THE PRESIDENT'S DAILY BRIEF 5 DECEMBER 1974

• Document Type: FOIA
• Collection: President's Daily Brief 1969-1977
• Document Number (FOIA) /ESDN (CREST): 0006007885
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 19
• Document Creation Date: August 14, 2016
• Document Release Date: August 24, 2016
• Publication Date: December 5, 1974

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The President's Daily Brief
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December 5, 1974
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T .077 s 4, e
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Exempt from general
declassification schedule of ED. 11652
exemption category, 5B( I
declassified only on approval of
the Director of Central Intelligence
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FOR THE PRESIDENT ONLY
December 5, 1974
'Table ' of Contents.'
Israel Arab: States: Prime Minister Rabin 's outline
of Israel s negotiating strategy could lead the
Arabs to take a more intransigent position,
(Page 1)-
Egypt-Israel:
(Page 3)
Cyprus-Greece-Turkey: Archbishop Makarios reportedly
has agreed to the pursuit of a negotiated settle-
ment based on a geographic federation.?
(Page 4)
Saudi Arabia: The new governor of the Saudi Arabian
Monetary Agency will probably try to move away
from the conservative investment practices of
his predecessor. (Page 6)
Cambodia: The insurgents appear to be preparing for
a long-term struggle. (Page 7)
China: Business transacted at the Canton Fair was
lower than it has been in years. (Page 8)
Notes: West Germany; South Korea; USSR (Page 9)
Annex: West German Chancellor Schmidt
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ISRAEL - ARAB STATES
Prime Minister Rabin's outline of
Israel's negotiating strategy, laid out
in a press interview on Tuesday, could
lead the Arabs to take a more intransi-
gent position.
In airing his strategy, Rabin may
have wanted to demonstrate that Israel
is prepared to conduct peace negotiations
but is determined not to do so on terms
dictated by the Arabs, their Soviet back-
ers, or even the US. The Prime Minister
probably also hopes this hard-Zine posi-
tion will answer his domestic critics.
Rabin offered Egypt a virtually immediate
agreement on a second-stage withdrawal in the Sinai,
tied to no explicit political commitments from Cairo
other than a prolonged extension of the cease-fire.
His offer, however, is woven into an overall strat-
egy that would, in effect, enlist Egypt's coopera-
tion in delaying for years the conclusion of a
comprehensive peace settlement.
Rabin prefaced his offer of a Sinai disengage-
ment with a clear statement that Israel intends to
play for time. Israel is now powerless to change
international realities, he said, and might need
as long as seven years before the West is free from
dependence on Arab oil. The implication is that
wider negotiations at that later stage would find
Israel better able to withstand pressures to make
significant concessions.
Rabin spoke of a Sinai disengagement agreement
in terms of how it would facilitate Israel's delay-
ing strategy. Such an agreement, ?he said, would
keep Egypt out of the Soviet orbit and also out of
war.
Rabin is apparently greatly concerned that
pressures on Israel are growing to negotiate with
the PLO and to forgo bilateral negotiations with
the Arabs in favor of multilateral talks at Geneva.
He may believe that Israel must make a strong effort
to counterbalance these pressures by setting forth
a position which, while holding out the promise of
peace talks, may be as unacceptable to the Arabs as
(continued)
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Rabin insists the Arab and Soviet terms are for Is-
rael. The Prime Minister may hope that the US will
try to avoid a deadlock by convincing the Arabs and
the Soviets to take Israeli views more into account.
The Egyptians have not reacted officially to
the interview beyond dismissing it as intended pri-
marily for internal Israeli consumption. Rabin's
remarks, nevertheless, are potentially embarrassing
to President Sadat and could frustrate his desire
to proceed with a further agreement in the Sinai.
Egyptian agreement to disengage on Rabin's
terms would signify, in Arab minds, Sadat's acqui-
escence in Israel's strategy. This would magnify
Arab suspicions that Egypt is interested only in
regaining its own territory.
Syria's government-controlled press has inter-
preted Rabins' statement as further evidence of
Israel's attempt to isolate Damascus from the nego-
tiation process and to "paralyze" efforts to recon-
vene the Geneva conference. Two Syrian newspapers
yesterday, citing Rabin's interview, accused the
US of trying to divide the Arabs by putting forth
schemes for partial agreements that exclude Syria
and hinder achievement of a comprehensive peace.
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EGYPT? ISRAEL
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CYPRUS-GREECE-TURKEY
Archbishop Makarios was apparently
persuaded to be more flexible about terms
for a Cyprus settlement at the Athens sum-
mit last weekend.
Acting Cypriot President Clerides told
in Nicosia Tuesday that Maka-
rios agreed with Greek Prime Minister Karamanlis
that within two weeks of his return to Cyprus--per-
haps as early as tomorrow--he will grant'Clerides
written authority to pursue a negotiated settlement
based on a geographic federation. The formula calls
for the establishment of one major Turkish Cypriot
zone in the north and possibly one or two additional
zones elsewhere on the island.
The arrangement reached in Athens appears to
be a compromise between Makarios earlier proposal
?for smaller cantons with local autonomy and the po-
sition taken by the Turkish Cypriots. Makarios
evidently gave grudging approval to the formual only
after strong pressure from Karamanlis. Clerides is
reportedly pleased with the agreement, but is not
certain Makarios will honor it.
Clerides resumed his humanitarian talks with
Turkish Cypriot Vice President Denktash yesterday
and presumably gave him at least some hint of the
Athens agreement. Denktash requested that no date
be set for another meeting, pending Makarios' re-
turn and a clarification of the Greek Cypriot nego-
tiating position.
The Turks are unlikely to agree to the Greek
proposal initially, but they may be persuaded to
accept it eventually, since the alternative Greek
formula calls for a substantially reduced, single
Turkish zone.
(continued)
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the UN force commander
suggested preparations for a small-scale
exercise. He pointed out that by positioning forces
there the Turks could easily move to an actual at-
tack toward Larnaca and the oil refinery complex
west of the Dhekelia sovereign base area, but he
doubted that the Turks would attack Greek positions
unless provoked.
The UN officer confirmed the alert postures of
both Turkish and Greek Cypriot forces as a precau-
tion against possible trouble when Makarios returns.
The UN has increased its patrolling of access routes
to the Turkish areas in the south in an effort to
deter possible Greek actions against the Turkish
enclaves. A British reconnaissance unit will rein-
force UN forces in the area between the exercising
Turkish forces and the sovereign base area. The
Greeks and the Turks have been informed of these
measures.
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SAUDI ARABIA
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CAMBODIA
The rejection last week by both Si-
hanouk and the Khmer Communists of the
UN's call for peace talks in Cambodia
reinforces other signs that the insurgents
are preparing for a long-term struggle.
The Communists' outlook on military prospects
has been less optimistic since the insurgent drive
on Phnom Penh 'stalled last winter. The strongest
indicators that they are looking to the long haul
have come recently. On November 14, Khieu Samphan,
the Khmer Communist "defense minister," issued,an-
"open letter" in which he carefully hedged projec-
tions for the dry season, implying that no conclu-
sive fighting would take place. Sihanouk too ad-
mitted, in his initial rejeation of the UN action,
that "in the face of (continued US support to Phnom
Penh), our struggle Will be long." Officials in
both China and North Vietnam have been cautious in
commenting on Khmer Communist military prospects.
Along with the changed tone on insurgent mili-
tary prospects., the Communists have put more empha-
sis on economic development in the "liberated zone"--
a step that will indeed seem necessary if the in-
surgents are really digging in. After years of
neglect, agricultural production in even the most
fertile areas of the Communist zone has so fallen
off that widespread shortages of rice and other
foodstuffs prevail. Most processed or manufactured
goods are smuggled in from the government zone or
from South Vietnam or Thailand. The rudimentary
civilian communications and transportation systems
that existed before the war in the Communist zone
have fallen into almost complete. disrepair.
During the past six weeks, a Khmer Communist
"economic and financial" delegation--the first of
its kind--has been abroad trying to line up non-
military aid. The delegation appears to have had
some success in Hanoi. Initial information on the
visit to Peking, however, indicates that the Chinese
have not been overly generous in extending economic
aid.
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CHINA
Business transacted at the recently
concluded Canton Fair was lower than it
has been in years. The value of contracts
signed--about $700 million?dropped about
30 percent below the level of the spring
fair and about 45 percent below the fair
last fall.
Chinese purchases at the fair declined sharply.
Peking has been postponing or cutting back its im-
ports of farm products and some industrial materi-
als in the face of a rising trade deficit and a
temporary shortage of foreign exchange. China
also has been shifting much of its purchasing out-
side the Canton fairs.
Sales of China's traditional exports suffered
from the depressed state of the world economy. Al-
though Chinese prices were generally lower than at
the spring fair, they often remained sufficiently
above the level of world prices to preclude busi-
ness.
The meager Chinese sales at the fall fair
will retard export growth next year. Increased
sales of petroleum will probably offset the de-
cline in China's exports, but the sharp increase
in export earnings achieved in 1973 and 1974 is
not likely to be sustained. Peking will probably
continue to restrict less essential imports and
may widen the use of credits in the year ahead.
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NOTES
West Germany:. An incident occurred last night
at a US nuclear weapons storage facility in West
Germany. It began when two armed men were sighted
at the perimeter fence; two unarmed men were also
involved. Two US soldiers were wounded slightly in
an exchange of fire during a subsequent security
sweep of the area. The four men escaped; none pen-
etrated the facility.
South Korea: Political tensions in South Korea
have eased considerably since your visit, and the
Pak government seems willing to tolerate continuing
opposition activity so long as it does not develop
into large-scale street demonstrations. Antigovern-
ment protests have largely stopped. The opposition
New Democratic Party has ended its boycott of the
National Assembly, even though it began a sit-in
protest against the government in the building today.
Most of the major universities have reopened without
significant incident, and there have been no large-
scale Christian protests. The easing of tensions
results in part from general fatigue in opposition
ranks after months of largely fruitless activity.
The government's more restrained tactics have also
helped.
USSR: The USSR will soon open the port of
Vladivostok to foreign merchant ships, according
to the Soviet naval attache in Tokyo. Soviet mer-
chant fleet officers mentioned the opening to US
journalists during your recent visit. Such reports
are not new, but the USSR may now be serious about
making this change. The Soviet Union may want to
relieve pressure on the neighboring open port of
Nakhodka, which handles a large portion of Soviet
trade with Japan and most imports of North American
grain. Moscow may also expect that by opening
Vladivostok it will gain greater access to US ports.
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WEST GERMAN CHANCELLOR
HELMUT SCHMIDT
Chancellor Schmidt will
be interested in discussing
with you the new agreement
on strategic arms limita-
tions and whatever else
you would care to tell him
of your recent meeting with
General Secretary Brezhnev.
Schmidt may have some ques-
tions about the implications
of the arms agreement for
Western Europe.
In view of Bonn's keen
interest in key East-West negotiations, he may
seek your views on the status of the conference on
European security and the talks on troop reductions
in central Europe, both of which remain pretty much
on dead center.
also
It is likely that Schmidt will want to concen-
trate, however, on international economic problems.
International Economic Issues
There are no major economic problems affecting
the US and West Germany alone. The West German
position on several broader issues of mutual in-
terest is as follows:
Energy - Bonn has played down its misgivings
regarding the French proposal for an international
conference of oil consumers and producers, in an
attempt to win French cooperation on energy mat-
ters. The West Germans nonetheless view such a
meeting as useless if the US refuses to partici-
pate, and they insist that joint EC policy be for-
mulated first.
Bonn accepts the argument that oil consumers
must harmonize their policies before meeting di-
rectly with oil producers. Schmidt will want to
discuss ways in which the need for adequate con-
sultation among consumers can be reconciled with
France's preference that a dialogue with the oil
producers open soon.
(continued)
Al
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West Germany has reduced its oil consumption by
12 percent since last year and strongly supports in-
ternational agreement on conservation. It also has
been actively seeking to increase its exports to
oil-producing countries..
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Recycling Oil Money - Bonn approves the gen-
eral concept of an international recycling fund but
has serious reservations about the plan proposed by
Secretary Kissinger. Finance ?Ministry officials
believe that the plan ties aid to deficit countries
too closely to oil conservation efforts and does not
sufficiently stress the need for fiscal and monetary
restraint.
Bonn would prefer that aid from the fund be
based on the willingness of deficit countries to
stabilize their edonomies through tough anti-infla-
tion measures. The West Germans are also concerned
that Bonn's share of the $25-billion fund would be
larger than domestic political considerations would
allow.
Bonn has been attempting to dispel expectations
that it will merely bankroll the deficit spending
of its European neighbors. The West Germans in-
sist that eliminating deficits in non-oil trade is
a national responsibility, as opposed to financing
the sharp rise in oil payments, which they see as
an international problem. The West Germans have
insisted on stringent conditions for bilateral
loans to Italy and have been instrumental in limit-
ing the size of European Community lending facili-
ties.
World Trade - West Germany opposes prolifera-
tion of trade restrictions as dangerous to world
economic stability. It views buoyant export sales
as essential to West German prosperity and is con-
cerned about the current slowdown in world trade.
Schmidt's agreement to grant Italy a $2-bil-
lion loan last August was motivated partly by con-
cern about the impact on West German sales if
Rome further restricted imports. The Chancellor re-
cently expressed concern about anti-inflationary
measures that would reduce US import demand.
The Economic Slump - Schmidt has stated that
the US and West Germany have a joint responsibility
to lead the world out of recession. While in Wash-
ington, he will want to discuss coordinated actions
to stimulate recovery.
(continued)
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WEST GERMANY
KEY ECONOMIC INDICATORS
CONSUMER PRICES'
Percent change over previous quarter
at an annual rate
UNEMPLOYMENT RATE'
Percent 3.9
3.0
2.4 r
1.3
I I I II I
6
1.8
I II Ill iv I II III iv
1973 74 est
9.3
8.6
TRADE SURPLUS'
Billion US $
6.9
5.9
6.0
I 6.2
6.0
6.3
5.4
5.0
1 4.
3.7
2.8
II III
iv
I
II
in
I II III
iv
I
II
1973
74
1973
74
INDUSTRIAL PRODUCTION
Percent change over same quarter
of previous year
EXPORT VOLUME'
Percent change over previous quarter
9.8
8.0
79.
7.
4.7
3.9
2.7
I 3.0
1.5
1.1
I
I
I
III
I
-1.2
-2.3
I
it
In
iv
I
II
III
IV I II
1973
74
1973
74
556923 12.74
5.
itt
175-`
III
1. Seasonally adjusted.
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The West Gertrian, Domestic Economy
Rapidly mounting unemployment and the possibil-
ity of government losses in important regional elec-
tions next spring have provided the impetus for a
shift later this month to. moderately stimulative
policies, including incentives for private invest-
ment. Unemployment recently jumped to 670,000--
3 percent of the labor force.
possibility
of a 6.5 percent unemployment rate this winter--the
worst in 20 years.
Schmidt, his Chancellery staff, and Finance
Minister Apel believe that achieving even slow
growth in 1975 would require Stimulative measures
in addition to previously scheduled tax relief.
The need for a hard line against inflation never-
theless still dominates thinking in several influ-
ential quarters, including the Bundesbank, the Eco-
nomics Ministry, and the independent Council of
Economic Experts.
Economic growth has slowed progressively for
six straight quarters. The 1-percent rise in real
GNP expected for 1974 is attributable solely to
foreign demand for West German steel, chemicals,
and machinery.
Despite the recent weakening in foreign markets,
growth in export volume will amount to about 12 per-
cent this year and will help push foreign sales
close to $90 billion. Domestic demand has continued
to slump throughout the year and now stands 4 percent
below the early 1973 level.
At the same time, Bonn has maintained an envi-
able record on inflation. Consumer prices are only
7 percent above last year's level.
Schmidt the Man
The West German Chancellor is an economist by
training. He is a no-nonsense pragmatist who likes
to confront problems aggressively.
He first came into prominence while serving in
the Hamburg city government. His political talents
were soon recognized by the national leaders of the
Social Democratic Party, and he entered the Bonn gov-
ernment in 1969. A four-year stint as defense minis-
ter and nearly two years as finance minister have
given him broad experience unmatched by his European
counterparts.
(continued)
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During the past year, Schmidt has constantly
admonished other West European leaders to "put their
houses in order" by adopting anti-inflationary pro-
grams. Similarly, he has pulled no punches in warn-
ing young leftists in his own party that their pre-
occupation with narrow ideological concerns threat-
ens to "preach the church empty."
A Coalition Under Strain
Schmidt enjoys high popularity in the polls,
largely for keeping West Germany's rate of inflation
the lowest among industrial nations.
a number of party
moderates and leftists are disgruntled at the di-
minishing prospects for long-promised social and
economic reforms, given Schmidt's desire to control
government spending./
Schmidt's reputation as a conservative on policy
issues also creates problems for the Free Democrats,
the junior partners in the national coalition, who
are finding it difficult to maintain a distinct pub-
lic image as the main force for moderation in the
government.
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