mous rise in the cost of oil in the last two years has more than wiped out the total of the foreign aid that developing countries have received. It has undermined their balance of payments and has mortgaged their future by forcing them into larger borrowing at higher interest rates. There is no easy short-term solution; but if energy dependence is to be reduced, efforts to exploit new and diversified sources must be intensified now.

The United States invites other nations to join us in an increase of bilateral support for training and technical assistance to help developing countries find and exploit new sources of fossil fuel and other forms of energy.

Methods of discovering and using less accessible or low-grade resources must be fully utilized. So must technology to produce solar and geothermal power. And these techniques must be suited to the conditions of the developing countries.

The United States believes the topic of energy cooperation should be high on the agenda for the forthcoming dialogue between consumers and producers. We will propose, in this dialogue, creation of an International Energy Institute bringing together developed and developing, consumer and producer, on the particular problem of energy development. The International Energy Agency and the International Atomic Energy Agency should both find ways to give technical assistance and support to this institute.

A second critical area for technological innovation is food production and improvement of nutrition.

During the past decade, a number of international agricultural research centers have been established to adapt techniques to local needs and conditions. In 1971 the Consultative Group for International Agricultural Research was formed to coordinate these efforts. The United States is prepared to expand the capacity of these institutions. In collaboration with national research organizations with more skilled manpower and funds, they could grow into a worldwide research network for development of agricultural technology.

We are also supporting legislation in the Congress to enable our universities to expand their technical assistance and research in the agricultural field.

Nonfood agricultural and forestry products are a third strategic area for technological assistance. The export earnings of many of the poorest countries-and the livelihood of many millions of their people-depend on such products as timber, jute, cotton, and natural rubber, some of which have encountered serious problems in the face of synthetics. They urgently need assistance to improve the productivity and competitive

ness of these products and to diversify their economies.

The United States therefore proposes creation of an organization to coordinate and finance such assistance. Its task will be to attract manpower and capital for research. The financing of this effort should be a priority task for the new International Fund for Agricultural Development.

But. developing countries' need for technology is not only for development of strategic sectors but for the broad promotion of industrialization itself. This requires the broadest application of skills, resources, and information.

This is not an easy task. The storehouse of technology is already huge and is growing geometrically. Developing practical devices to transfer technology beyond those which already exist will require careful thought. We are prepared to join with other nations in examining new initiatives.

To this end the United States supports creation of an International Industrialization Institute to sponsor and conduct research on industrial technology together with the governments, industries, and research facilities of developing countries.

We support creation of an international center for the exchange of technological information, as a clearinghouse for the sharing of ongoing research and new findings relevant to development.

We will expand our bilateral support of industrial technology appropriate to developing country needs.

We will work with others in this organization in preparing guidelines for the transfer of technology and in the planning of a conference on science and technology for development.

Transnational Enterprises

Access to capital markets and special programs to transfer new technology are bu two factors of accelerated growth. There is a third-which may well be one of the most effective engines of development-the transnational enterprise.

Transnational enterprises have been powerful instruments of modernization both in the industrial nations-where they conduct most of their operations-and in the developing countries, where there is often no substitute for their ability to marshal capital, management skills, technology, and initiative. Thus the controversy over their role and conduct is itself an obstacle to economic development.

It is time for the world community to deal with the problems, real and perceived, that have arisen. If the nations assembled here cannot reach consensus on the proper role of these enterprises, the developing countries could lose an invaluable asset. Let us

make this issue a test of our capacity to accommodate mutual concerns in practical agreement.

For our part, the United States is prepared to meet the proper concerns of governments in whose territories transnational enterprises operate. We affirm that enterprises must act in full accordance with the sovereignty of host governments and take full account of their public policy. Countries are entitled to regulate the operations of transnational enterprises within their borders. But countries wishing the benefits of these enterprises should foster the conditions that attract and maintain their productive operation.

The United States therefore believes that the time has come for the international community to articulate standards of conduct for both enterprises and governments. The United Nations Commission on Transnational Corporations and other international bodies have begun such an effort. We must reach agreement on balanced principles. These should apply to transnational enterprises in their relations with governments, and to governments in their relations with enterprises and with other governments. They must be fair principles, for failure to reflect the interests of all parties concerned would exacerbate rather than moderate the frictions which have damaged the environment for international investment. Specifically, the United States believes that:

-Transnational enterprises are obliged to obey local law and refrain from unlawful intervention in the domestic affairs of host countries. Their activities should take account of public policy and national development priorities. They should respect local customs. They should employ qualified local personnel, or qualify local people through training.

-Host governments in turn must treat transnational enterprises equitably, without discrimination among them, and in accordance with international law. Host governments should make explicit their development priorities and the standards which transnational enterprises are expected to meet, and maintain them with reasonable consistency.

-Governments and enterprises must both respect the contractual obligations that they freely undertake. Contracts should be negotiated openly, fairly, and with full knowledge of their implications. Greater assurance that contracts will be honored will improve the international commercial environment, increase the flow of investment, and expand economic transactions. Destructive and politically explosive investment disputes, which spoil the climate for large commitments and investment, will occur less frequently.

77-838 O-76-25

-Principles established for transnational enterprises should apply equally to domestic enterprises, where relevant. Standards should be addressed not only to privately owned corporations, but also to state-owned and mixed transnational enterprises, which are increasingly important in the world

economy.

A statement of principles is not the only or necessarily a sufficient way of resolving many of the problems affecting transnational enterprises. We must develop others:

-Governments must harmonize their tax treatment of these enterprises. Without coordination, host-country and home-country policies may inhibit productive investment.

-Factfinding and arbitral procedures must be promoted as means for settling investment disputes. The World Bank's International Center for the Settlement of Investment Disputes and other third-party facilities should be employed to settle the important disputes which inevitably arise.

-Laws against restrictive business practices must be developed, better coordinated among countries, and enforced. The United States has long been vigilant against such abuses in domestic trade, mergers, or licensing of technology. We stand by the same principles internationally. We condemn restrictive practices in setting prices or restraining supplies, whether by private or state-owned transnational enterprises or by the collusion of national governments.

-Insurance for foreign private investors should to the extent possible be multilateralized and should include financial participation by developing countries to reflect our mutual stake in encouraging foreign investment in the service of development.

-And there must be more effective bilateral consultation among governments to identify and resolve investment disputes before they become irritants in political relations.

The United States believes that just solutions are achievable and necessary. If the world community is committed to economic development, it cannot afford to treat transnational enterprises as objects of economic warfare. The capacity of the international community to deal with this issue constructively will be an important test of whether the search for solutions or the clash of ideologies will dominate our economic future. The implications for economic development are profound.

Trade and Development

The third basic area for our attention is trade. Improving the world trading system will magnify our success in every other sphere of the development effort.

Trade has been a driving force in the unprecedented expansion of the world economy over the last 30 years. Comparative advantage and specialization, the exchange of technology and the movement of capital, the spur to productivity that competition provides these are central elements of efficiency and progress. Open trade promotes growth and combats inflation in all countries.

For developing nations, trade is perhaps the most important engine of development. Increased earnings from exports help pay for both the imports that are essential to expand production and the food for growing populations. These earnings reduce dependence on aid, limit the accumulation of debt, and help finance essential borrowing. Growing export industries can provide jobs and increase the government revenues necessary for development programs. It is no accident, therefore, that the success stories in development of the past three decades have been those very countries that have taken full advantage of the opportunities in world trade.

But today the global trading system is threatened by the most serious recession since the Second World War. We face the danger of proliferating artificial barriers and unfair competition reminiscent of the 1930's, which contributed to economic and political disaster. Every day that economic recovery is delayed, the temptation grows to restrict imports, subsidize exports, and control scarce commodities. Concerted action is necessary now to safeguard and improve the open trading system on which the future well-being of all our countries depends.

The multilateral trade negotiations now taking place in Geneva are central to this effort. They will have a profound impact on the future of the world economy and the prospects for development. If these negotiations fail, all countries risk a slide into an increasingly fragmented, closed world of nationalism, blocs, and mounting frictions. If they succeed, all countries will benefit and there will be major progress toward a cooperative and prosperous world.

Many of the less developed nations are emerging as important commercial powers. But developing countries need assistance to take better advantage of trading opportunities, especially to help them open up new markets. In revising rules to govern trade we must take account of their particular needs. In this connection, regional trading associations can help many small countries by providing the economies of scale which result from larger_markets.

Thus success in the negotiations depends critically on promoting the interests of the developing countries. For if they do not help to make the rules, assume part of the re

sponsibility to maintain a stable trade system, and share in the benefits of trade, the rules will be subject to increasing challenge, the stability of the system undermined, and the benefits for all nations jeopardized.

The United States therefore believes that a major goal of the multilateral trade negotiations should be to make the trading system better serve development goals. Let me briefly outline our policy.

-First, there must be fundamental structural improvement in the relationship of the developing countries to the world trading system. In the earlier stages of their development, they should receive special treatment through a variety of means-such as preferences, favorable concessions, and exceptions which reflect their economic status. But as they progress to a higher level of development, they must gradually accept the same obligations of reciprocity and stable arrangements that other countries undertake. At some point they must be prepared to compete on more equa! terms, even as they derive growing benefits.

-Second, we must improve opportunities for the manufacturing sectors of developing countries. These provide the most promising new areas for exports at the critical stage in development, but the tariffs of industrial countries are a substantial obstacle. To ease this problem the United States has agreed to join other industrial countries in instituting generalized tariff preferences to permit developing countries enhanced access to the markets of industrialized nations.

I am pleased to announce today that the U.S. program will be put into effect on January 1, 1976. And before that date, we will begin consultations and practical assistance to enable exporting countries to benefit from the new trade opportunities in the American market, the largest single market for the manufactured goods of developing countries.

-Third, in keeping with the Tokyo Declaration, we should adapt rules of nontariff barriers to the particular situation of developing countries. In setting international standards for government procurement practices, for example, the United States will negotiate special consideration for the developing countries. We will also negotiate on the basis that under prescribed conditions, certain subsidies may be permitted without triggering countervailing duties for a period geared to achieving particular development objectives.

-Fourth, we will work for early agree. ment on tariffs for tropical products, which are a major source of earnings for the developing world. Moreover, the United States will implement its tariff cuts on these prod

ucts as soon as possible.

-Finally, we are ready to join with other participants in Geneva to negotiate changes in the system of protection in the industrialized countries that favors the import of raw materials over other goods. Many countries impose low or no duties on raw materials and high duties on manufactured or processed goods; the tariff protection increases or "escalates" with the degree of processing. Nothing could be better calculated to discourage and limit the growth of processing industries in developing countries. The United States will give high priority in the Geneva negotiations to reducing these barriers.

The developing countries have obligations in return. The world needs a system in which no nation, developed or developing, arbitrarily withholds or interferes with normal exports of materials. This practice by depriving other countries of needed goods -can trigger unemployment, cut production, and fuel inflation. It is therefore as disruptive as any of the other trade barriers I have discussed. We urge negotiations on rules to limit and govern the use of export restraints, a logical extension of existing rules on imports. The United States will join others in negotiating supply-access commitments as part of the reciprocal exchange of concessions.

But commodities can be addressed only in part in the context of the trade negotiations. For some serious commodity problems, special arrangements and different institutional structures are required. Let me now turn to that subject.

Commodity Trade and Production

Exports of primary products-raw materials and other commodities-are crucial to the incomes of developing countries. These earnings can lift living standards above bare subsistence, generate profits to support the first steps of industrialization, and provide tax revenues for education, health, and other social programs for development. The history of the United States and many other countries confirms the importance of commodities.

But this path can be precarious in an uncertain global environment. Those developing countries which are not oil exporters rely on primary commodities for nearly twothirds of their export earnings. Yet their sales of raw materials and agricultural prod ucts have not grown as fast as those of industrial countries. Agricultural commodities, particularly, are vulnerable to the whims of weather and swings of worldwide demand. The market in minerals is especially sensitive to the pendulum of boom-and-bust in the industrial countries. The result is a

cycle of scarcity and glut, of underinvestment and overcapacity.

Developing countries are hit hard by commodity cycles also as consumers; higher prices for energy imports, swings in the price and supply of food, and greater costs for other essential raw materials have been devastating blows, soaking up aid funds and the earnings by which they hoped to finance imports. All this can make a mockery of development plans.

But the problems of commodities are not the problems only of developing countries. The industrialized countries are in fact the largest exporters of food and most minerals. Gyrating prices complicate economic decisions in industrial countries. And consumers in industrial countries have painfully learned that high commodity prices leave their inflationary impact long after the commodity market has turned around.

Therefore both industrial and developing countries would benefit from more stable conditions of trade and an expansion of productive capacity in commodities.

Many solutions have been put forward to benefit producers of particular products: cartelization, price indexing, commodity agreements, and other methods. But reality demonstrates the interdependence of all our economies and therefore the necessity for approaches that serve global rather than narrow interests.

Food Security

The most vital commodity in the world is food. The United States is its largest producer and exporter. We recognize our responsibility. We have also sought to make international collaboration in food a model for realistic and cooperative approaches to other international economic issues.

The U.S. policy is now one of maximum production. At home, we want a thriving farm economy and moderate prices for consumers. Internationally, we wish cooperative relations with nations that purchase from us, an open and growing market, and abundant supplies to meet the needs of the hungry through both good times and bad.

For hundreds of millions of people, food security is the single most critical need in their lives; for many it is a question of life itself. But food security means more than emergency relief to deal with crop failures, natural disasters, and pockets of famine. It means reasonable stability in the availability of food in commercial markets so that harvest failures in some parts of the world will not make food impossibly expensive elsewhere. We have seen with dramatic frequency in recent years how the international food market, strained to capacity, can shake the international economy. Its fluctuations

have accelerated inflation, devastated development plans, and wreaked havoc with human lives. Yet in good times, the world community has not summoned the will to take obvious corrective steps to stabilize the market structure.

The United States believes that a global approach to food security, which contains elements that can apply to other commodities, should follow these basic principles:

-The problem must be approached globally, comprehensively, and cooperatively, by consultation and negotiation among all significant producers and consumers;

-Producers should recognize the global interest in stability of supply, and consumers should recognize the interest of producers in stability of markets and earnings;

-Special consideration should be given to the needs of developing countries; and

-Where volatile demand is combined with limited ability to make short-term increases in production, buffer stocks may be the best approach to achieving greater security for both consumers and producers.

At the World Food Conference last November, which was convened at our initiative, the United States proposed a comprehensive international cooperative approach to providing food security. We proposed an international system of nationally held grain reserves, to meet emergencies and improve the market. The United States has since then offered specific proposals and begun negotiations. But the international effort lagged when improved harvests seemed to diminish the immediate danger of worldwide shortage.

My government today declares that it is time to create this reserve system. If we do not, future crises are inevitable. Specifically, we propose:

-To meet virtually all potential shortfalls in food grains production, total world reserves must reach at least 30 million tons of wheat and rice. We should consider whether a similar reserve is needed in coarse grains. -Responsibility for holding reserves should be allocated fairly, taking into account wealth, production, and trade. The United States is prepared to hold a major share.

-Acquisition and release of reserves should be governed by quantitative standards such as anticipated surpluses and shortfalls in production.

-Full participants in the system should receive assured access to supplies. Among major producers, full participation should require complete exchange of information and forecasts.

-Special assistance should be extended to developing countries that participate, to enable them to meet their obligation to hold a portion of global reserves.

The United States is ready to negotiate the creation of such a system. Let us move ahead rapidly.

Other Primary Commodities

And let us apply the same approach of cooperation to other primary commodities that are similarly beset by swings of price and supply-and that are similarly essential to the global economy.

There is no simple formula that will apply equally to all commodities. The United States therefore proposes to discuss new arrangements in individual commodities on a caseby-case basis.

Buffer stocks can be an effective technique to moderate instability in supplies and earnings. On the other hand, price-fixing arrangements distort the market, restrict production, and waste resources for everyone. It is developing countries that can least afford this waste. Restricted production idles the costly equipment and economic infrastructure that takes years to build. Artificially high prices lead consumers to make costly investment in domestic substitutes, ultimately eroding the market power of the traditional producers.

Accordingly, the United States proposes the following approach to commodity arrangements:

-We recommend that a consumerproducer forum be established for every key commodity to discuss how to promote the efficiency, growth, and stability of its market. This is particularly important in the case of grains, as I have outlined. It is also important in copper, where priority should be given to creating a forum for consumerproducer consultation.

-The first new formal international agreement being concluded is on tin. We have participated actively in its negotiation. President Ford has authorized me to announce that the United States intends to sign the tin agreement, subject to congressional consultations and ratification. We welcome its emphasis on buffer stocks, its avoidance of direct price fixing, and its balanced voting system. We will retain our right to sell from our strategic stockpiles, and we recognize the right of others to maintain a similar program.

-We are participating actively in negotiations on coffee. We hope they will result in a satisfactory new agreement that reduces the large fluctuations in prices and supplies entering the market.

-We will also join in the forthcoming cocoa and sugar negotiations. Their objective will be to reduce the risks of investment and moderate the swings in prices and supplies.

-We will support liberalization of the International Monetary Fund's financing of buffer stocks, to assure that this facility is