The Multinational Monitor


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Reagan Administration

Beating Plowshares Into Swords

by Tim Shorrock

Two major factors influenced the Reagan administration's policies toward multinationals in 1983: the role of the Soviet Union in the world and the continuing economic and political crisis in the Third World. The one concern dovetailed with the other in the administration's growing tendency to use economic measures to further U.S. strategic objectives.

This policy was outlined in May, when Secretary of State George Schultz testified before Congress on the administration's foreign aid bill. Ever mindful of the needs of global corporations such as his former employer Bechtel, Schultz warned against further drops in bank loans or aid to the Third World, and argued that American industry was growing increasingly dependent on markets and raw materials in the developing countries.

In his appeal, Schultz made clear that the administration viewed foreign aid as a means of fighting Soviet influence in the Third World. "Since 1950," he said, "most of the major threats to international stability and the chief opportunities for expansion of the Soviet Union's political reach, have come in the Third World. This instability is inimical to our security."

At the hearing, Schultz announced that the State Department had formed a commission to study ways to integrate U.S. development aid policies with strategic objectives. The commission's mission was clearly demonstrated in Schultz's choice of Frank C. Carlucci as chairman; Carlucci is the president of Sears World Trade Inc. and a former Deputy Secretary of Defense and Deputy Director of the CIA. After a six-month study, the commission recommended that economic and military aid be reorganized under a single U.S. agency. "Economic growth and rising standards of living [in the Third World] are vital to internal stability and external defense. Threats to stability impede economic development and prosperity," the commission report stated.

One effect of these policies has been a decrease in U.S. loans to multilateral development organizations. In November, President Reagan angered European allies and some members of Congress when he announced a 25 percent cut in U.S. contributions to the International Development Agency (IDA), the arm of the World Bank that gives loans with easy terms to the poorest nations. Because the size of IDA loans are proportional to U.S. contributions, the decision will reduce the aid available to these countries by $1 billion. The move comes at a time when real per capita income in those countries has fallen below 1960 levels, according to World Bank figures.

The links between security concerns and foreign economic policy were reflected in a number of ways:

  • Despite persistent complaints about Japanese trade policies, the administration downplayed economic conflicts while giving center stage to Japan's role as a military ally of the U.S. during three meetings between Reagan and Japanese Prime Minister Nakasone in 1983. In return, Japan has increased its role in the regional defense system, and its loans to Third World countries have been an important element in maintaining global stability. Largely at U.S. urging, the country has also become the second largest funder of the World Bank.

  • As the Third World debt crisis escalated and threatened to fuel political instability, the administration threw its support to the IMF and increased U.S. Export-Import Bank loans to Brazil and Mexico to allow them to import more from the U.S. Both of these institutions had come under sharp attack from Reagan in the early stages of his presidency, but strategic concerns and U.S. exporters' demands for help forced changes in policy.

  • In August, the President signed the Caribbean Basin Initiative, the aid bill aimed at increasing U.S. corporate investment in the Caribbean and parts of Latin America. Administration officials have also suggested financing a "Marshall Plan" for the region that would make Central America a "high priority area for economic assistance and investment." Both plans are designed to keep countries in these areas within the U.S. orbit.

  • After the invasion of Grenada, the U.S. Agency for International Development sent a team to investigate investment conditions for American companies. On their return, AID, reported that Grenada was "ripe for investors" able to link "credits and technology in America and products and labor in Grenada."

Strategic concerns also led the administration to force two Japanese multinationals - Kyocera Ceramics and Nippon Steel - out of investments in American high technology industries considered important to the nation's defense. And while rejecting a Pentagon proposal to block exports of oil drilling equipment to the Soviet Union (deals are being sought by Armco and Dresser industries), the administration instituted a ban on nickel imports from the Soviet Union. That action came at the suggestion of Inco, Ltd. a major Canadian mining company, which informed the U.S. government that Soviet nickel ingots contain nickel from Cuba, which is banned from entry into the U.S. Inco will reportedly gain by winning some of the business lost by the Soviets.

In a few instances, however, moves were made to support corporate complaints about trade practices. During the summer, import quotas were slapped on steel imports from Western Europe and Japan, and on Japanese motorcycles. Under pressure from the textile industry, the U.S. refused to meet Chinese requests for increased exports to the U.S., a move that caused tensions between the two countries. Chinese retaliation cost U.S. food corporations a chance to extend their market in China. In December, the President agreed to overall cuts in textile imports from developing countries, an action long sought by the industry.

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