politically important than ever in international relations. While most
other papers in this volume deal in detail with matters of power, influence,
security, the formulation of policy, and the old and the new diplomacy, this
one puts its main emphasis on such topics as trade, money, and investment.
Indisputably economic, they are also political as well, as will be evident
how
in the pages that follow. And in the end we cannot escape the question of the
so-called economic issues and the so-called political issues, including the
so-called security issues, are -- or should be -- linked, in national policies
and international relations.

Two terms are left in the title: the alliance and the '70s. Being
precise, the date might seem to require no comment. But for policy, which
proceeds on a continuum, the precise may be arbitrary and even misleading.
This paper is mostly about the '70s because what happens in the next few years
will be of major importance to the economic relations of the alliance. But
there are a number of matters on which it might well take much of the rest of
the decade to work out satisfactory arrangements. On some subjects, as I
shall show later, it is hard to conceive of any kind of an agreement that is
likely to be reached in the next few years except one that calls for continuing
consultation and negotiation running on for as long as anyone can see ahead.
I say this not out of pessimism about what governments will agree to in the near
future but because the nature of some of our problems makes them not susceptible
to once-and-for-all prescriptions. There are some other issues on which I
doubt very much we can soon get the kind of international action that I believe
will ultimately seem desirable. The art there will be to devise arrangements
that are acceptable, do at least the most essential things that are needed in
the short run, and that are capable of being adapted, later, to more ambitious

3

purposes. Even if major new agreements can be negotiated in the next five
years -- say new rules on adjustment added to the Articles of Agreement of
the International Monetary Fund or a considerable revision of GATT -- they
will have to be thought of in terms of their durability, not just their
immediate import. A number of our present difficulties come from the deficiencies
of a system of international economic cooperation that worked quite well for
nearly twenty-five years -- a rather long time as such things go. We may
not build as well this time, but unless our eyes are on the '80s at least we
can hardly be said to be building at all. Nevertheless, concern for the
future should not blind us to the fact that there are also issues which need
to be dealt with quickly or our problems will get worse. So while I under-
line the importance of the '70s, most of what I have written should carry the
tacitly added italics *et seq.*

Finally, the Western Alliance. I go along with the increasingly common
custom to calling Japan "western" without forgetting that it is not only
geography that differentiates that oriental nation from Western Europe and North
America. Out of deference to the general title of this book, most of my
discussion will concern problems between the United States and Western Europe,
but among those problems, as will become apparent, is the relation of these
areas to Japan.

The alliance of which I speak is not just NATO or the security treaty
with Japan or any other commitments that more or less meet the traditional
definitions of alliances. For the purposes of this paper, it is preferable
to think of a more general but also more pervasive kind of "alliance" -- the
whole set of economic, political, and social interconnections that link the
largely industrialized nations of the non-Communist world and set them off
from all others. These connections include formal agreements, bilateral and

many multilateral, and precise international commitments. But they also include a great deal that is no less real and effective for not being written. In a famous speech, Winston Churchill said that the Americans and the British would "have to be somewhat mixed up together in some of their affairs for national and general advantage." In less dramatic circumstances, that is what has happened to the industrialized countries. The economic relations among them are different from other international economic relations in extent, in depth, and in some respects in kind and quality. Those relations make up a very large share of the world's international economic transactions. That those relations are now beset by difficulties is obvious to all who care to look. It is equally apparent that the Western Alliance in the narrower sense of U.S.-European relations is also in difficulties. The convergence of those two sets of difficulties gives rise to some very troublesome problems, whether they are called economic or political

## The system and its difficulties

If we could look at the problems of the alliance in even temporary isolation, we should find them difficult enough. But they have to be considered the allies' not only in connection with relations with the U.S.S.R., China, and the less developed countries but also in relation to the basic problems of the international economic system. Intimately intertwined, neither the problems of the system nor those of the alliance have much chance of being solved separately.

It is common nowadays to call any set of factors a system if their interrelations show any semblance of pattern. But the international economic system with which we are concerned here is not just something that came to be; by identifiable men at a determinable time, it was designed for a long period, it was intended to. Now the system is not working as it should, in part because

of malfunctions that have developed and in part because of inadequacies
—which used to be tolerable but are now too serious to be overlooked.

Ironically, some of the present difficulties have come out of past successes; these successes have helped create conditions which require new approaches going beyond anything that could reasonably have been built into a system designed between a quarter and a third of a century ago.

It was in the '40s that the decisions were taken that largely shaped the international economic system in which a good part of the world has lived ever since. The designers of that system were guided by the conviction that it was of the utmost importance to shape the postwar world so that it would be as free as humanly possible of the troubles of the interwar period which had played so important a part in bringing about dislocation, depression, fascism, and then war. Some of these ideas led to the United Nations, some to a new stance for the United States in world affairs, and quite a few of them to a new ordering of the international economic system. That it was an incomplete and imperfect system goes almost without saying, but it was far more coherent than might have been expected and it dealt surprisingly adequately -- at least for a period of time, and not always in the ways its designers had intended -- with a large part of the world's trade and payments. Among its greatest achievements in that sphere was the double task of carrying the world through the period of postwar reconstruction and dollar shortage while at the same time moving decisively toward the lasting removal of barriers to trade and payments.

The character of this system can be summarized in a few key words. It was *multilateral* in two senses: many states were to take part in it and each was conceived as having relations with many others not just with which it had special ties. The system was to be one or two *liberal* in the sense that its major thrust was the elimination of governmental barriers to trade and payments and to a considerable

6

extent it relied on relatively free markets to guide the allocation of
resources. <u>Equal treatment</u> was a major theme. The theoretical and logical
case for the most-favored-nation clause in trade was only one basis for this
broader
idea. The ^ conception had pragmatic roots in the need for each country
to feel it was getting fair treatment if it was to continue to work willingly
within the system. The historic roots of the approach lay in the wish to
avoid the kind of discriminatory arrangements^ common in the interwar period
and associated not only with economic distortion but with political
exploitation and friction as well. The system conceived in the '40s was based
on <u>cooperation</u>, a proposition that sounds simple and innocent enough, but
that in fact represented an acute awareness of the perils of economic nationalism
and the difficulties of persuading governments and peoples to work together on
a sustained basis. Finally, the system was characterized by the embodiment of
much of this cooperation in <u>sets of rules</u> most of which were incorporated in
agreements that also set up <u>international organizations</u> such as the Inter-
national Monetary Fund, the World Bank, and GATT.

One limitation of this system was that, though it was inherently global
in conception, in practice it did not cover the whole world economy. In the
best of circumstances, there would have been difficulties in applying market-
oriented arrangements to countries with wholly state-run economies. In the
atmosphere of the cold war, the Communist countries in fact stayed almost
entirely outside the system. The poor countries, initially part of the system,
came to be less and less so as the problem of development grew to dominate
their horizons. Recognized but originally underestimated, development needs
became the occasion for exceptions or special arrangements that led to the
less developed countries occupying a partly separate position. As a result,
the international economic system described in these pages was roughly coter-
minous with the affairs of the industrialized countries of the

7

non-Communist world. Consequently, the major actors of the international economic system and those of the alliance are the same countries.

A second limitation of the system results from the openness and interpenetration of the economies of the industrialized countries that has been achieved in the last twenty-five years. This is in part the consequence of a high degree of success in removing trade barriers and controls over payments. In part it results from the great growth of international direct investment, a subject not very thoroughly dealt with in the postwar arrangements. Still another source of the openness and interpenetration is the growth in size and rapidity of short-term capital movements. Ironically, fear of instability from this source led to its control being

but the national measures have proved inadequate: left to national governments in the Bretton Woods arrangements, all these factors combined have produced a new kind of international economy with new kinds of problems, quite often called those of interdependence, with which the old arrangements, naturally enough, cannot deal adequately.

As it happens, these new needs are related to one of the oldest inadequacies of the system. Strong on liberalization, the system was weak in prescribing for what might be called international management or -- if that seems too strong a term -- on the setting of rules for cooperation in positive national action (as distinguished from the removal of barriers). This was not the importance of for lack of appreciation of such issues. For instance, it was widely recognized in the '40s that in the postwar world governments would have to reconcile maintenance of a high level of domestic economic activity -- "full employment" was the usual keynote -- with open frontiers and the free movement of payments. Collisions were easy to imagine, but no one found a really satisfactory way to write a set of rules that would avoid major difficulties. Private trade restrictions were recognized as being serious, but the efforts to agree on them were limited, not this time because of intellectual inability to cope with the

8

problem but because there was not enough common ground among governments with their different legal and social traditions. Where the removal of barriers was thought to be not the whole answer to trade problems, rules were laid down for commodity agreements -- a kind of international management -- but the results were less good and less clear-cut than in the measures aimed at liberalization.* This prevailing contrast was hardly surprising; ideas of liberalization rested on a hundred years of theory; no one had ever had reason to do very much serious thinking about the other set of problems.

In the circumstances, it was remarkable progress to get governments to commit themselves as firmly as they did to liberalization. Now, in the '70s, the gaps in the old system seem more serious than they once appeared. Not only has the growth of interdependence made countries more sensitive to one another, but the peeling away of old barriers has focused attention on activities that went on behind them. There is, furthermore, the danger that the gains of liberalization will be lost as past measures are undone by new measures of economic nationalism not covered by old rules. Just here we come to another weakness of the system, a product of its age. Things that have worked well are now taken for granted. The once-vivid sense of the importance of cooperation and the great difficulty of achieving it has been lost. The lessons of economic nationalism in the '30s are forgotten. Consequently, the value of what exists is not perceived and there is a lack of sensitivity to new needs. People fail to recognize that unless

*The place to look for most such efforts is in the proposed Charter for an International Trade Organization, negotiated but not adopted in the '40s. Agriculture is a special case. On paper it seemed to fall largely into the realm to be liberalized. In practice, governments proved unwilling to liberalize and agriculture became an exception to the rules (sometimes legally and sometimes illegally). Despite much discussion of new approaches, no agreement has been reached on "positive" measures of cooperation and the subject remains on the agenda. This issue, and a number of others touched on in this paper, are discussed in *The United States and the Industrial World: American Foreign Economic Policy in the 1970's* (New York: Praeger, for the Council on Foreign Relations, 1972).

9

so they past gains are held new troubles will come about and tolerate exceptions, "special cases," and outright violations of the rules once agreed on. Consequently, the system erodes.

list

Finally in this list of difficulties of the international economic system, we come to the point with which many people would have started: the breakdown of the monetary system agreed on at Bretton Woods in 1944. The story is familiar; David Walker's paper in this volume puts the essentials in clear perspective. All that needs to be added at this point is to underline how inadequate and lethargic the response of governments has been when faced with an obvious threat of disaster. The symptoms of the monetary system's weaknesses were apparent for a long time. Analyses and prescriptions by competent diagnosticians abounded. Governments responded slowly and piecemeal. Tiding over, patching, devising ingenious palliatives were the hallmarks of "sound monetary diplomacy" for years. There were good reasons for trying many of these approaches and some justification for hoping things would take a turn for the better. Then crises produced sharper reactions and some more clear-cut measures of reform; but each step was partial and each statement of determination to move ahead on more fundamental matters was followed by a slowdown in action on reform. The period of calm following each crisis became not an opportunity to make well considered changes to avoid the next crisis but an excuse for relaxing. And then another crisis would turn the wheel by another ratchet or two.

No doubt a careful study of this experience would teach us some important lessons. Presumably they concern the difficulty of altering a complex system in which any change will be thought to affect someone adversely and the ease with which governments avoid hard decisions as long as possible. It is too soon to say whether there are other lessons about what finally brings governments to agree on a new system or, instead, moves them further in the direction

·10

that is,
that comes most naturally to nation states, towards economic nationalism.

That this last possibility has to be seriously considered after thirty
years of advantageous international economic cooperation is perhaps a suffi-
cient rebuttal of the view that, while the international economic system is
functioning less well than it should, repair is not really urgent. As a
later section will show, divergences on this point are themselves a source of
considerable danger. The widely shared judgment that in many matters of
foreign economic policy one cannot stand still but must move in one direction
or another has much evidence to support it. Basically the argument is that
in every country pressures generate to take action favoring or protecting
some interest group. In the nature of things, governments will tend to
respond to such pressures unless there are strong and sufficient international
reasons to resist them, whether based on convictions about cooperation, a
belief that one should live up to obligations or just a fear of what other
the
countries will do. While opinions may differ as to speed at which this
process will come to a point at which economic nationalism destroys the system,
there can hardly be any disagreement about the direction in which things are moving.

Malfunctions in the alliance

Alongside the difficulties of the international economic system are an
assortment of frictions, dissatisfactions, worries, recriminations, and even
fears that for some years now have troubled American relations with Western
Europe and Japan (and their relations to one another). Other authors in this
volume have dealt with these matters at length; here they are treated very
briefly simply to emphasize two points. First, the two sets of problems are so
entwined that whatever is done or not done about the economic system or the
alliance will deeply affect the other. Second, the conclusions one reaches
about the causes of the alliance's difficulties have profound implications for
the prescription one writes for repairing the economic system.

31

Both sets of problems are closely connected with the rise in economic power and strength of Western Europe and Japan. Associated with this is the persistence of economic difficulties for the United States. While it oversimplifies matters to speak only of the deficit in the American balance of payments, the import surplus in trade and the corresponding export surpluses in Western Europe, Japan, and Canada, that combination cannot be ignored. To it must be added the apparent loss of competitive strength of some parts of the U.S. economy (at least under old exchange rates), recurrent inflation, and a higher level of lasting unemployment than is to be found in other industrialized countries (except Canada).

It was a major aim of American policy throughout the postwar period to help bring about circumstances in which Japan and Western Europe would be economically strong, free from economic dependence on the United States, and playing an active part in a relatively open world economy which would gain strength for their engagement in it. This is something like the condition that has existed for a number of years now — if we leave aside the question of dependence on the American nuclear deterrent. Why, then, should arrival at the hoped-for state of affairs prove to be so unsatisfactory?

Why has it not been possible to make, promptly and fairly easily, those changes in the international economic system that would adapt it to the shifts in power and wealth? Why should the allies' being better off be associated with the Americans' being worse off and with the growth of trouble in the international economic system?

Not surprisingly, many answers focus on the creation of the European Community.* Not part of the original blueprint for a postwar international

*Again, out of concern for the general theme of this book, this section is written in terms of Europe alone, thus slighting important issues about Japan which will be touched on in the next section.

12

economic system, Western European integration -- when it came to be taken seriously -- seemed in some respects to complement the main aims very well. It looked like an admirable means of making good use of Europe's limited resources and so advancing the wealth, security, and welfare of the region. Without a strong Europe playing an active part, there could be no world economic system worth working for. But at the same time, Western European integration, which had to involve arrangements that gave preferential treatment to members and discriminated against outsiders, seemed to challenge the basic idea of a multilateral world based on nondiscrimination. To reconcile the two, some people argued that discrimination in payments would be temporary, until the European countries were strong enough to stand on their own feet. When a customs union became a serious possibility, its expansionary effects were held by some to be certain to offset its discriminatory effects. A third line of argument was based on the view that ultimately Europe would be a single economic entity and so could fit into the multilateral scheme of things just as any other large state -- notably the United States -- did. There was merit in all these arguments though none has proved entirely right. Nevertheless, support for both European integration and a multilateral world economy introduced some unresolved tensions into American policy. Moreover, some of the aspects of integration have given rise to sharp and continuing disputes between the United States and the Community.

Those who try to explain the troubles of the alliance in terms of European integration use three quite different appraisals of that process. Some people say that the United States was wrong from the beginning to champion Western European integration. It was inevitable, according to this view, that a united Europe would use its considerable power and resources in ways that

13

often damaged American interests. This might be because of preoccupation
with regional affairs, "greater European" nationalism, gaullism, old world attitudes
about the nature of the interest and power, or simply the result of the
kind of friction that is bound to exist among great powers. A second view
is less deterministic and says that the real trouble is simply that the
Europeans are not sufficiently outward-looking or aware enough of the respon-
sibility that goes with their increased power. Time, persuasion, and, to a
degree, well conceived policies would be needed to change this situation,
according to some analysts. Others believe that Europeans will not be able
to give the world economy the sustained and enlightened attention they should
(in their own long-run interest) until the Community is far more unified.
Preoccupation with internal affairs and the extreme difficulty of getting
agreement among diverse governments on common policies toward the outside
world are major obstacles according to this view.

A third body of thought also stresses the limits of European integration
but draws different conclusions. A customs union and a common agricultural
policy that favor the participants and in some degree damage outsiders do not,
according to this view, deserve much respect as symbols of European "unity."
Such arrangements hold no high political promise that warrants treating them
differently from other economic understandings that help some and hurt others.
Moreover, runs this line of reasoning, because Europe lacks true unity, those
whose hopes of a common foreign policy are frustrated use
economic policies as a substitute. Consequently, trade, aid, credits, and the
control of investment are seen in political terms that impart an adversary
instead of cooperative character to European policies. Some would add that
dependence on the American nuclear umbrella provides both a certain political
freedom to behave this way and a psychological stimulus to do so.

14

A different approach to the difficulties of the alliance says that the main trouble lies in the United States. Inflation, unemployment, social unrest, the war in Vietnam, and deep division over values have impaired and disturbed American foreign policy, according to this view. Not only has the political consensus dissolved but attention has been diverted from the real issues in the rest of the world. Instead of stressing the ways of making their economy more competitive, Americans retreat into protectionism. Some see these effects as long-lasting. To others, time, a few jolts on the international scene, and especially a good boom will put matters back on the track. But whether the diagnosis is malaise or disease, this approach suggests that what is wrong with the alliance cannot be righted except by the principal ally's healing himself.

If healed, what then? Again opinion divides. Some would say that an America that once more had a balanced perspective could set its economy to rights and provide the leadership the alliance needs. To get rid of malfunctions and adapt the alliance to the world of the '70s would require some change in methods and a greater influence from Europe and Japan in basic decisions.

But what this view advocates is essentially adjustment and adaptation, not radical change. There are other people who believe that the United States needs to reassert leadership in a quite different way. As they see it, too much concern for the problems of others has led the United States to acquiesce for too long in arrangements that may once have served its interests but now damage them.

Shackles suitable to a time when Europe and Japan were weak must be thrown off, by direct action when the others are too slow to agree. After all, the basic element in the alliance remains American nuclear power and this will be recognized even when the United States acts unilaterally.

This view -- revealed more than articulated -- could be discerned in the U.S. government's stance

15

in August 1971. The dollar was made inconvertible; the Europeans who had long called for the United States to do something about its balance of payments did not like what was done but did not take measures that would have destroyed the monetary system (and perhaps the alliance). By blandly inviting them to propose what should be done next, Washington further emphasized the strength that lay behind the supposed weakness of the American position.

Finally, there are those who say that the alliance's troubles are fundamental and not repairable. The alliance responded to the needs of a bipolar world and the cold war; different arrangements are needed by a world in which in number of poles are increasing, and the cold war is waning. A common description of the new world order is to say that there are (or will soon be) five centers of power, the United States, Western Europe, Japan, the U.S.S.R., and China. No doubt some people who use this framework see no incompatibility with the idea that three of the poles could have an alliance, but the crude form of the pentagonal model that has become popular suggests otherwise. It rather strongly suggests a basic competitive relation of each pole against all others in which each looks after its own interests. And those interests are likely to be defined in a rather narrow, mercantilistic and power political way.

There are many other things that might be said about the alliance, but the categories sketched here probably comprise the major points of most approaches. Even the rough summaries make a few points clear. All of the analyses contain, or build on, some significant truth. But they cannot all be true because some are contradictory. Very likely, an amalgam of several approaches (or elements from them) will come closer to reality than any of the separate "lines of thought" I have distinguished. But a correct and neatly balanced picture that seems "just right" will not last. Time will alter the validity of many of the

16

points and so will national policies based on one or another of these diagnoses of the alliance's problems. What the United States assumes about Europe will affect what the Community does. If Europe and Japan treat the United States as a lost leader beyond redemption instead of as the temporarily groggy victim of a collision with the locomotive of history, that will make a difference to what the United States in fact becomes.

Needless to say, one's judgment about the true state of the alliance is of major importance to one's approach to the problems of the international economic system. But there is also a reverse flow. If, for example, Europeans, Americans, and Japanese could agree fairly soon on a monetary system that substituted some internationally managed unit for the dollar as the basic form of reserve and gave Europe and Japan a major voice in the management of the new system, that would do much to relieve the pressures on the alliance. Contrariwise, if these three industrial centers approach their trade negotiations by presenting impossible demands on one another and produce a standoff, will the result not be a sharpening of other disputes that trouble the alliance?

## Who is Europe? -- and some related questions

From the review of alternative explanations of the alliance's troubles, it is clear that the world is something less than fully agreed about the character and perhaps even the reality of "Europe" if that word is taken as shorthand for the Community of Nine. How unified is it, how common are the interests of its members, how fully are they capable of expressing a unified point of view? These are classic questions about the process of European integration that goes back now over fifteen years if we count from the Treaty of Rome, about twenty if we think of the Coal and Steel Community and Euratom, more than a quarter century if we mark the start of serious, substantive cooperation in the OEEC in the days of the Marshall Plan, and

17

hundreds of years if we are thinking of the dreams, hopes, and aspirations
about
written and planned for but not made real. To assess at any given moment just
how solid the integration is and above all to sense its dynamics so that one
may know where or even in what direction it is likely to go are of
great importance. It is also not something about which a casual curbstone
opinion ought to be allowed to carry much weight. To assess the factors care-
fully is beyond the scope of this paper and I am forced simply to draw some
freehand boundaries, borrow from the opinions of others, and suggest the range
of possibilities with which we have to cope. For a reason to be made clear
later on, this effort, intellectually unsatisfactory as it is, is not without
merit in an effort to discuss policy issues.

One can start with a pair of negatives: the European Community is not
a single entity and it is not just nine countries that work together. This
may be the last moment of clarity, except possibly for one more negative:
however exactly one would label it, one cannot use such classical formulas as
federation, confederation, coalition, or "mere customs union." I strongly
suspect that most of the best observers who have tried to describe the reality
they saw any time in the last ten years have at one time or another reached
for the expression *sui generis*. In a more vivid effort to explain that old
concepts of federalism -- and indeed most other familiar models -- are mis-
leading, Andrew Shonfield says: "This is no European melting-pot. Indeed,
most of the time it looks more like a bag of marbles." And a few pages later
he adds, "the marbles are soft on the surface and made of some sticky substance,
like putty, which keeps them clinging together as they are pushed around and
constantly make contact with one another inside the bag." No wonder he calls

18

integration a "journey to an unknown destination."!#

It is easy enough to look up the division of powers between the Community and the member governments or to find which matters fall largely into the Commission's sphere of responsibility and which largely escapes its influence. But the resulting lists would not correspond very closely to the reality of things. The allocation of powers does not describe how power is used. How the Commission employs its jurisdiction depends in part on attitudes in national capitals; how each government conducts its own affairs is affected by the reaction it expects from its fellow members; the distinction between the governments acting separately and acting together in the Council of Ministers or through their permanent representatives in Brussels can be more a political reality than a quasi-theological perception. The awareness of these complications makes it sufficient at this point to recall that even in a formal sense the Community is not a single entity when it comes to dealing with all international economic issues. It has a common tariff but many nontariff barriers are entirely matters of national law and practice. In dealing with monetary affairs, the Community, as of the moment of writing, is in a very mixed state. Some of its members are floating in common and some separately. There are plans and commitments to move toward greater monetary union, a limited arrangements for supporting any country in difficulties, and an effort to formulate common positions in external matters. Foreign investment and energy are subjects on which the Community has a history of trying unsuccessfully to get substantial agreement on common policies. On a few other matters, new

*Andrew Shonfield, Europe: Journey to an Unknown Destination (Baltimore: Penguin, 1973), pp. 10, 17.

19

agreements may be just around the corner.

There is, to be sure, an important connection between international negotiations and the degree of unity the Community may achieve on any matter. Simply in bargaining terms there is an incentive for the nine -- or the principal ones among them -- to agree on common positions vis-a-vis the United States -- or Japan -- even on matters not formally covered by their commitments to one another. But when differences in view among Community countries are greater than between some of them and the rest of the world, the result might be to increase disunity. Often, disparate issues will come together. For example, a bargain with the United States on some tariff matter (a Community concern) may well be linked with what is done about some nontariff barrier (which could be a matter of national jurisdiction). Or the differences among Community governments on some issues in negotiation with outsiders could well become linked with bargaining among themselves about some quite different internal matters. A central element in the Community's participation in the Kennedy Round of the mid-'60s was an almost step-by-step matching of the progress toward a common agricultural policy (which France particularly wanted) and the reduction of the common external tariff in the multilateral negotiations (which the Germans favored). There is no obvious combination of factors for the same role in the '70s, but even if one does not emerge it is hard to believe that there will not be a significant impact on Western European integration from the process of negotiating about trade, money, and related matters with the United States. But just what that impact will be is not so easy to predict. After all, a common position for negotiating purposes may represent a temporary compromise rather than a lasting commitment to pursue common policies in the same field.

From this confusing situation, it is possible to draw some quite clear implications for the United States in its dealings with the Community about

20

the repair of the international economic system. Clearly, the United States will have to conduct its diplomacy (and aim its policies) at two levels at once: the Community -- however it is represented in each case -- and the national governments. Even when the Community is acting as a unit it will be a hard partner to deal with; the task of getting common positions is so troublesome that once taken they become very difficult to alter, a serious disadvantage in negotiations. The interrelation of bargains suggested above will make this process even more troublesome. Inability to reach common positions on some matters will lead Europeans to try to keep these issues outside the negotiations or to postpone action on them. This view will often be unacceptable to the United States or perhaps Japan. As a result of all these factors, the United States will repeatedly face difficult decisions about such questions as whether to press hard for negotiations that the Community wishes to avoid, whether such tactics might play into the hands of those in the Community who support positions least favored by the United States, how far to go in playing on differences among the Europeans even when this generates sharp reactions because it suggests that the ulterior purpose of the United States is to break up the Community," and so on.

A

How these decisions are made is likely to depend on what kind of a United States is involved in the negotiations. The question may seem surprising but there is as much reason for Europeans -- and Japanese -- to ask Who is America? as for Americans to wonder about their European partner. The allegation that it is as hard to bring the departments and agencies in Washington together on a common position as the governments of the Community is an exaggeration but there is a deeper problem to worry about. Who will be facing the rest of the world in negotiations about the international economic system -- people who are trying to get things back on the tracks

81

or those whose principal conviction is that the system exploited the United
States which should now get its own back? Is it to be the America personified
by John Connally in August 1971, presenting the world with a *fait accompli*
and suggesting that others come forward with proposals for what should be done
next? Or is it to be the nation personified by Kissinger, Shulz, and Eberle
in the spring of 1973, putting forward proposals for change and showing
their willingness to negotiate in terms that make plain they do not expect
the rest of the world simply to accept what has been put before them?

The choice may not be made altogether freely and deliberately. The
belief is widespread in American business and political circles that the
United States is more sinned against than sinning in such matters as trade
policy, has given more to the rest of the world than it got back, and is
playing a game on a tilted board. Any American administration must take
account of this mood and so far as possible turn it into a support for con-
structive measures of foreign economic policy. But the effort will be risky.
The idea that the United States must "look after its own interests just like
everyone else" leads easily into positions from which there can be no reasonable
compromise with European or Japanese views of the world.*

Finally there is the question, Which Japan? Two have been seen in the
world economy in recent years. One was the Japan that still thought of
itself as a weak, relatively poor country discriminated against by Europe
and North America as a special kind of commercial threat and so was surprised
to be called on to act like a strong, industrial power. The second Japan was

*I have examined the mood, the policy possibilities, and the risks more
fully in "The Economic System at Stake," *Foreign Affairs*, October 1972.

22

the one that eventually responded to pressure, removed import restrictions, liberalized investment rules, increased its own foreign aid and investment, and revalued the yen by large percentages. That Japan probably sees itself as having lived up to expectations and conformed to the pattern though it does not yet see itself treated fully as an equal by the others.

Looking ahead, people are apt to discern one of three quite different kinds of Japan. Many observers, especially Japanese economists, see a country that begins to devote a major effort to meeting somewhat neglected domestic needs -- housing, pollution control, infrastructure -- and in doing so increases imports, raises costs, moderates its export flow, and generally accommodates itself to an expansion of sales of Japanese goods that is acceptable in world markets. A second possible Japan -- the one apt to be seen by Western businessmen -- is a little more familiar; its formal liberalization of imports and investment never removes invisible barriers; its exports continue to be fostered, if only because its import needs keep growing; in the classic pattern of "Japan, Inc.", business and government work together to penetrate markets and lay hands on a major share of the world's diminishing supplies of raw materials and energy. The third possible Japan is more dimly seen. The continued trade discrimination of Europe and the United States, repeated pressures to carry a larger burden of international adjustment, policies in Europe and the United States that ignore the domestic politics of Japan, all combine to persuade a growing number of Japanese that the Western world will never treat their nation as an equal, only as a second-class citizen with duties but few rights. The natural result is an increase in nationalism, a mobilization of economic strength for political power (which may take economic forms) and perhaps a series of steps toward bloc building.

23

Divergent expectations and their dangers

If the answers to the question, Who is who? may be as divergent as the foregoing section suggests, it is inevitable that the question, Who wants what? should also have a number of different answers. Whether one emphasizes expectations or wishes, these divergences could carry the utmost peril for serious efforts to repair both the alliance and the international economic system for they will shape not just reactions to an outcome but the way the negotiations are conducted. While no one can be sure that in the best of circumstances the negotiations will prove adequate to the task, there can be no doubt at all that unless enough common ground can be found among the major actors as to what the negotiations are all about and where in general they ought to be headed, they cannot conceivably produce desirable results. It is precisely this agreement that the divergence in priorities in Europe, the United States, and Japan may make impossible. Fortunately, it is not too difficult to see how these problems could be overcome, at least on paper, though the translation of these proposals into policy may be more difficult.

The divergences start at a very fundamental level. There are quite a few influential people in Europe who would prefer not to have any serious negotiations with the Americans on international trade and monetary issues in the immediate future. They feel, understandably enough, that the enlargement of the Community and especially the entry of Britain which is bound to change the whole balance of power within that group presents them with more than enough adjustments to occupy their attention for the immediate future. The ideal pattern from their point of view would be to put their own house in order, take steps beyond the present level to decide among themselves how much unity and how much division is tolerable in the representation of "Europe's" interests in the outside world and how this should be achieved. This immediate

24

[c]

concern is reinforced by other considerations. They naturally fear what American policy may become if it responds to economic nationalism, protection, and the sense that the world owes something to the United States. They are inclined to think that the Americans should be setting their own monetary house in order; though just what that means is not always clear. They suspect that the Americans will use Europe's security dependence as a leverage for Moreover, economic advantage. A their own economic position is at the moment rather comfortable; they have large balance of payments surpluses and easier access to the American market does not seem particularly important. General trade liberalization means relaxing barriers to imports from Japan which they resist with more fear than I think the situation warrants (see below). To the extent that they reason these matters out, they see themselves as presented in the negotiations with a nasty dilemma. Either they accept one-sided bargains in favor of the Americans or Europe bears the burden of saying "no" and possibly setting off a whole series of very negative reactions in the United States and perhaps elsewhere in the world.

All this goes back some time. During the Johnson years, it was common for Europeans to express considerable worry at the fact that no one in Washington seemed to be paying much attention to Europe. The champions of integration clearly suffered from an atmosphere in which firm American support for their efforts was no longer voiced as regularly as it had been for many years (although in truth the ability of the United States to budge the obstacles to integration in Gaulist France must have been minimal to all eyes). The deficit in the American balance of payments, which meant increased holding of increasingly unwanted dollars by Europeans was an aggravation. To discover that Europeans were powerless to put real pressure on the United States without the risk of bringing the system down on their heads was a frustration. When President

25

Nixon took office, there was some new hope in Europe based partly on the known interests of the President and partly on the career of his principal adviser in foreign policy affairs. But instead Western Europe saw the White House look the other way -- toward the inevitable problems of Vietnam and, unexpectedly, to cultivation of relations with Russia and China. Then came the sharp impact of the economic measures of the summer of 1971. The Europeans could no longer complain of benign neglect by the United States of its balance of payments, but the new kind of high-level attention to the problem quite properly generated a great deal of worry. The stop-go approach to monetary reform has already been described. The Europeans were annoyed when the Americans began making a series of short-run trade demands -- some in connection with the problems of the dollar, some as compensation for the enlargement of the Community, some concerned with preferential arrangements with the Mediterranean countries, and a wide variety concerning one or another of the taxing, subsidy, and pricing practices that make up concern about "fair competition." Nevertheless, as time passed the European governments agreed to undertake large scale negotiations about trade as well as about monetary reform. But when in April 1973 Henry Kissinger suggested something still more ambitious -- "a revitalized Atlantic partnership" -- many European leaders conveyed a sense of coolness, not to say suspicion, in their reactions.

As late as December 1972, a group of well informed Europeans connected with the principal centers for the study of world affairs -- internationalists to a man -- could in private discussion come to the conclusion as described by one of their members,

> that it was a pity that we were going to have to engage in a trade negotiation with the United States before we had had a chance to begin to clarify the monetary issues in international relations. The logic of the situation was to try to see what the relationship between the values of currencies was to be -- to take the most obvious case --before seeking for trade concessions and taking risks in the field of commerce. But unfortunately, this is not going to be possible. Hence we agreed, that we simply had to plunge into this trade negotiation as soon as the Americans were ready, preferably towards the end of 1973.

26

Very likely the negotiation would go on for at least a couple of years after that. The group was very pessimistic about the results of this negotiation in terms of the further significant liberalisation of trade, of the kind that had been achieved during the 1960's and earlier in the 1950's. We had to do this job for essentially political reasons. There was otherwise the danger of a cumulative process of retreat from the position already arrived at in the liberation of world trade.*

The note is authentic. Anyone who talked with Europeans during this period about such issues must recognize that to go ahead reluctantly represents progress over explaining why nothing should be done, the general practice for some years before. Perhaps reason cannot change the spirit, but the strong suggestion that activity will be *pro forma* and facesaving and the implication that little of substance can result from what has to be done that lies in the words, "for essentially political reasons," can surely be countered by arguments. Two are essential. One is that a policy reflecting such an attitude, though carried through with extreme correctness and suitable diplomacy cannot conceivably yield solid substantive results in matters as complex and deep-rooted as trade policy. Consequently, such a stance on the part of Europe is bound to strengthen those forces in the United States which argue that the rest of the world is not prepared to give the United States a fair deal and A encourage measures of economic nationalism in the A Second, the countries of Western Europe cannot have so small a stake in the international economic order that they can look with equanimity on the consequences for that order of an American policy based on the principle that "American interests" in the narrow nationalist, mercantilist sense must be the sole reference point of American action.

*Andrew Shonfield, "Reshaping the Economic World Order Relations between the European Community, the United States and Japan: Report on Study Group Discussion," *Chronique de Politique Etrangère*, January 1973. Mr. Shonfield was acting as rapporteur, not stating his own views.

27

The American counterpart to European reluctance is dual. On the one hand, there is the blend of mercantilism, protectionism, and resentment that makes up the economic nationalism the Europeans fear; on the other hand is a strong sense that international action needs to be taken both to repair the international system and to check or divert the nationalist drive in the United States. Both approaches have been sketched above in describing "who is America." It is easy to see how the former could lead to unilateralism, table pounding in aggressive negotiations, and efforts to use any American bargaining power to secure national economic advantages. The latter alternative also has risks Sensitive to the changed distribution of power in the world, it also accepts the view that heavier weight than before has to be given to short-run American interests (a natural enough difference between a time when trade was in balance and in deficit). It seems essential to take a tough line in bargaining. It then becomes despairingly easy to slip into a state of mind which produces incautious statements about getting more than one gives in negotiations or requiring a trade bargain that will increase exports more than imports. When that happens, the approach becomes self-defeating because it either scares off Europeans and Japanese or makes them unwilling to agree to arrangements that would otherwise seem satisfactory for fear that they will be claimed as "victories" by a support-hungary American administration in ways that will sharpen internal difficulties in Europe and Japan.

The risks could be reduced if American policy firmly and publicly embodied the rejection of two fallacies, one concerning reciprocity and the other the balance of trade.

The government of the United States cannot seriously expect major countries to agree to international economic arrangements that appear to be one-sided. If accepted for some immediate reason, such agreement would

28

plainly not be viable in the long run. But what is a balanced bargain?
The traditional practice of measuring reciprocity by calculating the amount
of trade supposedly affected by each tariff reduction never had much validity
and makes no sense in approaching most of the nontariff problems that have to
be dealt with. It is difficult to formulate general criteria that insure
balance, but the essence of the matter must be that rules specific trade
practices apply equally to all countries and that governments see a substantial
mutual interest in having this so. If, as many Americans believe, existing
(or past) arrangements put the United States at a special disadvantage
(whether because once-tolerable features such as the bias against the dollar
devaluation or because GATT rules are inadequately enforced), then, of course,
new arrangements that are fair and balanced will in fact be of special
benefit to the United States. But it would be imprudent to make too much of
this point (or to expect too much help of this sort).* The real measure of
"reciprocity" must surely be sustained mutual benefit from the way an
improved international economic system operates.

The second fallacy is to suppose that trade negotiations should have as
a major purpose the restoration of balance in American foreign trade. A
correct view on this point was put forth by Wilbur Mills, Chairman of the House
Ways and Means Committee, who said:

> . . . it is neither realistic nor desirable to burden the trade negotiations excessively. The question of balance-of-payments disequilibrium, which will be a continuing problem notwithstanding our recent and second devaluation, must be dealt with through reform of the international monetary mechanism.**

*On the other side, American claims for compensation for the loss of trade benefits resulting from the enlargement of the Community, or arguments that some of the Community's preferential agreements violate GATT rules -- whatever the merits of these claims -- are not examples of asking for something for nothing.

**United States Congressional Record, March 21, 1973, p. H2009. This was before President Nixon sent his trade bill to Congress.

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This does not mean, of course, that, if the United States continued to have balance of payments difficulties, it might not be entitled to restrict imports temporarily; that would be a question of what was permitted by the agreed-on international arrangements (or justified by the lack of agreement). But the point involves more than trade policy. It means that *general* arrangements, such as those involving adjustment by countries whose balance of payments are in deficit or surplus (which certainly need improvement) should not be judged in terms of the *specific* current problem of the United States (or any other country). The realignment of exchange rates between 1971 and 1973 was a more suitable approach to such a problem (and if their effects are great enough, most of the difficulties discussed here will disappear).

Quite a different kind of American expectation could also cause trouble. For some time now, the Community's Common Agricultural Policy (CAP) has been a target of American concern because of its efficient and ingenious protective mechanisms. There are good reasons for this attitude and any American trade policy toward Europe must try to improve access to the Community market for farm products. Unfortunately, this objective translates itself in the minds of many Americans into the proposition that for any economic arrangements to be satisfactory to the United States, the Community must "change" or "abandon" the CAP. Such a demand, if it became formal, would be doomed to failure and might spoil other negotiations as well. In the self interest of the United States, it is entirely the wrong approach.

There are several reasons for this. (1) In all industrial countries, farm policy is a politically and socially delicate matter; governments pay more attention to domestic than foreign considerations in conducting it.
(2) An added difficulty is that the CAP is a major factor in the international balance among the member governments of the Community. (3) Although the

30

CAP's character and tendency are clear-cut, it is neither monolithic nor immutable. Within its own terms, it could be made more damaging to the United States (for example, by penalizing imports of soybeans which are now untrammeled). Without the CAP's being abandoned, steps could be taken that would help American farmers (for example, by reducing European production of wheat and encouraging the growth of livestock). (4) The forces most likely to be influential in shaping the CAP are domestic ones: costs and prices inside Europe and the growing interest in finding ways to help farmers more directly than through price supports. To what extent these forces can be abetted by outside pressures is not easy to judge, but an awareness of this possibility should be a key element in American policy. (5) The historical record is that frontal attacks on agricultural trade barriers are rarely successful on any large scale (they were not when others wanted a reduction in American import controls in the '50s). While worth trying in some cases -- notably those products not falling under the CAP -- they are otherwise futile unless something can be done about the basic farm policies that lie behind the trade barriers.

How far governments will go in negotiating about their over-all farm policies is impossible to say, but there is a widespread interest in the ought to possibility. An effort be made. It could be supplemented by negotiations about specific measures, such as export subsidies or various kinds of nontariff barriers.

As in the case of the balance of payments, events might ease the problem greatly if, for example, the United States continues to export all the wheat and coarse grains it can produce even without any expansion of the Community's purchases.

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Japanese expectations are hard to assess. There is a good bit of evidence that many Japanese are sensitive to past problems and are quite prepared to agree to moderate the flow of their exports into world markets. They want, naturally, a reasonable rate of increase, some assurance that they will not be kept in a secondary role forever and a voice in negotiating the arrangements instead of being faced with ultimatums. In Europe, which imports only modest amounts of Japanese goods, one hears people talk as if the American economy had been laid waste by Japanese competition instead of enriched by imported products. Some reconciliation is essential to a successful outcome of the multilateral negotiations. A failure due to European resistance would certainly sharpen American doubts about the willingness of Europeans to play the part expected of them in the international economic system. It would provide evidence, too, that the political and security structure of the alliance would remain one with two wings hinged on the United States. What implications this would have for the international economic system as a whole is not immediately apparent. The nexttest case would be the ability of the Americans overcome and Japanese to the damage to their relations incurred in the early '70s, mostly as the results of political and economic measures taken by the United States. The net outcome of all these events would undoubtedly play a crucial part in determining which of the future Japans become a reality. And that in turn would have a major, and probably decisive, impact on what the alliance or the economic system of the future looks like.

From this review of differing expectations -- and the who's who that preceded it -- a few things emerge quite clearly. (1) The dangers of the negotiations failing are very great. (2) Each of the partners is quite capable of taking a stance that will bring out the worst in the others. (3) How far a more understanding attitude on the part of one will bring out the best in the others is less certain. (4) They -- the countries or partners -- are not

32

monoliths or single purpose machines but complex societies in each of which there are people who for good reasons or bad support almost every possible point of view. Which argument wins in each country is not unconnected with the interplay of interests and forces across national lines. It is an old fact that too often goes unrecognized that an agreement to liberalize trade or to foster cooperation more generally is a mutual assistance pact between groups in different countries, each group thus winning out over others in the same country. (5) Finally, it is apparent that the chances that the voices favoring cooperation in each country will win out depend not only on the merits of their case and the general recognition of common interests in the continuation of cooperation but also on the state of each national economy, the international economy, and the general political atmosphere.

## The agenda

Between the time this section is written and the time it is read, events will have taken place of considerable -- and possibly decisive -- importance for the outcome of the international negotiations with which this paper has been concerned. It would make little sense to analyze the agenda of monetary, trade, and other issues in great detail at this point. Instead, the next few pages comment very selectively on features of the negotiations closely connected with the analysis in the earlier part of this paper of the troubles of the alliance and the system.

To respond fully to the combined preoccupations of those who are concerned with the shifts in power in the world, the unsatisfactory past position of the dollar (whether the emphasis is on what De Gaulle called the "exorbitant privilege" of the United States or Americans' concern about the disadvantages of the system for them), and the inadequacies of several parts of the monetary

33

mechanism, a reformed system would have to have these characteristics: an
international unit replacing the dollar to the extent that no one felt
forced to hold dollars he did not want and the United States could let the
value of its currency rise or fall according to the same rules that applied
to other countries; a stronger voice than in the past for Europe and Japan
in the management of the system; provisions for easier alterations of
exchange rates than in the past; more orderly arrangements for inducing
countries in deficit or surplus in their balance of payments to take suitable
steps; an effective system of either controlling the international short-
term capital market or neutralizing its bad effects on national policies.

The papers by David Walker and Edward Morse that follow show some of
the difficulties in meeting these conditions. How far short reforms can
fall and still provide an acceptable system is a matter for speculation.
The reluctance of governments to make major changes and the considerable
convenience of carrying on transactions in a major national currency suggest
that, if the balance of payments of the United States became strong again,
the dollar might continue to have a special place in a less drastically
reformed system than we have been discussing. This prospect would be
increased if the European Community found it as difficult to create a monetary
union as many people expect will be the case. If governments fail to agree
on monetary reform and nationalism and friction become the order of the day,
the dollar will take on still another international role -- but to discuss
its value as a weapon goes beyond the scope of this paper. Failing that,
chances seem good that the world will move toward a more rational and managed
monetary system. A major source of difficulty may be the effort to deal
with the short-term capital market by national and international measures.
Not incidentally, this is one of those problems in international management

34

which, as noted earlier, were weaknesses of the old system.

In trade matters, one of the more troublesome and at the same time
promising proposals is that the industrialized countries; having gone so far
in twenty-five years in ridding themselves of a century of tariff protection,
should go the rest of the way and aim to reduce tariffs for industrial products
to zero over some ten or twenty years. The idea is troublesome for a variety
of reasons; the one most relevant to the themes of this paper is the belief
of some Europeans that free trade threatens the solidarity of the Community
by treating members and nonmembers alike. The same argument was heard at the
beginning of the Kennedy Round and seemed weak as it implied that European
integration would go on indefinitely with no firmer bounds than tariff prefer-
ences. Depressingly, the setback to European integration in the '60s lent
new plausibility to the argument, but it is hardly worthy of respect at a
time when serious efforts are being made to broaden the base of European inte-
gration and when tariff levels are already less than 10 per cent and presum-
ably will be reduced even further. The promising aspect of the zero tariff
proposal is that, if it were adopted, a large number of other tariff issues
would lose their intensity. Among these issues are the American claim for
compensation for the enlargement of the Community, American concern about dis-
crimination in the Community's arrangements with European nonmembers, its
preferential agreements with Mediterranean countries, and, indeed, many
troublesome practices connected with customs valuation and administration.
While not totally eliminated, such questions could be seen in a more realistic
perspective and kept from damaging relations far beyond what is warranted by
their real economic importance.

To eliminate tariffs would not bring a golden age of free trade (or the
deluge some fear). No government will totally disarm itself for dealing
with the impact of large quantitites of foreign goods and sensitive parts of

35

its economic anatomy. The escape clause in American legislation is just one example of national safeguards. What keeps governments from abusing these defensive devices is mostly the fear of retaliatory action by others. Consequently, one of the most important parts of the forthcoming negotiations will concern the terms on which countries will be allowed to limit imports and how effectively the use of these safeguards can be internationally supervised. There is general agreement that on economic, political, and social grounds it is sensible to permit adjustments to changed conditions of competition to be spread over time. Among many weaknesses of existing arrangements, a major defect is the lack of any assurance that adjustments will in fact take place if the pressure of competition is eased by import restrictions. A number of proposals have been put forward, many of which include multilateral surveillance of the use of safeguards, time limits on protection, and an obligation of governments to pursue programs of industrial adjustment. In the present cautious and protectionist mood of the world, governments may be unwilling to accept major innovations so that this issue may prove to be one of those referred to earlier in which statesmanship will consist in satisfying present worries on terms that do not prevent future improvement. Governments do have a stake in making such improvements since they afford the only control over unilateral actions and no one will tie his own hands more tightly than his neighbors do. It also takes little imagination to realize that if there is general agreement on methods of spreading adjustment over time, a similar formula might well be worked out to cover future Japanese export expansion.

Scarcely anyone doubts that nontariff barriers (NTBs) -- a loose and somewhat inaccurate label for a large number of issues -- will be far more important in the future trade negotiations than at any time in the past. What is not so fully realized is what great changes will result -- eventually if not right away. One can imagine governments banning certain NTBs sooner

36

NTBs or later, as they have import quotas. Other A are likely to be made subject to international codes, as antidumping rules are. Still others have so many facets that we can hardly imagine negotiating a code of adequate complexity. The best way of treating them may be to agree on certain general principles on and then A a procedure for international examination of the issue when one country feels damaged by what another is doing. Even with all this, there will be frequent debates as to whether this, that, or the other action by a government, in pursuit of any of a large number of ordinary activities, creates an NTB about which another country may legitimately complain.

Why this lush growth of negotiations, rules, procedures, and disputes seems so probable is partly explained by the great variety of NTBs and partly by the fact that the more open an economy becomes to others, the wider the range of activities in foreign economies that are seen to affect it. Businessmen want something approaching international standards of fair competition; issues once thought of as entirely domestic are now seen to affect others. As time passes, governments are likely to increase their measures of industrial policy -- efforts to shape the structure of the national economy and the pattern of employment, to foster some industries and discourage others -- which is a prolific source of nontariff barriers. The same issues arise as in <u>...</u> devising adequate adjustment programs

While tariffs might possibly be swept into the dustbin of history, these other matters are the stuff of government economic policy in the future. Consequently, if the trade negotiations of the '70s are successful -- or even if they only make enough progress to avoid being called failures -- the industrial countries will have moved into a new and different process that must be regarded as endless and probably boundless as well.

37

Industrial policy, adjustment to freer trade, and many specific nontariff barriers, all raise questions about international investment. So do efforts to control the short-term capital market, in a rather different way. Sooner or later governments may want to organize negotiations about more general issues, such as codes of behavior, the risk that multinational corporations will escape national jurisdiction, or labor union worries about the loss of jobs and bargaining power as employers move plants abroad. Perhaps these issues will arise in the next few years, but there are many good reasons -- more pragmatism than principle -- to believe that the circuits are sufficiently loaded to make it wise to defer any investment issues that do not become urgent. For similar reasons, it is probably premature to propose negotiations about the future of specific industries -- a meshing of national industrial policies, so to speak -- though some elements of this question may arise in connection with NTBs and safeguards. Agriculture has already been discussed (it is in a sense a kind of industrial policy). The question of energy has become urgent, but whether there is a will to deal with it internationally remains obscure at this writing.*

A final inescapable issue, which may have to be confronted formally as well as incidentally, concerns the international machinery for future cooperation. New monetary arrangements will almost certainly leave the Fund at the center, but is there a continuing role for something like the old Group of Ten? If the new code of adjustment is to have teeth, whose authority is to determine when the jaws are to close? Should the industrial countries seek

*The energy question is different from most discussed here because it is so much a matter of the relation of the industrial consuming countries to the producing countries outside their own group. Nevertheless, the kinds of cooperation among the industrial countries that might be entailed in a common approach would directly affect issues of the sort discussed in this paper.

38

to carry on their complicated new trade negotiations in a revised GATT, or
in the OECD, or elsewhere? Might OECD become a place where the industrial
countries thrashed out agreements that were later formalized in GATT and the
Fund? Partial answers have to be given to these questions just in order to
give whatever understandings are reached concrete form. When (and if) to
move from piecemeal amendment to the rewriting of basic charters is likely to
become a major question for the future.

## Linkages

This agenda concerns issues that are clearly economic in the traditional
sense of the term. Does this mean that they can in fact be separated from the
political and security issues that also have to be negotiated about within the
alliance? Not so far as I can see -- and yet there is a strong need to bring
about some degree of separation.

As Richard Cooper has pointed out, the economic arrangements made at the
end of the last war were deliberately shielded from day-to-day political
pressures.* There was good reason for this and the basic formula is still
sound: if the opportunities for day-to-day pressure are great, they will be
used; such use is more likely than not to interfere with the continuity of
economic cooperation; continuity is important because many of the benefits
of cooperation can only be reaped over time; in a cooperative system, a country
may suffer some short-run economic damage from the way the rules work; all
gain on balance by having a reasonable system with orderly procedures instead of a
nationalistic free for all.

*"Trade Policy is Foreign Policy," Foreign Policy, Winter 1972-73, pp. 18-36.

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Can this sound doctrine be restored? Does the enhanced "political"
importance of "economic" issues make that impossible? Whatever the answer to
these questions may be, it is perfectly clear that the doctrine of separation
will not be accepted as long as the value or justice of the underlying economic
agreements is questioned. And that is just the situation we are now in --
especially in the United States. Moreover, the old system is inadequate to
deal with future problems of the world economy. To regain the possibility
of insulating economic processes from day-to-day power politics requires
restoration of the belief that the system is efficient, fair, and capable of
coping with new problems. So changes are needed in the system.

It does not follow that the United States should closely link its
economic negotiations with those concerning security and political understandings.
Fear that such linkage was called for in Henry Kissinger's speech of
April 23, 1973,* seems to have been a major element in the initial coolness
of European responses. If the suspicion was correct, then the response was, too,
principally because it would mean that the United States almost willy nilly
would find itself using European military dependence to extract economic
concessions. For the reasons set out in the earlier discussion of why one-
sided negotiations were unlikely to be either successful or durable, the
formula would not work. What was accepted under duress would not in fact be
a lasting system.

There is a problem of linkage even among the purely economic issues.
As we saw, there are Europeans who want the monetary issues settled before
trade is taken up. And there are Americans who say that if the Europeans
want the dollar made convertible, they can pay for it in trade terms. For

*Department of State Bulletin, May 14, 1973, pp. 593-598.

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a variety of good reasons the people most concerned with each of the nego-
tiations do not want them closely tied together except at the obvious points
where the subjects interconnect.* At the same time, it is implausible to
argue that one should undertake difficult and long continuing trade negotia-
tions with no prospect of serious international monetary reform or that
enlightened monetary reform will be viable if countries pursue mercantilistic
trade policies. A failure on either score can push the world into economic
nationalism, so some kind of link is inevitable.

At a different level, there is an unavoidable connection between
security and economics. It is not right, proper, or wise for the United
States to make decisions about keeping troops in Europe on the basis of
whether the Common Market treats soybeans fairly. But there is no way to
prevent some people's reaction on one of these matters from influencing their
judgment on the other. Hostility in trade or investment will affect willingness
to cooperate in security matters. There is also no escaping the fact that,
since security has to be paid for, the payer's view of what is an equitable
economic system will be different from that of one for whom security is
provided at cut rates. As Henry Kissinger said in the speech already cited,
"The political, military, and economic issues in Atlantic relations are linked
by reality, not by our choice nor for the tactical purpose of trading one off
against the other."

This seems undeniable. Because of this inescapable linkage, the economic
issues discussed in this paper are the highest politics. How then should they
be dealt with "at the summit," i.e., by heads of states and governments. Kissinger

*For example, the use of trade measures in balance of payments adjustment; the use of payments regulations in industrial policy or the application of safeguards; concepts of equal treatment.

says of these problems, "The solutions will not be worthy of the opportunity if left to technicians. They must be addressed at the highest level." But it is also true that the economic issues are far too complicated to be dealt with properly at the summit. In these matters, details are of the essence. My own view is that the proper function of the men at the summit is to say: it is politically vital that we get the economic and security issues settled properly. Then they should go home where they should make it plain to their citizens, legislators, and above all their bureaucracies that they meant exactly what they said. Otherwise nothing will happen. Perhaps they should go further and set dates for reports of progress or give some guidance about their views of the common interest, etc. That would be useful if they did not fight too much about how to say these things and what the language meant. But the essence of the matter is what this whole paper has been about, the proposition that in the '70s, as in the '40s, it is "politically" important to get the "economic" system working properly.

June 26, 1973

# Europe's Part in Future Economic Negotiations:
## *An American View*

by William Diebold, Jr.

During the later years of the Johnson Administration, Europeans frequently complained that no one in Washington was paying much attention to Europe and that those who did seemed unable to catch the President's interest for very long. When President Nixon took office, many Europeans expected matters to improve because of what the new President had often said about the importance of Western Europe and the career of his principal advisor on foreign affairs. As was hardly unexpected, Vietnam remained the center of the President's attention, but his major new steps, to the surprise of most people, concerned the U.S.S.R. and China.

In August 1971, Europeans found themselves (along with Japanese and Canadians) suddenly the object of a great deal of presidential attention, though not quite of the kind they had expected. Years of urging the United States to "do something" about its balance of payments had not been intended to lead to dollar inconvertibility. The well-known events that followed can be thought of as moving through three stages.

First came the period in which American officials suggested that it was up to the rest of the world to propose what should be done next to improve international economic affairs. This attitude thrust on Western Europe a greater burden of responsibility than it could take -- and whether the highest American officials were conscious of that or not is a matter of considerable interest for it would tell us something about their motives.

Prepared for *Politique Etrangère* and *Europa Archiv*, June 1973.

Second, after a period of active diplomacy -- the Smithsonian agreement, the removal of the U.S. surcharge, American trade demands on Europe -- a new phase of cooperation seemed to open but rather uncertainly. American officials were once again making proposals: Secretary Shultz at the International Monetary Fund in September 1972; Mr. Eberle and his colleagues less formally in GATT and elsewhere during that fall and winter. But the pace of the discussions that followed was rather slow and not very promising. Renewed monetary crises reminded people that much remained to be done.

The third phase is the present one. To the monetary and trade proposals has been added Henry Kissinger's call in April 1973 for a revitalization of the Atlantic partnership. Thus the United States is asking for major negotiations covering a wide range of issues with the aim of adapting to present realities economic and security arrangements that largely date from the '40s and early '50s. From the apparent neglect of the latter '60s, the wheel has turned completely to "the year of Europe" (an expression which in English has a rather Chinese sound).

What is Europe's reaction? No one has "grabbed the . . . offer with both hands," as Ernest Bevin described his reaction to Secretary Marshall's speech at Harvard in 1947. That is hardly surprising since the circumstances are so different. In great contrast, the present European reaction seems to, to a friendly American observer, be more negative than positive, often suspicious, perhaps timid, and at best reluctant. To be sure, there has been a cool and correct (and sometimes slow) agreement to negotiate and the process has been begun. But it is coupled almost immediately with the building of fences around the negotiations by indicating what things cannot be changed, what broad ideas would not be acceptable (if they can be discussed at all), and what steps the United States will have to take first. The reasons for these attitudes are quite understandable -- but they create a dangerous situation.

A number of different elements seem to contribute to this European
reaction -- which varies among different people, different governments, and
according to which American proposals are being considered. One familiar
feature of long standing is the wish to concentrate on the problems of the
Community. The technical and political consequences of its enlargement, insti-
tutional questions, new opportunities, the long delayed efforts to reach
common policies regarding money, energy, investment, and European companies,
the new emphasis on industrial policy, and the strains on the Common Agricul-
tural Policy, all require Europe's serious attention and best talents.
these
Naturally Europeans would like to be able to deal with issues before having
to negotiate with the United States, Japan, and others. The international
economic problems that bother Americans may seem less urgent to Europeans.
After all, the Community has a strong trade and payments position; some of
its principal members have large monetary reserves; trade with the United
States is far less important than trade with the Community; any general increase
in trade liberalization means more Japanese competition in Europe.

A second source of European reluctance to negotiate with the United States
is worry about American attitudes. Protectionism seems strong in the United
States. The power of economic nationalism was demonstrated by the events of
August 1971. A new activism in American trade policy repeatedly challenges
European practices, bilaterally, in GATT, and in the use of such domestic
American measures as antidumping and countervailing duties. The Common Agri-
cultural Policy is regularly and vociferously attacked by Americans in and
out of government. European integration has fewer champions and more opponents
in the United States than it used to. A number of Americans undoubtedly
perhaps
believe that Europe, Japan, and Canada need to make greater contributions
than the United States to restore the international economic system to balance.

4

The inconvertibility of the dollar worries and irritates Europeans; their apparent inability to change the situation except on unacceptable terms is a currency constant reminder of the privileged position the American □ retains in the world in spite of its "weakness." Suggestions that in future negotiations the United States will link trade and money, economics and security, are naturally regarded by many Europeans as a threat to their ability to reach a fair and balanced agreement. In the circumstances, European governments would like to find a way of avoiding the continuing dilemma of either making one-sided economic concessions to the United States or taking the blame for appearing always to say "no" to American proposals.

Bargaining considerations also provide a third set of reasons for the cool European response to American proposals. The situation is familiar; once again the United States is □ demandeur. The instincts and training of every politician and diplomat tell him to hold back, to appear uninterested or even hostile to what the Americans are proposing. Even to agree to include a certain topic in the negotiations can be taken as doing something for the Americans -- for which, of course, they are expected to pay. This more or less classic position is strengthened in present circumstances by the fact that it is hard work to get "Europe" -- or even just the key countries of the Community -- to take a common position on almost anything and then even harder to find a workable means of carrying on negotiations with the necessary combination of authority and flexibility. Moreover, to get agreement within the Community, governments not only have to compromise about the position to be taken toward the United States but may have to make concessions on internal Community matters as well to win over their most reluctant (or hard-bargaining) partners.

There are, of course, people in Europe who agree that the difficulties of the international economic system are too serious to be left aside while Europe deals with its "own" problems of integration. Similarly, there are

5

people in the United States who believe it would be best to delay negotiations because they are pessimistic about what can be accomplished in the near future.* Nevertheless, the contrast in approach between those Americans who believe it is urgent to move forward in negotiations and those Europeans who are reluctant to do so is sharp enough -- and the political forces behind each point of view strong enough -- to create a situation that endangers both the alliance between the United States and Western Europe and the system of international economic cooperation from which Europe, North America, and -- not least -- Japan have benefited so greatly during the last quarter century.

If this danger is to be overcome and something constructive is to come out of the next period of negotiations, all the partners -- Western Europe, North America, and Japan -- have to work very hard and act rather differently about these matters from the way they have been acting during the last five years. Each attempt to reach international agreement will meet domestic opposition in some countries or all. The task will certainly be difficult and may prove impossible. The purpose of this article is to express one American's view of how Europe could contribute to this process. Elsewhere the author has said what he thinks the United States should do in terms highly critical of many recent American actions.**

*Good examples of these complementary views are to be found in Kurt Birrenbach, "Partner oder Rivalen? Das Verhältnis zwischen den Vereinigten Staaten und Westeuropa," *Europa Archiv*, pp. 77-84, and George W. Ball, "Partner oder Rivalen? Gedanken eines Amerikaners zum europäischamerikanischen Verhältnis," *Europa Archiv*, March 1973, pp. 151-161.

**For example, in "The Economic System at Stake," *Foreign Affairs*, October 1972, pp. 167-180, and, more generally, in my *The United States and the Industrial World: American Foreign Economic Policy in the 1970's* (New York: Praeger, for the Council on Foreign Relations, 1972).

6

## Economic nationalism in the United States

European fears of economic nationalism in the United States are well-founded. The strong rhetoric that accompanied the unilateral actions of August 1971 found real response in American opinion. The demands made on Europe, Canada, and Japan about short-run trading matters, talk about hard bargaining, and denunciation of other countries for unfair treatment of American interests, all reflect a mood shared by many Americans. This mood is partly the result of the American economic difficulties of recent years. It also expresses a widespread feeling that the international economic arrangements worked out in the '40s and '50s are no longer satisfactory. Sometimes the emphasis is on the failure to deal with new problems: many American businessmen believe that foreign countries have far more nontariff barriers than the United States. Sometimes the concern is with violations of the rules, as in the case of preferential arrangements. And sometimes the emphasis is simply on changed circumstances that make unacceptable the arrangements that were tolerable when the United States did not have to worry about its balance of trade or the value of the dollar. Whatever the specific case, the conviction is widespread that at least some of the rules of the international economic system will have to be renegotiated.*

European actions or statements that look like a reluctance to negotiate or an unwillingness to consider changing the rules will simply exacerbate the situation. They will be taken to justify the accusations that the system is unfair to the United States and that foreign countries do not want to give up

*This mood is described and analyzed more fully in the *Foreign Affairs* article just cited.

7

their privileged position. If the effort to have serious negotiations failed, the result would be to discredit those Americans who have argued that the only way to obtain lasting reform of the system is by negotiations that recognize the true interests of all parties (and who know that such negotiations will make it clear that not all the sins are on the side of foreigners). If there is no progress by international agreement, the American economic nationalists will call for unilateral action. Respect for international rules will decline further and perhaps disappear. Resistance to protectionist demands will weaken. The more such tendencies manifest themselves in the United States, the more Europeans will feel justified in their refusal to negotiate, will build up their defenses, retaliate, and try to find other ways of putting pressure on the United States. Dissatisfaction and conflict will not be confined to economic issues. It requires no great imagination to realize that the two sides of the Atlantic are well placed to bring out the worst in one another and perhaps rather quickly.

A policy of delaying negotiations would be self-defeating -- if its aim were to turn aside economic nationalism in the United States. But it will also not be enough for Europeans simply to sound more positive or more receptive to American initiatives. Negotiations that lead nowhere will solve nothing. They will further feed the fires of economic nationalism in the United States and reduce the willingness to try to work out mutually beneficial arrangements on a wide range of issues. If Europeans approach the negotiations only as a way of appeasing American opinion that is just what they may fail to do.

It is up to Europeans to decide how seriously they take this risk and what harm it would do them if American policy became strongly nationalistic and that country began to behave like "a rogue elephant" in the world economy, as Raymond Vernon put it.

"Rogue elephant in the Forest: An Appraisal of Transatlantic Relations," Foreign Affairs, April 1973.

8

(c1)

But surely Europe has other things to gain as well, notably a chance to play
a significant part in repairing and reshaping the international regime for
money and trade. That chance might not seem very great if the proposals being
put forward by the United States were so unreasonable as not to be worth dis-
cussing or if they were being put forward in so peremptory a fashion that the
United States seemed to be saying "this or nothing." But an examination of
what the United States is suggesting in the fields of international monetary
and trade reform indicates that this is not so.

The American economic proposals

The monetary proposals put forward by Secretary Shultz are completely
compatible with two points which, one would have thought, were generally
desired by Europeans: that a new monetary order should not be based on the
dollar and that the voice of other countries than the United States should
be stronger than before in the management of international monetary affairs.
The American emphasis on improving the international adjustment mechanism can
hardly seem wrong, though one may disagree strongly as to how this should be
done. There are serious differences of opinion about many important issues,
such as fixed and flexible exchange rates and the place of gold and SDRs as
monetary reserves. But these differences exist in every country and are
essentially intellectual differences. It is hard to see that many of them
reflect clear-cut and lasting conflicts of true national interests. This will
not make negotiations easier, but it certainly suggests that agreement should
be eventually possible. Where a true clash of interests may occur is in such
matters as voting arrangements or measures to deal with short-term capital
movements in ways that might also interfere with long-run private investment.
One other point -- the convertibility of the dollar -- is really a false issue.
A satisfactory agreement on a durable monetary reform would have to permit
the dollar to be convertible into reserve

9

assets on substantially the same terms as other countries. To expect the
dollar to be made convertible before a new system is devised -- as is occa-
sionally suggested -- is quite unreasonable. Should the effort be made, the
result would almost certainly be further damage to international monetary
relations and no advantage to anyone.

In trade, the situation is more uncertain and the American position more
ambiguous. As the summer of 1973 begins, who can say whether (or when) Congress
will be willing to give the President substantial negotiating powers? If not,
a difficult period may follow if protectionist pressures continue to rise.
But, if President Nixon gets something like the powers he wants, much will
depend on how Europe and Japan approach negotiations.

Along with broader powers that any President has ever had to reduce
trade barriers, President Nixon is also asking for the right to raise them in
a number of circumstances. Understandably worried, foreign governments ought
to concentrate on finding *international* means of limiting the freedom of
action the President would gain under *national* law. That means concentrating
on new rules and procedures to deal with such matters as the use of trade
measures in the balance of payments adjustment process, "fair trade," and
above all providing international standards and procedures for the use of
safeguard clauses. Some of this could be accomplished by strengthening GATT.
Agreements would be reciprocal. Violators would be subject to retaliation.
This is the normal way that cooperative international behavior is insured.

Somewhat surprisingly, there has also been concern in Europe about how
the President might use the broad powers he is seeking to remove tariffs. What
if he were to propose that the industrial countries should aim at the eventual
removal of all tariffs on manufactured goods? Would this really threaten the
unity of the Community, as some people say? The argument was hard to accept

10

when it was made at the beginning of the Kennedy Round.* If in another decade -- the minimum period anyone discusses for the elimination of tariffs -- the Community has no greater basis of solidarity than the exemption of members from low tariffs, it will not seem a very serious affair. A positive gain for Europe from an agreement to eliminate tariffs, even slowly, would be to reduce the friction from some of the trade disputes between the United States and the Community which have caused trouble out of all proportion to their economic importance (preferences, compensation for enlargement, etc.). The issues would remain but would lose much of their virulence if everyone knew that eventually tariffs would disappear. Indeed, why should the Community not take the initiative in this matter, having proved the virtues of free trade within Europe?

To be sure, the agreement to eliminate tariffs would not lead to altogether free trade. Every country would have difficult cases requiring longer periods of adjustment than usual; there would always be temporary problems to be dealt with by safeguard clauses. How to obtain the international supervision of these devices may become the most important feature of all future trade negotiations and not just because of the elimination of tariffs. They may, for example, provide the best means of setting a mutually acceptable pace for the expansion of Japanese exports. Agreed-on standards for safeguards are also significant for industrial policy, which is becoming increasingly important. Nontariff barriers and other practices that distort trade are also involved. There is no reason why Europe should object to the new effort of the United States to take

*In a lecture to the Deutsche Gesellschaft für Auswärtige Politik in November 1962, I explained that even if President Kennedy were able to use the powers of the Trade Expansion Act to remove certain duties entirely, "it would be almost 1970 before there could be free trade between the United States and Europe, and then presumably only in some products. One would hope that by that time your bonds of integration would go well beyond those of simply having a common external tariff." "American Trade Policy and Atlantic Partnership," *The European Yearbook*, 1963, pp. 99-117. And of course they did -- one has the Common Agricultural Policy.

11

these matters seriously. For each complaint advanced by American businessmen, there must be a matching European complaint. Buy American, American Selling Price, and DISC (a new law reducing the tax burden on some American exports) are all legitimate targets. Trans-Atlantic relations would be improved if there were more rules, more generally accepted standards, and especially more procedures for discussing these problems than now exist.

Agricultural trade presents quite different problems. A number of Americans have explained to their more importunate compatriots that it is unrealistic to expect the Community to make basic changes in the Common Agricultural Policy. In the '50s, foreign criticism did little or nothing to alter American agrarian protectionism. Costs, inefficiency, and inequity -- the factors that brought changes in American policy -- may eventually have the same effect in Europe. Until then, a different approach is needed. Changes in the pattern of prices in the CAP, the use of different ways of supporting farmers, and new measures for structural reform -- all taken in response to purely Community needs -- could bring some benefit to American farmers. Direct international agreement may be possible on some specifics, such as the rivalry in export subsidies. There are other limited possibilities for agreement that would not damage the CAP.

Among those who have studied these matters closely, there is some hope that in the long run governments can negotiate about the basic agricultural policies of Europe and the United States.

In the short run, the situation will remain difficult. It is essential, therefore, that Americans understand why the bases of the CAP are untouchable for their part, for the Community. Europeans must understand how important it is for any American administration that wishes to pursue a liberal economic policy to be able to show that farmers benefit from it. Both sides may be aided, at least in the short run, by the strong rise in demand for foodstuffs, in the United States, in Europe, and in the rest of the world.

12

There are other economic issues that may cause serious trouble. If the energy situation becomes as difficult as many authorities expect it to, a failure of the consuming countries to cooperate could add substantially to the friction between the United States, Europe, and Japan. But, even if that does not happen and only the issues roughly sketched in these pages are taken into account, is it not reasonable to fear that the United States will use Europe's dependence on American nuclear power as a means of obtaining one-sided economic concessions? The possibility is very real. In the common interest -- American as well as European -- it ought to be avoided.

### Economics, politics, and security

It sometimes seems as if the Kissinger speech of April 23, 1973, were being read the way Kremlinologists in the West read pronouncements from Moscow or the way a scholar might try to decide if some fragment of parchment found in the desert belongs to a true gospel or not. While the speech certainly contains some ancient verbiage and some passages that are hard to interpret, one may wonder whether a different kind of reading might be more suitable. The Economist of May 12, 1973, suggested that the speech "was deliberately written in general and imprecise language to prevent the Europeans feeling they were being given a take-it-or-leave-it proposition and to encourage them to come up with a wide range of ideas in reply." If that is so, the meaning of the speech will be shaped by the content given to its language through negotiation and discussion. If one concentrates on the essentials, the speech seems one that might have been given any time in the last ten years; the fact that it was not given in the last five is part of the problem we face today -- the supposed neglect of Europe by the United States. Few would challenge the unspoken premise of the speech that the political, economic, and security relations of the United States and Western Europe have seriously deteriorated. Who would

13

quarrel with the central proposition that a proper handling of the economic and security problems is a matter of major political significance?

To improve matters, Kissinger would begin at the top, with the leaders of the alliance. "The solutions will not be worthy of the opportunity if left to technicians. They must be addressed at the highest level." But it is also true that the issues are too complicated to be dealt with properly at the summit. Having stressed the need for solutions -- to their bureaucracies as well as to the public -- the heads of state and government must insure that serious negotiations begin and continue. They may wish to give guidance in the form of some broad principles -- is this the new Atlantic Charter? -- and perhaps set deadlines, provided it is clear that many of the problems are never to be "solved," only processes set in motion to deal with them. (There are good precedents in Community practice for this kind of approach, going back to the work of the Spaak committee.) What form the "summit" takes -- a multilateral meeting, a tournée by President Nixon, a joint statement -- is quite secondary. But the matter of how the decisions on money and trade should be linked to security and political issues is not.

The basic aim of the economic negotiations is not to improve the position of one or the other partner in the short run but to create a new system of cooperation that will reflect the changes in the world in the last quarter century and provide a basis for continued cooperation (dare one think of its lasting another quarter century?). That can only be done if all parties agree on the bases of the new arrangements and find them of continuing advantage. This will not be the case if an unbalanced economic arrangement has been extorted from Europe by security threats. Furthermore, it is unlikely that sound security decisions will be made if security issues are being used as bargaining counters in a difficult economic negotiation.

14

More complicated questions arise about the relation between talks on trade and money. Certain issues are common to both, such as the kinds of trade controls that may be used to deal with balance of payments difficulties. But most other issues are best kept separate if there is to be any hope of success. In a rather fundamental way, the two cases are quite different. A basic reform of the monetary system will take place at a determinable point when certain set of new rules goes into operation. That will not be the end of the story -- continuing management will be needed -- but a decisive change will have been made. In the case of trade, the balance is opposite. Some specific agreements about reducing tariffs and other trade barriers will be made at a given moment, but the most important agreements -- if they are made at all -- will concern principles and procedures for dealing with nontariff barriers, issues of industrial policy, and other matters which will have to be dealt with on a continuing basis for a long time ahead. But in spite of these reasons for dealing separately with trade and money, the two processes are closely connected. Who would undertake long and difficult trade negotiations if it were unlikely that the main governments could agree on reform of the monetary system? It is also unreasonable to suppose that a reformed monetary system would be acceptable -- or even work -- if countries remained free to damage one another with mercantilistic trade policies.

Underneath it all is the fact that just as the deterioration of economic relations has political consequences, so repairing the economic system requires some political assumptions. So do security arrangements. And, as security and uses resources, costs money, it affects economic relations. If there can be no lasting economic arrangements that do not in some sense balance the gains to all, there can also be no lasting security arrangements that are not felt to be truly mutual. One of the virtues of the arrangements for economic cooperation that are now breaking down was that the conduct of trade and monetary affairs

15

was to a significant degree protected from the impact of day-to-day political issues.* For many reasons, it would be highly desirable to maintain that characteristic in future arrangements. But when the rules of the international economic system themselves are in question, the discussion must be "political" because it concerns fairness and justice as well as efficiency and economic soundness. And that is the situation we are in -- at least in the United States. There is no escaping that, as Kissinger put it" "The political, military, and economic issues in Atlantic relations are linked by reality, not by our choice nor for the tactical purpose of trading one off against the other."

## The prospects

In such difficult circumstances, facing problems of the first magnitude, and not being of one mind about priorities or urgency, can the European, North American, and Japanese governments hope to make a success of negotiations about trade and money in time to avoid the dangers of further deterioration of economic cooperation and further resort to economic nationalism?

Events in the international economic system may bring some help. The substantial realignment of exchange rates in the last two years, making the dollar cheaper and the yen, mark, and some other currencies substantially dearer, plus the greater rate of price inflation in other countries than in the United States might go far in a few years to improve the balance of payments in the United States. If that were to happen, some -- though not all -- of the pressures for economic nationalism would be relieved and with them the tendency to believe that hard bargaining should lead to one-sided concessions by other countries to the United States. Another advantage of such a

*Richard N. Cooper, "Trade Policy is Foreign Policy," *Foreign Policy*, Winter 1972-73, pp. 18-36.

16

development would be to gain acceptance of a sound principle stated by Chairman Wilbur Mills of the House Ways and Means Committee before President Nixon sent his new trade legislation to Congress. Mills said:

> . . . it is neither realistic nor desirable to burden the trade negotiations excessively. The question of balance-of-payments disequilibrium . . . must be dealt with through reform of the international monetary mechanism.*

Oddly enough, another source of help for the international economic negotiations may come from that familiar source of domestic trouble for almost every country, inflation. More and more people are becoming aware of the advantages of removing import barriers to improve domestic supplies, increase competition, and reduce the pressure on prices. Unilateral reductions in tariffs have been made on those grounds in Japan and Canada and proposed in the Community. The United States has liberalized the importation of oil and meat for similar reasons. President Nixon has asked for broader powers to do the same sort of thing in the future. While it seems unlikely that we are on the verge of a massive unilateral reduction of trade barriers, increased use of this technique should be encouraged. Economically and diplomatically, it makes great sense to emphasize that one can help oneself by removing a barrier to imports. Politically and psychologically, it is sometimes easier to act unilaterally than to appear to concede something to others. One inhibition on unilateral action has always been the belief that for bargaining purposes one should only reduce duties as "concessions" to others, but it should not be too difficult to find ways of taking account of that point.**

**For example, it could be agreed that, in judging whether the result of a bargain balanced, full account would be taken of all trade barrier reductions a country had made since a certain date, say 1970, regardless of the form of the action or the motive for it.

17

A more troublesome question is whether governments will make increasing use of export limitations as a way of combatting inflation-produced shortages of supply.

No matter how much (or how little) help the course of events may provide, the forthcoming economic negotiations cannot succeed unless the most important governments act in accordance with a few very simple basic principles of international cooperation. First, economic relations are rarely a zero-sum game; usually all can gain if matters are properly handled. But, if one thinks in terms that require a zero-sum (such as that export surpluses are always to be preferred), that is what the game will become, and it will always be to someone's advantage to break the rules. Second, lasting cooperation is only possible if the participants understand that sometimes each one of them will have to give up some short-run interest in order to retain the longer run benefits of continued cooperation. Third, "national interests" rarely are truly national. Most economic measures benefit some groups within a country at the expense of others; at the same time, someone abroad loses and someone else gains. In an increasingly interdependent world, interest groups and governments have to find ways to take these balances into account in shaping policy. Fourth, an international economic system will not operate automatically; someone must make the effort to keep it in good running order. For much of the postwar period, that task was undertaken by the United States. For the future, others will have to do more, which means that national policies will have to be taken account of the system as a whole as well as of national interests, conventionally conceived.

If these simple rules are applied to the forthcoming negotiations, they emphasize two basic conditions which have already been strongly implied by this article. Europeans must keep constantly in mind that the extent and virulence of American economic nationalism will depend to an important degree

18

on the European response to reasonable American initiatives. They are, in effect, being asked to help those Americans who argue that sustained international economic cooperation is viable and advantageous. The United States, in turn, has to pursue a policy that does not demand one-sided concessions from the Europeans (whether by security pressures or otherwise) if what it wants is a better and fairer set of rules and procedures for trade and money that will also be lasting. It must also realize that it cannot hope to secure enough support for such measures in Europe if Europeans repeatedly have to choose between cooperating with the United States and advancing European integration. On both sides of the ocean people are being asked to recognize that agreements furthering international economic cooperation are basically mutual assistance pacts between certain groups in each country.

Everything that has been said so far depends on one tacit premise which must at the end be made clear. Was Henry Kissinger right when he said: "The United States has global interests and responsibilities. Our European allies have regional interests."? If he was, one could hardly expect Europe to react to America's problems and initiatives as this article has suggested. And, of course, the proper prescription for American behavior toward Europe would be different, too. Whatever may be true on formal security matters, how can Kissinger be right so far as economic affairs are concerned? If an economic grouping the size of the European Community -- though not yet a single economic entity -- does not have global interests, then it is difficult to understand in what sense a global economy can be said to exist. But there is yet another possibility. Suppose Europe does indeed have global interests but sees them differently from the way I have suggested. Suppose that instead of a real and abiding interest in economic cooperation Europeans believe that their interests are better served by policies that give primacy to economic interests (whether national or of the Community) as traditionally defined, which means

19

largely in mercantilist terms and linked to the pursuit of power and foreign policy. Then, too, the argument of this paper is not valid.

The acid test of these propositions will come not only in negotiations between the United States and Europe but in the resolution of a matter only touched on in passing (because it would take another article to develop properly): the place of Japan in the international economic system. The Kissinger speech was weak and ambiguous on that subject. The issues are far more complex than is suggested by saying that Europe must take more Japanese goods that would otherwise flow into the American market. No one -- the United States, the Community, or Japan -- has clearly charted a satisfactory route as yet, but once the real issues are confronted there can be little serious doubt that no lasting system of economic cooperation can be built that does not include Japan as a leading member.

THE GRENVILLE CLARK PAPERS AT DARTMOUTH COLLEGE

INTRODUCTORY REMARKS

There is within the Grenville Clark Papers at Dartmouth College much new
and important material for historians of twentieth century America in such
fields as civil liberties, academic freedom, civil rights, and world peace. A
special value of the Papers lies in what they reveal about an individual citizen's
ability to bring about political and social change without necessarily holding
public office. It is in the best scholarly interest to make access to the Grenville
Clark Papers as complete as possible, while at the same time safeguarding
sensitive portions of the Papers and making certain that they will be used
for scholarly purposes only.

Certain sections of the Papers having obvious and immediate value to historians are being declared semi-restricted*. Other sections which are sensitive in subject matter and/or personal in nature are currently closed. Certain series have some materials which are potentially sensitive, but also large parts which are valuable and available for research purposes. Access to this "grey" area of the Papers depends upon the seriousness and nature of the scholar's intended project. Once granted this access, the scholar will be asked to observe meticulously the request not to quote or publish materials from the Papers without approval of the Clark family. On such a basis, it is expected the restricted series can be safely opened to scholars.

Because xeroxing and microfilming have become such a standard practice for
scholars engaged in historical research, and because the Baker Library has
such facilities readily available, there will be no restrictions on photo-copying
in the semi-restricted categories of the Papers. In the restricted series, photo-
copying will be prohibited except in special cases. If it is convenient for the
library staff, a researcher may also use a tape recorder to make notes from
the Papers.

A simple and specific statement will be presented for signature to all applicants before they may have access to the Papers. The library will maintain a record of all scholars who have been granted access to the Papers.

Under the above conditions, the widest possible use of the Grenville Clark
Papers cannot fail to result in greater understanding and appreciation of the
life, work, and times of Grenville Clark.

*For all practical purposes semi-restricted is equivalent to open, subject only to proper observance of literary rights involved and the according of due acknowledgment relating to use, see Number 2, 3, and 4 of Specific Requirements on Page 2.

-1-

SPECIFIC REQUIREMENTS

1) Access to the Grenville Clark Papers may be secured only upon written application to and after written permission from Mary Clark Dimond (Mrs. E. Grey Dimond), who has authority to act for the Clark family. Application may be made directly to her or through Mr. Edward C. Lathem, Librarian of the College, Baker Library, Dartmouth College, Hanover, New Hampshire, and advice may be sought from both Mr. Lathem and Mr. Kenneth Cramer, Archivist at the Baker Library*. Application must be as fully descriptive as possible, including a statement of purpose, areas of interest, and length of time (approximate dates) the scholar wishes to use the Papers.

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3) All who have access to the Grenville Clark Papers will be required to agree in writing that they do not intend to and will not quote and/or publish any part of the Papers without approval of Mary Clark Dimond (Mrs. E. Grey Dimond). This stipulation is not meant to produce censorship, but rather as a formality to protect literary rights.

4) All who have access to the Grenville Clark Papers will agree that their publication or other result of work with the Papers will include acknowledgements when the text has in any way drawn upon the Papers.

*Applications for use of the Papers may also be routed through:

Dr. Reverdy T. Gliddon
Executive Secretary
Grenville Clark Fund at Dartmouth College, Inc.
School of Administration
University of Missouri-Kansas City
Kansas City, Missouri 64110

-2-

CATEGORIES OF PAPERS AND CLASSIFICATIONS OF EACH INDICATED

I. Biographical — restricted. (Box of Fanny Dwight Clark — Grenville Clark correspondence is closed)

II. Plattsburg — Military Training Camps Association — semi-restricted

III. New York Bar Associations and American Bar Association — semi-restricted

IV. Harvard Corporation — restricted

V. National Economy League — semi-restricted

VI. Civil Rights Work — semi-restricted. (Willard Uphaus Case — restricted)

VII. National Committee for Independent Courts — semi-restricted

VIII. American Bar Association Committee on the Bill of Rights — semi-restricted

IX. National Emergency Committee of the Military Training Camps Association — semi-restricted

A. Selective Service and Training Act of 1940

B. Samuel R. Spencer, Jr.

C. National Defense

X. National War Service Act — semi-restricted

XI. Citizens Committee for Universal Military Training — semi-restricted

XII. Harvard Divinity School — semi-restricted

XIII. World Peace through World Law — restricted

XIV. Arnold Arboretum Controversy — restricted

XV. First Dublin Conference — semi-restricted

XVI. Ford Foundation — semi-restricted

XVII. Justice and Opportunity for the American Negro (Negroes' Problems) — restricted

XVIII. World Law Fund — restricted

XIX. Second Dublin Conference — semi-restricted

XX. Dublin Affairs — semi-restricted

XXI. Writings of Grenville Clark — semi-restricted

1. Legal Subjects

2. The National Finances

3. Education

4. Military Subjects

5. Civil Rights

6. World Peace

7. Miscellaneous

8. Proposed Writings

- 3 -

THE PRIZE

The Grenville Clark Prize will be awarded nine times, and
resources for this purpose will be expended deliberately by
the year 2000. The Prize will be given in:

1975          1987
1978          1990
1981          1993
1984          1996

and
1999

Grenville Clark died in 1967. His life as a lawyer and private citizen affected the lives of his fellow citizens, both of his own country and of the world, far beyond the public's awareness. His work was not finished at his death, but equally, neither was his influence.

To multiply the impact of his ideas, character and concept of the obligation of a private citizen to fight for that which is right, the Prize is established to be awarded through the remainder of this century, critical years in which mankind's destiny may well be determined.

The Prize is open to anyone anywhere and may be won by a
scholarly work or an activity which significantly furthers the
objectives for which Grenville Clark fought. The prize-winning
work might well demonstrate a knowledge of Grenville Clark
to be gained through the large collection comprising the Grenville
Clark Papers.

THE GRENVILLE CLARK FUND AT DARTMOUTH COLLEGE, INC.

BOARD OF DIRECTORS

Mary Clark Dimond, President
John K. Schemmer, Secretary
Robert H. Reno, Treasurer
F. William Andres
Joseph S. Clark
Norman Cousins
John S. Dickey

E. Grey Dimond
Leo Gottlieb
Anthony Lewis
Dudley W. Orr
Samuel R. Spencer, Jr.
Homer C. Wadsworth
Ruth N. Wight

The Prize will be awarded by the Grenville Clark Fund at Dartmouth College, Inc., between July and December each third year. The Fund reserves the right not to award the Prize or to postpone its award. Candidates should initiate correspondence or be proposed in the preceding years and submit their credentials before July first of the Prize year.

THIS BROCHURE IS AN ANNOUNCEMENT AND CALL FOR CANDIDATES FOR THE PRIZE OF 1975.

For further information about the Grenville Clark Prize, please write:

PROGRESS REPORT - JULY, 1973

INTRODUCTION

The goals of the Grenville Clark Fund at Dartmouth College, Inc., are designed to honor the memory of the man himself, Grenville Clark, through projects which are in each case a living memorial as they strive to succeed in furthering the work to which he was devoted throughout his lifetime in the role of a "private citizen".

The Grenville Clark Fund at Dartmouth College, Inc., (hereinafter referred to as the Fund) received a favorable Internal Revenue Service ruling in September of 1971. The organizational meeting with the Board of Directors of the Fund took place on December 9, 1971, and subsequent meetings have been held on May 25, 1972, October 16, 1972, February 26, 1973, and recently, at Dartmouth College in Hanover, New Hampshire, on June 28, 1973.

Members of the Board of Directors presently are:

Mrs. Mary Clark Dimond, President

Mr. John K. Schemmer, Secretary

Mr. Robert H. Reno, Treasurer

Mr. F. William Andres

Senator Joseph S. Clark

Mr. Norman Cousins

Dr. John S. Dickey

Dr. E. Grey Dimond

Mr. Leo Gottlieb

Mr. Anthony Lewis

Mr. Dudley W. Orr

President Samuel R. Spencer

Mr. Homer C. Wadsworth

Mrs. Norman B. Wight

Mr. F. William Andres, President of the Board of Trustees of Dartmouth College, and
Mr. Homer C. Wadsworth, President of Kansas City Trusts and Foundations, joined the Board
in this Spring of 1973.

THE PAPERS

The Grenville Clark Papers, located at the Baker Library at Dartmouth College, of which Mr. Edward Connery Lathem is the Librarian, were officially opened at a ceremony presided over by President John G. Kemeny of Dartmouth College on the afternoon of June 28, 1973. Present were members of the Board, administrative personnel of the Baker Library and Dartmouth College, and other friends. Special recognition was paid Mrs. Ruth N. Wight for her meticulous and dedicated work sorting and classifying the Papers (estimated at over one million pages) over a period of years between the winter of 1967 and October of 1972, and her composition of the inventory, a document of thirteen hundred pages. Gratitude was also expressed for the continued advice and concern of Mr. Edward Connery Lathem and for the guidance and assistance contributed by Mr. Kenneth C. Cramer, Archivist at the Baker Library. This large collection of Grenville Clark Papers, which contains much valuable historical material, is a new and unique resource now available to qualified students and scholars. A catalogue (the inventory) will be published and distributed in the near future to libraries and appropriate institutions over the country and abroad in microfiche form within a handsome folder containing a biographical sketch of Grenville Clark and other details descriptive and relevant to the Collection.

A combined Announcement and Guide concerning the Papers and stating specific regulations and classifications for use and control of the Papers has also been prepared, printed, and is available for all applicants for use of the Papers and other interested persons. (See attached.)

Page 3

## PHYSICAL FACILITY

At the recent meeting of the Board of Directors of the Fund, the importance of re-
locating the Papers within the Baker Library at Dartmouth College was agreed upon, and an
area is currently being selected which can contain a storeroom with proper atmospheric con-
ditions for the preservation of the Papers and with convenient retrieval facilities, adjacent
to an attractive and spacious work area for those working with the Papers. Within this space
provision will be made for the display of some furnishings, books, photographs, and memorabilia
of Grenville Clark, such that an awareness of the man himself, his principles and objectives
will be present, creating a "living memorial" rather than a "museum". The idea was suggested
that the whole area be felt to have purpose and be known as an active center for study and
progress in the areas of civil rights, civil liberties, academic freedom, and world peace. A
consciousness of the constellation of ideas which Grenville Clark contributed through his varied
and vigorous efforts for the good of mankind should be evident in this place.

Office space for a permanent custodian to protect and guide the use of the Grenville
Clark Papers as a part of the facility was also urged.

## PUBLICATIONS

The first product of the Grenville Clark Papers, "The Citizen Soldiers", by Dr. J. Garry
Clifford, biographer of Grenville Clark, was published over a year ago, was awarded the
Frederick Jackson Turner Prize in History, and has won a number of favorable reviews. Dr. Clifford
more recently published the article entitled "Grenville Clark and the Origins of Selective Service"
in the Review of Politics, and this has won notice and been well received.

Dr. Clifford is remaining in Hanover, New Hampshire, through this summer of 1973 in
order to complete work as editorial assistant to Mr. Norman Cousins on the "book of sketches"

Page 4

by friends of Grenville Clark. Mr. Cousins is currently writing the Introduction, and photographs for inclusion are being chosen. This work is to be completed by September 1, 1973, and publication is planned soon thereafter. The above-mentioned work of Dr. Clifford interweaves with his continued work on the scholarly biography of Grenville Clark. Research for the latter is almost complete and he has begun the actual writing of the book.

The catalogue (inventory), previously mentioned herein, is the fifth item planned for publication.

## FINANCES AND MANAGEMENT

The Board of Directors of the Fund continue to agree that their financial goal be not less than the amount of $650,000. Although response to money-raising efforts has been encouraging, more substantial funds are needed, and every effort must be made to raise them.

Meantime, the Fund has reached a phase of activity and momentum such that a number of financial obligations must be undertaken. On June 1, 1973, Dr. Reverdy T. Gliddon commenced his job as Executive Secretary for the Fund. Dr. Gliddon has taken on management of the Fund and of the Grenville Clark Prize.

Expenses for the coming fiscal year will include the salary of the Executive Secretary, the fee for a public relations consultant and expenses for publicity, editorial assistance with publications, stenographic assistance, travel, printing, supplies, etc., etc. The publisher of the "book of sketches" may wish a guaranteed sum.

To pay a permanent custodian an estimated standard salary of $15,000 per year would in itself require a minimum endowment of $300,000. The several projects of the Fund combined continue to make it impossible to settle for less than the substantial financial goal.

Donations to the Grenville Clark Fund at Dartmouth College, Inc., in the form of securities

Page 5

or otherwise should be directed to the care of Mr. Edward P. Stuhr, at the Fiduciary Trust
Company, One Wall Street, New York, New York 10005, and are, of course, tax deductible.

## THE PRIZE

The Fund will issue the first call for candidates for the Grenville Clark Prize to be awarded in 1975, in September and October of 1973. The printed announcement is now prepared (see attached) and a primary task of the Executive Secretary being currently undertaken is composition of a list of approximately five thousand appropriate institutions and individuals who will receive the announcement of the Grenville Clark Prize this autumn. The Board has agreed that candidates may apply or be nominated by institutions or individuals over the whole world by making direct application to the Board, or they may be presented for consideration by members of the Board itself. A brochure containing a clear description of the procedure will be prepared before September, 1973.

## THE BOARD OF DIRECTORS

At the meeting of the Board of Directors of the Fund on June 28, 1973, the Board voted to increase their numbers to sixteen. Members of the Board not only share a general advisory role and money-raising responsibilities for all projects, but will have the privilege and task of making the final decision as to who should be the recipient of the Grenville Clark Prize. The Board wishes to be a balanced non-partisan group devoted to the projects hereinbefore described.

Insofar as the Board of Directors is now of greater size and activity has increased in all areas, an Executive Committee was appointed at the last meeting of the Board (June 28, 1973), and this group will meet as necessary throughout the year. The whole Board will continue to meet at least three times a year.

Page 3 (L6)

2) The following may also be used:

Clark, Joseph S. (United States Congressional Record, 1966, 1967)

Selected copies of "The Bull" (Root, Clark, Buckner and Ballantine, weekly bulletin)

Selected copies of Cleargolaw News (Cleary, Gottlieb, Steen and Hamilton, weekly bulletin)

Cousins, Norman ("A Man for All Seasons", Saturday Review, November, 1966)

Daniel, James (Reader's Digest, May 1962)

Dilliard, Irving ("Grenville Clark: Private Citizen", The American Scholar, 1963)

Fortune Magazine ("Statesman Incognito", February, 1946)

Gaitskell, Rt. Hon. Hugh ("An Eight Point Programme for World Government", October 1962)

Heffner, Richard D. (McCalls Magazine, 1966)

Leonard, Walter J. ("A Tribute to the Late Grenville Clark", Congressional Record, June 1967)

Lusky, Louis (The Columbia University Forum, Winter, 1967)

Mahoney, Thomas (World Government News, 1949)

Mayer, Martin ("Emory Buckner", Harper & Row)

NAACP (Legal Defense Fund Report, 1967)

New York Times editorial (January 14, 1967)

Pacem in Terris (Life Magazine, March 3, 1965)

Roberts, George (Article published by the Association of the Bar of the City of New York, October, 1967)

War and Peace Report ("An Interview", Heffner and Harvey, May 1967)

Whitman, Alden (New York Times, January 14, 1967)

"Wisdom" (National Broadcasting Company Presentation on Sunday, April 26, 1959)

The World Federalist (George C. Holt, "The Memory of Two Men", February-March, 1967)

Dacor Lecture Committee,

DACOR HOUSE,
1718 H STREET, N. W.
WASHINGTON, D. C. 20006

Please enter my subscription for ............ tickets at $6.00 each to Dacor's
1969-1970 Series of five lectures at the Department of State Auditorium.

Check for $........ is enclosed, payable to the Dacor Lecture Fund.

(Name)

(Address)

(Date)

(Telephone Number)

You are invited to enclose names and addresses of friends who may be interested in receiving invitations. Any amount added to the above subscription fee will be donated to the Dacor Educational and Welfare Foundation and is tax deductible.

KISSINGER, HENRY A. / 19

DIPLOMATIC AND CONSULAR OFFICERS, RETIRED, Inc.

1718 H Street, N. W. • DACOR HOUSE • Washington, D. C. 20006

An Association of American Ambassadors and Other Diplomatic and Consular Officers, and Public Officials Concerned with International Affairs, announces its

Fifteenth Annual Lecture Series

of five lecture and discussion programs to be held in November, 1969, through March, 1970. The dates, speakers and subjects are:

NOVEMBER 13, 1969—Reserved for Secretary of State

DECEMBER 11, 1969—Dr. Thomas O. Paine

Administrator of the National Aeronautical and Space Administration

Subject: What's Ahead in Space.

JANUARY 8, 1970 —The Honorable James W. Riddleberger
Former Ambassador and National Chairman of the Population
Crisis Committee

Subject: The Urgency of Population Control.

FEBRUARY 12, 1970—The Honorable Galo Plaza
Secretary General of the Organization of American States

Subject: New Directions in Inter-American Relations.

MARCH 12, 1970 —General Lyman N. Lemnitzer
Former Commander-in-Chief, European Command and Supreme Allied Commander, Europe

Subject: NATO, The Successful Alliance.

Lectures will be at 8:00 in the main Auditorium of the Department of State, entrance 23rd Street, between C and D Streets, Northwest.

A social hour usually follows each lecture, at DACOR HOUSE, 1718 H Street, N. W., to which those attending the lecture are invited.

Subscription is by contribution of six dollars a person to the Dacor Lecture Fund. Your attendance is invited. Invitations are restricted to members of DACOR and the Department of State and their friends, and other selected groups.

T. ELIOT WEIL, Chairman

The Program

Programs will follow the pattern of previous series, with questions from the audience discussed by the speaker after his talk. Under the general heading of World Affairs for the series, each speaker will deal with matters in his particular sphere of interest. Changes in speakers and dates may become necessary on account of official requirements upon their time, but none is expected at present.

DACOR

DACOR (Diplomatic and Consular Officers, Retired, Inc.) is an associa-
tion of retired foreign service officers, ambassadors, and other public officials who
have served their country in the field of international relations. It was formally
incorporated in 1952 as a non-profit association. Its main membership is made
up of those who have retired from active official duty, but it includes as associate
members officers still on active duty in the Foreign Service and the Department of
State. It complements the Department of State as a focal point of interest for
those who are no longer on active duty in the Foreign Service but who continue to
have professional interest in its work.

DACOR's primary purpose is to promote the interest and welfare of those who have spent their lives serving their country abroad in the conduct of our relations with foreign countries. It assists retiring personnel to locate and re-establish themselves in their homeland. Many of its members remain active as writers or consultants, and in lecturing, teaching and other professional activities related to international affairs.

DACOR maintains a placement service which puts qualified members in touch with firms, foundations and other organizations seeking such talent on either a full or part-time basis. This includes consultative work for either private or governmental organizations; advisory work concerning foreign trade or international relations; research, instruction, translation, and other activity in these fields.

DACOR arranged in 1952 with an insurance company for group hospitaliza-
tion and disability insurance for members and their families. It also has a welfare
committee keeping in touch with members who are ill or in need of its attention.
The Dacor Educational and Welfare Foundation was incorporated separately in
1965 as a non-profit organization, to which donations are tax deductible. Its
Board of Directors are the elected members of the Dacor Board of Governors.

In cooperation with the Department of State and the American Foreign Service Association, DACOR keeps under review the effects of Foreign Service retirement legislation, proposing, when appropriate, improvements to keep it up to date or eliminate inequities. It played an important part in bringing about corrective legislation in 1956, 1958, 1960, and 1965. This included relief for Foreign Service widows who were not receiving any annuities. Dacor is sponsoring legislation at the present time.

DACOR founded the Foreign Service Memorial Area in the Rock Creek Cemetery in Washington, D. C., in 1965, as a Foreign Service counterpart, on a smaller scale, to the Arlington National Cemetery.

The DACOR BULLETIN enables members to keep in touch with one another and gives them news of mutual interest.

DACOR conducts a lecture series each winter season, in the Auditorium of the Department of State, devoted to current world affairs. It has made arrangements with educational institutions for the admission of selected students to these lectures. It has also established the nucleus of a diplomatic library, especially for a growing collection of contemporary American diplomatic memoirs, and reference works to aid in writing them.

## DACOR HOUSE

DACOR HOUSE, at 1718 H Street, N. W., Washington, D. C., provides a headquarters and centrally located club quarters where old friends and associates meet, with facilities for social gatherings, including meals, and rooms available to members visiting Washington, and active members of the Foreign Service while on home leave or consultation in the Department. Located around the corner from the old State-War-Navy Building and the White House, quaint old Dacor House, for fifty years prior to its acquisition by DACOR in 1954, was the Washington rendezvous of a group of prominent American diplomatic and military figures known as "The Family." The library and furnishings have been gathered over the years from the far corners of the earth and give Dacor House a unique and pleasant atmosphere as a meeting place, reminiscent of a small embassy or legation.

## SUBSCRIPTIONS

Subscription contributions at $6.00 a person for the series of five lectures should be by check payable to "Dacor Lecture Fund," and mailed to Lecture Committee, Dacor House, 1718 H Street, N. W., Washington, D. C. 20006. Any amount added to the contribution will be donated to the Dacor Educational and Welfare Foundation, and is tax deductible.

OFFICERS AND BOARD OF GOVERNORS OF DACOR

GEORGE V. ALLEN, President
Career Ambassador, Ret.

JOSEPH E. JACOBS, Vice President
Ambassador, Ret.

JEFFERSON PATTERSON, Vice President
Ambassador, Ret.

GARDNER PALMER, Vice President
Minister, Personal Rank, Ret.

PHILIP BONSAL, Vice President
Ambassador, Ret.

HAROLD H. TITTMANN, Vice President
Ambassador, Ret.

RICHARD P. BUTRICK, Treasurer
Career Minister, Ret.

T. ELIOT WEIL, Secretary
Counselor of Embassy, Ret.

WILLIAM AFFELD, JR., Executive Director
Consul General, Ret.

HERBERT P. FALES, Assistant Treasurer
Counselor of Embassy, Ret.

CYRIL L. THIEL, Assistant Secretary
Consul General, Ret.

GERALD WARNER, Assistant Secretary
Minister, Personal Rank, Ret.

THEODORE C. ACHILLES
Ambassador, Ret.

WARE ADAMS
Counselor of Embassay, Ret.

JOHN M. CABOT
Ambassador, Ret.

H. MERLE COCHRAN
Ambassador, Ret.

HUGH S. CUMMING, JR.
Ambassador, Ret.

GEORGE GREGG FULLER
Consul General, Ret.

RAYMOND A. HARE
Ambassador, Ret.

LOY W. HENDERSON
Career Ambassador, Ret.

JOHN D. HICKERSON
Ambassador, Ret.

FREDERICK B. LYON
Career Minister, Ret.

H. FREEMAN MATTHEWS
Ambassador, Ret.

JACK K. McFALL
Ambassador, Ret.

LIVINGSTON T. MERCHANT
Ambassador, Ret.

JOHN J. MUCCIO
Ambassador, Ret.

ROBERT D. MURPHY
Career Ambassador, Ret.

ROBERT NEWBEGIN
Ambassador, Ret.

JOSEPH C. SATTERTHWAITE
Ambassador, Ret.

HENRY S. VILLARD
Ambassador, Ret.

ROBERT F. WOODWARD
Ambassador, Ret.

STANLEY WOODWARD
Ambassador, Ret.

LECTURE COMMITTEE

T. ELIOT WEIL, Chairman

THEODORE C. ACHILLES

NILES BOND

MRS. DENT BOYER

HENRY L. DEIMEL

HERBERT P. FALES

JOHN C. POOL

JOSEPH C. SATTERTHWAITE

EVAN WILSON

PAST PRESIDENTS OF DACOR

<table><tr><td>HON. JOHN CAMPBELL WHITE</td><td>1951-1954</td></tr><tr><td>HON. ARTHUR BLISS LANE</td><td>1954-1956</td></tr><tr><td>HON. DAVID MCK. KEY</td><td>1956-1957</td></tr><tr><td>HON. JOHN FARR SIMMONS</td><td>1957-1958</td></tr><tr><td>HON. ORME WILSON</td><td>1958-1958</td></tr><tr><td>HON. HAROLD H. TITTMANN</td><td>1959-1961</td></tr><tr><td>HON. HUGH S. CUMMING, JR.</td><td>1961-1964</td></tr></table>

October 1, 1969

CENTRAL FILES

OCT 30 1969

RECEIVED

DEPARTMENT OF STATE

Washington, D.C. 20520

S/S 7206101

KISSINGER, HENRY A.

May 3, 1972

Memorandum for : NSC Secretariat
The White House

Subject: Request for Mr. Kissinger's Autograph

The letter to Mr. Henry Kissinger dated March 22, 1972 and signed by a (Mrs.) Elise Zozuli di Salino of Pilsen, Czechoslovakia states that the writer is an admirer and would like to add his autograph to her collection. Collection of autographs of foreign dignitaries is a popular hobby in that country. Inquiries within the US Government have established, however, that Czechoslovak intelligence is active in the fabrication of material which is passed clandestinely as genuine official documents of Western governments. It is possible therefore that a genuine signature of Mr. Kissinger's could be misused.

It is recommended that Mr. Kissinger's autograph not be sent. In view of the large number of such requests a Czechoslovak autograph collector usually makes a reply does not appear necessary.

Attachment:

Letter from Mrs. Elise
Zozuli di Salino

RECEIVED
MAY 8 1972
CENTRAL FILES

2525 P Street, N.W.
Washington, D. C. 20007

December 3, 1972

[cc]

OBE
no reply

Dear Henry:

In order to spend Christmas with my daughter and son-in-law and new grandchild in the Virgin Islands, I have to do an early column for Christmas morning.

The subject will be: What would you like most to find under the Christmas Tree?

Could you find it possible to give me a quote which would be printed EXACTLY as written with no addition or comment?

With sincere wishes for a blessed and happy holiday for you and yours.

PRESS, Jlp, 3/14/72

KISSINGER, HENRY A.

DIXON

(Last name and pending date)

Name: Jeanne Dixon

Request: Is going to be interviewed by a German television company for a program which has 30 million viewers in Germany. They want her to do something about America and what America is doing in the future. They asked her to invite one of the following to join her: Werner von Braun, Hubert Humphrey, Sen. Edward Kennedy or Henry Kissinger. She has asked Mr. Kissinger alone. They are to do it beginning of next week, and Mr. Kissinger will be the only one she has asked.

Please contact as soon as possible at FE8-7200 and ask for Gertrude Parker.

JTH's Recommendation:

HAK's Answer: No - 3/15/72

Date and Time:

Party Contacted: Mrs. Dixon -

Additional Information: Repeated 3/20/72 [Signature]

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Resolution:

RECEIVED
MAR 2 1 1972

CENTRAL FILES