SENIOR INTERDEPARTMENTAL GROUP ON INTERNATIONAL ECONOMIC POLICY (SIG-IEP)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP87M00539R000400520015-2
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 22, 2016
• Document Release Date: December 7, 2010
• Sequence Number: 15
• Publication Date: February 4, 1985
• Content Type: MEMO

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EXECUTIVE SECRETARIAT
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E cutive Secretary
6 Feb 85
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February 4, 1985
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MEMORANDUM FOR
"ecutive Registry
DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
DIRECTOR OF CENTRAL INTELLIGENCE
UNITED STATES TRADE REPRESENTATIVE
ASSISTANT TO THE PRESIDENT FOR NATIONAL SECURITY AFFAIRS
ASSISTANT TO THE PRESIDENT & DEPUTY TO THE CHIEF
OF STAFF
ASSISTANT TO THE PRESIDENT FOR CABINET AFFAIRS
CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS
ASSISTANT TO THE PRESIDENT FOR POLICY DEVELOPMENT
THE
VICE PRESIDENT
THE
SECRETARY OF
STATE
THE
SECRETARY OF
DEFENSE
THE
SECRETARY
OF
AGRICULTURE
THE
SECRETARY
OF
COMMERCE
THE
SECRETARY
OF
TRANSPORTATION
THE
SECRETARY
OF
ENERGY
SUBJECT: Senior Interdepartmental Group on
International Economic Policy (SIG-IEP)
Attached are the SIG-IEP Minutes for the January 24, 1985
meeting.
j cw~/- 1 4 "
Edward J. Stucky
Acting Executive Secretary
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?_- 1LLB'11L
SENIOR INTERDEPARTMENTAL GROUP ON INTERNATIONAL ECONOMIC POLICY
January 24, 1985
11:00 a.m.
Roosevelt Room
Treasury
Secretary Regan, Chairman
David C. Mulford
Ronald E. Myers
NSC
Roger Robinson, Executive Secretary
David Wigg
OVP
G. Phillip Hughes
State
Secretary Shultz
W. Allen Wallis
Defense
Richard Perle
James A. Kelly
Agriculture
Secretary Block
Commerce
Secretary Baldrige
Lionel H. Olmer
OMB
Joseph Wright
Alton G. Keel
USTR
Ambassador Smith
James Murphy
Energy
Jan W. Mares
George Bradley
CEA
William Niskanen
Transportation
Matt Scocozza
OPD
Jack Svahn
Roger Porter
U.S.-Japan Economic Issue
The Chairman asked Ambassador Smith (USTR) to report on the
U.S.-Japan economic issue.
Ambassador Smith noted that the Japan IG had met several times
and was making good progress. A message had been sent to the Japanese
from Secretary Shultz. Some meetings had taken place already with
business groups and some staffers and Members of Congress. The SIG
would be informed before more formal contacts are initiated with the
Congress. An initial meeting with Japanese counterparts was set for
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I. it r 1LGL L it1L
next week in Tokyo followed immediately by telecommunications
sector discussions. They had decided to concentrate on the four
sectors already agreed and would add others later as appropriate.
A scope paper for the delegation headed,by Allen Wallis would be
ready shortly.
Secretary Shultz suggested a somewhat different approach is
necessary, concentrating on the Nakasone/Abe commitment to the
President to seriously address trade issues. While important that
sector groups get going, key to success will be active involvement
of Nakasone/Abe. Wallis group should seek agreement on basic
objectives and organization for negotiations, making clear to
Japanese officials and press Japan's stake in a positive outcome.
U.S. payoff must not be seen as barrier removal, but rather
increased sales.
Secretary Shultz sees several time markers to measure progress,
including the Wallis trip next week, the regular Cabinet Group
meeting, and Abe's visit to Washington in April, culminating in
the Bonn Summit. Sector teams should meet by March, before Abe
visit, with reports channelled through State Department. Wants
positive results by Bonn Summit. Believes the SIG-IEP is good
place to monitor progress and wants another SIG discussion before
the March meetings. Clear need to keep structure of talks focused
on Nakasone/Abe/Shultz.
Ambassador Smith indicated that all IG members supported need
to focus on high-level Japanese commitment.
Secretary Regan asked about automobile voluntary restraint
agreement and need to weave VRA into this negotiating schedule.
Secretary Baldrige noted that a joint CCCT/TPC on VRA's is scheduled
for next week. Doesn't disagree with focus on Nakasone/Abe. Asked
whether four sectors had been agreed to by Japan and urged a speed-up
in U.S. preparations. Particularly concerned that discussions with
U.S. industry will take time and that specific objectives are needed.
It was agreed Japanese had publicly supported the four sectors.
Secretary Regan noted some questions had been raised about combining
telecommunications and electronics sectors, but believes they are
closely related. Ambassador Smith reported that U.S. industry wants
to combine those two sectors. Although it may lead to bureaucratic
difficulties for the Japanese, such a combination is logical because
of technological overlap. As USG has devised mechanism for combining
high-tech sectors, thought it appropriate. Provided more details
on discussions with individual industry groups, noting attempt to
use existing 16 advisory groups. Agrees process will take time,
but believes real progess being achieved.
Secretary Baldrige asked if Wallis meeting focusing on
objectives or organization. Ambassador Smith responded there is
need to ensure Japanese understand process being proposed, goals
being sought, and schedule. Under Secretary Wallis noted Japanese
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I.VIVtIULNI IML
not viewing process as we, and may raise own issues, including uni-
tary tax and cargo airline questions. Secretary Baldrige expressed
concern about time wasted discussing open U.S. market. Secretary
Shultz thought Japanese questions could be handled rapidly and may
need to be discussed so Japanese not in difficult position. However,
they are facing same tight time schedule imposed at Nakasone/Reagan
meeting. Secretary Regan noted that another state recently announced
progress on unitary tax and Assistant Secretary Mulford noted unitary
tax had been fully addressed during yen/dollar talks.
In response to Secretary Baldrige's question regarding use of
leverage, Secretary Regan noted President had explicitly mentioned
to Nakasone growing Congressional pressure for trade action.
Report on U.S.-USSR Working Group of Experts Meeting
Under Secretary Olmer reported on his meetings in Moscow,
recounting the history of President's support for the talks.
Mr. Olmer identified to Soviets trade areas that could not be
discussed, including dual-use technology, or could only be negotiated
if Soviets met preconditions regarding human rights and emigration.
Clear progress made on remaining trade area in atmosphere of free
exchange. Soviets refrained from polemics and made only marginal
reference to contract sanctity, reliability of supply, and emigration.
Agreement was reached that Soviets prepared to meet at Cabinet
level, recognized the mutual benefits of trade, and were prepared
to accept bids from U.S. firms. Soviets will also hold trade
talks with U.S. private sector group regarding various projects
and have authorized reinstatement of U.S. commercial seminars that
Soviet officials can attend. All agency members of delegation
support conclusion that SIG-IEP recommend to President that a
Cabinet-level joint meeting be held in the near future.
Assistant Secretary Perle (Defense) felt that recommendation
was reasonable. However, concerned that process could fuel allies'
concerns that the U.S. "turning on" at will trade with Soviets, thus
undercutting difficult progress achieved to control high-tech exports.
Feared tendency of allies to view publicity about recent meetings as
opening floodgate to their exports to Soviets. Recommended consulta-
tions with allies and high-level public statement to reiterate our
policy on high-tech exports.
Secretaries Shultz and Baldrige agreed with Perle's recommenda-
tions. Secretary Shultz believes it important to emphasize what
has and what has not changed in U.S. policy. Recent talks are a
political signal and represent increased U.S.-USSR trade over
immediate past, but controls over dual-use technology remain much
tighter than five years ago. Secretary Baldrige agreed that amount
of trade involved is minor and is essentially a political gesture.
There was support for joint Commerce/Defense Department presentation
at upcoming COCOM meeting. The SIG agreed to recommend to President
a Cabinet level meeting sometime in the spring.
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CONFIDENTIAL
King Fahd Visit: Economic Issue
Given time constraints, Chairman agreed that Common Fund be
considered at next meeting. Ambassador Smith reported on interagency
process addressing Saudi petrochemical imports issue which might
arise during King Fahd's upcoming visit. Saw it as extremely
complex and politically difficult issue, possibly a major topic of
1980s. Hopes to have an interagency-cleared paper by February 4.
Substance of U.S. position to note that no objections have yet
been raised so no real discussion now necessary with the Saudis.
However, as major issue with national security, trade, and energy
implications could be addressed again by SIG-IEP. The Chairman
believed it was important to check President's schedule and have
papers prepared 48 hours before his briefing. Doubted King would
raise issue with President in any detail. Also expressed concern
as to who in U.S. Government would express the very legitimate
interest U.S. consumer has in lower petrochemical prices.
Dr. Mulford shared concern about consumer's interests and
reported that Saudis had expressed to him recently very strong
views on issue, noting their trade deficit with U.S., oil price
difficulties, U.S. direct investment in Saudi Arabia, the lack of
foreign exchange restrictions, and that U.S. partners participate
in Saudi petrochemical industry. He believed that if progress was
made on the Middle East peace initiative, Saudi petrochemicals
would become a particularly important issue.
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SECRET 25X1
The Director of Central Intelligence
Wuhinpai, D.C. 20505
National Intelligence Council
NIC 00422-85
25 January 1985
MEMORANDUM FOR: Director of Central Intelligence
Deputy Director of Central Intelligence
FROM: David B. Low
National Intelligence Officer at Large and
Acting National Intelligence Officer for Economics
SUBJECT: US-USSR Trade
1. At the 24 January 1985 meeting of the SIG-IEP chaired by Secretary
Regan, UnderSecretary of Commerce Lionel Olmer summarized the written
report on the results of the 4th session of the US-USSR Workin of
Experts held in Moscow on January 8-9, 1985 (report attached). Grou
2. As a result of the meeting in Moscow, the US delegation has
concluded that the conditions necessary to assure a successful US-USSR
Joint Commercial Commission Meeting have been met and recommended to the
SIG-IEP that the US indicate to the Soviet Union a willingness to hold such
i
a sess
on as soon as practical.
3. The SIG-IEP approved the recommendation, authorizing the Commerce
Department to proceed with a view toward having a JCC Meeting during the
period of April-June 1985. This was approved by Secretary Shultz,
Secretary Baldridge and Assistant Secretary Perle, all of whom were present
at the meeting. The latter cautioned that the US must be careful to
distinquish such discussions on non-strategic trade expansion from the
issue of strategic trade. He stated that he was concerned that the US not
send confusing signals to allies and promote any perception which might
undercut the image of a very strong US resolve to enforce restrictions on
strategic items of trade. Secretaries Shultz, Regan, and Baldridge all
concurred, with Secretary Shultz noting that the message will have to be
outlined in public repeatedly. Secretary Shultz also reauested at the
timing of JCC consultations be coordinated with him.
David B. Low
Attachment:
As Stated
cFrPPT 11.
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StLKtI,I
SUBJECT: Memorandum for the Record on US-USSR Trade
NIO/AL/DL: 25 January 1985 NIC 00422-85 25X1
Distributio :
Original - Addressees
1 - DCI/SA/IA
ecutive Registry
1 - C/NIC
1 - VC/NIC
1 - NIO/USSR
1 - NIO/EUR
1 - A/NIO/Econ
1 - D/OSOVA
1 - D/OEURA
1 - D/OGI
1 - NIO/AL/DL
2 - NIO/AL/DL Files
SECRET
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~LVt'CCI
REPORT TO THE SIG-IEP
On the Results of the
Fourth Session of the U.S.-U.S.S.R. Working Group of Experts
Moscow, January 8-9, 1985
BACKGROUND
(U) On June 27, 1984, the President announced that as part of
the effort to engage the Soviets in a more constructive dialogue,
the Administration had proposed that preparations begin for a
meeting of the Cabinet-level U.S.-U.S.S.R. Joint Commercial
Commission (JCC). The Soviets were told by Secretary Baldrige'
that we would agree to such a meeting if sufficient common ground
existed for trade expansion and if concrete steps would result
to facilitate an increase in peaceful trade. The Soviets agreed
to a meeting of the Working Group of Experts to explore these
questions.
(S) On December 18, 1984, the SIG-IEP discussed the objectives
for the Working Group Meeting, and on January 4, 1985, in
NSDD 155 the President enumerated the U.S. objectives as being:
o To review the status of overall U.S.-Soviet economic and
commercial relations.
o To discuss present obstacles to our trade relations in an
effort to identify areas in which mutually beneficial non-
strategic trade could be expanded in conformity with present
export control policies.
o To help determine if there are sufficient grounds for a
meeting of the U.S.-U.S.S.R. Joint Commercial Commission.
(S) The President also approved positions to be taken on issues
the Soviets were expected to raise, approved using the meetings
to express serious human rights concerns, and stated that pending
further policy clarification we should not agree to an active
program of trade expansion in oil and gas equipment.
SUMMARY OF RESULTS
(C) The Working Group, chaired on the U.S. side by Commerce Under
Secretary Olmer and on the Soviet side by Deputy Foreign Trade
Minister Sushkov, agreed that the prospects for trade expansion
within present U.S. and Soviet policies were relatively modest,
but u - ient interest to act u on. Both sides agreed the
trade relationship could not be viewe apart from the overall
bilateral relationship.
(C) The Soviets indicated strong interest in an expansion of
trade with the United States, however limited that might have
to be. The Soviet interest is particularly striking in that the
Soviets remained positive and non-polemical despite the blunt
U.S. statements on the need for human rights improvements as
necessary for any major gains in the relationship.
SECRET
Classified by: Lionel H. Olmer
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CON FmENri~.[
(C) The Working Group identified areas where both sides were
interested in expanding trade. All of these areas are in full
conformity with present U.S. export control policies and other
laws and policies governing bilateral trade. The Working Group
also identified concrete steps which would facilitate growth in
peaceful trade, and which could be announced at a JCC meeting.
(C) Both sides expressed satisfaction with the tone and substance
of the meetings. Both acknowledged that the final decisions on
holding a meeting of the JCC would be made in the respective
capitals after reviewing the results of the Working Group meeting
and considering other relevant factors. Both also agreed to
recommend that if a JCC meeting were held its agenda should be:
(1) Status and prospects of bilateral trade; (2) Results of the
Working Group of Experts; (3) Opportunities for expansion of
trade, including projects; (4) Business facilitation.
(C) The U.S. delegation believes that the conditions necessary
to assure a successful JCC meeting have been met, and recommends
to the SIG-IEP that the United States indicate to the Soviet
Union a willingness to hold such a meeting as soon as practical.
U.S. VIEWS
(C) The U.S. delegation made it plain at the outset of the
meetings that our security and foreign policy interests remain
paramount and will continue to set limits to acceptable trade.
The delegation said the U.S. wanted to find areas where trade
could be expanded within the present framework of export control
policies and other laws and policies governing the bilateral
relationship. We were not interested in changing the framework.
(C) The U.S. delegation described three areas: (1) those with
major constraints that had little or no prospect of being
overcome; (2) those with constraints that could be resolved or
reduced considerably; and (3) areas where there were no
constraints. The U.S. view was to recognize the obstacles, but
to take a pragmatic approach of trying to find mutually agreeable
steps in the latter two areas.
(U) The U.S. delegation stressed that the trade relationship
could not change significantly independently of other aspects
of the U.S.-Soviet relationship. In particular, major improve-
ments in the trading relationship would not be possible in the
absence of major progress on human rights. Jackson-Vanik would
not be changed.
(U) We noted the Soviet view that the U.S. had created the
barriers to trade and had to Near uni ateral responsibility to
improve the relationship. The U.S. admonished the Soviet, that
this view was unrealistic, and that action to move trade forward
would have to come from both sides. The U.S. delegation pointed
to Soviet actions which have removed U.S. companies from bid
lists, have prevented U.S. companies from staging seminars and
trade promotions, and have branded U.S. companies as unreliable
suppliers.
II Ir- mr-L 1--1 na
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CON FI CL ` ! F f . ! 161,
(U) It was the view of the U.S. delegation that attractive possi-
bilities for a significant increase in trade existed within
present constraints, without any change in framework. The Soviets
were urged to act on some long-standing contract negotiations
and to take a pragmatic approach to identifying additional project
possibilities.
THE SOVIET VIEW
(C) The Soviet delegation believed that a very large increase
in trade could take place if -the U.S. would grant MFN and credits,
limit its export controls, and guarantee contract sanctity.
Otherwise, only relatively modest gains would be posse e. The
Soviets expressed disappointment with the firm U.S. position on
Jackson-Vanik and human rights, saying these concerns should be
separate from trade. (In private conversations, some Soviet
leaders showed more flexibility. Gosbank Chairman Alkhimov, in
particular, said that if good relations were restored with the
United States, 50,000 Jewish emigrees annually would be "no
problem.")
(C) The Soviets accepted the U.S. view that the focus should
be on areas where there were few or no problems, and also agreed
that both sides would have to take trade facilitating steps if
a JCC meeting were to be held. The Soviets said they accepted
the right of the U.S. to control its exports, but it was critical
for any expansion in the relationship to let them know more
precisely what we were willing to sell them. They suggested that
this be discussed on a project-by-project basis.
AREAS FOR POTENTIAL PROJECTS
(C) The Working Group agreed that the basis for discussing
potential projects should be the list of 15 g Loral areas
suggested by the U.S.-U.S.S.R. Trade and Economic Council (USTEC).
The fifteen areas are: food processing, fishing, service
industries, energy, pulp and paper, pollution control, textiles,
land reclamation, materials handling, biotechnology, transporta-
tion, petrochemicals, chemicals, consumer goods, and medical
equipment.
(C) In addressing the energy sector area on the USTEC list, the
U.S. delegation reiterated existing policy on export of oil and
gas equipment and technology to the Soviet Union. Oil and gas
exploration and production equipment, along with a few items of
transmission equipment, require a validated export license and
most of this equipment has a presumption of approval. Virtually
no refining equipment requires a validated license. Oil and aas
technology for exploration and production requires a validated
icense, and there is a presumption of denial. The Soviets
asserted that their energy development plans would proceed with
or without the United States. Sushkov stated that if the U.S.
Government does not endorse the proposed USTEC energy, pollution
control, and recycling exhibit, he will recommend, that plans be
dropped for the exhibit at the I-larch meeting of the USTEC
executive committee.
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:C) On the cther 14 areas, the U.S. delegation indicated that
in most of them there would be few licensing problems, and
projects in many areas could be endorsed. The Working Group
agreed that each side should narrow the list according to its
interests, and that discussion of specific project possibilities
should be. undertaken where there was overlapping interest.
(C) Each side indicated a number of specific actions it wanted
the other to take in the context of a JCC meeting, either seeking
to resolve the issue prior to the JCC or to discuss it at the
JCC.
U.S. List --
1. A joint statement of support for mutually beneficial trade.
The Soviets agreed, but want the U.S. to make the first draft.
2. Put all interested U.S. companies back on bid invitation
lists. The Soviets at first denied they had any policy against
U.S. companies, then admitted that de facto there was such a
practice and agreed_ to take visible steps to end the practice.
(This is the mayor barrier to non-strategic trade expansion, in
the view of U.S. companies.)
3. Provide Trade Ministry guidance to all Soviet Foreign Trade
Organizations to treat U.S. companies equally with other Western
suppliers. The Soviets agreed to do this in a visible manner.
4. Sign some contracts that have been under negotiation with
American companies for a long time. The Soviets agreed in
principle, but refused to specify which contracts.
5. Develop specific new project proposals in mutually-
agreeable areas. The Soviets agreed.
6. Allow resumption of seminars and other promotions at the
U.S. Commercial Office in Moscow. The Soviets agreed, and also
offered to pay half the cost of setting up an entity to promote
added business by small U.S. companies.
Soviet List --
1. Terminate furskins embargo. The U.S. delegation expressed
willingness to discuss options with Congress if the Soviets act
to improve U.S. business prospects in the U.S.S.R.
2. Restore Aeroflot landing rights. U.S. stressed the need
to reach an understanding on North Pacific air safety measures
so that discussions on other aspects of our civil aviation
relationship might be resumed between our experts. U.S. also
noted that eventual agreement would have to contain full balance
of economic concessions for U.S. carriers.
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3. Conclude new tax protocol. U.S. indicated readiness to
move forward on unsigned 1981 protocol, but noted changes may
have to be made.
4. Eliminate nickel prohibition. U.S. noted recent Treasury
offer as good basis for resolution, and invited Soviets to
respond.
5. Antidumping, especially action on potash. U.S. agreed to
discuss, but noted limited administrative flexibility.
6. Supplier Reliability. U.S. agreed to discuss the matter
if a JCC were held.
7. MFN and Credits. U.S. agreed to put it on agenda, stressing
that there would be no change in U.S. policy. Soviets noted firm
U.S. position, but want it on JCC agenda anyway.
8. Renew maritime negotiations. U.S. agreed to discuss
maritime matters, but in the traditional maritime framework and
noting that U.S. maritime industry interests would have to be
addressed.
(U) This report has been reviewed and cleared by all members
of the U.S. delegation, which included representatives of the
Departments of State, Treasury and Commerce, the U.S. Trade
Representative and our Embassy in Moscow.
JAN 18 19gS
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EXECUTIVE SECRETARIAT
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Remarks 23. D/SOVA x
7'23 January 1985
r Date
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January 23, 1985
UNCLASSIFIED
(With on iMential Attachment)
MEMORANDUM FOR THE VICE PRESIDENT
THE SECRETARY OF STATE
THE SECRETARY OF DEFENSE
THE SECRETARY OF AGRICULTURE
THE SECRETARY OF COMMERCE
THE SECRETARY OF TRANSPORTATION
THE SECRETARY OF ENERGY
DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
DIRECTOR OF CENTRAL INTELLIGENCE
UNITED STATES TRADE REPRESENTATIVE
ASSISTANT TO THE PRESIDENT FOR NATIONAL SECURITY AFFAIRS
ASSISTANT TO THE PRESIDENT & DEPUTY TO THE CHIEF
OF STAFF
ASSISTANT TO THE PRESIDENT FOR CABINET AFFAIRS
CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS
ASSISTANT TO THE PRESIDENT FOR POLICY DEVELOPMENT
SUBJECT: Senior Interdepartmental Group on
International Economic Policy (SIG-IEP)
Attached for tomorrow's SIG-IEP meeting is a status report on the
Japan IG, a USTR paper on an issue likely to arise during King Fahd's
visit to the United States, and a paper on world oil markets and prices
prepared by the Department of Energy.
ChristopherVHicks
Executive Secretary and
Executive Assistant to the Secretary
UNCLASSIFIED
(With Con idential Attachment)
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DEPUTY UNITED STATES TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON, D.C. 20506
202.3955114
January 22, 1985
MEMORANDUM
TO: Secretary Donald T. Regan
Chairman, SIG-IEP
FROM: Ambassador Michael B. Smith
Chairman, Japan IG
SUBJECT: Japan IG - Status Report
To undertake the mandate given by the SIG-IEP at its January 4
meeting, I convened the newly established Japan IG twice during
the week of January 7, once on the 17th, and we will meet again
tomorrow. At tomorrow's IG meeting, draft scope and objective
papers will be examined. All SIG-IEP member agencies interested
in trade are participating. Following is a status report and
responses to questions you raised at the SIG-IEP.
Message to the GOJ
In order to build on the momentum of the President's meeting
with the Prime Minister, the SIG-IEP agreed that we should promptly
dispatch a message to the GOJ. The IG met its deadline of
agreeing on the message by January 11.. Secretary Shultz signed
the letter to Minister Abe January 16 and cabled it to our Tokyo
Embassy for immediate delivery.
The letter (Tab 1) proposes that Under Secretary Wallis lead
a group including Under Secretary Olmer, Deputy Under Secretary
Amstutz, and myself to meet with our counterparts in Tokyo
January 29-30. At present, Under Secretary Sprinkel is regretably
unavailable on these dates. These are the only dates between
now and mid-February when most of the Under Secretaries are
available. The purpose of this Tokyo meeting is to discuss
the formation of the sector teams and agree on how the teams
will proceed. This meeting may be moved to January 28-29 at
the request of the GOJ.
Secretary Shultz's letter also proposes that, given the urgency
of telecommunications issues, the Telecommunications Sector
Group have its first bilateral meeting the week of January 28.
We expect other sectors to have their initial meetings in February.
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Composition of the Sector Teams
Commerce and USTR will co-chair the telecommunications/electronics
sectors, USDA will take on forest products, and the medical
equipment/pharmaceuticals will be led by Treasury or, if Treasury
is unable to, USTR will lead. Preparations on forestry products
are advanced; others will require more preparations.
Additional Sectors
We have considered the question of whether sectors in addition
to the original four should be included in this first round.
In particular, we looked at your suggestion of chemicals and
Secretary Baldrige's suggestion of manufactured tobacco products.
While it is agreed that these and other sectors should be included,
it is our recommendation that, in view of the resources available,
we should confine our current efforts to the original four sectors.
We would take on other sectors as the original sectors are taken
care of.
Coordination of the Sector Teams
It is of course essential that the sector teams operate in a
manner and pursue objectives consistent with our overall trade
policy. It is also essential that on issues which cut across
more than one sector, such as standards, that the objectives
of the various teams are consistent. To assure this we will
use the existing interagency trade policy coordinating groups
structured under the Trade Policy Committee. All position papers
and negotiating instructions for the sector teams will be cleared
through the TPC process.
Contacts with Business Community
We have two objectives here. First we need to get the word
out on the new approach. Industries included in the four selected
sectors want to know what will happen. Industries not included
are worried that their interests are being abandoned. We need
to meet with industry groups and trade associations to explain
the new approch. Ambassador Brock began this process in his
January 9 meeting with the Advisory Committee for Trade Negotiations
(ACTN). He will have another opportunity when he addresses
the February 4 meeting of the Advisory Council on Japan-U.S. Economic
Relations. The Emergency Committee on American Trade assembled
a group of interested firms for me to brief on January 17.
We will offer similar briefings to other groups as well.
Our second objective is to assemble private sector advisors
for each of the sector teams to identify problems and agree
on objectives. Moreover, we will ask for continuing support
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from these industries, including technical advisors where needed.
As soon as the sector teams are formed they will begin meeting
with interested trade associations and firms. Some associations
such as The American Paper Institute have already begun to prepare
for these consultations.
Contacts with the Congress
We also need to brief the Congress on our new approach. On
January 10, I briefed the staffs of the Trade Subcommittees
of the Senate Finance Committee and the Rouse Ways and Means
Committee. As the Congress returns to town we will also be
briefing interested Members. It was agreed that USTR will coordinate
these Congressional contacts.
Possible Ministerial Meeting
At the SIG-IEP meeting you asked about the new M-7 group formed
by Prime Minister Nakasone, and raised the question of a possible
bilateral ministerial meeting. The GOJ paper at Tab 2 presents
the members and objectives of the M-7 group, known formally
as the Ministerial Conference for External Economic Affairs.
The IG has discussed the possible utility of a ministerial meeting.
It is not clear that the benefits would outweigh the costs.
However, we are continuing to look at the idea, including possible
opportunities for such a meeting.
Attachments
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THE SECRETARY OF STATE
WASHINGTON
January 16, 1985
Dear Mr. Minister:
-or
AS soon as I returned from our Los Angeles meeting, I
immediately began final preparations for my meeting with Soviet
Foreign Minister Gromyko, and I therefore have not had an
opportunity until now to write and express my satisfaction with
our January 2 meetings, and the special role that you and
officials of your Foreign Ministry played in them. As the
President indicated in his remarks to the press afterwards,
Prime Minister Nakasone's visit has reconfirmed and
strengthened the vital relationship that exists between our two
countries.
The President and prime minister had an excellent exchange
of views on the key issues. it was appropriate that our
economic relations, particularly our trading relations, were at
the top of the agenda. The agreement to work strenuously in
the months ahead to open our markets sets the stage for
resolving many of our major problems in trade.
You and I have been charged by the President and prime
Minister with overseeing this intensified cooperative effort to
make progress in our economic relations. I take this charge
most seriously. As President Reagan said, failure to overcome
these obstacles in trade will complicate our ability to fulfill
the vision of international partnership between Japan and the
United states that we both share. We must not allow this to
happen. We can and must remove these obstacles, our two
leaders have made the political commitment. We must now
produce results.
We are organizing our governJent to focus at least
initially on the four sectors agreed by the President and Prime
Minister: telecommunications, electronics, forest products,
and medical equipment and pharmaceuticals. We are now studying
whether other sectors should be included in this first group.
His Excellency
Shintaro Abe,
Minister of Foreign Affairs,
Tokyo.
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It is our intention to have teams to negotiate on each of
the: ors. The U.S. side will be led by under
Se ' ry-lever officials in all meetings with your
so __ent. I understand that It is your intention that the
1Ye delegations be chaired by Vice Ministers.
haunch this process I propose that under secretary Allen
Wa lead a U.S. delegation of Under Secretary-level
off~ls to Tokyo January 29-30 to meet with their Japanese
Government' counterparts. in that meeting we propose discussion
of the formation of the sector teams and how the negotiations
would be conducted, and determination of the initial schedule
of meetings, including the possibility of a ministerial-level
meeting for an initial formal review of the progress of the
negotiations. I would hope that this mission could meet with
those political figures and business leaders in Japan whom
Prime Minister Nakasone has involved in the follow-up process.
In addition we would expect that officials of our two
governments could jointly have an opportunity to meet with the
press to clarify our mutual understanding.
U.S.-Japan Economic Sub-Cabinet consultations are scheduled
for early in March. At that time the under Secretaries may
wish to meet separately to review progress being made by the
negotiating teams.
one sector, telecommunications, is particularly ready for
negotiation. in view of your recently enacted laws which are
to be implemented in April, and the special interest evinced by
the Prime Minister in this sector, we believe it is essential
to get the negotiations on telecommmunications underway January
.30 and 31. I hasten to add, however, that we would wish to
begin negotiations on the other three sectors very shortly
thereafter. We also look forward to the meetings of our energy
experts in early February to accelerate the implementation of
our joint energy agreement.
president Reagan and prime Minister Nakasone will next meet
at the time of the Economic Summit in May. I believe that you
and I should report to them. prior to that meeting on what
progress has been made.
I look forward to our continuing cooperation.
George P. Shultz
sincerely yours,
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Press Release
For Immediate Release
December 6, 1984
On the Establishment of the 'Ministrial Conference
for External Economic Affairs'
December 4, 1984
Ministerial Conference for Economic Measures
The Ministerial Conference for External Economic Affairs as
described below has been established in order to facilitate the
smooth handling of external economic problems. In addition, a
meeting of the Advisory Committee jo, a;ltrwe( Economic Affairs has
been called. The conference will select a number of foreign
experts to participate in the hearings. This is the first time
that the Government has permitted foreign experts to present
their opinions in this type of government policy-making forum.
1. The Establishment of the Ministerial Conference for External
Economic Affairs:
(1) Objectives:
The Ministerial Conference for External Economic Affairs
(hereinafter called "Conference") is hereby established within
the Ministerial Conference for Economic Measures in order to
facilitate the handling of external economic problems.
(2) Members:
The members of the Conference will include the following
members of the Ministerial Conference for Economic Measures: the
Minister for Foreign Affairs, Minister of Finance, Minister of
Agriculture, Forestry and Fisheries, Minister of International
Trade and Industry, Director-General of the Economic Planning
Agency, Chief Cabinet Secretary, and Minister of State Toshio
Komoto. In addition, participation will be solicited from the
the Chairman of the Liberal Democratic Party Political and
Research Council and the Chairman of the Special Research
Committee for International Economic Measures.
The Conference will meet as necessary, and will be empowered
to request participation by concerned Cabinet Ministers.
(3) Presiding Chairman:
The Presiding Chairman of the Conference will be Minister of
State, Toshio Komoto.
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(4) Scope of Activities:
The Conference at the request of the Ministerial Conference
for External Economic Measures, will investigate and deliberate
on the following matters. -
a. The implementation of decisions made by the Ministerial
Conference for Economic Measures regarding external economic
measures.
b. Mid-term questions involving the further
internationalization of Japan's economy.
c. Specific actions which should be taken for the moment
with regard to external economic questions.
(5) Reporting:
Results of the inquiries and deliberations of the Conference
will be reported to the Ministerial Conference for Economic
Measures.
(6) Board of Directors' Meeting:
a. A board of directors meeting is established in order to
effectively manage the Conference. It will be constituted by the
Bureau Chiefs in charge from the Ministry for Foreign Affairs,
Ministry of Finance, Ministry of Agriculture, Forestry and
Fisheries, Ministry of International Trade and Industry, and the
Economic Planning. Agency, and in addition, the Director of the
Chief Cabinet Secretary's Office and the Director of the Chief
Cabinet Secretary's Special Affairs Office.
b. Members of the board of directors can be added
temporarily as needed.
c. Director of the Coordinating Bureau of the Economic
Planning Agency will serve as the presiding officer over the
Board of Directors.
(7) General Affairs:
The general affairs of the Conference, will be handled by
the Special Affairs Office of the Chief Cabinet Secretary with
the cooperation of the Coordination Bureau of the Economic
Planning Agency.
2. The Calling of the Advisory Committee for External Economic
Affairs:
(1) Objectives:
The Advisory Committee for External Economic (hereinafter
referred to as "Committee") meeting will be called at the
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request of the Conference to deliberate and express their
opinions.
(2) Members:
There will be participation from up to 10 members with deep
knowledge and experience in international economics, interna-
tional financing, international trade, and other external
economic questions.
(3) Sitting Chairman:
The Committee will select a sitting chairman from among
their ranks.
(4) Collecting Opinions:
a. Special Participants:
The Committee will select a number of foreign experts as
special participants and will bear their opinions from time to'
time.
b. Other:
When necessary, the subcommittee will conduct hearings which
elicit the opinions of employees of related government agencies
and ministries, or academics or persons having relevant
experience and knowledge from both Japan and abroad.
(5) General Affairs:
The general affairs of the Committee will be handled by
the Special Affairs Office of the Chief Cabinet Secretary with
the cooperation of the Coordination Bureau of the Economic
Planning Agency.
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OFFICE OF THE UNITED STATES
TRADE REPRESENTATIVE
EXECUTIVE OFFICE OF THE PRESIDENT
WASHINGTON
20506
January 22, 1985
O.S. - Saudi Trade Issues
A number of trade issues may be raised during the course of
the King's visit. Key among the issues are the Saudis' interest
in continued access to the O.S. market for its petrochemicals
exports; efforts in Congress to address petrochemicals pricing
through legislation which will affect its exports= possible
preferential access to the D.S. market for petrochemicals under
the GSP ands the viability of a product-specific bilateral
agreement or Free Trade Arrangement. Work is underway within
the interagency Trade Policy Coeinittee framework on agreed positions
for these issues. A discussion on options for dealing with
these issues will be included in the interagency paper for the
King's visit.
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World Oil Prices
Given OPEC's claims that the industrialized countries have
conspired to force OPEC to lower official oil prices, how should
the USG approach a discussion of the oil market with King Fahd/
Sheikh Yamani.
BACKGROUND
Despite the recent OPEC Ministerials (October and December),
current oil prices remain weak. While world oil demand has
increased slightly in 1984 compared to 1983, it still remains
over 6 million barrels per day (MMB/D) below the peak in 1979.
In response to higher oil prices, consumers accelerated sub-
stitution away from oil. Moreover, non-OPEC production has
risen over 3 MMB/D in the same period. As a result, OPEC oil
production (crude and NGLs) has plummetted from almost 32 MMB/D
in 1979 to about 17 MMB/D at present. The current excess world
oil production capacity of 10 MMB/D, pressing financial needs of
several oil producers (leading them to produce more than their
OPEC-assigned quotas), and weak oil demand continue to exert
downward pressure on oil prices. OPEC has attempted to support
the official $29 benchmark price structure by reducing the
group's crude production quota (from 17.5 MMB/D to 16 MMB/D),
and announcing its intention to "audit" members' pricing and
production actions. Thus far, however, the market remains
unconvinced of OPEC's abilities to stabilize prices; spot crude
and product prices have not risen significantly despite the
seasonal upturn in oil demand. Moreover, the press has
speculated that Norway, Canada, and Britain will shortly reduce
official contract prices to reflect current spot market levels,
about $1.00/barrel below Official Selling Prices (OSP) at
present.
DISCUSSION
OPEC Oil Ministers, in particular, Sheikh Yamani, have applied
public and private pressure on other market participants in
order to gain their assistance in halting a further erosion in
oil prices. Mexico and Egypt made nominal cuts in production
levels and maintained prices. Malaysia and Brunei, recent
observers at the Geneva OPEC meeting, announced their intention
to scale back their 1985 oil production targets.
Some OPEC members, including Yamani, have interpreted the
Norwegian, British, Canadian price cuts, Secretary Hodel's
London speech, the reduction in U.S. domestic oil postings by
several companies and what they perceive to be a massive draw-
.down of private petroleum inventories (they allege 3-4 MMB/D),
as evidence of a conspiracy to force OPEC to reduce official
prices.
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PEI
Yamani and Indonesian Oil Minister Subroto have threatened "high
cost" oil producers, Norway and Britain, with a price war
through the temporary suspension of OPEC production and pricing
controls. The aim is to deter further price cuts by Norway and
Britain in January.
While OPEC may attempt to blame others for the weakness in oil
prices, it is clear that the current oil market reflects the
following fundamentals:
? Oil demand remains weak. Despite a slight upturn in U.S.
oil consumption in the first half of 1984, the rate of growth
has slowed considerably. Oil consumption in Europe and Japan
has followed a similar trend, where demand remains weak
partly as a result of high and rising local currency prices
for oil products.
? Oil companies are not rebuilding oil inventories at present.
Given the large stock build in the second quarter of 1984 in
response to the escalation of hostilities between Iran and
Iraq, weak oil demand, the relative abundance of oil
supplies, in particular, of short-haul crudes, financial
imperatives and the expectation of lower oil prices in the
future, companies are reducing inventories and operating
their marketing systems with lowers levels of working stocks.
? Oil supplies remain adequate. In response to the previous
oil price shocks, non-OPEC production has increased. While
the growth rate of this non-OPEC production is expected to
slow down eventually, the demand for OPEC oil is expect to
remain weak. Looking out over the next few years, the
potential for oil supply increases from all sources is much
larger than any forseeable rise in demand.
Most observers doubt that the OPEC production "auditing" system
will lead to improved member discipline. If it does not, the
perception in the market will continue to be that prices will
decline further. Many market observers believe that the funda-
mental forces at work in the current oil market will bring about
an eventual further reduction in some OPEC members' official
selling prices. The only uncertainties, in their view, are the
timing and magnitude of the price reduction. With OPEC
Ministers scheduled to meet again on January 27, 1985, there is
a possibility that OPEC could agree on a new, lower price
structure prior to King Fahd's scheduled visit to Washington.
U.S. POSITION
As noted in Secretary Hodel's statement of October 31, 1984, and
other pronouncements, the USG believes that stability in the
energy markets can only be achieved if the market is allowed to
_~itii rs?.ra~r I ia-L
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establish a supply and demand equilibrium over time. In our
view, the market has sent a clear signal that the current world
oil price is too high in relation to demand.
Given Yamani's public statements, we should indicate in any
discussions of the oil market that:
? We have not attempted to "talk down" the price of oil.
Analytical comments on market trends are not equivalent to
advocating a particular price for oil, which we believe is
best determined in the marketplace.
? Reductions in U.S. postings by American oil companies and
price cuts by Canada, Britain and Norway were all independent
decisions reflecting the underlying fundamentals of the oil
market.
? We have no evidence of an unusual stock drawdown. Our data
indicate that the industrialized countries have reduced their
commercial inventories by modest rates.
? In fact, the U.S. and Japan continued to build their
strategic stocks. It is our intention to continue filling
the SPR through September 30, 1985 to maintain a fill rate
for the fiscal year of 159,000 B/D.
U.S. POSITION ON PRODUCER-CONSUMER DIALOGUE (IF RAISED)
Although we have no evidence that the Saudis desire such talks
at this time, the Saudis may broach the issue of producer-
consumer dialogue for the purpose of stabilizing oil prices. We
oppose formal or informal multilateral talks between oil pro-
ducing and oil consuming countries. The most likely course for
such talks would have us discuss oil prices and output, and we
believe these should remain the outcome of a market process.
The consequences of engaging in such talks would be to run up
against irreconcilable differences and to exacerbate tensions
between producers and consumers. The stated purpose of such
talks--to exchange information on oil markets--seems to us to be
redundant in view of our bilateral talks with producers and the
information produced by the marketplace itself.
? We oppose informal or formal multilateral meetings with
oil-producing countries and believe that any such discussions
would inevitably lapse into a debate over pricing and
production levels, both of which we consider best determined
by the marketplace.
? We believe bilateral contact is the best way of exchanging
views and information with oil-producing countries and more
use should be made of such contacts.
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EXECUTIVE SECRETARIAT
ROUTING SLIP
ACTION
INFO
DATE
INITIAL
1
DCI
2
DDCI
3
EXDIR
4
D/ICS
5
DDI
X
6
DDA
7
DDO
8
DDS&T
9
Chm/NIC
10
GC
11
IG
12
Compt
13
D/Pers
14
D/OLL
15
D/PAO
16
SA/IA
17
AO/DCI
18
C/IPD/OIS
19
NIO/WM
X
20
X
21
NIQAIM
X
22
p/SM
X
23 YJanuaxy 1985
Dab
on the agenda will be forwarded soon. /71
Please note: '1',n additional. papers
11 3637 (1041 1
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THE SECRETARY OF THE TREASURY
WASHINGTON. D.C. 20220
January 22, 1985
Executiv3 i :jftt !
85- 350
UNCLASSIFIED
(With Secret Attachment)
MEMORANDUM FOR
DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET
DIRECTOR OF CENTRAL INTELLIGENCE
UNITED STATES TRADE REPRESENTATIVE
ASSISTANT TO THE PRESIDENT FOR NATIONAL SECURITY AFFAIRS
ASSISTANT TO THE PRESIDENT & DEPUTY TO THE CHIEF
OF STAFF
ASSISTANT TO THE PRESIDENT FOR CABINET AFFAIRS
CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS
ASSISTANT TO THE PRESIDENT FOR POLICY DEVELOPMENT
THE
VICE PRESIDENT
THE
SECRETARY OF
STATE
THE
SECRETARY
OF
DEFENSE
THE
SECRETARY
OF
AGRICULTURE
THE
SECRETARY
OF
COMMERCE
THE
SECRETARY
OF
TRANSPORTATION
THE
SECRETARY
OF
ENERGY
SUBJECT: Senior Interdepartmental Group on
International Economic Policy (SIG-IEP)
A meeting of the SIG-IEP is scheduled to be held on Thursday,
January 24, at 11:00 a.m. in the Roosevelt Room.
The agenda items are:
1) U.S.-Japan Economic Issues;
2) Report on U.S.-USSR Working Group of Experts Meeting;
3) U.S. Position on Common Fund;
4) King Fahd Visit: Economic Issues.
A Commerce Department report on the U.S.-USSR Working Group of
Experts Meeting and a Treasury Department discussion paper on the
Common Fund are attached. Papers on the other two agenda items are
being prepared by USTR and will be forwarded as soon as they are
available.
Attendance will be principal plus one.
Donald T. Regan
UNCLASSIFIED
(With Secret Attachment)
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% - - o I
REPORT TO THE SIG-IEP
On the Results of the
Fourth Session of the U.S.-U.S.S.R. Working Group of Experts
Moscow, January 8-9, 1985
(U) On June 27, 1984, the President announced that as part of
the effort to engage the Soviets in a more constructive dialogue,
the Administration had proposed that preparations begin for a
meeting of the Cabinet-level U.S.-U.S.S.R. Joint Commercial
Commission (JCC). The Soviets were told by Secretary Baldrige'
that we would agree to such a meeting if sufficient common ground
existed for trade expansion and if concrete steps would result
to facilitate an increase in peaceful trade. The Soviets agreed
to a meeting of the Working Group of Experts to explore these
questions.
(S) On December 18, 1984, the SIG-IEP discussed the objectives
for the Working Group Meeting, and on January 4, 1985, in
NSDD 155 the President enumerated the U.S. objectives as being:
o To review the status of overall U.S.-Soviet economic and
commercial relations.
o To discuss present obstacles to our trade relations in an
effort to identify areas in which mutually beneficial non-
strategic trade could be expanded in conformity with present
export control policies.
o To help determine if there are sufficient grounds for a
meeting of the U.S.-U.S.S.R. Joint Commercial Commission.
(S) The President also approved positions to be taken on issues
the Soviets were expected to raise, approved using the meetings
to express serious human rights concerns, and stated that pending
further policy clarification we should not agree to an active
program of trade expansion in oil and gas equipment.
(C) The Working Group, chaired on the U.S. side by Commerce Under
Secretary Olmer and on the Soviet side by Deputy Foreign Trade
Minister Sushkov, agreed that the prospects for trade expansion
within present U.S. and Soviet policies were relatively modest,
but of sufficient interest to act upon. Both sides agreed the
trade relationship could not be viewed apart from the overall
bilateral relationship.
(C) The Soviets indicated strong interest in an expansion of
trade with the United States, however limited that might have
to be. The Soviet interest is particularly striking in that the
Soviets remained positive and non-polemical despite the blunt
U.S. statements on the need for human rights improvements as
necessary for any major gains in the relationship.
SECRET
Classified by: Lionel H. Olmer
Declassify on: O.A.D.R.
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CON Fl DENTIAL
(C) The Working Group identified areas where both sides were
interested in expanding trade. All of these areas are in full
conformity with present U.S. export control policies and other
laws and policies governing bilateral trade. The Working Group
also identified concrete steps which would facilitate growth in
peaceful trade, and which could be announced at a JCC meeting.
(C) Both sides expressed satisfaction with the tone and substance
of the meetings. Both acknowledged that the final decisions on
holding a meeting of the JCC would be made in the respective
capitals after reviewing the results of the Working Group meeting
and considering other relevant factors. Both also agreed to
recommend that if a JCC meeting were held its agenda should be:
(1) Status and prospects of bilateral trade; (2) Results of the
Working Group of Experts; (3) Opportunities for expansion of
trade, including projects; (4) Business facilitation.
(C) The U.S. delegation believes that the conditions necessary
to assure a successful JCC meeting have been met, and recommends
to the SIG-IEP that the United States indicate to the Soviet
Union a willingness to hold such a meeting as soon as practical.
U.S. VIEWS
(C) The U.S. delegation made it plain at the outset of the
meetings that our security and foreign policy interests remain
paramount and will continue to set limits to acceptable trade.
The delegation said the U.S. wanted to find areas where trade
could be expanded within the present framework of export control
policies and other laws and policies governing the bilateral
relationship. We were not interested in changing the framework.
(C) The U.S. delegation described three areas: (1) those with
major constraints that had little or no prospect of being
overcome; (2) those with constraints that could be resolved or
reduced considerably; and (3) areas where there were no
constraints. The U.S. view was to recognize the obstacles, but
to take a pragmatic approach of trying to find mutually agreeable
steps in the latter two areas.
(U) The U.S. delegation stressed that the trade relationship
could not change significantly independently of other aspects
of the U.S.-Soviet relationship. In particular, major improve-
ments in the trading relationship would not be possible in the
absence of major progress on human rights. Jackson-Vanik would
not be changed.
(U) We noted the Soviet view that the U.S. had created the
barriers to trade and had to bear unilateral responsibility to
improve the relationship. The U.S. admonished the Soviets that
this view was unrealistic, and that action to move trade forward
would have to come from both sides. The U.S. delegation pointed
to Soviet actions which have removed U.S. companies from bid
lists, have prevented U.S. companies from staging seminars and
trade promotions, and have branded U.S. companies as unreliable
suppliers.
on Irrpnr&r-
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C NEE DEN < If
(U) It was the view of the U.S. delegation that attractive possi-
bilities for a significant increase in trade existed within
present constraints, without any change in framework. The Soviets
were urged to act on some long-standing contract negotiations
and to take a pragmatic approach to identifying additional project
possibilities.
(C) The Soviet delegation believed that a very large increase
in trade could take place if the U.S. would grant MFN and credits,
limit its export controls, and guarantee contract sanctity.
Otherwise, only relatively modest gains would be possible. The
Soviets expressed disappointment with the firm U.S. position on
Jackson-Vanik and human rights, saying these concerns should be
separate from trade. (In private conversations, some Soviet
leaders showed more flexibility. Gosbank Chairman Alkhimov, in
particular, said that if good relations were restored with the
United States, 50,000 Jewish emigrees annually would be "no
problem.")
(C) The Soviets accepted the U.S. view that the focus should
be on areas where there were few or no problems, and also agreed
that both sides would have to take trade facilitating steps if
a JCC meeting were to be held. The Soviets said they accepted
the right of the U.S. to control its exports, but it was critical
for any expansion in the relationship to let them know more
precisely what we were willing to sell them. They suggested that
this be discussed on a project-by-project basis.
AREAS FOR POTENTIAL PROJECTS
(C) The Working Group agreed that the basis for discussing
potential projects should be the list of 15 sectoral areas
suggested by the U.S.-U.S.S.R. Trade and Economic Council (USTEC).
The fifteen areas are: food processing, fishing, service
industries, energy, pulp and paper, pollution control, textiles,
land reclamation, materials handling, biotechnology, transporta-
tion, petrochemicals, chemicals, consumer goods, and medical
equipment.
(C) In addressing the energy sector area on the USTEC list, the
U.S. delegation reiterated existing policy on export of oil and
gas equipment and technology to the Soviet Union. Oil and gas
exploration and production equipment, along with a few items of
transmission equipment, require a validated export license and
most of this equipment has a presumption of approval. Virtually
no refining equipment requires a validated license. Oil and gas
technology for exploration and production requires a validated
license, and there is a presumption of denial. The Soviets
asserted that their energy development plans would proceed with
or without the United States. Sushkov stated that if the U.S.
Government does not endorse the proposed USTEC energy, pollution
control, and recycling exhibit, he will recommend that plans be
dropped for the exhibit at the I9arch meeting of the USTEC
executive committee.
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"'UNHUEIN
,.C) On the other 14 areas, the U.S. delegation indicated that
in most of them there would be few licensing problems, and
projects in many areas could be endorsed. The Working Group
agreed that each side should narrow the list according to its
interests, and that discussion of specific project possibilities
should be. undertaken where there was overlapping interest.
SPECIFIC STEPS
(C) Each side indicated a number of specific actions it wanted
the other to take in the context of a JCC meeting, either seeking
to resolve the issue prior to the JCC or to discuss it at the
JCC.
U.S. List --
1. A joint statement of support for mutually beneficial trade.
The Soviets agreed, but want the U.S. to make the first draft.
2. Put all interested U.S. companies back on bid invitation
lists. The Soviets at first denied they had any policy against
U.S. companies, then admitted that de facto there was such a
practice and agreed to take visible steps to end the practice.
(This is the major barrier to non-strategic trade expansion, in
the view of U.S. companies.)
3. Provide Trade Ministry guidance to all Soviet Foreign Trade
Organizations to treat U.S. companies equally with other Western
suppliers. The Soviets agreed to do this in a visible manner.
4. Sign some contracts that have been under negotiation with
American companies for a long time. The Soviets agreed in
principle, but refused to specify which contracts.
5. Develop specific new project proposals in mutually-
agreeable areas. The Soviets agreed.
6. Allow resumption of seminars and other promotions at the
U.S. Commercial Office in Moscow. The Soviets agreed, and also
offered to pay half the cost of setting up an entity to promote
added business by small U.S. companies.
1. Terminate furskins embargo. The U.S. delegation expressed
willingness to discuss options with Congress if the Soviets act
to improve U.S. business prospects in the U.S.S.R.
2. Restore Aeroflot landing rights. U.S. stressed the need
to reach an understanding on North Pacific air safety measures
so that discussions on other aspects of our civil aviation
relationship might be resumed between our experts. U.S. also
noted that eventual agreement would have to contain full balance
of economic concessions for U.S. carriers.
l 1 1 _
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3. Conclude new tax protocol. U.S. indicated readiness to
move forward on unsigned 1981 protocol, but noted changes may
have to be made.
4. Eliminate nickel prohibition. U.S. noted recent Treasury
offer as good basis for resolution, and invited Soviets to
respond.
5. Antidumping, especially action on potash. U.S. agreed to
discuss, but noted limited administrative flexibility.
6. Supplier Reliability. U.S. agreed to discuss the matter
if a JCC were held.
7. MFN and Credits. U.S. agreed to put it on agenda, stressing
that there would be no change in U.S. policy. Soviets noted firm
U.S. position, but want it on JCC agenda anyway.
8. Renew maritime negotiations. U.S. agreed to discuss
maritime matters, but in the traditional maritime framework and
noting that U.S. maritime industry interests would have to be
addressed.
(U) This report has been reviewed and cleared by all members
of the U.S. delegation, which included representatives of the
Departments of State, Treasury and Commerce, the U.S. Trade
Representative and our Embassy in Moscow.
JAN 18 1955
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Should the United Stites ratify the Common Fund?
It is time for the United States to make a definitive deci-
sion on the Common Fund and put the issue behind us. The issue
is coming to the fore because of diplomatic pressure on the
United States to ratify by G-77 countries. The pressure is
occasioned by the fact that ratifications have reached the point
where U.S. ratification (and expected ratifications following our
lead) would be sufficient to bring the Common Fund into force.
However, to ratify, the United States would have to jettison a
precondition we have insisted on for the last four years and to
overcome philosophical aversion and practical doubts about the
Common Fund.
U. S. position
The U.S. position has been that we would consider taking
steps to ratify the Common Fund Agreement when several eligible
commodity agreements are prepared to associate with the Common
Fund. This consistent U.S. position is based on the premise that
the Common Fund makes no sense without commodity agreements able
to associate with it. The United States has declined to pledge
resources to the Second Window of the Fund, and our position is
not affected by arguments that the Second Window should be allowed
to operate even if the First Window never does. The United
States has also rejected the notion that we should ratify because
other countries have.
Provisions of the Common Fund
The ideas motivating the Common Fund are that price-
stabiliziing commodity agreements are desirable and that commodity
organizations can borrow more cheaply as a group (from one another
and commercially) than as individual entities.
The Common Fund's intent then is to facilitate the financing
of price-stabilizing buffer stock agreements and to help mobilize
funding of "other measures" to improve the market position of
commodities. To this end, the Common Fund's First Window is
designed to lend money to the buffer-stock operations of associated
commodity agreements. The source of the funds would be pooled
assets of associated agreements and funds borrowed commercially.
The Fund's Second Window would finance commodity projects
aimed at improving structural conditions in commodity markets
and at enhancing the competitiveness of commodities, primarily
by financing research and development to promote consumption.
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Entry-into-force requires ratification by 90 countries
accounting for two-thirds of $470 million of direct contribu-
tions (to be used as collateral to secure commercial borrowing),
and 50 percent of $280 million of voluntary contributions to
the Second Window.
Current situation
As of mid-September, 83 countries had ratified the Common
Fund accounting for 50 percent of direct contributions. The
Second Window requirement for entry into force has already been
met. The last deadline for entry into force was January 1,
1984; this deadline was not met but it has been extended de
facto.
The United States has a 15.7 percent share of direct
contributions. Ratification by the United States and Germany
would complete the two-thirds threshold and most observers
believe that sufficient ratifications to reach the required 90
would follow in the wake of U.S. ratification. (Among other
major countries, only West Germany and the Soviet Union have
not ratified; West Germany is committed to ratify.)
Meanwhile, contentious issues over voting and rules for
Second Window financing are in abeyance until it is known
whether the Fund will enter into force. The voting question
revolves around LDCs' insistence that their bloc have effective
voting control of the organization under all circumstances.
This would require further decoupling of financial contribu-
tions from votes, a highly undesirable feature in a financial
institution.
History
The idea of a common fund has been a major feature of
international discussion since about 1974. At that time the
UNCTAD Secretariat elaborated a common fund proposal, opened
it for international discussion, and promoted it. Developed
countries showed little or no interest in a common fund,
questioning its need and usefulness. But developing countries
kept up the pressure and negotiations began in 1977. These
negotiations led to formal "Articles of Agreement for the
Common Fund" in June 1980. The United States signed the arti-
cles in 1980. Since then, ratifications have steadily increased,
as the UNCTAD Secretariat pushed for entry into force. At the
same time, however, high-level interest in major industrial
countries has faded, as evidenced by Summit communiques which
at first urged ratification, but at London simply stated "some
of us also wish to activate the common fund for commodities".
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Commodity agreements
Currently there are only three agreements which have buffer
stocks and which are thereby eligible to associate with the
Common Fund, if it enters into force. These are international
commodity agreements for cocoa, natural rubber, and tin. (The
coffee agreement, the wheat agreement, and the new sugar agreement
do not qualify since they have no internationally controlled
stocks.) All three of the potentially eligible agreements would
require significant modification to meet requirements for association
with the Common Fund. Although the agreements have provisions to
enable them to associate with the Fund, none have started the
process.
Options
1) Ratify
US ratification would he well received by the Group of 77
and some of our OECD allies. It would eliminate the United
States as an obstacle to entry into force, and thereby to LDC
access to resources pledged to the Second Window by other countries.
The cost is not large, $74 million, $25 million paid in. But it
would require the United States to abandon its present position
that there first be commodity agreements able to associate with
the Fund. There are no clear economic benefits to the United
States other than small potential savings for our membership in
the rubber agreement if it associates (we are not members of
either the cocoa or tin agreement). And the Fund might foster new
commodity agreements which this Administration dislikes and would
bring into operation another concessional aid institution (the
Second Window). Moreover, in ratifying the Common Fund, the
United States would accept a voting structure, bad in itself, and
inimical to our interests in other financial institutions.
2) Reject ratification
Would subject us to considerable political heat, because the
United States has abandoned a principal prop of the north-south
dialogue. It is conceivable that the Fund would come into being
without the United States,'providing a propaganda windfall for
the Soviet Union which could claim credit. However, would avoid
U.S. cooperation in bringing into force an institution which goes
against U.S. commodity policy and against U.S. policy on addi-
tional concessional finance. Would avoid encouraging the belief
that given enough time and pressure the United States is prepared
to accede to questionable economic ventures.
3) Don't change present position
It is sensible to insist that the Common Fund have something
to finance before agreeing to it. It leaves the door open to
eventual ratification. Other countries would continue to pressure
us to ratify. The Common Fund is unpalatable in principle and of
little or no use in practice and it is time to remove it from our
agenda by announcing we will not ratify.
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