henri Froment-Meurice, Under Secretary for Economic Affairs
• Jean-Claude Paye, Advisor to the Prime Minister on International Affairs
• Gabriel de Bellescize, Counselor, French Embassy

The President began by saying that he had phoned Chancellor Schmidt.²

[Omitted here is discussion unrelated to economic policy.]

The President said he understood that Barre and Secretary Vance had discussed some items.³ If Barre liked, he would go into SALT, MBFR, the UN disarmament conference, or to economics. He is at their disposal.

(Following some French discussions), the Prime Minister said he would begin with economics. (The President said fine.) Yesterday, he had defined with Secretary Vance (the President said “he told me”) the importance of talking about world economics. (The President said: “It would be very valuable to me, sir.”) There are two points: general economic activity in the world and the main problems; and what Giscard and he had said on commercial negotiations—“organized freedom of trade.”

General economic activity will be dull in the next two or three years. If three countries—the U.S., Germany, and Japan—are unable to sustain economic activity, then others will suffer, who have no margin of maneuver. The economies of Europe will go through a difficult period, with much psychological uncertainty. This is an inhibition on both economic partners and on governments. He has talked with Schmidt and his Government on this point. They are cautiously trying to avoid a relapse into inflation; but they understand the need to stimulate economic activity both to help Germany, and to benefit others. Germany’s new program is good, but it is important that the measures be implemented rapidly. Schmidt and Apel gave indications of their policy. But they have to discuss them with the Länder and the Bundestag to see if measures can be taken at once. If Germany takes measures that will only be effective in 1978, then this will be bad for Germany and for others. It would be better for Germany to take modest steps now, than more ambitious efforts that are hedged and work too late.

The Japanese program is a good one. But its economy more directly affects the U.S. than Europe, though it can indirectly help induce economic activity in Europe. For France, the situation now provides a greater possibility to intervene. For one year now, there has been an effort to stabilize the franc, improve the balance of trade, and improve the current account balance of payments—with encouraging results. If inflation remains high, it is not because of a basic inflationary tendency, but rather because of the need for adjustment in public utility rates, and in prices charged by firms. Before, there were strong wage price rises, and rises in the prices of imported raw materials. These repercussions were included in the price rises of the first six months of this year.

To the end of 1977, there will be a continued deceleration in price rises. They adopted measures at the end of August, to support economic activity: in housing, in building, in public works. They hope to avoid any recession this year. The rate of growth will be slightly more than 3%. The main problem is unemployment, deriving mainly from structural factors. This includes the growing number of women in the labor force, looking for part-time jobs. It is difficult to adjust this demand to jobs which are “firm.” There is also the problem of young people, where the issue is inadequate skills. They have specific programs to help them get more skills and qualifications. But this will remain a problem for France and for all other industrial economies for years to come.

A quick reduction of unemployment is very difficult to achieve, and it will be necessary to have social measures to offset the social and political consequences of unemployment for years to come. There are some conditions to be fulfilled. First, there needs to be better coordination of economic policies, with freedom of maneuver, and there needs to be an improvement of the basic economic situation. He hopes the Summit follow-up, with the seven nations, will help. Second, there needs to be stability at a realistic level of exchange rates, to avoid world monetary uncertainties. The soundness of the dollar would make a decisive contribution to an improved international monetary situation. Third, there is the need for the orderly development of international trade. We must fight protectionism. Our countries are so much involved in trade that if they back down, it would be damaging to all. Fourth, there is a need to adopt (mainly in the U.S.) vigorous energy policies to stabilize the international oil market, and to avoid pressure on oil prices. If the oil-importing countries face in the future regular and large price increases, how can they cope? We have adjusted—but this has not been fully implemented. We benefit from credits. We need to realize (Note: complete) the process of adjustment. Therefore, the stabilizing of international oil markets is fundamental. Thus, in France, they are reducing in all ways their dependence on oil imports.

On trade, Giscard told the heads of state and government in London that France favors the “organized freedom of trade.” Some say that this means France is moving to protectionism. This is absolutely ridiculous. For more than a year, as Minister of Finance, he has fought strongly against protectionism in France, against vigorous assaults in Parliament from some of France’s most distinguished leaders. He has succeeded in avoiding protectionism: why? It is not because of a theoretical position—like being for free trade. It is rather because of the growth of French trade in the last 10 years, so that it is now the number-four exporter in the world. It would be foolish for France to isolate itself, or reduce systematically its imports. This would lead only to retaliation, to rising unemployment, and falling exports. France depends on freedom of trade. It only asks for an orderly growth of trade.

In textiles, for example, they have signed the multifiber agreement, and will respect all their commitments. In the first half of 1977, for some textile products, the rise in French imports had been from 60 to 100%. This is destroying some medium-sized and little firms, in relatively non-industrialized parts of France. This creates big unemployment—maybe only a thousand people, but in regions that cannot sustain it. They had to invoke Article 19 of the GATT,⁴ since they could not tolerate this. But he has told visiting ministers from developing countries that France is not against the orderly growth of textile imports. If they could agree on an annual increase of textile imports of 10–12%—or something—that would be all right. Imports, after all, are good for fighting inflation, and for the international economy. But France cannot accept an “invasion”, with its disruptive social consequences. In the industrial countries—and in relations between the industrial and developing countries—there is benefit from know-how, technology, capital, low labor costs. But we need to find collective rules of the game, leading to an orderly growth of trade. They will give up this precise formula “Orderly freedom of trade” if this is seen as protectionist: that is not the object. The object is to discuss problems coming after the oil crisis, linked to nations’ eager competition to improve their balance of payments. We must get conditions for regular and orderly growth of trade. He hopes that collective rules of the game can be collectively accepted and implemented. This is absolutely necessary to maintain a satisfactory rate of growth of international trade.

He is ready to answer questions.

The President said that in his call to Schmidt, they had discussed the economic stimulus package. It was $3.5 billion in total: $1.5 billion in tax cuts, and $2.0 billion in public works—which depend on the regional governments. Getting them to go along would be difficult. After all, it is only possible to issue an order and have it done, in the United States!+1p! It is important for this to be implemented in Germany—but he has doubts about it. The Opposition wants more stimulus—$6–7 billion. How it will come out, he doesn’t know.

On Japan, this proposal for stimulus was at the middle of those suggested. He hopes they will do more to reduce their surplus. They have a favorable balance of trade, and we are trying to work more with them on a bilateral basis without protectionism. There has been a growth of Japanese exports as in TVs; and we have sought voluntary restraints. They were dumping in the U.S. market, which was against U.S. law.

On French growth, Barre’s figures are encouraging: 3% or so. We had thought it would be only 2.5%. This is good news. We have similar problems with high unemployment, although in the U.S. it will go down about 1% this year. There are pockets of high unemployment—among blacks and the young—where unemployment is extremely high. Economic growth will be less in the second half of 1977 than in the first half—but will be about 5% for the year; and not too much lower next year. We have an economic package of $21 billion. His economic advisers tell him that in the final quarter, we will see about $3 billion being felt, since we need time to implement it. In the first quarter of 1978, about $8 billion will be felt, and it will take the next two quarters to feel the rest. He thinks this is adequate, with tax reform and a lowering of tax rates, which will be effective over the years. There is also the trade balance, unemployment, and inflation. He believes that unemployment will continue to go down. But on the inflation question, he is not sure. The year in agriculture has been one of our best ever. This will mean lower prices for food, which will affect the overall rate of inflation. On labor contracts (with coal still to come), we have more or less managed to get by; and will have one to two years without a renewal of major negotiations, since many labor contracts are for three years.

Mike Blumenthal can talk on trade negotiations. Our assessment is for the need for quick and substantial progress at the MTN. His impression is that the French don’t want to see major action, quickly, or as much as do we. Is this erroneous? As a farmer, he can understand France’s problems with agriculture. This is difficult to handle. We are trying to work out a formula, with worldwide grain reserves and a sugar agreement. These are difficult problems. We are eager for progress at the MTN. Bob Strauss is a very vigorous negotiator; he will be no impediment to progress! Maybe he will even want to move further than France prefers.

Secretary Blumenthal said he has one comment, on the first part of Barre’s comments. We see the overall situation of most developed countries in the same way. He would add on freedom of maneuver: it is narrow for any nation, now, including the U.S. There are several objectives: getting inflation and unemployment down, handling energy, getting order in our international accounts and having a strong dollar—and these are not totally consistent with one another. For example, vigorous action to restrict imports of energy, if done too fast, would slow down the U.S. economy, and lead to unemployment and other actions. We do not have much elbow room. There is the problem of high imports on our balance of trade; a high current account deficit; the energy situation. These cannot be corrected quickly, but we are trying.

Progress at MTN is of considerable importance. There is pressure on the President because of the imbalance. Domestic groups seek restraints (it is not just the French feeling these pressures). Therefore the timetable—an ambitious one—is important. It will finally show some progress, and itself is a major accomplishment. We will do all that we can; and hope that France will help MTN keep on its calendar. There are ways to agree to a formula while leaving some things open. One can put in a “working hypothesis”, or some form of words. We could use French help in keeping to the October and November dates.

On orderly arrangements, the word “orderly” has a history. “Orderly marketing” (used by the U.S.) sounds good, but it really means quotas. The word, therefore, causes some concern; and it should not be seen as leading to protectionism. Safeguards are needed—we need them, too—as in textiles, steel, shoes (the Prime Minister said “shipbuilding”)—where all countries have some concerns. Therefore, we should go forward with the MTN timetable, so that there can be some significant cuts, no doubt with some exceptions, while negotiating minimal safeguards to protect against undue social consequences of too rapid growth. If the MTN calendar slips, it would be unfortunate. That would encourage protectionism in the U.S.—people will say we want our own measures to deal with the problem.

The President asked what political pressures are on Barre as the election approaches—for greater stimulation and more jobs? Are they significant?

The Prime Minister said that the election process had been going on since last October. He used to say there were no such pressures. They pursued cautious policies, while sustaining economic activity. They tried and succeeded in preventing a recession. But it is not possible to protect the franc, improve the balance of payments, and stimulate the economy vigorously. At the end of August, they contributed to growth (i.e. stimulus). If this can be consolidated, then next year’s growth could be 4–4.5%. Investment is going well for big and medium-sized firms. Ambassador Strauss will be in Paris next week, and he will see him. France is not against the good evolution of the MTN. They are not sure that the ambitious calendar can be fully respected—this could be the fault of other governments, too. They must consider proposals—and are not clear on them. It is important to discuss these issues efficiently.

For the other, he did not use the form “orderly market agreements”, since here this means cartels. The form implies orderly growth, and collective rules in international trade. It is not a definite idea. We need to discuss problems and do it by sectors. Textiles would have one arrangement; shipbuilding another. But they should be discussed to avoid difficulties: this is the meaning of the concept. But if these problems are not discussed, then the United States and other countries will move to protectionism under the pressure of public opinion.

[Omitted here is discussion unrelated to economic policy.]

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 35, Memcons: President: 9/1–18/77. Secret; Sensitive. The meeting took place in the Cabinet Room. Carter and Barre also met on September 15; a memorandum of conversation is in the Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Country Chron File, Box 12, France: 1977.
2. Carter spoke to Schmidt by telephone on September 16 from 9:30 until 9:40 p.m.; a summary of their telephone conversation is in the Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 35, Memcons: President: 9/1–18/77.
3. Vance and Barre met on September 15; a memorandum of conversation is in the Carter Library, National Security Affairs, Staff Material, Europe, USSR, and East/West, Hunter/Rentschler Trips/Visits File, Box 27, Brown (Harold) 11/21/77 Meeting with French Defense Minister: 11/77.
4. Article 19 of the GATT deals with “Emergency Action on Imports of Particular Products.”