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Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 lftw %0 Secret Weekly Summary State Dept. review completed Secret No. 0032/74 9 August 1974 Copy N2 so Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 'The WEEKLY SUMMARY, :-,sued every Frid the Orficrt of Current Intelligenc?;, report:, and a tcant Jevoloprnent-: of th.; we.>k through noon or freCV'C'otl,1 include, rr,ate; ral coordinated with or kesc,:;rch, and the Direc.torai.e of Science Topic!, requiring more conrprohensivse trea p:jblished separately as Spe-ial Reports contents. MIDDLE EAST AFRICA CONTENTS (August 9, 1974) EAST ASIA PACIFIC WESTERN HEMISPHERE 7 EC: Ties to the Developing States 8 Harassment of Berlin Traffic Ends 9 France: Giscard and Gaullists 13 Philippines: Distaff Diplomacy 15 Increased Su fat 16 Ethiopia: Military Still Dominant 17 Rhodesia: After the Election 18 India Moves to Curb Inflation 19 Peru: Demonstrations Fizzle 19 Chile: Crime and Punishment 20 Colombia: A New Government SPECIAL REPORT (Published separately) Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 25X1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Next 1 Page(s) In Document Denied Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 CYPRUS 14 i--9 The second round of the Geneva talks opened on August 8, with both Greece and Turkey accusing the other of failing to live up to the agreements reached in the first round. Efforts to negotiate a political settlement for Cyprus will be further complicated by political problems in the three capitals--Ankara, Athens, and Nicosia- which will make it difficult for any party to make significant concessions. 1 ~Nl [The Turks come to the conference table in the strongest position and have brought a con- crete proposal for the establishment of auton- omous areas for Greek and Turkish Cypriots. The Turks are prepared to use their military position on the island to back their demands for auton- omy and security for Turkish Cypriots. As one member of the Turkish delegation put it, "The victor has the greater right to dictate its own terms to the vanquished... and they have no choice but to accept our viewpoint.'~/ t In fact, the Turkish government's decision to pus for an autonomous Turkish administration within an independent Cyprus already represents a step away from the hard line advocated by some politicians in Ankara. There were early in- dications that Deputy Prime Minister Erbakan, SECRET Page 1 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 JBYA vlapt'~@~~,~~ yrto `t~?KVRfN1A L national ~Lefka airport Page 2 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 *Ankara CYPR J Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 %W leader of the minority party in Ecevit's coalition government, disagreed with the federal approach and favored outright partition. Rumors of serious differences between Prime Minister Ecevit and Erbakan were played down by Turkish officials this week, but the coalition remains fragile Ankara's facade of unity-established at the time Fof the Turkish decision to intervene in Cyprus--showed further evidence of cracks as former prime minister Demirel weighed in with some critical statements. Demirel, leader of the second largest party in parliament, claimed that "federation is unworkable." Later on, as the Geneva talks were resumed, he charged that the government should not be discussing the future security of Turkish Cypriots hen it could not guarantee their present security This latest statement by Demirel was appar- ently motivated by the recent barrage of press statements by Turkish and Turkish Cypriot leaders charging the Greeks with atrocities and with preventing relief shipments from reaching Turkish Cypriot civilians. These charges appear to be part of an attempt to head off what the Turks see as a Greek strategy of placing the onus for the Cyprus situation on Turkey Before leaving for Geneva, in fact, Turkish Fo eign Minister Gunes charged that the Greeks were conducting a press campaign to focus world attention on Turkish cease-fire violations. Turkish spokesmen have begun pointing out that the Geneva declaration called not only for a cease- fire, but for the Greeks to withdraw from Turkish enclaves, which as yet they have made no move to do,., ATHENS' POSITION tJ1 [Greek Foreign Minister Mavros, under fire at home for having conceded too much at the first round of talks, has hardened his public position and is now demanding the i ediate withdrawal ,. of all troops from the islan f /lavros has shown THE MILITARY SITU TION J'? ' The military situation, which had been rela- tively quiet since the cease-fire agreement, be- came more tense this week when Turkish Cypriot forces in the southeastern city of Famagusta moved into new positions on August 5. Heavy fighting broke out between the Turks and the Greek Cypriot National Guard. By Tuesday, UN troops had moved between the forces, but the situation remains tense in the city, with Greek forces taking up new defensive positions. Fama- gusta is important to the Turks because it would give them a deep water port for the unloading of equipment and troops. Turkish forces also pushed hard this week to capture the entire western part of the Kyrenian mountain range. On August 6, they began moving tanks and artillery into Lapithos and Karavas. By Wednesday, the Turks had reached the resort town of Vasilia, reportedly forcing a hasty retreat by the defending units of the Greek Cypriot National Guard. In an apparent reaction to the continuing tension, Athens moved 24 fighter aircraft to Crete early in the week. Since the fighting on Cyprus began, Athens has sent a number of fighters to Crete. The Greeks apparently have not increased the overall readiness of the forces there, however. The Turks, on the other hand, have main- tained their gendarmerie on alert and have aircraft on strip alert in southern Turkey. A number of aircraft recently were observed loaded with bombs, rockets, and napalm. These preparations may signal a Turkish intention to resume air strikes on Cyprus. It also could be a show of force to underscore Turkey's announced intention to assert its control of the airspace over the eastern Aegean. By consolidating their positions on the northern mountain range, the Turks have gained control of an important area of high ground over- looking the Kyrenia coast, where many Turkish forces and supplies are located. Ankara may also expect the Turkish holdings to be a key factor in determining where a cease-fire line could be estab- I ished. Page 3 SECRET WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 some flexibility, however. Although he has his departure for Geneva later this week. He did publicly said that his government opposed a so amid recriminations between left and right that federal solution, he added that the future status led him to threaten to resign. On August 5, the of Cyprus should be decided by the Cypriots,) House of Deputies elected Tassos Papadopoulos people themselves to fill Clerides' former position as president of the Relations between the two countries have bee further soured by Ankara's demand this week that all aircraft entering the eastern Aegean make their presence known to Turkish air traffic control centers. Ever since oil was discovered in the Aegean early this year, Ankara has been trying to assert its sovereignty in the area. Min- ister of Defense Averoff told a US official that the implication of the demand was that Ankara would attempt to enforce its unilateral assertion of the right to control air traffic in an area where Greece had long done so. The Greek Foreign Ministry has rejected the demand.) CLERIDES AND DENKTASH [Greek Cypriot leader Glafkos Clerides went to Athens and Turkish Cypriot leader Rauf Denktash to Ankara last weekend to coordinate positions for the Geneva talks. In Ankara, Denktash said that a permanent Turkish military presence on Cyprus is necessary and that an autonomous Turkish Cypriot area must include 30 percent of the island. Turkish Cy riots make up about 20 percent of the population Clerides described his consultations in 'Athens as "constructive," but he did not elabo- rate. While in Athens, he approved the appoint- ment of a new Greek commander for the Greek Cypriot National Guard. In an interview early in the week, Clerides rejected Denktash's proposal for a geographic federation as not only unwork- able but undesirable for both Greek and Turkish Cypriots. He proposed, instead, a plan for a cantonal-type arrangement providing for exten- sive Turkish Cypriot autonomy. 7 Upon his return to Cyprus, Clerides con- ed efforts to consolidate his position prior to house. Papadopoulos-who, along with Clerides, is co-leader of the Unified Party-will reportedly rClerides also named a new eight-man cabinet of nonpolitical moderates on August 8. Clerides shuffled the cabinet to make it more representa- tive and to ensure its supportfor any positions he might take in Geneva. The extreme rightist minis- ters he inherited from the short-lived Sampson regime apparently balked initially at handing in their resignations. The cabinet was reported to have resigned on August 6, but this was never confirmed officially. The government did announce, however, that preparatory work for the reorganization of the administration had started and "will be completed this week." The cabinet change-along with the reported depar- ture of Nicos Sampson from the island and the start of the rotation of the leading National Guard officers who took part in the anti-Makarios coup-will further diminish the power of the extreme right within the Greek Cypriot com- munity and strengthen Clerides' hand./ SOVIETS SEEK ROLE IN A SETTLEMENT /fhe Soviets continue to cast about for ways of influencing g the settlement of the Cyprus crisis. Their primary concern is that Greece and Turkey will end up with stronger positions on the island and that, as a result, Cyprus' nonaligned status will be threatened. 7 Late last week, General Secretary Brezhnev reportedly sent messages to the leaders of several nonaligned nations urging their support for a special session of the UN General Assembly. Al- though the Soviets seem to have had little success thus far in stimulating any real interest in the SECRET Page 4 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 *.r' JCUKC 1 ;,,. idea, a group of nonaligned representatives report- /2--edly met on August 6 to consider a proposal forbidding foreign military or political interven- tion in Cyprus and affirmin Makarios as the legitimate leader of the island.? .3a 1 Taking another approach, acting Soviet Fo r- eign Minister Kuznetsov told US Ambassador Stoessel early this week that the US and USSR should join efforts to end the conflict. Before the Cyprus coup, Moscow had held out the possibility of joint action, and it may once again be seeking 7US recognition of a formal Soviet role in the settlement of the problem:? e[Moscow fears that the longer Turkish and G e [Moscow troops remain on Cyprus, the greater will be the influence of these NATO members and the more likely will be a de facto partition. Ambas- sador Minin has protested that the Geneva accord speaks only of a reduction of foreign troops )-"within the shortest possible time," while the UN Security Council resolution calls for the "immedi- ate" withdrawal of all foreign troops. Despite these complaints, the Soviets probably are recon- ciled to some form of federation of the com- munities as long as it is within the context of an independent Cyprus. / 1 _With the increase in Turkish forces on the island and a new civilian government in Athens, Moscow has cooled on its pro-Ankara policy of i {, fThe Soviets have sharply attacked the tripar- the immediate post-coup period. The Soviet am- tite peace conference in Geneva. On August 4, bassador in Athens has been in official contact Pravda said the Geneva cease-fire declaration was/b with the new government, and Pravda has com- meant to delay a political settlement and to mended Athens for its positive attitude toward a e h t k n prolong the occupation of Cyprus. Soviet Am- bassador Minin, who was sent to Geneva as an observer, told US diplomats he was disturbed that (the Geneva accord failed to include any guar- antees for the future sovereignty of Cyprus? Cyprus settlement. The newspaper as even a a generally sympathetic view of Greek domestic developments, although it did warn that a threat from the right still exists. SECRET Page 5 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 SEUKET 'M'! SPAIN FACES THE INTER-REGNUM [The fragile state of Franco's health con- tinues to trouble the Spanish political estab- lishment. Both liberals and conservatives are un- happy about the uncertainty of Prince Juan Carlos' role as interim chief of state. Franco's condition is also stimulating a flurry of activity among opposition groups that are using the present time of political uncertainty to launch new organizations calculated to offer an alter- native to the continuation of Franco's system') k 'AThe announcement that Juan Carlos would preside over his first cabinet meeting on August 9 suggests that government leaders believe that even though Franco is out of the hospital, his recovery will be slow. In a conversation with US embassy officials in Lisbon this week, Don Juan-the Prince's father and pretender to the Spanish throne-cited reports he has received which indi- cate that Franco is not expected to live beyond Christmas at the Iates9 There is no evidence that the Prince is ex- ercis g any real power as acting head of state. The local press has emphasized the number of new laws promulgated in Juan Carlos' name, but all of these had been decided prior to Franco's hospitalization I Liberals and conservatives in the Spanish lea ership are concerned over the present interim position of the Prince. Those who favor liberaliza- tion are troubled that Juan Carlos might be dis- credited by events beyond his control, and con- servatives want all powers restored to Franco im- mediately. Don Juan, who is living in exile in Portugal, has indicated that his continued support of Juan Carlos' succession as chief of state is contingent on Spain becoming a genuine democ- racy in the post-Franco period.` -3! Meanwhile, various political groups opposed to the Franco regime are attempting to form coalitions in anticipation of the political oppor- tunities that are expected to arise in the post- Franco period. Spanish Communist Party chief Santiago Carrillo and democratic oppositionist Rafael Calvo Serer, who has been in exile since his newspaper Madrid was closed by the government three years ago, jointly announced in Paris on July 29 the formation of a "Democratic Junta." It reportedly includes a variety of figures from throughout the political spectrum-including Communists--but it has all the appearances of a Communist-directed popular front. The two leaders appealed for support from alleged "re- cently formed" Spanish military juntas, although there is no evidence that such juntas have been created. By suggesting that such groups do exist, Carillo and Serer probably hope to attract sup- port from Spani ds sympathetic with recent events in Portugal. SECRET Page 6 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 ,: VLV1 .I-. 1 c y. EC: TIES TO THE DEVELOPING STATES Last week in Jamaica', the EC and 44 Afri- can, Caribbean, and Pacific developing states- mostly former French colonies and British Com- monwealth partners-took an important step to- ward establishing a world-spanning trade associa- tion. The meeting put wind back in the sails of the year-old negotiations to replace EC agree- ments with 17 African states and Madagascar, which expire next January. A number of prob- lems remain, and details must be worked out by experts who will meet this fall in Brussels and at another ministerial meeting in November. The final agreement is expected to be signed in Lome, Togo, early next year. Meanwhile, the ministers set guidelines for further negotiations in three areas: SECRET Page 7 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 EC headquarters in Brussels Export Earnings fort fh144. The EC agreed to consider, among other criteria, the deterio- rating terms of trade experienced by the develop- ing states when setting the prices for EC imports of certain products such as coffee, cacao, peanuts, bananas, raw cotton, and palm oil. The com- munity agreed also to reconsider prices whenever earnings from one of these commodities drop below a given threshold. Nevertheless, the com- modity agreement falls short of the developing countries' demands for revenue guarantees on all exports. Because the agreement is the first to recognize the developing countries' demand for protection of their purchasing power, it estab- lishes a precedent for future commodity arrange- ments between developed and developing states. Trade Cooperation. The EC will offer free access to the community market for all products from the 44 except agricultural products covered by the common agricultural policy. The develop- ing states will not be required, as they had been under the old agreement, to provide the EC with free access to their own markets in return. Industrial Cooperation. The conference set guidelines for a program that would encourage European sponsorship of new industry in the developing countries. Details will be worked out during the fall. The biggest problem will be the amount of aid the EC will give the 44 developing states. EC officials believe that the developing states' request for $8 billion over five years is largely intended to prod the EC into raising its present offer of $3 billion to $3.5 or $4 b[Ilion. HARASSMENT O BERLIN TRAFFIC ENDS )The East G rmans have apparently ended their harassment of overland travel by employees of the newly established Federal Environmental Office in West Berlin. Bonn remains bitter, how- ever, noting that Pankow has demonstrated its willingness to restrict transit traffic, even if only temporarily. A transit commission consisting of both East and West German representatives met at Bonn's request on August 6, but made no progress. This setback was not entirely unexpected, and the West Germans will probably make another de- marche to the East German Foreign Ministry. Although recognizing that the East Germans are not likely to be impressed by this diplomatic activity, Bonn prefers to keep the affair in bilat- eral channels in view of the reluctance of the Western allies to consider recourse to four-power consultations. Bonn also believes that such con- sultations would be an acknowledgement of Pan- kow's claim that the environmental office is a violation of the Quadripartite Agreement. Bonn, in any case, may not be able or willing to push the issue much further. There have been no traffic delays or incidents directly related to the environmental office since July 31, making it difficult for Bonn to dramatize the transit prob- lem. The Soviets and East Germans, for the pres- ent at least, appear willing to let the issue fade, but they remain in a position to impose selective controls on transit traffic whenever they wish to press the charge that the West has violated the Quadripartite Agreement. SECRET Page 8 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 During his eleven weeks in the presidency, Independent Republican Party leader Valery Giscard d'Estaing has had considerable success in consolidating his control over the Gaullist dep- uties who dominate parliament. Giscard has been ably assisted by Prime Minister Chirac, a maverick Gaullist. Chirac has successfully solicited support for Giscard's current programs, but there are also indications that he is building his own power base among the remnants of Gaullism and that this ultimately could lead to a confrontation with G iscard~ s card and Chirac have been firm with the Di Gaujlists, but they have avoided unnecessarily provoking them. The Prime Minister's major enough to serve easily as a new focus for the Gaullists, and only Olivier Guichard has any chance of servi g in the cabinet during Giscard's seven-year tern-A Chaban-Delmas plans to try to form his own enter-left party, while Michel Jobert hopes to rally the small but influential segment of the population who sympathize with Gaullist nationalism and anti-Americanism. Many Gaullists stjll seem partially stunned by their loss of power. ' 1 Sanguinetti is still trying to pull the Gaullists to ther, but his efforts have an air of unreality! His proposals include an official name 4rom "Union of Democrats for the Republic" to "Popular Democratic Assembly"-and increased 25X1 policy speech to the Assembly on June 5 directly sattention to youth, a belated recognition of the .14 met Gaullist concerns and contained virtually -steady leftward drift of Gaullist youth that may nothing to which they could object. So far, there well be too little and too late. have been no parliamentary defections and Gis- card can count on a solid majority-all except 20-25 ultra-Gaullists-for his programs! 25X1 The docility of the Gaullists is in large part due'to a recognition that their popular appeal has shrunk and to their loss of leadership. Partial legislative elections scheduled for late September could result in further losses. The Gaullists are so disorganized that they made no official comment after Giscard's first press conference-a move without precedent. Their newspaper, La Nation, ceased publication on July 12, the same day that Gaullist Secretary General Sanguinetti publicly pledged his allegiance to Chirac. Meanwhile, Chirac has succeeded in postponing the Gaullists' national congress, originally set for November, until next year-by which time he expects to have tightened his control 31 ! Despite 16 years in power, the Gaullists lack both a tight structure and a formal method of choosing a new leader. Secretary General Sanguin- etti, a technician, was never intended to be Pompidou's heir. The Gaullists' cohesion-on which their political future depends-is strongly challenged not only by Giscard's determination to form a new centrist majority but also by the rivalries and alienation of well-known Gaullistq None of the "barons" has a following large Giscard reviewing Bastille Day parade SECRET Page 9 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 JLVr1L 1 LAOS: "A COMMUNIST CARETAKER" Prime Minister Souvanna Phouma has des- ign ted Lao Communist Deputy Prime Minister Phoumi Vongvichit to head the coalition govern- ment during his convalescence abroad. Phoumi, who also serves as foreign minister, expects to take over before Souvanna's departure for France, now anticipated for sometime around August 20. Phoumi's selection as temporary "acting prime minister" marks another success for the Lao Com- munists in their effort to gain the upper hand in the four-month--old coalition. I majority o non-Communist coalition cabinet ministers reluctantly agreed to Phoumi's selection at a special meeting convened earlier this week by their own deputy prime minister, Leuam In- sisiengmay. The non-Communists insisted, how- ever, that Phoumi's duties be limited to the "regulation of government business" and that both sides share equally in making decisions. Phoumi apparently agreed to this formulation. ""' Defense Minister Sisouk na Champassak, who represents the interests of southern rightists and the non-Communist military establishment in the cabinet, did not attend the August 5 meeting. He has since voiced strong opposition to Phoumi's temporary succession.] The sudden about-face by the non-Com- munists---who had previously maintained that Leuam and Phoumi should jointly head up the government--resulted from Phoumi's revelation of a secret written agreement between Souvanna and the Communist negotiators. Just before the signing of the peace protocol last September, Souvanna promised that, in the event of his absence from the country, the senior or eldest minister from the Communist side would serve as his temporary replacement: Phoumi had, in fact, already begun to assert hirrfself as acting prime minister. He had taken the initiative for the cabinet meetings held since Souvanna's heart attack. Although he shared the chair with the lackluster Leuam, Phoumi clearly dominated the sessions F There is growing apprehension among the `h n- ommunists that Souvanna may never be able to resume his official duties. For the first time since the Prime Minister was stricken, the non-Communists on August 5 seriously consid- ered the problem of selecting a permanent suc- cessor? V' r+ They generally agreed that their first choice shod be a political nobody from outside the coalition structure, and decided on Prince Khammao, the president of the King's Council. The second choice was Interior Minister Pheng Phongsavan, a strong candidate for the prime min- istership because of his neutralist credentials. I As a possible third choice for the prime ministership, the non-Communists surprisingly agreed that they could accept nominal Pathet Lao leader Prince Souphanouvong-provided he would place nationalism above Communist objectives and would be acceptable to the US and other Western powers] Souphanouvong is already campaigning for pthe`job. He has held a series of informal meetings with leading military and political power-brokers on the Lao right, the ostensible purpose of which was to keep tensions low during Souvanna's in- capacitation. The conservatives are convinced that the Prince's "opening to the right" is intended to SECRET Page 10 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 q (I 41 T rLast year, Army Day (August 1st), the fourth of China's five major holidays, was a tepid affair with several top leaders, including Chou En-lai and Madame Mao, skipping the customary reception given by the Ministry of National Defense, and China's three major newspapers omitting the usual joint editorial. There was no editorial again this year, but the leadership turn- out was much more impressive. In a move almost d to demonstrate the unity of l l t i l t y ca cu a e cer n a the national leadership despite the divisiveness of the anti-Confucius campaign, all but one of the active Peking-based Politburo members attended this year's gathering) y * Reading the turnout in every sense was Chou En-, making his first appearance since his hospitalization last month. As if to underline his leading role, the Premie entered the hall-to lengthy applause-several paces in advance of the other top leaders. Politburo mem- ber Yeh Chien-ying, in his capacity as de facto defense minister, acted as host and delivered the traditional toasts. As usual, Mao did not attend'., The reception was highlighted by the return of a number of senior military officers purged during the Cultural Revolution. Among them was a former chief of staff whose reputed opposition to Madame Mao contributed to his disgrace. Also present were several prominent rehabilitated civilians, who had surfaced at the Tenth Party -,Congress last August. Both groups were listed t among the "also present," suggesting that they have not been given official posts:' " ',~I A~ten ante Wang I lung wen oung. vice chairman of_the party w o=prornrnen e t the enth Party De facto defense minister and arr_ally of "Chou En=tai. Chu Te Retired army vmarshal ancf lion r ry; powerful members gf the Politburo=arrd may be the secretary general ?cad the party. Chiang Ching Wife of Mao and leader of the radical faction on 64e= frtburo. Li Hsien-nien Finance mrndterend long trrrseassdd ofChou, Chen Hsi-lien Chi Teng kuei Former provincial figure v Fro ma s be responsible for fhe trade yo fm Celebrations in the provinces seemed decidedly low-keyed. Many provinces failed to publish a list of those attending local gatherings--- an indication of the unsettled leadership situation gin many areas. Military men who hold govern- ment and party posts in the provinces have been heavily criticized during the anti-Confucius campaign-7 SECRET Page 11 Group;: indirectly er ierzed earlier the yed la the rad oa7 faction Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 JCl.r1- rz- 0 '7" )The reduced status of the military since the Cultural Revolution was reflected in a number of small ways during the holiday. The toasts and attention accorded the People's Liberation Army on their day were fewer and less effusive than in past years, although they were in keeping with the limp affair last year. Moreover, the day passed without a clue to any break in the long-standing impasse over the selection of a new defense minis- ter or chief of staff; both posts have been vacant since the Lin Piao crisis almost three years ago j Chou's theatrical entrance and his seemingly deliberate performance as he moved from table to table exchanging toasts should help to reassure his 1followers that the Premier's recent illness is neither political nor so incapacitating that he is unable to participate in the affairs of state. The attempt at a show of unity is likely to be less convincing for most Chinese. The twists and turns ,L1 in the anti-Confucius campaign over the past year have made clear that the toD leadership remains SECRET Page 12 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 PHILIPPINES: DISTAFF DIPLOMACY Philippine first lady Imelda Marcos will make a "cultural" visit to China in mid-August. Mrs. Marcos, who considers herself the country's premier diplomat, has long wanted to be the first important Philippine visitor to Peking, and stories of an impending trip have appeared in the Manila press frequently during the past two years. Al- though the visit will be largely ceremonial, it is in line with Manila's efforts to improve relations with Peking:) 5" [For two years now, President Marcos has given great publicity to his desire to redress the balance in Philippine foreign relations by opening ties to Peking and Moscow. Although Manila has had a great deal of contact with Moscow, there has until recently been little substance to the rhetoric about Peking. Marcos is now showing serious interest in improving state-to-state rela- tions with China. He believes that Peking is poten- tially an important trading partner for the Philip- pines, particularly as a supplier of rice and oil.7 [Marcos wants to expand relations with Peking without disrupting Manila's important commercial ties with Taipei. He is undoubtedly trying to prepare Taipei for the considerable publicity that will surround Mrs. Marcos' trip and to convince the Nationalists that he has not abandoned his cautious policy toward Peking} According to Foreign Secretary Romulo, Mrs. Marcos' trip is tentatively scheduled for August 17. The composition of her party has not yet been decided, but Romulo said that no senior foreign affairs officials will accompany her. To help boost Mrs. Marcos' image as an important figure in Philippine foreign relations, however, her trip may result in the public announcement of some new agreement, probably the recently con- cluded contract for oil imports. SECRET Page 13 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 INTYRNA'1'I() NA1. The current session of the Law ofthe Sea Conirence in Caracas has reached mid-point, with the basic issues still unresolved and little prospect of reaching agreement during this sum- mer's session. There is a growing belief among the participants at the conference that two more ses- sions may be needed to draw up a new treaty governing the navigation, use, and exploitation of the oceans. Progress has nevertheless been made in Caracas, and many countries, now familiar with the complexities of the issues involved, have abandoned positions based on regional or ideolog- ical loyalties for more flexible approaches. The land-locked group remains a major exception. There has been no lessening of their demands that they be given extensive rights in the waters of the coastal states and that they benefit from exploitation of the seabed and its resources. The business of the session has been trans- acted in the conference's three committees: ? Committee I-the deep seabed and the rules and machinery for its exploitation. ? Committee 11--the territorial sea and economic zone (including straits). ? Committee Ill-marine pollution, scien- tific research, and transfer of technology. As expected, the question of the extent of control by a seabed authority over the com- mercial development of the resources of the international seabed area has been a difficult one. Moreover, a deadlock over the insistence by the coastal states that resolution of their rights in the economic zone not be divorced from the dis- cussion of marine scientific research and pollution questions threatens to stall completely the deliberations of the second and third committees. In an effort to break this deadlock, a com- promise proposal was submitted to the con- ference last week by Canada on behalf of nine sponsors. Concerned almost exclusively with coastal states' rights, it proposes to extend the sovereignty of coastal states to include resources, pollution control, and freedom of navigation and overflight within the economic zone. The proposal was tabled over the heavy objections of the land-locked states, and both the major developed and the land-locked countries have rejected it as a basis for further negotiation. Most countries at the Caracas session, however, are continuing to negotiate seriously and still hope to produce at least a draft of treaty articles before the session concludes on August 29. SECRET Approved For Release 2008/06/25: C Pane 14 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 INCREASED SUPPORT FOR ARAFAT 7'0 Moscow increased its public support of the Pal Stine Liberation Organization last week. It nevertheless stopped short of officially endorsing the organization as the only representative of the Palestinians, apparently in order to retain its flexi- bility on the Palestinian issue at the Geneva con- ference and to avoid cutting its ties with other fedayeen groups.] The communique of August 3 skirted the issue of whether Yasir Arafat's visit to Moscow was official and failed to say under whose aus- pices he was received. It referred only to Arafat's meetings with Soviet party secretary Ponomarev and First Deputy Foreign Minister Kuznetsov Kuznetsov subsequently told US officials that Moscow had not explicitly recognized the PLO- and the call for PLO participation may have widened the split between pro- and anti-nego- tiation elements within the fedayeen movement. Moderates like Arafat favor PLO participation in peace efforts, but "diehards" like George Habbash of the Popular Front for the Liberation of Palestine oppose a negotiated settlement and believe that the current efforts toward such a solution will fail') Prior to Arafat's visit, Habbash openly criti- cized Moscow for assuming that a satisfactory political settlement of the Palestinian question could be found. Habbash and other opponents of negotiations may call a special meeting of the Palestine National Council to discuss what they as was evident from the communique-but added- brand as a "violation" of the PLO program that the recent conference of the Palestinians had(" adopted on June 9. At the June meeting, it was made it "more or less clear" that the PLO is the agreed to delay a decision on the attendance of only organization that can speak on their behalf./ the PLO until the organization was formally in- ..:t_ he Soviets called for Palestinian participa- tion at the Geneva Peace conference, saying that the PLO should attend "with rights equal to those of other participants." Kuznetsov subsequently qualified this support by saying the Palestine issue should not be allowed to delay the reopening of the conference, which he emphasized was an urgent matter. He said the details of Palestinian participation could be worked out later, The Russians also consented to the opening of a PLO office in Moscow, but the communique contained no details. The Egyptian ambassador to the USSR believes the PLO office will be ac- credited to the Afro-Asian Solidarity Committee and will have no diplomatic status. The Egyptian added that rumors that Moscow planned to supply arms to the Palestinians were probably untrue since the PLO can get weapons from sev- eral Arab states, including Egypt.? Palestinians Differ Over Negotiations The Soviet reaffirmation of support for a ful settlement of the Middle East problem SECRET Page 15 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 SECRET mm Ethiopian military searching for officials this spring frihe appointment last month of a new duri!g the last six months as a result of political civilian prime minister-Mikael Imru-has done turmoil and the arrests of over 100 former nothing to ease Ethiopia's painful transition to a officials, is likely to become even less effective. A new political era. Friction between civilians andi? military cabinet would lack the talents needed to the military--and within the armed forces them run the government, while the only alternative-a selves-continues to inhibit efforts to get govern- capitulation by Mikael-would further sap the ment machinery moving again] cabinet's confidence and damage the morale of Military moderates, ranging from majors down to sergeants, are the dominant political element. They are loosely organized under the Armed Forces Coordinating Committee in Addis Ababa-the core group of a network of com- mittees beset with junior-senior, ideological, and regional rivalries. The committee is a controlling ' o- 411 Until this past weekend, it appeared that the committee was willing to share de facto authority with a cabinet of civilians whose political and social outlook tended to parallel their own. A bitter quarrel between Prime Minister Mikael and the military committee over the composition of his cabinet threatens to upset this arrangement, however. Mikael, while accepting the committee's choices for the defense and interior ministries, disregarded its suggestions on four other ministries.1 Ranking officials in the ministries already are avoiding decisive action for fear of being denounced. Moreover, the additional persons arrested last week by the military for trial on charges of corruption and abuse of authority for .4he first time included medium- and lower-echelon force in the ad hoc structure of government-6_ employees. As the dragnet broadens, civil servants ostensibly presided over by a civilian cabinet-t?' will inevitably be primarily concerned with their that is trying to hold the country together in anticipation of the issuance of a new constitution sometime later this year. Some senior officers opposed to the old aristocr is system may exert influence behind the scenes. I own security. Meanwhile, inadequate drought relief and all the other serious social and economic problems that precipitated the February uprising continue to fester. SECRET Page 16 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 he parliamentary election last week con- represent the 7,000 blacks who are allowed to firmed Prime Minister Smith's leadership of vote. Other members of the assembly are in- Rhodesia's beleaguered white settlers. His victory directly elected from tribal groupings. occurred in the face of a second year of active insurgency and the prospect that events in neigh- / [Shortly after the election, Smith said he was boring Mozambique will benefit the Rhodesian invi [Shortly a representative group of black leaders to insurgents. It is doubtful, however, that Smith's a conference to attempt to resolve the consti- victory will help him achieve his goals of securing tutional impasse. Bishop Muzorewa, president of a constitutional agreement with leaders of the 4he African National Council, has already said country's black majority, British recognition oft`tat his group will boycott the conference unless his breakaway government, or an end to inter- Smith releases other council leaders who are national economic sanctions)" 9 under detention. Smith might be willing to make concessions to get council leaders to attend the Smith dissolved parliament in June when conference, but they would probably be out- leadrs of the African National Council, the numbered by compliant blacks such as traditional largest black political organization in Rhodesia, tribal chiefs. The UK is unlikely to agree to any rejected his latest constitutional recom- settlement that is not acceptable to the council./ mendations. Under Smith's proposal, Rhodesian blacks, who outnumber whites 20 to 1, would be Smith presumably hopes that at the con- prevented from securing a majority in parliament fere ce he can drive a wedge between Muzorewa for at least 40 years. During the campaign, Smith and more militant council leaders. The militants, claimed that the opposition white Rhodesia Party according to Smith, are collaborating with guer- had encouraged the African National Council to rilla leaders opposed to any negotiations with the reject his proposal. He denied that the council's government. It appears, however, that recent stand was truly representative of black opinion' events may be pushing Muzorewa closer to the >R I In the election, Smith's Rhodesian Front ` Part won all 50 of the seats allocated to whites fSmith's campaign rhetoric gave such heavy in the assembly. Candidates who supported the emphasis to his determination to maintain white 17Oouncil's stand won seven of the eight seats that supremacy that Muzorewa and other black SECRET Page 17 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Rhodesians may well feel that there is nothing to be gained from dealing with him. The council's rejection of Smith's terms last June seems to have been vindicated by the election victories of the black candidates approving this stand. 11 Muzoreva no doubt expects that a black government will soon emerge in Mozambique, and that such a government will support the black Rhodesian nationalist organizations that are waging the insurgency against the Smith regime. Thus, Muzorewa-who has always opposed the use of force--is under some pressure to reach an accommodation with the leaders, or to outbid them for international support. Smith has appar- ently ruled out any dealings with leaders of guer- rilla organizations in Rhodesia. INDIA MOVES TO CURB INFLATION A The anti-inflation measures announced last rIth underscore Mrs. Gandhi's deep concern but fail to reach the heart of the problem-the government's unchecked deficit spending and severe shortages of industrial and agricultural goods. The new program reflects her effort to stem rising wholesale prices, which in recent weeks have climbed at an annual rate of more than 40 percent, following a record 28-percent for the year ending June 30, 1974. The new legislation will impound salary and wage in- creases, limit dividend payments to not more than one third of after-tax profits, require income tax- payers to bank 4 to 8 percent-depending on income-of gross salaries over $1,900, and sharply curtail commercial credit./ /';' New Delhi has also imposed some minor new taxes on unfinished products, which will boost revenue by about $300 million. Government expenditures, however, will probably exceed the current budget by $750 million. Although New Delhi's supplementary budget is an attempt to raise additional revenue, there is little chance that the government can h Id deficit financing to $156 million as planned.( t.v )Mrs. Gandhi has asserted her intention to rin~ inflation under control even at the expense of her popularity, but in her efforts to raise revenue and regulate incomes she has steered pretty well clear of agriculture, India's pre- dominant economic activity and the principal potential source of revenue. The Indian consti- tution reserves to the state governments the right to tax farm income, but state governments are heavily dependent on large-scale farmers for political support and have not taxed farm in- comes, which have increased sharply since 1966. New Delhi recently urged the states to increase agricultural taxes and to stop subsidizing water and power used for irrigation. Should the dis- appointing monsoon season continue, the conse- quent price rises for basic commodities will put additional press re on New Delhi to take more strenuous action/ lAnti-inflation measures also leave virtually untouched "black" money-currency that has evaded being taxed-which amounts to an estimated $625 million, or about 5 percent of the money supply. Rumors persist, despite denials from New Delhi, that the government is consider- ing demonetization measures-reduction of the face value of high-denomination currency notes and bank accounts-that would surface sub- stantial amounts of this "black" money. Govern- ment officials maintain, however, that such meas- ures are not in the offing. While the current measures are designed to reassure the people that the government is taking action, New Delhi finds it increasingly difficult to retain popular support when its efforts fail to halt the inflationary spiral. High prices, combined with shortages and alleged corruption in govern- ment, could stimulate another round of urban unrest similar to that of last winter. SECRET Page 18 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 The government also announced that at least 25X1 PERU: DEMONSTRATIONS FIZZLE ' FThe anti-government protests that erupted in Lima last week following nationalization of the pity's major newspapers petered out by the week- end after the Interior Ministry issued a toughly worded ban on further demonstrations and warned that police would open fire if there were more disturbances.1 some of the 400 people arrested during the pro- tests would be tried and that 100 vehicles im- pounded by police would be sold to pay for damages. The demonstrations were centered in a middle-class residential district and appear to have been led by young supporters of Fernando Belaunde Terry, the exiled former president vho was overthrown by the armed forces in 1968 Minister Mercado at Lima's main army officers club. The guests, including Cuban First Vice Prime Minister Raul Castro, were forced to retreat indoors from a show on the patio when tear gas permeated the area. Two evenings later, a caravan of cars-license plates covered-stopped in front of the Soviet embassy. The occupants peppered and sped away. formally charged, however, including high-ranking officials of the Allende regime and leftist party leaders Most of the 60--odd defendants were military en, but civilian Carlos Lazo, a former vice presi- dent of the state bank, was one of those SECRET )Although the protests were more of an emb rrassment than a danger to the military gov- ernment, they do show that the Peruvian middle class has not been totally cowed. Official spokes- men played down the incidents and emphasized ghat the disturbances were staged by "those who have lost their privileges forever. :%' Unlike many of the military government's earl' r revolutionary moves, the press take-over hits middle-class Peruvians close to home. It may have jolted many into heightened concern over the possible consequences if President Velasco's plans for further changes in Peruvian society are implemented, and there may be more manifesta- tions of middle-class apprehension in the months ahead. CHILE: CRIME AND PUNISHMENT :t} if )Verdicts and sentences in the major public trial held by the air force between April and June finally were issued last week.7 commuted to 30 years imprisonment on August 5. The relatively quick commutation indicates that the military government has grown increas- ingly aware of the damage that the executions last _' year have done to Chile's international image. The rest of the sentences are under review, and at least The protests peaked on July 29, when an some of the prison terms probably will be sub- ly crowd disrupted a party hosted by Prime .,.)tantially reduced. About 1,800 of the officially Pane 19 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 SECRET 1' condemned to death. Former Socialist senator Erich Schnake got 20 years. The most serious charges involved leftist attempts to promote insubordination in the air force and the passage of military secrets to the "enemy.' Defense lawyers had argued that since the offe A ses allegedly were committed before the coup that overthrew the Allende regime, the trials should have been held before a peacetime military tribunal rather than a wartime court-martial. Prosecuting attorneys countered with the proposi- tion that the state of war predated the coup. The issue is crucial, since some minor peacetime in- fractions of the militar justice code are major violations in time of war-1 I In a 234-page opinion, the air force court ruled that an undeclared state of war came into being years before the coup, i.e., with the organi- zation of leftist paramilitary forces-the "enemy"-and the "mobilization" of the armed forces to combat political violence. Having de- clared that a state of war did exist when the offenses were committed, the court went on to cite precedents such as the Dreyfus case and the Stalin purge trials to demonstrate that an "enemy" ' can exist even in peacetime. The opin- ion ignored defense ,Charges that torture was used to obtain confessio fi \Good legal arguments can be made on both sides of the question of when the state of war began, but on the whole the air force court's opinion is more a political tract than a legal ;analysis. The reviewing officer based his decision to commute the death sentences on the previous good records of the defendants. Some military men feel there should be no mor spectacular public trials, and the gov- ernment seems unsure how to proceed against its most prominent prisoners. Whatever the decision, however, it is likely to reflect the military's de- termination to continue to do things its own way despite heavy criticism from abroad. 25X1 Alfonso Lopez Michelsen was inaugurated Pres dent on August 7, ushering in a new political era for Colombia. His administration is the first to succeed the National Front coalition in which the dominant Liberal and Conservative parties had been allied since1958. Lopez, a Liberal, defeated the Conservative candidate in the election last April by almost a two-to-one margin, and the Liberal Party gained control of both houses of congress. f In his inaugural address, Lopez indicated that he would follow through on the largely economic thrust of his campaign. Colombia's most significant domestic problem is inflation, which reached 24 percent in 1973 and is likely to be even higher this year. Lopez has called for voluntary wage and income controls, but he has promised to impose controls if necessary. He is also likely to implement tax reforms and to de- crease foreign borrowing) Prior to the inauguration ceremony, Lopez ann unced his 13-member cabinet. Like the four cabinets of the National Front presidents, the new one is divided equally between Liberals and Conservatives-six portfolios to each party and the 13th, defense, to an army general. Although the Front has technically ended, this first post- coalition administration is required to maintain political parity in appointive positions.) ` President Lopez, who served as foreign r'ni i ter from 1968 to 1970, is an aggressive supporter of independence and pluralism in Colombian foreign relations. He is expected to strengthen trade ties with Communist countries, encourage the end of sanctions against Cuba, and take a protectionist stand on natural resources. Although critical of some aspects of US policy toward Latin America, President Lopez is ex- pected to do nothing to threaten Colombia's traditionally warm relations with the US. SECRET Page 20 WEEKLY SUMMARY Aug 9, 74 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 25X1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Secret Secret Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Secret Weekly Summary Special Report Ostpolitik from Brandt to Schmidt Secret N?. 58 August 9, 1974 No. 0032/74A Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 OSTPOLITIK FROM BRANDY TO SCHMIDT Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Summary SECRET The Guillaume espionage case and Chancellor Brandt's subsequent resignation occurred at a time when Bonn's Ostpolitik was showing some signs of rejuvenation. Despite this setback, neither Bonn nor Pankow wished to reverse what had been accomplished under Brandt; they proceeded to establish diplomatic relations shortly thereafter. Chancellor Schmidt, a major figure in Brandt's government, wants to maintain continuity in relations with all the Eastern countries, but he plans to pursue a more cautious policy in line with his more modest expectations of what can be ac- complished. The difference between Brandt's and Schmidt-'s policies will be most evident in their differing views on economic cooperation with the East. Brandt and his chief foreign policy adviser, Egon Bahr, wanted to move in this direction, hoping to get the government more actively involved in promoting trade and financing industrial projects. They regarded Ostpoli tik as a long-term process, designed to preserve the possibility of German reunification by slowly overcoming the division of Europe. Schmidt, a politician more attuned to problems within the Atlanticcom- munity, gives highest priority to the threat of economic instability that Western Europe faces as a result of the rising cost of raw materials and energy. He argues that the need to control inflation rules out the granting of large credits or loans to the Eastern capitals. Although interested in industrial projects that promise deliveries of energy from the Soviet Union, he has informed the Soviet leaders that at present Bonn cannot afford to give financial assistance. Schmidt's parsimonious attitude will displease the Soviets, who will make their impatience evident when the Chancellor visits Moscow this October. Bonn's decision to establish a Federal Environmental' Office in West Berlin this fall has also soured bilateral relations. From all present indications, however, neither side wants a confrontation to develop over this issue. Their goal will be to create as much favorable publicity at the summit meeting as possible since no major agreements are likely to be concluded. Special Report 2- August 9, 1974 SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Jrk..,n~ i ;~ In the long run, we are very keen -if only for the sake of supplying our economy with raw materials and energy--on raising trade with Moscow and the other East European countries even further. From the Soviet Union we want great quantities of raw materials of every description: natural gas, crude oil, possibly electric current.... We must be prepared to grant credits once the situation concerning our export surpluses has become somewhat more favorable again. That will be the case in one or two years. The Soviet leaders know that at present we are close to the edge of our capacity. Chancellor Schmidt June 12, 1974 Background The collapse of the Brandt government fol- lowing the Guillaume affair came at a time when Bonn was about to conclude its efforts at re- storing normal political relations with the USSR and Eastern Europe. Brandt was particularly in- terested in establishing a new relationship with the "other Germany" based on trust, and he looked forward to the opening of diplomatic re- lations with East Berlin. Upon leaving office, however, he had only the bitter feeling that he had been victimized by East German machi- nations. The revelation of Guillaume's espionage ac- tivities in the chancellor's office also came at a time when Brandt's critics were claiming that Ostpolitik had already come to a dead end. Many parliamentary deputies on both sides of the aisle were pointing to the widespread public feeling that Ostpolitik had failed to live up to the expec- tations raised by the chancellor. To be sure, the general atmosphere of Bonn's relations with the East had certainly im- proved, compared with the hostility and recrimi- nations that characterized the first 20 years of the Federal Republic's existence. Ostpolitik had helped free a new generation of West Germans from the burdens of the past and had permitted Bonn to have the same kind of relationship with the East Europeans that the other Western na- tions enjoy. The Brandt government could also pride itself on contributing to East-West detente, and could claim that the current series of multi- Special Report lateral negotiations would sible without Ostpolitik. never have been pos- The government could also point to such tangible gains as the improvements in transit and traffic privileges that allowed greater access to East Berlin and East Germany. The Quadripartite Agreement on Berlin, which went into effect after the Bundestag ratified the non-aggression treaties with the Soviet Union and Poland, reaffirmed Western legal rights and access to the divided city. More West Berliners and West Germans have since been able to visit the "other Germany" than at any time since the Berlin Wall was erected. Auto- mobile traffic between West Germany and West Berlin rose by nearly 17 percent in 1973, and travel by West Germans to East Berlin and East Germany jumped by almost 62 percent during the same period. Nevertheless, by the end of 1973, enough difficulties had emerged to convince many West Germans that Ostpolitik was running out of steam. Although Bonn went on to establish diplo- matic relations with the remaining East European countries, these governments refused to give a formal guarantee that West Berliners traveling in their territory would receive legal assistance as part of the usual consular services. They referred West German officials to Moscow to settle the issue. Most disappointing of all was Pankow's de- cision in November to double the minimum August 9, 1974 SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 currency exchange requirement for travel to East Germany. This tactic reduced visits by roughly a third from the 1973 level. Officials in Bonn and West Berlin protested strongly but had no means of forcing Pankow to reverse its action. In response to this situation, Brandt and Bahr wanted to prove that Ostpolitik was not stagnating, hoping at the same time perhaps to distract public attention from other problems that the chancellor was encountering on the domestic scene. During his 11-day visit to Mos- cow in early March, Bahr discussed Berlin issues with Soviet leaders and made preparations for the chancellor's visit to the Soviet Union later this year. Some progress was made in negotiating a scientific and technological agreement as well as a bilateral legal assistance agreement extending such services to West Berliners. West German and Soviet officials were in fact trying to conclude these negotiations when the Guillaume affair became public. During Bahr's visit, the Soviets announced that they were prepared to pay cash for nearly $1 billion worth of equipment to be provided by West German firms during the first phase of the Kursk steel mill project. The Soviet decision removed pressures on Bonn to subsidize the project and, at the same time, underscored Mos- cow's interest in giving Brandt a badly needed public relations boost after his party's defeat in the Hamburg state elections. The East Germans, for their part, agreed at about the same time to place diplomatic relations on a firmer basis by exchanging permanent mis- sions with Bonn. A few weeks later, the two Germanies concluded three bilateral accords in the humanitarian field. West Berlin officials, who had often charged that Brandt and Bahr were sacrificing the city's interests for the "broader" goals of Ostpolitik, were gratified that Bonn's permanent mission would be allowed to provide consular services for West Berliners and that the three inter-German accords also applied to West Berlin. Thus, just prior to the Guillaume affair, Special Report - 4 - Ostpolitik was again showing some signs of progress. Chancellor Schmidt clearly does not have the commitment to Ostpolitik that motivated Brandt and Bahr. Like most residents of Ham- burg, where he was born, Schmidt looks westward and is convinced that West Germany's future lies in its relationship with the Atlantic community. Schmidt's principal areas of interest are financial policy, European monetary cooperation, and de- fense problems pertaining to the Atlantic al- liance-a subject on which he acquired consider- able expertise as defense minister in the first Brandt government. In his government declara- tion on May 17, Schmidt stated that he intended to place a high priority on dealing with domestic economic problems---something that many voters felt Brandt had failed to do. The dismissal of Brandt's protege, Egon Bahr, from the cabinet and from the post of federal plenipotentiary for Berlin was another sign to some that the new Chancellor intended to substitute a policy of "benign neglect" for Brandt's active policy to- ward the East. Despite these developments, Schmidt has stated publicly that he intends to travel to Mos- cow to meet with Brezhnev later this year, prob- ably in October. His decision came as a surprise in Bonn where the Guillaume affair still rankles and where many believe that the East should have first demonstrated its good intentions before Schmidt agreed to visit Moscow. Actually, East Germany soon made a move in that direction. In an apparent effort to make amends for the damage the Guillaume affair had done to bilateral relations, Pankow announced in late May that it would be prepared to hold bi- lateral talks concerning the currency exchange requirement and economic cooperation, espe- cially industrial projects involving the delivery of energy to West Berlin. Pankow's forthcoming attitude was probably the result of prodding from Moscow. Both the Soviets and East Germans are aware that Schmidt August 9, 1974 SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 No?r JC%/RC I 1 is in a strong position in view of the reluctance of most West Germans to see Ostpolitik moving again if the price is additional political and eco- nomic concessions. The bilateral talks so far have not taken place. Schmidt's decision to go ahead with a sum- mit meeting with Brezhnev this fall reflects the value he places on maintaining continuity in rela- tions with the East. He is aware that since its revival by foreign minister Schroeder in the Erhard government more than a decade ago, Ostpolitik has become a permanent dimension of German foreign policy. A pragmatist, the new Chancellor also realizes that he must keep open his channels to Moscow and is anxious to estab- lish personal contact with the Soviet leaders. Any sign that he was allowing detente to wither would raise serious problems for Schmidt with his col- leagues in the Social Democratic Party and would disappoint the East Europeans who had no role in the Guillaume affair. Schmidt indicated that he was aware of these considerations when he praised the previous government's efforts at detente in his maiden speech to the Bundestag. Moscow likewise has no intention of allow- ing inter-German problems to undermine its rela- tions with Bonn. As long as Bonn does not adopt an anti-Soviet line, Moscow seems prepared to do its part to keep relations between the two states on a businesslike basis. Brezhnev and Brandt were able--over a period of time----to develop a relation- ship that enabled both sides to discuss their prob- lems in a candid fashion. There is no reason to believe that the Soviet leaders will be unable to deal effectively with Schmidt, even though they view him with some caution. The Soviets prob- ably believe he is bound by the agreements they concluded with Brandt and that he will not radi- cally alter bilateral relations. Their demonstrated desire for Western technology and long-term credits is another factor underlying their apparent interest in assuring stable relations. The East Europeans also have a strong in- terest in expanding relations with Bonn. Their eagerness for greater trade and economic coop- Special Report Economics Minister Friderichs (1) and Chancellor Schmidt eration with West Germany will not be affected by their need to support the political interests of their East German ally. In the past, several East- ern regimes have grumbled that the East Germans enjoyed the economic benefits of inter-zonal trade for years while slowing efforts by others to establish diplomatic relations or to expand trade with West Germany. Now that the two Germanies are developing their political relationship within the framework of the Basic Treaty, Pankow has little say over what the other East Europeans choose to do in their relations with Bonn. Finally, and perhaps most important, there are no major political disputes between Bonn and most of the Eastern capitals. The Eastern regimes, moreover, have had to end their vitriolic attacks against German revanchism to prove their com- mitment to detente. Despite the extent to which Bonn's relations with the East have been "normalized" and the August 9, 1974 SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 interest of both sides in keeping them that way, sources of past and future friction continue to exist. The complex issue of legal assistance for West Berliners traveling in the East is a good example of this. Most Eastern governments allow West German embassies to provide consular services and, as a matter of practice, legal assist- ance to West Berliners. They insist, however, that Bonn has no authority in cases involving West Berlin courts. West German and Soviet negotia- tors have reached agreement on a formula to solve the issue but remain deadlocked on the manner of official Soviet acknowledgement. Schmidt and Brezhnev may discuss this issue when they meet this fall. Bonn's decision to establish a Federal En- vironmental Office in West Berlin has also been a troublesome issue. The Chancellor wanted to avoid what he regarded as an unnecessary con- frontation with the Soviets Special Report Pressure from some coalition leaders and West Berlin officials, particularly Mayor Klaus Schuetz, forced the government to follow through with the original plan. Federal President Scheel signed the enabling legislation on July 22. The East Germans have retaliated by under- taking spot checks of travelers on the autobahn. There have been no serious disruptions of traffic, but one employee of the Environmental Office was denied the use of the access route. At Bonn's request, the Transit Commission established to handle such matters met on August 6. Bonn hopes to resolve the issue in the commission and prevent it from causing further trouble. The Soviets, for their part, regard such ef- forts to strengthen West Berlin's ties to the Fed- eral Republic as violations of the Quadripartite Agreement and have strongly protested Bonn's decision. Although Moscow regards the issue as rie rf thr main ~ dera t ons tri tie , ormulation o ge thu h appr, 1w et r~ rt'dee c Sao curs the rem/Lotion than the sc tion to e erma bl question s, on eivatble, neither through an etto ,.or throe h ar s let t bunt i s the re u t x a h s1ora, pr cess t 6 r,JulyX973 rd1-ut~rgAa M_g ch SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Cl~KC 1 one of prestige, it may not seek an open confron- tation because the Western allies have agreed to support Bonn. Soviet diplomats in Bonn have suggested measures that would prevent establish- ment of the office from undermining their legal position. Specifically, they seek a guarantee from the West that this office will be the last federal institution to be established in West Berlin. Officials in Bonn will not reverse their plans to have the office fully manned sometime this fall, but they may be willing to go along with a possible decision by the Western allies to give the Soviets some form of assurance. Mayor Schuetz, on the other hand, will most emphatically oppose any agreement, formal or informal, that would curb efforts to strengthen the city's ties to the Federal Republic. The Chancellor will almost cer- tainly discuss Berlin issues with Soviet Foreign Minister Gromyko when he visits Bonn in mid- September. Whither Ostpolitik? Beyond keeping such issues as these from becoming too aggravated, the basic problem facing Chancellor Schmidt and his government is how to give continued meaning to Ostpolitik. Actually, there are only two areas that offer opportunities to extend Ostpolitik beyond what the Brandt government achieved. Cultural exchanges are one such area. West German and Polish historians, for example, are meeting annually to revise school textbook inter- pretations of World War II. As a result, future generations of West German and Polish youth may have a less acrimonious relationship. Ideo- logical differences, however, still pose limitations. This is particularly true with regard to East Ger- many, which wants to purge from its citizens' minds any notion of German unity by empha- sizing the Marxist foundations of East Germany's political, social, and economic system. Conse- quently, Bonn is encountering difficulties in nego- tiating a cultural agreement with Pankow. Cross-cultural understanding is more likely to be advanced by tourism. Travel to the East is a kind of everyday Ostpolitik-largely outside gov- Special Report ernmental direction-in which first-hand exposure tends to weaken old prejudices, many of which have nothing to do with ideology. The number of West Germans on vacation or business trips to Eastern Europe has grown tenfold in the past decade-and now reaches nearly three million each year. Although the Eastern capitals welcome the tourists for their hard currency, they are still worried that exposure to Western ideas and in- fluences poses a threat to their system of government. Ostpolitik and Eastern Trade Despite the attention given to cultural co- operation and tourism, trade and industrial co- operation is of far greater importance to govern- ment and business circles in West Germany. Actually, nothing could better illustrate the dif- ference between Brandt and Schmidt on Ostpoli- tik than the manner in which each has viewed economic cooperation with the East. Brandt's Approach Last November, Brandt appointed Bahr as chief government coordinator for all economic cooperation with "state-run economies." In preparation for visits to Washington and Moscow to discuss East-West trade, Bahr formulated new models for economic cooperation with the Soviet Union and Eastern Europe. Emphasizing the bilat- eral approach, Bahr's plans had two objectives: to boost German imports of raw materials and fuels from the East, and to make West Germany more competitive in financing large-scale industrial proj- ects in these fields. Bahr favored the creation of a financial institution modeled on the US Export/ Import Bank that would offer loans and credits to support projects promising to generate imports of raw materials. These ideas were presented during Bahr's visit to Moscow in March. The Soviets were interested and agreed to study the proposals further. These models, though ostensibly directed toward practical considerations, were more an indication of Brandt's and Bahr's eagerness to shape policy in terms of their own political philosophy. Both men looked upon Ostpolitik as August 9, 1974 SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 SECRET 1957 Other 51% The Evolution of West German Trade 1969 `Includes Great Britain, Ireland & Denmark. .. Includes East Germany & Yugoslavia, a long-term process, the next phase of which would be economic cooperation. Their overall goal was to set in motion an "historical process" that would ultimately help break down the exist- ing political, military and economic blocs in Europe, a process that would eventually over- come these divisions and make German reunifica- tion less remote. Both men shared a Bismarckian perspective that saw Germany as a force in central Europe with valid interests in the East as well as the West. The four-stage plan for the demilitarization of central Europe that Bahr drafted in 1968 when chief of the Foreign Ministry's policy and plan- ning staff illustrated his line of thought. It envisioned the gradual creation of a demilitarized zone by means of renunciation-of-force agree- ments and troop reductions. Berlin would then eventually serve as the administrative center for the zone, which would include, at the minimum, the two Germanies, Poland, Czechoslovakia, and the Benelux countries. Special Report Growing pessimism about the a ility to create a new security system for Europe in the foreseeable future prompted Brandt and Bahr to turn their attention to trade and eco- nomic cooperation with the East. Both men evidently hoped to further the "historical process" of pan-European cooperation by offer- ing the Eastern capitals more of what they so long desired-Western technology and trade. They justified their views by arguing that the conflict between the two halves of Europe was fading in significance when compared with the growing problems between the industrialized nations of the northern hemisphere and the underdeveloped, though often energy-rich countries of the south. Schmidt has a somewhat different perspec- tive on economic relations with the East. Unlike Brandt and Bahr, he has formal training as an economist and has a better sense of what is pos- sible. He does not share their belief that the goal of improving relations with the East justifies the expansion of economic ties as a matter of prin- ciple. Furthermore, the Chancellor, like most SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 West German politicians, recognizes that the eco- nomic relations among members of the European Community are of far greater importance. In any case, Schmidt is pragmatic in his assessment of West Germany's economic relations with other countries. This applies to the goal of creating an economic and monetary union for Western Europe as well as grandiose visions of trade with the East. Schmidt sees the need to deflate exaggerated expectations in both areas. The consistent theme in the Chancellor's public and private comments is that plans for economic cooperation or assistance must not only be feasi- ble but must also serve West Germany's interests. This "hard-headed" attitude is unavoidable, Schmidt argues, given the economic problems the nation faces as a result of the rising cost of raw materials and fuel. Osthandel (Eastern Trade) 1311110 US Dollars" Inter-German Trade 0 1 1 1 1 1 I I I 1 I 1956 57 58 59 60 61 62 63 164 65 66 Chancellor t Erhard Special Report - 9 - As finance minister in Brandt's cabinet, for example, he repeatedly argued that budgetary limitations and the need to control inflation rule out government subsidies for export credits to the East, even for large-scale industrial projects. Eco- nomics Minister Friderichs and many of his col- leagues in the Free Democratic Party support Schmidt on this score. They fear that granting subsidies to bridge the gap between the high in- terest rates on the German money markets and the credit demands of the Soviets and East Euro- peans might set an undesirable precedent. They defend this "laissez-faire" policy with the argu- ment that Eastern trade has grown steadily with- out government intervention. Indeed, the German business community has been largely self-reliant in its undertakings. Ger- man firms operate either independently or with Osthandel Including East Germany and Yugoslavia 70 71 72 73 ..- Chancellor Brandt August 9, 1974 SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 the assistance of the Ostausschuss der Deutschen Wirtschaft--a semi-official organization whose members are drawn from firms interested in East- ern trade. Since 1956, the Ostausschuss has played a prominent role in searching out and promoting commercial opportunities for these firms. Bonn's "laissez-faire" policy toward East- ern trade clearly contrasts with the policies of other Western industrialized nations that are more willing to underwrite trade with the East with direct financial assistance. Egon Bahr's re-entry into the cabinet on July 10 as minister for economic cooperation does not signal a change in this policy, as this ministry is responsible only for assistance pro- grams to less-developed countries. The new Chancellor, never- theless, values Bahr's expertise and is consulting him on matters pertaining to Ostpolitik. Schmidt's conservative attitude on the ques- tion of loans and credits to the East is evident in two particular cases, one involving Poland, the other East Germany. For some time, for example, Warsaw has been angling for some $1 billion in credits. The Poles recently indicated that they would accept Bonn's offer of $400 million in long-term, low-interest credits, but they still demanded additional funds as indemnification for war victims. They insist that ethnic Germans living in Poland will not be allowed to emigrate in large numbers until these demands are met. Schmidt has stated that he is not prepared to accommodate Warsaw. At present, ethnic Ger- mans are being repatriated at the rate of about 10,000 a year, far lower than the annual rate of 50,000 that Warsaw promised last December. In the case of East Germany, Pankow has shown its interest in continuing the swing-credit system that helps finance inter-German trade. Its desire to renew this provision or some modifica- Special Report tion of it beyond 1975 surfaced in recent discus- sions with West German officials concerning the currency exchange requirement for travel to the East. The East Germans have not yet demanded the continuation of credit at its present level as a quid pro quo for a reduction in the currency exchange requirements, but the idea is on their minds. Schmidt has refused to make concessions to get Pankow to rescind its decision doubling the currency requirement, however, and demands that the East Germans comply with the bilateral transit agreements that pertain to West Berlin. The Chancellor and West Berlin officials have reached a clear understanding on this point in order to present a united front to Pankow. The Search for Energy Despite his unwillingness to open Bonn's coffers to buy "human rights" for ethnic Ger- mans or West Berliners, Schmidt is aware of the need to assure adequate energy supplies for the Federal Republic and for West Berlin in the coming decade. The Soviet Union, with its abundant sources of raw materials and fuels, has much to offer in this regard, as Schmidt and German industrialists realize. German firms, with government concurrence, have recently turned to the Soviets for the enrichment of uranium. Mos- cow presently offers much more favorable terms for such services than does Washington, but present contracts with the Soviets still do not constitute a significant portion of West German requirements. Bonn's overall energy policy aims at avoiding dependence on any one country or group of countries for vital raw materials. Efforts to diversify the nation's energy sources have focused on major non-Arab pro- ducers such as Iran, but the government is also considering projects in the energy field that will involve the Soviets. One such project, being planned by the Joint West German - Soviet Eco- nomic Commission, is a trilateral deal involving Iranian natural gas, in which German firms would supply large-diameter pipe for the construction of a pipeline across the Soviet Union from Germany to Iran. - 10 - August 9, 1974 SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 -...+ JCLKC 1 Ift.r Bonn is also considering projects that would supply electrical energy to West Berlin. The enclave is the only major urban community in Europe not connected to a power grid, and West Berlin will be hard pressed to meet its energy needs in the coming years without expanding its power plant system at considerable trouble and cost. The Poles have offered to supply West Berlin with electrical energy from a new plant on the Oder, provided Bonn finances the construction of a transmission line to the city. The Soviets are interested in building four nuclear power plants, two of which would supply energy to the Federal Republic in return for construction costs. In both cases, Bonn has demanded that there be a single, continuous transmission line from the East link- ing West Berlin and the Federal Republic. The Soviets agreed to this demand in June, overriding objections from the East Germans. This sudden breakthrough on the long-standing deadlock has permitted the Soviets and German firms to reach a general agreement on the construction of the first of the power plants, which will be situated in the western part of the Soviet Union. Several factors will influence his thinking on the question of offering the financial assistance that these projects might require. A decision in the affirmative would contradict his arguments about the need to control inflation and would raise the eyebrows of other EC members who have listened to his admonitions on this score. On the other hand, the Chancellor must reckon that the Soviets might not be able or, for that matter, willing to pay cash for every industrial project as they have in the case of the Kursk plant. The high cost of borrowing funds in the West German and Eurocurrency markets could tempt the Soviets to shop elsewhere for the equipment they need. Thus, the possibility of being cut out of the sizable Soviet investment projects with their pay- off--increased access to Soviet raw materials-may motivate Bonn to subsidize credits in certain cases. True to his pragmatic temperament, Schmidt is keepingan open mind on this problem. Marienborn checkpoint Scene of recent harassment Special Report The meeting with Brezhnev in October will come too soon for Schmidt to offer anything August 9, 1974 SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 SECRET substantial in the field of trade and economic cooperation. The Chancellor seems prepared to risk further Soviet impatience, and probably hopes that the large-scale industrial projects can be handled on strictly a commercial basis. frontation and appears ready to receive Schmidt despite the bitterness this issue has created. Officials in Bonn do not expect that any agreement on major issues will be reached at the summit. Schmidt's main extract as much favorable objective will be to ublicit from his visit 25X6 as possibl Mayor Schuetz and the West Berliners ziv ma a the environmental office a major political issue and insist that plans for its formal establishment not be postponed for the sake of the summit. Moscow, from all present indications, does not want any last minute con- The trip will most likely e scheduled for mid-October to coincide with the next meeting of the Joint Economic Commission and a large West German industrial exhibition planned for the same time in Moscow. Special Report - 12 - SECRET Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1 Secret ` p~ Now Secret Approved For Release 2008/06/25: CIA-RDP79-00927A010900020001-1