To the Congress of the United States:

The State of the Union is sound. Our economy is recovering from a
recession. A national energy plan is in place and our dependence on foreign
oil is decreasing. We have been at peace for four uninterrupted years.

But, our Nation has serious problems. Inflation and unemployment are
unacceptably high. The world oil market is increasingly tight. There are
trouble spots throughout the world, and 52 American hostages are being held
in Iran against international law and against every precept of human
affairs.

However, I firmly believe that, as a result of the progress made in so many
domestic and international areas over the past four years, our Nation is
stronger, wealthier, more compassionate and freer than it was four years
ago. I am proud of that fact. And I believe the Congress should be proud as
well, for so much of what has been accomplished over the past four years
has been due to the hard work, insights and cooperation of Congress. I
applaud the Congress for its efforts and its achievements.

In this State of the Union Message I want to recount the achievements and
progress of the last four years and to offer recommendations to the
Congress for this year. While my term as President will end before the 97th
Congress begins its work in earnest, I hope that my recommendations will
serve as a guide for the direction this country should take so we build on
the record of the past four years.

RECORD OF PROGRESS

When I took office, our Nation faced a number of serious domestic and
international problems:

--no national energy policy existed, and our dependence on foreign oil was
rapidly increasing;

--public trust in the integrity and openness of the government was low;

--the Federal government was operating inefficiently in administering
essential programs and policies;

--major social problems were being ignored or poorly addressed by the
Federal government;

--our defense posture was declining as a result of a defense budget which
was continuously shrinking in real terms;

--the strength of the NATO Alliance needed to be bolstered;

--tensions between Israel and Egypt threatened another Middle East war;
and

--America's resolve to oppose human rights violations was under serious
question.

Over the past 48 months, clear progress has been made in solving the
challenges we found in January of 1977:

--almost all of our comprehensive energy program have been enacted, and the
Department of Energy has been established to administer the program;
confidence in the government's integrity has been restored, and respect for
the government's openness and fairness has been renewed;

--the government has been made more effective and efficient: the Civil
Service system was completely reformed for the first time this century;

--14 reorganization initiatives have been proposed to the Congress,
approved, and implemented;

--two new Cabinet departments have been created to consolidate and
streamline the government's handling of energy and education problems;

--inspectors general have been placed in each Cabinet department to combat
fraud, waste and other abuses;

--the regulatory process has been reformed through creation of the
Regulatory Council, implementation of Executive Order 12044 and its
requirement for cost-impact analyses, elimination of unnecessary
regulation, and passage of the Regulatory Flexibility Act;

--procedures have been established to assure citizen participation in
government;

--and the airline, trucking, rail and communications industries are being
deregulated;

--critical social problems, many long ignored by the Federal government,
have been addressed directly;

--an urban policy was developed and implemented to reverse the decline
in our urban areas;

--the Social Security System was refinanced to put it on a sound financial
basis;

--the Humphrey-Hawkins Full Employment Act was enacted;

--Federal assistance for education was expanded by more than 75 percent;

--the minimum wage was increased to levels needed to ease the effects of
inflation;

--affirmative action has been pursued aggressively; more blacks, Hispanics
and women have been appointed to senior government positions and to
judgeships than at any other time in our history;

--the ERA ratification deadline was extended to aid the ratification effort;

--and minority business procurement by the Federal government has more than
doubled;

--the Nation's first sectoral policies were put in place, for the auto and
steel industries, with my Administration demonstrating the value of
cooperation between the government, business and labor;

--reversing previous trends, real defense spending has increased every year
since 1977;

--the real increase in FY 1980 defense spending is well above 3 percent
and I expect FY 1981 defense spending to be even higher;

--looking ahead, the defense program I am proposing is premised on a real
increase in defense spending over the next five years of 20 percent or
more;

--the NATO Alliance has proven its unity in responding to the situations in
Eastern Europe and Southwest Asia and in agreeing on the issues to be
addressed in the review of the Helsinki Final Act currently underway in
Madrid;

--the peace process in the Middle East established at Camp David and by the
Peace Treaty between Egypt and Israel is being buttressed on two fronts:
steady progress in the normalization of Egyptian-Israeli relations in many
fields, and the commitment of both Egypt and Israel, with United States'
assistance, to see through to successful conclusion the autonomy
negotiations for the West Bank and Gaza;

--the Panama Canal Treaties have been put into effect, which has helped to
improve relations with Latin America;

--we have continued this Nation's strong commitment to the pursuit of human
rights throughout the world, evenhandedly and objectively;

--our commitment to a worldwide human rights policy has remained firm;

--and many other countries have given high priority to it;

--our resolve to oppose aggression, such as the illegal invasion of the
Soviet Union into Afghanistan, has been supported by tough action.

I. ENSURING ECONOMIC STRENGTH ECONOMY

During the last decade our Nation has withstood a series of economic shocks
unprecedented in peacetime. The most dramatic of these has been the
explosive increases of OPEC oil prices. But we have also faced world
commodity shortages, natural disasters, agricultural shortages and major
challenges to world peace and security. Our ability to deal with these
shocks has been impaired because of a decrease in the growth of
productivity and the persistence of underlying inflationary forces built up
over the past 15 years.

Nevertheless, the economy has proved to be remarkably resilient. Real
output has grown at an average rate of 3 percent per year since I took
office, and employment has grown by 10 percent. We have added about 8
million productive private sector jobs to the economy. However,
unacceptably high inflation--the most difficult economic problem I have
faced--persists.

This inflation--which threatens the growth, productivity, and stability of
our economy--requires that we restrain the growth of the budget to the
maximum extent consistent with national security and human compassion. I
have done so in my earlier budgets, and in my FY '82 budget. However, while
restraint is essential to any appropriate economic policy, high inflation
cannot be attributed solely to government spending. The growth in budget
outlays has been more the result of economic factors than the cause of
them.

We are now in the early stages of economic recovery following a short
recession. Typically, a post-recessionary period has been marked by
vigorous economic growth aided by anti-recessionary policy measures such as
large tax cuts or big, stimulation spending programs. I have declined to
recommend such actions to stimulate economic activity, because the
persistent inflationary pressures that beset our economy today dictate a
restrained fiscal policy.

Accordingly, I am asking the Congress to postpone until January 1, 1982,
the personal tax reductions I had earlier proposed to take effect on
January 1 of this year.

However, my 1982 budget proposes significant tax changes to increase the
sources of financing for business investment. While emphasizing the need
for continued fiscal restraint, this budget takes the first major step in a
long-term tax reduction program designed to increase capital formation. The
failure of our Nation's capital stock to grow at a rate that keeps pace
with its labor force has clearly been one cause of our productivity
slowdown. Higher investment rates are also critically needed to meet our
Nation's energy needs, and to replace energy-inefficient plants and
equipment with new energy-saving physical plants. The level of investment
that is called for will not occur in the absence of policies to encourage
it.

Therefore, my budget proposes a major liberalization of tax allowances for
depreciation, as well as simplified depreciation accounting, increasing the
allowable rates by about 40 percent. I am also proposing improvements in
the investment tax credit, making it refundable, to meet the investment
needs of firms with no current earnings.

These two proposals, along with carefully-phased tax reductions for
individuals, will improve both economic efficiency and tax equity. I urge
the Congress to enact legislation along the lines and timetable I have
proposed.

THE 1982 BUDGET

The FY 1982 budget I have sent to the Congress continues our four-year
policy of prudence and restraint. While the budget deficits during my term
are higher than I would have liked, their size is determined for the most
part by economic conditions. And in spite of these conditions, the relative
size of the deficit continues to decline. In 1976, before I took office,
the budget deficit equalled 4 percent of gross national product. It had
been cut to 2.3 percent in the 1980 fiscal year just ended. My 1982 budget
contains a deficit estimated to be less than 1 percent of our gross
national product.

The rate of growth in Federal spending has been held to a minimum.
Nevertheless, outlays are still rising more rapidly than many had
anticipated, the result of many powerful forces in our society:

We face a threat to our security, as events in Afghanistan, the Middle
East, and Eastern Europe make clear. We have a steadily aging population
and, as a result, the biggest single increase in the Federal budget is the
rising cost of retirement programs, particularly social security. We face
other important domestic needs: to continue responsibility for the
disadvantaged; to provide the capital needed by our cities and our
transportation systems; to protect our environment; to revitalize American
industry; and to increase the export of American goods and services so
essential to the creation of jobs and a trade surplus.

Yet the Federal Government itself may not always be the proper source of
such assistance. For example, it must not usurp functions if they can be
more appropriately decided upon, managed, and financed by the private
sector or by State and local governments. My Administration has always
sought to consider the proper focus of responsibility for the most
efficient resolution of problems.

We have also recognized the need to simplify the system of grants to State
and local governments. I have again proposed several grant consolidations
in the 1982 budget, including a new proposal that would consolidate several
highway programs.

The pressures for growth in Federal use of national resources are great. My
Administration has initiated many new approaches to cope with these
pressures. We started a multi-year budget system, and we began a system for
controlling Federal credit programs. Yet in spite of increasing needs to
limit spending growth, we have consistently adhered to these strong budget
principles:

Our Nation's armed forces must always stand sufficiently strong to deter
aggression and to assure our security. An effective national energy plan is
essential to increase domestic production of oil and gas, to encourage
conservation of our scarce energy resources, to stimulate conversion to
more abundant fuels, and to reduce our trade deficit. The essential human
needs for our citizens must be given the highest priority. The Federal
Government must lead the way in investment in the Nation's technological
future. The Federal Government has an obligation to nurture and protect our
environment--the common resource, birthright, and sustenance of the
American people.

My 1982 budget continues to support these principles. It also proposes
responsible tax reductions to encourage a more productive economy, and
adequate funding of our highest priority programs within an overall policy
of constraint.

Fiscal restraint must be continued in the years ahead. Budgets must be
tight enough to convince those who set wages and prices that the Federal
Government is serious about fighting inflation but not so tight as to choke
off all growth.

Careful budget policy should be supplemented by other measures designed to
reduce inflation at lower cost in lost output and employment. These other
steps include measures to increase investment--such as the tax proposals
included in my 1982 budget--and measures to increase competition and
productivity in our economy. Voluntary incomes policies can also directly
influence wages and prices in the direction of moderation and thereby bring
inflation down faster and at lower cost to the economy. Through a tax-based
incomes policy (TIP) we could provide tax incentives for firms and workers
to moderate their wage and price increases. In the coming years, control of
Federal expenditures can make possible periodic tax reductions. The
Congress should therefore begin now to evaluate the potentialities of a TIP
program so that when the next round of tax reductions is appropriate a TIP
program will be seriously considered.

EMPLOYMENT

During the last four years we have given top priority to meeting the needs
of workers and providing additional job opportunities to those who seek
work. Since the end of 1976:

Almost 9 million new jobs have been added to the nation's economy total
employment has reached 97 million. More jobs than ever before are held by
women, minorities and young people. Employment over the past four years has
increased by: 17% for adult women 11% for blacks, and 30% for Hispanics
employment of black teenagers increased by more than 5%, reversing the
decline that occurred in the previous eight years.

Major initiatives launched by this Administration helped bring about these
accomplishments and have provided a solid foundation for employment and
training policy in the 1980's. In 1977, as part of the comprehensive
economic stimulus program:

425,000 public service jobs were created A $1 billion youth employment
initiative funded 200,000 jobs the doubling of the Job Corps to 44,000
slots began and 1 million summer youth jobs were approved--a 25 percent
increase.

In 1978:

The Humphrey-Hawkins Full Employment Act became law the $400 million
Private Sector Initiatives Program was begun a targeted jobs tax credit for
disadvantaged youth and others with special employment barriers was enacted
the Comprehensive Employment and Training Act was reauthorized for four
years.

In 1979:

A $6 billion welfare reform proposal was introduced with funding for
400,000 public service jobs welfare reform demonstration projects were
launched in communities around the country the Vice President initiated a
nationwide review of youth unemployment in this country.

In 1980:

The findings of the Vice President's Task Force revealed the major
education and employment deficits that exist for poor and minority
youngsters. As a result a $2 billion youth education and jobs initiative
was introduced to provide unemployed youth with the basic education and
work experience they need to compete in the labor market of the 1980's. As
part of the economic revitalization program several steps were proposed to
aid workers in high unemployment communities:

An additional 13 weeks of unemployment benefits for the long term
unemployed. $600 million to train the disadvantaged and unemployed for new
private sector jobs. Positive adjustment demonstrations to aid workers in
declining industries. The important Title VII Private Sector Initiatives
Program was reauthorized for an additional two years.

In addition to making significant progress in helping the disadvantaged and
unemployed, important gains were realized for all workers:

An historic national accord with organized labor made it possible for the
views of working men and women to be heard as the nation's economic and
domestic policies were formulated; the Mine Safety and Health Act brought
about improved working conditions for the nation's 500,000 miners.
substantial reforms of Occupational Safety and Health Administration were
accomplished to help reduce unnecessary burdens on business and to focus on
major health and safety problems; the minimum wage was increased over a
four year period from $2.30 to $3.35 an hour; the Black Lung Benefit Reform
Act was signed into law; attempts to weaken Davis-Bacon Act were defeated.

While substantial gains have been made in the last four years, continued
efforts are required to ensure that this progress is continued:

Government must continue to make labor a full partner in the policy
decisions that affect the interests of working men and women; a broad,
bipartisan effort to combat youth unemployment must be sustained
compassionate reform of the nation's welfare system should be continued
with employment opportunities provided for those able to work; workers in
declining industries should be provided new skills and help in finding
employment.

TRADE

Over the past year, the U.S. trade picture improved as a result of solid
export gains in both manufactured and agricultural products. Agricultural
exports reached a new record of over $40 billion, while manufactured
exports have grown by 24 percent to a record $144 billion. In these areas
the United States recorded significant surpluses of $24 billion and $19
billion respectively. While our oil imports remained a major drain on our
foreign exchange earnings, that drain was somewhat moderated by a 19
percent decline in the volume of oil imports.

U.S. trade negotiators made significant progress over the past year in
assuring effective implementation of the agreements negotiated during the
Tokyo Round of Multilateral Trade Negotiations. Agreements reached with the
Japanese government, for example, will assure that the United States will
be able to expand its exports to the Japanese market in such key areas as
telecommunications equipment, tobacco, and lumber. Efforts by U.S. trade
negotiators also helped to persuade a number of key developing countries to
accept many of the non-tariff codes negotiated during the Multilateral
Trade Negotiations. This will assure that these countries will increasingly
assume obligations under the international trading system.

A difficult world economic environment posed a challenge for the management
of trade relations. U.S. trade negotiators were called upon to manage
serious sectoral problems in such areas as steel, and helped to assure that
U.S. chemical exports will have continued access to the European market.

Close consultations with the private sector in the United States have
enabled U.S. trade negotiators to pinpoint obstacles to U.S. trade in
services, and to build a basis for future negotiations. Services have been
an increasingly important source of export earnings for the United States,
and the United States must assure continued and increased access to foreign
markets.

The trade position of the United States has improved. But vigorous efforts
are needed in a number of areas to assure continued market access for U.S.
exports, particularly agricultural and high technology products, in which
the United States continues to have a strong competitive edge. Continued
efforts are also needed to remove many domestic disincentives, which now
hamper U.S. export growth. And we must ensure that countries do not
manipulate investment, or impose investment performance requirements which
distort trade and cost us jobs in this country.

In short, we must continue to seek free--but fair--trade. That is the
policy my Administration has pursued from the beginning, even in areas
where foreign competition has clearly affected our domestic industry. In
the steel industry, for instance, we have put Trigger Price Mechanism into
place to help prevent the dumping of steel. That action has strengthened
the domestic steel industry. In the automobile industry, we have worked--
without resort to import quotas--to strengthen the industry's ability to
modernize and compete effectively.

SMALL BUSINESS

I have often said that there is nothing small about small business in
America. These firms account for nearly one-half our gross national
product; over half of new technology; and much more than half of the jobs
created by industry.

Because this sector of the economy is the very lifeblood of our National
economy, we have done much together to improve the competitive climate for
smaller firms. These concerted efforts have been an integral part of my
program to revitalize the economy.

They include my campaign to shrink substantially the cash and time
consuming red tape burden imposed on business. They include my
personally-directed policy of ambitiously increasing the Federal
contracting dollars going to small firms, especially those owned by women
and minorities. And they include my proposals to reinvigorate existing
small businesses and assist the creation of new ones through tax reform;
financing assistance; market expansion; and support of product innovation.

Many of my initiatives to facilitate the creation and growth of small
businesses were made in response to the White House Conference on Small
Business, which I convened. My Administration began the implementation of
most of the ideas produced last year by that citizen's advisory body;
others need to be addressed. I have proposed the reconvening of the
Conference next year to review progress; reassess priorities; and set new
goals. In the interim I hope that the incoming Administration and the new
Congress will work with the committee I have established to keep these
business development ideas alive and help implement Conference
recommendations.

MINORITY BUSINESS

One of the most successful developments of my Administration has been the
growth and strengthening of minority business. This is the first
Administration to put the issue on the policy agenda as a matter of major
importance. To implement the results of our early efforts in this field I
submitted legislation to Congress designed to further the development of
minority business.

We have reorganized the Office of Minority Business into the Minority
Business Development Administration in the Department of Commerce. MBDA has
already proven to be a major factor in assisting minority businesses to
achieve equitable competitive positions in the marketplace.

The Federal government's procurement from minority-owned firms has nearly
tripled since I took office. Federal deposits in minority-owned banks have
more than doubled and minority ownership of radio and television stations
has nearly doubled. The SBA administered 8(a) Pilot Program for procurement
with the Army proved to be successful and I recently expanded the number of
agencies involved to include NASA and the Departments of Energy and
Transportation.

I firmly believe the critical path to full freedom and equality for
America's minorities rests with the ability of minority communities to
participate competitively in the free enterprise system. I believe the
government has a fundamental responsibility to assist in the development of
minority business and I hope the progress made in the last four years will
continue.

II. CREATING ENERGY SECURITY

Since I took office, my highest legislative priorities have involved the
reorientation and redirection of U.S. energy activities and for the first
time, to establish a coordinated national energy policy. The struggle to
achieve that policy has been long and difficult, but the accomplishments of
the past four years make clear that our country is finally serious about
the problems caused by our overdependence on foreign oil. Our progress
should not be lost. We must rely on and encourage multiple forms of energy
production--coal, crude oil, natural gas, solar, nuclear, synthetics--and
energy conservation. The framework put in place over the last four years
will enable us to do this.

NATIONAL ENERGY POLICY

As a result of actions my Administration and the Congress have taken over
the past four years, our country finally has a national energy policy:

Under my program of phased decontrol, domestic crude oil price controls
will end September 30, 1981. As a result exploratory drilling activities
have reached an all-time high; Prices for new natural gas are being
decontrolled under the Natural Gas Policy Act--and natural gas production
is now at an all time high; the supply shortages of several years ago have
been eliminated; The windfall profits tax on crude oil has been enacted
providing $227 billion over ten years for assistance to low-income
households, increased mass transit funding, and a massive investment in the
production and development of alternative energy sources; The Synthetic
Fuels Corporation has been established to help private companies build the
facilities to produce energy from synthetic fuels; Solar energy funding has
been quadrupled, solar energy tax credits enacted, and a Solar Energy and
Energy Conservation Bank has been established; A route has been chosen to
bring natural gas from the North Slope of Alaska to the lower 48 states;
Coal production and consumption incentives have been increased, and coal
production is now at its highest level in history; A gasoline rationing
plan has been approved by Congress for possible use in the event of a
severe energy supply shortage or interruption; Gasohol production has been
dramatically increased, with a program being put in place to produce 500
million gallons of alcohol fuel by the end of this year--an amount that
could enable gasohol to meet the demand for 10 percent of all unleaded
gasoline; New energy conservation incentives have been provided for
individuals, businesses and communities and conservation has increased
dramatically. The U.S. has reduced oil imports by 25 percent--or 2 million
barrels per day--over the past four years.

INCREASED DEVELOPMENT OF DOMESTIC ENERGY SOURCES

Although it is essential that the Nation reduce its dependence on imported
fossil fuels and complete the transition to reliance on domestic renewable
sources of energy, it is also important that this transition be
accomplished in an orderly, economic, and environmentally sound manner. To
this end, the Administration has launched several initiatives.

Leasing of oil and natural gas on federal lands, particularly the outer
continental shelf, has been accelerated at the same time as the
Administration has reformed leasing procedures through the 1978 amendments
to the Outer Continental Shelf Lands Act. In 1979 the Interior Department
held six OCS lease sales, the greatest number ever, which resulted in
federal receipts of $6.5 billion, another record. The five-year OCS Leasing
schedule was completed, requiring 36 sales over the next five years.

Since 1971 no general federal coal lease sales were suspended. Over the
past four years the Administration has completely revised the federal coal
leasing program to bring it into compliance with the requirements of 1976
Federal Land Planning and Management Act and other statutory provisions.
The program is designed to balance the competing interests that affect
resource development on public lands and to ensure that adequate supplies
of coal will be available to meet national needs. As a result, the first
general competitive federal coal lease sale in ten years will be held this
month.

In July 1980, I signed into law the Energy Security Act of 1980 which
established the Synthetic Fuels Corporation. The Corporation is designed to
spur the development of commercial technologies for production of synthetic
fuels, such as liquid and gaseous fuels from coal and the production of oil
from oil shale. The Act provides the Corporation with an initial $22
billion to accomplish these objectives. The principal purpose of the
legislation is to ensure that the nation will have available in the late
1980's the option to undertake commercial development of synthetic fuels if
that becomes necessary. The Energy Security Act also provides significant
incentives for the development of gasohol and biomass fuels, thereby
enhancing the nation's supply of alternative energy sources.

COMMITMENT TO A SUSTAINABLE ENERGY FUTURE

The Administration's 1977 National Energy Plan marked an historic departure
from the policies of previous Administrations. The plan stressed the
importance of both energy production and conservation to achieving our
ultimate national goal of relying primarily on secure sources of energy.
The National Energy Plan made energy conservation a cornerstone of our
national energy policy.

In 1978, I initiated the Administration's Solar Domestic Policy Review.
This represented the first step towards widespread introduction of
renewable energy sources into the Nation's economy. As a result of the
Review, I issued the 1979 Solar Message to Congress, the first such message
in the Nation's history. The Message outlined the Administration's solar
program and established an ambitious national goal for the year 2000 of
obtaining 20 percent of this Nation's energy from solar and renewable
sources. The thrust of the federal solar program is to help industry
develop solar energy sources by emphasizing basic research and development
of solar technologies which are not currently economic, such as
photovoltaics, which generate energy directly from the sun. At the same
time, through tax incentives, education, and the Solar Energy and Energy
Conservation Bank, the solar program seeks to encourage state and local
governments, industry, and our citizens to expand their use of solar and
renewable resource technologies currently available.

As a result of these policies and programs, the energy efficiency of the
American economy has improved markedly and investments in renewable energy
sources have grown significantly. It now takes 3 1/2 percent less energy to
produce a constant dollar of GNP than it did in January 1977. This increase
in efficiency represents a savings of over 1.3 million barrels per day of
oil equivalent, about the level of total oil production now occurring in
Alaska. Over the same period, Federal support for conservation and solar
energy has increased by more than 3000 percent, to $3.3 billion in FY 1981,
including the tax credits for solar energy and energy conservation
investments--these credits are expected to amount to $1.2 billion in FY
1981 and $1.5 billion in FY 1982.

COMMITMENT TO NUCLEAR SAFETY AND SECURITY

Since January 1977, significant progress has been achieved in resolving
three critical problems resulting from the use of nuclear energy:
radioactive waste management, nuclear safety and weapons proliferation.

In 1977, the Administration announced its nuclear nonproliferation policy
and initiated the International Fuel Cycle Evaluation. In 1978, Congress
passed the Nuclear Nonproliferation Act, an historic piece of legislation.

In February 1980, the Administration transmitted its nuclear waste
management policy to the Congress. This policy was a major advance over all
previous efforts. The principal aspects of that policy are: acknowledging
the seriousness of the problem and the numerous technical and institutional
issues; adopting a technically and environmentally conservative approach to
the first permanent repository; and providing the states with significant
involvement in nuclear waste disposal decisions by creating the State
Planning Council. While much of the plan can be and is being implemented
administratively, some new authorities are needed. The Congress should give
early priority to enacting provisions for away-from-reactor storage and the
State Planning Council.

The accident at Three Mile Island made the nation acutely aware of the
safety risks posed by nuclear power plants. In response, the President
established the Kemeny Commission to review the accident and make
recommendations. Virtually all of the Commission's substantive
recommendations were adopted by the Administration and are now being
implemented by the Nuclear Regulatory Commission. The Congress adopted the
President's proposed plan for the Nuclear Regulatory Commission and the
Nuclear Safety Oversight Committee was established to ensure that the
Administration's decisions were implemented.

Nuclear safety will remain a vital concern in the years ahead. We must
continue to press ahead for the safe, secure disposal of radioactive
wastes, and prevention of nuclear proliferation.

While significant growth in foreign demand for U.S. steam coal is foreseen,
congestion must be removed at major U.S. coal exporting ports such as
Hampton Roads, Virginia, and Baltimore, Maryland. My Administration has
worked through the Interagency Coal Task Force Study to promote cooperation
and coordination of resources between shippers, railroads, vessel broker/
operators and port operators, and to determine the most appropriate Federal
role in expanding and modernizing coal export facilities, including
dredging deeper channels at selected ports. As a result of the Task Force's
efforts, administrative steps have been taken by the Corps of Engineers to
reduce significantly the amount of time required for planning and economic
review of port dredging proposals. The Administration has also recommended
that the Congress enact legislation to give the President generic authority
to recommend appropriations for channel dredging activities. Private
industry will, of course, play the major role in developing the United
States' coal export facilities, but the government must continue to work to
facilitate transportation to foreign markets.

III. ENHANCING BASIC HUMAN AND SOCIAL NEEDS

For too long prior to my Administration, many of our Nation's basic human
and social needs were being ignored or handled insensitively by the Federal
government. Over the last four years, we have significantly increased
funding for many of the vital programs in these areas; developed new
programs where needs were unaddressed; targeted Federal support to those
individuals and areas most in need of our assistance; and removed barriers
that have unnecessarily kept many disadvantaged citizens from obtaining aid
for their most basic needs.

Our record has produced clear progress in the effort to solve some of the
country's fundamental human and social problems. My Administration and the
Congress, working together, have demonstrated that government must and can
meet our citizens' basic human and social needs in a responsible and
compassionate way.

But there is an unfinished agenda still before the Congress. If we are to
meet our obligations to help all Americans realize the dreams of sound
health care, decent housing, effective social services, a good education,
and a meaningful job, important legislation still must be enacted. National
Health Insurance, Welfare Reform, Child Health Assessment Program, are
before the Congress and I urge their passage.

HEALTH NATIONAL HEALTH PLAN

During my Administration, I proposed to Congress a National Health Plan
which will enable the country to reach the goal of comprehensive, universal
health care coverage. The legislation I submitted lays the foundation for
this comprehensive plan and addresses the most serious problems of health
financing and delivery. It is realistic and enactable. It does not
overpromise or overspend, and, as a result, can be the solution to the
thirty years of Congressional battles on national health insurance. My Plan
includes the following key features:

Nearly 15 million additional poor would receive fully-subsidized
comprehensive coverage; pre-natal and delivery services are provided for
all pregnant women and coverage is provided for all acute care for infants
in their first year of life; the elderly and disabled would have a limit of
$1,250 placed on annual out-of-pocket medical expenses and would no longer
face limits on hospital coverage; all full-time employees and their
families would receive insurance against at least major medical expenses
under mandated employer coverage; Medicare and Medicaid would be combined
and expanded into an umbrella Federal program, Healthcare, for increased
program efficiency, accountability and uniformity; and strong cost
controls and health system reforms would be implemented, including
greater incentives for Health Maintenance Organizations.

I urge the new Congress to compare my Plan with the alternatives--programs
which either do too little to improve the health care needs of Americans
most in need or programs which would impose substantial financial burdens
on the American taxpayers. I hope the Congress will see the need for and
the benefits of my Plan and work toward prompt enactment. We cannot afford
further delay in this vital area.

HEALTH CARE COST CONTROL

Inflation in health care costs remains unacceptably high. Throughout my
Administration, legislation to reduce health care cost inflation was one of
my highest priorities, but was not passed by the Congress. Therefore, my FY
1982 budget proposes sharing the responsibility for health care cost
control with the private sector, through voluntary hospital cost guidelines
and intensified monitoring. In the longer term, the health care
reimbursement system must be reformed. We must move away from inflationary
cost-based reimbursement and fee-for-service, and toward a system of
prospective reimbursement, under which health care providers would operate
within predetermined budgets. This reimbursement reform is essential to
ultimately control inflation in health care costs, and will be a
significant challenge to the new Congress.

HEALTH PROMOTION AND DISEASE PREVENTION

During my Administration, the Surgeon General released "Healthy People," a
landmark report on health promotion and disease prevention. The report
signals the growing consensus that the Nation's health strategy must be
refocused in the 1980's to emphasize the prevention of disease.
Specifically, the report lays out measurable and achieveable goals in the
reduction of mortality which can be reached by 1990.

I urge the new Congress to endorse the principles of "Healthy People," and
to adopt the recommendations to achieve its goals. This will necessitate
adoption of a broader concept of health care, to include such areas as
environmental health, workplace health and safety, commercial product
safety, traffic safety, and health education, promotion and information.

MATERNAL AND CHILD HEALTH

Ensuring a healthy start in life for children remains not only a high
priority of my Administration, but also one of the most cost effective
forms of health care.

When I took office, immunization levels for preventable childhood diseases
had fallen to 70%. As a result of a concerted nationwide effort during my
Administration, I am pleased to report that now at least 90% of children
under 15, and virtually all school-age children are immunized. In addition,
reported cases of measles and mumps are at their lowest levels ever.

Under the National Health Plan I have proposed, there would be no
cost-sharing for prenatal and delivery services for all pregnant women and
for acute care provided to infants in their first year of life. These
preventive services have extremely high returns in terms of improved
newborn and long-term child health.

Under the Child Health Assurance Program (CHAP) legislation which I
submitted to the Congress, and which passed the House, an additional two
million low-income children under 18 would become eligible for Medicaid
benefits, which would include special health assessments. CHAP would also
improve the continuity of care for the nearly 14 million children now
eligible for Medicaid. An additional 100,000 low-income pregnant women
would become eligible for prenatal care under the proposal. I strongly urge
the new Congress to enact CHAP and thereby provide millions of needy
children with essential health services. The legislation has had strong
bipartisan support, which should continue as the details of the bill are
completed.

I also urge the new Congress to provide strong support for two highly
successful ongoing programs: the special supplemental food program for
women, infants and children (WIC) and Family Planning. The food supplements
under WIC have been shown to effectively prevent ill health and thereby
reduce later medical costs. The Family Planning program has been effective
at reducing unwanted pregnancies among low-income women and adolescents.

EXPANSION OF SERVICES TO THE POOR AND UNDERSERVED

During my Administration, health services to the poor and underserved have
been dramatically increased. The number of National Health Service Corps
(NHSC) assignees providing services in medically underserved communities
has grown from 500 in 1977 to nearly 3,000 in 1981. The population served
by the NHSC has more than tripled since 1977. The number of Community
Health Centers providing services in high priority underserved areas has
doubled during my Administration, and will serve an estimated six million
people in 1981. I strongly urge the new Congress to support these highly
successful programs.

MENTAL HEALTH

One of the most significant health achievements during my Administration
was the recent passage of the Mental Health Systems Act, which grew out of
recommendations of my Commission on Mental Health. I join many others in my
gratitude to the First Lady for her tireless and effective contribution to
the passage of this important legislation.

The Act is designed to inaugurate a new era of Federal and State
partnership in the planning and provision of mental health services. In
addition, the Act specifically provides for prevention and support services
to the chronically mentally ill to prevent unnecessary institutionalization
and for the development of community-based mental health services. I urge
the new Congress to provide adequate support for the full and timely
implementation of this Act.

HEALTH PROTECTION

With my active support, the Congress recently passed "Medigap" legislation,
which provides for voluntary certification of health insurance policies
supplemental to Medicare, to curb widespread abuses in this area.

In the area of toxic agent control, legislation which I submitted to the
Congress recently passed. This will provide for a "super-fund" to cover
hazardous waste cleanup costs.

In the area of accidental injury control, we have established automobile
safety standards and increased enforcement activities with respect to the
55 MPH speed limit. By the end of the decade these actions are expected to
save over 13,000 lives and 100,000 serious injuries each year.

I urge the new Congress to continue strong support for all these
activities.

FOOD AND NUTRITION

Building on the comprehensive reform of the Food Stamp Program that I
proposed and Congress passed in 1977, my Administration and the Congress
worked together in 1979 and 1980 to enact several other important changes
in the Program. These changes will further simplify administration and
reduce fraud and error, will make the program more responsive to the needs
of the elderly and disabled, and will increase the cap on allowable program
expenditures. The Food Stamp Act will expire at the end of fiscal 1981. It
is essential that the new Administration and the Congress continue this
program to ensure complete eradication of the debilitating malnutrition
witnessed and documented among thousands of children in the 1960's.

DRUG ABUSE PREVENTION

At the beginning of my Administration there were over a half million heroin
addicts in the United States. Our continued emphasis on reducing the supply
of heroin, as well as providing treatment and rehabilitation to its
victims, has reduced the heroin addict population, reduced the number of
heroin overdose deaths by 80%, and reduced the number of heroin related
injuries by 50%. We have also seen and encouraged a national movement of
parents and citizens committed to reversing the very serious and disturbing
trends of adolescent drug abuse.

Drug abuse in many forms will continue to detract, however, from the
quality of life of many Americans. To prevent that, I see four great
challenges in the years ahead. First, we must deal aggressively with the
supplies of illegal drugs at their source, through joint crop destruction
programs with foreign nations and increased law enforcement and border
interdiction. Second, we must look to citizens and parents across the
country to help educate the increasing numbers of American youth who are
experimenting with drugs to the dangers of drug abuse. Education is a key
factor in reducing drug abuse. Third, we must focus our efforts on drug and
alcohol abuse in the workplace for not only does this abuse contribute to
low productivity but it also destroys the satisfaction and sense of purpose
all Americans can gain from the work experience. Fourth, we need a change
in attitude, from an attitude which condones the casual use of drugs to one
that recognizes the appropriate use of drugs for medical purposes and
condemns the inappropriate and harmful abuse of drugs. I hope the Congress
and the new Administration will take action to meet each of these
challenges.

EDUCATION

The American people have always recognized that education is one of the
soundest investments they can make. The dividends are reflected in every
dimension of our national life--from the strength of our economy and
national security to the vitality of our music, art, and literature. Among
the accomplishments that have given me the most satisfaction over the last
four years are the contributions that my Administration has been able to
make to the well-being of students and educators throughout the country.

This Administration has collaborated successfully with the Congress on
landmark education legislation. Working with the Congressional leadership,
my Administration spotlighted the importance of education by creating a new
Department of Education. The Department has given education a stronger
voice at the Federal level, while at the same time reserving the actual
control and operation of education to states, localities, and private
institutions. The Department has successfully combined nearly 150 Federal
education programs into a cohesive, streamlined organization that is more
responsive to the needs of educators and students. The Department has made
strides to cut red tape and paperwork and thereby to make the flow of
Federal dollars to school districts and institutions of higher education
more efficient. It is crucial that the Department be kept intact and
strengthened.

Our collaboration with the Congress has resulted in numerous other
important legislative accomplishments for education. A little over two
years ago, I signed into law on the same day two major bills--one
benefiting elementary and secondary education and the other, postsecondary
education. The Education Amendments of 1978 embodied nearly all of my
Administration's proposals for improvements in the Elementary and Secondary
Education Act, including important new programs to improve students'
achievement in the basic skills and to aid school districts with
exceptionally high concentrations of children from low-income families. The
Middle Income Student Assistance Act, legislation jointly sponsored by this
Administration and the Congressional leadership, expanded eligibility for
need-based Basic Educational Opportunity Grants to approximately one-third
of the students enrolled in post-secondary education and made many more
students eligible for the first time for other types of grants, work-study,
and loans.

Just three and a half months ago, my Administration and the Congress
successfully concluded over two years of work on a major reauthorization
bill that further expands benefits to postsecondary education. Reflected in
the Education Amendments of 1980 are major Administration recommendations
for improvements in the Higher Education Act--including proposals for
better loan access for students; a new parent loan program; simplified
application procedures for student financial aid; a strengthened Federal
commitment to developing colleges, particularly the historically Black
institutions; a new authorization for equipment and facilities
modernization funding for the nation's major research universities; and
revitalized international education programs.

Supplementing these legislative accomplishments have been important
administrative actions aimed at reducing paperwork and simplifying
regulations associated with Federal education programs. We also launched
major initiatives to reduce the backlog of defaulted student loans and
otherwise to curb fraud, abuse, and waste in education programs.

To insure that the education enterprise is ready to meet the scientific and
technological changes of the future, we undertook a major study of the
status of science and engineering education throughout the nation. I hope
that the findings from this report will serve as a springboard for needed
reforms at all levels of education.

I am proud that this Administration has been able to provide the financial
means to realize many of our legislative and administrative goals. Compared
to the previous administration's last budget, I have requested the largest
overall increase in Federal funding for education in our nation's history.
My budget requests have been particularly sensitive to the needs of special
populations like minorities, women, the educationally and economically
disadvantaged, the handicapped, and students with limited English-speaking
ability. At the same time, I have requested significant increases for many
programs designed to enhance the quality of American education, including
programs relating to important areas as diverse as international education,
research libraries, museums, and teacher centers.

Last year, I proposed to the Congress a major legislative initiative that
would direct $2 billion into education and job training programs designed
to alleviate youth unemployment through improved linkages between the
schools and the work place. This legislation generated bipartisan support;
but unfortunately, action on it was not completed in the final, rushed days
of the 96th Congress. I urge the new Congress--as it undertakes broad
efforts to strengthen the economy as well as more specific tasks like
reauthorizing the Vocational Education Act--to make the needs of our
nation's unemployed youth a top priority for action. Only by combining a
basic skills education program together with work training and employment
incentives can we make substantial progress in eliminating one of the most
severe social problems in our nation--youth unemployment, particularly
among minorities. I am proud of the progress already made through passage
of the Youth Employment and Demonstration Project Act of 1977 and the
substantial increase in our investment in youth employment programs. The
new legislation would cap these efforts.

INCOME SECURITY SOCIAL SECURITY

One of the highest priorities of my Administration has been to continue the
tradition of effectiveness and efficiency widely associated with the social
security program, and to assure present and future beneficiaries that they
will receive their benefits as expected. The earned benefits that are paid
monthly to retired and disabled American workers and their families provide
a significant measure of economic protection to millions of people who
might otherwise face retirement or possible disability with fear. I have
enacted changes to improve the benefits of many social security
beneficiaries during my years as President.

The last four years have presented a special set of concerns over the
financial stability of the social security system. Shortly after taking
office I proposed and Congress enacted legislation to protect the stability
of the old age and survivors trust fund and prevent the imminent exhaustion
of the disability insurance trust fund, and to correct a flaw in the
benefit formula that was threatening the long run health of the entire
social security system. The actions taken by the Congress at my request
helped stabilize the system. That legislation was later complemented by the
Disability Insurance Amendments of 1980 which further bolstered the
disability insurance program, and reduced certain inequities among
beneficiaries.

My commitment to the essential retirement and disability protection
provided to 35 million people each month has been demonstrated by the fact
that without interruption those beneficiaries have continued to receive
their social security benefits, including annual cost of living increases.
Changing and unpredictable economic circumstances require that we continue
to monitor the financial stability of the social security system. To
correct anticipated short-term strains on the system, I proposed last year
that the three funds be allowed to borrow from one another, and I urge the
Congress again this year to adopt such interfund borrowing. To further
strengthen the social security system and provide a greater degree of
assurance to beneficiaries, given projected future economic uncertainties,
additional action should be taken. Among the additional financing options
available are borrowing from the general fund, financing half of the
hospital insurance fund with general revenues, and increasing the payroll
tax rate. The latter option is particularly unpalatable given the
significant increase in the tax rate already mandated in law.

This Administration continues to oppose cuts in basic social security
benefits and taxing social security benefits. The Administration continues
to support annual indexing of social security benefits.

WELFARE REFORM

In 1979 I proposed a welfare reform package which offers solutions to some
of the most urgent problems in our welfare system. This proposal is
embodied in two bills, The Work and Training Opportunities Act and The
Social Welfare Reform Amendments Act. The House passed the second of these
two proposals. Within the framework of our present welfare system, my
reform proposals offer achievable means to increase self-sufficiency
through work rather than welfare, more adequate assistance to people unable
to work, the removal of inequities in coverage under current programs, and
fiscal relief needed by States and localities.

Our current welfare system is long overdue for serious reform; the system
is wasteful and not fully effective. The legislation I have proposed will
help eliminate inequities by establishing a national minimum benefit, and
by directly relating benefit levels to the poverty threshold. It will
reduce program complexity, which leads to inefficiency and waste, by
simplifying and coordinating administration among different programs.

I urge the Congress to take action in this area along the lines I have
recommended.

CHILD WELFARE

My Administration has worked closely with the Congress on legislation which
is designed to improve greatly the child welfare services and foster care
programs and to create a Federal system of adoption assistance. These
improvements will be achieved with the recent enactment of H.R. 3434, the
Adoption Assistance and Child Welfare Act of 1980. The well-being of
children in need of homes and their permanent placement have been a primary
concern of my Administration. This legislation will ensure that children
are not lost in the foster care system, but instead will be returned to
their families where possible or placed in permanent adoptive homes.

LOW-INCOME ENERGY ASSISTANCE

In 1979 I proposed a program to provide an annual total of $1.6 billion to
low-income households which are hardest hit by rising energy bills. With
the cooperation of Congress, we were able to move quickly to provide
assistance to eligible households in time to meet their winter heating
bills.

In response to the extreme heat conditions affecting many parts of the
country during 1980, I directed the Community Services Administration to
make available over $27 million to assist low-income individuals,
especially the elderly, facing life threatening circumstances due to
extreme heat.

Congress amended and reauthorized the low-income energy assistance program
for fiscal year 1981, and provided $1.85 billion to meet anticipated
increasing need. The need for a program to help low-income households with
rising energy expenses will not abate in the near future. The low-income
energy assistance program should be reauthorized to meet those needs.

HOUSING

For the past 14 months, high interest rates have had a severe impact on the
nation's housing market. Yet the current pressures and uncertainties should
not obscure the achievements of the past four years.

Working with the Congress, the regulatory agencies, and the financial
community, my Administration has brought about an expanded and steadier
flow of funds into home mortgages. Deregulation of the interest rates
payable by depository institutions, the evolution of variable and
renegotiated rate mortgages, development of high yielding savings
certificates, and expansion of the secondary mortgage market have all
increased housing's ability to attract capital and have assured that
mortgage money would not be cut off when interest rates rose. These actions
will diminish the cyclicality of the housing industry. Further, we have
secured legislation updating the Federal Government's emergency authority
to provide support for the housing industry through the Brooke-Cranston
program, and creating a new Section 235 housing stimulus program. These
tools will enable the Federal Government to deal quickly and effectively
with serious distress in this critical industry.

We have also worked to expand homeownership opportunities for Americans. By
using innovative financing mechanisms, such as the graduated payment
mortgage, we have increased the access of middle income families to housing
credit. By revitalizing the Section 235 program, we have enabled nearly
100,000 moderate income households to purchase new homes. By reducing
paperwork and regulation in Federal programs, and by working with State and
local governments to ease the regulatory burden, we have helped to hold
down housing costs and produce affordable housing.

As a result of these governmentwide efforts, 5 1/2 million more American
families bought homes in the past four years than in any equivalent period
in history. And more than 7 million homes have begun construction during my
Administration, 1 million more than in the previous four years.

We have devoted particular effort to meeting the housing needs of low and
moderate income families. In the past four years, more than 1 million
subsidized units have been made available for occupancy by lower income
Americans and more than 600,000 assisted units have gone into construction.
In addition, we have undertaken a series of measures to revitalize and
preserve the nation's 2 million units of public and assisted housing.

For Fiscal Year 1982, I am proposing to continue our commitment to lower
income housing. I am requesting funds to support 260,000 units of Section 8
and public housing, maintaining these programs at the level provided by
Congress in Fiscal 1981.

While we have made progress in the past four years, in the future there are
reasons for concern. Home price inflation and high interest rates threaten
to put homeownership out of reach for first-time homebuyers. Lower income
households, the elderly and those dependent upon rental housing face rising
rents, low levels of rental housing construction by historic standards, and
the threat of displacement due to conversion to condominiums and other
factors. Housing will face strong competition for investment capital from
the industrial sector generally and the energy industries, in particular.

To address these issues, I appointed a Presidential Task Force and Advisory
Group last October. While this effort will not proceed due to the election
result, I hope the incoming Administration will proceed with a similar
venture.

The most important action government can take to meet America's housing
needs is to restore stability to the economy and bring down the rate of
inflation. Inflation has driven up home prices, operating costs and
interest rates. Market uncertainty about inflation has contributed to the
instability in interest rates, which has been an added burden to
homebuilders and homebuyers alike. By making a long-term commitment to
provide a framework for greater investment, sustained economic growth, and
price stability, my Administration has begun the work of creating a healthy
environment for housing.

TRANSPORTATION

With the passage of the Airline Deregulation Act of 1978, the Motor Carrier
Act of 1980, and the Harley O. Staggers Rail Act of 1980, my
Administration, working with the Congress, has initiated a new era of
reduced regulation of transportation industries. Deregulation will lead to
increased productivity and operating efficiencies in the industries
involved, and stimulate price and service competition, to the benefit of
consumers generally. I urge the new Administration to continue our efforts
on behalf of deregulation legislation for the intercity passenger bus
industry as well.

In the coming decade, the most significant challenge facing the nation in
transportation services will be to improve a deteriorating physical
infrastructure of roadways, railroads, waterways and mass transit systems,
in order to conserve costly energy supplies while promoting effective
transportation services.

HIGHWAYS

Our vast network of highways, which account for 90 percent of travel and 80
percent by value of freight traffic goods movement, is deteriorating. If
current trends continue, a major proportion of the Interstate pavement will
have deteriorated by the end of the 1980's.

Arresting the deterioration of the nation's system of highways is a high
priority objective for the 1980's. We must reorient the Federal mission
from major new construction projects to the stewardship of the existing
Interstate Highway System. Interstate gaps should be judged on the
connections they make and on their compatibility with community needs.

During this decade, highway investments will be needed to increase
productivity, particularly in the elimination of bottlenecks, provide more
efficient connections to ports and seek low-cost solutions to traffic
demand.

My Administration has therefore recommended redefining completion of the
Interstate system, consolidating over 27 categorical assistance programs
into nine, and initiating a major repair and rehabilitation program for
segments of the Interstate system. This effort should help maintain the
condition and performance of the Nation's highways, particularly the
Interstate and primary system; provide a realistic means to complete the
Interstate system by 1990; ensure better program delivery through
consolidation, and assist urban revitalization. In addition, the Congress
must address the urgent funding problems of the highway trust fund, and the
need to generate greater revenues.

MASS TRANSIT

In the past decade the nation's public transit systems' ridership increased
at an annual average of 1.1% each year in the 1970's (6.9% in 1979).
Continued increases in the cost of fuel are expected to make transit a
growing part of the nation's transportation system.

As a result, my Administration projected a ten year, $43 billion program to
increase mass transit capacity by 50 percent, and promote more energy
efficient vehicle uses in the next decade. The first part of this proposal
was the five year, $24.7 billion Urban Mass Transportation Administration
reauthorization legislation I sent to the Congress in March, 1980. I urge
the 97th Congress to quickly enact this or similar legislation in 1981.

My Administration was also the first to have proposed and signed into law a
non-urban formula grant program to assist rural areas and small communities
with public transportation programs to end their dependence on the
automobile, promote energy conservation and efficiency, and provide
transportation services to impoverished rural communities.

A principal need of the 1980's will be maintaining mobility for all
segments of the population in the face of severely increasing
transportation costs and uncertainty of fuel supplies. We must improve the
flexibility of our transportation system and offer greater choice and
diversity in transportation services. While the private automobile will
continue to be the principal means of transportation for many Americans,
public transportation can become an increasingly attractive alternative.
We, therefore, want to explore a variety of paratransit modes, various
types of buses, modern rapid transit, regional rail systems and light rail
systems.

Highway planning and transit planning must be integrated and related to
State, regional, district and neighborhood planning efforts now in place or
emerging. Low density development and land use threaten the fiscal capacity
of many communities to support needed services and infrastructure.

ELDERLY AND HANDICAPPED TRANSPORTATION

Transportation policies in the 1980's must pay increasing attention to the
needs of the elderly and handicapped. By 1990, the number of people over 65
will have grown from today's 19 million to 27 million. During the same
period, the number of handicapped--people who have difficulty using
transit as well as autos, including the elderly--is expected to increase
from 9 to 11 million, making up 4.5 percent of the population.

We must not retreat from a policy that affords a significant and growing
portion of our population accessible public transportation while
recognizing that the handicapped are a diverse group and will need
flexible, door-to-door service where regular public transportation will not
do the job.

RAILROADS

In addition, the Federal government must reassess the appropriate Federal
role of support for passenger and freight rail services such as Amtrak and
Conrail. Our goal through federal assistance should be to maintain and
enhance adequate rail service, where it is not otherwise available to needy
communities. But Federal subsidies must be closely scrutinized to be sure
they are a stimulus to, and not a replacement for, private investment and
initiative. Federal assistance cannot mean permanent subsidies for
unprofitable operations.

WATERWAYS AND RURAL TRANSPORTATION

There is a growing need in rural and small communities for improved
transportation services. Rail freight service to many communities has
declined as railroads abandon unproductive branch lines. At the same time,
rural roads are often inadequate to handle large, heavily-loaded trucks.
The increased demand for "harvest to harbor" service has also placed an
increased burden on rural transportation systems, while bottlenecks along
the Mississippi River delay grain shipments to the Gulf of Mexico.

We have made some progress:

--To further develop the nation's waterways, my Administration began
construction of a new 1,200 foot lock at the site of Lock and Dam 26 on the
Mississippi River. When opened in 1987, the new lock will have a capacity
of 86 million tons per year, an 18 percent increase over the present
system. The U.S. Army Corps of Engineers has also undertaken studies to
assess the feasibility of expanding the Bonneville Locks. Rehabilitation of
John Day Lock was begun in 1980 and should be completed in 1982. My
Administration also supports the completion of the Upper Mississippi River
Master Plan to determine the feasibility of constructing a second lock at
Alton, Illinois. These efforts will help alleviate delays in transporting
corn, soybeans and other goods along the Mississippi River to the Gulf of
Mexico.

--The Department of Transportation's new Small Community and Rural
Transportation Policy will target federal assistance for passenger
transportation, roads and highways, truck service, and railroad freight
service to rural areas. This policy implements and expands upon the earlier
White House Initiative, "Improving Transportation in Rural America,"
announced in June, 1979, and the President's "Small Community and Rural
Development Policy" announced in December, 1979. The Congress should seek
ways to balance rail branch line abandonment with the service needs of
rural and farm communities, provide financial assistance to rail branch
line rehabilitation where appropriate, assist shippers to adjust to rail
branch line abandonment where it takes place, and help make it possible for
trucking firms to serve light density markets with dependable and efficient
trucking services.

MARITIME POLICY

During my Administration I have sought to ensure that the U.S. maritime
industry will not have to function at an unfair competitive disadvantage in
the international market. As I indicated in my maritime policy statement to
the Congress in July, 1979, the American merchant marine is vital to our
Nation's welfare, and Federal actions should promote rather than harm it.
In pursuit of this objective, I signed into law the Controlled Carrier Act
of 1978, authorizing the Federal Maritime Commission to regulate certain
rate cutting practices of some state-controlled carriers, and recently
signed a bilateral maritime agreement with the People's Republic of China
that will expand the access of American ships to 20 specified Chinese
ports, and set aside for American-flag ships a substantial share (at least
one-third) of the cargo between our countries. This agreement should
officially foster expanded U.S. and Chinese shipping services linking the
two countries, and will provide further momentum to the growth of
Sino-American trade.

There is also a need to modernize and expand the dry bulk segment of our
fleet. Our heavy dependence on foreign carriage of U.S.-bulk cargoes
deprives the U.S. economy of seafaring and shipbuilding jobs, adds to the
balance-of-payments deficit, deprives the Government of substantial tax
revenues, and leaves the United States dependent on foreign-flag shipping
for a continued supply of raw materials to support the civil economy and
war production in time of war.

I therefore sent to the Congress proposed legislation to strengthen this
woefully weak segment of the U.S.-flag fleet by removing certain
disincentives to U.S. construction of dry bulkers and their operation under
U.S. registry. Enactment of this proposed legislation would establish the
basis for accelerating the rebuilding of the U.S.-flag dry bulk fleet
toward a level commensurate with the position of the United States as the
world's leading bulk trading country.

During the past year the Administration has stated its support for
legislation that would provide specific Federal assistance for the
installation of fuel-efficient engines in existing American ships, and
would strengthen this country's shipbuilding mobilization base.
Strengthening the fleet is important, but we must also maintain our
shipbuilding base for future ship construction.

Provisions in existing laws calling for substantial or exclusive use of
American-flag vessels to carry cargoes generated by the Government must be
vigorously pursued.

I have therefore supported requirements that 50 percent of oil purchased
for the strategic petroleum reserve be transported in U.S.-flag vessels,
that the Cargo Preference Act be applied to materials furnished for the
U.S. assisted construction of air bases in Israel, and to cargoes
transported pursuant to the Chrysler Corporation Loan Guarantee Act. In
addition, the deep Seabed Hard Mineral Resources Act requires that at least
one ore carrier per mine site be a U.S.-flag vessel.

Much has been done, and much remains to be done. The FY 1982 budget
includes a $107 million authorization for Construction Differential Subsidy
("CDS") funds which, added to the unobligated CDS balance of $100 million
from 1980, and the recently enacted $135 million 1981 authorization, will
provide an average of $171 million in CDS funds in 1981 and 1982.

COAL EXPORT POLICY

While significant growth in foreign demand for U.S. steam coal is foreseen,
congestion at major U.S. coal exporting ports such as Hampton Roads,
Virginia, and Baltimore, Maryland, could delay and impede exports.

My Administration has worked through the Interagency Coal Task Force Study,
which I created, to promote cooperation and coordination of resources
between shippers, railroads, vessel broker/ operators and port operators,
and to determine the most appropriate Federal role in expanding and
modernizing coal export facilities, including dredging deeper channels at
selected ports.

Some progress has already been made. In addition to action taken by
transshippers to reduce the number of coal classifications used whenever
possible, by the Norfolk and Western Railroad to upgrade its computer
capability to quickly inventory its coal cars in its yards, and by the
Chessie Railroad which is reactivating Pier 15 in Newport News and has
established a berth near its Curtis Bay Pier in Baltimore to decrease
delays in vessel berthing, public activities will include:

--A $26.5 million plan developed by the State of Pennsylvania and Conrail
to increase Conrail's coal handling capacity at Philadelphia;

--A proposal by the State of Virginia to construct a steam coal port on
the Craney Island Disposal area in Portsmouth harbor;

--Plans by Mobile, Alabama, which operates the only publicly owned coal
terminal in the U.S. to enlarge its capacity at McDuffie Island to 10
million tons ground storage and 100 car unit train unloading capability;

--Development at New Orleans of steam coal facilities that are expected to
add over 20 million tons of annual capacity by 1983; and

--The Corps of Engineers, working with other interested Federal agencies,
will determine which ports should be dredged, to what depth and on what
schedule, in order to accommodate larger coal carrying vessels.

Private industry will, of course, play a major role in developing the
United States' coal export facilities. The new Administration should
continue to work to eliminate transportation bottlenecks that impede our
access to foreign markets.

Special Needs

WOMEN

The past four years have been years of rapid advancement for women. Our
focus has been two-fold: to provide American women with a full range of
opportunities and to make them a part of the mainstream of every aspect of
our national life and leadership.

I have appointed a record number of women to judgeships and to top
government posts. Fully 22 percent of all my appointees are women, and I
nominated 41 of the 46 women who sit on the Federal bench today. For the
first time in our history, women occupy policymaking positions at the
highest level of every Federal agency and department and have demonstrated
their ability to serve our citizens well.

We have strengthened the rights of employed women by consolidating and
strengthening enforcement of sex discrimination laws under the EEOC, by
expanding employment rights of pregnant women through the Pregnancy
Disability Bill, and by increasing federal employment opportunities for
women through civil service reform, and flexi-time and part-time
employment.

By executive order, I created the first national program to provide women
businessowners with technical assistance, grants, loans, and improved
access to federal contracts.

We have been sensitive to the needs of women who are homemakers. I
established an Office of Families within HHS and sponsored the White House
Conference on Families. We initiated a program targeting CETA funds to help
displaced homemakers. The Social Security system was amended to eliminate
the widow's penalty and a comprehensive study of discriminatory provisions
and possible changes was presented to Congress. Legislation was passed to
give divorced spouses of foreign service officers rights to share in
pension benefits.

We created an office on domestic violence within HHS to coordinate the 12
agencies that now have domestic violence relief programs, and to distribute
information on the problem and the services available to victims.

Despite a stringent budget for FY 1981, the Administration consistently
supported the Women's Educational Equity Act and family planning
activities, as well as other programs that affect women, such as food
stamps, WIC, and social security.

We have been concerned not only about the American woman's opportunities,
but ensuring equality for women around the world. In November, 1980, I sent
to the Senate the Convention on the Elimination of All Forms of
Discrimination Against Women. This United Nations document is the most
comprehensive and detailed international agreement which seeks the
advancement of women.

On women's issues, I have sought the counsel of men and women in and out of
government and from all regions of our country. I established two panels--
the President's Advisory Committee for Women and the Interdepartmental Task
Force on Women--to advise me on these issues. The mandate for both groups
expired on December 31, but they have left behind a comprehensive review of
the status of women in our society today. That review provides excellent
guidance for the work remaining in our battle against sex discrimination.

Even though we have made progress, much remains on the agenda for women. I
remain committed to the Equal Rights Amendment and will continue to work
for its passage. It is essential to the goal of bringing America's women
fully into the mainstream of American life that the ERA be ratified.

The efforts begun for women in employment, business and education should be
continued and strengthened. Money should be available to states to
establish programs to help the victims of domestic violence. Congress
should pass a national health care plan and a welfare reform program, and
these measures should reflect the needs of women.

The talents of women should continue to be used to the fullest inside and
outside of government, and efforts should continue to see that they have
the widest range of opportunities and options.

HANDICAPPED

I hope that my Administration will be remembered in this area for leading
the way toward full civil rights for handicapped Americans. When I took
office, no federal agency had yet issued 504 regulations. As I leave
office, this first step by every major agency and department in the federal
government is almost complete. But it is only a first step. The years ahead
will require steadfast dedication by the President to protect and promote
these precious rights in the classroom, in the workplace, and in all public
facilities so that handicapped individuals may join the American mainstream
and contribute to the fullest their resources and talents to our economic
and social life.

Just as we supported, in an unprecedented way, the civil rights of disabled
persons in schools and in the workplace, other initiatives in health
prevention, such as our immunization and nutrition programs for young
children and new intense efforts to reverse spinal cord injury, must
continue so that the incidence of disability continues to decline.

This year is the U.N.-declared International Year of Disabled Persons. We
are organizing activities to celebrate and promote this important
commemorative year within the government as well as in cooperation with
private sector efforts in this country and around the world. The
International Year will give our country the opportunity to recognize the
talents and capabilities of our fellow citizens with disabilities. We can
also share our rehabilitation and treatment skills with other countries and
learn from them as well. I am proud that the United States leads the world
in mainstreaming and treating disabled people. However, we have a long way
to go before all psychological and physical barriers to disabled people are
torn down and they can be full participants in our American way of life. We
must pledge our full commitment to this goal during the International Year.

FAMILIES

Because of my concern for American families, my Administration convened
last year the first White House Conference on Families which involved seven
national hearings, over 506 state and local events, three White House
Conferences, and the direct participation of more than 125,000 citizens.
The Conference reaffirmed the centrality of families in our lives and
nation but documented problems American families face as well. We also
established the Office of Families within the Department of Health and
Human Services to review government policies and programs that affect
families.

I expect the departments and agencies within the executive branch of the
Federal government as well as Members of Congress, corporate and business
leaders, and State and local officials across the country, to study closely
the recommendations of the White House Conference and implement them
appropriately. As public policy is developed and implemented by the Federal
government, cognizance of the work of the Conference should be taken as a
pragmatic and essential step.

The Conference has done a good job of establishing an agenda for action to
assure that the policies of the Federal government are more sensitive in
their impact on families. I hope the Congress will review and seriously
consider the Conference's recommendations.

OLDER AMERICANS

My Administration has taken great strides toward solving the difficult
problems faced by older Americans. Early in my term we worked successfully
with the Congress to assure adequate revenues for the Social Security Trust
Funds. And last year the strength of the Social Security System was
strengthened by legislation I proposed to permit borrowing among the
separate trust funds. I have also signed into law legislation prohibiting
employers from requiring retirement prior to age 70, and removing mandatory
retirement for most Federal employees. In addition, my Administration
worked very closely with Congress to amend the Older Americans Act in a way
that has already improved administration of its housing, social services,
food delivery, and employment programs.

This year, I will be submitting to Congress a budget which again
demonstrates my commitment to programs for the elderly. It will include, as
my previous budgets have, increased funding for nutrition, senior centers
and home health care, and will focus added resources on the needs of older
Americans.

With the 1981 White House Conference on Aging approaching, I hope the new
Administration will make every effort to assure an effective and useful
conference. This Conference should enable older Americans to voice their
concerns and give us guidance in our continued efforts to ensure the
quality of life so richly deserved by our senior citizens.

REFUGEES

We cannot hope to build a just and humane society at home if we ignore the
humanitarian claims of refugees, their lives at stake, who have nowhere
else to turn. Our country can be proud that hundreds of thousands of people
around the world would risk everything they have--including their own
lives--to come to our country.

This Administration initiated and implemented the first comprehensive
reform of our refugee and immigration policies in over 25 years. We also
established the first refugee coordination office in the Department of
State under the leadership of a special ambassador and coordinator for
refugee affairs and programs. The new legislation and the coordinator's
office will bring common sense and consolidation to our Nation's previously
fragmented, inconsistent, and in many ways, outdated, refugee and
immigration policies.

With the unexpected arrival of thousands of Cubans and Haitians who sought
refuge in our country last year, outside of our regular immigration and
refugee admissions process, our country and its government were tested in
being compassionate and responsive to a major human emergency. Because we
had taken steps to reorganize our refugee programs, we met that test
successfully. I am proud that the American people responded to this crisis
with their traditional good will and hospitality. Also, we would never have
been able to handle this unprecedented emergency without the efforts of the
private resettlement agencies who have always been there to help refugees
in crises.

Immigrants to this country always contribute more toward making our country
stronger than they ever take from the system. I am confident that the
newest arrivals to our country will carry on this tradition.

While we must remain committed to aiding and assisting those who come to
our shores, at the same time we must uphold our immigration and refugee
policies and provide adequate enforcement resources. As a result of our
enforcement policy, the illegal flow from Cuba has been halted and an
orderly process has been initiated to make certain that our refugee and
immigration laws are honored.

This year the Select Commission on Immigration and Refugee Policy will
complete its work and forward its advice and recommendations. I hope that
the recommendations will be carefully considered by the new Administration
and the Congress, for it is clear that we must take additional action to
keep our immigration policy responsive to emergencies and ever changing
times.

VETERANS

This country and its leadership has a continuing and unique obligation to
the men and women who served their nation in the armed forces and help
maintain or restore peace in the world.

My commitment to veterans, as evidenced by my record, is characterized by a
conscientious and consistent emphasis in these general areas:

First, we have worked to honor the Vietnam veteran. During my
Administration, and under the leadership of VA Administrator Max Cleland, I
was proud to lead our country in an overdue acknowledgement of our Nation's
gratitude to the men and women who served their country during the bitter
war in Southeast Asia. Their homecoming was deferred and seemed doomed to
be ignored. Our country has matured in the last four years and at long last
we were able to separate the war from the warrior and honor these veterans.
But with our acknowledgement of their service goes an understanding that
some Vietnam veterans have unique needs and problems.

My Administration was able to launch a long sought after psychological
readjustment and outreach program, unprecedented in its popularity,
sensitivity and success. This program must be continued. The Administration
has also grappled with the difficult questions posed by some veterans who
served in Southeast Asia and were exposed to potentially harmful
substances, including the herbicide known as Agent Orange. We have launched
scientific inquiries that should answer many veterans' questions about
their health and should provide the basis for establishing sound
compensation policy. We cannot rest until their concerns are dealt with in
a sensitive, expeditious and compassionate fashion.

Second, we have focused the VA health care system in the needs of the
service-connected disabled veteran. We initiated and are implementing the
first reform of the VA vocational rehabilitation system since its inception
in 1943. Also, my Administration was the first to seek a cost-of-living
increase for the recipients of VA compensation every year. My last budget
also makes such a request. The Administration also launched the Disabled
Veterans Outreach Program in the Department of Labor which has successfully
placed disabled veterans in jobs. Services provided by the VA health care
system will be further targeted to the special needs of disabled veterans
during the coming year.

Third, the VA health care system, the largest in the free world, has
maintained its independence and high quality during my Administration. We
have made the system more efficient and have therefore treated more
veterans than ever before by concentrating on out-patient care and through
modern management improvements. As the median age of the American veteran
population increases, we must concentrate on further changes within the VA
system to keep it independent and to serve as a model to the nation and to
the world as a center for research, treatment and rehabilitation.

Government Assistance

GENERAL AID TO STATE AND LOCAL GOVERNMENTS

Since taking office, I have been strongly committed to strengthening the
fiscal and economic condition of our Nation's State and local governments.
I have accomplished this goal by encouraging economic development of local
communities, and by supporting the General Revenue Sharing and other
essential grant-in-aid programs.

GRANTS-IN-AID TO STATES AND LOCALITIES

During my Administration, total grants-in-aid to State and local
governments have increased by more than 40 percent, from $68 billion in
Fiscal Year 1977 to $96 billion in Fiscal Year 1981. This significant
increase in aid has allowed States and localities to maintain services that
are essential to their citizens without imposing onerous tax burdens. It
also has allowed us to establish an unprecedented partnership between the
leaders of the Federal government and State and local government elected
officials.

GENERAL REVENUE SHARING

Last year Congress enacted legislation that extends the General Revenue
Sharing program for three more years. This program is the cornerstone of
our efforts to maintain the fiscal health of our Nation's local government.
It will provide $4.6 billion in each of the next three years to cities,
counties and towns. This program is essential to the continued ability of
our local governments to provide essential police, fire and sanitation
services.

This legislation renewing GRS will be the cornerstone of
Federal-State-local government relations in the 1980's. This policy will
emphasize the need for all levels of government to cooperate in order to
meet the needs of the most fiscally strained cities and counties, and also
will emphasize the important role that GRS can play in forging this
partnership. I am grateful that Congress moved quickly to assure that our
Nation's localities can begin the 1980's in sound fiscal condition.

COUNTER-CYCLICAL ASSISTANCE

Last year, I proposed that Congress enact a $1 billion counter-cyclical
fiscal assistance program to protect States and localities from unexpected
changes in the national economy. This program unfortunately was not enacted
by the [full] Congress. I, therefore, have not included funding for
counter-cyclical aid in my Fiscal Year 1982 budget. Nevertheless, I urge
Congress to enact a permanent stand-by counter-cyclical program, so that
States and cities can be protected during the next economic downturn.

URBAN POLICY

Three years ago, I proposed the Nation's first comprehensive urban policy.
That policy involved more than one hundred improvements in existing Federal
programs, four new Executive Orders and nineteen pieces of urban-oriented
legislation. With Congress' cooperation, sixteen of these bills have now
been signed into law.

ECONOMIC DEVELOPMENT

One of the principal goals of my domestic policy has been to strengthen the
private sector economic base of our Nation's economically troubled urban
and rural areas. With Congress' cooperation, we have substantially expanded
the Federal government's economic development programs and provided new tax
incentives for private investment in urban and rural communities. These
programs have helped many communities to attract new private sector jobs
and investments and to retain the jobs and investments that already are in
place.

When I took office, the Federal government was spending less than $300
million annually on economic development programs, and only $60 million of
those funds in our Nation's urban areas. Since that time, we have created
the Urban Development Action Grant (UDAG) program and substantially
expanded the economic development programs in the Commerce Department. My
FY 1982 budget requests more than $1.5 billion for economic development
grants, loans and interest subsidies and almost $1.5 billion for loan
guarantees. Approximately 60 percent of these funds will be spent in our
Nation's urban areas. In addition, we have extended the 10 percent
investment credit to include rehabilitation of existing industrial
facilities as well as new construction.

I continue to believe that the development of private sector investment and
jobs is the key to revitalizing our Nation's economically depressed urban
and rural areas. To ensure that the necessary economic development goes
forward, the Congress must continue to provide strong support for the UDAG
program and the programs for the Economic Development Administration. Those
programs provide a foundation for the economic development of our Nation in
the 1980's.

COMMUNITY DEVELOPMENT

The partnership among Federal, State and local governments to revitalize
our Nation's communities has been a high priority of my Administration.
When I took office, I proposed a substantial expansion of the Community
Development Block Grant (CDBG) program and the enactment of a new $400
million Urban Development Action Grant (UDAG) program. Both of these
programs have provided essential community and economic development
assistance to our Nation's cities and counties.

Last year, Congress reauthorized both the CDBG and UDAG programs. The CDBG
program was reauthorized for three more years with annual funding increases
of $150 million, and the UDAG program was extended for three years at the
current funding level of $675 million annually. My 1982 budget requests
full funding for both of these programs. These actions should help our
Nation's cities and counties to continue the progress they have made in the
last three years.

NEIGHBORHOODS

During my Administration we have taken numerous positive steps to achieve a
full partnership of neighborhood organizations and government at all
levels. We have successfully fought against red lining and housing
discrimination. We created innovative Self Help funding and technical
resource transfer mechanisms. We have created unique methods of access for
neighborhood organizations to have a participating role in Federal and
State government decision-making. Neighborhood based organizations are the
threshold of the American community.

The Federal government will need to develop more innovative and practical
ways for neighborhood based organizations to successfully participate in
the identification and solution of local and neighborhood concerns. Full
partnership will only be achieved with the knowing participation of leaders
of government, business, education and unions. Neither state nor Federal
solutions imposed from on high will suffice. Neighborhoods are the fabric
and soul of this great land. Neighborhoods define the weave that has been
used to create a permanent fabric. The Federal government must take every
opportunity to provide access and influence to the individuals and
organizations affected at the neighborhood level.

Rural Policy

Since the beginning of my Administration, I have been committed to
improving the effectiveness with which the Federal government deals with
the problems and needs of a rapidly changing rural America. The rapid
growth of some rural areas has placed a heavy strain on communities and
their resources. There are also persistent problems of poverty and economic
stagnation in other parts of rural America. Some rural areas continue to
lose population, as they have for the past several decades.

In December, 1979, I announced the Small Community and Rural Development
Policy. It was the culmination of several years' work and was designed to
address the varying needs of our rural population. In 1980, my
Administration worked with the Congress to pass the Rural Development
Policy Act of 1980, which when fully implemented will allow us to meet the
needs of rural people and their communities more effectively and more
efficiently.

As a result of the policy and the accompanying legislation, we have:

--Created the position of Under Secretary of Agriculture for Small
Community and Rural Development to provide overall leadership.

--Established a White House Working Group to assist in the implementation
of the policy.

--Worked with more than 40 governors to form State rural development
councils to work in partnership with the White House Working Group, and the
Federal agencies, to better deliver State and Federal programs to rural
areas.

--Directed the White House Working Group to annually review existing and
proposed policies, programs, and budget levels to determine their adequacy
in meeting rural needs and the fulfilling of the policy's objectives and
principles.

This effort on the part of my Administration and the Congress has resulted
in a landmark policy. For the first time, rural affairs has received the
prominence it has always deserved. It is a policy that can truly help
alleviate the diverse and differing problems rural America will face in the
1980's.

With the help and dedication of a great many people around the country who
are concerned with rural affairs, we have constructed a mechanism for
dealing effectively with rural problems. There is now a great opportunity
to successfully combine Federal efforts with the efforts of rural community
leaders and residents. It is my hope this spirit of cooperation and record
of accomplishment will be continued in the coming years.

CONSUMERS

In September, 1979, I signed an Executive Order designed to strengthen and
coordinate Federal consumer programs and to establish procedures to improve
and facilitate consumer participation in government decision-making. Forty
Federal agencies have adopted programs to comply with the requirements of
the Order. These programs will improve complaint handling, provide better
information to consumers, enhance opportunities for public participation in
government proceedings, and assure that the consumer point of view is
considered in all programs, policies, and regulations.

While substantial progress has been made in assuring a consumer presence in
Federal agencies, work must continue to meet fully the goals of the
Executive Order. Close monitoring of agency compliance with the
requirements of the Order is necessary. Continued evaluation to assure that
the programs are effective and making maximum use of available resources is
also essential. As a complement to these initiatives, efforts to provide
financial assistance in regulatory proceedings to citizen groups, small
businesses, and others whose participation is limited by their economic
circumstances must continue to be pursued.

It is essential that consumer representatives in government pay particular
attention to the needs and interests of low-income consumers and
minorities. The Office of Consumer Affairs' publication, "People Power:
What Communities Are Doing to Counter Inflation," catalogues some of the
ways that government and the private sector can assist the less powerful in
our society to help themselves. New ways should be found to help foster
this new people's movement which is founded on the principle of
self-reliance.

Science and Technology

Science and technology contribute immeasurably to the lives of all
Americans. Our high standard of living is largely the product of the
technology that surrounds us in the home or factory. Our good health is due
in large part to our ever increasing scientific understanding. Our national
security is assured by the application pate science and technology will
bring.

The Federal government has a special role to play in science and
technology. Although the fruits of scientific achievements surround us, it
is often difficult to predict the benefits that will arise from a given
scientific venture. And these benefits, even if predictable, do not usually
lead to ownership rights. Accordingly, the Government has a special
obligation to support science as an investment in our future.

My Administration has sought to reverse a decade-long decline in funding.
Despite the need for fiscal restraint, real support of basic research has
grown nearly 11% during my term in office. And, my Administration has
sought to increase the support of long-term research in the variety of
mission agencies. In this way, we can harness the American genius for
innovation to meet the economic, energy, health, and security challenges
that confront our nation.

--International Relations and National Security. Science and technology
are becoming increasingly important elements of our national security and
foreign policies. This is especially so in the current age of sophisticated
defense systems and of growing dependence among all countries on modern
technology for all aspects of their economic strength. For these reasons,
scientific and technological considerations have been integral elements of
the Administration's decision-making on such national security and foreign
policy issues as the modernization of our strategic weaponry, arms control,
technology transfer, the growing bilateral relationship with China, and our
relations with the developing world.

Four themes have shaped U.S. policy in international scientific and
technological cooperation: pursuit of new international initiatives to
advance our own research and development objectives; development and
strengthening of scientific exchange to bridge politically ideological, and
cultural divisions between this country and other countries; formulation of
programs and institutional relations to help developing countries use
science and technology beneficially; and cooperation with other nations to
manage technologies with local impact. At my direction, my Science and
Technology Adviser has actively pursued international programs in support
of these four themes. We have given special attention to scientific and
technical relations with China, to new forms of scientific and technical
cooperation with Japan, to cooperation with Mexico, other Latin American
and Caribbean countries and several states in Black America, and to the
proposed Institute for Scientific and Technological Cooperation.

In particular our cooperation with developing countries reflects the
importance that each of them has placed on the relationship between
economic growth and scientific and technological capability. It also
reflects their view that the great strength of the U.S. in science and
technology makes close relations with the U.S. technical community an
especially productive means of enhancing this capability. Scientific and
technological assistance is a key linkage between the U.S. and the
developing world, a linkage that has been under-utilized in the past and
one which we must continue to work to strengthen.

--Space Policy. The Administration has established a framework for a
strong and evolving space program for the 1980's.

The Administration's space policy reaffirmed the separation of military
space systems and the open civil space program, and at the same time,
provided new guidance on technology transfer between the civil and military
programs. The civil space program centers on three basic tenets: First, our
space policy will reflect a balanced strategy of applications, science, and
technology development. Second, activities will be pursued when they can be
uniquely or more efficiently accomplished in space. Third, a premature
commitment to a high challenge, space-engineering initiative of the
complexity of Apollo is inappropriate. As the Shuttle development phases
down, however, there will be added flexibility to consider new space
applications, space science and new space exploration activities.

--Technology Development. The Shuttle dominates our technology development
effort and correctly so. It represents one of the most sophisticated
technological challenges ever undertaken, and as a result, has encountered
technical problems. Nonetheless, the first manned orbital flight is now
scheduled for March, 1981. I have been pleased to support strongly the
necessary funds for the Shuttle throughout my Administration.

--Space Applications. Since 1972, the U.S. has conducted experimental
civil remote sensing through Landsat satellites, thereby realizing many
successful applications. Recognizing this fact, I directed the
implementation of an operational civil land satellite remote sensing
system, with the operational management responsibility in Commerce's
National Oceanic and Atmospheric Administration. In addition, because ocean
observations from space can meet common civil and military data
requirements, a National Oceanic Satellite System has been proposed as a
major FY 1981 new start.

--Space Science Exploration. The goals of this Administration's policy in
space science have been to: (1) continue a vigorous program of planetary
exploration to understand the origin and evolution of the solar system; (2)
utilize the space telescope and free-flying satellites to usher in a new
era of astronomy; (3) develop a better understanding of the sun and its
interaction with the terrestrial environment; and (4) utilize the Shuttle
and Spacelab to conduct basic research that complements earth-based life
science investigations.

DISTRICT OF COLUMBIA

Washington, D.C., is home to both the Federal Government and to more than
half a million American citizens. I have worked to improve the relationship
between the Federal establishment and the Government of the District of
Columbia in order to further the goals and spirit of home rule. The City
controls more of its own destiny than was the case four years ago. Yet,
despite the close cooperation between my Administration and that of Mayor
Barry, we have not yet seen the necessary number of states ratify the
Constitutional Amendment granting full voting representation in the
Congress to the citizens of this city. It is my hope that this inequity
will be rectified. The country and the people who inhabit Washington
deserve no less.

THE ARTS

The arts are a precious national resource.

Federal support for the arts has been enhanced during my Administration by
expanding government funding and services to arts institutions, individual
artists, scholars, and teachers through the National Endowment for the
Arts. We have broadened its scope and reach to a more diverse population.
We have also reactivated the Federal Council on the Arts and Humanities.

It is my hope that during the coming years the new Administration and the
Congress will:

--Continue support of institutions promoting development and understanding
of the arts;

--Encourage business participants in a comprehensive effort to achieve a
truly mixed economy of support for the arts;

--Explore a variety of mechanisms to nurture the creative talent of our
citizens and build audiences for their work;

--Support strong, active National Endowments for the Arts;

--Seek greater recognition for the rich cultural tradition of the nation's
minorities;

--Provide grants for the arts in low-income neighborhoods.

THE HUMANITIES

In recently reauthorizing Federal appropriations for the National Endowment
for the Humanities, the Congress has once again reaffirmed that "the
encouragement and support of national progress and scholarship in the
humanities . . . while primarily a matter for private and local initiative,
is also an appropriate matter of concern to the Federal Government" and
that "a high civilization must not limit its efforts to science and
technology alone but must give full value and support to the other great
branches of man's scholarly and cultural activity in order to achieve a
better understanding of the past, a better analysis of the present, and a
better view of the future."

I believe we are in agreement that the humanities illuminate the values
underlying important personal, social, and national questions raised in our
society by its multiple links to and increasing dependence on technology,
and by the diverse heritage of our many regions and ethnic groups. The
humanities cast light on the broad issue of the role in a society of men
and women of imagination and energy--those individuals who through their
own example define "the spirit of the age," and in so doing move nations.
Our Government's support for the humanities, within the framework laid down
by the Congress, is a recognition of their essential nourishment of the
life of the mind and vital enrichment of our national life.

I will be proposing an increase in funding this year sufficient to enable
the Endowment to maintain the same level of support offered our citizens in
Fiscal Year 1981.

In the allocation of this funding, special emphasis will be given to:

--Humanities education in the nation's schools, in response to the great
needs that have arisen in this area;

--Scholarly research designed to increase our understanding of the
cultures, traditions, and historical forces at work in other nations and in
our own;

--Drawing attention to the physical disintegration of the raw material of
our cultural heritage--books, manuscripts, periodicals, and other
documents--and to the development of techniques to prevent the destruction
and to preserve those materials; and

--The dissemination of quality programming in the humanities to
increasingly large American audiences through the use of radio and
television.

The dominant effort in the Endowment's expenditures will be a commitment to
strengthen and promulgate scholarly excellence and achievement in work in
the humanities in our schools, colleges, universities, libraries, museums
and other cultural institutions, as well as in the work of individual
scholars or collaborative groups engaged in advanced research in the
humanities.

In making its grants the Endowment will increase its emphasis on techniques
which stimulate support for the humanities from non-Federal sources, in
order to reinforce our tradition of private philanthropy in this field, and
to insure and expand the financial viability of our cultural institutions
and life.

INSULAR AREAS

I have been firmly committed to self-determination for Puerto Rico, the
Virgin Islands, Guam, American Samoa and the Northern Mariana Islands, and
have vigorously supported the realization of whatever political status
aspirations are democratically chosen by their peoples. This principle was
the keystone of the comprehensive territorial policy I sent the Congress
last year. I am pleased that most of the legislative elements of that
policy were endorsed by the 96th Congress.

The unique cultures, fragile economies, and locations of our Caribbean and
Pacific Islands are distinct assets to the United States which require the
sensitive application of policy. The United States Government should pursue
initiatives begun by my Administration and the Congress to stimulate
insular economic development; enhance treatment under Federal programs
eliminating current inequities; provide vitally needed special assistance
and coordinate and rationalize policies. These measures will result in
greater self-sufficiency and balanced growth. In particular, I hope that
the new Congress will support funding for fiscal management, comprehensive
planning and other technical assistance for the territories, as well as
create the commission I have proposed to review the applicability of all
Federal laws to the insular areas and make recommendations for appropriate
modification.

IV. REMOVING GOVERNMENTAL WASTE AND INEFFICIENCY

One of my major commitments has been to restore public faith in our Federal
government by cutting out waste and inefficiency. In the past four years,
we have made dramatic advances toward this goal, many of them previously
considered impossible to achieve. Where government rules and operations
were unnecessary, they have been eliminated, as with airline, rail,
trucking and financial deregulation. Where government functions are needed,
they have been streamlined, through such landmark measures as the Civil
Service Reform Act of 1978. I hope that the new administration and the
Congress will keep up the momentum we have established for effective and
responsible change in this area of crucial public concern.

CIVIL SERVICE REFORM

In March 1978, I submitted the Civil Service Reform Act to Congress. I
called it the centerpiece of my efforts to reform and reorganize the
government. With bipartisan support from Congress, the bill passed, and I
am pleased to say that implementation is running well ahead of the
statutory schedule. Throughout the service, we are putting into place the
means to assure that reward and retention are based on performance and not
simply on length of time on the job. In the first real test of the Reform
Act, 98 percent of the eligible top-level managers joined the Senior
Executive Service, choosing to relinquish job protections for the challenge
and potential reward of this new corps of top executives. Though the Act
does not require several of its key elements to be in operation for another
year, some Federal agencies already have established merit pay systems for
GS-13-15 managers, and most agencies are well on their way to establishing
new performance standards for all their employees. All have paid out, or
are now in the process of paying out, performance bonuses earned by
outstanding members of the Senior Executive Service. Dismissals have
increased by 10 percent, and dismissals specifically for inadequate job
performance have risen 1500 percent, since the Act was adopted. Finally, we
have established a fully independent Merit Systems Protection Board and
Special Counsel to protect the rights of whistle-blowers and other Federal
employees faced with threats to their rights.

In 1981, civil service reform faces critical challenges, all agencies must
have fully functioning performance appraisal systems for all employees, and
merit pay systems for compensating the government's 130,000 GS-13-15
managers. Performance bonuses for members of the Senior Executive Service
will surely receive scrutiny. If this attention is balanced and
constructive, it can only enhance the chances for ultimate success of our
bipartisan commitment to the revolutionary and crucial "pay for
performance" concept.

REGULATORY REFORM

During the past four years we have made tremendous progress in regulatory
reform. We have discarded old economic regulations that prevented
competition and raised consumer costs, and we have imposed strong
management principles on the regulatory programs the country needs, cutting
paperwork and other wasteful burdens. The challenge for the future is to
continue the progress in both areas without crippling vital health and
safety programs.

Our economic deregulation program has achieved major successes in five
areas:

Airlines: The Airline Deregulation Act is generating healthy competition,
saving billions in fares, and making the airlines more efficient. The Act
provides that in 1985 the CAB itself will go out of existence.

Trucking: The trucking deregulation bill opens the industry to competition
and allows truckers wide latitude on the routes they drive and the goods
they haul. The bill also phases out most of the old law's immunity for
setting rates. The Congressional Budget Office estimates these reforms will
save as much as $8 billion per year and cut as much as half a percentage
point from the inflation rate.

Railroads: Overregulation has stifled railroad management initiative,
service, and competitive pricing. The new legislation gives the railroads
the freedom they need to rebuild a strong, efficient railroad industry.

Financial Institutions: With the help of the Congress, over the past four
years we have achieved two major pieces of financial reform legislation,
legislation which has provided the basis for the most far-reaching changes
in the financial services industry since the 1930's. The International
Banking Act of 1978 was designed to reduce the advantages that foreign
banks operating in the United States possessed in comparison to domestic
banks. The Depository Institutions Deregulation and Monetary Control Act,
adopted last March, provides for the phased elimination of a variety of
anti-competitive barriers to financial institutions and freedom to offer
services to and attract the savings of consumers, especially small savers.

Recently, I submitted to the Congress my Administration's recommendations
for the phased liberalization of restrictions on geographic expansion by
commercial banks. Last year the Administration and financial regulatory
agencies proposed legislation to permit the interstate acquisition of
failing depository institutions. In view of the difficult outlook for some
depository institutions I strongly urge the Congress to take prompt
favorable action on the failing bank legislation.

Telecommunications: While Congress did not pass legislation in this area,
the Federal Communications Commission has taken dramatic action to open all
aspects of communications to competition and to eliminate regulations in
the areas where competition made them obsolete. The public is benefitting
from an explosion of competition and new services.

While these initiatives represent dramatic progress in economic
deregulation, continued work is needed. I urge Congress to act on
communications legislation and to consider other proposed deregulation
measures, such as legislation on the bus industry. In addition, the
regulatory commissions must maintain their commitment to competition as the
best regulator of all.

The other part of my reform program covers the regulations that are needed
to protect the health, safety, and welfare of our citizens. For these
regulations, my Administration has created a management program to cut
costs without sacrificing goals. Under my Executive Order 12044, we
required agencies to analyze the costs of their major new rules and
consider alternative approaches, such as performance standards and
voluntary codes, that may make rules less costly and more flexible. We
created the Regulatory Analysis Review Group in the White House to analyze
the most costly proposed new rules and find ways to improve them. The
Regulatory Council was established to provide the first Government-wide
listing of upcoming rules and eliminate overlapping and conflicting
regulations. Agencies have launched "sunset" programs to weed out outmoded
old regulations. We have acted to encourage public participation in
regulatory decision-making.

These steps have already saved billions of dollars in regulatory costs and
slashed thousands of outmoded regulations. We are moving steadily toward a
regulatory system that provides needed protections fairly, predictably, and
at minimum cost.

I urge Congress to continue on this steady path and resist the simplistic
solutions that have been proposed as alternatives. Proposals like
legislative veto and increased judicial review will add another layer to
the regulatory process, making it more cumbersome and inefficient. The
right approach to reform is to improve the individual statutes, where they
need change, and to ensure that the regulatory agencies implement those
statutes sensibly.

PAPERWORK REDUCTION

The Federal Government imposes a huge paperwork burden on business, local
government, and the private sector. Many of these forms are needed for
vital government functions, but others are duplicative, overly complex or
obsolete.

During my Administration we cut the paperwork burden by 15 percent, and we
created procedures to continue this progress. The new Paperwork Reduction
Act centralizes, in OMB, oversight of all agencies' information
requirements and strengthens OMB's authority to eliminate needless forms.
The "paperwork budget" process, which I established by executive order,
applies the discipline of the budget process to the hours of reporting time
imposed on the public, forcing agencies to scrutinize all their forms each
year. With effective implementation, these steps should allow further,
substantial paperwork cuts in the years ahead.

TIGHTENING STANDARDS FOR GOVERNMENTAL EFFICIENCY AND INTEGRITY

To develop a foundation to carry out energy policy, we consolidated
scattered energy programs and launched the Synthetic Fuels Corporation; to
give education the priority it deserves and at the same time reduce HHS to
more manageable size, I gave education a seat at the Cabinet table, to
create a stronger system for attacking waste and fraud, I reorganized audit
and investigative functions by putting an Inspector General in major
agencies. Since I took office, we have submitted 14 reorganization
initiatives and had them all approved by Congress. We have saved hundreds
of millions of dollars through the adoption of businesslike cash management
principles and set strict standards for personal financial disclosure and
conflict of interest avoidance by high Federal officials.

To streamline the structure of the government, we have secured approval of
14 reorganization initiatives, improving the efficiency of the most
important sectors of the government, including energy, education, and civil
rights enforcement. We have eliminated more than 300 advisory committees as
well as other agencies, boards and commissions which were obsolete or
ineffective. Independent Inspectors General have been appointed in major
agencies to attack fraud and waste. More than a billion dollars of
questionable transactions have been identified through their audit
activities.

The adoption of business-like cash management and debt collection
initiatives will save over $1 billion, by streamlining the processing of
receipts, by controlling disbursements more carefully, and by reducing idle
cash balances. Finally this Administration has set strict standards for
personal financial disclosure and conflict of interest avoidance by high
Federal officials, to elevate the level of public trust in the government.

V. PROTECTING BASIC RIGHTS AND LIBERTIES

I am extremely proud of the advances we have made in ensuring equality and
protecting the basic freedoms of all Americans.

--The Equal Employment Opportunity Commission (EEOC) and the Office of
Federal Contract Compliance (OFCCP) have been reorganized and strengthened
and a permanent civil rights unit has been established in OMB.

--To avoid fragmented, inconsistent and duplicative enforcement of civil
rights laws, three agencies have been given coordinative and
standard-setting responsibilities in discrete areas: EEOC for all
employment-related activities, HUD for all those relating to housing, and
the Department of Justice for all other areas.

--With the enactment of the Right to Financial Privacy Act and a bill
limiting police search of newsrooms, we have begun to establish a sound,
comprehensive, privacy program.

Ratification of the Equal Rights Amendment must be aggressively pursued.
Only one year remains in which to obtain ratification by three additional
states.

The Congress must give early attention to a number of important bills which
remain. These bills would:

--strengthen the laws against discrimination in housing. Until it is
enacted, the 1968 Civil Rights Act's promise of equal access to housing
will remain unfulfilled;

--establish a charter for the FBI and the intelligence agencies. The
failure to define in law the duties and responsibilities of these agencies
has made possible some of the abuses which have occurred in recent years;

--establish privacy safeguards for medical research, bank, insurance, and
credit records; and provide special protection for election fund transfer
systems.

EQUAL RIGHTS AMENDMENT

I remain committed as strongly as possible to the ratification of the Equal
Rights Amendment.

As a result of our efforts in 1978, the Equal Rights Amendment's deadline
for ratification was extended for three years. We have now one year and
three States left. We cannot afford any delay in marshalling our resources
and efforts to obtain the ratification of those three additional States.

Although the Congress has no official role in the ratification process at
this point, you do have the ability to affect public opinion and the
support of State Legislators for the Amendment. I urge Members from States
which have not yet ratified the Equal Rights Amendment to use their
influence to secure ratification. I will continue my own efforts to help
ensure ratification of the Equal Rights Amendment.

MARTIN LUTHER KING, JR.

Dr. Martin Luther King, Jr. led this Nation's effort to provide all its
citizens with civil rights and equal opportunities. His commitment to human
rights, peace and non-violence stands as a monument to his humanity and
courage. As one of our Nation's most outstanding leaders, it is appropriate
that his birthday be commemorated as a national holiday. I hope the
Congress will enact legislation this year that will achieve this goal.

FAIR HOUSING

The Fair Housing Act Amendments of 1980 passed the House of Representatives
by an overwhelming bipartisan majority only to die in the Senate at the
close of the 96th Congress. The leaders of both parties have pledged to
make the enactment of fair housing legislation a top priority of the
incoming Congress. The need is pressing and a strengthened federal
enforcement effort must be the primary method of resolution.

CRIMINAL CODE

The Federal criminal laws are often archaic, frequently contradictory and
imprecise, and clearly in need of revision and codification. The new
Administration should continue the work which has been begun to develop a
Federal criminal code which simplifies and clarifies our criminal laws,
while maintaining our basic civil liberties and protections.

PRIVACY

As our public and private institutions collect more and more information
and as communications and computer technologies advance, we must act to
protect the personal privacy of our citizens.

In the past four years we acted on the report of the Privacy Commission and
established a national privacy policy. We worked with Congress to pass
legislation restricting wiretaps and law enforcement access to bank records
and to reporters' files. We reduced the number of personal files held by
the government and restricted the transfer of personal information among
Federal agencies. We also worked with the Organization for Economic
Cooperation and Development to establish international guidelines to
protect the privacy of personal information that is transferred across
borders.

VI. PROTECTING AND DEVELOPING OUR NATURAL RESOURCES

Two of our Nation's most precious natural resources are our environment and
our vast agricultural capacity. From the beginning of my Administration, I
have worked with the Congress to enhance and protect, as well as develop
our natural resources. In the environmental areas, I have been especially
concerned about the importance of balancing the need for resource
development with preserving a clean environment, and have taken numerous
actions to foster this goal. In the agricultural area, I have taken the
steps needed to improve farm incomes and to increase our agricultural
production to record levels. That progress must be continued in the 1980's.

ENVIRONMENT

Preserving the quality of our environment has been among the most important
objectives of my Administration and of the Congress. As a result of these
shared commitments and the dedicated efforts of many members of the
Congress and my Administration, we have achieved several historic
accomplishments.

PROTECTION OF ALASKA LANDS

Passage of the Alaska National Interest Lands Conservation Act was one of
the most important conservation actions of this century. At stake was the
fate of millions of acres of beautiful land, outstanding and unique
wildlife populations, native cultures, and the opportunity to ensure that
future generations of Americans would be able to enjoy the benefits of
these nationally significant resources. As a result of the leadership,
commitment, and persistence of my Administration and the Congressional
leadership, the Alaska Lands Bill was signed into law last December.

The Act adds 97 million acres of new parks and refuges, more than doubling
the size of our National Park and National Wildlife Refuge Systems. The
bill triples the size of our national wilderness system, increasing its
size by 56 million acres. And by adding 25 free-flowing river segments to
the Wild and Scenic River System, the bill almost doubles the river mileage
in that system. The Alaska Lands Act reaffirms our commitment to the
environment and strikes a balance between protecting areas of great beauty
and allowing development of Alaska's oil, gas, mineral, and timber
resources.

PROTECTION OF NATURAL RESOURCES

In addition to the Alaska Lands Act, over the past four years we have been
able to expand significantly the national wilderness and parks systems. In
1978, the Congress passed the historical Omnibus Parks Act, which made 12
additions to the National Park System. The Act also established the first
two national trails since the National Trails System Act was passed in
1968. Then, in 1980, as a result of my 1979 Environmental Message, the
Federal land management agencies have established almost 300 new National
Recreational Trails. With the completion of the RARE II process, which
eliminated the uncertainty surrounding the status of millions of acres of
land, we called for over 15 million acres of new wilderness in the nation's
National Forest, in 1980 the Congress established about 4.5 million acres
of wilderness in the lower 48 states. In addition, the Administration
recommended legislation to protect Lake Tahoe, and through an Executive
Order has already established a mechanism to help ensure the Lake's
protection. Finally, in 1980 the Administration established the Channel
Islands Marine Sanctuary.

Administration actions over the past four years stressed the importance of
providing Federal support only for water resource projects that are
economically and environmentally sound. This policy should have a major and
lasting influence on the federal government's role in water resource
development and management. The Administration's actions to recommend to
the Congress only economically and environmentally sound water resource
projects for funding resulted not only in our opposing uneconomic projects
but also, in 1979, in the first Administration proposal of new project
starts in 4 years.

One of the most significant water policy actions of the past four years was
the Administration's June 6, 1978 Water Policy Reform Message to the
Congress. This Message established a new national water resources policy
with the following objectives:

--to give priority emphasis to water conservation;

--to consider environmental requirements and values more fully and along
with economic factors in the planning and management of water projects and
programs;

--to enhance cooperation between state and federal agencies in water
resources planning and management.

In addition, the Executive Office of the President established 11 policy
decision criteria to evaluate the proposed federal water projects, the
Water Resources Council developed and adopted a new set of Principles and
Standards for water projects which is binding on all federal construction
agencies, and improved regulations were developed to implement the National
Historic Preservation Act and the Fish and Wildlife Coordination Act. As a
result, water resource projects must be determined to be economically sound
before the Administration will recommend authorization or appropriation.
Over the years ahead, this policy will help to reduce wasteful federal
spending by targeting federal funds to the highest priority water resource
projects.

In the pursuit of this policy, however, we cannot lose projects. In the
part that sound water resource projects play in providing irrigation,
power, and flood control. We must also recognize the special needs of
particular regions of the country in evaluating the need for additional
projects.

ADDRESSING GLOBAL RESOURCE AND ENVIRONMENTAL PROBLEMS

The Global 2000 Report to the President, prepared in response to my 1977
Environment Message, is the first of its kind. Never before has our
government, or any government, taken such a comprehensive, long-range look
at the interrelated global issues of resources, population, and
environment.

The Report's conclusions are important. They point to a rapid increase in
population and human needs through the year 2000 while at the same time a
decline in the earth's capacity to meet those needs, unless nations of the
world act decisively to alter current trends.

The United States has contributed actively to a series of U.N. conferences
on the environment, population, and resources, and is preparing for
the 1981 Conference on New and Renewable Sources of Energy. Following my
1977 Environmental Message, the Administration development assistance
programs have added emphasis to natural resource management and
environmental protection. My 1979 Environmental Message called attention to
the alarming loss of world forests, particularly in the tropics. An
interagency task force on tropical forests has developed a U.S. government
program to encourage conservation and wise management of tropical forests.
The Administration is encouraging action by other nations and world
organizations to the same purpose. The United States is a world leader in
wildlife conservation and the assessment of environmental effects of
government actions. The January 5, 1979, Executive Order directing U.S.
government agencies to consider the effects of their major actions abroad,
is another example of this leadership.

COMMITMENT TO CONTROL OF POLLUTION AND HAZARDOUS CHEMICALS

Over the past four years, there has been steady progress towards cleaner
air and water, sustained by the commitment of Congress and the
Administration to these important national objectives. In addition, the
Administration has developed several new pollution compliance approaches
such as alternative and innovative waste water treatment projects, the
"bubble" concept, the "offset" policy, and permit consolidation, all of
which are designed to reduce regulatory burdens on the private sector.

One of the most pressing problems to come to light in the past four years
has been improper hazardous waste disposal. The Administration has moved on
three fronts. First, we proposed the Oil Hazardous Substances and Hazardous
Waste Response, Liability and Compensation Act (the Superfund bill) to
provide comprehensive authority and $1.6 billion in funds to clean up
abandoned hazardous waste disposal sites. In November 1980 the Congress
passed a Superfund bill which I signed into law.

Second, the administration established a hazardous waste enforcement strike
force to ensure that when available, responsible parties are required to
clean up sites posing dangers to public health and to the environment. To
date, 50 lawsuits have been brought by the strike force.

Third, regulations implementing subtitle C of the Resource Conservation and
Recovery Act were issued. The regulations establish comprehensive controls
for hazardous waste and, together with vigorous enforcement, will help to
ensure that Love Canal will not be repeated.

THE FUTURE

For the future, we cannot, and we must not, forget that we are charged with
the stewardship of an irreplaceable environment and natural heritage. Our
children, and our children's children, are dependent upon our maintaining
our commitment to preserving and enhancing the quality of our environment.
It is my hope that when our descendants look back on the 1980's they will
be able to affirm:

--that we kept our commitment to the restoration of environmental
quality;

--that we protected the public health from the continuing dangers of toxic
chemicals, from pollution, from hazardous and radioactive waste, and that
we made our communities safer, healthier and better places to live;

--that we preserved America's wilderness areas and particularly its last
great frontier, Alaska, for the benefit of all Americans in perpetuity;

--that we put this nation on a path to a sustainable energy future, one
based increasingly on renewable resources and on energy conservation;

--that we moved to protect America's countryside and coastland from
mismanagement and irresponsibility;

--that we redirected the management of the nation's water resources toward
water conservation, sound development and environmental protection;

--that we faced squarely such worldwide problems as the destruction of
forests, acid rain, carbon dioxide build-up and nuclear proliferation; and

--that we protected the habitat and the existence of our own species on
this earth.

AGRICULTURE THE FARM ECONOMY

The farm economy is sound and its future is bright. Agriculture remains a
major bulwark of the nation's economy and an even more important factor in
the world food system. The demand for America's agricultural abundance,
here and abroad, continues to grow. In the near-term, the strength of this
demand is expected to press hard against supplies, resulting in continued
price strength.

The health and vitality of current-day agriculture represents a significant
departure from the situation that existed when I came to office four years
ago. In January 1977, the farm economy was in serious trouble. Farm prices
and farm income were falling rapidly. Grain prices were at their lowest
levels in years and steadily falling. Livestock producers, in their fourth
straight year of record losses, were liquidating breeding herds at an
unparalleled rate. Dairy farmers were losing money on every hundredweight
of milk they produced. Sugar prices were in a nosedive.

Through a combination of improvements in old, established programs and the
adoption of new approaches where innovation and change were needed, my
Administration turned this situation around. Commodity prices have steadily
risen. Farm income turned upward. U.S. farm exports set new records each
year, increasing over 80 percent for the four year period. Livestock
producers began rebuilding their herds. Dairy farmers began to earn a
profit again.

RECENT POLICY INITIATIVES

Several major agricultural policy initiatives have been undertaken over the
past year. Some are the culmination of policy proposals made earlier in
this Administration; others are measures taken to help farmers offset the
impact of rapid inflation in production costs. In combination, they
represent a significant strengthening of our nation's food and agricultural
policy. These initiatives include:

FOOD SECURITY RESERVE

The Congress authorized formation of a 4 million ton food grain reserve for
use in international food assistance. This reserve makes it possible for
the United States to stand behind its food aid commitment to food deficit
nations, even during periods of short supplies and high prices. This
corrects a serious fault in our past food assistance policy.

COMPREHENSIVE CROP INSURANCE

The Congress also authorized a significant new crop insurance program
during 1980. This measure provides farmers with an important new program
tool for sharing the economic risks that are inherent to agriculture. When
fully operational, it will replace a hodgepodge of disaster programs that
suffered from numerous shortcomings.

SPECIAL LOAN RATES

Another legislative measure passed late in the 2nd session of the 96th
Congress authorizes the Secretary of Agriculture to provide higher loan
rates to farmers who enter their grain in the farmer-owned grain reserve.
This additional incentive to participate will further strengthen the
reserve.

INCREASED LOAN PRICES

In July 1980, I administratively raised loan prices for wheat, feedgrains,
and soybeans to help offset the effects of a serious cost-price squeeze. At
the same time, the release and call prices for the grain reserve were
adjusted upward.

HIGHER TARGET PRICES

The Agricultural Adjustment Act of 1980 raised the target prices for
1980-crop wheat and feed grain crops. This change corrected for
shortcomings in the adjustment formula contained in the Food and
Agriculture Act of 1977.

FUTURE AGENDA

The food and agricultural policies adopted by this Administration over the
past four years, including those described above, will provide a firm
foundation for future governmental actions in this field. Expiration of the
Food and Agriculture Act of 1977 later this year will require early
attention by the Congress. With relatively minor changes, most of the
authorities contained in the 1977 Act should be extended in their present
form. The farmer-owned grain reserve has proven to be a particularly
effective means of stabilizing grain markets and should be preserved in
essentially its present form.

Beyond this, it will be important for the Congress to keep a close eye on
price-cost developments in the farm sector. As noted above, some of the
actions I took last year were for the purpose of providing relief from the
cost-price squeeze facing farmers. Should these pressures continue, further
actions might be required.

My Administration has devoted particular attention to the issues of world
hunger, agricultural land use, and the future structure of American
agriculture. I encourage the Congress and the next Administration to review
the results of these landmark enquiries and, where deemed appropriate, to
act on their recommendations.

Following a careful review of the situation, I recently extended the
suspension of grain sales to the Soviet Union. I am satisfied that this
action has served its purpose effectively and fairly. However, as long as
this suspension must remain in effect, it will be important for the next
Administration and the Congress to take whatever actions are necessary to
ensure that the burden does not fall unfairly on our Nation's farmers. This
has been a key feature of my Administration's policy, and it should be
maintained.

VII. FOREIGN POLICY

From the time I assumed office four years ago this month, I have stressed
the need for this country to assert a leading role in a world undergoing
the most extensive and intensive change in human history.

My policies have been directed in particular at three areas of change:

--the steady growth and increased projection abroad of Soviet military
power, power that has grown faster than our own over the past two decades.

--the overwhelming dependence of Western nations, which now increasingly
includes the United States, on vital oil supplies from the Middle East.

--the pressures of change in many nations of the developing world, in Iran
and uncertainty about the future stability of many developing countries.

As a result of those fundamental facts, we face some of the most serious
challenges in the history of this nation. The Soviet invasion of
Afghanistan is a threat to global peace, to East-West relations, and to
regional stable flow of oil. As the unprecedented relations, an and
overwhelming vote in the General Assembly demonstrated, countries across
the world, and particularly the nonaligned, regard the Soviet invasion as a
threat to their independence and security. Turmoil within the region
adjacent to the Persian Gulf poses risks for the security and prosperity of
every oil importing nation and thus for the entire global economy. The
continuing holding of American hostages in Iran is both an affront to
civilized people everywhere, and a serious impediment to meeting the
self-evident threat to widely-shared common interests, including those of
Iran.

But as we focus our most urgent efforts on pressing problems, we will
continue to pursue the benefits that only change can bring. For it always
has been the essence of America that we want to move on, we understand that
prosperity, progress and most of all peace cannot be had by standing still.
A world of nations striving to preserve their independence, and of peoples
aspiring for economic development and political freedom, is not a world
hostile to the ideals and interests of the United States. We face powerful
adversaries, but we have strong friends and dependable allies. We have
common interests with the vast majority of the world's nations and
peoples.

There have been encouraging developments in recent years, as well as
matters requiring continued vigilance and concern:

--Our alliances with the world's most advanced and democratic states from
Western Europe through Japan are stronger than ever.

--We have helped to bring about a dramatic improvement in relations
between Egypt and Israel and an historic step towards a comprehensive
Arab-Israeli settlement.

--Our relations with China are growing closer, providing a major new
dimension in our policy in Asia and the world.

--Across southern Africa from Rhodesia to Namibia we are helping with the
peaceful transition to majority rule in a context of respect for minority
as well as majority rights.

--We have worked domestically and with our allies to respond to an
uncertain energy situation by conservation and diversification of energy
supplies based on internationally agreed targets.

--We have unambiguously demonstrated our commitment to defend Western
interests in Southwest Asia, and we have significantly increased our
ability to do so.

--And over the past four years the U.S. has developed an energy program
which is comprehensive and ambitious. New institutions have been
established such as the Synthetic Fuels Corporation and Solar Bank. Price
decontrol for oil and gas is proceeding. American consumers have risen to
the challenge, and we have experienced real improvements in consumption
patterns.

The central challenge for us today is to our steadfastedness of purpose. We
are no longer tempted by isolationism. But we must also learn to deal
effectively with the contradictions of the world, the need to cooperate
with potential adversaries without euphoria, without undermining our
determination to compete with such adversaries and if necessary confront
the threats they may pose to our security.

We face a broad range of threats and opportunities. We have and should
continue to pursue a broad range of defense, diplomatic and economic
capabilities and objectives.

I see six basic goals for America in the world over the 1980's:

--First, we will continue, as we have over the past four years, to build
America's military strength and that of our allies and friends. Neither the
Soviet Union nor any other nation will have reason to question our will to
sustain the strongest and most flexible defense forces.

--Second, we will pursue an active diplomacy in the world, working,
together with our friends and allies, to resolve disputes through peaceful
means and to make any aggressor pay a heavy price.

--Third, we will strive to resolve pressing international economic
problems, particularly energy and inflation, and continue to pursue our
still larger objective of global economic growth through expanded trade and
development assistance and through the preservation of an open multilateral
trading system.

--Fourth, we will continue vigorously to support the process of building
democratic institutions and improving human rights protection around the
world. We are deeply convinced that the future lies not with dictatorship
but democracy.

--Fifth, we remain deeply committed to the process of mutual and
verifiable arms control, particularly to the effort to prevent the spread
and further development of nuclear weapons. Our decision to defer, but not
abandon our efforts to secure ratification of the SALT II Treaty reflects
our firm conviction that the United States has a profound national
security interest in the constraints on Soviet nuclear forces which only
that treaty can provide.

--Sixth, we must continue to look ahead in order to evaluate and respond
to resource, environment and population challenges through the end of this
century.

One very immediate and pressing objective that is uppermost on our minds
and those of the American people is the release of our hostages in Iran.

We have no basic quarrel with the nation, the revolution or the people
of Iran. The threat to them comes not from American policy but from Soviet
actions in the region. We are prepared to work with the government of Iran
to develop a new and mutually beneficial relationship.

But that will not be possible so long as Iran continues to hold Americans
hostages, in defiance of the world community and civilized behavior. They
must be released unharmed. We have thus far pursued a measured program of
peaceful diplomatic and economic steps in an attempt to resolve this issue
without resorting to other remedies available to us under international
law. This reflects the deep respect of our nation for the rule of law and
for the safety of our people being held, and our belief that a great power
bears a responsibility to use its strength in a measured and judicious
manner. But our patience is not unlimited and our concern for the
well-being of our fellow citizens grows each day.

ENHANCING NATIONAL SECURITY, AMERICAN MILITARY STRENGTH

The maintenance of national security is my first concern, as it has been
for every president before me.

We must have both the military power and the political will to deter our
adversaries and to support our friends and allies.

We must pay whatever price is required to remain the strongest nation in
the world. That price has increased as the military power of our major
adversary has grown and its readiness to use that power been made all too
evident in Afghanistan. The real increases in defense spending, therefore
probably will be higher than previously projected; protecting our security
may require a larger share of our national wealth in the future.

THE U.S.-SOVIET RELATIONSHIP

We are demonstrating to the Soviet Union across a broad front that it will
pay a heavy price for its aggression in terms of our relationship.
Throughout the last decades U.S.-Soviet relations have been a mixture of
cooperation and competition. The Soviet invasion of Afghanistan and the
imposition of a puppet government have highlighted in the starkest terms
the darker side of their policies, going well beyond competition and the
legitimate pursuit of national interest, and violating all norms of
international law and practice.

This attempt to subjugate an independent, non-aligned Islamic people is a
callous violation of international law and the United Nations Charter, two
fundamentals of international order. Hence, it is also a dangerous threat
to world peace. For the first time since the communization of Eastern
Europe after World War II, the Soviets have sent combat forces into an area
that was not previously under their control, into a non-aligned and
sovereign state.

The destruction of the independence of the Afghanistan government and the
occupation by the Soviet Union have altered the strategic situation in that
part of the world in a very ominous fashion. It has significantly shortened
the striking distance to the Indian Ocean and the Persian Gulf for the
Soviet Union.

It has also eliminated a buffer between the Soviet Union and Pakistan and
presented a new threat to Iran. These two countries are now far more
vulnerable to Soviet political intimidation. If that intimidation were to
prove effective, the Soviet Union could control an area of vital strategic
and economic significance to the survival of Western Europe, the Far East,
and ultimately the United States.

It has now been over a year since the Soviet invasion of Afghanistan dealt
a major blow to U.S.-Soviet relations and the entire international system.
The U.S. response has proven to be serious and far-reaching. It has been
increasingly effective, imposing real and sustained costs on the U.S.S.R.'s
economy and international image.

Meanwhile, we have encouraged and supported efforts to reach a political
settlement in Afghanistan which would lead to a withdrawal of Soviet forces
from that country and meet the interests of all concerned. It is Soviet
intransigence that has kept those efforts from bearing fruit.

Meanwhile, an overwhelming November resolution of the United Nations
General Assembly on Afghanistan has again made clear that the world has not
and will not forget Afghanistan. And our response continues to make it
clear that Soviet use of force in pursuit of its international objectives
is incompatible with the notion of business-as-usual.

BILATERAL COMMUNICATION

U.S.-Soviet relations remain strained by the continued Soviet presence in
Afghanistan, by growing Soviet military capabilities, and by the Soviets'
apparent willingness to use those capabilities without respect for the most
basic norms of international behavior.

But the U.S.-Soviet relationship remains the single most important element
in determining whether there will be war or peace. And so, despite serious
strains in our relations, we have maintained a dialogue with the Soviet
Union over the past year. Through this dialogue, we have ensured against
bilateral misunderstandings and miscalculations which might escalate out of
control, and have managed to avoid the injection of superpower rivalries
into areas of tension like the Iran-Iraq conflict.

POLAND

Now, as was the case a year ago, the prospect of Soviet use of force
threatens the international order. The Soviet Union has completed
preparations for a possible military intervention against Poland. Although
the situation in Poland has shown signs of stabilizing recently, Soviet
forces remain in a high state of readiness and they could move into Poland
on short notice. We continue to believe that the Polish people should be
allowed to work out their internal problems themselves, without outside
interference, and we have made clear to the Soviet leadership that any
intervention in Poland would have severe and prolonged consequences for
East-West detente, and U.S.-Soviet relations in particular.

DEFENSE BUDGET

For many years the Soviets have steadily increased their real defense
spending, expanded their strategic forces, strengthened their forces in
Europe and Asia, and enhanced their capability for projecting military
force around the world directly or through the use of proxies. Afghanistan
dramatizes the vastly increased military power of the Soviet Union.

The Soviet Union has built a war machine far beyond any reasonable
requirements for their own defense and security. In contrast, our own
defense spending declined in real terms every year from 1968 through 1976.

We have reversed this decline in our own effort. Every year since 1976
there has been a real increase in our defense spending, and our lead has
encouraged increases by our allies. With the support of the Congress, we
must and will make an even greater effort in the years ahead.

The Fiscal Year 1982 budget would increase funding authority for defense to
more than $196 billion. This amount, together with a supplemental request
for FY 1981 of about $6 billion, will more than meet my Administration's
pledge for a sustained growth of 3 percent in real expenditures, and
provides for 5 percent in program growth in FY 1982 and beyond.

The trends we mean to correct cannot be remedied overnight; we must be
willing to see this program through. To ensure that we do so I am setting a
growth rate for defense that we can sustain over the long haul.

The defense program I have proposed for the next five years will require
some sacrifice, but sacrifice we can well afford.

The defense program emphasizes four areas:

1. It ensures that our strategic nuclear forces will be equivalent to those
of the Soviet Union and that deterrence against nuclear war will be
maintained; 2. It upgrades our forces so that the military balance between
NATO and the Warsaw Pact will continue to deter the outbreak of war,
conventional or nuclear, in Europe; 3. It provides us the ability to come
quickly to the aid of friends and allies around the globe; 4. And it ensures
that our Navy will continue to be the most powerful on the seas.

STRATEGIC FORCES

We are strengthening each of the three legs of our strategic forces. The
cruise missile production which will begin next year will modernize our
strategic air deterrent. B-52 capabilities will also be improved. These
steps will maintain and enhance the B-52 fleet by improving its ability to
deliver weapons against increasingly heavily defended targets.

We are also modernizing our strategic submarine force. Four more POSEIDON
submarines backfitted with new, 4,000 mile TRIDENT I missiles began
deployments in 1980. Nine TRIDENT submarines have been authorized through
1981, and we propose one more each year.

The new M-X missile program to enhance our land-based intercontinental
ballistic missile force continues to make progress. Technical refinements
in the basing design over the last year will result in operational
benefits, lower costs, and reduced environmental impact. The M-X program
continues to be an essential ingredient in our strategic posture, providing
survivability, endurance, secure command and control and the capability to
threaten targets the Soviets hold dear.

Our new systems will enable U.S. strategic forces to maintain equivalence
in the face of the mounting Soviet challenge. We would however need an even
greater investment in strategic systems to meet the likely Soviet buildup
without SALT.

STRATEGIC DOCTRINE

This Administration's systematic contributions to the necessary evolution
of strategic doctrine began in 1977 when I commissioned a comprehensive net
assessment. From that base a number of thorough investigations of specific
topics continued. I should emphasize that the need for an evolutionary
doctrine is driven not by any change in our basic objective, which remains
peace and freedom for all mankind. Rather, the need for change is driven by
the inexorable buildup of Soviet military power and the increasing
propensity of Soviet leaders to use this power in coercion and outright
aggression to impose their will on others.

I have codified our evolving strategic doctrine in a number of interrelated
and mutually supporting Presidential Directives. Their overarching theme is
to provide a doctrinal basis, and the specific program to implement it,
that tells the world that no potential adversary of the United States could
ever conclude that the fruits of his aggression would be significant or
worth the enormous costs of our retaliation.

The Presidential Directives include:

PD-18: An overview of our strategic objectives PD-37: Basic space policy
PD-41: Civil Defense PD-53: Survivability and endurance for
telecommunications PD-57: Mobilization planning PD-58: Continuity of
Government PD-59: Countervailing Strategy for General War.

These policies have been devised to deter, first and foremost, Soviet
aggression. As such they confront not only Soviet military forces but also
Soviet military doctrine. By definition deterrence requires that we shape
Soviet assessments about the risks of war, assessments they will make using
their doctrine, not ours.

But at the same time we in no way seek to emulate their doctrine. In
particular, nothing in our policy contemplates that nuclear warfare could
ever be a deliberate instrument for achieving our own goals of peace and
freedom. Moreover, our policies are carefully devised to provide the
greatest possible incentives and opportunities for future progress in arms
control.

Finally, our doctrinal evolution has been undertaken with appropriate
consultation with our NATO Allies and others. We are fully consistent with
NATO's strategy of flexible response.

FORCES FOR NATO

We are greatly accelerating our ability to reinforce Western Europe with
massive ground and air forces in a crisis. We are undertaking a major
modernization program for the Army's weapons and equipment, adding armor,
firepower, and tactical mobility.

We are prepositioning more heavy equipment in Europe to help us cope with
attacks with little warning, and greatly strengthening our airlift and
sealift capabilities.

We are also improving our tactical air forces, buying about 1700 new
fighter and attack aircraft over the next five years, and increasing the
number of Air Force fighter wings by over 10 percent.

We are working closely with our European allies to secure the Host Nation
Support necessary to enable us to deploy more quickly a greater ratio of
combat forces to the European theater at a lower cost to the United
States.

SECURITY ASSISTANCE

As we move to enhance U.S. defense capabilities, we must not lose sight of
the need to assist others in maintaining their own security and
independence. Events since World War II, most recently in Southwest Asia,
have amply demonstrated that U.S. security cannot exist in a vacuum, and
that our own prospects for peace are closely tied to those of our friends.
The security assistance programs which I am proposing for the coming fiscal
year thus directly promote vital U.S. foreign policy and national security
aims, and are integral parts of our efforts to improve and upgrade our own
military forces.

More specifically, these programs, which are part of our overall foreign
aid request, promote U.S. security in two principal ways. First, they
assist friendly and allied nations to develop the capability to defend
themselves and maintain their own independence. An example during this past
year was the timely support provided Thailand to help bolster that
country's defenses against the large numbers of Soviet-backed Vietnamese
troops ranged along its eastern frontier. In addition, over the years these
programs have been important to the continued independence of other friends
and allies such as Israel, Greece, Turkey and Korea. Second, security
assistance constitutes an essential element in the broad cooperative
relationships we have established with many nations which permit either
U.S. bases on their territory or access by U.S. forces to their facilities.
These programs have been particularly important with regard to the
recently-concluded access agreements with various countries in the Persian
Gulf and Indian Ocean regions and have been crucial to the protection of
our interests throughout Southwest Asia.

RAPID DEPLOYMENT FORCES

We are systematically enhancing our ability to respond rapidly to non-NATO
contingencies wherever required by our commitments or when our vital
interests are threatened.

The rapid deployment forces we are assembling will be extraordinarily
flexible: They could range in size from a few ships or air squadrons to
formations as large as 100,000 men, together with their support. Our forces
will be prepared for rapid deployment to any region of strategic
significance.

Among the specific initiatives we are taking to help us respond to crises
outside of Europe are:

The development of a new fleet of large cargo aircraft with
intercontinental range; the design and procurement of a force of Maritime
Prepositioning Ships that will carry heavy equipment and supplies for three
Marine Corps brigades; the procurement of fast sealift ships to move large
quantities of men and material quickly from the U.S. to overseas areas of
deployment; increasing training and exercise activities to ensure that our
forces will be well prepared to deploy and operate in distant areas.

In addition, our European allies have agreed on the importance of providing
support to U.S. deployments to Southwest Asia.

NAVAL FORCES

Seapower is indispensable to our global position, in peace and also in war.
Our shipbuilding program will sustain a 550-ship Navy in the 1990's and we
will continue to build the most capable ships afloat.

The program I have proposed will assure the ability of our Navy to operate
in high threat areas, to maintain control of the seas and protect vital
lines of communication, both military and economic and to provide the
strong maritime component of our rapid deployment forces. This is essential
for operations in remote areas of the world, where we cannot predict far in
advance the precise location of trouble, or preposition equipment on land.

MILITARY PERSONNEL

No matter how capable or advanced our weapons systems, our military
security depends on the abilities, the training and the dedication of the
people who serve in our armed forces. I am determined to recruit and to
retain under any foreseeable circumstances an ample level of such skilled
and experienced military personnel. This Administration has supported for
FY 1981 the largest peacetime increase ever in military pay and
allowances.

We have enhanced our readiness and combat endurance by improving the
Reserve Components. All reservists are assigned to units structured to
complement and provide needed depth to our active forces. Some reserve
personnel have also now been equipped with new equipment.

MOBILIZATION PLANNING

We have completed our first phase of mobilization planning, the first such
Presidentially-directed effort since World War II. The government-wide
exercise of our mobilization plans at the end of 1980 showed, first, that
planning pays off and, second, that much more needs to be done.

OUR INTELLIGENCE POSTURE

Our national interests are critically dependent on a strong and effective
intelligence capability. We will maintain and strengthen the intelligence
capabilities needed to assure our national security. Maintenance of and
continued improvements in our multi-faceted intelligence effort are
essential if we are to cope successfully with the turbulence and
uncertainties of today's world.

The intelligence budget I have submitted to the Congress responds to our
needs in a responsible way, providing for significant growth over the
Fiscal Year 1981 budget. This growth will enable us to develop new
technical means of intelligence collection while also assuring that the
more traditional methods of intelligence work are also given proper stress.
We must continue to integrate both modes of collection in our analyses.

REGIONAL POLICIES

Every President for over three decades has recognized that America's
interests are global and that we must pursue a global foreign policy.

Two world wars have made clear our stake in Western Europe and the North
Atlantic area. We are also inextricably linked with the Far East,
politically, economically, and militarily. In both of these, the United
States has a permanent presence and security commitments which would be
automatically triggered. We have become increasingly conscious of our
growing interests in a third area, the Middle East and the Persian Gulf
area.

We have vital stakes in other major regions of the world as well. We have
long recognized that in an era of interdependence, our own security and
prosperity depend upon a larger common effort with friends and allies
throughout the world.

THE ATLANTIC ALLIANCE

In recognition of the threat which the Soviet invasion of Afghanistan posed
to Western interests in both Europe and Southwest Asia, NATO foreign and
defense ministers have expressed full support for U.S. efforts to develop a
capability to respond to a contingency in Southwest Asia and have approved
an extensive program to help fill the gap which could be created by the
diversion of U.S. forces to that region.

The U.S. has not been alone in seeking to maintain stability in the
Southwest Asia area and insure access to the needed resources there. The
European nations with the capability to do so are improving their own
forces in the region and providing greater economic and political support
to the residents of the area. In the face of the potential danger posed by
the Iran-Iraq conflict, we have developed coordination among the Western
forces in the area of the Persian Gulf in order to be able to safeguard
passage in that essential waterway.

Concerning developments in and around Poland the allies have achieved the
highest level of cohesion and unity of purpose in making clear the effects
on future East-West relations of a precipitous Soviet act there.

The alliance has continued to build on the progress of the past three years
in improving its conventional forces through the Long-Term Defense Program.
Though economic conditions throughout Europe today are making its
achievement difficult, the yearly real increase of 3 percent in defense
spending remains a goal actively sought by the alliance.

The NATO alliance also has moved forward during the past year with the
implementation of its historic December 1979 decision to modernize its
Theater Nuclear Force capabilities through deployment of improved Pershing
ballistic missiles and ground-launched cruise missiles in Europe. Our
allies continue to cooperate actively with us in this important joint
endeavor, whose purpose is to demonstrate convincingly to the Soviet Union
the potential costs of a nuclear conflict in Europe. At the same time, we
offered convincing evidence of our commitment to arms control in Europe by
initiating preliminary consultations with the Soviet Union in Geneva on the
subject of negotiated limits on long-range theater nuclear forces. Also,
during 1980 we initiated and carried out a withdrawal from our nuclear
weapons stockpile in Europe of 1,000 nuclear warheads. This successful
drawdown in our nuclear stockpile was a further tangible demonstration of
our commitment to the updating of our existing theater nuclear forces in
Europe.

In the NATO area, we continued to work closely with other countries in
providing resources to help Turkey regain economic health. We regretted
that massive political and internal security problems led the Turkish
military to take over the government on September 12. The new Turkish
authorities are making some progress in resolving those problems, and they
have pledged an early return to civilian government. The tradition of the
Turkish military gives us cause to take that pledge seriously. We welcomed
the reestablishment of Greece's links to the integrated military command
structure of the Atlantic Alliance--a move which we had strongly
encouraged--as a major step toward strengthening NATO's vital southern
flank at a time of international crisis and tension in adjacent areas.
Greek reintegration exemplifies the importance which the allies place on
cooperating in the common defense and shows that the allies can make the
difficult decisions necessary to insure their continued security. We also
welcomed the resumption of the intercommunal talks on Cyprus.

THE U.S. AND THE PACIFIC NATIONS

The United States is a Pacific nation, as much as it is an Atlantic nation.
Our interests in Asia are as important to us as our interests in Europe.
Our trade with Asia is as great as our trade with Europe. During the past
four years we have regained a strong, dynamic and flexible posture for the
United States in this vital region.

Our major alliances with Japan, Australia and New Zealand are now stronger
than they ever have been, and together with the nations of western Europe,
we have begun to form the basic political structure for dealing with
international crises that affect us all. Japan, Australia and New Zealand
have given us strong support in developing a strategy for responding to
instability in the Persian Gulf.

Normalization of U.S. relations with China has facilitated China's full
entry into the international community and encouraged a constructive
Chinese role in the Asia-Pacific region. Our relations with China have been
rapidly consolidated over the past year through the conclusion of a series
of bilateral agreements. We have established a pattern of frequent and
frank consultations between our two governments, exemplified by a series of
high-level visits and by regular exchanges at the working level, through
which we have been able to identify increasingly broad areas of common
interest on which we can cooperate.

United States relations with the Association of Southeast Asian Nations
(ASEAN) have also expanded dramatically in the past four years. ASEAN is
now the focus for U.S. policy in Southeast Asia, and its cohesion and
strength are essential to stability in this critical area and beyond.

Soviet-supported Vietnamese aggression in Indo-china has posed a major
challenge to regional stability. In response, we have reiterated our
security commitment to Thailand and have provided emergency security
assistance for Thai forces facing a Vietnamese military threat along the
Thai-Cambodian border. We have worked closely with ASEAN and the U.N. to
press for withdrawal of Vietnamese forces from Cambodia and to encourage a
political settlement in Cambodia which permits that nation to be governed
by leaders of its own choice. We still look forward to the day when
Cambodia peacefully can begin the process of rebuilding its social,
economic and political institutions, after years of devastation and
occupation. And, on humanitarian grounds and in support of our friends in
the region, we have worked vigorously with international organizations to
arrange relief and resettlement for the exodus of Indo-chinese refugees
which threatened to overwhelm these nations.

We have maintained our alliance with Korea and helped assure Korea's
security during a difficult period of political transition.

We have amended our military base agreement with the Philippines, ensuring
stable access to these bases through 1991. The importance of our Philippine
bases to the strategic flexibility of U.S. forces and our access to the
Indian Ocean is self-evident.

Finally, we are in the process of concluding a long negotiation
establishing Micronesia's status as a freely associated state.

We enter the 1980's with a firm strategic footing in East Asia and the
Pacific, based on stable and productive U.S. relations with the majority of
countries of the region. We have established a stable level of U.S.
involvement in the region, appropriate to our own interests and to the
interests of our friends and allies there.

THE MIDDLE EAST AND SOUTHWEST ASIA

The continuing Soviet occupation of Afghanistan and the dislocations caused
by the Iraq-Iran war serve as constant reminders of the critical importance
for us, and our allies, of a third strategic zone stretching across the
Middle East, the Persian Gulf, and much of the Indian subcontinent. This
Southwest Asian region has served as a key strategic and commercial link
between East and West over the centuries. Today it produces two-thirds of
the world's oil exports, providing most of the energy needs of our European
allies and Japan. It has experienced almost continuous conflict between
nations, internal instabilities in many countries, and regional rivalries,
combined with very rapid economic and social change. And now the Soviet
Union remains in occupation of one of these nations, ignoring world opinion
which has called on it to get out.

We have taken several measures to meet these challenges.

MIDDLE EAST

In the Middle East, our determination to consolidate what has already been
achieved in the peace process--and to buttress that accomplishment with
further progress toward a comprehensive peace settlement--must remain a
central goal of our foreign policy. Pursuant to their peace treaty, Egypt
and Israel have made steady progress in the normalization of their
relations in a variety of fields, bringing the benefits of peace directly
to their people. The new relationship between Egypt and Israel stands as an
example of peaceful cooperation in an increasingly fragmented and turbulent
region.

Both President Sadat and Prime Minister Begin remain committed to the
current negotiations to provide full autonomy to the inhabitants of the
West Bank and Gaza. These negotiations have been complex and difficult, but
they have already made significant progress, and it is vital that the two
sides, with our assistance, see the process through to a successful
conclusion. We also recognize the need to broaden the peace process to
include other parties to the conflict and believe that a successful
autonomy agreement is an essential first step toward this objective.

We have also taken a number of steps to strengthen our bilateral relations
with both Israel and Egypt. We share important strategic interests with
both of these countries.

We remain committed to Israel's security and are prepared to take concrete
steps to support Israel whenever that security is threatened.

PERSIAN GULF

The Persian Gulf has been a vital crossroads for trade between Europe and
Asia at many key moments in history. It has become essential in recent
years for its supply of oil to the United States, our allies, and our
friends. We have taken effective measures to control our own consumption of
imported fuel, working in cooperation with the other key industrial /
nations of the world. However, there is little doubt that the healthy
growth of our American and world economies will depend for many years on
continued safe access to the Persian Gulf's oil production. The denial of
these oil supplies would threaten not only our own but world security.

The potent new threat from an advancing Soviet Union, against the
background of regional instability of which it can take advantage, requires
that we reinforce our ability to defend our regional friends and to protect
the flow of oil. We are continuing to build on the strong political,
economic, social and humanitarian ties which bind this government and the
American people to friendly governments and peoples of the Persian Gulf.

We have also embarked on a course to reinforce the trust and confidence our
regional friends have in our ability to come to their assistance rapidly
with American military force if needed. We have increased our naval
presence in the Indian Ocean. We have created a Rapid Deployment Force
which can move quickly to the Gulf--or indeed any other area of the world
where outside aggression threatens. We have concluded several agreements
with countries which are prepared to let us use their airports and naval
facilities in an emergency. We have met requests for reasonable amounts of
American weaponry from regional countries which are anxious to defend
themselves. And we are discussing with a number of our area friends further
ways we can help to improve their security and ours, both for the short and
the longer term.

SOUTH ASIA

We seek a South Asia comprising sovereign and stable states, free of
outside interference, which can strengthen their political institutions
according to their own national genius and can develop their economies for
the betterment of their people.

The Soviet invasion of Afghanistan has posed a new challenge to this
region, and particularly to neighboring Pakistan. We are engaged in a
continuing dialogue with the Pakistan government concerning its development
and security requirements and the economic burden imposed by Afghan
refugees who have fled to Pakistan. We are participating with other aid
consortium members in debt rescheduling and will continue to cooperate
through the UNHCR in providing refugee assistance. We remain committed to
Pakistan's territorial integrity and independence.

Developments in the broad South/Southwest Asian region have also lent a new
importance to our relations with India, the largest and strongest power in
the area. We share India's interest in a more constructive relationship.
Indian policies and perceptions at times differ from our own, and we have
established a candid dialogue with this sister democracy which seeks to
avoid the misunderstandings which have sometimes complicated our ties.

We attach major importance to strong economic assistance programs to the
countries in the area, which include a majority of the poor of the
non-Communist world. We believe that these programs will help achieve
stability in the area, an objective we share with the countries in the
region. Great progress has been achieved by these countries in increasing
food production; international cooperation in harnessing the great river
resources of South Asia would contribute further to this goal and help to
increase energy production.

We continue to give high priority to our non-proliferation goals in the
area in the context of our broad global and regional priorities. The
decision to continue supply of nuclear fuel to the Indian Tarapur reactors
was sensitive to this effort.

AFRICA

The United States has achieved a new level of trust and cooperation with
Africa. Our efforts, together with our allies, to achieve peace in southern
Africa, our increased efforts to help the poorest countries in Africa to
combat poverty, and our expanded efforts to promote trade and investment
have led to growing respect for the U.S. and to cooperation in areas of
vital interest to the United States.

Africa is a continent of poor nations for the most part. It also contains
many of the mineral resources vital for our economy. We have worked with
Africa in a spirit of mutual cooperation to help the African nations solve
their problems of poverty and to develop stronger ties between our private
sector and African economies. Our assistance to Africa has more than
doubled in the last four years. Equally important, we set in motion new
mechanisms for private investment and trade.

Nigeria is the largest country in Black Africa and the second largest oil
supplier to the United States. During this Administration we have greatly
expanded and improved our relationship with Nigeria and other West African
states whose aspirations for a constitutional democratic order we share and
support. This interest was manifested both symbolically and practically by
the visit of Vice President Mondale to West Africa in July (1980) and the
successful visit to Washington of the President of Nigeria in October.

During Vice President Mondale's visit, a Joint Agricultural Consultative
Committee was established, with the U.S. represented entirely by the
private sector. This could herald a new role for the American private
sector in helping solve the world's serious food shortages. I am pleased to
say that our relations with Nigeria are at an all-time high, providing the
foundation for an even stronger relationship in the years ahead.

Another tenet of this Administration's approach to African problems has
been encouragement and support for regional solutions to Africa's
problems. We have supported initiatives by the Organization of African
Unity to solve the protracted conflict in the western Sahara, Chad, and the
Horn. In Chad, the world is watching with dismay as a country torn by a
devastating civil war has become a fertile field for Libya's exploitation,
thus demonstrating that threats to peace can come from forces within as
well as without Africa.

In southern Africa the United States continues to pursue a policy of
encouraging peaceful development toward majority rule. In 1980, Southern
Rhodesia became independent as Zimbabwe, a multiracial nation under a
system of majority rule. Zimbabwean independence last April was the
culmination of a long struggle within the country and diplomatic efforts
involving Great Britain, African states neighboring Zimbabwe, and the
United States.

The focus of our efforts in pursuit of majority rule in southern Africa has
now turned to Namibia. Negotiations are proceeding among concerned parties
under the leadership of U.N. Secretary General Waldheim. This should lead
to implementation of the U.N. plan for self-determination and independence
for Namibia during 1981. If these negotiations are successfully concluded,
sixty-five years of uncertainty over the status of the territory, including
a seven-year-long war, will be ended.

In response to our active concern with issues of importance to Africans,
African states have cooperated with us on issues of importance to our
national interests. African states voted overwhelmingly in favor of the
U.N. Resolution calling for release of the hostages, and for the U.N.
Resolution condemning the Soviet invasion of Afghanistan. Two countries of
Africa have signed access agreements with the U.S. allowing us use of naval
and air facilities in the Indian Ocean.

Africans have become increasingly vocal on human rights. African leaders
have spoken out on the issue of political prisoners, and the OAU is
drafting its own Charter on Human Rights. Three countries in Africa--
Nigeria, Ghana, and Uganda--have returned to civilian rule during the past
year.

U.S. cooperation with Africa on all these matters represents a strong base
on which we can build in future years.

Liberia is a country of long-standing ties with the U.S. and the site of
considerable U.S. investment and facilities. This past April a coup
replaced the government and a period of political and economic uncertainty
ensued. The U.S. acted swiftly to meet this situation. We, together with
African leaders, urged the release of political prisoners, and many have
been released; we provided emergency economic assistance to help avoid
economic collapse, and helped to involve the IMF and the banking community
to bring about economic stability; and we have worked closely with the new
leaders to maintain Liberia's strong ties with the West and to protect
America's vital interests.

NORTH AFRICA

In early 1979, following a Libyan-inspired commando attack on a Tunisian
provincial city, the U.S. responded promptly to Tunisia's urgent request
for assistance, both by airlifting needed military equipment and by making
clear our longstanding interest in the security and integrity of this
friendly country. The U.S. remains determined to oppose other irresponsible
Libyan aspirations. Despairing of a productive dialogue with the Libyan
authorities, the U.S. closed down its embassy in Libya and later expelled
six Libyan diplomats in Washington in order to deter an intimidation
campaign against Libyan citizens in the U.S.

U.S. relations with Algeria have improved, and Algeria has played an
indispensable and effective role as intermediary between Iran and the U.S.
over the hostage issue.

The strengthening of our arms supply relationship with Morocco has helped
to deal with attacks inside its internationally recognized frontiers and to
strengthen its confidence in seeking a political settlement of the Western
Sahara conflict. While not assuming a mediatory role, the U.S. encouraged
all interested parties to turn their energies to a peaceful and sensible
compromise resolution of the war in the Sahara and supported efforts by the
Organization of African Unity toward that end. As the year drew to a close,
the U.S. was encouraged by evolution in the attitudes of all sides, and is
hopeful that their differences will be peacefully resolved in the year
ahead so that the vast economic potential of North Africa can be developed
for the well-being of the people living there.

LATIN AMERICA AND THE CARIBBEAN

The principles of our policies in this hemisphere have been clear and
constant over the last four years. We support democracy and respect for
human rights. We have struggled with many to help free the region of both
repression and terrorism. We have respected ideological diversity and
opposed outside intervention in purely internal affairs. We will act,
though, in response to a request for assistance by a country threatened by
external aggression. We support social and economic development within a
democratic framework. We support the peaceful settlement of disputes. We
strongly encourage regional cooperation and shared responsibilities within
the hemisphere to all these ends, and we have eagerly and regularly sought
the advice of the leaders of the region on a wide range of issues.

Last November, I spoke to the General Assembly of the Organization of
American States of a cause that has been closest to my heart--human
rights. It is an issue that has found its time in the hemisphere. The cause
is not mine alone, but an historic movement that will endure.

At Riobamba, Ecuador, last September four Andean Pact countries, Costa
Rica, and Panama broke new ground by adopting a "Code of Conduct," that
joint action in defense of human rights does not violate the principles of
nonintervention in the internal affairs of states in this hemisphere. The
Organization of American States has twice condemned the coup that
overturned the democratic process in Bolivia and the widespread abuse of
human rights by the regime which seized power. The Inter-American
Commission on Human Rights has gained world acclaim for its dispassionate
reports. It completed two major country studies this year in addition to
its annual report. In a resolution adopted without opposition, the OAS
General Assembly in November strongly supported the work of the Commission.
The American Convention on Human Rights is in force and an Inter-American
Court has been created to judge human rights violations. This convention
has been pending before the Senate for two years; I hope the United States
this year will join the other nations of the hemisphere in ratifying a
convention which embodies principles that are our tradition.

The trend in favor of democracy has continued. During this past year, Peru
inaugurated a democratically elected government. Brazil continues its
process of liberalization. In Central America, Hondurans voted in record
numbers in their first national elections in over eight years. In the
Caribbean seven elections have returned governments firmly committed to the
democratic traditions of the Commonwealth.

Another major contribution to peace in the hemisphere is Latin America's
own Treaty for the Prohibition of Nuclear Weapons. On behalf of the United
States, I signed Protocol I of this Treaty in May of 1977 and sent it to
the Senate for ratification. I urge that it be acted upon promptly by the
Senate in order that it be brought into the widest possible effect in the
Latin American region.

Regional cooperation for development is gaining from Central America to the
Andes, and throughout the Caribbean. The Caribbean Group for Cooperation in
Economic Development, which we established with 29 other nations in 1977,
has helped channel $750 million in external support for growth in the
Caribbean. The recent meeting of the Chiefs of State of the Eastern
Caribbean set a new precedent for cooperation in that region. Mexico and
Venezuela jointly and Trinidad and Tobago separately have established oil
facilities that will provide substantial assistance to their oil importing
neighbors. The peace treaty between El Salvador and Honduras will hopefully
stimulate Central America to move forward again toward economic
integration. Formation of Caribbean/ Central American Action, a private
sector organization, has given a major impetus to improving
people-to-people bonds and strengthening the role of private enterprise in
the development of democratic societies.

The Panama treaties have been in force for over a year. A new partnership
has been created with Panama; it is a model for large and small nations. A
longstanding issue that divided us from our neighbors has been resolved.
The security of the canal has been enhanced. The canal is operating as well
as ever, with traffic through it reaching record levels this year. Canal
employees, American and Panamanian alike, have remained on the job and have
found their living and working conditions virtually unchanged.

In 1980, relations with Mexico continued to improve due in large measure to
the effectiveness of the Coordinator for Mexican Affairs and the expanded
use of the U.S.-Mexico Consultative Mechanism. By holding periodic meetings
of its various working groups, we have been able to prevent mutual concerns
from becoming political issues. The Secretary of State visited Mexico City
in November, and, along with the Mexican Secretary of Foreign Relations,
reviewed the performance of the Consultative Mechanism. The office of the
Coordinator has ensured the implementation of my directive to all agencies
to accord high priority to Mexican concerns. Trade with Mexico rose by
almost 60 percent to nearly $30 billion, making that country our third
largest trading partner.

These are all encouraging developments. Other problems remain, however.

The impact of large-scale migration is affecting many countries in the
hemisphere. The most serious manifestation was the massive, illegal exodus
from Cuba last summer. The Cuban government unilaterally encouraged the
disorderly and even deadly migration of 125,000 of its citizens in complete
disregard for international law or the immigration laws of its neighbors.
Migrations of this nature clearly require concerted action, and we have
asked the OAS to explore means of dealing with similar situations which may
occur in the future.

We have a long-standing treaty with Colombia on Quita Sueno, Roncador, and
Serrano which remains to be ratified by the Senate.

In Central America, the future of Nicaragua is unclear. Recent tensions,
the restrictions on the press and political activity, an inordinate Cuban
presence in the country and the tragic killing by the security forces of a
businessman well known for his democratic orientation, cause us
considerable concern. These are not encouraging developments. But those who
seek a free society remain in the contest for their nation's destiny. They
have asked us to help rebuild their country, and by our assistance, to
demonstrate that the democratic nations do not intend to abandon Nicaragua
to the Cubans. As long as those who intend to pursue their pluralistic
goals play important roles in Nicaragua, it deserves our continuing
support.

In El Salvador, we have supported the efforts of the Junta to change the
fundamental basis of an inequitable system and to give a stake in a new
nation to those millions of people, who for so long, lived without hope or
dignity. As the government struggles against those who would restore an old
tyranny or impose a new one, the United States will continue to stand
behind them.

We have increased our aid to the Caribbean, an area vital to our national
security, and we should continue to build close relations based on mutual
respect and understanding, and common interests.

As the nations of this hemisphere prepare to move further into the 1980's,
I am struck by the depth of underlying commitment that there is to our
common principles: non-intervention, peaceful settlement of disputes,
cooperation for development, democracy and defense of basic human rights. I
leave office satisfied that the political, economic, social and
organizational basis for further progress with respect to all these
principles have been substantially strengthened in the past four years. I
am particularly reassured by the leadership by other nations of the
hemisphere in advancing these principles. The success of our common task of
improving the circumstances of all peoples and nations in the hemisphere
can only be assured by the sharing of responsibility. I look forward to a
hemisphere that at the end of this decade has proven itself anew as a
leader in the promotion of both national and human dignity.

THE INTERNATIONAL ECONOMY

A growing defense effort and a vigorous foreign policy rest upon a strong
economy here in the United States. And the strength of our own economy
depends upon our ability to lead and compete in the international
marketplace.

ENERGY

Last year, the war between Iraq and Iran led to the loss of nearly 4
million barrels of oil to world markets, the third major oil market
disruption in the past seven years. This crisis has vividly demonstrated
once again both the value of lessened dependence on oil imports and the
continuing instability of the Persian Gulf area.

Under the leadership of the United States, the 21 members of the
International Energy Agency took collective action to ensure that the oil
shortfall stemming from the Iran-Iraq war would not be aggravated by
competition for scarce spot market supplies. We are also working together
to see that those nations most seriously affected by the oil disruption--
including our key NATO allies Turkey and Portugal--can get the oil they
need. At the most recent IEA Ministerial meeting we joined the other
members in pledging to take those policy measures necessary to slice our
joint oil imports in the first quarter of 1981 by 2.2 million barrels.

Our international cooperation efforts in the energy field are not limited
to crisis management. At the Economic Summit meetings in Tokyo and Venice,
the heads of government of the seven major industrial democracies agreed to
a series of tough energy conservation and production goals. We are working
together with all our allies and friends in this effort.

Construction has begun on a commercial scale coal liquefaction plant in
West Virginia co-financed by the United States, Japan and West Germany. An
interagency task force has just reported to me on a series of measures we
need to take to increase coal production and exports. This report builds on
the work of the International Energy Agency's Coal Industry Advisory Board.
With the assurances of a reliable United States steam coal supply at
reasonable prices, many of the electric power plants to be built in the
1980's and 1990's can be coal-fired rather than oil-burning.

We are working cooperatively with other nations to increase energy security
in other areas as well. Joint research and development with our allies is
underway in solar energy, nuclear power, industrial conservation and other
areas. In addition, we are assisting rapidly industrializing nations to
carefully assess their basic energy policy choices, and our development
assistance program helps the developing countries to increase indigenous
energy production to meet the energy needs of their poorest citizens. We
support the proposal for a new World Bank energy affiliate to these same
ends, whose fulfillment will contribute to a better global balance between
energy supply and demand.

INTERNATIONAL MONETARY POLICY

Despite the rapid increase in oil costs, the policy measures we have taken
to improve domestic economic performance have had a continued powerful
effect on our external accounts and on the strength of the dollar. A strong
dollar helps in the fight against inflation.

There has also been considerable forward movement in efforts to improve the
functioning of the international monetary system. The stability of the
international system of payments and trade is important to the stability
and good health of our own economy. We have given strong support to the
innovative steps being taken by the International Monetary Fund and World
Bank to help promote early adjustment to the difficult international
economic problems. Recent agreement to increase quotas by fifty percent
will ensure the IMF has sufficient resources to perform its central role in
promoting adjustment and financing payments imbalances. The World Bank's
new structural adjustment lending program will also make an important
contribution to international efforts to help countries achieve a
sustainable level of growth and development.

SUGAR

In 1980, Congress passed U.S. implementing legislation for the
International Sugar Agreement, thus fulfilling a major commitment of this
Administration. The agreement is an important element in our international
commodity policy with far-reaching implications for our relations with
developing countries, particularly sugar producers in Latin America.
Producers and consumers alike will benefit from a more stable market for
this essential commodity.

COFFEE

At year's end, Congress approved implementing legislation permitting the
U.S. to carry out fully its commitments under International Coffee
Agreement Specifically, the legislation enables us to meet our part of an
understanding negotiated last fall among members of the Agreement, which
defends, by use of export quotas, a price range well below coffee prices of
previous years and which commits major coffee producers to eliminate cartel
arrangements that manipulated future markets to raise prices. The way is
now open to a fully-functioning International Coffee Agreement which can
help to stabilize this major world commodity market. The results will be
positive for both consumers--who will be less likely to suffer from sharp
increases in coffee prices--and producers--who can undertake future
investment with assurance of greater protection against disruptive price
fluctuations in their exports.

NATURAL RUBBER

In 1980, the International Natural Rubber Agreement entered into force
provisionally. U.S. membership in this new body was approved overwhelmingly
by the Senate last year. The natural rubber agreement is a model of its
kind and should make a substantial contribution to a stable world market in
this key industrial commodity. It is thus an excellent example of
constructive steps to improve the operation of the world economy in ways
which can benefit the developing and industrialized countries alike. In
particular, the agreement has improved important U.S. relationships with
the major natural rubber-producing countries of Southeast Asia.

COMMON FUND

The United States joined members of the United Nations Conference on Trade
and Development, both developed and developing nations, in concluding
Articles of Agreement in 1980 for a Common Fund to help international
commodity agreements stabilize the prices of raw materials.

ECONOMIC COOPERATION WITH DEVELOPING NATIONS

Our relations with the developing nations are of major importance to the
United States. The fabric of our relations with these countries has strong
economic and political dimensions. They constitute the most rapidly growing
markets for our exports, and are important sources of fuel and raw
materials. Their political views are increasingly important, as
demonstrated in their overwhelming condemnation of the Soviet invasion of
Afghanistan. Our ability to work together with developing nations toward
goals we have in common (their political independence, the resolution of
regional tensions, and our growing ties of trade for example) require us to
maintain the policy of active involvement with the developing world that we
have pursued over the past four years.

The actions we have taken in such areas as energy, trade, commodities, and
international financial institutions are all important to the welfare of
the developing countries. Another important way the United States can
directly assist these countries and demonstrate our concern for their
future is through our multilateral and bilateral foreign assistance
program. The legislation which I will be submitting to you for FY 82
provides the authority and the funds to carry on this activity. Prompt
Congressional action on this legislation is essential in order to attack
such high priority global problems as food and energy, meet our treaty and
base rights agreements, continue our peace efforts in the Middle East,
provide economic and development support to countries in need, promote
progress on North-South issues, protect Western interests, and counter
Soviet influence.

Our proposed FY 1982 bilateral development aid program is directly
responsive to the agreement reached at the 1980 Venice Economic Summit that
the major industrial nations should increase their aid for food and energy
production and for family planning. We understand that other Summit
countries plan similar responses. It is also important to honor our
international agreements for multilateral assistance by authorizing and
appropriating funds for the International Financial Institutions. These
multilateral programs enhance the efficiency of U.S. contributions by
combining them with those of many other donor countries to promote
development; the proposed new World Bank affiliate to increase energy
output in developing countries offers particular promise. All these types
of aid benefit our long-run economic and political interests.

Progress was made on a number of economic issues in negotiations throughout
the U.N. system. However, in spite of lengthy efforts in the United
Nations, agreement has not been reached on how to launch a process of
Global Negotiations in which nations might collectively work to solve such
important issues as energy, food, protectionism, and population pressures.
The United States continues to believe that progress can best be made when
nations focus on such specific problems, rather than on procedural and
institutional questions. It will continue to work to move the North-South
dialogue into a more constructive phase.

FOOD--THE WAR ON HUNGER

The War on Hunger must be a continuous urgent priority. Major portions of
the world's population continue to be threatened by the specter of hunger
and malnutrition. During the past year, some 150 million people in 36
African countries were faced with near disaster as the result of serious
drought, induced food shortages. Our government, working in concert with
the U.N.'s Food and Agricultural Organization (FAO), helped to respond to
that need. But the problems of hunger cannot be solved by short-term
measures. We must continue to support those activities, bilateral and
multilateral, which aim at improving food production especially in
developing countries and assuring global food security. These measures are
necessary to the maintenance of a stable and healthy world economy.

I am pleased that negotiation of a new Food Aid Convention, which
guarantees a minimum annual level of food assistance, was successfully
concluded in March. The establishment of the International Emergency Wheat
Reserve will enable the U.S. to meet its commitment under the new
Convention to feed hungry people, even in times of short supply.

Of immediate concern is the prospect of millions of Africans threatened by
famine because of drought and civil disturbances. The U.S. plea for
increased food aid resulted in the organization of an international
pledging conference and we are hopeful that widespread starvation will be
avoided.

Good progress has been made since the Venice Economic Summit called for
increased effort on this front. We and other donor countries have begun to
assist poor countries develop long-term strategies to improve their food
production. The World Bank will invest up to $4 billion in the next few
years in improving the grain storage and food-handling capacity of
countries prone to food shortages.

Good progress has been made since the Tokyo Economic Summit called for
increased effort on this front. The World Bank is giving this problem top
priority, as are some other donor countries. The resources of the
consultative Group on International Agricultural Research will be doubled
over a five-year period. The work of our own Institute of Scientific and
Technological Cooperation will further strengthen the search for relevant
new agricultural technologies.

The goal of freeing the world from hunger by the year 2000 should command
the full support of all countries.

The Human Dimension of Foreign Policy

HUMAN RIGHTS

The human rights policy of the United States has been an integral part of
our overall foreign policy for the past several years. This policy serves
the national interest of the United States in several important ways: by
encouraging respect by governments for the basic rights of human beings, it
promotes peaceful, constructive change, reduces the likelihood of internal
pressures for violent change and for the exploitation of these by our
adversaries, and thus directly serves our long-term interest in peace and
stability; by matching espousal of fundamental American principles of
freedom with specific foreign policy actions, we stand out in vivid
contrast to our ideological adversaries; by our efforts to expand freedom
elsewhere, we render our own freedom, and our own nation, more secure.
Countries that respect human rights make stronger allies and better
friends.

Rather than attempt to dictate what system of government or institutions
other countries should have, the U.S. supports, throughout the world, the
internationally recognized human rights which all members of the United
Nations have pledged themselves to respect. There is more than one model
that can satisfy the continuing human reach for freedom and justice:

1980 has been a year of some disappointments, but has also seen some
positive developments in the ongoing struggle for fulfillment of human
rights throughout the world. In the year we have seen:

--Free elections were held and democratic governments installed in Peru,
Dominica, and Jamaica. Honduras held a free election for installation of a
constituent assembly. An interim government was subsequently named pointing
toward national presidential elections in 1981. Brazil continues on its
course of political liberalization.

--The "Charter of Conduct" signed in Riobamba, Ecuador, by Ecuador,
Colombia, Venezuela, Peru, Costa Rica, Panama and Spain, affirms the
importance of democracy and human rights for the Andean countries.

--The Organization of American States, in its annual General Assembly,
approved a resolution in support of the Inter-American Human Rights
Commission's work. The resolution took note of the Commission's annual
report, which described the status of human rights in Chile, El Salvador,
Paraguay and Uruguay; and the special reports on Argentina and Haiti, which
described human rights conditions as investigated during on-site
inspections to these countries.

--The awarding of the Nobel Prize for Peace to Adolfo Perez Esquivel of
Argentina for his non-violent advocacy of human rights.

--The United States was able to rejoin the International Labor
Organization after an absence of two years, as that U.N. body reformed its
procedures to return to its original purpose of strengthening
employer-employee-government relations to insure human rights for the
working people of the world.

The United States, of course, cannot take credit for all these various
developments. But we can take satisfaction in knowing that our policies
encourage and perhaps influence them.

Those who see a contradiction between our security and our humanitarian
interests forget that the basis for a secure and stable society is the bond
of trust between a government and its people. I profoundly believe that the
future of our world is not to be found in authoritarianism: that wears the
mask of order, or totalitarianism that wears the mask of justice. Instead,
let us find our future in the human face of democracy, the human voice of
individual liberty, the human hand of economic development.

HUMANITARIAN AID

The United States has continued to play its traditional role of safehaven
for those who flee or are forced to flee their homes because of persecution
or war. During 1980, the United States provided resettlement opportunities
for 216,000 refugees from countries around the globe. In addition, the
United States joined with other nations to provide relief to refugees in
country of first asylum in Africa, the Middle East, and Asia.

The great majority of refugee admissions continued to be from Indo-china.
During 1980, 168,000 Indo-chinese were resettled in the United States.
Although refugee populations persist in camps in Southeast Asia, and
refugees continue to flee Vietnam, Laos and Kampuchea, the flow is not as
great as in the past. One factor in reducing the flow from Vietnam has been
the successful negotiation and commencement of an Orderly Departure Program
which permits us to process Vietnamese for resettlement in the United
States with direct departure from Ho Chi Minh Ville in an orderly fashion.
The first group of 250 departed Vietnam for the United States in December,
1980.

In addition to the refugees admitted last year, the United States accepted
for entry into the United States 125,000 Cubans who were expelled by Fidel
Castro. Federal and state authorities, as well as private voluntary
agencies, responded with unprecedented vigor to coping with the unexpected
influx of Cubans.

Major relief efforts to aid refugees in countries of first asylum continued
in several areas of the world. In December, 1980, thirty-two nations,
meeting in New York City, agreed to contribute $65 million to the
continuing famine relief program in Kampuchea. Due in great part to the
generosity of the American people and the leadership exercised in the
international arena by the United States, we have played the pivotal role
in ameliorating massive suffering in Kampuchea.

The United States has taken the lead among a group of donor countries who
are providing relief to some two million refugees in the Horn of Africa who
have been displaced by fighting in Ethiopia. U.S. assistance, primarily to
Somalia, consists of $35 million worth of food and $18 million in cash and
kind. Here again, United States efforts can in large part be credited with
keeping hundreds of thousands of people alive.

Another major international relief effort has been mounted in Pakistan. The
United States is one of 25 countries plus the European Economic Community
who have been helping the Government of Pakistan to cope with the problem
of feeding and sheltering the more than one million refugees that have been
generated by the Soviet invasion of Afghanistan.

In April, 1980, the Congress passed the Refugee Act of 1980 which brought
together, for the first time, in one piece of legislation the various
threads of U.S. policy towards refugees. The law laid down a new, broader
definition of the term refugee, established mechanisms for arriving at a
level of refugee admissions through consultation with Congress, and
established the Office of the United States Coordinator for Refugees.

It cannot be ignored that the destructive and aggressive policies of the
Soviet Union have added immeasurably to the suffering in these three tragic
situations.

The Control of Nuclear Weapons

Together with our friends and allies, we are striving to build a world in
which peoples with diverse interests can live freely and prosper. But all
that humankind has achieved to date, all that we are seeking to accomplish,
and human existence itself can be undone in an instant--in the catastrophe
of a nuclear war.

Thus one of the central objectives of my Administration has been to control
the proliferation of nuclear weapons to those nations which do not have
them, and their further development by the existing nuclear powers--
notably the Soviet Union and the United States.

NON-PROLIFERATION

My Administration has been committed to stemming the spread of nuclear
weapons. Nuclear proliferation would raise the spectre of the use of
nuclear explosives in crucial, unstable regions of the world endangering
not only our security and that of our Allies, but that of the whole world.
Non-proliferation is not and can not be a unilateral U.S. policy, nor
should it be an issue of contention between the industrialized and
developing states. The international non-proliferation effort requires the
support of suppliers as well as importers of nuclear technology and
materials.

We have been proceeding on a number of fronts:

--First, we have been seeking to encourage nations to accede to the
Non-Proliferation Treaty. The U.S. is also actively encouraging other
nations to accept full-scope safeguards on all of their nuclear activities
and is asking other nuclear suppliers to adopt a full-scope safeguards
requirement as a condition for future supply.

--Second, the International Nuclear Fuel Cycle Evaluation (INFCE), which
was completed in 1980, demonstrated that suppliers and recipients can work
together on these technically complex and sensitive issues. While
differences remain, the INFCE effort provides a broader international basis
for national decisions which must balance energy needs with
non-proliferation concerns.

--Finally, we are working to encourage regional cooperation and restraint.
Protocol I of the Treaty of Tlatelolco which will contribute to the
lessening of nuclear dangers for our Latin American neighbors ought now to
be ratified by the United States Senate.

LIMITATIONS ON STRATEGIC ARMS

I remain convinced that the SALT II Treaty is in our Nation's security
interest and that it would add significantly to the control of nuclear
weapons. I strongly support continuation of the SALT process and the
negotiation of more far-reaching mutual restraints on nuclear weaponry.

CONCLUSION

We have new support in the world for our purposes of national independence
and individual human dignity. We have a new will at home to do what is
required to keep us the strongest nation on earth.

We must move together into this decade with the strength which comes from
realization of the dangers before us and from the confidence that together
we can overcome them.  The White House, January 16, 1981.