Yesterday I spoke of the political challenges facing us in foreign policy -- that we have a vast agenda ahead of us, that the world is poised on the brink of a new era of achievement or one of chaos, that America's role will be vital.

Our challenges in the economic field are no less urgent and important. Today I will discuss the international economic system and set forth a comprehensive American approach to the major issues at hand.

The paramount necessity of our time is the preservation of peace. But history has shown that international political stability requires international economic stability. Order cannot survive if economic arrangements are constantly

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buffeted by crisis or if they fail to meet the aspirations of
nations and peoples for progress.

The United States cannot be isolated, and never has
been isolated, from the international economy. We export
23 percent of our farm output and 8 percent of our manufactures.
We import far more raw materials than we export; oil from
abroad is critical to our welfare. American enterprise overseas
constitutes an economy the size of Japan's. America's prosperity
could not continue in a chaotic world economy.

Conversely, what the United States does -- or fails to do --
has an enormous impact on the rest of the world. With one third
of the output of the non-communist world, the American economy
is still the great engine of world prosperity. Our technology,

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our food, our resources, our managerial genius and financial
expertise, our experience of leadership, are unmatched.

Without us, there is no prospect of solution. When we are in
recession, it spreads; without American expansion, the world
economy tends to stagnate.

For thirty years, the modern economic system created
at the Bretton Woods Conference in 1944 has served us well.
Its basic goals -- open, equitable and expanding trade, the
stability and orderly adjustment of currencies, coordination
in combatting inflation and recession -- have largely been
achieved. World growth has surpassed any prior period of
history.

But the system is now under serious stress. It faces

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shortages and disputes over new issues, such as energy, raw materials, and food. And many of its fundamental premises are challenged by the nations of the developing world.

Obvious crises are the easiest to meet; the deepest challenges are those that emerge imperceptibly, that derive from fundamental changes which, if not addressed, portend upheavals in the future. The contemporary challenges to the world economic structure must be overcome, or we face not only an end to the growth of the last thirty years, but the shattering of the hopes of all of mankind for a better future. Our economic strength is unmistakable. What is tested now is our vision and our will -- and that of the other nations of the world.

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The Existing System
---

The international economic system has been built on these
central elements:

-- open and expanding trade;

-- free movement of investment capital and technology;

-- readily available supplies of raw materials; and

-- institutions and practices of international cooperation.

Within this framework, over the past quarter century,
the industrialized countries have maintained an almost continuous
record of economic growth. The developing countries have made
unprecedented advances, though their progress has been uneven.

After the experience of the 1930s, the postwar system
was designed -- with the United States playing a leading role --
to separate economic issues from political conflict and to

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subject them as much as possible to agreed multilateral
procedures. The rules were designed to restrain unilateral
actions that could cause economic injury to others.

The world's economic growth within this framework has
been simultaneously the cause and the result of growing
interdependence among nations. Revolutions in communication and
transportation have shrunk the planet. The global mobility of capital,
management and technology, and materials has facilitated the
growth of industry. World trade has encouraged specialization and
the efficient division of labor, which in turn have stimulated
further expansion. The recession and inflation of the last few
years -- which spread around the world -- have reminded us that
nations thrive or suffer together. No country -- not even the United States --

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can solve its economic problems in isolation.

Consciousness of interdependence has been most successfully
implemented among the industrialized countries. When the
energy crisis first hit us, the industrial countries agreed that
they would not resort to unilateral, restrictive trade measures
to make up the payments deficits caused by high oil prices. That
pledge was respected, and will be renewed this year. And last
fall, as the recession worsened, the President held a series of
conversations with German, Japanese, British and French leaders
to devise a coordinated strategy for economic recovery. These
policies have begun to bear fruit. The advanced industrialized
countries have understood the imperative of coordinating their
economic policies.

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As our economies now turn toward expansion, we
must ensure that our policies remain coordinated, particularly for the
control of inflation with its economic costs and attendant social
dangers.

Against this background of cohesion, the industrial
countries can act with renewed confidence across the entire range
of political, economic, and security issues. The annual Ministerial
meeting later this month of the Organization for Economic
Cooperation and Development is therefore of great significance.
This body, composed of the industrialized countries of North
America, Europe and Asia, will assess where we stand and
discuss even closer coordination and joint actions in economic
policies. Secretary Simon and I will represent the United States.

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The Challenge from the Developing World

Global interdependence is a reality. There is no alternative to international collaboration if growth is to be sustained. But the world economic structure is under increasing challenge from many countries which believe that it does not fairly meet their needs.

The challenge finds its most acute and articulate expression in the program advanced in the name of the so-called Third World. This calls for a totally new economic order, founded on ideology and national self-interest. It is stimulated by resentments over past exploitation and it is sustained by the view that the current system is loaded against the interests of developing countries. One of the central proposals is that prices of primary products

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should be set by international agreements at new high levels,
and then pegged to an index of world inflation. [ The objective,
as with the oil price increases, is a massive redistribution of
the world's wealth. ]

[ This challenge has many aspects. At one level, it is an
effort to make the availability of vital natural resources depend
on political decision, particularly with respect to energy, but
increasingly involving other materials as well. ]

[ More fundamentally,
it is a result of the new dispersion of economic power, among
developed and developing countries, that springs from the
unprecedented global economic expansion of the last thirty years. ]

The United States is prepared to study these views

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attentively. But we are convinced that the present economic
system has generally served the world well. We are prepared
to consider realistic proposals but we are convinced that
poorer nations benefit more from an expanding world economy,
than from redistributing a static amount of existing wealth.
History has proved that the prosperity of each nation requires
expansion of global prosperity. This should be the focus of our
efforts.

The United States is convinced that an international
dominated
system overshadowed by the rivalry of nations or blocs will
produce instability and confrontation. This will prove disastrous
to every nation -- but above all to the weakest and poorest.

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The United States therefore is committed to a cooperative approach. We recognize that an international order can be durable only if its members truly accept it. And while the participation of developing countries has increased, it is clear that the energy producers and the emerging nations in Latin America, Asia and Africa have believed themselves to be outside the system. We have a duty to warn against, and to resist, confrontation. But we are prepared to strengthen and expand the international economic system.

A serious concern must be the needs of the poorest. They have been the most grievously affected by the energy and food crises of the past two years. Their fate affects us morally as well as materially. Their prosperity would contribute to ours.

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And their participation in the global economy is required so that all nations, and not only the richest, have a stake in the world which we are building.

Let me now turn to the three most urgent challenges on the economic agenda: energy, food and primary commodities.

## Energy

It is in energy that the challenge to the economic system has been the most effective and has had the most severe impact.

For years the United States and other industrial countries built their prosperity on ever-increasing imports of inexpensive foreign oil. Now we see that both the price and availability of those supplies can be determined by decisions over which we have no influence. Our jobs, our output, our future prosperity are at risk.

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In response, at United States initiative, eighteen major
industrial countries undertook a joint program to coordinate our efforts in a common strategy.

Our first responsibility was to protect ourselves against
emergencies. We have to be prepared to deter the use of oil or
petrodollars as political weapons or to defend ourselves if we
are given no choice. To this end, we and our partners have
developed a comprehensive plan to build up oil stocks, coordinate
conservation measures and share available supplies in the event of
a new embargo. We have also agreed on a $25 billion "financial
safety net" to protect against the stresses of large oil deficits and
possible financial manipulation.

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The second objective of the strategy is to bring pressure on the oil price through the market. If we act decisively to reduce the consumption of imported oil and develop alternative sources, we will sharply reduce demand. The producers can restrict production to maintain high prices and allocate the cuts among them, but at some point the severe decrease in demand will become a burden on those countries who seek maximum revenue for development.

Accordingly, we and our partners first set joint conservation goals. We then reached preliminary agreement on a plan to stimulate alternative sources. The plan calls for cooperation in research and development, and a common minimum price mechanism to protect domestic alternative energy sources from competition from imported oil.

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The Ministers of the International Energy Agency meet
later this month to accelerate the common effort. We
shall propose ways to exploit our greatest asset -- our
technological capability and skill particularly in the development
of alternative energy sources.

In the end, the key to the international effort will be what America does. We use fully half of the industrial world's energy. If we bring our consumption under control, so will other industrial countries. Indeed, other countries are already ahead of us in adopting new taxes and other programs to curb energy use. But if we do not act now, while recession is holding down demand for oil, our vulnerability will grow again when our recovery gains momentum.

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The choice is clear: either we pass *now* an effective program of energy conservation and energy development, or we become dependent on foreign sources for half of our oil within a few years, and correspondingly vulnerable to political pressure or manipulation.

The Congress has before it President Ford's energy program. Its decision is therefore critical to our future well-being and that of the international economy.

Ultimately, producers and consumers of energy must develop a new and balanced relationship. A first attempt at dialogue at the Preparatory Meeting called by President Giscard d'Estaing in April, did not succeed.

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The United States wants to say now that it is prepared
to attend a new Preparatory Meeting. We believe that the
meeting should be prepared through bilateral contacts
between the consumers and producers. The United States will
initiate such contacts with its partners in the IEA, with the
Government of France, and with the producers. Our own thinking
on the issue of raw materials, and the manner in which it can
be addressed internationally has moved forward. We can thus
resume the dialogue in a new atmosphere.

Let me now turn to the issue of raw materials.

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Commodities

The threat to our national security from a disruption in supplies of most raw materials is limited. We depend on imported raw materials for only fifteen percent of our total needs; only three percent of our raw materials are imported from developing countries.

But we do have a concern for a flourishing world economy. In raw materials interdependence is as real as in energy. There exist common interests in a reliable and flourishing trade on mutually beneficial terms. It is in our interest, because the growth of the other industrial nations will increasingly depend on raw material imports, and because our growth depends on a healthy world economy. It is in the interest of developing countries, because their exports are

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often the principal source of development financing. It is in the
interest of the world community, because the poorer countries
can gain a sense of responsibility and participation only from the
sense that their concerns are taken seriously.

The United States is aware of the dependence of many
countries on their earnings from a single commodity. It is
legitimate and reasonable that they should seek a reliable, long-
term stable source of earned income for their development.

However, we do not believe that tying commodity prices to a
world index of inflation is the best solution.

First, price indexing would strengthen those least in need
of help because most raw materials production still takes place in
the industrial countries. And price indexing would harm those
most in need of help because the poorest, most populous states are

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net importers of raw materials. Finally such a scheme would
introduce artificial rigidities which is likely to result in mis-
allocation of resources and scarce capital and under-utilization
of needed productive capacity in many parts of the world.

We are prepared to discuss these issues in a cooperative
spirit. We understand that development of many mineral resources
is becoming increasingly dependent on heavy capital investment.

The efficient development of lower-grade ores now demands
sophisticated technology and very large-scale operations. We
recognize that excessive swings in commodity markets entail heavy,
perhaps growing costs. In periods of slack demand, substantial
excess capacity often appears. In periods of tight demand, sky-
rocketing prices force costly adjustments in manufacturing processes
and pricing. We realize that the role of private capital, which

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traditionally has been responsible for development of most
overseas minerals, is being increasingly challenged on
political grounds.

To deal with these issues, the United States will adopt
the following approach:

-- First, since both producers and consumers want a
more reliable basis to do business, we will propose
that the Multilateral Trade Negotiations now underway in
Geneva develop new rules and procedures on such questions
as freer access to supplies and markets, promotion of
mining and processing industries, and settlement of disputes.

-- Secondly, we are prepared to discuss new arrangements
in individual commodities, on a case-by-case basis as
circumstances warrant.

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-- Thirdly, we will propose that the World Bank explore new ways of financing raw material investment in producing countries. We are particularly interested in exploring new ways of mobilizing capital and bringing it together with outside management and skills.

It is clear that both producers and consumers have much to gain from the settlement of the disputes over raw materials.

It is also clear that these issues are becoming of fundamental importance to the world's economic -- and political -- future. They have been brought to the center stage of world diplomacy. They represent an area of potential division. But they also contain the possibility of a new and challenging area of international cooperation.

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An important first step will be to consider our approach together with other industrial nations. Other industrialized countries, the United Kingdom in particular, have advanced a number of proposals to this end. Raw materials policy will be a primary focus of the upcoming OECD Ministerial, and we expect the OECD to undertake a major study of the issue. We are prepared to participate in such an activity.

The United States is prepared to deal with the raw materials question with economic realism, political imagination and understanding for the concerns of the developing world.

## Food

Let me turn now to another issue on which international action has already begun -- and must now be accelerated. This is the problem of food.

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Last November the World Food Conference was convened in Rome at American initiative. On behalf of President Ford, I announced a proposal for a long-term international effort to eliminate the scourge of hunger. For we regard our good fortune and strength in the field of food as a global trust. We recognize the responsibilities we bear by virtue of our extraordinary productivity, our advanced technology, and our tradition of assistance. And we are convinced that the global response will have an important influence on the nature of the world that our children inherit.

The Rome Conference reached basic agreement on a comprehensive program in basic areas: expanding the food production of the major producers; accelerating production in the developing countries; improving the means of food

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distribution and financing; enhancing the nutritional quality
of food production; and developing a system of reserves to
ensure against food emergencies. A framework for inter-
national cooperation was established.

Fortunately, good crops this year will ease food supply
problems. But we cannot let this lull us into complacency
about the longer term. We cannot escape the reality that the
world's total requirements for food are growing dramatically,
not easing. The current gap between what developing countries
produce themselves and what they need is about 25 million
tons; at present rates of growth, the gap is expected to double
or triple ten years from now. There is no escape from the
world's duty to deal with the problem of hunger with urgency.

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To maintain the momentum begun at Rome, action is
needed now in three areas:

First, for the short-term, until a major expansion
of world production is brought about, food aid will continue to be
vital. The United States sees this as a responsibility not
only of major food producers, but of all financially capable
nations. The United States has provided more than four million
tons of food aid in all but one of the 20 years of our food aid
program. We will do our utmost to maintain this standard of
performance.

Secondly, food aid can only be a stop-gap measure.
The long-term solution will require that world food production
be increased to its full potential. Food production in the
developing countries can draw on a great deal of underutilized

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land resources. American assistance will henceforth place
primary emphasis on research, fertilizers, better storage,
transport, and pest control. We shall concentrate our aid
capital in this sector of economic development.

Third, we must meet emergency shortages and protect
world supplies in the face of crop failures and other catastrophes.

To do so, we have proposed an international system of

nationally-held *grain reserves*. We must start now to build

them.

Let me discuss this issue of reserves more fully.

Before 1972, the world had come to depend upon a

few major producers, particularly the United States,

to maintain the necessary grain reserves. Now, after three

years of shortages and emergencies, adequate reserves no

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longer exist. The United States has therefore removed all governmental restraints on production. Our farmers have gone all-out to maximize their output. The world must take advantage of better crops this year to reconstitute stocks. But this is not enough.

In meetings later this month, the United States will formally propose a comprehensive international system of reserves, based on the following principles:

- Total world reserves must be large enough to meet potential shortfalls in food grains production.

- Grain exporters and importers should agree on a fair allocation of reserve holdings, taking into account wealth, grain productive capacity and trade.

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-- There should be agreed international rules or guidelines to encourage members to build up reserves in times of good harvest.

-- Each participating country should be free to determine how its reserves will be maintained, and what incentives to provide for their build-up, holding, and draw-downs.

-- Rules or guidelines should be agreed in advance for the draw-down of reserve, triggered by short-falls in world production. There must be a clear presumption that all members would make reserves available when needed, and, conversely that reserves would not be released prematurely or excessively and thus unnecessarily depress market prices.

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-- In times of shortage, the system must assure access to supplies for countries that participate in it, and there must be special provision to meet the needs of the poorest developing countries.

-- Finally the system must encourage expanded and liberalized trade in grains.

The United States is prepared to hold an important part of an agreed level of world reserves. If others join us in negotiating such a system, the outline of an international reserves agreement can be completed before the end of the year.

Conclusion:

These are the problems of the economic structure.
They represent, in their scope and implications, a basic challenge
to the economic system of the past generation and a basic

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test of the world's political future. They have become one of
the central concerns of our diplomacy.

The present international economic system has served
the world well. Future prosperity in this United States and
throughout the globe, depends on its continued good performance.
We are prepared to engage in a constructive dialogue and to
work cooperatively on the great economic issues. We must not,
however, accept imprudent reforms, however forcefully
argued. Rather we must act to strengthen the international
economic system in areas where it does not function well.

The issues are not technical; they go to the heart of the
problem of international order: whether the major industrial
nations and the developing nations can resolve their problems

cooperatively, or whether we are headed for an era in which
economic problems and political challenges are solved by
tests of strength. Will the world face up to the imperative of
its interdependence? Or will it be engulfed in contests of nations
or blocs?

The role which the United States takes will be crucial.

Will we fulfill our responsibility of leadership? If we know

our own interest, we will.

For the United States still represents the single
greatest concentration of economic wealth and power to be
found on the planet. But what is asked of us now most of all
is not our resources but our vision and will.

The American people have always believed in a world
of cooperation rather than force, of negotiation rather than

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confrontation, and of fulfillment of the aspirations of peoples
for progress and justice. Such a world will never come about
without our active contribution. The opportunities open to us
are immense, if we have the courage and faith to seize them.

We have a stake in the world's success. It will be our
own success. If we respond now to the challenge with the
vision and determination that the world has come to expect
from America, our children will look back upon this period
as the beginning of America's greatest triumphs.

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equitable prices. We in turn seek reliable
supplies. We are prepared to discuss these
questions in appropriate forums.

-- On the law of the sea, we shall press for a
successful outcome in the interest of security,
prosperity, and peace.

-- On food policy, the United States will strive to eliminate the scourge of hunger from the world and turn this effort into a model of cooperation for the other global issues of an interdependent world.

We shall soon make specific proposals in all these fields.

## The Domestic Dimension

We thus face a great opportunity. Only rarely in

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history does a people have the possibility to shape its
international environment. We are at such a juncture. [And
the greatest obstacle--paradoxically--is not resistance
abroad but division within our country.]

Thirty years ago last week the greatest war ever
fought by man came to a close in Europe. It took the lives
of more than 16 million human beings, left millions more
homeless and destitute, and virtually destroyed the
institutional fabric of victor and vanquished alike. Had it
not been for the farsighted involvement of the United States
in the aftermath of that struggle it is doubtful that democracy
or prosperity would yet have returned to Western Europe.
But we gave mightily of our substance in the hope that the
generations to come would never again have to live through

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the agony and torment inflicted on the world in that struggle.

A later generation of Americans learned of the limits
to what even we can accomplish; that not every struggle
anywhere in the world is necessarily one in which the United
States must involve itself; that not every injustice man
inflicts upon his neighbor is something that America must
or can seek to remedy.

There are lessons to be learned from both experiences.
The question is whether we will learn from both, or take our
most recent experience too literally and, in the process,
forget what the agony of a generation ago taught us
unmistakably.

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We came out of World War II a united people, secure
in our belief that our cause was just, our purposes benign.

We have come out of Vietnam a divided nation, full of
distrust -- and sometimes even malice -- for our fellow
countrymen, and lacking confidence in the goodness of
our design.

It is time -- indeed it is more than time -- for us
to put a stop to this self-doubt and self-punishment.

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It is time to remind ourselves that we still live in
the greatest nation on earth; that nowhere has any nation
come so close to the ideals of liberty; that others throughout
the world still look to us and depend upon us to lead them
to a better, freer and more secure life.

It is a time to recognize that we cannot exist apart
from the world around us, no matter how much we may
wish it. A world imperiled by nuclear weapons forbids
it; the reality of an interdependent world renders it
self-destructive. We cannot compensate for a cult of
action for its own sake by indulging in a cult of withdrawal
for its own sake. Withdrawal in any event will give us
no respite; it will be an invitation to new burdens.

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So it is time that the Executive and Legislative branches
of the Government put an end to the divisiveness and distrust
that has come to characterize their relationship.

We do not ask that the Congress rubberstamp everything
the Executive puts before it -- the advice and consent of
the Congress is essential for any sustained policy. We
have started new procedures of consultation and are
prepared for new approaches to obtain advice. And we
recognize that many difficulties have resulted from previous
excesses by the Executive Branch. Nevertheless a
deleniation of responsibilities is now in the interest of
both branches. If the Congress moves from supervision
to implementation, if it goes from the setting of guidelines

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to the insistence on tactics, if the legislative process is
turned into a series of prescriptions of individual moves,
our foreign policy will eventually be deprived of consistency,
direction, strength and flexibility.

The Constitutional separation of powers is a concept
that has served us well for almost 200 years. But our
government can work and our nation can act only when
each branch is prepared to exercise restraint. Without
this cooperation, stagnation is inevitable. It is no
exaggeration to say that a possible paralysis of leadership
in America is the greatest fear today of all those who look
to us for international leadership around the world.

We can have no higher national priority than to
restore our unity. If we are mired in cynicism, recrimination

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and immobility, we will add to the doubts of our friends,
and to the temptations of our adversaries to take chances
with the peace of the world.

In the months ahead we must demonstrate that we still
are confident of our purposes; that we remain a strong,
energetic and united people; that we continue to be dedicated
to helping other nations help themselves; that we remain
faithful to our treaty commitments; that we are concerned
for the future of the world because we know it will
determine our own future.

Let us never forget that by any measurement, we
have given more in the last thirty years than any other
nation in history. We have successfully resisted

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serious threats to world order from those who wished
to change it in ways that would have involved unacceptable
consequences for democratic governments. We have provided
more economic assistance to others than any other
country. We have contributed more food, educated
more people from other lands, and welcomed more
immigrants. We have done so not only out of a generous
spirit -- though we should not apologize for this trait --
but above all because the American people, after more
than a century of isolation, had learned that assistance
to others is not a gift to be given, but a service to be
rendered for international stability and our own self-interest.