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

40. Information Memorandum From the Acting Assistant Secretary of State for Economic and Business Affairs (Johnston) to Secretary of State Haig¹

Washington, September 3, 1981

SUBJECT

• Initiatives for North/South Speech

The initiatives are organized in the four categories of the Cancun framework for discussion plus a procedural suggestion for a follow-on process from Cancun.

Trade, Commodities and Industrialization (Trade is the most important development stimulus.)²

1. Use textile agreements to redirect a portion of textile imports from the big three (South Korea, Taiwan, Hong Kong) to the very poor to include China—Textiles and apparel are the most important LDC manufactured export and we need to stimulate trade with poorer nations.³

2. Prepare for 1982 GATT Ministerial to lay groundwork for further trade liberalization and strengthening of international trading system. Trade liberalization and access to developed country markets is most important to advanced LDCs.⁴

3. Commit the Administration to seek legislation to extend Generalized Tariff Preferences (GSP) for another ten years—GSP ends in 1985. It allows certain products in duty free up to a specified total value or 50% of imports whichever is smaller.⁵

4. Increase U.S. Government insurance coverage to U.S. investors who will provide a greater value added to LDC exports. Will benefit mid-level LDCs.⁶

5. High level international conference sponsored by the World Bank’s IFC to encourage foreign investment and domestic entrepreneurship. Will help those countries who have or wish to create an environment for private investment.⁷

With exception of 5, all the above will be resisted by labor and protectionist groups.⁸ We may kill the textile idea by putting it out in a speech rather than at the negotiating table.

Energy (More funds need to be devoted to development of energy in oil importing LDCs)⁹

1. Expanded multilateral development bank (MDB’s) lending for energy—CCEA has already taken a position opposing expanded lending at this time, favoring a reorientation of MDB priorities.

2. Special fund for balance of payments support for poorer countries to purchase imported oil provided that they sell domestically at world price and invest equivalent sums in conservation or development of indigenous supplies.

3. Change U.S. tax laws or regulations on U.S. tax creditability of taxes paid to net oil importing LDCs in order to encourage additional U.S. foreign investment in oil exploration and production.

4. Guarantee concessional U.S. export credits on equipment to retrofit or construct new power plants for coal use.

5. Call international conference to discuss a world energy strategy.

With the exception of the last idea all the above have budget impact. All benefit oil importing developing countries.

Food and Agricultural Production (LDCs are importing more food thereby consuming foreign exchange needed for development)¹⁰

1. Propose world food strategy designed to improve international food security—increased bilateral and multilateral support for independent farmers;—resumed search for international wheat agreement; and—provide concessional food aid for countries reforming their agriculture to help guarantee food during transition.

2. Meeting under FAO auspices to examine ways of improving coordination and efficiency in the provision of food and other resources to emergency and famine areas.

Programs that include stocks cost money, and stocks, domestic and international, can be used to manipulate market prices and introduce excessive government interference in the market.

Money and Finance¹¹

1. Commit the U.S. Government to joining negotiations of the Seventh IBRD/IDA replenishment but with understanding that the U.S. would seek a redistribution of IDA benefits (40 percent of IDA goes to India).

2. Propose that preemptive debt consolidations be considered on a case-by-case basis for interested countries who need their long-term debt restructured and are willing to submit to IMF conditionality. (Idea is to get countries to go to the IMF early so adjustment problems are not as great.)

3. Commit the Administration to seek appropriations (authorization has been passed) to allow the poorest countries to pay their concessional bilateral aid and food debts to the U.S. in local currency rather than dollars.¹²

Treasury will strongly resist the first two because of their current studies. The third proposal would cost between $12 and $20 million per year.

Procedural suggestion for Cancun follow-up¹³

As a substitute for global negotiations, the U.S. could agree to follow-on consultations on issues considered of importance by heads of state and governments. The Cancun participants represent a good selection of world leadership, our trade partners and our energy suppliers.

Announcement of such an idea by the United States would politically kill it. It must be planted and grow out of the discussions at Cancun. State, Treasury and NSC are developing an options memo on the trade-off between Global Negotiations and a Cancun follow-on.¹⁴

1. Source: Department of State, Bureau of Economic and Business Affairs, Investment Policy Files, 1981–1984, Lot 85D193: Cancun Summit—Initiatives. Confidential. Drafted by Meissner. Haig’s initials are stamped on the memorandum, indicating he saw it. Haig wrote “I’m afraid we are much too late & will pay a severe price” in the top right-hand corner of the memorandum.
2. Haig highlighted “Trade, Commodities and Industrialization.”
3. Haig wrote: “Volume & scope of change?” in the left-hand margin next to this point.
4. Haig wrote: “Likely Congress & Exec Branch opposition?” in the left-hand margin next to this point.
5. Haig placed two vertical parallel lines in the left-hand margin next to this point.
6. Haig placed two vertical parallel lines in the left-hand margin next to this point.
7. Haig placed a checkmark in the left-hand margin next to this point.
8. Haig underlined “labor” and “protectionist groups.”
9. Haig highlighted “Energy.”
10. Haig highlighted “Food and Agricultural Production.”
11. Haig highlighted “Money and Finance.”
12. Haig highlighted this sentence in the right-hand margin.
13. Haig highlighted “Procedural suggestion for Cancun follow-up.”
14. See Document 42.