1. Outline


The year 1978 saw some significant developments, such as the conclusion of the Japan-China Treaty of Peace and Friendship, agreement reached between the United States and China on the normalization of their diplomatic relations, the forging of a basic framework for the Middle East peace by the United States, Egypt and Israel, accord reached between Egypt and Israel on the framework of a peace treaty, and progress in the second Strategic Arms Limitation Talks (SALT-II) between the United States and the Soviet Union.

However, moves which could destabilize the international situation were also seen, such as the intensification of antagonism between Vietnam and Cambodia and between China and Vietnam against the background of Sino-Soviet hostility and the sudden convulsion in Iran caused by an upsurge of anti-government activity by religious forces.

On the international economic scene, cooperation among the major advanced countries was maintained, and on the whole conditions became bright again, but some countries still had problems, such as a high unemployment rates and persistent inflationary pressure. Moreover, there was apprehension about possible effects of the worsening of the oil situation, which surfaced against the background of the uprising in Iran.


2. Trends in the United States, China, the Soviet Union and Countries of Western Europe


(1) Bilateral Relations


Relations among the advanced countries, centering on the United States, Western Europe and Japan, were generally friendly and cooperative, and concrete progress was seen. Between the United States and the Soviet Union, basic relations based on "competition and cooperation" were maintained, but the conclusion of SALT-II was carried over into 1979. Between the United States and China, personnel, economic and technical exchanges increased, and in December, the two countries agreed to normalize their diplomatic relations. Between China and the Soviet Union, confrontation in the international arena intensified as a result of Peking's active "anti-hegemonic" foreign policy, the souring of relations between China and Vietnam and between Vietnam and Cambodia, and the conclusion of the Soviet-Vietnamese Treaty of Friendship and Cooperation. Bilateral relations between China and the Soviet Union did not become worse than before, although there were no signs of any substantial improvement either.


(2) Domestic Developments


A. The United States

The Carter administration, which was in its second year in 1978, improved its position vis-a-vis Congress compared with the first year, as shown by the ratification of a new Panama Canal treaty. On the domestic scene, the administration made some progress in such affairs as administrative reforms, the Energy Act, balancing public finances, and a tax cut. The U.S. economy continued its robust expansion, and the unemployment rate dropped. The annual rate of inflation, however, reached 10%. The Carter administration announced an overall anti-inflation program and endeavored to improve the basic conditions of the dollar in order to ensure recovery of international trust in the U.S. currency. At the same time, it hammered out a comprehensive dollar defense package. In the mid-term election in November, the overwhelming strength of the Democratic Party remained unshaken, but the conservative trend of the American people was revealed, and attracted attention in connection with the scheduled presidential election in 1980.


B. The Soviet Union and Eastern Europe

a. The Soviet Union

The Brezhnev influence in the party leadership became even stronger in 1978, and adjustments in domestic legislation accompanying the enactment of the new constitution was attempted. On the social scene, such influential dissidents as Yuri Orlov were tried. The performance of the Soviet economy was generally poor, as in 1977, except for agriculture where the best-ever crop of grain was reported. The labor productivity improvement program failed to attain its goal.

b. Eastern Europe

Though all the countries of Eastern Europe suffered from serious economic depression, their governments remained stable, and the social situation was generally tranquil.


C. China

The leadership structure under Chairman Hua Guofeng and Vice-Premier Deng Xiaoping gradually strengthened the foundations of its "stable unity." At the Fifth National People's Congress held in February, the government took various concrete steps to carry out the ambitious "four modernizations" policy. Later, such moves were seen as a campaign with the slogan "Practice is the only criterion to test truth," personnel adjustment with the reinstatement of leaders belonging to the pragmatist group, and re-evaluation of the Tian An Men Square incident as "revolutionary." The Chinese economy though it needed adjustment, was generally in good shape, because it was helped by factors contributing to a recovery, and considerable progress was seen in making up ground lost in the confusion caused by the Cultural Revolution. In recognition of such a situation, the government decided to shift the emphasis of its policy for 1978 and thereafter toward modernization, and hammered out a policy to push democratization, completion of a system of laws and reinforcement of various programs, including economic programs.


D. Western Europe

No appreciable recovery was seen in economic activities in general, and many countries suffered from slow growth and high unemployment rates. In some countries, equilibrium in the power balance between the ruling party and opposition parties was superimposed on such depressed economic conditions and caused political and social instability. For instance, in Italy, Christian Democratic Party President Aldo Moro was kidnapped and murdered by left-wing extremists of the Red Brigades. Meanwhile, the desire of the people for a stable government, a stable economy and better job opportunities surged up. Voters' favor returned to the right, halting the trend toward the left, as shown by the fact that in France the ruling party won a majority of seats and vanquished the leftist coalition in the election of the National Assembly in March.


(3) External Relations


A. The United States

The Carter administration, adhering to a policy of positive and extensive diplomatic efforts, ratified the new Panama Canal Treaty, lent weapons to the Middle East and lifted the embargo on the export of weapons to Turkey, and continued playing a positive role in order to bring about peace between Egypt and Israel. In relations with the Soviet Union, the U.S. continued practical negotiations for the reduction of armaments, such as the Strategic Arms Limitation Talks. In its relations with China, the U.S. reached the long-pending accord bringing normalization of diplomatic relations. President Carter's tour of Europe and the holding of a NATO summit reflected the U.S. foreign policy attachment to relations with its major allies. As shown by Vice-President Walter Mondale's tour of three ASEAN countries and the holding of a U.S.-ASEAN ministerial conference, Washington made it clear that its policy of attaching importance to Asia was unchanged.


B. The Soviet Union and Eastern Europe

a. The Soviet Union

Because China made positive diplomatic advances toward Western countries and because the U.S.-initiated negotiations for Middle East peace made progress, the Soviet Union found itself on the defensive at times, but, while watching and containing the moves of China and Western countries, it stepped up its influence in Vietnam, Afghanistan, etc., and made overtures to ASEAN countries.

b. Eastern Europe

Romania and Yugoslavia attracted attention by pursuing independent foreign policies, and Albania's relations with China became distinctly cooler.


C. China

In line with its "five principles of peace," China endeavored to promote its ties extensively with many countries while adhering to an anti-hegemonic position. In order to carry out the "four modernizations" program while endeavoring to stabilize the domestic political situation and improve its diplomatic function-efforts which it had been making since 1977-China strengthened its ties with countries belonging to the Western camp, such as the U.S. and Japan. Overseas tours by such Chinese leaders as Premier Hua Guofeng and Vice-Premier Deng Xiaoping were of a scale unprecedented since the nation's founding. Indeed, China's positive diplomatic activities attracted world attention.


D. Western Europe

Between the U.S. and the NATO countries, the difference of views over the production and deployment of neutron bombs and over economic and monetary policies needed adjustment at times. Efforts in this direction were made not only on a bilateral basis but also at the NATO summit in May and the seven-nation economic summit in Bonn in July.

Soviet Party General Secretary Leonid Brezhnev visited West Germany in May. The visit was noted as an indication that the Soviet Union attached importance to its ties with West Germany and to easing of tensions between itself and Western Europe.


3. Trends in Other Regions


(1) Asia


A. Korean Peninsula

North-South relations on the Korean Peninsula remained at a standstill in 1978, with no signs of a resumption of the dialogue between Seoul and Pyongyang.

Relations between the United States and the Republic of Korea tended to be rough because of the aftereffects of the scandal concerning the U.S. Congress, but a better mood gradually returned near the end of the year partly because of diplomatic efforts by both sides. Withdrawal of the U.S. ground troops from the Republic of Korea was started after a partial revision of the withdrawal plan, and a bill to make up for the effects of the withdrawal was approved by the U.S. Congress.

China's positive advances to North Korea, such as Chairman Hua Guofeng's visit in May and Vice-Chairman Deng Xiaoping's visit in September to Pyongyang, attracted attention.

Three elections were held in the Republic of Korea, for the National Conference for Unification in May, for president in July, and for the National Assembly in December. Thus, elections dominated the domestic political scene. When President Park Chung Hee was sworn in at the end of the year, the Second "Yushin" (reform) was started. In the economic field, the Republic of Korea attained a 12.5% growth in its gross national product and an export goal of $12.5 billion. In North Korea, there was no change in the basic course under the leadership of Chairman Kim Il Sung. The second seven-year economic program was started in 1978 for the rehabilitation of the North Korean economy.


B. Southeast Asia

a. ASEAN Countries and Burma

On the domestic scene, developments which strengthened the positions of the respective governments took place, such as the landslide victories of the ruling parties in both the election of the Provisional National Assembly of the Philippines and the general election in Malaysia, and re-election of the incumbent president in Indonesia. The ASEAN countries continued to promote regional cooperation and, on the external front, stepped up their ties with Japan, the U.S., the E.C. and Australia. China, the Soviet Union, Vietnam and Cambodia made positive approaches to ASEAN countries, but the ASEAN countries adhered to the policy of non-alignment.

In Burma, President Ne Win was re-elected and the leadership structure under him survived the presidential election.

b. Indochina

In Vietnam, attempts to unify the North and the South under socialism were made, such as abolition of the capitalist commerce of the South, unification of the currencies and a mass transfer of southern city dwellers to the new economic districts. During this process, a large number of ethnic Chinese in Vietnam returned to China and refugees made a mass exodus out of Vietnam, causing social confusion. The massive and sudden exodus of refugees from the Indochinese states in particular not only posed a grave humanitarian problem. but also became a destabilizing factor in the Asian-Pacific region.

In the China-Vietnam antagonism which surfaced over the ethnic Chinese problem, China closed the Vietnamese consulate-general in China and suspended aid to that country, while Vietnam veered to a pro-Soviet course by joining COMECON and concluding a treaty of friendship and cooperation with the Soviet Union. The dispute between Cambodia and Vietnam escalated, and the new "Kampuchea United Front for National Salvation," wholly supported by Vietnam, was established in December. After that, a major offensive against Cambodia was launched with heavy involvement of Vietnamese troops. Phnom Penh fell in January 1979 and the People's Republic of Kampuchea was set up. The government of Democratic Cambodia took to guerrilla activities.

c. Southwest Asia

Though each country in Southwest Asia had some destabilizing factors, no great changes were seen. The political situation in all the countries remained relatively stable compared with the previous year. The Desai government of India was generally stable throughout 1978 though it had problems related to domestic politics. In Pakistan, there were disturbing developments, such as the trial of ex-premier Zulfikar Ali Bhutto, and a poor agricultural performance; but Gen. Mohammad Ziaur Huq, chief martial law administrator, assumed the post of president himself and endeavored to strengthen the government's position. On the international front, all the countries in that region basically maintained their long established relations with big countries, and most of them followed a non-aligned, neutral foreign policy. In Southwest Asia, steady progress of good-neighborly relations was seen.


(2) Oceania

In New Zealand, a general election resulted in the re-election of Robert Muldoon as prime minister. In their external relations, both Australia and New Zealand, while consistently following a policy of cooperating with the United States, made positive approaches to the ASEAN countries and Japan. In the Southern Pacific, there has been a marked tread towards independence in recent years. In 1978, the Solomon Islands and Tuvalu became independent states on July 7 and October 1 respectively, and moves for intra-regional cooperation through such bodies as the South Pacific Forum and the South Pacific Commission became increasingly active.


(3) The Middle East

Efforts to make peace through direct negotiations between Egypt and Israel had been at a stalemate since January 1978. But at the tripartite summit of Egypt, Israel and the U.S. held at Camp David on the initiative of President Carter, two "framework" documents were adopted: the framework for Middle East peace and the framework for conclusion of a peace treaty between the two countries. But the negotiations for conclusion of a peace treaty held from October to November hit a snag as a result of the difference of views over such problems as the issue of linking the peace treaty to comprehensive peace talks over how to handle the West Bank and Gaza Strip. The U.S. resumed mediation efforts to break the impasse, and a ministerial conference of the three countries was held in Brussels in December. The momentum for resumption of the negotiations was maintained but the negotiations were not resumed within the year.

In Iran, the masses, dissatisfied with the inequalities in society due to rapid industrialization, staged anti-government demonstrations in various parts of the country from early 1978 under the leadership of religious leaders, and democratic elements demanding the liberalization of society joined the anti-government demonstrations. The Sharif Emami Cabinet formed in August failed to bring the situation under control. The Tholam Reza Ashari Cabinet, which succeeded that of Sharif Emami in November, failed to reach a political compromise with such anti-government elements as the Popular Front. While the anti-shah demonstrations were escalating and oil production was sharply decreasing as a result of strikes, Shahpur Bakhtiar, leader of the Popular Front, took over the reins of government as the new prime minister in January 1979. Bakhtiar attempted to arrange the peaceful departure of Shah Pahlavi from Iran and the return of Ayatollah Ruhollah Khomeini, a charismatic leader of the revolutionary elements, in order to carry out the transfer of power without violence, but his Cabinet collapsed when in February, troops and police failed to counter an armed uprising of the masses. Power shifted to Khomeini, and a provisional government under his nominee Mehdi Bazargan was set up.

In Afghanistan, a coup d'etat broke out in April 1978 in which the Daud government toppled and Taraki and Amin seized power. The new government, while maintaining close relations with the Soviet Union, has been enforcing land reform and other measures, but anti-government moves led by conservative Islamic elements are seen in areas remote from the capital.


(4) Africa


Some limited improvements of the situation were seen, such as the de-escalation of the Ethiopia-Somalia dispute and improvement in Zaire-Angola relations, but no prospect of a solution was seen for the South African problem. There were reports of antagonism within the Organization of African Unity between the moderates and the radicals over operations by the Soviet Union and Cuba in Africa. On the economic side, many countries were still burdened with economic problems and were unable to attain stable economic progress.


(5) Latin America


In nine countries, including Brazil and Venezuela, elections of presidents and national assemblies were held peacefully, and in many such countries, new governments were set up. In several countries under military administration, such as Ecuador and Peru, preparatons to transfer state power to civilian hands made steady progress.

Among intra-regional problems, the human rights issue, which caused friction in 1977, slightly receded but there were such potentially destabilizing factors as the situation in Nicargagua, reactions of the neighboring countries to the Nicaraguan situation and the dispute between Chile and Argentina over the Beagle Channel. On the international scene, summit diplomacy by Western countries moved to high gear, as shown by U.S. President Carter's tour of Mexico and Brazil and French President Valery Giscard d'Estaing's visit to Brazil.


4. Trends in the International Economic Situation


For the economies of advanced industrial democracies, 1978 was another year of relatively sluggish recovery,

The U.S. economy maintained an expansive note, and the Japanese and West European economies showed a trend toward a gradual recovery. Such bright signs notwithstanding, the rate of recovery as a whole was still unimpressively low, and the real growth rate of the OECD economy as a whole was 3.7%.

While disequilibrium in the balance of payments of major advanced countries remained, the international monetary situation was unstable until the overall dollar defense program announced by the U.S. government in November touched off a trend toward stabilization. This was the state of money matters when the new European Monetary System (EMS) was born in March 1979.

Commodity prices as a whole tended to stabilize but in some countries, including the U.S., the rise of prices quickened. In addition, OPEC in December decided to increase crude oil prices. The fight against inflation again became an important task in policy making.

On the employment side, improvement was seen in the U.S. but the unemployment rate stayed high in West European countries. This, combined with problems in some industries, induced protectionist pressures in some countries.

Under such circumstances, advanced countries agreed, at such forums as the IMF Interim Committee, the OECD Council of Ministers and various summit meetings among them, to make efforts to promote their economic growth, fight inflation, even out their balance of payments and ensure growth of the world economy without inflation through the complementary effects of such cooperative endeavors. Later, cooperation by various advanced countries in pursuance of this agreement produced effects in promoting growth and correcting external imbalances.

The Tokyo Round, through which the participating countries were negotiating to lower or abolish the tariff and non-tariff barriers and improve the framework for international trade, made great progress because of sustained, energetic negotiations among them, and concrete accords were reached among major countries on a considerable number of problems by the end of the year.

Regarding the economies of developing countries, the economies of non-oil producing countries remained relatively strong throughout 1978, though there was a considerable difference in the situation among areas. The economic growth rates of oil-producing countries showed a considerable slowdown, reflecting the stagnation of crude oil exports.

On the North-South issue, preparations for the development strategy of the 1980s were made at the 33rd UN General Assembly. The second negotiating session on the problem of setting up a Common Fund, the most important follow-up issue at the fourth UNCTAD general meeting, was held in November 1978, and considerable concessions were made by both advanced countries and developing nations toward agreement on a concrete scheme.

In the energy field, crude oil prices were pegged until the end of the year against the background of a delay in the recovery of the world economy and a trend of oversupply due to production increases in non-OPEC areas. As a result of the confusion in Iran since the end of October, oil production in that country sharply dropped. OPEC at its general meeting in December decided to increase crude oil prices every quarter in 1979 by a total of 14.5% and by an average of 10% for 1979 over 1978. Thus, the energy situation became alarming. In particular, when oil exports from Iran stopped altogethers at the end of 1978, it was feared that this would have serious effects on the energy situation and the world economy in 1979.


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