[LC]

ROCKEFELLER, NELSON A.
RODGERS, WILLIAM
ROLL, SIR ERIC
RONCHEY, ALBERTO
ROSSI, REINO
ROTHSCHILD, BARON EDMOND DE
SAUVÉ, JEANNE
SCHLEIMANN, JØRGEN
SCHMIDT, HELMUT
SCHRÖDER, GERHARD
SNOY ET D'OPPUERS, BARON
SOMMER, THEO
SONNENFELDT, HELMUT
STONE, SHEPARD
TERKELSEN, TERKEL M.
THOMPSON, GERALD
TIDEMAND, OTTO G.
UMBRICHT, VICTOR H.
WALLENBERG, MARCUS
WICKMAN, KRISTER
WISCHNEWSKI, HANS-JÜRGEN
WOLFF VON AMERONGEN, OTTO

UNITED STATES
UNITED KINGDOM
UNITED KINGDOM
ITALY
FINLAND
FRANCE
CANADA
DENMARK
GERMANY
GERMANY
BELGIUM
GERMANY
UNITED STATES
UNITED STATES
DENMARK
UNITED KINGDOM
NORWAY
SWITZERLAND
SWEDEN
SWEDEN
GERMANY
GERMANY

IN ATTENDANCE:

PITTI-FERRANDI, ROBERT
VERNÈDE, EDWIN
GETCHELL JR., CHARLES W.

FRANCE
NETHERLANDS
UNITED STATES

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# INTRODUCTION

The twenty-third Bilderberg Meeting was held at the Hotel Mont d'Arbois, Megève, France, on 19, 20 and 21 April 1974 under the Chairmanship of H.R.H. The Prince of the Netherlands.

There were 87 participants, drawn from a variety of fields: government and politics, universities, journalism, diplomacy, industry, transport, the law, banking, foundation administration and military service. They came from fourteen Western European countries, the United States, Canada and various international organizations.

In accordance with the rules adopted at each Meeting, all participants spoke in a purely personal capacity without in any way committing whatever government or organization to which they might belong. To enable participants to speak frankly, the discussions were confidential, with no press reporters admitted.

*The Agenda was as follows:*

*“Prospects for the Atlantic World.”*

In opening the meeting, H.R.H. The Prince of the Netherlands invited all the participants to stand for a moment of silent tribute to the memory of the late President Pompidou. He then read a telegram which he had sent to President Poher, expressing sympathy to the French nation at the loss of Monsieur Pompidou, who himself had been a Bilderberg participant. (President Poher's telegram of response was read later in the meeting.)

The Prince reported that Secretary Kissinger had written to convey his great disappointment at having been prevented by his official duties from attending the meeting.

His Royal Highness gave a special welcome to Professor John Pesmazoglu, who had been unable to attend six previous meetings by reason of the refusal of the Greek government to issue him a passport. Professor Pesmazoglu replied that his presence was a sort of accident, and should not be taken as a sign of change in his country. His thoughts went out to his compatriots under arrest and threatened with deportation. The Greek people were committed to continue their struggle for constitutional rights and liberties.

After recalling the rules of procedure, the Prince turned to the subject of the agenda.

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WORKING PAPERS

The groundwork for the discussion consisted of four working papers dealing with the agenda topic, written from the point of view of a French, a British, a German and an American observer.

Following are summaries of these working papers, and of the comments of their authors in introducing them to the meeting:

A. The author of the *French paper* claimed that history was the key to France's attitude toward the Atlantic world. The theme of independence abroad and centralism at home was traceable to the reign of the Capets and had survived the vicissitudes of intervening centuries.

French policy, designed to harness all the nation's wealth and energies to its service, could not be explained solely in material terms. It was based rather on a concept of cultural identity: the belief that France possessed a distinctive personality conferred by her special inviolable mission.

This refusal to accept any assimilation and the determination to preserve the national identity were the crux of what Secretary Kissinger had once called the "transatlantic misunderstandings". In fact, there was no misunderstanding, but the confrontation of two flatly contradictory philosophies. The US, like the USSR, was an imperial nation, bearer of a universal ideology. When ideology and interests conflicted, interests usually came first. Did not "the Atlantic spirit" and the "defense of the free world" sometimes constitute the "fig leaf of American respectability"?

The Gaullists thus saw the world as a jungle, in which France too had to defend her own interests. This had led her at times to err on the side of mistrust, prejudice and ignorance, but that was matched by the recent emergence of a harsh American *Realpolitik*.

These philosophical differences had produced contradictory approaches to the alliance. The US had foreseen an evolving Atlantic community, in which it would perforce exercise the leadership. For Gaullists, though, alliances were always ad hoc. They reflected the interest of the moment, and should never result in the forfeiture of one's identity or power of decision, especially in defense matters. As de Gaulle used to say: "A great people has no friends".

Although de Gaulle's disappearance had brought little substantive change, it had served to mute the voice of France, and to rule out openly defiant

11

attitudes. Pompidou had sought accommodation with the US and the USSR, as part of his drive for industrial and commercial power, while concentrating his diplomatic efforts on the Mediterranean and on the European Community – “the only hope for the peoples of Europe to recover their destiny”.

The spectacular Soviet-American rapprochement had confused and troubled France as well as other European countries, accompanied as it had been by the strengthening of Russian military forces and the crackdown on dissident intellectuals. The Yom Kippur war had then revealed that the US, while remaining in close contact with the Kremlin, did not trouble to consult with its European allies, whom it addressed instead in censorious tones.

The explanation probably lay in Washington's desire to strengthen its hand before the new phase of SALT and MBFR talks. Any division within the Western world was thus viewed as obstructive and singularly untimely. While such an intimidating approach might serve to rally weak governments, it would not facilitate the creation of a united Europe supported by the great majority of its peoples.

The defense of the “free world” against the Soviet threat (in which no one outside government circles still believed) was no longer an adequate inspiration for European unity. Only a broad vision of a European federation – able to defend itself, imbued with an ideal of social justice and a redefinition of its relationship with the Third World – could revive the faltering European political will. It was futile merely to plaster over an Atlantic façade riddled with cracks, and to speak of “partnership” (which was anyhow untranslatable into French).

The author pointed out to the meeting that he had written his paper in the full expectation that France's path for some time to come would be that of Monsieur Pompidou. This was now not to be the case, and a clearer view of the future would have to await the outcome of the French presidential election.

Some general predictions could nevertheless be hazarded. Whoever won, it was unlikely that the French emphasis on independence would be reversed. No politician could ignore the results of a recent poll, which had shown that, while 60 per cent of the electorate were critical of the government's social and economic policy, some 73 per cent favored the current foreign policy. France could be expected to be in the forefront of a re-launching of “Europe”, but in a way which would preserve the identity of its member nations.

It was clear that French foreign policy could no longer be set by one man.

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Leaders of all important parties could hope to retain their influence only by taking proper account of elements in the programs of other parties (including the Communists, who would be the last to be enthusiastic about Western European integration).

Finally, the French author conceded that he had been struck by the relatively more constructive tone of the other working papers. He did not mean to be less constructive, but he felt keenly the urgent need to seek and nourish a current of public enthusiasm in France, without which the patching up of a European - or an Atlantic - façade would be of little use.

*

*

*

B. The role of history was also invoked by the *British author*, who said that it had compelled the British people to think in terms of cooperation in an Atlantic world. They would accept partnership between Europe and America without question. Moreover, they believed that only US support could give the Nine the sense of security necessary to the assertion of their own identity and unity vis-à-vis their real opponent, the Soviet Union. Nevertheless, Britain's confidence in the American administration had been shaken by the presidential crisis, and it would be folly to take for granted the American commitment to Europe regardless of European attitudes.

Although they were somewhat mystified by the continental preoccupation with the definable European identity, the British would want the European side of any partnership to be as strong and assertive as possible. All the same, the first year of Common Market membership had been a disappointment to its British supporters and a joy to its critics, with the attendant rise in domestic prices, the ineffective performance of the Council of Ministers, the eccentricities of Brussels procedure, and above all the behavior of those who had been foremost in questioning the British commitment to Europe.

In short, the attitude of the majority of British people towards Europe, if not one of indifference, was at best one of caution tinged with hostility and at worst one of outright opposition. British opinion was thus confused and suspicious of both its natural allies - Europe and America. It recognised the risks of standing alone yet resented the need for allies and the sacrifices that this demanded.

Britain would be well advised to position herself near the center of three groupings: a strong EC for her prosperity and political influence; a reformed Atlantic alliance for her security; and an industrial Western grouping as the framework of a world economic and monetary system built in sympathy with

13

the developing world. But little hope could be seen for any of these groupings
in a continuance of existing attitudes and policy.

The attempt to create Europe via the economic route was failing; not only
was the Community structure unsatisfactory, but the will to make it work
was lacking. Theoretically, a "root and branch" solution could be undertaken,
but no one could realistically envisage a renegotiation of the Treaty of Rome
at this time.

But simply to carry on as a loosely connected group of European nation
states, renouncing the possibility of becoming a collectively decisive world
influence, would be an appalling loss of opportunity. As a practical alternative,
the author proposed urgent concentration on work to create a common Western
European political will, a realistic European defense, and the acceptance of a
flexible partnership with the US.

As regards political will, certain unpalatable facts had to be faced: that the
economic and monetary problems caused by the energy crisis could only be
resolved multilaterally; that a customs union and CAP were insufficient to
create Western European unity; that détente was more apparent than real;
and accordingly that present defense arrangements were inadequate. To help
create an effective political will, European leaders should meet regularly and
frequently, without ceremony and with no subjects barred.

Even if the EC stagnated for the time being, defense arrangements ought
to be revised. European-North American collaboration should be strengthened
and a council of European defense ministers created to replace the Eurogroup.
The North Atlantic alliance was where Europeans and Americans found their
most important common interest, and defense was the field now offering the
best prospects for fruitful cooperation.

* * *

The author remarked that his paper had been written just after the British
election. Although the issue of European Community membership had in fact
received relatively little attention during the election campaign, the author felt
in retrospect that he had perhaps done the British public an injustice by
exaggerating their lack of interest in the European question, which appeared
to have greatly revived.

* * *

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C. The *German writer* felt the present crisis was unprecedented in that it threatened the survival of Europe and Atlantic cooperation. Only by rationally confronting potential dangers would the Atlantic world be able to marshal its resources to master the problems of the approaching age of scarcity.

Tensions in the Atlantic world had resulted from basically defensible positions being blown out of proportion. As an example, Europe and the US were quarreling about Europe's world role when it had none, and about its identity which was only just emerging, in such a way as to jeopardize both. But Europeans should not overlook valid reasons for American positions. At a time when the US was practicing "crisis diplomacy" for peace in the Middle East, and attempting to resolve matters of vital interest to Europeans as well, theoretical discussions about Europe were out of place. Unlike authoritarian powers which could implement decisions arbitrarily, democracies like the Nine were hard negotiating partners because of the difficulty of revising positions once taken, so outside powers naturally sought consultation at an early stage.

A major impediment to EC progress had been France's refusal to go along with Community decision-making. While claiming a world role for Europe, she had denied the preconditions for such a role, accepting common external policy only when it agreed with her own views. While expressing fear that Germany might become neutralized, she had declined to join groupings which would bind the GFR to the West. Without US protection and strong EC integration, Germany might be forced onto a neutralist course. The Community's progress – internally and in world affairs – required either a change in French policy or a decision by the remaining eight to proceed without her.

In the current debate, the GFR was caught between France and the US. Because of its contiguity with Warsaw Pact nations, it had to give priority to security considerations. It had therefore cultivated good relations with the US and was the only government to help finance the US military presence, although such actions benefited Europe as a whole. France, thus guaranteed security to the east, could afford to leave the military organization of NATO in the assurance that no others would follow.

Bilateralism was a dangerous approach to economic problems. While governments on both sides of the Atlantic had resorted to it in the energy crisis, France's hasty measures had had a particularly negative impact. Nevertheless, while multilateralism was preferable, bilateralism should not be entirely renounced. Diversification of approach was also beneficial.

Unilateralism violated the basic Atlantic principle of mutual consultation. Examples were Kissinger's Atlantic Charter speech and London energy proposals, and the Nixon-Brezhnev agreement. The EC in turn had acted unilaterally vis-à-vis the Arab states. Calls for consultation were not demands

15

for submission, nor were pleas for an EC role in the Mideast signs of anti-Americanism. A coordinated approach on the Atlantic, European and national levels was needed.

Three basic alternative structures for Atlantic cooperation emerged. If the concept of partnership was to be pursued, France would have to accept US-European security and economic relations and to concede EC decision-making power. American support of European unity would have to be restated and with it, recognition of Europe as an equal partner entitled to its own – possibly divergent – views. The “empty chair” approach was based on the conviction that joint undertakings should not be subject to the veto of one country. This would mean continued partnership but without France. In the past France had often left Europe no choice but to proceed without her, though she had always been welcome to occupy her empty chair. While this approach had the merit of breaking some deadlocks, a truncated Europe was bound to be comparatively weak.

The third and least attractive course was “cooperative bilateralism”, resulting from a breakdown in existing multinational frameworks and an increasing trend toward nationalism. There were many dangers to stability in this approach. Only multilateral procedures based on interdependence and cooperation could find satisfactory solutions to economic and security questions. The Atlantic world could not be allowed to disintegrate into a network of bilateral relationships.

We needed a cooling of emotions, a sober analysis of the disastrous consequences of the present course, and a clear restatement of the goals of cooperation. A coordinated approach to the energy problem was essential. The approaching era of scarcity would have a deep effect on the Atlantic world, with rising inflation, the scramble for raw materials, and increasing government intervention in free trade aggravating the problem. A stemming of present trends was a prerequisite to continued détente, as the Soviet Union was likely to take advantage of Atlantic disintegration.

* * *

The writer said he was grateful to the author of the French working paper for having demonstrated how deep was the French attachment to the idea of national independence. As long as that tradition survived, it would stand in fundamental conflict with the concept of European integration – whether on the economic, military or political level. Without some form of Community decision-making, in which dogmatic interpretations of national independence

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were at least reduced, there would be no role for Europe in world politics, and
no possibility of organized links with the US.

Mr. Callaghan's speech in Luxembourg had come just at the time when a
British contribution to a common European approach was needed more than
ever. It seemed to signal the relapse of British foreign policy into "parochial
insularity", which was unfortunately bound to foster bilateral relationships at
the expense of the multilateral system.

* * *

D. The author of the *American paper* conceded that Atlantic relations were adrift, mainly because of the unprecedented weakness of individual governments in a time of rising demands by their citizens for economic security. Blame for failure to fulfill these expectations was inevitably placed on foreign causes. But the author questioned how serious the crisis really was. Personal, idiosyncratic diplomacy had contributed to problems which were more of style than substance. Economic relations, conducted recently in an atmosphere of improved goodwill, had proved less troublesome than security negotiations, marked by rancor and consultative disorganization.

The essential Atlantic problem lay in the "deeply rooted asymmetries" which
spanned the entire relationship. While Europe had bridged the economic and
technological gap, it remained dependent for its security on the US, whose
commitment it had begun to doubt. America in turn was questioning the
wisdom of defending allies who did not pay their share and who withheld
their support on important issues. The US could no longer use its "security
blanket" for political leverage in the face of a Europe unified for the purposes
of power but rarely of policy.

The US would have to (1) wait indefinitely for a common European position to evolve, or (2) deal with countries individually, which would disrupt Europe and contradict stated American policy, or (3) do neither and stand accused of abandoning its allies. Fundamental to the choice among these alternatives was an assessment of what "Europe" would amont to.

While a certain European stand on security issues had evolved, the idea of
the "European Community" was in trouble. Economic and monetary union
had been unrealistic from the start, as fixed exchange rates were to prove
unworkable in the face of the trend to flexibility. EMU had really been a
Deutschemark zone; floating the French franc had underscored this.

The CAP had also proved ineffective, with most world food prices exceeding
CAP prices. This tended to erode the support of the French (and of some

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others) for the EC as a means of assuring agricultural income. The customs union also appeared vulnerable, with energy-related export controls sanctioned and the possibility of import controls as well to combat trade deficits. Joint European policy was lacking in a number of areas, including the response to the energy crisis. Any "great leap forward" in Europe seemed remote, in view of the lack of innovative ideas and potential leadership.

Paradoxically, those who most feared a restoration of American hegemony in Europe were inviting it by default. This uncertainty as to "whether Europe" exasperated those in the US who had traditionally favored close transatlantic ties, and undermined their influence.

In spite of weaknesses and asymmetries, Atlantic economic relations had been marked by impressive progress. The monetary system had been drastic-ally reformed; confidence in the dollar was returning; Arab oil money was being recycled; import controls had not yet been imposed; agricultural trade had been liberalized; and Europe and the US continued to welcome each other's investments. Energy as such was no longer the crisis it was purported to be, but was a "surrogate" for the deeper political tension between America and Europe.

Although the Atlantic countries and Japan were coping skillfully now with their economic problems, greater issues might lie ahead: inflation resulting in export controls; competition for scarce raw materials; cooperation to develop new energy sources; guidelines for intervention in the exchange markets; and excessive tapping of private capital markets.

Despite the weakness of the political underpinnings, the outlook for economic cooperation was nevertheless reasonably favorable, thanks to the development of transnational communities, which were overriding the shortcomings of governments to deal with economic issues.

One danger, though, was that the more politicized economic issues became, the less susceptible they would be to transnational influence. The unlikelihood of "spillover" of economic success into the security area was also due to the misplaced focus of the European integration movement, which was pursuing an unnecessary economic community at the expense of an effective political community.

Europe had either to (1) restore momentum toward economic union, (2) reform the integration movement along security lines, or (3) admit that national-alism had again prevailed. As far as the Atlantic relationship was concerned, the first two of these alternatives would reconfirm the basis for past European-American policy. Conceivably, both economic and political community could proceed simultaneously, though divisions might arise and a commitment to a costly security orientation seemed unlikely.

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Economically, the third choice would be acceptable but politically it would be uncertain, possibly leading to a special US-German relationship. Psychologically, scuttling "Europe" might be as difficult a task in the individual nations as setting it afloat again, but a consensus to shelve it might be reached. Any of the three options would be preferable and more conducive to a clean-cut policy than the uncertainty of the status quo.

*

*

*

In introducing his paper, the author said that the British call for a fundamental renegotiation of the terms of entry into the EC had reinforced his feeling that the very survival of the Community was in question. At the same time, international economic cooperation was continuing to register notable successes in extremely difficult times. The period immediately preceding this conference had presented an even sterner test than had the months prior to the writing of his working paper. Much of the credit for the constructive handling of such a wide range of economic and monetary problems had to go to the emergence of transnational forces, i.e., effective working relationships among individuals and organizations in the private and public sectors.

*

*

*

## DISCUSSION

The discussion was organized around six principal topics:

### I. *The process of European integration; causes of the present disarray; temporary setback or total breakdown?*

The diagnoses as to the state of the movement toward European integration ranged from "senescent, near death" (the view of the author of the American working paper) to "not nearly as bad as it has been described". The latter was the impression of a Belgian participant, who could not believe that the very important agreement reached at the Paris summit meeting would not survive.

Several participants felt that the current gloom was excessive and that Europe would surmount the present crisis as it had previous ones. An Italian speaker argued that strong elements of coincidence had led to this particular moment in

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European history, and it would be naive to apply too rational an analysis. He suggested an analogy to Swiss cheese; one should look at the cheese and not the holes. It had to be remembered that the primordial object of the European movement had been the avoidance of another war between Germany and France. Transnational forces were now even stronger in the European environment than in the transatlantic setting.

Few went so far as to endorse the contention of the author of the American paper that the Economic Community was perhaps an unnecessary link between the strong European national economies and an open, liberal multilateral system. But many seemed to share his assessment that - in spite of disappointments in the evolution of the EC - international economic cooperation was in fact registering notable successes, thanks largely to the operation of transnational forces.

It was difficult to be optimistic, however, about the state of affairs within the EC. In the view of a Dutch participant, this was not "just another crisis". The unprecedented accumulation of economic and political problems posed a serious threat, not only to the life of the Community, but to the welfare of the member states. Transnational forces, although useful, would be inadequate in his judgment to cope with many problems which called for formalized international cooperation: inflation, environmental pollution, unchecked growth, relations with the Third World.

The current spectacle of economic and political disarray in Europe led an American speaker to remark that "the clothes have no emperor". Institutions often decayed and disappeared without war. If Europe were to lose its inner meaning and purpose, it could become just "a rich Balkans tomorrow, then a poor one the day after". This vision should be made vivid in our various countries, he said, and should supply the cement of fear that we no longer derived from the Soviet Union.

The mood of pessimism was felt most keenly by those who had attributed to the EC primarily a political significance, and who were still awaiting some manifestation of a common will. An International participant observed that we had lost our sense of direction in moving toward European integration. Very little had been achieved in the way of cooperation on monetary affairs, external relations or defense, and it was hard to imagine the substance of an European *relance*, whoever might lead it. Nor was there any real sense of urgency about this in any member state. Governments liked to point to the fact that problems were equally bad in neighboring countries, but no serious effort was being made to work out common solutions.

The speaker drew some encouragement, however, from the evidence that people seemed to have a bad conscience about the present state of affairs.

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While we could probably expect a pause of at least a year or two, in which
little progress would be seen, he was personally convinced that European
union would eventually be achieved, although perhaps not by 1980.

Another International participant said that it was not enough for the Nine simply to stick together; they had to find a common sense of purpose. The image evoked by a Belgian speaker was that of a headless body. Europe weighed heavily in the world economy, but it would remain relatively impotent politically so long as the veto power existed. An International speaker supported this view.

An Italian speaker said that his nation, like the US, had come into being because its people had decided, above all, that they wanted to be independent. Until Europeans, as a whole, took a similar decision, little further progress would be made. Europe might show great economic strength and a degree of independence in the formulation of foreign policy. But as long as it was dependent on the US for its security, it would always have to yield to the superpowers. It was time for Europeans to stop talking about what kind of Europe they wanted and to attack the political question of whether they really wanted to be able to speak with their own voice.

Two American participants suggested that the focus in the EC might better be shifted from economics to political/security matters, as economic cooperation was likely to take place on a much broader field than just Europe. A Danish speaker warned, though, that the Community's political content and the European nuclear striking force were taboo subjects to many voters at present. He said that the Danes would not have come into the EC if they had foreseen that priority would be given to political aims over economic ones.

At the same time, the speaker was personally convinced that a European "political continent" was needed to match the other "political continents" that had emerged in the post-war era: the US, USSR, China, Africa and Asia. Perhaps Europeans had lagged behind in this because of a sense of guilt about their colonial past. But the Third World looked to Europe to assume a larger role than the regional one indicated by Secretary Kissinger. "To be a European today should mean to be concerned with the whole world and Europe's place therein."

Another Danish participant sought to dispel the notion that his country was particularly opposed to political cooperation. He wondered whether the electorate in any of the Nine would now empower supra-national organizations to take political decisions. But for the Nine to focus their cooperation on security matters was especially difficult, as they were partners in NATO of non-EC members.

A Dutch speaker thought that shifting the European emphasis from econom-

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ics to politics and security would be putting the cart before the horse. If the stalemate in the EC was indeed attributable to its political orientation, then little would be gained by accentuating the political aspect and de-emphasizing the economic basis which, after all, provided the common infrastructure of the Nine. The Paris summit communique of 1972 had been too ambitious, but it had been right in calling for an even greater coordination of economic and monetary policies, which was essential to preserve the achievements of the last dozen years.

An International speaker, who was supported by an Italian, argued that it was artificial to try to separate "economic" from "political" questions in discussing the proper focus of the EC. We were witnessing a rebirth of the science of "political economy", in which every discourse about economics was seen to be fundamentally a discourse about power, and hence political in nature. We were moving toward increasing government intervention in economic life on a case-by-case basis ("ad hoc-ery"). The institutions charged with executing these discretionary decisions required a large measure of autonomy, which had not been the case under a system of *rules* agreed upon in advance (e.g., GATT and IMF). The EC member states therefore had to make a "quantum jump" in delegating authority to an independent entity.

If the structure of the EC was not yet working satisfactorily, it was the fault of the member states, who would not allow it to function, according to another Italian participant. This was a reflection of the weakness of nearly all Western governments, most of which had to operate with precarious parliamentary majorities. Under these conditions, a Norwegian speaker said that it would be unrealistic to trust in regular frank summit meetings, as proposed in the British working paper. Government leaders would be laboring under the feeling that domestic political opponents were constantly watching over their shoulders.

Furthermore, although there had been agreement in principle on the election of the European Parliament by universal suffrage and majority rule in the EC (except where the veto was deemed essential to preserve vital national interests), realization of those objectives still seemed a long way off to many participants. A German speaker was willing to agree with the author of the French working paper that majority voting might be difficult if not impossible at this stage, but he said that small steps in that direction had to be taken.

Several speakers pointed out that the European movement was fundamentally one of *people*. A German participant felt that the citizens of member states would agree to give more power to a central European authority if their governments would only explain the need for this, without resorting to hypocrisy, euphemisms and wishful thinking. It was ironic to hear members of national governments and their opponents complain about the lack of progress in Euro

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pean integration, when they themselves had failed to make it clear to their own constituents that Europe was faced with problems which could not be solved on a national basis.

The European crisis also involved a test of our parliamentary democracies, he said. The electorate would one day discover that their representatives could no longer guarantee their economic and social welfare, and by then it would be too late for the nation states of Europe to go back to "business as usual".

A British speaker observed that governments tended to move slowly unless they were pushed, and a Belgian participant thought that political parties were the "natural engines" to get things moving. He had in mind reformist political action on a supranational level, as had been proposed by Dr. Mansholt. This idea was endorsed by an Italian and an International speaker.

A continuing campaign would be required to educate and enlist public opinion, particularly among young people. As a British participant pointed out, half the present population of Europe had not yet been born when the North Atlantic Treaty was signed. We had to demonstrate to the youth of our countries that we cared about problems of the environment, social policies and regional development.

An Italian speaker characterized the current European crisis as essentially the sum of various national crises, and a substantial part of the discussion dealt with the implications for European integration of current developments in France, the UK and Germany.

Several participants laid the blame for the European stalemate at the door of France. In the words of an International speaker, "France has been the one who has blocked the deepening enrichment of the Common Market as foreseen by the Treaty of Rome". A German participant detected a note of hypocrisy in the attitude of the French, who preached Europe while practicing Capetian nationalism. "It's like castrating a fellow and then wondering why he speaks in a high voice".

Another International speaker said that, while successive French governments had recognized the European interests of France, it was hard to find this conviction being translated into decisions in the practical work of the EC. In the judgment of the author of the German working paper, France's notion of independence was inconsistent with progress in integration, which required the transfer of a measure of sovereign power to the EC.

French participants offered various answers to these charges. One speaker emphasized the importance of European union as one of France's ultimate aims. This had been reaffirmed by President Pompidou in 1972. Confederation might not be achieved within a few months, or even years, but the French had

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no intention of leaving their chair unoccupied. Indeed, they had often taken
more concrete action than their partners in the building of Europe.

They were likely to attach great importance, however, to two conditions,
whoever might be at the head of their government:

1. that the foundation stone of the EC - the Treaty of Rome - not be called
into question. Solutions could be found for the particular problems of each
member country without reopening debate on the Treaty;

2. that an excess of new international organizations not be created, as much better use could be made of the existing ones: the EC, NATO, GATT, OECD.

In the speaker's view, the notion of independence was not incompatible
with that of alliance, or of the delegation of certain powers.

If one was prepared to be patient and to work gradually and pragmatically,
there was cause for optimism about European integration. And it should not
be forgotten that, if France had produced Capetians, she had also been gov-
erned by Carolingians.

Another French participant cautioned against taking the expression "nation-
al independence" too seriously. In France, as elsewhere, there was a vast
potential reservoir of public opinion in favor of the application and extension
of the provisions of the Treaty of Rome. It could easily be channelled in support
of such proposals as monetary integration and the election of the European
Parliament by universal suffrage.

An American participant wondered whether the Schuman/Monnet interlude
had simply been an aberration growing out of the particular postwar situation,
or if it had reflected a more durable vein of French thinking. The author of
the French working paper replied that the Schuman/Monnet policy had envis-
aged a slow movement toward European federation through a gradual econom-
ic construction, e.g., the Coal and Steel Community. This policy had received
widespread support in France until it appeared that it was leading to political
and military integration, at which point the French wanted to slow down. The
European Defense Community had been rejected by France with something of
the feeling that had once been expressed by Monsieur van Zeeland: namely,
that it was far easier to mix together two bags of coal than two platoons of
soldiers.

The consensus seemed to be that, whoever won the presidential election,
there was likely to be a French *relance* of Europe - but a Europe with its own
identity. The author of the German working paper warned, however, that the
*relance* should consist of more than just words. There would have to be substan-
tial policy changes, or we would revert to a set of bilateral relationships.

The author of the French working paper claimed that the British, like the
French, were less attached than other Europeans to the ideal of supranation-

24

ality (although a German participant argued that recent public opinion polls indicated that the French were not in fact all that opposed to supranational solutions). In any case, it was to those two peoples – both “oppressed by their past”, as an Italian speaker put it – that one had to look for a new impetus in the EC. The attitude of the UK toward Europe in the light of the recent change in government was thus a subject of capital importance.

One British participant expressed serious doubts about the outlook for the EC in the best of circumstances. From the beginning, it had been a curious amalgam of a common agricultural policy and a free Adam Smith-type market in industrial goods. Although a Common Market now existed theoretically, and tariff reductions had been carried out, the price of industrial goods still varied tremendously from country to country. History had shown that “democratic governments would not be allowed by their electorates to renounce their right and ability to protect their own people, or groups of their people, against the operation of blind market forces.”

Moreover, he said, it was generally agreed by member governments that the idea of creating monetary and economic union by 1980 was totally impossible of achievement, and most governments thought it was not desirable either. A major problem was that a number of measures to which governments had committed themselves in Brussels were justifiable only as steps toward a complete economic union. If such union was indeed not going to be achieved, it was foolish to pursue vain measures – such as the harmonization of taxes – that were extremely damaging to the ability of governments to run their economies or to win public support. “The idea that a Sicilian landowner can ever be persuaded to pay the same rates of income tax as honestly as a Dutch manufacturer has only to be stated to be rejected.”

The Common Market could only get out of its impasse and achieve greater unity by concentrating on seeking cooperation in areas where all member countries genuinely recognized a visible common interest, such as energy and defense. And in both those fields, cooperation inside Europe would only make sense if it were an integral part of a program of cooperation with the US and Canada (and in the case of energy, with Japan as well). Europe would be well advised to renounce the pursuit of “an impossible vision of a type of economic union which nobody in his heart of hearts believes can be achieved until the end of the century.”

This line of reasoning provoked a strong and lively negative reaction from many participants. The author of the German working paper seemed to echo the feelings of several others when he said that Britain was already as good as out of the EC if she really believed that it should abandon its goals as unrealistic. This was tantamount to Britain's opting out of its responsibility for the political stability of Europe.

25

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In reply, the same British speaker conceded that on balance it would
probably be more sensible for Britain to stay in the EC than to get out, but
only if her net external financial burden could be reduced to a level acceptable
to British voters. It did not much matter how this was achieved: by offsetting
the cost of the CAP, by creating a regional policy which would bring the UK
countervailing benefits, by reducing defense expenditures, or by sharing the
EC budget in a different way.

The British needed to effect a redistribution of their nation's wealth and
income and to achieve an export-led growth. The status quo from which they
had to start was worrisome. Britain's GNP was well under half that of West
Germany's, but it was spending on defense 50 per cent more than Germany,
measured as a proportion of GNP. In addition, Britain's contribution to the
EC budget was about £100 million net, which was likely to rise to £500million
by 1980 as a result of the existing terms of entry. This was on top of a deficit in
trade with the Common Market of over £ 1,000 million (accounting for two-
thirds of last year's balance of payments deficit).

Unless this external financial burden could be reduced or eliminated,
continued membership in the EC would be rejected by Britain, which was
growing tired of its reputation as the "sick man of Europe" and was determined
to improve its performance.

Another British speaker thought that the reckoning of the cost of getting
out of the EC would be the most important element in the final equation for
Britain. It would weigh more heavily than the supposed advantages of staying
in.

An American participant intervened to observe that, if the UK's problem
with EC membership was essentially one of short- or medium-term financial
accommodation, that could somehow be managed. It was much less worrisome
than a fundamental philosophical difference would be.

There were many references to Mr. Callaghan's recent controversial speech
in Luxembourg. One British participant said that he had only been speaking
the truth, and that there would have been less alarm had the rhetoric been more
subdued. A compatriot thought that Mr. Callaghan had performed a useful
service in pointing out that "the emperor has no clothes." Some sort of re-
thinking about the EC was called for.

Two other Britons remarked that the speech had been essentially designed
for home consumption, and should not have been taken so seriously by hard-
ened politicians. Its substance had in fact been fairly moderate, in line with
Mr. Callaghan's speech in the House of Commons on March 15. He had ex-
pressed the hope then that the Treaty of Rome, and perhaps even the treaty

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of accession, would not have to be renegotiated, and had spoken of the need
to "steer round the rocks".

Disagreement with the foregoing analyses was expressed by still another
British participant, who was inclined to take Mr. Callaghan's Luxembourg
speech at face value. Abroad, he had said exactly what he thought, whereas in
the Commons he had been restrained by the presence of pro-EC colleagues
looking over his shoulder. The main trouble with the Luxembourg speech,
though, was that it narrowed the room for maneuver.

An American intervention also alluded to this risk that the rhetoric of Luxem-
bourg would survive, acquiring a momentum of its own and leading Britons
to think that withdrawal from the EC might not be a bad thing. A German
speaker said that, if the danger of verbalism in France was of the government
*not* living up to its words, the danger in the UK was just the opposite: that
the government *would* prove true to its word.

More important than the wording of Mr. Callaghan's speeches, in the
judgment of an International participant, was the actual strategy of the Labour
Government. What did they want to do with respect to the EC, the US and
the rest of the world? What position did they mean to take with the voters in
the next election? The speaker said that he had fought elections in his own
time on the assumption that it was the task of candidates for public office
to try to convince the electorate of the merits of a certain program. What
exactly was Labour's program?

A Dutch participant said that if the Labour Government's strategy was
indeed to seek renegotiation of the Rome Treaty as a means of staying in the
EC, and not as a prelude to getting out, they could generate sympathetic under-
standing and support by saying so frankly. The other members would be willing
to accomodate Britain and to adapt themselves to the exigencies of her difficult
circumstances, if they felt the perspective was favorable. But it would be difficult
to have to negotiate in an atmosphere of threatened withdrawal.

The author of the German working paper said that it would be equally
unfortunate if Britain remained in the EC and paralyzed it. Mr. Callaghan's
statement that the British were unwilling to accept the political nature of the
Community went to the heart of this problem. (A British participant discount-
ed such a risk.)

According to an American speaker, many had underestimated the effect
of de Gaulle's veto of UK membership in 1963. It had stopped the momentum
of Europe, and had caused a loss of vitality which had not been restored by
Britain's subsequent entry.

A British participant spoke of the strong sense of rejection in his country,
and the resultant vacuum in public opinion. Many were still not sure that

27

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Britain was wanted in the EC, or that her interests lay there. There was an absence of European spirit in the UK at the moment, or little enthusiasm for sharing in a supranational authority.

Moreover, the internal political situation since 1970 had contributed to a polarization on the subject. Labour's loss of office, followed by a period of Conservative government – with uncertainties about how firm it would be and how long it would last – had pushed the Labour party into a rather extreme position, leading to the present situation.

This political background, together with coincidental economic factors such as inflation and the rise in food prices, had to be kept in mind in judging the "parochial insularity" referred to by the German author. The best course now was to "sit tight, cool it, and be a little more patient with the harshness of the British government's present approach". Theirs was not the language of diplomacy, but politicians who resorted to that language were often removed from reality and were "on the way out".

Another Briton was apprehensive that the present mood of discontent might be exploited by the leaders of both major parties, leading to a wave of anti-Common Market sentiment.

At this critical juncture in the life of the EC, for the British government to call a referendum on the issue of UK membership would be a reprehensible "abdication of political leadership", in the view of the author of the German working paper. It would be like "putting their head on a chopping block", according to another German. The decision of such vital issues should be taken on the merits, and not be left to demagogy. The introduction of plebiscites into the conduct of foreign policy of representative democracies would set a "baneful precedent", he said.

Several other speakers argued that the renegotiation of the Treaty of Rome was not authorized, and that even to propose it compromised respect for the legality of other international institutions and agreements, such as the treaties with the East. An International participant found it disturbing that England was expressing disdain toward solemnly negotiated international obligations in the same way that Germany had in the thirties.

Some British speakers, though, felt that the facts of domestic political life made it imperative to review the conditions of UK membership, and one said it was "theological" to worry about whether this process constituted an impermissible "renegotiation".

The analysis of another Briton led him to quite an optimistic outlook. Although the UK was faced with complex problems, its position was relatively simple: it shared many common interests with its partners in the European

28

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Community and in the Atlantic alliance, and, as the Duke of Wellington had
said, "interests never lie".

In supporting Britain's entry into the EC in 1967, Mr. Callaghan had said
that he could see no problem more easily solved outside the Community than
in. However, one would still have to expect to hear the language of the hus-
tings. The important thing about a speech like Mr. Callaghan's recent one
in Luxembourg was not its rough tone but its content, which was really not so
frightening. It expressed a concern for expanding trade, for reforming the
common agricultural policy, and for finding a fairer way of financing the EC
budget. (We had always recognized that the size and shape of that budget
would change over the years, and that room would have to be made for region-
al policies.) A Tory Government would have pursued the same aims within
the Community.

The speaker felt that the wisest course now was to talk about important
questions – such as what we wanted to do with the European Community –
and to let the civil servants handle the detailed problems. Care should be taken
to keep the list of issues as short as possible and to avoid a political confron-
tation. It should also be remembered that Europe was not just the EC. En-
largement of the Community should have been followed by a more manifest
effort to bring in associate members. Better use ought to be made of OECD
and the Council of Europe, and consideration should be given to establishing
a political secretariat for Europe.

What future was there for the EC if, after all, the role of the UK and/or
France were to be limited or ended? Some thought that there was no special
magic in the number 9, and that if necessary Europe could move ahead with at
least one "empty chair", and maybe even two, although that would be difficult.
It would not be easy, however, for Britain to cooperate on just a limited number
of subjects.

Others were convinced that the withdrawal of any one major member state
would make it pointless, if not impossible, to continue the EC. An Inter-
national participant thought that it was unreal to try to return to a Europe of
the Six, or the Seven or the Eight. A German feared that, with the UK no
longer present to act as a buffer, the EC could not survive the inevitable
Franco-German confrontation. The misgivings of these two latter speakers
were intensified by their feeling that the present British government had devised
a strategy which seemed likely in the end to lead the UK to withdraw from the
EC.

The consequences would be profoundly unsettling for the Germans, who
had accepted the partition of their country as their contribution to the pacifi-
cation of the Continent. The author of the German working paper observed

29

that no other political unit in Europe was so thoroughly shaped by the inter-
national system, including the "European idea", as was the Federal Republic.
A particular constellation of forces had determined its constitutional and inter-
nal structure, the nature of its political parties, and the consciousness of its
class of political leaders.

The breakdown of the EC – which for the Germans had become a substitute fatherland – might set Germany dangerously adrift, “without home or harbor, goal or national purpose”, in the words of another German participant. It was difficult to discuss this issue openly, though, without seeming to suggest an incipient madness in German political life.

The monetary crisis and the "empty chairs" had already forced on Germany
the unwelcome de facto leadership of a sort of "North European co-prosperity
sphere", according to an International participant. Paradoxically, it was
largely the current French and British policies which had obliged Germany
to take up unwillingly this role it had aspired to a generation ago. The prospect
of continued "empty chairs" would only add to the disappointment of Ger-
many's hopes.

An Italian speaker said that Germany, with its strong economy and mone-
tary reserves, would necessarily be an important factor in determining the
momentum of European integration. Other participants agreed that Germany
was the "sleeper" in the situation, and that it would be useful to have a clearer
idea of the intentions of German leaders.

Whatever the future held, we had come to an end of a chapter, in the opinion
of an International participant. It was not the end of the book, because no
European country had any real alternative to effective cooperation. But it
was now clear that there was no "royal way" to unity. The expectation of
making regular progress in complex matters according to a simple calendar
had to yield to a flexible, undogmatic attitude, content with piecemeal achieve-
ments.

In his view, Europe would need an improved institutional focus, and
groupings of parliamentarians and others should be studying possible forms.
The institutions we would need tomorrow might be the same as the ones we
had today, but not necessarily.

A German participant, rejecting the three options for Europe suggested by the author of the American working paper, counseled a fourth way. Europe should take a step forward every time it could, and not be nervous when it could not. It should seek pragmatically the evolution of a sort of common European establishment, and should not despair after every setback, of which there would be many in this long process.

A Belgian speaker said that Europeans had to re-create a framework in

30

[L.C.]

which they could talk to one another again, to see if they still agreed on the
final aims of the Community, and to set limits within which civil servants
could work. The essence of the Luxembourg compromise was that philosophi-
cal differences among the member states need not be an obstacle to their
cooperating on common problems, such as energy policy. But unfortunately,
organizational deficiencies had the effect of inflating crises within the Com-
munity out of proportion.

As had been pointed out by an International participant and by the author
of the American working paper, the major differences today were not trans-
atlantic but intra-European. The US would be watching European develop-
ments, not with hostility, but in a mood of disenchantment and withdrawal,
according to an American speaker. Europeans who had worried about Ameri-
can hegemony and dominance should be more concerned with the opposite.
(Two other Americans observed that the "special relationship" with Britain
was a thing of the past, and that a reiteration of that fact should serve to
strengthen Britain's ties with the EC.)

An Italian participant addressed this problem from a European perspective.
The European movement had been started in order to establish some sort of
balance with the US, but one could say that Western Europe today was essen-
tially no stronger than it had been 30 years ago. It was still completely depen-
dent on America for its defense, and the recent crisis in oil and other raw
materials underlined its lack of economic independence. "We thought we had
crossed the river, but nothing has really changed," he said.

He agreed with the author of the American working paper that there was
no cause for undue concern about the broad framework within which economic
and monetary questions were being dealt with, but he was fearful of two
eventualities if Europe remained divided:

1. that the US would finally cease to hope for a federated Europe, and
would turn to some sort of imperialistic policy; and

2. that this change in US policy would generate anti-American tensions in Western Europe which would encourage "those who still hope to extend their influence over Europe as a whole."

The speaker predicted that, if Europe did not become an *interlocuteur valable*,
"someone else will deal with the Europeans, but against their will."

A Danish speaker suggested that the present "open situation" in Europe
could lead in more than one direction. The first generation of "Europeans" had
been Atlanticists, but it was not clear that the next generation would be.
Conversely, an Italian wondered whether Americans still considered European
integration as conducive to a peaceful world, or were they coming to prefer
bilateral relationships?

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On that point, a Greek and a Dutch participant referred to recent signs that Americans realized that successful European integration was still very much in the interests of the US. A French speaker added his conviction that the construction of Europe required America's active and continued support, not just its benevolent interest. The alternative to an independent European Community strongly linked to the US was a "Finlandized" Europe within the Soviet orbit, helpless and incapable of acting or reacting.

While not disagreeing with the foregoing reasoning, an American participant was pessimistic about the prospects for European integration. He thought that the scarcest commodity in international relations was the kind of constructive imagination that inspired collective efforts. And the most fruitful source of such efforts was the clear perceptions of short-term dangers, especially of a military nature.

The Europeans did not seem to perceive any immediate threats that could be countered with current institutional arrangements, and were thus not motivated to try to perfect those arrangements. One could evoke the dangers of international political impotence and of economic and monetary disorder, but it was unlikely that present European leadership could succeed in transforming these problems into rallying points for European unity.

That left the military threat from the "boa constrictor of the East", as another American participant referred to the Soviet Union. But the presence of US troops on the continent made it difficult for Europeans to perceive that danger. Furthermore, progress in integration was not seen by most Europeans as being a critical prerequisite for the continued presence of American troops, whom they regarded as sufficient insurance against the military threat.

This analysis led the meeting to a discussion of the process of East-West détente.

*

*

*

## II. *The character of East-West détente; assessment of Soviet intentions; prospects for a European foreign policy.*

One problem in analyzing the character of détente was the use of the word itself, in the judgment of an American participant. It might suggest a static condition, whereas we were in fact concerned with a *process*, a highly fluid, dynamic set of relationships. Elements of cooperation would be mixed with elements of hostility, rivalry and competition.

The Soviet Union, still relatively young as a nation on the international

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scene, was just emerging as an imperial power, and as her contacts spread beyond her own continent, friction was bound to be generated. At the same time, a maturing process was at work in Russia, bringing a realization of limits beyond which the USSR could not push. The need for technological and commercial exchanges, combined with pressures from China and East Europe, favored a period of calm.

While Europe and America would not always view the détente process from the same vantage point – because of differences in geographical position, military strength and international commitments – their interests were not incompatible, and the essential process ought to be viewed as indivisible.

Although the two superpowers did have certain things to talk to each other about, it was not true that a special US-USSR relationship was developing which threatened to override the Atlantic alliance, with the US paternalistically seeking to define Europe's interests vis-à-vis the Soviet Union. (Two French participants had expressed their concern about this.) The speaker also denied the charge that détente was too much a creature of personalized US diplomacy. Although top level contacts had received the most publicity, the process was in fact proliferating into many levels and departments of government, on both sides. The American government was consciously fostering this development, feeling that it would create vested interests in the success of the process, and would inhibit its more negative and dangerous aspects.

As for the liberalization of conditions within the Soviet Union, the US view was that it should be an implicit, but not explicit, condition of progress in détente.

A Norwegian intervention emphasized the distinction between the US-Soviet détente and the East-West détente in Europe. In the latter area, the Russians had achieved a legitimization of their sphere of influence in East Europe, while maintaining domestically the need to pursue the ideological conflict. At the same time, they continued to build up their military forces, which confirmed the speaker's skepticism about any generalized détente.

To a Turkish participant, “détente” was essentially a new phase of the cold war, in which the Soviets were turning to simple but remarkably effective psychological methods. An example was the often-repeated slogan that the Russians’ defense expenditures were justified by their fear of an attack from the West. If such propaganda went unchallenged, our own defenses would be endangered by public pressures for disarmament, which our already weakened governments would find hard to resist. Our citizens should be made to realize that détente was not a positive achievement, but merely a stage in the struggle for true peace.

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This assessment of détente as a continuation of the cold war in another form was shared by a Danish speaker. Western Europe was being subjected to a massive Soviet offensive in the fields of culture, information, politics, trade unionism – everything short of military confrontation. This offensive was probably most intense in the trade union field, where strenuous efforts were being made by the Russians to de-emphasize the political content of the international union movement.

We were returning to the situation of 1948, with the important difference that this time we were naively unaware of the threat. Those who were concerned were reluctant to speak out and be labelled "cold warriors". The speaker was not opposed to more contacts with the East, so long as Western public opinion would not be led blindly to believe that this was the way to greater safety and security.

The author of the German working paper thought that the evolution described by the Danish speaker could be interpreted quite differently. None of the Western architects of détente policy had ever thought that it would not result in more contacts and communications, more meetings of organizations, and increased movement across borders. That was indeed the whole point of détente. But it was a two-way street, in which each system challenged the other, and we would be mistaken to look only at the negative implications.

Another German speaker argued that the preceding Danish intervention was in fact a demonstration of the existence of détente. One no longer worried about a blockade of Berlin or a closing of access routes, but about the stupidity of trade union leaders! This marked a notable improvement.

Still another compatriot thought that it was unrealistic to expect that détente would remove the causes of tension between Russia and the West. A more modest objective was simply to lessen those tensions. The treaty of Moscow, renouncing the use of force, had been a step in that direction. But détente would be more superficial than real so long as the Russians thought in absolute terms, as opposed to the Western notion of a *modus vivendi*.

An International participant pointed out that one's assessment of the process of détente was bound to be influenced by his subjective views and individual hopes. Nevertheless, there were certain objective facts that could not be ignored: the massive Russian rearmament; the unrelenting Soviet opposition to US policies, in the Middle East and elsewhere, despite professions of peaceful cooperation; and the unwavering commitment of the powerful Communist party leaders to revolutionary action. Russian methods had become more subtle, and their propaganda had made substantial inroads in Western intellectual, academic and religious circles. In view of the realities mentioned above,

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however, we had to be on guard against pressures that would lower our defenses.

An American speaker referred to the dangerous tendency in Europe and the US to take détente for granted. Soviet observers of the current American scene, for instance, might find a number of reasons to be skeptical themselves about détente. Legislation for liberalized Soviet trade and credits was in deep trouble. In the Middle East, the Soviet Union's place was being eroded by active US diplomacy. The new American entente with China gave cause for concern. And the US was building up its own military strength.

An International speaker, who was supported by German and Norwegian participants, made the point that a nation's intentions and the pattern of its relationships could be altered much more easily and quickly than its defense capabilities. Therefore, we had to negotiate détente from a position of strength, and it was essential that the military balance of power be maintained. Détente without defense was a delusion. The Soviet Union had managed so far to combine these two aspects more successfully than had the West, but the Harmel Report had concluded that adequate defense arrangements had to go hand in hand with détente.

As the International speaker pointed out, détente was one of the legitimate objectives of NATO, along with defense, deterrence, and the preservation of solidarity within the alliance. The phenomenon of détente covered a wide range of possibilities, from scientific, cultural and professional exchanges to negotiations such as SALT, MBFR and CSCE. We might hope that all this would bring about, not only a reduction of the *feeling* of tension, but a reduction as well of the *causes* of tension in varying degrees. We had to be careful, though, not to alter the substance on our side in exchange for a mere alteration of appearances on the other side.

An American participant addressed himself to the problem posed by the fact that intentions could be changed more readily than capabilities. The policy of the West had to be to try to shape the intentions of the Soviets, and to affect the calculations that they would have to enter into if they contemplated a change in their policies.

Because of their own internal constraints and procedures, it would not be all that easy anyway for the Soviets to change course from one day to the next. They would be additionally hindered by any impediments and deterrents which we could skillfully contrive to put in their way.

The speaker went on to say that it was unfortunate that the USSR had at times – in the Middle East, for instance – pursued its own interests and had behaved in a way inconsistent with détente. But this was a process which was bound to have its ups and downs, and it should not be viewed in just one dimension.

35

The US saw clearly the varied nature of the détente process and the dangers inherent in it, and was prepared to respond as the occasion required. When the Americans had perceived in October 1973 a potential Russian violation of the ground rules of détente, they had reckoned that they had only five hours in which to take resolute action, which precluded consultation with their allies. However, eight days before that occasion, the US had made two deliberate efforts to raise within NATO the question of Soviet conduct in the Middle East and what the West might be able to do about it. The response then by America's allies had "not been overwhelming", and it did not lie well with them to claim that the issues raised by the US military alert were new to them, or were violative of the spirit of Atlantic unity.

An Austrian participant saw a continuing danger of military confrontation with the Soviet Union in the Middle East, especially if the relative stability of that region were to be upset by changes in local leadership. This risk made it more imperative than ever that we seek to normalize East-West relations – but not in a way that would undermine Western political unity.

A Danish participant referred to the recent speculation in Vienna about the Soviet Union's plans to make a military testing ground of Yugoslavia after the passing of Tito. At any rate, the Yom Kippur war had shown that conventional wars could be unleashed, fought and stopped without deteriorating into nuclear conflict, depending on the good offices of the US and the USSR.

An Italian speaker thought that the Russians might feel freer to undertake military adventures if China were to assume a more passive stance while concentrating on its internal development.

According to two German participants, the most serious threat was no longer military aggression, but the transfer of military power into political influence. There was some dispute about whether "Finlandization" was the appropriate word. A French speaker alluded to Russian intimidation of Finnish publishers, while a Swede argued that Finland's experience was actually proof of its remarkable independence. In any case, what was meant was the use of external interference to restrict domestic choices in other countries.

The author of the German working paper said it was essential that this threat be made clear to Western public opinion, especially the youth, if we were to maintain adequate defense budgets. The public would no longer respond to appeals based on the assumption of all-out military attacks, which now seemed fairly unlikely.

The need for our governments to maintain their credibility among the young was also emphasized by a Canadian participant. They would insist, she said, that a part of the national budgets previously reserved for defense purposes be devoted to what they considered more worthy aims, such as social

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justice and the protection of the environment. It seemed logical that détente should result in a certain reduction of military capability. Since it was not prudent to undertake this unilaterally, could one not hope to find among the Russian youth an echo of the anti-militarist feeling being expressed by our own young people, and somehow to transform this sentiment into pressure on the Soviet regime?

One German participant feared that the process of détente might enable the Soviet Union to impose on the West certain forms of so-called "good conduct" in their internal affairs, which would pose a particularly serious problem for a country like Germany, on the border between East and West. The speaker said that the result of the "Third Basket" talks in Geneva concerning the free movement of persons had been disappointing for the West. The Russians should not be allowed to pretend that a satisfactory understanding on this subject had been achieved.

A representative of Greece, another border nation exposed to direct pressure from the East, felt that the great majority of his people, despite their harsh experiences since 1967, still understood the significance of the overall power relationships and would stand in support of the Western alliance. But it was false and dangerous to believe that the suspension of democratic procedures, in Greece or elsewhere, was necessary for military security. The protection of human freedom and dignity was essential to the cohesion of Western society, and a departure from basic democratic rules in any country was of concern to all. The obligations under Article II of the NATO treaty were thus as important as the military provisions. This thesis received strong support from a Norwegian intervention.

With respect to the economic aspects of détente, an American speaker warned that the West might be taken advantage of in the transfer of valuable technology to the Russians against long-term credits. He questioned whether this was a safe and productive way to proceed. Another American agreed that this would be foolish if it were the only aspect of our economic dealings with the Soviet Union, but that was not the case. He believed that we should conduct our economic policies with a view to giving the Russians an incentive to behave in a way that would maintain a political climate in which those economic policies made sense. This came back to the notion of "linkage".

A German participant referred to the fact that one of the recent large Russian orders for capital equipment had been for cash, not credit. If necessary, the Soviet Union was prepared to pay in gold for our technology.

A Swiss speaker counselled firmness in business dealing with the Russians, who usually asked for terms reserved for less-developed countries, and who had not yet demonstrated a proper regard for intellectual property rights. At

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the same time, he thought we should seek avenues of cooperation with the
Soviet Union on grounds other than the military and political: viz., ecology,
public health, population control and urban problems.

An American participant suggested, however, that we should guard against
the Russians' subverting such cooperative efforts to their own ends. They
might propose, for instance, that the risks of environmental pollution would
be reduced if supertankers were supplanted by pipeline systems – under the
Japanese Sea, say, or across East Europe. This would threaten the principle of
freedom of the seas which we had always taken for granted. While the risk of
open war was probably receding, we might have to contend with a reduction
of choices, a slow squeezing down of many freedoms to which we had been
accustomed.

Détente was not unrelated to the process of European integration. To an
Italian and an International participant, it seemed that the Russians would
try to use the ESC and MBFR to impede European unity, and that the Western
European countries had to take care not to make concessions which would
tie their hands politically.

On the other hand, a Belgian speaker observed that the forecast that the
enlargement of the EC would provoke increased Soviet hostility had apparently
proved wrong. Moreover, the Russians had raised no objection at the Geneva
conference when the nations of the EC had spoken with one voice. In the field
of political cooperation, the Soviet Union had grown used to the practice of
waiting for the outcome of the deliberations of the Community's political
committee. This official change was a function of the emergence of a unified
European position. Conversely, any retreat on the road to European unity
held obvious dangers, as had been suggested by those who had spoken of
"Finlandization".

The notion of a European foreign policy was supported in principle, and an
Italian participant pointed to the near-perfect unity that had been achieved in
the conferences of Helsinki and Geneva. While a French speaker thought that
the room for maneuver in developing such a common policy was fairly small,
a German urged that the search be continued, without any illusions about
finding perfection. Perhaps the most promising ground for cooperation would
be in regional agreements, such as for the Middle East, where each country
would agree to look after one particular aspect of a joint undertaking.

On this subject, a British participant wondered, incidentally, whether it
would be desirable to bring the USSR into a peace-keeping role in the Middle
East.

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An International speaker observed that it was awkward for the EC to try to carry on a diplomatic dialogue with outsiders because of the difficulty of subsequently modifying a previously agreed position.

Another International participant wondered whether it was realistic to expect détente to advance much so long as the EC remained in uncooperative disarray.

* * *

### III. The essence of present NATO strategy; prospects for a European defense capability.
A detailed resumé of the NATO strategy was offered by an International participant. He began by noting that the NATO "forward style" of defense was marked by a flexibility of response, capable of being adapted to the particular threat in question. As a purely defensive alliance, though, NATO always had to accord the initiative to the other side.

There were three principal military elements: conventional forces, a tactical nuclear force, and a strategic nuclear capability. The move towards parity, which was most important in the latter field, was one of the main causes behind the strategy of flexible response, which put more emphasis on conventional elements. NATO had an intermediate, "stalwart" conventional capability — less than a full capability, able to respond to any kind of attack, but far more than a mere "trip wire" capability.

Our balance with the East was dynamic, not static, the speaker continued. It required a continuous monitoring of the other side's capabilities to enable us to hold them in some sort of credible check. NATO's strategy was based on the belief that the Russians did not have a "master plan", but a determination to exploit their force wherever they could with acceptable political effect. As long as NATO stayed militarily strong, there was little chance of the kind of massive Russian attack for which we were prepared.

The current re-thinking of nuclear strategy in the US involved an increased emphasis on the capability of acting against targets which were essentially military. That capability had existed all along, but it was now being substantially refined.

According to the speaker, the recent Middle East hostilities had revealed no innovations in doctrine, planning or the composition of military forces. They had, however, produced valuable confirmations of estimates that had been theoretically derived in such fields as electronic warfare and anti-tank means. The war had also shown the value of training and of vigorous, quick-acting military leadership.

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In the MBFR negotiations, he said, the West was seeking an unbalanced reduction in order to achieve balance, while the Soviets favored balanced reductions to perpetuate imbalance.

A Belgian and an Italian participant expressed regret that France, which had championed the principle of military independence, was not participating in the MBFR discussions. The author of the French working paper agreed that it was senseless for the French not to take part in the Vienna talks. Another French speaker predicted that his country would in fact participate as soon as those negotiations could be placed in a suitable political framework. For the present, though, the discussions were "asymmetric" and were not sure to lead to any positive conclusion. This speaker went on to claim that France was cooperating actively with its NATO allies in many fields, including the military.

The prospects for a greater integration of European defense efforts were discussed from various angles. An International speaker thought that the useful work of the Euro-group might well lead eventually to a real European defense capability. The development of such a European force could give an impetus to the safe and deliberate reduction of US troop levels in Europe. The need would remain, though, for a central American role in the formulation of doctrine and planning within the NATO context.

For a Danish participant, it was difficult to foresee an end to Europe's double dependence on the US: for the nuclear umbrella as well as for the advanced electronic equipment needed to cope with anti-tank and ground-to-air missiles. A Swedish observer reflected on the reasons behind Europe's inability to insure its own defense. To him, the ineffectiveness of international cooperation in this and other fields was due to "disintegration within our own societies and the lack of strong governments".

A British participant pointed out that Sweden spent more per capita on defense than any country except the US. He went on to argue that no grouping larger than the nation state could maintain a degree of "social morale" adequate to support the necessary defense expenditures. In his view, both NATO and the EC were too "large and vague" for this purpose.

Assuming the morale required to justify greater defense spending, the problem was then to define the risk to be defended against. The speaker said that such an objective evaluation was difficult within NATO, whose strategy had been frozen by the vested interests of the military establishments in member countries. Assessments of the Soviet threat were always much graver in the semi-public NATO Council meetings than in private national cabinet discussions. The institution of NATO had become "fossilized" around a perception of a threat which had in fact changed since the institution had been set up. In the same manner, the vested interests of the Soviet military establish-

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ment in Eastern Europe presented a major obstacle to a Soviet re-evaluation of the threat to them. A comprehensive NATO defense review was long overdue, in the speaker's opinion.

To this suggestion, a Turkish participant replied that an adequate review had been contained in the Harmel Report. The Soviet threat was still very real, although it might have changed somewhat in form. If the Russians had become "conservative", it was only to hold on better to what they had seized; and they would continue to seek to expand their influence.

This speaker and a number of others gave strong support to NATO in its present form. A Dane said that there was no credible alternative to NATO, precisely because of its Atlantic character, as exemplified by the presence of American troops in Europe. An Icelandic participant judged NATO to be the best natural forum for European-North American cooperation, but he advocated greater efforts within the alliance to keep the public informed about the extent of the Soviet military build-up. Publicity about SALT, MBFR and the CSCE might lull our people into a false sense of confidence, which would threaten the maintenance of adequate defenses.

Interventions by a British and a Norwegian participant laid particular emphasis on the work which had to be done to make the role of NATO better understood among young people, whose strong support would be needed if the institution were to survive. The youth of today were probably less nationalistic and materialistic than earlier generations had been, and appeals would have to be directed to their more idealistic concerns.

* * *

IV. Economic considerations: the impact of inflation; validity of the neo-classical market concept and the hope/expectation of growth; the welfare state and free trade; organized power and economic liberalism. A British intervention provided a bridge between the discussion of the preceding two topics and this one. The speaker said that the Yom Kippur war had marked a turning point between the period of potential superpower confrontation and that of a battle for raw materials inside the West. This competition was bound to increase dramatically the economic gap between the northern and southern hemispheres. And if we failed to control the scramble inside the West for scarce resources, the East-West conflict might take new and more dangerous forms. Moreover, the increase in raw material prices had greatly aggravated the phenomenon of inflation, which was now the major problem confronting all Western societies. In what direction should solutions be sought?

4I

[L.C.]

The analysis of this participant was based on his conviction that national and international institutions and bureaucratic structures had far less influence than was commonly imagined on either the direction of the unity of economic policy. The US, which already enjoyed the type of institutional unity that Europeans were seeking, still had a hard time achieving unity or economic policy. Many nongovernmental bodies, including multinational companies, had a major role there in shaping policy.

In looking for the causes of inflation, one could not avoid placing some responsibility on the welfare state. But it was not solely to blame. Some countries with the worst inflation had little democracy and no redistribution of wealth; others, such as Brazil, had managed to reduce inflation while effecting a redistribution.

It seemed to the speaker that one of the main roots of inflation was connected, not to democracy, but to the private enterprise system. That system depended critically, he said, on the artificial stimulation of maximum consumer demand, "by persuading ordinary people that they're entitled to a steadily rising middle-class standard of life - whether they're working class or middle class, American or Egyptian". Restraint was advocated only at the time of wage negotiations with workers.

Out of this system, the speaker foresaw the emergence of intense competition for raw materials between nations and multinational companies, in their struggle to hold a maximum share of shrinking markets. If it were not to produce divisive friction in Western society, this competition would need to be mitigated by our governments' increasing their control over the private sector.

The analysis of a Canadian participant had a different point of departure, in that he was fundamentally inclined to place greater trust in the efficacy of market forces. But he saw that the economic reforms of the past half century had substituted human judgment for the automatic corrective devices of the market, emasculating the power of the system to control inflationary pressures. Inflation had been sustainable only through continual growth, which in turn had been achieved only through the plunder of natural resources.

But now "the ball game is over", he said. The oil crisis was just the first phase of a larger crisis, to be marked by increasing shortages, bitter struggles for the control of resources, and greatly moderated growth. This might be followed by a destructive hyperinflation which would be one of the great moral failures of the West, as history had shown that no country was likely to survive as a democracy when its annual inflation rate reached 20 per cent. The problem was social as much as economic, and could be surmounted only by superior political leadership.

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Similar conclusions were reached by a German participant, who feared that the fabric of our societies would be torn apart within a decade unless some means were found to overcome galloping inflation. Anything less than the joint management of the changing world economy was doomed to failure, and the speaker was optimistic about the effectiveness of the transnational forces described in the American working paper. Half a dozen knowledgeable people had managed, in effect, to set the world's monetary system working again, and it was important to try to knit together our networks of personal contacts. We had to resist institutionalism, bureaucratic red tape, and the creation of new procedures and committees. Official bodies should be put in the position of ratifying what had been jointly prepared in advance.

Above all, the speaker said, an agreement ought to be shaped which would oblige the governments of the major economic powers to support each other in resisting domestic pressures for inflationary policies: bigger budgets, lower taxes, cheaper money. Governments should feel bound, as part of the worldwide fight against inflation, to slow down the volume of money and credit and to follow sound rules of financing their central budgets. The voters had to be taxed in the aggregate as much as they were benefited by the spending of public monies.

It was not enough to adopt international resolutions defining these ground rules. Procedural arrangements had to be devised under which national governments could help one another to resist inflationary pressures.

This speaker offered his opinion, incidentally, that the floating of exchange rates had exacerbated inflation by removing the disciplinary effect of having to defend fixed parities against market forces.

Beyond the urgent task of combating inflation, there was a broad agenda of economic goals on which Western international cooperation was needed: establishing a coherent monetary system; facilitating the flow of short-term capital; rationalizing the division of labor and production; coordinating our economic and technical cooperation with the USSR; and elaborating our programs for investment and aid in the developing countries. We should not lose sight of the fundamental aim of making the world economy work as a whole.

An Italian participant thought that the German government was well placed to give a lead, together with the US, in initiating proposals to combat inflation, which was now the most dangerous crisis. The immediate task was to find a way of covering the balance of payments deficits of the Western countries - notably France, Italy and the UK - which had been most affected by the increased prices of oil and other raw materials.

The full brunt of this problem had not yet been felt, and it was not likely

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that it would be solved through the operation of the private banking system or other transnational forces. Government-sponsored schemes would probably be more effective and less inflationary. It used to be said, the speaker remembered, that crises promoted international unity. But the present economic crisis might well foster more nationalistic policies, and threaten the progress of European integration.

An American participant was not inclined to look to government in the first instance to furnish a cure for inflation and related economic ills. It seemed to him that inflation and national autarky had arisen from the same central circumstances: the modern combination of the welfare state and widening demands for economic participation, under the democratic notion of egality. Promises and expectations of "heaven on earth for everyone" had put unbearable pressures on the whole economic system.

At the same time, the restraints which had kept these pressures under control had been greatly reduced as people around the world lost faith in their belief that economic rewards were being justly distributed, and demanded a reallocation. This was true not only within nations, but from country to country and region to region. One of the aspects of the oil crisis, for instance, was the belief of the OPEC countries that they had to make up for 200 years of injustice at the hands of the West. The restraints had been further weakened by the current bankruptcy of Western political leadership.

The welfare state, with its centralist origin and style, had itself been held in bounds in the past by the larger notions of the European and Atlantic communities, both of which were now in disrepair.

Societies produced their governments, and not vice versa. The restraints we now had to look for were outside government, in the hands of individuals and transnational groups. The task would become less difficult as social pressures eased. Therefore it was essential that we continue the advances in social progress made over the past 20 years, while recognizing that the era of limitless growth was ended.

The author of the American working paper was not optimistic about inflation being brought under control in the very near future. It was probably an even more critical problem than we had recognized, but the causes of its recent virulent form were not all that evident to analysts. We knew that it was probably more than economic in origin, but we could not be sure what means would be effective in fighting it. It was to be hoped that the diagnosis and treatment would be clearer after completion of the comprehensive study recently undertaken by the Brookings Institution, in collaboration with other research institutes.

One key question had to do with the effect of floating exchange rates. The

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move to flexible rates had eliminated the big balance of payments disequilibria of the past, but had it also served to fuel inflation? The speaker recalled Herr Emminger's statement two years ago that the fixed exchange rate system was one of the major engines of world inflation. One was led to wonder if the flexible rate system was not in fact less inflationary.

For one thing, in a flexible rate system there was a countervailing currency appreciation for every depreciation, which had an anti-inflationary result. For another, the inflationary effect of a depreciation produced a genuine concern for the balance of payments position. In the US, there had never been much concern about the payments deficit under the system of fixed rates based on the dollar. Today, on the contrary, the monetary policy of the Federal Reserve took much greater account of the balance of payments.

The speaker said that the US and Germany were the key countries in the fight against inflation, serving as relatively stable anchors of price stability. If the new system of flexible exchange rates encouraged both countries to hold down rates of inflation relative to where they would otherwise be, there was perhaps reason to be hopeful.

An International speaker said he could not share the conclusions of the American working paper that the monetary record was impressive and the outlook fairly sanguine. The annual rate of inflation in the OECD area as a whole had been 12 per cent in the preceding 12 months, and 16 per cent in the last three months. This was sure to encourage undemocratic forces, and strong action had to be taken nationally and internationally to stop it.

The progress of inflation was inevitably linked to the disintegration of the monetary system, and Europe and the US had to cooperate closely in monitoring the effects of the system of floating exchange rates.

A British participant agreed with the preceding German intervention about the inflationary results of budgetary deficits and excess money supply. But if we looked in turn behind those effects, we found a social cause: the widening spread of a revolt by the underprivileged against those hitherto regarded as privileged. Wages were being made to rise too fast, producing a cost-push inflation. Since social structures varied from country to country, though, concerted international action was impossible. An anti-inflation policy written for the UK could unfortunately not be applied to Nigeria.

International cooperation could be effective, however, on another front: in combatting imported inflation in the Third World. Rising expectations in the less-developed countries meant that new investment there tended to flow to industry, not agriculture. The training of farmers and the proper application of collective techniques were being neglected, with the result that food exporting countries were becoming increasingly net importers. A multiplicity of

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organizations were dealing with investment projects in the LDCs, but their efforts appeared fragmented. There was an enormous field to be cultivated in coordinating these projects to assure that they were better placed within the whole economic framework of the host country.

This subject led the speaker to observe that the West's interaction with the Third World would present problems for years to come. The differences between socialism and private enterprise could be said to be essentially differences in stages of historical evolution. Industrialization had been started in the West by private individuals. In the Third World, the lead had come from governments, not only because they commanded the financial resources, but also because they saw in industrialization the fulfillment of a national purpose.

It was only natural, then, that the Third World should feel a greater ideological kinship with countries which were public-sector oriented, such as the Soviet Union, than with the private-sector oriented nations of the West. We had to keep this in mind, and to try all the same to display understanding and sympathy to the people of the Third World.

An American participant found the preceding speaker too ready to dismiss the possibility of international cooperation on domestic inflation caused by social pressures. While it would admittedly be difficult for some international organization to tell member states how to handle their social budgets, could one not envisage an undertaking of true international statesmanship, having as its aim a sense of common burden-sharing, even of "austerity"?

An International speaker agreed that excessive demand was a primary cause of inflation, but referred to the difficulty of managing national budgets with increased social transfers. While we should not move away from the market economy and the fundamental concept of growth, we needed to develop a multiplicity of objectives of economic policy. Our citizens were becoming as much interested in the qualitative aspects of growth as the quantitative measures, and governments had to adapt themselves to these new demands. To manage our market economy in a more sophisticated way, new governmental structures would be required.

An American participant felt that it would be a great mistake to put too much stock in traditional remedies, such as monetary and budgetary restraints, as a cure for inflation. A principal cause of this "most reactionary force in the world", as the speaker described inflation, had been the cost-push effect of the increased price of raw materials - led by oil, but including food, fertilizers, minerals and timber. OPEC had demonstrated the potential for economic and political extortion that existed in dealing with these commodities.

The developed world had no set of rules to deal with problems of short supply, the attention of such organizations as GATT having been directed

46

toward freer access to markets. All industrialized nations now had an important stake in developing multilaterally a code governing access to scarce raw materials. Rules should be spelled out covering the rights of exporting and importing countries; the range of acceptable export controls; strategies for developing international reserves and for expanding supplies; and sanctions for countries which imposed export controls unilaterally and for blatant political reasons.

It would not be easy to develop such rules, and account would have to be taken of the economic and moral claims of the developing nations for a proper return on their products. But if we failed to establish some program along these lines and to cooperate in implementing it, then we could expect to face many more "OPECs" and increasing disarray among the democracies.

Another American intervention dealt with the particular crisis in food and feed grains. This was related to the uncontrolled growth in the world's population, which could not be significantly restrained before the year 2000, by which time there would be six billion people. After that, we would perhaps have a few generations with the population under more reasonable control.

It was not likely that the Americans would again be a source of big grain surpluses. They would produce only their share of rather small buffer stocks. The less-developed countries which could do so would have to grow their own food. As there were finite limits to the amount of available farmland in those countries, they would need to adopt more efficient agricultural policies, with the help of research stations and investments from the agri-business community in the developed world.

As the nations of the West worked to attain some mastery over these various economic problems, there were bound to be reverses and disappointments. Several participants expressed apprehension about resulting social and political reactions. The author of the German working paper warned of the particular dangers of relapsing into autarky and economic nationalism in this era of growing interdependence and scarcity of raw materials.

A Dutch speaker feared a chain of currency devaluations, import controls, reduced trade and rising unemployment, all leading to an "unravelling" of the fabric of the national states, reminiscent of the 1930's.

An Austrian participant spoke of the special plight of the smaller nations, who were usually the hardest hit when economic and monetary disintegration led to "beggar-thy-neighbor" policies. The phenomenon of the multinational companies had produced a new disparity between the goal of maintaining high prosperity and employment and the means of assuring this at the national level. Governments were finding it increasingly difficult to regulate their economic instruments.

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A Frenchman was heard to plead that, in the troubled times ahead, scapegoats should not be made of special entities, be they multinational companies, politicians and diplomats, or individual countries. It was mistaken, for example, to lay the blame for the disarray in the foreign exchange markets at the door of the multinationals. Their treasurers had simply been acting as prudent corporate managers. A reproach might properly be addressed to the governments of parent company countries – notably the US – for a laxity in supervising the activities of its MNCs, but nothing was to be gained by making life impossible for international industry.

Politicians and diplomats, in turn, had comparatively little room for maneuver. Currency fluctuations usually reflected the results of fundamental national policies, and were thus not easily controlled.

The leaders of all Western countries, including France, recognized the fact of our interdependence. It was pointless to divide ourselves into camps of optimists and pessimists. What was needed were the qualities of directness, frankness, and a certain toughness in approaching our common problems.

This intervention found an echo in the statement of a Swiss participant, which dealt with the advantages of a free international flow of capital and labor. Multinational companies would not function at their optimum effectiveness until their workers were served by truly multinational trade unions. Progress in this field was slow because of the reluctance of national unions to give up their role.

The speaker hoped for a reversal of the trend to place direct and indirect obstacles in the way of transnational investment. International political integration might be far away, but the diversity of worldwide economic relations would build up a valuable solidarity of its own which would not easily be destroyed.

Perhaps the ideal to be emulated was the international scientific community, for whose members national frontiers scarcely existed. A French speaker described, for example, the cooperative effort of European physicists in establishing CERN. Behind this project was a broad vision, supported by a generous financial endowment but unhindered by governmental pressures, which had brought into being a complex of laboratories on a level equal to the US facilities and superior to those in the Soviet Union.

An American participant spoke of the long shadow cast by another generation of physicists and engineers, at the turn of the century. It was not until very recently that we had perceived the enormous impact of the discoveries they had made during the decade 1895-1905. Their work had liberated man from this planet, both literally and figuratively. But it had also served to confront us

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and future generations with decisions for which mankind had no useful
experience or precedents.

Intellectual and material forces had been unleashed which were strong
enough to rend the world apart, or at least to warp national purposes and
policies. True independence was no longer possible for any nation.

It was essential, the speaker said, that we seek to pool the knowledge and
wisdom of the Western world. The burden was now especially heavy on the
leaders of the Atlantic community to educate their peoples as to these facts;
to avoid temptations to submit to domestic pressures for short-term relief; and
to cooperate with one another on the development and conservation of our
natural resources.

Another American speaker, alluding to the weakening of European and
Atlantic solidarity in the face of changed perceptions of the Soviet threat,
suggested that the current economic crisis – inflation, payments deficits, the
rising cost of energy, food and raw materials – could serve as a new unifying
force, a rallying point for the Atlantic community and Japan. Such a notion
had underlain Secretary Kissinger's initiative in organizing the Washington
conference on the energy crisis. It was disappointing that no real impetus
toward cooperation had yet emerged, but hopefully there would be a useful
follow-up.

An economic dialogue of that sort should perhaps eventually be expanded to
include oil-producing nations and the less-developed countries. But the in-
dustrial powers of the non-Communist world had special interests among
themselves, and until they came to some agreement they could not have a
very effective dialogue with the rest of the world.

*

*

*

### V. Energy developments: political and monetary implications.
Petroleum industry developments during the past year were summarized by an American participant. International oil operations had become completely politicized in the producing countries, he said, and were becoming so in many importing countries. Producing countries were instructing the oil companies how much to produce and where to ship, and demanding support for their political stance. Increased prices had given them the option of cutting production without losing revenues, and they now felt free to break agreements whenever it suited them. Kuwait had proposed to expropriate concessions for a price equivalent to only six days' production.

No oil company or importing country had any assurance that supplies would

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continue to be available. No one could prudently invest in the future of oil refining or transportation; present investments were being made mainly on the momentum of past decisions, and did not take into account future supply availability or terms.

The oil companies would no longer be able to act as intermediaries, as their producing affiliates had become merely the instruments of the policy of the producing countries. The next step would be for OPEC to make further inroads on oil company profits.

As oil importers engaged in the race for supplies, prostrating themselves before the producers, respect for the sanctity of agreements was disappearing. Producers could be expected to take full advantage of broadly-phrased *force majeure* and price escalation clauses in oil contracts.

The attendant financial problems could not be easily solved. Even assuming a drop in the rate of growth of energy consumption from 5.6 per cent (1968-72) to 3.3 per cent (1972-80), the OPEC countries would still receive roughly $800 billion in payments between now and 1980 (at $8-9 a barrel), and would accumulate at least $300 billion of this for investment. The Western banking system would thus acquire an unsound dependence on a handful of national depositors. Inflation would not relieve the financial impact, as crude oil prices were indexed. Aiming to cover the increased oil import bill by boosting exports would simply transfer the problem to other countries.

The potential impact of this situation on the industrialized world was enormous, and the speaker recommended the urgent formation of a non-political group from various oil importing countries to get a view of the overall picture: what price level was bearable; what payment arrangements were desirable; what were proper guidelines for bilateral oil deals and barters; and what program of coordinated support might be established for the economic development of the producing countries.

These experts should try to agree on a report which could then be submitted to the political authorities, with the aim of agreeing on an approach to the producing countries in the spirit that "we're all in this together". (In the end, only the West could assure the regimes of those countries of protection against internal upheavals and external threats from the USSR.)

The speaker was not optimistic that the political will would be mustered to take this united approach. But he was convinced of the futility of a purely economic response to a situation that was essentially political.

A Norwegian participant lent strong support to the conclusions of the preceding intervention. Organized cooperation among the consuming countries was essential before the resumption of bargaining with OPEC. This speaker also endorsed the concept of "Project Independence", which had the

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two-fold aim of conserving energy and developing new sources of it. That project had been proposed for the US, but it could be adopted as well by other countries.

A Dutch participant spoke of the dangers of consuming countries' "going bilateral" in their efforts to secure adequate oil supplies. France's agreement to pay far above the market price had been a major cause of her forced withdrawal from the European currency "snake".

The importance of conservation programs was emphasized by a Canadian as well as an International participant, who reckoned that it was far cheaper to save energy than to increase production of it. Public opinion had to be educated about this, he said. An American estimated that the US might have the *capacity* to be self-sufficient by 1980, but it was probable that even at the end of the century his country would be only 85 per cent independent.

A British participant spoke optimistically about the contribution which North Sea oil would make to the UK's energy self-sufficiency, with the attendant benefit for her balance of payments position. It would not solve all of Britain's problems by any means, but it would make some of them very much easier by 1980.

An Italian speaker thought this sounded like the talk of a sick man who thought he had found "the elixir of long life". Might not the economic promise of North Sea oil prove as illusory as Khrushchev's "virgin lands" of Russia?

An American participant agreed that conservation was essential, but he said it was not the answer to the problems of this decade. The US would be dependent on oil imports – which would increase absolutely, although not relatively – until well into the 1980's. Assuming massive investments and a long enough time frame, private industry could develop a more reliable and diversified pattern of energy sources.

The speaker referred to the disillusionment in the oil industry at the unwillingness of the US Federal government to act or to provide any guidance. Politicization had made it impossible for government to do even the easiest job: emergency allocation of supplies. The private oil companies to whom this task had fallen had received only brickbats for their efforts. While those companies hoped to be able to make up in some way for the persistent failure of the government to act, the range of their possible cooperation was fairly well limited by the antitrust laws.

A big issue avoided by all governments was the one having to do with the prices and volumes to be agreed with the OPEC nations. The oil industry was now making payment to four OPEC countries at the rate of $100 billion a year, or roughly four times last year's payments. (This was *before* adjustment for the participation and buy-back prices, which would be applied retroactively.)

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At least two-thirds of the $100 billion would be accumulated in reserves not spent currently. The Euromarket could recycle this money for the short run, but an indefinite transfer of sums of that magnitude was hard to contemplate.

Other interventions dealt with the possible repercussions in world financial markets of this huge accumulation of "petrodollars". A British speaker observed that the Euromarket had so far absorbed these increased funds with relative efficiency, but as the volume grew there would be a risk of declining credit standards and an unhealthy reliance on a few dominant depositors. This might in turn threaten the continued availability of funds and the system of funding long-term credits with six-month roll-overs. Even if the market mechanism managed to work, which was not at all certain, the massive transfer of purchasing power to the Arab countries would constitute a geniune revolution, likely to touch the living standards of all of us.

This view was shared by a Swiss participant, who alluded particularly to the social impact of a reduced standard of living in the industrialized countries after 20 years of steady, un interrupted economic growth. Our finance ministers had to take care to share out the sacrifices so that the least fortunate among us would not be victimized.

An American speaker drew less alarming conclusions about the monetary outlook. He believed that it was totally within the capacity of the market, backed by the central banks, to recycle the increased flow of funds through their swap networks.

As to the magnitude of those funds, there had been projections in the $20-30 billion-a-year range, which was very far from the $100 billion figure mentioned in a previous intervention, and would result in quite a different picture if true.

Creditworthiness might be a problem for a few less-developed countries, but there were strong positive elements in the balance sheets of Japan and Atlantic community borrowers.

As for the transfer of real resources to oil-producing countries, this would only occur if demand were to grow there, in which case goods and services would be purchased from the industrialized, oil-importing countries, resulting in a tendency toward equilibrium.

Another American participant could not help feeling pessimistic about the broader social and political implications of the oil price crisis. It could well have such a destabilizing effect on our economies that some of our weak governments - and even the EC structure itself - would find it hard to withstand the resulting dislocations.

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* * *

*VI. European-American relations.* An American participant observed that it had always been accepted that progress in European integration would pose some problems for the US. Although the existence of the EC would by and large greatly benefit the US economy, there would be short-term economic disadvantages. Moreover, dealing with a coalition trying to behave like a government would prove awkward. Finally, a Europe with its own identity was bound occasionally to disagree with the US. These problems were now being compounded by the excessively personal style of current American diplomacy, which was apt to lead to bilateralism in spirit, not just in appearance.

But the US behavior did not explain or justify the nationalistic reflexes of Europe, as seen for example during the recent oil embargo crisis. The speaker found little evidence of statesmanship in the current conduct of European affairs. Anti-Americanism would tend to fragment Europe, not unify it; America did not constitute a very persuasive common enemy. Neither were "special relationships" with the US any substitute for European unity, though, as we could not re-create the working partnership of World War II. (Another American and a British participant lent support to that point.)

To help mend relations, the speaker suggested that the US move away from personalized to institutionalized diplomacy, and show that it was not so preoccupied with China and Russia that it would neglect the Atlantic alliance. He hoped in turn that Europe, including Britain, would take heart from what it had already achieved in the way of integration, and would revive the spirit of partnership with America.

Another American speaker pointed out that the Nixon administration had had to cope with many major problem areas that had not been dealt with by the two previous administrations. In several cases, it had pursued initiatives which had been previously suggested by Europeans, and had succeeded in disengaging the US from positions in which it had been "frozen" for many years, (e.g., Vietnam, Russia, the Middle East). Secretary Kissinger, a long-standing friend of European integration, had in truth consulted with Europe more effectively on these matters than had his predecessors. If his diplomacy had appeared personalized at times, this had been "faute de mieux".

Some participants nonetheless still felt uneasy about the current style of US diplomacy. Without wishing to detract in any way from Secretary Kissinger's achievements, a German speaker wondered whether the apparant US trend toward bilateralism was really "faute de mieux", or whether it was designed to divide Europe on certain issues. After years of "benign neglect" by America,

53

[LC]

were the Europeans becoming the object of "malign attention"? As there was no real alternative to the European-US relationship, though, we had to learn to live with different perceptions, to restore traditional diplomatic practices in place of "gimmickry and gadgetry", and to avoid "paralysis by analysis".

Another German participant concurred with the judgment that there was a risk in too great a personalization of the conduct of foreign relations, particularly today when there was no policy consensus, either in Europe or in the US establishment. Relations were further complicated by the lack of American understanding of the so-called "European identity" question, and by Europe's ignorance about the complex US decision-making process. There were nevertheless many subjects in which the two continents had an enormous common interest.

In the view of a French speaker, transatlantic cooperation had to be based on long-term goals and benefits, and not short-term convenience. It would help us get out of our present impasse if we would drop excessive formalism in our relations.

An International participant went a step further, claiming that what was needed more than organized, formal cooperation between Europe and America was an improved multilateral framework.

A British speaker could not understand the anxiety some felt about the US "selling the Europeans down the river, or doing a deal over their heads". He thought that Europe should be grateful for Secretary Kissinger's diplomacy ("riding two horses at once"), and should try to show greater trust toward American attitudes in general. A compatriot seconded this suggestion.

Nevertheless, the speaker added, there had been occasions recently when the Americans' impatience and bad temper with their European allies had been both distasteful and unwise. One had witnessed, figuratively, a sort of grabbing of coat lapels, and it would be a pity if the Atlantic dialogue were to continue in that spirit.

A Turkish participant was sorry to see among some Europeans a strain of hostility to everything "American", and an obsession with being purely "European". This was not a constructive or realistic attitude. It made more sense to approach every question dispassionately, on its merits, in the practical light of one's best interests.

An American speaker thought that the formulation of US Atlantic policy might profit from greater introspection. Were the Americans acting in such a way as to inhibit European unity, either by intemperate language or by insisting on being in on the ground floor of the EC's decision-making process, which might in itself encourage fragmentation? If the US wished to foster a truly separate European entity, it ought to take the positive step of warning

54

[LC]

the UK that there was no future for the old "special relationship" and that, in the US view, British withdrawal would be bound to wreck the EC.

On the military side, it was important that the drawing down of US troop levels not be done in the form of a confrontation, but only after serious negotiations with Europe, so that it could be done in a sensible fashion. It might indeed be claimed that a continued large US military presence was serving to inhibit European unity, as it suggested to some the perpetuation of a form of American hegemony.

An Italian, on the other hand, said that to many people the American military presence was equated principally with 30 years of peace in Europe.

In the opinion of a Dane, most Europeans did not want to be forced to make a choice between the US and the EC (or, more accurately, France). It would be most distressing to see the EC used as a means of confrontation with the US. At the same time, the Americans had to realize that the Nine were still a very new group, who needed to be able to discuss things "within the family".

Granted the importance of the transatlantic relationship, was the "two pillar" concept still realistic? Many felt that it was not, principally because it implied an equality of two political entities. An American participant thought that for the US to try to act as if a united Europe existed gave it the worst of both worlds: rivalry and opposition without unity or support.

A Frenchman said that, as the prospect of Europe speaking with one voice seemed as distant as ever, it was a waste of time to wait for the day when one could have a symmetrical two-party dialogue. It was more sensible for the nations concerned with a given problem (e.g., trade relations or the reduction of US troop levels in Europe) to meet in whatever numbers were suitable for the occasion.

An American speaker felt that the "two pillar" notion had never been consonant with the global network of multilateral relationships that we required. The density of that network among the industrialized countries put a special responsibility on their governments to manage their relationships well. This would call for consultation at a more profound level, and of rather different kinds, than we had had traditionally. That fact in turn had implications for the way governments were organized.

As this participant saw it, European-American relations were now bedeviled by two difficulties in particular. The first was the breakdown of the framework within which we had earlier assumed we were establishing the transatlantic relationship. The second was the changing character of the problems facing us. It was increasingly difficult to draw a clear distinction between domestic and foreign policy, and few problems could be defined simply as Atlantic ones, except in the security field. Other countries were become more involved.

55

Had enlargement of the EC taken place while the broader international framework (including Bretton Woods) had been in place, and also before the more fluid relationship between the superpowers had developed, then European consolidation would have been easier to accomplish. As it had turned out, many of the earlier rules and assumptions were being challenged, and many of the most urgent questions, especially in the economic field, were not ones that could be solved simply on an Atlantic basis – much less on a European basis.

The “two pillar” concept was particularly inappropriate when it came to dealing with such topics as defense, natural resources and the monetary system, according to a British intervention.

An American participant thought that his compatriots tended to conceive of their interests in idealistic terms and to look always for a sense of purpose in their undertakings. Secretary Kissinger's call for a new Atlantic Charter had been concerned with purpose and direction, and with the overarching values of the European-American relationship. Unfortunately, this spirit had been lost, as the European response, formulated by civil servants, had focused on procedural and juridical issues. For the US, all debates about consultative mechanisms were secondary.

The alleged “personalization” of American diplomatic effort did not in any case imply an emphasis on bilateralism. The US had been willing to deal with Europe multilaterally through the Davignon committee, but the Europeans had shown their reluctance to accept this.

US support for European integration was undiminished, but Americans now asked “To what purpose?” Public opinion would no longer endorse simply the *abstract* notion of European unity, “mindless or non-idealistic”. Americans looked for a form of European unity that would serve the purpose of structuring international relations in a way that provided for efficient means of dealing with our numerous problems. The US could not be expected to support a concept of European unity that would be counterposed to Atlantic purposes and the Atlantic association.

Other participants counseled against building roofs without houses, so to speak. One American speaker observed that, in all of our countries, there was a subtle temptation to hope that we could somehow escape into international solutions for problems we had failed to solve at home.

Another American suggested that, instead of concentrating so much of our attention on international relationships, we should try “to see what could be done to strengthen the social and economic insides of our various countries”. To be sure, we should try to save the EC, but this was hardly the moment to attempt to relaunch it. Cooperation should be sought in those areas most likely

56

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to be immediately rewarding, such as defense and energy. Otherwise, we should
be modest and practical, "sticking to the construction of tools, not cathedrals".

*
* *
* *

Thinking back over the discussion, a British participant could not avoid a
certain sense of unreality about parts of it. Had the meeting not sometimes
neglected to put the really important questions in their proper perspective?

A laborious examination, for instance, of the implications of one or two
empty chairs at the European table seemed oddly inappropriate at a time when
we were on the brink of a total revolution in the economic and financial
relations of the world.

Similarly, a debate between Capetians and Carolignians, or Tories and
Labour, did not seem terribly relevant to the question of what Abu Dhabi was
going to do with its accumulation of $15 billion in two years - or Saudi Arabia
with its $80 billion.

The speaker wondered what a Martian visitor to Megève might have made
of all this.

An American participant was struck by the way in which the discussion had
often tended toward a detailed description of developments rather than a
purposeful analysis of possible solutions.

Many speakers, for example, had deplored the absence of political support
for accelerated European integration, but had found no cause to hope for a
change. Perhaps a projection of what the world might be like in 1985 if present
trends continued would add some impetus to the drive for European unity. The
speaker suggested that the Bilderberg group could play a useful role in spon-
soring such a study during the year ahead.

*
* *
* *

Before closing the meeting, H.R.H. The Prince of the Netherlands conveyed
his appreciation on behalf of all the participants for the generous and thought-
ful hospitality of the French hosts and their associates who had planned the
meeting. The hotel staff deserved a special word of praise for their excellent
service. His Royal Highness also thanked the authors of the working papers,
the interpreters and the secretariat for their collaboration.

A French participant expressed the gratitude of all in attendance for the
brilliant guidance provided by The Prince as chairman of the conference.

* * *

57

BILDERBERG MEETINGS

THE HAGUE, 29 March 1973

SMIDSWATER 1

TELEPHONE 46 21 231

TELEGRAMS BILDERMEETINGS

To the participants of
the Saltsjöbaden Meeting

Dear Madam, dear Sir,

Enclosed you will find a *provisional* list, containing
the names and principal functions of all those who can be
expected to attend the Bilderberg Meeting, to be held at
Saltsjöbaden, Sweden, on 11, 12 and 13 May 1973 (arrival
dinnertime, 10 May).

If you wish to have any change made in the way your
name and principal function are mentioned in this
provisional list, you are kindly requested to inform the
Secretariat in The Hague. The suggested correction will be
made in the final list of participants, which will be
available to all participants at the Grand Hôtel Saltsjöbaden.

Your attention is drawn to the enclosed "Notice to
Participants" and particularly to the paragraphs
"Accommodation" and "Transport". It is recommended to
complete the annexed card and return it to the Secretariat
as soon as possible, in order to avoid delays in reaching
Saltsjöbaden.

I am sending distinctive tags, which you may wish to
fix to your luggage, in order to facilitate identification
by members of the Secretariat at the airport.

BILDERBERG MEETINGS

THE HAGUE, - 2 -

SMIDSWATER 1

TELEPHONE 46 21 21

TELEGRAMS BILDERMEETINGS

Persons attending a Bilderberg Meeting for the first time, are requested to inform the Secretariat whether they wish to receive all correspondence and documents in English or in French. For their personal information I enclose a copy of a pamphlet "Bilderberg Meetings", which gives details concerning the organization, as well as a copy of the summary of the 1972 Meeting in Belgium.

Working papers by Mr. Walter Levy (item I), Mr. Fernand Spaak (item I), Mr. John Newhouse (item II) and Mr. Thorvald Stoltenberg (item II) will be circulated as soon as possible.

GENERAL INFORMATION

It is customary to observe certain conventions at all Bilderberg Conferences.

Irrespective of their official positions, all participants attend in a strictly personal capacity.

The meetings do not attempt to formulate policy or even reach conclusions, no resolutions are submitted for discussion or voted upon. The purpose of the debate is to present a comprehensive review of the problems on the Agenda, from which each participant is free to draw his own conclusions. It is hoped, however, that those who attend the meetings may be better equipped to use their influence to improve relations in the world.

Fruitful discussion requires an atmosphere of mutual trust so that participants can express themselves frankly. For this reason, the press and public are excluded and neither background papers nor speeches are published. Moreover, all correspondence concerning Bilderberg should be considered personal and confidential.

In the final report, which is circulated only to participants in the Bilderberg Meetings, opinions are summarized but speakers are not quoted by name. This report normally includes the names of all participants.

Participants who would prefer that their names be omitted are asked to inform the Secretariat accordingly.

The list of Participants will be given to the Press before the Conference opens. If you object to the inclusion of your name in this list, please notify the Secretariat as soon as possible.

3

## PLACE OF THE MEETING

The Meeting will be held at the Grand Hôtel Saltsjöbaden, approximately 16 km from Stockholm.

The full address is:

Grand Hôtel Saltsjöbaden
S-13303 Saltsjöbaden
Sweden

Telephone: Stockholm (08) 717 00 20

Telex: 10210

Cables: SEAHOTEL-SALTSJÖBADEN

## ACCOMMODATION

The hotel will be reserved exclusively for participants of the Meeting.

Rooms and meals with table wines or beer will be provided free to participants. All extras - drinks, telephone calls, transport other than from/to the Airport/Railway Station, laundry, pressing service, etc. - will be at the participants' own expense. Taxis are available at the hotel. Laundry and pressing facilities are available in the hotel.

In the event of participants being accompanied by members of their family or their staff, the latter can be accommodated at their own expense in hotels in Stockholm. The Secretariat will assist with the necessary arrangements. It is essential that the Secretariat be informed well in advance of the additional accommodation required.

4

[LC]

PROGRAM

Participants are requested to arrive the day before the Conference
opens, i.e. Thursday, May 10, so that the sessions can start on Friday,
May 11, at 9.30 a.m.

Sessions will be held every day, both in the morning and in the
afternoon, at times to be announced at the end of the preceding ses-
sion.

On Sunday morning, May 13, there will be a session from 9 a.m. until noon. The Chairman would greatly appreciate if participants would not leave before the end of the session.

If desired, participants may stay until Monday morning, provided
early notice to that effect is given.

Evening dress will not be required. During that time of the year,
the temperature is likely to range from about 46 degrees F (8
degrees C) at night, to about 65 degrees F (18 degrees C) during the
day.

LANGUAGES

The official languages of the Conference will be English and French
and all documents will be translated into these languages. Simultaneous
interpretation into English and French will be provided during the
meetings.

CURRENCY

Travellers' checks can be cashed and foreign currency exchanged
at the Grand Hôtel Saltsjöbaden.

TRANSPORT

Transport will be available for participants arriving at Stockholm
Railway Station or Stockholm International Airport (Arlanda, 60 min-
utes by car from the hotel). Participants are asked to arrange for their

5

THE WHITE HOUSE
WASHINGTON

March 27, 1973

Dick:

On the request list Mr. Johnson asked
who he should be in touch with regarding
Bilderberg, May 10 - 13 in Sweden.
HAK said "Campbell". You may want
to call him at 212/697-3131.

Irene

JOSEPH E. JOHNSON

22 WINANT ROAD
PRINCETON, NEW JERSEY 08540

212/697-3131

February 14, 1973

Dr. Henry Kissinger
The White House
Washington, D. C.

Dear Henry:

I was glad to learn that Jack Heinz got hold of you when you were in Washington recently and that you thought it very possible you could attend the forthcoming Bilderberg meeting at least in part. The following facts may be helpful.

The meeting will take place at Salsjobaden which is on the outskirts of Stockholm from May 10 through May 13, 1973. We hope all participants can arrive Thursday evening and are asking all of them if they possibly can stay until the meeting ends before lunch on Sunday because it is very disruptive to have people dribbling out during the morning session. I know your circumstances are special but I can only hope that you can stay throughout the discussion of one item or the other.

The Agenda is as follows:

I Conflicting Expectations Concerning the European Security Conference

II The Possibilities of the Development of a European Energy Policy, and the Consequences For European North American Relations.

It was decided to put the European Security Conference item first, which means that it will be discussed all day Friday, the 11th, and the Energy question dealt with on Saturday and Sunday morning.

You will be receiving a formal invitation from the Prince in the near future.

Incidentally, I shall be grateful if you will let me know the name of the member of your staff with whom I should keep in contact about this.

- 2 -

(BELGIUM)

SNOY et d'OPPUERS, Baron

Former Minister of Finance

TINDEMANS, Leo

Vice-Prime Minister and Minister of Budget

CANADA

GRIFFIN, Anthony G.S.

President, Triarch Corporation Ltd.

LOUGHEED, Peter

Prime Minister of Alberta

MACDONALD, Donald S.

Minister of Energy, Mines & Resources

RITCHIE, Albert E.

Under Secretary of State for External Affairs

DENMARK

HAAGERUP, Niels J.

Editor, "Berlingske Tidende"

KRAG, Jens O.

Former Prime Minister

TERKELSEN, Terkel M.

Editor-in-Chief "Berlingske Tidende"

FINLAND

LEHTO, Sakari

Managing Director, Pargas Kalk

- 4 -

[LC]

GREECE

PESMAZOGLU, John S.

Former Deputy Governor of the Bank of Greece

ICELAND

HALLGRIMSSON, Geir

Mayor of Reykjavik

INTERNATIONAL

KERSTEN, Otto

Secretary General of the International Organization of
Free Trade Unions

KOHNSTAMM, Max

President of the European Community Institute for
University Studies

LENNEP. Jonkheer Emile van

Secretary General, O.E.C.D.

LUNS, Joseph M.A.H.

Secretary General, N.A.T.O.

SPAAK, Fernand

Director General of Energy, E.E.C.

Author working paper

ITALY

AGNELLI, Giovanni

President, FIAT S.p.A.

CITTADINI CESI, Il Marchese

President, Association pour l'Etude des Problèmes de l'Europe

DUCCI, Roberto

Director General Political Affairs, Ministry of Foreign Affairs

GIROTTI, Raffaele

Chairman, Ente Nazionale Idrocazuri

- 5 -

LLC

(ITALY)

LEVI, Arrigo
Journalist, "La Stampa"

MERLINI, Cesare
Director, Istituto Affari Internazionali, Roma

PEDINI, Mario
Under Secretary of State, Foreign Office

NETHERLANDS

BRINKHORST, Laurens-Jan
Professor in European Law, University of Groningen

PHILIPS, Frits J.
Chairman, Philips Gloeilampen Fabrieken NV

STOEL, Max van der
Member of Parliament

WAGNER, Gerrit A.
President, Royal Dutch Petroleum Company

NORWAY

HØEGH, Leif
Shipowner

LIED, Finn
Director General of the Norwegian Defense Institute

STOLTENBERG, Thorvald
Secretary of the Norwegian Trade Union
Author working paper

Tidemand, Otto Grieg
Shipowner

- 6 -

[LC]

## SWEDEN

JOHANSSON, Rune
Minister of Industry

PALME, Olof
Prime Minister

STRÅNG, Gunnar
Minister of Finance

WALLENBERG, Marcus
Chairman, Skandinaviska Enskilda Banken

WICKMAN, Krister
Minister for Foreign Affairs

## SWITZERLAND

GERWIG, Andreas
Member of the Federal Parliament

UMBRICHT, Victor H.
Member of the Board of Directors, CIBA-GEIGY Limited

## TURKEY

BEYAZIT, Selahattin
Director of Companies

BIRGI, M. Nuri
Former Ambassador to N.A.T.O.

## UNITED KINGDOM

BENNETT, Sir Frederic
Member of Parliament

DRAKE, Sir Eric
Chairman, The British Petroleum Company

GREENHILL, Sir Denis
Permanent Under-Secretary of State & Head of the Diplomatic Service

(UNITED STATES)

HEINZ II, Henry J.

Chairman of the Board, H.J. Heinz Company

KISSINGER, Henry A.

Assistant to the President for National Security Affairs

LAPHAM Jr., Lewis A.

Junior Editor, Harper's Magazine

LEVY, Walter J.

Oil Consultant
Author working paper

Moyers, Bill D.

Mitchell, Hutchins & Co. Incorporated

MURPHY, Robert D.

Honorary Chairman of the Board, Corning Glass International

NEWHOUSE, John

Author and Consultant
Author working paper

PERKINS, James A.

Chairman, International Council for Educational Development

STONE, Shepard

President, International Association for Cultural Freedom

TOWER, John G.

U.S. Senator

WILSON, Carroll

Professor, Alfred Sloan School of Management,
Massachusetts Institute of Technology

[Lc]

From JOSEPH E. JOHNSON

19 April 1973

Papers for Bilderberg Conference.

The Stoltenberg papers will follow shortly.

AN ATLANTIC-JAPANESE ENERGY POLICY

Table of Contents

<table><thead><tr><th></th><th></th><th>Page</th></tr></thead><tbody><tr><td>I</td><td>Introduction</td><td>1</td></tr><tr><td>II</td><td>Some Basic Data on Energy Supply and Finance</td><td>2</td></tr><tr><td>III</td><td>Changes in the Power Structure of International Oil</td><td>4</td></tr><tr><td>IV</td><td>The Dominant Position of the Major Oil Producing Countries</td><td>5</td></tr><tr><td>V</td><td>The Limitations on Oil Companies in the Producing Countries</td><td>9</td></tr><tr><td>VI</td><td>The New Role of the Oil Companies in Importing Countries</td><td>13</td></tr><tr><td>VII</td><td>The Interests of the Home Countries of the International Companies</td><td>17</td></tr><tr><td>VIII</td><td>The Need for an Atlantic-Japanese Energy Policy</td><td>19</td></tr><tr><td>IX</td><td>An Outline for an Atlantic-Japanese Energy Policy</td><td>23</td></tr></tbody></table>

# I - INTRODUCTION

The prosperity and security of the whole Free World depend on
sufficient availability of energy on satisfactory economic terms.

During the next ten to twenty years, oil will provide the main-
stay of the world's energy supplies.

In practical terms, because of the size of known reserves and the
lead time for finding and developing new oil and other energy resources,
the world's growing needs will be supplied predominantly by huge
increases of oil imports from the Middle East - mainly the Persian
Gulf area.

Directly connected with the anticipated large advances of oil
imports, the consuming countries will face another set of problems.

The cost of oil imports will rise tremendously with extra-
ordinarily difficult implications for the balance of payments of many
consuming countries.

There will also be serious problems caused by unprecedented
foreign exchange accumulations and the international use of such funds
in the case of some of the major oil producing countries, such as
Saudi Arabia and Abu Dhabi.

We have also been witnessing a complete change in the political,
economic, strategic and power relationships between the oil producing,
importing and home countries of international oil companies and the
national oil companies of producing and importing countries.

An energy policy for the oil importing countries cannot be limited
to the Atlantic Group of nations but must include Japan, the Free
World's second strongest single economic power and one of its largest
oil importers.

It should also encompass other developed nations such as South
Africa, Australia and New Zealand and should take account of the
position of oil importing developing countries in Latin America,
Africa and Asia.

But the policy and organization as suggested here will refer
mainly to the Atlantic Group plus Japan as the nations with major
world influence and responsibilities.

In the following review we will deal as comprehensively as
possible with the set of issues and changing relationships posed by
energy-oil problems during the next ten years or so. The analysis
will, I believe, demonstrate the urgent necessity for the early
establishment of an energy policy for a new Atlantic-Japanese
partnership.

II - Some Basic Data on Energy Supply and Finance

Many very competent studies have been devoted to the present and
prospective position of energy supply and demand of the United States,
Europe and Japan, as well as the Free World as a whole.

I do not plan to repeat this analysis or to burden this present-
ation unduly with figures. I will only refer, as a point of departure,
to the practically unanimous conclusion that from now on - certainly
until the early eighties - U.S. energy requirements can be met only by
very substantial increases in oil imports. If present U.S. policies
and trends are left to take their course, oil shipments from abroad
will advance from about 4.7 million barrels per day in 1972 to over
11 million barrels per day in 1980.

As far as our allies are concerned, they would, except for the
promising developments in the North Sea and the unknown potential in
Japanese offshore waters or in other "safe" areas, have in general
very limited, if any, possibilities of developing dependable alternative
energy supplies based on synthetic oil or gas because of their rela-
tively small coal, shale, and tar sands resources. But even with the
most optimistic estimates for North Sea developments, the oil imports
of Europe and Japan combined are estimated to advance during the same
period from some 18 million barrels daily to 30 million barrels daily.

The preponderant part of all these imports - for the United
States, Western Europe and Japan - would have to come from Middle East
producing countries. Their output would rise from 18 million barrels
daily in 1972, to an estimated 35 to 40 million barrels daily by 1980.
The United States will, for the first time, compete with Europe and
Japan for major oil supplies from the Middle East, whose share in
total U.S. oil imports would, by 1980, amount to about 50 to 55 per
cent and in those of Western Europe and Japan to about 75 to 80 per
cent. There is little doubt that Middle East oil reserves are
sufficient to cover these requirements, but without very large new
discoveries this situation would change, probably during the Nineteen
Eighties.

The USSR will most likely remain self-sufficient in covering its
oil and other energy requirements and may, on balance, continue to be
an exporter of oil and natural gas.

Let me cite two more sets of data that are most relevant for the
formulation and urgent implementation of energy policy. The total
value of U.S. net imports of energy materials, mostly oil, may, accord-
ing to U.S. Department of Commerce data, easily reach $18 to $24 billion
annually by 1980, those of Europe $23 to $31 billion and those of
Japan $12 to $16 billion - as compared with $2.3 billion, $8.5 billion
and $3.1 billion in 1970, respectively. The revenues likely to accrue
to Middle East producing countries can tentatively be estimated at
about $40 billion annually by 1980 - as against $9 billion in 1972 -
with Saudi Arabia alone accounting for as much as perhaps half of the

- 3 -

1980 total. In some of the countries, such as Saudi Arabia and Abu Dhabi, a large part of these funds could not possibly be absorbed in their internal economies.

The United States thus must share with Europe and Japan the deep concern about the physical availability, the terms of trade, the balance of payments impact, and the investment and monetary consequences of heavily increased oil imports. But the United States, as the only super-power of the Free World with global commitments for its defense, carries the additional responsibility of protecting its capability thus to perform, especially since the Soviet Union and, for that matter, the People's Republic of China do not primarily depend on external sources of energy. The United States simply cannot afford an ever-increasing over-dependence for its oil supplies on a handful of foreign, largely unstable, countries. Otherwise, its security - and that of its Allies; as well as its prosperity and its freedom of action in foreign policy formulation will be in jeopardy. But the United States does have a realistic and economically manageable alternative - and that is to point its energy policy toward accelerated development of its large domestic resource potential for conventional and synthetic hydrocarbons and nuclear energy.

Even though such alternatives may now look expensive, the cost of foreign oil imports is likely to escalate continuously, and will sooner or later - and probably sooner rather than later - approach the cost of alternative sources of supply that could be developed in the United States.

If all realistic actions to increase its domestic energy supplies were to be taken with utmost urgency, U.S. dependence on total energy imports by the early Nineteen Eighties might be limited to perhaps around 20 percent - instead of somewhat over 30 percent if present trends were permitted to take their course. U.S. oil imports at that time would be substantially lower - perhaps by about one third - than they would otherwise have been, and probably would not exceed the "danger" level. But, as of now, continuing dependence of Europe and Japan on Middle East oil - and to an important degree the United States - appears to be inevitable. And the build-up of Middle East oil revenues will reflect that.

So much as a prologue for defining the statistical magnitude of the problems that the United States, as well as our allies, will have to face and that must be coped with by new policies dealing with our developing energy situation.

- 4 -

### III - Changes in the Power Structure of International Oil

In addition to the problems of security of oil supplies in terms of physical availability and the worldwide financial impact of ever-growing oil purchases by the importing countries and ever-growing oil revenues by a few producing countries, there are equally relevant issues affecting the economic, political and strategic future of the oil importing countries. These are the result of a fundamental change in the relationships between the international oil industry and the producing countries, the importing countries and the home countries of the international oil companies.

Let us just set the scene by summarily describing the immediate postwar period. Based on a dramatic expansion of oil production and exports, mainly in the Middle East, the international oil companies effectively supplied the bulk of the ever increasing energy requirements of the Free World. From 1946 to say the late Nineteen Fifties, the companies - on the basis of their rich Middle East oil concessions and at least indirectly benefiting from the immense strategic, political and economic power of the United States - were able to dispose of their oil reasonably freely and on favourable commercial terms.

Moreover, the United States itself was on balance independent of foreign oil imports and possessed a sizeable reserve productive capacity from which our Allies could benefit substantially during the Iranian and with some short delays also during the first Suez Crisis.

By 1960, when the Organization of the Petroleum Exporting Countries (OPEC) was established, the relative power position of the United States was beginning to decline as Europe, Japan and the USSR acquired new strength. It was also the time when the developing countries began to play a more important role in world affairs. The timing of the establishment of OPEC and its ever-growing influence in international oil operations was beyond doubt also in part at least the result of a certain inability and inflexibility of the international oil industry and their home governments to anticipate, assess and adjust to the changes that had begun to erode their previous paramount position of political and economic influence in oil producing countries.

During the next twelve years, from 1960 to 1972, OPEC and its members succeeded in achieving, to begin with, minor increases in the government take of oil producing countries, and since the early Seventies in enforcing a quantum jump in the royalty and tax payments levied on their production, capped in 1972 by the so-called participation agreement. Without going into details - and assuming present arrangements are implemented - participation means an immediate 25 per cent interest for the Arab producing countries in the Persian Gulf in existing concessions, leading to 51 per cent control within nine years. National oil companies of the major Middle East producing countries will thus become the largest sellers of crude oil. By 1984, by the way, under existing provisions, most of the important Venezuelan oil

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concessions will also have reverted from the oil companies to the Venezuelan Government. Algeria, Libya, and Iraq have already taken over a very substantial part of the previously foreign owned production, and the current Indonesian oil contracts also leave the Indonesian National Oil Company free to dispose of a substantial part of the oil discovered by foreign oil companies.

During the same period, the U.S. domestic oil outlook underwent drastic changes and its reserve productive potential began to disappear. By 1972, with imports of close to 5 million barrels per day, the United States had become one of the largest importers of oil, with the prospect of a continuously increasing dependence on foreign oil.

With this background, let us now shortly review the new situations and constellations of the various countries - producing, importing, and home countries of the international oil companies - in the international oil trade, and assess the problems facing the Atlantic World and Japan which must be considered in the formulation of a realistic energy policy.

Culminating with the conclusion of the participation negotiations in 1972 - which may still turn out to be not the final round of negotiations - there is little doubt that the major oil producing countries, especially of the Middle East, have acquired an immense potential for power - as long as at least two of the more important producers are able to maintain a reasonably united front. In the case of Saudi Arabia alone, we face a situation which, within a few years, gives that country, with its overwhelming lead in reserves and production, a pivotal role in supply.

As discussed, their power is based not only on their effective control over immense oil resources on which the security and prosperity of the Free World have become dependent, but will in due course derive also from their control over unprecedented financial resources which they will be able to extract from the oil purchasers. Moreover, large monetary reserves will give them the freedom to restrict their oil production for political or any other reasons, even though they would thereby forego current income.

The control which the producing countries will be able to exercise over their oil production and exports is not only based on their participation in the oil producing companies, but stems perhaps even primarily from the exercise of their sovereign power over companies operating in their countries. There is ample precedence for such use of power with the reluctant acceptance of the oil companies and their home governments : the Kuwaiti and Libyan restrictions on production;

[L.C.]

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the prohibition of exports to certain countries, including in certain circumstances even the parent countries of the oil companies; the Venezuelan oil legislation establishing practically complete control over oil operations, which were totally under foreign private ownership. This list could be extended nearly without exception to foreign oil activities in about any of the major producing countries.

To all intents and purposes, fiscal arrangements and payments to the producing countries are subject to nearly unilateral determination by the producing countries, as reflected in the demands leading to the Teheran and Tripoli "dictates".

Peremptory demands for national ownership of tanker transportation, reinvestments in oil exploration, refining, petrochemical, LNG facilities, and other related industries are bound to be made. The establishment of levels of production and the size and direction of exports for conservation, economic, political or strategic reasons are also by now "recognized" methods of controls as exercised by many producing countries.

In this connection it is perhaps noteworthy that the development of the tremendous oil resources of the Middle East does not really reflect any extensive industrial involvement of the economies of their countries or any important contribution by their people to the huge flow of oil outward and of revenue backward. The oil producing industry operations in these countries - whoever owns them - are limited fundamentally to a small enclave, transforming an export of liquid gold from underground into a reverse flow of solid gold above ground.

As mentioned earlier, national oil companies will in due course become the largest group of crude oil sellers in the world. Even though, under recent arrangements, a substantial part of the national companies' entitlements will, for some period, be sold back to their foreign partners for distribution through their marketing channels, it is only a matter of time before the national oil companies will probably dominate the market for non-integrated third party sales of crude oil. They will become major suppliers to national oil companies in many of the importing countries of the world and will probably also deal directly with the foreign refining and marketing affiliates of the international oil companies. In fact, effective competition in crude oil sales between the producing affiliates of the international oil companies and their partners, the national companies of the producing countries, may from a practical point of view, become very difficult if not impossible, as the producing countries' governments might not only establish the levels of production but will also, through their policies, determine the tax-paid cost and the prices at which the greatly increasing quantities of crude oil to which their companies will become entitled will either be sold back to their foreign partners or offered by them to their own customers.

Coupled with the expansion of crude oil sales, the national oil companies of at least some of the major producing countries will obviously work out deals for joint refining and marketing in importing countries.

Likewise, the producing countries, by taking over ownership or control of an ever-expanding tanker fleet to carry their oil exports, will thereby not only increase their revenues, but further enhance their power over the international oil trade.

With Saudi Arabia, which will probably become the largest Middle East producer by far, being unable to absorb its vastly expanding oil revenues in its local economy, it is quite possible that by the early Eighties the surplus funds annually available to it may be of the order of $15 billion plus. The large and continuously growing inflow of foreign funds that would accrue to the treasuries of a few Middle East governments, and to a small number of their privileged citizens, will far exceed any accumulation of foreign exchange holdings in modern times. Realistically, such amounts could probably not be placed into long-term or short-term investments year-in year-out without risking severe international repercussions and potentially extensive restrictions on the free flow of capital. It is most unlikely that the United States, or any other developed country, would permit continued massive foreign investments on a scale that could conceivably result in foreign takeovers of important companies and industries. Moreover, the reverse flow of dividends and interest would soon add an additional unmanageable balance of payments burden to the oil import bill of many countries. Nor could the short-term money markets handle such excessive and most likely very volatile funds without undermining the world's monetary arrangements.

The dilemma confronting us is acutely disturbing as any proliferation of international restrictions on capital or short-term movements of funds would, in and by themselves, be most harmful to our financial markets and monetary system. In the affected Middle East oil and capital-surplus countries, any restrictions on their investments abroad would probably be accompanied by restrictions on the output of oil. Obviously, if the income of oil producing countries were to be "sterilized", it would be more advantageous and completely rational for them to limit their oil exports. This would then further aggravate the world oil supply situation. However, controls over the level of oil production are unfortunately likely to be introduced anyhow, even without any hostile political or economic motivation of the producing countries, for reasons of conservation and wise resource management - at least in some of the major oil producing countries - and certainly as soon as their reserve-to-production ration begins to decline significantly. A recent pronouncement by the Saudi Arabian Minister of Petroleum has clearly suggested such a course of action. Interestingly, his statement was coupled with the suggestion that in order to assure continued supplies, oil imports from his country be given a privileged position in the U.S. market.

Some of the major Middle East producing countries will thus become two-pronged power centers; both as a supplier of oil and as an extraordinary accumulator of capital - with the latter further strengthening their ability to withhold oil from importing countries over a considerable period of time by drawing on their financial reserves for their budgetary and trade requirements.

[L]

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The size of the funds which the producing countries have at their command is, of course, based on their control of an absolutely essential resource, through which, be combined actions of OPEC countries - or perhaps even with the planned huge increases of Saudi Arabian production, the latter solely by itself - could exercise a tremendous power. Moreover, by tying the price of their oil to say a commodity basket index, any changes in currency values as such will not affect their actual purchase or investment capacities. There is little doubt that this accumulation of oil and of money power - obtained so to speak like manna from heaven, and, at least for the time being, not accompanied by any substantial contribution in political, managerial, or technical competence - would bring with it tremendous and lopsided shifts in the balance of power of a potentially explosive character.

Not the least of the dangers posed by this extreme concentration of oil power and 'unearned' money power is the pervasive corruptive influence which such concentration is nearly inevitably going to have on political, economic, and commercial actions and behaviour in both the relatively primitive and unsophisticated societies of the producing countries and the advanced societies of the dependent industrialised nations. Lust for immense power which is there for the asking and greed for money in unheard of amounts could easily corrode part of their - as well as our - political and social structure.

There are further complicating factors that must be taken into account in any assessment of the future dependability of the area as the centre for oil and money power. Within the area itself there are many deep-seated conflicts such as those of Iran versus Iraq, Iraq versus Kuwait, Saudi Arabia versus Oman and Abu Dhabi, Libya versus the traditional Arab countries, and so on. Also there is an underlying rivalry between Iran and the Arab States of the Gulf for hegemony in the area, which may sooner or later erupt into an open power struggle implicating also the communist and non-communist allies or sponsors of the various Middle East countries. In addition to these conflicts within the area, there are, of course, the perennial dangers and potentially explosive implications raised by the Israeli-Arab issue.

All these actual or potential confrontations also fundamentally affect the producing operations and government arrangements of the oil companies. When the activities of the companies extend to several of these countries, they will most likely be drawn sooner or later into any local area conflicts. Moreover, the producing countries will hold them responsible for their home government policies and expect them to support the producing countries' political, strategic or economic interests. The companies will nearly inevitably be asked to match any arrangements which either

their affiliates or any of the other international oil companies (or sometimes even any newcomer company) make with governments of most other Middle East oil countries. And with the underlying rivalry between the Arab countries and Persia, either of them would feel compelled to be able to claim that it has struck the most advantageous bargain with the oil companies. National pride and jealousy are bound to provoke a one-upmanship that would lead - in the case of different kinds of arrangements on the two sides of the Gulf - to endless escalations and no end of trouble. This is exactly what is happening as a result of the simultaneous negotiations on participation with the Arab nations on the one hand and on a differently structured deal with Persia on the other hand - and also in connection with developments in Iraq concerning the nationalisation of the Iraq Petroleum Company. Accordingly, the outcome in Iran and Iraq, any potential repercussions on the participation agreements with the Arab countries, and especially whether or not and, if so, how long the companies will be able to keep any equity interest in their various oil producing arrangements are, as of the time of completing this manuscript, still undetermined.

Finally, it must not be forgotten that none of the national governments is really stable and that the societies involved are still largely backward; there are always serious doubts whether any existing arrangements would survive the end of any current regime.

## V - The Limitations on Oil Companies in the Producing Countries

In the light of developments in the major oil producing countries as previously described, there is no doubt that the position of the international oil companies has undergone a most fundamental change, with the participation arrangements high-lighting, but not fully describing the underlying metamorphosis in their functions and power relationships.

If for a moment we refer to the publicly stated intent of what the producing countries have set out to achieve, it is clear that participation, if all the arrangements were ratified and would hold as negotiated in 1972, is mainly a device through which they, so to speak, smoothly and by arrangements with the international oil companies plan to obtain complete control over their countries' total oil operations.

It represents a grand design by the producing countries to forge an alliance with the oil companies in which the producing countries,

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while pursuing their national objectives, would still be able to
take advantage of the large distribution outlets, the investment
capabilities and the technical know-how of the oil companies.
This is reflected perhaps most succinctly in the pronouncements
of Mr. Yamani, the Saudi Arabian Minister of Petroleum. His
whole approach is based on the assumption, as stated already in
1968 and repeated since, that the oil companies would one day
turn out to be the natural allies of the producing countries. As
he explains it, he wants participation because the weight of the
national oil companies in producing countries should be combined
with that of the oil companies so as to:

(1) protect the concessions from nationalisation by providing an enduring link between the oil companies and the producing countries;

(2) gain control over the oil operations while maintaining the flow of foreign capital and expertise and obtaining marketing outlets for the output;

(3) prevent competition between producing countries as sellers of crude in open market, which would lead to a drastic drop in prices and producing government revenues;

(4) maintain thereby price stability, and through the
implementation of participation even secure an immediate
increase in world crude oil prices from which the prod-
ucing countries would benefit;

(5) achieve through this combination a position of influence
in the oil markets;

(6) make it difficult for any producing country to insist on
an 'abnormal' increase in production.

As the Kuwaiti Finance and Oil Minister plainly put it, the
true connotations of participation are nationalisation or takeover.
"What we called phased participation is in fact phased national-
isation. This is precisely the situation and its implications."

It must be clear that even though the producing countries
will start initially with a minority ownership, they will have a
powerful voice on investment, production levels, size of exports
and their destinations. As a corporate partner representing at
the same time the sovereign, they possess all the power they need
to control and direct the companies on all phases of the operations
in the producing country and probably even on many phases of their
operations abroad, holding their local interest in oil production
as hostage.

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In the immediate future, the bulk of the new participation oil will be bought back by the foreign companies for disposition through their own outlets and their profits on the resales together with compensation payments and the investment contributions of the new national partners will, to begin with, at least tend to protect their cash flows. But by 1976, the proportionate share of the quantities offered back by the national oil companies to the foreign companies will probably have declined substantially. As the Teheran agreement on government oil revenues terminates at that time, large new demands against the companies will undoubtedly be made then, and possibly even before.

In any case, the national oil entities of the various producing nations will in due course become practically the largest suppliers of oil - only somewhat delayed by the phasing out of 'buybacks' by the foreign conchnessionary companies. They will thereby exercise tremendous market power through their terms of sales. In the meantime, they will apparently attempt to use their private company partners, whose interests they would try to tie up inextricably in joint production ventures, to assure market stability.

Perhaps sensing this, an American top executive of an international oil company in an early statement on participation demands said that the key role of the international oil companies to satisfy the needs of both the producing and consuming countries is 'best performed when the commercial enterprise is freed from the pressures of conflicting ideologies and of the clashing political systems. These differences inevitably arise when governments of producing countries have a direct participation in running the oil industry or when government to government negotiations are substituted for the company bargaining with the host government.' The commercial framework of operations "would be subverted if we were to adopt an alternative of serving either group of nations exclusively". A top executive of one of the largest European international oil companies stated that a position of 51% participation by the producing countries would be "almost intolerable" as the oil companies would have almost all the operating responsibility without any freedom of investment and without control of production levels.

Subsequently, another top executive referred more positively to the new participation agreement with some of the oil producing governments in the Middle East as an example of building 'more stable future relationships', though he conceded, 'I won't pretend this was an easy adjustment.' However, he added, 'We believe that we now have a new basis for doing business which meets the needs of both consuming and producing countries. At the same time, we have maintained the essential intermediary role of the private international oil companies as the most effective agents for the production, transportation and distribution of oil products.

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I am afraid that the earlier pessimistic evaluations and reactions of the oil companies' executives to the participation demand will unfortunately prove to be the correct one, notwithstanding the firm assurances by the present Saudi Arabian Government that Middle East oil should and will be viewed solely commercially and not politically. This is certainly not the position of most other Middle East producing countries and cannot realistically be depended on. A cold-blooded assessment of the real power relationships of the international oil company with the various countries where it operates must lead to the conclusion that its oil production on which the continued operations of its upstream and downstream facilities are completely dependend is now or will soon be under the effective control of the producing countries. At the same time, the producing countries will probably deliberately arrange their and the companies' affairs in such a manner that the industry's single most important after-tax profit centre will, as in the past, be located in the producing countries.

There is thus very little doubt about the change in the role of the oil companies from a buffer and bridge between producing and importing countries to what may in fact turn out to be that of junior partners of the producing countries. The oil companies would thus be unable to continue to act as an independend-intermediary commercial force in international oil relations; instead the producing countries would tend to treat them as service companies under their control that would undertake admittedly essential worldwide logistic, technical, financial, production and distribution operations.

What we are facing, therefore, is a subtle - or even not too subtle - shift of the major centre of power over international oil from the home countries to the producing countries. Whether the companies like it or not, they would be compelled to protect their huge interests in the producing countries by adjusting and co-ordinating their policies and actions in accordance with the directives and policies of the producing countries, hoping that nevertheless the pattern of their operations in their home countries and the importing countries would not be seriously upset.

The role which the oil companies will be able to play in any of their future dealings with producing countries concerning oil production and its availability to importing countries as well as with regard to future tax payments, is thus inevitably severely circumscribed. In the light of present power relationships and the extreme supply and profit dependence of the oil companies on producing countries, they cannot be expected to take a strong and determined stand in such negotiations with the sovereign of the country on which their whole prosperity depends and whose national

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national companies are their partners and will in due course
acquire the controlling interest in their operations. Moreover,
they will have to argue that as long as they are able to secure the
availability of supplies to importing countries - even at steeply
escalating costs - they also serve the interest of their customers
by not risking a confrontation that could lead to interruption of
supplies; and as long as the companies are able to recoup such
costs from the consumer, they would also protect their own commercial
viability. As one top executive of one of the largest European
international oil companies pointed out sometime ago, "Pressure from
the producing governments on costs is something we can live with,
provided we are not at the same time denied freedom to move prices
in the market so as to maintain a commercial margin of profit."
It is obvious that in such circumstances the importing countries
and home governments can simply not afford to remain passive. The
companies, as private organisations and under the terms of reference
applicable to commercial corporations, cannot possibly be expected
to carry by themselves the burden of protecting not only their own
interests but also those of their customers.

There are thus serious doubts whether the kind of negotiating
problems we are facing now can be handled effectively solely through
a common posture of the companies or by any other kind of inter-
company arrangements. The approach followed in earlier negotiations,
when most of the oil companies with foreign production negotiated
as a group with OPEC producing countries as a group on matters that
would vitally affect the tax-paid cost and oil supplies of about
every oil importing country of the Free World, must thus be sub-
jected to a most searching review in the light of the present
realities of the power structure of international oil. In particular
it would appear that a broad understanding on energy policy among
the various importing and home governments involved is absolutely
necessary to avoid or at least to contain unrestrained use or misuse
of bargaining power by the oil producing countries to impose
excessive demands on the international oil trade.

## VI - The New Role of the Oil Companies in Importing Countries

Before reviewing the absolute necessity for a co-ordinated if
not common approach of the Atlantic-Japanese group of nations to
their energy problem, we may appropriately analyse the changed role
of the oil companies in importing countries.

To begin with, it must be realised that the international oil
companies will, during the next decade and probably much longer
continue to be a most important factor in the refining and
distribution of oil in practically all of the countries of the Free

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World, based on their predominant investment position in all phases of the local oil industries. They will also represent the most diversified single source of crude oil supplies, even though ever increasing quantities will be sold in the international oil trade by the national companies of producing countries. The international oil companies will also continue to make perhaps the most important contribution to diversified exploration, to technology and to expanded upstream and downstream investments. The logistics of their worldwide operations will be invaluable to the importing as well as producing countries.

Nevertheless, the international oil companies and equally their home countries, especially the United States, are now facing a serious lack of confidence by many of the importing countries not only with regard to their supply capabilities but also with respect to their intentions and concerns in so far as they may relate to the protection of the interests of their worldwide customer countries.

A course by the United States that would, through the exploitation of its domestic energy resources, lower American dependence on Middle East oil and thereby reduce the competitive bidding-up and depletion of Middle East oil reserves would, however, be a constructive contribution to the oil position of the Free World. Such a policy should thus be recognised by Europe and Japan as an integral part of a broader approach to oil issues that are the common concern of all.

But beyond that, the United States has additional possibilities to put so as to speak - a first mortgage on some of the richest oil resources in the Middle East. Saudi Arabia controls by far the largest known reserves developed by American oil companies; and the Saudi Arabian Government has already evinced its interest to conclude special deals with the United States for increasing oil deliveries. No doubt, Iran would be keen to do likewise. However, any acceptance by the United States of a preferred treatment as a customer for Saudi Arabian and Iranian oil would be extremely disruptive to its relations with other importing - and for that matter - producing countries.

The reactions of other importing countries to the Saudi offer is reflected in a statement of the French state-owned oil company Elf-Erap. In referring to the worries that such a policy would case to all other importing countries it comments "What an inducement to the raising of crude oil prices if the money paid by Europe and Japan should be invested through the producing state in the country of origin of these companies strengthening their power. Who would still be able to maintain that the companies which produce in Arabia are impartial intermediaries between these countries and the European consumer?" Along the same line of reasoning Italy's

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national oil company ENI suggests that the Common Market conclude direct oil supply agreements, in return for co-operation in the producing countries' development plans, to prevent a supply monopoly of the major international oil companies, especially so because American and European interests are not identical. Positions expressing similar reactions have been taken by several other major importing countries.

This prevailing fear is perhaps best summarized in a 1972 draft recommendation of the Western European Union which was unanimously approved by that body but apparently not endorsed by the Council of Ministers.

"... much of the oil imported by Europe is shipped under the American flag. The Middle East oil question is therefore mainly a commercial matter for the United States.

For Western Europe, on the other hand, it is a vital matter and the interests of consumers do not tally with the interests of the international companies. Increased participation in the capital of petrol companies by the Arab States or even nationalisation would not necessarily be a catastrophe for Europe.

A European oil policy should take account of these factors and in no case be linked with the international oil companies. This means Europe could reach agreement directly with oil-producing countries, help them to develop a national oil industry and purchase the oil thus produced... Europe has no interest in becoming involved in a vain conflict for defence of the oil companies; its interest is to collaborate closely with the Arab States.

The disadvantage of such a policy might be to make the European market over-dependent on the Arab States. But that is already the case since the Arab countries can cut off supplies of oil to Europe whether it passes through the international companies or is supplied direct...."

Individual European countries and Japan in those circumstances might thus be tempted to outbid each other in an effort to curry thereby special favours with Middle East oil producing countries and to secure a privileged position for themselves.

But whatever their motivation, the national companies of importing countries will, in any case, greatly expand their foreign supply operations. While such diversification might or might not provide a modicum of some added supply security, it should be noted that any new such ventures would be subject to fundamentally the same kind of political and economic risks as those of the international oil companies. There may be some

[L]

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benefits in reducing certain contingencies that may arise from
Angle-American control over access to foreign oil by enhancing
their national access to foreign oil; but the latter in turn will
be subject to its own separate hazards. Suffice it to refer only
to the French experience in Algeria for that matter to the
threatened expropriation of Belgian-held producing interests in
Egypt because of Egypt's disapproval of the Congo policy of the
Belgian government.

Also investments by the producing countries downstream in
importing countries are unlikely to take place until to be permitted
on a really massive scale; but even if this should occur, these
investments are unlikely to provide a much higher degree of oil
supply security if the producing countries for reasons of their
own should decide to withhold oil supplies. Their downstream
investments would not constitute an effective hostage in the hands
of the importing countries because the latter's continued dependence
on oil supplies would be of much greater urgency than the threat
of expropriation, or the loss of current revenue from such
investment would be to the producing countries.

Moreover, foreign crude secured by a national oil company of
an importing country would most likely be given a preferred
position in the home market. If such arrangements were to become
an essential part of the total supply of an importing country,
its dependence on what would most likely be a rather limited
number of sources of oil imports would make it even more vulnerable
to interruption - and to unilaterally imposed cost increases that
it would then be compelled to absorb within its own economy. If
the importing countries would follow a course of 'go it alone' in
a 'sauve qui peut' spirit, each one of them would also become the
target for potential political and economic blackmail, such as
some of them have already experienced. They would run the grave
risk that their policies and actions would be subverted by con-
siderations of securing or protecting their access to foreign oil;
ultimately such an approach will prove to be futile, and the price
for the oil and the political or other terms under which it could
be obtained might easily become untenable.

Obviously a continuous process of yielding valid rights, not
through genuine bargaining but under threat by the producing
countries, and a general posture of subservience by the oil
companies and the importing countries - as has occurred in recent
international oil 'negotiations' - must undermine not only the
prestige of the importing nations and of the companies but equally
the respect for any arrangements concluded with them. Only a
co-ordinated approach to energy policy by the relevant importing
countries could really prevent such harmful consequences.

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VII - The Interests of the Home Countries of the International Oil Companies

The change in power relationships affecting the operations of the international oil industry also has a far-reaching effect on the position of the companies in their home countries. The interest of the home countries in their international oil companies have in the past centered around their supply capabilities for their own country and its allies, their support of the power position of the home country that was implied in control over international oil resources, the contribution of the companies to the balance of payments, and the essential role the companies played in meeting ever-increasing worldwide oil requirements.

Let us briefly review the changes that are now occurring in the case of the two most important home countries, the U.S. and the U.K.

The ability of the companies to provide secure supplies because of their investment in foreign oil is now no longer absolute and assured. Experience during the first Suez Crisis in the case of the United Kingdom and France and during the Six-Day War in the case of the U.S. and U.K., has shown that even U.S., British or French controlled foreign oil could be and was - even though for a short period only - embargoed for shipments to the home countries. While in earlier years the United States was only a marginal importer of Middle East oil, in contrast to the U.K., in future the United States will become one of the largest single importers of such oil. On the other hand, with the development of the North Sea resources, the United Kingdom - if it could under Common Market rules effectively reserve its domestic oil production for its own use - might be able to achieve a very substantial lessening of its dependence on Middle East oil imports.

The same questions hold for the extent to which Anglo-American ownership provides supply assurance to our allies. As a matter of fact, some of our allies fear that American ownership of foreign oil might endanger their supply if there should be a political conflict between the United States and the producing countries.

In the past, control over the international oil companies could be and was used as a political instrument by their home countries in their relationship to importing countries, such as the United States apparently did during the first Suez Crisis or say for oil trade with Cuba, and so on. This possibility, to use the control over foreign oil for political-strategic purposes of the home countries is disappearing fast. It is the producing countries which now claim the power to supply or withhold oil for their own political and other interests.

The contribution of the international oil industry to the balance of payments of their home countries is indeed substantial; but relatively more important for the United Kingdom than for the United

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States. In the future, with large increases in U.S. oil imports and the continued need for reinvestment abroad, the balance of payments concern of the United States with regards to international oil may be directed more towards the huge and escalating foreign exchange costs of oil imports rather than to the benefits of profit transfers from international oil operations. In the United Kingdom, on the other hand, the development of the North Sea resources may relieve its oil trade bill sufficiently so as to maintain a predominant interest in the profit transfers from British international oil companies.

In sum, therefore, the fundamental interest of the United States is moving somewhat closer to that of an oil importing country. On the other hand, the U.K. might for the reasons cited above perhaps, in a narrow definition of its self-interest, pay more attention to the profit pattern of its companies from international oil operations.

There are, however, most important additional qualifying factors, affecting the security position of the home countries and especially the United States with regard to their oil supplies - independent of their position as home countries of worldwide oil companies.

What is relevant now is not so much any influence which the international oil companies may or may not be able to wield in producing countries, but the interest which producing countries have in maintaining an effective relationship with the United States. After all, the United States is the most important political, economic, and military power of the Free World which, incidentally, also presents the highest priced and one of the largest markets for imported oil. This, above all, explains Saudi Arabia's and also Iran's interest in trying to conclude special oil supply arrangements with the United States - not the investment of U.S. oil companies in their country, which, as far as Iran is concerned, would anyhow be a minority interest. Moreover, the United States offers the most important potential outlet for their capital investments, and constitutes one of the largest sources for capital equipment, consumer goods, and military hardware; it can provide its customers with the most advanced technology.

Finally, the United States is the only power that can effectively assure protection against communist - Soviet as well as Chinese - external and internal incursions. It is the one country which the traditional regimes of the two most important oil producing nations of the Persian Gulf - Iran and Saudi Arabia - believe they can depend on for the maintenance of their governments against subversion, and also for the security of the Persian Gulf area.

In the light of the U.S. possibilitees for developing its domestic potential in conventional and non-conventional hydrocarbon and energy resources, and its opportunity for establishing a special oil relationship with the two most important Middle East oil producers - Saudi Arabia and Iran - there is little doubt that if it would ever so desire, the United States could go it alone.

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The United Kingdom as mentioned above, will after the development of the North Sea oil fields be less dependent on Middle East oil than any of its Common Market partners. It was, nevertheless, apparently the U.K., in the Paris Summit Meeting of October '72, which was pressing for an early formulation of an energy policy for the Community guaranteeing certain and lasting supplies under satisfactory economic conditions.

This policy suggestion must be evaluated within the context of today's stark realities; that unilateral and diverse policies of the various European nations and of Japan cannot provide real supply security or contain the financial problems connected with the international oil trade; that the international oil companies can no more guarantee supplies to any of their customers in a crisis; that these companies no longer possess the bargaining strength, if left to themselves, to be effective negotiators with producing countries with regards to the availability and cost of oil; and that such a state of affairs would provide the most cogent reason for the various importing countries to work towards the establishment of an energy policy for a larger grouping of nations.

But the ultimate interest of the most important producing countries in the Middle East that have not fallen under Soviet domination is bound to remain the protection of their independence and that can only be achieved by close and friendly relationships with the United States. The United States will thus continue to be the dominant factor in world oil, not because of the foreign oil interests of its companies, but primarily because of its standing in the world balance of power. An energy policy applying solely to the Community would, we submit, be only the first step towards a really effective policy that must encompass the Atlantic group of nations and Japan.

## VIII - The Need for an Atlantic-Japanese Energy Policy

Beyond doubt, U.S. relations with Europe and Japan are in disarray. There are many outstanding unresolved problems on defense, burden sharing, trade policy, the whole range of monetary issues including currency realignments, capital flows, and so on.

Perhaps instead of establishing a grand design which would encompass a resolution of all major contentions and areas of conflicts, it might prove to be more fruitful to proceed pragmatically on an issue-by-issue basis and try to tackle first those problems where the chances of an Atlantic-Japanese policy, or a least of an agreed upon coordinated approach, would seem to be most promising. Incidentally, it is interesting to recall that the European Common Market was preceded by the establishment of a much more limited joint effort, the European Coal and Steel Community.

- 20 -

I should like to submit that the problem of the future energy position of the Atlantic-Japanese complex of nations is one of the most important issues confronting not only each of them individually, but also as a group. Obviously, an energy policy cannot be limited to the Atlantic nations but must include Japan as one of the major interested parties.

What is likely to induce the various countries to agree to co-operation and mutual adjustments is the existence of a severe outside threat to their security and prosperity, resulting from their dependence on oil supplies from a few foreign sources coupled with the potential danger of a flood of foreign funds that could harm their own economies and the world's monetary system.

The weak and unstable foreign political societies where the world's oil and money power centers are located could, for reasons of their own or stirred up by the potentially adversary policies of the Soviets and even perhaps the Chinese People's Republic, create great difficulties for the various countries of the Free World. The United States as well as the United Kingdom would - shortsightedly to be sure - by themselves probably be able to resolve their energy problems, partly at the expense of other importing countries. But as mentioned before it is to the United States, more than any other nation of the Free World, that pivotal producing countries look for their political and strategic security; and this advantage could rebound to the benefit of all oil importing countries. Neither the Common Market nor Japan alone or in combination could provide a comparable total package of advantages for the political, strategic, and economic well-being of the major Middle East oil producing countries.

If, therefore, the United States abstains from any attempt to try to obtain unilateral benefits, however shortlived they might prove to be, and is willing to participate in an energy policy in a new Atlantic-Japanese partnership, it might thereby provide protection for its partners against potentially very serious oil supply emergencies. Obviously the latter too must then forego the temptation of looking only at their immediate self-interest without regard to others; a policy that they could in any case not pursue successfully over any period of time. Only then would it be possible for the importing countries to pursue a rational policy for their energy imports and avoid bidding against each other or being played against each other with ever escalating political and economic demands being made upon them. Only then would it be possible for Atlantic-Japanese and especially U.S. power to become an effective countervailing factor in international oil without having been sapped by discordant and conflicting attitudes of the individual importing nations towards the producing countries.

The need for a joint or at least coordinated policy is indeed most urgent because any delays in which conflicting approaches to producing countries are made by the individual members of the Atlantic-Japanese group of nations will accelerate not only the disintegration

- 21 -

of our partnership, but will even further encourage arbitrary and
dictatorial demands of the producing countries. Moreover, as some of
the producing countries accumulate large surplus reserve funds, it
might become much more difficult, if not impossible, for the import-
ing countries to influence their policies.

It would appear therefore that Europe and Japan need something
from the United States which is in the interest of the U.S. to give,
i.e., its adherence to a coordinated Atlantic-Japanese energy policy,
in, as the game theorists would call it, a positive sum game through
which all sides would gain. This would provide the most persuasive
basis for an agreement on a joint policy under which common problems
could be resolved to the mutual advantage of all partners.

Needless to say that this should not imp that any of the part-
ners should necessarily be inhibited from pursuing separate diplomatic
and economic initiatives within the broad spectrum of developing
Middle East relationships and within the framework of an Atlantic-
Japanese energy policy.

The OECD Oil Committee has for many years served as the most
significant international organization encompassing the Atlantic-
Japanese group of nations, providing a basis for the exchange of
information and coordination and also for expert analyses on oil
developments relevant to its members. Most important, it has estab-
lished policies for emergency stockpiling and within certain limits
for the emergency apportionment of oil supplies in the OECD European
area; and during oil emergencies it has in fact served as a clearing
body to achieve an equitable division of available supplies among
its members.

The Common Market is presently engaged in a slow and difficult
effort to establish an energy policy for its members, that would
secure certain and lasting supplies under satisfactory economic con-
ditions. But in the framework of the Common Market, even including
Britain with its large interests in world oil, national policies of
the individual members could severely slow up the establishment of a
Community policy, as long as there is no overriding conviction on
the part of its members that the Community countries in combination
would decisively add to their individual political and strategic
bargaining strength.

In the light of the changed power relationships of today, an
effective energy policy of a new Atlantic-Japanese partnership must
inevitable go further than either the OECD of the Common Market have
advanced so far. Obviously, however, such a policy would build on
the valuable achievements of the OECD and the Common Market.

Fortunately there is, to a varying degree to be sure, a substan-
tial consensus of the need for a coordinated or even joint approach
to the energy problem in the United States as well as the Common
Market and Japan. It is reflected in many official pronouncements
during the last year or two.

- 22 -

The United States, in a 1972 statement before an OECD Council Meeting, officially expresses its readiness for such cooperation. "It is imperative for the world's major consumers of oil and other forms of energy to take joint and coordinated action - starting now - to increase the availability of all types of energy resources; to lessen, to the degree possible, an overdependence on oil from the Middle East, to coordinate the response of consuming countries to restrictions on the supply of Middle East petroleum, and to develop jointly and cooperatively a responsible program of action to meet the possibility of critical energy shortages by the end of this decade." The OECD itself is again engaged in a study of the world energy situation, hopefully leading to concrete recommendations for actions by the member governments. The Common Market Commission considers it necessary to substitute or extend liaison in the energy field between the Community and other energy importing countries in order to provide a better exchange of information and produce common solutions.

Japan through its Overall Energy Council, an advisory body to the Minister of International Trade and Industry, recommended in 1971 that, while it was necessary for Japan in order to assure stable oil supplies at low cost to behave independently of any foreign influence in all aspects of her oil industry activities, it must cooperate with other consuming countries. "To this end it is necessary for Japan to promote with them and their national oil companies exchange of information and mutual understanding and to explore possibilities for constructive cooperation on the part of oil consuming countries toward the formation of an organization in which debates are held among the countries with international oil companies and the oil producing countries on the basic policy concerning the world oil situation." As the Natural Resources Survey Mission, sponsored by the Japanese Foreign Office, put it in its report published in 1972, Japan must engage in active participation in international cooperation with advanced countries on oil matters and "must refrain from being passive as has been the case thus far. It must take full advantage of opportunities such as an OECD Oil Committee meeting where industrially advanced nations meet, through which Japan could clarify her oil policy on international cooperation before the OECD member countries."

Building on this awareness of the energy problem by all the importing countries and their consensus on the need for joint discussion, coordination, or actions, as the case may be, we will now submit our suggestions for an energy policy for an Atlantic-Japanese partnership.

- 23 -

## IX - An Outline for an Atlantic-Japanese Energy Policy

The major goal of an energy policy for a new Atlantic-Japanese partnership must of course be to try to cope with the common problems of the security of oil supplies and the financial issues related to it. While nobody can guarantee that such a policy will lead to a completely satisfactory resolution of all the problems, it should at least be possible to contain them. Future bargaining in international oil would no longer be lopsided, i.e., between the producing countries as a group and the oil companies (be they the internationals or the national companies of importing countries) with the latter "negotiating" under the threat of being treated as virtually the captives of the producing countries - but would also engage the extraordinary political, strategic and economic power of the Atlantic-Japanese group of nations.

If such "countervailing power" to OPEC should really become a factor in international oil, which indeed it must, there is some reasonable hope that international oil and financial arrangements could be set up on a rational and manageable basis; and that OPEC would no longer be able, as Mr. Yamani put it in October 1972, through its coordination and unity to "prove time and time again that it can enforce its demands".

Some fear has been expressed that such a grouping of oil importing countries might unnecessarily provoke a confrontation with the producing countries. But circumstances have significantly tipped the balance of power during the last few years. It was the producing countries which, through the establishment of OPEC, created a producing countries' organization which as a group formulates policy guidelines for major producing countries and through the threat of withholding supplies to companies that would not submit to its demands and through other means, provides enormous power and overwhelming bargaining leverage for each of the producing nations. Moreover, the Organization of Arab Petroleum Exporting Countries (OPEC) has stated its intention to establish official relations with countries of the EEC, either collectively or individually. To this purpose, it announced in 1971 that it is setting up a committee to coordinate the relations of its member countries - in the Aragian Gulf, represented by Saudi Arabia, and in North Africa, represented by Libya and Algeria - with the EEC countries.

The subject matters to be covered by the energy policy could perhaps be put under the following broad categories:

1. Study and review of energy demand and supply including tanker, pipeline, and refining availabilities. A program for optimum diversification of supplies.

- 24 -

2. A coordinated and/or joint research program for the development of new energy resources, especially of atomic energy and from non-conventional sources.

3. Investment review and national or multinational incentive and guarantee programs for the development of conventional and new energy resources.

4. Review of arrangements by importing countries for oil supplies from producing countries, be it through purchases, service contract arrangements, concessions or otherwise. The establishment of broad terms of reference and/or of parameters for arrangements, acceptable to importing countries.

5. A program of arrangements for stockpiling, rationing, and equitable sharing of import availabilities between all members in case of an overall or specific country emergency.

6. A coordinated and/or joint research program on conservation of energy and on its implementation if called for, including research on battery-powered cars, nuclear fuelled shipping, savings in motor car transportation, etc.

7. Review and coordination of programs of economic development and technical assistance for producing countries.

8. Review of prices, costs and balance of payments, effects of oil imports of member countries and also of developing countries. A program of arrangement for support and adjustment if called for.

9. Review of government revenues of major oil producing countries and of their impact on world trade, world capital flows and short-term money markets; and a program of financial cooperation - if called for.

10. A review of the dependency of Middle East producing countries on the exports of industrial and agricultural goods and of military equipment, on shipping, services, technical knowhow, etc., from the Free World's oil importing countries; and a continuous assessment of mutual interdependence and of the means that might be available to cope with an oil supply, trade, or finance emergency.

The administration of the energy policy might conceivably be entrusted to a special new high level International Energy Council, composed of member states with a top level permanent staff with generally recognized and incontestable professional and practical experience. The timing and method of its establishment, its organizational structure, the range of its executive and/or advisory powers, the procedures on voting and the rules governing ratification and implementation of its decisions or conclusions and its relationship with the various member countries and their oil companies would of course be determined in a process of give and take through

- 25 -

international negotiations. It will, obviously, be very difficult indeed to achieve any such agreement; but it may well be the only remaining chance to attempt to safeguard the interests of the importing countries, the home countries and those of their oil companies. Whatever, the odds, it must certainly be tried, and there is not time to be lost.

The above proposal presents of course only one of several possible approaches to an Atlantic-Japanese energy policy and its implementation. In particular, a great deal of thought must obviously be given to the problem of whether or not it would be feasible and advisable to restructure the present OECD Oil Committee or its High Level Committee so that the conclusion and implementation of an Atlantic-Japanese energy policy could be handled within the framework of the Committee. While this might require substantial changes in the powers and functions of the OECD Oil Committee, it might perhaps be more expeditious and easier to reach an agreement on a revision of the terms and conditions governing an existing international organization concerned with the oil policy of importing countries rather than to start from scratch and try to establish a completely new international body.

The competence and functions of the International Energy Council, however it were to be set up, as well as those of the member countries and those of the oil companies, must of course by clearly delineated. The policy framework established by the Council would set the limits within which the countries as well as the oil companies would handle their affairs, taking into account their changing responsibilities and capabilities.

At the same time it would try to provide an effective basis for protecting the supply security of the oil importing countries through encouraging the development of added supplies, diversification, investment incentives, research, assuring sufficient tanker and refining availability, etc. Through stockpiling, coordination of rationing policy, and especially through an emergency import-sharing agreement among all members, an oil embargo by producing countries against selected countries would become much more difficult, if not practically impossible; in such circumstances the producing countries would have to be prepared to cut their oil supplies to all member countries - with unpredictable, dangerous consequences to them.

The conclusion of an effective arrangement for emergency import-sharing between the Atlantic nations and Japan would presuppose that each member country, including of course the United States and Japan, would be prepared to share with its partners its own import availabilities in an equitable manner on the basis of agreed upon principles. The establishment of substantial stockpiles of oil by the various importing countries, again including the United States and Japan, would provide them in case of emergency with time for possible supply-demand adjustments, for efforts to resolve equitably any underlying conflicts with the producing countries, or, if everything else fails,

- 26 -

[LC]

for initiating whatever measures are required to protect their security. Arrangements on sharing of import availabilities and stockpiling applicable to all nations of the new Atlantic-Japanese partnership may well prove to be the touchstone and provide the foundation for a broadly conceived energy policy such as outlined above; they may well be considered as the essential initial step on which it should be possible to achieve more easily an early international agreement.

Likewise, a joint or coordinated policy on dealing with supply, trade, and financial problems related to oil would have the best chance to lead to rational and manageable solutions of the very difficult issues that are bound to arise. The producing countries could no longer, so to speak, pick out consuming countries one by one; OPEC itself has, in its own resolutions, introduced similar measures of solidarity among the producing countries.

Moreover, the companies in their negotiations on prices and payments to producing governments which will come up for revision latest by 1976 - and which OPEC's Secretary General has already described as the next major issue - would no longer be as exposed to unilateral dictates; as in the past. Their negotiating stance would be based on broad terms of references such as recommended or formulated by an International Energy Council similar to the practice OPEC is applying in suggesting the basic position for producing countries. There need no longer be the hectic and somewhat improvised discussions and confrontation between oil companies and producing countries, as experienced between 1970 and 1972 in the Tripoli-Teheran and participation arrangements, brought about by ultimatums of the producing countries rather than through genuine negotiation.

Under current conditions, as pointed out earlier, there would be very little if any bargaining leverage left with the oil companies if, in their negotiations with the producing countries, they were to depend solely on their own strength. Only a firm backing by all major oil importing countries could provide the necessary countervailing power which would permit the oil companies to establish a credible negotiating stance. The companies, acting within their terms of reference and within the framework of a coordinated energy policy, could thus count on such backing that should enable them to handle international oil negotiations and their implementation.

In this connection, an additional factor in the assessment of the respective bargaining leverage by either side would undoubtedly be the awareness that there is a limit to which the oil companies, together with the importing countries, could be held hostage by a threat to access to reserves in producing countries; that it might in certain circumstances be preferable to abandon the hostage and to turn away from the reserves and reappear as competitive buyers of crude from the producing countries. Since captive concession-holding companies would no longer be at their best one might expect that OPEC unity would erode and that producing countries would eventually compete with each other.

- 27 -

other for export sales to the companies whose purchasing power would
derive from past investment in and current control over transport,
refining and marketing facilities - the power to dispose.

The importing countries, through extending economic and technical cooperation to the developing producing countries, should contribute to the advance in their standard of living, the diversification of their economic activities and the expansion of their general import and export trade. Hopefully, the producing countries will in due course become such an integral part of the world economy that they will be much less tempted to take radical measures which might sever these links. If the dependence of the producing countries on continued oil revenues, flow of trade and friendly political and economic relations with the Free World is such that they could not risk more than a very short interruption, then and only then will the producing countries act with circumspection and probably be sufficiently discouraged from attempting to impose an oil embargo.

In particular, the producing countries would be constrained to exercise great caution not to confront importing countries or their companies - if firmly backed by all major importing countries - with unreasonable demands if the turmoil resulting from a confrontation is likely to undermine the regimes of the oil producing countries, or if they would have reason to fear that their actions might provoke dangerous international repercussions affecting their integrity and security.

Moreover, the producing countries are fully aware that if their relations with the major importing countries should deteriorate gravely, they may have to rely on Soviet support, which not only could not provide anything comparable to the benefits they are enjoying from dealing with the Free World, but would also confront them with grave political and other risks.

Obviously too, the more essential oil supplies from the Middle East are becoming to the rest of the world, the more attractive a target would it offer for Soviet subversion and control. For the communist world, the concentration of oil and money power in a few small countries in the Persian Gulf, at their back door so to speak, presents an enviable opportunity to attempt to undermine the political and economic strength of the Free World by "peaceful means" through encouragement of all the nationalistic and centrifugal tendencies that already exist in the area. However, any serious threat to Middle East oil supplies could, in such circumstances, easily lead to a confrontation between the major powers. Only friendly relations with the Free World, that would include the United States, can hold the Soviets at bay. A united or coordinated Atlantic-Japanese posture with regards to oil provides the most persuasive safeguard for the security, prosperity and integrity of the importing as well as producing countries.

- 28 -

What we are suggesting therefore, in proposing the establishment of an Atlantic-Japanese energy policy, is not designed to lead to escalation of international oil problems, as a prelude to a confrontation with OPEC, but it is, I believe, the only way to avoid confrontation. Also, while taking account of the changed role and power of the oil companies, it will strengthen them in their relations with producing countries, rather than leave them and the importing countries at their mercy.

This approach presents the most effective means to make obvious to all concerned that the Atlantic-Japanese group of nations could and would not sit by completely passively if the flow of international oil and the world's monetary arrangements were to be jeopardized by arbitrary conditions or unacceptable political and economic pressures. The mere awareness that there are practical limits to the exercise of "Oil or Money Power" by the producing countries may well prove to be the most effective deterrent to its misuse.

There is a most urgent need for coordinated planning and actions, by the Government of the United States together with its Atlantic partners and Japan. Inevitably, a newly established Atlantic-Japanese energy policy and measures designed to achieve optimum energy security for the Free World would lead to a much greater involvement of governments in what had previously been considered to be industry affairs, with all that this may imply. But there are no realistic alternatives, and the time for action is now, if not yesterday.

[LC]

Soestdijk Palace, February 1973

I have the honour to invite you to the next Bilderberg Meeting
which will be held at the Grand Hôtel Saltsjöbaden near Stockholm
in Sweden on 11, 12 and 13 May 1973.

You will find the agenda for this conference overleaf.

The Prince of the Netherlands

R.S.V.P. Bilderberg Meetings
1 Smidswater, The Hague

AGENDA

I The possibilities of the development of a European energy policy, and the consequences for European-North American relations.

II Conflicting expectations concerning the European Security Conference.

April 28, 1973

Dear Joe:

I wanted to tell you of a conversation which our Charge in Stockholm had with Foreign Minister Wickman, touching on my participation in the Bilderberg Conference.

The Foreign Minister began by questioning the utility of my coming to Sweden at this time. He then pointed out, with obvious irony, that Mr. Wallenberg was not the only Swede who would be at the Conference. He said the Swedish Government also plays a role in Bilderberg, and therefore he himself, the Prime Minister, the Minister of Finance and the Minister of Industry would also be there. He said that under these circumstances he did not see how my coming could be a good thing, since it would just force them into a stance of disagreement again and make matters worse.

Our Charge replied that if I attended the Conference, I did not intend to make any public appearances or official appointments and did not wish to discuss Swedish/U.S. relations on behalf of the U.S. Government. I would be in Stockholm as a private person solely to attend the Bilderberg Conference. Wickman merely said, without withdrawing or modifying anything he had previously said, that perhaps it was just the Swedes' bad luck that Bilderberg happened to be in Sweden this year.

Under these circumstances, it is obvious that my attendance at the Bilderberg Conference would be impossible, and I therefore have decided to cancel my participation. I had looked forward to seeing you and wanted you to know this background to my decision.

Mr. Joseph E. Johnson
Honorary Secretary General for the United States
Bilderberg Meetings
c/o Carnegie Endowment for International Peace
New York, New York 10017

HAK:BS:ms:4/28/73

HAK:B2:ma:4\58\73

New York, New York 10017
a/o Carnegie Endowment for International Peace
Bilderberg Meetings
Honorary Secretary General for the United States
Mr. Joseph E. Johnson

Henry V. Kießinger

Warm regards,

You to know this background to my decision.
cancel my participation. I had looked forward to seeing you and wanted
Bilderg Conference would be impossible, and I therefore have decided to
Under these circumstances, it is obvious that my attendance at the Bilder-

pad luck that Bilderberg happened to be in Sweden this year.
anything he had previously said, that perhaps it was just the Swedes,
Conference. Wickman merely said, without withdrawing or modifying
would be in Stockholm as a private person solely to attend the Bilderberg
discuss Swedish/U.S. relations on behalf of the U.S. Government. I
make any public appearances or official appointments and did not wish to
Our Charge replied that if I attended the Conference, I did not intend to
moreover.

would just force them into a stance of disagreement again and make matters
amounts he did not see how my coming could be a good thing, since it
Minister of Industry would also be there. He said that under these circum-
stances he himself, the Prime Minister, the Minister of Finance and the
He said the Swedish Government also plays a role in Bilderberg, and there-
Mr. Wallenberg was not the only Swede who would be at the Conference.
Sweden at this time. He then pointed out, with obvious irony, that
The Foreign Minister began by questioning the utility of my coming to
Bilderberg Conference.

with Foreign Minister Wickman, touching on my participation in the
I wanted to tell you of a conversation which our Charge in Stockholm had

Dear Joe:

April 28, 1973

April 28, 1973

Dear Ernst:

The Foreign Minister began by questioning the utility of my coming to Sweden at this time. He then pointed out, with obvious irony, that Mr. Wallenberg was not the only Swede who would be at the Conference. He said, the Swedish Government also plays a role in Bilderberg, and therefore he himself, the Prime Minister, the Minister of Finance and the Minister of Industry would also be there. He said that under these circumstances he did not see how my coming could be a good thing, since it would just force them into a stance of disagreement again and make matters worse.

Professor Ernst H. van der Beugel
Smidswater 1
The Hague, Netherlands

The Hague, Netherlands

Bridewater I

Professor Ernst H. van der Beek

Henry A. Klaasen

Warm regards,

to know this background to my decision.
cancel my participation. I had looked forward to seeing you and wanted you
at this Conference would be impossible, and I therefore have decided to
Under these circumstances, it is obvious that my attendance at the Bilder-
pad lack that Bilderberg happened to be in Sweden this year.

anything he had previously said, that perhaps it was just the Swedes,
Conference. Wickman merely said, without withdrawing or modifying
would be in Stockholm as a private person solely to attend the Bilderberg
discuss Swedish U. S. relations on behalf of the U. S. Government. I
make any public appearances or official appointments and did not wish to
Our Charge replied that if I attended the Conference, I did not intend to
make matters worse.

since it would just force them into a stance of disagreement again and
circumstances he did not see how my coming could be a good thing,
the Minister of Industry would also be there. He said that under these
therefore he himself, the Prime Minister, the Minister of Finance and
He said, the Swedish Government also plays a role in Bilderberg, and
Mr. Wallenberg was not the only Swede who would be at the Conference,
to Sweden at this time. He then pointed out, with obvious irony, that
The Foreign Minister began by questioning the utility of any coming
the Bilderberg Conference.

had with Foreign Minister Wickman, touching on my participation in
I wanted to tell you of a conversation which our Charge in Stockholm

Dear Ernst:

April 28, 1973

The White House
Washington

WN4 78 VIA RCA

1973 MAY 2 PM 2 15

SGRAVENHAGE 1700 MAY 2 1973

HENRY KISSINGER

THE WHITE HOUSE

YOU WILL PROBABLY HAVE BEEN INFORMED BY NOW BY HOST
COUNTRY'S EMBASSY IN WASHINGTON COMMA USEMBASSY IN HOST COUNTRY
AND JOE JOHNSON ABOUT GRAVE MISUNDERSTANDING HOST COUNTRY'S ATTITUDE
YOUR COMING TO CONVERENCE STOP I SPOKE MYSELF TWENTY MINUTES WITH
PRIMEMINISTER OF HOST COUNTRY AND FROM THIS I DERIVE COURAGE
TO ASK YOU TO RECONSIDER YOUR DECISION ATTENDANCE CONFERENCE STOP

FORM 0805 PRINTED BY THE STANDARD REGISTER COMPANY, U. S. A.

116181