- 45 -

For our own sake and that of the rest of mankind

let us now make sure that this lesson does not have to be

learned again. And in that case we will usher in a period

of progress and peace for which future generations

will be grateful.

DRAFT IV

May 12, 1975

STRENGTHENING THE WORLD ECONOMIC STRUCTURE

Kansas City, May 13, 1975

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

- 4 -

is unmistakable. ~~But~~ what is tested now is our vision
and our will -- and that of the other nations of the
contemporary
world. These challenges 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 millions for a better
future, and not only in the rest of the world, but on
this continent as well.

Thus America's foreign and domestic economic
interests greatly coincide. The main agencies of our
Government are all concerned. And Secretary Simon,
Secretary Butz and I have worked closely together on
the ideas and proposals that the President has asked
me to discuss today.

## The Existing System

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

- 5 -

- 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, as a group and in many individual cases, 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 subject them as much as

- 6 -

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 -- can solve its economic problems in isolation.

- 8 -

As our economies now turn toward expansion, we
must ensure that our ~~expansion 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.

The Challenge from the Developing World

Global interdependence is a reality. International collaboration

- 11 -

[YD]

An international system dominated by the rivalry of nations or blocs will become a system of instability and confrontation. This will prove disastrous to every nation -- but above all to the weakest and poorest.

The United States therefore is committed to a cooperative approach. We recognize that an international order will be durable only if its members truly accept it as just. And while the participation of developing countries has increased, it is clear that the system must be further strengthened and expanded. For the nature of energy producers and the emerging powers 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 for the world's political and economic health, the global system must embrace all of mankind.

- 16 -

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.

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 decision *now* before the Congress of President Ford's energy program, 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

- 22 -

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 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. It represents a new and undeveloped area
of international cooperation, and also an area of potential
division. An important first step will be to consider our
approach together with other industrial nations. Other countries,
countries, the United Kingdom in particular, have advanced
to this end a number of proposals. Raw materials policy will be a primary

- 23 -

focus of the upcoming OECD Ministerial, and we expect the
OECD to undertake a major study of the issue. The United
States is prepared to deal with the raw materials question
with economic pragmatism, political imagination and
understanding for the concerns of the developing world.

- 24 -

Food

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

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 extra-
ordinary 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

- 26 - 27

expected to double or triple ten years from now. There
is no escape from the world's duty to address this
~~K~~ problem with urgency.

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.~~
performance as our contribution.

Secondly, food aid can only be a stop-gap measure.
The long-term solution will require ~~world food production~~

- 28 -

to be increased to its full potential. American assistance will henceforth place primary emphasis on promoting food production in the developing countries, for they have the greatest potential for expansion, in terms of underutilized land and resources. Research, fertilizers; on a great deal of modernized lend'morals, we shall better storage, transport, and pest control, and concentration of aid capital in this sector of economic development. All of these are important elements of our strategy.

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, now.

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,

- 29 -

to maintain the necessary grain reserves. Now, after
three years of shortages and emergencies, adequate
reserves no longer exist. The United States, as you know, 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 foreseeable shortfalls in food grains production.

- Grain exporters and importers should agree on a fair allocation of reserve holdings, taking

- 30 -

into account wealth, grain productive capacity
and trade.

-- 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 drawdown of reserves, triggered by
shortfalls 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.

- 33 -

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. Our technology, our food, our resources, our managerial genius and financial expertise,

- 34 -

our experience of leadership, are unmatched. Without
us, there is no prospect of solution. But what is asked
of us now most of all is not our resources but our vision
and will.

The opportunities open to us are immense, if
we have the courage and faith to seize them. But
we can only face them as a united people. When other
nations look to us, they see one nation. When they
look to Washington they see one government.

The American people have always believed in a
world of cooperation rather than force, of negotiation
rather than confrontation, and of fulfillment of the
aspirations of peoples for progress and justice. Such
a world will never come about without our active
contribution.

- 35 -

The American people and the Congress will not be
diverted from these ideals by temporary setbacks.

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.

Draft III

May 11, 1975

Kansas City, May 13, 1975

For a generation, Americans have understood that
this country's efforts are needed to maintain global
peace and stability. For a generation, Americans have
understood that America's prosperity is inseparable from
a thriving world economy. Together with our friends
we have built institutions which have maintained
international security and progress for thirty years.
And our international effort has preserved both American
lives and American jobs.

These goals have been pursued by every President,
every Administration of both national parties, since
1945. They reflected the consensus of the public,
the Congress, and civic leaders and institutions in
and out of government.

- 2 -

This national unity was our most priceless
national resource. It was the essential foundation
of our achievements. It must be restored.

In the wake of recent events, the world -- friend
and foe -- looks to us now to see our response.

Questions have been raised about this nation's constancy,
will, and reliability. We are being tested in a world
that is vastly different from the world of a generation
ago. There is a new world order in the making, as yet
unformed. This is our greatest challenge -- to help
shape that order and thus help shape our own future.

A stable world order depends very much upon
America. America's reliability -- that is, the sum
total of our actions and policies over time -- is decisive
for the security and progress of the world. For if
America's constancy and contribution as a buttress of
peace and progress give way to vacillation and indecision,

- 3 -

we will become, because we are so powerful, a major
source of instability.

Today I want to discuss a dimension of the world order
which requires our urgent concern -- the international
economic system. The success of our foreign policy
depends critically on how well that system works. The
paramount necessity of our time is the preservation of
peace. But international political stability requires
that economic arrangements are generally considered just.
International order cannot survive if economic arrange-
ments are constantly buffeted by crises, or if they fail
to yield the growth needed to meet national aspirations.

Nor can the United States stand aloof from, or
ignore, the international economic world. We export 23
percent of our farm output. We export 16 percent of our
manufactures. We import far more raw materials than we
export. Oil from abroad plays a critical part in our
economy. Our investments overseas equal an economy the

- 4 -

size of Japan's. America's prosperity cannot continue
in a hostile or chaotic world economic order.

Conversely, what the United States does -- or
fails to do -- has a vital impact on international
economic health. With ____ percent of the output of
the non-communist world, the American economy is still
the great engine of world prosperity. When we are in
recession, few others can escape a downturn in their
own economies. When we expand, the whole world expands
with us.

For 30 years, since the main monetary and trading
institutions of the international economic system were
created at Bretton Woods in 1944, the system has served
us well. World-wide economic growth has been greater
than in any previous period. The basis elements of
stable economic relations -- the prevention of trade
protectionism, the adjustment of currencies, the
moderation of inflation and recession -- have been achieved.

- 5 -

But the system is now under serious challenge by
the developing countries, and has proved less than effec-
tive in areas such as energy, raw materials, and food.

The fact that the system has been successful for
thirty years, the fact that its problems are thus far
confined to a relatively small range of issues, should
not blind us to the need for action. Obvious crises
are the easiest to deal with; the deepest challenges
are those that are unperceived until too late; those
that derive from fundamental changes taking place
without visible crisis.

There is widespread agreement that if the inter-
national economic system does not provide its members
with supplies of energy, other raw materials and food
on terms acceptable to both producers and consumers, it
cannot survive as we now know it. And with the collapse
of that system the world would return to the economic
autarky of the past, the depressive effects of shrinking

- 6 -

international trade and investment, and the ideological
conflicts that marked the 1930's.

In international economic policy our foreign and
domestic interests join. The main agencies of our
Government: Treasury, Agriculture, and State, have
been working together on these problems, and have
participated in formulating the proposals I will put
forward ~~tonight.~~
to-day

- 7 -

2: The Existing System

The international economic system established
in the immediate postwar period has served the free
countries well. It is built on these central elements:

-- open and expanding trade;

-- free movement of investment capital and
technology;

-- abundant supplies of raw materials at
equitable prices, to sustain an expanding
global economy; and

-- a structure of institutions and practices of
international cooperation.

In this system, over the past quarter century, the
world had enjoyed a rate of economic expansion and
prosperity unparalleled in history. The industrialized
countries have maintained an almost continuous record of
economic growth. Progress in the developing countries
has been uneven, but as a group and in many individual
cases, they too have made unprecedented advances.

After the bitter experience of world depression
and economic nationalism in the 1930s, the postwar
economic system was designed with the United States
playing a leading role, It was agreed to separate
economic issues from political conflict and to subject

- 8 -

them as much as possible to agreed multilateral rules
and institutionalized procedures. The rules of the
system were designed to limit 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 has stimulated the growth of industry. World
trade has increased specialization and the efficiency of
allocation of the factors of production, which in turn
has stimulated further economic expansion. The
recession and inflation of the last few years -- which
spread around the world -- have reminded us that the
world's nations thrive or suffer together. No nation --
not even the United States -- can solve its economic
problems in isolation. It has been learned in good times
and bad that international institutions and international
cooperation have served the common prosperity.

Consciousness of interdependence has been most
pronounced and most successful among the industrialized
countries. They have understood the imperative of
coordinating their economic policies. When the energy

- 9 -

crisis broke out, the industrial countries met to
pledge that no one of them would resort to unilateral,
restrictive trade measures in an effort to cover 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 in order to plot a common
strategy aimed at speeding economic recovery. These
policies have begun to bear fruit in all industrialized
countries as our economies now turn toward expansion.

The industrial nations must now turn to a new
task -- the coordination of expansion in their economies.
The absorption of unemployment and the return of sustained
high growth must be primary goals. So must be the control
of inflation, which has become the main cause of social
conflict within the industrialized economies. At the same time,
we must avoid an excessive synchronization of our
separate expansion. For it was because the industrial
economies all went into a boom at once in 1974 that there
was the great inflation of that year, setting off wild
commodity price increases, and triggering the recession
that followed.

- 10 -

We expect that this cohesion will enable the industrial countries, as they emerge from recession, to 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. The United States will put forward its own assessment and its own recommendations for the future of the world economy.

But despite the objective fact of global interdependence and the resulting imperative of collaboration, the international system is under continuing challenge.

## The Challenge from the Developing World

The challenge finds its most acute and articulate expression in the program advanced in the name of the so-called Third World. This program seeks on the grounds of ideology and national self-interest, redistribution of the world's wealth. It demands that prices of primary products be set by international agreements at new high levels, and then escalated

- 11 -

according to an index of world inflation. The
objective, as with the oil price increases, would
be a massive redistribution of the world's wealth.

This challenge to the system takes many forms:

-- On the surface, it is a problem of the
uncertainty of the availability of vital
natural resources, particularly energy
and food, but increasingly other materials
as well.

-- More fundamentally, it is a result of the
new dispersion of economic power, among
developed and developing, that is the
result of the unprecedented global economic
expansion of the last thirty years. The
strength of the most dynamic of the
developing countries was real even before
it was asserted; it cannot now be ignored.

Whatever doctrines of nationalism and economic
determinism inherited from the nineteenth century may
teach, the fact of the modern world is that an attempt
to redistribute existing wealth without fostering global
growth will retard the progress of all. Indeed, history

- 12 -

has proved that it is only in the expansion of global
prosperity that the prosperity of each can be achieved.

An international system dominated by the rivalry
of nations or blocs will become a system of instability
and confrontation, which will prove disastrous to every
nation -- but above all to the weakest and poorest.

This is why the United States is committed to a
cooperative approach. We recognize that an international
order will be durable only if its members truly accept
it as just. The economic system of the past thirty
years must be strengthened and broadened to include those
who believe themselves to be outside it. This includes
especially the energy producers and the emerging powers
in world trade in Latin America, Asia and Africa. We
have a duty to warn against and to resist confrontation.
But for the world's political and economic health we
must also extend it to embrace all of mankind.

A principal concern must be the needs of the
poorest. They have been the most seriously affected
by the energy and food crises of the past two years.
Their fate must affect us morally as well as materially.
Their prosperity would contribute to ours. And their
flourishing and their participation in the global

- 13 -

economy is the assurance that all nations, and not
only the richest, have a stake in the world which
we are building.

The challenge to the economic system is most
apparent in the fields of energy, food and primary
commodities. Let me discuss each in turn.

## Energy

It is in energy that the challenge has been most
effective -- and most dangerous for global prosperity.

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 political decisions over which we
have no influence. The oil embargo and OPEC price
rise in 1973 are estimated to have cost Americans half
a million jobs and over $20 billion in national output,
and contributed at least five percentage points to the
worst inflation since the Second World War.

In response, we and 17 other industrial countries
have joined in a three point strategy:

- The first phase was to protect against emergencies. We have to be prepared to deter the use of oil or petro dollars as political weapons and, if that fails, to

- 14 -

defend against them. To do this, we and
our partners have developed a cooperative
plan to build up oil stocks, take joint
conservation measures and share available
supplies in the event of a new oil 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 by oil producers.

-- The second phase is to transform the market conditions for OPEC oil. If we act decisively to reduce our consumption of imported oil and develop alternative sources, pressure to reduce oil prices will increase. To do this, we and our partners first set joint conservation goals. We then reached preliminary agreement on a plan to stimulate the development of alternative sources through adoption of a common minimum protected price below which domestic energy industries would not face competition from imported oil. This measure is designed both to protect new energy investment and to equalize, to the degree possible, the burden of new energy development among industrial countries.

Explain how from previous general distribution it is etc.

- 15 -

The third phase is to attempt to reach agreement with the producers on a new system to govern prices, market conditions, and financial and investment relationships. A first attempt, at the Paris Preparatory Meeting of producers and consumers, failed because it proved impossible to establish an appropriate link between energy and other raw materials, and because the oil producers and other developing countries adopted an ideological approach. But renewed efforts to start the dialogue with the producers will be made and, I am confident, will succeed.

The development of this strategy, the speed with which its implementation has begun, and the cooperation within the 18 country International Energy Agency represents one of the important achievements of the postwar period.

The Ministers of the International Energy Agency meet later this month to accelerate work on their alternative sources policy, to give a new impulse to R & D cooperation; and to seek new ways to develop the dialogue with producers.

In the end, the key 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

- 16 -

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
firmly now while recession is holding down demand
for oil, our vulnerability will grow again when
consumption increases as our recovery gains momentum.
We face a simple choice: either we pass *now* a tough
effective program of energy conservation and energy
development, or we become dependent on foreign sources
for 50% of our energy within ten years and correspondingly
vulnerable to political pressure or manipulation of a
central element of the price structure of the American
economy.

The United States, unlike most other nations, has
a hopeful alternative With our resources and our
technological skill, we have the great potential for
the development of domestic and alternative energy
sources. If we move strongly to develop that potential,
others will join us.

The decision now before the Congress on our
energy program is therefore critical to our future
well-being and that of the international economy.
If we fail to act, the viability both of our own
economy and the economies of the industrialized
countries will remain at risk. Whether our economy
can function will depend on decisions taken far away.

- 18 -

COMMODITIES

THE CHALLENGE TO THE INTERNATIONAL ECONOMIC
SYSTEM NOW EMBRACES NOT ONLY OIL BUT RAW MATERIALS
IN GENERAL.

IN CONTRAST TO OIL, 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 15 PERCENT OF OUR TOTAL NEEDS AND
ONLY 3 PERCENT OF OUR RAW MATERIALS ARE IMPORTED FROM
DEVELOPING COUNTRIES. BUT THE FAILURE TO RESOLVE
OUTSTANDING COMMODITY PROBLEMS THREATENS US IN THE
SHORT RUN WITH PRICE GOUGING, AND INVESTMENT DISPUTES.
AND WE CANNOT INSIST ON REASONABLE OIL PRICES, YET
MAINTAIN INSISTENCE ON RAW MATERIAL PRICES CONSIDERED
UNJUST BY PRODUCERS.

IN RAW MATERIALS, AS IN ENERGY, THERE IS AN
UNMISTAKABLE COMMON INTEREST IN A RELIABLE AND

- 19 -

FLOURISHING TRADE ON MUTUALLY BENEFICIAL TERMS. IT
IS IN OUR INTEREST, BECAUSE THE GROWTH OF INDUSTRIAL
NATIONS DEPENDS ON INCREASING RAW MATERIAL IMPORTS.

IT IS IN THE INTEREST OF DEVELOPING COUNTRIES, BE-
CAUSE THEIR RAW MATERIAL EXPORTS ARE OFTEN THE
PRINCIPAL SOURCE OF FINANCING FOR THEIR DEVELOPMENT.

IT IS IN THE INTEREST OF THE WORLD COMMUNITY BECAUSE
ONLY BY A SERIOUS DISCUSSION OF THEIR CONCERNS CAN
THE POORER COUNTRIES GAIN A SENSE OF RESPONSIBILITY
AND PARTICIPATION.

THE FACT THAT GROWTH HAS BEEN UNEVEN IN THE
PAST SHOULD NOT CONCEAL THE FACT THAT THE DEVELOPING
COUNTRIES AS A WHOLE HAVE INCREASED THEIR TOTAL SHARE
OF WORLD OUTPUT. WE DO NOT BELIEVE THAT A PROGRAM
OF RELATING COMMODITY PRICES TO A WORLD INDEX OF
INFLATION WOULD SOLVE THE PROBLEM.

-- FIRST, BECAUSE MOST RAW MATERIALS PRODUCTION

- 20 -

STILL TAKES PLACE IN SUCH INDUSTRIAL COUNTRIES,
AS CANADA, AUSTRALIA, THE UNITED STATES,
AND THE SOVIET UNION, PRICE INDEXING WOULD
ONLY STRENGTHEN THOSE LEAST IN NEED OF HELP.

-- SECOND, BECAUSE THE POOREST, MOST POPULOUS
STATES SUCH AS THOSE ON THE INDIAN SUBCON-
TINENT ARE NET IMPORTERS OF RAW MATERIALS,
PRICE INDEXING WOULD HARM THOSE MOST IN
NEED OF HELP.

-- THIRD, SUCH A SCHEME WOULD INTRODUCE ARTIFICAL
RIGIDITIES WHICH CAN ONLY RESULT IN MISALLO-
CATION OF RESOURCES AND SCARCE CAPITAL AND
UNDER-UTILIZATION OF NEEDED PRODUCTIVE CAPACITY
IN MANY PARTS OF THE WORLD.

AT THE SAME TIME, THE UNITED STATES IS AWARE
OF THE DEPENDENCE OF MANY COUNTRIES ON THEIR EARNINGS
FROM A SINGLE COMMODITY. IT IS LEGITIMATE FOR THEM

- 21 -

TO BE CONCERNED ABOUT A RELIABLE, LONG-TERM SOURCE
OF EARNED INCOME FOR THEIR DEVELOPMENT. WE ARE
PREPARED TO DISCUSS THESE ISSUES IN A COOPERATIVE
SPIRIT, FOR THERE ARE MUTUAL INTERESTS INVOLVED:

-- THE INCREASING CAPITAL REQUIREMENTS FOR
MANY MINERAL RESOURCES. THE EFFICIENT
DEVELOPMENT OF LOWER-GRADE ORES NOW
DEMANDS SOPHISTICATED TECHNOLOGY AND VERY
LARGE-SCALE OPERATIONS. AND THE LEAD TIME
FOR MANY MINERAL INVESTMENT PROJECTS HAS
INCREASED GREATLY;

-- THE HEAVY (AND PERHAPS GROWING) COST OF
COMMODITY CYCLES. IN PERIODS OF SLACK
DEMAND, SUBSTANTIAL EXCESS CAPACITY OFTEN
APPEARS. IN PERIODS OF TIGHT DEMAND, SKY-
ROCKETING PRICES CAUSE COSTLY ADJUSTMENTS
IN MANUFACTURING PROCESSES AND PRICING; AND

- 22 -

-- THE ROLE OF PRIVATE CAPITAL, WHICH TRADITIONALLY HAS BEEN RESPONSIBLE FOR DEVELOPMENT OF MOST OVERSEAS MINERALS, IS BECOMING INCREASINGLY CHALLENGED ON POLITICAL GROUNDS.

# TO MEET THESE PROBLEMS, THE UNITED STATES WILL ADOPT THE FOLLOWING APPROACH:

-- FIRST, SINCE BOTH PRODUCERS AND CONSUMERS WANT A MORE RELIABLE AND PREDICTABLE MARKET, 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 IN THESE COUNTRIES, AND SETTLEMENT OF DISPUTES.

-- SECONDLY, RECOGNIZING THE ECONOMIC COST OF WIDE PRICE FLUCTUATION TO BOTH PRODUCERS AND CONSUMERS, WE ARE PREPARED TO CONSIDER

- 23 -

[Y]

AND DISCUSS WHETHER CIRCUMSTANCES WARRANT NEW ARRANGEMENTS IN INDIVIDUAL COMMODITIES, ON A CASE-BY-CASE BASIS.

-- THIRDLY, RECOGNIZING THE IMPORTANCE OF growth in GRAINS-AND RAW MATERIAL PRODUCTION TO BOTH PRODUCERS AND CONSUMERS, WE WILL PROPOSE THAT THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT EXPLORE NEW WAYS OF FINANCING NEW RAW MATERIAL INVESTMENT IN PRODUCING COUNTRIES. WE ARE PARTICULARLY INTERESTED IN EXPLORING NEW WAYS FOR MOBILIZING CAPITAL AND BRINGING IT TOGETHER WITH OUTSIDE MANAGE-AND SKILLS.

IT IS CLEAR THAT BOTH PRODUCERS AND CONSUMERS
HAVE MUCH TO GAIN FROM AMICABLE SETTLEMENT OF THE
DISPUTES OVER RAW MATERIALS. IT IS ALSO CLEAR THAT
THESE ISSUES ARE BECOMING OF FUNDAMENTAL IMPORTANCE

- 24 -

TO THE WORLD'S ECONOMIC -- AND POLITICAL -- FUTURE.

THEY HAVE BEEN BROUGHT TO THE CENTER STAGE OF WORLD
DIPLOMACY -- AT THE RECENT PREPARATORY CONFERENCE
IN PARIS, AT SPECIAL SESSION OF THE UN GENERAL ASSEMBLY
LAST YEAR AND AT A FORTHCOMING SPECIAL SESSION THIS
SEPTEMBER. IF REPRESENTS A NEW AND UNDEVELOPED AREA
OF INTERNATIONAL COOPERATION -- AND ALSO AN AREA
OF POTENTIAL DIVISION. WE MUST NOW DEAL WITH RAW

MATERIALS WITH BOTH ECONOMIC PRAGMATISM AND POLITICAL
IMAGINATION, and understanding for
the concerns of the developing world

- 25 -

Food

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

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. I said: "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. That is why we
proposed this conference. That is why a Secretary of
State is giving this address. The United States will
make a major effort to match its capacity to the
magnitude of the challenge. We are convinced that the

- 26 -

collective response will have an important influence
on the nature of the world that our children inherit.

"As we move toward the next century the nations assembled here must begin to fashion a global conception. For we are irreversibly linked to each other -- by interdependent economies and human aspirations, by instant communications and nuclear peril. The contemporary agenda of energy, food and inflation exceeds the capacity of any single government, or even of a few governments together, to resolve."

The United States set forth a comprehensive program
in five basic areas: expanding the food production
of the major producers; accelerating production in the
developing countries; improving the means of food
distribution and financing; enhancing the nutritional
quality of food production; and developing a system
of reserves to ensure against food emergencies. The

- 27 -

Rome Conference reached basic agreement and a framework
for international cooperation was established.

Through good fortune, good crops last year and this
year will ease food supply problems everywhere. We
hope for continued favorable weather and crops next year.
But we cannot let this lull us into complacency about the
longer term. For the reality is that the world's total
requirements for food are growing dramatically, not
easing. The present 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
widen to 85 million tons ten years from now. There is
no escape from the world's duty to address this problem
with urgency.

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

- 28 -

-- 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 cooperative 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 performance as part of our contribution to food aid needs.

-- Secondly, food aid can only be a stop gap measure. The long-term solution will require world food _production_ to be increased to its full potential. American assistance will henceforth place primary emphasis on promoting

- 29 -

food production in the developing countries.

Indeed, it is the developing countries that have the greatest potential for expanding production, in terms of under-utilized land and resources. New methods from research, expanded production and use of fertilizers, better methods of storage, transport, and pest control, and concentration of aid capital in this sector of economic development, are crucial elements of our strategy.

Third, there is the problem of crop failures and natural catastrophes. For protection against these food emergencies, we have proposed an international system of nationally-held *grain reserves*. We must start to build them now.

- 30 -

Before 1972, the world had come to depend upon a
few food-exporting countries, particularly the United
States, to maintain the necessary grain reserves. Now,
after three years of food shortages and emergencies,
adequate reserves no longer exist. The United States,
as you know, has therefore removed all governmental
restraints on production. Our farmers, the best in
the world, have gone all-out to maximize production.
The world must take advantage of better crops this
year to reconstitute global reserves. But this is not
enough.

The United States proposes an international system
of nationally-held grain reserves based on the
following principles:

-- The world's total reserves must be large
enough to meet virtually all shortfalls in

- 31 -

food grains production.

-- Grain exporters and importers should agree on a fair allocation of the requirements and costs of the reserve system, taking into account wealth, productive capacity and trade.

-- There should be agreed international rules or guidelines encouraging members to take advantage of good crop results to build up reserves.

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

- 32 -

Rules or guidelines should be agreed in advance for the drawdown of reserves, triggered by shortfalls in world production. There must be a clear presumption that all members would join in making reserves available when needed, and, conversely that these reserves would not be released prematurely or excessively and thus unnecessarily depress market prices.

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.

- 33 -

Conclusion:

These are the problems of an emerging new
economic structure. They represent, in their scope
and implicatons, a basic challenge to the economic
system of the past generation and a basic test of
the world's political future. They have become one
of the central concerns of our diplomacy.

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 and blocs?

For the United States still represents the single
greatest concentration of economic wealth and power to
be found on the planet. Our technology, our food,
our resources, our managerial genius and financial
expertise, our experience of leadership are unmatched.

- 34 -

# THE DEFENSE, STRENGTHENING AND REFORM OF THE WORLD ECONOMIC STRUCTURE

MAY 9, 1975 [Y]

FIFTH DRAFT

Today, America's most immediate concern is for our
economy.

Consumers are concerned about prices, businessmen
about profit and productivity, workers about jobs, and
farmers about markets and income.

Their concern is justified. For a strong domestic
economy is the source of our national security and inter-
national influence. And without these, we cannot effectively
work for the kind of global environment in which a flourishing
U.S. economy can survive.

No other country is so capable of self-sufficiency
as the United States. But we now inhabit a world in
which no nation can be truly self-sufficient. Since the
Second World War the U.S. has become a net importer of
primary commodities from overseas; if present
trends continue, we may be dependent on foreign oil for
fully half our needs in the 1980's.

But much of our wealth comes from abroad as well.
American exporters, and sales by foreign-based U.S. firms
amount to some 25 per cent of our domestic sales of

manufactured goods. And the profits we draw from direct
American investment overseas continues to increase in
magnitude.

The stability of the dollar, the expansion of free
world trade and investment, the supply and price of energy
and raw materials are all essential elements of our own
prosperity.

But if America has need for the world, the world has
need for America. It is still the United States which
has the greatest economic wealth and power to be found under
a single sovereignty. Our technology, our food, our
managerial expertise and financial facilities are crucial to
the success of the global economy.

As President Ford has said, never before has the state
of one nation depended so much upon the state of the world,
nor the state of the world upon the state of our nation.

In the early years of this century, nations conducted
economic affairs with little concern for their global impact.
International cooperation was modest, and there were few
major international organizations. But the economic chaos
and dislocation brought by the global depression of the
'30's and World War II made evident the need for an inter-
national economic system.

3.

For the past quarter century we have conducted our
economic affairs -- money, trade, agriculture -- under
the liberal, multilateral economic system created at
Bretton Woods. Its guiding principle was that problems
should be dealt with through continuing international
cooperation and under organizations whose rules and codes
of behavior would be observed without discrimination by
member nations. The system is built on three main
elements:

- free trade;

- easy movement of investment capital and
technology; and

- cheap and plentiful supplies of raw materials
for industrialization.

This international economic system has served the
world well. It is in large part responsible for the
remarkable economic growth of the last thirty years. It
offers the best prospect for continued prosperity, economic
stability, and political strength. But it must also be
reformed, for the facts of international economic life are
changing.

4.

The question we must now decide is whether we have
the capability and creativity to defend, strengthen and
reform our international economic system, or whether we
will submit to the forces of change and abandon our nation
and the world to the kind of chaotic economic nationalism
which hampered mankind's progress before Bretton Woods.

More fundamentally, it is a question of whether we
and other nations have the will to take action **before** we
must--for it may be too late to do so **when** we must.

Tonight I want to discuss the changing world economic
environment and what steps are needed if we are to influence
it in directions which will enhance our own national
prosperity.

## The Changing International Environment

By the end of the 1960's the Cold War era of confrontation
between two powerful blocs was giving way to a more fluid
and complex world, with many centers of power. And such
power increasingly derived from economic as well as
military strength. The separation of political and economic
issues, a goal of the post-war international economic order,
began to give way to a world in which governments increasingly
use economic power to work their political will.

5.

The implications of this are increasingly important, for today, no nation can pursue its economic policies without affecting others. We inhabit a world of widening economic independence -- the result of:

- rapidly growing world trade;

- the spread of technology;

- innovations in transportation and communication; and

- the global mobility of capital and labor.

Economic interdependence has brought great benefits. The mobility of capital, management and technology has stimulated the growth of industry. Global trade and resource flows have increased specialization and the efficiency of allocation of the factors of production. The potential for prosperity in all nations has been enhanced. economic

But increased/interdependence has brought serious problems as well:

- the use of economic power tempts nations to raise barriers to commerce, to negotiate special bilateral deals, or to favor regional ties at the expense of global responsibility;

-- the reconciliation of interests between nations often is postponed or precluded by the need to reconcile the various interests of domestic economic groups;

--and economic, far more than political issues, cut across national boundaries of interest, complicating the search for mutually acceptable solutions.

We must begin to reform the system now, in a period of relative calm. For if we delay until crisis comes, it will be too late to construct the enlarged and reformed international structures required. Failure to act now could lead to the demise of the Bretton Woods system, to a return to the economic nationalism under which nations pursued their short-term interest with scant regard for global consequences, and turned to increasingly radical political solutions to domestic economic problems.

The size and influence of the U.S. economy dictates that our nation play a key role in restructuring the international economic system. But more important, our own economic prosperity, and ultimately our national security, depends on the continuation of a stable world order.

## The Needs of the New System

Any reformed international economic system must meet three major challenges: It must

-- enable the industrialized nations to defeat recession, unemployment, and inflation;

-- enable the developing nations to gain their fair share of the income produced by the growth in world productivity; and

-- find equitable solutions to the problems common to both industrialized and developing countries such as energy, food, and raw materials.

Let me discuss each of these challenges in turn:

## The Challenge of the Industrialized World

The economic health of the world depends upon the economies of the industrialized countries. The OECD nations, for example, account for 65 per cent of world production and 70 per cent of world imports.

The economies of these countries are in midst of a simultaneous and unprecedented recession and inflation -- yet they must prepare for an economic boom sparked by recovery later this year.

A reformed international structure must permit the industrial nations to follow policies, individually and collectively, which will enable them to emerge from recession and inflation without deterioration of the political and social foundations of their societies. For these foundations have been crucial to progress in reducing international tensions, containing regional conflicts, and furthering international cooperation.

Within the industrialized community, closer
consultations are needed to prevent the pursuit of
increasingly defensive and protectionist economic policies.
The international system must enhance the effort of the
developed nations to refrain from restrictive trade or
balance of payments measures that might undermine the
growing world trade and mobility of investment capital upon
which global prosperity is based.

The Challenge of the Less Developed World

The less developed countries have increasingly acted
together to demand basic changes in the international economic
system which they regard as designed to serve the developed
countries.

-- They want the system to redistribute income from the rich to poor countries;

-- They want an integrated price index scheme, to protect the terms of trade for primary products against industrialized goods;

-- They want to restrain the operation of multi-national corporations in their countries, and increase their benefits from foreign investment, particularly in natural resources.

-- They want to ensure that technology transferred to their countries brings them greater benefit and is suitable to local conditions;

-- They seek wider access to developed nation markets for their exports and preferential trading arrangements;

-- Many of them want relief from the burden of increased energy prices and declining export demand resulting from worldwide recession; and

-- They view the world's monetary system with trepidation, concerned about preserving the value of their foreign currency reserves in a world of fluctuating exchange rates.

The less developed countries have presented these demands with increasing frequency and stridency. Virtually every international organization has become an arena for bloc politics.

For example, last April's Preparatory Conference for a multilateral producer/consumer dialogue in energy failed even to set an agenda. We had hoped that the conference would achieve serious progress on energy and energy-related issues that divide producers and consumers.

10.

The Preparatory Conference did not succeed for two reasons:

- first, the OPEC countries, together with less developed countries, adopted a confrontational posture which would have made progress on energy problems difficult; and

- the meeting failed to establish the link between energy and other raw materials demanded by the developing countries.

The reform of the international structure must find a way to meet the legitimate concerns of the less developed countries without paralyzing or destroying the international trade and financial institutions which provide the vehicles for the prosperity which all nations seek.

11.

Defining Communities of Interest

An effectively reformed international economic system
will require the industrialized and developing worlds to
find and build upon their common interests. To do so we
must recognize the economic interdependence of these two
sectors.

The industrial world has perceived the developing
nations as a bloc, dependent on us but not we on them.
The less developed nations often have that same vision of
themselves as highly dependent on the industrial world.

The result has been a difficult relationship marked
by charges of irrationality and mendacity, unfulfilled
expectations and unrealistic demands.

It is time to look beyond these tensions to the
underlying reality. Although the less developed nations
tend to form a bloc in international affairs, they in
fact have very diverse economic and political interests,
many of which overlap with the interests of the developed
countries.

12.

Three examples of specific communities of interest
are energy, trade, and monetary reform.

At some point we must establish a multilateral
institutional dialogue between major producers and
consumers of energy to explore cooperation on matters of
mutual interest. These interests are clear. Producers
need markets for their oil in consuming countries, safe
ways to invest their new financial assets, and equipment
and technology to advance their industrialization. In
turn, the industrialized consumers need to be assured
against future price increases and disruptions in supply
that have exacerbated recession and inflation, and
threatened the political structures of the developed nations.

The major industrialized countries as well as the
new intermediate trading powers have greatest stake in the

13.

progress of the multilateral trade negotiations in Geneva.
Open markets and the removal of barriers to trade are
necessary ingredients to continued world economic progress.
More immediately, significant progress in Geneva is needed
to retard domestic protectionist pressures at a time of
world recession.

And, international *monetary reform* has taken on a
new dimension as the oil rich countries acquire massive
new financial assets. Thus new oil rich countries have
acquired a much greater stake in the emergence of a more
stable and workable international monetary order. They
will play, therefore, a correspondingly greater role in
determining the outlines of that new monetary order.

It is clear that dependencies cut both ways. We can
gain economic and political benefits from less developed
countries as they can from us. Existing functional
institutions in any given substantive problem area must be
enlarged or restructured, or new institutions created to
provide a mechanism for reaching practical solutions to
practical problems. Progress will require such institutions
to reflect economic realities and the stake which each
participating nation has in the process. This is why we
are prepared and indeed anxious to see the less developed
and raw material-producing countries exercise a greater
role in the decisions of these institutions - a role that
needs to be consistent with their growing economic
strength.

I now want to turn, in greater detail, to two specific problem areas which can serve as models for the work we must undertake in strengthening and reforming the international economic order.

The present international system can be revitalized by extending its operation to areas never before covered -- the most urgent is raw materials.

And the further development of the world economic system through concrete work on problems involving communities of interest is best illustrated by the challenge of food.

Let me discuss each of these in turn: First, Raw Materials

Without question, the problem of raw materials has existed too long without an effective and equitable international approach. The U.S. has a clear self-interest in better functioning raw materials markets, in security of supply, in an open trading system free of destructive competition, and in the lowest possible prices.

Recent events illustrate the problem: the world has lately been affected by tight supplies and soaring prices for many critical materials; the oil nations have set a vivid example for other raw material producers anxious to raise prices; and nations around the world, including the U.S., have resorted to unilateral export controls on certain critical raw materials.

15.

Now, most raw materials prices are falling, owing to
the depressed state of industrial consumer economies.
This endangers the development plans of poorer countries,
increases the possibility of surplus stocks around the
world, and portends increased political confrontation
between the developed and developing worlds, as governments
increase their role in the production and marketing of
natural resources.

The implications for the future are not encouraging,
for:

- the price instability of commodity markets
threatens to grow worse as the business cycle
in advanced nations becomes increasingly
synchronized; and

- the cost of developing new mineral resources is
increasing dramatically; lower
grade ore sources require more
sophisticated technology and large-scale operations
to be efficient.

Thus, price volatility and the growing threat of
nationalization makes private enterprise, including multi-
nationals, reluctant to finance resource development on
the scale needed for the future. This in turn will

16.

increase the long-run cost of many raw materials. Yet the declining mineral resources of many industrialized countries makes access to foreign supplies vital.

If no solution to the commodities problem is attempted, an increasingly polarized raw materials problem will lead to short-run price gouging, supply disruptions, investment disputes, and volatile commodity markets. The world economy will suffer.

It is often suggested that the best resolution of world commodity problems is through a general an indexation scheme or/integrated system of collective bargaining between raw materials producers and consumers. Prices of raw materials would be tied to prices of industrial goods to prevent a deterioration in the terms of trade.

Such a mechanism would not be efficient, would not result in any significant or desireable transfer of resources, and, in fact, could be seriously counterproductive with respect to the concerns of the less developed countries.

The greatest production of raw materials is in the developed countries. It is the resource-rich developed countries that will benefit the most from an indexation scheme. The very low income, resource-poor developing countries will suffer rather than gain.

An indexation scheme would result in a massive over-investment in natural resource development, misused

17.

capital, and under-utilization of capacity.

To avoid such dislocations, the United States proposes a new approach, based on three elements:

- **first**, we propose that the Geneva Multilateral Trade Negotiations undertake to negotiate new rules and procedures on access to supplies and markets for commodities, promotion and location of mining and processing industries, and for the settlement of disputes arising out of such activities. The aim should be a more stable framework in which producers and consumers may conduct their trade and investment relations.

- **second**, we propose that existing multilateral groups dealing with specific commodities, such as __________, consider whether the development of a more detailed international trade regime for that commodity is appropriate. For its part, the U.S. is prepared, without doctrinal preconceptions, to examine each commodity on a case-by-case basis, recognizing that resource endowments and needs vary widely among the world's nations.

- **third**, we propose that the International Monetary Fund and World Bank consider the possibilities for

new financing capabilities and techniques aimed
at financing new productive investment, supporting
national or international buffer stocks, and
stabilizing earnings from the export of commodities
from developing countries most in need of such
programs. We are particularly interested in
exploring, with these institutions and the countries
involved, new techniques for mobilizing capital
needed for investment and under
which that capital can be combined with
the management and technology which remains
uniquely available in the developed countries.

Raw materials are an area of the world economy as yet
unaffected by the principles of international cooperative
action set out at Bretton Woods. Our international economic
system will be further developed and an increasingly serious
global problem eased if we and other nations begin action
now.

Let me now turn to a second key area for international
action:

**Food**

No world problem illustrates interdependence more
clearly than food.

As the greatest food-exporting nation, the world relies upon / to meet much of its needs, both commercially, and in food aid.

But the U.S. has a need as well. A new international solution to the long-term problem of food is in our national self-interest. Too many nations expect us to solve their food problems. American consumers cannot escape the huge price rises which come in times of food shortage. Nor can American farmers and taxpayers avoid the costs imposed by cycles of world food surplus.

The pressure of population growth makes clear that the U.S. and the handful of other food-exporting nations alone will never be able to meet the world's needs. Our ability to expand production is finite. The physical constraints of land and water are a reality.

If urgent international action is not taken, the prospect is for a further series of famine emergencies. The dependence of agriculturally unproductive regions of the world will grow. The human suffering, the mental incapacitation, the moral burden, the political instability will touch all nations, rich or poor, developed or developing. No society of principle and justice could tolerate such a world. No free and prosperous society could long survive in a world of such chaos and desperation.

20.

The United States is determined to make our response to the challenge of food a model for the kind of international collaboration needed to strengthen our international economic system and deal with the great issues of interdependence.

Last November, stimulated by famine in many regions of the world, and by the spectre of a ghastly global food shortage, the World Food Conference was convened in Rome, at the request of the United Nations. In a dramatic demonstration of international cooperation, basic agreement was reached on a comprehensive food plan set forth by the U.S.

To maintain the momentum begun at Rome urgent action is needed in three crucial areas:

First, for the short-term, until a sound global food economy is established, **food aid** will continue to be vital. The U.S. will urge expanded food aid as a cooperative responsibility, not only of major food producers, but of all

21

financially capable nations. The United States has provided
more than four million tons of food aid in all but one year
in the 20 year life of our food aid program. We will strive
contribution to food aid needs.

Second, a long-term solution will require world food
<u>production</u> to be increased to its full potential. The U.S.
will place primary emphasis on food production in the
developing countries, which have both the greatest problems
and the greatest potential.

Third, to protect mankind from famine emergencies
caused by crop failures, grain <u>reserves</u> are essential. We
have therefore proposed an international system of nationally-
held grain reserves. We must start to build them now.

A reserves system in particular represents the type of
new policy designed for an interdependent world, one both
in our domestic economic interest and the interest of the
rest of the world. Let me discuss the reserves issue more
fully.

22.

## Food Reserves

The problem of assuring a continued adequate flow of food lies in the shrinking margin of safety between the world's annual grain production and the consumption needs of a growing population.

The famine and food shortage which the world has experienced during the past few years is disturbingly symptomatic of the increasingly critical situation the world will face during the remainder of this century if we do not take action. In 1972, for the first time in two decades, world food production decreased, primarily owing to poor harvests caused by adverse global weather conditions. In addition to weather, increased world consumption caused food reserves to fall dangerously low. By 1974, speculative purchasing had sent grain prices to unprecedented highs, making nutritional standards difficult to sustain even in food surplus areas.

23.

American economic interests are at stake. The productive capacity of American agriculture assures an abundant food supply for the United States, but, while immune from famine, we are not immune from the economic impact of adjustment to short grain supplies, as our financially troubled livestock and poultry producers know only too well. Nor do we wish to be forced again, as we were last year, to restrain foreign purchasing from exceeding our supply of grain available for export.

To meet crop shortfalls, and to guard against floods and other national disasters which affect the food supply, the world has come to depend upon a few food-exporting countries, especially the U.S., to maintain the necessary grain reserves. But adequate reserves for the entire world no longer exist, even though our farmers have made an all-out effort to maximize production. In these circumstances, an international system of national grain reserves as agreed at the World Food Conference is indispensable.

Building on the principles for international coordination of national reserve policies developed in the United Nations Food and Agriculture Organization and endorsed by the World Food Conference, the United States

began an effort to establish a global system of grain
reserves large enough to offset major shortfalls in world
food grain production.

Discussions on an international system of reserves
are continuing in the International Wheat Council in London.
While these are useful and necessary preliminary steps,
we must now turn from discussion to negotiation. The
United States is ready to enter negotiations promptly with
other major grain importing and exporting countries.

At these negotiations the U.S. will present proposals
for an international system of nationally held grain
reserves based on the following concepts:

- Combined reserves should be large enough to meet 95% of shortfalls in production below the long-term trend.

- Grain exporters and importers should agree to share the responsibilities and the costs of the system, taking into account their wealth, and their production and trade in grains.

- Each participating country should be free to determine the method by which its reserves will be held and thus to apply such incentives as may be required for their build-up, holding, and eventual draw-down.

- Agreed guidelines should encourage members to take advantage of good crop results to build up reserves.

-- The system must assure priority access to reserves and other supplies by participating countries in times of shortage, with special provision to meet the needs of poor developing countries.

-- Guidelines should be agreed in advance for the drawdown of reserves, which would be triggered by shortfalls in world production. While these guidelines need not be rigid, they must establish the clear presumption that all members would join in making available their reserve supplies when needed, and, conversely, that these reserves would not be released prematurely and thus unnecessarily depress market prices.

If other potential participants join us in negotiating this proposal, the outline of an international reserves agreement can be completed before the end of the year. Since such an agreement can have important trade implications and since there are other aspects of grains that need to be considered in the International Trade Negotiations, discussions on trade can be continued in the Tokyo Round once the outline is established. But food security is too urgent and too important to await the conclusion of the full trade negotiations, which may take several more years.

## Conclusion

The era we call "post-war" is over. The world we inhabit has been irrevocably altered by these major developments:

- The bipolar Cold War has been replaced by a more diffuse and complex world scene;

- Scores of newly independent nations now pursue their aspirations and grievances in the world arena; and

- Commerce and technology have become truly international and the focus of new tensions brought by private and public competition for control.

But despite these revolutionary changes, the world remains a place of complex issues that can only be resolved in a constructive fashion by patience, determination, and give and take.

However one appraises the record of the past 25 years, it is clear that an era of world prosperity and heightened

27.

international cooperation was begun at Bretton Woods and
must not now be cast aside. For its principles of mutuality,
non-discrimination, and reasoned discourse are the indispensable
elements of collaborative progress.

This is not to say that the status quo is adequate.
The past 25 years have brought failure, inaction and
injustice as well as progress. Fresh starts are needed,
new ground must be broken, and perhaps some approaches which
failed should be tried again. The problems we face now
cannot be solved by a new conference, or any single
dramatic new proposal. They can only be met by hard work,
good will, and a sense of common interest in progress.

The effective use and development of international
mechanisms for the common good depends upon the realism
and resolve brought to these institutions by the nations
which comprise them.

The United States has long been pledged to devote its
energy and will to the goals of global security, prosperity
and freedom. We will not be diverted from these ideals.

But we will also be true to our national tradition
of pragmatism. For us, the important thing is to make
concrete progress on concrete issues. It is for this
reason that I have outlined tonight our position on food
and raw materials. We must build carefully and fairly
on the specific problems before us; and we must do so by

using and improving the tools fashioned for this purpose
over the past quarter century.

What is required is a basic assent to the proposition
that restraint in pursuit of advantage is an essential
ingredient for achieving enduring mutual benefit.

If we can maintain our composure, strengthen our will,
dedicate our efforts to making practical progress toward
an inspiring goal, then we will succeed in building a
more stable and equitable world order. We will be part
of the human record of progress described by John Steinbeck,
who wrote, "Man, unlike any other thing, organic or
inorganic, grows beyond his work, walks up the stairs of
his concepts, emerges ahead of his accomplishments."