REPORT ON OECD NEGOTIATIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00049R001700180005-5
• Release Decision: RIPPUB
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• Document Creation Date: December 20, 2016
• Sequence Number: 5
• Content Type: REPORT

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/% /Y2
In October 1981 the participants in the OECD export credit
arrangement modified their "Gentlemen's Agreement" on minimum
interest rates, agreeing on a new, interim package to last for
six months, beginning 16 November. Minimum officially supported
export credit rates. rose 2.25 to 2.5 percentage points within a
matrix. They range from 10 to 11.25 percent for all currencies
except yen, depending on the term of the credit and wealth of the
importing country. The minimum rate for loans in yen is 9.25
percent. These changes reduce the degree of subsidization in the
average gent aided export finance transaction by 20 to 25
percent. ?
I
will be on developing guidelines that can be accepted for longer
than six months. Increased durability may be obtained through a
formula for periodic adjustment of minimum rates, probably based
on SDR-weighted average market rates. The United States will
continue trying to increase matrix rates, but the Europeans will
probably not accept increases of more than 1 percent-, and may
prefer only fractionRl innrpngoc
The focus of negotiations leading un to the Ma dead";
probably be reached in a session scheduled for 6 to ,7 May.
investigate measures to be taken before 16 May when the
guidelines expire. Final agreement on a new arrangement wig
The March 1982 meeting of the arrangement participants will
review experience gained under the temporary guidelines, and wil
do not snare the US objective of eliminating subsidies.
i e irom trying to reduce the advantage the Japanese enjoy
due to low interest rates, the major stimulus behind the EC
proposal was reducing the great cost of official export credit.
What could not be accomplished through appeals to eliminate
unfair subsidies and trade distortions is now being done in
response to budgetary imperatives. However, the Europeans l
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I I Also
IIKU.Ly LO De
u are s or,er periods of validity for prior
corrmitments, more discipline and transparency on mixed credits,
and improved controls of aviation aircraft and nuclear
power plant financing.
The agreement will also probably be modified by
reclassification of recipient countries, possibly in line with a
US-supported idea to adopt World Bank and IDA loan categories.
This would indirectly achieve the objective of a January 1982 EC
proposal to move the Soviet Union from category II to category
1. Most of the non-NATO members of the OECD informally opposed
the political nature of this step, noting that it would be
inappropriate to use the OECD to apply political sanctions. They
are, however, likely to accept a Soviet reclassification if the
action is taken for economic reasons, such as a general revision
of classifications. The small interest rate increase that would
be imposed on the USSR by placing it in category I would cost it
only roughly $5 million a year based on 1981 lending. Of greater
significance to export credit agencies would be savings that
would be realized from m ewly industrializing countries
(NICs) into category II. >
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TRADE AND COOPERATIVE GROUPS
A special part of GATT's futur program, it was decided,
would be further examination of the special trade problems
of the developing countries. fDuring 1979 the role of
GATT's Committee on Trade and Development ' was
strengthened in this area and an expanded work mandate
was given. In addition, a spe ial subcommittee was estab-
lished to examine any inst nces of future protectionist
trade actions taken by deve oped countries and affecting
The future work of GAT will also be a concern of the
Consultative Group of Eig een, a task force composed of
high-level trade policyma ers from member countries.
Previously a provisional body, the Group was established in
1979 as a permanent body "to examine the question of
structural adjustment an4 trade policy, and advise on
GATT's future work on this matter of critical importance.
to trade relations between! North and South". The Group
will also examine one o the Tokyo Round's pieces of
unfinished business-expor controls. ti?
The international safeg"ard agreement, the other major.
piece of unfinished business, was assigned to a newly
created Safeguards Comn1iittee. Its task is to continue
multilateral discussions o the establishment of a unified
set of procedures whereb governments may restrict im-
ports to protect domestic ' dustries from injury..
Other developments. T roughout 1979 a Special Assis-
tance Unit continued to Aerate within the GATT Secretar-
iat to provide individual LDCs with a broad range of policy
studies, technical analyse of tariff and trade data, and
forecasts of the potential impact of various trade agree-
ments on their economie : Meanwhile, the International
Trade Centre continued t support LDC trade promotion
efforts, technical cooperat on valued at about $13 million
being provided during the ear.
The Multifibre Arrangement (MFA), renewed for a
second four-year period o January 1, 1978, continued to
operate under the auspice of GATT. The objective of the
Agreement is to set lima to annual increases in textile
exports from the LDCs to the industrialized countries
through a comprehensiv series of bilateral agreements
between exporting and) m orting countries. The 42 adher-,
ents (the European Co munity is considered a single
signatory) of the MFA, who are members of GATT's
Textile Committee, accou ted. for more than 80 percent of
the $57 billion worth of w rld trade in textiles and clothing
In November 1979 the Philippines became the 85th
Contracting Party, while (Colombia, which had previously
acceded provisionally, became the 86th in April 1980.
During the latter month Mexico, on the other hand, which
had engaged in negotiations preliminary to entry, decided
not to become a GATT slignatory.
547 TRADE AND COOPERATIVE GROUPS
ORGANIZATION FOR ECONOMIC
COOPERATION AND DEVELOPMENT
(OECD)
Organisation de Cooperation
et de Developpement Economique
(OCDE)
Background. Established by a convention signed at Paris,
France, on December 14, 1960, the OECD replaced the
Organization. for European Economic Cooperation (OEEC),
whose original tasks-the administration of Marshall Plan
aid and the cooperative effort for European recovery from
World War II-had long been completed, though many of its .
activities had continued or been adjusted to meet the needs
of sustained economic growth. OECD's expansion from,a
purely European grouping to. embrace virtually all the
economically advanced free-market states of the world
occurred over a fairly lenghy period, the most' recent
member, New Zealand, being admitted in 1973. As of
mid-1980 there were 24 full members: Australia, Austria,
Belgium, Canada, Denmark, Finland, France, Federal Re-
public of Germany, Greece, Iceland,.Ireland, Italy, Japan,
Luxembourg, Netherlands, New Zealand, Norway, Portugal,
Spain, Sweden, Switzerland, Turkey, United Kingdom, and
United States. In addition, Yugoslavia and the Commission
of the European Communities participate in OECD activi-
ties on a limited basis.
As the fulcrum for economic policy coordination among _
the advanced industrialized countries, the OECD continued
to host a wide range of specialized discussions and
negotiations during 1979-1980. Numerous ministerial-level
meetings and specialized working groups, together with the
OECD Secretariat's efforts, were utilized to advance the
policy support function of the OECD organizational ma-
chinery.
Economic policy. The OECD committees with direct
economic policy responsibilities concentrated their atten-
tion on two transcendent, interrelated problems: inflation-
ary pressures and an international energy situtation that
deteriorated in the wake of the interruption of Iranian oil
exports. At the annual ministerial-level meeting of the
OECD Council (held in mid-June 1979) it was agreed, inter
alias that (1) "the demand management elements of the
1978 Concerted Action Program for macroeconomic policy
coordination should be continued, with emphasis on an
anti-inflationary 'cooling-off' eriod in the United States
and a stable level of aggregate demand in the other OECD
countries"; and that (2) "higher oil prices should be passed
on in an appropriate manner to energy users. . . to encour-
age conservation and the development of alternative energy
sources".
After reviewing international economic prospects at
their June 1980 meeting, the OECD ministers concluded
that their basic aim should be "to restore price stability and
to promote in both the short- and the medium-term the
conditions for investment-led and supply-oriented growth
in output and employment". The final communique noted
that despite the anticipated growth slowdown among
OECD countries, their economic policy should continue to ?
contain oil-induced inflation and protect the profitability
;,of productive investment. Thus, "it would be a serious error
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TRADE AND COOPERATIVE GROUPS 548
to relax tight monetary and fiscal policies until the current
surge, in inflation has demonstrably been brought under
control...."
The subministerial Economic Policy Committee (EPC)
of the OECD met in May and November 1979. The first
session helped prepare the June program of the Ministerial
Meeting, and in particular focused on three issues: appropri-
ate macroeconomic objectives for individual member coun-
tries, the macroeconomic implications of developments in
the international oil markets, and potential national growth
rates in the medium term. The November meeting consid-
ered the consistency of economic policy trends with the
policy recommendations, made at the June ministerial
session. The. Committee also paid special attention to the
restrictive fiscal and monetary policies that had begun to
materialize in the larger economies. In addition, the EPC
discussed the report of its Ad Hoc Group on the Energy
Situation.
Specialized examinations of economic policy issues
continued to be undertaken by VPC working groups
operating at the technical level. Working Party No. 2, whose
mandate is Problems Concerning Economic Growth and the
Allocation of National Resources, met three times in 1979
and looked primarily at short-term growth prospects in
light of the constraint of anti-inflationary macroeconomic
policies. The balance-of-payments adjustment process (by
which disequilibrium countries move back towards equilib-
rium in their external accounts) and the means of improv-
ing it continued to be the basic issue dealt with by Working
Party No. 3 on Policies for the Promotion of Better
International Payments Equilibrium. Working Party No. 4
on Costs of Production and Prices continued its technical
studies of the causes of inflation.
A. Special Group on Positive Adjustment Policies was
also created by the EPC. The Group was given a two-year
work mandate to study the economic impact of domestic
measures designed either to promote or to hinder structural
adjustments in such key sectors as industry, agricultural,
trade, and manpower.
The Economic Development and Review Committee
analyzed economic conditions in all of the member
countries and published each of these reports in the form of
a detailed survey.
Special assistance to Turkey. In view of Turkey's
deteriorating domestic and external economic positions,
and subsequent to consultations with Turkish and IMF
officials, an ad. hoc "high level" OECD meeting was
convened in May 1979. Sixteen OECD members pledged at
this time a total of $962 million in new grants, concessional
development loans, and long-term export credits, while the'
reconvened foreign debt working party of the Turkish Aid
Consortium agreed to reschedule approximately $1 billion
of Turkey's external debt and officially guaranteed export
credits due for repayment in the July 1979-June 1980
period.
In April 1980 a second Turkish aid package of $1.2
billion was approved at another extraordinary OECD
meeting.
Trade policy. Although GATT serves as the principal
global forum on commercial issues, the OECD in
1979-1980 continued to host trade policy discussions in
TRADE AND COOPERATIVE GROUPS
three areas of concern to the industrial countries.
The 1974 "Trade Pledge" was reaffirmed in both the
1979 and 1980 annual OECD ministerial meetings; the aim
of the pledge is to formalize OECD governmental efforts to
minimize trade protectionism, especially through unilateral
import restrictions. An updated and expanded Declaration
on Trade Policy was announced on June 4, 1980. The
OECD ministers declared their determination to maintain
the open multilateral trade system, strengthen trade rela-
tions with developing countries, and avoid restrictive
measures that might impinge on productivity and growth
potential.
The OECD has also served as the forum for' effqrts by
member governments to'set'uniform terms and practices on
the operations of official export credit programs-that is, to
prevent an export subsidy race.' In 1978 ap informal
"gentleman's agreement" was converted into a formal
Arrangement on Guidelines for Officially Supported Export
Credits. However, subsequent events' brought to light a
number of shortcomings in the Arrangement which a May.
1980 revision sought to rectify. Signed by 22'of the OECD
countries, the new agreement, effective July 1, 1980, called
for an increase of the minimum rate to long-term borrowers
in other industrial countries by 75 basis points, to 8.75
percent, and rates on loans to developing countries by 25
basis points, to. 7.75 percent: Interest rates on loans of less
than five years were raised to 8.5 percent and 7.5 percent
to developed countries and LDCs, respectively. Participants
also agreed to join in further negotiations directed toward
bringing and maintaining interest rates on government-
backed export credits in line with long-term bond rates,
thereby largely eliminating the subsidy element in govern-
ment export credits. A target date of December 1, 1980,
was set for reaching such an agreement.
A final area of OECD economic policy action is the
ongoing effort to coordinate the industrialized countries'
positions on development apd trade-related matters dis-
cussed in the North-South dialogue. Thus, the High Level
Group on Commodities and the OECD Secretariat were
active in preparations for the UNCTAD V meeting held in
May 1979.
Cooperation in economic development. The ' Develop-
ment Assistance Committee (DAC) maintained its.supervi-
sory role over OECD-based discussions of financial resource
transfers to the LDCs. The annual review of individual DAC
members' efforts and policies continued to be an important
element in the work of the Committee. In addition to its
usual consideration of aid volume, terms of performance,
and the sectoral and geographic allocation of aid, the 1979
review paid particular attention to development assistance
in the field. of energy, the evaluation of aid effectiveness,
and the measures taken to formulate a more integrated
development cooperation policy.
Early in 1979 the DAC completed its work in prepara-
tion for the discussions on financial questions at the Fifth
United Nations Conference on Trade and Development held
in May of ,that year. The subjects receiving major attention
encompassed official development assistance issues, debt
problems of developing countries,' resource transfers in
general, and the problems of the least-developed countries.
After the Conference, the attention of the DAC reverted
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TR-AD; AND COOPERATIVE GROUPS
to work on the New International Development Strategy
for the 1980s, which was scheduled to become a major
agenda item in future United Nations deliberations. Thus,
the OECD Ministerial Meeting in June 1979 requested the
DAC and other relevant OECD groups to conduct an
in-depth review of the scope of improved financial coopera-
tion with developing countries, with a view to contributing
positively to the New International Development Strategy.
A major part of this review related to nonconcessional
resource flows: multilateral lending, direct foreign invest-
ment, export credits, and bank and bond lending.
The DAC has continued to keep under review its
members' developmental assistance performance and their'
549 TRADE AND, COOPERATIVE GROUPS
took measures that partly eased restrictions on direct and
portfolio investment abroad, in the first case, and direct
foreign investment, in the second. Japan and Switzerland
lifted restrictions on the purchase of certain securities by
nonresidents.
The Committee on Financial Markets continued to
provide a forum for member governments to follow currept
developments and assess prospects on international and
national financial markets, in the overall context of general
economic trends and balance-of-payments financing prob-
compliance with the DAC Terms Recommendation. DAC?
members as a group attained a record level of concession-
ality in their aid commitments in 1978 with a 90 percent
grant element. With a few exceptions, individual members
were in compliance with the Terms Recommendation and
the subtarget of especially soft terms for the least
developed countries. In accord with the agreemen0at the
UNCTAD Ministerial Meeting of March 1978, all DAC
countries have 'undertaken to provide retroactive terms
adjustment of their official loans ..to: the least-developed
(and some other poor) countries, or have taken equivalent
measures. In effect, these loans were transformed. into
grants and further repayments were waived.
The debt. position of developing countries, appropriate
policies to avoid debt-servicing difficulties, and effective'
measures to provide debt relief in crisis cases have con-
tinued to engage the attention of DAC members, notably in
connection with the international discussions at UNCTAD.
The OECD Secretariat has supported this work by a 1979
study entitled "External Indebtedness of Developing Coun-
tries: Present Situations and Future Prospects".
Technical studies of specific developmental questions
continued to be pursued by the OECD's Development
Centre, while a Group on North-South Economic Issueswas
established by the Council in September 1979 to provide an
in-house overview on major North-South concerns. It has
worked closely with other OECD bodies, especially the'
Executive Committee and the DAC.
Financial and fiscal affairs. The first Review of the 1976
Declaration and Council Decisions on International Invest-
ment and Multinational Enterprises was prepared in early
1979 for examination by the Committee on International
Investment and Multinational Enterprises (the IME Com-
mittee). The focus was on Guidelines for Multinational
Enterprises, national treatment for firms under foreign
control, and the use of incentives and disincentives to
international investment. The Committee presented a re-
port to the Council, evaluating in detail the experience
obtained through the first three years of application, and
submitted proposals to further improve the effectiveness of
the exercise.
With regard to the OECD code for the liberalization of
capital movements, a favorable trend was noted in member
country policies. The most prominent example was the
United Kingdom, which after progressively removing cer-
tain restrictions in June and July, completely abolished in
October its system of exchange controls that had been in.
force. for 40 years. In addition, Spain and New Zealand
lems. This activity, which was backstopped by. consulta-
tions with high-level representatives of leading international
banking institutions, permitted member countries to con-'
and external financial disturbances and to assure 'the
smooth functioning of financial markets.The Secretariat's"
bulletin, Financial Market Trends, provided'technical data
for these discussions.
The Committee on Fiscal Affairs has continued to be the:"'
forum for senior tax officials to exchange views on' the;.
issues raised for tax policy by events taking' place in
member countries. In May' 1979 the Council decided to
publish the Committee's report on transfer pricing and
multinational enterprises and recommend to the OECD
governments that their tax administrations take its findings
into account.
Other policy areas. A second meeting of the Environ-
ment Committee, held at the ministerial level, was the
principal environmental policy development in 1979. Dis-
cussions at the meeting centered on a report on the State of
the Environment in OECD Member Countries. A Declara-
tion was passed on anticipatory environmental policies for
the 1980s.
The Committee for Agriculture net at the ministerial
level in March 1980. At that time, it continued its emphasis'
on studying the general orientation of food and agricultural
policies, the improvement of the functioning of agricultural
markets, and the special agricultural and food problems of
the developing countries.
The work of the Education Committee and the Centre
for Educational Research and Innovation, which place
educational policy problems in the broader context of
economic and social development, was adjusted in response
to the priorities defined in the Declaration by Ministers at
the first meeting of the Education Committee at the
ministerial level in October 1978. The conclusions of the
meeting were published under the title Future Educational
Policies in the Changing Social and Economic, Context.
Priority areas of concern to member countries in 1979
also included strengthened links between economic and
employment policies, youth unemployment, the impact of
collective bargaining on price/wage and employment devel-
opments, manpower adjustments to changing industrial
structures., and more effective relationships between social
and economic policy.
Publication of the "Interfutures". Project. The problems
and prospects of long-term world economic growth were
analyzed in a special report commissioned by the OECD
members. The report by the Interfutures Project
an
,
,
international research team, was released in July 1979'`.
under the title Facing the Future: Mastering the Probable .
the
?siart...,
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and Managing the Unpredictable. The project focused on
the longer-term problems to be faced by industrialized
societies in their further internal development and in their
economic relations with the LDCs.
INTERNATIONAL ENERGY AGENCY
(IEA)
Background. The International. Energy Agency is the
vehicle for implementing the International Energy Program
(IEP) established by 20 industrialized, oil-importing coun-
tries in November 1974, with operations commencing in
January 1976. An autonomous body within the OECD
framework, the IEA oversees programs dealing with such
issues as energy conservation, development of alternative
energy sources, and preparation for emergency shortages.
Four OECD members-Finland, France, Iceland, and Por-
tugal-who have not formally joined the Agency, as well as
the Commission of the European Communities, may
participate as observers;'.
Ministerial decisions. Agreement was, reached at the May
1979 IEA Ministerial Meeting on the Principles of IEA
Action on Coal. Broad guidelines for national policies were
agreed upon to stimulate coal production and utilization.
Subsequently, an IEA Coal.Industry Advisory Board was
established to improve government-private sector liaison
and to facilitate implementation of the Principles.
In . December the IEA ministers agreed on several
programs designed to stabilize world oil markets in a period
of rising price pressures. In the aftermath of decisions made
at the June 1979.Tokyo Economic Summit Meeting, all
IEA countries committed themselves to limit their respec-
tive oil imports in 1980 to specific ceilings and in 1985 to
target import ceilings.
LEA Import Targets, 1980 and 1985
(Millions of tons)
Australia
13.5
17.0
0
Austria
11.5
13.5
Belgium
30.0
31.0
Canada
7.4
29.4
Denmark
.16.5
11.0
Germany, Fed. Rep. of
143.0
141.0
Greece
14.8
16.5
Ireland
6.5
8.0
Italy
103.5
124.0
Japan
265.3.
308.7
Luxembourg
1.5
2.0
Netherlands
42.0
49.0
New Zealand
4.2
. 4.4
Norway
-15.5
-18.3
Spain
51.0
52.9
Sweden
29.9
29.0
Switzerland
14.0
14.5
Turkey
17.0
25.0
United Kingdom
12.0
-5.0
United States
437.2
436.0
IEA Total
1,205.3*
1,289.6**
*24.5 million barrels per day equivalent.
**26.2 million barrels per day equivalent.
Additionally, the ministers agreed upon a monitoring
system to cover IEA members' energy policies and develop-
ments in the short, medium, and long term: To this end, the
IEA Governing Board was charged with making quarterly
reviews of the results achieved by each country in fulfilling
its 1980 oil import ceiling commitment as well as its 1985
target ceiling. The Board was also to determine whether the
specific measures in place in each country were adequate
and were being effectively implemented, and whether
additional programs would be necessary. Furthermore, the
Ministerial Meeting produced agreements on the need to
adopt improved information systems on international oil
stock movements and on changing oil market conditions.
The May 1980 IEA ministerial-level meeting of the IEA
surveyed the progress made in the implementation?of these
agreements and discussed the special 1978 review report on
Energy Policies and Programmes of IEA Countries. The'
ministers agreed that insufficient action had been taken to
conform with the IEA Principles for Energy Policy and
.discussed the Secretariat's analysis of areas where energy
policy could be improved in.. each of the IEA member
countries. In order to minimize the immediate effects of
price or volume disruptions in the world oil market,
additional short-term instruments were proposed to im-
prove IEA preparedness. These included arrangements for
"yardsticks and ceilings" to measure progress toward
structural change and medium-term targets, improved co-
ordination of oil stock management policies, and a mech-
anism for responding quickly to the need to reduce oil
import ceilings in the event that "changing oil market
conditions require their adjustment".
Emergency oil-sharing system. Refinements and im-
provements were made in the Emergency Oil Allocation
System, and in-depth reviews were made of ten member
countries' demand restraint. mechanisms, to be imple-
mented upon triggering of the System. The data system
continues to be revised and refined to cope with changing
oil market conditions.
In May 1979, Sweden requested the activation of the
emergency allocation system in accordance with the IEP
Agreement. However, after having examined the situation,
the Secretariat concluded that the serious shortfall of oil
supplies to Sweden during the first quarter of 1979 could
not be expected to continue on a sustained basis.
Research and development. By the end of 1979, IEA
countries were involved in 48 collaborative projects in an
energy research, development, and demonstration program
covering such areas as conservation, coal technology,
enhanced oil recovery, nuclear energy, geothermal energy,
solar energy, biomass conversion, ocean energy, wind
energy, fusion energy, and hydrogen fuel. An International
Energy Technology Group was established by the IEA
Council in November 1979 to consider such technical
questions as the means for accelerating the commercializa-
tion of the relatively capital-intensive new energy tech-
nologies.
Conservation. The second comprehensive review and
analysis. of energy-saving policies implemented in IEA
countries was published in September 1979. The publica-
tion, Energy Conservation, described, quantified, and evalu-
ated conservation programs in member states by sector
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