WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A010900020001-1
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• Content Type: SUMMARY

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
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'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)
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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,
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*Ankara
CYPR J
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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.
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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
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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.
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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.
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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:
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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.
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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
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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
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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
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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
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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.
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 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.
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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
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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.
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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
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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.
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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
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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.
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Secret
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Secret
Weekly Summary
Special Report
Ostpolitik from Brandt to Schmidt
Secret
N?. 58
August 9, 1974
No. 0032/74A
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OSTPOLITIK
FROM BRANDY TO SCHMIDT
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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 -
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