Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

91. Memorandum From the Special Representative for Economic Summits (Owen) to President Carter¹

Washington, December 28, 1977

SUBJECT

• Year-End Review

Last summer I sent you my views about the Administration’s first six months’ foreign policy.² Here are some thoughts about the first year, and also about the lessons to be drawn for the year ahead. I have concentrated on the area I know best: Economics may not be the most glamorous aspect of foreign policy, but few things so directly affect the average man and woman.

1. Overall Economic Policy

(a) Domestic Targets. The London Summit marked an advance in fixing domestic growth and stabilization policies internationally. Germany and Japan failed to achieve their 1977 Summit targets, but there would have been less growth in both countries in the absence of Summit commitments and of post-Summit consultations. The Summit agreement also strengthened the ability of the French, British and Italian governments to hold to needed and painful stabilization policies. We should build on this good start in 1978: keeping the pressure on Germany and Japan to follow expansionist policies, and focusing 1978 Summit growth commitments on 1979—which is far enough in the future for Summit-induced policies to take greater effect.

(b) Balance of Payments. The Japanese did not fulfill their Summit commitment to bring their external accounts into better balance, but recent U.S.-Japanese consultations foreshadow some progress on this point. Meanwhile, you are on the right track in trying to reduce the U.S. deficit by pressing Germany and Japan to follow more expansionist policies, by urging Japan to open up its import markets, and by seeking a more effective U.S. energy policy—instead of treating the symptoms by raising interest rates or intervening in money markets (except to counter disorder).

(c) U.S. Our ability to press other governments to follow sensible economic policies will depend partly on how well we do at home ourselves. As you know, I feel that a plausible and effective anti-inflationary program in 1978 will be the key to sustained growth. I also believe that such a program is most likely to come about if it is placed in the hands of a politically savvy person who does nothing else but manage and negotiate its implementation with the interest groups concerned—like Bob Strauss in the trade field. This would have the added advantage of dramatizing your interest, at home and abroad.

2. International Indebtedness

The new IMF Witteveen facility foreshadowed at the Summit is being established, to help countries meet external deficits while they work out long-term domestic adjustments. The task in 1978 will be to get this agreement through the Congress without crippling changes.

3. Trade

At the start of 1977, few people expected trade negotiations to have progressed as far as they have. A lot of the credit goes to Bob Strauss; he is the first to say that the Summit commitments you persuaded your London colleagues to accept and your post-Summit support were essential to his success. There are large obstacles ahead: We will have to keep the heat on foreign governments (especially France) to ensure that we get not only deep tariff cuts but also extensive non-tariff agreements in time to go to the Hill in early 1979 with a sufficiently balanced and comprehensive agreement to head-off protectionism. This issue will come to a head at the 1978 Summit, when the trade negotiations will be reaching their climax.

4. Energy

Your decision to make energy the centerpiece of your policy in 1977 was a wise and necessary one which should pay off over the longer term.

(a) Conventional Energy. The recent OPEC oil price freeze that you helped to secure³ gives us more time to seek the increased energy production and reduced energy consumption agreed at the Summit. If the heads of government whom you visit on your forthcoming trip⁴ can be persuaded to speak publicly about the need for an effective U.S. energy program, this may help to give your energy proposals a push when you return to the U.S. U.S. action would set the stage for pressing other countries also to do more; an interagency group is being set up to consider whether new proposals for international cooperation to increase energy output can be developed, which you might advance at the 1978 Summit.

(b) Nuclear. The International Nuclear Fuel Cycle Evaluation Program which you persuaded the Summit to launch is making good progress. But it will only head-off proliferation if it leads to agreement on some way of internationalizing the nuclear fuel cycle that will offer importing countries an alternative to reliance on dangerous nuclear technologies. The U.S. will have to take the lead if such an initiative is to be developed. You will have to keep pressing if the U.S. Government is to develop such a proposal in 1978 instead of focusing on more short-term and less difficult goals.

5. North-South Relations

Aid levels set or foreshadowed in 1977 are going up, in fulfillment of Summit commitments. You have also fixed the right priorities for 1978: fulfilling our pledges to the IFIs, and reforming the bilateral U.S. aid program, in preparation for a substantial expansion of that program in 1979. These goals will only be achieved if we can learn how to consult more effectively with the Congress on the IFIs, and if we can get the executive branch to agree on proposals for major reforms in the present bilateral aid program. Your leadership will be essential on both points if there is to be progress.

6. U.S.-European-Japanese-Relations

You put more emphasis on the U.S.-European-Japanese relationship in 1977 than any U.S. President in recent years. We made good progress in strengthening NATO and promoting economic cooperation among industrial countries.

Nonetheless, serious problems persist in U.S. relations with both Europe and Japan. It will be important in 1978 to address not only these specific issues, but also the ways in which they interact to affect the U.S.-European-Japanese relationship as a whole. It would be useful to do this at the next Summit. To the same end, it would be useful to invite the President of the European Community (a position that rotates every six months among European heads of government) and the President of the European Commission (Jenkins) to come to Washington twice a year for a broad review of U.S.-European relations. This would not take up more of your time, since each of these leaders is likely to come to Washington anyway; it would show your interest in European unity, as well as in U.S.-European relations.

7. Conclusion

In your first year you have set the right goals and priorities, addressing underlying problems that were long neglected. In the year ahead, the need will be for follow-through. This will require not only persistence but innovation, which comes hard to most governments, including our own. Without your continuing leadership in most of the areas mentioned in this memo, it won’t happen.⁵

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Brzezinski Office File, Subject Chron File, Box 121, Trade: 1977. Confidential. Sent for action. Carter wrote at the top of the page: “Good memo. J.” Brzezinski also initialed and wrote: “Concur.”
2. Owen sent Carter an August 26 memorandum entitled “Foreign Policy: The First Six Months.” (Carter Library, National Security Affairs, Brzezinski Material, Subject File, Box 26, Foreign Policy: 5/77–11/29/77)
3. See footnote 2, Document 83. Documentation on the U.S. efforts to forestall increased oil prices is in Foreign Relations, 1969–1976, vol. XXXVII, Energy Crisis, 1974–1980.
4. Carter visited Poland, Iran, India, Saudi Arabia, Egypt, France, and Belgium December 29, 1977–January 6, 1978.
5. On December 21, Lake sent to Vance a paper prepared by the Policy Planning Staff entitled “Foreign Economic Policy: The Last Year and the Next,” which offered the Department of State’s take on the Carter administration’s foreign economic policy achievements and challenges. (National Archives, RG 59, Office of the Executive Secretariat, Official Working Papers of S/P Director Anthony Lake, 1977–January 1981, Lot 82D298, Box 3, S/P-Lake Papers—12/16–31/77)