LONDON SUMMIT ISSUES: BIG SIX AND EC POSITIONS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP81B00401R002600010030-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 17
• Document Creation Date: December 20, 2016
• Document Release Date: February 15, 2008
• Sequence Number: 30
• Publication Date: January 1, 1977
• Content Type: BRIEF

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London Summit Issues:
Big Six and EC Positions
Leaders of the major developed nations are approaching the May summit from
different points of view and with disparate aspirations. The British and Canadians
regard it primarily as an opportunity to boost confidence in the international
economy. The Japanese and Italians probably will try to maintain their customary
low profiles, with Prime Minister Fukuda often following US leads and Prime
Minister Andreotti backing any measures that promise relief for the hard-pressed
Italian economy. The West Germans will be looking for ways to make good some of
the recent deterioration in German-US relations. In addition, Chancellor Schmidt,
like French President Giscard d'Estaing, is anxious to bolster his political standing at
home. EC Commission President Jenkins will be seeking to gain recognition of
Community jurisdiction over various economic matters.
Energy questions are likely, to prove the most contentious, even though most
conference participants share common goals of reducing oil dependency and
increasing the use of coal and conventional nuclear power. Summit participants have
widely varying views on the efficacy of safeguards to prevent proliferation of nuclear
weapons. Canada's Trudeau is trying to enforce safeguards more rigorous than those
advocated by any other country. Most governments want to move ahead with fast
breeder development, although London still is undecided whether to pursue its
program.
Non-nuclear energy questions also could be divisive. The Europeans and
Japanese-who both consume much less energy relative to either population or GNP
than the US-would resist any US initiative that implies this country has been the
leader in energy conservation. They and the Canadians favor conservation, however,
and would support a carefully worded pledge.
Trade also could prove a troublesome topic. Both the French and the British
might resist a declaration of intent to work for substantial tariff cuts. The former
believe today's flexible exchange rates easily swamp painstakingly negotiated tariff
adjustments, while the British feel that hefty tariff cuts could seriously undermine
their competitiveness. Jenkins and the European heads of government will resist any
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suggestion that agricultural trade be liberalized at the expense of the EC Common
Agricultural Policy, which they regard as a cornerstone of European unity.
With the exception of a few small EC members represented at the summit by
EC Commission President Jenkins, none of the participants agrees with LDC
demands for immediate debt relief or for the common fund to finance commodity
stocks. They all would prefer to work out international commodity agreements on a
case-by-case basis and then determine whether some kind of common arrangement
can be devised to fund the individual buffer stocks. A few countries-notably Italy
and Japan-might balk at increasing aid volume to the developing countries.
The question of demand management policy will split the interests of Japan
and West Germany from those of the remaining foreign countries. Japan and West
Germany, the surplus countries, may resist pressure from the others to pledge
whatever measures are needed to realize their growth forecasts for 1977. The
Germans seem the more likely to yield. The value of such a pledge would be
questionable, however, because the year will be half gone at the time of the summit,
leaving little time to bring new policies to bear. The deficit countries probably
would accept a vague pledge to continue deflationary policies. The EC Commission
President would back strong pledges by both groups of countries.
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Japan
Prime Minister Fukuda will maintain Japan's traditional low profile at the
summit. The Japanese tendency to avoid the limelight and follow the US lead on
many issues will be reinforced by Fukuda's reluctance to embroil himself in
international controversy shortly before the closely-contested elections to the Diet's
upper house. The nuclear energy issue is by far the Prime Minister's chief concern
and the most contentious point between Tokyo and Washington.
General Economic Situation and Payments Financing
Prime Minister Fukuda believes Japan will be doing its fair share, or even more,
to promote global economic expansion by attempting to meet its 6.7 percent real
GNP growth target in the fiscal year that began on 1 April 1977. He opposes any
hike in this target because of concern that greater stimulation will lead to more
domestic and international inflation. Fukuda may even back off from a public
statement at the London summit committing Japan to its growth target,
prestige on the line would stem from the economy's recent disappointing growth
performance, which will make meeting the target more difficult.
This reluctance to put Japan's international
Despite Japan's strong international financial position, Fukuda is not prepared
to launch any new initiatives on balance-of-payments financing for oil-importing
deficit countries. Tokyo backs a greater role for the IMF because multilateral
lending reduces the possibility of bilateral bailout requests. Japan probably would
support increasing its lending capacity if pushed by the US. The influential Ministry
of Finance opposes boosting Japan's IMF quota without a large commitment from
OPEC countries.
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Energy
The most sensitive current issue for Japan is nuclear energy development,
which Tokyo considers its primary alternative to relying on imported oil.
As for other aspects of energy policy, Tokyo has established long-term goals
and is counting largely on persuasion and tax incentives to promote conservation. In
the IEA Tokyo always has been reluctant to set specific targets for reducing
dependence on imported oil, fearing such targets would needlessly complicate
relations
Although Tokyo is willing to become more involved with Southeast Asian
LDCs, it has so far opposed any large increase in Japanese aid. In absolute terms,
Japan's aid program is relatively small given its extensive economic ties with the
LDCs. On other LDC issues, Japan opposes across-the-board debt relief, preferring to
handle it on a case-by-case basis. Tokyo does not favor a common fund or buffer
stocks for internationally traded commodities, although it will make a financial
contribution if the US does. In dealing with the LDCs, Fukuda prefers to work
through existing multilateral agencies rather than establish new institutions.
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West Germany
Chancellor Schmidt's position at the summit will inevitably be affected by
recent domestic political reversals and by the sharp controversy with the US over
West Germany's contribution to worldwide economic recovery and the nuclear
agreement with Brazil. Schmidt
want to help repair whatever damage may have been done to US-West German
relations.
General Economic Situation and Payments Financing
Bonn is convinced it has been doing its share to support global recovery by,
among other things, maintaining strong import growth and permitting a steady
appreciation of the mark. In addition, the government recently approved a $6 billion
medium term infrastructure program that will be activated as necessary to stimulate
growth. More so than the US, Bonn is afraid that additional expansionary measures
would generate more inflation than growth or employment. As a sign of solidarity,
however, Schmidt probably would be willing to commit his government to make
every effort to meet its 5 percent real GNP growth forecast.
Schmidt also will strongly endorse the continued provision of financial
assistance to deficit countries. Along with the US, he will urge that such aid be
channeled through the IMF because the Fund is better equipped than individual
creditors to attach fiscal and monetary conditions. Schmidt will approve an increase
in IMF quotas, but would be reluctant to agree to further SDR creation.
Worried about the threat of protectionism because of its export dependency,
Bonn fully supports US efforts for early agreement on further tariff reductions as
well as extensive removal of nontariff barriers. In contrast to the views of some EC
partners, West Germany has no strong preference for any special formula for tariff
reduction. Also, as the largest agricultural importer in the EC, Germany has been
more amenable than other EC members, notably France, to US proposals for linking
negotiations on industrial products to those on agricultural commodities.
For Bonn, nuclear technology will be the most important topic at the summit.
While fully sharing US concern over nuclear proliferation, the Germans insist they
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are following through on the agreement with Brazil because it complies with all
applicable safeguard arrangements including the NPT. Schmidt has said that
Germany will abide by any international agreements on nuclear exports provided it
is assured of nondiscriminatory treatment for its nuclear industry.
With almost no domestic oil reserves and coal deposits increasingly difficult to
mine, West Germany will remain dependent on foreign energy sources. Bonn
envisions a reduction in energy consumption growth as a result of conservation
measures and some shift from oil to nuclear power. To what extent this shift can be
achieved is unclear, however, because of the mounting controversy over nuclear
power plant construction. Under the circumstances, Bonn would not be able to
support a specific target for reducing its dependence on imported oil. Since German
per capita energy consumption already is significantly below that in the US, the
Germans probably also would reject a proposal that West Germany match a US
energy conservation effort.
With views closely paralleling those of the US, Bonn rejects the LDC demands
for widespread regimentation of commodity trade and looks to US leadership to
help shore up the industrial country position at CIEC. Bonn favors further reduction
of barriers to LDC exports, extension of the EC's export earnings stabilization
scheme, and additional aid primarily through international bodies. The Germans,
however, are willing to accept selected commodity agreements and would agree to
some common funding arrangements that acted merely as a financial clearing house
for individual buffer stock mechanisms. Much more than other EC countries, Bonn
would seek reciprocal concessions from the LDCs, including guarantees of security
for investments in LDCs. Bonn also urges the Soviet Bloc be tied into agreements
reached on North-South issues.
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Two particular factors that will affect the French mood at the summit are the
Concorde situation and the upcoming French National Assembly elections. A
favorable resolution of the landing rights controversy would put the French into a
more cooperative mood, though probably not change the outcome of any
discussions. The elections issue may be more crucial. Because the
Socialist/Communist coalition now has an excellent chance of winning, Giscard
would like to milk some political capital from the summit while at all costs avoiding
any impression of bowing to US pressure.
The General Economic Situation and Payments Financing
The French feel that the Big Three countries should take the lead in fostering
global expansion and would like a commitment from them to achieve at least their
forecast growth rates for 1977. This view applies particularly to West Germany, a far
more important customer to France than Japan or the US. At home, Paris remains
committed to the Barre stabilization program, which recently has begun to produce
results. Domestic policy continues to be almost wholly dictated by electoral
considerations, and at present the voters seem the most concerned about inflation.
French views on balance-of-payments financing should not conflict with those
of the US. In particular, the provision of additional funds for payments support
through the IMF would contribute to French goals of stabilizing exchange rates and
forestalling additional protectionist measures on the part of deficit countries.
Paris probably will be generally reluctant to make commitments on trade
liberalization. In part the French feel victimized by the Concorde affair, which they
see as an example of US protectionism. More importantly, protectionist pressure is
mounting within the French government, as a means of dealing with unemployment.
The French probably will oppose setting ambitious Multilateral Trade
Negotiations (MTN) targets such as bettering the Kennedy Round results. Paris never
really approved the current trade round, feeling that the international monetary
system should be stabilized before further tariff cuts are made. The French argue
that it is foolish to wrangle over tariff cuts of a few percent when exchange rates can
fluctuate widely. They feel some countries have deliberately allowed their currencies
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to depreciate to gain a competitive advantage-a practice they have dubbed
"monetary dumping."
Paris also may be leery of liberalizing grain trade, possibly seeing it as an
implied threat to the Common Agricultural Policy. On the other hand it should
approve the idea of stabilizing grain prices, partly by establishing an international
reserve system. Finally, they might push for a US commitment to eliminate the
American Selling Price System.
Energy
While the French share common energy goals, such as reducing dependence on
imported oil, with other developed countries, they frequently feel they can achieve
more on their own than through international cooperation. They continue to reject
membership in the lEA and may object to any implication that France should match
the US effort to reduce dependence on imported oil. The French feel the US has
lagged badly in this area and probably would resent the idea of Washington now
setting itself up as the model for others to emulate.
The particular field of nuclear energy obviously offers much greater
possibilities for disagreement. While Giscard is far more concerned about the dangers
of proliferation than other French leaders have been, he also has vigorously asserted
that France will make its own decisions in this area. The French thus are likely to be
wary of suggestions that there be international consultations on nuclear energy,
viewing them as a potential threat of foreign interference in France's ambitious
nuclear program, especially its fast breeder reactor development.
North-South relations is an area where France and the US should generally be
in agreement, although France will continue its long-standing efforts to maintain a
special relationship with the LDCs. Paris currently intends to increase the volume of
its aid. As in the past, the French will push strongly for the conclusion of
agreements to stabilize prices of important commodities, but do not want a common
fund to be any more than a pooling of the monies needed to operate the individual
buffer stocks.
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United Kingdom
The British view the summit as an opportunity for major Free World leaders to
gain a better understanding of each other and to air problems of common concern.
Their primary objective is to provide a strong psychological boost to consumer and
investor confidence throughout the world.
General Economic Situation and Payments Financing
The British feel strongly that the GNP growth forecasts of the economically
stronger developed nations should be viewed as targets and that the Big Three
countries should publicly commit themselves to achieving targets. At home, the
Labor government intends to keep a rein on public spending and hopes to conclude
an agreement with the trade unions limiting wage increases for a third year as part of
its tight against inflation. Unemployment also is viewed as a major problem. Because
London is constrained in its own effort to reduce unemployment, it has repeatedly
stressed the need for a worldwide attack on the problem.
As to payments financing, the British feel that private banks are rapidly
reaching the limits of their ability to finance deficit countries. They believe official
financing is too limited, too short term, and too conditional to meet international
needs. In line with the US position, London sees advantages to some additional
financing facilities linked either to the IMF or the World Bank.
The United Kingdom is concerned over what it perceives as a growing trend
toward protectionism and would endorse a general statement eschewing trade
controls. However, the British want to retain freedom to impose selective measures
when an industry is threatened and jobs are at stake.
London has dragged its heels on MTNS, fearing that broad tariff cuts would
further impair the country's competitiveness. In a retreat from their traditionally
liberal trade stance, any MTN tariff deal ought to be
less deep-cutting and subject to more exceptions than the Kennedy Round formula.
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Energy
In part reflecting the United Kingdom's wealth of domestic energy, British and
US views on energy issues are very close. Although Britain currently is focusing on
the exploitation of North Sea oil and gas, its longer term strategy calls for more
conservation and increased use of coal and nuclear power. Britain would have no
trouble setting oil import targets but would not want to involve itself in any pledge
to help other countries reach theirs.
London has not yet decided whether to proceed with construction of a
commercial fast breeder reactor. A royal commission has urged delay, while the
weight of technical opinion is that Britain should use its fast breeder technology to
capture a share of what is expected to be a large world market. The British agree
with the intent of US efforts to halt proliferation and will probably cooperate in
devising international restrictions on the transfer of sensitive technology and the
availability of plutonium.
The British position on North-South issues is generally in line with that of the
US. Given Britain's current financial constraints, London is unwilling to commit
itself to any potentially costly aid proposals. The UK is opposed to the common
fund demanded by the LDCs, favoring instead individual commodity agreements to
stabilize prices. London would prefer to help the LDCs through programs such as
liberalized treatment of manufactures and increased multilateral assistance. For
instance, to help quiet LDC demands for debt relief, London recently proposed that
the developed countries make a special contribution of $1 billion to the
International Development Association.
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Italy
Well aware that their shaky political/economic situation places them in a
vulnerable position, the Italians will try to maintain a low profile at the summit.
Wherever possible, Rome will blend in with the majority opinion; when two major
powers disagree, the Italians will try to steer a middle course to avoid antagonizing
either party.
The General Economic Situation and Payments Financing
Rome will seek a precise and strongly worded commitment from the Big Three
countries to achieve forecast growth rates. Forced by high inflation and
balance-of-payments pressures to restrain internal demand, Rome sees export
expansion as the only safe road to prosperity and jobs. Italian policy makers are
concerned that the current growth in world output is too sluggish to support
continued rapid expansion in world trade volume. In discussions about
anti-inflationary policies, the Italians may lie low, fearing they will be pressured to
deal more aggressively with the politically dangerous issue of domestic wage reform.
On the other hand, Rome will participate actively in talks on youth unemployment,
which it views as one of its most pressing social issues; the Italians might even
request international funding or coordination of youth employment programs.
Since the $530 million loan now under negotiation will exhaust their regular
credit tranches at the IMF, the Italians will heartily endorse proposals to supplement
the Fund's borrowing arrangements. They might, however, suggest that the IMF
show more flexibility in setting loan conditions. Rome also conceivably could
advocate new monetary arrangements whereby gold-of which it possesses
substantial reserves-can be exchanged for liquid assets.
Dependent on exports to buoy domestic growth, the Italians will seek a
forceful condemnation of trade protectionism. Though occasionally lapsing into
thinly disguised trade controls themselves, they traditionally have been strong
advocates of trade liberalization in international forums. Rome probably would
support swift completion of MTNs. The Italians support proposals for industrial
tariff harmonization because they would like to reduce tariff rates on certain US
manufactured goods; they are especially loath to discuss export subsidies since their
vast system of state enterprises makes them vulnerable on this point.
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Energy
With no expandable domestic energy sources and a nuclear program quagmired
in problems of site selection and financing, Rome has little hope of reducing oil
dependency in the short run. As a result,
? The Italians would probably only agree to set targets for reduced oil
dependence contingent on international financial support for their nuclear
program.
? Rome is unlikely to endorse plans for an increase in coal utilization. With
domestic coal no more abundant than oil, coal usage offers little to Rome
in terms of import substitution. Recent energy policy has been to
discourage coal in favor of natural gas.
? Rome sees plutonium reprocessing and fast breeder reactors as a vital
sequel to its conventional nuclear program and will probably stand with
the other Europeans in opposition to any US attempts to halt reprocessing
of US uranium.
Rome sets great store on maintaining good relations with the LDCs and tends
to look favorably on LDC commodity proposals. The Italians, however, will stick
close to their EC brethren on commodity issues and would probably balk at making
any commitments to raise aid volume because of their own financial problems.
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More than most other countries, Canada hopes that substantive progress can be
made at the summit on overcoming the sluggish pace of world trade growth and
dealing with oil-related balance-of-payments problems. Canada is probably the only
summit attendee that can wholeheartedly support the US stance against nuclear
proliferation.
General Economic Situation and Payments Financing
Although concerned about global economic expansion, Prime Minister Trudeau
has given little public attention to the issue because he is preoccupied with domestic
problems, particularly the threat of Quebec separatism. Nonetheless, Ottawa's hopes
for buoying domestic economic growth depend heavily on growing demand in
industrial countries for Canadian exports. Ottawa supports the view that countries
with current account surpluses should stimulate their economies as rapidly as is
consistent with keeping inflation under control, while countries with deficits should
pursue slow growth policies. Ottawa recently reaffirmed its own tough anti-inflation
stand by continuing wage/price controls despite sluggish economic growth and
record high unemployment.
Canada is a strong supporter of international financial arrangements for
countries with oil-related balance-of-payments problems and would probably be
willing to contribute more. It also wants assistance given, however, only after all
other sources of financing, including private credits, are exhausted. Ottawa would
prefer to see assistance linked to recipient government efforts to curb inflation.
As a leading commodity exporter, Canada has an important stake in current
efforts to liberalize international trade. Its main objectives at the MTN and other
negotiations are to reduce tariff and non-tariff barriers on processed raw materials
and to improve access in foreign markets for Canadian manufactured goods. Ottawa
is supporting a general tariff reduction formula but is skeptical that it can work.
Consequently, it has pushed hard for sectoral negotiations that would link foreign
concessions on manufactures to Canadian supply guarantees for raw materials. As
for grain trade, Ottawa is interested in pursuing producer-consumer talks on linking
wheat price stabilization with the formation of international buffer stocks.
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Energy
Facing a growing energy trade deficit, Canada plans to reduce its dependence
on imported oil to a third of domestic needs by 1985. Ottawa is having difficulty,
however, implementing policies necessary to meet this target; disputes over
federal-provincial control of energy resources and disagreement over tax/pricing
policies are blocking more rapid development of domestic resources. Ottawa already
is planning to slow energy consumption growth through a combination of
mandatory conservation standards, tax incentives, and gradually rising prices.
Internationally, Ottawa firmly supports the US position on nuclear nonproliferation
and has recently suspended exports of uranium in an effort to persuade foreign
buyers of Canadian uranium, nuclear reactors, and nuclear technology to sign
safeguard agreements giving Canada much greater control over the use and transfer of
Canadian-supplied materials.
Ottawa is sympathetic to some of the trade demands made by the LDCs
because concessions on processed raw materials would also benefit Canada. It
generally favors agreements aimed at stabilizing international prices of industrial and
agricultural commodities, but would probably support only a very limited common
financing arrangement for buffer stocks. As for wider access to domestic markets for
LDC manufactures, complaints from several Canadian industries have made Ottawa
reluctant to move rapidly ahead on this issue.
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The European Community
The EC will be represented at the Summit both by Roy Jenkins, President of
the EC Commission, and by Prime Minister Callaghan in his role as President of the
EC Council. On many issues the EC heads of state disagree with Commission
viewpoints. Jenkins will insist that his participation in the conference be as complete
as possible and explicitly recognized in the communique. Representation of the
Commission is a matter of great importance to governments of the five small
Community members.
The General Economic Situation and Payments Financing
The Commission advocates differing economic growth policies, depending on
the circumstances of each country. At one extreme, it believes that West Germany
needs to stimulate investment more vigorously than now planned in order to realize
the West German forecast of 5 percent real GNP growth. At the other, it has urged
more restrictive policies in Italy and has applauded those already in effect in France
and the UK. To help slow inflation the Commission usually recommends an incomes
policy and in some cases manipulation of exchange rates. In the area of payments
balances, Commission members favor expansion of multinational lending facilities,
and Jenkins will endorse efforts to supplement the IMF capacity to aid deficit
countries.
The EC Commission, which is under pressure for protectionism from various
industries as well as member governments, will welcome a strong endorsement of
liberal trade policies. The Commission has blunted attempts to retaliate against the
US for imposing quotas on imports of specialty steel; it has publicly declared its
pleasure with the President's decision on footwear. Although Commission members
talked tough earlier this year to get Tokyo to reduce its huge trade surplus, they
have avoided retaliatory measures by seeking to negotiate voluntary restraints with
the Japanese.
The EC has long felt the US was holding up progress in the MTN, particularly
by insisting on treating agricultural tariff reductions in conjunction with reductions
for other goods. The Commission equally strongly wants to avoid having to make
concessions on agricultural products to gain concessions on manufactured goods.
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The Common Agricultural Policy, which includes levies designed to protect EC
farmers from lower-priced agricultural imports, is the Community's major endeavor
toward economic union.
The Commission is receptive, but still wary, toward recent US initiatives on
grain trade and reserves. Since the Commission always has maintained that reserves
should be used in part as a price stabilization mechanism, it sees US willingness to
discuss stabilization as a step in the right direction. It would argue, however, for
price bands that would not require any adjustment in the EC's heavily subsidized
prices.
Energy
The Commission has been trying to convince members of the urgency of
reducing their heavy dependence on oil imports. Thus it would welcome the
catalytic effect of a major US conservation effort. Mindful that even with North Sea
oil and nuclear power the EC still will depend on foreign oil for some 40 percent of
energy supplies by 1985, the Commission has been critical of continual pressure in
world oil supplies and prices generated by growing US import demand.
On nuclear issues, the Commission shares the view of the member states that
the US must make a clear distinction between nonproliferation matters and the
peaceful use of nuclear energy. It is particularly disturbed by the US delay in
shipping highly enriched uranium for research reactors, claiming that confidence in
US-EC commercial relations has been shattered.
On North-South issues, the Commission generally has trod a middle road
between the Dutch and the conservative West Germans. The commissioners were
gratified by the heads' of government decision in March to support a common fund
to finance commodity buffer stocks. While aware that the EC decision created some
consternation in Washington, the commissioners argue that the EC went no further
than US officials indicated the US is willing to go. To spur the EC to take the
initiative rather than be a US follower, the Commission sometimes has tried to push
commodity and aid proposals more expansive than the member states are willing to
adopt. Some commissioners, supported by Roy Jenkins, even have talked of a new
Marshall Plan for LDCs.
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