You will recall that you asked how we might take advantage of Secretary
Regan’s request for transfer
of the debt rescheduling billet to Treasury to bring about better
coordination. I, in turn, asked Chuck Meissner for his views; they are
attached.
If, in the end, you decide to shift the debt rescheduling job to Treasury
we can still propose the other steps Meissner recommends.
While the memo has some action recommendations at the end, I suggest you
decide nothing now.2
Attachment
Action Memorandum From the Under Secretary of State for Political
Affairs (Eagleburger) to
Secretary of State Shultz3
Washington, March 21, 1983
SUBJECT
- Improving the Department of State’s Influence in the
Formulation of Foreign Economic Policy
Summary
The Secretary of Treasury has asked the Secretary of State for the
diplomatic portfolio associated with the rescheduling of official
debt. This memo addresses how State should respond and if there is a
way to use this response to strengthen State’s role in the
formulation of U.S. foreign economic
policy. This memo recommends that we preserve our present role in
formulating bilateral and regional economic policy. Within this
framework State should keep its debt rescheduling
responsibilities.
Over the past 20 years, there has been a slow evolution of foreign
economic policy decision making. What we now have is the systemic
issues dominated by Treasury (international monetary, IMF and multilateral development
banks) and USTR (trade,
commodities and some investment).
Bilateral and regional economic matters—including the application of
systemic issues in the regional/bilateral context—are largely
controlled by State (debt rescheduling, East-West, aid, ESF, military assistance, some
investment, EC and OECD relations, bilateral aviation,
FCN treaties, etc.). This is
essential because of the interaction between our strategic,
political and economic interests in individual countries and
regions.
The memo concludes that it is not practical to challenge the systemic
responsibilities of Treasury and USTR or attempt to take over institutional coordination
now in the CCEA, CCCT, SIG–IEP and TPC. The
best solution for State to gain influence is to solidify our
bilateral and regional economic policy role and strengthen our
bureaucracy to do a good job as well as substantively contribute on
systemic issues. The last section of the memo deals with
implementing this option.
[Page 343]
Attached is a draft letter to Secretary Regan responding to his request and reflecting the
conclusions of this memo.4
The Treasury Request
The Secretary of Treasury has requested of the Secretary of State
that the debt renegotiating portfolio now held in EB be transferred to Treasury. This is
not a new request and talks have been held previously with Treasury
on the Assistant Secretary level. Treasury has no complaint about
the arrangement except that the portfolio is at State. This
portfolio was passed to State from Treasury in 1972 or 1973 because
debt reschedulings were of a highly political nature. It was agreed
that all negotiating positions would be mutually agreed between
Treasury and State. The agreement has been observed.
Treasury’s main observation is that other Finance Ministries have
this portfolio and they do not. In reality, only about half of the
head delegates at a debt rescheduling are from Finance Ministries,
the other half are from various official agencies. FRG is represented by their Economic
Ministry; UK by their export credit
agency (except at larger reschedulings such as Poland and
Yugoslavia, when the UK Treasury was
in charge); Swiss by their Economics Ministry; Sweden, Denmark and
Italy by the Foreign Ministry; Norway by their Trade Ministry.
Agreeing with Secretary Regan
on the basis of promised future cooperation would be an error. The
Treasury bureaucratic motto is “Cooperation is what you ask of
others”. The International Monetary Group (IMG) has not met in nine
months. The National Advisory Council only meets on a staff level.
There is little desire by Treasury leadership or staff to coordinate
except at cabinet levels. (The only bright spot is that the
Treasury/State lunches at the Under Secretary level have been
revived.) A verbal agreement between cabinet officers on
coordination will have some short-term effect but it will fade away
and finally disappear when one of the cabinet members party to the
agreement leaves office.
There are very strong reasons for retaining the debt rescheduling
portfolio in the State Department. Such reschedulings are
inseparable from our broader foreign policy interests in individual
countries and they need to be controlled by State to assure that
these interests (political, strategic, regional security) are taken
account adequately. Other western countries, which do not have our
global security role, can afford to treat debt rescheduling as a
more technical economic matter. We cannot.
Present U.S.
Foreign Economic Policy Decision Making System
The system of formulation of U.S.
foreign economic policy is diverse as it is complex. There is no
center of policy but many centers. Policy
[Page 344]
making is split among numerous bodies and
among a number of major agencies: Treasury, USTR, State, Commerce, Defense,
Agriculture and NSC. In theory
broad policy decisions are made by consensus through cabinet
councils or interagency groups. Once policy is formulated, lead
agencies proceed to implement with minimal interagency
clearance.
The attached chart, Exhibit 2, reflects the present organization,
varied subjects entailed and those agencies interested.5 However, the IMG functions
have been assumed by the SIG–IEP. The other financial coordinating mechanism, NAC,
only meets at staff level.
Conceptually it is easier to understand the formulation of U.S. foreign economic policy if it is
divided into systemic issues and bilateral/regional issues. The
prime systemic issue is trade and trade cannot exist without the
international monetary system. USTR and Treasury, respectively, provide the lead roles
in these fields. USTR uses the
Trade Policy Committee (TPC) but
this overlaps with the CCCT
chaired by Commerce. (Commerce should actually be limited to the
trade enforcement function. Policy and enforcement should not be in
the same agency). Agriculture also plays a major role in trade.
Treasury manages the international monetary policy through the CCEA, the SIG–IEP (replacing the IMG) and the NAC. In these
bodies they coordinate policy for the IMF, G–10, G–5, international credit agreements
and the multilateral development banks (MDBs). The credit
arrangements and the MDBs, especially the IBRD, have both systemic as well as bilateral and
regional impact.
State Department controls bilateral and regional foreign economic
policy. The primary vehicle for coordination is the NSC (e.g. East/West economic policy)
but we also use forums chaired by other agencies. Under State
purview, for example, are AID,
ESF, military assistance,
EC and OECD relations as well as debt rescheduling. The
bilateral and political nature of reschedulings make this an
appropriate State Department responsibility. Probably most important
for involving State in the broad economic policy function is our
organizational role for the Economic Summits.
How Can the Department Increase its
Leadership Role?
The key point to remember is that trade and services reflect the only
flow of real resources internationally. They are the heart of
foreign economic policy. All other issues, including international
monetary policy, are part of this exchange process in that they
enhance, inhibit or specify
[Page 345]
the terms on which these flows will take place. State Department
has three options to increasing its influence over the conduct of
U.S. foreign economic policy:
reasserting control over trade, taking over the umbrella policy
coordination function or strengthening its position in the status
quo.
The Trade Option
Over the last 20 years foreign economic policy has become
increasingly more important in foreign policy, but the Department’s
role has declined. The policy function has been increasingly
fragmented in the Executive Branch. Now Congress is pushing for
further dilution by forming a Trade and Commerce Department designed
to be parochial and responsive to domestic interests on trade
issues. The fact that six U.S.
cabinet officers participated in EC/US consultations indicates the
attraction of other departments to the foreign policy function.
If trade lays at the heart of foreign economic policy, then the key
issue in foreign economic policy is control of the trade policy
function housed at USTR.
Congressional sentiment to have this function returned to State is
minimal and in fact the opposite. USTR is created by law and the head of USTR is designated by law to be of
cabinet rank. The USTR staff have
been very careful to write into legislation or legislative history
their responsibilities and prerogatives.
The evolution of USTR has caused
numerous problems:
- —
- Overlap of responsibility with State and Commerce.
- —
- Establishment of Ambassadors and a Mission abroad not
under the authority of the Secretary of State (and with
little desire to coordinate).
- —
- Lack of adequate personnel—few of those they have are of
superior caliber and they borrow heavily from State. A
majority of USTR officers
in Geneva (to include the DCM and the Ambassador, Mike Smith) are FSOs,
seconded to USTR.
- —
- Duplication of functions between the Trade Policy
Committee (TPC) and the
Cabinet Council on Commerce and Trade (CCCT).
These problems could be solved by integration of USTR into State. There is no
possibility of turning the clock back to 1960. There might be a
possibility (admittedly slim) that USTR could be taken out of the White House and
constituted as a special agency under the Secretary of State. This
would reassert the role of the Department and solve many of the
overlapping jurisdictional problems with USTR. Under this scheme Commerce would retain trade
enforcement. All agencies would coordinate through cabinet councils
and Under Secretary-level SIGs. The TPC would become such a SIG.
The Institutional Option
The institutional option for returning influence to the Department in
the formulation of foreign economic policy focuses on the control of
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the coordinating
function rather than control over a major substantive issue such as
trade. At present there is no umbrella structure charged with
coordinating foreign economic policy. The SIG–IEP handles some issues (mainly
finance) while the TPC and the
CCCT split the trade
portfolio. Occasionally the NSC
will deal with economic issues, especially in the area of East/West
economic relations (pipeline, energy, credits, debt) or where our
strategic/political interests are affected. Treasury does its best
to discuss these economic issues in the SIG–IEP before they are discussed in the NSC.
The best solution would have been for the Secretary of State to have
chaired the SIG–IEP under the
NSC structure. This would have
allowed the NSC to be the umbrella
body. This option has now passed. There are five cabinet groups
charged with foreign economic policy co-ordination: NSC, SIG–IEP, CCEA, TPC, and CCCT. Treasury chairs two of these groups but
responsibility for others is spread over the other lead agencies.
Coordination between groups takes place through the same cabinet
members serving on almost all the groups or through more informal
channels.
An attempt by State to pull these groups under the NSC or a new umbrella organ would be
poorly received and not worth the political cost. What could be
considered is expanding the State/Treasury breakfast to include
other key cabinet members from time to time to get a policy
consensus on important issues.
The Status Quo Option
Any general reorganization of foreign economic policy in the USG will take time and may not result
in a solution satisfactory to State. However, State can work to
solidify its lead in bilateral and regional policy and there is much
that can be done in State to improve its own organization to deal
with economic issues.
- 1.
- Continue to appoint knowledgeable and respected individuals to
the key posts of E and EB.
- 2.
- Build effective liaison with Treasury and USTR. (Reactivating the
State/Treasury lunches is an excellent start.) Ask that IMG and
NAC begin to meet as subgroups of the SIG–IEP so there is more staff
preparation of issues.
- 3.
- Carry out well, and don’t give up present bilateral and
regional responsibilities, to include debt rescheduling.
- 4.
- Consider reorganizing economics in the Department to reflect
our functions.
- a.
- Establish a Deputy Assistant Secretary for economics
in each regional bureau to assure well developed
regional policies.
- b.
- Build support in EB
for the economic summit role of E and its East/West economic coordinating
function.
- c.
- Consider moving the OECD function to EB but strengthening the EC function in EUR.
- 5.
- Assure high quality economic officers in the Foreign Service;
assure they have a career and assure they work on economics, but
understand the broader strategic and political considerations
involved with economic issues.
I would like to expand on this last point. State competes against
permanent bureaucracies at USTR
and Treasury. Economics is a discipline that benefits by consistency
and study. Present Departmental rules rotate all officers out of
Washington every four years. You cannot build institutional
expertise with this type of rotation. The economic career path must
be designed to fit the needs of the Department in economics, not
some arbitrary personnel management rules.
Second, officers in the economic cone must be allowed good slots
abroad, when they go abroad. The system favors the political cone in
senior officer positions. Many top economic officers leave the
Service because they cannot be placed at the DCM or Ambassadorial level. Certain
posts should be designated as economic posts (USEC, USOECD as well
as key DCM posts with major trade
partners and certain UN posts).
Third, the Economic Bureau should be allowed “stretch assignments”
(placing officers in posts designated for individuals of higher
rank) to put well qualified younger officers in positions of
responsibility. Rank should not be the only consideration—again
substantive need over personnel theory.
Fourth, the FSI courses on economics
should be continued but with more emphasis on industrial
organization, institutional economics and political economy rather
than its present emphasis on quantitative methods.
Fifth, a strong research function should be built into EB using a mix of qualified FSO’s, term contracts, and external
consulting.
Sixth, efforts should be made to keep and hold a qualified critical
mass of economic analysts in the Economic Bureau and in the Policy
Planning Staff. A similar potential could be built over time in
INR. The four year rule should
not apply.
Seventh, the economic sections in specific designated embassies
abroad should be strengthened and the economic talent in certain
regions pooled (Caribbean, Central America, East Africa, Sahel
region, etc.) to improve reporting capabilities. (The splitting off
of the Commercial function to the Department of Commerce has reduced
the manpower available for economic reporting and our talent
training and recruiting base.)
Eighth, there should be a rotation in Washington between the regional
bureaus and EB to get more qualified
people on country desks.
[Page 348]
Ninth, key country desks in the regional bureaus should have economic
slots added. EB cannot follow all
the countries that need attention.
Conclusion
The trade option and institutional option are not real alternatives
at this time. The Department must concentrate on keeping, and
improving on, its regional and bilateral foreign economic policy
emphasis while contributing to the debate on broader systemic issues
in trade and money and finance. This means rejecting Secretary
Regan’s request for the
debt rescheduling portfolio and concentrating internally on building
up the Department in the economics field.
Recommendations:
That you approve the following two initiatives:
- 1.
- That the responsible officers in the Department respond to
the suggestions made in the paragraphs on strengthening
State economic capabilities and add any ideas they may have.
A report should come back to you under M guidance in two weeks or
so.
- 2.
- That you sign the attached letter to Secretary Regan at Attachment
1.6
