APPENDIX 12

ARTICLE FROM THE JOURNAL OF COMMERCE, APRIL 10, 1975, ENTITLED "IEA ROLE SPARKS CLASH AT PARIS ENERGY TALKS"

(By Leo Ryan)

PARIS. The role of the United States-inspired International Energy Agency (IEA) Wednesday ignited a major clash between the Algerian and American delegations attending the Paris preparatory energy talks.

Observers felt it was too early to tell whether the crisis would compromise the chances of success for the meeting and the eventual holding of a full conference, but the clash was certainly a sign that after two days of polite scrimmaging the meeting had entered the hard bargaining phase.

WORKING GROUP URGED

The sparks began to fly soon after the conference chairman, Louis de Guiringaud of France, suggested that a working group be set up to hold informal discussions on the agenda for the projected plenary conference next summer. This followed a fruitness morning session examining two proposals for a conference agenda.

The U.S. and the other delegations of the industrialized countries-the Euro-. pean Communities (EC) and Japan-supported the French chairman's proposal on the condition that the IEA should be allowed to join the working group along with observers from the Organization for Economic Cooperation and Development (OECD).

PLAN CRITICIZED

This condition drew strong criticism from the Algerian delegation, backed to varying degrees by the other oil producing and developing states at the meeting. The Algerian delegation leader, AIT Challal, charged that it "could ruin everything," and he reiterated the Algerian view about the IEA being a "confrontation organization."

The exchange prompted the French to quickly withdraw their proposal for a working group on the agenda.

The Algerians want the agenda to be enlarged to all raw materials as well as cooperation to improve the living standards of the have-not countries. The EC has presented a counter-proposal that the full conference should give priority to oil, and related energy problems.

At the preparatory meeting called by France, the EC, Japan and the United States are representing the industrialized world, with Saudi Arabia, Iran, Algeria and Venezuela the oil producers, and India, Brazil and Zaire the developing states.

On the total number of participants envisaged for the full conference, the delegates were reportedly moving towards a consensus that there should be no more than 30, chosen on a quota basis from the industrialized states and the developing and oil-producing countries.

(185)

APPENDIX 13

[The Washington Post, Apr. 16, 1975]

PARIS MEETING COLLAPSES, ENERGY TALKS AT DEAD END

(By Bernard Kaplan)

PARIS.-The Paris talks that were to have opened the way for a major international conference on oil and energy costs later this year collapsed tonight after nine days of unavailing negotiations.

Weary delegates from nine nations and the European Economic Community gave up when they saw no prospects of agreement on the basic issue of the conference's agenda.

Although the French President of the talks, Louis de Guiringaud, spoke reassuringly of adjournment rather than a rupture, it was clear to observers that hopes for some form of understanding between the industrial, oil-consuming nations and OPEC countries are at a dead end.

There was talk here of possible retaliation by OPEC countries in the form of a new round of price increases.

The delegates could not get past the initial obstacle of the agenda: the type of conference that they were to prepare.

Instead of being the routine procedural affair that American and most Euro⚫pean officials had anticipated, the meeting turned into a political-and sometimes emotional-confrontation between the industrial countries and the Third World, led by Algeria.

What an American spokesman described today as the "persistent difficulty" was how to find a compromise between the insistence of the United States, the Common Market and Japan that the conference must deal first with energy problems and the demands of the seven Third World nations, here that it make decisions about food and other raw materials on which the economies of the developing countries depend.

The first clear-cut sign that hope for agreement had finally evaporated came when the chief of the U.S. delegaiton, Undersecretary of State Charles Robinson, flew back to Washington this afternoon, making it clear that he would not be returning.

American delegation spokesmen insisted that Robinson's departure had no special significance. But, as Robinson left, a group of experts was meeting to try to draft a communique explaining the breakdown of the talks. They could not agree even on this and finally it was decided that no communique would be issued.

While there was a determined effort by most delegates not to be alarmist about the consequences of the failure, some French officials described the outcome as a "disaster."

There were immediate predictions here that the OPEC cartel might launch a new price offensive in retaliation. The United States was singled out by some Third World countries for "sabotoging" the negotiations.

In fact, it appears that the United States, the European Economic Communitywith the exception of the French and the Irish-and Japan maintained a united front at the meeting from start to finish.

Sources said that the British and West Germans gave especially strong support to the American position. The United States maintained that other and more suitable forums to handle the economic problems of the developing world already exist and that yielding to the Third World demands here would only jeopardize reaching any agreement on oil problems.

The Third World view was perhaps best summarized tonight by Iran's Chief Delegate, Mohammed Yeganeh.

"The position of the Iranian government is that we cannot carry out any meaningful dialogue in the final conference unless it includes the question of the protection of petroleum prices by linking them to certain objective criteria, including the price of goods imported by the oil-producing countries," he said.

"The other raw material producing countries should be similarly protected. They have been suffering not only from the deterioration of their terms of trade but are also severely affected by the sharp fluctuations of their export prices and earnings.

"How can we turn our backs on such major issues facing the developing countries if we are to promote international cooperation on major problems of interest to all the countries here?"

APPENDIX 14

[The Wall Street Journal, June 10, 1975]

THE ALGERIANS ARE RIGHT

Whatever the oil producers and consumers come up with in their present meeting in Paris, it remains doubtful how much substance the conference and its successors will produce. The best that could happen would be that the U.S. delegation learns a few economic lessons the Algerians are inadvertently teaching, and comes home to start afresh at the drafting boards.

There had been a chance this meeting between Western consuming nations and the OPEC cartel would yield agreements that would benefit both. But that chance had to be lost as long as the U.S. initiative centered on the State Department's price floor for oil. The Algerians argued that if a price floor for oil is such a hot idea, why not a price floor for other raw materials? Of course, the Algerians are right, given State's starting assumption. Logically, a floor for oil leads inescapably to a world of price floors, from antimony to zinc. The logical approach for U.S. negotiators would be to insure that wheat and Boeing 747s are also included.

This would of course louse up the whole world's economy, substituting political clout for market forces in deciding relative prices, investment flows and so on. And if the austerely logical Algerians reach this conclusion, the fault obviously lies with the starting assumption of a floor price, provided by the State Department.

It derives from the notion that the U.S. could reduce its vulnerability to oil embargoes, and ultimately force down the price of crude, by getting the consuming countries to agree on a minimum price for imported oil. If the minimum were set high enough, investors would find it profitable to seek alternative energy sources to crude oil. But they would not invest, State reasons, so long as OPEC could flood the world with cheap oil, making the alternative energy unprofitable. "From the U.S. point of view, any agreement is better than no agreement," says Assistant Secretary of State Thomas Enders.

From our point of view, though, no agreement is better than any agreement of the sort State has in mind. The current price is ample incentive for the energy industry to invest in alternatives to crude, even with the risk that the price might fall precipitously at some future date. The national security problem the U.S. faces has nothing to do with the price of oil, but involves only the potential abrupt cutoff of supply. The U.S. can protect itself against a squeeze by storing oil in the Lousiana salt domes, a program Congress should now be expediting. If there is a total shutdown of Arab oil supplies threatening to strangle the whole West, we can't imagine the West would not reply by using force.

If there are energy projects that would serve national security interests, but are clearly too expensive and risky to attract private capital, they should be tackled through Defense Department contracts that guarantee specific purchase prices for specific volumes of oil equivalency. A coal-liquification program might be one candidate. We at least would know what these programs actually cost. And our policy would not be relying on the ultimately impossible request that to protect American investment, Japan and Europe would refrain from buying oil as cheaply as they can.

What the U.S. should be doing in Paris instead of talking commodity agreements, on oil or any other raw material, is getting German, French, Japanese and Arab ideas on how to combat the global inflation. If the oil producing and oil consuming nations could ever figure out how to rebuild the international monetary system in a way that matches world money growth to output, most of the problems of wildly gyrating commodity prices would disappear.

In fact, the OPEC countries would like nothing better than to discuss this issue. Its new secretary general, Meschach Feyide of Nigeria, correctly obseves that problems of infiation, recession, trade and capital flows will not be solved by treating oil in isolation.

While the oil cartel doesn't help much, the real source of the world's economic instability lies not in the oil policies of the underdeveloped lands but in the fiscal and monetary policies of the developed ones. Had the U.S. prepared for the Paris meeting on this basis, instead of keying everything to the price-floor scheme, there's at least a remote chance that the boundary of mutual self-interest would have been approached this week.

Genuine movement toward world economic stability could have been made even in this seemingly unlikely forum, but until our team figures out where the real problems lie, the best it can do is listen.