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Commerce Department - Foreign Direct Investment,1969
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The original documents are located in Box A6, folder "Commerce Department - Foreign
Direct Investment, 1969" of the Arthur F. Burns Papers at the Gerald R. Ford Presidential
Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Dr. Burns donated to the United States
of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
U.S. DEPARTMENT OF COMMERCE
DIPARTMENT OF COMMERCE
EXECUTIVE ASSISTANT TO THE SECRETARY
UNITED STATES OF AMERICA
3/19/69
To : Hon. Arthur Burns
From: J. T. Dykman
AD
FORD i LIBRARY 076839
Through an administrative oversight,
we failed to send your office a copy
of the attached letter to Secretary
Rogers from Secretary Stans.
The attached is in reference to the
President's memorandum of Feb. 13
to Secretary Rogers and is in
connection with Section XVIII-2,
Foreign Aid, of your report.
Attachment
TRANSMITTAL FORM CD-82A (10-67)
USCOMM-DC 1232-P67
12 MAR 1969
Honorable William P. Rogers
Secretary of State
GERAL FORD LIBRARY
Washington, D. C. 20520
Dear Mr. Secretary:
The President has asked me to transmit to you this Department's views
on the proposal for a Federally-chartered private enterprise corpora-
tion to promote private investment in the developing countries.
I have accordingly asked my staff to review the proposal presented in
the Report of the International Private Investment Advisory Council
(IPIAC) entitled "The Case for a U.S. Overseas Private Enterprise
Development Corporation. " I understand that the IPIAC proposal is
essentially the same as the one advanced by Senator Javits and
included in the draft proposal for creating a Department of Peace.
I am transmitting a copy of the staff review with this letter and
hope you will find it of interest.
My preliminary judgment is that there is scant evidence that the pro-
posed corporation will help significantly to stimulate new private
activity in the developing countries or impart a new direction to U.S.
foreign assistance programs. These objectives, I believe, are para-
mount in any consideration of a change in U.S. foreign assistance
machinery.
Moreover, I can foresee some possible disadvantages in creating an
independent corporation to carry on some current assistance activi-
ties. Present coordination of relevant Government programs in the
commercial and balance of payments areas, necessary to help meet
broader national objectives, might be lost by the proposed change.
I would also expect some adverse repercussions from any attempt to
set up a new entity outside usual budgetary controls and to invest
it with borrowing authority.
On balance and given the weight of other relevant considerations, I
would not favor creation of a private enterprise corporation on the
- 2 -
basis of the case made in the IPIAC proposal. I would, however, want
to state clearly that I en in favor of & fresh, private enterprise
approach to meeting developing country problems and would support a
U.S. private development corporation that would overcome the problems
and objections outlined above.
Sincerely yours,
FORD LIBRARY & 078830
Secretary of Commerce
Enclosure
FORD
GERALD
LIBRARY
Creation of a Federally-Chartered Private Enterprise Corporation
Proposal
1. The most recent formulation of the proposal for creating an inde-
pendent private enterprise investment corporation within the Federal
establishment is presented in the Report of the International Private
Investment Advisory Council (IPIAC) entitled "The case for a U.S.
Overseas Private Enterprise Development Corporation." In essence, the
proposed corporation would (a) take over AID's present private invest-
ment, insurance, investment promotion, and private financing activities;
(b) be authorized to borrow both from the Treasury and in the capital
markets, backed by full U.S. Government guarantees; (c) be assigned the
proceeds of certain outstanding AID loans and guarantees; and (a) oper-
ate outside present civil service regulations, budgetary limitations,
and inter-agency and intra-AID clearances and safeguards.
2. A corporate structure is recommended by IPIAC on grounds that the
functions to be assumed (a) are of a business-like nature; (b) are reve-
nue producing and potentially self-sustaining; (c) involve extensive.
dealings with the public; and (d) require greater flexibility than
afforded by annual budgets and appropriations, civil service regulations,
and inter-agency coordination.
Assessment
3. Stimulating private investment and entrepreneurial skills in the
developing countries is of undoubted importance to the United States.
However, this objective must be weighed against competing and contradic-
tory resource demands and program objectives, including an improvement
in the U.S. balance of payments and the application of limited capital
resources to domestic needs. To move ahead with a private investment
corporation at this time would be to prejudge relative national
priorities.
4. It is equally important to give new focus and direction to U.S.
foreign assistance programs. However, the proposed corporation would
represent mainly a regrouping of existing programs and would seem to
lack any real or apparent new initiatives or direction.
5. The principal advantage to be gained from the proposal is greater
overall flexibility. Corporate status would provide non-appropriated
funding and freedom from strictures presently operative over the broad
range of Federal programs. An attempt to secure borrowing authority
for a new Government corporation would likely encounter traditional
Congressional opposition to "back-door" spending and might even reopen
this issue, with potentially adverse repercussions on the Eximbank and
other affected agencies. If administrative and budgetary flexibility
is essential to the success of the investment, guarantee, insurance,
- 2 -
GERALD FORD LIBRARY
and credit programs, consideration might be given to lodging these
activities in the Eximbank. The Bank's present credit and guarantee
operations involve essentially the same type of project, economic,
and financial analysis required for investment guarantees; and the
Bank has the high quality, professional staff that IPIAC would hope
could be attracted by the new corporation. Moreover, presentinter-
agency clearance and coordination arrangements, while time-consuming,
seek to ensure that U.S. assistance programs operate in a way that
serve a broader spectrum of national policies objectives. A case in
point is the "additionality" effort which is intended to ensure that
commercial exports are not displaced by aid-financed transactions,
with consequent adverse balance of payments effects. This national
policy purview and influence would likely be lost if an independent
corporation were established to carry on certain foreign assistance
programs.
6. The basic objective of the proposed corporation is presumed to be .
the stimulation of private investment in the developing countries.
The IPIAC report recognizes, however, that "organizing a new corpora-
tion cannot itself directly produce a quantum increase in the volume
of direct U.S. private capital flows. " It goes on to say that "better
organization should lead to better staffing and improved programs
and, over time, should mobilize significant increased new investment
each year. This conclusion is at variance with the experience of the
numerous private and public investment development institutions in the
United States and in other countries that are already attempting the
same type of investment promotion and stimulation -- in many cases
with AID financial support -- being proposed for this new corporation.
7. Experience of these organizations indicates that the basic problem
in the private investment area is not on the capital supply side but
is the paucity of sound and potentially-profitable investment oppor-
tunities in the developing countries. Where genuine investment oppor-
tunities exist, U.S. businessmen are generally pretty quick to move In
on them. Hence, the problem of greater private investment in the
developing countries is not greatly influenced by, or responsive to,
the form of the creditor countries' investment guarantee/promotion
vehicle. Given these observations, there is reason to doubt that the
corporation could do more to stimulate private investment than AID can
do with its present organizational structure.
8. A further difficulty with the proposed corporation -- and with the
present AID investment effort -- is the fact that its investment/
developing-country orientation fails to comprehend the viewpoint and
approach of businessmen interested in undertaking overseas activities.
Commerce experience with the U.S. business community indicates that
businessmen do not focus narrowly oninvestment and on developing
FORD
- 3 -
GERALD
LIBRARY
countries to the exclusion of other areas and alternative marketing
techniques. Basically, their focus is global, not only developing
countries; their basic interest is market penetration; and they view
overseas business as a range of alternatives starting with exporting,
extending to agent arrangements and licensing, and ending possibly
with investment. In a substantial number of cases, investment is,
therefore, a final stage which may be reached only after a market has
been extensively tested by exports.
9. This global and more encompassing view of overseas commercial
relationships is, in fact, mirrored in the range of services provided
by Commerce to the business community. In addition to major programs
to provide general and specific information on overseas markets, this
Department has modest but active investment and licensing information
and promotion programs which gather from all U.S. overseas posts ---
and particularly those in the developing countries -- licensing, joint
venture and direct investment proposals which are widely disseminated
through publications and direct contacts to business firms expressly
or potentially interested in such overseas ventures. These programs,
which handled some 2,400 licensing and investment proposals in FY 1968,
were assigned to the Commerce Department by the Foreign Assistance Act
of 1961 (as amended) and Executive Order No. 10973 (as amended) in
recognition of the Department's extensive contacts with and knowledge
of the business community. To the extent that these programs are
duplicated by similar programs in AID, the latter could readily be
transferred to Commerce without any hiatus in service but with the
prospects of improved program coverage.
Conclusions
10. The relative priorities of attempting to promote U.S. investment
abroad vis-a-vis alternative and possibly conflicting national objec-
tives, such as balance of payments improvements and domestic invest-
ment alternatives, should be established before the corporation
proposal is advanced.
11. The corporation is principally a new receptacle for old programs
and would not impart the desired new direction and image to U.S. for-
eign assistance activities.
12. The IPIAC case for a private enterprise corporation is weak and
rests principally on the potential advantages of greater flexibility.
Such flexibility might, however, be costly in terms of the loss of
program concurrence with broader U.S. policy objectives and in reopen-
ing broader issues of Eximbank borrowing authority.
13. Experience of other investment-promoting entities indicates that
the problem of LDC investment is not amenable to such considerations
- 4 -
as the form of the creditor instrument since it arises basically from
a paucity of investment opportunities.
14. The effectiveness of the proposed corporation is also open to
question because the focus of its programs are not in accord with
the manner in which businessmen consider prospective overseas activities.
Recommendation
15. It is recommended that the Commerce Department indicate that it
does not favor establishment of the proposed private enterprise cor-
poration. This position is in consonance with the Department's
position on similar proposals that have been introduced during the
past several years.
March 4, 1969
FORM CD-183
U.S. DEPARTMENT OF COMMERCE
(5-8-63)
FORMERL Y SEC-350
ABSTRACT OF SECRETARIAL CORRESPONDENCE
X
The Secretary
TO:
The Under Secretary
arthur
From: William H. Chartener, Assistant Secretary for
Economic Affairs
SUMMARY: Remarks on letter from Arthur Burns transmitting
comments on the OBE Census of Foreign Direct
Investment
FORD i LIBRARY GERALD
In letter to your
many 3/20/69
PREPARED BY
CLEARED BY
CLEARED BY
CLEARED BY
CLEARED BY
CLEARED BY
SURNAME AND
ORGANIZATION
WHChartener
(Typed)
AS/EA
INITIALS AND
3-18-69
AND
DATE
WHC/grA
9116
USCOMM-DC 1234-P63
DEPARTMENT OF COMMERCE
THE ASSISTANT SECRETARY OF COMMERCE
UNITED STATES OF AMERICA
WASHINGTON, D.C. 20230
March 18, 1969
FORD LIBRARY & GERALD
MEMORANDUM FOR THE SECRETARY
Subject: Letter from Arthur Burns Transmitting Comments on
the OBE Census of Foreign Direct Investment
I am not completely surprised by the communications transmitted
by Arthur Burns. However, some of the comments made by Dr. Burns'
unidentified correspondent are unwarranted or unrealistic. The
formal letter by Mr. Lary is more balanced. I have reviewed the
comments carefully with George Jaszi, and you may feel free to
send this memorandum along to Dr. Burns for use at his discretion.
You may recall that I adverted to problems of delay in connection
with the foreign investment census in a general memorandum I
prepared for you on January 21. In my own memorandum and in
both communications cited by Dr. Burns, the thin staffing of
the Balance of Payments Division is cited as a major reason for
delay in completion of the project. It is doubtful if much can
be accomplished now toward speeding completion of the project
without addition of skilled staff members - particularly some
with accounting expertise.
Several weeks ago I had a lengthy discussion with top staff
members of OBE to explore what might be done to accelerate
completion of the foreign investment census. This discussion
was partly in response to comments that had come directly to
my office from Dr. Lary and his associates and more importantly
because of the needs of OFDI for basic data. The result has
been agreement on a timetable for completion of various phases,
the first to come this summer.
Undoubtedly, there are some lessons in this experience that
should be kept in mind when the next survey of this type is
undertaken. For instance, in retrospect OBE may have erred
on the side of detail in data at the expense of early availa-
bility of results.
- 2 -
OBE expressed a degree of amazement over the quotations from
the letter of the unidentified correspondent. Nobody connected
with the National Bureau and, for that matter, no outsider has
evaluated the work on the census of direct investment, or on
other surveys conducted on quarterly or annual questionnaires
used by the Balance of Payments Division to prepare the current
balance of payments compilations.
The processing of the census has been complicated by three
factors.
-First, the number of questionnaires returned turned out
to be much larger than had been expected.
--Second, the census is unusually complex. It involves
the accuracy and comparability of financial data collected
from the over 20,000 foreign organizations operating with
different accounting systems and in different currencies
and languages, and the most intricate kinds of financial
GERALD FORD LIBRARY
and other intercorporate relationships. The principal
cause of delay is the process of reviewing this large
quantity of complex data. It is a job for trained and
skilled workers, and cannot be very greatly accelerated.
It is, moreover, not a job that can be avoided if the
results are to be of value. It precedes and cannot be
displaced by data processing in the computer.
--Third, from the very beginning the project has been
plagued by employment ceilings and restrictions. At
present they are as tight as they ever have been and
are threatening to get worse.
In spite of these handicaps - the staff working on that job,
including professional and clerical personnel, is currently
limited to nine people - progress so far has not been sig-
nificantly slower than the progress on similar large-scale
surveys generally is. Detailed results from the last Census
of Manufactures, for instance, were published three years after
the year covered (1966 for the 1963 census) and the last Labor
Department consumer expenditure survey results appeared four
years after the year covered.
I do not agree with the view that OBE's operation is inefficient
and that the processing of this particular census could be
undertaken more efficiently by the Census Bureau. Given the
intricacies of the investment census, I am inclined to believe
that OBE, with its expertise in the work on U.S. direct invest-
ments abroad, can do a better job than other organizations
- 3 -
FORD & LIBRARY GERALD
could do. At this stage in the present survey, it would clearly
be pointless to suggest transferring further processing to the
Census Bureau.
Incidentally, the remarks about the inefficiency of OBE's
operations on its quarterly survey and on its computer operation
are not well founded. The quarterly surveys are processed with
great efficiency and speed. They are, in fact, tabulated and
ready for publication within one or two days after the last
reports are received. OBE's computer operation, although on a
small scale, is an unusually efficient one. As a matter of
fact, the OBE staff achieved a major breakthrough in computer
techniques with the development of a simplified programming
language which has been widely acclaimed. The computer manu-
facturer is now using this programming language as a selling
point for its equipment.
As to the timetable for the foreign direct investment census,
OBE expects to complete the first phase of it by July and will
be ready to make the results available to the public with only
one proviso. If major and intractable inconsistencies between
the census results and other sources of information (OBE's
quarterly surveys and OFDI's reports) should emerge, publication
would have to be delayed until large discrepancies between
alternative data sources could be straightened out.
The results that will be ready in July cover the most important
items of the foreign direct investment census - namely, all
items that enter directly into the balance of payments computations.
These consist of capital flows, investment income, royalties,
etc. OBE has also worked out a time schedule on which the
further installments of information contained in the census will
be completed. OBE plans to release these data in six separate
publications over the next three years with the final summary
publication available in June 1972.
This schedule should be faster, but I doubt that OBE can meet
even this timetable if it is hampered by the current employment
restrictions. OBE - a small organization - is now ten below
its normal complement, and the attrition will continue as further
separations occur which can only be partly filled. I would
strongly recommend that OBE be exempted from the employment
ceiling so as to expedite the work. If resources elsewhere in
the Department perhaps in OFDI, which is greatly interested
in the census results - could be found that could be made avail-
able to strengthen the work, this would further speed up the
completion of the census.
- 4 -
Beyond this suggestion, I can only say that both my office
and OBE are acutely aware of the need to make as rapid
progress as possible toward the completion of this important
study and that we shall keep it under close review.
William H Chartener
William H. Chartener
JBH
Assistant Secretary for
GERALD R. LIBRARY FORD
Economic Affairs
THE SECRETARY OF COMMERCE
DECLASSIFIED
UNITED STATES OF AMERICA
Washington, D.C. 20230
AUTHORITY Commerce memo 3/21/96
nse state
BY lab NARA, DATE 8/27/09
CONF IDENTIAL
FORD & 076839 LIBRARY
MEMORANDUM FOR THE PRESIDENT
Subject: Proposed 1970 Program on Foreign Direct Investments
I propose that we adopt the moderate liberalization and substantial
simplification of the Foreign Direct Investment Program as described
in Secretary Kennedy's memorandum. This proposal raises the target
ceiling by $550 million from $3.35 billion to $3.90 billion, and
involves the following changes:
A. Raise the minimum investment allowable for each company
from $1 million to $3 million. This will reduce from
650 to 350 the number of companies required to report
quarterly.
B. Eliminate the arbitrary division of the world into three
schedules by going to a worldwide program. The historical
and earnings allowables would be calculated as done at
present to continue to reward companies that have historically
invested in the LDCs, but would be applied on a worldwide
basis. Carryforwards of unused schedular allowables into
1970 could also be applied on a worldwide basis.
C. Offer up to $2.0 million additional allowables on a matching
basis to companies using the minimum allowable and invest-
ing in the LDCs (Schedule A).
The major reasons for this modest liberalization and simplification
of the program are as follows:
1. There is general agreement that restrictions on capital are
counter-productive in the long-run. If the FDIP is not to become a
permanent program, there must be steady progress toward the goal of
ultimate elimination.
2. You have announced that some liberalization will be forthcoming
with regard to investment in the LDCs.
3. In Commerce we have continued to say that we are opposed to
controls of this nature and in reliance upon the prevailing attitude
in the Administration, have given the impression that the program
CONFIDENTIAL
83
CONFIDENTIAL
-2-
would be relaxed for 1970. As a result, business and financial
circles are expecting some liberalization of the program to be announced
shortly.
4. In view of the growth of foreign earnings, making no change
for 1970 is effectively a tightening of the program for those companies
electing the historical allowable.
5. The relatively small dollar differential between the proposed
program and the present program will not have any significant impact
on the balance of payments next year.
6. To announce no change when some liberalization was expected
here and overseas could telegraph uncertainty as to the strength of the
dollar on the part of the Administration itself.
7. A modest change in this program should help reduce some of
the unhappiness among our business friends which results from the tax
bill, antitrust actions, etc.
8. There is no real evidence that foreign bankers would look with
disfavor on a liberalization as mild as that proposed. Foreign govern-
ments and foreign businessmen have expressed to us greater interest in
more investments by U.S. companies.
9. The changes proposed are mostly for simplification. The require-
ment for repatriation of foreign earnings is unchanged.
To help insure that companies react as desired in the fourth quarter
and do not make needless outflows due to the uncertainty of the 1970
program, a timely decision is important. Announcement of the program
prior to our meeting with business leaders on November 21 would be
highly desirable.
Mannie H. Stans
BERRAL rURD LIBRARY
CONF IDENTIAL