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a guy wrote, when restoring a C3, attention must be paid to everything made of rubber fluid travels through...Especially weatherstripping and T-top seals...
The green is zinc chromate. You won't find a better pre-mixed primer. It is toxic, so spraying your birdcage inside your garage may not be advisable. I use it on anything I can remove from the car, though, such as the center armrest support.
I'd suggest wire wheeling what you can, then using Ospho to convert what is left (brush on, protect your carpets). Alcohol wipe when done. Then what paint over that? I can't say.
The Ospho recommended is good stuff. You can brush or spray it. Just don't let it puddle on your garage floor. It is an acid and will etch the crap out of concrete.
For anything painted not exposed to direct sunlight, POR 15 is great stuff. Just don't get any of that on you. Nothing takes it off, you'll be wearing it for a while if you do.
It's rotted under/between the rubber bushings and is hidden under everything removed and cleaned up. Very common on any vehicle to remove a body bushings and find bad rust under it while surrounding areas look good.
The water getting in your hinge post is more than likely coming form the gusset that is pop riveted to your birdcage where the ends of your top hood surround are bonded to.
That looks very similar to what I found on the passenger side of my '79. Fortunately and a bit surprisingly it cleaned off very well with wire wheels and brushes. I really like Rust Bullet. In my case the culprit was a poorly installed replacement windshield. I was lucky to find (during weatherstrip replacement) and repair the problem before it became truly serious.
YES...the 'rust encapsulating' products DO WORK. And many companies offer them such as SEM, Mar-Hyde and so on.
The 'trick' to using these products is to follow the instructions on how to prep the metal and make sure all of the major scale rust is removed by what ever method you can use to remove it.
POR-15 is also a great product but it does require using an acid etch and in some areas is not the best method to use due to having to wash the area out and get it totally DRY before applying the POR-15. So possibly needing to blow the area out with compressed air and using a heat gun to get the rest of the moisture out may be required due to lap joints. It works but may require in some areas to allow for more prep time.