Foreign Relations of the United States, 1981–1988, Volume XXXVIII, International Economic Development; International Debt; Foreign Assistance

102. Memorandum From the Under Secretary of State for Economic Affairs (Wallis) to Secretary of State Shultz¹

Washington, April 8, 1983

SUBJECT

• UNCTAD

I am forwarding a memo on strategy for UNCTAD VI even though I fundamentally disagree with the recommendation.²

This building has a love-hate relationship with UNCTAD. No one has anything good to say about the institution—but everyone cites the dire consequences (in terms of our relations with developing countries and with most of our Western allies) that would flow from a clean break with it. I judge that the description of all the bad things that might happen is greatly exaggerated.

Nearly all governments find it politically rewarding at home to taunt the U.S. and, often, to use abusive and undiplomatic language while doing it. They feel free to do so because there is no penalty for doing it. The U.S. response is perfectly predictable, namely the type of response favored by the tilt and final recommendation of the memorandum. It proposes to reward such behavior by introducing “modest initiatives . . . which would be of particular benefit to the poorest LDCs . . .,” and by other similarly rewarding conduct.

It would be wise to establish the principle that the U.S. does not reward other countries for opposing our interests nor for verbal abuse. The memorandum shows no understanding of this principle, except in reverse: it says that “no other OECD countries would follow our lead and their reaction would complicate our overall relations with them” and that “it would lead many of the developing countries to be less cooperative with us in our bilateral economic, political and strategic interests, and to refuse to do business on our terms in other forums. . . .” That is, other countries can inflict penalties on us to back up extortionate demands, but we can’t use any leverage on them. That is false, but if any bureau believes it is true they should explain the basis for believing it, clearly and directly.

Continued coddling of UNCTAD perpetuates it as a source of ruinous ideas such as those emanating from the UNCTAD Secretariat for this meeting: debt moratoria, massive transfers, including excessive quota increases and SDR creation, grandiose commodity schemes, UNCTAD encroachment on the IMF, IBRD, and GATT, and assistance for national liberation movements. It provides a forum in which the LDC collectivity must perform to the music of peer pressure, even if they behave reasonably on a bilateral basis.

The Congress rightly questions why we devote U.S. Government resources to such activities. If there were a chance of converting UNCTAD into a useful international economic forum, I could support Option D as EB recommends. That does not, however, seem to be the case, nor, if I read EB correctly, do they believe that UNCTAD will become a constructive force if you agree to their recommendation.

Since the beginning of the year, I have been discussing UNCTAD VI at length with Bill Brock and more briefly with Beryl Sprinkel. They agree with an approach which crudely put is: “Shape up or we ship out.” We would be represented in Belgrade at a reasonably high level (Brock and myself), deliver a strong statement on market-based economic policy (along the lines of your remarks on the World Bank at Brookings a couple of years ago), take a firm position on all of the issues not mincing words on proposals destructive to economic progress and state that at the conclusion of the meeting we will be undertaking a fundamental review of our relationship to UNCTAD. There are several precedents for such a review—the extensive evaluation of the MDBs at the beginning of the Administration, the review of our participation in the IAEA, the study which led to withdrawal, temporarily, from the ILO.

My prejudice is that the review would lead to a recommendation close to Options A or B. An alternative that at present has no support in any bureau nor in other agencies outside State, but that could result from the study is to propose that UNCTAD follow the example of UNIDO and become a permanent specialized agency. A brief discussion of its merits is attached.³

Recommendation

That you authorize me to organize an informal inter-agency steering group to develop the U.S. approach to UNCTAD VI along the lines that I have discussed with Brock and Sprinkel. I would assign Martin Bailey to work closely with IO, EB and S/P to insure that the preparations within the building conform to this approach.

Allen Wallis⁴

1. Source: Department of State, Files of the Under Secretary of State for Economic Affairs, W. Allen Wallis, Chrons; Memo to the Secretary/Staff and Departmental/Other Agencies; Memos to the Files; White House Correspondence, 1987–1987, Lot 89D378: Memos to the Secretary 1983 #1, Jan.–July. Confidential.
2. The March 30 memorandum from Constable to Shultz is not attached. See also footnote 2, Document 107. The March 30 memorandum recommended that Shultz approve “Option D: Active Participation” for the U.S. approach to UNCTAD VI.
3. The attachment, “Convert UNCTAD into a specialized agency, like UNIDO,” is attached but not printed.
4. Wallis initialed “AW” above his typed signature.