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    "title": "Commerce Department - Foreign Direct Investment,1969",
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    "ocrText": "The original documents are located in Box A6, folder \"Commerce Department - Foreign\nDirect Investment, 1969\" of the Arthur F. Burns Papers at the Gerald R. Ford Presidential\nLibrary.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Dr. Burns donated to the United States\nof America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nU.S. DEPARTMENT OF COMMERCE\nDIPARTMENT OF COMMERCE\nEXECUTIVE ASSISTANT TO THE SECRETARY\nUNITED STATES OF AMERICA\n3/19/69\nTo : Hon. Arthur Burns\nFrom: J. T. Dykman\nAD\nFORD i LIBRARY 076839\nThrough an administrative oversight,\nwe failed to send your office a copy\nof the attached letter to Secretary\nRogers from Secretary Stans.\nThe attached is in reference to the\nPresident's memorandum of Feb. 13\nto Secretary Rogers and is in\nconnection with Section XVIII-2,\nForeign Aid, of your report.\nAttachment\nTRANSMITTAL FORM CD-82A (10-67)\nUSCOMM-DC 1232-P67\n12 MAR 1969\nHonorable William P. Rogers\nSecretary of State\nGERAL FORD LIBRARY\nWashington, D. C. 20520\nDear Mr. Secretary:\nThe President has asked me to transmit to you this Department's views\non the proposal for a Federally-chartered private enterprise corpora-\ntion to promote private investment in the developing countries.\nI have accordingly asked my staff to review the proposal presented in\nthe Report of the International Private Investment Advisory Council\n(IPIAC) entitled \"The Case for a U.S. Overseas Private Enterprise\nDevelopment Corporation. \" I understand that the IPIAC proposal is\nessentially the same as the one advanced by Senator Javits and\nincluded in the draft proposal for creating a Department of Peace.\nI am transmitting a copy of the staff review with this letter and\nhope you will find it of interest.\nMy preliminary judgment is that there is scant evidence that the pro-\nposed corporation will help significantly to stimulate new private\nactivity in the developing countries or impart a new direction to U.S.\nforeign assistance programs. These objectives, I believe, are para-\nmount in any consideration of a change in U.S. foreign assistance\nmachinery.\nMoreover, I can foresee some possible disadvantages in creating an\nindependent corporation to carry on some current assistance activi-\nties. Present coordination of relevant Government programs in the\ncommercial and balance of payments areas, necessary to help meet\nbroader national objectives, might be lost by the proposed change.\nI would also expect some adverse repercussions from any attempt to\nset up a new entity outside usual budgetary controls and to invest\nit with borrowing authority.\nOn balance and given the weight of other relevant considerations, I\nwould not favor creation of a private enterprise corporation on the\n- 2 -\nbasis of the case made in the IPIAC proposal. I would, however, want\nto state clearly that I en in favor of & fresh, private enterprise\napproach to meeting developing country problems and would support a\nU.S. private development corporation that would overcome the problems\nand objections outlined above.\nSincerely yours,\nFORD LIBRARY & 078830\nSecretary of Commerce\nEnclosure\nFORD\nGERALD\nLIBRARY\nCreation of a Federally-Chartered Private Enterprise Corporation\nProposal\n1. The most recent formulation of the proposal for creating an inde-\npendent private enterprise investment corporation within the Federal\nestablishment is presented in the Report of the International Private\nInvestment Advisory Council (IPIAC) entitled \"The case for a U.S.\nOverseas Private Enterprise Development Corporation.\" In essence, the\nproposed corporation would (a) take over AID's present private invest-\nment, insurance, investment promotion, and private financing activities;\n(b) be authorized to borrow both from the Treasury and in the capital\nmarkets, backed by full U.S. Government guarantees; (c) be assigned the\nproceeds of certain outstanding AID loans and guarantees; and (a) oper-\nate outside present civil service regulations, budgetary limitations,\nand inter-agency and intra-AID clearances and safeguards.\n2. A corporate structure is recommended by IPIAC on grounds that the\nfunctions to be assumed (a) are of a business-like nature; (b) are reve-\nnue producing and potentially self-sustaining; (c) involve extensive.\ndealings with the public; and (d) require greater flexibility than\nafforded by annual budgets and appropriations, civil service regulations,\nand inter-agency coordination.\nAssessment\n3. Stimulating private investment and entrepreneurial skills in the\ndeveloping countries is of undoubted importance to the United States.\nHowever, this objective must be weighed against competing and contradic-\ntory resource demands and program objectives, including an improvement\nin the U.S. balance of payments and the application of limited capital\nresources to domestic needs. To move ahead with a private investment\ncorporation at this time would be to prejudge relative national\npriorities.\n4. It is equally important to give new focus and direction to U.S.\nforeign assistance programs. However, the proposed corporation would\nrepresent mainly a regrouping of existing programs and would seem to\nlack any real or apparent new initiatives or direction.\n5. The principal advantage to be gained from the proposal is greater\noverall flexibility. Corporate status would provide non-appropriated\nfunding and freedom from strictures presently operative over the broad\nrange of Federal programs. An attempt to secure borrowing authority\nfor a new Government corporation would likely encounter traditional\nCongressional opposition to \"back-door\" spending and might even reopen\nthis issue, with potentially adverse repercussions on the Eximbank and\nother affected agencies. If administrative and budgetary flexibility\nis essential to the success of the investment, guarantee, insurance,\n- 2 -\nGERALD FORD LIBRARY\nand credit programs, consideration might be given to lodging these\nactivities in the Eximbank. The Bank's present credit and guarantee\noperations involve essentially the same type of project, economic,\nand financial analysis required for investment guarantees; and the\nBank has the high quality, professional staff that IPIAC would hope\ncould be attracted by the new corporation. Moreover, presentinter-\nagency clearance and coordination arrangements, while time-consuming,\nseek to ensure that U.S. assistance programs operate in a way that\nserve a broader spectrum of national policies objectives. A case in\npoint is the \"additionality\" effort which is intended to ensure that\ncommercial exports are not displaced by aid-financed transactions,\nwith consequent adverse balance of payments effects. This national\npolicy purview and influence would likely be lost if an independent\ncorporation were established to carry on certain foreign assistance\nprograms.\n6. The basic objective of the proposed corporation is presumed to be .\nthe stimulation of private investment in the developing countries.\nThe IPIAC report recognizes, however, that \"organizing a new corpora-\ntion cannot itself directly produce a quantum increase in the volume\nof direct U.S. private capital flows. \" It goes on to say that \"better\norganization should lead to better staffing and improved programs\nand, over time, should mobilize significant increased new investment\neach year. This conclusion is at variance with the experience of the\nnumerous private and public investment development institutions in the\nUnited States and in other countries that are already attempting the\nsame type of investment promotion and stimulation -- in many cases\nwith AID financial support -- being proposed for this new corporation.\n7. Experience of these organizations indicates that the basic problem\nin the private investment area is not on the capital supply side but\nis the paucity of sound and potentially-profitable investment oppor-\ntunities in the developing countries. Where genuine investment oppor-\ntunities exist, U.S. businessmen are generally pretty quick to move In\non them. Hence, the problem of greater private investment in the\ndeveloping countries is not greatly influenced by, or responsive to,\nthe form of the creditor countries' investment guarantee/promotion\nvehicle. Given these observations, there is reason to doubt that the\ncorporation could do more to stimulate private investment than AID can\ndo with its present organizational structure.\n8. A further difficulty with the proposed corporation -- and with the\npresent AID investment effort -- is the fact that its investment/\ndeveloping-country orientation fails to comprehend the viewpoint and\napproach of businessmen interested in undertaking overseas activities.\nCommerce experience with the U.S. business community indicates that\nbusinessmen do not focus narrowly oninvestment and on developing\nFORD\n- 3 -\nGERALD\nLIBRARY\ncountries to the exclusion of other areas and alternative marketing\ntechniques. Basically, their focus is global, not only developing\ncountries; their basic interest is market penetration; and they view\noverseas business as a range of alternatives starting with exporting,\nextending to agent arrangements and licensing, and ending possibly\nwith investment. In a substantial number of cases, investment is,\ntherefore, a final stage which may be reached only after a market has\nbeen extensively tested by exports.\n9. This global and more encompassing view of overseas commercial\nrelationships is, in fact, mirrored in the range of services provided\nby Commerce to the business community. In addition to major programs\nto provide general and specific information on overseas markets, this\nDepartment has modest but active investment and licensing information\nand promotion programs which gather from all U.S. overseas posts ---\nand particularly those in the developing countries -- licensing, joint\nventure and direct investment proposals which are widely disseminated\nthrough publications and direct contacts to business firms expressly\nor potentially interested in such overseas ventures. These programs,\nwhich handled some 2,400 licensing and investment proposals in FY 1968,\nwere assigned to the Commerce Department by the Foreign Assistance Act\nof 1961 (as amended) and Executive Order No. 10973 (as amended) in\nrecognition of the Department's extensive contacts with and knowledge\nof the business community. To the extent that these programs are\nduplicated by similar programs in AID, the latter could readily be\ntransferred to Commerce without any hiatus in service but with the\nprospects of improved program coverage.\nConclusions\n10. The relative priorities of attempting to promote U.S. investment\nabroad vis-a-vis alternative and possibly conflicting national objec-\ntives, such as balance of payments improvements and domestic invest-\nment alternatives, should be established before the corporation\nproposal is advanced.\n11. The corporation is principally a new receptacle for old programs\nand would not impart the desired new direction and image to U.S. for-\neign assistance activities.\n12. The IPIAC case for a private enterprise corporation is weak and\nrests principally on the potential advantages of greater flexibility.\nSuch flexibility might, however, be costly in terms of the loss of\nprogram concurrence with broader U.S. policy objectives and in reopen-\ning broader issues of Eximbank borrowing authority.\n13. Experience of other investment-promoting entities indicates that\nthe problem of LDC investment is not amenable to such considerations\n- 4 -\nas the form of the creditor instrument since it arises basically from\na paucity of investment opportunities.\n14. The effectiveness of the proposed corporation is also open to\nquestion because the focus of its programs are not in accord with\nthe manner in which businessmen consider prospective overseas activities.\nRecommendation\n15. It is recommended that the Commerce Department indicate that it\ndoes not favor establishment of the proposed private enterprise cor-\nporation. This position is in consonance with the Department's\nposition on similar proposals that have been introduced during the\npast several years.\nMarch 4, 1969\nFORM CD-183\nU.S. DEPARTMENT OF COMMERCE\n(5-8-63)\nFORMERL Y SEC-350\nABSTRACT OF SECRETARIAL CORRESPONDENCE\nX\nThe Secretary\nTO:\nThe Under Secretary\narthur\nFrom: William H. Chartener, Assistant Secretary for\nEconomic Affairs\nSUMMARY: Remarks on letter from Arthur Burns transmitting\ncomments on the OBE Census of Foreign Direct\nInvestment\nFORD i LIBRARY GERALD\nIn letter to your\nmany 3/20/69\nPREPARED BY\nCLEARED BY\nCLEARED BY\nCLEARED BY\nCLEARED BY\nCLEARED BY\nSURNAME AND\nORGANIZATION\nWHChartener\n(Typed)\nAS/EA\nINITIALS AND\n3-18-69\nAND\nDATE\nWHC/grA\n9116\nUSCOMM-DC 1234-P63\nDEPARTMENT OF COMMERCE\nTHE ASSISTANT SECRETARY OF COMMERCE\nUNITED STATES OF AMERICA\nWASHINGTON, D.C. 20230\nMarch 18, 1969\nFORD LIBRARY & GERALD\nMEMORANDUM FOR THE SECRETARY\nSubject: Letter from Arthur Burns Transmitting Comments on\nthe OBE Census of Foreign Direct Investment\nI am not completely surprised by the communications transmitted\nby Arthur Burns. However, some of the comments made by Dr. Burns'\nunidentified correspondent are unwarranted or unrealistic. The\nformal letter by Mr. Lary is more balanced. I have reviewed the\ncomments carefully with George Jaszi, and you may feel free to\nsend this memorandum along to Dr. Burns for use at his discretion.\nYou may recall that I adverted to problems of delay in connection\nwith the foreign investment census in a general memorandum I\nprepared for you on January 21. In my own memorandum and in\nboth communications cited by Dr. Burns, the thin staffing of\nthe Balance of Payments Division is cited as a major reason for\ndelay in completion of the project. It is doubtful if much can\nbe accomplished now toward speeding completion of the project\nwithout addition of skilled staff members - particularly some\nwith accounting expertise.\nSeveral weeks ago I had a lengthy discussion with top staff\nmembers of OBE to explore what might be done to accelerate\ncompletion of the foreign investment census. This discussion\nwas partly in response to comments that had come directly to\nmy office from Dr. Lary and his associates and more importantly\nbecause of the needs of OFDI for basic data. The result has\nbeen agreement on a timetable for completion of various phases,\nthe first to come this summer.\nUndoubtedly, there are some lessons in this experience that\nshould be kept in mind when the next survey of this type is\nundertaken. For instance, in retrospect OBE may have erred\non the side of detail in data at the expense of early availa-\nbility of results.\n- 2 -\nOBE expressed a degree of amazement over the quotations from\nthe letter of the unidentified correspondent. Nobody connected\nwith the National Bureau and, for that matter, no outsider has\nevaluated the work on the census of direct investment, or on\nother surveys conducted on quarterly or annual questionnaires\nused by the Balance of Payments Division to prepare the current\nbalance of payments compilations.\nThe processing of the census has been complicated by three\nfactors.\n-First, the number of questionnaires returned turned out\nto be much larger than had been expected.\n--Second, the census is unusually complex. It involves\nthe accuracy and comparability of financial data collected\nfrom the over 20,000 foreign organizations operating with\ndifferent accounting systems and in different currencies\nand languages, and the most intricate kinds of financial\nGERALD FORD LIBRARY\nand other intercorporate relationships. The principal\ncause of delay is the process of reviewing this large\nquantity of complex data. It is a job for trained and\nskilled workers, and cannot be very greatly accelerated.\nIt is, moreover, not a job that can be avoided if the\nresults are to be of value. It precedes and cannot be\ndisplaced by data processing in the computer.\n--Third, from the very beginning the project has been\nplagued by employment ceilings and restrictions. At\npresent they are as tight as they ever have been and\nare threatening to get worse.\nIn spite of these handicaps - the staff working on that job,\nincluding professional and clerical personnel, is currently\nlimited to nine people - progress so far has not been sig-\nnificantly slower than the progress on similar large-scale\nsurveys generally is. Detailed results from the last Census\nof Manufactures, for instance, were published three years after\nthe year covered (1966 for the 1963 census) and the last Labor\nDepartment consumer expenditure survey results appeared four\nyears after the year covered.\nI do not agree with the view that OBE's operation is inefficient\nand that the processing of this particular census could be\nundertaken more efficiently by the Census Bureau. Given the\nintricacies of the investment census, I am inclined to believe\nthat OBE, with its expertise in the work on U.S. direct invest-\nments abroad, can do a better job than other organizations\n- 3 -\nFORD & LIBRARY GERALD\ncould do. At this stage in the present survey, it would clearly\nbe pointless to suggest transferring further processing to the\nCensus Bureau.\nIncidentally, the remarks about the inefficiency of OBE's\noperations on its quarterly survey and on its computer operation\nare not well founded. The quarterly surveys are processed with\ngreat efficiency and speed. They are, in fact, tabulated and\nready for publication within one or two days after the last\nreports are received. OBE's computer operation, although on a\nsmall scale, is an unusually efficient one. As a matter of\nfact, the OBE staff achieved a major breakthrough in computer\ntechniques with the development of a simplified programming\nlanguage which has been widely acclaimed. The computer manu-\nfacturer is now using this programming language as a selling\npoint for its equipment.\nAs to the timetable for the foreign direct investment census,\nOBE expects to complete the first phase of it by July and will\nbe ready to make the results available to the public with only\none proviso. If major and intractable inconsistencies between\nthe census results and other sources of information (OBE's\nquarterly surveys and OFDI's reports) should emerge, publication\nwould have to be delayed until large discrepancies between\nalternative data sources could be straightened out.\nThe results that will be ready in July cover the most important\nitems of the foreign direct investment census - namely, all\nitems that enter directly into the balance of payments computations.\nThese consist of capital flows, investment income, royalties,\netc. OBE has also worked out a time schedule on which the\nfurther installments of information contained in the census will\nbe completed. OBE plans to release these data in six separate\npublications over the next three years with the final summary\npublication available in June 1972.\nThis schedule should be faster, but I doubt that OBE can meet\neven this timetable if it is hampered by the current employment\nrestrictions. OBE - a small organization - is now ten below\nits normal complement, and the attrition will continue as further\nseparations occur which can only be partly filled. I would\nstrongly recommend that OBE be exempted from the employment\nceiling so as to expedite the work. If resources elsewhere in\nthe Department perhaps in OFDI, which is greatly interested\nin the census results - could be found that could be made avail-\nable to strengthen the work, this would further speed up the\ncompletion of the census.\n- 4 -\nBeyond this suggestion, I can only say that both my office\nand OBE are acutely aware of the need to make as rapid\nprogress as possible toward the completion of this important\nstudy and that we shall keep it under close review.\nWilliam H Chartener\nWilliam H. Chartener\nJBH\nAssistant Secretary for\nGERALD R. LIBRARY FORD\nEconomic Affairs\nTHE SECRETARY OF COMMERCE\nDECLASSIFIED\nUNITED STATES OF AMERICA\nWashington, D.C. 20230\nAUTHORITY Commerce memo 3/21/96\nnse state\nBY lab NARA, DATE 8/27/09\nCONF IDENTIAL\nFORD & 076839 LIBRARY\nMEMORANDUM FOR THE PRESIDENT\nSubject: Proposed 1970 Program on Foreign Direct Investments\nI propose that we adopt the moderate liberalization and substantial\nsimplification of the Foreign Direct Investment Program as described\nin Secretary Kennedy's memorandum. This proposal raises the target\nceiling by $550 million from $3.35 billion to $3.90 billion, and\ninvolves the following changes:\nA. Raise the minimum investment allowable for each company\nfrom $1 million to $3 million. This will reduce from\n650 to 350 the number of companies required to report\nquarterly.\nB. Eliminate the arbitrary division of the world into three\nschedules by going to a worldwide program. The historical\nand earnings allowables would be calculated as done at\npresent to continue to reward companies that have historically\ninvested in the LDCs, but would be applied on a worldwide\nbasis. Carryforwards of unused schedular allowables into\n1970 could also be applied on a worldwide basis.\nC. Offer up to $2.0 million additional allowables on a matching\nbasis to companies using the minimum allowable and invest-\ning in the LDCs (Schedule A).\nThe major reasons for this modest liberalization and simplification\nof the program are as follows:\n1. There is general agreement that restrictions on capital are\ncounter-productive in the long-run. If the FDIP is not to become a\npermanent program, there must be steady progress toward the goal of\nultimate elimination.\n2. You have announced that some liberalization will be forthcoming\nwith regard to investment in the LDCs.\n3. In Commerce we have continued to say that we are opposed to\ncontrols of this nature and in reliance upon the prevailing attitude\nin the Administration, have given the impression that the program\nCONFIDENTIAL\n83\nCONFIDENTIAL\n-2-\nwould be relaxed for 1970. As a result, business and financial\ncircles are expecting some liberalization of the program to be announced\nshortly.\n4. In view of the growth of foreign earnings, making no change\nfor 1970 is effectively a tightening of the program for those companies\nelecting the historical allowable.\n5. The relatively small dollar differential between the proposed\nprogram and the present program will not have any significant impact\non the balance of payments next year.\n6. To announce no change when some liberalization was expected\nhere and overseas could telegraph uncertainty as to the strength of the\ndollar on the part of the Administration itself.\n7. A modest change in this program should help reduce some of\nthe unhappiness among our business friends which results from the tax\nbill, antitrust actions, etc.\n8. There is no real evidence that foreign bankers would look with\ndisfavor on a liberalization as mild as that proposed. Foreign govern-\nments and foreign businessmen have expressed to us greater interest in\nmore investments by U.S. companies.\n9. The changes proposed are mostly for simplification. The require-\nment for repatriation of foreign earnings is unchanged.\nTo help insure that companies react as desired in the fourth quarter\nand do not make needless outflows due to the uncertainty of the 1970\nprogram, a timely decision is important. Announcement of the program\nprior to our meeting with business leaders on November 21 would be\nhighly desirable.\nMannie H. Stans\nBERRAL rURD LIBRARY\nCONF IDENTIAL"
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