LETTER TO DONALD T. REGAN FROM WILLIAM J. CASEY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88B00443R001604270035-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 24
• Document Creation Date: December 22, 2016
• Document Release Date: March 5, 2010
• Sequence Number: 35
• Publication Date: January 16, 1985
• Content Type: LETTER

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Wic Director of Central Intelligence
W %hinj.hon f) C 20505
16 January 1985
The Honorable Donald T. Regan
Secretary of the Treasury
15th and Pennsylvania Avenue, N.W.
Washington, D. C. 20220
Dear Don,
You asked for a copy of that portion of the report of the Commission on
the Organization of the Government for the Conduct of Foreign Policy which
deals with international economic policy. It is Chapter 5 which runs from
page 55 to page 74. I have marked the portions which relate to our discussions
starting on page 57 through page 63.
The key point is that foreign economic policy must bridge foreign and
domestic policy. Throwing all trade related matters together into one large
organization does nothing to deal with this critical task.
There is a need for an interdepartmental body at the White House level to
see that foreign and domestic policy considerations are brought together, to see
that problems aren't neglected because they fall through the cracks of estab-
lished departments and to provide adequate assurance that decisions are followed
up and implemented.
Only the President is in a position to integrate international economic
policy with foreign and domestic policy and to provide the required focus and
stimulus for decision and action.
To accomplish this, our Commission recommended a senior assistant to the
President with strong qualifications drawn from economic and/or business
experience to be charged with a central White House function. We urged that
care be taken that he would not assume a public posture or become a Presidential
spokesman and an independent bureaucratic force, usurping the duties of senior
government officials. Our Commission urged that the simplicity of a single
centralized structure be avoided and that the answer be sought in an effective
relationship between State, Treasury, Commerce, Agriculture and other departments
having domestic economic responsibilities.
We recommended establishment of a subcouncil to facilitate bringing together
domestic, economic and foreign policy considerations made up of the Under Secretary
of State for Economic Affairs, the Under Secretary of the Treasury for Monetary
Affairs, the Under Secretaries of Commerce and Agriculture and, at that time,
the Chairman of the Council of Economic Advisors. We recommended that this be
done at the sub-Cabinet level rather than at the full Cabinet level to ensure
the kind of sustained attention which Cabinet members are not likely to have
the time to give.
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This doesn't exactly deal with the formation of a Trade Department but
our Commission recognized that simply creating a larger bureaucratic unit
for trade would do nothing to deal with trade related monetary, development
and other policy mechanisms which are inherently part of the trade picture.
Something like this worked well in the Nixon Administration when
George Shultz, wearing a White House hat, chaired a Council on Economic Policy
in which all active players (mostly Under Secretary level) in international
economic policy sat.
I hope this is helpful.
Yours,
William J. Casey
Attachment:
As stated
cc: Secretary of State
2
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The Director of (a1 Intelligence ?
W %hington. D C 20505
16 January 1985
Dear George,
Here is some material from the report of
Bob Murphy's Commission on the Organization of
the Government for Conduct of Foreign Policy
which is relevant to-the issue of a Trade Department
which supports the views you expressed on this in
last week's Cabinet meeting. I mentioned it to
Don Regan and he asked me to send this material.
I thought you would be interested in seeing it too.
Yours,
William J. Casey
Attachment
The Honorable George P. Shultz
Secretary of State
Washington, D. C. 20520
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? ?
MEMBERS OF THE COMMISSION
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ROBERT D. MIIRPHY, Chairman
Honorary Chairman, Corning
Glass International
DAVID M. ABSHIRE
Chairman, Center of Strategic
and International Studies,
Georgetown University
ANNE ARMSTRONG**
Counsel to the President, The
White House
WILLIAM J. CASEY
President and Chairman, Ex-
port-Import Bank of U.S.
MRS. CHARLES E. ENGELHARD, JR.
The Engelhard Company
AREND D. LUBBERS
President, Grand Valley State
College, Allendale, Michi-
gan
WILLIAM S. BROOMFIELD
U.S. House of Representatives
JAMES B. PEARSON, Vice
Chairman
United States Senate
WILLIAM S. MAILLIARD*
U.S. House of Representatives
FRANK C. P. McGLINN
Executive Vice President, Fi-
delity Bank, Philadelphia,
Pa.
MIKE MANSFIELD
United States Senate
STANLEY P. WAGNER
President, East Central Uni-
versity, Ada, Oklahoma
CLEMENT J. ZABLOCKI
U.S. House of Representatives
PETER H. B. FRELINGHUYSEN***
U.S. House of Representatives
? Resigned December 1973; succeeded by Peter H. B. Frelinghuysen, January
1974.
?? Resigned November 1974; succeeded by Nelson A. Rockefeller, December
1974.
***Resigned January 1975; succeeded by William S: Broomfield, March 1975.
 ORGANIZATION FOR INTERNATIONAL
ECONOMIC POLICY
THE NATURE OF THE PROBLEM
International Economic Policy is concerned with the wide variety of
interactions between the economy of the United States and the econo-
mies of other nations-trade and investment, resource requirements,
monetary exchanges and financial flows, travel and transport, foreign
assistance programs and the workings of international businesses, to
name the more important ones. The issues arising from our interna-
tional economic life are becoming more complicated as well as more
interdependent. They will require a fresh and greater emphasis in both
our domestic and foreign policymaking processes.
This is partly a matter of sheer quantity. The volume of interna-
tional economic transactions has grown at unprecedented rates over
the past decade and more, substantially faster than the growth of
domestic economies. And this integration of the world economy is
likely to continue, for it is fostered by such fundamental forces as
the growing ease of communication, the speed of transportation, the
urge for higher living standards, and the vast accumulation and
spread of knowledge.
As international economic relationships increase, so do interdepend-
encies. Mutual 'benefits will normally flow from these interdependen-
cies, as trade provides cheaper sources of goods and broader markets
for national products, and as financial flows supply needed capital for
some and investment outlets for others. But interdependence also can
become uncomfortable. Sources of critical materials may prove vul-
nerable to economic or political forces. Business and labor interests
may have difficulty adjusting to changes in the flow of international
trade. As governments have accepted responsibility for meeting pub-
lic expectations for higher standards of living, and for more satis-
factory distributions of income, these dependencies become crucial. In
an age of interdependence,. no government can fulfill its commitments
to its own people except through cooperative arrangements for foreign
governments and overseas economies. At the same time, the U.S. gov-
ernment should seek to encourage an international climate conducive to
the play of market philosophy which prevails at home.
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 One further aspect of foreign e01n-ic policy needs emphasis. This
country can no longer play the dominalit role it did in establishi--g
and maintaining the framework oft lie economic system of the Western
World after 11"orld War IT. Economic power-and with it economic
responsibility-is now far more widely diffused. Nonetheless, the
United States is still the leading national economy; the size and power
of our economic system make it essential that, in conducting our for-
eigm policies, we understand the implications of particular actions-
the degree to which what we do will affect the whole of the interna-
tional monetary, trading, and investment systems. That understand-
ing is critical because the condition of the international economic
system will in turn affect the economic health and stability of our
political and security relationships with others, as well as our own
economic health. Consequently, coherent policy for the United States-
even more than for other countries-will continue to require a long
view of our interests in international economic order, a clear under-
standing of the order we would like to'see evolve, and an understand-
ing of the relation between our economic, political and security
objectives.
The implications of these facts are plain. Foreign economic policy
looms large in the concerns of both foreign policy and domestic. In
specific instances, a particular economic interest may need to be subor-
dinated to-or blended with-strategic, security, or diplomatic con-
siderations. In other instances, it may properly dominate, perhaps
reflecting crucial domestic priorities. But the fact that these con-
siderations are linked-that political or foreign considerations cannot
exist in watertight compartments separated from economic or domes-
tic interests-is now clear. Such recent developments as the effect of
U.S. balance of payments drains and the depreciating dollar on our
security and political relations, or the impact of Middle East politics
on our en( rgy supply make the point plainly.
The sit- ition is further complicated by the fact that although a
number of , iterests, constituencies, agencies, and Congressional com-
mittees party ?ipate in the making of foreign economic policy, foreign
economic -)rlicy has got been the central concern of an important con-
stituency, line agency or Congressional committee; each is focused
mainly on either foreign political and security concerns on the one
hand, or domestic economic concerns on the other.
Conflicts and competition among a variety of groups in setting pol-
icy are healthy and necessary in a democracy. We do not want to iso-
late foreign economic policy from the mainstreams of foreign or do-
mestic policy. Yet, we do want it to have coherence and design. It is
against this background that we approach the organizational question.
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 THE ROLE AND OBJECTIVES OF ORGANIZATION
The processes of policy analysis, formulation, and implementation
take on various colorations depending upon whether the problem is
first perceived and policy options first considered, and on which other
interests are then brought to bear on those options. It is easy to imagine,
for instance, that a decision originating in the Department of Agricul-
ture affecting world foou supplies and costs might differ sharply from
decisions on the same issues originating in the Department of State.
The point is not that one decision is likely to be better than the other,
but that both will be inadequate unless they reflect the full range of
relevant concerns-those of the American farmer, consumer, taxpayer,
and of U.S. foreign policy priorities.
The problem is not confined to executive departments, for many
decisions affecting foreign economic policy-often important in them-
selves but of peripheral concern in the context of a larger piece of
domestic legislation-may take on the coloration of a particular Con-
gressional committee.
A simple call for coordination is not enough to deal with this prob-
lem. Content must be poured into that word, particularly to ensure
that foreign economic policy gets the increased awareness and attention
it requires. In formulating its recommendations, the Commission pro-
poses a- mixture of more or less fixed organizational structure and
flexible processes designed to :
(1) Encourage a consistent general framework in foreign economic
policy responsive to and integrated with vital considerations of domes-
tic and foreign policy. Foreign economic policy, in short, must bridge
foreign and domestic policy. No organizational structure or simple set
of general principles can by itself assure consistency in the treatment
of a multitude of policy issues. But they can help make sure that the
relevant questions are asked, a variety of perspectives are brought to
bear, longer-term considerations are not submerged in the urgency of
the day, and that policies are more clearly articulated, to our citizens
and to foreign governments.
(2) Permit and e,,en encourage a broad sharing of authority and
responsibility for the formulation of policy, while providing protec-
tion against narrow and isolated views becoming dominant. In our
complex society, many parishes have a right to be heard. They need
clear access to and participation in the decision-making process. But
decision-making should not be merely a tug-of-war among competing
interests. A variety of organizational means -encompassing personnel
policies, Departmental structure, the choice of Cabinet officers, flexible
use of committees, and Presidential articulation of a set of guiding
principles--must be introduced to check excessive parochialism and
encourage a broader perspective in approaching foreign economic
policy.
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 (3) Encourage greater foresight- in perceiving, analyzing and
attacking problems at an early stage. The human capacity to foresee
the future is uncertain and limited. But for problems to be neglected
because they fall through the cracks of established jurisdictions, or
because no analytic capacity has been brought to hear, is inexcusable.
For this reason the Commission has given particular attention to
strengthening the ongoing mechanisms for monitoring and evaluating,
and for bringing to policymaking levels the significant developments
affecting our foreign economic policy in a fast-moving world.
(4) Provide adequate assurance that, once decisions are made, they
are followed up and implemented in the spirit intended. Again, the
Commission has put special emphasis on the need for strengthening
our capacity to follow through on decisions taken, and to evaluate their
results over time.
Fashioning organizational structures and processes to meet these
objectives is not easy, even in theory. We recognize that the relative
advantages and disadvantages of specific proposals can be subject to
endless debate, that others might reach different conclusions on some
of the specifics, and that any President or agency head will want to
retain flexibility to match organization to men and circumstances. For
all these reasons, we have tried to balance organizational blueprints
with flexible processes. We recognize that our objectives in recom-
mending both may be met by alternative means, which under certain
circumstances may be even more appropriate.
Finally, we have eschewed change for the sake of change. The pres-
ent basic structure, while not ideal, has much to commend it.
ORGANIZATION AT THE "TOP"
Assisting and Advising the President. Only the President is in a
iti
pos
on to integrate international economic policy.with foreign and
domestic
li
i
po
c
es and to pid thid
,rovee requre focus and stimulus for
d
i
i
ec
s
on and acti H di
on.e mustrect the formulation of international
i
econom
c policy-just as he does domestic economic or foreign pol-
icy-and its increasing importance will demand his increasing
awa.reness
He will need help in dealing with international economic problems
to assure th
t
a
necessary is t hi
sues comeom for decision and unneces-
s
ary ones do not tht i f d
;assuesorecision have been fully staffed and
relev
t
i
an
v
ewpoints ptd th
resene;at newer and emerging problems are
iven
g
appropriate attention; and that issues are dealt with in timely
fashion.
In light of these and other needs, we propose three organizational
measures
:
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 (1) A senior Assistant to the President should be charged with.
the central White House staff function in economic policy, bot
domestic and foreign. Having direct personal access to the President
and strong qualifications drawn from economic and/or business
experience, this Assistant should participate or be represented in all
relevant meetings of the National Security Council and of domestic
policymaking bodies (such as the Domestic Council, the Troika or
Economic Policy Board). He would be the Executive Secretary and
Director of staff of the proposed joint Subcouncil on International
Economic Policy.
He should have no operational or representational responsibilities
that would undermine his ability to work closely with-and not com-
pete with-cabinet officials. His function is a delicate one : to facilitate,
on occasion to prod, to think innovatively, to translate technical debate
into lay language, to observe the way Presidential decisions are acted
upon and to bring deficiencies to his attention, thus helping to monitor
the implementation of policy. In the perspective of the President, he
will need to make sure that in domestic councils, foreign policy con-
cerns have been brought to bear, and in foreign policy decisions domes-
tic economic implications are not forgotten. But we do not contemplate
he will assume a public posture-become a Presidential "spokesman"
and an -inde endent bureaucratic force, usurping the duties o the
re ns-ble line officials.n line with this conception, occupants of the
position should not be subject to confirmation by the Senate. His im-
mediate staff should be small.
(2) The President should appoint, and have available to him for
advice, a senior and representative group of people drawn from the
private sector who are well equipped by training and experience to
assist in formulating foreign economic policy in the national in-
terest-an International Economic Policy Advisor Boar . The
Board wou be prom e a sma secretariat to help prepare meet-
ings, disseminate information and focus discussion on relevant issues.
It would meet at least quarterly to review issues raised at its own
initiative or by the government. r he Board should have direct access
to the President, and the President should himself take the initiative
to meet with it from time to time. The Board should have wide lati-
tude to set up ad hoc groups, commission studies and otherwise equip
it to carry out its functions. It should replace most, if not all existing
advisory groups dealing with aspects of international economic
policy.
'There are several prec nts or this cry board-for
instance, in the areas o intelligence and disarmament. Such boards
can prove particularly useful w >en r . r policy is shared
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 The proposed study group, comprised of a limited number of senior
specialists, should have the broadest possible mandate as to areas of
study, drawing upon the expertise of relevant agencies to augment its
own resources. It should work closely with the various departments
to improve methodologies, cross-check its data, and assure that research
findings are broadly shared. Its particular focus, however, should be
on issues of longer-range importance to the White House, for example,
the problem of this country's having to deal with the increasing num-
ber of economies that are centrally controlled or planned. The group
should not be involved in current policy decisions or operations; neither
should it have coordinating responsibilities for the research activities
of the departments.
Interfacing of the Departments. Under the President the major re-
sponsibility for initiating, formulating and implementing policy
should lie with the major departments. We are convinced that delega-
tion of large authority to a White House staff-with its implied
corollary of a sizable staff-will erode the competence, authority and
thus inevitably the quality of the Departmental executives and their
taffs. Yet if his policy is to be successful, the President needs effective
Cabinet officers, and highly competent Departmental bureaucracies.
The President also will need to work closely with the Congress-and
substantive interplay with the Congress on the mass of policy issues
must perforce fall to Cabinet officers and their principal assistants
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by several agencies, and where the -icy itself poses difficult or sensi-
tive problems. We believe that a board to advise the President on for-
eign economic policy is particularly appropriate since the matters it
involves cut across much of the fabric of our private economic life.
The President should therefore have direct, exposure to thinking out-
side of official channels, and conversely the ability to generate broader
public understanding and support of policy positions.
In addition, the Commission believes that the nation's ability to deal
with its foreign economic problems would be substantially enhanced
if the President and his advisers had available an independent study
group dedicated to identifying and analyzing longer-term develop-
ments in this area and investigating their significance for policymak-
ing. We are impressed by the difficulty any operating agency experi-
ences in undertaking such research, given the pull of its immediate
responsibilities.
(3) In order to provide a focu8 for objective study of longer term
international economic problem8 and a more effective early warning
system for identifying the major related policy issues on the horizon,
we believe an independent study group on international economic
issues should be created under the auspices of the Council of
Economic Advisors.
 under Presidential policy guidance. The competence and initiative of
departmental officers can be maintained only by their full participa-
tion in policy formation.
The Commission is persuaded that in this area, the simplicity
of a sin le centralized structure must be avoid If Orel
f f or of domestic eco-
economic policy were simply an arm o ore ign
nomic policy, its management cowl a en ruse n le ear -
nnot
li
i
cy ca
c po
men owever, since we believe that oreign econom
t
-
be considered the exclusive concern of any single executive depar
ment or Congressional committee, but must reflect the interplay
between foreign and economic policy considerations, neither pattern
is suitable. That conclusion is reinforced by the consideration that
responsibility for domestic economic policy is not centralized in the
U.S., but is dispersed among a number of departments and agencies.
Tn.ic4 by Snll~lt, }}} ? ?~ a reliltionships among
Thus, the ansner a ..-A the
1 1 e WLLi
other Departments having domestic economic responsibilities, with
each bringing its own strengths to the process of policy formation.
The State Department's principal task is obviously the formulation
and conduct of foreign policy, encompassing the full range of our
relations with other nations. In this context it must follow closely
and influence trends abroad-making sure that the President and
his advisors are aware of the probable consequences of our decisions
before they are made rather than afterwards. State, through the For-
eign Service, also must bear the brunt of official activities and rep-
resentation abroad. These central responsibilities are large ones; they
encompass economic as well as political and security matters, but
the orientation is inevitably outward and generalist.
Observers have commented again and again on the systematically
lower professional regard accorded economists in the Department,
the relative thinness of their economic expertise in various special-
ties; the built-in incentives for generalists; and the political preoccu-
pation of the Secretaries. We know that State has taken some steps to
strengthen its economic capability-the greatly improved economic
instruction offered by the Foreign Service Institute, for example-but
much more needs to be done. We make recommendations below. But
these are not designed to place the Department in a dominant posi-
tion with respect to foreign economic policy formation. To discharge
that role would require the Department to become so entwined with
the warp and woof of domestic economic policy as to jeopardize its
primary mission, and would cloud the interaction which characterizes
foreign economic policy.
Looking at the domestic side, there is, as we have said, no single
agency responsible for economic policy. Treasury has recently as-
sumed a more general role than other operating departments, but this
61
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 W
has resulted in part from combinatla}fs of personalities, circumstances
and resource availabilities which may not continue naturally. None-
theless, because of its traditional concerns with international monetary
affairs, taxation, and some specialized aspects of trade, Treasury is
intimately concerned with the interface of domestic and interna-
tional economics. Commerce also has broad concerns affecting for-
eign economic policy-trade, investment and tourism, for example-
although it has been less successful than Treasury in expanding its
influence. Agriculture has a more limited involvement, but an impor-
tant one.
It is these departments-Treasury, Commerce and Agriculture-
in close contact with domestic economic interests and the principal
government decision-makers which must share with each other and
with State responsibility for foreign economic policy. When they fail
to reconcile positions, it will be by definition an issue worthy of Presi-
dential decision.
Of course, these four are not the only voices to be heard-almost
no important department or agency fails to touch upon issues of
foreign economic policy. Their top men should have access to the
President as well, when they deem critical points are at stake. Organi-
zational mechanisms need to recognize that reality too.
There is need for a mechanism to address foreign economic policy
in a sustained way and to facilitate the processes necessary to bring
together the domestic economic and foreign policy considerations that
must make tip the analysis, debate, formulation and implementation of
foreign economic policy. For this purpose, we recommend that:
The President should establish a joint aubcouncil of the NSC
and the Domestic Council and the Economic Policy Board (or what-
ever White House organizations should come to perform their
functions). Members of this body, the Subeouncil.on International
Economic Policy, would be the Under Secretary of State for
Economic Affairs, the Under Secretary of Treasury for Monetary
Affairs, the Under Secretaries of Commerce and Agriculture and
the Chairman of the Council of Economic Advisers. Other sub-
cabinet officers and agency heads -would attend Subcouneil meetings
as full members with respect to questions impinging significantly
on their responsibilities.
Designation of a Chairman should be left to the President. How-
ever, we anticipate that normally the Subcouncil would be chaired
by the Mvder Secretary of State for Economic Affairs. The Assist-
ant to the President for Economic Policy would serve as Executive
Secretary of the Subcouncil and Director of its staff. The staff would
be drawn in part from the staffs of its parent bodies but would func-
tion as the Assistant to the President's own staff.
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 The Subcouneil could create such committees or task forces astte the
President may deem necessary to assure adequate interagency
tion to continuing issues of international economic policy and to
the Subcouncil normally
special problems. The regular members of
as would the staff of the
would be represented on each such group,
Assistant to the President. Congress, and its staff should
The CIEP should be abolished by
be used to strengthen the economic capability of the NrSC and
White House Domestic Council. Other interagency inte
economic policy bodies would be brought under the Subcowneil
framework.
In recommending this arrangement, the Commission considered
especially sine domesticrecog-
carefully the merits of building this
economic policy at the full
nize that Cabinet members must give
because the broad responsibilities
foreign economic policy. Ho ,
otde rote sustai dine i
of Cabinet members will not always permit
sub-
attention to foreign economic policy, at th Gated that the bulk of foreign economic se most
Cabinet level, the organizational pattern
appropriate and consistent with these major needs. recognize
In expressing our preference for Subcouncil Chairman, we thereco refore,
that good arguments also exist for other choices, an e for ,the Under
left that decision to the President. Our prefere
con-
Secretary of State as the het most senior eU.S. Government official
siderations. First, he is while State
solely ys ays beithe lead agency in every foreign economic policy foreign economic may no
may e nottd alwa
issue, it will be so in many, and it will be one of the principal actors
all foreign aeconomic policy issues. Third, State-alone s in the Foreign Service and its posts and missions,
1
Departments-has
the capability to provide the bulk of the foreign inputs that feed the
decision-making process and to carry out decisions reached, all
sustained basis. Fourth, in the formulation, negotiation and imple-
mentation of policy, only State has the capacity to relate a P u
policy or issue to all other aspects of our relationship with a foreign
country.
The Commission considered the possible channels through which
recommendations (or disagreements) of the Subcouncil might go to the y seem President and concluded mthat even
was tooleugh ave topen variousnchannels.
most practicable arrange ough
ither Accordingly, issues might
could be taken die ctly by therAss stant to
parent council. Other issues the President. But formal requests for a Presidential decision should
arent bodies.
f the
. p
proceed to the President through one o
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In order to facilitate the development of policy with a Presidential
perspective in which the diverse strands air. brought into a consistent
and intelligible framework and rationale, and a more orderly and
coherent examination of the issues by the Congress and the public, we
recommend :
Maintaining the practice o f submitting to Congress an annual
Report of the President on international Economic Policy. This
report should be prepared in conjunction with the State of the
World Report recommended in Chapter 10 and should be sub-
mitted as part of that Report.
The President's Assistant for Economic Policy might assume coordi-
nating responsibility for preparing this report.
In recent years most executive departments (especially Treasury and
State) have strengthened their capacities in the area of foreign eco-
nomic policy. We believe that this effort should be continued but with
some important shifts of emphasis.
With respect to Treasury we do not favor, as has been suggested,
efforts to split responsibilities of the most senior Treasury officials-
at the Deputy and Under Secretary level-between domestic and inter-
national concerns. Certain of those officials-particularly the Under
Secretary for Monetary Affairs-may increasingly find the balance
of their work weighted toward the international side. But relieving
them of their domestic responsibilities, or removing other officials of
similar rank from responsibility for foreign problems, would be dam-
aging to that understanding of intimate interactions between the two
which we seek to reinforce.
In the case of the State Department, a number of needs exist. To
better equip State to play a balancing role in foreign economic policy,
and to assure its closer integration with the whole body of foreign
policy, changes should be made to assure on a continuing basis a strong
Under Secretary of State for Economic. Affairs, experienced in dealing
with business and economic problems and able to command adequate
resources to support. his activities.
In emphasizing the crucial nature of the Under Secretary's position,
we do not intend to diminish the importance of having the Secretary
himself play a greater role in foreign economic or scientific policy.
In fact, we believe that events will leave him no alternative. On the
other hand, we know that the Secretary will often find it impossible to
devote large amounts of his time to these matters. Effective delegation
to the proposed Under Secretary for Economic and Scientific Affairs
will thus require an incumbent with enough stature in the Department
 and in the eyes of the President and other Cabinet officers, to permit
him to act as the alter ego of the Secretary in this area.
The traditional preoccupation of the State Department with politi-
cal matters has impeded the Department's effective participation not
only in such main line foreign economic matters as trade, aid and
investment, but also in the more novel but increasingly important
questions of global environmental and resource interdependence.
Concerning such issues as world population, weather modification,
ozone depletion, governance of ocean uses and resources, it is essential,
we believe, to improve the Department's capacity to conform in partic-
ular U.S. positions to the larger purposes of American foreign
policy. The reorganization of 1975, instituting a Bureau of Oceans
and International Environmental and Scientific Affairs (OES), rep-
resented a step in the right direction. A remaining weakness in the
current organization of the State Department, however, derives from
the lack of integration between units dealing with global resource and
environmental issues and those focusing on economic questions.
Both the relatively low status of those bureaus and their separation
from the Economic Bureau should be corrected.
We believe this can best be done by broadening the scope of the
Under Secretary for Economic Affairs. We, therefore, recommend
that:
The Under Secretary for Economic Affairs be retitled the Under
Secretary for Economic and Scientific Affairs and that the Bureau
of Economic and Business Affairs, and the Bureau of Oceans and
International Environment and Scientific Affairs, together with
the funetiona.l units of the Bureau of International Organization
Affairs, be reordered as four new, closely related bureaus, each
headed b yan Assistant Secretary responsible to the Under Secre-
tary, as follows:
(1) International Economic and Business Affairs (principally
trade, monetary, and investment policy);
(2) Energy, Transportation, and Communication Affairs;
(3) Oceans, Environmental, and Scientific Affairs;
(4) Food, Population, and Development Affairs.
As the senior officer of the Department responsible for all of these
matters below the Secretary, the new Under Secretary would have
greater status, as well as closer links with experts and officials working
in these areas. As discussed in Chapter 9, the Under Secretary also
would play a major role in multilateral diplomacy, since many of the
issues of concern to him will arise in multilateral contexts.
The effect of those recommendations would he to create a coherent
economic-scientific-technological complex within the Department of
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State. The Under Secretary and the bureaus concerned should be able
not only to provide more assistance to the geographic Assistant
Secretaries on economic, scientific, and interdependence matters, but to
monitor much more effectively the activities of other parts of govern-
ment whose concerns parallel their own.
In addition, we believe that certain changes in personnel policy
will be required in the Department. Existing career incentives and
organizational arrangements in State have discouraged promotion to
the prestigious positions of officers with a background in economics,
contributing to an insulation of foreign political and economic policy.
This problem has been recognized before, and some changes
instituted, but more must- be done if State is to meet the challenge
of a more effective international economic policy. We therefore recom-
mend that :
Larger ?vwmbers of career Amba88ador8 and Deputy Chiefs of
11h Sion should be appointed from among officers with economics
training and background: Senior officers at economically important
consular posts Should ordinarily be expected to have had economic
and commercial exposure either in State or through assignment
to another agency; the recruitment of professionally trained
economi8t8 should be accelerated without requiring that they become
part of the Foreign Service; and training programs in
economic8 for Foreign Service Officers should be accelerated.
The Commission has not examined in depth the organizational
problems concerning economic policy within other Departments, but
wishes to express its conviction that, if those departments are to play a
proper role in shaping and implementing international economic pol-
icy, they too will need increased emphasis on such policy in personnel
selection and organization. Some recommendations follow for strength-
ening the capability of all government agencies to deal with foreign
economic policy problems. It is the Commission's view that all domestic
agencies concerned, as well as our national interests, would benefit
from such strengthening.
Central to our strategy for a more effective foreign economic policy
is the open competition of divergent interests and perspectives. But
that competition must take place within a context of genuine under-
standing of opposite perspectives and a commitment to serve the na-
tional interest. To help create the context to facilitate communication
among Departments, and to encourage greater depth and professional-
ism among civil servants, we recommend that :
 Systematic personnel interchange at the middle-grade kvels
among the Departments and agencies with principal responsibilities
for foreign economic policy be expanded.
To assure the success of such a program, arrangements should be
instituted by the Civil Service Commission and the Foreign Service,
to designate a number of responsible positions in the key agencies
involved in foreign economic policy as interchange positions. Such
positions would then be filled by officials from other agencies on at
least a two-year term. For such a program to succeed, meaningful
incentives and sanctions would have to be imposed : for example, in
the case of domestic agency employees, that career officials would not
ordinarily be eligible for positions of senior responsibility in foreign
economic policy unless they had served with the State Department
or in an overseas post. In the case of State Department officials, a
corresponding tour with a domestic economic agency would be re-
quired before eligibility for senior economic positions was permitted.
The Commission rejected a more extreme option of creating a sep-
arate "International Economics Service," administered by the Civil
Service Commission or the Foreign Service, to provide a common pool
of trained and experienced manpower to all executive departments
and agencies involved in international economic policy. Such an ar-
rangement would provide the strongest incentive to minimize narrow
bureaucratic loyalties and to broaden the horizons of key officials.
Despite those attractive aspects, the Commission felt that the proposal
would too sharply insulate a specialized corps from the very concerns
of domestic and foreign policy that we wish to integrate. Further, the
top policymakers in each department might be deprived of the loyalty
and continuity they will properly demand of their key subordinates.
Unlike foreign political policy, where States has virtually exclusive
responsibility, the execution of foreign economic policy has been shared
to a degree among the Departments of State, Treasury, Agriculture,
Commerce, and others, depending upon the substance. We believe this
is appropriate, both because of the degree of knowledge required in
specialized areas and because of the value of direct exposure to for-
eign concerns for domestically oriented agencies. Moreover, as inter-
national economic problems have grown in importance and multi-
lateral diplomacy has increasingly supplanted bilateral negotiations
as the main channel of international decision-making, Washington-
based officials have assumed a larger role in economic negotiations
relative to Embassy personnel. These trends have suggested to some
that the time has come when we might appropriately transfer from
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State and the Foreign Service the bulk of its responsibilities for eco-
nomic negotiations and reporting. As is implied by our earlier recom-
mendations, we reject this line of reasoning. But, equally, an attempt
to centralize all responsibility for these matters, removing them from
economic departments to State, appears impractical and counter-
productive in terms of our basic objectives.
As a consequence, the Commission supports flexibility in the use
of multiageney participation in policy negotiations and implementa-
tion abroad. The State Department must retain overall coordinating
responsibility; no international negotiations should proceed without
its knowledge and approval. It should normally participate in the
manning of international delegations, but need not automatically
chair these, depending upon the substantive area. Overseas repre-
sentation of domestic economic departments should continue in Se-
lected areas (e.g., agriculture and finance) so long as their repre-
8entative8 are under the control of the Ambassador.
The proper balance between Treasury and State Department repre-
sentatives overseas presents some problems; their functions overlap,
yet their loyalties and conceptions will necessarily be somewhat dif-
ferent. Still, if the desired balance is to be achieved as we propose,
we feel that direct and senior representation by Treasury staff overseas,
under the overall guidance and control of the Ambassador, will remain
important despite the organizational untidiness. Ultimate control by
the Ambassador is essential. It is as important that we speak with
one voice in our relations with other governments as it is in the execu-
tive branch's relations with the Congress and the public at home.
RESEARCH, ANALYSIS AND INTELLIGENCE
The need for effective research, analysis, and intelligence in the
foreign economic field can hardly be overemphasized. The impression
of the Commission is that this function, which presently involves
modest costs, can usefully be intensified in virtually all concerned
Departments.
We are aware that research and analysis tend to take on the pre-
occupation and orientation of originating agencies, and there will be
no certain and unambiguous answers to economic questions. But sup-
porting research capacities in the relevant agencies is a necessary corol-
lary of the basic theme of competition in policy formulation. Neither
the President nor other policymakers should be confined to one source
of research. Moreover, the President will be able to draw upon the CEA
directed research group recommended earlier.
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 Considerable effort has developed in recent years to facilitate com-
munication between the intelligence community and the makers of in-
ternational economic policy, paralleled by some reorientation of the
intelligence community toward economic matters. We welcome these
efforts and feel that the CIA, among others, should continue to im-
prove its capacity for international economic research and analysis.
RELATIONS WITH BUSINESS, AND THE COMMERCIAL
FUNCTION ABROAD
We have noted that successful foreign economic policy will be de-
pendent in part on more active communication between the govern-
ment and the private sector. In considering how to accomplish this, we
recognize that the links between the public and private sectors will
need to conform to established traditions, attitudes and laws estab-
lishing the broader context of government-business relations in Amer-
ican society. Intimacy in policymaking is discouraged by these
traditions in contrast to the practices of some foreign countries. Those
traditions are fully consistent, however, with better communication.
As one approach toward improving communications with the inter-
ested public, we have recommended establishment of an International
Economic Policy Advisory Board. We also recommend that:
The present personnel interchange program between government
and business should be expanded substantially. The Commission be-
lieves this program should be concentrated at the middle and junior,
rather than at senior levels.
The Commission considered transferring from the State Depart-
ment to Commerce responsibility for overseas commercial assistance
to business, but we rejected this proposal, in part because we believe
it would further compartmentalize functions, in part because we were
impressed by recent efforts of both State and Commerce to accent this
function and to strengthen their cooperation.
Foreign Assistance Programs. The Commission considered the pos-
sible advantages of separating the major assistance programs admin-
istered by the Agency for International Development (AID)-secu-
rity or supporting assistance, development assistance and disaster
relief-and housing them in new organizational units. In doing so,
we recognized that AID has come under increasing criticism from
public and professional groups, and that the reception it has received.
from the Congress has been increasingly hostile.
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The Commission, therefore, recommends that the Agency for In-
ternational Development (AID) remain the State Department's
operating arm for the implementation of bilateral foreign assistance.
The Commission did not concern itself with the proper roles and
relative funding of bilateral and multilateral programs. We assume
both will continue. We did consider whether coordination between
these two forms of assistance would be more assuredly achieved if
State/AID assumed the lead role in supervising U.S. participation
in the multilateral development banks (as is already the case with
respect to the United Nations Development Program), rather than
leaving that responsibility with the Treasury Department.
We resist this change. The flows of capital through the development
banks are a logical concern of the Treasury Department both as they
impinge upon U.S. capital markets and as they affect the climate of
international financial affairs. We are conscious that the Congressional
interest in these institutions has emphasized the need for a banking
or financial orientation in their management, and for a distinction
between these programs and bilateral assistance. Finally, there is much
to be said for separating the long-term U.S. interest in the develop-
ment missions of these banks from the shorter-term and more specific
political and security interests which our bilateral assistance program
must perforce reflect.
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We concluded that foreign assistance programs, while they diffe:?
in specific orientation, are inevitably overlapping instruments of
foreign policy. The programs share the use of taxpayer's money in
support of diverse foreign policy objectives, and almost certainly
will continue to do so. We do not think that their management or
operation will be made less difficult by breaking apart the agency.
On the contrary, there are advantages in treating these programs in
a common administrative framework.
That AID has survived for 15 years in essentially its original form
despite constant criticism is a fact of some significance. The Agency
has served as a relatively flexible, multi-purpose resource for the
support of foreign policy, subordinate to the State Department with
respect to general policy direction but charged with operating respon-
sibilities that the State Department itself is not equipped to provide. It
can accommodate frequent changes in program emphasis, an important
advantage. The evolution of new kinds of assistance programs, or
greatly expanded programs might suggest other organizational ar-
rangements, but in the absence of such initiatives the present organiza-
tion has much to be said for it.
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Accordingly, we endorse the continuation of primary Treasury
Department responsibility for supervision of U.S. commitments to
the international development institutions. Treasury should coordi-
nate with the State Department concerning directives given U.S.
representatives on the executive boards when political issues arise
in connection with the policies and operations of these institutions.
The Flow of International Investment. Issues of international in-
vestment have received greater prominence as a result of the growth
of international corporations, many of which are based in the United
States. More recently, the actual and potential flows of larger amounts
of foreign investment into the United States, particularly from oil-
rich nations, have raised new opportunities as well as new questions.
These issues have led some nations to set up organizations to deal spe-
cifically with direct investment or with that form of enterprise popu-
larly known as the multinational corporation.
We recognize that a wide range of substantive issues is raised by
international investment and by international corporations, including
tax, monetary, anti-trust and expropriation questions. We welcome
the recent establishment of the Interagency Committee on Foreign
Investment to screen investment funds coming into the U.S., as well
as the increased efforts being given by the Commerce Department to
collecting and analyzing information about foreign direct investment
in the United States.
This is only part, and probably the smaller part, of of the national
concern with the flow of investment funds. We need huge amounts of
capital to meet energy, environmental and economic growth needs.
With so much of the world's capital formation taking place in the oil
rich nations and the Eurodollar market, a good part of the capital
needed in the U.S. should come from abroad. Also, our need for raw
materials, our interest in the development of the poor countries and
the world's food needs make the application of our technology and
a flow of capital from the U.S. to other countries essential to a satisfac-
tory international economic order. To achieve a satisfactory inward
and outward investment flow, it will be necessary to make investment
attractive and secure both here and abroad. This is primarily a matter
of tax and financial policy here and in other countries and of inter-
national understandings on expropriation and other barriers to
investment.
TVe do not, however, believe it is necessary or desirable to establish
within the United States Government a new agency, or Special Rep-
resentative, to control either international corporations or the flow of
capital to or from this country.
?
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In resisting such proposals, we are influenced by twoconsidcrations:
(1) In concept, the activities of multinational corporations neces-
sarily cut across a number of aspects of international economic policy,
but those policy issues will need to be considered on their merits as
they apply to all businesses with some international exposure-not
just to some indefinable group labeled multinational. The designation
of a special organizational entity to deal with multinational companies
on the one hand, or to screen foreign investment in the United States
on the other, would imply a decision to treat these matters in a new
and special manner-a decision that is not justified at present.
(2) In practice, dealings with other nations on the problems of
international corporations and international investment do not reveal
a, clear need for new and separate organizational arrangements. What
are needed are the sustained attention and cooperative efforts of exist-
ing bureaus and agencies, especially in State, Commerce, Treasury and
the Export-Import Bank in this area. Both for general policy prob-
lems and for more specific concerns, these flexible arrangements are
effective and adequate. This issue should be a major item on the agenda
of the Subcouncil on International Economic Policy.
There are, however, two exceptions to our conclusion that no broad
organizational changes are necessary.
The energy industry is one special case. Rapid changes are underway
in the nature of the international energy business, with ownership
of production passing rapidly into the hands of foreign govern-
ments. Petroleum has enormous importance to the economy and secu-
rity of the United States, and we have become substantially more
dependent on foreign sources. Sensible energy policy necessarily in-
volves simultaneous consideration of domestic and international con-
siderations. In fact, energy policy is, perhaps, the outstanding example
of how domestic and foreign policies intertwine. Oil embargos and the
cartelization of oil prices generate concern for our national security,
deterioration in our trade balance and the value of the dollar, and
differences among allies, as well as lines at gas stations, unemployment
and higher prices at home. To meet, these multiple threats will take
a combination of domestic policies which will conserve fuel and bring
in new oil and gas and develop alternative sources of energy, and for-
eign policies which will result in the application of our superior oil-
finding and nuclear technology around the world in order to increase
the supply of oil and reduce demand for it. It also will be necessary
to develop understandings among nations which will assure access to
supplies, mitigate distortions in financial flows, and provide for joint
efforts at conservation, oil reserves, the pooling of supplies to blunt the
impact of any embargo, and so on. Some progress has been made, but
not nearly enough. This is primarily a matter of deciding on appropri-
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ate policies and implementing them. This is, above all, an area where
cooperation between Congress and the Executive Branch is critical.
An improved organizational focus also can help resolve these prob-
lems constructively. We recommend therefore that:
The Federal Energy Administration should provide the focus and
leadership for carrying out the national energy policy. The State
Department will have a crucial continuing role in bringing to bear
on all aspects of the policy process the critical considerations of
security and diplomacy, and in coordinating and implementing the
foreign policy aspects of our energy policy.
The second area in which a better organizational focus appears
necessary includes trade, investment, credits and technology transfers
with Communist countries. Economic contacts with nations having a
centrally planned economy differ qualitatively from those where
market forces predominate. Relatively close government surveillance
and regulation of the process appears inevitable and necessary.
Especially is this so where national security considerations arise
out of the export of high-technology products. But in no other area
has the Commission heard more criticism of the fragmentation of
authority within the executive branch, and apparent inability to re-
ceive necessary guidance. We believe improvement here is important.
The Commission proposes that the Office of Export Administra-
tion in the Commerce Department be designated a central point
of contact between the private sector and the government for the
licensing and surveillance of trade and investment with Communist
countries. Policy guidance for that office should be centralized in the
Board of East-West Foreign Trade authorized by the Trade Act
of 1974, and consisting of Cabinet-level officials from each of the
departments involved in export regulation. The Board should be
backed up by a working group of officials from, the same agencies.
This Board, now being organized, shall reevaluate existing policies
and devise a new, more efficient, and more consistent system of export
control management. It shall review proposed transactions with Com-
munist countries in light of economic criteria as well as their potential
effects on national security. We believe the broad range of agencies
represented on the Board, and its directive to "coordinate the policies
and operations of all agencies of the United States which regulate or
participate in trade with nonmarket economy countries" will help it
supersede the relatively narrow approach traditionally taken toward
export control. Strong State Department participation shall also seek
that objective.
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?By itself, however, such a board will n Pe enough. Also necessary
is a working-level staff with wide expertise on all relevant considera-
tions, including a balance between business development interests and
those of national security. This staff should be drawn in part from the
Office of the Secretary of Defense, the Joint Chiefs of Staff, the CIA's
Office of Strategic Research, and the Arms Control and Disarmament
Agency-organizations knowledgable about the crucial link between
technological capabilities and the enhancement of important military
capabilities. In addition, trade specialists and other experts on Soviet
political and economic affairs should be drawn from the Departments
of State, Commerce, and Treasury, as well as from other government
agencies, in order to integrate more fully these considerations with
military ones.
Representatives of the academic and business communities should
be formed into technical advisory committees to assist the Board in
gauging existing foreign availability of proposed U.S. exports,
monitoring new technological developments and establishing pro-
cedures for evaluating the success or failure to export control process
itself.
Close Congressional contact with the proposed Board of East-West
Trade should be maintained to insure the reflection of Congressional
views, and help insure Congressional approval of those arrangements
which may require legislative action or approval.
Trade and the Special Trade Representative. The Office of the Spe-
cial Trade Representative grew out of particular legislative concerns
prior to the Kennedy Round of trade negotiations in the 1960's. It has
successfully provided a focus for consideration and negotiation of
questions of trade policy cutting across the jurisdiction of a number of
agencies, particularly at times of complex multilateral negotiations.
We see no reason to disturb a reasonably successful modus vivendi, par-
ticularly in the midst of ongoing negotiations. However, this Office
will presumably be less active following the termination of the present
multilateral trade negotiations some years hence.
We propose that, after the current negotiations are concluded, the
ongoing tasks of administration, negotiation and coordination be
accomplished by a transfer of the Office, under a Special Ambas-
sador, to the Department of State.