During the intervening period of civil disorder, the signatories propose the following temporary measures:

1. The signatories will sell the annual Shan opium crop at the Thai border price to any recognized international or governmental body.

2. The signatories will cooperate with the purchaser to prevent opium grown in Shan State being marketed by parties not subject to the terms of this agreement.

3. The signatories will permit inspection inside Shan State.

4. The signatories will assist and participate in any economic, agricultural or sociological research aimed at replacing opium with alternative crops. To initiate negotiations for the sale of the 1975 opium crop, the following immediate steps are proposed:

1. Before May 1st 1975, the sale of 1 ton of opium at the current Thai border price of 3100 baht per viss.

2. On the satisfactory conclusion of this sale, a price will be determined, on the basis of the prevailing border rate, for a further purchase of 5 tons of opium from each separate resistance organization that attends a Shan opium conference to be held on the Thai border in July 1975 where a fixed price for future opium sales and a long term agreement will be negotiated.

The first Shan opium proposals were rejected by the U.S. Government in August 1973.

The present proposals were drawn up by the Shan consortium after a meeting between three Shan leaders and U.S. Congressmen Lester Wolff and Morgan Murphy in January 1975.

NOTES ON THE SHAN OPIUM PROPOSALS

1. The three Shan groups.-The leaders who signed these proposals represent, or can speak for, virtually every Shan opium trading group except the KMT and their satellites. The Shan United Army is at present the largest organization in the opium business; the Shan State Army Eastern includes all non-Communist Shan forces east of the Salween; and the Shan State Army will almost certainly be followed in these negotiations by the Kachin, Karen and Ba-O.

2. The price. When the first Shan proposals were delivered to the U.S. Narcotics Bureau in July 1973, the border price was under 1,000 baht per viss of opium. Since then there has been a bad harvest, a world shortage of opium, and currently prices are high because of the seasonal price rise before the new crop is harvested. According to our sources amongst the Thai hill tribes (i.e. sources not dependent on the Shans), the opium price in mid-January 1975 in Hueh Krai was 3,600 baht per viss. This means that Congressman Wolff's Thailand visit-and therefore these proposals have unfortunately coincided with the highest price that opium has ever reached. In recognition of this, the Commander of the Shan United Army has offered 1 ton of opium at 3,100 baht per viss. He guarantees that if the border price is higher than this at the time of purchase, he will hold to his 3,100 baht figure, but if the border price falls below this, he will-as a gesture of goodwill-come down to meet it.

3. Effect on opium production. Since March, 1973, the price of opium has increased 400%, but there is no evidence that the rise in price has resulted in a rise in production. In fact, among some tribes a price rise often means a fall in production, and since nearly all opium is cultivated by the family unit without hired labor, production is limited to the labor resources of the individual family and cannot be much increased. Over ten years, a steady rise in opium prices would probably bring other families and villages into opium production, but this would be a slow process restricted by agricultural and cultural considerations, the immense conservatism of the Shan peasant, and his profound distrust of opium prices which have always been known to fluctuate as unpredictably as the weather. 4. Effect on opium prices.—Any long term purchases of Shan Opium would, however, certainly raise the price of opium on the black market, and this could tempt some merchants to try to smuggle part of the crop. To prevent this, the proposers have offered to "permit" inspection and to "cooperate" to prevent smuggling. They are, in principle, willing to attack any opium convoys not abiding by the terms of an agreement signed by them, but they point out that this would cost a great deal in resources and manpower, and that they are being paid nothing more than the market price for their opium. The success or failure of any Shan narcotics deal will eventually hang on this issue.

5. Information.-Probably the greatest benefit to be derived from these proposals is a toehold in an arena that has been completely closed to research. The Shan leaders believe that an eventual solution can only come from an accurate and thoroughly researched understanding of the opium problem and are, therefore, willing—while negotiations seem promising to provide almost all information of data-collecting facilities that they are asked for. In the long term, this knowledge and expertise, rather than any short-term device such as pre-emptive buying, will eliminate the problem.

6. Effect on civil disorders.—It is important to note that under these proposals the Shans will only be receiving the market price for opium that they would have otherwise sold on the black market. The effect will be to divert narcotics from an illicit, to a licit, purchaser, but it will not, in any way, provide additional finance for civil disorder.

MEETING WITH THE SHANS, GEN. LI WEN-HUAN AND COL. YANG KUO-KUANG

IMPORTANT MEETINGS

(A) SHANS

While in Southeast Asia, Mr. Wolff and Mr. Murphy were able to meet with representatives of the Shan United Army, Shan State Army, Lahu and Loi Maw peoples. This consortium is in contact with and can speak preliminarily for the Kachin and Karin peoples. This consortium controls over 80 percent of the illicit opium exported from the Golden Triangle and controls the areas through which the KMT shipments pass. A meeting was set up to establish a line of communication. When we met with these people, they did not have any proposal for third party purchase of their opium. We made it very clear to them that our purpose was to communicate and not to negotiate. As it turned out, these representatives reported back to their superiors on the meeting, and it was these decisionmakers who drew up the proposals which we presented to the State Department.

The Shan representatives stated they feel the United States is approaching the question of narcotics control from the wrong perspective. Even the preemptive U.S. buy of 26 tons from the Chinese Irregular Forces (CIF) in 1973 was made with those who have no control over the hill people who grow the poppy and who have no desire to see stability in the area established. The CIF are involved in trafficking purely for financial reasons. Only by relating to the people with a stake in the future of the highland region will we be able to get at the heart of the supply side of this issue.

Unlike the former KMT forces under General Li and General Tuan who came to the Golden Triangle in 1949, when they were driven from Mainland China, the people who are controlled by the SSA and SUA we were told by them, are people who have lived in the area for centuries.

They said, "our desire is to effect a political settlement with the Burmese and end the excess opium cultivation." These representatives reasserted their view that "opium growing is not a law enforcement problem but a social and economic phenomenon. One will only solve the problem when it is dealt with in light of the cultural context of opium growing. The termination of opium production for external distribution will only come about when there is a political settlement with the Burmese, and this will be facilitated by the good offices of the United States or an international body."

The Shans and other hill tribes are different culturally from the Burmese. Shans are decendants of the Thais and all of the hill people show greater cultural ties with the Southwestern Chinese than with the highland Thais and lowland Burmese. "They do not want to modernize their society nor become more like the lowland people." They

desire "political autonomy so they can maintain their culture without having to expend all their time, manpower and funds on self-defense." The Shans assured us that they are completely able to continue receiving military supplies through illicit channels financed through the illicit sale of opium, and they will be able to continue their fight well armed from current proceeds of illicit narcotics traffic whether or not, the United States buys the crop. They feel "cooperation is in both parties' best interest."

They would be willing to end opium growing if there was an adequate crop substitution program available to enable their people to earn a livelihood. Even if these preconditions may not be met, they assured us they are very eager to help us with the background anthropological and ecological research which will be necessary to effectuate a comprehensive program of rehabilitation and development for the area.

(B) GEN. LI WEN-HAUN AND COL. YANG KUO-KUANG

We were the first American officials ever to meet face to face with General Li who is the commander of the KMT forces which remained in the highlands of Burma and Thailand in 1949 when they were driven from the Chinese mainland after Mao took power. General Li informed Congressmen Wolff and Murphy that he "is out of the opium business." He claims that he "is now in the jade trade." The previous indirect contact which the United States has had with General Li was in the preemptive buy in 1973, when 26 tons of opium were purchased for US$1 million. The illusive "27th ton which was offered by Li but not purchased gives lie to the idea that this was not a direct purchase. Also let us be perfectly frank what matter if the purchase is made in kind, dollars or gold-it was a preemptive buy. Li's people and forces were given land by the Thais in a resettlement program, and the Thais in return secured a pledge for an end to CIF participation in narcotics trafficking. Not only have questions been raised over whether the substance purchased and burned was opium, but we are very wary of the assurance that his forces are no longer involved in the narcotics business. It may be true that General Li himself is no longer directly involved in the business, but there exists intelligence that remnants of his old CIF forces are still engaged in traffic and refining. General Li stated that "my people are engaged in farming, are not growing any opium and are abiding by the conditions set down in the resettlement agreement." One should realize that the KMT and its followers never did grow opium themselves but were involved in the transport and protection of the opium caravans.

Other information which we received indicates that General Li is out of direct contact with the opium transporting but he maintains contact with the narcotics traffickers. Just as the leaders of organized crime in other parts of the world are not directly affiliated with the purchasing and refining of narcotics, General Li is several steps removed from the actual trafficking. General Li has expressed an interest in personally getting completely out of the narcotics business and he would like to leave the region as proof. For proof that he is no longer in the trafficking, he was "willing to offer his children to the

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United States as hostages." We feel that he is sincere in his desire to end his trafficking connections, but he is not in a position to extricate himself. Rather than being in a position to offer himself or his children as hostages, he is a hostage to his people and the Thai enforcement authorities. General Kriangsak Chumanon, Chief of Staff, Supreme Command Headquarters personally told us that he could not allow Li to leave the country. It seems that General Kriangsak is able to keep some level of control over Li's KMT forces because of this relationship with Li. If Li were allowed to leave, all of the smaller traffickers who would take his place would present much greater problems for the enforcement personnel.

We were also able to meet with Colonel Yang, who is the second ranking member to General Tuan who controls the other KMT Army. He informed us that "we also want to end our involvement in the narcotics business." We feel that, although it might be helpful to end the participation of these kingpins, this will not end the traffic because other less powerful figures would replace them and splinter the traffic. The narcotics syndicates do not work in an organized fashion in Southeast Asia as they do in other parts of the world, and thus the loss of the top figures would have less effect on the distribution systems. Nevertheless, our drug enforcement personnel have always focused their attention on getting the "Mr. Bigs" even though this has not helped us in curbing the narcotics flow. A perfect example is that after the arrest of Lo Hsing Han, there was no significant decline in the amount of opium which reached illicit distribution points. As it is now, the best means for curbing the traffic is to reach for those in control of the territory where the opium is grown and through which the shipments must pass.