1 - 1· J• i' ' i 1 - -l1 CONEIDENTIA E i 1·- d 5722 THE WHITE HOUSE WASHINGTON MEMORANDUM OF CONVERSATION SUBJECT Second Main Plenary Session of the 16th Economic Summit of Industrialized Nations PARTICIPANTS George Bush President of the United States James A Baker Secretary of State Nicholas F Brady Secretary of the Treasury Richard McCormack Under Secretary of State for Economic and Agricultural Affairs DECLASSIFIED PER E O 12958 AS AMENDED ooo - 6Lf t 1-F 8 1 01 Francois Mitterrand President of the French Republic Roland Dumas Minister of Foreign Affairs Pierre Beregovoy Minister of Economy Finance and Budget Jacques Attali Special Counsellor to the President of the French Republic Margaret Thatcher Prime Minister of the United Kingdom Douglas Hurd Secretary of State for Foreign and Commonwealth Affairs John Major Chancellor of the Exchequer Nigel L Wicks Second Permanent Secretary to the Treasury Helmut Kohl Chancellor of the Federal Republic of Germany Hans-Dietrich Genscher Vice Chancellor and Federal Minister for Foreign Affairs Theo Waigel Federal Minister of Finance Horst Kohler State Secretary Ministry of Finance Brian Mulroney Prime Minister of Canada Joseph Clark Secretary of State for External Affairs Michael Holcombe Wilson Minister of Finance Derek Burney Ambassador to the United States Gullio Andreotti President of the Council of Ministers of Italy Gianni De Michelis Minister of Foreign Affairs -€0NF ID BH'f IM Declassify on OADR- --H '-' -l---r - - i COJ H ' I DENT I Guido Carli Minister of the Treasury Umberto Vattani Diplomatic Counsellor to the Prime Minister Toshiki Kaifu Prime Minister of Japan Taro Nakayama Minister for Foreign Affairs Ryutaro Hashimoto Minister of Finance Kabun Muto Minister of International Trade and Industry Koji Watanabe Vice Minister of Foreign Affairs Jacques Delors President of the Commission of the European Communities Frans Andriessen Vice President of the Commission of the European Communities for External Relations Henning Christophersen Vice President of the Commission of the European Communities for Economic and Financial Affairs Pascal Lamy Chief of Staff to the President DATE TIME PLACE 1 Tuesday July 10 1990 2 43 p m -5 27 P M O'Conner Room Herring Hall Rice University Houston Texas Trade The President On the agriculture negotiations the technical people have difficulties with some of the language The problem with the Thatcher text is the reference to common measures If we could end with the word commitment in the Thatcher text then our problem is solved U If we could stop the Thatcher text after the word commitment we have the possibility of moving forward Otherwise let's go with Baker's text of this morning U Commissioner Andriessen text U I would like a few minutes to study the Prime Minister Thatcher I would like to substitute the word balanced with the words fair or in an equivalent way 2 Environment The President Last year in Paris we paid significant attention to the environment We should continue this focus here For us a critical element is the need for balance in particular the balance between faster action on the environment and economic growth We all face heavy pressure for immediate action on the environment We can continue to make progress on the environment only in the context of economic growth Let us not forget that our countries are the engines of global economic growth U ONFIDEN'fIAL --- ·------------------- €0NFIDEN'fIAL we need international cooperation on the environment We need not all take the same steps but we should move in the same direction I believe we can develop a communique which emphasizes cooperation in a number of areas There seems to be three outstanding issues global climate change forestry and the World Bank environmental facility U Regarding climate change I support the effort of the IPCC to develop a framework convention on climate change I have offered to host the first negotiating session this should be held in February 1991 We should agree that the convention be ready in 1992 But I believe strongly that it is unwise to become preoccupied solely with limiting CO 2 emissions We must look at fill greenhouse gases and sinks Gases other than CO 2 are almost half of U S greenhouse emissions U We are taking steps that will cut these emissions through our Clean Air Act CFC phaseout and reforestation plan These will reduce U S emissions by 15-25 percent by 2000 But two points First targets and timetables on CO 2 or other greenhouse gases await completion of the framework convention Second any implementing protocol should be comprehensive i e encompassing all sources and sinks of greenhouse gases Thus each nation can pursue its own most efficient strategy for addressing climate change U We all share a deep concern for protecting forests Forests are important for reasons that go beyond climate change For this reason I propose that we agree to a Convention on Forests to be completed by 1992 that would cover both temperate and tropical forests Such a convention could cover cooperative research education and technical assistance monitoring of the condition of the world's forests efforts to promote reforestation curb air pollution and harmful subsidies and halt deforestation We might also look at debt-for-nature swaps and other such mechanisms I see this as a major initiative coming out of the Summit and look for your support U Our actions alone will pot solve the world's environmental problems Developing ountries and Eastern Europe will be important Additional financial assistance will be required But on the World Bank Green Fund I believe our position is misunderstood The U S has long argued that the international financial institutions should place more emphasis on the environment -- to protect tropical forests promote energy conservation and to require environmental action plans U I believe we can all support debt-for-nature swaps Just last month I announced an initiative for Latin America to promote these and other forms of bilateral assistance But I also believe we must weigh environmental activities against the resources required for other developmental activities I believe that all World Bank lending should take environmental considerations into account Indeed this is now required eoNFIDEHTIA J L ·-' L ·- i' tr-- I r- _ - J _ _ r • i ' i ' 1r' r 'T' CO JFIDE JTIAL _· Ill ' • ' - '--' 'i f i I ' -± · Thus I do not think it makes sense to have a separate Green Fund U I would like to hear your views U Chancellor Kohl We must take measures to deal with the threat of global climate change International cooperation is essential Gases are caused by human activity We need to deal with that problem Whether the bad impact occurs in 40 or 80 years is unimportant The problem cannot be ignored Whole coastal regions of the earth will be flooded U We have acted to deal with the ozone CO 2 also should be limited In 1992 we want to limit CO 2 as part of the climate change convention We want to limit or possibly reduce greenhouse gases U Turning to forests I like President Bush's proposal We are finding it difficult in Europe to increase forests I would prefer a protocol in 1992 on forests which would come into effect at the same time as the framework convention on climate change U 20 million hectares of forest are being destroyed annually The world is losing tropical woods People suffer as well U But industrialized and tropical forest countries must take action I propose we set the example as the protector of tropical forests I talked with the new Brazilian President recently He is more concerned than his predecessor about the destruction of forests Most of the tropical forests are in Brazil In eight more years there will be no more tropical forests in Brazil They cannot be reforested U If we talk too long the forests will be gone We have asked the EC Commission to talk with the Brazilians We need a pilot program We should cooperate with the World Bank We have a paper in front of us but we need to work concretely to help not just to talk and write A hands-on approach to help Brazil is necessary U Foreign Minister Dumas Last year at Paris we devoted much time to environmental issues We need to address the global climate change question Regarding forests we should not single out one country especially since the Brazilians are so sensitive African tropical forests also are threatened Some of the big African forests are threatened by desertification U Last year in Paris we talked about the sahel observatory We created a liaison group committed to combat desertification 500 major political figures considered the problem south of the Sahara We needed to fill in information gaps All of this is now ongoing Satellite observations are underway All technical means are deployed to fulfill the Paris Summit decisions U _ '-1 --- -· i ' · CO FIDEN' PIAb -- ' ' -- t- CONFIDEN'FI A h 5 Prime Minister Kaifu Let me say a few words about our program We have long-term and short-term programs for global climate change These involve satellite monitoring We need to redouble cooperation internationally Each country has a special situation Each country has its own target Each country has and must set -- its own target while not lagging behind others U On climate change MITI issued a plan several weeks ago Tropical forest problems are caused by poverty in part Advanced countries should support developing countries ITTO is doing good work and NGOs are helping too Japan provided 20 million dollars to ITTO I hope others will contribute to ITTO as well U Japan will contribute to various funds helping with the environment Our expenditures will reach 300 billion yen will strengthen aid efforts U We must use the UNEP Center This U The President Foreign Ministers have nearly finished the text on the Soviet Union and will now leave the room One or two delegations have asked that we try to conclude a bit early If Sherpas finish their work then we could move up the Communique reading early If we can get agreements done early then we can speed up the departure U Prime Minister Andreotti I am concerned about the Brazilian project particularly if Brazilian sovereignty would be threatened U Regarding nuclear power we held a referendum and can no longer build nuclear power plants So we have to change the text of the draft communique to reflect an Italian legal problem I oppose the greens on this but it is a fact U Prime Minister Thatcher We are all cleaning up the environment The Clean Air Act in England is law But we have a lot of sulfur coal that has to be eliminated U We are cleaning up the water and the beaches but the costs are high And people need to know that it will be an expensive proposition for all people Public utilities will be more costly U We have serious regional problems too Our pollution is bad and we need to curb this Rivers are impacted by nitrogen fertilizer Algae bloom The costs are high The polluter pays however Damage to the ozone layer was caused by chemicals discovered in the 1930s Their stability was a problem We will phase them out by the year 2000 This is a good example of international cooperation U CONFIDENT I AI I 'fl At j • t ' ' i 60NF H g f JT IAL 6 On the greenhouse effect scientists are forecasting warming by the end of the decade Still there is much dispute about how much and how soon And there are differences about the impact of man-made and natural causes on greenhouse gas creation We must reduce CO 2 now Many of us are taking precautionary measures not only on CO 2 but also methane Methane is worse than CO 2 • CFCs are bad also CO 2 emissions should be dealt with in some form A much bigger nuclear power program would be a major help to the greenhouse gas problem We can predict the cost of changing our energy consumption to cope with greenhouse gas problems We don't know the cost of letting climate change occur U On biodiversity we need to manage forests well The quality of life can be improved by caring for the forests on a long-term basis instead of short-term exploitation There is also the threat of ocean currents shifting We need to take precautions now We must continue with research but also keep the Brazilian forest intact I support a World Bank initiative on Brazilian forests U I would also mention the Antarctic agreement that took 8 years to negotiate We need to sign and ratify it U Prime Minister Mulroney In 1985 we decided to reduce acid rain by half by 1994 President Bush acted upon this and we are now negotiating an acid rain accord U The midwest of the U S ships acid rain to Canada 14 000 Canadian lakes are now acidified 150 000 Canadian lakes are damaged as are Canada's forests Acid rain hurts asthmatics as well So President Bush's cooperation with Canada is important and will have massive benefits U We need to follow up on some of our undertakings at the Summit Canada didn't do well on follow-up to the Paris Summit environmental commitments U We need to reduce CO 2 and other greenhouse gases with early protocols and specific commitments Costs will come down The more we wait the more·it will cost North-South cooperation is necessary to solve some of these problems The 1992 conference on development will be important U Environmental labeling is important So is protection of tropical forests in Brazil Canada is looking for ways to help the German proposal We have encouraging signals from Brazil The Houston Summit will be important for public opinion in Canada for what it does on environmental matters U President Delors On the question of tropical forests and Brazil specifically there is no real controversy here All agree that those forests are important and should not be allowed to be destroyed These vital resources are irreplaceable Why is Brazil so important The rapid pace of deterioration is of CONFIDENTIAl - COHFIP NTIAI 7 dramatic proportions The EC Council decided to consult with the Brazilians even if Collar wants to respect Brazilian independence U The Brazilian President said he would possibly stop the forest destruction if he could arrange debt-for-nature swaps on a sufficient scale The result is encouraging If we want to develop global measures that are fair it will be necessary in the climate convention to have a protocol on forestry and energy together The developing countries think that developed countries have done much polluting in the past century and a half U In the case of nuclear power scientists who were formerly antinuclear are now pro-nuclear We should be encouraged by this and use the scientists to combat the green extremists who are antinuclear U We must balance costs and benefits on environment and the economy to change our economy rationally and in a balanced way U The President Canada was attacked by environmentalists but we too have some environmental extremists who will never be satisfied with whatever we do U Prime Minister Mulroney Chancellor Kohl had a great year unification the World Cup victory and an A grade from the environmentalists U Chancellor Kohl Sherpas cannot do magic I cannot ask for a vote on the Brazilian project but I would like this program approved in the Communique We are ready to talk to the Brazilians about forests We want the World Bank to coordinate the Brazilian project If the EC wants to do something about forests fine But let's now rope the U S into the EC study U Prime Minister Thatcher Let the EC and the World Bank work together All of us are members of the World Bank Let's do the Brazilian project through the World Bank Unknown speaker The machinery of the World Bank will work from a different vantage point It is normal for the World Bank to help The problem with the World Bank is that the rain forest may get lost in the shuffle However I am not against the World Bank U President Bush We don't like to have the EC present us with a fait accompli The Brazilian issue is an example We don't like this kind of thing We don't care what you want to do But we are not members of the EC In our initiative for Latin America we are doing something about debt-for-nature swaps and debt reduction U -€0NFIDEH'fIAL ------------ ---- -------·----·--·-----------------·--- --------- ----------·----·-----·- -------- ----- ----- - ------- ----------·- CONFIDEM'fIAL ---- --------- ----- - -------------------- 8 The Brazilians are sensitive about sovereignty Let the EC go ahead but if we are part of it I would like it to be done by the organization that we are a part of i e the World Bank st5 Prime Minister Thatcher Bilateral aid is the fastest action We are in danger of doing something in the EC that is bad We have an example here of what is dangerous about driving the world into blocs Let's work through the World Bank r Chancellor Kohl I have to contradict Margaret We are not building blocs We just want to be effective This is the fourth economic summit where we have talked about rain forests I want action Let's do something concrete -- something must happen here and now in Brazil My experience with the World Bank is that it is still just a bank The EC is more than that Let's bring in all the groups U If it is impossible for the EC to be included on this okay But I want to be sure that the World Bank actually does something about the Brazilian rain forest Young people are concerned about rain forests We must do something I want you to send out the message that we are going to do something about Brazilian rain forests -- something that touches hearts not just minds U The President Sometime I want to have a discussion with you about the EC and where we are going with it This is not the time or place for such a discussion but I am putting down a marker that I have problems with the way this is being handled by some In that regard I would recall the EBRD fait accompli This is a big and complex problem for the U S and Japan We want to be in on the take-off not just the landing My country is out front on Brazil r Prime Minister Mulroney On this item perhaps we could get a combination working group between the EC and the World Bank to collaborate on Brazil I leave this as a thought U The President That's an interesting thought U Prime Minister Kaifu Regarding the Amazon forest issue the U S and Japan and Canada are not in the EC I support President Bush on this point We need to deal with the issue in a broader framework Let's get out the message that we are dealing with the Brazilian problem Let's not have a public fracas about members and non-members of organizations Some of us are already committed to bilateral programs U Prime Minister Thatcher Nothing should prevent us from going ahead with our bilateral efforts U Chancellor Kohl I have nothing against the World Bank But something must be done in the next 12 months I have never proposed that the EC and non-members were to accept it The EC CONf'IDENTIAL cmire · H KNT Ih 9 should be part of what happens Let's say that the World Bank manages things but should cooperate with the EC U I am not concerned about the method only about early results The World Bank should manage the project and the EC should cooperate Who can oppose that The President I think that sounds reasonable Let's instruct the drafters to go that way We now have an English version of the Foreign Ministers' text on the USSR It will take some time to get the other languages ready Let's talk about development in the meantime U 3 President Mitterrand I have some reservations We have exhausted ourselves a bit on environment Nothing is more important than the thorough misery in two-thirds of the world U Poverty concerns me as does indebtedness in the Third World Commercial creditors have not been fully refunded At Venice Summit in 1987 we asked the Paris Club to look at cancelling indebtedness for the poorest That led to long-term rescheduling for seven poor countries Last year at the Summit of Arche we approved the Brady plan Mexico and others benefitted from this In Houston another step forward is needed Governmental debt for middle-income debtors needs to be addressed Let's set up a system of options for dealing with Paris Club debt We need to expand Paris Club terms for middle-income debtors and provide a menu of options similar to the Brady plan options for official debt U Prime Minister Andreotti I want to refer to the Craxi report on debt For poorest countries we should be especially generous For the middle-income countries we need to be somewhat less generous but more so than now U The U S initiative for Latin America was a good thing U We need to reexamine the Craxi proposals and think about it later after we have studied what he has proposed U Prime Minister Mulroney We have cancelled some official indebtedness to poorest countries Canada can also support the general approach of President Mitterrand We would like to have the Paris Club study this idea -- to study the precedential element U Again I want to recall my shock at the negative reaction of my people at cancelling debt in the Caribbean Nevertheless I support the Mitterrand proposal on debt U Prime Minister Thatcher We need to consider debt on a case-bycase basis At Toronto we did cancel debt of the poorest CONFIDENTIAL- -•-• --- - - - - - • - • - • • - - • - - - - • • a • - - • - • • - - - - - - - - • - - - - • - - - - - • - • • • - - • - • • - -€GNP IDEN'¥ IAL 10 countries The Paris Club has agreed to keep those concessions under review In the case of lower middle-income countries the Paris Club is offering to be more generous if reform efforts are underway There is then the problem of middle-income debtors The Brady plan has helped here U One comment before going on further Last year in Paris we were asked to cancel our debt If we start being irresponsible with that kind of debt write-off for middle-income countries we will in effect encourage them to be prolifigate in future borrowings Taxpayers will wind up paying for defaults in excessive borrowing If it is too easy to borrow and then say you don't have to repay you will encourage irresponsibility I want to study the Mitterrand plan U Finance Minister Weigel Aid to Central and Eastern Europe should not come at the expense of the Third World In Africa our efforts have made an impact We should remember that the Asian countries who are prospering do not have problems with debts We should continue the Brady initiative also in the Paris Club Fifty debtor countries have been written off The Mitterrand plan is worth thinking about for lower middle-income countries We have to think about the problem of precedents in debt U The President We cannot act on the specific proposal now but perhaps later this evening or tomorrow after studying U MITI Minister Muto The new debt strategy seems to be working well The important thing is that the IMF and the World Bank agree on an overall program Commercial banks will not provide new money under current circumstances but debtor countries need new money So for some countries perhaps some will reduce interest rates while others will use other options U On official debt we should think about Mitterrand's idea but that may be a risky option In the case of Japan we will find it difficult to provide new money to countries that take the official debt reduction option There are moral hazard problems with the Mitterrand plan U 4 The Soviet Union Prime Minister Thatcher This work should be completed as expeditiously as possible A four-month timeframe is impossible U Chancellor Kohl I would like to urge that we mention a date for the study Between now and the end of the year would be a suitable timeframe The Soviet Union needs a decision between now and the end of the year We urgently need a date that we can stick to i -eOHFIDEN'PIAL 11 Secretary Baker If we go with the option in paragraph 4 we need to designate someone to coordinate the study I propose that the IMF and the World Bank chair the study i The President Does that cause problems U Can we agree on the Baker suggestion on the IMF and the World Bank Chancellor Kohl I prefer alternative 2 of paragraph 4 U President Delors The EC recommends that the President of the EBRD coordinate the whole study U The President There is no staff at the bank now established yet U EBRD isn't Foreign Minister Dumas I supports Delors' suggestion Attali would head the study drawing on consultants from World Bank U Chancellor Kohl I support the EBRD suggestion by France the EBRD manage the project U The President The Bank is not a going concern the other solution Attali can't do it alone Prime Minister Mulroney alone U President Mitterrand takes over the bank Let We much prefer U It's unfair to ask Attali to do it Attali will not be my official after he U Prime Minister Thatcher Mr Attali will help in any case Bush what can you accept U Mr President Bush We are trying to find a compromise We can support alternative paragraph 4 as the date for work But we should specify that the IMF and the World Bank chair the study I would like a report on the EBRD U Prime Minister Thatcher It will be in a larger building in London But it is not being set up yet U The President We want to ask organizations now in business to do the work of chairing U Prime Minister Andreotti chair the study U Prime Minister Kaifu · OW 5' Imi N4' I A L I suggest that President Bush himself I support the IMF and the World Bank U 12 £0 tFID S tTI rL The President How will we break this impasse compromise along Baker's lines Chancellor Kohl I am getting lost I suggest a Who is in charge U The President The only issue remaining is the chairmanship of the study U Secretary Baker We have agreed to ask the IMF and the World Bank to chair the study They should coordinate with others have proposed this but not agreed to it U Prime Minister Thatcher I support that proposal We U President Mitterrand Why have two chairs I propose a rotating chair To choose between the World Bank and the EBRD should be the solution All of the institutions should be equal U Prime Minister Mulroney the study U I recommend that President Bush chair The President I decline the chairmanship I would prefer to have the IMF chairman with the others being equals The Soviets would have difficulty with the U S as chair l Prime Minister Mulroney IMF and the World Bank The study will be coordinated by the U President Mitterrand I would prefer to have the four bodies get together to meet at the initiative of the President of the G-7 Perhaps the Secretary of the Treasury could convene meeting Starting from there they will be working on their own It should be a headless operation -- four equals We should convene the meeting and then let people do their things independently U The President The Soviets will not understand if I am in the chair I appreciate the suggestion but don't want the position The Soviets would be unhappy I recommend the IMF or World Bank as chair and therefore I endorse Prime Minister Mulroney's suggestion ¢ Prime Minister Mulroney Rather than co-chairmanship the study could be coordinated rather than chaired by the World Bank and the IMF U President Mitterrand I could reiterate my idea -- four equals Let one of them convene the meeting There would be no chairman merely a convening Coordinating is not good Why not have the IMF convene the others The work should be completed by year's end and the IMF should convene the group U Prime Minister Kaifu €0NFIDBN'J I1rn I agree U COHFIDEN'fIA't 13 The President I agree to inform the IMF that it should convene the meeting of the four organizations to start the work U -- End of Conversation -- -e-o F IDKHT IAL