Foreign Relations of the United States, 1977–1980, Volume XXII, Southeast Asia and the Pacific

265. Telegram From the Embassy in Australia to the Department of State¹

Canberra, July 9, 1979, 0620Z

6091. For DAS Colbert from DCM Squire. Subject: Conversation Between Secretary Vance and Prime Minister Fraser, July 4, 1979. Ref: Canberra 06020.²

1. The following reports the remainder of the uncleared, rpt uncleared, memo of conversation from the Vance/Fraser talks of July 4. The Southern Africa portion was cabled reftel. S/S and Mr. Hormats each have a copy of the full uncleared memcon as reported here.

2. Memorandum of Conversation between Secretary Vance and Prime Minister Fraser.

Date: July 4, 1979 0900–1015

Place: Parliament House, Canberra

Participants: Australian Side: Prime Minister Fraser; Foreign Minister Peacock; N.F. Parkinson, Secretary, Department of Foreign Affairs; Sir Geoffrey Yeend, Secretary Department of Prime Minister and Cabinet; Roger Holdich, Department of PM and Cabinet, Note-taker.

US Side: Secretary Vance; Ambassador Alston; Assistant Secretary Holbrooke; Deputy Assistant Secretary Hormats; Nicholas Platt, Staff Member, National Security Council; Michael G. Wygant, First Secretary, Embassy/Canberra Note-taker.

3. Secretary Vance opened by extending to Prime Minister Fraser greetings from President Carter. He said that the series of meetings which he had just attended had been good, that in particular the Bali session had been generally productive in the way it had dealt with refugees.³

4. Prime Minister Fraser said that he had just had useful discussions with Prime Minister Thatcher, adding (without elaboration) that she had been disappointed with her recent talks in Moscow with Premier Kosygin. Continuing with refugees, Mr. Fraser said the U.S. and Australia pay major attention to the problem while most of the rest of the world seems to think it is mainly an issue for SE Asia. The Secretary replied that the conscience of the World has been pricked by the refugee issue which will be reaffirmed again shortly in Geneva.⁴ The summit meeting in Tokyo was a spur toward new activity on refugees.⁵

5. Prime Minister Fraser observed that with few exceptions most of the nations of the world are not doing enough and it is up to countries such as the U.S. and Australia to get them moving. He asked if at Bali there had been any effort to persuade Japan to switch its economic aid to Vietnam to direct relief of the Vietnamese refugees.

Vietnam Aid and Refugee Assistance

Secretary Vance countered that some movement had been made on the margins of this issue. The EEC has taken under advisement the idea of withholding economic aid from Vietnam during the refugee crisis. Specifically, the Irish Foreign Minister speaking at Bali had said that the EEC would undertake a new look at the matter, Mr. Vance added that Japan is not now prepared to withhold its aid from Vietnam. If Vietnam continues to refuse cooperation in alleviating the refugee problem, then Japan might change its attitude.

The Prime Minister asked if perhaps Japan might be susceptible to greater world-wide pressure, to which the Secretary responded that it is indeed receiving pressure from others. The Secretary observed that if the EEC takes a more forthcoming position Japan would be significantly influenced in that direction.

Mr. Fraser said that the UK has agreed not to extend any new aid to Vietnam and would only be fulfilling its prior commitments.

Foreign Minister Peacock observed that while Japan had not agreed to take in any more refugees it was willing to substantially increase its financial contribution to the UNHCR. He noted that the UNHCR budget had been running at about forty million dollars, to which the Japanese had contributed 25 percent. Now, he said, Japan is willing to contribute fifty percent of a UNHCR budget that will probably exceed one hundred million dollars.

Prime Minister Fraser remarked that Japan’s attitude toward aid to Vietnam probably reflects Japanese concern to protect its present and potential trade with that country.

Mr. Holbrooke intervened that Japan continues to pay out assistance under its pledge of 70 million dollars that was committed to Vietnam in 1975, however, Japan will not undertake new programs. Mr. Holbrooke also observed that the Chinese have influence with Japan on this issue, and that even Sweden is now talking of reviewing its aid policies vis-a-vis Vietnam.

Mr. Fraser interjected that it is the refugees who most need this economic assistance.

The Secretary reported that progress had been made in Bali with all delegations working together on the issue of first asylum. The Philippines and Indonesia are moving more toward our view about first asylum and Malaysia may be moving in the direction; certainly its Foreign Minister is.

Prime Minister Fraser observed that Malaysia was under special pressure because it is receiving more refugees than others. However, the Secretary asserted that in recent weeks Hong Kong was actually receiving more. He added that because of upcoming sea currents and weather conditions the flow should slow somewhat in coming months.

6. At this point, discussion shifted to the Lusaka Commonwealth Conference and the Zimbabwe problem, reported reftel.

7. Energy: The Oil Crisis

Moving on to energy, Secretary Vance said that some progress had been made on this issue in Tokyo. Goals had been set for petroleum purchases in 1979 and 1980 with some progress towards commitments until 1985. There is now a willingness to control the spot market. There was a clear expression of need to move more toward coal and nuclear power resources. More work needs to be done on renewable resources. The Secretary said that he felt the U.S. would make a major move in the next few days about developing shale and tar deposits.

Mr. Fraser asked how many billions this would cost, to which Mr. Hormats replied that although he had no figures, he felt we would move ahead on gasoline from shale, gas liquefication and coal. Mr. Fraser asked how much gasoline from these sources might cost and Secretary Vance mentioned a figure in the $25–30 per barrel range.

The Prime Minister noted that West Germany is working with Australia on a program for brown coal liquefication. Mr. Vance said he foresaw a sharp U.S. move towards coal, combined with a continuing nuclear role and a major effort on synthetics.

Mr. Fraser wondered how the U.S. Government would move vis-a-vis subsidies. The Secretary said it would be largely by administrative action. The Prime Minister noted that Australian industry is based largely on gas and coal. Mr. Vance said the U.S. is beginning to see the need to relax its environmental controls. The heads of government in Tokyo all agreed that such relaxation was necessary.

Prime Minister Fraser noted that Australia could save ten percent of its oil consumption if it could relax environmental controls. All actions in that direction will relieve pressures but he noted that in some areas such as aviation gas Australia continued to have a problem of specific shortages.

Mr. Vance said he had recently seen some pessimistic figures on Iran showing that production has gone from 2.5 million down to 1.4 million barrels a day but that Saudi Arabia’s commitment to raise production to 9.5 million barrels will be helpful. Mr. Fraser observed that there would not be enough oil to knock out the spot market, adding that this would increase inflation and the prospects for recession.

Mr. Vance agreed that this was an extremely serious problem, with Fraser adding that oil is only one aspect of the larger picture. Mr. Vance said that he had indications the U.S. GNP could go down one percent in real terms in 1979 with a loss of 800,000 jobs over the next two years and an inflation rate of 10–12 percent. Mr. Hormats noted that by the end of 1980, we anticipate two percent less growth based on international actions which have already taken place.

Mr. Fraser noted that one “fortunate” aspect of the problem was that Australia’s tax revenues from oil have gone up as Australia moves to a world parity price on oil. Hormats interjected that this would be offset by a lower growth rate. The Prime Minister said that Australia’s growth rate in 1979 would be about five percent but that this would be reduced next year because current record levels of rural growth could not be sustained. He sees non-farm GDP at four percent for this year.

Mr. Vance warned of the danger of talking one’s self into a recession. Mr. Fraser agreed, adding that the economy is what people expect it to be.

Mr. Hormats again spoke of the need to develop synthetic fuels. He remarked that several years ago we had said if oil reached $7.00 a barrel, then various synthetic processes would be economically viable. Unfortunately, in subsequent years, inflation has wiped this figure out. The USG will have to moderate the risks involved in synthetic fuel investments, through guarantees, equity participation and other means.

Mr. Fraser observed that this would take 5–6 years.

Mr. Hormats added that the siting of generating plants and environmental protection concerns slow things down. Mr. Vance remarked that through congressional legislation we hope to develop a system whereby each new project would require only one court review of the environmental situation. Mr. Fraser said that environmental legislation in Australia was a state prerogative and this had a more inhibiting effect.

Mr. Vance said that adequate fuel will be a major problem for the future, noting that Australia’s coal and uranium would be very important as the U.S. and other Western countries work on alternate fuels. He suggested more joint research and development cooperation. Readily assenting, Mr. Fraser said that our scientists and technicians must consult. He noted that Australia did not put any money into research and development but that it was doubling the allocation for this purpose, pointing again to liquefication of brown coal. Mr. Fraser noted that Australia also has an interest in shale oil development, observing that Esso has made some suggestions for Australia in this sphere.

Mr. Fraser said that all of these alternatives would be 4–6 years down the line. However, Mr. Vance felt that coal development could come more quickly. Mr. Fraser pointed out that Australia has just announced developments in converting automobiles to liquid petroleum gas. He reported that all government cars and most taxis in Sydney, Melbourne and Canberra would shortly be converted to liquid petroleum gas at a tremendous price saving and cheaper operation. In a few years the Prime Minister felt 10–15 percent of Australia’s automobiles could be LPG fired. It could go even further—it solves the emission problem and is available quickly. Mr. Vance noted that the US thrust is toward developing a new type of automobile engine but said he would ask his people to find out more about Australia’s LPG automotive developments.

8. North-South Issues and Commodities

The Secretary reported that there had been some discussion of North/South issues at Tokyo. We are concentrating our efforts on the special areas of food, health care, and transfer of technology. He said he planned to allot more time to the considerations of achieving concrete results in these areas.

Turning to sugar the Secretary explained that our domestic enabling legislation will be vetoed or effectively shelved by the end of July. He feels that we have broken loose on sugar, and even in the absence of new legislation we will be able to act under existing law. The Secretary also saw progress on rubber.

Mr. Fraser announced that EC Commissioner, F.O. Gundelach, was in Australia recently. Gundelach had said that if the US implements the sugar agreement, then the EC will follow. However, he had stated his proposition in the context of a hope that the US would not join. Sugar is clearly an area for further effort.

The Prime Minister raised beef. Mr. Vance said the President plans to veto countercyclical legislation if it calls for a floor under 1.3 billion pounds. We will continue to press for 1.3 billion.

Turning to North-South issues to be discussed at Lusaka, the Prime Minister felt there would be debate on the Common Fund. Will there be movement on sugar in the US before Lusaka (early August)?⁶ Mr. Vance said he thought yes, but would advise the status later.

Mr. Peacock referred to a recent report commissioned by his department on “Australia in the Third World”, by Prof. Owen Harries. He recommended close study of the report, and said a copy would be made available to the US. The Secretary said he will make a major address focused on North/South issues to the National Urban League later in July.⁷

Mr. Fraser suggested that for those commodities on which no agreement is possible, or likely in the near term, funds from the Common Fund (presumably second window) should be used for sponsored research and product development. As under current wool agreement arrangements, such funds would be used to improve quality and broaden the market base. The Secretary said this sounded like a sensible idea, and we could support it. The Prime Minister viewed this as an action which could be taken without delay and as a show of good faith, by the Group B countries. Negotiating specific commodity agreements is a long process.

9. Indo-China

Mr. Peacock mentioned Cambodia, and the Japanese interest in doing something to alleviate that crisis. The Secretary noted Foreign Minister Sonoda’s interest, but said we prefer that the ASEANs take the lead. Mr. Peacock said Australia would not oppose an international meeting on Cambodia if ASEAN agreed. However, he felt both China and Vietnam would be against such a conference.

Mr. Vance remarked that the Chinese side of the Cambodia puzzle was easier to fathom. But how does one design a settlement which could gain Soviet and Vietnamese approval?

The Prime Minister pointed to Vietnam’s current isolation and dependence on Soviet support. However, we presume the Vietnamese continue to be wary of total dependence on the USSR. Would cutting off all Western assistance to Hanoi force a readjustment of policy?

Mr. Vance said we have pondered that issue. The Vietnamese are stubborn, and if driven may continue their present route. The ASEANs feel Vietnam must continue to bleed, and thus they support Pol Pot. This is dangerous and may not succeed. The Soviets might escalate and come on stronger. Thailand could be further sucked in. Thai-Vietnamese conflict would ensue, and then our commitments to Thailand would drag us in. China will continue to press Vietnam.

Mr. Holbrooke said the ASEANs are moving more toward China’s argument. China’s object, perhaps, is to fight to the last drop of Thai blood. Mr. Fraser remarked that the USSR is already heavily committed. But the Secretary asserted that Moscow’s involvement could become even greater, and he mentioned the northern border.

Speaking of the refugee problem, Mr. Fraser said the ASEAN response will harden if no relief results from current attempts to cope with the flow. You have bought three months of breathing time, he declared. Mr. Peacock observed that the forthcoming Geneva Conference will be key.

Mr. Fraser said he would not advocate keeping up the war to bleed Vietnam just for fun, but how does one influence a Vietnam determined to go its own way? The Secretary responded that economic assistance is not an inconsequential carrot, and Vietnam’s enormous development problems serve as some restraint.

The Prime Minister suggested that we should be much more active in using aid as a handle. Mr. Vance declared that Sweden could use its aid to bring beneficial change. Mr. Holbrooke said we are actively discouraging ADB loans to Vietnam. The greatest incentive we have is to keep Vietnam from total dependence on the USSR. While Vietnam has no natural affinity with the Russians, the country is now more dependent than ever. Mr. Vance suggested that the problem has not been wholly thought through. The carrots and sticks must be weighed. China wants a new Cambodian Government, dumping Pol Pot and bringing Sihanouk as a transition force, and meanwhile keep bleeding Vietnam. How could one make this attractive to Hanoi?

The Prime Minister noted Vietnam’s infinite patience, its endurance of 30 years at war, and its acceptance of huge popular sacrifice. The Vietnamese are not to be seduced into better behavior. He is not sure that the USSR is making a concerted policy to use Vietnam for its own ends, but that cannot be ruled out.

10. The USSR

Mr. Vance declared his conviction that the Soviets are in much worse shape than many believe. They see China working with Japan, and Chinese/US rapprochement, the southern border with Iran looks bad, with spill-over possibilities in Soviet Central Asia. They are in a swamp in Afghanistan, with little prospect of a solution. NATO and Western Europe are doing well. The Europeans are beginning to sell arms to China. The Soviet economy is in bad shape and the wheat crop will be poor this year. Soviet leadership is in transition, with uncertain prospects. Finally, Vietnam is a heavy drain. Mr. Fraser wondered that if this were so, would the Soviets now be more inclined to destabilize Southeast Asia? Perhaps the cost now would not be too high. The Secretary said the Thais have figures developed by India which show that Moscow now pays $2.5 million per day to Vietnam.

Mr. Holbrooke declared that at least two ASEANs (Singapore and Thailand), and perhaps Malaysia believe that the USSR is intent on destabilizing Southeast Asia. But, he added, the Vietnamese are capable of making their own decisions. The Soviets may pursue their objectives through Hanoi. Mr. Fraser observed that the refugee outflow serves to destabilize. Moscow sees the refugees as a ready instrument, and thus needs to keep them flowing.

Mr. Fraser concluded that on refugees we do not have many cards to play.

Mr. Vance closed with an expression of thanks for this opportunity to share views.

Alston

1. Source: Carter Library, National Security Affairs, Brzezinski Material, Cables File, Box 13, Cables: Far East, 7–8/79. Secret; Sensitive; Immediate; Nodis.
2. Vance was in Canberra July 3–5 to attend the ANZUS Council meeting. Telegram 6020 from Canberra, July 6, transmitted excerpts of an uncleared memorandum of conversation between Vance and Fraser regarding Zimbabwe and Southern Africa. (National Archives, RG 59, Central Foreign Policy File, P840167–1830)
3. Vance was in Bali July 1–3 to meet with the ASEAN Foreign Ministers after their Ministerial session. See footnote 6, Document 176.
4. A UN-sponsored conference on refugees was held in Geneva July 20–21. See Document 138.
5. Reference is to the Tokyo Economic Summit June 25–29. See footnote 7, Document 176.
6. The Commonwealth Heads of Government Meeting took place in Lusaka August 1–7.
7. Vance spoke on July 23. See Department of State Bulletin, September 1979, pp. 6–8.