VERSAILLES SUMMIT: BRIEFING MATERIALS FOR PRESIDENT'S TRIP TO FRANCE, JUNE 4-6, 1982

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP10M02313R000100750003-5
• Release Decision: RIFPUB
• Original Classification: S
• Document Page Count: 20
• Document Creation Date: December 22, 2016
• Document Release Date: February 8, 2012
• Sequence Number: 3
• Publication Date: May 10, 1982
• Content Type: MEMO

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E, C0.fT IVE SECBETARIAT
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ACTION
INFO
DATE
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NATIONAL SECURITY COUNCIL.:
Wf.S"INGTON. D.C. 20506
CON F T DTNT-I
WITU_.: T ATTACHED
May 10, 1982
MEMORANDUM FOR NANCY BEARG DYKE
Assistant to the Vice President
for National Security Affairs
L. PAUL BREMER, III
Executive Secretary
Department of State
DAVID PICKFORD
Executive Secretary
Department of the Treasury
ROBERT P. MEEHAN
Assistant for Interagency Matters
Office of the Secretary of Defense
RAYMOND LETT
Executive Assistant to the Secretary
Department of Agriculture
HELEN ROBBINS
Executive Assistant to the Secretary
Department of Commerce
IT 7
WILLIAM V. VITALE
Director, Office of the Executive Secretariat
Department of Energy
WILLIAM SCHNEIDER
Associate Director for National Security
and International Affairs
Office of Management and Budget
THOMAS B. CORMACK
Executive Secretary
Central Intelligence Agency
DENNIS WHITFIELD
Executive Assistant to the USTR
ROGER PORTER
Special Assistant to the President
for Policy Development
JAMES BURNHAM
Special Assistant to the Chairman
Council of Economic Advisers
CHARLES F. STEBBINS
Executive Assistant to the Chairman
Joint Chiefs of Staff
SflPPT
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CONFIDENTIAL - 2 -
SUBJECT: Versailles Summit: Briefing Materials for
President's Trip to France, June 4-6, 1982
As agreed at the April 28 meeting of the Senior Interagency
Group for the Versailles Summit, the Department of State
circulated on April 30 the draft briefing papers for the
President's briefing book as received by COB April 29. Papers
received subsequent to that date are attached to this memo.
Initial drafts of papers are still outstanding on the following
subjects:
Papers not received Drafting Agency
CBI USTR
Multilateral Food Corps AID
R&D Investment Commerce
International Aspects of High Tech Commerce
Southern Africa State
The indicated agencies should submit these drafts immediately
even if they are preliminary or await the completion of studies
or other events. They can always be updated later.
All agencies are requested to review the total package of
briefing materials and to refine papers for which they are
principal drafters to insure that the prescribed format is
rigorously followed and that the substance of the papers is
in tune with the briefing book as a whole. In addition, agencies
should update all papers for which they are principal drafters,
taking particular account of developments at the international
meetings during the week of May 10.
Final papers in original form, cleared at the Deputy Assistant
Secretary level, are due to Marshall Casse (Department of
State, Room 7250, 632-1089 or.2811) by COB, May 17 FIRM. Issue
and background papers that do not depend on meetings the week
of May 10 should be forwarded by Friday, May 14. The papers
should rigorously follow prescribed format and typeface.
Drafting and clearance information should be shown on a
separate sheet with the title of the paper repeated at the
top of the drafting info page.
The Versailles SIG will meet at 4:00PM Tuesday, May 18, in
Room. 305 of the Old Executive Office Building to review the
status of the briefing materials and to receive a report of
the final meeting of the Personal Representatives.
1'\ O.
Michael O. Wheeler
Staff Secretary
Attachments
a/c
CONFIDENTIAL
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U . S . Sconc ..c Situation
"ho decline in rea- GNP d,.L ring the. first quarter was at an
annual rate of 3.9%, somewhat better an the initial est:.mate
of a minus -'?-5A. More im cr a_nt, the entire decline was
accounted for by a pass-, ve licuidation of inventories, wuch of
it in autcrccbi'_es _ :.mc_uding the inventory swing, so-called
"final 'sales" rose at an annual rate of 1_9%, led by personal
consu_^rotion ex-aendi t, -res (food, autos, and, the like). Most
other categories registered slight declines.
cu--look. Should inventory liquidation come to a halt this
month or even s_cw cows subs _antiall.y, prospects for a modest
second Guar- er increase in GNP .rill be good.. A second half
rate of increase n the vicinity of 5 percent now appears
within .:each. ('*_'he April :+_ue Chip survey of private
forecasters s hews a. -dest upturn in the second qua---=er and a
second 'half s f 7-982 with a 4. percent-plus rate of growth.) -
The case for a consumer-led recovery remains strong. we
are now see:= - real i`_creases in consumer incomes, than .s to 3
lower inflation rate and tax ^s .s. This situation will be
reinForced =e second e-uar_er with the _'irelihoed c:.
continued favorable results or. inflation a: d the effects of the
1982 tam cut.
The t-i ng, near-term strength and sect-oral c==csit-ion of
the upturn will be influenced by ft--t-her progress or. interest
rates . There have been some recent declines in both short-and
long-ter: rates since .._d-F_ebrna=-y that are encouraging
sustained. three-conth Treasu_-y bills a. =e off more :.:Zan a full
percentage pc _^t, corporate bonds down about 1%, and sensitive
Mortgage rates are down abcu_ the same.
8owever, interest rates remain high, relative to current
inflation rates. sigh real rates are characteristic of a
significant d_speriod, reflecting a slow chancre in
inflation ezr ectations. addition the high real rate of
nterest :.av also be related to ur_certa_nty, which is adding, a
large risk orer..iun to the level of interest rates, -a rtic'u arty
long-term rates- Substantial uncertainty- currently surrouncs
both fiscal and moretarv policy. +
Current internal projections call for a
year-over-year fall real GN? in 1982 of between 1 . 2% - 1%
and an increase 1983 of 4%. Prices, as measured by the GNP
deflator , sh curd rise about 7% in 1982 (year-over--yea:) , and 6 %
1983.
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SECRET
OVERVIEW: "NORTH/SOUTH" ISSUES
I. U.S. OBJECTIVES AND INITIATIVES
Principal U.S. Objectives
Foster a new pragmatism on "North/South" issues, a
process which was begun at Ottawa and continued at Cancun.
Champion open trade, free capital flows, and LDC
domestic economic policies compatible with private
enterprise as the most effective path to accelerated
economic growth and development in developing countries
(LDCs).
Recognize the need for continued concessional aid
flows to the poorer countries but within real budget
constraints in donor countries.
Supplementary Objectives
Preserve unity among the seven particiants and
narrow the differences in general orientation toward
LDCs.
Resist diplomatic pressure to agree to Global
Negotiations (GNs) in the UN General Assembly prior to
the fulfillment of US understandings.
Resist commitment to new institutional structures
before their need has been demonstrated (Common Fund,
IBRD Energy Affiliate, Global Foreign Exchange Earnings
Stabilization Schemes - "Global Stabex").
Initiatives
Discuss our initiative for a round of trade
negotiations on market access by developed and
developing countries which the US is considering
for the GATT ministerial.
Ensure that other participants understand the
Caribbean Basin Initiative (CBI) and agree to partici-
pate in appropriate ways.
Discuss the multilateralization of the
Presidential task forces on food and agriculture and
obtain approval for follow-up action.
SECRET
GDS 5/4/88
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SECRET
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II. BACKGROUND AND PRE-SUMMIT PREPARATION
"North/South" is a misleading short form expression to
mean the full breadth of the industrial countries' economic and
political relations with the LDCs. There is no real category
of North or South. Both "groups" are composed of highly
varied and heterogeneous nations.
Pre-Summit preparations have revealed a major dilfference
in general orientation toward LDCs between the US and a
majority of the other participants. The basic paper drafted
by Italy (tab ) uses the words overall, integral, organic,
and strategic to describe the kind of dialogue needed with
the LDCs. All summit participants, with the exception of
the US and UK, favor the current proposal of the LDCs (Group
of 77) for a round of GNs (see issues paper), and they want
Versailles to give "positive signals" about things the
industrial countries can do for the LDCs.
We believe that this approach ignores the positive con-
tribution of existing international economic institutions to
the dialogue. Moreover, we cannot commit ourselves to
launch GNs prior to the fulfillment of the US understandings
(see issues paper). Instead of searching for "positive
signals," we believe the summit should help set aside outworn
concepts (e.g. that industrial countries owe concessions to
LDCs and that aid can be greatly increased) and inspire new
thinking (e.g. that domestic policy is the key to develop-
ment and that the private sector can supply significant new
funds).
III. OTHER COUNTRY OBJECTIVES AND STANCE ON THE U.S. OBJECTIVES
France hopes to form a unified EC policy on North/South
issues before the Summit and to push it through the Summit.
Emphasis will be on GNs, concessional aid, to include IDA, and
energy assistance. France desires to de-emphasize trade to
protect domestic unemployment and the EC's Common Agriculture
Policy (CAP). The French will not be receptive to the US
approach in North/South relations. They will push more govern-
ment involvement in the world economy, not less.
Italy will back the French. They have emphasized to us
the importance of a "belly figura" on North/South, i.e.
the symbolic importance of doing something positive to look
good. As the drafters of the North/South discussion paper
(tab ), they suggest the following possibilities: GNs,
World Bank energy affiliate, support for LDC food strate-
gies, increasing the international food reserve, concluding
an International Wheat Agreement, increasing IMF resources,
implementing the UN negotiated Common Fund for commodity
agreements.
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Canada and Japan will also identify with the French point of
view. Canada will hold this position primarily because of the
strong feelings Trudeau has in fostering North/South relations
through political symbolism. Japan will stress that its
dependence on the South for energy, resources and markets neces-
sitates a harmonious atmosphere.
We can expect UK support for our position on GNs. Firs.
Thatcher has a strong view on the necessity to protect the
UN specialized agencies. The FRG will be the only summit
participant enthused about our emphasis on trade. All
the -other summit countries are troubled by relatively high
unemployment which makes trade liberalization politically
difficult.
-- There is a necessity to foster a new pragmatism in
economic relations with developing countries. Budgets are going_
to be limited. Growth will be slow.
-- We must use all the resouces available: Trade, foreign
investment, and, where justifiable, concessional aid. The
Caribbean Basin Initiative (CBI) is an example of such an
integrated approach.
-- However, neither the CBI nor any other program will work
if domestic development policies do not make sense. Development
is a national phenomenon.
-- The US does not believe that GNs will necessarily foster
more economic growth. There are major risks to the specialized
agencies that need to be overcome. We are willing to join in GNs
if our understandings are met.
-- We must deal with real problems faced by the LDCs.
I hope you will join the US at the GATT Ministerial this fall in
working on LDC trade issues.
-- We would like to see the multilaterialization of the
agricultural task force concept which was developed at Cancun by
President Reagan.
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SECRET
DRAFT key issue paper for Versailles Summit:
N.B. This
text by tabling a NSC-approved text
GLOBAL NEGOTIATIONS
responded to the G-77
our own in late may.
I. ISSUE
Other Summit participants want the summit to agree on
visible "symbols" of our political support for developing coun-
tries (LDCs). Because the issue of global negotiations (GNs) in
the UN General Assembly has been pending since 1979 and because
all but the US and UK can accept the text of a new UNGA resolu-
tion on GNs which the LD('-'s proposed on March 31, the other
participants are likely to bring considerable pressure to bear on
us to announce some form of decision which would clear the way
for our accepting a version of the March 31 text.
II. ESSENTIAL FACTS
GNs was a major issue at the Ottawa-summit. At the Cancun
summit, participants agreed to support "at the UN, with a sense
of urgency, a consensus to launch GNs on a basis to be mutually
agreed and in circumstances offering the prospect of meaningful
progress. Since Cancun, GNs have been under continuous discus-
sion in New York. On March 31 the LDCs (Group of 77) finally
responded to the amendments the US offered December 9 on the
basis of a draft resolution by UNGA President Kittani. The March
31 text is acceptable to most countries but not to the US because:
1) it launches a formal UN Conference for GNs before
procedures, agenda, and timeframe are agreed;
.2) it leaves open the relationship between the conference
and the specialized agencies of the UN system;
3) it refers directly to the 1979 resolution on GNs with
the words "in accordance with" (we proposed "noting"); and
4) it implies a package agreement which means that the
results of negotiations in the specialized agencies
could he reopened at a political level.
In late May, the NSC approved and USUN tabled a new US text
which draws from past language but protects the US substantive
position. We simultaneously urged other industrial countries not
to isolate us by voicing acceptance of the G-77 text or by
tabling texts of their own which would not be acceptable to us.
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SECRET
The proposed US text attempts to meet the G-77 in two
places: By "bearing in mind" the 1979 resolution and by saying
that GNs will commence at the earliest possible date after pro-
cedures, agenda, and timeframe are agreed. The latter point
is a non-substantive addition to please the G-77 moderates who are
concerned that we will not move promptly once the preliminaries
are in place.
The tabling of the new US text will not lead to. GNs.
It is a tactical :Hove to preserve our substantive position and to
protect President Reagan by throwing the ball back at the G-77
just before Versailles. A majority of G-77 members might be able
to take the text, but, according to intelligence reports, a small
group of OPEC and radical countries is still extremely unlikely
to accept any text which preserves the US substantive position.
Criticism: The US should be more "forthcoming" on GNs.
Response: Since Cancun, we have twice considered GNs at the
highest level. In December, the NSC chaired by President Reagan-
a?proved amendments for the draft UNGA resolution offered by UNGA
President Kittani. The Group of 77 responded on March 31. Our
next step was delayed by the Falkland Islands, Middle East, and
other crises, but the NSC agreed in May to table a new text.
Criticism: The Versailles Summit must agree to launch GNs
in order to send a positive political signal to the LDCs.
Response: We are awaiting a G-77 reply in New York. Mean-
while, the US cannot agree to any language on GNs which goes
beyonr: the co-chairmen's summary of the Cancun Summit.
Criticism: By not agreeing to launch GNs immediately, the
US appears to oppose dialogue with the LDCs.
Response: This in nonsense. The US participates in inter-
national discussions with LDCs every day. At Cancun, President
Reagan said the US favors a more formal dialogue -- bilaterally,
regionally, and internationally. He gave four explicit under-
standings that would offer the prospect of meaningful progress.
U.S. point: We cannot agree to launch GNs until we know
the procedures, agenda, and timeframe.
Likely foreign retort: We will work this out as the first
phase of GNs. Agreeing to launch GNs is just a form of words and
costs us nothing.
U.S. point: The recent draft by the G-77 does not protect
the IMMF, IBRD, GATT and other specialized agencies.
Likely foreign retort: The draft is imperfect, but we will
work together to minimize the danger in the course of GNs.
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LIMITED OFFICIAL USE
WORLD BANK ENERGY AFFILIATE
ISSUE
Other countries may urge the United States to reconsider
its decision not to participate in a World Bank energy affiliate.
in 1981 the World Bank proposed to expand its FY 82-86
energy lending program from $14 to $30 billion and to create
a leveraged energy affiliate to mobilize the required resources.
The United States firmly opposes both and has worked instead to
influence Bank policies to increase the total resources avail-
able for energy investment by structuring its operations in
such a way as to catalyze more private investment. To date,
however, Bank oil and gas exploration and development loans
have continued to finance more than 40 percent of project costs
compared to the 20 percent the Bank projected in 1977, and
private participation remains limited.
Other Summit countries, particularly France and Italy,
have given strong and consistent support to the affiliate
concept as a means to raise new money for accelerated energy
lending. They see such lending as important to improve LDC
financial prospects, increase global energy supplies and
improve export opportunities for equipment suppliers. With-
out USG participation, however, neither the Europeans nor the
Saudis have been willing to commit funds to an affiliate. The
Bank is still exploring ways to increase energy lending and
may investigate a pool or trust fund concept.
TALKING POINTS
-- Development of LDC energy resources is important, but
most energy investment funds must come from private sources.
The MDBs should complement and catalyze private investment,
where necessary, but at today's energy prices many projects are
"bankable" in private financial markets.
-- We have urged the Bank to improve the effectiveness of
its energy programs, within currently pledged resources. For
example, the Bank should use its influence to encourage host
countries to adopt energy pricing and investment policies which
allow for greater private involvement. The Bank also should
make greater use of creative co-financing mechanisms.
-- The Bank's objective should be to increase investment
from all sources in economically viable LDC energy projects,
not to increase its own lending..
C,ontrofied by Ernest_~hase
Date 4/2g,82
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ENERGY SECURITY
I. ISSUE
To emphasize the importance of the market place in
encouraging economically attractive energy alternatives and the
need to continue efforts to minimize at acceptable costs the
disruptive effects of energy shortfalls.
II. ESSENTIAL FACTS
1. There are abundant and economically attractive
energy resources within the West.
2. Despite a welcome respite from oil market turbulance,
the chance of sudden and potentially major disruptions in oil
supply still exist. The U.S. has encouraged all countries to
ready themselves by increasing oil stocks. In cases of
large-scale oil disruptions, the IEA and EC emergency sharing
systems remain the principal intergovermental mechanisms for
sharing the burden among industrialized countries. We have
encouraged European'countries to diversify their gas supplies
and to implement measures which will reduce their vulnerability
during disruptions in gas supplies.
III. TALKING POINTS
---Energy security involves both reliance on market forces
and a prudent concern for political and strategic forces.
-- Energy security objectives can be achieved by relying
on market to encourage development of energy supplies and more
efficient use.
-- Western countries should commit themselves to increase
indigenous energy production, thereby reducing dependence on
less secure sources.
-- Recognizing that the energy market remains inherently
unpredictable, Summit countries should reaffirm their commit-
ment to the IEA oil emergency sharing system, take steps to
increase stocks, and continue efforts to enhance Western natural
gas security.
Criticism: The U.S. has not done enough to enhance its own and
world energy security.
Responses: 1) U.S. oil imports have dropped to one-third the
level of the late 1970's. 2) Our Strategic Oil Reserve has
more than doubled during the last year. 3) U.S. coal exports
are helping to meet the energy requirements of Europe and
Japan. 4) We are achieving energy security through the initia-
t ives of a strong and powerful private sector responding
to clear market forces.
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CENTRAL AMERICA/CARIBBEAN
I. ISSUE
Weak European support for our policies.
II.* ESSENTIAL FACTS
Most European governments know the need for more assistance,
like in the Caribbean Basin Initiative, but could do more themselves.
In Central America, except for the U.K.,, they have been helpful
because of vocal domestic opposition. Schmidt's desire to be
helpful is one such casutalty. The Mitterand government, on the
E'
other hand, openly opposes our policies. The Salvadoran elections
have put Europeans somewhat on the defensive in criticizing us.
Our policies are working in El Salvador: the first fair
elections in*fifty years; a moderate; civilian government of
national unity dedicated to continuing agrarian reforms and the
democratic process; the military' clearly committed to the democratic
process and eliminating human rights abuses. Military effectiveness
has improved. The guerrillas suffered serious political defeat
in the elections, but continue their violence. We favor bringing
the left into the electoral process; they should not be negotiated
into power. Nicaragua is still-frightening its neighbors and
drawing closer to Cuba. Latin America is supporting reform and
democracy in El Salvador and opposes Nicaraguan intervention
and repression of liberty. Even Mexico is having doubts about
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its posture. We will continue to offer economic and limited
military assistance to threatened democracies; American troops -
are not wanted or needed.
III. TALKING POINTS
U.S. Point: Democracies are in economic trouble and their
security is vital to us. The U.S. and its CBI partners are doing
their part.- Greater economic assistance and trade
opportunities from Europe and Japan are needed, particularly
for El Salvador, Costa-.Rica, and Honduras.
Response:
-- Europe's major obligations are elsewhere.
-- U.S. interest rates cause much of the problem.
European Criticism: U.S. should not resist progressive,
revolutionary forces but give them an alternative to
Cuba and USSR.
Response:
-- Recent elections in Costa Rica, Honduras and
El Salvador destroyed the myth that the left had popular
support.
-- Nicaragua shows the danger of helping Marxists
take power.
-- We do not want to divert military resources to
defend our third border.
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KEY ISSUES (CHINA)
I. ISSUE
Tension with Beijing over U.S. arms sales to Taiwan
threatens a deterioration in U.S.-China relations. Failure to
resolve this issue could lead to a substantial retrogression of
relations and make strategic cooperation difficult.
II. ESSENTIAL FACTS
Beijing views this administration's policies, in-particular
our continuing arms sales to Taiwan, as betraying a fundamental
disregard for China's sovereignty and an active desire to
perpetuate Taiwan's separation from the mainland. We have
agreed to discussions with China in an effort to bridge our
differences. China has pubicly indicated it may downgrade
relations with the U.S. if the issue is not resolved.
in the discussions leading up to normalization of
relations, the U.S. clearly stated its intention to continue
the sale of carefully selected defensive arms to Taiwan. We
have, however, been prudent and discreet in our approach to
arms sales to Taiwan, and the record shows we have been
sensitive to Chinese concerns. The visit of Vice President
Bush is an effort to improve communication and demonstrate the
high value the U.S. puts on relations with China.
III. TALKING POINTS
Criticism: Continued U.S. arms.sales to Taiwan jeopardizes
U.S.-China relations and violates China's sovereignty.
Response:
-- The U.S. made clear its position on continuting arms
sales to Taiwan when Sino-U.S. relations were normalized in
1979, and Beijing went ahead knowing our intentions. The
record shows that we have been prudent and discreet in this
area and have taken careful account'of Chinese concerns.
Criticism: Is China likely to downgrade relations with the U.S.?
Response:
-- Neither we nor the Chinese desire a setback and are
making a major effort to bridge our differences on the issue of
arms sales to Taiwan. Should there be a setback, we will seek
to limit its effect, as I expect Beijing also to do.
Criticism: Has recent tension between the U.S. and China
allowed Moscow to improve its relationship with the PRC?
Response: China has responded cooly to the recent Soviet offer
to improve bilateral relations. We would not be surprised to
see some marginal improvement in trade or other non-political
relations, but there is no indication of Chinese reassessment
of Moscow or anything other than superficial moves.
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BILATERAL ISSUES PAPER: JAPAN
I. STATE OF RELATIONS
Our relations with Japan are generally sound, and the
Japanese have cooperated with us on a wide range of inter-
national issues. Nonetheless, trade and, to a lesser degree,
defense issues continue to generate substantial concern on both
sides of the Pacific.
II. KEY ISSUES
Trade - The $18 billion U.S. trade deficit with Japan in
1981, in conjunction with the world-wide recession, has led to
unprecedented pressure for expanded access to the Japanese
market. Despite a series of sectoral crises, the trade problem
has on the whole been fairly well-managed, with steady liberal-
ization of the Japanese market over the past-decade. Much of
the difficulty on the Japanese side lies in traditional pre-
ference for Japanese suppliers, while the weak yen impairs U.S.
competitiveness. Agriculture remains the sector most visibly
closed to imports. Unfortunately it is also the most politi-
cally sensitive sector and the most difficult to liberalize.
Japan's response to U.S. and European requests for an overall
liberalization program is expected to come before the Summit.
If it is not a significant step forward, the trade issue could
become the f ocus,of even more intense concern. Depending on
the nature of the Japanese measures, the U.S. should express
its satisfaction (or dissatisfaction) and encourage Japan (and
other countries) to continue strenuous efforts further to
liberalize any remaining areas not fully open to foreign
competition.
Defense - The U.S. is continuing to press Japan for a more
equitable sharing of our common security burden. Critics have
focused particularly on Japan's relatively low level of defense
expenditures, less than one percent of GNP. In fact, the
Japanese defense effort has been improving steadily in recent
years. Recent defense budgets have shown real growth rates of
4.5 percent at a time when most other GOJ budget items have
been held to zero growth. We are focusing on the plans for
roles and missions appropriate for the Self Defense Forces
rather than specific budget amounts or percentages of GNP
devoted to defense. We should urge further development of
Japan's defense capabilities, in a manner consistent with its
political constraints.
Fisheries - Japan and the U.S. have settled into an
unhappy marriage of convenience. To ensure access to the U.S.
200-mile fishery conservation zone,. Japan has committed itself
to greater market access for U.S. fish products, more
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cooperation with U.S. fishing operations, and payment of higher
fees. The current economic slump has severely hurt the U.S.
fishing industry and even very cooperative Japanese policies
may not be sufficient to avoid continued conflict. Japan must
be reminded that the U.S. has a policy calling for development
of our domestic fishing industry but will cooperate with other
nations while pursuing that goal.
Nuclear cooperation - When we concluded in 1981 a three-
year agreement which allows Japan to reprocess spent nuclear
fuel in its Tokai Mura pilot-scale reprocessing facility, we
agreed to enter into discussions on a new, more liberal
arrangement which would cover new facilities for an indefinite
period. Once our policy on the use of plutonium in the civil
nuclear power fuel cycle is decided, we do not expect serious
problems in reaching agreement. We should give assurance that
the U.S. fully appreciates Japan's desire for a longer-term
arrangement which will allow full development of the nuclear
power industry in Japan and that we will pursue discussion
toward that end as soon as practicable.
Aid Cooperation - We have been working closely with Japan
to coordinate and improve the effectiveness of our aid contri-
butions, particularly in stategically important regions.
Japan's aid budget has increased dramatically in recent years,
and Japan has announced a number of changes welcomed by the
U.S., including the untying of a larger percentage of aid funds
from Japanese sales. It would be well to express appreciation
for the expanded AID efforts and, in particular, for the
responsiveness Japan has shown to the needs of strategically
important states in the past several years.
Disarmament - Prime Minister Suzuki has made disarmament a
major foreign policy focus as he finds himself under pressure
to take an initiative at SSOD II to preempt Japan's opposition
parties. While the US appreciates'Japan's interest in dis-
armament, we feel that any unilateral action would hurt rather
than help the effort in the long run. We are appreciative of
the strong Japanese interest in this issue and should indicate
a willingness to consult fully with Japan as the various
initiatives move forward.
Law of the Sea - Japan has been less than fully supportive
of D.S. positions during recent months, reflecting Japan's
desire to protect its commercial interests in the deep seabed
mining area as well as convince Third World countries of
Japan's support for a consensus consistent with their concerns.
It is important to express concern that the LOS negotiations
not become a forum where one developed country is played off
against another by the G-77.
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BILATERAL ISSUES: ITALY
STATE OF RELATIONS-
Relations between the United States and Italy are
excellent -- a fact highlighted by the highly successful
state visit of Italian President Pertini to the United
States in March. The relationship is based on strong ties
of kinship, culture, and common commitment to democratic
values. Italy has been among our most cooperative allies
on issues ranging from Iran to Afghanistan and Poland. it
was in the forefront of the 1979 allied decision to moder-
nize intermediate-range nuclear forces (INF) in Europe and
the effort to create an observer force for the Sinai.
Italy has increased defense expenditures and is contem-
plating an expanded role in the Mediterranean. The
supportive Italian attitude derives in part from a genuine
sense of common purpose and obligation as an ally, and in
part from a desire to prove its right- to inclusion, in the
"inner circle" of allied consultation. Italy is relying
heavily on your promise to Pertini that there will not
again be allied summits of the "Guadeloupe" type with
Italy excluded.
II. KEY ISSUES
Italy continues to make significant progress in
the fight against terrorism. More than 300 arrests of
suspected terrorists have been made since the dramatic
rescue of General James Dozier earlier this year.
However, the surprisingly large number of arrests has led
many Italian officials to conclude that the problem had
earlier been underestimated. The Red Brigades have shown
a continued ability to opera.-e in the wake of their Dozier
debacle. Officials have therefore been careful to avoid
premature claims of final victory over domestic terror-
ism. There has been speculation regarding possible links
between Italian and foreign terrorist organizations. Hard
proof of such ties has been elusive. We should acknow-
ledge Italian success and encourage Italy to keep up the
fight.
Most Italian leaders share the common European
perception that our policy in Central America is misguided
in failing to give sufficient weight to "liberation"
forces on the left. The Spadolini government declined to
send observers to the El Salvador elections, since the
Socialists within the coaltion had threatened to bring his
government down on the issue. The Christian Democrats
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(DC) did send observers. The Italian government expressed
gratification at the large turnout and evident fairness of
the election, but concern that the results could put the
right and radical right in a commanding position. We want
to assure the Italians that we share their concern and
have therefore let the political parties in El Salvador
know how important it is to establish a strong government
of national unity and continue the economic and political
reforms already in progress, including early presidential
elections. We should also show that we recognize that
excessive social and economic inequalities are the breed-
ing ground of revolution, and point to the Caribbean Basin
Initiative as a major response to these underlying
problems.
The Italians, like some. of our other European
allies, have suggested that U.S.-European consultations
should be improved. In a speech at Georgetown University
in February Foreign Minister Colombo offered a program for
improvement in the form of a European-U.S. "friendship
pact". We have told the Italians and our other European
friends that we favor twice-yearly informal meetings of
NATO Foreign Ministers, similar to such meetings now held
by the EC. In addition, we have also proposed that Secre-
tary Haig lead the U.S. delegation to semi-annual U.S.-EC
consultations on economic and. political issues. You
should tell Spadolini that we agree U.S.-European consul-
tations should be enhanced and that our views on NATO and
EC consultations demonstrate this commitment.
The Italians share our outrage at the situation
in Poland. Italy unambiguously condemned the imposition
of martial law, the suppression of Solidarity, and the
Soviet role. It willingly associated itself with the
European Community consensus on sanctions. On restricting
credits to the Soviet Union the Italians have assured us
that they will go just as far as the industrialized
nations as a whole can be induced to go. We should stress
the need for Western unity behind measures sufficiently
strong to_send the proper message to Moscow.
Italy's relations with Libya have been strained
but Rome has sought to keep lines of communication open to
Qadhafi, both out of concern for the safety of the large
Italian community in Libya and because Libya continues to
be an important commercial partner. Libya has been pres-
sing Italy for increased arms shipments. We hope Italy
will stop its arms cooperation. We also hope it will not
succumb to pressure for a Qadhafi visit.
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Your Meeting with British Prime Minister
Thatcher at the Versailles Summit
STATE OF RELATIONS
We have a "special" relationship with Britain. It is based
on extremely close political, military-intelligence, economic
and cultural ties. These ties are vital to our security
interests in Europe and important to our objectives in most
other areas of the world. The Falkland Islands crisis has
resulted in some drop in public confidence in Great Britain
concerning US willingness to stand by its allies. Mrs.
Thatcher and most sophisticated people in Britain recognize
that the US had to demonstrate initial public even-handedness
in order to maintain some influence in Buenos Aires. There is
still, however, lingering resentment by some back-bench
Conservatives over this perceived even-handedness. If it
continues, it could substantially reduce the UK's willingness
to assist the US in world tasks not clearly and urgently linked
to specifically UK national interests. Nevertheless, everyone
in Britain continues to view the US as the key to Western
security and has a strong emotional attachment to American
cultural and social values.
British Confidence in the United States:
.In the wake of the Falklands crisis, Mrs. Thatcher will
want further assurances that the special relationship between
the US and the UK is strongly supported by the Administration.
She should know that we greatly appreciate her personal support
on the wide range international issues, especially for the
Administration's firm posture toward the Soviet Union. Mrs.
Thatcher should be told that you consider personal close ties
with her essential to continued close British-American
political and security cooperation.
Faced with difficult political and economic issues, the
Belgians, Germans and Italians have suggested that US-European
consultations should be improved. We have told our European
friends that we favor twice-yearly informal meetings of NATO
Foreign Ministers, similar to such meetings now held by the EC
(Gymnich" meetings). In addition, we have also proposed that
Secretary Haig lead the US delegation to semi-annual US-EC
consultations on economic and political issues (previously
conducted by the Under Secretary of State for Economic
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Affairs). You should tell Mrs. Thatcher that we believe
US-European consultations should be enhanced and our views on
NATO and EC consultations demonstrate this commitment.
Since you will be going to Britain a few days after this
meeting, Mrs. Thatcher may be interested in touching on the
major US and UK goals for the visit, and any outstanding
questions on the schedule. Her government is concerned about
large anti-American demonstrations planned to coincide with
your visit, and the possible backlash of anti-British feeling
in the US. She would like confirmation that you will
emphasize, in your public remarks, the Administration's firm
support for the UK, and for a vigorous US search for peace to
complement our rearmament program.
Our bilateral relationship is clouded by our attempted
extraterritorial application of US laws and other trade
restrictions. The British believe that application of our
regulations in Britain is contrary to international law,
demeaning to the UK, and very costly to British industry. If
the question is raised by the British, we acknowledge the
fundamental difference of opinion. Our policy, however, is to
consult with London as early as possible in order to avoid
surprising the Thatcher Government, and to look for pragmatic
solutions whenever possible to head off bilateral problems.
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