Tab C I --GONF ID ENTIAL January 6, 1968 Consultations with the Congress on Conte-Long and Symington Amendments Suggested Talking Points Ao Introduction 1. We wish to discuss a matter of considerable urgency--the implementation of the Conte-Long and Symington Amendments to the FAA and IDB Act and the policy issues confronting us as a result of these new provisions. 2o The Amendments reflect an understandable concern of the Congress over the trend of arms spending by LDCs-­and over the effect of this trend on the prospects for peace, development and representative popular government in the developing worldo 3. The objective of the Executive Branch in this matter is the same as that of the Congress. In years past we have made considerable efforts to dissuade friendly countries from unnecessary military spending--particularly those receiving our aid. ··we recognize that the Congress , in passing these Amendments, has given the Executive Branch a new mandate' to look for new initiatives and to make even greater use of Unjted States leverage and influence in pressing for restraint in military spending by LDCs . CONFIDENTIAL -2 ­ 5. We would like to discuss today several issues pertaining to these Amendments: a. Our general approach; :. ·. b. The steps we have already raken and plan to take to implement them; Co Some of the problems and policy dilemmas that we foresee in respect to particular country situations; do Some of the general guidelines and work rules under which we plan to keep aid recipient countries under continuing reviewo B. Some General Considerations 1. We plan to undertake a serious effort to implement the Amendmentso The broad policy objective, as we see it, is to work towards increased awareness and consciousness of this problem internationally (both among DCs and LDCs) and to help create a climate which would strengthen the position of the advocates of restraint in LDC governments. 2o We would, however, be misleading the Congress if we would promise dramatic results quickly. We have only limited influence with foreign governments in an area which is at the heart of national sovereigntyo Furthermore, many governments have only limited room of maneuver on matters of defense policy because of public concern over national security and the political standing and influence of the military leaders. If we press too hard, we will lose our ability to influence the policies of these governments. --BBNHBENT·I:ftb­ -CONFIDENTIAL­-3 ­ .... .. ' ~ 3. Application of these provisions, therefore, will encounter many difficultieso We would like to stay in close touch with interested members of the Congress. We consider this only the first of a series of discussions. C. Principles of Implementation Our implementation of these Amendments will be based on four principles: lo We will do our best to prevent the emergence of problem caseso We will convey our concern over ·military spending plans of LDCs well in advance of the time ·when the Amendments require us to invoke penalties .. 2. We will make LDC governments keenly aware of these Amendments, our determination to implement them, and the concern of the United States Congress and public over the trend of arms spending in the developing world. In this manner, we hope that the statute will serve to deter and discourage excessive or unnecessary military spending. ~ 3o While Congress was clear on the penalties to be applied, we assun.e that punisl1nent was not the prin1 ary purpose. Therefore our first effort will ·oe to obtain changes in resource allocation or modification of / unwise equipnent purchases. 4. We will formally and publicly invoke the penalty provisions only after we have exhausted all possible avenues to obtain assurances of a remedy. There are, of course, many ways in which we can begin to exercise pressure well before the formal invocation of the penalties required by the statute--such as slowing down or delaying our further aid commitments. CONFim~fil\L -4­ D. Steps Taken or in Prospect 1. We have already reviewed several problem cases at a high level within the Administration and others will follow. Certain actions--described below--have been taken. The process includes: a. Determination by the AID Administrator as part of the review and approval process for economic assistance programs, whether the Conte-Long or Symington Amendments are applicable. b. A similar determination by the Deputy Under Secretary for Political Affairs on the applicability of the Conte-Long Amendment to military assistance and sales programs. c. Cases where one of the Amendments are applicable will be further reviewed by the Under Secretary, using the IRG/SIG mechanism for inter-agency review and consul­tation. 2. We have formed two inter-agency committees to advise the AID Administrator, the Deputy Under Secretary for Political Affairs, and the Under Secretary on possible problem cases. The se committees will keep defense expen­ditures and procurement policies of aid recipients under continuing review, assess country situations and prepare eligible for United States assistance or cash sales programs unde r the Amendments. 3. United States economic assistance will be conmitted only if we feel reasonably assured--or have formal assurances, whe re appropriate--that the country concerned will not make expenditures or purchase commitments in violation of the Amendments during the current fiscal year. -CONF IfJEtITf-t\t­-5 ­ 4o We have instructed diplomatic missions around the world to review with host governments the concern of the United States Congress and public about arms spending by LDCs, to review the new provisions, and to request data concerning their host government's defense budgets and procurement planso These data will be cross­ checked against information from intelligence sources to avoid full dependence upon data officially furnished by LDC governments. 5. We will also continue the various measures through which we have tried to discourage excessive · defense spending by LDCs in the past. For example, control over United States equipment and United States components in third country equipment, our role in in­fluencing budgetary policies of countries dependent upon United States economic and military aid, consul­tations with friendly governments relying on United States military assistance and/or bilateral security arrangements, encouragement to regional economic and security arrangements bet\\1een neighboring countries-­all the se have in the past and will continue to be used by us to promote our objectiveo 60 We are also planning steps to work for greater international concern as to this issue in appropriate multilateral bodies or institutions (eog. IBRD, DAC ad hoc multilateral groups, etco). E. Problems in Latin America: Pressures for Modernization .. _.. -... 1 0 Genera] Comments: In LRtin America most of our problems~·:ill -a-rise under the Conte-Long rather than the Symington Amendments (but note Peru). Defense spending is, as a rule, fairly modest in relative and absolute terrns--as it should be. Furthermore, \ve have been fairly successful over the years in slo\\1 ing do\vn the introduction of more advanced weapons systems. For example, Latin America today is the only continent without Mach ] f ightcr a irc:ra ft. --eemnn ,!I IA~.'. CONFIDENTIAb­-6 ­ This period of highly effective restraint is gradually coming to an end as aircraft and other weapons systems wear out and obsolescence increases . Latin American military leaders and governments do not see that they should replace obsolescent air­ craft with other aircraft of 1950 vintage. This does not mean, however , that we are about to see an arms race in Latin America for the most advanced weapons syste·m now in use in the developing world. If we pursue our policy of restraint with skill and tact, there is still an excellent chance . that Latin American inventories and defense budgets will remain very reasonable compared to most other developing regions of the wo~ld . How quickly various countries in Latin America will move towards acquisition of more advanced weapons will vary from country to country , and--to some extent-­our influence and diplomatic skillo 2o The Problem of Peru: We have been concerned both over the trend of military spending and the procurement of particular weaponso For this reason, we have withheld a $40 million balance of payments loan; asked informally for deferral of an IDB Board decision on several loans to Peru; and plan to send a high level emissary to Lima to discuss Peru ' s military spending plans and arrive at appropriate a llo-\vances. The facts a re: Conte-Long: Peru has purchased (on credit) a squadron of French Mirages at a reported cost of $26 million. These purchases were made before the enactment of the Amendments but as a matter of policy we nevertheless decided to withhold the balance of payments loano -CONFIDEmIAL-. -7 ..: Symington: Peru's defense expenditures in relation to total government spending had been on a declining trend between 1960 and 1966. But from 1966 to 1967 defense spending rose from 16 to 19 percent of total government expenditures. Although development expenditures held their own, the fact is that this increase coincid~d with a deteriorating balance of payments, a devaluation and a rising budget deficito Accordingly, we felt there was a reasonable question about the applicability of the Symington Amendment. The case of Peru presents us with a serious dilemmao President Belaunde does not have the political strength simply to ignore the demands of the militaryo The Peruvian Congress, particularly the opposition, has voted overwhelmingly for the authorizing legislation enabling the military to buy new equipment. The opposition, which is strongly nationalist uses this issue to increase its political acceptability to the military in hope of eventually succeeding Belaunde to the Presidencyo Even assuming that we can persuade Belaunde to adopt a fairly hard line towards the military, we should recognize that such a posture entails considerable risks o The Peruvian military as recently as Decer,1ber seriously considered a military coup. The poor state of Peru's economy was the principal deterrcnto But a refusal of Belaundc to sanction the re-equipment program could shift the balance within the military elite. --C-ONPIDENT 1-~L ..CONFIDENTIAL­ -8­ Our posture on this issue will be viewe d sympathetically neither in Peru nor in other Latin American countries. Rather , i t will be considered another instance of inappropriate United States interference in Latin America ' s domestic affairs. For all these reasons, our emissary will have to procee d with extreme care . He will have to press Belaunde to resist the demands of the military for equipment--but will also have to be aware of Belaµn de 's limited room for maneuver . We would like your advice as to what would be a reasonable U.S. negotiating objective in these circumstances . 3. The Problem of Brazil : The principal problem here , as the Congress knows, is that of Brazil's desire to acquire new modern aircraft . This case, too, presents us with a serious dilerrlllla . We have known of Brazil ' s desire for ne\v aircraft for sometime. We knew that our ability to delay Brazilian de cisions was limited. The matter was considered of sufficient importance by President Costa e Silva tha t he took it up personally on several occasions with President Johnson and asked that the United States se ll, on a commercial basis, F-5 aircraft as we had indicated we might as early as 1965 . Despite great pressure, Costa e Silva has apparently now over­ruled his Air Force who wished to purchase more expensive and more sophisticcted Mirage aircraft . A repudiation of our earlier offer would be a blow for Costa e Silva and seriously effect our relations with Brazil . -CONFIDENTIAb­-9 ­ Even if we were to withdraw our offer, we would not prevent acquisition of more advanced aircraft by Brazil. Costa e Silva would be com­pelled to take up the French offero (The Brazilian President has apparently deferred a public announce­ment of his decision to purchase F-5s in order to permit a calming of public opiniono) The Mirages are a Mach 2 aircraft and considerably more expensive and technically compl~x than the F-5. A decision by Brazil in favor of Mirages would virtually assure that other countries in Latin America-­Argentina and Chile--would follo\v suit. There is a reasonable chance that Argentina and Chile will not press for F-5 aircraft at this time if Costa e Silva merely announces his decision to acquire F-5so In Argentina, President Ongania has sought to postpone the purchase of all but the most urgent items of military re-equipment on grounds that primary emphasis must be given to the stabilization and modernization of the economy. Similarly, Chile has not so far shown any interest in early negotiations and probably does not intend to undcrta~e purch~ses before 1970 at the earliest. But withdrawal of the United States commitment to ljccnse such aircraft for commercial export would certainly trigger efforts by both countries to look for alternative sources. CONF IDENTikb­-10 ­ , ~ .. F. The Mediterranean Area : The Issue of Defense Requirements 1 . General Comments : There are several .. countries in this area which i n the past have relied upon United States military aid : Morocco, Tunisia, Libya , and Jordan . In simplest terms, the issue is \vhether to continue our supplier relationship or let the Sovie.t Union into the position of principal supplier. We would like to discuss two specific and .urgent cases \\hich illustrate our policy dilemma .. 2. Morocco: Morocco has asked us for F-5 aircraft as part of a $14 million credit sale . This credit sale program was offered by the President to King Hassan in Washington last year provided it be used only for defensive purposes and not detract from Morocco ' s economic develop­ment efforts. The proposed purchase follows upon an earlier credit sale of 12 F-5 aircraft , the last of which were delivered late last year . It is difficult to argue that these purchases are unrea sonable in terms of legitimate Moroccan requirements of self-defense. Morocco ' s desire to strengthen its armed forces is a response to Algeria's massive anns build up , for which the Soviet Union has made available more than $200 million in equipment over the past five yearso Algeria ' s arms inventory no\v includes some 160 jet fighter and bomber aircraft and several hundred tanks and armorecl vehicles . Against this , Morocco at present has an air force consisting essentially of one F-5 squadron and sotC1 . 31 lightly armed trainer aircraft~ While Morocco is trying to develop some deterrent capability there is no attempt to match the Alge~ian build up. -GGNrfDEi'1TIAL --GeNF-I.DENTIAL -11 ­ 1 "'~ • -· . Withdrawal of the ~offer would compel Morocco to turn to the Soviets and other Eastern European supplierso France has suspended both economic and military materiel assistance since the Ben Barka affair in 19650 The Soviets have held open an offer of 40 MIG 2ls, guaranteed logistical support, and 20 AN-12 cargo aircraft. Morocco's willingness to turn to the East is sub­stantiated by a recent contract with Czechoslovaki~ and past agreements with the Soviet Uniono It is now purchasing T-54 tanks from Czechoslovakia because of its inability to obtain armor in the West. In 1961 it acquired a squadron of MIG 17s (plus a 30-man Soviet technical assistance team). Soviet aircraft are now in s~orage, and the last members of the Soviet Union team returned home in 1965. Thus, in reaching a decision, we must balance our desire to avoid contributing to an arms race in the Maghreb and the consequences of our refusal to supply Moroccan requirements. The limited amount of equipment we have been asked to provide would not contribute to an arms spiral. But, a major intrusion by the Soviets would be a major setback for our position in the Mediterraneano 3. Jordan: Jordan presents us with an especially difficult-P~oblemo King Hussein has been a v~ice of moderation in the Arab worldo The hope for an Arab­Israel settlement rests in considerable measure on his cooperation. But even without a settlement, his regime clearly is preferable to the type of radical ultra-nationalist and possibly unstable regime that would likely emerge upon his departureo -eONFIDEN'l'IKL -­-12 ­ In years past, Hussein has been heavily dependent upon the United States for his military supplies. Jordan is the only country in the area which has not received any deliveries from us since the J.une hostilities. But survival of the Hashemite re·gime, which is dependent upon the support of the arms, requires that Hussein arrange for resupply of the equipment lost in the June hostilities. The Soviets have offered to send a military supply mission to Amman. We have solid evidence that Hussein would accept the Soviet offer if he is unable to meet his requirements in the West. These include supersonic · aircraft and medium to heavy tanks. In favor of arms supply by the United States it can be argued: a. The preservation of a moderate regime in Jordan, independent of Soviet influence, is essential to the stability of the area. b. Even if we meet Jordanian requests in full, Israel will maintain a clear military superiority over the combined Arab military forces. Jordan could not hope to fend off, for at most a few days, an Israeli offensive. c. Jordan's economy is unable to support a defense establishment of the present size. Temporarily Jordan is provided with adequate operating funds by the Arab oil countries which will enab1e it to make the down payments required for ne1.v military cquipmento But long range, if and when this financial support ceases, Jordan will require continued economic support from the West. If economjc aid were permanently .cut off, we risk a radical re-orientation of Hussein's foreign polieyo CONFIBENTIAL -13 ­ Ga The Indian Sub-Continent: Defense Budgets and Economic Development The issue here is one of how to persuade these governments to exercise maximum restraint in their _____ defense budgets, consistent with their legitimate security requirements . The basic problem is the difference in view of what are legitimate defense requirements of the other country. India believes it must be strong enough to hold off concerted attacks by Communist China and Pakistan. Pakistan, on the other hand, discounts a Chinese military threa t and evaluates India's military build-up exclusively in terms of the threat to itself. The United States, of course, is no longer a significant supplier of military equipment to either countryo After the hostilities in 1965, i;;-.~e terminated our Military Assistance Advisory Group in Pakistan and our Military Supply Mission in Indiao India and Pakistan are an issue under the Amendments because of purchases of equipment from third countries and the question of whether defense spending is excessive in terms of these countries' legitimate military requirementso The facts as we know them are: Conte-Long Ame~clment: India is now receiving delivery of Soviet SU-7 fighter bomber, MIG 21 high­level fighter aircraft, and T-55 medium tanks . . It also has contracts for three submarines from Italy• . Pakistan has purchased 24 Mirage aircraft and a number of submarines from France and Italy. In all cases, the two governments appear to have obtained favorable credit terms so that the purchases do not constitute a serious foreign exchange drain over the short term. Technically, the Conte-Long Amendment does not apply because all contracts pre-date the statute, some going back to 19660 -eQNFJ'DEl~iIAL-­ -€0NFIDENTIAL ­-14 ­ . l'. Symington Amendment: Here the situation seems · considerably more favorableo India's defense spending has leveled off in rupee figures in the last two years but in real terms has declined because of devalua tion and inflationo Pakistan sharply in­creased its defense spending after the 1965 hostilities but since then defense spending has been declining both absolutely and in terms of the total budget 0 In both countries, defense expenditures account for roughly one fifth of the central government's total budget o Ever since the 1965 hostilities we have consistently ·applied moral suasion and diplomatic efforts toward the objective of persuading each government to restrain its arms spending. The re are no absolute, clear-cut quantitative tests we can apply to measure the degree to which our efforts have been effectiveo But the fact of the matter is that in neither country has there been an increase in defense spending levels while in Pakistan there has been a significant decline. We believe our efforts have contributed to and strengthened existing forces in each country operating for restraint in defense spendingo ~e believe we are on the right track and intend to continue our efforts. H. Conclusion This then is how we review problem cases in light of the Amendmentso Over all, we believe that the approach we have sketched out is a reasonable one and in con­formance with the intent of the Congresso But pursuit of the policy objective will clearly be a very difficult road. We need the patience of the Congress and its understanding to the limits of what we can hope to achieve. We would appreciate your reaction to this approach and how to deal with some of these policy dilemmas which \ve have outlined o -eettr-rnENTlAt;­