This Copy For

BACKGROUND BRIEFING

AT THE WHITE HOUSE

WITH DR. HENRY KISSINGER,
ASSISTANT TO THE PRESIDENT FOR
NATIONAL SECURITY AFFAIRS: AND
RON ZIEGLER, PRESS SECRETARY TO
THE PRESIDENT

9:15 A.M. PDT

JULY 16, 1971

FRIDAY

(San Clemente, California)

MR. ZIEGLER: We are going to do the session this morning on a background basis. You can attribute it to "White House officials." You can directly quote "White House officials," unless Dr. Kissinger says to you that it is on deep background, and then you should not quote him directly.

We will have a transcript for you to read after
the briefing.

There are two announcements before we go to Dr. Kissinger. I have stated the ground rules to you and know you will abide by them.

On Monday, President Nixon will have a meeting with the bipartisan leadership at 8:30 in the morning. Then at 10:00 o'clock on Monday, President Nixon will meet with his full Cabinet. The purpose of the meeting with the bipartisan leadership and the Cabinet is to discuss the recent events which were announced last night.

With that, I think we can go directly to Dr. Kissinger. I believe he would like to go directly to your questions.

Let me again repeat the ground rules. Dr. Kissinger's remarks this morning will be on BACKGROUND, as I indicated to you.

MORE

[1c]

- 2 -

DR. KISSINGER: Let me say one thing, and then we will go right to questions.

I will not be able to go into substance other than some of the surrounding circumstances, and I hope you will be patient with me if I don't speak as fully as I would like to.

With that, let me take your questions.

Q Could you give us some chronological report on how you went into China and came out?

DR. KISSINGER: Well, I went in by airplane. I will not go into the details of how the trip was arranged, but I went in by airplane on Friday, the 9th, arriving in Peking around noon, Peking time; in fact, at exactly noon Peking time. I left Peking on July 11th at 1:00 p.m. Peking time. So I was there for 49 hours.

Q What kind of airplane did you go on, Henry? Whose airplane, and what kind?

DR. KISSINGER: I have said that I don't want to go into the details of how the trip was arranged and how I got in there.

Q Did you leave and return from the same place?

DR. KISSINGER: I arrived at an airfield near Peking and left from the place at which I had arrived.

Q Can you tell us where you went in from and came out to?

DR. KISSINGER: Well, I have been looking at my schedule, and it is fairly obvious that it must have been from Pakistan.

Q Did you ever see Islamabad?

DR. KISSINGER: Yes, I saw Islamabad. I saw it and was in there.

Q When is the President going to China?

DR. KISSINGER: The date for going to China has not yet been set. It will be before May 1972. The exact date depends on some preparatory work that has to be done, and on some of the technical arrangements that need to be made, but it will be well before May 1972.

Q Henry, why was May set as the outside date?

DR. KISSINGER: May was set as the outside date because the President directed that a step of such importance for world peace and for long-term relationships between our country and the Peoples Republic of China should not get mixed up in any partisan considerations in this country.

Of course, our hosts are working on a different timetable and are not so tied to this timetable and, therefore, we said May is the absolute outside limit beyond which the partisan aspects might raise too many problems.

MORE

[L]

But this does not mean that we will delay it until
the last minute. We will have it as soon as it can be
arranged with a prospect of success.

Q Would that be this year?

DR. KISSINGER: I just don't want to speculate. It
is not excluded, but we really have to see what the prepara-
tory work will bring. It would have to be in the very last
part, but we really have to engage in some exchanges before
we can form a judgment. I would think that by early fall we
will have a pretty good fix on it.

Q Where will these exchanges take place? Are
we sending more people to Peking or are we going to meet them
in Warsaw, or what?

DR. KISSINGER: I think we have well established
procedures for this now.

Q What did you talk to Premier Chou about?

DR. KISSINGER: We had rather lengthy talks. Of
course, we have been preparing this for three months. It was
a trip that had culminated two years of overtures by the Presi-
dent, and then three months of preparation. So we covered
many topics, but we have a mutual understanding that they would
not be discussed.

Q Can you say about how much time altogether you
did talk?

DR. KISSINGER: Of the 49 hours I spent there, I would
say the greater part of the waking hours were spent in conver-
sations.

Q Do you mean something like 20 hours?

DR. KISSINGER: Well, approaching that.

Q Can you say where you talked?

DR. KISSINGER: The talks took place in two places:
One was a State Guest House where we were staying, and the
other set of talks took place in a place called the Great Hall
of the People, which is used by Premier Chou En-lai for re-
ceptions and dinners. I think some newsmen have been received
there.

Q How many were in your party? Who went with you?

DR. KISSINGER: Three members of my staff.

Q Who were they?

DR. KISSINGER: John Holdridge, Winston Lord and
Richard Smyser.

Q Who did the Chinese have in on the talks be-
sides Chou En-lai?

MORE

[c]

DR. KISSINGER: Very candidly, I forgot to ask them if I could give the names of the people who participated. Therefore, I can't do it, but they had at least four senior officials participating each time, representing the Foreign Office and other aspects of their structure.

Q What language were the talks in?

DR. KISSINGER: I talked in English, with the verbs more carefully placed than usual. (Laughter)

They talked in Chinese. Premier Chou En-lai, as some of you may know, understands English, so he occasionally has a tendency to correct the interpreter. He has the advantage that he can think about what one has said while the interpretation is made to him.

Q Henry, can you describe the mood of the sessions?

DR. KISSINGER: The reception was enormously gracious and polite. On the human level, we were treated extraordinarily well.

The mood of the session was very businesslike, very precise; no rhetoric on either side. These are two countries that have had major disagreements for a long time, that have been in isolation from each other, and this was the first tentative step along the road that the President started 2-1/2 years ago, the first direct contact along the road the President started 2-1/2 years ago through indirect communication. We spoke frankly and directly, and I believe usefully.

Q Does this constitute recognition of Red China?

DR. KISSINGER: Not at this stage in any formal way.

Q Why did you go to London before, that short trip to London? Was that connected with this?

DR. KISSINGER: No.

Q What other countries were informed of this?

DR. KISSINGER: In this whole enterprise? Let me give you some explanation.

As I have told some of you before, within 10 days of coming into office, the President directed that steps be taken to see whether we could get into contact with the People's Republic of China and to try to bring them into a more civilized discourse with the rest of the world. You know the series of steps that have been taken.

The Secretary of State made a major speech in Canberra, Australia in the summer of 1969. Throughout this, the three policy people who have been involved in everything have been the President, the Secretary of State and myself. Of course, there have been a very few senior White House staff members who knew the general framework and most of the details.

The division of labor during the last week has been that the Secretary of State would take care of the diplomatic scenario. Therefore, yesterday he spent the better part of

MORE

[1C]

the afternoon and evening while the President was traveling
to Los Angeles on the telephone calling about 19 Ambassadors
to inform them ahead of time of the impending announcement.
This required some rather careful timing, so that it could
be accomplished before the announcement was completed.

As I understand it, the Secretary of State expects
to continue these discussions on Monday when we get back, for
more elaborate conversations with those Ambassadors, as well as
others. But there were about 20 countries notified prior to
the announcement.

Q How about Taiwan?

DR. KISSINGER: They were the first country to be
notified by the Secretary of State.

Q How about the Soviet Union?

DR. KISSINGER: The Soviet Union was also notified
ahead of time.

Q Henry, a few months ago the President publicly
cautioned against expecting the improvement in relations to
move along rapidly, and here, in a relatively short period of
time, a major step has been taken. What happened?

DR. KISSINGER: Well, we have had a difficult problem with maintaining a public posture on this issue. The relationships with the Peoples Republic have gone in essentially two phases: (1) In the first year and a half of the Administration, there was a general attempt on our part to communicate to Peking that we were prepared to have a serious dialogue, and that we were not prisoners of history.

We also took, in addition, a series of unilateral
steps that were public that symbolized this. Then, starting
this spring, about concurrently with the visible manifesta-
tion of the ping-pong diplomacy, the manifestations having been
in a general framework of trying to express a general attitude,
both sides moved into a more concrete phase.

On the other hand, there are a number of really
interesting aspects. When you have not been in touch with
a country for 25 years, it is amazing how technically diffi-
cult it is to simply find out where you should talk, and with
whom. That is something that we don't teach in textbooks on
diplomacy.

When you are nursing a rather tenuous dialogue, you
don't want to create excessive expectations of how it might go.
Even after we knew, for example, that a visit by the American
envoy in Peking would be welcome, there still remained a lot
to be discussed about how to work it out; what should be dis-
cussed; what the objectives should be.

The President felt that until we knew that, it would
be best not to raise undue expectations, excessive speculation,
for each side to take a public position that it might then
regret, and if it turned out that a later moment would be more
propitious, we could then do it without embarrassment or with-
out a sense of failure.

MORE

We have moved on a schedule that was essentially set in April, and we have not deviated from this schedule, nor has the other side. There has been no acceleration of that process from that time on.

Q Do you mean your trip was set in April?

DR. KISSINGER: Well, a trip was set in April, and then who and so forth, this became clear during May, essentially.

Q Why do they want this breakthrough?

DR. KISSINGER: I don't want to speculate about their motives, but these are serious people, and this is a major step for them. I am certain that they have thought about it deeply, and that they consider it as significant as we do.

Q Do you expect that we will formally establish diplomatic relations before the President goes there?

DR. KISSINGER: The answer to that is no. The major problem we now have is that the United States and Mainland China have been cut off from each other for a long time. The Peoples Republic of China has not, in recent years, participated actively in international affairs in any way.

The major problem is to make sure that we talk seriously; that we respect each other's point of view; and that we understand that there are major differences. There was no pretense on either side in Peking that there are no major differences, but that we will see what both can do to promote better relations in the world and thereby contribute to the peace of all nations.

Q How do you communicate if you do not have diplomatic relations?

DR. KISSINGER: I think we know how to solve that problem.

Q Henry, how does the Vietnam problem fit into all of this?

DR. KISSINGER: Well, obviously when countries of the magnitude and world concerns of the United States and the Peoples Republic of China alter their relationship, it must affect other parts of the world. I don't want to speculate on what impact it will have on any specific area.

I will, of course, have to say that in a quest for peace in the world, peace in Southeast Asia has to be a foremost, immediate objective.

Q What effect has this acceptance to visit China have for membership for Mainland China in the U.N. in October of this year?

DR. KISSINGER: The Department of State is going to announce our formal position on that within the very near future. It obviously has some effect on it, but the Department of State will announce our formal position before too long.

MORE

Q May I follow up on that? The President is expected to announce a policy, an Administration policy toward Red China. Now, the State Department handling this aspect of what was anticipated, do we still expect the President very shortly to make a public announcement of his policy toward Mainland China? This was stated in June.

DR. KISSINGER: I don't believe that the President will make a formal announcement. I believe that the present plan is that the Department of State, which will have to handle the negotiations and details, will announce it. They have been working on it for many months in a rather complex situation and will state our position in the reasonably near future.

Q So this announcement that the President was going to have, is this part of the confidentiality that was mentioned?

DR. KISSINGER: I don't believe that the President ever said he would make the announcement. My recollection is that the President said he would make the decision sometime in the latter part of this month. That timetable still exists.

The present plan is that the Department of State will make the announcement, and that was always the plan. There has been no change in that.

Q About 11 or 12 years ago a President promised that he was going to make a visit to the Soviet Union. That visit was announced in a somewhat dramatic manner and then was shot down along with a U-2 fighter over Russia. In view of the fact that the United States has been sending at least drone planes over Mainland China, did you make any assurances to Chou En-lai that this type of operation would cease in order not to jeopardize the President's visit?

DR. KISSINGER: As I told you, I will not discuss the substance of my conversation with Premier Chou En-lai. The visit of the President is a serious attempt to contribute to world peace, and is carrying out a policy that he has long felt was one of the cardinal aspects of his general approach to international affairs.

On the Chinese side, one has the impression also of great seriousness of purpose. I believe that both sides will behave in a responsible manner, keeping in mind the long-term objectives. But I don't want to go into any details.

Also, I want to say that it was not a conversation in which either side was trying to hold the other one up.

Q What are the prospects now of a return visit from Chou En-lai?

MORE

[c]

- 8 -

DR. KISSINGER: That issue has not yet been raised.

Q. Will there be one eventually? That is customary.

DR. KISSINGER: As you all know, we invited a return visit of the table tennis team, but quite honestly, the issue has never been raised by either side. Therefore, I don't want to speculate on that.

Q. Why didn't you see Le Duc Tho or Madame Binh in the pursuit of the policy of peace?

DR. KISSINGER: We are not going to discuss the individual moves in the Vietnam negotiations. Let me say one thing generally: You ladies and gentlemen have heard me talk about Vietnam negotiations on behalf of the President. You will remember that I have insisted through all periods that in our judgment the surest, most reliable and most desirable way of ending the war in Vietnam was through negotiations.

I think you will also remember that I maintained this position when it was being ridiculed and when people said that there was absolutely no possibility of negotiations.

I simply would like to ask you whether you really believe that now, when everybody starts talking about negotiations, we would suddenly lose our interest in negotiations.

So, if you want to debate with us about the substance of this or that position, that is, of course, what has to happen. But the President, who has been dedicated to this negotiating process from the beginning, against all odds, is not going to be found <u>ضالٍ</u> when the whole record is <u>playful</u> plain of pursuing avenues for peace.

Q. Is it likely that the President's journey will include a visit to the Soviet Union on the same trip as China?

DR. KISSINGER: The President's view on a meeting with the Soviet leaders has been frequently stated. It is one that, of course, he has always been, in principle, willing to undertake. It would seem to me that the occasion of a visit to Peking is not the best to also visit Moscow. The issues to be discussed between the two countries are too various. But in principle, we are prepared to meet with the Soviet leaders whenever our negotiations have reached a point where something fruitful can be accomplished.

Let me make one other point: Nothing that has been done in our relations with the Peoples Republic of China has any purpose or is in any way directed against any other countries, and especially not against the Soviet Union. We are taking these steps because we cannot imagine a stable, international peace in which a country of 750 million people is kept in isolation. We believe that by improving relations with the Peoples Republic of China we are contributing to peace in the world, and therefore are contributing to all nations.

MORE

[Lc]

- 9 -

Q Can you tell me if you knew about the invitation for President Nixon to visit Peking when you went there? Did you know it was going to be forthcoming?

DR. KISSINGER: Essentially, yes. I knew, and of course the President knew that there was an interest, a mutual interest in a visit. What remained to be determined was whether it would be useful, whether it would contribute to conditions in the world, peaceful conditions in the world.

The President had given me detailed instructions before I left. He personally had gone over, contrary to the normal procedures where the instructions are more general, he had gone in great detail over a voluminous book that had been prepared. He went over it for several weeks and had prepared a good part of it himself.

This was one of the things which we felt would come up and he had given me detailed instructions in which way I was authorized to react to it, depending on the general framework.

Q Did you see Chairman Mao while you were there? Why was he not mentioned in the statement last night?

DR. KISSINGER: I will answer this question, but I will not comment on whom I saw other than Prime Minister Chou En-lai. I did not see Chairman Mao. Chairman Mao does not hold an official government position. He is Chairman of the Communist Party.

I think you will know from your acquaintance with other Communist countries that the formal invitations are government to government, not Communist Party to government. Therefore, Premier Chou En-lai who is head of the government of the Peoples Republic of China, would be the official who, by protocol, extends the invitation. However, it is expected that the President will meet with Chairman Mao while he is there.

Q Shall we assume that the visit to Peking was the primary reason for the entire trip? Would you have made the trip if it had not been for that?

DR. KISSINGER: The President wanted me to go on a fact-finding trip in general at some convenient opportunity. But the particular timing was certainly influenced by the decision to go to Peking.

Q You mentioned earlier a trip in April or May. Could you give us any more details of the various moves that led up to your trip? Did Edgar Snow play a role in this?

DR. KISSINGER: The question is about a trip in April or May. Do you mean the preparations for the trip which took place in April and May?

Q Yes. Who made the trip in April or May?

DR. KISSINGER: Nobody made a trip in April or May. Edgar Snow played no role, except that he conveyed in his article in Life, which is the only thing we saw, a general attitude which we had received already in other ways and it simply confirmed a general attitude which we had already become aware of.

MORE

[x]

-10-

I was saying that there were two phases in our relationship with the Peoples Republic of China: One, a period in which a general framework was established, first through a series of communications in various ways on our part that indicated that we were not bound by previous history and that expressed general philosophy. That also was expressed in the President's annual foreign policy report and was expressed in the first public use of the phrase, "Peoples Republic of China" last October in a toast of President Nixon to President Ceausescu, and was repeated in February in the President's World Report, even in the middle of the Laotian operation. There was also a series of steps which the Department of State took to indicate a general willingness to open relations as well as public statements by the Secretary of State and others.

The second phase started in April when we moved from this general framework to a more specific exploration of where we might go from here. Then in April, May, and June this meeting was set up through a series of exchanges and very detailed preparations which were made. The preparations had been somewhat handicapped by the fact that the only senior officials who knew about it were the President, the Secretary of State and myself.

Q Throughout your trip, only three people knew?

DR. KISSINGER: Plus a very few senior White House staff members who had to know for various reasons. For example, the President did not work on the substance of this in his office for fear that papers would be left behind and people might walk in and see us working on the papers. So we usually met in the Lincoln Sitting Room in the evening, often after dinner, to go over the possible agenda and the possible substance of these meetings.

That is what I was talking about that took place in April, May and June. But there were no emissaries in that period.

Q Do you expect the President might go to the
Soviet Union before he goes to China?

DR. KISSINGER: I don't want to speculate about any prospective trips. It would seem to me more logical that the trips would be taken in the order that they are announced, if indeed there is a trip.

Q Was President Ceausescu of Romania helpful in
making the arrangements?

DR. KISSINGER: I don't want to discuss who participated in the preliminary exchanges, except to say that the President, from his earliest travels on, made special efforts to convey personal views to the leaders of the Peoples Republic of China. But I do not want to say through whom.

Q Is there a risk in the time gap between the announcement and the time when the trip may come off?

DR. KISSINGER: First, of course, we have not announced when the trip will occur. I must repeat that May 1, 1972, give or take a day or two, sets the absolute outside

MORE

[LC]

- 11 -

limits and not the target date. Therefore, you should not think that this is building up now to something that will come off at the end of April or the beginning of May.

Secondly, of course, there is a certain risk, but also we are very serious in this policy and based on my visit to Peking, I believe that the Chinese leaders appeared as very serious and thoughtful people. We will both make every effort to manage our relationships in the interval, with all due regard, of course, to the obligations each of us have, in such a way that the benefits that we hope can come to mankind and to peace by a visit will be realized.

I am certain that neither of us will knowingly do something that would undermine the prospects of something that it took so long to prepare and that it took such painful decisions to reach.

Q. Why did it have to be secret and were you surprised that it remained a secret?

DR. KISSINGER: It was thought that it was best to keep it secret until it was completed in order not to raise excessive hopes and excessive speculation until there was something concrete to announce. If the trip had taken place without any results then we could have avoided a setback to the hopes of everybody that would have been implicit in announcing a visit that then had not brought any progress.

As I have told you before, we have consistently taken the position since we made our first overtures, we tried to couch them in terms that could be accepted or noted, but did not have to be rejected.

So, the plan always was to keep the trip secret until we knew what would result.

Was I surprised that it remained a secret? Well, it took some work to keep it secret, and there were some anxious moments. We had some people in command capsules orbiting the moon while we were there. (Laughter)

Q. Without going into the substance of your talks, with Chou En-lai, can you tell us whether you came away from your meeting with him with any improved hopes or greater optimism about the Vietnam peace negotiations?

DR. KISSINGER: I simply don't want to discuss any particular issue that may or may not have been raised there. In general, I came away with increased hope for peace in the world and with a conviction that both sides are going to make serious efforts to bring about an improvement of relations.

MORE

[c]

- 12 -

Q What were the painful aspects of this decision?

DR. KISSINGER: We knew that making this decision would hurt some old friends. It is always difficult to break away from a well established pattern, which at least has the advantage that its framework has become very familiar. It forced us to re-think the whole nature of the world in which policy had been conducted more or less as if the Peoples Republic of China did not exist.

I don't want to speak for the Peoples Republic of China, but I don't doubt that for their leaders there were some enormously complex decisions to be made, given their image of the United States and given the fact of this long-time hostility and, indeed, confrontation in so many parts of the world, sometimes physically and always ideologically.

So it was a complex, and I am frank to say, in many respects a moving occasion to have the privilege of seeing the beginning of this and dealing with what are no doubt very dedicated and very serious people, and we both recognized that we were engaged on a very difficult path which had many pitfalls and which would take an enormous sense of restraint and responsibility on both sides.

Q In drawing on your knowledge of diplomatic history, has a head of state ever visited a country with whom he had no diplomatic relations?

DR. KISSINGER: I don't know why we recognize foreigners in this questioning period. (Laughter)

I will put a researcher to work on that problem. But this Administration is not reluctant to innovate.

Q Didn't you people explain that one of the reasons President Nixon didn't go to President Nasser's funeral was that a President couldn't go to a country with which his country didn't have diplomatic relations?

DR. KISSINGER: It is one thing to go to an essentially ceremonial occasion in which there is no possibility of beginning a serious dialogue and which is primarily a state occasion. It is another thing to find means of beginning a discussion with a country of the magnitude, importance and tradition of the Peoples Republic of China, and there one had to decide at what level this could be most usefully done.

We have a whole host of technical issues between us, but we don't believe that those technical issues can be resolved until there is some -- I don't want to say philosophical -- but at least some conceptual understanding of where we are trying to go.

This requires the participation of people at the highest level, of people who have authority and who can talk with sufficient sweep. So I would say there is an enormous distinction between going to a state funeral and going to what is a serious working visit related to the general policy of bringing about peace in the world.

MORE

- 13 -

[lc]

Q Do you think recognition will come out of the meeting?

DR. KISSINGER: I don't want to speculate on what is going to come out of the meeting. We are both, I think, mature enough to recognize what is possible and what is not. There are no present plans along that line.

Q Dr. Kissinger, even if you are not establishing full diplomatic relations, isn't there a chance that you might compromise and establish, say, a trade mission or some half-way relation?

DR. KISSINGER: We really have taken the position all along that the techniques by which we establish contact are not so important. What is important is that we have the ability to accomplish those things which both sides, in their mutual interest, and for their mutual purposes, consider essential.

We believe that we know how to do this, and the formal way in which this is going to be accomplished is really a very subsidiary issue. There is no present plan to establish a trade mission. Our major emphasis right now is on having a serious dialogue rather than a particular commercial possibility.

Q Wouldn't you expect that the establishment of diplomatic relations would be something that would be announced by the President and Chou in their meeting, and that is the reason you are not doing it now?

DR. KISSINGER: I would not want to speculate on anything that could come out of the meeting between the President and Premier Chou En-lai. My impression -- and this is simply my impression -- and at this stage we don't have even the beginning of an agreement -- my impression is that the Chinese leaders are not so concerned with the specific mechanics of this or that problem, but, rather, with the longer term or medium term problem of what we expressed in the communique as normalizing relations.

So I would not speculate that anything that concrete is envisaged.

MR. ZIEGLER: We have time for just a few more questions.

Q Is Secretary Rogers still going to make his London speech, and will this possibly be the vehicle for the China statement? You said he was going to be making phone calls Monday, and I wondered if he cancelled that speech.

DR. KISSINGER: I will have to let the Secretary of State speak about his own plans. I would not expect, however, that the Secretary of State is going to speak next week on the issue of the U.N.

Q Can you confirm the Australian Opposition Party leader's statement on the fact that China is willing to participate in a conference on Indochina?

MORE

[1c]

- 14 -

DR. KISSINGER: I regret having to be so evasive, but I don't want to talk about any of the specifics that grew out of this meeting. We will have to let events speak for themselves.

Q Were there any conditions put on this trip by Chou En-lai?

DR. KISSINGER: No conditions whatever were put on the trip, nor would they have been accepted. But this was not the mood in which the meeting was conducted, and the issue never arose.

Q Are you talking about the President's trip or your trip?

DR. KISSINGER: On either trip.

Q You have put almost impossible ground rules on this. Henry said he spoke to Chou En-lai "and I did not speak to Mao." It seems to me we have to put this on the record.

MR. ZIEGLER: We will get back to that in a second.

Q How do you quote direct quotes, that this was a complex and moving occasion? Who else would know that?

MR. ZIEGLER: Gentlemen, the ground rules are as stated. You can quote "White House officials said." Obviously when Henry said "I", you can quote "White House officials."

Q We have pictures of Henry and he is saying "My impressions of my meeting."

MR. ZIEGLER: Then all you have to do is say "White House officials said his impressions were."

Q You cannot use the first person?

MR. ZIEGLER: The ground rules as we have established them are the existing ground rules which we have followed many times. You can quote "White House officials said" on anything that Dr. Kissinger has told you today. Those are the ground rules, as we said at the outset.

Q Can we say "I"?

MR. ZIEGLER: You can say "White House officials said." You can say "White House officials say this is the feeling," but you cannot quote Dr. Kissinger by name directly.

END

(AT 10:10 A.M. PDT)

This Copy For

NEWS CONFERENCE

#1195

AT THE WHITE HOUSE

WITH RON ZIEGLER

10:05 A.M. EDT

OCTOBER 5, 1971

TUESDAY

MR. ZIEGLER: We have an announcement to make this morning, and then following this announcement, which I will give to you, Dr. Kissinger will be able to expand on it a little bit and take a few of your questions.

The Government of the Peoples Republic of China and the Government of the United States of America have agreed that Dr. Kissinger will visit Peking in the latter part of October for talks with the Chinese Government to make concrete arrangements for President Nixon's visit to China.

That completes the announcement, which is being made jointly with the Peoples Republic of China at this time, and now Dr. Kissinger will expand on this.

Q Ground rules?

MR. ZIEGLER: Dr. Kissinger is on the record.

DR. KISSINGER: I will just take your questions, but let me make one general observation.

There is nothing unusual or unforeseen that has produced this announcement. It had always been planned that, at the appropriate stage in the preparations for the President's visit, there would be another interim visit to the Peoples Republic of China to make concrete, technical arrangements and to begin a preliminary outline of the sort of schedule that might be followed.

I will take with me a senior official from the Department of State, Mr. Al Jenkins, who is from the Bureau of East Asian Affairs; two members of my staff, Mr. Holdridge and Mr. Lord; and I will take with me also a member of the advance teams from the White House, a member of Ron's staff, Ron being in charge of the press arrangements, a member of the White House Communications Agency, and a member of the Secret Service.

So, you can see that over half of my party will be concerned with the technical arrangements of the trip.

That is all that I want to say; but, of course, I will be delighted to answer questions.

Q Can you tell us who these people are that are going with you, Henry?

MORE

[L]

- 2 -

DR. KISSINGER: First, there will be Mr. Jenkins from the Department of State; John Holdridge, who is the East Asia expert on my staff; Winston Lord, who was with me in Peking in July, as was John Holdridge.

There will be a member of the advance group, which will be Dwight Chapin. The others have not been designated yet, but we will announce them as soon as they have been-- White House Communications, Secret Service, and a member of Ron's staff.

Q A total of how many?

DR. KISSINGER: Ten, maybe.

Q Will you be seeing Chou En-lai or Mao Tse-tung?

DR. KISSINGER: I expect to see Prime Minister Chou En-lai. I have no idea who else from the Government of the People's Republic I will be seeing.

Q When does this indicate that the President will be going?

Q Are you going in Air Force One?

DR. KISSINGER: I am going in a Government plane. I do not think I will go in Air Force One, but I will go in one of the Presidential planes.

Q Can you give us the route?

DR. KISSINGER: I plan to go via Hawaii.

Q Can you give us the dates?

DR. KISSINGER: The dates have not been finally fixed, but they are more likely to be in the earlier part of that period than in the latter. As soon as we have the precise dates, we will announce them, and that should not be too long.

Q Approximately how many days?

DR. KISSINGER: We will be in Peking up to four days.

Q Dr. Kissinger, when does this indicate that the President will be going to Peking?

DR. KISSINGER: Actually, it doesn't indicate anything about when the President will go, one way or the other. We will, of course, discuss that while I am in Peking, and I think we should zero in on a date while I am there and, therefore, should have an announcement within a reasonable period after that.

Q Will you be discussing the agenda?

DR. KISSINGER: Only in the general way that is necessary to plan a schedule. Obviously, there will be some

MORE

[c]

- 3 -

general discussions when you talk at this level, but not in
any final way.

Q Do you have any idea, or can you tell us anything about what has been going on in China in the last few days?

DR. KISSINGER: Let me make a comment about this.

We do not have any reliable information except for
the facts that are generally known about what is going on
in the People's Republic of China.

Secondly, we do not believe that a Presidential
visit entitles us, as a government, to speculate about the
internal developments in the country that we are visiting.

Thirdly, in terms of our dealings with the Peoples
Republic of China, the preparations for the visit have been
handled meticulously, correctly, and carefully, and there has
been no impact of whatever developments may be occurring on
these preparations.

Fourthly, we believe that the Peoples Republic of
China, as the United States, has made a serious decision to
attempt to improve their relationships, recognizing differ-
ences in ideology, and that these are decisions that are not
going to be lightly reversed on either side. If such a
reversal should occur, then it is time for us to address it.

But, as the Secretary of State said, we hope this
will not arise, and above all, I want to stress that we have
no evidence whatever that such a reversal is taking place, and
we have a great deal of evidence that the preparations on the
side of the Peoples Republic of China have gone forward
seriously and, as I said, carefully. In these circumstances,
it would be highly inappropriate for us to make any comments
on internal developments in the Peoples Republic of China, and
that is the policy of the United States Government and all its
agencies.

Q Dr. Kissinger, are you in direct contact with
Peking, or is this through third parties?

DR. KISSINGER: We are in direct contact with Peking,
but obviously, in the absence of formal diplomatic relations,
the procedure is somewhat more cumbersome than it is when you
have diplomatic establishments in both capitals, and this is
one reason why this trip is useful.

Q Dr. Kissinger, have you been assured by Peking
that whatever is happening in China will not affect the visit,
or is this just an assumption made by the United States?

DR. KISSINGER: We would not presume to ask the
Peoples Republic of China to explain to us what presumed in-
ternal developments in Peking would do to common plans, any
more than we would look with favor on a question by them on
whether American domestic developments affect their plans. To
answer your question, we have not raised the issue with the
Peoples Republic of China. They have not volunteered any infor-
mation, but their performance has made perfectly clear that if
anything is happening, it is not related to the visit, because
our communications have been unchanged.

MORE

[Lc]

- 4 -

Q Henry, in your direct contacts with the Peoples Republic since your return from Peking, have you dealt in any great detail with the matter of the agenda for the Presidential meeting?

DR. KISSINGER: We have discussed it in a general way. At this point we are mostly concerned with the framework of the visit.

Q Dr. Kissinger, do you expect to be anywhere besides Peking on this trip?

DR. KISSINGER: There are no plans at this moment, but we do expect to release a detailed itinerary before departure. At this moment we expect to go to Peking and return from Peking.

Q Are your four days in Peking and if there are other stops there will be additional days?

DR. KISSINGER: I will be in the Peoples Republic of China for a maximum of four days. I do not expect to spend any time in any other town in the Peoples Republic of China. If there should be any change in this, which we do not anticipate at this moment, we will release it before my departure. I do not expect any stomach aches to develop on this trip. (Laughter)

Q Do you expect any other members of your party to visit any other cities besides Peking in the Peoples Republic?

DR. KISSINGER: We expect that all the members of the party will stay together. I don't exclude that a member of the advance team may visit a place that may be considered for a Presidential visit, but frankly, we have not reached that point and I say it only so that there are not any surprises. That is not excluded. I do not expect to visit any other place.

Q How are you going to approach the press coverage to your trip now and to the President's trip and what are you going to discuss with the Chinese in principle about press coverage?

DR. KISSINGER: On my trip I don't intend to take any press. On the President's trip, Ron is in charge of the press and a member of his staff is going to come along. He is going to have an exploratory conversation with whatever Chinese counterpart there may be about what is possible in terms of press coverage; that is, what facilities the Chinese have available or could make available. We will then get their ideas. This will be examined when we get back here. There will be no final decisions made on this trip. We will get their ideas, examine them here, and, of course, there will have to be much more detailed technical preparations. This is a preliminary survey. This is not for the final decision.

Q Are you saying this is the first time the question of press coverage has been raised?

DR. KISSINGER: No. It has been raised in a general way before. It is the first time it is being raised in a concrete, specific way, where one actually can talk about facilities. One problem is that I am not competent to discuss press coverage and I believe that the Chinese, in their long and distinguished history, have never encountered anything like a Presidential press party. This is something that will take a little getting used to. (Laughter)

MORE

October 7, 1971

REMARKS OF DR. HENRY A. KISSINGER
TO A GROUP OF EUROPEAN BUSINESS LEADERS
THE INDIAN TREATY ROOM, EOB

10:30 A.M. EDT

HUGH SIDEY: I think Henry Kissinger's reputation precedes him wherever he goes. He is a man of many parts around this town. He is known as the resident humorist in the White House. He is noted for the beautiful women that he goes out with. He also is known for his influence in the area of foreign policy.

There is one thing about Dr. Kissinger, however, that has not been emphasized. I think he stands as a living rebuke to all of those who suggest that the American system no longer works. He began in Furth, Germany, where his main interest was soccer. He came across the Atlantic before the Nazis. He grew up on the West Side of New York, went back into the Army, and then went to Harvard University.

As near as I can tell, no wealthy relatives or influential friends had much to do with his climb from there on. It was done mainly on the force of his intellect and on his own determination.

And so, when I hear many people say that one person could not affect the affairs of the United States, I tend to have them look at Henry Kissinger. He is, in my estimation, the most influential man in his kind of job that I have ever seen in my 12 years of covering the White House.

Dr. Kissinger is going to talk to you for a few minutes, and then will answer questions.

DR. KISSINGER: Gentlemen, I might say to be introduced as the resident humorist of the White House is very faint praise, but I appreciate it, nevertheless.

I think from my recollections of the times that I sat where you are now, and listened to governmental officials, nothing is more boring than to hear an official expound on why everything he has done has been well considered, how all the alternatives have been put before the President, and how, if you knew only as much as I do, you would not bother me with your questions.

-2-

So, rather than talk at great length, I will just
make a few very general observations, and then I will let you
focus me on those aspects of our policy that concern you most.

This Administration, for much of its term in office,
has been, at least in the American newspapers, on the issue of
Vietnam, but I would like to think that when the history of this
period is written, Vietnam will appear like a dramatic interlude,
an event that had to be concluded in a certain way, but something
that we will be able to see in a much better historical per-
spective several years from now.

The real problem that this Administration has faced,
and to which we have tried to address ourselves, is that the
kind of foreign policy which the United States conducted in
the postwar period had run out of ideas and had run out of
an objective base by the time this Administration came into
office. And I may say, this would have been true no matter
who came into office.

The United States ended its traditional isolation
in the immediate postwar period with two basic approaches
to foreign policy. One was to resist aggression on the
model of the resistance to the Nazi onslaught in Europe in
the early 40's, so that any threat to security was conceived
as if the overwhelming danger were the movement by organized
military units across recognized international frontiers.
This was the part of our foreign policy that came into expres-
sion in NATO and in the web of security arrangements that
we made around the world.

The second aspect of our foreign policy was a pro-
jection of the New Deal of the 30's on the international scene
in the 40's, 50's and 60's, which approached foreign policy,
which approached development policy, really, as an aspect
of social welfare policy.

The assumption behind that was that the threat to
political stability around the world was essentially the dis-
parity between economic performance and expectations; to the
extent that you could raise the level of economic performance,
you would automatically produce political stability. That
approach happened to work in Europe, where a governmental struc-
ture was well established.

- 3 -

There was a long tradition of nation administration,
and where the threat to stability indeed was the disparity
between economic expectations and economic performance, no
matter who was in office in 1969, he would have had to face
the fact that both of these assumptions have had to be modi-
fied to a greater or lesser extent: One, because the undif-
ferentiated approach to resistance to aggression in any place
in the world, at any moment of time, by the United States turned
out to strain our physical resources; but above all, strained
our psychological resources to the breaking point.

It is not possible for a government to act with
wisdom at every moment of time in every part of the world
as the country principally responsible for the security and
progress of those areas.

I am often asked what the most important lesson is
that I learned in my job. I am sure that I wouldn't be able
to give a reflective answer to that question until about a
year or so after I leave my present job, because it is one
of the characteristics of this job that you are constantly
overwhelmed with current issues, and that the time for reflect-
iveness is not very great.

But one of the things that has always struck me
is that in my academic incarnation, I could pick my problem
and I could work on it for as long as I wanted, and I could
do as well with it as I was capable of. In this job, it is
perfectly possible that you know that a problem exists. You
may even have some ideas of what you would do with it if you
can only find the time to get around to it.

So, one of the big problems before one is always
to order the issues that you are aware of, and, of course,
there may be many that you are not aware of and should be;
but even among the ones that you are aware of, to order them
in a system of priorities so that you deal with the most urgent
ones first, in the hope that you will get some of those out
of the way before some of the less urgent ones become acute.

So, you are always on the railroad track with the
train hadding for you, and the more problems you put on your
plate, the more you guarantee that some of them will become
acute before you have the time to get around to them.

-4-

Now, there are endless discussions of what the Nixon doctrine means, but basically what we are attempting to do is not to withdraw from the world. I know that this is a concern of many of our foreign friends. We are convinced that a continuation of the policies of the last 25 years, important as these policies were for the period then existing, in the current conditions, would lead to such a psychological exhaustion of the American leadership, and to such domestic disputes in this country that the isolationism that our foreign friends fear would become inevitable.

We are trying to find a posture for the United States which enables us to remain committed to the rest of the world for another substantial stretch of time, one that is emotionally sustainable in this country, which is in accord with the physical realities of this period, including the reality that the European and Japan which were economically bankrupt, psychologically incapable of conducting major policies, and militarily compactly dependent on the United States, are no longer in this position and must, for the good of everybody, play an increasingly important role.

Now, in the immediate postwar period, certain slogans became accepted and were reflective of that period, and I am not saying this critically. Cooperation was an end in itself. Leadership is invoked as if it had an abstract merit.

It was never really analyzed what the impact, say, of the Common Market on the United States would be. There was a general assumption that it was inevitably going to be to the mutual benefit, which I do not contest without strain, which I do contest.

So, what we are attempting to do is to find a mature basis for a new partnership, one in which our friends have to assume somewhat larger responsibilities than before and, quite candidly, this is a painful process for many of them because obviously it is domestically easier for other countries to shift the burden of difficult choices to the United States and to enjoy both the benefits of military protection and the benefits of a foreign policy that tries to maneuver between various of the contestants.

-5-

What we are trying to do is to bring foreign policy in line with existing realities. We are not withdrawing into isolation. We have fought all our battles here in order to prevent isolation from setting in. What we are trying to do is to find a basis on which we can cooperate, free from the paternalism of the previous period, and more in tune with the realities as I have described them.

This is true in the political and military field. It is also true in the economic field, because, as I have pointed out at the beginning, many of the assumptions of the postwar period simply have not proved to be correct.

For example, it is not correct that political stability follows automatically with economic development. One of the great problems of the West with the underdeveloped countries is not that we lack a theory of economic development; but that we lack a theory of political legitimacy. The attraction of communism to many of the leaders of the new countries is not that it offers a good tool for economic progress; but that it offers a good tool for one-party rule, and for the social discipline which they judge to be necessary for the values that are dominant in so many of these countries.

Now, I have no brilliant answer to that last problem except to say that this is a common issue. So we have tried to sweep away some of the assumptions with all respect for the previous period, with full recognition that great things were achieved in the previous period, and with the attitude that we would like to maintain the cooperative framework.

At the same time, we are trying to take account of the realities in the Communist world. We have opened up relations with China. We have improving dialogue with the Soviet Union, partly to recognize the fact that the Communist world is no longer monolithic, and that one can no longer look at them in terms of a military organization that is bent on conquest on the model of our experience in the late 1930's.

So, when this period is over, we hope to have settled the Vietnam War; but I doubt that several years from now people will even understand what it was that made America so hysterical about that episode.

- 6 -

At any rate, that was our illness. We are trying
to deal with it, and it is, I think, on the way out.

The most important thing we have tried to do is
to set the stage for a new approach to foreign policy, and
while the answers we have given obviously are subject to
great dispute, we would like to think that some of the ques-
tions we have asked will remain on the agenda, even if others
will give different answers.

So, let me stop at this point and answer your ques-
tions. Let me say that you should feel free to ask as pointed
questions as I am used to from my friends at Time-Life. I
will be glad to answer anything.

Q Dr. Kissinger, may I preface this question
by saying (inaudible)

- 7 -

DR. KISSINGER: Let me say, to begin with, that my friend Pete Peterson and the Secretary of the Treasury, whom I understand you met at lunch, can talk to you more authoritatively on the technical economic issues raised. Let me confine myself to the general semi-political aspects of your question.

It is true that the treatment on August 15th was somewhat abrupt. On the other hand, it is also true that previous attempts to discuss individual items on this agenda have not had any very dramatic results, and for very good reasons.

Speaking candidly, I think in Europe in the postwar period, foreign policy had developed into a sub-topic of lobbying within the American decision-making process, and the Europeans were in the position, which was sometimes irritating but also quite comforting, where difficult decisions could be pushed to Washington and where then the phrase "cooperation" could be used to prevent painful choices for the Europeans, because we would be reluctant to proceed unilaterally, and the established system did not work to the basic advantage of the Europeans, or at least prevented the Europeans or enabled the Europeans to do difficult things.

I have told my European friends, both before I came into this job and afterwards, that it was, in the long term, intolerable for the United States to maintain large forces in Europe for which the Europeans refused to participate in the development of a strategic doctrine, and for which the Europeans would not make an adequate contribution.

It is beyond -- I repeat it again: As somebody who was one of the leaders in the fight against the Mansfield amendment, you cannot ask the United States to keep five divisions in Europe, insist that the war must be fought as a general nuclear war between the United States and the Soviet Union, for which we don't need five divisions, and refuse to make an adequate European defense effort. Sooner or later somebody is going to push something through the Congress.

Now, I mention this only as an example, so that when we discuss defense burden-sharing, or any one of the sub-topics that was raised on August 15th, the doctrine of

- 8 -

cooperation and the other doctrine of American leadership
which we were jeopardizing, prevented us from ever pushing
it. So I am trying to explain why it was felt necessary to
bring home to the Europeans that this time we meant it.

Now, on economic matters, I used to think that I
was a good argument against universal suffrage, because I
never seemed to get them into my head. I am beginning to under-
stand international finance; at least I am beginning to under-
stand that it is mostly a political issue.

When we first came into office, to be quite candid,
there were some balance of payments crises in May of 1969, as
you recall, and I sat, together with all the great financial
brands, and I thought to myself, "But this is bound to pro-
duce another crisis two years from now." These are just ways
of creating some new liquidity, but sooner or later the same
problems are bound to arise.

But then I thought, "They have to know something that I don't know," and didn't press that point. But it has become increasingly apparent that it is the system that is at fault here, and not the particular mechanisms with which to adjust it.

Our worry was, quite candidly, that all the pressures
after August 15th would be to patch up the old system, to
squeeze us back into the old framework, and then two years
from now we would have another balance of payments crisis.

We are trying to avoid a situation in which there
is a reward for exporting one's domestic problems to some
other country, which seems to us to be inherent in the pre-
sent situation. Now, therefore, we moved somewhat abruptly
on August 15th and, therefore, if I understand Secretary
Connally correctly, he behaved in a manner in London which
was not characteristic of the previous behavior of Finance
Ministers when they dealt with each other, but the primary
attempt was to make clear that something fundamental had to
be done.

Now, if we all agree on that, I think you will
find that our approach will be -- leaving aside whatever the
temperament of the personalities are that are going to be

- 9 -

negotiating, leaving out these accidents, our attitude will
be that it is in everybody's interest to create a system that
maintains open trade relationships, that strengthens rather
then jejeppardizes the spirit of cooperation that has existed.

It cannot be in our interest, and it is not our
policy, to fragment the free world and to generate a trade
war among our old friends. I think you will find that once
the Europeans recognize, and other countries, that we have a
common problem, that there has been an inequity in the previous
system; that we will not attempt to impose a unilateral solu-
tion that is to the primary benefit of the United States, be-
cause thereis no such thing as the primary benefit of the
United States.

It would not serve us to reverse our balance of
payments temporarily at the cost of a major depression in
Europe and in Japan. That would destroy everything that we
have attempted to achieve politically in the postwar period.

Now, as to the specific time periods that you have given, I think if such an approach were made to us, or, without committing myself to saying every last measure will be removed, we are certainly prepared to talk within a framework that the emergency measures that were imposed on August 15th should be removed when it is clear thatthe emergency situation is being remedied.

Here, speaking for myself, I don't think that the
end of the year, give or take a month, is an unreasonable
objective. We should certainly try to achieve it, and I
want to repeat again: We will not approach this with the
spirit of imposing on reluctant friends a system that they
consider is to their disadvantage. If we are wise, and if
we all approach it in the right spirit, this is peculiarly
a situation in which, after we have come to the new arrange-
ments, they should be felt to be in everybody's interest, be-
cause otherwise they cannot last.

QUESTION: (Inaudible)

- 10 -

DR. KISSINGER: Let me make one point about lobbying. Among friends, obviously, it is necessary to say one's point of view. What I was trying to say is that in the immediate postwar period, foreign policy between us and our allies was not conducted on the formal foreign policy grounds, not in the sense that each side said it would defend its own interests; but, rather, that we, in the name of leadership, made more or less unilateral decisions, and that our friends, rather than bring traditional pressures, or asserting their point of view, rather attempted to gain influence within our bureaucracy, and that was quite appropriate to the conditions of the 40's and 50's, and even early 60's.

So I am not saying this critically. I know this was not your question, but let me say a word about the Mansfield thing.

Many of our critics say formally the same thing that I said; that is to say, the United States is over-extended, and it has to bring its commitments into line with its possibilities. But I think they are drawing conclusions that are quite different from us.

Many of our critics -- not all of them -- would like us physically to withdraw from many parts of the world that this Administration is totally unprepared to withdraw from unless it has absolutely no other choice. We do believe that in some parts of the world, Europe excluded, we had a tendency to substitute formal commitments for an analysis of our interests, and we would like, what we are attempting to do, is to have our commitments follow our interests; rather than have our interests follow our commitments.

But this emphatically does not apply to Europe. We have resisted, and we shall continue to resist, the pressures to withdraw our forces from Europe as long as we believe there is the slightest possibility that the Europeans will cooperate with us in giving them a rational purpose. Until we are convinced that the Europeans simply will not make an effort that would make that sort of deployment militarily sensible, when we reach that conclusion, then we will have to adjust our deployment to the realities. We would do that with enormous reluctance. We are not looking for an excuse to withdraw our forces.

- 11 -

We also do not want to have every last soldier
frozen in a position just to prove our devotion to the alli-
ance. We would like to have a relationship with the Europeans
in which we can talk about the common purpose we are trying
to achieve, in which we allocate the burden of that fairly,
and in that case you can be certain that throughout the term
of this President, and throughout his next term if he is re-
elected, that you will not come under unilateral pressure on
that front unless it is impossible to have a serious dialogue
with the Europeans on this subject.

It is unfortunately true that we have not made too
much progress on burden-sharing discussions with Europeans
in the defense area. Now, what can be done in a more general
way? If I had to assess this Administration, speaking again
candidly, in the foreign policy field I think we have done
reasonably well in sweeping away some of the assumptions about
foreign policy that we found when we came in. We have not yet
had the time to put in its place a new structure and, therefore,
the new aspect has been perhaps less fully developed, has been
certainly less fully developed than the revolutionary aspect
of changing the pattern.

Now, through the rest of his term, and certainly
in another term if there is another term -- and this is not a
campaign speech; I am just trying to tell you what I think
the task is -- we will have to try to develop a new method
of cooperation and newsstructures to replace the ones that
are in the process of transition.

This, incidentally, is why we believe it is terribly
important that we settle the economic issues cooperatively,
rather than unilaterally, as well as the political issues.
We don't want to be in the position where, in our effort to
negotiate with our opponents, we complectely demoralize our
friends. We will make a serious effort to get those two parts
of our policy in phase with each other.

Now, everything I said about Europe is even more
true about Japan. Again, speaking candidly, everybody has
lived in a never-never land as far as Japan is concerned.
Japan has been built into the third largest EUDnōn the world.
The assumption has been that Japan would be content with being
this tremendous economic power, but that it would politically

- 12 -

follow the lead of a country 10,000 miles away with which it
has no psychological and political or historical connection,
and that it would, for the indefinite period of time, accept
the total military tutelage of the United States.

Now, anybody who watches Japanese developments has
to at least accept as plausible the proposition that the
Japanese at no time had any intention of doing this. The
Japanese have been enormously skillful at setting national
priorities, and they have done first things first.

They first developed an economic base. They then
used the international currency situation so that they could
get high priority industries established. They didn't waste
any money on military efforts, because they ruthlessly decided
that for this period they could accept the complete military
protection of the United States. But if you watch carefully
their research and development programs on various items of
military hardware, you would have to say that it is not self-
evident that Japan needs to spend $500 million on research for
rockets for weather exploration. That would be an uncharacter-
istic waste of Japanese resources unless they had one or two
other things in mind.

So, all I am saying is that the Japanese have very
carefully, and with great skill, moved themselves into a
position where they could play an increasingly significant
role in other aspects, and we were inevitably going to face
with the Japanese sooner or later the problem that we have
faced in one or two European countries about an attempt to
assert a more independent political role.

There was no other way this could go. It was a
form of national conceit to believe that they would be an
American outpost in the Pacific.

Now, it is in this context that one has to see the
shocks that were given to them, or that allegedly were given
to them. I admit that we probably accelerated what would
have happened anyway, but Japan could not avoid and had no
intention of avoiding; it just wanted to do it at a slightly
later period, defining its own policy.

The problem is not whether Japan should conduct its
own policy, because for it to be a useful partner it has to

- 13 -

be perceived as a Japanese and not as an American policy.
The problem is, with Japan, exactly what it is with Europe.
It is whether, in building a new relationship, we can create
a sense of participation on their part and a sense of their
having helped formulate the decisions, rather than trying to
squeeze it back into the old familiar pattern. Where in
Europe I think the political relationship is essentially sound,
in Japan we also have to be politically imaginative.

So we are now going through a transition period which, I repeat, I do not believe we caused. We accelerated it somewhat, maybe by a year or two, and our task now will be to find a role for Japan. I believe, incidentally, that this is not something we can do alone. This is something which we have to do together with the Europeans, so that there is not an attempt to shift the burden of Japanese exports back and forth between Europe and the United States on a unilateral basis, and because the Japanese have become part of this Western world economy and we intend, as the months develop throughout the remainder of this year, to work on this effort.

QUESTION: (Inaudible)

- 14 -

DR. KISSINGER: As far as general economic aid policy, I will leave that to Pete Pitterson. However, I have already stated the general problem as we see it in many of the underdeveloped countries; that is to say, we do not believe that, in retrospect, the approach which was so largely dominated by the economists in the 50's and 60's is a source of the problem, or even goes to the heart of the problem.

The overwhelming concern of many of the leaders of most of the new countries is to establish a firm political base, and in the process of economic development has a tendency, for a certain interim period, to underline whatever political stability exists, rather than to enhance it. I am not saying this is an argument against economic development; I am saying the economic development produces some of the political problems to which we, as a people, have not adequate answers.

We of the West have had a very peculiar experience. Our revolutions were on the whole made by either aristocrats or upper middle class people who fought in the name of a doctrine that made them dispensable when they came into office, so that the 19th Century revolutions in Europe attempted to install some version of parliamentary democracy among, incidentally, an extremely restricted franchise which is forgotten today. If you look at the statistics among people who had a vote in Europe ever, for that matter in the United States -- in the 19th Century, it was below 20 percent for the greatest part of the 19th Century.

Most of the revolutionaries in the underdeveloped countries went into opposition at an earlier period, and the idea that a man goes into the mountains or fights a colonial power simply so that he can let himself get voted out of office after suffering in jails for 20 years is psychologically unrealistic; nor do they do this in order to bring about economic development. Economic development is a pleasant byproduct, if they can get it without paying too heavy a price for it.

But what they want is to build whatever their vision of a new world is, and if they were not men of strong will and strong convictions, they would not have chosen this career. Otherwise, LCastro would run home big economic enterprise in Cuba; he would not have gone into the mountains.

- 15 -

But this being the case, we have to face the fact
that we, in the West, have really not had an answer to the
most urgent problem of underdeveloped countries, and I don't
know whether we can invent one. While economic development
is desirable for them, and while they will gladly take it from
us, we can easily face the situation which has, in fact, been
characteristic, where they take our economic resources and
Communist political prescriptions simply as a means of govern-
ing. That doesn't mean necessarily they will follow the Com-
munist will.

Now you mentioned the Indian subcontinent. Now
India is perhaps the only country among the newly developed
ones or one of the very few that has maintained democratic
forms. But even there the pressures in this direction
have been enormous and I have to say that the developments
in the subcontinent in recent monthshave been extraordinarily
worrisome.

Now let me talk briefly about those and let me
tell you what our position has been with respect to it. I
do not believe that the Pakistan leadership will win any
prizes for political sagacity. And that their original
judgment in attempting to suppress 75 million people with
40,000 troops was not the result of the sort of systems
analysis that Secretary McNamara introduced in the Pentagon.

So, we do not particularly support that effort.
On the other hand, we think there are three different
related but separable problems.

First of all there is the problem of conditions
in East Pakistan. Secondly, there is the problem of
the refugees in India. And there is thirdly the general
Indian-Pakistan problem for which thestagesareindicated
Pakistan has provided a new focal point and each of these
has a different time scale.

Our immediate concern has to be the prevention
of famine in East Pakistan because if there is a famine
in East Pakistan it will generate millions of more refugees
and the more refugees India has to take care of, the
more impossible the domestic situation of the decreasing
number of moderates in India will become.

- 16 -

So we have given high priorities to that.

The second concern has to be to relieve the pressures of the refugees on India and that is a very real concern for the Indians because the changes the political balance of power in West Bengal. It creates the dangers of communal riots and therefore strains the fragile fabric of the Indian party politics. Therefore we have also given very high priority to the refugee problem.

In fact, we have contributed more to the Indian refugees than all the rest of the world combined, including the Soviet Union. Over half of the total refugee effort is financed by the United States.

Thirdly, there is the general problem of Indian-Pakistan. Now I am frank to say, and I am assuming that I am saying this of course off the record, but I am frank to say that it is our judgment that while we have great sympathy for the Indian point of view on the refugees and even on the East Bengal issue, the events have triggered the primevil Indian convictions that Pakistan should not exist to begin with and they see in this a godgiven opportunity to give Pakistan a blow from which it can never recover.

We believe that over any short historical period autonomy for East Bengal is inevitable and we also believe that autonomy for East Bengal almost inevitably will lead to independence for East Bengal. But the Indians don't want it in a short historical period. The Indians want it now because they know very well that if they can give a dramatic shock to the Pakistanis of East Pakistan they will trigger such a situation in West Pakistan that West Pakistan will become then either an insignificant Mideastern state or it will disintegrate altogether.

The only point on which we have differed from the Indians is not in the ultimate objective, it is not in giving relief to the refugees, but we have asked for something like a year or two to work out the political problems. We have tried to get the refugees to come back. We were castigated in the press for the alleged arms shipments to Pakistan and you might have thought from the press that we were equipped ten armored divisions of Pakistan that were being sent to Bengal.

- 17 -

The fact of the matter is that we had a $400 million
military program. We cancelled everything that was in American
depots. We cancelled all new orders. The only thing we
permitted to go on were spare parts in commercial channels
on licenses that had been issued prior to the Bengali events
and the total sum was $3-1/2 million for which you can't even
buy one airplane.

We did this in order to maintain some influence on the
Pakistan Government in order to prevent the Pakistanis feeling
totally friendless, being incapable of giving up East Bengal
in one step, from going to a war with India which would have
the gravest consequences because there is a good chance that
China might come in.

There is then a possibility that the Soviet Union
will support it, and for what? What is the American interest
to force an evolution this year that we believe is inevitable
anyway over a period of time and which, when it comes ought to
be as satisfactory to India if India is only interested in
East Bengal.

So our policy on the subcontinent is the following:
We are making a major effort to prevent a famine in East Bengal,
with the support of the international community and with at
least the formal acquiescence of the Indian Government. We are
contributing over half of the support for the Indian refugees.
In fact, in the aid program which we have just submitted to
the Bureau of the Budget, we have greatly increased the Indian
share in order to take care of the refugees problem.

But we will resist any attempts to precipitate a
crisis in the subcontinent which in our judgment will produce
a war before it will produce a peaceful solution. We do not
believe that Pakistan is in a position to yield to the sort
of demands that have been made to it in the time frame that has
been made to it.

We have gotten them to relieve the military commander,
to put in civilian rule. To accept U.N. observers in all
the provinces, to have U.N. observers in all their ships so
we can guarantee that only food is going in and no exports are
going out, which is an enormous intrusion in any claims to
their sovereignty.

- 18 -

If that process continues the outcome will be inevitable, but we need some time from the Indians for this process to continue. O

One last point and then I must leave the floor to Mr. Peterson.

You asked about the aid program in general in the United States. Now, you will hear from many of my associates. We have a massive problem in Congress at this moment on getting aid programs through, although we have slightly increased it in this Administration. The difficulties we have with the aid program is a reflection of one of the major philosophical problems we have in the United States right now and in the context of which you have to see American foreign policy.

American foreign policy in the post-war period was carried by the intellectual and the liberal community. Partly as a result of Vietnam and of the trama we have suffered as a result of Vietnam and partly as a result of the disappointments of the 60's, those who carried American foreign policy and who deserve 90 percent of the credit for the achievements of the post-war period are becoming more and more isolationists and we have to carry our foreign policy with the support of the old isolationists.

And the people who, while they are well meaning and patriotic, are more useful in administering a country than in leading a country.

So one of the problems we now have is, when I first started working at the Council on Foreign Relations in the 50's, the people who were out of office thought they were part of a continuing enterprise and they thought they were leapfrogging those who were administering on courses that were fairly well established.

Right now we are in the rather tragic position that those who are out of office don't think they are part of a common enterprise. I am not talking about candidates now, I am talking about the general attitude in the intellectual community and among many of those, they are either frustrated and completely withdrawn or they think they must smash the existing framework.

- 19 -

So, when you think about the problems we have had
in relation to economic policy and so forth, you also should
think of this general condition and I would also add that one
of the biggest problems, whoever is elected President will
have in 1972, will be again, how to restore a sense of community
not among the American leadership group, not in the sense that
everyone has to agree with what is being done, but that everyone
has to think that something worthwhile can be done and that
they are part of a common enterprise in which some people
have to administer for the time being, but others have to try
to chart new courses.

Until this is achieved, I must tell you honestly that
I think the best we can do in economic aid in the narrow sense
is to hold the fort.

Well, I am afraid I am out of time.

QUESTION: (Inaudible)

DR. KISSINGER: First of all, I believe that when
the record of this period becomes known, it will become
apparent that, to put it kindly, not all the initiatives for
what is now occurring came from our side and secondly, I really
don't believe that the context within which things have
developed are considered by the leaders of China as an example
of American weakness. That has not been their behavior and
it is also not borne out by events. But that is not your
question: How is it interpreted by other Asian nations, do
they consider it a sign of American weakness.

Well, of course, one trouble with diplomatic resource
is that you can never bensure that your diplomats tell you
the things that may reflect unfavorably on their leadership.
Our impression is that in some countries it was a shock that
obviously some of China's allies, though not China, North
Korea is attempting to present it as an example of American
weakness. This is something we will have to guard against.
Ultimately it will depend on the results.

- 20 -

If, as a result of this visit, we should agree to think that would accelerate the reduction of the American presence in Asia, then I think the fear would be borne out. If on the other hand we achieve what I think we will achieve, some sort of understanding with Communist China, not of a very formal nature, but of the limits of permissible actions, then I think it will be seen in the perspective that matters to us, which is to say, three to five years, that this was a first major step towards constructing a new peace for Asia.

Our choice was between keeping the Chinese out and whatever the consequences of this were or attempting to draw them into a dialogue in which we know what we will not give up.

As far as the symbolism is concerned, the physical strength of China at this moment is not a major factor and we can more safely do this now when it is perfectly obvious that there is nothing the Chinese can force us to do as an act of American policy, than it would have been later, but I recognize this as one of the danger and we are engaged at the moment in a very delicate enterprise in which we have to balance our relations with China, with the Soviet Union and with our allies so that none of them gets out of line with each other.

QUESTION: I think you (Inaudible).

- 21 -

DR. KISSINGER: It depends on what sort of agreement that you make. I have to state one thing in our dealings with them up to now: They have been, up to now, extremely meticulous about carrying out anything that they said they would do; none of which has been of earthshaking significance, but simply in the sort of technical level on which we have talked. I have no great illusions about that.

Of course one's experience has been that they will break agreements when it suits their interests, but they will break non-agreements also when it suits their interest so the question is whether you can define a community of interest that they have an interest in maintaining.

MR. SIDEY: Fine, I guess Henry must go pack for his next trip to China. Before introducing Pete Peterson here, I would like to introduce an old and long time friend of a lot of ours, one of the true gentlemen in Washington. He is the man who got us in here and recruited the talent for us. He has kind of run interference for us, he is Herb Klein who has been a friend and counsellor to the President for as long almost as he has been in politics.

Herb Klein and I had a dog sled race once up in Alaska. We sat side by side once at an LBJ rally. he was a spy that day. We have done many more things together. He has been a friend and reasoned and sensible man throughout all things.

Herb, would you stand up? We appreciate his efforts very much. Those of us from the Midwest are always gratified to find another man from the Prairies who comes in here to Washington. We have such a man in Pete Peterson. You know him as the head of Bell and Howell. He is much more than that. He is a scholar. He is a marvelous human being. We noted here that only a few weeks after he hit town they changed the whole economic policy of this nation, which perhaps suggests something about his influence.

In any event, I guess time runs a little short. We are more than happy to have Pete here. He is the President's Assistant on International Trade.

- 22 -

Pete, I will turn it over to you.

MR. PETERSON: If anybody in a job like mine can be said to be lucky, I felt very lucky because coincident with my coming to Washington in this new job Fortune Magazine wrote a job definition for me and told me exactly what I was to do. I don't know that they gave me a schedule, but they gave me everything else, but a schedule.

Like a lot of things that Time writes, they are almost too painful to remember, but one of the things they said was that one of my main jobs was to coordinate the chaos, I believe, in Washington.

Now, if we are going to have a new economic policy, foreign economic policy, I guess it starts by asking the right questions. If I have any observations about the bureaucracy in Washington after only seven months, it seems to me that it is probably considerably better at providing answers than it is in inventing questions.

The bureaucracy has a way of coming up with answers essentially to the same questions and it seems to us that perhaps the place to start was to ask some new questions.

Now, at the risk of sounding a little bit metaphysical, if you don't know any other questions to ask you can always ask the question: Who are you and have you changed in any important respect?

Now this, I think, was more than a metaphysical question because it was the conviction of some of us that the United States or many of us in the United States, we have suffered from missile gaps and credibility gaps, but some of us felt we were suffering from a perfect gap with regard to who we were and who the rest of the world was.

I will try to maybe characterize this a little bit by overstating it, but there was a very important school of thought in our government that I would characterize as optimistic about America's foreign economic future.

- 23 -

Some might characterize it as being euphoric, but let us use the word optimistic. Its point of view could be stated something like the following: The balance of payments situation in the United States, in particular its balance of trade, is nothing to get too upset about. It will probably get a good deal better. There were views that and theories about why it would get better. Some of the theories said that all we had to do was to do better on inflation. Others said that our balance of payments problems were caused by differences in growth rates, of various economies, but the net of it was that if we would simply wait the situation would improve substantially.

It reminded me frankly a little bit about what Lord Maynard Keynes, I think, was reported to have said once that in the long run we are all dead.

A second aspect of that formulation of America's position was that our competitive position in the world was really not a good deal different or our resources than it had been 10 or 15 years ago and it was said that we had been hearing for years about a new competition from abroad, both the East and the West, and that really America still was so far ahead in so many fields that it could put most of its resources in the ways that it had put them in the past.

In short, when one asked what policy did these premises lead you to, it tended to be a policy, again I am overdramatizing this a little bit, in the interest of time, of business as usual for the United States.

Now there was another view that has emerged increasingly and I think it is obvious by what happened on August 15 it is probably this view that prevailed in the President's mind, which was the view that there had been some profound changes in the economic situation in the world and the United States.

Looking to the Far East, we had to be impressed by the dramatic growth of Japan, by, as a businessman I tend to think in terms of industrial sectors, whether we looked at steel, automobiles, electronics, whether we looked ahead five or ten years it was clear that the situation was vastly different.

- 24 -

In steel, as the President pointed out with some regularity, it is remarkable to remember that in 1950 the Japanese steel industry was leveled, by 1975 it would appear they will have the largest steel producing capacity in the world, already the largest steel company. When I talk about a perceptual gap I think it is perhaps true that not only we suffered from that gap but perhaps others.

Again referring to the Japanese and we will come to the Common Market in a moment, I could not help but be impressed by the number of Japanese gentlemen who would end up in my office and one late Friday afternoon, after a particularly exhausting, frustrating day with the bureaucracy I was visited by some very courteous Japanese gentlemen, of which one was the head of Nipon Steel, the largest steel producing company in the world. He began his introduction in the way that so many have begun when I was a little less tired and frustrated. It went something like this: "Dear honorable sir, it is such an enormous privilege for people from our poor economy and our poor country and small companies of the type we represent to have the distinct privilege of meeting with someone that is so close to the President of the super power of the world, the United States."

Now, at some level I think that was believed and to the extent that it was true, it reflected a perceptual gap on the other side of the economic equation.

With regard to the Common Market, we could not help but be impressed as we looked at the trends and the growth that an idea that seemed remarkably theoretical, some would say almost psychotic 20 years ago, had somehow worked until the European community was easily the largest trading area in the world. And another part of this perceptual problem, I guess, was we got the growing feeling, perhaps accurate and perhaps inaccurate, that the rest of the world felt it could focus its resources and its energies on its economic interests because of a growing perception that America, after all, would focus its interests on its political and security and military interests.

- 25 -

My dear friend Henry, for example, used to talk fondly in my early days here about how he had to be concerned with what he called doctrinal issues which were distinctly non-economic in their content.

We got the impression, frankly, that the rest of the world, because they believed we were more or less preoccupied with these political security interests, that the correlative of that was that we would not assert or neglect what our economic interests were.

Getting now to the community, the President of the European community came here in May and I think he was understandably surprised that both the President and myself in our talks with him, talked at some length about a subject that I am sure he thought in raw economic terms was not worthy of this kind of emphasis, which was your preferential arrangements with other countries.

Frankly, gentlemen, the reason we emphasized this was not simply because of its economic implications today measured in dollars and cents, but because of its symbolic importance as a precedent for where the community was going in the future. There had been this feeling, I think, that if some European unity was good, more European unity must be better.

However, as we explored this growth from our standpoint, it became increasingly obvious to us that America's economic interests could be affected by a certain kind of growth of the community.

What I am trying to suggest is a perceptual gap, perhaps, that we had, was that a feeling of economics and foreign economics in particular was not a subject that perhaps was as important as these other subjects. In fact, again my dear friend Henry Kissinger, and I think he is a dear friend, admitted one day that it had become a kind of status symbol in American foreign political circles to assert with great vigor that you didn't know anything about economics. And if you did know something about economics, it had a reverse status symbol effect.

- 26 -

Clearly you were not concerned with some of the
more important doctrinal issues of the world. So, a second
perceptual problem that we thought we had to deal with was
this question of importance and priorities.

A third view that I think was important, was the
conclusion on the part of this Administration that the basic
international economic system was in basic disequilibrium and
that there were very vast differences between the premise of
trade and the actual practices.

I wouldn't bore you with all of these differences
except to mention a few. If you were to line up 100 economists
in the United States, I am not suggesting you would want to
do that, but if you wanted to line up 100 economists in the
United States and asked them to discuss the subject of free
trade, some number between 95 and 100 would support free
trade and this in itself is a remarkable testimony to something
because it is hard to find a number above 51 on any other
subject that I could mention.

But when we examined what the premise of that system
were I will simply mention two of about five or six that we
thought were central. Certainly a basic premise of a liberal
trading system is the idea that trade is conducted for the
benefit of the consumer, that is to improve the standard of
living and the real income of the consumer and that as one looked
at how the system operated in many places in the world, we saw
something quite different than that. We saw exports seen
as exports for exports sake, exports to solve domestic
economic problems as Henry just indicated, indeed, we saw
countries more or less counting on the deficit of the United
States as a deliberate part of their economic strategy
around the world.

We talk about monetary equilibrium and one of the
critics of the monetary system has referred to it as the
dreamland of equilibrium.

- 27 -

You all recall the theory. The theory was that as serious imbalances developed in the monetary deficit of given countries, offsetting exchange rate changes would take place so that we got a set of equilibrating, as they referred to them, mechanisms. I asked the Council of Economic Advisors, however, again trying to see where the premises and the practices weren't very close together, if they could tell me what happened to the nominal value of the dollar in the last ten years because all theory would have said, given the enormity of our deficits over the last ten years, that the value of the dollar in relation to other currencies should have declined during that period.

It is interesting to note that the nominal value of the dollar weighted over the last ten years went up five percent during the very period of extraordinary deficits.

In the case of Japan, for example, we looked ahead and said where is this thing going? And we observed after very careful studies of their own economic plans that they were projecting not a diminishment of their trade balances and surpluses but, indeed, trade surpluses in the year 1975 of somewhere between $11 and $13 billion.

Now, it seemed to us that given that situation, one had to draw a conclusion and the conclusion was, was the system, was the situation likely to get better or was it likely to get worse?

A friend of mine once defined stupidity as the act of making precisely the same error a second time and I think this President, like the Presidents of other countries I am sure in your part of the world, had seen crises after crises emerge in each case the world was coming to an end, in each case there was another one and in the interim very little was done to solve the problems that had indeed brought about the crisis in the first place.

So the fundamental view was that greatly aggravated as it was by our diminishing gold reserves, by the aggravated international monetary situation, that something fundamental needed to be done this time, as Henry has suggested.

- 28 -

Now what were those things or what are those things
at least as we see them?

I would say that there are few things that are more
important to the President in terms of his long-term contribution
to an open, fair, international economic system than a basic
reform of the international monetary system. We have arrived at
the obvious, but important conclusion that the current monetary
system is not operating in the way that the premises of an
open liberal trading world suggested it should and that it is
urgently important that we reform the financially.

As part of that, the United States, I think you will
find, is very willing and open minded to reexamine its own
role in that monetary system.

A second obvious conclusion: And we have never
suffered from a shortage of self-righteousness in this country,
I don't think, is that if we were to say that the rest of the world
in some ways was exporting its domestic problems to us, it
became very important for us to take some vigorous steps on
the domestic front.

I would say that after seven months in this job it
has become even clearer to me that a strong outward looking
foreign economic policy begins at home and if you don't have
a strong domestic economy at least in this country it is very
difficult politically to have an outward looking foreign
economic policy.

Now there are many who say, perhaps Time among them,
I don't know, that we should not be concerned about trade
deficits, that we are going to become a service society and
a mature creditor and this kind of formulation.

Well, if you look even over the short term of the
impact of these large trade surpluses on the U.S. economy,
I think it is a gross over-simplification to argue that since
trade is only four percent of our Gross National Product we
need not be concerned about its effects of disequilibrium
on the United States.

- 29 -

Let's look at that a little differently, as we
have tried to look at it. The difference between when the
United States was in balance of payments equilibrium and what
now looks like is going to happen in 1971, is a difference
in trade of about $7 or $8 billion. If you translate that
into jobs, you will find, depending on whose estimate you
want to look at, that that represents somewhere between 600,000
and three-quarters of a million jobs.

If you will in turn translate that as a fraction of
our work force, it comes up with a number as high as .9 percent
of our work force. Now those who spend time in Washington,
I think, will indicate, particularly in a year that is
divisible by four, that is about to be launched upon us,
that the distinction between having six percent unemployment
in this country and five percent unemployment is not a meaningless
distinction.

Indeed, that difference has greatly aggravated the
opportunities for having an outward looking foreign economic
policy.

- 30 -

Now it is understandable that we have been criticized. It may be ironical, but understandable, that the actions we have taken are a step toward the road toward protectionism and restrictionism.

I would argue, as you might expect, quite differently than that, perhaps in a self-serving way, I don't know -- I hope not -- and that is that the surest road I do imagine to protectionism in the United States would have been to let the current situation continue.

For example, for the first time in the history of this country, labor unions are almost unanimously for restrictions of the most severe kind, quotas across all categories, investment restrictions, technology restrictions.

The President asked me a few months ago to speak to the labor movement. It is a testimony to my youth and vigor that I am even here today after that meeting. Their conception of the world is a somewhat different one perhaps than some of the rest of us.

We felt, therefore, that we had to take vigorous action and fundamental action. Now, one of the problems we had, it seemed to us, and this I would be frank to admit was a political problem, is a credibility problem at home.

The American businessman almost to the man, and Congress, almost to the person, was united around the single, and I hope not oversimplified notion, that America simply did not defend its economic interests abroad.

I would say this made very little difference whether you talked to the most liberal Senator or the most conservative Senator, this view was almost prevelent throughout.

On the domestic front, I think there was the feeling that it was absolutely imperative that we put more emphasis on investing in this country's economic future as part of an outward looking cooperative foreign policy.

On inflation, if the price-wage freeze and tonight's statement is not a testimony to this President's willingness to take some pretty vigorous action, nothing I could say would add to that.

- 31 -

On growth and competitiveness of our economy, because I think the President is completely committed to the idea that you cannot be inward-looking economically in the kind of world that we are visualizing, where economics become very important, and out-ward looking in our foreign policy, these are essentially incompatible strategies. So if you want to be part of the world, I think increasingly what he is saying to the country is, you must join it, and in order to join it, you must compete with it.

On August 15 he announced a vigorous program for re-investing new plants and equipment in this country. Some of you may or may not know that this country for many years has been putting far less than the rest of the world, as a percentage of its gross national product, into plant equipment.

We have done studies of the efficiency of our plant and equipment in this country, against, vis-a-vis Japan, which is the most dramatic example, and our reports suggest that as much as three-fourths of their plant might be six years old or less, and that it was, therefore, very important as part of this competitive drive to modernize this country's plant and equipment.

On technology, as one looks at our future in an open trading world, it is clear that technology must play a really major role.

The President will shortly announce some significant programs to stimulate technology and to try to bridge the gap between technology, social benefits and economic benefits.

If I may get philosophic for just a moment, gentlemen, one of the problems that perhaps this country has -- it was pointed out by Erwin Miller of Cummings Engine one day, that he is disturbed by the notion that we have become reconciled in this country with the irreconcilable, and we seem to have adopted the idea that it is very easy to say that these two things are absolutely incompatible.

For example, the image of technology in this
country, in the eyes of many of our best minds, most liberal
minds, and many of our youngest minds, is that technology
is inherently bad because look at the mess it has
created, and certainly you would not want to have any more
of it.

The new way to formulate that problem, I think, is
how can you make technology achieve ends that most people
would agree are desirable, and it is in that context that
this program will be developed.

Jobs -- another part of our problem -- that will
be receiving enormous attention. In a meeting I had with
the top Japanese people when they were here a couple of
weeks ago, I was a bit startled to hear one of their top
people tell me, when I asked him to discuss what he thought
were our common problems, that he thought a labor shortage
was our common problem.

I had thought there was a translating error, and
asked the interpreter if he would not repeat that, and
back it came, that our common problem over the next ten
years was a labor shortage.

It is not an accident, gentlemen, that our
President, both on August 15, and September 9, mentioned
20 million new jobs in America -- 100 million jobs by the
end of the decade.

But so that we can present the significance of
this -- and I am trying to get this conformed -- it could
be that over the next ten years America will need to
provide about 40 percent more new jobs annually than it has
in the last ten years. And I find it distinctly irreconcilable
that at a time when many of our youth and best thinkers are
adopting the point of view in America that affluence is more
or less automatic, that the appropriate activity for the
young -- I chaired a group of young people for the White
House on Jobs and Employment, and when I asked our young
people what they thought their most critical challenge was,
many of them said, the study of leisure, the enjoyment of
leisure -- and it is irrefutable to me that at a time when we
may be facing a decade in this country of major economic
challenge, a significant part of our population has concluded
that affluence is more or less automatic.

So I simply want to suggest to you that I hope we practice in this case at least, a little bit of what we are preaching, when I indicate that we believe the single most important thing we can do to have the kind of cooperative open world that we wish is to achieve domestic growth and productivity at home, and this program ironically enough, is one I find myself spending at least as much time on as the so-called foreign economic problems of this country.

Finally, let's get down to our current, and I am sure, urgent situation, which has to do with our post-August 15 negotiations, and where we go from here. I would hope that you gentlemen would not confuse style with substance, and assume that our point of view is an intransigent, inward-looking point of view about what kind of a world we want.

I am satisfied that this President wants an open economic world. I am satisfied he does not want tariffs, he does not want quotas. I am satisfied -- and he has said this publicly -- that he wants an open, cooperative world.

We have a group operating within our Government that he has asked me to chair, that is very hard at work defining what I suspect are the questions on your mind in more specific form; namely, over the short-term, what specific areas of trade, monetary realignments, defense-sharing, seem to us at least, to be a reasonable beginning point.

We would hope, consistent with the whole in which you people have great initiative, great power, and therefore, autonomy, that you, too, are doing the same thing, but I want you to know we are making the most serious kind of effort to define the terms, as it were. We are breaking down this effort into short-term and long-term considerations, because as I have indicated, it is the President's most urgent desire that we come out of this with a long-range international economic system that we can be delighted with five or ten years from now.

Let me sum up what I have tried to say, subject to your questions: I think August 15 can be a step backward. It certainly is not our intent or our objective that it be a step backward. We much prefer to think of it as a new era, as a world of much greater growth and prosperity and

openness, but we suspect that if that world is going to
take place, it is going to require both sides, Europe,
the United States, Japan, the major industrialized countries,
Canada, to bridge this perceptual gap that I was talking
about, and to ask each of us now, with our new power and
new resources, what is an appropriate contribution that
each of us can make to this kind of world; not the world
of the 1950's, not even the world of the 1960's, but the
world of the 1970's, which I think might be characterized
by what we might call a doctrine of equivalence, because the
way we see you people, and the way we see Japan, we have
great respect for the growth and the progress you have made,
and we think your resources now put you in a position
where you, too, along with us, can make major contributions
to the kind of world we want.

Thank you, gentlemen, very much.

QUESTION: (Inaudible.)

- 35 -

MR. PETERSON: I think it would be somewhat of an
overstatement for me to say there is an official U.S.
position at the moment. We are working very hard in close
cooperation with the President and Mr. Connally and others
in this working group I am talking about, to develop time
tables and objectives and so forth.

I can state a personal hope and a view of how I
think it will come out, but until the President reviews
this entire plan, obviously, as I keep being reminded, and
as you would be reminded in a similar position,-- I might
have been a chief executive at Bell & Howell, but not here.
So, until he reviews this entire package, we cannot speak with
complete authority.

I would hope you would take some solace from the
statement in Mr. Connally's address, which said in the
coming weeks -- now it could have said years, it could
have said months -- but it said the coming weeks. And I
think there is a growing perception of what you are talking
about, that if the problem can be solved in a matter of
the next few months, it could be indeed the platform for
launching us into a major new era of new realism, really,
about the new world, and that it may indeed be a diminishing
and perhaps even destructive asset if one holds on to some
of these different too long.

I think that is a growing view within the Government,
but I would not want to say that the final judgment has
been made on that issue.

QUESTION: (Inaudible.)

- 36 -

MR. PETERSON: It is odd you should mention
this because we are now very actively in the process of
looking at oil and gas as a combination at 75 and 80,
to see what its implications are. As is usually the case
on a subject as esoteric as oil, there are different
assumptions.

One of the most important assumptions, I think,
is the price of foreign oil over the next five to ten years.
There is one view that suggests that these countries,
given the supply that exists, will lower prices over
this period of time. That view ends up with a significant,
but shall we say, reasonably manageable deficit.

The other view is that indeed prices are not
going to come down; they are going to go up, and that
in addition to the volume of oil that we will import, the
prices are likely to go up substantially, with the result
that it will become a very serious balance of payments
problem indeed.

We are now in the course of trying to adjudicate
these different views. In the meantime, and this gets
back to technology again, both for ecological reasons
and economic balance of payment reasons, this technological
program that I referred to is somehow seriously at new
energy sources, at alternative substitutes of various kinds,
partly to solve the problem you mentioned and partly for
the environmental reasons.

I am sorry I don't have a precise answer for you,
except to indicate that we think it is a growing and very
important problem that has not received as much attention
as we should have given it.

QUESTION: (Inaudible.)

- 37 -

MR. PETERSON: To go back to your first question on technology and productivity, I might say that what I would consider a perceptual gap in this country was the notion that there was a one-to-one correlation between all kinds of technology and productivity at the other end. We grew very accustomed in this country to looking at our space expenditures and our defense expenditures and so forth, and assuming that there was what the economists called a good output-input relationship, the emphasis in these new programs, I believe, will be heavily toward industrial technology, with a major part of it being additional initiatives to the private sector on the grounds that they are perhaps better able to determine what yields the largest return, whether it is cost reduction or materials improvement or methods improvement or a new product and somebody sitting in Washington so that we are very persuaded that technology will play its optimum role if most of it can be in the hands of the private sector.

The kinds of things that I am talking about at the government level are the kinds of things we are reasonably sure the private sector would not do.

What would you say was your second most important question that you would like me to tackle, the foreign investment issue?

QUESTION: (Inaudible).

- 38 -

MR. PETERSON: Something that has happened in this
country of course with investment is tended to be seen as
job exporting with our labor unions. This is not an aspect
that concerns you very much, but it is being the new boggie man
as job exporting.

We are now engaged in a very intensive data collection
process on what our multi-national companies really do with
their production, it appears that the vast majority of it,
92 percent, the last time we could check it, is actually
sold in local markets and third markets, thereby creating
employment there that does not really affect U.S. employment.

However, there is the aspect, there are probably
two aspects of foreign investments that have a direct effect
on the United States and I would be very happy to have your
thoughts on those. We have now invested about $80bbillion
abroad. Foreign companies and individuals have invested only
about $12 billion in the United States. That differential
of six or seven to one is far, far greater than the potential
of the markets would suggest, obviously.

So we have a very intensive work program now with
the Council that I am Executive Director of, to look at, among
other things in the investment arena, what could be done to
stimulate investment in the United States, that is, why is
it that other countries invest so little in this country, what
is it about the climate here, what could we do to make it
more receptive. We think this is not only good economic strategy
in terms of the growth of this economy, but we think it is
very good political strategy, if I may say so, to begin
equating foreign investment with jobs at home rather than jobs
being exported.

A second part of the program deals with technology
and we don't yet have the answers. We are just beginning to
raise the questions. We can't help but be impressed however,
that in the case of Japan and I should say that in my view our
relationships with the Common Market are in general very good
from our standpoint, but in the case of Japan we find ourselves
in the following interesting situation: If you were to ask these
99 economists who favor a liberal economic world what their
premises were, they would say the free flow of capital, goods
and know-how.

- 39 -

But in the case of Japan, we observe the following: Of that $80 billion that we have invested, only $1.2 billion has been invested in Japan, largely because of heavy restrictions. But if you look at the technology royalties paid to the United States, you will see a curve that goes up like this, so that Japan now pays out six times as much in royalty payments as it does investment income which is indeed a remarkable relationship by any standard.

This raises an interesting question that we are beginning to ponder within our government. We don't yet have answers, as to whether it is appropriate to permit the transfer of technology to a country that does not permit the export of our products or the export of our capital and know-how and whether this hasn't biased certain investment and export decisions in an unhealthy way.

So I have taken so long. Thank you gentlemen, very much.

END