WEEKLY SUMMARY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00927A011400240001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 25
• Document Creation Date: December 21, 2016
• Document Release Date: February 1, 2008
• Sequence Number: 1
• Publication Date: December 3, 1976
• Content Type: SUMMARY

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State Dept. review completed
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Secret
Weekly Summary
DOS review completed
Secret
CI WS 76-049
No. 0049/76
December 3, 1976
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CONTENTS
25X1
1
Asia
China; South Korea;
Bangladesh
2
Soviet Union
Brezhnev on the US;
Egyptian Talks; Brezhnev
Visits Romania; Meat
Shortages; Border Talks
with China
5
Africa
Rhodesia; Angola; Namibia
8
Middle East
Lebanon; Jordan; Iran;
Persian Gulf
Mexico;
10 Israel: Domestic Political Scene in Flux
11 Egypt Searches for New Sources for Weapons
13 Britain: New Parliamentary Session
15 Spain: A Role for the Opposition
17 Japan: The National Election
19 Japan's Trade Surplus Rising Rapidly
Comments andqueries on the contents of this
publication are welcome. They may be
directed to the editor of the Weekly
Summary
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CHINA
,5r
A meeting of the standing committee of
the National People's Congress, China's
legislature, opened on November 30 in
Peking. The last and most important item
on the agenda is appointments to and
removals from high-level government
positions.
China's foreign minister, Chiao
Kuan-hua, has been replaced by former
UN Ambassador Huang Hua, one of
Peking's most seasoned diplomats.
A possible explanation for Chiao's
political difficulties is the reported anger
of Defense Minister Yeh Chien-ying, now
the number-two man in China and a
staunch supporter of the ousted vice
premier, Teng Hsiao-ping, over Chiao's
apparent eagerness to join the attack on
Teng.
The Foreign Ministry in any case
appears to be in for a major shakeup.
Chinese ambassadors to Canada, West
Germany, France, Italy, Japan, Turkey,
and the UN have all been recalled, ap-
parently permanently. Some of these men
may be in line for new posts at home, but
nearly all have been identified to some
degree with Peking's more outward-look-
ing foreign policy of the 1970s.
Thus far, the Chinese have been at
pains to emphasize continuity in their
foreign policy since the death of Mao, and
the new foreign minister does not seem
likely to make major changes.
The meeting on November 30 featured
a brief speech by Party Chairman Hua
Kuo-feng, who nominated Chou En-lai's
widow to be one of the vice chairmen of
the standing committee of the National
People's Congress. Hua, whose speech
was greeted with "thunderous applause,"
is plainly trying to capitalize on the im-
mense popularity of the late Chou En-lai.
National People's Congress Vice
Chairman Wu Te also gave a speech. Wu
hailed Hua's appointment as party chair-
man and acclaimed the fall of the leftists.
He reiterated the conciliatory attitude,
announced in a People's Daily editorial on
Sunday, toward lower level followers of
the leading leftists. Wu also called for the
continuation of criticism of Teng Hsiao-
ping.
It has been rumored that Teng will be
rehabilitated now that his major detrac-
tors have fallen, but Wit's comment
strongly suggests that Teng's rehabilita-
tion, while still likely in the longer run, is
SOUTH KOREA
There are continuing signs of concern
and uncertainty in South Korea over the
prospects for US-Korean relations.
South Korean official statements con-
tinue to insist that US policy under
President-elect Carter will not change
radically, that the US will consult fully
with both Tokyo and Seoul, and that the
Korean government will be able to con-
vince the US of the correctness of its
current policies.
At the same time, underlying themes
suggest uncertainty. South Korean of-
ficials insist that any increased pressure
on them on the human rights issue will be
rejected as unacceptable interference in
Korean internal affairs, and that South 25X1
Korea can "go it alone" if the US begins
troop withdrawals.
prominently in the government-controlled
press in the past week or so. Editorials
have criticized the "excessive interference
of our developed-nation allies" and called
for Korea to "develop in accord with our
own history, culture, and tradition."
South Korean officials, in conversations
with US embassy officers, have also
stressed the serious consequences if the
US presses too hard on South Korean in-
ternal affairs.
Despite the firm line taken by Pak and
other South Korean officials, the govern-
ment has recently taken several tentative
measures to loosen up domestic political
controls. Christian leaders have been
allowed to hold a series of conferences on 25X1
human rights, press censorship of foreign 25X1
news has been eased slightly, and an op-
position assemblyman was allowed to
testify at a trial of opposition figures.
There are rumors that a fairly sweeping
leadership shakeup is coming soon and
that it will involve such insiders as Korean
CIA Director Sin Chik-su, key Blue
House aide Kim Chong-yon, and a
number of cabinet officers. President Pak
may intend to signal by such moves that
he is not completely inflexible as he enters 25X1
a new phase in US-Korean relations, one
that he clearly expects to be rocky at
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BANGLADESH
General Zia ur-Rahman, de facto
leader of Bangladesh since November
1975, assumed full powers as chief martial
law administrator this week. The title had
been held by President Sayem, who
remains president but is relegated to a
ceremonial status.
Within hours of Zia's former takeover,
leaders of most major political parties
were under arrest; reports indicate that
some 100 politicians have been tar-
geted for detention. Some of them may
be tried for corruption. Khondakar
Mushtaque Ahmed, leader of the
Democratic League, may be tried for his
alleged role in the murder of several
political leaders. Mushtaque, installed as
president of Bangladesh by the army of-
ficers who killed former president Mu-
jibur Rahman in August 1975, was
himself ousted in the first of two military
coups in November last year.
Zia probably decided to act now in
order to head off possible active opposi-
tion to his government's decision, an-
nounced on November 21, to postpone the
national election. President Sayem had
publicly promised an election by next
February and probably pushed within the
government for a return to normal
political activity. Other government and
military officials apparently persuaded
Zia that a return to partisan political ac-
tivity would regenerate political violence.
No open opposition to the postponement
of the election has yet appeared.
US embassy sources report that several
influential politicians may have been
secretly organizing opposition to the
government. Zia may have learned of the
plotting. In any event, he presumably
wanted to remove any rivals-particularly
Mushtaque, who has significant popular
support-at least temporarily from the
public eye.
Effective opposition to Zia's actions is
unlikely. Most Bangladeshis are ap-
parently satisfied with the relative stabil- 25X1
ity and prosperity the martial law 25X1
administration has brought to the coun-
try during the past year.
Soviet General Secretary Brezhnev, in
a speech on November 30 honoring
visiting Secretary of the Treasury Simon,
summarized Soviet grievances with the
US, but expressed hope for expanded
cooperation in the future. His comments
were clearly intended for the incoming US
administration and the new Congress.
Brezhnev laid a special emphasis on the
importance of eliminating discriminatory
US trade legislation, as was appropriate
to the occasion-the fourth session of the
US-Soviet Trade and Economic coun-
cil-but he also devoted considerable
attention to strategic arms limitations and
other arms control issues. He-blamed the
US for holding back progress in both
trade and arms control and implied the
US must take the initiative in overcoming
current obstacles.
Brezhnev was blunt, as was Foreign
Trade Minister Patolichev earlier that
same day, in criticizing US trade policy
toward the USSR. He repeated Soviet
warnings that US businessmen will con-
tinue to lose Soviet business unless US
trade discrimination against the USSR is
eliminated.
The Soviets have given renewed atten-
tion recently to the subject of US-Soviet
trade, suggesting that they hope the new
administration will be able to work out an
acceptable compromise with Congress.
In his remarks on November 30,
Brezhnev decried the anti-Soviet rhetoric
of the US election campaign and
emphasized the "clear and consistent"
nature of Soviet policy toward the US, es-
pecially in attempts to curb the arms race.
Praising past Soviet proposals and
US-Soviet agreements in this area, he
said the USSR is prepared to go further in
cooperation with the new administration
"if it is prepared to act in the same spirit."
Brezhnev voiced strong support for lim-
iting strategic offensive arms and called
for an intensification of efforts to sign
a new SALT agreement. He said that it is
"high time to put an end to the freeze of
this important question imposed by
Washington" and that he expects an
agreement to be based on the Vladivostok
understandings. He added that the USSR
is prepared to discuss possible new
measures to prevent the proliferation of
nuclear weapons and reduce the threat of
nuclear war.
EGYPTIAN TALKS / J - /1
The USSR and Egypt both appear un-
willing to make the first concession as
they maneuver on the question of rap-
prochement.
The talks in Bulgaria several weeks ago
between foreign ministers Gromyko and
Fahmi do not seem to have had any tangi-
ble results. Soviet and Egyptian polemics
have continued unabated after the two-
day meeting. The Soviets in particular
have gone out of their way to underscore
their grievances with the Egyptians. The
USSR clearly does not want to risk losing
face by making concessions before any
sign of change in Egyptian policy.
The two sides have encountered dif-
ficulties in their preliminary discussions
on renewal of the annual trade agreement
for 1977. A Soviet trade delegation left
Cairo on November 27 apparently
without having reached a settlement on
the types and quantities of goods to be in-
cluded in next year's agreement.
President Sadat has publicly
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1 ASS
acknowledged the need for continued con-
tacts and last week disclosed that he had
sent a note to General Secretary Brezhnev
proposing a summit meeting. The Egyp-
tian President added that the Soviet
leader will have to "take me as I am and
not as he wants me to be," apparently
signaling that Egypt is not prepared to
return to a friendship treaty or even to a
statement of principles as the basis of a
new relationship.
Egypt has, however, come out in favor
of the Soviet proposal to resume the
neva conference on the Middle East,
a better a mosp ere for improved
Soviet-Egyptian relations, but we see no
indication of any rapid movement toward
a rapprochement.
Sadat is trying to get US attention by
reviving his Soviet connection, but he ap-
parently does not want to make any move
toward the USSR that would compromise
his dealing with the next administration in
15._20
Soviet party chief Brezhnev made his
first formal visit to Romania from
November 22 to 24; each side projected
the impression of improved relations
without making any fundamental con-
cessions.
Outstanding differences came to the
surface during the toasts and speeches,
but the bland joint declaration glossed
over these issues and highlighted areas of
agreement. There was no mention,
however, of a growing "unity of views" as
there was during President Ceausescu's
meeting with Brezhnev in the Crimea last
summer.
Brezhnev pushed hard for increased
Soviet-Romanian cooperation, but the
declaration-which stresses closer party
and state ties at all levels-provided few
specifics. The two men did agree to con-
sult more frequently on bilateral and in-
ternational matters in order to "har-
monize" their positions. It is doubtful,
however, that Romanian policy will
change significantly.
During the negotiations, the
Romanians reportedly found it necessary
to remind the Soviets of language about
party autonomy contained in the final
document of last June's European com-
munist party conference.
The international section of the
declaration bears a distinct Romanian im-
print in its reference to the nonaligned
movement, to disarmament, and to the
Middle East. There reportedly was
"intensive discussion" of Ceausescu's
views supporting a new international
economic order, and compromise
language emerged in the declaration. On
other issues, such as Balkan cooperation
and Romania's proposal for a nuclear-
free zone there, Brezhnev refused to
budge.
Ceausescu reportedly did not succeed in
wresting a commitment from the Soviets
to supply Romania with additional raw
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materials and some oil. The two leaders
pledged only to "pursue" overfulfillment
of the 1976-80 bilateral trade agreement,
and the declaration suggests there will not
be a substantial expansion in trade before
1980. The two leaders also decided to
postpone indefinitely the meeting of the
bilateral joint economic commission,
originally scheduled for last October.
Both sides are probably satisfied with
the talks. A Romanian diplomat noted
that Brezhnev's visit signifies that the
USSR has achieved "a certain understan-
ding" of Romania's positions. For their
part, the Soviets are no doubt pleased at
the semblance of unity the visit evokes.
Romania balanced its favorable media
coverage and impressive welcome of
Brezhnev with extensive attention to the
simultaneous visit of US Commerce
Secretary Richardson and references to
the "friendly visit" to Peking of a Roma-
nian deputy defense minister.
Z~ MEAT SHORTAGES
he timing bf the USSR's recent
purchase of 42,000 tons of meat from
Argentina, Australia, and New Zealand is
somewhat puzzling because the worst of
the Soviet meat shortage is apparently
over. Recent purchases bring total meat
commitments for 1976 to nearly 200,000
tons, and talks under way with Australia,
New Zealand, and the EC might lead to
an additional 150,000 tons. If such con-
tracts are concluded, Moscow's hard-
currency outlays for foreign meat may
reach $250 million this year.
We had expected large Soviet
purchases of meat earlier this year to
offset sharply reduced domestic meat
production, a consequence of last year's
harvest failure. Instead, purchases were
minimal at the time when domestic meat
shortages were at their worst. The
leadership seemed to have weathered a
potentially difficult period with little
evidence of public discontent.
The current interest in meat purchases
may result from:
? A larger-than-expected reduction
in meat inventories.
? An improved hard-currency out-
look. This year's abundant harvest has
reduced pressure to use hard currency
for grain imports in 1977.
? A recognition that even the re-
duced plan for domestic meat pro-
duction-13.3 million tons this year-
cannot be met. Industrial meat out-
put in October was the lowest for that
month since 1970 and at the end of the
month was running 21 percent be-
hind last year's level.
Soviet meat supplies will remain un-
usually tight until early next year, when
an increase in domestic Soviet meat
production is likely.
Diets in general this winter will
nevertheless be more varied than last
winter. Supplies of dairy products,
potatoes, winter vegetables, sugar, and
bread reportedly are adequate at gov-
ernment-controlled prices in most major
cities; rural areas are still experiencing
shortages of butter, eggs, and flour.
ORDER TALKS WITH CHINA
Deputy Foreign Minister Ilichev,
Moscow's chief negotiator at the long
stalemated Sino-Soviet border talks
returned to Peking on November 27 and
reportedly met with his Chinese counter-
part, Deputy Foreign Minister Yu Chan,
on November 30. Ilichev had been absent
from the talks since May 1975, the longest
absence of a chief Soviet negotiator since
the talks began in October 1969.
Soviet Ambassador Tolstikov told
reporters at the airport in Peking that
Ilichev's return was a Soviet initiative.
Moscow probably views it as another step
in its continuing effort to build a public
record of Soviet reasonableness in dealing
with Mao's successors. Chinese Vice
Premier Li Hsien-nien's strongly negative
speech on Sino-Soviet relations two weeks
ago may have made the Soviets believe
that they had to try harder to keep alive
the possibility of a Sino-Soviet rapproche-
ment.
We doubt that the Chinese have given
the USSR any sign of willingness to en-
gage in serious negotiations on the border
problem. Chinese propaganda continues
to be as hostile as ever toward the Soviets.
About two weeks after the death of
Mao, Moscow sent its deputy at the talks,
General Gankovsky-who also had been
absent from China for a prolonged
period-back to Peking; all indications
are that he has had only minimal contacts
with the Chinese.
Ilichev, nonetheless, may carry some
new proposals that take into account
China's reason for rejecting the last
Soviet offer for a settlement of the eastern
border in 1973. China reportedly declined
that offer because it did not cover the dis-
puted islands opposite Khabarovsk or the
other disputed portions of the border west
of Mongolia and contained no provision
for Soviet troop withdrawals.
The USSR is unlikely to give in on the
troop withdrawal issue, but it might offer
to compensate the Chinese for Big Ussuri
and Tabarov islands and could make an
initial offer on the western sector of the
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RHODESIA
3 03
Cross-border strikes by white-led
Rhodesian forces against insurgent camps
in Mozambique, which have continued in-
termittently since the end of October, are
apparently paying at least short-term
military dividends.
The raids have resulted in the destruc-
tion of sizable quantities of munitions,
demonstrated the vulnerability of both the
guerrillas and their Mozambican
defenders, and probably forced the in-
surgents to move farther back from the
border. The Rhodesian security forces
have also retaliated in force against
Mozambican military units that initiated
border actions; in at least one case, the
Rhodesian troops dis la weapons captured during maid into Mozarbia1
Tic:61 I- ?ArhcLL.
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Rhodesians used jet fighters.
Inside Rhodesia, the security forces
have apparently tracked down numerous
guerrilla bands, including many in-
filtrating for the first time. Nearly 250
guerrillas were killed last month, accord-
ing to Rhodesian communiques. The
weakness of the guerrillas' military train-
ing was evident, and they have also been
hampered by factional fighting at camps
inside Rhodesia.
Although the Rhodesian security forces
apparently intend to keep up the pressure
on the guerrillas, the insurgents will
probably make a stronger showing in the
weeks ahead. The heavy rains are getting
under way and beginning to provide
significantly improved vegetation cover
for the guerrillas. Moreover, their ranks
will be swelled as more of the large
numbers of black Rhodesians recruited
over the past year become available.
Some of these recruits are currently being
moved from Mozambique to more secure
training camps in Tanzania, where
Chinese instructors have long been
stationed.
At the Geneva conference, the par-
ticipants finally moved last weekend from
the independence date issue to begin dis-
cussions on the form and substance of a
transition government. A group of key in-
surgent military leaders returned to
Geneva on December 2 to augment
Robert Mugabe's Zimbabwe African
National Union delegation, the group
that has taken the hardest line in the talks.
The participation of these militants,
who apparently continue confident that25X1
their guerrillas can soon achieve a
military victory, seems sure to complicate
efforts to reach an agreement.
ANGOLAN 3 5
A new government lineup announced
last weekend in Angola suggests that
President Agostinho Neto has strengthen-
ed his domestic political position.
The new cabinet is composed mainly of
Neto loyalists, particularly in the most
important posts. Lopo do Nascimento, a
long-time Neto supporter, remains prime
minister. He will be assisted by three
deputies, at least two of whom are Neto
stalwarts. The new foreign minister, a
white, has long served as Neto's
right-hand man.
Absent from the new cabinet is Nito
Alves, an outspoken critic of Neto who
had been interior minister. Since the end
of the civil war last winter, Alves has been
working at building a personal power base
among black radicals in the military and
the large number of unemployed black
Angolans.
A communique issued after a party
meeting last month had seemed to point
to Neto's formal assumption of the posi-
tion of prime minister. Instead, it is ap-
parently intended that he will take over
some of the functions previously exercised
by the prime minister, particularly in es-25X1
tablishing policy guidelines in both
domestic and foreign affairs.
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NAMIBIA _%b
A meeting last week between South
African Prime Minister Vorster and a
committee of the multiracial Namibian
constitutional conference apparently fail-
ed to resolve the impasse that has
developed between the conference's white
and nonwhite participants..
The committee had requested the
meeting with Vorster because its efforts to
devise a multiracial interim government
to oversee the transition of the South
African - administered territory to in-
dependence were stalled by basic dis-
agreements among the I1 delegations to
the conference. The delegations represent
the whites and the 10 nonwhite ethnic
groups inhabiting the territory.
Most of the white members of the com-
mittee have insisted on interim
arrangements that would diffuse power
among the existing ethnic homelands in a
loose federal system instead of setting up
a strong central government. Such a
system would enable the whites to main-
tain control of Namibia's rich mineral
resources even though they make up only
12 percent of the population.
Shortly before the committee went to
Oct
Pretoria to meet with Vorster, some of its
nonwhite members told the press that a
loose federal system was unacceptable.
They also said they intended to ask
Vorster to press the hard liners in the
white delegation to yield to the nonwhite
majority.
According to the US embassy, guarded
commentary from several participants at
the meeting indicates that Vorster stress-
ed the urgency of reaching an early con-
sensus on forming a government, but
made no clear effort to encourage the
white hard liners to compromise with the
LEBANON ~ 9 - 4 I
Syrian peacekeeping forces in Lebanon
were forced to delay their plansto move
into key cities in southern Lebanon this
week because of repeated warnings from
Israel that it would not tolerate the
presence of a non-Lebanese military force
so close to its border. The Israelis last
week increased their military strength in
northern Israel slightly-but with much
publicity.
Syrian units had intended to take up
positions in the southern port city of
Tyre-where Palestinian and Lebanese
leftist groups are still receiving arms
shipments-and to secure the Palestinian
stronghold at Nabatiyah. Syrian forces
have not moved any farther south than Az
Zahrani, however, and are not in a posi-
tion either to control fedayeen cross-
border operations against Israel or to
quell continuing clashes between Israeli-
backed Christian troops and Palestinian
and leftist forces along the southeastern
border.
President Sarkis spent most of the week
trying to find a compromise solution, but
Israel's position seems to give him little
leeway.
Militant Palestinian leaders, apparently
Leban ,rn
sidunl;' ?--,, pa seas
Az Zahr.n
j?
. ~ UNDOF
i' ZONE
Oo/an -.
i
Height u
Syria
KilomaeU 30
emboldened by the halt of Syrian
peacekeeping troops, issued a sharply
worded policy statement last weekend
criticizing Syrian efforts to dominate the
Palestinian movement and affirming their
determination to continue the "struggle"
against Israel from southern Lebanon.
These leaders have been critical of
Palestine Liberation Organization chief
Yasir Arafat's recent attempts to reach an
accommodation with Syria and his im-
plied willingness to prepare for wider
Middle East peace negotiations.
Ironically, the militants apparently in-
tend to try to use Israel's suspicion of
Syria to help preserve their freedom of ac-
tion in southern Lebanon. In this regard,
they also warned this week that the
Palestinians would not cooperate with
Syria's announced intention to begin
collecting heavy weapons from all com-
batants in Lebanon. Most of the
Palestinians' weapons have been moved to
25X1
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JORDAN 44 " ~~
The changes in the Jordanian cabinet
announced on November 27 represent a
modest political victory for Crown Prince
Hasan and his ally, Prime Minister
Badran, and a setback for their political
opponent, former prime minister Zayd
Rifai. For the past several months Rifai
has served as an unofficial adviser to King
Husayn.
Most of the six members dropped from
the cabinet were supporters of Rifai who
were having difficulty working with
Badran. Their replacements are generally
nonpolitical technocrats or politicians
with ties to the Crown Prince and his
associates.
One of the new cabinet members is a
well-known political adversary of Rifai
and an advocate of Bedouin tribal in-
terests. His appointment confirms the
King's interest in having Badran put
together a cabinet that will help assuage
East Bank and army unhappiness.
Although the cabinet shuffle suggests
that Rifai may be less influential than he
was expected to be in his advisory role, it
does not mean that policies he promoted
are being abandoned.
Rifai has been identified mainly with
Jordan's efforts to work out close
economic and military cooperative
arrangements with Syria. The King sup-
PERSIAN GULF
The foreign ministers of the countries
on the Persian Gulf were unable to agree
on a formula for closer cooperation on
regional issues during a two-day con-
ference in Oman last week.
The conference was the fourth meeting
since July 1975. Each has ended with talk
of further sessions, but the prospect for
meaningful cooperation, especially on
regional security, is receding.
The attendance of Iraq at the meeting
assured its failure. Iraqi leaders support
regional cooperation only among Arab
states-thus excluding Iran-and only on
such prosaic subjects as information and
ports this policy and apparently is prepar-
ing to take additional steps during Syrian
President Asad's visit to Amman early
this month.
IRAN
42
Iran's current-account surplus, which
probably will total $5.6 billion this year,
does not support the Shah's argument for
a large oil price hike.
Even with no oil price increase next
year, Iran probably would run a $4.2-
billion current-account surplus. A 10-per-
cent oil price hike would raise the 1977
surplus to $5.6 billion.
Iran experienced a financial setback
last year when imports almost doubled
and exports declined in response to the
slump in world demand for heavy crude
oil. Imports of capital goods, industrial
raw materials, and transport equipment
rose dramatically as Iran rushed ahead
with its ambitious development program.
The current-account surplus in 1975
dipped to $3.6 billion from $13.2 billion in
1974.
Oil exports began to rebound early this
year, and crude oil liftings were close to
capacity. As a result, we expect total ex-
ports to rise by $3.2 billion this year.
Imports, on the other hand, will remain
health. They refuse to discuss regional
cooperation on security matters.
The Iraqi foreign minister attended the
meeting only after failing in his efforts to
have it called off. He insisted that dis-
cussions be limited to the question of
freedom of navigation through the Strait
of Hormuz.
Iraqi diplomacy is aimed at blocking
any regional formula that limits the
movement of ships through the strait.
Iran, supported by Oman, takes the
position that the Persian Gulf is a closed
sea from which foreign military presence
should be excluded.
The Shah of Iran has advocated a com-
prehensive multilateral security pact for
at about the 1975 level. In the first nine
months of this year imports from the US,
Iran's largest supplier, were down 17 per-
cent from last year's level.
The economy has not yet digested last
year's rapid increase in imports. Port ex-
pansion and modernization projects have
made little headway; the volume of cargo
clogging Iran's major ports has reportedly
doubled since the end of 1975. Food and
military equipment imports have been
given priority; consumer durables, con-
struction materials, and capital goods
deliveries are caught up in the backlog.
Slow progress in clearing and ex-
panding the ports and the government's
decision in June 1975 to stretch out
the development plan should hold down
import gains for the next few years.
The increase in this year's trade surplus
has been partly offset by a rise in net ser-
vice payments. Much of the rise in the ser-
vices deficit reflects larger expenditures
for foreign managerial services to carry
out development projects.
On the capital account, Iran may
register a deficit of as much as $2.9 billion
this year, partly reflecting capital flight.
In late October, the Shah admitted that
an outflow of $2 billion of private funds
had occurred over the preceding 16
months, largely in reaction to the strict
limitations on profit margins enacted in
mid-1975.
25X1
the Gulf region. He regards such a pact as
a way to consolidate Iran's already strong
position and as a vehicle for employing
Iranian power in a policing role.
Political developments in early 1975,
including a political accord between Iran
and Iraq, encouraged the Shah to believe
progress on a pact was possible. Subse-
quent developments have almost certainly
convinced him a pact is not now at-
tainable.
Bilateral ties, like those developed in re-
cent years between Iran and Oman, offer
an alternative way of employing Iran's
power in the region, the Shah may be
switching the emphasis of his diplomacy
to this channel.
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Mexican President Jose Lopez Portillo,
sworn into office December I, devoted
most of his inaugural address to economic
policy, stressing the need to restore con-
fidence in the government. His remarks
indicate that he plans an orderly shift
away from the expansionary fiscal
policies of his predecessor.
On November 30, outgoing President
Echeverria used his last full day in office
to polish his populist image. I-Ie gave
peasants titles to 445,000 hectares of land
that had been expropriated in past years
and ordered a new expropriation of some
3,500 hectares to be split into small plots
for peasants' homes.
In his inaugural speech, Lopez Portillo
said the current crisis in public confidence
in the government is a danger to the
economic and political future of the coun-
try. He warned that continued economic
disorder could cause domestic strife that
would have to be dealt with by force. He
said a period of austerity will be necessary
and that it will include import controls
and cuts in government spending.
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He referred several times to the coun-
try's many current problems and to his
commitment to solve them. He said he
needs time to find solutions. Many of his
remarks were intended to ease the climate
of uncertainty that marked Echeverria's
last months in power.
Although he did not spell out clearly his
views on agricultural reform, the new
President indicated that he views land dis-
tribution as the wrong way to solve the
urgent rural problem because peasants
cannot produce efficiently on small
parcels of land. These sentiments, in
direct conflict with the expropriations
carried out by Echeverria, will be received
well by conservatives, but will not help
those landowners already affected by
Echeverria's actions.
Lopez Portillo will be under pressure to
revoke the expropriations, although any
effort to reverse Echeverria's actions
would risk a peasant uprising.
Lopez Portillo's cabinet is composed of
close associates with strong ad-
ministrative records rather than
well-known political figures, indicating
that he will emphasize administrative ef-
ficiency rather than the political rhetoric
that characterized Echeverria's years.
25X6
CHILE-PERU-BOLIVIAN /
Chile's blunt rejection of a Peruvian
formula for providing Bolivia with a cor-
ridor to the sea seems to set the stage for a
deadlock that could get the US involved
in the long-festering dispute.
Chile had earlier offered to grant
Bolivia exclusive sovereignty in a corridor
on the Chilean side of the present
Chile-Peru border. The Peruvian counter-
formula called for tripartite control in
part of the corridor.
Chile asserts that the Peruvian in-
itiative represents "a clear and manifest
modification" of Chilean sovereignty as
established by a 1929 treaty. Chile argues
that Peru's prerogatives under the treaty
are limited to approving or rejecting
Chilean plans involving disposition of the
territory, which Chile conquered from
Peru about a century ago.
If the two sides are unable to come to
terms, the US may become involved un-
der a provision of the 1929 treaty that
refers any dispute over interpretation of
the treaty to the US president.
Peruvian Foreign Minister de la Puente
announced last week, before Chile's rejec-
tion, that if Chile and Bolivia rejected
Peru's counterproposal the situation
would return to "point zero." An official
response to Chile on November 26,
however, implied that Peru is still willing
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Two new opposition groups emerged recently in Israel
where the long-dominant Labor Party seems likely to face its
greatest challenge in next year's general election.
25X1
0
Israel: Domestic Political Scene in Flux
The recent emergence of two new op-
position leaders on the Israeli political
scene is symptomatic of rising popular
dissatisfaction with both the Rabin
government and the equally lackluster
and faction-ridden Likud opposition bloc.
With a hard election fight coming
next fall, Prime Minister Rabin and
other Labor Party leaders are almost
certain to urge the US not to press
Israel to engage in serious negotiations
with the Arabs until after the election
lest they harm Labor's chances of stay-
ing in power.
Yigael Yadin, a highly respected
former Israeli chief of staff, recently an-
nounced the establishment of a new
political party that is likely to have a
moderate, reformist cast.
Ariel Sharon, a controversial and pop-
ular general who led the Israeli armored
attack across the Suez Canal in the 1973
war, recently broke with the conservative
Likud to establish his own hard-line
group.
The actions by both men will affect the
outcome of the general election next fall.
Yadin, a moderate on peace negotiations,
poses the greater threat to Prime Minister
Rabin's Labor Party. He will probably
pick up support among splinter groups
and independents who favor "dovish"
policies on Arab-Israeli issues. He is also
likely to make some inroads among long-
time supporters of the Labor Party who
have become disenchanted with the Rabin
government but are reluctant to vote for
Likud, especially under its present
leadership.
Sharon, despite his personal appeal, is
likely to have a more limited impact on
the outcome than the less dynamic Yadin.
A political maverick and rigid hard-liner
on Arab-Israeli issues, Sharon is likely to
draw more votes from Likud than from
Labor, but only enough to win a few seats
at best.
Other Political Challenges
The Labor Party has other problems.
The small Independent Liberal Party,
with four Knesset seats, apparently is
about to drop out of the governing coali-
tion.
This will leave the Labor
Alignment-the ruling coalition's core
group composed of the Labor Party and
the left-wing Mapam-more dependent
on its hard-line coalition partner, the
National Religious Party, which controls
10 of the government's 63 remaining seats
in the 120-member Knesset.
Mapam, for its part, is considering
breaking up the Alignment to run an in-
dependent slate of candidates next fall,
although it apparently would stay in the
present government.
Mapam leaders have felt frustrated in
the minor role assigned their group and
are threatening to pull out of the election
alliance with Labor unless Rabin and
other party leaders support a much more
dovish party platform for the election.
Labor Party Divisions
Potentially the most serious of Labor's
problems are the divisions within the par-
ty itself. Rabin faces challenges to his
leadership from former foreign minister
Abba Eban, a leading dove, and Defense
Minister Peres, a hard liner.
Consequently, Rabin would prefer to
see the party adopt a vaguely worded
plank on negotiations that would allow
him to head an outwardly united Labor
Party into the fall campaign. He fears-
justifiably-that if he bows to Mapam
demands former defense minister Moshe
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Dayan and some other Labor Party
hawks will bolt the party, leaving Labor
even more divided than it is now.
The net effect of the present jockeying
is to create increasing doubt about the
outcome of next year's balloting. Some
observers believe the Labor Party could
lose for the first time since independence
in 1948.
Even if Labor emerges with a plurality
again, which still seems likely, it will
probably be a reduced one. In that case,
Egypt's efforts to diversify its sources of military equip-
ment are complicated by financing problems, by the long lead
times before West European equipment will become available,
and by the need to find the money just to maintain existing
stocks of Soviet-made weapons.
negotiations over cabinet positions would,
at a minimum, be even more arduous and
time-consuming than in the past. The end
product could well be an even less flexible
Israeli negotiating team than the present
one.
ESearches for New Sources for Weapons
Egypt ' 25X1
Purchases from the UK of mis-
Egypt's rift with the USSR has serious-
ly reduced Cairo's military readiness and
has given added impetus to its search for
new sources of arms. Although Egypt and
the USSR recently have tried to improve
relations, Cairo is determined to diversify
its weapons supply base.
The small shipments of Soviet military
supplies still being sent to Alexandria con-
sist mostly of Egyptian equipment being
returned after servicing.
The Search for Other Sources
Egyptian efforts to obtain spare parts
and equipment from East European and
Chinese sources have met with only
limited success. Agreements signed. last
year with Czechoslovakia, North Korea,
Hungary, and Yugoslavia are providing
small imports of field artillery, ammuni-
tion, antitank ? missiles, and helicopter
spare parts.
quantities of equipment and spares.
and Italian firms about refurbishing and
retrofitting major Soviet weapons and
equipment-including tanks and MIG
Cairo began to look for new sources of
arms after it expelled most of the Soviet
military technicians stationed in Egypt in
1972; it intensified this effort after the
Soviets failed to replace all of Egypt's
1973 war losses of weapons and equip-
ment. In late 1973, Saudi Arabia gave
Egypt 38 Mirage jet fighters as grant aid,
although deliveries were not completed
until this year. Cairo's procurement in-
itiatives were subsequently slowed by a
lack of financial resources and Arab
reluctance to bankroll Egyptian arms
purchases indiscriminately.
sile boats, the navy's top priority require-
ment, also have been postponed for lack
of money.
In the long run, Egypt hopes not only to
refit its forces with Western equipment
but also to expand domestic military out-
put. The Arab Industrial Organization
was established last year by Egypt, Saudi25X1
Arabia, Qatar, and the United Arab
Emirates to encourage development of a
domestic armaments industry in Egypt.
Egypt's current arms output is limited
to light infantry weapons, ammunition,
explosives, and transport vehicles.
Although Egypt's defense industry out-
paces that of other Arab nations, it is
small by Western and Israeli standards. It
will continue to provide only a small por-
tion of Egypt's defense requirements for
many years even with Western assistance.
Financing Problems
The conversion from Soviet to Western
equipment will be delayed by financing
problems caused by the high cost of the
equipment, Egypt's reliance on wealthy
Arab states for monetary assistance, and
competition with the civilian sector for
25X1
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limited funds.
The conversion also will severely tax
the country's technical and maintenance
capabilities. Egypt will be hard pressed to
maintain and operate sophisticated
Western military equipment without ex-
tensive retraining of personnel and
reorganization of the logistic system to
accommodate the new types of equipment
and parts.
Substantial deliveries of Western arms
are still a long way off because of
Europe's lack of large arms inventories
available for immediate export and the
long lead times required for increasing
weapons production. New acquisitions
almost certainly will not keep up with the
attrition of older equipment over the next
year or so. Even if production were not a
constraint, Egypt will require several
years to equip and to train Egyptian
forces in the effective use of the new
equipment.
Egypt, meanwhile, will be forced to
continue to seek assistance to maintain its
Soviet equipment. Unless such relief is
found, Egypt's armed forces will ex-
perience increasing shortages over the
next year that will further degrade its
capabilities and widen the military im-
balance between Egypt and Israel.
Egypt's potential for waging war,
however, will not be completely eroded
even if the supply and maintenance situa-
tion becomes worse. Under peacetime
conditions, Egypt probably will be able to
maintain a viable defensive posture and at
least a limited offensive capability by 25X1
reducing the use of equipment, increasing 25X1
cannibalization, and obtaining some spare
parts from other countries.
Soviet-made Egyptian tanks pass October War monument during military parade
GAmMD
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The Labor government faces some tough tests in the
course of the legislative session that began last week. Chances
are reasonably good, however, that it can hold on at least until
spring without being forced to an early election.
Britain: New Parliamentary Session
Britain's Labor government began a
new legislative term on November 24 with
the traditional throne speech outlining
objectives for the coming year. The
government pledged to give top priority to
attacking inflation and to promoting an
industrial revival.
The establishment of regional
legislative assemblies for Scotland and
Wales will be the government's major
legislative initiative for the new session.
Labor will also reintroduce its controver-
sial bill to nationalize the aircraft and
shipbuilding industries that was blocked
in the last legislative session.
Although the government succeeded in
turning back-only by narrow
margins-most opposition challenges in
the session that ended on November 22,
serious political and economic problems
lie ahead. Labor, nevertheless, still stands
a reasonable chance of avoiding an early
election at least until next spring and
perhaps longer.
One immediate problem is the lagging
economic recovery, which in turn will con-
tribute to social and political discontent.
The trade union rank and file, who have
been prevailed upon to restrain wage
demands, are certain to grow more
restless as real wages decline, inflation
continues, and unemployment remains
high. The middle classes are also pressed
by high rates of taxation.
Many of these problems will remain
and some will grow worse if the Callaghan
government is forced to accept massive
cuts in public spending as a condition for
the $3.9-billion loan it is seeking from the
International Monetary Fund. Britain's
recovery has stalled and additional
deflationary measures would only worsen
the situation. The gross national product
will grow by about 1 percent this year and
by about 2 percent next year, far short of
the Labor government's earlier optimistic
forecasts of 4.5-percent growth through
the end of 1977.
The Labor government must reduce the
public sector borrowing requirement to
help restore foreign confidence in sterling
and strengthen industrial recovery. In
order to achieve this goal, Prime Minister
Callaghan must maintain the
government's alliance with the trade un-
ions, the key to sustaining Labor Party
unity in Parliament. Thus far, the
leadership of the Trades Union Congress
remains committed to the government,
although the strains are becoming more
evident as the unions are asked to accept
more sacrifice while relief remains a dis-
tant hope.
A Bright Spot on the Horizon
The one bright spot on the economic
horizon is North Sea oil. Oil revenues will
help reduce Britain's current-account
deficit, which reached $2.8 billion in 1975
and is expected to rise to $3 billion this
year. According to government estimates
published last summer, North Sea oil
production will reduce the current-ac-
count deficit by about $1.7 billion next
year.
Talks with IMF officials on the terms
for a loan are nearing a conclusion. The
British cabinet has reportedly agreed in
principle that it will have to reduce the
budget deficit in order to get an IMF
credit and increase the possibility of an
international guarantee
sterling balances.
The remaining dilemma for the Labor
government centers on the size of the cuts
HOUSE OF COMMONS
Government
Opposition
Labor
312
Conservative
278
Social Democratic
Liberal
13
and Labor
1
Scottish Nationalist
11
Scottish Labor
2
Welsh Nationalist
3
Independent Republican
1
Ulster Unionist
9
Vanguard Unionist
1
(The above figures exclude the speaker, who only votes on ties, and his
three non-voting deputies.)
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G.u 4Ac ?res~
Jack Jones, a key government
ally in the trade unions
and their domestic political acceptability.
There is considerable ministerial
resistance to heavy cuts in public spending
that would result in an immediate rise in
the high unemployment level. Those
cabinet ministers arguing against harsh
deflationary measures have received
powerful backing in recent days from the
Trades Union Congress and two unex-
pected sources, the prestigious National
Institute for Social and Economic
Research and the Confederation of
British Industry.
In anticipation of IMF conditions, the
government in recent weeks has taken a
number of steps to limit the growth in
money supply and domestic credit expan-
sion. It has raised the minimum lending
rate to a record high, increased special
deposits with the Bank of England, and
imposed new restrictions on bank expan-
sion of interest-bearing deposits. The
Callaghan government has also an-
nounced a reduction in the level of central
government financial support for local
government spending.
To help secure Labor Party and trade
union acceptance of what may be a
"deflationary" IMF package, Callaghan
wants an international guarantee for of-
ficial sterling balances. The Prime
Minister probably thinks a guarantee
would signal international support for his
economic recovery strategy and provide a
much-needed political boost at a time
when Labor's fortunes are sagging.
Any budgetary adjustments required by
the IMF would probably have to be ac-
companied by concessions to Labor lef-
tists. These could include import restric-
tions and further reductions in defense
spending as part of any overall budget
cuts.
If the Labor government is able to
secure domestic acceptance of the tough
measures that are expected to accompany
an IMF loan, Callaghan's prospects for
hanging on to power would improve con-
siderably in spite of his vulnerable posi-
tion in Parliament.
End of Labor Majority
Labor lost its absolute majority in the
House of Commons on November 4
following the loss of two of three normally
"safe" seats in by-elections. From that
point until the end of the parliamentary
session on November 22, the government
struggled against a Conservative opposi-
tion determined to cause Callaghan max-
imum embarrassment.
The opposition parties, in an unusual
display of unity-and aided by right-wing
Labor defections-were able to gut a bill
in Commons important to Jack Jones,
one of the government's key trade union
allies.
In addition, persistent upper house op-
position to nationalization of the aircraft
and shipbuilding industries resulted in the
failure to secure full parliamentary ap-
proval of the bill before the end of the ses-
sion. The government intends to rein-
troduce the bill in the new session under
procedures that would bypass the House
of Lords. Labor's one-vote working ma-
jority in Commons, plus the possibility of
further by-election losses, means that the
government will have a difficult time get-
ting its way on the nationalization
measure.
Aside from nationalization, the Labor
leadership can assert that over the past
two years it has fulfilled the bulk of its
election promises. This should leave the
new parliamentary session largely free of
ideologically divisive legislative
proposals. The main issues will be home
rule for Scotland and Wales, and direct
elections to the European Parliament.
Both questions are controversial, but the
arguments cut across party lines and
could easily end up with "free" votes in
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which parliamentary discipline would not
be enforced.
Tough Tests Ahead
The really tough tests for Labor will
come on economic issues, chiefly the
budget next spring or any mini-budget
Chancellor of the Exchequer Healey
might introduce in relation to the IMF
credit. On. such votes there would be a
danger of leftist defections. Potential
left-wing dissidents, however, will be kept
in line by the knowledge that their dis-
loyalty could risk an early election and the
coming to power of the Thatcher-led
Tories-a prospect most leftists and trade
unionists fear. Moreover, the Conser-
vatives themselves would be hard pressed
to vote against the kind of austerity
measures they have been recommending.
On the other issues, however, the
Conservatives will be able to take advan-
tage of Labor's precarious parliamentary
situation. The government's slim overall
edge will mean that the Tories and their
potential allies among the minor opposi-
tion parties will occasionally unite to deal
Callaghan a heavy blow on important
legislation and will be able to score tac-
tical victories on a variety of issues.
Confidence votes are another matter.
Dissident Laborites who may have
strayed on earlier votes can probably be
relied upon to return to the fold when the
government's life is at stake. Further-
more, the Conservatives are likely to find
many of the members of Parliament
representing minor parties to be fickle
allies in any serious effort to topple the
government.
The Liberals in particular would be
heavy losers in an early election and for
that reason would probably balk at voting
against the government on a confidence
motion. Labor has. also apparently struck
a deal with the Welsh nationalists for their
support on confidence votes in return for
concessions on home rule for Wales.
Political liberalization in Spain now depends in part on the
willingness of the democratic opposition parties to play a
positive role in the process-on terms set largely by the govern-
ment.
With the Spanish reform bill safely
through the Cortes, Prime Minister
Suarez must now try to get the noncom-
munist opposition to participate in the
democratic processes established by the
new law.
The government has two immediate
goals: to persuade as many opposition
parties as possible to signify their endorse-
ment of the reforms by applying for
legalization, and to head off an opposition
campaign for abstentions in the referen-
dum scheduled for December 15.
The broad lines of the government's
position were laid down on November 23
by Interior Minister Martin Villa, who
told a press conference that only officially
approved parties will be allowed to par-
ticipate fully in the referendum campaign
and that proscribed political par-
ties-Communists and left-wing ex-
tremists-will be denied any role.
Spain: A Role for the Opposition
The Socialists, Christian Democrats,
and other left-of-center parties, which
have not yet applied for legalization, will
be restricted to holding indoor meetings
and denied access to television and other
government-controlled media.
A Gesture of Leftist Solidarity
Failure of the left-of-center parties to
apply for legalization is partly a gesture of
solidarity with the Communists, who are
likely to remain banned at least until after
the legislative election next spring. It is
also an expression of the parties' dis-
pleasure at not being fully consulted on
the reforms and their reservations about
the government's commitment to free and
fair elections.
The leftist parties will probably seek to
use the question of their full legal par-
ticipation as a bargaining chip when they
try to persuade the government to
negotiate with them on the law governing
parliamentary elections.
The government's hard line on restric-
ting the freedom of nonlegalized parties in
the referendum campaign may be a
negotiating ploy. If, on the other hand,
the government is serious about stifling
the leftist abstention drive, it may find the
approach counterproductive; heavy-hand-
ed action by security forces could unite
the opposition at a time when it is showing
signs of splintering. The government may
also be vulnerable to accusations of
manipulating the referendum.
The Moderate Opposition
There are signs that the more moderate
opposition groups are uncomfortable with
the move-led by the Communists and
the Socialist Workers Party-to cam-
paign aggressively for abstention unless
various demands, including legalization of
the Communist. Party, are met.
Representatives of national and.
regional opposition groups ranging from
Communists to center-left Liberals and
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Social Democrats held a meeting in
Madrid on November 27 and called on
the government to open negotiations with
them. The groups agreed to various con-
ditions-again including legalization of
the Communist Party-which they con-
sider necessary to give democratic
legitimacy to the referendum and election,
but they did not threaten to abstain if
these conditions were not met.
Two leaders of the small Popular
Socialist Party recently told the US am-
bassador that they believe it is unwise to
expend resources opposing the referen-
dum when the government is certain to
win anyway.
In any case, the Popular Socialist
leaders said they believe the election next
year is far more important than the
referendum. They believe the more
moderate groups will probably concen-
trate on efforts to ensure a fair legislative
election, leaving participation in the
referendum up to each party member.
Opposition leaders may now push for
the appointment of three or four "wise
men" as ministers without portfolio to act
as intermediaries for negotiations on the
election law and to supervise the election
process itself. This theme was recently
touched on in a press interview by Chris-
tian Democrat Ruiz Gimenez, who
suggested that the "wise men" need not be
leaders of the opposition-they could be
eminent jurists and experts on election
law who have the confidence of the op-
position.
Consultation with Opposition
Suarez met on November 29 with
Christian Democratic leaders in what
may be the first step toward broader for-
mal consultations with the opposition.
The government probably hopes to per-
suade noncommunist opposition groups
that they should not be so adamant in
their support for legalization of the Com-
munist Party that they jeopardize not only
their own political futures but the coun-
try's progress toward democracy as well.
The major socialist group, the Socialist
Workers Party, is in a particularly
awkward position. Because it is com-
peting with the Communists for workers'
votes, it is vulnerable to accusations of
selling out to the government. This is
probably the main reason it is pushing for
abstention in the referendum.
Government officials recognize the par-
ty's dilemma. Because they see the party
as a key factor in the struggle to involve
the noncommunist opposition in the
reform program, they have privately ex-
pressed a willingness to lean over
backward to win its cooperation.
A Socialist Workers Party congress,
now scheduled for December 5 to 8, has
received government authorization. In ad-
dition, the government is reportedly con-
sidering a modification of the law that
would allow the Socialists to become25X1
legalized without having to swear
allegiance to Francoist institutions.
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The outcome of the Japanese election on December 5 is not
likely to have much impact on the balance of political forces in
the country. It will have an effect on the leadership battle within
the ruling party.
Japan: The National Election
The ruling Liberal Democratic Party in
Japan will retain a Diet majority and con-
trol of the government after the national
election on December 5.
Despite almost ten months of pervasive
national attention to the Lockheed scan-
dal, the unprecedented indictment of a
former prime minister, and an intense
power struggle within the ruling party, the
Liberal Democrats will be able to end up
controlling at least 271 of the 511 seats at
stake-enough to give them full control of
the legislative process in the lower house.
The margin of the party's victory will
play a major role in former deputy prime
minister Fukuda's challenge to Prime
Minister Miki, which is likely to resume
shortly after the election.
The Conservative Edge
Since the formation of the Liberal
Democratic Party in 1955, urbanization
in Japan has produced a gradual decline
in the party's share of the popular
vote-from 63.2 percent in 1955 to 46.9
percent in the most recent lower house
election in 1972.
The party has maintained a relatively
comfortable Diet majority in part because
of firm support from rural constituencies.
There, traditional ties, an effective
political organization, and attention to
agricultural interests in the Diet have
enabled the Liberal Democrats to win
close to two thirds of all rural and
semi-rural Diet seats.
More important, the value of the rural
vote to the party has increased because
with few exceptions Diet seats have not
been reapportioned to reflect the declining
rural population. When reapportionment
pressures have arisen, the ruling party has
increased the size of the Diet; last year, it
added 20 new urban and suburban seats.
Even so, malapportionment remains ex-
treme.
The population shift has also given the
party some opportunities for political
gains. Since the late 1960s in particular,
the growth of small- and medium-sized
cities has outpaced growth in
metropolitan areas. The Liberal
Democratic Party has done reasonably
well in the smaller urban centers, winning
53 percent of these races in 1972, com-
pared to only 30 percent of the contests in
the larger metropolitan districts.
Prime Minister Miki
UP/
The ruling party this year has limited
the number of its official candidates to
avoid excessive competition among its
own candidates, which could fragment the
vote. Under the Japanese system, Diet
members are elected from mul-
timember-three to five men-districts,
where the voter casts only one ballot.
Controlling the endorsement process is
always difficult for the party. Each of its
internal faction leaders tries to get as
many endorsements as he can for his own
candidates to increase his faction's
relative strength. The problem was clearly
evident in 1972, when the party ran a total
of 339 candidates; this helped cause it to
lose 11 seats. The Liberal Democrats this
year have endorsed only 319 candidates.
The party will also benefit from the ad-
dition to its ranks of some of the
"independents" who will be elected next
week. Indeed, the party will probably
need the addition of victorious in-
dependents to achieve the necessary 271
seats.
Most of these candidates-generally
conservatives who failed to gain the par-
ty's official endorsement-are un-
successful; only 14 out of 134
"independents" were elected in 1972. This
time, about the same number will
probably be elected, and most will subse-
quently affiliate with the Liberal
Democrats.
One of the best known "independents"
running this year-former prime minister
Tanaka-is likely to win re-election easi-
ly. Although Tanaka is portrayed as the
villain of Lockheed, his election prospects
clearly indicate that even such highly
publicized national issues can have only a
limited impact on local election contests.
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Whatever the Liberal Democratic Par-
ty's final election totals, the results are
certain to play a major role in the internal
battle for leadership of the ruling party.
Miki's opponents have tried throughout
the summer and fall to force his resigna-
tion. Miki's refusal to step down,
however, and sentiment in the party that
the leadership issue should be resolved
after the election, forced Miki's op-
ponents-former deputy prime minister
Fukuda and Finance Minister Ohira-to
put off their challenge.
Post-Election Battle
Fukuda and Ohira have now set the
stage for a post-election battle with Miki.
In late October, nearly two thirds of the
Liberal Democrats in the Diet publicly en-
dorsed Miki's removal and Fukuda's in-
stallation as party president and prime
minister. Fukuda moved into more open
opposition by resigning his cabinet post in
early November. Since then he and other
anti-Miki leaders have made a change in
party leadership a primary issue in their
campaign.
Miki, in turn, has emphasized his
stewardship of the party throughout the
Lockheed affair and his success in
promoting Japan's economic recovery.
The factional balance within the party
is not likely to be directly affected by the
leadership battle. In the anti-Miki camp,
the Tanaka faction is the most vulnerable.
The Fukuda faction may also lose some
incumbencies, but neither Miki nor his
party ally, former party secretary general
Nakasone, seems likely to make major
gains at their rivals' expense.
Miki has already asserted that the elec-
tion of 271 officially endorsed party can-
didates-the minimum number permit-
ting the party to control the lower
house-will represent a personal "vic-
tory." His opponents suggest that unless
the party wins more than 280 seats, its
election performance will constitute
grounds for Miki's replacement.
In any event, Miki is certain to face a
serious challenge to his leadership after
December 5 when the party deliberates on
its new slate of cabinet officers. Then, by
law, the entire cabinet must resign and a
new prime minister must be elected by the
Diet. In view of the forces arrayed against
him, Miki could well step down voluntari-
ly and arrange a peaceful succession. In so
doing, he could make a graceful exit while
perhaps preserving some influence in the
next administration.
The balance in the party remains
against Miki. A recent poll of 345 Liberal
Democratic and conservative independent
candidates indicated that only 19 percent
would support Miki's re-election as prime
minister, while over 55 percent were in-
clined toward Fukuda. Neither Miki's
self-styled image as a political reformer
nor the party's more general concern
about voter reaction to the party's widely
criticized operating style has improved his
chances.
The Opposition
The Japan Socialist Party and the
Japan Communist Party are not likely to
make major gains in the election. The
large number of undecided voters at this
point in the campaign suggests that there
may well be some increase in the strength
of the Clean Government Party, the
Democratic Socialist Party, and the new
Liberal Club-a group of dissident con-
servatives who split from the ruling party
earlier this year.
The battle between the Clean Govern-
ment Party and the Japan Communist
Party has been particularly heated this
year because of the Clean Government
Party's effort to win back the seats it lost
in 1972. The representation of both par-
ties is heavily concentrated in
metropolitan districts.
The Communists made dramatic gains
in 1972 when they increased their
membership in the lower house from 14 to
39, and again in 1974 when they raised
their upper house contingent from 11 to
20.
Still, the Communist Party finds itself
somewhat on the defensive this year,
which will complicate its efforts to attract
the kind of antigovernment protest vote it
garnered in 1972. Communist attempts to
advance the party's "peaceful and
democratic" image have come under
heavy attack from the other opposition
parties.
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The Japan Socialist Party, the largest
opposition party, also faces problems. Its
difficulties stem in part from a gradual
decline in support from the younger ranks
of the party's traditional labor union
allies, the party's weak organization, and
competing ideological strains within the
party.
The Democratic Socialist Party is like-
ly to do little better than hold its own at
the polls. The party's popular vote, which
has fallen to about 7 percent, reflects the
limits of its traditional support from the
labor unions as well as its inability to at-
tract promising young candidates. Even
so, party leaders hope that the trend
toward more moderate policy positions by
the leftists this year will give the party a
boost; they have clearly tried to identify
their party as the one most likely to
enter a coalition with the Liberal Dem-
ocratic Party whenever the conserva-
tives lose their majority.
25X1
25X1
Skillful promotion of Japanese exports to the developed
countries has helped double Japan's trade surplus since last
year. It has also stimulated concerns in the other industrialized
countries that could result in new trade barriers against
Japanese goods.
~ ~ q I Japan's Trade Surplus Rising Rapidly
Since late 1975, Japan has engineered a
successful export drive by pushing high-
value items-cars, steel, and electronic
products-into developed-country
markets.
Data through October suggests that
Japanese exports this year will exceed
total 1975 overseas sales by 18 percent.
The trade surplus is running at more than
a $10-billion annual rate, double last
year's level. Exports have supplied
roughly one half of gross national product
growth in 1976.
Sales to developed countries have ac-
counted for 86 percent of the rise in
Japanese exports this year. Partly re-
flecting the export drive, Japan has re-
built its share of key markets in the in-
dustrial countries to about the level of
1972, before the oil crisis and the appre-
ciation of the yen raised prices of Japa-
nese exports.
The EC Market
In the EC, Japan's market share has
been at least stable; in traditional
developed-country markets such as
Australia and New Zealand, its share has
risen moderately.
Japanese car sales in the US have in-
creased at the expense of other foreign
suppliers; retail sales of Japanese cars are
up 7 percent this year, while those of other
foreign makes have declined 26 percent.
As a result, Japan's share of the foreign
car market has jumped from 52 percent to
61 percent. Helped by higher car
shipments, Japan has pushed its share of
total US imports of manufactures from
22.6 percent in 1975 to 24.5 percent in
1976.
Japan has also increased its share of
total steel exports to the US from 50 per-
cent in 1975 to 60 percent this year.
Japanese firms hold one third of the total
market for television sets in the US, up
from only 11 percent in 1975.
Less dramatic inroads have been made
in the EC market for cars, electronic
products, and steel, but EC steelmakers
are complaining that Japan is pushing
them out of the market in smaller
developed countries.
In late 1975, Japan was in the best posi-
tion to boost sales to the US and other
key developed countries because of 'its
superior marketing system. While Euro-
pean automobile manufacturers-par-
ticularly Volkswagen-were cutting back
outlets in 1974 and 1975, Toyota, Honda,
and Nissan were increasing both the
number of outlets and showroom space.
The Japanese auto firms also apparent-
ly benefited from US consumer resistance
to the sharp rise in Volkswagen prices and
to the new line of models replacing the
Beetle.
Japanese electronics firms have concen-
trated on the lucrative 19-inch color TV
market. To increase sales of televisions,
Japanese firms teamed up with leading
US retailers-Sears, JC Penney, and
Montgomery Ward-and now produce 80
percent of the portable color TVs
marketed under these labels. Japanese
firms also supply sets and components to
brand-name producers such as
Magnavox.
Trading Firm Subsidiaries
Japanese producers-particularly of
steel, textiles, and machinery-have made
extensive use of rapidly expanding
Japanese trading firm subsidiaries both in
the US and Europe. Since 1970, nearly
500 subsidiaries have been established in
the US, mainly wholesale dis-
tributorships. Many of these outlets
accept lower profit markups to increase
sales.
In response to the recent world
economic downturn, Japanese firms were
first to cut export prices to key markets
well below their competitors. Export
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prices, for example, dropped 21 percent in
dollar terms from early 1975 until early
1976. Japanese steelmakers cut prices
roughly $80 per ton for the US market.
Japanese traders have not taken advan-
tage of economic recovery by rapidly in-
creasing export prices. In September, yen
prices were still 5 percent below what they
were at the peak in the fourth quarter of
1974. In contrast, West German export
prices (in national currency) increased 6
percent over the same period. A
depreciating yen exchange rate also con-
tributed to Japan's market com-
petitiveness in late 1975.
Japanese traders are concerned that
they are approaching their peak share of
present consumption for key exports.
Assuming US consumer tastes continue
to lean toward the medium-sized car, the
Japanese car industry would have to cut
further into other foreign sales just to hold
its current share of US consumption.
US Production Facilities
Partly to avoid trade barriers and
counter rising production costs at home,
Japanese firms have been acquiring
production facilities in the US. The
Japanese have already shifted some
production of ball bearings, steel items,
and textiles. Toyota is considering a plant
in the US, but will probably delay a deci-
sion at least until 1978.
Japan will face new trade barriers if it
continues to make inroads in industrial
country markets. Formal and informal
studies are under way in the US covering
Japanese sales of steel, television sets, and
other products. The EC has been putting
pressure on Japan to reduce its trade sur-
plus with Western Europe, and some
members have threatened unilateral ac-
tion against Japanese exports. The EC
will issue a declaration this week simply
noting some progress on EC-Japanese
trade problems.
If foreign pressure continues to mount,
we expect Japan to try to secure orderly
marketing agreements that will allow its
industry to hold on to as much of its ex-
panded markets as possible. Tokyo may
impose selected unilateral restraints on its
key exporters, as it has done in the past.
Electronics firms already have restrictions
on sales of many individual items in the
UK; the steel industry recently agreed to
extend limits on shipments to the EC
through 1977.
The government has agreed to
stimulate imports of processed food and
tobacco products from the EC. Most
businessmen, however, are openly skep-
tical about the long-run success of a plan
to boost purchases from the Community
because EC manufactured goods are
heavily weighted toward capital equip-
ment, which Japan now imports mainly
from the US. So far, Tokyo has giver25X1
only limited ground on nontariff barriers,
and those mainly in the auto trade area.
QcI
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