MEMORANDUM

TO: Members of the Commission FROM: Zbigniew Brzezinski SUBJECT: Brussels Meeting of Trilateral Executive Committee

The meeting held June 23-25, attended by 25 Executive Committee members and nine rapporteurs [list attached], was devoted to a discussion of the report on relations with the developing countries, with Professor Gardner introducing the report, followed by Messrs. Udink and Okita; energy, with Mr. Hager introducing the report, followed by Ambassador Kondo and Mr. Campbell; followed by a brief discussion led by Prof. Cooper of the monetary implications of the rise in petroleum prices; trade, introduced by Ambassador Ushiba, followed by Messrs. Colonna and Trezise; and a statement by me on the Commission program, with comments from the participants.

The brief memorandum which follows is divided into three parts:

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BRIEF IMPRESSIONS

The meeting, in my personal judgment, was very successful. One sensed a deepening of confidence among the participants, a feeling that the Trilateral Commission is "taking off," a real beginning in the development of the habit of working together. I thus very much agree with the judgment expressed by our Canadian colleagues [in their internal semi-annual review] to the effect that "the substantive work of the Commission has been progressing steadily, and the process of familiarization and cooperation among the Commissioners and task force participants from the three areas has been deepening. The commitment of participants from the three regions to the objectives of the Commission is a continuing one and is growing."

Discussions were lively and very evenly distributed among the participants —— to amuse myself I kept score of participation and discovered at the end a remarkably even distribution of contributions from the three regions. The three reports were discussed critically but constructively, and the final statement of the Executive Committee reflected largely the conclusions and recommendations contained in the reports. These reports were, of course, released to the public.

One of the most successful sessions was devoted to an open-ended discussion of the social-political situation in the three regions. The success of this session has led us to conclude that we should repeat it in future meetings.

Finally, there was some feeling that we are now at a stage in which we no longer need to emphasize agreed conclusions and recommendations; therefore, we can focus some of our discussions on more controversial issues, trying to view them from our different regional perspectives. This view has affected our planning for future sessions, as outlined in Part III.

SUMMARY OF DISCUSSIONS

LDC's

The first session was devoted to the report of the Task Force on Relations with Developing Countries. The discussion was led by Richard N. Gardner, North American rapporteur of the Task Force, with Saburo Okita and B. J. Udink, the other rapporteurs, taking active part. The discussants doubted whether idealistic appeals are capable of generating sufficient political will in the advanced countries to expand development aid, and called for a new rationale based on the universal need for stable and equitable relations. — 3 — While food aid and 'program aid' aimed at buttressing the development budgets of the receiver nations were seen as vital in the present crisis, it was recognized that longer-range 'project aid', disbursed through the world and regional development banks, could best insure adequate control over aid funds. Such control was considered necessary to enhance both the ability of the recipients to use aid effectively as well as the willingness of the advanced countries to provide it. A related issue concerned the responsibilities which recipient ccuntriescountries should be asked to assume, such as in the area of population control, and whether preconditions should be attached by the industrialized countries to aid allotments. The participants gave ample cosideration to the question of access to raw materials. They noted that access rights must be qualified by a prudent use of increasingly scarce resources on the part of the advanced world, and by a recognition of the legitimate desire to benefit from value-added transformation processes on the part of the developing world. It was emphasized that greater thought must be given to long-range issues in North-South relations, such as interference in the internal affairs of other countries and the shift of industries to the South. The report's proposal to cover the poorest countries' $3 billion short-term payments gap won general endorsement, but was acknowledged to be merely an ad hoc measure designed to alleviate an urgent problem.

Energy

The discussion of the Energy report was led by Wolfgang Hager, Shinichi Kondo, and John C. Campbell. Mr. Hager drew attention to the report's recognition that energy is a permanently scarce commodity whose rising costs should stimulate conservation efforts and greater investment in alternative sources. He emphasized the report's recommendations for a rapid diffusion of energy technology among the trilateral countries and for an agreement on spreading the consequences of unequal treatment by oil-producing countries, even at the risk of worsening cutbacks. Mr. Kondo dwelt on the economic aspects of the energy problem, highlighting its inevitable long-range effects on the monetary system and inflation. He stated that Japan would require 1-1/2 to 2 years to recover from the present oil shock. Mr. Campbell conceded that there are real differences in outlook and policy among the trilateral countries, but felt that the common interest in assuring oil availability should ultimately prove overriding. He placed special stress on the long-term complementarity of interests between OPEC nations and the trilateral countries, emphasizing the report's call for a mutually beneficial arrangement that would insure the economic development of the producing nations as well as the security of supplies to the consuming nations. The ensuing discussion focused on the economic consequences of the energy shortage, the question of supply, and the need for cooperation. One well-informed European said that oil prices will probably rise rather than fall, and that further nationalization of private oil holdings and curtailed oil production may be in the offing. — 4 — Regarding supply, a Canadian spokesman doubted that Canada's energy reserves are as large as many assume, while a Japanese stated that current estimates of an energy surplus in the years ahead overlook the projected effects of expanding demand once economies recover from the present setback. Spokesmen from all three areas urged cooperation with Middle Eastern oil producing nations. In general, the report was highly commended for its comprehensive and realistic overview of the political implications of the world energy problem.

Monetary Aspects of Energy

Dr. Richard N. Cooper presented a brief analysis of the financial implications of the oil price increases. While expressing confidence in the system's ability to finance the four-fold rise in oil costs, he observed that intermediation remains a crucial problem, as surplus funds accumulated by oil-producing countries must be recycled to countries in need of additional financial resources. To this end, Dr. Cooper proposed that central banks take a more active role in assisting the 20 or 30 major commercial banks now handling the bulk of the intemediation, so that these banks may become less hesitant to make loans considered unduly risky by normal commercial standards. Regarding countries whose credit standing is normally adequate, such as Italy, Dr. Cooper favored alleviating their present financial difficulties through Witteveen's IMF oil facility. He recommended emergency assistance to the hardest hit LDC's by means of concessional aid and the diversion to them of profits gained on the sale of official gold holdings on the open market. In the long run, Dr. Cooper felt that the financial problems emerging from the oil crisis can be managed, as conservation efforts, the development of alternative energy sources, and expenditures by the oil-exporting countries will all increase. In the discussion that followed, an American banker agreed that government assistance was necessary to aid the intermediation activities of commercial banks. A well-informed Canadian banker expressed his agreement with Cooper's analysis, but disagreed with his proposals for shoring up private lending arrangements through central bank intervention. Instead, he favored direct loans by governments to risky borrowers. A British banker urged cooperation between European central and commercial banks to handle the burgeoning eurodollar market, and recommended paying for Middle East oil in gold at an adjusted price. Others felt the oil exporters would not accept payment in gold. Another European felt that central banks should engage in closer consultation on an institutionalized basis.

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Trade

Mr. Ushiba, Japanese rapporteur of the Trade Task Force, introduced the report by underscoring its relevance to the current round of GATT talks. He noted that the report recommends a fresh start in liberalizing agricultural trade; amplification and refinement of the GATT provisions on export controls and scarce supplies; the establishment of international mediation machinery on safeguards; and the elaboration of a supplementary code of trade liberalization outside the GATT. Mr. Trezise, the North American rapporteur, was optimistic about the current multilateral trade negotiations. He suggested the possibility of negotiating energy supply guarantees which would provide price stability, and pointed out that we may soon be faced with a glut of energy and other resources, a problem which the report considers in its proposals on commodity agreements. Mr. Colonna, the European rapporteur, described the report's advocacy of trade liberalization as a politically important position in view of current threats to the liberal world trading system. He called for a massive public education campaign to maintain support for free trade and to show its relevance to such problems as aid to the LDC's, high energy costs, and monetary uncertainty. In the discussion period, a Canadian participant said the report should have given more attention to the role of multinational corporations in contemporary trade, to the 'sector approach' in international trade negotiations, and to expanding industrialization in resource-exporting countries. Other speakers suggested that trade patterns between oil exporters and importers may soon come to resemble East-West barter arrangements, and that agricultural issues may have to be related to industrial trade-offs rather than constitute a self-contained set of separate negotiations. A Japanese discussant said that support for liberal trade was probably greater at present in Japan than in the EC or the U.S., and that much depended on restoring confidence in GATT. An American participant called for a greater balance between equity and effectiveness in economic affairs, and urged a commitment to economic growth. The rapporteurs concluded the discussion by responding to the comments made by the participants.

Symposium on Conditions in the Trilateral Areas

Kazushige Hirasawa began with an overview of the Japanese political situation. He said that Prime Minister Tanaka would probably remain in office until 1978, although under different circumstances than those prevailing when he first assumed power. He noted that the oil crisis had impressed upon Japan the facts of interdependence. Harold Brown then presented an analysis of domestic and foreign policy trends in the United States. He stated that the domestic scene is presently characterized by a diminution of racial and student turmoil — 6 — and by a paralysis of leadership owing both to Watergate and to a general lack of direction. He added that inflation resulting from the oil crisis will help cause real incomes to drop or remain stagnant next year. In foreign policy, he stated that while U.S.-Soviet relations were good, too little attention was being paid to Europe and Japan. Finally, he said that U.S. troop cuts would ultimately depend on European and Soviet attitudes. Francois DucheneFrançois Duchêne then outlined current trends in Europe. He said that the new government in France may strengthen European bargaining power vis-a-vis the U.S., but some time may elapse before there are results. Britain has effectively renounced the expectation of leaving the Common Market, but will insist on small budgetary adjustments. Transatlantic relations are now improving, as Kissinger has accepted the notion of direct European overtures to the Middle East and disenchantment with the USSR has grown on both sides of the Atlantic. In Sum, Mr. DucheneDuchêne felt that recent events have brought an improvement in the European diplomatic situation, but domestic and other developments have given governments less room for maneuver. In the ensuing discussion, several European participants warned against undue optimism in U.S.-European relations, and called attention to internal economic and political crises threatening the authority of democratic regimes in certain European countries. A Canadian briefly described Canada's present economic difficulties, and pointed to interregional energy conflicts and language problems as increasing Canada's vulnerability. Picking up on the general theme of the fragility of democracy, Brzezinski noted that democracies today face severe challenges from such factors as inflation, communications overflow, criticisms of growth, and a general philosophical pessimism, all resulting in the need to study how democracy can be saved. Japanese spokesmen remarked that the Atlantic relationship has remained essentially bilateral, and noted that Japan was not given a central role in the Ottawa Conference. Prospects for Japanese ratification of the NPT next year were described as good.

Trilateral Commission Program

Dr. Brzezinski stressed the timeliness and effectiveness of the Task Force reports produced thus far, and expressed his confidence in the Commission's ability to tackle controversial issues in the future. In particular, he looked forward to the appearance next year of a trilateral report on the Oceans devoted to elucidating one or two key issues, such as the implications of 200-mile territorial sea limits. He also mentioned the forthcoming "Overview Project" on the renovated international political and economic systems, a comprehensive project designed to integrate and supplement the entire Trilateral Policy Program. In the discussion that followed, there was broad agreement on the need for a trilateral study on the political ramifications of inflation, as well as general approval of the "Governability of Democracies" undertaking already in progress. A number of participants called for a study of how organizations such as the Trilateral Commission can maximize their public impact, and many urged the Commission to take on controversial issues So that internal disagreements can be fully aired.

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PLANS FOR THE FUTURE

In line with the concluding observations of my initial remarks, we have decided at the Trilateral Commission Executive Committee meeting scheduled for December 8-10 in Washington, D. C., to hold a session on Inflation and Politics. This will be a discussion designed to air the implications of this situation, and to assess it from the stand-point of the interests [perhaps even conflicting ones] of the three regions.

We have also decided to initiate a longer term project on the Renovated International System, which will focus both on the need for a new political framework and for novel economic arrangements. A preliminary brainstorming exercise, with participation from the three regions, will be held on the eve of our December Trilateral Executive Committee meeting.

We have decided to go ahead with a trilateral effort on the oceans. Participation in this task force will include rapporteurs from the United States, Canada, Europe [perhaps with some division between the Common Market countries and Norway], and Japan. The rapporteurs will be charged with assessing the implications of the likely developments in this field, and not necessarily to strive for agreed recommendations.

Our December meeting will also hear a follow-on report on the LDC's, focusing on the longer range perspective, both from the standpoint of the needed remedial measures and institutional rearrangements. It will also get a concluding report from the energy group. Moreover, we may wish to expose the Executive Committee members to at least an initial disucssiondiscussion of our project on democracy, which evoked a lively discussion at the Executive Committee meeting [this involves a trilateral exercise designed to assess the workability and governability of modern democracies in the light of contemporary social economic developments].

Finally, active consideration is being given to a meeting of the entire Trilateral Commission in Japan in the spring of 1975.