sales to the United States. Anybody who knows Japan, knows that the biggest obstacle to foreign trade with Japan is Japanese culture, not Japanese laws. Therefore without a real understanding of what we are both trying to do, there will be endless tensions. I think we need a comprehensive negotiation, not confined to a specific restriction but to the whole range of what we can do together, where we will compete: such things as the relationship between the gas in Alaska and Japanese energy needs, and the export of what items and what capital to the United States. It has to have a 10 to 15 year vision, otherwise the political processes are going to suffer.

With respect to China, many of our problems are on the way to solution. First, China is undertaking an extraordinary effort: if one looks at Chinese history, the process of modernisation has always run up against the process of Chinese tradition. To modernise is to become like everybody else and yet the uniqueness and peculiarity of China have been some of its proudest features. In addition, the initial copying of the Soviet system has produced rigidities of which the Chinese themselves are their best critics. I believe that the effort now undertaken under Deng Xiao Ping's leadership is extraordinary, unique and heroic, and I am therefore glad that the technological transfer restrictions on our side are being gradually eliminated.

There still remain many obstacles, partly cultural. American companies like to have arbitration provisions in their agreements, and the Chinese mentality and history has little understanding for legal procedures independent of the general context of events. The two bureaucracies do not always understand each other but in China we are dealing with a process which deserves the support of all industrialised nations and which, if it should succeed, will be one of the extraordinary events of this century.

In South East Asia, and to some extent in South West Asia, we face a particular problem now of the industrial democracies. I would sum it up as follows: the industrial democracies at this moment are obsessed with the problems of international debt. It is a problem of great gravity. The solution that has been proposed is related very largely to balance of payment considerations and has the practical consequence of imposing austerity on the countries concerned. Now there is a limit to how much austerity the political process of a developing country can be asked to sustain, and there is a serious doubt in my mind as to the wisdom of making developing countries, especially in Latin America, capital exporters. The debt problem is not the overwhelming issue in South East Asia, (except perhaps in the Philippines and to a lesser extent in Indonesia), as it is in the Western hemisphere. But it affects thinking in a particular way. We cannot solve the debt problem but more important we cannot settle the problem of political stability and progress, unless the industrial democracies dedicate themselves to a policy of development and not to a policy of debt repayment. That is the key issue that it before us. That is the key problem faced by ASEAN countries — it is also the key problem faced in South West Asia. There, I am bound to say that domestic bureaucratic obstacles make the infusion of private capital more difficult and that ideology, perhaps excessively learned from the London School of Economics, would continue to provide an obstacle, even if the industrial democracies came to the realisation, as they must, that I have outlined.

I see Lord Chalfont glaring at me, pointing out that I have far exceeded the time he has assigned to me, and so I would like to conclude with one observation. I have a Chinese friend who delights in telling me Chinese proverbs. Now in this Chinese city, you will know better than I whether these Chinese proverbs really exist or whether they are something told to impressionable Westerners to exaggerate their inherent sense of inferiority. But at any rate, my Chinese friend claims that there exists the following proverb: 'When there is turmoil under the heavens, little problems are dealt with as if they are big problems, and big problems are not dealt with at all. When there is order under the heavens, big problems are reduced to little problems and little problems are seen in their proper perspective'. Now the Chinese here will be able to tell me whether I was dealing with a particularly inventive and poetic Chinese or whether I was exposed to Chinese history and tradition.

The fundamental point I want to make is that in this complex of problems that I have described, we are dealing with a problem of wealth and imagination. All of them are soluble by our own efforts, by the efforts of the kind of people that are assembled in this room. We don't need anybody else to solve them. It is a question of will and imagination. No other group of nations can say that of itself. So my final point is that, when all is said and done, we have a great opportunity, especially we the nations of the Pacific area, to produce order under the heavens.

And now I'd be glad to take a few questions.

MR. JOHN CRAGAN, CHINESE UNIVERSITY, GRADUATE PROGRAMME IN BUSINESS: The success of current, you term, heroic efforts in China, seem to be intimately tied to a particular hero, or set of heroes. You have previously mentioned in your talk, the inevitable adjustments related to the course of

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nature in the lives of such heroes throughout Asia. This is of particular concern to Hong Kong at this stage in our development. Would you comment on the possible long-term developments in China over the next two decades or so, as related to this particular issue?

DR. KISSINGER: First of all, let me say that when I first went to China in 1971, I knew absolutely nothing about China, and since my trip was a secret, I couldn't even prepare myself. So it is a sign of Chinese ability to handle foreigners that the thing ended without a catastrophe.

I would say secondly that there have been many changes since then. I have been often in China and I've been fascinated by it and have now occupied myself with it, of course, much more. I have to tell you quite candidly that I would have foreseen none of the changes that have occurred in the period since then, so I am a very bad person to ask that question.

We have no clear view, certainly I have no clear view, about the processes by which the changes in leadership are achieved, but I have this impression: as I pointed out, it seems to me that the process of modernisation in China involves two conflicts. It involves the conflict between Chinese tradition and the requirements of modernisation, and I suspect it is more painful and difficult for the Chinese than anybody else, to enter a world in which they will become like others. Since they have never been that in all their history, how to retain their uniqueness in the face of the levelling aspects of technology is a very serious psychological problem that undoubtedly affects many internal disputes.

Secondly, I believe that Deng Xiao Ping and his associates have had a courage absolutely unique among communist leaders in facing the incongruities of the planned economies on the Soviet model. No communist leader has had the courage to tackle bureaucracies and the structures and the concepts, and the priorities. And I must say, when I first met Deng Xiao Ping, I did not understand his historical significance from that point of view. Now, the periodic rectifications that are taking place indicate that the Chinese themselves recognise the difficulty of the task they have set themselves.

My impression is that they have made more progress than anybody would have believed possible four years ago; and contrary to many countries I know, they have in fact done everything their leaders told me they would do and told others they would do four years ago. If this present leadership group can continue for a reasonable time and bring its people into the key positions, I think they have a very good chance of continuing the process. Even now the growth of the consumer goods industry, the concept of the special economic zones, the spreading of incentives to the countryside, have brought successes absolutely unimaginable in any other socialist country. And therefore I am reasonably optimistic, always recognising that to govern a billion people is an undertaking that is unprecedented in history:- especially a billion such individualistic people.

MR. IRWIN LEVONWITZ, EXXON CHEMICAL ASIA PACIFIC LIMITED: As I look around the world today, there appears to be more military activity than any time in my lifetime. Whether it be Afghanistan, Lebanon, Grenada, Iran or the domestic turmoil in the Philippines and Pakistan. Is it just my perception, or do you feel that the world is in a shakier state today than it has been for many years, since World War II?

DR. KISSINGER: The world is undergoing major changes. Some of them are indigenous. There would be turmoil in Central America regardless of outside forces, simply because of the process of decolonisation in the Caribbean and changes in the leadership groups in Central America.

The process of decolonisation has had the ironical consequence that every governmental sub-division of the colonial power wants to become an independent state. And so you have an entity like Grenada with a population of 100,000, that has no other history except having been governed by Britain as an administrative unit, and therefore produces aspects of sovereignty not described in textbooks in the 19th century. Certainly this is one phenomenon.

I think it is also true that some of the countries — let's name names — the Soviet Union, is exploiting these problems that would exist anyway, in a way that makes solution very difficult. You take Central America or Grenada, or this area. Which particular group gets the power in which particular country could be a matter looked at with relatively less concern by the United States were it not for the massive intrusion of Soviet-proxy military equipment that follows it, and the establishment of strategic bases. It was the construction of a military airfield on Grenada, within reach of all of South America, that had to be of concern to the United States.

Or take Afghanistan. When I was Secretary of State, the Prime Minister of Afghanistan was a man

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called Daoud who, so far as we could tell, was pursuing a pro-Soviet foreign policy in all international forums. We in our turn, made absolutely no effort to change the direction of his foreign policy. We had a minor aid programme in the southern part of the country, close to Iran, but otherwise we recognised that a country that close to the Soviet border represented extraordinary sensitivities. That leader was overthrown by a communist coup. That communist coup could not maintain itself and therefore was followed by the Soviet army. That, of course, presents a totally new strategic and political reality and is bound to lead to some sort of confrontation.

Take the issue in Europe today with these intermediate range missiles. It would be easy, (Lord Chalfont is the defence expert, he may or may not agree with me), it would be easy to find a number that represents no threat to either side, if that were the desire. But much of the argument is an absolute absurdity: that is the argument that these Pershing missiles can reach the Soviet Union in 8 minutes while inter-continental ones can reach them in 25 and submarine-launched missiles in 15. What are they going to do with the extra 17 minutes? It is a joke. What they want is to make Europe defenceless against the nuclear threat. That is the issue. If they were willing to give up that demand we could settle everything else quickly.

Or Lebanon: many mistakes have been made in Lebanon, including many by the United States and several by Israel, so I think it is a mistake to blame everything on the Soviet Union. When structures disintegrate there is a danger that violence will break out until a new equilibrium is established. There is no substitute for an equilibrium.

Well-meaning people in the United States always say we should have a political, not a military solution. Anybody who has studied history will know there is no political solution unless there is some sort of a balance of forces that it reflects. There is no such thing. I don't think any of you business people go into a business negotiation and rely entirely on the persuasiveness of your arguments; you try to figure out what the balance of interests is. Why should it be different in international affairs? So in this sense, yes, there is more turmoil in the world today. But again, most of the trouble spots you have mentioned are capable of solution provided we do not confront a concept of balance on one side, of power on one side, with sentimentality on the other.

### MR. CHRISTOPHER WONG, ROYAL BANK OF CANADA
I have two questions. The first one is on the Philippines. Further to your earlier comments that the United States military bases in the Philippines are indispensable, we would be interested to hear your view on some possible scenarios which could reassure current concerns over existing political equilibrium in the Philippines on the very premise that U.S. military bases are indispensable.

The second question is on Pakistan. Subsequent to August, when President Zia suggested delaying general elections for another year, there has been some internal unrest, especially in the southern provinces. What is the chance of a stepped-up confrontation in view of this internal unrest, and how would it affect the existing political equilibrium in West Asia?

### DR. KISSINGER
To say that some bases are indispensable does not mean that we can control all the political circumstances in the country in which they are located. To us, obviously, a democratic solution to the political difficulties is the most desirable. That is the legacy we left in the Philippines and that is the only long-term solution. Because whenever a replacement of the existing rule becomes necessary, if only by age or health, we would prefer to see it through a democratic process and of course, we would prefer to see that democratic process maintain the traditional Philippine friendship to the United States. But it would be absolutely impossible for the United States to engage in a military occupation of the Philippines to protect its bases. So it is necessary in the Philippines to have a political solution. But it is also necessary for the United States to act with extreme circumspection and not to destroy all intermediate institutions, as we did in some other countries including Central America and Iran, and open the way to extreme radicalism.

So I have no brilliant solution to the process, except to point out that it has to be political, and that over a historic period — I am not talking about next year, but over a historic period — we would do best to rely on the inherent moderation of the Philippine people and its traditional friendship with the United States.

Now to the issue of Pakistan. One of the interesting problems that political scientists ought to examine is the degree to which Parliamentary democracies, inherited from the West, fit all the developing countries. The style of confrontation that is practised in Westminster is most suitable for a country that is extremely homogeneous politically, and in which it is understood that there are fundamental values that transcend

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the differences. If you sit through a question period in the House of Commons, and if you thought that this was the only expression of Great Britain, you would bet on a civil war within the next month or two. I repeat: that confrontation-style of politics really reflects an enormous underlying unity. Those of you who know London, and most of you do, recognise that the very people who have been assaulting each other in the afternoon, will be meeting at dinner parties in the evening in a spirit of mutual respect. Now in many developing countries, the people who assault each other in Parliament, kill each other in the streets in the evening. That is a different style of politics.

Now in Pakistan, it is a historical fact that almost every election has led to an overthrow of the government that called the election. I won't speculate on this, but if you look at the period of the 60s and 70s, elections have not had a calming impact on the political health and the political future of Pakistan. And many of you know, certainly our Indian friends will confirm, that I am generally accused of excessive friendliness to Pakistan, not of inherent hostility. This happens to be a problem. The other difficulty is that it is almost impossible to have a crisis in Pakistan that India does not consider will affect it in some manner or another, so that directly or indirectly by its mere existence it will impact on the domestic disputes.

So I think we all should hope that the political disagreements that now exist in Pakistan will not reach the level of turmoil, because there will be two great temptations: there will be Indian temptations and there will be Soviet temptations and even Afghan temptations in the Baluchistan region. I believe that there is a chance that the process outlined by President Zia will reach its fulfilment and the electoral constitutional formulas he has devised may, in fact, strike a compromise between the need of broadening the base and the previous problems that have been caused by elections — but it would be wrong to underestimate the potential pitfalls.

PROFESSOR CHRISTOPHER HOWE: Can I just ask you one question about the frictions between Japan and the United States? I think many people would agree with the comment that you made: that it is important to get away from negotiating about specifics and to develop comprehensive views. Would you now agree that the Japanese have a very legitimate complaint when they say that it is difficult for them to bring their economy into a satisfactory relationship with the United States economy, unless the Americans recognise the enormous significance to Japan of domestic monetary policies that keep the value of the dollar very high?

DR. KISSINGER: One of the difficulties of the present method of negotiation on all of these trade issues is that — Japan being so successful as it is — in the forefront of them is that in the absence of a comprehensive negotiation, the industries with the weakest competitive positions are the ones that are triggering the negotiations. Therefore they also produce the most difficult negotiations because they impose on our government the need to fill the widest gap. This is one aspect of this approach.

Secondly, I think that it is not just Japanese criticism of our monetary policies, but it is also European criticism and I would answer it as follows: —

In the early 1970s when the floating system was established, it was believed that it would provide an almost automatic regulator of the international balances, because it would adjust itself automatically without the need of formal governmental decision. I don't think it was understood at the time that governments can affect the value of their currencies through fiscal and monetary policies. At that time, it was thought that you could affect the value of the currency primarily through direct intervention in the markets. It is now clear that you can affect the value of your currency by measures well short of direct intervention in the market and can therefore have a major impact on other countries. So I have come to the view that the floating system as now practised is not healthy. It creates a temptation to shift one's own domestic difficulties to other countries or to gain a comparative advantage.

And in fact there are two quite contradictory criticisms: the Japanese complain about the high value of the dollar, and American business leaders complain about the low value and the under-value of the yen. I believe that for political reasons we have to find some system in which the currency fluctuations are dealt with as a more political problem and in which the floating system is replaced, if not by a new kind of Bretton Woods, at any rate by a system of greater predictability. This is not a majority, a major view in the United States today, but I think events will drive us in that direction. I believe the Japanese criticism is justified and our criticism of the Japanese is justified, which means that the system isn't working.

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MR. MILTON BERGLUND, VICE-PRESIDENT AND MANAGER, MELLON BANK: I thought I might ask you a question about a peculiarly East Asian political problem now in negotiations concerning both Taiwan and Hong Kong. It seems to me the two principle powers, the United States in its periodic support of Taiwan and Britain in its support of Hong Kong are in a situation leading to rather long negotiations with China over the settlement of both issues.

I think it would be wrong of me to try to intrude some comments concerning the sensitive negotiations between the British Government and Beijing over Hong Kong, but I might ask you to comment on what you would assess as to the sufficiency of the offer that seems to be coming from Beijing, of covering both cases by establishing, through the special economic zones, a degree of political independence that seems to be promised as a solution from the Chinese side to both sets of negotiations: one presently going on about Hong Kong, one possibly in the future over Taiwan. And I would ask you to comment on that method offered by the Chinese in the context that many Chinese both in Hong Kong and Taiwan seem to reflect that though the political framework of the offer seems reasonable, what is bothering them most is whether agreements once held, once made, will be maintained. And that is against the background that throughout even the recent history in China, there have been periods of political change, revolutions of a cultural nature, that give doubt as to whether these agreements would be sustained once made. Lord Maclehose, the former Governor of Hong Kong, gave a speech in London, roughly along the same lines: that there would have to be some guarantees for both Taiwan and Hong Kong. In the event that there were agreements made, how would they be kept in the future?

DR. KISSINGER: Alun, you've permitted this question period to go on one question too long, because I think it would be highly inappropriate for me to comment on negotiations that now are in active process, in which the United States is not participating. But let me make general observations without dealing with the particular issue. Right now there is no negotiation going on on Taiwan. I believe this is a problem that should be left to history and the good sense of both sides in understanding realities, and it can only be exacerbated by trying to give it a formal expression at this moment. I have the impression that we understand the Chinese position, and they understand what limitations we operate under at this moment and I think, with wisdom, this is a problem that can be left for a while to history.

On Hong Kong, and in general negotiations with the Chinese, I would say what I said about business. The nature of legal guarantees has a different significance, it seems to me, to the Chinese mind than to the Western mind. I have the impression that there are fewer lawyers in all of China than there are in a medium-sized American city — not to speak of New York City — and it is my impression the Chinese would tend to think that if they are willing to break an agreement — which is not a Chinese habit — they are also willing to break legal guarantees that buttress the agreement. So I would hope that the interests of the two sides find an acceptable outcome being so clear that one should not be confused by the process of negotiation. I am reasonably confident that a solution will be found that takes into account the fundamental concerns of all the parties and all the parties in the negotiations.

CHAIRMAN: Thank you very much, Dr. Kissinger. Ladies and gentlemen, I have to agree with Dr. Kissinger that the House of Commons in my country sometimes gives the impression of an impending Civil War. Of course, in the House of Lords we behave in a much more civilised manner; indeed there is a classic story at home of the man who dreamt that he was making a speech in the House of Lords and woke up to find that he was. I don't think that Dr. Kissinger need have been concerned about the length of his address: conference arrangements, after all, should be flexible enough to take account of special opportunities like this and I find, as I'm sure most of you do, a very special aesthetic and intellectual pleasure in observing a fine mind at work on the pressing and sometimes intractable problems of international power.

Dr. Kissinger has, of course, had the added advantage of having had to apply some of his carefully involved insights to the practical problems as one of the, in my view at least, most outstanding statesmen of his time. We are, I think, very greatly in his debt for having created an especially profound dimension for our discussions today; a dimension, I think, which very few other contemporary political figures could begin to approach. I think that you would want me, on your behalf and certainly on my own, to thank him warmly for a unique experience. Thank you very much, Henry.

(Coffee Break)

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CHAIRMAN: I think we'll start the next session. Incidentally, perhaps I should mention that although Dr. Kissinger especially wanted to stay to hear the next address, he does have to leave for another appointment at 12.30, so he's asked me to say that he hopes you'll forgive him if he leaves immediately after the next speaker has delivered his main remarks and before question time begins.

Having had a broad global overview of the problems of Asia, we are now going to get down to discuss in three separate sessions the three main geographical areas. And we decided to start with the Indian sub-continent, South West Asia, as it is sometimes called. We've been fortunate enough to get Mr. Subrahmanyam from India to come and make the opening remarks on this subject. Mr. Subrahmanyam is Director of the Institute for Defence Studies and Analyses in New Delhi. He was in 1974 a member of the UN Secretary-General's expert panel on the Indian Ocean and he's also been a member of the Indian delegation to the special session on disarmament and the Seventh Non-Aligned Summit. He's a writer and speaker of some distinction and, in addition to contributing various articles on international affairs to specialist journals and newspapers, he has written a number of books, including an extremely important publication on the problems of India's nuclear policies called Nuclear Myths and Realities.

As I say, when Mr. Subrahmanyam has spoken he has agreed to answer some questions until it's time to break for lunch and I now have very much pleasure in calling upon Mr. Subrahmanyam to speak.

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