The Ascendancy of economic goals in the world order, Washington, 1975


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The Ascendancy of economic goals in the world order, Washington, 1975
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Table of Contents
    Front Cover
        Page i
        Page ii
        Page iii
        Page iv
    Letter of transmittal
        Page v
        Page vi
    Table of Contents
        Page vii
        Page viii
        Page ix
        Page x
        Page 1
        Page 2
        Page 3
        Page 4
    Congressional program for European Parliamentarians
        Page 5
        Page 6
    I. Political developments
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
    II. Multinational concerns
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
    III. International monetary problems
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
        Page 42
    IV. Institutional develo0pments
        Page 43
        Page 44
        Page 45
        Page 46
        Page 47
        Page 48
        Page 49
        Page 50
        Page 51
        Page 52
        Page 53
        Page 54
        Page 55
        Page 56
        Page 57
        Page 58
    V. International commodity agreements
        Page 59
        Page 60
        Page 61
        Page 62
        Page 63
        Page 64
        Page 65
        Page 66
        Page 67
        Page 68
        Page 69
        Page 70
        Page 71
        Page 72
        Page 73
        Page 74
        Page 75
        Page 76
        Page 77
        Page 78
        Page 79
        Page 80
        Page 81
        Page 82
        Page 83
        Page 84
    Appendix 1. Tindemans report on European Union
        Page 85
        Page 86
        Page 87
        Page 88
        Page 89
        Page 90
        Page 91
        Page 92
        Page 93
        Page 94
        Page 95
        Page 96
        Page 97
        Page 98
        Page 99
        Page 100
        Page 101
        Page 102
        Page 103
        Page 104
        Page 105
        Page 106
        Page 107
        Page 108
    Appendix 2. Biographies of participants
        Page 109
        Page 110
        Page 111
        Page 112
        Page 113
        Page 114
        Page 115
        Page 116
    Back Cover
        Page 117
        Page 118
Full Text

94th Congress COMMITTEE PRINT 2d Session OXTEPRN



Washington: 1975

:: : iiii:ON THE



H. Res. 315


Printed for the use of the Committee on International Relations


THOMAS E. MORGAN, Pennsylvania, Chairman
L. A. FOUNTAIN, North Carolina PAUL FINDLEY, Illinois DANTE B. FASCELL, Florida JOHN H. BUCHANAN, JR., Alabama
CHARLES C. DIGGS, JR., Michigan J. HERBERT BURKE, Florida ROBERT N. C. NIX, Pennsylvania PIERRE S. DU PONT, Delaware DONALD M. FRASER, Minnesota CHARLES W. WHALEN, J., Ohio
GUS YATRON, Pennsylvania ROBERT J. LAGOMARSINO, California

MARIAN A. CZARNECKI, Chief of Staf CLIFFORD P. HACKETT, 8peoial Consultant JEANNE M. SALVIA, Staff A88fsitant RORY WILCOX, Staf Ass8istant



This report has been submitted to the Committee on International Relations by the members of the committee who participated in the meetings in Washington, with an official delegation of the European Parliament on October 29-31,1975. The findings in this report are those of the committee members and do not necessarily reflect the views of the membership of the full Committee on International Relations.

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i n 2013


Washington, D.C., January 31,1976.
Hon. THOMAS E. MORGAN, Chairman, Committee on International Relations, House of Representatives, Washington, D.C.
DEAR MR. CHAIMAN: We are submitting for consideration by the Committee on International Relations a report on the meetings held in Washington on October 29-31, 1975, by members of the committee, and other Members of the House with an official delegation of the European Parliament. We hope that the report will be useful to the committee in its consideration of legislation relating to U.S. relations with Europe.



Foreword --------------------------------------------------------- III
Letter of transmittal ----------------------------------------------- V
Preface ----------------------------------------------------------- Ix
Participants ------------------------------------------------------- 1
Congressional program for European Parliamentarians ----------------- 5
Paper and summaries from working. sessions:
I. Political Developments:
Summary of discussion --------------------------------- 7
Paper by Mr. Findley --------------------------------- 11
Paper by Mr. Kirk ------------------------------------ 15
11. Multinational Concerns:
Summary of discussion -------------------------------- 23
Paper by Mr. Sam Gibbons ----------------------------- 25
Paper by Mr. Lange ----------------------------------- 27
III. International Monetary Problems:
Summary of discussion --------------------------------- 31
Paper by Mr. Klepsch ---------- ----------------------- 35
Paper by Mr. Reuss ----------------------------------- 39
IV. Institutional Developments:
Summary of discussion --------------------------------- 43
Paper by Mr. Rosenthal ------------------------------- 47
Paper by Mr. Seefeld ---------------------------------- 51
V. International Commodity Agreements:
Summary of discussion --------------------------------- 59
Paper by Mr. McCormack ----------------------------- 65
Paper by Mr. Normanton ------------------------------ 71
Paper by Mr. Biester ---------------------------------- 73
Paper by Mr. Houdet, --------------------------------- 79
Tindemans Report on European Union ------------------------------ 85
Biographies of Participants ----------------------------------------- 109


The program for this eighth meeting of Members of Congress and of the European Parliament reflects the econocentric direction the world has taken since the oil embargo in late 1973. The title of this printed version of our program, "The Ascendancy of Economic Goals in the World Order" could, with good reason, have been expressed even more strongly as the "continued" ascendancy of such goals because the embargo continued into a period of sharply rising oil prices, balance-of-payment problems, recession in the Western World and further economic distress and despair in the Third and, especially, the Fourth Worlds. Thus, for the 4 years that the Congress and the European Parliament have sent delegations to these meetings. the parliamentarians have been engrossed in economic questions for more than half of that time.
One of the program's discussions, that concerning institutional developments within the European Community, implies that this concentration on economic goals may not continue much longer. For while in institutional terms, the ascendancy of economic issues has marked the Community's existence almost from the signing of the Treaty of Rome nearly 20 years ago, we now see signs that the next 20 years of the Community may witness a corresponding development of political institutions and aspects. The scheduled start of direct elections to the European Parliament in 1978. for example, almost certainly means the development of genuine pan-European political parties and stronger European political leadership.
Because the concept of European Union has always contained a promise of political content beyond the admittedly important economic development of the European Community in its present form, we have decided to include as an appendix to this report the document prepared by Leo Tindemans, the Belgian Prime Minister, on European Union. This marks, to our knowledge, the first American publication of the Tindemans' report. This report was requested by the chiefs of government of the Community countries in their 1974 summit meeting as a guide to future growth of the Community.
The Tindemans' report has received much attention in Europe sine its publication 3 weeks ago. It has attracted little attention so far in the United States. We commend it, therefore, especially to our American readers and particularly to our colleagues in Congress and the executive branch. It is an excellent discussion of the role of Europe in the world and in its relations with the United States. And in its careful but far-reaching discussion of what European Union means in the fields of foreign and defense policies, the Tindeinmans' report may well mark the start of a second generation of growth for a united Europe.

If this ascendancy of political goals does proceed within the European Community, it will have profound affects on the AmericanEuropean relation. We welcome this development; others in our country may be less certain that political unity in Europe is good for the United States. All Americans interested in the European and the American roles in the world, however, should read the Tindemans' report with care.
JUARY 31, 1976.


Pierre-Bernard Coust4, Chairman, Progressive European Democrat, France.
Walter Behrendt, Socialist, Germany. Betty Boothroyd, Socialist, United Kingdom. Libero Della Briotta, Socialist, Italy. Fernand Delmotte, Socialist, Belgium. Doris Mary Fisher, Socialist, United Kingdom. James Martin Gibbons, Progressive European Democrat, Ireland. Roger Houdet, Liberal, France. Liam Kavanagh, Socialist, Ireland. James Scott-Hopkins, European Conservative, United Kingdom. Egon Alfred Klepsch, Christian Democrat, Germany. Silvio Leonardi, Communist, Italy. Tom Normanton, European Conservative, United Kingdom. Augusto Premoli, Liberal, Italy. Willem Scholten, Christian Democrat, Netherlands. Horst Seefeld, Socialist, Germany.
Karlheinz Neunreither, Director, German. Th6o Junker. Principal Administrator, French.

Liz Foreman, British.
Michael Palmer (Political questions), Director, British. G4rard van den Berge (Economic questions), Head of Division, Dutch.
Guy van Haeverbeke, Head of Division, Belgian.
Charles Hentges, Luxembourgish.
Miss Padberg (German). Miss Schmitt (German).
1 See p. 109 for biographies.


Afi -s Gil'thindris (Itallan).
Dowdall (Frencli).
Mr. IIL Iklelberger (French).

1,\v; i i (I C P i o st e r, Jr.. PI e 1) u bl i ca n Pe i i iisv I v a ji i a. i till
J'Wn jiililill A. (jill.-an, Republican, New York. I, iLITmilli-oll. Democl-at, '11(lianq Rtobelt T. Ikepliblican, California.
I foleit -Meyiwi% Domoei at, -New Jei-Sevi)(,11 1*t 111 1-1 Rosen thal. Doi iocrat. New York. Leo .1. RY.m. Democt-al. California. 1,-t i-i- v AVInn. Jr.. lZopuldican., Kausas. Clo"llent J. Zablocki, Demociat, AVISCOnSill.

Flo \A J. Flfliian. Democrat, Indiaiia. Jajll(, 1'. 'Jolillsoll, Repliblicall, Colora'do.


ik)(dwrt G. Democrat, Georgia.
J. AVI'liioll alltol 1. I'Zopublican, Ohlo.

GOVER.NITENT OPERATIONS G I I I w I 't Cw(lo,, Republic-,in, A-Eirvland.


Di-limii. Democrat, Massaelmsetts.

hons Domm-l-at Florida. I SSi-,, p. IIU for blographlets.

$ 3

Clifford P. Hackett, Consultant. Richard Mauzy, Research Assistant. George Ingram, Consultant (MNC Session only). Jeanne M. Salvia, Staff Assistant. Rory Wilcox, Staff Assistant.


15.00-17.30-Plenary Session I--Geheral Discussion "Review of Political Developments since April Meeting" (End of Indochina War, political developments in Southeast Asia, CSCE Finale,
Developments in the Eastern Mediterranean and in Portugal).
(Papers by Mr. Findley and Mr. Kirk).
18.00-20.00-Reception given by Mr. Jens Otto Krag, Head of the
Delegation of the Commission of the European Communities at
his residence.
-20.30-Chesapeake Bay evening hosted by Congressman and Mrs. Gilbert Gude.
09.00-10.15-Parallel Working Groups:
A. Discussion of draft report on a code of international conduct
for multinational corporations.
(Papers by Mr. Lange and Mr. Sam Gibbons.)
B. Discussion of international monetary problems.
(Papers by Mr. Klepsch and Mr. Reuss.) 10.15-10.30-Coffee Break. 10.30-12.30-Plenary Session II-Discussion with papers "Institutional Developments in the European Community and in the
United States":
European Community: Progress towards European Union
and direct elections to the European Parliament.
United States: The role of Congress in foreign affairs.
(Papers by Mr. Seefeld and Mr. Rosenthal.)
13.00-Lunch offered by Mr. Ralph Ingersoll, Deputy Secretary of
State, State Department.
15.00-Meetings at the State Department. 18.00-20.00-Reception offered by Ambassador Gaja, of Italy, on
behalf of The Nine.
20.30-Formal Dinner offered by the Congress of the United States
iat Smithsonian's Museum of History and Technology.
(09.00-10.30-Plenary Session III-Discussion with Papers "Should
the United States and the European Community seek international agreements on primary resources and commodities including energy?" (including: Preparation of International Conference on Energy and Primary Resources, Euro-Arab dialogue, Lom6
Agreement, U.N. Session on prunimary resources).
(Papers by Mr. Houdet, Mr. Normanton, Mr. Biester and
Mr. McCormack.)


10.30-11.30-Plenary Session IT'V-Summary Discussion (including
reports from Working Groups). 11.30-Coffee Break.

FRIDAY, OcrODEr 31, 1975
12.00-Press conference. 12.30-Reception in Capitol. 13.00-Lunch offered by the International Relations Committee, House
of Representatives.
14.30-Executive branch meetings.

Wednesday, October 29, 1975
(Working documents: Mr. Findley and Mr. Kirk)'
Mr. Rosenthal and Mr. Coustd, the joint chairmen, opened the discussions and introduced members of their respective delegations.
Mr. Findley introduced his paper on "Trans-Atlantic Cohesion in the Midst of Change". He repeated the invitation he had extended to the European Delegation in Munich in March to visit Illinois. following their meeting in Washington in the fall of 1976, to see the new Lincoln Shrine, and the city of Springfield, during the bicentennial year.
Mr. Scott-Hopkins, in Mr. Kirk's absence (due to illness), introduced Mr. Kirk's paper on "Some Political Aspects of United States,/ European Relations". He also commented on Congressman Findley's introduction. While stressing European interest in Mr. Findiey's proposals concerning an Atlantic Convention on the establishment of institutionalized political links between the United States and Europe, it is neither desirable nor feasible for the Nine to enter such a relationship until they were able to speak with one voice on terms of equality with the United States. He welcomed Congressman Findley's proposals concerning the standardization and joint production of armaments, which, he said, had been a goal on the European side for many years, but concerning which depressingly little progress had yet been made.
Mr. Sam Gibbons said that there had been a vast improvement in the U.S. position since the previous meeting in March. U.S. military power had been steadily increasing, and military expenditure. in real terms, was now increasing by 21/ percent per year. The American economy was in better shape and inflation had been cut back to about 5 percent. There had been a record trading upturn, and the internal political situation was now much healthier than during the Watergate period. Internal passions and divisions concerning Southeast Asia had now receded. The balance of trade was a healthy one, and perhaps the dollar was undervalued. The trade surplus was now running at a very high level. He very much hoped that in the GATT negotiations it would be possible to make further reductions to remaining trade barriers. Finally, the recycling of Arab petrodollars seemed to be working out reasonably well.
Mr. Scholten agreed with Mr. Findley's emphasis on the need to standardize armaments within the Atlantic Alliance. This was not
1 See pp. 11 and 15, respectively.


just of teelmical but also of financial importance. If we were not successful in achieving standardization in this field it would no longer be possible for the smaller NATO member countries to continue to maintain their defense efforts at the level that they had done in the past. In the Netherlands Parliament he was an Opposition Member and did not agree with the negative defense budget of the present Dutch Government. He was glad, however, about European agreement to purchase the F-16 as a replacement of the "Starfighter."

Mr. Leonardi, looking to the future, said that there was considerable hope of achieving g(rreater democratic control within the European Community, notably through the direct election of members of the European Parliament. Following the Helsinki Summit of the Conference on Security and Cooperation in Europe-a conference which had no victors and no vanquished-the climate of detente had improved. The perspectives for European Union now appeared to be quitee good. Whereas Congressman Findley had proposed the strengthening of Atlantic relations through the creation of some kind of Federal Union. Europeans felt that they had to give priority to the creation of European Union, otherwise there would be asymmetry between the United States and Europe in view of U.S. predominance. Congressman Findley's proposal would only be viable once Western Europe had achieved union.
Mr. Coust6 first asked Congressman Findlev to elaborate the meaning of his congressional resolution on Atlantic Union. He then raised Dr. Kissinger's recent visit to Peking and wondered whether the Kissinger visit implied a lessening of U.S. interest in detente with the Soviet Union. He stressed the interest the Chinese showed in developing closer links with the Europe of the Nine.

Mr. Premoli stressed the need for NATO to retain military bases in the eastern Mediterranean. He agreed that there was a strong need to move forward with the standardization of armaments; this is just one element, however, within the wider problem of the structure of Western defense in general, which needed reorganization. He thought that an Atlantic Convention of the kind proposed by Congressman Findley would benefit not only NATO but the European Community as well.
Mr. Delmotte referred to the problems of structure raised by Congressman Findley's idea of an Atlantic Convention. He was glad that the U.S. situation, as described by Congressman Gibbons, appeared to be in such a healthy state, particularly since prosperity was a necessary element in helping to maintain democracy. He expressed interest in the proposals made concerning the standardization of armaments but underlined that it was yet more important to stabilize the means of increasing prosperity.
Mr. Klepseh asked what importance U.S. Congressmen attached to the United Nations. He then touched on the question of U.S. agricult ural exports, pointing out that although the Soviet Union might benefit from large-scale U.S. grain sales, this could have the general


effect of driving up world grain prices and thus prices to the consumer in Europe and elsewhere.
Had SALT I been violated by the Soviet Union? If so, how might such a violation affect the current SALT II negotiations? On the point of armaments standardization it was important that any standardization and/or joint procurement scheme should not just be to sell U.S. weapons. The real point was what European weapons systems should be, developed within NATO and sold, including to the United States. What would happen after Tito in Yugoslavia? Turning to Portugal, the prospects for the future were still far f rom, clear. Finally, he expressed gratitude to the U.S. Congress for having lifted its embargo on arms sales to Turkey.
Mr. Behrendt said we must be extremely cautious concerning the Atlantic Convention in order not to arouse expectations which might be disappointed. Mr. Klepsch had stressed the need for arms standardization. There had been talk about this for years but we had cy-ot nowhere with it. The point was we could not diford purely national solutions in producing sophisticated modern weaponry.
As far as CSCE was concerned, the West had to see whether wliat it thought it had achieved at the Conference had any kind of reality at all. Although the embargo on Turkish had been lifted, as a result the West now had new problems with Greece. He was glad that Congressman Gibbons had expressed a positive view about reduction of trade barriers in GATT.
Mr. della Briotta said that Mr. Kirk's report had been very circumspect about the situation in the Mediterranean. There is good reason for some optimism concerning the Mediterranean. Although 3 years ago there had been dictatorial regimes in Greece and Portugal there was now a much greater degree of democracy in these two countries.
Mr. Findley, replying to the discussion, gave a detailed explanation of his proposal for an Atlantic Convention and the joint congressional resolution on this matter. Ile was glad that so much support had been expressed concerning the need for armaments standardization and joint procurement within the Atlantic Alliance. As far as the effect of United States-Chinese contacts on United States-Soviet Union relations was concerned, he said that the United States had never entered into a love affair with either the U.S.S.R. or China. It was just trying to improve relations with these two countries.



Paper by Paul Finffley
We meet today in the midst of great uncertainty and change. This is due in large part to either existing or impending cri!4e,, of political succession ill the inajor nation-stateg of the world. The 'hat shook Portu'-, I is
vvell kno -\-n to all. Tle cri:,4s in liis jut lla gim. IVe can onb- v-on(ler liow much longer it will be before China, t1i e 'tSoviet U nion, and Yugoslavia are si inila rly eiremnstancod by a vacuum of le2,-!,-rs1iip. How Nvill our own planni.n"g be affected by these niomentous changes? 11mv 1-mich tirne do we have?
It is believed that S ,cretai.: B-f-eZ1111pl- is ill t"Iffing health; his 1101,1 on
power even now i -, (jn(--,t!ona1)!(,, aii(l Ow dir(-_,tion,(,-)f Soviet roliev is
riddled Nvil-h iinportant amulgiiities. How cm v\-(- exi.4;,in, for instance, tl)eapparent oflf!( Ial approval that has been given to _Xonstanthi Zarodov's critioi 4ni of national con-linimist part es that are in in fly viele-of and revoluti oil -,.I-,- !.-I their oHentation. 0-i-fainly t111.-z ,,rves onlv tn fan Fle,,lo-kal fires in Portu--A, ill dii-e( ol)l)oqition to firm and repeated Western wariiings.

China's marvelou,,1y resilient and dur. !I)P_- political'le,'Idors. Choil anrl Mno. 11 lve clearly lie-till to ,hoW The authority .if Dopafy T__1r('Tni('r T"
is, am-.-Lin- Nit as-iirerl. Here. too, we -,aiwot lm ,,v witli confl,-Ienco who will to take their place. lait v,-e can ('Tceru tlie lines of policy alon ., rivaN for power will probabl- coalesce. F(.,r we knnw fbilt there !re
pmv ,rfill forces within Clihia's militliry cstal _Ii*.- I!Tllent who will iir-(, re-,,)ncillation with the Soviet Union on-ce the eiirrenf loaders ri zsz froni the scene. Thi chmige xvould of c,)ur,-,,e drani,,1tik-a11v alter '1fle calciili-t of -,vorld po. ver.
It till-;Il for ui to won(I"j, llow N-P con deal it'll flhi, ni.yria(I of uncertain Tiiif sepinin-11- inoniento-(I z Arp tllpre 111-11(l(11t th"It we
can tal e in ,idvance of th(, ,(, evonf,,4 to !,,elp minimize Hie d,,in,_,. ,rs to oill. !Z qciirlty and Arp there step z th,it may 1 ,-,4-on t1w inr-ontives; for ar.IQflo
in the 11:1tional polides of Rll- ,sla and Chima? Til slloit, How can we hed.-e 1111cel1l" i lity?
Oil ni:ittprs. one c,,m with ctinfir)n qncl naodes:ty. T will advance,
however. two imitmallY reill-Forrill- f1l'af 4" ,nl to ine 11-ortliv I'll
thi 4 context of interil'ifioll"11 'ITo fll-f i 4 t1le (-Ilifilm e(l qnd ill(loe(l eelenlto(l stron,--fliellincr nnd (,iiltivation of ,ir fran-:-_ 119nti 1) lificil r(,laticilship, Tlw eoond and lov-product of this is the mn(lernization and c()hc of om. C-ollinlon Opfon (' pn ,tllrp.
Wifb re ,Iect t"') tho fir.,;t 1-c)til, if is my i)T(,a,,,zure to inform -nii of tlio s fep z tl),,it have been tal,(-n within the Congrp,- s to dafe to advance fl)v idea of a more effoetiv(, iinity of our people ,. A M!)arfl 4,u) -roiip of Ill of the lloli :(, 11,1ve
joilled C "ll 4110S 1-1111 fill Jim Wri llf, Doll Frn,-:er. All ,111 TTwvo. and in(, in infro,,Iiieina re.,4ollition to ezill (in .\thintie Conventionof the 'NATO ,Ioinocracie-q. ne pm.7)ose of sliell a conference is to explore t1le po:, S ibility of tr"Illsforinin- 01117 T1110.14-Int, relation: 41iij) into a closer union 1"'I"ed oil federal 01- Other denlocratic prill'-iples.

This rp zolifflon has the largest member of co-qponron- over. 'Respon.qible conservative spol oqmi-n. snell as Dr. Walter Jndd. fornior 'M -nibvr of have
joinp(l 11"Inds with More fll)eral persons to iirize qiipporf for this, idea. 'I'll(, Hoil ze Subcommittee on Tnternitional 0r,-_1,qnizat1on,4 )jwrovocl tbe I)ill unaninionsly. T expect thif the entire Conimittee will szoon give its- -;fri)n,- en(lor zonwnf :is weIL Thero NiQ been -in inipre 4 zive growfli of interest :in(] :upilort for t1Js resolution. No lon--er is the idea (if nnity re-arded ,-ziniply n inoonliv,1111 at llooll.


The support behind this endeavor, not only in the House. but in the Senate and White House as well, is so substantial that we can be assured that a most prestigious delegation will be named to participate in this historic convention. It is time for the parliamentary democracies of Europe to begin to consider this question more intensely, with a view toward determining the nature of their own role. For after years of patient hope and substantive maturation, this idea will soon be a reality of our times.
A more effective unity of our people is a whole.ome thing in its own right. It is doubly important in the light of impending transformations of the international scene that I have already discussed. Rather than leading to a withering of any one nation's power, our closer union will contribute to the general strength and influence of all. It will be an important signal to whatever forces are arrayed against us-a signal of cohesion in a period of dissolution, of a growing interdependency of values, interests, and aspirations.
Bringing the Atlantic Convention to fruition is an important expression of our collective willingness to meet important problems. We must demonstrate actual will power as well. This leads me to my second prescription.
We must resist the popular impulse to reduce our defense expenditures. This will be quite difficult for many. And yet I say to you it must be done. More than ever before, it is important that the signal emanating from the Western democracies be one of strength and firmness. Many of those in the Soviet Politburo, for instance, who urge a resumption of the risky diplomacy of confrontation, do so on the assumption that we in the West are in the midst of a crisis of confidence. They assume that our unwillingness to make commitments for our collective defense belies an important lack of steadfastness. We must not foster such a perception.

Additional resources are a necessary but not sufficient requirement for improved defense. There exists a parallel requirement to reorganize our posture along more rational and realistic lines. As I mentioned in my statement at Munich last April, new precision technologies have important and promising applications for forces on the defensive. In order to exploit such revolutionary technologies, however, we may have to make important alterations in our existing force structures. This may meet with a predictable resistance within our own defense bureaucracies. Such must he overcome. I fully intend to press along these lines vigorously in the year ahead.
It is also important that we make greater strides in the standardization of our equipment and weaponry. Our current deficiencies in this regard are worrisome. Logistical disparities, for instance, may greatly constrain the speed with which we can deliver alnimunitial during the press of battle. The latest war in the Middle East, with its rapid expenditure of ammunition, tends to demonstrate the urgency of this problem. The lack of a standardized process of command and control raises the prospect that (a) either we will be unable fully to -o-ordinate the new weaponry that promises us an advantage, or (b) even worse, we may be reduced to great (confusion in the midst of high crisis. In a poitive vein, one notes the efforts thalmt have been made in restructuring our tactical air fores in northern and soithernI Germlillny so as to nmake1 them more compatible in organization and doctrine.
When we last mIet I d(Iwelt at great length on the force reduction talks. I continue to be wary of these negotiations. We us(l to refer to them, of course, as MBFRIt (Mutual I Balanced Force Reductions.) : the "B" for balanced has been removed, though, and therein hangs much of the tale. The Soviet Union aspires to freeze the existing asynnmetry in concrete : we wish to move to a more secure equality at lower levels of forces. At a minimum, we must not allow the Soviets to contractualize the existing imbalance. Beyond this, however, there are other concerns to which we must attend. If United States forces are withdrawn across the ocean, will legal constraints prevent us from easily reinforcing the alliance in a time of tension? Will the withdrawn So)viet forces Imse a much greater threat, being greatly more proximate to the theater of potential conflict?
The responses that I have suggested for this period of uncertainty and change will require both steadfasteness, and in 111the case oIf the Atlantic Convention, Inspiration. In the midst of the current flux, however, there are encouraging glimmers.

There is now more reason for hope and confidence in Portugal. The revolution in that country has led to see-sawing emotions in the hearts of all those who favor self-determination and democratic ways.
Every revolution, of course, entails a crisis of legitimacy. The central question of all political succession is: By what right does the successor rule? This question was resolved early on in Portugal by the people speaking in an appropriate electoral forum. This has been an important element in achieving a restoration of moderate elements in the government. Another important fact was the firmness exemplified by the European Economic Community in making clear that it would withdraw financial support until the pluralist democracy mandated by the Portuguese people was restored. I am pleased to note that this had not only a salutary effect in Portugal, but that it helped to promote greater European cohesion as well.
I have tried today to broadly outline some of the opportunities and challenges we will face in the days ahead and to suggest a prudent and appropriate response. As always, I look forward to benefiting from your reflections, to the stimulating and pleasurable dialogues that always result. I have every confidence that our collective efforts will enable us to chart a course safely through uncertain waters. As my fellow-countryman, Thomas Jefferson once wrote, we steer our ship with hope, leaving fear far astern.


Paper by Peter Kirk


1. A third, summit, phase of CSCE was held in Helsinki at the end of July. At present it is not yet possible to assess the significance of the Conference. Its importance, or lack of importance, in the development of East-West relations can only be judged later in view of the way that its conclusions and principles are carried into practice. As many commentators have already observed: "The proof of the pudding will be in the eating."
2. The Soviet Union gained, from the Conference, international acceptance of the post-war frontiers in Europe. The West, on its side, both asked for and obtained the beginning of talks on balanced force reductions in Europe. participation of the United States and Canada. The Berlin Agreements. some concessions on SALT, Soviet restraint in the Middle East, and an agenda which included some subjects which the Russians did not wish to discuss at all, particularly human rights and the freer movement of people and information. Above and beyond this it provided the Nine with their first major success in working out a concerted approach to an important foreign policy problem. It is interesting to note that the final act of the Conference was signed by Mr. Moro, the Italian Prime Minister. on behalf not only of Italy but of the Nine.
3. In Committee I on political and security problems the West and the Romanians successfully insisted on obtaining a text concerning the principles applying to relations "with all other participating states irrespective of their political, economic or social systems as well as their size, geographical location or level of economic development." This closed loopholes which the Russians sought to keep open in their proposals concerning "relations between states with different social systems" under which the USSR might have asserted its right to intervene in the affairs of states with the same social system. Although the Soviet Union obtained the inclusion of a text stressing the immutability of frontiers. West Germany. together with Ireland and Spain and others, insisted on the possibility of peaceful change of frontiers. In this context the USSR also accepted the reference to the right of self-determination of peoples. Finally, agreement was obtained, despite Soviet reluctance on certain confidence-building measures, in the form of advance notice of military movements and manoeuvres, on a voluntary basis.
4. In Committee II on economics, science, trade and the environment the main unresolved problem was that of trade reciprocity between East and West. Otherwise this "basket" contained many practical proposals which may help to increase East-West trade. The need to achieve a freer flow of commercial information was underlined in this Committee.
5. The most intractable problems were in Committee ITTII on cooperation in humanitarian and other fields. The West had succeeded in insisting on th inehsion of.this poi'nt as a major conference agenda point, despite Soviet rluctance. Although the USSR fought strenuously to obtain a preamble referring hack selectively to the principles in Basket I emphasising sovereignty and n i-interference the only concession it achieved was a preamble stating that "this cooperation should take place in full respect for the principles guiding relations amonr participating states as set forth in the relevant document." The principles adopted now request states to "facilitate freer and wider dissemination of information of all kinds." In principle there was also agreement on facilitating the reunion of families.
6. Apart from the three "Nbaskets" there was protracted discussion concerning follow-up to the Conference. In the end the Eastern European proposal to estab(15)


lish a standing body fell by the wayside and the final result was an agreement to hold a meeting of officials in Belgrade in 1977 to review progress and consider further meetings.
7. Commenting on the Conference in "The World Today" of September 1975, Richard Davy writes: "For the moment the Conference may turn out to have somewhat less influence than either its friends or its critics expected. The Russians have got the Conference but it was not quite the Conference they wanted. Nor was it the Conference that Western critics feared. It will do less than expected to boost the confidence of the Russians, and less to lull the West into false security. As Mr. Brezhnev said at Helsinki, everybody has won. But we still do not know what they have won."

8. In view of the controversy within the West about the respective military strength of NATO and the Warsaw Pact in the MBFR geographical area (West Germany and the Benelux countries, East Germany, Poland and Czechoslovakia) it may be useful to set out the most recent estimates of the International Institute for Strategic Studies concerning manpower and developments:

Manpower (thousands) Equipment
Ground Air Tanks Aircraft

United States................................--------------------------------- 198 41 2,100 280
Britain--------------------------------------......................................... 55 9 650 130
Canada ....................................-------------------------------------- 3 2 30 50
Belgium....................................-------------------------------------.. 63 20 375 140
Netherlands---------------------------------- ................................. 78 21 525 160
West Germany --------------------------------- 345 117 2,650 550
Subtotal ................................. -----------------------------------742 210 6,330 1,310
France .......................................-------------------------------------- 58 -------------- 325 ..............
Total............................... -------------------------------------....... 800 210 6,655 1,310
Warsaw Pact:
Soviet Union ..... .......................--------------------------------- 460 45 8,000 1,200
Czechoslovakia.......................... ..-------------------------------- 155 45 2,600 405
East Germany.............................. --------------------------------- 100 28 1,650 325
Poland ......................................------------------------------------- 210 60 3,200 825
Total........................................ -------------------------------------925 178 15,450 2,800

9. Since the MBFRI situation is well known and has been much discussed, your rapporteur considers that, at this stage, it is only necessary to recall the ba~iic I)rolnposals made by NATO and the Warsaw Pact. NATO has suggested the reductions to be made in two phases. The first would involve a 15% cut in US and
Soviet ground forces in the area concerntd, which would leave 168,000 US troops (a reduction of 30,000) and 391,000 Soviet troops (a reduction of 69,000).
10. In the second phase there would be a reduction of both NATO and Warsaw Pact ground forces to a conmmnon ceiling of 700,000, involving further cuts by NATO of 70,0() and further cuts by the Warsaw Pact of 166,000. Although it seenis likely that the proposal that cuts should begin with ground forces is aimed to free negotiations from the complexities that would be caused by incluhiding air forces, and their equipment, the problems is complicated by the fact that whereas some countries have surfaces-to-air forces in their armies, others have thlse in their air forces.
11. The Warsavw Pa1t has prolsed that both ground and air forces in the area should he covered. The figures on which the Warsaw Pact propose their reduetions are: NATO 1,010,000 alnd the Warsaw Pact 1,100.000. The Warsaw Pact proposal envisages the cuts in three phases. The first reduction of 20,000 by both sides by 1975, leaving figures of 9fl),000 and 1,079,000; the second reduction of 5% by 197(1, leaving 940,000 and 1,025,( )0: and a final reduction of 10%/ by 1977. The residual figures would then be 845,0() air and ground forces for NATO and 235,000( for the Warsaw Pact.


12. The Warsaw Pact has also proposed that aircraft in the area should be included in MBFR as should be nuclear forces. NATO is interested in trying to revise the present disparity in tanks showed in the above table.
13. Amongst many differences between NATO and the Warsaw Pact concerning MBFR the essential one is that whereas Eastern European countries wish, in the first phase of reductions, to reduce not only Soviet and US forces in Europe but also European forces, NATO on its side, insists that initial reductions should be limited to the forces of the two super-powers with further reductions being brought in during a second stage. Whereas NATO continues to argue that reductions negotiated should be "balanced", i.e., that greater cuts should be made by the Eastern side-which has a conventional superiority in the reduction areaso as to end up with similar numbers of armed men on both sides, the USSR and its allies continue to maintain their basic position which is that cuts should be on a one-for-one basis.
14. Attempts to reach a second Strategic Arms Limitation to complement the first SALT agreement are blocked, the main difficulties apparently concerning the verification of MIRV (Multiple Independently-targetable Re-Entry Vehicles) missiles, and the classification of bombers and cruise missiles. Military commentators stress that unless agreement is reached in these key areas, both superpowers will press on with vast and extremely expensive programmes giving a further twist to the arms race spiral. Thus President Ford has warned the Soviet Union, in a recent speech, that unless there was agreement on the next phase of nuclear arms limitation he would propose an additional $2-3 billion for strategic arms spending. Press reports that the Soviet Union has wriggled out of its commitment under SALT I have been denied by the US Administration.
15. Ex-Chancellor Brandt has recently aired the idea that it would help to break the disarmament stalemate if NATO were to offer to withdraw a number of tactical nuclear weapons, in Europe, in exchange for the withdrawal of a number of Soviet tanks. As some military experts have already pointed out such an exchange would be dangerous since the Soviet Union has had about 600 intermediate range missiles implanted, facing us, in Eastern Europe for a number of years. These arms are not covered by the SALT or MBFR negotiations. Mr. Brandt's suggestion would confirm the immuility of these Russian weapons from discussion. It would also involve NATO, for the first time, in unilateral nuclear disarmament--a dangerous precedent.

16. There is another poor grain harvest in the Soviet Union this year. The USSR has already purchased widely on the world market, mainly from the United States and also from Canada, Australia and elsewhere, to compensate for this year's disastrous grain production. The Russians have already bought 16.5 million tonnes this year on the world market, of which nearly 10 million tonnes was purchased from the US before an embargo of US grain exports to the Soviet Union was imposed until after the October 10 US crop estimates.
17. At the time of writing talks on a long-term agreement for US grain sales to the Soviet Union are still in progress. It seems that agreement has been reached on sales of between 6 million and 8 million tonnes of wheat and maize in each of the next five years, with consultations whenever the USSR wishes to buy more than 8 million tonnes in any year. The US, apparently, wishes an escape clause permitting a cut-back in supply in a bad crop year when its output would fall below a set level. Apparently the USSR would find this acceptable if there were a balancing clause permitting it to waive its purchase commitment in any year when its own domestic production exceeded a set level.
18. Any agreement of this kind will clearly have both commercial and political implications. There will be price implications both for the IS and world consumers, and an agreement of this kind could increase TS political leverage on grain importing governments including that of the Soviet Union. A CIA study published last year states that due to its grain surpluses "without indulging in blackmail in any sense, the US would gain extraordinary political and economic influence . The major powers would be at least partially dependent on food imports from the United States." In this context it is interesting to note that Senator Jackson has proposed a grain-for-oil barter deal which could start a flow


of ,ovief oil to the T7nited 'S!tates. Tf the United States Government were able to ne.-ilti.ito a deal of this kill(! the entry of Soviet oil might affect the ability of OPEC ro et prices unilaterally.


19. Dilrill- reccilt months the power struggle ha,-, continm,(T in Porttigal. Thrte Dmill I rends can he i(lelitilied within the Armed Forces, Movenient : th(,,se who fl)llow Gw.walve, policies Nvhi(,h are said to favour the creation of a blirearcrZitic Conlimmist state with the means of productimi controlled by the prolttariat : the mo(ierate 4-fflcen,; led by Major Antinw-4, who apl,,arviitly favour (11 nw-cr,,itit,
I)II a plur;ili -t Wcsteiii scale ; anti the r;idieal offleel-, led by the vol,-itilo
(le Nvll( hos eollc(l fol. a in which 1140-Irr
Nv;mld b( lield I)y popiflor of worken-; :md peisants. Altlioirni tht,
'o( :, -mll tile politic;d prol,
1"Irt v '111d if 11,1 0 hceil exclilded fl
Cmlll1lI1IIi- ,t 1)"ll-ty has, sllffore(l a I)IIIIIher of selhacks. to its previoll"13p)-it-ifai. Althom,-h the iiiteviial political -ittiilion ,till remain..4 f,!l- fn Ii ill exterlml affair z relll"lill.-4 a llloml er of the 'North At!,iiiii- Alli.m--e
and 11,1 z !)eell ill close collttof Nvit"I 11w E1111-opeall community. Aleeting i'l Luxel.1)m"n-, m" G ( Wfolwr t he 'Forc-i --I,, A_!iiikt!-is of the _Nhie a-reed to give
7,5 million of ('111 "'rurel Icy fill;Ille A aid. Tlli -: (IfTor. w1ii(Ai va.- I(-s thmi members of the C(II111111110tv w)mted to -iv- 'tIld ver.v 1111"'.11 le"s thall (-)ri1(_ i11;1!i.1,- JIJ' )hY file \V'11.1 COPV Iytt! to the 11(ortugmese Forei,4-ii t t I,.
Alojor Antmw ,- ill Dixend mi, 2 oil 7 Octol)or.
20. Tht, Alhikter,, a.,_,-rce(I tlllt tl)(, ji(I tql p tll(, forIll of Jojj,-,4 fl-I)III
the Europe'lli Inve,411wrif Baii! it a special v low sub 4i(iis(,d rate of iwcn- t.
to filmilce indivtrial projects proposed by the Portiil-iiese Goveminwnt. T( still to be deoi(1,,(1 Nvlwfh(-r tho (-:-4f of Hip ,iil-,,,idi.c cd loans should be iiiet directly froill 11.1timial Troa"Ilri""- or wit or the EJX, Bildl-et.
21. The wie,--4ion of what role tfie CommimitY slimild -play toivard, Porfw. -il
u (I a verv (1ifficlOt om, to 1-(,S:(11ve. S11(111M t1le
filkol), rrmll Ille very Of tile IleNV ',411,Itioll ill 11ortm4,11. :I
stalled, this omild 11,9vo hivolved tlie risk of siipporthig a non-domoorittic
sollitiorl'! Or the pro',ent ("11"tioll" appro'lell heell tile ri om'? "mljo ( 11Jill_ ct)w itlor that the T"I-o 4('Ilt tipprwich 11"Is re"Illted ill givill-', twi littip. t(m 1,11-1 to 11oI-fI1L,lI. 11111" lve'll ollill(), Hie illcelitive t1i:lt the ConiTillillity (.:)Il 1'vovido to 11111) t1w 1w)(lerate alld forces: m Portm-r"d to prev.lil. I I o
fiwlor mm;4 !ievor he for2:()tten. I'll(, l)()rtii-11f-,e people h'lve :11,.e ldv e-\throll"ll II)e poll-'4. tbeir own views I:,-; to t1w I illd of govel-wre-ot t1loy w"Illf. It k to I)o Imped il!!.kt We iorii democnick-4 will encolimle the T'orf til -m, Ze TWOPIP to "C111CV0 a S0111tioll ill tile sew (' tll,!t Hie 1)(n.til-Ilese people have
(I i (.,(I f c (I.
22. Tli(, .--0V i0f I'lliOll 11"1'4 followed developlilvilt" ill Portilgal with Cl('Q(' :1tt(,!1tioll. Ilk I-ecollt, to Mo"cmv Pl.(, idellf 014.1 Gollle:- (I'l 3
Oofol)(.r. m "Igreemelit 1111der NvIlic1l t1w 1SSIZ Nvill provide ec(mmilic aid to 1ortll1f;t 1. A ; Yot I h-re i, liftle "iffil of di rect ""t)\-j M ill t el-velitioll ill 11o rtuall 'I lid i Il vi( Iv If tilt, IT(A hit(,rveiie directly ill I1ortu(_,m-;v polit ics,
2%. Tile E1II-(1pelIl illvited melliller'-Z of t1w porill'-Ilo"o Ct)Il-J;tlI(1'lf
A ;s4oml,]Y to Ateml it 4 000hor ill I'llf ill tll(l Ili) l',irtii'S

0.1. TIlt, poli0o'd itlllfjtlll witIlill ST)!Iill h"I': il)vvit: Yv hooll ilifillellco(l IIV tllo
overlt.(4 ill Alfllwl,_01 swlo yo:11-4 'wn) ri iiiff livinfz sf:mdord z- Oil,
I oo 111. "1 71 (1 i I I c re 1, 11,-, i 11 11 t r i: I I i I t i I i fl \ od I I i e i I I i o ro : f () f t I I o I 1,q 11 i- I I people of) ecolmillic 1-.l t1wr t I ui ii I(,] i f iv-i I pr()) il (,m,!. t ho (1vtoriorq H oil (if I he ooonomi(- !- itimfitm ()ver flio po,,t yvqr or two Nis led lo a Atmition of econolvie mirf-J vvhic-fi is vx,,-icvrhntvd by strolig politie.11 tellsiolm
Alill"Il'-di tho 1'rillio 'Millisfer. 'Mr. Arhl Nav:irro. promis-ed flemoertitie roffll*1111 ill Fehrii,,ir v 1K 4 t1w C:m dillf) 11:1s T'Ofl] Wd to) 111CCOM :111Y P()IitiV,'1l ell!"'UC.Sz. T1wre i,- i d.-in,_,ot. flint 14p:lllb ll Nvill ho 1)(0:1117ed illto a flall.L erolls oflici'll
4-0 1-ollo. ri ?,.Jl t /III Iderf"'rol) Ild ft vollfrollt:ltioll.


26. Until very recently the question arose of how Western countries might try to influence the development of the situation in Spain so that following General Franco's death an internal political explosion could be avoided. But the execution, at the end of September, of five political prisoners, following the most summary of trials, and despite the appeals for clemency of the Pope and many other world leaders has, at least for the time being, ruled out this possibility. Following the adoption of a resolution by the European Parliament in September, calling on the Commission and the Council "to freeze existing relations until such time as freedom and democracy are established in Spain" the Foreign Ministers of the Nine decided in Luxembourg, in October, to break off trade talks with Spain.
27. Following the execution of the five political prisoners political unrest in Spain has intensified and a number of policemen and civilians have been killed.
28. Although the political executions in Spain have been rightly condemned by world opinion, it should be remembered that comparable events are by no means unknown in several other countries with which the European Community is developing closer relations. It is to be hoped that we do not fall into the trap of developing a double standard of political morality.


29. Cyprus remains the flashpoint in the Eastern Mediterranean. In August Mr. Clerides, leader of the Greek Cypriot Community. and Mr. Denktash, leader of the Turkish Cypriot Community, agreed that Cyprus should be divided into two federated zones and that in return for this Greek concession the Turkish area should be less than the present 40% of the island under Turkish occupation. Archbishop Makarios has, however, repudiated this agreement. The Turkish military position on the island is strong and well entrenched. There are reported to be some 200.000 homeless refugees on the island out of 260,000 Greek Cypriots who used to inhabit what is now the Turkish-occupied part of Cyprus. Further it is clear that there has been large-scale Turkish immigration into the north of Cyprus, which can only make a final political solution more difficult.
30. Quite apart from the solution of the political problem there is the urgent human problem of feeding, clothing and, housing the refugees.' The European Community provided special food aid to Cyprus in 1974 as follows: 3,000 tons of cereals; 250 tons of powdered milk; 200 tons of butter oil. Further, individual Members States of the Community have given food aid to Cyprus bilaterally. Under the normal European Community food aid programme Cyprus also received in the autumn of 1974: 5,000 tons of cereals and 250 tons of butter oil. Further supplies of European Community normal food aid flowing to Cyprus during 1975 include: 5.000 tons of cereals; 300 tons of butter oil. A further 1,000 tons of cereals is being given by Denmark through the world food programme.
31. Although the Member States of the European Community have an extremely strong interest in helping to promote, with Greece and Turkey, a durable solution to the Cyprus problem there is little they can do, apart from providing humanitarian aid. until the Greek and Turkish Governments are themselves prepared to negotiate seriously. But at present the Turks, in their dominant, on-the-spot military position, have little incentive to move. The tension between Greece and Turkey over Cyprus is heightened by the continuing Greek/Turkish dispute (concerning ownership of the continental shelf around the Aegean Islands and the Turkish coast.
32. At the meeting of the EEC-Greece Council Association in July the Greek Government stressed the urgency and the importance it attached to its request to become a full member of the EEC. The Greek Government's application reinains under consideration by the Nine (at present mainly at the level of joint technical studies with Greece) pending the report (0f the Conmmuission which is awaited with interest. The Nine whilst revealing political sympathy for Greece's

1 Their situation remains a traei one despite the agreement reached between Mr. Denktash. leader 'of the TurkiUh Cypriot Conmmunity, and Mr. Clerides. leader of the Greek Cypriot Community, at Vienna on 1 August permitting some 10.000 Greek Cypriots to continue to live in the northern part of Cyprus and some ),000 Turkish Cypriots living in southern Cyprus to move north into the Turkish-occupied part of the island.


ambitions, realise that there are many economic and political problems to be solved. For Greece its relationship with the EEC is particularly important in the light of its loosening of links with the United States and with NATO. Greece's application also raises the future relationship to EEC of the other two European associated members of the Community-Cyprus and Turkey.

33. Since the fall of Mr. Ecevit's Government Mr. Demirel's Government has remained in power since April. MAr. Demirel's position has, indeed, been reinforced by the partial elections to the Senate and to the Assembly held in October. Whereas Mr. Eeevit, despite his successful military take-over of northern Cyprus, showed interest in reaching a compromise solution with Greece of the Cyprus problem, Mr. Demirel's position is based on a tough, no-compromise line over Cyprus.
34. Turkey's whole relationship with the United States and with NATO was placed under severe strain by the embargo imposed by the U.S. Congress on U.S. supplies to Turkey and by the cutting-off of U.S. financial aid. At the end of July Mr. Demirel reacted by taking over control of U.S. military bases in Turkey, including important electronic intelligence-gathering stations.
35. The decisions by the U.S. House of Representatives on 2 October, and the Senate, on 3 October, to lift (under certain conditions) the arms embargo have been greeted with relief by those who have stressed the importance of maintaining a strong political and military relationship between Turkey and its NATO partners. Had Turkey been tempted to break its ties with the United States and to loosen its relationship with NATO the strategic situation in the Eastern Mediterranean-already dangerously weakened by Greece's attitude to the U.S. and to NATO-could have deteriorated sharply. It is interesting to note that the Foreign Ministers of the Nine were already reported as having disapproved (at their Venice meeting) the continuance of the American arms embargo, especially in the light of the Cyprus problem. The arms embargo was also discussed at the EEC/ Turkey Association meeting on 16 September in Brussels.
36. Although the Turkish Government has expressed relief at the partial lifting of the U.S. arms embargo there is still some way to go before full confidence can be restored between Turkey and the U.S. The Turkish Foreign Minister, MAr. Caglayangil, stated in Ankara on 2 October: "It is out of the question that the U.S. installations, which were closed before, are reactivated again and immediately." However, talks between the Turkish and U.S. Government on formulating a new relationship between the two countries are expected to open later this month.

37. The main development in the Middle East since the Munich meeting has been the interim agreement on the Sinai between Egypt and Israel. Under the agreement Israel is committed to withdraw from strategic bases and oilfields. In exchange Egypt is now committed to a peaceful settlement of its conflict with Israel. The two parties describe the agreement as being a "significant step" towards implementing U.N. Security Council Resolution No. 338, which, in turn, connits both Israel and Egypt to implementing Resolution No. 242, which has been the basis of most Middle East peace efforts since 1967.
3S. The ultimate significance of the Sinai Pact depends on whether it enables the two parties, and thus others directly concerned, such as Syria, to develop Dr. Kissinger's "step by step" approach into a wider and more permanent settlement. Meanwhile, skepticism and hostility towards the Sinai Agreement have been expressed by Syria and the Palestine Liberation Organisation. Whereas the United States, on its side, seems prepared to enter fully into any form of Middle East dialogue that could reduce tensions and promote a genuine Middle East settlement, it is by no means clear whether Syria and the Palestinians, whose active participation are also required, are prepared by play ball. Further, the USSR has been offended by the agreement both in the light of the prospect of a physical U.S. presence in Sinai and U.S./Israeli discussions concerning the supply of Pershing missiles to Israel, together with the implantation of U.S. technicians there. Without Soviet agreement, also, there cannot be a realistic Middle East settlement.

39. The fall of South Vietnam and Cambodia (and possibly Laos), synmbolised by the takeover of Saigon by North Vietnamese and Vieteong forces on 30 April, has been a triumph for the Indochina Communist Party (ICP).


40. The ICP is now in an unchallenged situation as the leading military powerof South-East Asia. The questions that arise concern not so much its dominant position but the implications for the rest of South-East Asia and for the allies of the United States.
41. As far as the second point is concerned, Secretary of State Kissinger stated at a press conference on 29 April: "We will have to assess the impact of Indochina on our allies and on other countries in that area and on their perceptions of the United States, and we will have to assess also what role the United States can responsibly play over an indefinite period of time, because surely another lesson we should remember from the Indochina experience is that foreign policy must be sustained over decades if it is to be effective, and if it can be, then it has to be tailored to what is sustainable. The President hag already reaffirmed our alliance with Japan, our defence treaty with Korea and we, of course, also have treaty obligations and important bases in the Philippines. We will soon be in consultation with many other countries in that area, including Indonesia and Singapore and Australia and New Zealand, and we hope to erystallise an Asian policy that is suited to present circumstances with close consultation with our friends."
42. In the countries of South-East Asia, the ending of the US military involvement in Vietnam has already provoked and is continuing to provoke reflection concerning political alignments and realignments. Peking's prestige and influence in South-East Asia has certainly risen to a marked degree following the revol-utionary successes in Vietnam and Cambodia, especially in Cambodia where the USSR backed the old regime until almost the last moment. But China still has an interest in a continued US military presence in Indochina and Japan as a counterbalance to potential Soviet expansionism-particularly in view of the
-rowing Soviet naval activity in the region. As Michael B. Yahuda has written in "The World Today" of July 1975: 2 ti The dilemma- for China, therefore, is to what extent she can oppose specific important outposts of the American military deployment in East Asia, without undermining American credibility as a countervailing power in the area. China's leaders cannot set aside their support for North Korea or their intention of liberating Taiwan. At the same time they cannot welcome a possible total American withdrawal in the immediate future."
43. On their side, although Malaysia, of the ASEAN countries, has normalised relations with China, Singapore and Indonesia are still hesitant, Thailand prefers a very cautious approach and the Philippines are worried about possible subversion of their local ethnic Chinese population. TJntil the resolution of the preliminary question of what relations are established between Laos, Cambodia and Vietnam and China, the attitude of the other South-East Asian countries will perhaps continue to be undecided. Meanwhile the five ASEAN countries have not been able to move beyond mutual consultation to the development of a common approach towards China or the new Communist countries. Further, it is not yet clear whether China intends to play a "responsible" diplomatic role with the ASEAN countries or whether she will encourage revolutionary movements.
44. Finally, as far as the European Community is concerned, it should be noted:
(a) that China has now achieved full diplomatic representation with the Conimi.sslon through the appointment of an ambassador to the European Communities in Brussels; (b) that a delegation of the European Parliament, led by the President, Mr. Sp6nale, visited the ASEAN countries this summer.

2 "China's foreign policy after the victories in Indochina".

Thursday, 30 October 1975

(Working Documents: Mr. Sam Gibbons, Mr. Lange)'
Mr. Sam Gibbons introduced the discussion on the working document prepared by Mr. Lange. (PE. 42.110) He recalled that this was the fifth discussion on this topic and reminded members that the meeting was public.
After answering some questions, Mr. Gibbons explained that he, together with Mr. Lange, whom he had met prior to this meeting, was proposing that for the next meeting this document, after examination and improvement, could be considered as a draft Code on Multinational Companies for industrial nations. It could be put to the respective governments within the European Community and the United States, and it was hoped to include Japan also.
Mr. Fithian, for his part, considered that the point had been reached where the MNCs were avoiding taxation thanks to their ability to j uggle profits and prices. As their activity exceeded national boundaries, the only valid approach was the international one, in order to have some control over their financial behaviour.
Mr. Seefeld stressed the importance of transparency in the matter of taxation and strongly recommended the adoption of Mr. Lange's proposal in that field.
Congressman Gibbons and Mr. Delmotte insisted on the need for any controlling agency to follow the development of the MNCs and hence the need for regularly updated information.
Congressmen and Members of the European Parliament drew comparison between their respective national legislations on MNCs. Congressman Gibbons explained that in the United States MNCs could not be treated more harshly than American companies.
A discussion took place on the necessity for MNCs to report on jobs created or abolished as a result of their activities. Mr. Delmotte pointed out that in cases of unemployment, the government must aiwas explain economic situations, even those in which it lacked effective control.
Mr. Seefeld made a compromise proposal by asking for the inclusion of the idea that wherever the right to information on such topics existed, it should be respected by MNCs.
See pp. 25 and 27. respectively.


Both Congressman Gibbons and Mr. Seefeld recommended that the work oln MNCs should be carried further, and that the document by Mr. Lange, and a -Compendiumn from Different Sources of Principles for Inclusion in a Draft Code on AIMNCs for Industrial Nations" (presented for discussion purposes by Congressman Gibbons) should be examined by all parliamentarians interested. They also expressed the wish that the draft code to be presented at the next meeting should be related to the study made by OECD on AIMNCs and to the report prepared by the Commission of the European Communities on MNCs.



Paper by Mr. Sam Gibbons

MN Es can play an important role in economic and social welfare, but certain of their characteristics can give rise to concern and conflict with national policy objectives.
The guidelines are purely voluntary. (Alternatively, the guidelines should be binding on MNEs, host governments, and parent governments.)
Each country has the right to set conditions for MNEs within its national jurisdiction, subject to international law and international agreements.
MNEs are companies of private, state, or mixed ownership established in different countries and so linked that one can exercise a significant influence over others.
Where relevant, these guidelines should apply to all enterprises, national as well as multinational.
Governments should use international dispute settlement mechanisms (arbitration).
Governments have a responsibility to treat MNEs according to international law.
Governments must acknowledge their responsibility to deal with conflicts of laws as they affect MNEs.
Member nations will establish review and consultation procedures.
MNEs should give consideration to 'national policy objectives of the hose country.
MNEs should not discriminate between nationalities on filling positions.
Enterprises should not make nor be solicited to make payments to host government officials or contribute to political parties, unless such contributions are lawful and details of amounts and of beneficiaries are disclosed.
(Alternatively--MNEs should observe local standards and practice with regard to providing gifts to public officials, contributing to political organizations, and engaging in political activities.)

In addition to information required by national laws. and taking into account business confidentiality. MNES should disclose yearly information on their activitie, in each country in which they operate, with respect to:
Financial and organizational structure;
Geographical operations;
Financial results and sales;
Employees ;
R. &D.,
Pricing policies:
Accounting practices.
MNEs should assist subsidiaries in providin. necessary information on their activities to host authorities, taking into account business confidentiality.
MNEs in their financial transactions should take into consideration balance of payments and credit objectives of the host country.


In addition to abiding by national law, MAINEs should: Avoid action that would adversely affect competition;
Avoid discriminatory pricing;
Avoid restricting freedom of operation of subsidiaries, licensees, etc.;
Avoid engaging in cartels or restrictive agreements that adversely affect comliItitioll;
Cooperate with enforcement authorities.

MNEs should provide tax authorities with relevant information and should avoid the use of facilities that alter the tax base contrary to national law (transfer pricing).
MNEs should:
Periit employee representative organizations;
Provide such organizations with necessary information;
Observe local employment and industrial relations standards;
Train and utilize local labor;
In changing operations, relieve the effect on employees and give due notice; Avoid discrimination on the basis of sex, age, religion, color, ethnic origin, or political activity, unless in pursuit of national policy aimed at greater equality of emldoyment;
No(t transfer an operation because of a labor dispute;
Allow labor representatives to negotiate with MAINE management that has authority over its areas of concern.

MNEs should add to local scientific and technological capabilities, should permit the dissemination of technology, and should transfer technology on reasonable terms.
Nations should accord MNEs treatment as favorable as that accorded to simiIarly situated national enterprises; except, for the regulation of entry of foreign investment, in order to secure public order and security, to fulfill international obligations, and in certain sectors specifically designated by a country for exclusion.
NationIs should not discriminate on the basis of country of origin, except possibly as between members and non-members of an economic or monetary union.
Obligations under international law and treaties are not affected.

(;Goverinments should be prohibited from adopting national policies that provide incentives or disincentives to foreign investment. (Alternatively, nations should 'e r(Jluired to take into account the international ramifications of such policies and should avoid harm to other countries. A country should be able to call for consultations if it is being injured by an incentive or disincentive for foreign investments by another member nation.)


Paper by Mr. Lange

The internationalization of production is a logical consequence of the development of our economies; as such, it is a positive phenomenon, contributing to economic growth and increasing prosperity.
But just as it is normal for firms increasingly to carry on activities beyond the frontiers of their own country, so it is normal and necessary for an international framework to be set up for these international activities, obliging the firms in question to respect certain baSie 'rules and at the same time offering them the necessary legal security.
Economic integration, as embodied in multinational concerns, has stolen a march on politics, for which in most cases the national frontiers remain the relevant framework. Although far-going economic interdependence c-an be a useful stimulus towards political integration, it is nevertheless essential in international relations too for politics to take precedence over economics; that is, the framework in which the multinational concern operates must be under political control. This condition is not being met At present. Accordingly, certain rules need to be laid down in an international agreement.
The problems connected with the activities of multinational concerns (MNCs) can no longer be solved nationally and cannot yet be solved on a world scale (in the United Nations). Arrangements in an OECD context would represent a great step forward. The delegation of 'the US Congress on the one hand and that of the European Parliament on the other can in the first instance help to bring about an agreement between the USA and the European Community, to which Japan and other industrial countries may later accede.

M.NCs frequently have technical or financial advantages over their competitors, which means they enjoy a certain position of power. Competition policy should be aimed at checking abuse of this position.
To achieve this, the first essential is much more inteftsive cooperation between the anti-trust authorities of the USA and the Community. Controlling multinationals is made difficult not so much by the shortcomings in national legislation on competition as by the problems in implementing it. The anti-trust bodies are frequently 'unable to prove abuse by an MNC because the necessary- evidence is in the hands of another of its establishments abroad. An international agreement should therefore authorize anti-trust bodies to have access to all relevant information. Moreover, the rapid exchange of information between the antitrust bodies and mutual support in investigations of restrictive practices must be guaranteed. Finally, it must be made possible for anti-trust bodies to take joint action against cartels and against abuses of power.
The annual reports of large concerns ought to give the public a clear picture of their activities, of their financial situation and of their connections with other enterprises. .At least the following information should be published, broken, down by country of establishment :
The funds- invested, reinvested and transferred to the country of the parent company;
The origin and composition of the capital; The number of jobs created and Abolished;
The balance sheet and the profit and loss account, with taxes paid shown as a percentage of turnover;
Expenditure on research and income from royalties, licensing and manag1-,ement contracts;,
Financial and personal lines with other concerns;
The number of host-country nationals working at various levels.


Ili the longer term an international system of standardized annual accounts and reports for large concerns must be almed at.

All ill vest Ineilts plaillied Ily the international concerns ninst be declared to flie coilipetent autlioritles in the comitries concerne(l.
Iii niore tlian lialf of all direct inve,,tnient abroad takes the form of a
of all exi!-ztii1- firin. Tliere are rea.-;ons for bein- niore restrictive in such
111all oil neNv. direct ilivc tnieiit.q. Takeover I)id,, (open bid for total or 11,11-tial takeover) lillist he niade suliject to re-ulations. The latter niust provide at lea,- t tliat Hie board of tile firin to be taken over be informed before an open Idd is ina(le, and nlso contain strim-ent provi,!,ioiis oil the information to be ,,iqij)lied to trade union.,; and silareliolder".
C:mada. ind Brittin have ruleg under which. in the event of forei-n
tal eover of firills. cortaill ('11arantees can be required in regards jobs, investment 1)01icie maintenance of il-'ItionA iilana.,,eiiient and al.,.4o, NA-liere appropriate, iiiaintenance of research actiN-ifies aiid a certain ;hare in exports. Such rules oti,,41it to be harnionized ill an international aoreewent.

In principle, taxation ou,,.Oit to be paid in the country where the inconle is earned. This intakes it e:- ,,eiitlal above all to inaintain supervision of the transfer prices (that is, the prices applied in traiisactions that take place within a concern l. aiid to take action al-ainst the tax privileges that holding coilipanies often elljo y. Ill'i"Illuch a,-, 1101(ling companies al-(, used to collect income froin dividends, 14)aiis. Iicen,,es and the like. aud to provide finance to firnis in tile zroup to NA-hich the lioldim- conipaiiv bolon-,. abuse frequently occurs. Unilateral legislation by a Hillite(I 11111DI)er of colilitries would siniply mean that the holding companies Nvould flop to other countries. The T-SA and the European Coininnnity could, Iimvever. take the folloNviii.- niew-:ures in the fairly short term:
llarnioiiize with hol di I tax oil debenture interest;
Mike steps to coinbat abuse of agreements for the avoidance of double taxation
Ailil at a joint position re-arding "tax havens" consideration should be given to dem-iii-. in the frameNvork of in ii.iternational a-reenient, concern.,; that niisus-e tax 1javetis the right to open new establislinients in tile countries that are party to the izreenlent.
Ili all wliere an aeciirate allocation of profits in the short term does not
Seeill possible, the niethod eould be adopted AvItereby ,in AMNC is taxed oil file hasi.- of it.,-; consolidated profit, it beillg. 1111(lenstood that tile profit is assi-ned to (,,wli e4alill,,liment" on the basis of it,, turnover figure and. of the capital iiive-,4( d in it.


"Fralls"letiolis Nvithill Al M,-,__I)ptNv(qjI slllji,_ diaries of the same firm or bet\veen ,I stihsidiary and tile pareia coinj)any---constitute all important part (20 to 2:fl) of international trade. Fixiijg tite prices for Iliese, opera I i oils gives' Multinationals o,,Iv ojl( colintry do ot I id
ix)!- .sillilitie" tilat firlil-, NNitil ( ,,t, 11 Iave. al
Ill,-It ])lit, tileill in a posilioii to inake inore I)i-(,)tit*: as Inuch as, 15 to 20C1o inore

AlNC"'o-.,III have v-Iriow, rva,,oiis for settin(4 a different traw4er price froln tit(. (ale that Nvould be "11111lied to I consignilielit froill a firill to another, inde1wii(letit oil(.. A concerii Nvit-11 ("'taldiAllilents ill vIriouS Countries seeks to declarp :i z iimcli profit, ,I,, I)ossilde ill collilfries, Nvith a 1o\v level of taxation, and to kvep the protit ill colliltries Nvitil hi (,Ii taxes. AINCs will also seek
1() Illo I nill"fel. 1wices ill stl(.Il I jilat Illor(, prolit goes to Iiiindred percent "llb-zidi'l I-it's til"Ill I () coIllp:[ rliv.'4 ill \O licll I lie y Ilave a part interest only. In sollie 111,1\- 'llso be for Ille )INC to declare IoNv profit,,, or evOll.
ill a (.olllltl*\, NvIlere it,, "1111"idial-N. i faving iIIII)ol-talit '\vfIge negotiations. (Ilthel. f.lctor', t1lat pfily .1 1).Irt Ilere 'In: t1le country (if establishillent's clirrelicy
-t:lhilitv. -Iii(l flie risk of nati0iinlization.
Tr;lll, :Ictiolls \\,il)lili ali AIN( c(McOrIl 1101 oilly goods blit "11"40 services, financial
:Illd 11.1Yllielit for tilt" use of technical knoNvhow, tradeniarks and

I (*mjntH(-s or nreji,, with w, 1111mv as Ime" 11114, d tlip folloxvin- chameterkties : low taxeg, little iir no i-xcliango ctmtrol, bank svetev v, tit) exchange. of fiscal data with f(.orelgn
-tilt hol-If It's, a dt-vidolwd chalking systeill and polit ical Stability.


Patnts. The category of services includes'services in the form of central market-' ing, payment for services 'Of central administration, etc.
Tax authorities in a number, of countries, particularly the USA and the Federal Republic of Germany, have sought to. -draw up rules for fixing, transfer prices. It is not a simple task. The usual basis taken is that the price-calculated ought to be .the'one the concern would'have applied if delivery haid been made -to an. independent firm (-the "arm's length", principle). Where this method cannot be applied,, recourse is had to calculations made -on a "cost plus" basis, -i.e., production costs plus a, re asonable profit margin. For loans within an MANC, the basis can be the prevailing interest rate, 'but here, too 'there is a certain fluidity, since the amount of the loan, its. duration and the- guarantees offered. play a part in determining what at "reasonable" rate of interest is. Finally, the right price for the use of technical knowhow, patents and trademarks canl only be determined very approximately by a tax authority.


As fa'r as prices for'services- rendered are concerned, it is, to start with, not easy to ascertain whether the service concerned has actually been performed. Here, then, the NINCs, have plenty of room to manipulate transfer prices. Floating exchange rates constitute and extra complication for the fluctuations-that MINCs cannot be compelled always to pass on exchange rate flutuations-that does not happen on the free market either-but equally, they cannot be lprevented from so doing.
But some control over the transfer prices applied within an MNC is both meaningful and indeed essential. For consignments of goods, particularly homnogeneous goods, price comparisons over a period of time, and also with consignments delivered elsewhere at the same time, can give useful pointers. A second indication that wrong transfer prices are being applied is 'a profit or ls percentage that deviates sharply from the average for the branch of industry concerned. Results can only be achieved by giving up at the outset all aspirations for perfectionism and endeavouring purely to avoid obvious excesses.
In view of all the difficulties indicated above, many countries have chosen a simpler method: they do not check the transfer prices, but confine themselves to keeping an eye on the profit made by an establishment of a foreign concern. If the tax authorities of the country concerned find the profit unacceptable, i.e., too low, the concern is simply taxed on a higher profit figure.
So far there is almost no cooperation between tax authorities regarding supervision of transfer prices. Intensive cooperation between these bodies is essential to effect tive control. The failure to exchange information is partly due to legal provisions regarding secrecy. So legislation needs to be changed in that respect.
Only harmonization of fiscal legislation-not necessarily total, but aimed at removing the most glaring discrepancies-can put an end to the tax avoidance achieved through transfer prices. Pending that, an international agreement ought to be established with provisions guaranteeing flexible-not perfectionistic-supervision of transfer prices.

It is desirable for monetary authorities to have accurate data on international capital movements. In some European countries the banks are obliged to keep the central bank of their country of domicile informed of their forward exchange position. This kind of regulation should be extended to (a) at least all countries of the Community and the USA and (b) all concerns of a certain size. Information should be supplied monthly and also cover all capital movements within the concern.
The concerns must allow residents o,.f the host country to acquire their shares. Participation by host-country nationals can be promoted by a p~rovision that a foreign company having recourse to the capital market in the host country must do so partly through an increase in own capital.

The representatives of the workers in a multinational establishment must be afforded the opportunity of holding consultations with those responsible for the establishment's policy. At present it is, often the case that the trade unions of a country have to deal with a management that has only limited


powers. Either steps must be taken to ensure that the management of an establishment can provide the workers with all relevant information and also act with the necessary autonomy, or else group works councils must be instituted that can negotiate directly with the central management. As a rule, at least one host-country national should have a seat on the board.
Workers should be informed and consulted in good time on matters affecting them and, in the event of mass redundancies, they must have an important voice in drawing up the labour phase-out plans. Moreover, workers must be guaranteed retention of acquired rights where their firm is involved in a merger. Provisions on this matter will shortly be entering into force in the European Community.
The trade unions and-where they exist-the direct representatives of the staff (works councils) must be recognized by multinationals as contractual partners in negotiations on wage agreements and the fixing of work conditions of the workers employed in a firm. This presupposes an internationally valid collective agreement.
Concerns must be obliged to provide work in the host country for its citizens. This should also be the case for the management bodies of the dependent firms or subsidiaries.

Thursday, October 30,1975

(Working documents: Mr. Klepsch, Mr. Reuss)'
Mr. Reuss summarized his paper. He stated that the U.S. Congress would probably agree to the compromise reached in the IMF earlier this year on revising the quotas and.-the articles on voting distribution. On the other hand, he did not think Congress would approve the arrangement about IMF gold.
Regarding the latter, there was still doubt on many points. It was uncertain whether the IMF which is to dispose of one sixth of its gold stocks (approximately 25 million ounces) to benefit the developing countries according to the compromise reached, will make these disposals by public sale, through the recognized gold market or by sale to the monetary authorities. Nor was it known over what period the sale was to be made.
The most doubtful part of the gold agreement was the provision that another one sixth of the IM!F gold should be restored to the member states. That was unfair, because it benefited mainly the rich countries, but more important, it put Special Drawing Rights in the background. The probable consequence of this restoration of monetary gold to the member states would be that the increase in monetary reserves over the next few years would take the form mainly of an increase in monetary gold.
Moreover, the gold agreement still left total uncertainty regarding the future international role of monetary gold. The U.S. Congress continued to advocate a gradual reduction in the role of that component of the reserves, although it was very well aware that monetary gold could not be excluded from the reserves from one day to the next.
Mr. Reuss would prefer to have seen the one third of the IMF goldhalf of which was now to be returned to the member states, while the proceeds of selling the other half were to benefit the developing countries-put entirely on the market.

On th~e whole, Mr. Reuss was able to agree with the Klepsch working document regarding flexibility of exchange rates. In his view, however, the final verdict on floating exchange rates, a system that on the whole had pulled the industrial countries through a difficult period, should be somewhat more positive.
I See pp. 35 and 39, respectively.


Mr. Klepsch stated that there was agreement between the United States and the European Community regarding quota allocation Nor were their positions on floating rates very far apart, and there was even an encouraging convergence here.
The differences of opinion concerned mainly the following two points:
If one third of the IMF gold was brought on to the market in a short period. the gold prices would collapse: that was unacceptable for the Community. Contrary to what Mr. Reuss seemed to suppose, it was certainly not impossible for the one sixth of the IMF gold that was to be returned to the DIF members to end up also benefiting the devolping countries: and
On the American side. it was not well enough understood that restoring convertibility of the dollar was in fact a condition for a return to a healtlhyv international monetary system. A special account for this should be set up in the DIF.
On this latter point, Mr. Reuss said that he had formerly been a supporter of it. and would still not have any objections to this kind of solution. The U.S. Congress would be open to this kind of initiative. The question was whether there were in fact too many dollars in circulation at the moment, and whether there was, therefore, a need for such an arrangement.
Mr. Leonardi felt that Mr. Reuss had taken a rather too favourable view of the system of floating exchange rates; the views in the Klepsch working document were closer to reality.

For Mr. Normanton the economic and political self-discipline of the governments of our countries was the central point. International monetary problems were in fact created by governments that did not know how to follow a sensible policy at national level.
It was very much to be regretted, Mr. Scholten felt, that fMr. Reuss was so opposed( to the compromise on IMF gold reached 2 months previously in Washington. In Europe there was an impression that nothing should stand in the way of implementing that compromise as long as a solution was soon found for the third important aspect of the monetary p problems, namely the exchange rate system. No one in Eullrope reckoned on the U.S. Congress linking ratification of the agIreement to other conditions nor on its going back on the gold agreement.
'The background to the American position was probably not so much the wish for a greater part of the proceeds from the disposal of IMF gold to benefit the developing countries, but rather the wish to stven Lrthen the position of the dollar as a component of the reserves. It woul( be a serious matter if the United States were now to seek to reopen I he (discussion on "o(l.
Mr. Klepsch added that in Europe there was often an impression tlhat thle main reasonll why thle l' nited(l States wished to deprive gold of its ionet ary role was that then there would only be the weak Special 1)rawing Rights besides the dollar.
Agreement bet ween the Community, Japan and the United States on the excllage rate system seemed to be a possibility in the fairly


short term. The next question between the dollar and the currencies in the "snake."
To close, Mr. Reuss dealt briefly with the ideas brought out at the end of the Klepsch working document. Like Mr. Klepsch, Mr. Reuss felt that .........a ovement towards the formation of currency areas, providing currency stability within each area while leaving room for a high degree of flexibility time was not yet ripe for any form of fixed relationship between the dollar and the "snake." In view of poor experiences in the past, the United States was not yet ready for that. I would rather have a system governed by market forces rather than the often faulty jud gment of bank managers, he said.
Regarding monetary gold, the policy to be followed should neither systematically benefit nor systematically injure the gold producers, i.e. South Africa and the Soviet Union. The U.S. Congress, he felt, was against granting wider powers to the IMF. Specifically, Congress views with dismay the IMF decision to sell one-sixth of its gold to quota countries at premium prices. We should not, he added, destroy SDR by reinvigorating gold.


Paper by Mr. Klepsch
At the last annual meeting of the International Monetary Fund (IMF), progress was made on three points:
Arrangements were made for gold in monetary reserves.
The quota distribution in the IMF (and therefore the distribution of voting rights) was changed to give the oil-producing countries a more important voice in the organization.
Agreement in principle was reached to set up a "Trust Fund" to supply credit on favourable terms to the poorest developing countries-with per capita incomes of $250 or less-facing balance of payments problems; the fund's resources would derive from the proceeds from the sale of part of the IMF's gold, and also from contributions from the industrial and oil-exporting countries.

The arrangement arrived at for monetary gold is satisfactory, though it provides no final answer to the question of the future role of gold in the monetary system. In fact the agreement amounts to not much more than a confirmation of the status quo, but for the moment that is enough. The major industrial countries and the IMF have undertaken not to increase their total monetary gold stocks in the next two years; that means that the central banks will not on balance be able to buy any gold on the free market, but they may sell their gold stocks to one another at a freely arranged price. For the moment, the IMF is retaining twothirds of its gold stocks, %th is being returned to the members and lth is being sold-on the free market or two the central banks the proceeds going to the "Trust Fund" mentioned.
The gold agreement does not change much in the existing situation, but it does change something: it now becomes possible to finance balance of payments deficits with gold.2 It will probably be a long time yet before gold loses its monetary function, but it is improbable that the importance of the metal as a component in monetary reserves will increase. For the moment, the settlement reached in Washington in September will suffice; it cannot, however, come into force until a solution is found for the final, still unsolved problem of the exchange rate system.
ii disi~sions on the future exchange rate system, a lot of prestige i.s mniorthlnately at stake and positions have rigidifled, so iimuch so that one might alinost forget than in practice both the proponents of a floating exchange rate system and those who advocate a return to "fixed but adjustable wraities" at almost the same way. Fixed rates are not yet attainable but "clean floating" does not occur in practice either, since governments cannot afford to have the price of important imports continually fluctuating. Moreover. the balance of p) deficits, to the extent that they are connected with increased oil prices, annot be got rid of by allowing exchange rates to float completely freely. As long as the OPEC countries have large surphluses on their payments balances. these must carrespond to deficits elsewhere in the world. If the deficit countries tried to restore equilibrium on the balance of payments by letting their currency float downwards,

1 This prospect may cause disouiet on the gold market, since 1 /6th of the IMF's lold stocks is still almost 800 tons of gold, or practically South Africa's annual production.
2Mine IMF members' monetary gn)ld reserves can now he valued at market value. their value goes up from 36 thousand million in Special Drawing Rights (S1R) to around 11 I thousand million SDR, and total nionetary reserves from 180 to around 22 thuand million SDR.


tlie ordy p!)ssihle xvoiii(l I)e increasing curtailment of econoinic
activitiv Alas..4ive intervention would then be needed on the currency markets.3
It is not the case that tloatin.(, rates are operated everyNvhere in the Nvorld. IV fir the largest iiiiiiiher ()f cotiiitrie: still have their currency unit linked to a forei.,uni eurrencN niostIN the dollar. sonletinies the French fritne or the pound
Ilmvev(-I.. tit(, m4v- t important countries, accounting between them for i0l"' if the DIF meiiihers' t(ital foreign trade, have a currency that floats, either in(N-1wndently. or jointly zi ill the ca.:- (, of tile European "si-take".
It is f;lii.] generally rk co, _,-nized that tloatin,-, rates have helped the world thrililull a difficlilt period. characterized hy sharply divergent inflation nates
-Lild I'Aallee ()f pavlllellt deficits. Mollotar\ crises have not arisen, and protectiolli-111 lja s 11mvilell(I 1 4_11till(ld the iiplwr hand.
Tho 1!)()- t illiportalit draNvback to flfonttin? X is that sharp exchange rate fluctliatil)ll< 11,1vt- (ifo-clil-red, their (-,tiises iiiirehit(-d to hasic econoniie trends. This- applies particii1arly to the slurp fall in the dollar rate, ivhich recently changed again to :1 ri ,c. A :- c(-()Ild ohieetioll is that decisi(iiis oil foreign investments must be taken imtrt- than formerly on fairly ii-rationil grotinds, since it is often the current fo- X(11'111 -e rate that deteriiiines the yield to be expected from a foreign investment. A-.iin. forei;,ii trade, NvIiieh. oil the whole has not been much troubled by
Ilt-(-"-,Z, has felt th(- pinch forv,-,ird inarkets are iii,,iifficietitly
dtv( I(Ijwirl. Devolopill". colijitrie.,<. Nvhich are hardly able to protect themselves
tll( t1lictliatiow, ill their forei-ii ciirreney incomes consequent upon exnItO c1l,111.res. ]tax-(- zilso suffered froin the floating.
III certain cirellillstmices, fioatin,-_ exchange rate may give a boost to inflation.
illi"ort. pric(-', to the extent that they are a consequence of the deprecialion (;I, tho c(tililtrY I s own clirrvlic v. zliv ill ,_,elleral pzls-. ed oll to tile clis4olliel. ill
price'-Z. ITONvevor, NN-fit'li I wintry's exchan,(-e rate rise-, the price's of tit(, it imports are nii-Ich less flexible, so that a drop in import prices by no
;I1%v.IYS lwlletit .; the con,,miier. ro that extent. the effect of floatinl- ratt,_,4 is oll 1whilleo iliflatiollary. 'Novo,,rt lie] ess. T'S Trea,,ury 'Secretary Sinlon Avas correct ',ill 4 that the principal ('011nection between inflation and fio:itin,.ratitfn is HI(It tile divergentt inflation rates have made a system of floating
I"Ites ill] avoi(la I 11(i.
it i:-4 to tile credit of flo.9tin.- rites that they have enabled a number of cwintriv-- to protect tliein,,Plve better a,,,ainst imported inflation, and that they
1I1;I!1ifvst1y colidliced to soille r(i.-401"Itioll of e(juilibrillni oil the payinents,
(if colillti-it's like Italy tho T-SA and recently also the FRIG.
I-:jto-,-,4 liqve not -iv(,n -overinnent,, the extra imir-in of illtol")(1111Y ill 1110ir OC011011.1ic I)oli(.v that bad hovii expected. A fallin,- exchan-P rate
ill(, cost of il-illml-led, "()()d.,:. "Olich illakes Illore inipressioll on pliblic
111,111 'ill v filll ill ill(' lovel ()f ill(III(it:11. v reserves. ,isz Trvas;iiry Seerttary Sillf(Ill cifl-rectiv stltf,(L lrjli:, Ille.Ins tliat floitin- ratei conipel a cert.lin bal.Incp.
()f 11,1Y11wilts dis"illlilw jiisr Is mllch 'Is I sy-4(.111 of fixed blit adjIlstable paritie,4.
'I'llo siloci'll Nv("qlmess (if fl(tatill" rate., is, however. the filet that tllvir Ivv."I k I ll rt I v detel-Illilled Illy short-torill Illm -elliellts. 11-hich Seldoill 11.1ve 1111101 141 (!(, willi the illtrill- i(. str(itil-t-ii of an oconoin.y. Thio-'it, ,hifts of ,- llort-tovlll (-11:0:11 io..Ili disvo-111ilihrillill factor. 'Ind thereby vildall-el. free tr.1de,.
hi till. 1:1-1 few vo,11-4 41111. ctmitries fiivo not had imich troiible froin tbi.-, Wit i,,, tll( 111-4-ids'lif ot Illo P):Illk fill. Jill ernatil)II"ll 'Seftleniviits observed in his, speoph
-It it I-) I I I olw I., I I 'M oet i I I z : (III(. ve]a 11"lit pas vileore flift I b le vas jil's(Ill'ifri., (11. cr(lire (111 lilt(, telh i ovntn:iliti% ne pifisse se pro(Wire".
it Ii.isn't liippeiwd yet. it is iniNvise to tliill'k it van't.)


Tho excl!'111-o n1to -:3-stvill nt ill fiwcv k the mlly possilliv (Ille ill tl!("
p1*4-el!t sitlmlio)l : 'Md sitil,11i(ill Nvill not clian-v as long as inflation rates
(.4)111 illw to, Iw is (liffervio a- tliv\1 are nim'.6

I-Imi't 1,411* 194 1 tit thi, 11.niih roir jitoriinti(mid Settlf-mviits. Mis.-el. V175,
St ilrltlf.llt hv W illi lrll SiIII('11 heftwo. till, S It h-0 1111 m it t ve on ItitorEcimimilv Cimimittvc. Till\, 21, 197:1.
"hillill lieforl" Ifiv 197 ) Animal Mevtln- of tho
tit, Ilf 'fivorm ir, ('if I 1w B ; I I Ili I't I I I If Ik I I it t I I v I I It firlin t 14111:11 M onetary 'F 111111, rnif. trtiiii,, linvi, not In i)raf-tive differvit'! very Timeh t1w 11,ri-tiipll W im(k v4diallsefri : now. toqi exchnnav rnfi-t Rre iiquAlly 14- t;ililo, witlifn mirrim- mar-In-, ft)r ,I fairly lomr thne, sn1woquently rising or r;iiiiw_, lmrw In :I fnirly sliort livriod. 'I'lint is more or less t1tv picture we know from the
,Ull fir thl, () V:Illvd fiNod 1,1111-ittes.


In the short-termn there is no real chance that the industrial countries, even supposing they wanted to, could go back to fixed but adjustable parties. It is, however, equally clear that the present system of floating rates is not functioning entirely satisfactorily. In these circumstances what can the industrial countries, particularly the USA and the European Community, do?
1. Firstly, it has to be borne in mind, as the last few years have clearly shown, that international cooperation in the area of monetary and economic policy is more important than the exchange rate system-fixed parities or floating ratesas s uch. In this connection particular importance attaches to coordinating Money and credit policies.
2. Secondly, restoration of economic stability in our own countries is what can make the most valuable contribution to bring about a healthy international monetary system.
3. Thirdly, there is the question what is to be done with the short-term claims on the USA. The American Treasury Secretary considers that there is no dollar surplus. This assertion is in accord with the facts to the extent that some countries with monetary dollar reserves have borrowed still more dollars in the oil crisis to cover their balance of payments deficits. -Nevertheless, the great number of short-term claims on the USA'is a permanent threat to the sound operation of the currency markets, and has repeatedly stood in the way of rational exchange rate formation. This is the explanation for the wild fluctuaitions in exchange rates already mentioned. The large dollar holdings in nionAmierican hands and the attendant danger of sudden massive displacements of short-termn capital hang like a sword of Damocles over the currency markets.
4. In the interests of stable monetary relationship, it is therefore necessary for the USA, just like other countries, to observe a certain balance of payinents discipline,7 and that means restoring the convertibility of the dollar into, say SDRs. International monetary relationships will continue to be in danger as long as there is no arrangement for the large dollar holdings in foreign hands. Secretary Simion stated he was aiming at "orderly exchange market conditions"; this implies finding an arrangement for the dollar surplus.
5. If the necessary progress is made on the above points the world can evolve towardIs more stable monetary relationships, two alternative developments being in fact possible. It is conceivable that the members of the Group of Ten will gradually narrow the limits of fluctuation and thereby jointly come to a system of more fixed rates; but what is more probable is a development that can already be seen starting, where currency stability is aimed at within groups oIf countries, it being understood that the groups will continue to float against one anot-her. In a subsequent stage the currency blocs, might also conic nearer together, so that wNIhat were initially loose links could gradually be inadle closer. A settlement is thus conceivable whereby the US monetary authorities and those of the countries in the "snake" would agree to keel) the fluctuations of their currencies within limits of, say 5% above and 5%l below an agreed par value. This is in no way a revolutionary p~roposal, bearing in mind that in the last few years fluctuations have only occasionally exceeded these limits.
The transition towards more flexibility wvas necessary a few years ago. The time is now ripe to gradually achieve more stability.

SIt isz incorrect to say that the surplus dollars should be used to buy American goods or services. since the very existence of the surplus shows that demand for these goods and services at prevailing prices is saturated. And in view of the size of the dollar surplus, the proposal that these dollars be exchanged for other currencies cannot be taken seriously, ssince this sort of exchange on a large scale would occasion too great a fall in the dollar rate.
a Address to World Bank and IMF, 1975.


Paper by Mr. Reuss
For over three years International Monetary Fund-first through the Committee of Twenty and later the Interim Committee-has sought to draft amendments to the IMF Articles of Agreement to bring them into line with current realities and to establish the framework for a viable international monetary system. In September the Interim Committee tentatively reached agreement on two of the three remaining areas where differences of opinion among members had blocked agreement in recent meetings. The two areas were (a) how an agreed increase in IMF quota subscriptions should be allocated among the individual members and (b) certain details regarding the future international role of gold. The third area, that of a suitable exchange rate policy, remains for consideration at the next Interim Committee meeting in January. 'The negotiations for agreement on a reformed monetary system have been long and arduous. Unforeseen events during 1973 have made the task far more difficult than initially anticipated. In March the major industrial nations abandoned any attempt to maintain fixed parities for external values for their currencies and decided to let foreign exchange value of their currency be determined largely by the interplay of private supply and demand. By the end of 1973 the Organization of Petroleum Exporting Countries had quadrupled the price of oil. This increase in oil prices imposed severe balance of payments adjustment strains on the industrial countries and on those developing nations unable to export primary commodities at high prices.
It would be easy to look with relief toward a speedy conclusion of the negotiations. But several key questions remain. Is the tentative agreement reached in September a workable one? Can a suitable agreement of the remaining issue of exchange rates be worked out? Will the final package meet the objectives laid out in the Outline of Reform proposed by the Committee of Twenty in the summer of 1973?
General agreement was reached in January 1975 to increase total IMF quotas by 32.5 percent, or from 29.2 billion special drawing rights-SDRs--to 39 billion SDRs. But there had been continuing disagreement on how much the quotas of some industrial countries, including the United States should be reduced proportionately and also on how much the quota share of other members, especially oil producers, should be increased. Finally, at the last meeting, the Interim Committee agreed on quota increases for the industrial countries and for the major oil exporting members. Only smaller adjustments in the quotas of a few developing countries remain to be worked out.
In order to accommodate a doubling from 5 to 10 percent of the quotas of OPEC countries made necessary by the massive shift of wealth to the oil producers since 1973, some industrial nations have had to accept smaller quotas. The U.S. quota share has been reduced to slightly over 20 percent. Italy and France also have accepted smaller shares. Great Britain, though still mainto-ining the second largest quota share, has accepted the largest decrease. Not all of the industrial countries have had their shares reduced. Germany and Japan have received larger shares to reflect their growing economics. These changes both increases and decreases are consonant with new economic realities.
At the same time the Interim Committee has proposed that the majority in the Fund required to approve important decisions be increased from 80 to 85 percent of total voting pover. Thus the veto capability of the U.S. has been maintained and will permit future quota adjustments without diretly challenging the U.S. position. The Interim Committee is to be commended for its successful resolution of the different political and economic interests.



Tlw .1,-reelllellf oil -fild aililoiniced by the Nterim, Committee would abolish tiw ofticial price of gold, currelitly set )y the DIF at 35 SDRs per troy ounce.
-md eliiiiiiiate the obligation of Fuiid inembers to use. gold to pay 25 percent of their (11114a ,uhscriI)tioii- ind ill certain other transactions. Tile, a.greeiiient specifies that mie-third of tile Fmid's gold stock would lie disposed of. A sixth Of the ,ti)ek. or 25 'Million ouiice would bo ,old ill the market, and as, a consequeii(-o_, of ceiitnil knik purcha,-es of gold iii the market, tile total number of 0111IC(I-, (Of "old, illOudill- -o]d llow held I)N the would not be
im-reased. The C'roup of Ten a-reed Owt the ,v arraii-elilents Would be reviewed 2 ye irs after iiiitizil implementation to determine whether they should be coiltillued. 1111)(lified, or terillillated.
Mativ detail.--4 re-ardin- the imi)leiiientatinii of the -old a-reement are qtill
For Vxallll)l( it is imcertaiii NA-liether tit(, DIF will offer its gold
througli dealers ill the major cities where gold markets exist, through public mictioit, m- ivlit,41wr I)rivate I)Iaceiiieiits Nvith iii(lividuals or monetary authorities will be cml.,4idered. Nor i-, it knoNvii over what, period the sales will be executed, ill IN-11:1t, hicivilielit-, the v Nvill ]Ie pace(t m, the extellt to which sales illay be curtailed in reaction to decliiies ill the market price.
The ill.)jol. Nve'll liess (11' the curiviltIN- prolws-fl. 'l-reellielit is provision to r(.1111,11 of the IMF*-, ?()-.old to I-NIF moinhers. This restitution would
()Ffer I he Nvealthv illdilst I-i;iliz(,(l comitries the opl)ort unity for large capital gains. (;(11(1 Nvollhl be si)ld to JAIF members at file curreiit official price of 35 SDRs or S42 1wr ioiiico ill In-4)1wrlitot to their quota,4-i.e. their cmitribution to the Fund's
III Sim.k. li;ltio11,Il alithoritics pill-ch'i Sing gold froill the IMF
1111der the restitlitioll provi.- ioii iiii-lit he thle to realize profits equivalent U.)
ol. folli. tillies tile purchase price. At, curreiit iiiarket prices-about $150 per oinice-the profit to the U.S., for v\ample, could be $500 million, to Great Britiiij S230 milli0ii, to Germaii v -$1-10 inillion. to Frmice $130 million, aiid to J,11),Ill ,,100 Ill the I)otezitial profits of Malaysia would be $16
inillitii, Cohiiiihia $14 millioii. SH L;mka !) millioji, Korei S million. Afghaiiis1,111 3 million, drml gfllt stricken 'Mauritaiiia inilli0ii, Baiigladesh $11 million
and lloiiduras $2 million.
Ilmre Serious thin the que.,4ioii of e(lifity is the finpact this agreement, 111,1v 11.1vo Oil tile colill-losition aii(I sul)ply of hiteriiitional liquidity. The gold,
eelliellt 111,1N. well illcrelsv the l)rol)()r1jolI:ite vihie of iiiteriiitiomil itimietary 1111.1_ (111V(11 lield ill Hie forill or ,-ohl 'Illd del;ly fill-Iller di"triblitioll of ,I)ecial
ill the futill.e. The IAIF Nvill sell i ,ixtli of its ,-old stock at iiiirket llrlve 4 Illd I 4ixtll it the vNistill- (4livi'll jmrico 6) limilet'll-N, ailt horities. Natioli'll lilmlet'Irv lilt Ilm-it ies c(Olild cmiceiv,110v plirch;lse lim-4 of tho "old thit the Fulld (-Ils ill 11w 111,11-ket. Tllll.,- ojw-thinl of Ihe Futid Oock. or 50 milli0ii troY
(10111d 1w. tr'llisferved fl-()Ill the Flilid to Ille illolletary :lut horities, of Ilwniher SkIles '111d (-:11-ried (ill the jimik" ()f* Ille Liter it a price three or four Hille-4 the 11mv w4e(l 1) v 111o 1,11F. This Iii-m-e(Itin, w(lilld colislitlite a partial
1.(.N-;i 111;11 i0ii (d, t he Nv(il-lW-, "Oh] reserve,4. I I he flexi p,:11- or t Nvo, therefore,
lit jw(l1wrl i(Ill (d' mfilit iolls I (I I he reserve ,I fwks (W ii)miet.i. rY i authority ivs CM I I (I r. I (it' this ,, ,rveniviit_ I)(, ill ill(, or gow m ier tiiiill ,,,
beill'-, (,qIl-,IL tliv greller the of goId re-wrvos' illo less is the 1wed for
n(Mit i(Pim I reserves crelto(l 11N, tit(, IAIF ill the f(will I)f drawill". ri-lits.


Mol-cm.('r, Hie g"Id 'I"reellielit 11(ol ch.,111Y sil-11:11 I redlictioll fil tho filtilre
illiel-11:1tim m l v 1.(Il(. (if pg'411(1. 111.,-;tv'Id. 11lis questioll is clouded Ily 11111I I I i I Thel-4. i" sm ile kr- is hol. hollf. 111,11 ille III(Ist dire (d, Illese Imssible c()11sv(111( w ill Im t '10 11,111 v em ili. to J)'r-4s. Nevel-1111,11's", Ille .1givellieut 1,11ils 14) h1he :1 I*14 ,11- klllql (ill the illiel-11,11h)II'll Illmiet'll-v 1.4di, 10, g()l(l. lild IwOvcls to illdicilte 111:0 lhiz I.()h, w ill III. d ifililli"lle(I ill Ille 1,11111I.e. (Jin the c4oiltn lry, th'it
rolo. P,-.nyw .
W11:11 tilv 1111ol-im C(lillillillve 11:1S 'I"ree(I 14) s() f"ll. oil g(Od is o begilillilig. It
hI. iIIIIII-m-ed 11104111 heffiI.I. revisvil 'ki-lich's (d' .\111vildilleills are 11-1-ved t() .111(l 1wesf-lited t(I IMP )m-Illbers I'm, n1tific'llifill. Tllv 1111,11 "(411timl should llotI t I I j 1( 0 r t i I I r I I I I t f )t I I v I I I ( 4 ) 1, i Ill I-1-11"It im ull Ill( )Ilet o ry
I I I I f v I I I I I t I I I 1 11111 1 11 v I( I I I I I I I I I I

A' I 1 !.4 1 11 S I i t lit I I s 4 11 t I v i I I( I 1 14 1 1 1 t -,v r A' I. I ( )l (I i I I I (I


cannot be phased out overnight. But the international monetary reform now being negotiated should immediately begin the process of diminishing the significance of gold, rather than permit the question to be determined by the disparate actions of various central banks.
A preferable solution would be to sell the full one-third of the IMF gold stock that is being disbursed in the market. The proceeds from the sale of 50 rather than 25 million ounces of gold could then be used to benefit developing countries although maximizing returns to poor countries should not be achieved at the expense of getting gold out of the international monetary system. Nevertheless, there is no need to confer windfall gains on the wealthy.
If the sale of a portion of the IF's gold produces a shortage of international reserves-and there is some dispute now about whether the total stock of international liquidity is deficient or excessive-the members of the IF can agree to create sufficient additional special drawing rights to eliminate any such deficiency.
Such an arrangement would be more equitable, would permit more precise control over the growth of international liquidity than the existing agreement. and along with abolition of the official price of gold and the need to use gold in transactions with the IMF, would unambiguously signal the beginning of a gradual movement to phase out gold as international money.

The remaining issue blocking international monetary reform is whether members of the IMF should commit themselves to an eventual return to fixed parity exchange rates. The U.S. position is that Fund members should be able to choose whether to state a fixed parity for the external value of their currencies or to let that value be determined primarily by the interaction of private supply and demand in the exchange markets. Our officials have therefore resisted any commitment to a particular exchange rate regime. The floating exchange rate regime has served the industrialized countries well, and has helped keep the international monetary system functioning despite an oil embargo, the quadrupling of the cost of imported oil and wide discrepancies among IMF members in rates of inflation, the level of interest rates, and the extent of declines in output during the recent recession.
Either fixed or floating market determined exchange rates can be manipulated to foist domestically induced unemployment or inflation on other countries. So long as an IMF member is not exporting economic problems that could be managed domestically, it should be able to choose without prejudice the type of exchange rate regime that it considers best for its own purposes.
When the IF Interim Committee meets in January it will once again try to work out an agreement on the exchange rate issue. Hopefully a sounder agreement on gold can also be worked out before the revised Articles of Amendment are sent to the IMF Board of Directors and then for ratification.
In the 'U.S. Congress has followed the negotiations for a reformed international monetary system closely. The Joint House-Senate International Economic Subcommittee has held hearings regularly on questions of international monetary reform. Last July this subcommittee. Jointly with the Subeollmittee onil Interntional Trade, Investment and Monetary Policy of the House Banking. Currency and Housing Committee. held hearings to review the issue of floating exchange rates a ul published a report. Three weeks ago a hearing considered aspects of the tentative gold agreement reached by the Interim Conmmittee during the IMFl annual meeting. The role of Congress is to consult with the Executive branch on what position the United States should take in these negotiations. Ultimately the revised IF Articles of Amendment will have to come before Congress for ratification. By making Congressilnal views known inll advance, the revised Articles can be cable of Prompit ratification.

Thursday, October 30, 1975


(Working Documents: Mr. Seefeld, Mr. Rosenthal)1
Mr. Seefeld introduced his paper on "Recent Developments Within the European Communities." Congressman Rosenthal introduced his paper on "The Role of the U.S. Congress in Foreign Affairs".
Congressman Gibbons underlined his support for the views expressed by Congressman Rosenthal which he considered to be a very good explanation of the interest of Congress in foreign policy and the reasons why Congress wished to interiene in foreign policy.
Congressman Ryan said that the main reason for the peculiar relationship of Congress vis-a-vis the President during the past few years was that although the President was a Republican the majority in Congress was Democratic. This created conflicts or tensions between the White House and Congress. In a situation of this kind it was very difficult to obtain a harmonious view between the administration and Congress over foreign policy.

Congressman Biester pointed out. however, that, with specific reference to the Gulf of Tonkin Resolution, the Vietnam war had been launched by a President and Congress of the same party. Foreign policy powers were given to Congress by Article 1 of the U.S. Constitution but not to the President, except for the making of treaties. But it must. be admitted that Congress had not played a very glorious role min foreign poliy mn its recent period of interventionism which includes the League of Nations, the Neutrality Act and the Hickenlooper amendment. With its policies toward both Greece and Turkey, Congress had been playing dice with the future of NATO.
Miss Boothroyd., referring to Mr. Seefeld's paper, said that "European Union" and the possible holding of direct elections to the European Parliament in 1978 had been mentioned. Were such developments feasible? The Europeans in Britain were very happy about the referendum result, but it should be remembered that the referendum concerned only the Common Market as it was today, and did not refer to a "European Union". The decision to move on to a "European Union" had to be decided by our sovereign parliamTents. There was no quest ion of Europe. for instance, insuring its own security framework-this had to be done in NATO. As far as standardization of arms was concerned, this had been spoken about for more than 20 years and we still had not got there yet.
SSee pp. 51 and 47, respectively.


Comrre- siiiaii Sarballes said that the essential ratioiiale of the United .State--, is its dem(wratic. natin-e. Therefore it -\vas lotrical that, Coiicrress, as the democratic element in governmentt, should intervene, in foreigrilpolicy. It was knoivn that Com-ress had t-o rectify treaties when these were necrotiated. Cmigress had to act respoi),sibly ill Siich situations. but it was iiot pi-epired to ]land over it.,- entire respoiisibility to tlie adinini becatise the executive branch reftised otherwl e to end the -\var. Ultimatelv there iliust be it basis in prMciple for otir foreign policy for the iiiurican people will not supporL a foreign policy based'only on powe r and "realpolitik."
AIr. Klepsch said. that, from his point of view, one of the problems
as that Coll(rl-e ;S was reelected ever
w, I AV cyrolips
v 2 years. Thiis iniiiori
were, able, to exert foreign policy influence, aild pressin-es, becall.;ze of their electoral pressiires, oil Coll (ri-essiliell. Tt Should not be foro-ottell that tho United States was a world power whose commitments. illidertaken by its administration, had to N, hoitored withoitt a dam-er of thes0 coinildtinents being destroyed by Con').ress. Would Congtv-s for distance, approve if Turkey Nvere to leave NATO as a result of the eiiil)argo which it had imposed? This was certaMly one. possible illiplication of the Tiii-kisli ariiis eiiii)arcyo.
Mr. seefeld. reld.ving to Aris" Bootllro.vd, alld referrilig ,-Peclfically to ljoldHio- direct (11 ectiolls for the Ellrol)(lall Parliaillelit by 19.74S, sal(l that. it Nvas perfectly N, feasible to ho](I dii-ect electiolls bv thai vear if the British alid Daillsh GON'(11,111II(Illts did ]lot. pose, too'maiiv*problems. IT(" a(rree(l that thel British referello,111111 had lW('11 a, (Yooo l restilt. ]lot, Oil] V for Britaill but for Ellroj)e. A-, a re"ll"It of the referelldilill the British pliMic Avas better illi'm-Illed "Ibout FIlrol)e thall other 111elilliel. comitries of the CoIIIIIII1111h" becatll- (, of tit(, verv elaborate, c,1lllPtl10'1I. The -forthcommo- rel)ort of Mr. Tindellialls 1-The Belgiall Prime fill isterl oil '111-ol)(lall 1-111oll could oilly be as (rood as the Imiltical 1111)11t,
ilito I t III (I I t I)e to.2 It I,( )t he better thall the l(lea. of those,
with Nvhom 'Afr. Thidemaiis Nvas collsilltill -()..Tlle \vhole pollit of tit(' st yelprt 11 all(l 11111t of t lie ('olillillillit v lv;ts tit(, realizat loll of its 1110111Lers th"It. there Ivere 111ore thljl 4)-s Nvillch 11111te(l theill that divided theill 11HAthat tll(l\, lvelv bet ter off Stick Ill(), to(rether.

Colyressillall Rko elltllnl 1voll(lered NvIlether the EA I 1101)Va 11 Parll:lill trYllig. to obinill M 01110 PM V(T- ,, \0114.11 \\.:Is a fill] v desil-able 11,111 1111-'rhil, be able to Ical-11 le.- solls from tit(' experiellee of tile TT.,S.

fl. ol-ilvillioll tholl(rill Ilint t1lere Nva,--, ;ollle
lwhvecll 111(k 14"Ilroj)eali Parliiiiielit, aiid the Coottilvil, of "M iiiisters a 11 (1
p.-;5 for theT1n(lvninnf4 lto-,port.


the U.S. administration and Congress. He stressed that the community of interest between the Commission and the European Parliament was nmch closer than that between the Nine different ministers who made up the Council. He hoped it would be possible to avoid creating an impasse between the European Parliament and the Council like that which seemed to exist between Congress and the administration.
It was wrong to see the referendum in the terms in which Aliss Boothiroyd, had described it. The referendum was not a national one but essentially one within the Labour Party since the Conservative Party had never had any doubts at all about its support for a united Europe.
Mir. Behrendt said that the Council of Ministers could not be compared with a purely national administration. There were, significant differences. What we had to aim at was achieving co-decision between the European Parliament and the Council, in effect, a gradual sharing of powers between the Council and the Parliament. He thought that the development of economic and monetary -union was one of thoe most fruitful ways in which the European institutions could develop their com-petences further since institutional developments would have to go hand in hand with monetary union.
Congressman Rosenthal thanked participants and concluded the discussion.



PAper by Mr. Rosenthal

The role of Congress oday in foreign affairs perplexes many foreigners. From an institution which consistently supported the policy outlines of Marshall, Acheson, Dulles, Rusk and Kissinger, we now perceive (in the United States, as well) a new direction by Congress.
The milestones of this change are agreed upon: the Trade Reform Act of 1974, with the Jackson amendment; the suspension of military aid to Turkey; and the refusal to grant additional military aid in Southeast Asia.
What is less clear is the long-term significance of these instances of congressional independence in foreign affairs:
Are these isolated cases. brought together only by their coincidence in time?
Do they reflect the peculiar weaknesses of the Ford Administration, the only one in American history where the President never won a national electoral mandate?
Or do these congressional acts of defiance represent a more substantial shift of authority to a Congress clearly reacting against too much foreign involvement, of which Vietnam is the symbol?

Let us examine the examples before drawing general conclusions:
The seeds of the trade bill dispute came from the lack of caution by the Nixon Administration which in October 1972 signed a trade agreement with the Soviet Union which promised, among other items, most-favored-nation (MFN) status. In the euphoria before the anticipated election victory by Nixon that fall, the Administration forgot that congressional approval was needed for MFN status. At the same time, the Nixon Administration ignored the bitter reaction in America several months earlier to the Soviet emigration tax. That reaction should have warned both governments that congressional approval would not be automatic. Whether or not one agrees with the final congressional action, it was well anticipated for over two years.
The. Turkish aid suspension had its roots in the cynical policy employed by two American Administrations in the eastern Mediterranean since 1967.
Faced with a Greek military dictatorship, the Johnson and Nixon Administrations proceeded on a business-a,-usual basis in Athens. When that dictatorship provoked a coup on Cyprus in July, 1974. the United States. still eager to protect its Greek bases, refused to condemn the attack on the legal Cypriot government. The inevitable Turkish reaction came in the July invasion. But when the Turks, in August, expanded that beachhead to over one-third of the island, and over three-quarters of its economic wealth, the situation shifted dramatically, in the congressional view.

The Turks, who in July were the aggrieved party, were now the aggressor, armed almost entirely with American weapons, employed against an explicit and long-9tanding prohibition in U.S. law. The refusal of Secretary Kissinger to face this legal issue-a refusal which many judged intolerable in the post-Watergate period-insured that military aid to Turkey would be suspended.
The Turkish affair, therefore, must also be charged to ineptness by the Administration, rather than to a congressional design to seize authority.
On the third example, Vietnam, there had been a widespread public disenchantment with the war in Southeast Asia since 1968. The refusal of the Congress to vote extra aid to Vietnam was entirely consistent with Congress' own


r0cfQ'd sill(-p 197") 111d N-itjj tll(, tellIper of tlio Amoric.iii people. That this refusal sllrpri- ed Hie President :111d tile Secretary of State is itself surprisilizz.
I'vell if these three episodes "'Ire clearly unrelated, do they not reflect a lack of h-t.(lorship 1)v tile Ford Administration? Even if coincidences, don't these evellt:- create a liew 11lood ill Con-re ,;;s? Tile ai,,m-er is clearly "yes" if these
'IS116 \v)wtIler tllf' political effects of tli(,-,e eollgm, :,-,iollal acts could 11()t 11,1ve I)eell otilenvise represented. Yet the new President, with a conventional aild conservative approach, to forei-ii. affairs-, cultivated in the House of Repreill the quarter-century wheii President-, iwide forei-ii policy. wa-s para(lf)xi(.,Illv iiot a lil ely caiididate to sense t1w new Coiigres, ;ioilal inood for several

Fil-4. tile ]IONN- President Avn" Confident tImt Ile Imew the 11011 ,e and cmild leid it ill for(-44-n :iffnii- as Truman. Eisenliower and even Kennedy and Jolinswi liad, Ford filled to ,(,e tli(, special difficulties of the three problems outIilw(l allove 111d Ilis speci'll 'I.s all interim llres4idellt.
Soewid. I)i-e,,,i(](,iit Ford relied too imicli oil Kioiii-er when the Secretary of '-,'tqte was already be-hinin- his decline. The Kis.,,in-er credibility was tarili-:1)ed liv C11ile. bv Ilis temper tantruill ,Iild by a style increasingly
perceived to colleelltrite more oil inanzi g-inl- Itis critics and le,"s with dealing \\itli international problems. Yet Ford's Nvealmess ill foreign affairs could not allow Iiiiii to release Dr. Kis ,in-er.
'I'Le we.,11messe" of tile President eompo,)unded tho se of his Secretary of State. cre"Itim, tile appearallop tliat Hie in-,;titittion of the Presidency Avas -%veakem'd ill forei2-11 ;Iffilirs. llow unreal appoorance is. we call see by projecting our,:(.1ves 1S lllolltll.,- Py of 1977, Nve can be confident' tliese events,
will Ilave tlk(,Il
Pl-(,sidellf. ele(,ted in hi, owil ri"Alt. Avilt be ill the 11,11ite Holl".4e witli a new fol-f-i"'ll policy tealli.
will llave reeedv(l froill the pllhliv coil "Ciollsiless.
Tlw liew Pre"ident will liave lised his initial stren-th to remove botli Turkisil Ad alld the jack 4oll alliendment as major problems. assuilihig tImt they are nof already removed by tile present Con-ress.
AN'llat. tlIvII, Nvill be the Coil-re":-4 which the new President faces ill the forei-ii (affairs field?
IS TTTFRF A "REVOLUTION'Po Hie great disappointment of tlto(,(,, ill and out of flio, Con,.rpsq. N\-Iio see, todiv -i "revolution- in t1w le Jslative braiich, there is: a good cliance that t'V\-o
from llow no olle Nvill know AVIInt today"-, excitellielit Nvao abolit. Coll-res's (Amn''es its N\-"Iv,-, very slowl v. Tile dr,1111.1tic ill internal procedure taken by the preselit Congress offers proof of relative con,-ressional inertia and not :I reflit'Itioll of it. Tile prilicip'll cllall, (,,e Ava.,4 to elect 3 of 21 committee chairillen 1) v Illerit Ill(] ]lot seniority.
Coordinating,, Ilie Nvorl of 4:15 -Menibers, vlected every two years largely oil 014-ir oNvIl alld as 11,11-ty repr(--, ontatives, is a tisk AvIdeli lias occupied the Houge
I I (.f. 4 c rva t i o I I. (;oIAiIIltiII,, t1le, ;111(1 t1le Sell"Ite, has never 1)vell po,4, H)le. I NIllilerolls I-vol."a Ili zI I i (oils lmve beell disells"ed, a few adopted. but tile t1lome of tll(-. 11ollze's llistory is t1wt few men :Ili(] fevv groups liave ever tainted tile es"outfill (alld l1valfliv) disorder of ille 1 listi tilt ioll. WIlell tile House seellied to )wcome foo or.""Illi7ed Ilflder Ilie ill tile late 19til Centilry. alld under
Hiv ('nuciu,, in Hie v:trl v 20til Century) Ille House itself reacted by lililitillI he t ri nd towird too inuch order.
Todny, tlio House. espeei-Aly ill forvi ,_-,n nffair-,, sevens to be reactizig against tol) 11111vil control 1) v Ille President. T)w Vietil;1111 conflict Symbolizes that. Colljm- American military \ vii-a-emetit into wliich t1i Congr
cern. Nvas 11 Ilm P, ?-, e es
was b'd I)y Hirev Pre'sillelits \014) cmitnilled ))()Ill tile diplomatic and illilihiry filct- .1v,61:111le h) Ho, lep-21-islitive limly. Tliv di-zaster of Vietnam, froin its origins :111d il,.4 execiltiml, will rellmill a svillhol 4)f 0 ill "ressioital weakiiess and manipilati,,n for somt, years.
Tile reaction i list this so far luas come in the Democratic
Calit-11", 111o of ill party mem1wi-, ill Hie House. But past experiellep
indi(-.1te."; tilat t1le f"Illcus is Ilnlil ely b) I)e .1 colitilluill- or a colisistent guide fm. Hie House.


A more constructive and more feasible possibility is that Congress, in both its branches, will reflect its Vietnam experience through an improved use of its capabilities to understand and evaluate future foreign policy problems before they become Vietnams. These capabilities presently exist only in incomplete forms within the congressional committees on foreign affairs.
Improving the capacity for independent critical judgments and developing Congress' own sources, of information in international affairs would be signs that Congrefss is seriously committed to a continuous and mature role in this area.
The next 18 months, therefore, while the public's attention is focused on the consequences of the Vietnam experience, will also be a test period for Congress. With a relatively weak President in the White House for the first time since World War 11, the Congress faces a responsibility-and a test-for which past performance is little guide.
The important, but isolated examples, of the Trade Bill and of Turkish and Vietnam aid, should not obscure the principal issue: Is Congress prepared for a continuing commiitment, in the foreign affairs field or will the post WWII domination by the Presidency reassert itself in two years?
Many thoughtful Americans hope that a responsible Congress can perform the task which Vietnam has set before it. Whether or not it will do this is still an open question.


Paper by Mr. Seefeld

1. The different institutions of the European Communities have now submitted their reports on "European Union" to Mr. Tindemans, the Belgian Prime Minister, who is due to take these documents into consideration, together with views expressed by national governments, political parties and other relevant o rganisalions, in preparing his own report for submission to a summit meeting before the end of this year.'
2. In his detailed replies to a journalist of "Le Monde", 2 Mr. Tindemans has already made it clear that just to find a definition of "European Union"~ is in itself a major problem, quite apart from providing detailed proposals for the substantive content of "European Uniou". In the same interview Mr. Tindemans admitted that in his own view it would not be possible to form a complete "European Union" by 1980, though he expressed the hope that the Nine would be able to move forward in the economic, monetary and social fields. He also stated that a "European Union"~ was inconceivable without a common attitude of the Nine concerning guidelines for foreign and defence 'policy. Commenting on the controversial problem of European defence, Mr. Tindemans told "Le Monde" that since Europe on its own was not able to ensure its own defence this must continue to be carried out within the integrated system of NATO. Within NATO Mr. Tindemans considered that the European contribution could take the form of a strengthening of the Eurogroup, which might take on the responsibility of armanments standardisation. Mr. Tindemans emphasised that the precondition of any distinct European defence entity must be the creation of a European political authority.
3. From what Mr. Tindemans has already revealed it seems unlikely that his report on "European Union" will make ambitious proposals in the sense of the creation of some form of European federation, confederation or government. It is, indeed, already clear that Mr. Tindemans's proposals will be of a more limited and practical nature. It is only to be hoped that European public opinion will not be too disappointed and will not become disillusioned by such an approach. Mr. Tindemans's task is a difficult and unenviable one at a time of economic crisis when the member governments of the Communities have been tempted to return to policies of economic nationalism. If positive results follow from Mr. Tindemans's report they might well take the form of: (a) more detailed Organisation and institutionalisation of the work of Heads of Government: and (b) a more active policy by the Nine, as an entity, in fields outside but linked to the Treatiessuch as cooperation in the legal and health domains.

4. The only Heads of Government summit since the Munich meeting of the two delegations was a "low-profile" one in Brussels in August, which issued no declaration. But it may be useful to make some comments concerning this major new institutional development.
5. The decision that Heads of Government meetings should be held regularly three times a year was taken in Paris in December 1974. This decision is of the very highest significance since it indicates the willingness of the Heads of Governments to take the responsibility, themselves, fo-r laying down guidelines of Community policy, at the highest level, and to consider and possibly decide on mat ter-I outside the Treaties but related to them.
6. There has not yet been sufficient experience of the "European council" to enable us to arrive at a balanced assessment of its advantages and disadvantages.
I See p. 85 for the Tindemanq Roport.
2 -1.a V'l~ite A pimris dui jireniier ministre beig-e", "Le Monde", 21-22 September 1975. For full text see end of this paper.

Oil t1jo olle 11;l1ld Nve can ;tlrea(ly seo that the "European Council"' is; capawe of I'l-e'lkill" do'1(11(wks ill field.,4 of policy NvIlere actioll lla,-; he(Ill 110C(IsS"ary for qolll(, Til)10-11(1,1111V C0IIC('I-IIiII"- regional policy, where the deci ion to establish a
)111111 IT II it v lv'_,ii III' I I I ii d i(.X- Nv, Is t aRe I I :I t I he llvad!. of ( ,( Iverilillent Illeetill". ill Paris ill V)-12 ;in(l ,vhcro the (1(,(.i-,ioll to zwtivate thk policy Avas; takell at the P.Irk Illeetill'-, (of D(,celliber 1974. ()n tlic other hand the Deceniher 1974 sminlilit 1-f plwwd the the ('rdilill-v C4)IIII(-iI ill t:1kiII- a major, detailed deckioll colleerilill-I 111,11tel, NvIli(-II ch"Irly LI v Nvi hill the c()JIlpetellce of the EEC. This- rais(-- the wlodo qlle.- tif)ll ()f t1le relilioll.ship of the "Ellropean Council- to the Community iiid to the Tre(ities. Thii-,4. althoul-Ji it is; to be hopNI that the "EIII-4ilwall C1,111161" N.,111 Provide the European Communities ivith I-reator flexii)ilit v ;Ilid ellable, them to move forward more rapidly ill areas where, much
Ilfedf-d dc(-i ;ious liave been blocked for too Ion,-,, it i" clearly neeecsary that the decisions, of the Head, ; of Government be made politically accountable within tho Coiniminity frainework.
1. At presellt tilere is Ito "'lich accoillitahilify and follolvill, -- the fillport'llit Dublin ,uniniit thi., Aforch which ivomi(l up the 111:ellpzotiatioll" of Britaill*s t(,I.lll"4 4,f llwlllhcl- llip (if Ille Eill-I)peall ConlillullitV it Nva.-4 oIIlY throll"ll the press" that public opinion Nvas, infornied as to the iniporrant decisions taken since the Heads of Gm-primient di(I not pul1lssh any,.c4atenient or coniniulli(pie.
-, are to be mado accountable politicallv, tho most obvious
If imiiuif nivetin.
w, I v xvolil(l be to Ina 1 e tbem. so either to Tiati(onal Parliaments; or to the European P.irlianiont. But national Parliaments are more than fully occupied with iiqtional problems and are not completely informed concerning Community probleiii 4. ()ii tho otlwr li.ind a hn.Qic functiOll ()f tilt, 11;ll-liallielif k to
political dvci ,ioll 4 withill tll(' Colillillillit v alld "o. froill a ("0111111111lity viewpoillt. the Inof't des4irahle qollltioll N-voilld he that ;IIIIIIIIit,4 "hould he aceoillitable to tho Elllr(llwall I1'qrlhqIIIeIIt. Oil tll(' N9SZiS Of a 1W V Ah'. P(IfOl" Kirl
of t lie I ),q 1-1 iq Illent 1"'I rliallielit's, Pol itical Coillillittee k already Contho id( ,I 11)"If the partienlar Head of Governnient- chdrin.- any one !- 1111111lit- weetill Sdi(olld T- pnrt to the followim- of the l"All'opeall parliainellf colworlifill'- tile decisiolls and dis(,w",ioll" of that 11e;)(14 (if GON-ernment III o (, t i n.,,.
'I'llo C11Il1Illi,,- iolI collfinue,, to Pxer(+, (, it., tvvn fundanwitt.0 r(,](, 4 within t1w ('4111illiullit N'. Fir"t it 10", ill illost a,, the initiator of polic A- prop-os'll".
.1111d. it .10:-z tile exe(.11tive or adillillistl
S(,( -ative hodv of tll(,t CI)IIII11111litv ill
:111111hli- l orill-- tht. C(.jllIw)ii A,_,ricultiiral Policy. etc. But shice t1tv Lii-xon I hM III", A'urf-f-Illellt (If;ir v 1966 the Coimnis,,ioii, power () r illifiitivo lla.'4 beell
1111111tod )IN- 11w (if -ovel-11111(int" 1-11:lf practically 'Ill decisiolls 11111st
ho tAoii 1) v miiiiiinif v. Af tho 11,iri.,4 Sununif of Deceiii1wr 1974 t1w Ile:id.,4 of
vorlllllf III- ,titod tllit : "It i-, iwceszar.v to renounce fit(, pr'-wtice AvIlich con:11-roollwilf oil all questioll", Conditional on the lituinfinotis con"'-Tit of t1lo MoIll1wr ,'fato.,4. NA)"Ifever their respectivo posiliow, 111,91- he rep-ardill,-, illo w iow4 1-( ,Iclwd ill Lirvonihour x on 2S Jinu,-irY 19W;." Yolir RappOrt(.Ill- ooll,- idol-" 1110 filo Coill Ill i real "il-Ilifle"Ince n.,-: initi:001. ()f polic %, will
1114 1w fldh- rf- hwod 1111fil fill, Coillicil 1.0111-11" to votill. procedures Laid d(m.11 ill A rt i(-Io 11 f t Ill, Trf .l t v, wh ich provide" fol* 111111jorify votill.I0. 'I'llo 1-:111-mic:111 P;1r1*1,1?11(-?l1 k hl'_',iIllliIrr Ito :w(jilire effl-ctive hild'-M-II-Y po\ver III Afni-ch V0717i, till, in0i0itioll" of, t1lo CoIll fill] Ili ty
:1 4 'I llwnll- ld, rf, -olvillg diffvrellce., I)ONA-(4,11 tho 11,11.1i:1111elif and the
I( i I f _N I i I I i ( ( I -,, ( v f r I I I I ) 1.1 ) I )( 0 : 1 1 s Nv i I I I 1111 111 ( i a I i I I I I ) I i ( I t i ( ) 11 !4 'I I I ( t ( ( ) I I I I c i 'd i I I I N. I ( ) : I ( I I q )!- ( ( I : I I I I I I (I I I I I I I s t o t I I f I I I I I t ( I I I v I ) I ( I I i i ( ) I I
I T I I v t I I ( - ( I i 'd f( 1, ),1 1"114. 1-111 i I i ( .. I i 4 ) I I t t ) I I I ( I I : I I i 4 )11 a
r I i I IT) I I t XV I I I I Ill I :I I-It 1 11 I N, a p) ) I-( v to 1, t I I f E I I n q I I I I r
i I t I I I I t i I I t 4 i I I 1 1( -1 1 1 s i I.,) v I I c rva ,,11.1 i I I I I I I I
w I r I I-( N, I.: I I I I I I I 11 go I lot )l v I I I i I \v I I d i
(.11"I rVe I t I le ( 'oil 1 it I )I I f( ) r I I le a 111111111 1 )1 idgel T ho".4o :111 1c) ill I I u '11 t (I I I I od i ficalioll..; to the bildgO pl-opw4vd by t he I "Irlimilellf will ho Illm-P likolv to lift
filchl(h.d. I'll I-liallivilt Nvill hot collsillt(A ()ver the appoillillwill 4d l1willbers of


the proposed Court of Auditors. Indeed, the establishment of this independent court, which will, greatly assist Parliament in the scrutiny of expenditure. is also awaiting final approval by the Member States. The next set of Treaty amendments, moving toward a power of co-decision for the Parliament in budgetary matters, will be prepared by the Commission in the coming months.
11. Parliament is in no mood just to remain content with the additional budgetary powers it obtained from the Member Governments in the new budgetary texts, though these are an essential contribution to the enlargement of Parliament's powers in view of the introduction of direct elections.
12. The Council has not yet reacted to the proposals concerning the introduction of direct elections voted by Parliament in 1974. but must do so in the near future if 1978-the earliest time suggested by the Heads of Government them. selves-is to be the year that sees the holding of the first direct elections.
13. Parliament's report on "European Union" a makes an important proposal concerning the Community's decision-making procedure. In the text which Parliament adopted in July, Mr. Bertrand, the rapporteur. had proposed that a new Community decision-making procedure should be introduced, as follows. First the Commission, where appropriate on a proposal from Parliament. should draw up a draft proposal. Next this draft should be submitted to the Council and Parliament at the same time. Then the Commission proposal, approved or amended by Parliament, would be forwarded to the Council and the Commission. which could then amend the proposal as suggested by Parliament. Were the Council to feel that it must make substantive changes to the text of the proposal approved by Parliament a conciliation procedure must be instituted, within time limits to be specified, before the Council takes its decision.
14. Further, as far as the extension of Parliament's own powers are concerned, Mr. Kirk has already submitted a draft report and draft resolution to the Poli. tical.Committee. Amongst other proposals Mr. Kirk suggests: (a) that direct political accountability should be established from Heads of Government meetings to Parliament. This would take the form of the Head of Government of the country chairing each Heads of Government meeting reporting to Parliament at its next session; (b) the extension of Parliament's budgetary control over the Commission through: (i) the submission of five-year forecasts of expenditure to Parliament by the Commission and, (ii) the establishment of budgetary sub-committees by each "spending" committee of Parliament which-alongside Parliament's Committee on Budgets-would scrutinise and make suggestions concerninz the major policy options in their own field of expenditure; (c) an increased role for Parliament in the negotiation of association and trade agreements by the ('Community-with Parliament holding an orientation debate before the Council gives the Commission a neotiatin mnd(late, and with the Community's signature of such agreements requiring Parliament's approval before these agreements would enter into force.
15. The problem of establishing a single seat for the Communities continue< to preoccupy Parliament. which i4 particularly concerned with its own site and with improving the effectiveness of its own work in the very difficult present situation in which plenary sessions are divided between two cities. Luxembourg and Strasbourg. and most committee meetings are held in yet a third city. Brussels. In September Parliament's Bureau instructed the Political Committee to report on this question.
16. During recent months the political cooperation process has been mainly concerned with the conclusion of the Conference on Security and Cooperation in Europe,at Helsinki and the development of the Euro-Arab dialogue.
17. Tribute must be paid to the cohesion and negotiating skill displayed by the Nineat -Helsinki and Geneva. In fact, it was the Nine which emerged as th minajor negotiating force in the Conference. It is noteworthy that IMr. Moro. the Italian Prime Minister, signed the final act not only on behalf of his own country but also on behalf of the European Communities.

SRequested by the Heads of Government and which is one of the basic texts which Mr. Tindemans is taking into consideration in preparing his own report on "European Union" for submission to the Heads of Government before the end of the year.
4 This proposal is aimed at extending to all legislative proposals the procedure already agreed concerning proposals for acts with financial implications.


[Article from "Le Monde", September 21-202, 1975]


"Europe is certain to develop towards greater independence, even in defence," Mr. Tindemans tells "Le Monde."
Mr. Leo Tindemans, who was instructed by the Paris summit of 1974 to define before 31 December next an "overall concept of European Union" (it had bIeen agreed in 1972 that such a union would be set up "before the end of the present decade") is expected in Paris on Sunday, 21 September. The Nine have asked the Belgian Prime Minister to draw up a report based on an analysis of the work done on this matter by the Commission, the Court of Justice and the European Parliament, and on consultation with governments and a "wide range of public
-pinion" in the Community. Mr. Tindemans has already visited Dublin, Luxemhiourg, The Hague, London and Bonn. He will visit Rome and Copenhagen in Sch-tober. In Paris, from Sunday evening to Tuesday evening, he is to meet a large number of politicians, trade unionists, ministers and opposition spokesmen. In the following interview, he sums up his work and ideas on Europe.
"Only Mr. M1archais has refused to meet me" I said Mr. Tindemans, "but the views he ascribed to me and the concept of European Union he put forward have no basis in reality. My mandate laid down no fixed rules. I can work without any preconceptions. I informed Mr. Marchais that I regretted his refusal to have talks.
"ut, Mr. Tindemans went on, I will be seeing Mr. Mitterrand. The leaders of the C(GT have accepted my invitation as well as those of the CFDT and FO."
HaJ e you met with any other refusals?
No, but the Communist leaders in Luxembourg called off the meeting at the last minute after accepting. When I visited the Grand Duchy the President of their party was ill and the Vice-President abroad. I will be meeting the leaders of the Italian Communist Party.
Are you not afraid that the expression "European Union" might not be taken seriously? Sueh ambitious words with so little substance tend to cause smiles.
This is something which is worrying me. Twenty years ago people talked about a Community, then about political union, then about "European Union" without defining them in any way. Today I am asked to say that European Union is. In present circumstances it is well-nigh impossible.
Europe is not making progress. Everyone knows this. The recession is so bad that it recalls the horrors of the 30's. When Italy put restrictions on imports, your paper printed an article entitled "Return to Autarky."
Since then this tendency has grown stronger. There were protests recently in Great Britain because Danish furniture had been bought for the House of Commons. In statements to "Le Monde" Mr. Bidegain' gave a list of products which France does not produce but could produce. When there are balance of payments difficulties, the natural tendency is to seek a solution in protectionism. With present difficulties--unemployment, inflation, trade deficits-the danger that the construction of Europe may crumble is a real one. At a moment like this the task which I have accepted is risky.
llo do you think you will manage?
When there is a crisis either you succumb to it or you use it as a springboard. T hope that Europeans will he aware of the dangers and use it to make a leap forward. If I have accepted the task, it is because I believe that Europe can make substantial progress.
The French have the impression that their partners do not wish to se. an independent Europe. The Americans control whole sectors of European activity and almost all advanced teeh ology. Do you think that Europe can avoid being totally absorbed by the United States? Do you not find this disquieting?
What is disquieting for Europe is its lack of awareness, its lack of will to defend itself; by this I mean forging its place in the economy, the social life, the international life of our time. Your words provide an excellent argument for

"l* Monde". 13 August.
"I Mond',". 27 August. Mr. Bldegain is the chairman of the committee for foreign r-IOr)oilc \paniiulon of the ('CNPF.


greater European integration. What is the situation? Our countries, separated into nation-states, are no longer capable of defending their place in the world market. Europe does not make trips to the moon, there are whole sectors where its technology is non-existent; in scientific research we are not able, on our own, to make an effort comparable with those of the 'United States and the USSR. For this reason alone we should seek greater European integration.

But, when it came to choosing a fighter plane, Belgium, perhaps unwilligly, supported its associates (Netherlands, Denark, Norway) and opted for an, American plane rather than the Mirage, a Fren-ch and therefore European plane.
This question should be examined more closely. If, right at the beginning of this affair, concrete proposals had been made to set up a European aeronautics industry based on the French model, I believe that the affair would not have been doomed to failure from the start. But the effort at European level came too late.
Would it be possible to start again later?
Yes, certainly, and for this reason Belgium has set aside the equivalent of the cost of ten planes' to take such an initiative. The _Netherlands, yes, even the Netherlands, have done the same. I think I should add that to create Europe it is not sufficient simply to transplant to European level the problems, the nationalismn, the autarky of the nation states. Our relationships with the United States, with Japan, with the eastern countries and the Third World must be settled first.
In the field of defense it is clear, to us at any rate, that it is impossible to organize our defense alone. We wish to remain in the integrated system of NATO. Within this system we will advocate the strengthening of the Eurogroup,' standardization of armaments within this group and action by the group side by side with what is done at the WVEU:5
Not a lot is done at the WE U.
-No, but I was told in 'May that at the level of the WEU and the Eurogroup important decisions had been taken. 'My defense minister told me: "for goodness sake tell the French that if they do not take part they risk losing out completely in that field."'6
But onie also gets the impression that what is planned the-re is not European but Atlantic. Instead of the Eurogroup, why not use the armaments committee of the WEU or some body which could be set up, but iich would be truly European and could work as such with tile Amecricans8?
I know ..,. the last proposal before the decision to buy these planes was precisely one to set up, within -the -Nine, a European council to study armaments and put them into production.' But the idea was put forward too late.
Has Mr. 0-iscard d'Estaing spoken, to you of thiis?
Yes. 'Mr. Giscard d'Estaing gave me to understand this, Mr. Chirac and Mr. Destremnau also. Later, I1 know, another interpretation was put on this proposal. But I state this categorically. Since the idea was not followed up, I can understand that it should lie played down, but it was discussed. Had it come earlier, it would have been better received.
You say it is impossible for Europe to defend itself alone?
Yes, it is not yet possible.
Should it not at least reserve the rightt, thec intention. to hare if.s owrn defne
The right, yes, certainly. But this presupposes an European Political authority, for it is unthinkable for the generals to decide on European defense po~licy. It is this lack of European political authority which led to the failure of the European arnmy in 1954.

a 3,000 million Belgian francs, more than 300 million French francs (more than 30 million pounds sterling).
A NATO group without legal status in which, since France stopped being a full member of the military organization (1967), European members of the alliance meet.
5 The Western European Union. dormant since its creation in 1955. The Federal Republic of Germany, Belgium, France, the United Kingdom, Italy, Luxembourg and the Netherlands are members.
S An allusion to the project of creating an allied armaments agency ("Le Monde", 24 May).
7' "Le Monde", 12 June. To explain to Parliament why the project was abandoned, Mr. Tindemans pointed out that Mr. Giscard d'Estaing (at the press lunch of 21 'May) had rejected the idea of European. defence.


Great Britain is now a member of the Community. But do you think that the British have the same concept of the Community as their partners on the continent? Do they not consider it not so much as a beginning-as is stated in the Treaty of Rome-but as an end? They joined to get it over with . .
The British tradition is to accept the verdict of the people. I think that with time Great Britain will inevitably develop in the direction we hope. It is only now that the British are discovering all the contents of the Treaty of Rome, the insliitutiions, the Parliament, etc. A majority of those in authority will support a more integrated Europe. Great Britain is going through great internal difficulties, but I am not pessimistic about its European spirit.
It will nevertheless be more difcult to build Europe with nine than with six. WRhat do you think of the idea put forward by Mr. Brandt to allow European countries which cannot keep up to move towards integration at their own pace?
It is unthinkable to make a distinction between full members of the Community and second-class members. Europe "a la carte" with integration in some fields with nine, in others with six or with four, which some people have envisaged, is mere speculation. However, the following situation could arise: with the Treaties in force between the Nine, some might feel that they can go further. This is the opposite of the theory put forward by Mr. Brandt. This is what happened when certain members of the Community linked their currencies in the European "snake". Nor can we object to some countries organizing themselves in this way if they think fit.

Must a new treaty be adopted to take over from the Treaty of Rome?
I ask everyone this question. In my view it is inevitable that the Community Treaties will be changed either by the adoption of amendments, or by the conclusion of an additional treaty.
In what fields do you think that Europe should seek closer integration?
In the economic and monetary fields-I am longing for a solution to monetary pridlemis to be found at European level-in the social, technological, scientific fields (in these fields we are becoming second-rate nations) and of course in energy.
And on foreign policy?
We cannot conceive of a European Union without a common attitude on major points of foreign policy and defence policy.
Is there some other way of achieving this than the somewhat empirical form of operationn practised at present?
Yes, there is another way. First you must develop towards greater independence. Even though some members-the Irish-are not members of the alliance, and soen wish to have nothing to do with nuclear defence and find that the American umbrella suits us perfectly. It is not easy, but it is clear to me that we are developing towards a greater European independence, even in defence. I support the famous Kennedy formula: "equal partnerships" between the United States and Europe.
How can this be achieved?
We can go further with integration. At present, in international policy, a field which is not covered by the Treaty of Rome, cooperation is on a voluntary basis, without treaty or obligation. European Union should introduce greater obligat ions.
11 you believe that it is possible to adopt a common attitude, for example tourrds IraIel, by decisions taken by a majority?
At present it is iot possible, but one day a means must be found for Europe t(, speak with a single voice.
In 1969, (enral du (aulle suggested settling up a restricted group of Europcan '/t' X to define major policies.^ What dous telgium think of this?
I i;Ive 11ot yet ctinslted y countryiie l butll. it vill be dilitcult for a small (t'1llltiry to accvp0t powers f decision beillg trusted to a1 restricted nu1111111er of Pa rtners. I am aware of thie opposition to this idea in the Netherlands, in Ireland :II([ I know that it exists illn )enaillark and even inll Italy.
So there is no solution.

Sil 111st1o :1 Id e to the I'itish Ambaissador in 191)9 which gave rls to what wilas
:sIle-d hI "Somies affair".


There are formulas which have not been considered. For example, would a delegation of powers be thinkable or not? This is a formula which should be fully thought out, on which I cannot yet reach any conclusion. I simply put forward the question.
Does 1980 still seem a realistic date for the formation of a Eulropean Union worth y of the name?
Complete European Union before 1980 . no. In spite of present difficulties, which are great, much can be done before that date. It is a question of will. For me, there is one overriding consideration: there must be dramatic progress in the monetary, economic and also social fields. Europe must have its own policy. It must set an example. I believe that the basic element, the thing that is holding back economic recovery, is the lack of an adequate instrument; and that is basically a monetary problem. Mr. Giscard d'Estaing has put forward ideas at world level. But why not take European monetary measures? I spoke of this at the last meeting of the European Council. But we were unable to examine the matter fully. I asked Mr. Giscard d'Estaing and Mr. Ortoli to state what their views were precisely. They gave me an answer. But I believe that that is only a beginning. The subject must not be allowed to lapse.

Friday, October 31, 1975
(Working documents: Mr. McCormack, Mr. Normanton, Mr. Biester, Mr. Houdet)'
Mr. McCormack felt that there was little understanding of the energy problem in the United States. There was a refusal to recognize the seriousness of the situation. However, it was high time to get a proper grip on the energy problem. It was almost certain that by the end of this century there would be little or no oil left and natural gas reserves would also soon be exhausted. We would then have to seek other energy sources. Even if energy savings could be achieved, energy consumption in the United States would continue to rise.
Since solar energy and geothermal energy would not in general be of importance for energy supplies before 1990, and would still be making only a small contribution in 2000, and since, moreover, it would not be before 2000 that the first energy from nuclear fusion could be produced, the inescapable conclusion was that for the rest of this century we would be dependent for a very large part of our energy consumption on coal and on energy obtained from nuclear fission.
If this analysis was correct, it followed that we should take the following steps:
In the first place, substantial economies would have to be made in heating and air conditioning in buildings, energy consumption for transport and industrial consumption. Moreover, extraction of oil and natural gas should be stepped up.
Despite environmentalist objections, there was equally no way of avoiding full-scale development of the coal industry. We could not afford to cut back on the construction of nuclear power stations. Finally, research would have to be intensified on all promising new forms of energy.
In view of the enormous sums involved, it was of the greatest importance for the United States and Europe to work closely together.
Mr. Normanton pointed out that the European Community as such still had no energy policy. At best one might say that each member state had its own energy policy; but it might well be argued that on the whole there was no energy policy at all. This was not the fault of the European Parliament, which had indicated very clearly along what lines a common energy policy ought to be shaped.
L See p. 65 ff.


Since t1w (Tele(ratioii: liad. last met, the followino- new developments liad taken place III Ellrope:
A fil I HY -Int 1-1) fa I t ill COils 11111I)t i Oil
A ill priCes I,
)11 -twks had becoine larcrer than ever.:
A tzt rt Ila(] been made oii bringing iii 'North Sea oil.,
The costs of extractiliz that oil had, lioiveN-er, risen astronomically, SO 11111cli () that even those who had iiii-ested in it, ivere beginning t o (,Vt -zerimi-4v Avol-ried.
-If r. 111e:-ter introduced his working dociiment. Now that the devel(TIM), ('01111ti-le-, had Craiiied their political iiidepeiidviiee, tliev ivere
putting deniand-s for the, establishment of a new ecolloillic W*der t1lat would guarantee them, if not ecoiiomic autonoinv. at least givttor economic -Ni-eicrlit.
T]11_ 110NN, 1(welopmvnt was facing the industrialized. countries with
-tit (,m:ruly iicN situation.

Forsex-eval years tlie United, States liad been keepilig an eye. on this develol)Illent witliolit exercising active influeiice on it. The U.N. Speci;d M Septeniber197.5 wasa turning point in American policy:
flli,, ii0w directed at activelN- promoting the increasing mutual dependence of our economies. because of an awareness that our political Ill id ecolloillic systeui tile long run only ina frainework of ordered interliational relations. On tfils vlew, the advantage-s the develop'lli,'r coillitries 1A-0111(l draw from iinplementatioi-l of the i-esoliilion nd()pted at the close, of the U.N. Seventh Special Session w-ould ultlmatcl lwnefit the industrialized countries too.
Speciticall y, U.S. policy was aii-ning at secure supplies of raw mate11:1k-: it'lll 11*1,1.11'.11;itees, on prices and internatioiial political

Acc(inllii _dy, in SepteiiiLer this year the Unite(l States proposed ITI
tit(. U.N. tit(, creat Ion (d, a "developillent security facility" to stabilize i1wollie" fron) the (]vve]()p,III()- cmllltrles exports* 'I'll rolur'll tills IllecliaI he developino- countries -would be ()-raiited loans, and ill some,
fjft Botli, Avould be fli)-anced from the proceed-s of
ww--ixt It of t It(, IMP"s gold.
1,110 1 Ilit(Id ShOOS fiIIIIIAIL' proposed the. creatioji ()f ;rr. I I St o( o ,if "m ilillion tons.
]MIll he'-w lwopo-"I IS were dosiglie(l to bring file
I of ecolmillic securitY. At the Sallie titne" tile United
to '-wcoler-tle tit(, ecollonlic "TON011 of t.110 dei-elopill" cmilitrie-4. I'm. IN-11H.11 tile Aillericall G ()VCFI) 111011t, proposed tile I,() I Imv 11)
FAPMI.- *Mfl of til( fillam-M] i-esom-ce-s of the IN"orld Bank, atid parG.111,11-1Y those of its specialized bo(ly, the Interiiatioiial Fiiiance C()rj)()r;11 iwj :
1,110 .-41thilfr 111) or all internatiollal ilivestillei-It fuml to proiiiote priA''ItC 11)Vcm f 11)(111t Ill t Ile developil)(Y (.011)ltilies:
I'l 611ir dowl) of Il froo(l c0iiduct code. for inultiiiational concerns;
V111:111Y. the. rellew:11 "17)(1 ill-1pr(wellielit of t1le product agreerneiits for t ill. cocoalaml S11(rar.


The industrial countries could not survive if the flow of raw materials from the developing countries was interrupted, and for its part the Third World could not grow and the Fourth World could not live, unless reasonable prices were paid.
On product agreements there were unfavorable experiences with cartels. In fact, what was needed was joint consultation to find a solution that would guarantee the raw material exporting countries a reasonable price for their export products, and give consumer countries some security of supply.
Mr. Biester called the Soviet Union's negative attitude at the U.N. Seventh Special Session remarkable. Their position was apparently that they had not caused the problem, and that they therefore need do nothing about it.
,Just as industrialists in our countries had discovered less than a century ago that it was not in their own interests to pay the workers low wages, so the industrial countries had now to understand that it was in their enlightened self-interest to offer the developing countries reasonable prices for their export products.
Mr. Houdet also stressed, in his document, the interest of all parties councerned in establishing a new international economic order. Free trade, the free movement of capital and freedom of establishment were certainly an important economic good but these freedoms would exacerbate inequality if international trading partners were at too different stages of economic development. Relations between the Third World and "the North" should therefore not be based on complete reciprocity. That was why the European Community had deliberately not applied that principle in the Convention of Lome. An uninterrupted supply of raw materials was of vital importance to the industrial countries. Security of sUl)plv was endangered only by export restrictions, political embargoes and cartels, but also by investment lags in the raw materials industries. Economic recovery was likely to lead to raw material shortages.

Many of the developing countries' demands could be regarded as well fouided: the formation of buffer stocks for certain products, the estaIblishment of a common fund to finance these stocks, multilateral supply and offtake agreements,, stabilization of export revenue and encouragement of raw materials processing in the developing countries themselves. On the other hand, there must be reservations on the -formation of cartels of raw materials )roducers, and also regarding indexing of raw materials prices.
The financing of buffer stocks was a very important point. The Euroean Community's view was that the costs ought to be borne bv all the industrial countries, including the state-trading countries, andl also by other countries with adequate financial resources, notably the oil producers.
As an instrument, buffer stocks were most likely to succeed if excessive demands were not made of them. The chance for success was. for instance, much greater if they were confined to smoothing out


fluctuations, not keeping the price in a predetermined tunnel at all costs.
The product agreements suffered from the drawback that they did not allow a differentiated approach according to the needs of the producing country. For products produced in substantial quantities by both rich and poor countries, preference ought therefore to be given to a system of stabilizing revenue from raw materials exports, adjuisted to the developing countries concerned. Again, in those cases where price stabilization was particularly difficult, a form of revenue compensation or revenue guarantee was preferable.

Mr. Rosenthal had formed the impression from Mr. Normanton's statements that resistance in Europe to the construction of nuclear power stations was declining. That was certainly not the case in the United States.
Mr. Normanton pointed out that the situation in Europe was different in that nuclear energy in the member states was government controlled: governments were responsible for the lion's share of investments in the sector. In the United Kingdom alone public investment in the nuclear sector had amounted to 15,000 million pounds sterling. The enormous sums at stake here made close cooperation between the United States and the Community more necessary than in any other area.
Mr. Findley asked whether Europe had advanced far in building tidal power stations.
Mr. Houdet answered that technically very satisfactory results had been achieved with this form of energy production, but yields remained modest. Moreover, obvious geographical reasons limited its application.
Mr. Leonardi was very skeptical regarding the practical value of the diagrams in Mr. McCormack's working document. Extrapolations like that did not mean very much.
None of our countries had so far made a serious attempt to get broad sections of the population to cooperate in an energy saving policy.
Improved cooperation between North and South should introduce a period of rapid economic growth.
Mr. Scott-Hopkins found it not entirely clear what energy policy the American Government now wished to follow. On the one hand, if Mr. Mecormack's figures were to be believed, the United States could not manage without nuclear power. hut on the other hand there was an obvious reluctance to build up a full nuclear industry.
Mr. Stephens answered that the United States did not really have an energy policy. There was agreement only on the urgent need to exp)and the sources of energy supplies.

Mr. Gibbons felt it was going too far to say that the United States had no energy policy, although admittedly no serious effort had yet
1 en ade t o pt a b 1)rake on con sumptil o iln.


In Mr. Ryan's view, uncertainty regarding nuclear energy was connected above all with the problem of storing nuclear waste. This was a much graver problem than that of possible nuclear accidents. Containers for nuclear waste had a lifetime of at most half that of the radioactive waste. In California there was an additional special problem, namely earthquakes. Taken together, these difficulties explained the A-merican people's reluctance to emphasize nuclear power to supply their energy needs.
If we were serious about saving energy, we would have to insure that energy was not sold too cheaply. Cheap energy was one of the things that determined our life styles; in the United States, for instance, commuter traffic would have developed along very different lines if energy had not been so cheap for so long. There was enormous wastage of energy everywhere in the. United States at the moment.



Paper by Mr. McCormack

Mr. MeCormack presented the following tables which constituted his dkwuientary presentation. His explanation of these materials is contained il lhe summary on p. 59.

[In millions of dollars]

Fiscal year 1976
Fiscal year
1975 Administra- Subcommittee Total
(estimated) tion request increase proposed

I. Results of action taken by Subcommittee on Energy
Research, Development, and Demonstration (obligations).
Solar energy --------------------------------- 38 70.3 73. 4 143.7
Heating and cooling ---------------------------- 26.0 14.4 40.4
Solar thermal ----------------------------------------- 13. 2 15. 3 28. 5
Photovoltaic --------------------------------------- 128 16.7 29. 5
Wind --- ..---------------------------------------- 11.5 6.6 18. 1
Bioconversion ----------------------------------------- 3.6 2.9 6, 5
Ocean thermal --------------------------------------- 3. 2 8,0 11.2
Other ---------------------------------------------- 0 9. 5 9.5

Geothermal energy ---------------------------- 28 23. 0 33. 0 56.0
Energy conservation (transmission, storage, advanced transportation, end use, improved
conversion efficiency)- -----------------------25 41.0 94.0 135. 0
Materials research and molecular science-------- 83 94. 0 20-0 114, 0
Nonnuclear environment and safety ------------------------ -- 241. 5 16. 0 257. 5
Scientific and technical training ------------------------------ ---------5. 0 5. 0

Total------------------------------------------ 469.8 241.4 711.2
II. Additional recommendation of Congressman Mike
McCormack (expenditures): Fusion (magnetic
confinement) --------------------------------- 105 144.0 48. 0 192.0





a 2
0- sk
0 I

1946 1948 1950 1956 1960 1962 1964 1966 1968 1972 74

% Deviation from Trend % Unemployed
-7.5- 1 8

50 I ; Percent
5.0 Deviation 7

-2.5 6

0 5
0- ;- 5


5.0 Unemployment Rate 3

7.5 2
1950 1955 1960 1965 1970

80 PERCENT (91 OxR 2 10' b~

3__ __ __ I __ ___ __ _C


60.9 x 10' bbls

33.4x 10' bbI~~t.s___1880 1900 1920 1940 1960 1980 2000 2020 2040 2060

FIGURE, 66. Estimalte an of 1972 of complete cycle of petroleum liquids production In the conterminous United States.


I. UNIWS MEt t1%%UL1OHS 4W 8AIUMC&S oF**.4DAY jEQVIVjALEIT t2- ASStUMe 41-1- -Wi W-Alot Q.)' AV~RUM03C 'PO41 6.4 Air, al..

34 5

~~k 90 WOi.0


t~o 90P

Exhibit I




OIL-FIRED $520 1KW fl$12/89L in 1974 / 5

3i700MWE$0/w IN 1974 FOR $02 CLEANUP

2aUOOMWE $90/W34 O9M

0 20 40 60
From Convo-rter kv~wrror AlternattvoS by Ke-n Davis, Vi-- Prv~ldent ofi B el Power Corp.


1. In spite of successful conservation programs, total U.S. consumption of eniergy will increase for the balance of the century.
2. We are running out of petroleum and natural gas.
3. We must rely on coal and nuclear fission for a large portion of our energy for the balance of this century.
4. Solar and geothermal energy will have no significant impact on total energy production before 1990, and will make only a small contribution by the year 2000.
5. The first economic nuclear fusion electric energy will not be on the line before the year 2000.
1. Conserve in heating and cooling buildings, in transportation, and in industrial processes.
2. Undertake aggressive programs of exploration, drilling, and development for petroleum and natural gas.
3. Develop our coal industry as rapidly as possible, in spite of the environmental and production costs involved.
4. Remove all unnecessary obstacles from and provide funding for the construction of nuclear powerplants.
5. Institute aggressive programs of research and development in all energyrelated areas.


Paper by Mr. Normanton
1. In 1973 the European Economic Community was dependent on imports for 63 percent of its energy requirements. In this respect it compared very unfavourably with the United States with its 90 percent self-sufficiency in energy. Since the autumn of 1973, the European Community has had to reconsider its energy policies in the light of the increased energy prices 'and possible, insecurity of supply. The European Parliament, and particularly its Committee on Energy, Research and Technology, has consistently supported the actions of the Comnmission of the European Communities and, in certain cases, taken the initiative, in the formnulation of a new energy policy strategy which would guarantee greater security of supply. The keystone of this policy is the development of the European Community's indigenous sources of energy.
2. The exploitation of indigenous sources -of energy--coal, natural gas and particularly off-shore oil and nuclear energy-requires very heavy investment in research, as well as in power stations for nuclear energy and extraction facilities for off-shore oil. It is, consequently, vital for Europe to guarantee such substanitial investment against a possible fall in oil prices. Some form of minimum safeguard price, which would protect investment without unduly reducing the competitivity of European industry, must be considered seriously.

3. Eight of the nine Member States of the European Community are also members of the International Energy Agency set up by the OECID. The European Parliament recognises the value of the International Energy Agency's work. Nevertheless, the draftsman feels that the IEA is complementary to, and not a replacement for, concerted effort by the European Community in the field of
(i) relations with energy producing countries, and (ii) actions to be taken to ensure an equitable distribution of energy in the event of renewed supply difficulties. It is highly regrettable that the Member States of the European Community have not yet developed a real common energy policy.

4. The European Parliament believes that the Commission's objective of limiting to approximately 40 percent by 1985 the degree of Community dependence on imported energy can only be achieved if serious and concerted efforts are made by the Member States. It regrets, however, the apparent apathy with regard to energy questions which at present characterises the policies of many Member Governments.
5. If Europe is to reduce its dependence on imported energy, electricity should account for some 35 percent of the Community's energy consumption by 1985 (compared with 25 percent in 1972). While encouraging the increased consumption of electricity, the European Parliament would strongly oppose the construction of new oil burning power stations. It similarly believes that natural gas could be utilised more economically for domestic and industrial purposes than for the generation of electricity. While maximum use should be made of coal in thermal power stations there is, nevertheless, no alternative to the greatly increased utilisation of nuclear energy for electricity production. This Implies large-scale investment in nuclear power stations, particularly power stations of 1,000-1,500 MWe which could produce electricity more economically than smaller generating plants.
6. The large-scale use of nuclear power implies a secure source of nuclear fuel and, more particularly, of enriched uranium. The United States is Europe's most



i111l14)lt;11J Supplier f)f III)( it nr fiwl. Any iwerrupti4)n ill the s1ipplv of fissionable 111;ilt-rial wiluld have fol. 1"unipeall energy production.
d. P, ,rtl v (1,- :1 result of its dependence om imported iniclear fuels, the European G,1111111111itv i-- at pl*(1 4ellt t'll"a-ed ill major re .;c,,Ireh ill the field of th"'i-lill)i I Ic I k ; I r t, I I-.: i ()I I, With I he Jt)i I It Elin )l w'I 11 Tomis, t I I e Euro I wit 11 Community wi I I be "li the f,,rvfl-()I1t (if research ill tlii,,,z field.
The Eunqwail Parliament has consistently stre-ssed the iii-1portance of deille Ci)niniunity's hydroct-rhon resources of which off-shore oil and
--z 1 re I v f,1 r I he 1114).st i inporta lit. Thou"ll a ha rrel of oil f rmll t1lo.,
111(l -44will-V Waters 1)f ille -North : 4va could cost up to to a 111111dred times 111111't, til thall a -,illlilar (I"I'llitity ()f ()il frmn the deserts, of the M iddle East
,r -Norill Afric.t. the Elln)p""n Parli'lillent believes that the necessary capital il Ill - -, of hydrocarboli ;.
he inade available for itivi-stment in this secure smim,
II(I'li Europe and the I 11ited States have highly developed industrial ecoijand both are major c()l1:,- 11III(1Is (of ellel",y. But while the I'llited States (,111d fensibIv becoille "elf-sufficient ill ell(II-0,gy the next decade, the most optimistic c Europeans cannot hope for more than GO percent enenry self'11thrie1w v. -Nevertlieles-', IM)tll F Ilrlqw and the I'llited .-'tates Nvolild bellefit froin "Imrallteed prices to "afe,"llard investment ill oner-Y, and both would belletit
a (-()mmon stand by cmistiniers in the event of excessive price increases by
()il nation.s. In the field t)f research Iliere are cons idera ble Opporiimitie:, for cooperation betweell '111d the I'llited S"tates, which covild
briiig about a desirahle stren-thellin- of exi"till." ti"Ills-Atlantic links.


Paper by Mr. Biester
At the time we meet the United States and the developed world find it difficult to sustain their economic standards and growth. No longer can industrialized countries solve on their own the economic issues they periodically must face.
As a consequence of the abandonment of political colonialism by European powers, industrialized nations can no longer depend, ini every case, upon guaranteed availability of raw materials at manipulated low prices. Secondly, a new unity among developing nations has manifested itself in new and substantial demands for change in the international economic order. As a result, the develol)ed world finds itself in a situation vastly different from that which existedl a decade ago, or a generation ago.

'United States foreign policy has been primarily based upon a balance of power. We have sought to secure our position through expanded relations with China, detente with the Soviet Union, and an intermediary role in the Middle East. Our policy of continued concentration on East-West confrontation has excluded a clearer perception of the growing North-South polarization and has been very costly in both political and economic terms. The United States has passed in the last decade from the United Nations' most influential member to a position of political isolation as it confronts a very large proportion of the Third World bloc over a long agenda of contemporary issues. Though we have unflinchingly committed ourselves to massive regional undertakings in the past thirty y-ears, we have continually hesitated to move in the one area that would start us flown the roadI to improved long-range political and economic scrt the active promotion of global interdependence.
Until now the United States has recognized a growing interconnection between the various economies of the world and even supported some efforts at regional cooperation. However, until recently, we have done little to involve ourselves directly in this process. The Seventh Special Session of the United Nations General Assembly saw the United States move from passive acceptance of economic interdependence to active promotion of it. Like all new endeavors, this cour-sv of action holds many risks; yet the potential for international security is unparalleled by any other recourse.

New realities, and our perceptions of them, should be making Americans increasingly aware of interdependence in its two different, aspects. One ig the interdependence of nations, even superpowers, to rely to some extent on other nations for essential ingredients in their economies, living standards, or security. The other is the complex interaction among the issues of population, environmnent, economic growth and development. A problem in one sphere aggravate,, problems in the others.
Both aspects of interdependence will impose new requirements on individual nations as well as on the international community. These in turn Wvill requlire adjustments in the working of national institutions and in the life styles of or-dinary citizens.
The United States has the choice of helping to bring all the peoples of the world into a more equitable and cooperative political and econoinic or-der or- Coiltinuing a policy of imagined hegemony. The key involves recognition of the fact that the health of each of our political and economic institutions depends, u1ponl the health of the international system. It is my conviction that 'I wor-ld which has freed itself from political and economic chauvinism and established institutions which serve to facilitate communication, cooperation uind compijromise Will find the capacity to solve international crises when they arise.


The American proposal to the Seventh Special Session proposes to bring a more equitable system of crisis management into existence. It should be viewed as a broad and far reaching proposal which attempts to expand and ever to redistribute access to the world's resources, capital and technology. Unanimous acceptance of the final resolution of the Special Session should indicate a universal view which advocates direct benefits for the developing world. The strength that these nations accrue as a result will in turn benefit industrial nations.
United States' interests in this area are fundamental. We seek to insure a constant and ample supply of raw materials, to insure import price security, and to promote political stability on an international scale. The interests of developing nations are equally fundamental: to insure economic stability on an international level and to promote national economic growth. The United States and Europe are in a decisive position to influence the fulfillment of both orientations. Our response will determine the extent of risk involved and is crucial to our political and economic security.

The American proposal rests on the premise that economic security is the base upon which growth will survive. Stability is the minimum requirement of an effective strategy for development. To this end, three factors are accurately perceived as those which hold the key to equilibrium. The non-inflationary economic expansion of industrial nations, the consistent supply of vital products at an equitable price, and the stability and growth of export earnings within developing nations are all vital to international economic security.
To accomplish these goals the United States proposes creation of a new "development security facility", the purpose of which will be to stabilize over-all export earnings. The facility would give loans to individual nations of up to $2.5 billion and more each year to sustain development programs in the face of export fluctuations. The poorest nations would be able to convert their loans into grants under prescribed conditions.
Development security could provide unprecedented protection against disruptions caused by reductions in earnings both for countries whose exports consist of a few commodities and for those with diversified and manufactured exports whose earnings also fluctuate with business cycles.
Creation of this security facility rests with the sale of $10 billion in gold reserves and will depend upon the role of gold in the international monetary system. A floating exchange rate has worked rather predictably for all participants during a period of economic crisis. The Jamaican meeting of the World Bank Group in January will determine the structure of global monetary reform and the feasibility of this $10 billion sale. Our inability as nations to arrive at flexible economic cooperation will deter the course of equitable reform and undermine economic security, not only for developing states but for ourselves as well. The final joint resolution of the Special Session calls for a reduction in the role of national reserve currencies and creation of special drawing rights which would become "the central reserve asset of international control over the creation and equitable distribution of liquidity and limit potential losses as a consequence of exchange rate fluctuations."

For the industrial world the risks involved in creating a development security facility are relatively minimal. With money to finance the program coming from the International Monetary Fund our benefits will vary only with the policy of allotment. With a maximum of $10 billion in outstanding loans, the earnings shortfalls of all 100-odd nations wiho qualify for such loans or grants might not be met in a particularly severe economic pinch. In such a situation the lending polic IhecoMies decisive to the goals attained, or missed.
Though this facility must he created within the international order many of Ihe proposals of the Special Session will require legislative approval. The United States Congrless will consider, and hopefully pass, increased authorizations for the International Finance Corporation as well as the International Monetary Fund itself. We in the House of Representatives will vote in early November on a $25 million membership contribution to the African Development Fund and a $6 billion expansion of the Inter-American Development Bank. Replenishment rf the Asian Development Bank will come up for consideration next year.


Assured access to capital markets for developing nations should be the shared responsibility of the members of the world economic community. We must move rapidly. in the creation of an international forum which will have the effect of bringing together the borrowers of the Third World with the lenders of the industrial world.
The United States and other developed nations can maximize their economic advantage by allotting the predominant share of this aid to nations holding sought-after commodities, thereby stabilizing the export flow of those countries and meeting their own import demands. Such an inequitable apportionment would have the effect of aiding those countries who, in the third and fourth worlds, needs it least. It would prompt only marginal expansion of the international economic system, give little consideration to those long range import needs which might only be met by nations not receiving benefits, and ignore the humanitarian goals of the proposal.
Beyond the problem of economic infra-structure lies the question of human security. For hundreds of millions of people food security is the single most critical need in their lives. Traditionally, food security has been approached on the level of emergency relief to deal with crop failures, natural disasters and pockets of famine. This approach has never -been adequate. An effective solution requires reasonable stability in the availability of food in commercial markets so that harvest failures in some parts of the world will not make food impossibly expensive elsewhere.
The United States has proposed the creation of a grain reserve with a minimum stock of 30 million tons of wheat, rice, and similar coarse grains. Full participants in the system would receive assured access to supplies with special assistance given to developing countries who participate.
This grain reserve is potentially critical to the needs of developing countries though it important to industrial nations as well. Grain allocation should not be -subject political consideration, though placement could be made to maximize the economic or political advantage of the industrial world. Such discriminatory allocation might prove advantageous in the short run, but responsible policy that takes a far-sighted approach will consider the implications of equitable allocation to be more in keeping with economic and political security.
Aside from the formation of grain reserves the United States Congress has taken important action to insure greater human security within developing nations. The International Development Assistance and Food Act of 1975 passed by the House contains the authorization for a U.S. contribution to the International Fund for Agricultural Development, a doubling of U.S. bilateral agricultural assistance, intermediate technology, energy and health assistance and expanded technical assistance and research in the agricultural field by our .universities.
It is not enough to insure the minimal economic security of the developing countries. Development is a process of growth, of acceleration, of greater productivity, higher living standards and social change. This is a process requiring the infusion of capital, technology, and managerial skills on a massive scale.
To accomplish the goal of capital development the United States has propoq(,(l major expansion of the resources of the World Bank's International F finance Corporation. The IFC is the investment banker with the broadest experience in supporting private enterprise in developing countries. This agency would provide developing countries better access to capital markets, matching sources of finance with investment needs.

-ODur Congress will consider creation of an International Investment Truqt with assets of $200 million to prompt private investment. The Trust will serve as insurance against financial loss and be designed to attract new capital by offering investors an opportunity to participate in a managed selection of investments in developing country firms-public, private and mixed.
In the area of technology, we have invited other nations to join us in bi-Literal support for training and technical assistance to help developing countries find and exploit new sources of fossil fuel and other forms of eiiergy. We will also ,evk


le! ;S ac(:essible and low-arade re.,, ource includin- and
I-ei i! herinal power.
Creation ()f ail Independent Technical Information 11ank, Ili Internatimuil celiter f(ir tile Exchallg-e ()f Technical 111forillati(wil and ill International Ener-v 111 ztitllte will he left up to tile international c(ainnunity. A UJobal. foruin nitist he devel()IR'd ill these areas.
We :. eek to pnini(pte technical inlim-atimi ill foml pi-mbletion and illipl-w-villent t f mitriti(m. expanding acadelitic zls ,istallce and re-search in the agricuttur.-Il field.
The exp)rf eal-Ilill",-, ()f many (if the pmrest cmintries-and the livelihoml of Illillilm's ()f their people-deliend (ill such prmluet.s a liniber. jute, c(ittim. ind 11 ltural rublwi.. Tlle.,- e natilill- will he -iven lir-elit1v needed as,4stallce to inipi-m-e tile ill-milictivity '111d oml petit iveness ()f these 1)1*()(Iii(-t,, and to diversify v their
e(,(11l0)lli(-;. The 1110111"Ite i- tile hn)ad pl-mlit)timl of indlistrializati(ill beymid

Mult, Im tional ci)rlmrati(lll Ilave he"ll ilillmi-talit instrilliwilt"; ()f illoderniz.1timl ill devell)IIing cmilitries. 'I'llen, i-, ()ftell ill) sub"titille for their ability to) inarshal
ill'Ill'i-ellicilt. skill". tccllil(dogy and illiti'ttive. Yet. stmidard., ()f cmiduct 1!1"1,.:t he (- tzlhli"llcd n-2.11latill" the zl(.tio11,-; ()f trall"ll'Itiolial cm.pwatioils. The Twwlty-fmir irvildwrS ()f the Org"Illiztrioll l)f Ec(nmillic Omperation and Deveb)pInelft I()()]\- a step ill this directimi by drifting I cmle which calls, mi imilti1() pl-m-ide n1mv 111fili-Inati(ill n1milt theillselves 'Ind av(lid pr.-tclice z thot NN-()iitd c(incellIr'lle their vemwillic pmver. We shmild affil-111 thar elow-pi-ke" act ill full accill.d.111ce with the ()f lwst goverilillent,'4 nild
1:the full olf 11wir jiliel-11,11 (,ovel-Ilillents and eliterpris(", illll '-Zt
re-j .(,(.I the cmitl"l(.111,11 (1111i".'Itioll" which they f 1-cel y 1111derta ke. ( 'mit rn ct.",
I if 11141 he I if -rl)l i -I I f A (jpf 1) ly. f, I i 1-1 v. I I ld Nv ith f I] I I k n ()NN-led-e ()f t 1lei r i mp] i, -:11 ions, 11 ('111 d ll()t t r'l I I.-1el. w)ernlions from mic bi-mich to) another becaiise of As the Anwricall ',fntv 4. "gre"'Ier wzsurallce that (-()Itwill ]w 11(pilm-ed will impi-m-e the internatiml:11 ellv i 1-millient.
;;wle:1 -e 11w 11(1\\- (it, illve"Illwilt. ,Ind expand vc(moillic trans"Ictions." All liatiolis I I I I t 1 1( n I'l, I I t I I hi I i( ill,, I I I ; t I Nv i I I t i -Z I I t I le it In lida t orv -I] i del i I lkI I t i i I if ,e ii r] I I ;. 'I'lle fi I la I I 'nit ed _Nn t i( ilv I ke"( 0111 i( )II calls for \N,( wk ( ill slich I C4 Id 11( 1 ( 1 1, 1 k el I \v i I i I i I I I he I -I I i t ed N ;I t i ( )I Is I I ferel we ( )II Tni de a 114 1
I is v(d q 111lent T] I i b( )dY 11 ).-(.11 ler \\-i t I I t I le ( )r-;1 lliza t ion ()f Ewmlmllic C(m qwnl t i( ill Hd I WN-elf-pim-111 mlt-,t sfflve I he I )r(A )l ('111 1 hn )II-11 re".11lations .1116 t I ivi I.
bv l1willher
FillAh'. cmr iqler lliml 11111-4 1,e -ivf ll to 11-nde. Foil. -I-mvill" llatilln.,-Z, ti-ndo i
p r 11 I I t I If' I I I ( i:< I ilill II)II.1 lit N* e i I i (-I (' (if 0 e v e I I )I I I v I I t. A s t lie I )n 1"'I I i t vl f <1 ;11( e'll-fling." frmll expo-ts help pay foil. N)411 tile illilmrt" th:lt are
4--liti:11 t(, exp'llid pri)(111clion 111(1 the f)md for -1-mvill- Impillations. These enrilhl _- 1.1-duce dept-lidence ml -,till, Hillil the n c(.11111111,11 i( oil (if debt. and help finallco We "(.ck filild,111wilt'll Structural iltilli-m-elliclit in the rel.1ti,,Jl -Ililpl)f deveh)l J 11 (.I ill ill ries h) Ille IT-ndill". illipr(w e(I
,1(- f(w 11w 111,1111it"Ictill-ill', "ect4w" (if devel(ollin- cmintrivs. non-tariff barriers Ili ilw p'll-licill.11. ,illl:llim l ()f devvl(opill4.. c(ilill1rie". '111d chaug-es. in the y."teni (if 111'(114-cti(m ill till. indlistri"llized cl ill] it H e-, th;lt illilm i-tation 4 raw IlintevAs ()vcr wher gmod<.
111dil,'11-i'llized 11,11i(ols Imve ilmde a ",.rv:lt de"ll ()I* prwres. ill recent limilths 4)11
I c(Illsenslis ()I] the list Ill' cmillilmlitif", that vrioritY ill
f(ir ,tabilizltitlll 111 1he Cmi-re"', we are alre'l(h. III.(loArill', top (.1111sillf.l. Ilvw arringvineiits m, lilt, ct)II've, cm-mi. Ili(] sugar.
have hvell Imilt hoo) 11w frainew(wk od this devvi4quilent pr(li-1-:1111 to) 111-11ve :1 ftir ;111(1 c(Illit'llih. di. trihllliml (,f these belivID.s nlld gf)als. Yet, her:111SO 11w indil,41-i'll w(Irld Im" ;I rehltivvl v (Imllinallt infIllence within the ills( it lit i( ills ili,1111.111vilti1q: Illese pr(ilmosaF4. there will be :1 tellipl'ithill Ili Ilmst Of the :till
1(t timsf. natimis reslillrev.-', (14,1111111d despite, the
1.4 1: 11 i 114.4 -d ( pr t I 14 it I it r t a I 4- i I I vf 11 ved S tl(.l I : I ct i( )l I d I if )t be i 11 1w el )i 11 IF \\ 111 1 he ") 0i ri I lkf I Ill- ) -;l I i I ()r \v i ) I i I (I i 1. ci i rrcsj )( )I ill vv i ( 11 t Ilv t 1 )110 4 if t I IP T I I i 1.4 1 \V() 1.1d's del I la I I (I ".


These are lofty goals involving risks in their enforcement as well as in their neglect.
Critics of the proposal call it too conciliatory and believe the United State. is "selling out" to Third World demands. They claim it will result in renewed! inflation, higher unemployment, and an over-all weakening of the United State : economic position in the world.
Such is not necessarily the case. Because the proposal relies heavily upon market-based criteria, it should, in fact, have the effect of strengthening the United States economy. It is a major premise of the proposal that a strong industrialized world economy can do more than any other single factor to raise the level of development in Third World nations. Our increased exportation of technology could give a boost to our economy and provide the United States with a stronger balance of payments position than we have held in recent years. Similar action could have the same beneficial effect on the European Community.

We are not attempting to decrease our share of the pie and increase another's. On the contrary, we seek to expand the whole pie, making everyone's share larger. The rate of growth for developing nations may be considerably faster than ours for quite some time into the future. Interdependence may even tax our standard of living to some extent. However, any change that might result would not cornpare to the drop that would eventually occur were we not to take this action. An attempt to avoid interdependence would surely mean a continu~tioi 4f the economic crises we have experienced during the past two years, a continuation of confrontation and the decline of the entire international economic order.
The proposal must be viewed for its long range goals, and from this perspective its advantages by far out-weigh its disadvantages. Perhaps most imp)ortantly, it will establish the machinery for communication and cooperation among all participants in the international economic community. By promnoting interdependence, we can help it work to our advantage.
This framework for cooperation together with expanded markets for our technology, new areas of involvement for multinational corporations, insured access to raw materials-including coffee, tin, rubber, cocoa, sugar and oil at equitahle prices-and an agricultural security system make maximum implementation of the proposal vital to the United States' economic -rowth and security.
The consequences of inaction would be politically and economically (levastating. The West's failure to react to the substantial needs of the developing world will result in even greater demands in the area of oil, the continued growth of cartels resulting in insufficient or over-priced supplies of raw materials. aind price-indexing-the linking of export prices to import prices, thereby disruipting the international economic order. Interdependence underlies all comIponents of the world economy. We cannot ignore the correlation between the prosperity of industrialized countries and the growth of the developing world.


Paper by Mr. Hfoudet
The relationship between the industrial and developing countries is changing rapidly. Political independence has been followed by efforts to secure a bigger say in. economical affairs. The results the OPE4C countries have managed to achieve through oil prices have made an impression on the developing countries, especially since the economic problems of the third world have in some cases assumed almost dramatic proportions. The developing countries with no oil production of their own will this year have a balance of payments deficit of around 36,000 million dollars (as against 9,000 million dollars in 1973). Their foreign debt has increased to 120,000 million dollars. These figures reflect the steadily declining purchasing power of many developing countries. These factors have led in the third world to a change in approach to development. The developing countries no longer want to ask the rich countries for aid that cannot bring about any permanent improvement in their position; they demand negotiations on an equal footing.
For their part, the industrial countries have realized since the oil crisis how vulnerable their economy is and how dependent they, or at least most of them, are on other countries for their supplies of energy and certain raw materials. There is also increasing awareness that the prevailing economic order is bringing about tensions in relations between developing and developed countries that constitute a threat to world peace.

Free trade, free movement of capital and freedom of establishment are certainly important and desirable economic goals. But these freedoms exacerbate inequality where there is an excessive disparity in the economic development of international trading partners. Relations between the third world and 'the North' can, therefore not be based -on complete reciprocity of concessions. That is why in the Lom4 Convention signed in February 1975 between the nine Member States of the European Community and 46 associated countries from Africa, the Caribbean and the Pacific, the European Community deliberately abandoned the principle of reciprocity. Thus, 99% of the ACP countries' products can be imported into the Community free of customs duties and charges having equivalent effect and without quantitative restrictions. The ACP countries nevertheless remain free to determine their commercial policy as regards access for EEC products to their markets.
The increasing interdependence between the developing and the industrial countries means that it is also in the interest of the latter to make every effort to prevent political tensions building up as a result of the widening of the gap between the two groups. If such efforts are to bear fruit, the economic relations between the developing and the industrial countries must be cast in a different mold. The European Community expressed its readiness for this is the Loni6. Convention:
"Resolved to establish a new model for relations between developed and developing states, compatible with the aspirations of the international community towards a more just and more balanced economic order; ***

A steady supply of raw materials is of vital importance for the industrial
-countries. It is endangered not so much by the threatened exhaustion of our planet's raw materials reserves, of which there are probably enough for the time. being. What is more important for security of supply is that exploitation of the reserves should proceed continuously and at an adequate level and that world

1See ACP-EEC Convention of Lom(-, p. 13, last recital.

Iilollld I-eillaill frk e fr )tti di-zi-uptiiiii. Tra(le is vii(lan,-lered 1)y unilateral
exPWt political einl);irgoes and cartels. There is now
mitlimiltedly a --,eiieral axvarwiess of tliis damer in the Wvst.
'F)wrl, i- )1im-4-ver. less I\varelies of tite fact that the -opening up of new
N\' Iii(It. liave nor (ml v to) replace exliaiisted sources but also to take ill)
ill dellialid. is 1witio, ; Arioiisly endaiiger(A I)y declining investments i"I till. ]-;IN\- material-, industries. Tito causes of this decline are plain eiiough : few 1,1* t-lie countries ImN-e eitlier tit(- money or- the technical know-how
l1l't-Alo'd. At tile S.Zille tillie eliterm-ise,,- from the industrial countries are either no blii,-"er .111(lwed ill ol. beilol. fri,-,lit-ened off bv tlie 4triii--(,nr conditions of (-,tablisllme it md 1i x- tit(- ri,-;ks im-46-cd ill inv(Astinent ill many developing countries. 11-%Nv l v (If illustration. forei (Xn iiive,,titwnt Ampricall 1*,iN%- materials concerns fell hy 20,' in VP12/19721 in relation to) tit(, avera-e of preceding years. When file
s ,vflre post-war re(-('ssion fir -zt liit tit(, indiu4rial countries. raw materials
ji'ld reactle(. a v( ry low level. Otwe economic recovery really gets under \N,:11\,. s4llli(ms raw materials aro like to Ilf, f(,It.2
1,11"Ir i.--; NvIly tile indlistrial cmintrie.s cannot allow the present situation to (-lItillllp-41V(,lI if tile developing Coillitrie', Nvere prepared to see this liappenf4ii. tit(, v wmild be tile fir..4 to suffer. Tit(, old time,-4 N-Oien the govern ment.s in our diarieses could leave private companie- to tik(- soh, caro of raw material supplies liovo ,-,mie for --ood. By foll(I\vin the call for a "neiv international economic
we are n(ot t1wrefm-o ,mi-rendorin,- to revolutionary ideas but attempting to fill a va(-umn xviiicli ,-,,radiially arisen ,ince tite Second World War-. Tlie
ilAll ,trial 4-militries NN-mild (1() Nvell to take tit(, fortlicoming negotiations ()it a ll(,\N- P;ltr(jl-ll of international ecollmilic relation" verv "erioll"Iy.
Ill I'll(, la ,4 1.1 111(iliflis tile -sifl)ject of ra\v iii.iterjal -z has I)een discussed at a
111,11IN- international cmiferenco.,;;: t1w Sixt1i Spe-cial Session of the UN ill April 1914 : flie UN (Ioneral Ass(-mMY before Itszt : tlie spend T'N General Comft-rence ()it industrial development (UNIDO in Lima ill 'March 1975) : the prepar: I t I I]* v f.(Iliferellce ill 11:11-i-s ill April 1975: a nwetin..,- of tit(- Council of Mini.qters (0* 11w OECD ill 'Ma v 1915 wliere eo-onoinic relatimi" \vitli the developin.- C4), were ,ivell cl()se attentimi : flie conference (if Ministers (if Foreign Affairs of the
colintrios ill Lima in Au-ii,4 1975: and finally the UN Sevelitli
pf-cill oil devol(qment (Im-stions lichl ill 'New York from 1 to 16 Selllfml)or 1975, aud tit(, me(,titi (,, of tit(, "5 financial powers" ill Paris.
cflli., llltatimls llave PIivell few definite i-(-,,ulrs ))lit liave certainly riot bven
t'l lidpli lit', ol-i-ilmlly fillies "Ipart look irreconeilaMe now that tlie li'live eon tit(, in;idvisal)ility of ;m opcii confrontation Nvitil Ow 'I'llird World, '111(l 111( devoloping- countries luive aliandonM soille (If tilt, ( Xll-emf, flemands pi-fallpt(A 1) y t1leir fear of ec(Illoillic lie4Fcolollialisill. Reeelitl -. t lit-n-f4o.f., ila.,4 beeii ic,,:- talk of forming cartels of raw materials producer.q :md mm-o of raw nmteri.d.,- 1-reeinents. 'I'liere is a readiness to coo1wrate, Imit till, I'll j1di ljjellt l I diffel-em-4-s (If Opillioll 11ave niq -et I)v(,ii ,;(,tth d. After t1w
Sfs- i#m (if Ilio, UN A-zs( Ilil)l y we llave ill fact no furtlier titan acceptin)11 I lit- Ilrf),141 w itlilles ()f ill ;11"-(,11(1;1 fm di.,4clission. \\-Iiic!i w ell sliort of ill action 111*' I':Illlljje. Attelitioll nmv celltre 4 liminly ()it n jwssible conference on interna(.4mlpf'ratiml in DoceIIII)er (if iiii-; year. in \N-Iiieli 27 nationsilldli-11-i'll climitri-. ()PEA' '111d dovel countries-iiii-lit take part.

I]w (jv\,(+,pim, com trios :ire for tlie f411,111:1i(pilit fluld to fillalive tile
-11ppi '111d st.11)ilizatilin of export
i!t4l- NIA f1lic"11111111-1,0111(.111 I)f I"I\N. IllIterials ill Ille developill- m illitries
I'! I I 1-1 171 1 1114-4, d 1.11 m Ilds S] Im ild bo :I I 1pl-1).-lelled p()Sit ively. 0 11 t Nvo
)I(M f .\-I.r, t Ill. i fill 11,11 ri'll clowt rit- .z co 111i'd 111;11 c cmlct".! Zion, : c.,I I-tel" of lllll- t 1w ()pjmsed, :Ind ille industri.11 (.411111trie. must ]tax.(, I*41<411*%'.1I1i"jj*- I'll till, 4)f 1.:I\N. 11i.ItcriA s price.s- i.e. linking Illese ilidustrill -(mds.
'111f. (If till. (W E'C 11.1s flinde Hie ilidusli-i'll afraid that
jol, 4411er tim il ('il 111iLJO cmllbillv alld act. a called.
I 't i : -I( 5 11 f I I I i "ClINT-It-1- lit, eum m illic r i I--- I It s I I I( I (lilt if's (of ,I ates" approved by

ill t1w !qilt', k ,11141 111*14'1' 111P Tlle(Ihlt (If O ECD
invf-stiiwnt 1nvvnfivv., in th, pr miry pri)(lucts 'wetlir


the UN General Assembly ambodies the right of any country to combine as a raw materials producer with other producers with a view to developing its economy. In recent years several new cartels have been set up, and existing ones strengthened, notably for bauxite, iron ore, copper, phosphates, mercury. tin, timber and coffee. In some cases successes have been achieved: phosphate prices have been tripled and Jamaica's bauxite income has even been increased six-fold.3
But the conditions for setting up cartels are not so favourable for all raw materials as they are for oil. A high price elasticity of demand, and frequently also of supply, and the possibility of opening up alternative sources of supply are often obstacles to the formation of cartels. Many primary products either do not have such a strategic position as oil (coffee, cocoa. tea). or the industrial countries themselves can. if necessary, step up their production (sugar) : alternatively. satisfactory substitutes may be available (rubber, various oils, jute, sisal, cotton, fruit).
But the danger of cartel formation must not be underestimated. If demand picks up again and supplies of certain raw materials become short because of the investment lag mentioned above, cartels will mushroom. And the developing countries would not be alone in these cartels;: they certainly would be joined by the industrial countries that produce and export raw materials. Furthermore. the OPEC countries may well be able to play a central role as bankers in determining the future structure of raw materials trade. With their financial power they could lend decisive support to raw materials cartels. They could declare their readiness to buy up raw materials in periods of low prices and thereby engage in commodity speculation behind the mask of solidarity with the developing countries. It is superfluous to point out in regard to the developing countries that cartelization in the raw materials sector carries with it the danger of provoking a reaction in the form of cartelization of demand, and may cause cartel formation along the whole business chain.
The effort to link raw materials prices to those of industrial goods is somewhat less objectionable than cartel formation. Nonetheless, an objection in principle to this kind of indexing is that it excludes the market mechanism and that, if the price is set too high, inefficient production is kept going and marketing difficulties arise.
Indexing can certainly not be equated with an excessive increase in raw materials prices. What the developing countries are demanding is an improvement of their terms of trade. To that extent indexing, which by definition means stabilization of the terms of trade, and, therefore, no improvement. is rather a moderate demand. Provided the necessary precautions are taken against overproduction, a form of indexing may well be acceptable in certain suitable cases. For instance, under the Lom6 Convention the European Community has undertaken to pay a price for sugar from the ACP countries which is in practice indexed, since the price guaranteed to the ACP countries is based on the price for sugar produced in the Community : this price is, of course, adjusted annually.

Product agreements are agreements between countries that produce primary products and countries that Ibuy them. These agreements are concluded with a view to stabilizing the prices of products in international trade. They must guarantee remunerative prices for producers and fair prices to consumers. For the latter, moreover, security of supply is a central goal. Furthermore, it is important to both parties, consumers and producers, for product agreements to eliminate sharp price fluctuations and encourage the achievement of equilibrium in the longer term between demand and supply.
A number of objections in principle, as well as practical reservations. are adducted against product agreements. It is alleged, unjustly, that product agreements mean a dangerous break with world free trade. That deln(s entirely on the technique used. Moreover, the raw materials market without product agreements is anything but a free market. The raw materials market has been

Opinion of the Committee on Development and Cooperation for the Committee on Economic and Monetary Affairs oni the communication from the Commission of the European Communities to the Council on the (Community's supplies of raw material'PE 40.452/fin., par. 7.


manipulated for a long time. In the case of cereals, timber, wool and sugar, government manipulation of production and marketing is a well-known phenomenon, and different prices in domestic and export trade have always been practised.
The raw material exporters are by no means all developing countries. Fiftyfive per cent of world raw material exports are from the industrial countries, 38% from the developing countries, and 7% from the eastern bloc. That is certainly a reason not to conclude product agreements for all important raw materials, but it is insufficient reason to regard such agreements as inappropriate all along the line.
It is a fact that in the past experience with product agreements has often been unsatisfactory. These agreements functioned reasonably as long as there were no great changes in demand or supply, that is, as long as they were not really needed. If demand increased sharply, the producers usually no longer observed the agreement, and if supply exceeded demand, restrictions were in general imposed on exports by the suppliers, but not always respected. Buffer stocks were also often too small, and finally, the mistake was constantly made in the past of setting up product agreements with an eye solely to the interests of the producers; the consumers usually had no voice in managing the agreements. These technical objections can, however, be met; they are not an insurmountable obstacle to product agreements.
In the industrial countries there have always been fears of the high costs which product agreements allegedly involve. Price stabilization need not be linked with a transfer of financial resources to the producer countries. In practice, however, stabilization does lead to some rise in prices since the mechanisms to prevent the price going through the ceiling or the floor are not the same. A floor price can be defended by storage and possibly by export restrictions. A maximum price is more difficult to maintain, since often demand can scarcely be limited. Experience (for instance with the tin agreement) has shown that product agreements are more effective in containing downward fluctuations than in limiting price rises.
But the industrial countries should not let themselves be too easily dissuaded by this. A reliable minimum price is of enormous importance to the steady expansion of production capacity which must keep pace with increasing demand. And the best line of defense against extreme price rises is still a regular and long-term balance between supply and demand. This is an important argument for product agreements and for the thesis that these agreements can be in the interests of both producers and consumers. The European Parliament has for years advocated the application of international raw materials agreements.'
The enormous redistribution of incomes consequent on the oil price rise has allowed the belief to take root that an arrangement covering several raw materials would be totally unacceptable to the importing countries. Closer inspection bears this out. Taking the five products (copper, lead, zinc, cotton and wool) which thhe European Comminssion considers most suitable for new product agreeienits, and assuming an average price rise of 20% for these products, this would mean a transfer of resources of two thousand million dollars. UNCTAD has drawn up a list of 18 products,; but a number of these must be left out, either because agreements already exist, or because the market is dominated to too great an extent by substitutes, or else because that part of the market which remains free is not representative of the whole market (most iron and bauxite mines, for instance, are owned by the processing industry).
Whalt is important is that the UNCTAD plan provides for an arrangement to avoid unlimited growth ill buffer stocks, which is necessary because even a small rise in prices above the equilibrium price brings with it a risk of structural surpluses. Under the Corea-plan buffer stocks would not be allowed to grow unrestrictedly. Once the maxiniuni is reached, the price is thereafter regulated simply by restrictions on exports from the producer countries.

A third positive point in thle l)roposals for product agreements Is that they would have a relatively smaller imnict on the public budgets of the Industrial

S o, intor ala Doe. 42/75- -Report on the Community's overall mineral policy regarding levelon'mont ruojpraition po1cy.
Whnt, rlet,, mnatzo. uiear. coffee, eeon, tea, cotton, jute, wool, hard fibres, rubber,
-olu'r. lend, zinc, tin, bauxlte and aluminum, Iron ore.


countries. The target percentage of 1clo of GNP for development aid seems scarcely attainable in most of our countries. Reasonable price increases for raw materials can, however, bring about a certain transfer of resources from the rich countries to the poor countries, without making excessively high demands on the industrial countries" public budgets. Moreover, it is clear that 'development aid' through higher raw material prices is psychologically much more acceptable to the producer countries than direct aid, which might seem to them like charity.
It has been calculated that the formation of buffer stocks for the 18 raw materials listed would require an investment of around 10.7 to 13 thousand million dollars;" this is, however, a maximum figure that would only be reached if all 18 buffer stocks reached their peak simultaneously, a situation which is unlikely to arise in practice.
The financing of buffer stocks is an important aspect. The European Com.munitybelieves that the costs should be borne by all industrial countries ine-luding the state-trading countries, as well as by other countries with adequate financial resources, i.e., mainly the oil producers. The IMF, which has already inade funds available to tin and cocoa producers to form buffer stocks, should also be able to take part in the financing arrangements. This distribution of responsibility logically means that the consumer countries must be strongly represented on the body administering the stocks.
Product agreements may take various forms; a mixed form usually offers the best prospects. Export or production quotas are one important possibility; they have been applied for some time in the case of sugar and coffee.
Buffer stocks can function provided that they are administered jointly by all, the parties concerned, and that there is sufficient agreement between them on the maximum and minimum price. A further requirement is that the buffer stocks must be big enough to affect the market. Buffer stocks have the best chance of succeeding if the demands made on them are not excessive. For example, the likelihood of success is much greater if they are confined to damping fluctuations and not to holding the price within a predetermined "tunnel" at all costs.
Further study should also be made of the possibility of introducing a system of fixed minimum and maximum prices with levies paid by:
The consumers when prices are below the minimum price;
The producers when they are above the maximum price;
Boffi, when they are between the minimum and maximum prices.
Thig arrangement has the great advantage of simplicity, so that administrative costs can be low. Moreover, no capital need be injected.
Product agreements have the drawback that they do not allow an approach differentiated according to the needs of the producing country. In the case of products which are produced in considerable quantities by both rich and Poor countries, preference should therefore be given to stabilization of the earnings from exports of raw materials adjusted to the developing country concerned. Again, in cases where price stabilization is very difficult, -a form of income compensation or guarantee is preferable. In choosing products here, the following criteria can be used:
Earnings from exports of the product concerned must reach a set per,centage of total export earnings of the individ=1 developing country (the Lom6 Convention stipulates a minimum percentage of 7.50/c, and 2.5% for
the poorest countries) ;
Only products of particular significance to the poorest developing countries should be covered by the scheme.
The European Communities' ideas tend towards a system that could work
as follows: there would be transfers calculated on the basis of the difference between the average export earnings over a prior period of a few years and effective earnings in the year concerned (both expressed in special drawing rights). In the Isomd Convention, the Community and the 46 associated countries decided to institute a system of this kind. The "STABEX" system

sTo these acquisition costs must be added Interest and storage charges, plus any costs arising from product deterioration. Against this, stocks bought In times of recession can normally be sold profitably later on.
T Product agreements designed to limit excessive price fluctuationq-Communication from the Commission of the European Communities to the Council, June 1975.


will apply to some 13 products, with compensatory financing if incomes fall by 7.5%'c or more below the average of the four previous years. A system of this kind might be applied in a broader context, with all the industrial and
oil-producing countries taking part in the financing.

Groundnuts, cocoa, coffee, cotton, coconuts, palm products, and products derived from tI ve primary products ; leather, hides, wood, tea, raw sisal and iron ore.



Mr. Leo Tinudemans, the Prime Minister of Belgium, was asked at
the 1974 Paris summit meeting of the chiefs of governments of the Community members to report by the end of 1975 on the concept of European Union. This assignment was based, in turn, on the 1972 summit agreement that such a union would be established by the end of the present decade.
Because Mr. Tindemans Report, which was released in early January,
is of such wide interest, we are reprinting it below in its entirety.

December 129, 1975.
At the conference of Heads of State and Heads of Government of Member States of the European Communities, which was held in Paris on 10/11 December 1974. you asked me to define what was meant by the term "European Union." When attempting to do this I obviously took into account the reports drawn up by the European Parliament, the Commission of the European Communities and the Court of Justice and also the opinions voiced during the past year by members of your Government and other powerful forces in the various States. Throughout these contacts I was struck by a contradiction. On the one hand, some people believed that it was particularly inappropriate to draw up a report on European Union at a time when the European concept wae, passing through a crisis and the incompleted European Structure was swaying. Furthermore, there was the feeling that the economic recession has made itself felt in our Member States throughout 1975 without any large-scale joint action having been planned to counter the effects of economic depression and unemployment.
And yet-and this is most significant-almost all the people to whom I spoke stated that they could not imagine a better future for their country than that offered by the building of Europe. They could not conceive of doing this other than by strengthening the Community.
In this respect. there is a distinct divergence of views between public opinion and those who fulfill a political role in their respective countries. Public opinion is extremely sceptical on the will to establish a genuine European Union and solve the real problems of the day at European level. It wants results and questions the lack of political will on the part of its leaders. For me, the conclusion is obvious: if we wish to safeguard the achievements of the Treaties and conquer new ground the Member States must agree on new aims.
At this stage, the stakes are political. that is quite irrefutable.
This is the reason why I deliberately refused to draw up a report claiming to be, at least in part, the Constitution for the future European Union. Nor did I wish to describe what Europe ideally should be. while remaining personally convinced that Europe will only fulfill its destiny if it espouses federalism.
The crisis in Europe is so serious that we must, in the immediate future. save what has already been achieved and, working on this basis, take drastic measures to make a significant leap forward.
I had to make a difficult choice. My proposals do not directly concern the final phase of European development. They state the objectives and the methods whereby Europe can be invested with a new vitality and current obstacles can he overcome.


My choice is based on the belief that at the present time any other approach would either be unworthy of our faith in Europe, or else, because of its utopic nature in the present circumstances would lose all credibility with the parties in power. Consequently, it represents a realistic yet feasible approach.
For me, European Union is a new phase in the history of the unification of Europe which can only be achieved by a continuous process. Consequently, it is difficult to lay down, at this stage, the date of completion of the European Union. It will only achieve its objectives by means of institutions which have been adapted to its new requirements. It is in fact by means of Institutions which have Ibeen strengthened and improved that the Union will be able to give increasing expression to its own dynamism. In this respect, the role of a directly-elected European Parliament will be decisive in the development of the Union. Finally, I am convinced of the need, in 1980, to assess what we have already achieved so as to open up new prospects and make further progress.
That, after much reflection, is my conclusion.
Seen in this light, the proposals put forward in my report should help us to overcome the present crisis, improve the functioning of the institutions, give shape to yesterday's and today's political options and work out new ones. As I see it, this is the main task at the present time.
If we succeed in this, the European concept will be preserved once and for all and because of this the f uture of our peoples assured.
I remain firmly convinced-as do the great majority of our fellow-citizensthbat we can only really develop if we have common policies in most sectors.
Efforts to reach an agreement on vital questions of international policy and concentration on security are the basis of our policy which aims at safeguarding our identity. They are indispensable to Europe if a better world is to be built.
The aim of European Union should -be to overcome the age-old conflicts which are often artificially maintained between Nation-States, to build a more humane society in which, along with mutual respect for our national and cultural origins, thle accent will be placed more on the factors uniting us than on those dividing us.
Such a Europe could awaken new hope in everyone and could be the focal point in an ideal and significant resurgence.
Any discussion which the European Council may wish to hold on my report should lead to a commitment to achieve by appropriate decisions the qualitative change characteristic of European Union.
I am convinced that after a detailed study of this report you will feel able to endorse its objectives and ensure that they are carried out.


Why ha s the European concept lost a lot of its force and initial impetus? I believe that over the years the European public has lost a guiding light, namely the political consensus between our countries on our reasons for undertaking this joint task and the characteristics with which we wish to endow it. We must first of all restore this common vision if we wish to have European Union.
In 1975' the European citizen does not view the reasons for the building of Europe in exactly the same way as in 1950. The European idea is partly a victim of its own successes: the reconciliation between formerly hostile countries, the economic prosperity due to the enlarged market, the detente which has taken the place of the cold war, thanks particularly to our cohesion, all this seems to have been achieved and consequently not to require any more effort. Europe today is part of the general run of things; it seems to have lost its air of adventure.
Our populations are concerned with new problems and values scarcely mentioned by the Treaties. They realise that political union does not automatically follow from economic integration, too many fruitless discussions cast doubt on the credibility and topicality of our joint endeavour: to this extent the European idea is also a victim of its failures.
In this state of mind we plunged into a crisis and are experiencing rates of inflation and unemployment the likes of which have never been seen by the present generation. It is therefore hardly surprising if the Community is crumbling beneath the resurgence, which is felt everywhere, of purely national preoccupations. Especially as the Community, in its present state, is unbalanced: in some fields it has been given far-reaching 'powers, in others nothing, or practically nothing-, has been done, very often because our States were too weak to undertake anything new: the fragile nature of Europe must surely be a reflection of the powerlessness of our States.
An unfinished structure does not weather well: it must be completed otherwise it collapses. Today Community attainments are being challenged.
Basically, however, Europeans are still in favour of closer links between our peoples as laid down in the Treaties of Paris and Rome, first between the Six, later between the Nine. They even take this reapproachement as a matter of course and regret not having more evidence of it in their daily lives. A return to selfish national attitudes, to national barriers, and to the antagonisms which they have frequently engendered would be seen as an historic defeat, the collapse of the efforts of a whole generation of Europeans.
If this extensive will for reapproachement is to take on a political dimension vital to ensure that action is taken, Europe must find its place again among the major concerns of public opinion thus ensuring that it will be the focal point of the political discussions of tomorrow. We must listen to our people. What do the Europeans want? What do they expect from a united Europe? 1- A voice in the world
During my visits I was struck by the widespread feeling that we are vulnerable and powerless. This is a new experience for our peoples in recent history. Inequality in the distribution of wealth threatens the stability of the world economnic system; exhaustion of resources weighs heavily on the future of industrial society; the internationalisation of'economic life makes our system of production ever more dependent. Our States seem very weak to face these challenges alone. What weight do isolated voices have unless they are those of the Super Powers?
And yet the will to make an active contribution is still very strong as we can see from the 100,000 young Europeans who are working in co-operation programmes throughout the world. Our peoples are consclis that they embody certain values which have had an inestimable Influence on the development of civilisation. Why should we cease to spread our ideas abroad when we have always done so? 'Which of us has not been surprised to see the extent to which the European


identity is an accepted fact by so many of the foreigners to whom we speak It is not only from within that there is a call to the countries of Europe to unite.
Our peoples expect the European Union to be, where and when appropriate, the voice of Europe. Our joint action must be the means of effectively defending our legitimate interests, it must provide the basis for real security inll a fairer world, and enable us to take part in this dialogue between groups which is apparently a new aspect of international life. How can we reconcile these requirements in today's world if we do not unite?
Europe must guard against isolation, against turning inwards on itself which would reduce it to a footnote in history, and also against the subjection and narrow dependence which would prevent it from making its voice heard. It must recover a certain amount of control over its destiny. It must build a type of society which is ours alone and which reflects the values which are the heritage and the common creation of our peoples.
2. A ncw society
We all feel that our society is in the state of anxious expectancy and conflict which is the forerunner of major changes. New and sometimes contradictory scales of values are making their appearance in all fields of social life. The task of the present generation is to seek a transition to a post-industrial society which respects the basic values of our civilisation and reconciles the rights of the individual with those of the community. If we fail our democracies will be at risk and our children will inherit a decadent society.
Despite the sometimes radical divergencies in the solutions advocated there does exist a minimum consensus of opinion between the democratic forces in Europe on the nature of the changes required. A new type of economic growth displaying more respect for the quality of life and the physical and human environment and better able to reconcile economic and social objectives. Growth which is oriented towards highly specialised activities and makes full use of the skills available in Europe. management and organisational capacities in the most advanced and complex fields of human activity; : this is our one specific advantage in the international economy: Europe's "grey gold". Finally the development of individual personal responsibility in the social and economic sphere by associating workers with the decision making, the management or profits of undertakings. by much greater freedom in the organisation of work, by more openness, decentralisation and consultation in public administration.
Our peoples expect European Union to embody and promote the development of our society in the way foreseen above, to provide a new authority to compensate for the reduced power of national structures and to introduce reforms and controls which often cannot be implemented at state level, to give an organic form to the existing solidarity of our economies, our finances and our social life. Europe can and must identify itself with the concerted and better controlled pursuit of the conmmnon good with economic resources being reoriented towards the collective interest, a reduction in regional and social inequalities, ( ecenltralisationll and participation in decision making. We will then have created a new type of society, a more democratic Europe with a greater sense of solidarity and humanity.
3. A positirc solidarity
No ,ne wants to see a technocratic Europe. European Union must be ex)erien d by the citizen in his daily life. It must make itself felt in education and culture, news and coimmunications, it must be manifest in the youth of our count ries, and in leisure time activities. It must protect the rights of the il(lividual and strengthen democracy by the interplay of institutions which have legitimacy conferred upon them by the will of our populations. The image of Europe must be in line with its motivations and opportunities, it nimust demonnswote to those within and without the solidarity of our peoples and the values of our society. I am convinced that this Europe, a progressive Europe, will ick neither power nor impetus.

The basic choice made by the Founding Fathers of Europe and embodied in the Treaties of Rome 111and Paris was to bring alboult an even closer union between our Ieoples. This option is still open to us. In the face of the internal and external (hallelnges of our society felt by the whole of Europe six countries initially and thoen nine decided to fight back by joinining forces.


The 1972 and 1974 Paris Conferences decided that European Union was the best means of doing this at the present stage of the building of Europe.
As the aims and nature of European Union are no longer very clear the first task of our governments is to decide precisely within the European Council what are the implications and consequences of these choices. It is now up to the European Council to decide on the general form which the joint endeavour is to take during the Union phase. The time to enshrine in a legal text all the changes which have been gradually made to the European structure wi!l be when the process of building the Union has acquired its own momentum.
As a result of my consultations in all our countries I suggest that the European Council should define the different components of European Union as follows:
1. European Union implies that we present a united front to the outside world. We must coordinate our action in all the main fields of our external relations whether it is a question of foreign policy. security. econinic relations or development aid. Its aim is to defend our interests but also to use our collective strength to support whatever is just and legal in world discussions.
2. European Union recognises the interdependence of the economic prosperity of our States and accepts the consequences of this: a coinnion economic and monetary policy to cope with this prosperity. common policies in the industrial and agricultural sector and on energy and research to safeguard the future.
3. European Union requires the solidarity of our peoples to be effective and adequate. Regional policy will correct inequalities in development and counteract the centralising effects of industrial societies. Social action will mitigate inequalities in the distribution of wealth and encourage society to organise itself in a fairer and more humane fashion.
4. European Union makes itself felt in people's daily lives. It helps to protect their rights and to improve their life style.
5. In order to achieve these tasks European Union is given institutions with the necessary powers to determine a common, overall and coherent political view, the efficiency needed for action, the legitimacy needed for democrat tie control. The principle of the equality of all our States continues to be respected within the Union by each State's right to participate in political decision making.
6. Like the Community whose objectives it pursues and whose attainments it protects European Union will be built gradually. So as to restart the construction of Europe straight away and increase its credibility its initial basis is the political commitment of the States to carry out specific actions in fields selected according to their importance and the chances of success.
The different facets of European Union described above are closely connected. The development of the Union's external relations cannot occur without a parallel development of common policies internally. Neither can be achieved without consolidating the authority and effectiveness of joint institutions. In this vast scheme everything goes together and it is the sum of the progress achieved in parallel which constitutes the qualitative change which is European Union. The rest of this report will examine in each of the fields referred to the aim and the first positive actions which need to be and can be taken.
The general framework which I prose should be adopted by the European Council must serve as guidelines for the efforts to build Europe. The will of our States, expressed in this way, is based on the deep seated motivations of public opinion and can convey to it the guiding light of our common action.
The political consequences of these choices must he carefully assessed. They cannot occur without a transfer of competences to conmmnon bodies. They cannot occur without a transfer of resources from prosperous to less prosperous regions. They cannot occur without restrictions, freely accepted certainly, but then enforced unreservedly. This is the price of Union. But what price would we pay for inaction? The crumbling away of the Community. voices isolated and often going unheard in the theatre of the world. increasingly less control over our destiny, an unconvincing Europe without a future.

Our States' reasons for presenting a united front in world discussions are convincing from an objective point of view: they stem from power relationships and the size of the problems. From a subjective point of view they are felt very strongly by our peoples: our vulnerability and our relative impotence are in the thoughts of everyone. The convergence of these two factors means that external


relations are one of the main reasons for building Europe, and make it essential for the European Union to have an external policy.

The examination of our possibilities for action in the world should be based on one obvious fact: the increasing intermeshing of different sectors of international activity.
As described in the previous chapter the European Union should not only be concerned with foreign policy in the traditional sense, including security aspects, nor solely with tariff and trade policies which are already common policies by virtue of the Treaty of Rome, but also with all external economic relations. The traditional distinctions maintained by diplomatic chanceries in this field make increasingly less sense in the modern world. The recent development of international life shows that economic, industrial, financial and commercial questions will all in the future )e the subject of negotiations, the significance of which will le highly political. If the European Union did not have the means to cover all aspects of our external relations it would not be equal to its task. The Union must have an overall, coherent outlook and plan of action. I suggest that the European Council should now decide:
(a ) to put an end to the distinction which still exists today between ministerial mutings which deal with political cooperation and those which deal with the subjects covered by the Treaties: in order to decide on a policy the Ministers must he able to consider all aspects of the problems within the Council.
( b) that the institutions of the Union can discuss all problems if they are relevant to European interests and consequently come within the sphere of the UnI lioll.
The existence of a single decision making centre does not mean that there will be confusion between those activities which today are the responsibility of the ('oiniunity and political cooperation activities. The nature of the problems does niot mean that they will all be treated in the same way. Coherence of activity on 1 he other hand which is essential requires that the different aspects of the often complex problems which the European Union will have to examine be dealt with together, at least at ministerial level, by the same people and in the same place.
With this in mind I suggest changing the political commitment of the Member States which is the basis of political cooperation into a legal obligation. A very Ihort protocol taking up paragraph 11 of the Copenhagen Report 1 ought to give competence to the Council and thus clarify the legal framework in which it is to operate.
The development of new policies on the basis of the Treaties does not cause any particular pioblemi : the provisions blinding us are clear and there are numerols precedlents. The same thing does not apply in fields not covered by the Treaties. The way in which future developments are to take place must be specifil here.
In those fiels of foreign relations not covered by the Treaty the Nine nowadays (1ordinate their policies, and in recent years this arrangement has been (extellnded and has met with considerable success. Such an arrangement would not, lihowever, hie adequate within the framework of the( Eurolnan Union. It explicitly incorporates within its structure the possibility of failure: the pursuit of differenlt I licies whenever coordination has not been achieved. The European identity will not he accepted by the outside world so long as the European States :p1(141r sometimes united, sometimes disunited.
Eurolan Union obviously implies, within the fields covered by the Union, that the European States should always appear to be united, otherwise the term would be meaningless. The coordination of policies, which is important during a transitional period, must therefore gradually make way for common Iolicies, which means that our Stal es must be able to draw up a common policy and act toget her within the frainework of the European Union.

I lIere is the text of thsl paragraph:
(overrnents will consult each other on all Important foreign policy questions and will work out priorities, observing the following criteria:
The purpose of the consultation is to seek common policies on practical problems: The subjects dealt with must concern European interests whether in Europe Itself
or elsewhere where the adoption of a common position is necessary or desirable.
On these questions each State undertakes as a general rule not to take up final positions without prior consultation with its partners within the framework of the political cooperatiol mllhiIery.