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Arab Boycott and Arab National Investment
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Arab Boycott and Arab National Investment
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Paul C. Leach Files (Ford Administration)
Paul Leach's Commerce and Economic Development Subject Files
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Organization of Petroleum Exporting Countries
Investments, Foreign
Arab Boycott
Legislation
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1976
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1976-05-01
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The original documents are located in Box 11, folder "Arab Boycott and Arab National
Investment" of the Paul C. Leach Files 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. Gerald R. Ford 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States of America his copyrights in all of his unpublished writings in National Archives collections.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.
Some items in this folder were not digitized because it contains copyrighted
materials. Please contact the Gerald R. Ford Presidential Library for access to
these materials.
NATIONAL ARCHIVES AND RECORDS SERVICE
WITHDRAWAL SHEET (PRESIDENTIAL LIBRARIES)
FORM OF
DOCUMENT
CORRESPONDENTS OR TITLE
DATE
RESTRICTION
1a Memorandum Leach to Cannon and Dunham re Arab Financial
5/5/75
C(A)
Surpluses and the prospect for substantial
incremental Arab investment in an American
energy financing corporation. To be opened W
with item 1b.
Sys- WHM 11/27/00
1bSpecial
Department of the Treasury Special Report re
1/29/75
A
Report
A Survey of Projections of OPEC Financial
Accumulations. 9 pp To be opened on Decem-
ber 31, 1981
2 Memorandum See item 1a To be opened with item 1b.
5/5/76
C(A)
S45- WHM 11/27/00
3
From Memo Case Leach to Cannon re Arab Boy-
cott May 5, 1976
3Memo
Scowcroft and Siedman to GRF Re Arab Boycott
ND
A
6 pp.
Sys. WHM 11/27/00
4 Memo
Asst. Sec. Treasury to Members of Committee on
9/13/76
C
Foreign Investment in the United States re
Working-level Meeting on OPEC Investments in
Energy Sector
FILE LOCATION
Files of Paul Leach Domestic Council
KGH
Arab Boycott and Foreign Investment
August 2, 1979
RESTRICTION CODES
(A) Closed by Executive Order 11652 governing access to national security information.
(B) Closed by statute or by the agency which originated the document.
(C) Closed in accordance with restrictions contained in the donor's deed of gift.
GENERAL SERVICES ADMINISTRATION
GSA FORM 7122 (7.72)
Controlling Foreign Investment
Just four years ago, after Jap- capital market has been doing the
an's reserve assets had climbed to job effortlessly, it can't be trusted to
more than $20 billion from less than do it right. Sen. Harrison Williams
$3, billion almost overnight, those of New Jersey and Sen. Jacob Javits
people who predict the future by of New York, whose states have
making straight-line projections about the highest unemployment
dhes were informing us that by the year rates around, are supporting a bill
FORD
LIBRARY
THE WHITE HOUSE
RALD FORD LIBRASI
WASHINGTON
May 5, 1975
MEMORANDUM FOR:
JIM CANNON
DICK DUNHAM
FROM:
PAUL LEACH
SUBJECT:
Arab Financial Surpluses and the
Prospect for Substantial Incremental
Arab Investment in an American Energy
Financing Corporation
The American economy may require as much as $1 trillion
of energy-related capital investment by 1985. One much
discussed potential source of a part of this capital is the
group of oil exporting Arab countries presently experiencing
large trade surpluses.
An analysis of the Arab financial situation, as currently
projected, is important.
If an Energy Financing Corporation is to influence the
flow of capital from Arab countries to the U.S., the
Corporation must have a substantial incremental effect
on the total flow of funds to the U.S. By this, I mean
that the total Arab investment in the economy (Treasury
securities, bank deposits, corporate securities, real
estate, etc.) must be increased over what it would be
without the Corporation. Otherwise, the Corporation will
merely be a capital allocation mechanism.
The five most recently available projections of total OPEC
financial accumulations over the period from the end of the
boycott to 1980 range from $152 billion to $300 billion
(including $60 billion in 1974). After 1980, there is a
projected reduction in accumulated surpluses as the oil
countries, in the aggregate, run trade deficits. These
projections are:
PROJECTION
BILLIONS
Hollis Cheney, World Bank Officer in
January, 1975 Foreign Affairs
$300
- 2 -
PROJECTION
BILLIONS
OECD in January, 1975
$245
GERALD
Department of the Treasury in
January, 1975
200-250
Morgan Guaranty in January, 1975
179
Edward Fried in Energy and U.S.
Foreign Policy Study
152
Apparently, the Treasury and Morgan Guaranty are currently
revising their estimates downward.
To date, a fifth or a sixth of the surpluses has flowed into
the U.S. in the form of bank deposits, purchases of government
securities and a relatively small investment in corporate
securities and real estate. The remainder of the surpluses
has gone into foreign bank deposits, Eurodollar loans, develop-
ment loans, foreign government securities and some foreign
real estate and equities. If this trend continues, the total
Arab investment in the U.S. by 1980 will be $25 to 60 billion.
There is no compelling reason to believe that the existence
of a new set of "Agency" securities (similar to the currently
available Fannie Mae, Federal Home Loan Bank, Ginnie Mae and
Federal Land Bank securities) will attract any substantial
increment of Arab investment. However, Arab investments
in Treasury and other Agency securities might be reduced
as Arabs diversify into the new Corporation's debt. The
private Kuwaiti, Iranian and Saudi investors buying equities
and real estate in the U.S. (i.e., the "Arab Sheiks" we read
about) may not be enticed by modest yields somewhat above
those available on Treasury securities. And Arab governments
or governmental authorities already have Treasury securities,
Federal Agency securities and bank deposits available for
investment, if desired. In addition, Wall Street investment
bankers are very active in selling "private placements" and
"public offerings" of prime corporate debt (e.g., GM, GE,
Ford, U.S. Steel, Caterpillar and Shell Oil) to some Arab
private investors and governments.
In my opinion, (1) total Arab investments in the U.S. will
not be large, relative to the $1 trillion energy investment
needs, and in any case, (2) there would be little or no in-
cremental flow into the U.S. resulting from creation of an
Energy Financing Corporation.
EXECUTIVE OFFICE OF THE PRESIDENT
19-1
COUNCIL OF ECONOMIC ADVISERS
Date: 4/23/75
To: Paul Leach
LIBRARY
From: John Davis
Attached are some of the financial flow
projections that you expressed an interest
in. You should note the two tables at the
end represent recent modifications of some
of the projections described in the Treasury
report. I have the feeling that many of these
numbers are now in the process of being
revised. Hope this is useful.
- 19.2
DEPARTMENT OF THE
ASSISTANT SECRETARY OF THE TREASURY
THE 1789 TREASURY
WASHINGTON, D.C. 20220
3321 main
April 23, 1975
Treaking
Building
MEMORANDUM FOR PAUL LEACH
DOMESTIC COUNCIL
STATE FORD
From:
Gerald L. Parsky
Subject: OPEC Financial Accumulations
Per our conversation I am enclosing recent
work done by the staff here at Treasury on OPEC
financial accumulations.
As I mentioned to you, I discussed this
area extensively with the countries involved and
would be glad to meet with you and Dick Dunham
on this subject at any time.
Please let me know.
Gerry Pandy
Enclosure
FORD
LIBRARY
GERALD R. FORD LIBRARY
16
This form marks the file location of item number
,
as listed on the pink form (GSA form 7122, Withdrawal Sheet) at the
front of the folder.
THE WHITE HOUSE
WASHINGTON
May 5, 1975
FORD MBRARA
MEMORANDUM FOR:
JIM CANNON
DICK DUNHAM
FROM:
PAUL LEACH
SUBJECT:
Arab Financial Surpluses and the
Prospect for Substantial Incremental
Arab Investment in an American Energy
Financing Corporation
The American economy may require as much as $1 trillion
of energy-related capital investment by 1985. One much
discussed potential source of a part of this capital is the
group of oil exporting Arab countries presently experiencing
large trade surpluses.
An analysis of the Arab financial situation, as currently
projected, is important.
If an Energy Financing Corporation is to influence the
flow of capital from Arab countries to the U.S., the
Corporation must have a substantial incremental effect
on the total flow of funds to the U.S. By this, I mean
that the total Arab investment in the economy (Treasury
securities, bank deposits, corporate securities, real
estate, etc.) must be increased over what it would be
without the Corporation. Otherwise, the Corporation will
merely be a capital allocation mechanism.
The five most recently available projections of total OPEC
financial accumulations over the period from the end of the
boycott to 1980 range from $152 billion to $300 billion
(including $60 billion in 1974). After 1980, there is a
projected reduction in accumulated surpluses as the oil
countries, in the aggregate, run trade deficits. These
projections are:
PROJECTION
BILLIONS
Hollis Cheney, World Bank Officer in
January, 1975 Foreign Affairs
$300
- 2 -
PROJECTION
BILLIONS
OECD in January, 1975
$245
Department of the Treasury in
January, 1975
200-250
Morgan Guaranty in January, 1975
179
Edward Fried in Energy and U.S.
Foreign Policy Study
152
Apparently, the Treasury and Morgan Guaranty are currently
revising their estimates downward.
To date, a fifth or a sixth of the surpluses has flowed into
the U.S. in the form of bank deposits, purchases of government
securities and a relatively small investment in corporate
securities and real estate. The remainder of the surpluses
has gone into foreign bank deposits, Eurodollar loans, develop-
ment loans, foreign government securities and some foreign
real estate and equities. If this trend continues, the total
Arab investment in the U.S. by 1980 will be $25 to 60 billion.
There is no compelling reason to believe that the existence
of a new set of "Agency" securities (similar to the currently
available Fannie Mae, Federal Home Loan Bank, Ginnie Mae and
Federal Land Bank securities) will attract any substantial
increment of Arab investment. However, Arab investments
in Treasury and other Agency securities might be reduced
as Arabs diversify into the new Corporation's debt. The
private Kuwaiti, Iranian and Saudi investors buying equities
and real estate in the U.S. (i.e., the "Arab Sheiks" we read
about) may not be enticed by modest yields somewhat above
those available on Treasury securities. And Arab governments
or governmental authorities already have Treasury securities,
Federal Agency securities and bank deposits available for
investment, if desired. In addition, Wall Street investment
bankers are very active in selling "private placements" and
"public offerings" of prime corporate debt (e.g., GM, GE,
Ford, U.S. Steel, Caterpillar and Shell Oil) to some Arab
private investors and governments.
In my opinion, (1) total Arab investments in the U.S. will
not be large, relative to the $1 trillion energy investment
needs, and in any case, (2) there would be little or no in-
cremental flow into the U.S. resulting from creation of an
Energy Financing Corporation.
THE WHITE HOUSE
WASHINGTON
May 5, 1976
MEMORANDUM FOR:
JIM CANNON
FROM:
PAUL LEACH Paul
SUBJECT:
ARAB BOYCOTT
The attached memorandum deals with the general issue of whether
or not to support any new proposed anti-Arab Boycott legislation.
The specific issue involves whether or not to support a
"compromise" on the "Stevenson Bill" which would have three
main effects:
1. It would require disclosure of boycott request compliance
reports submitted to the Commerce Department by U.S. firms,
on the grounds that the Export Administration Act declares
it to be the policy of the U.S. to oppose boycotts;
2. It would bar religious, racial, ethnic, or sex discrim-
ination by U.S. exporters;
3. It would prohibit refusals by U.S. firms to do business
with other firms pursuant to foreign boycott requests.
I am not particularly well-versed on this matter and the
decision memorandum is not fully illuminating. However, based
on what I know and can glean from this memorandum, I would
support Option 1, i.e., oppose any legislation.
THE WHITE HOUSE
WASHINGTON
GERALD ADVERIT
May 4, 1976
MEMORANDUM FOR PHILIP BUCHEN
JOHN O. MARSH
MAX FRIEDERSDORF
JAMES M. CANNON
FROM:
L. WILLIAM SEIDMAN
SUBJECT:
Arab Boycott
A memora ndum for the President on the Arab Boycott issue is
attached.
I would appreciate your comments and recommendations on this
memorandum by 3:00 p.m. Wednesday, May 5, 1976.
3
CONFIDENTIAI
THE WHITE HOUSE
WASHINGTON
FORD
MEMORANDUM FOR THE PRESIDENT
FROM:
BRENT SCOWCROFT
L. WILLIAM SEIDMAN
SUBJECT:
Arab Boycott and Related Discrimination
The decisions announced in your statement of November 20, 1975
on the related issues of the Arab boycott and religious dis-
crimination have been implemented. The Federal Reserve Board
has issued a letter to member banks outlining their obligations
with respect to Arab boycott and discrimination measures. The
Justice Department has filed a civil anti-trust suit charging
the Bechtel Corporation with refusing to deal with any U.S.
sub-contractors on the Arab League boycott list and requiring
its sub-contractors, in turn, not to deal with U.S. firms on
the boycott list. The Department of Commerce has decided to
release publicly letters charging United States firms with a
violation of its regulations pertaining to the Arab boycott.
The Department of Commerce has also ceased circulating tender
offers requesting bids on projects from American firms if they
contain a request to comply with the boycott.
In addition, several state governments have adopted laws on
the boycott issue, some of which go well beyond the policy
guidelines approved by you. We have also engaged in extensive
discussions with Arab Governments and Israel on the entire
question, including numerous exchanges through diplomatic
channels and during Secretary Simon's March trip to the Middle
East. Secretary Simon in his discussions with both Arab and
Israeli leaders distinguished between the boycott and reli-
gious discrimination. He stated clearly that you desired an
end to the boycott and that you felt that the only effective,
peaceful way to end the boycott was to resolve the Arab-Israeli
conflict. He also stated that we would oppose legislation
directed to the boycott.
The cumulative effect of these actions has been mixed. The
Arab Governments, as well as American businesses, appear to
understand and accept the anti-discrimination aspect of our
policy. Saudi Arabia has taken steps to distinguish between
religious discrimination and its political attitude toward
Israel, and to ease somewhat the process of obtaining visas
for persons of the Jewish faith, even though some problems
DECLASSIFIED
CONF IDENTIAL
E.O. 12958, Sec. 3.5
NSC Memo, 11/24/98, State Dept. Guidelines
By WHM NARA, Date 11/27/00
CONFIDENTIAL
-2-
remain.
There have also been several specific indications of greater
flexibility in the application of boycott regulations and
some firms have been or soon will be removed from the list.
Yet, there has also been some disruption of United States
commercial dealings with the Arab world, primarily due to
reluctance by American firms to risk possible legal action.
Arab Governments, to varying degrees, have resented our boy-
cott related actions, although thus far they are generally
cooperating in quiet, gradual efforts to minimize difficul-
ties. Despite this quiet cooperation, high-level Arab leaders
(particularly in Saudi Arabia and Kuwait) indicate they are
prepared to retaliate commercially against United States busi-
ness if we continue to apply what they view as unwarranted
public pressure.
This memorandum seeks your guidance on the Administration's
position on several pieces of pending legislation dealing with
various aspects of the boycott/discrimination issue, all of
which would, to various degrees, move the United States into
a considerably tougher anti-boycott position than embodied in
your November 20 statement. A summary of all the pending bills
is attached at Tab A.
Stevenson Bill
The bill requiring the urgent formulation of an Administration
position is an amendment to the Export Administration Act pro-
posed by Senators Stevenson and Williams and a similar bill
introduced in the House by Representative Koch.
The proposed legislation would have three main effects:
(1) It would require disclosure of boycott request compliance
reports submitted to the Commerce Department by U.S. firms, on
the grounds that the Export Administration Act declares it to
be the policy of the U.S. to oppose boycotts.
(2) It would bar religious, racial, ethnic, or sex discrim-
ination by U.S. exporters.
(3) It would prohibit refusals by U.S. firms to do business
with other firms pursuant to foreign boycott requests.
The provisions on disclosure of compliance with Arab boycott
requests could have some negative effect on consumer-oriented
businesses in this country, causing them either to avoid the
Arab market completely or to go to third country affiliates
in order to avoid a possible counterboycott.
CONF IDENTIAL
CONFIDENTIAL
-3-
FORD
The provisions barring discrimination are identical for all
intents and purposes to the measures announced by you on
November 20.
LIBRARY
The provisions of the bill which prohibit U.S. firms from
refusing to do business with other U.S. firms on the boycott
list are unclear as to their intent and effect. As presently
drafted these provisions are more far reaching than the Justice
Department conception of the applicability of our anti-trust
laws (as set forth in the Bechtel suit), and if enforced
strictly would deal a serious blow to United States business
with the Arab world. Even large multinational corporations
now heavily engaged in the Arab world would probably shift
procurement to third country affiliated or unrelated firms
in order to avoid possible problems. Many smaller companies
would probably terminate business with the Arab world.
Given the policy which we have followed since your November 20
statement, the Arabs will tend to view Administration accept-
ance of any additional legislation on the Arab boycott as a
shift in the Administration's position in response to the
Israeli lobby.
There has been considerable interagency review of how best to
deal with the Stevenson-Williams-Koc legislation. A Working
Group, chaired by the NSC staff discussed the issue at length
and prepared a paper which was discussed by the EPB Executive
Committee on April 30.
There is agreement that the Administration should seek to limit
additional anti-boycott legislation to the absolute minimum, in
accordance with your policy decision of last November which
remains the best approach under present circumstances. How-
ever, there is also agreement that it may be desirable to
accept a compromise with Congress in the form of a suitably
amended Stevenson-Williams-Koch bill if this will avoid pas-
sage of worse legislation and if the only other alternative is
a Presidential veto.
Options
Two options for dealing with the Stevenson-Williams-Koch bill
are presented for your consideration.
Option 1: Maintain the position outlined in your November 20
statement and strongly oppose all additional legis-
lation as unnecessary and counterproductive, but do
not indicate that you would necessarily veto any
additional legislation thus leaving open the possi-
bility of compromise later if sufficient opposition
to the legislation does not develop.
CONF IDENTIAL
CONFIDENTIAL
-4-
FORD LIBRARY
Advantages:
This would be fully consistent with your statement of
November 20 and the position maintained by the Admin-
istration since then that no additional legislation is
needed.
If efforts to block new legislation succeeded, it would
retain Arab confidence of the Administration as well
as encouraging them to ease the practical application
of the boycott. It would avoid the serious danger of
an Arab backlash (similar to the Soviet backlash over
Jackson-Vanik) because they believed we were applying
excessive public pressure.
It would minimize the loss of business by U.S. firms
to other countries due to U.S. anti-boycott regulations.
If efforts to block new legislation failed, an oppor-
tunity would remain to choose between trying to obtain
an acceptable compromise or either vetoing or acquiescing
to unacceptable legislation.
Disadvantages:
This approach could produce a confrontation between the
Administration and Congress and Jewish groups given the
strong pressures which exist for some additional action.
It could also result in Congress pressing stronger legis-
lation and rejecting last-minute efforts at compromise,
than would have been the case were the Administration
to seek a compromise from the outset.
This approach could place the President in the position
of having either to acquiesce to the legislation or
veto the bill.
Option 2: Modify your opposition to any additional legislation
by beginning work immediately with key members of
Congress to reach agreement on an amended bill.
Two approaches to an amended bill have been considered. Both
approaches would accept the sections of the bill on anti-
discrimination and disclosure and seek clear agreement from
key Members of Congress and Jewish leaders that there will be
no additional legislative action.
CONEIDENTIAL
CONFIDENTIAL
-5-
GERALD FORD CIBRAPY
Approach A: Attempt to delete the section of the bill on
refusal to deal in exchange for agreement to the
idea of public disclosure of boycott request compli-
ance reports, either by administrative action or
by enactment of that section of the bill.
A public statement by the Administration supporting
explicitly the efforts of the Justice Department
to apply the Sherman Act to refusal to deal cases
should be considered as a possible concession to
obtain deletion of that section from the bill.
Approach B: Attempt to amend the section of the bill on refusal
to deal by substituting language proposed by Jus-
tice which would substantially narrow its appli-
cation and bring it into line with Justice's pre-
sent concept of the applicability of the Sherman
Act to refusal to deal actions by U.S. firms pur-
suant to the Arab boycott.
Advantages:
Seeking a compromise from the outset through consulta-
tions with key Members of Congress and Jewish leaders
would avoid a confrontation with them and could ulti-
mately make an acceptable compromise easier to achieve.
Enactment of Stevenson's legislation should substantially
undercut the prospects for more harmful legislation.
The Administration could provide Congress with the
precise changes it would like in the bills before they
move so far down the legislative path as to make changes
difficult.
Disadvantages:
This would appear as a retreat from the Administration
position held since November 20. Once the Administra-
tion signallled a willingness to compromise, Members of
Congress and others who support strong anti-boycott leg-
islation may assume that they are in a strong position
and do not need to accept a compromise.
Some legislation would result which, depending on its
nature, could create serious difficulties for U.S.
foreign policy and economic interests in the Arab world
and raise additional barriers to U.S. firms doing busi-
ness in Arab countries.
CONFIDENTIAL
CONFIDENTIAL
-5-
FORD LIBRARY
Approach A: Attempt to delete the section of the bill on
refusal to deal in exchange for agreement to the
idea of public disclosure of boycott request compli-
ance reports, either by administrative action or
by enactment of that section of the bill.
A public statement by the Administration supporting
explicitly the efforts of the Justice Department
to apply the Sherman Act to refusal to deal cases
should be considered as a possible concession to
obtain deletion of that section from the bill.
Approach B: Attempt to amend the section of the bill on refusal
to deal by substituting language proposed by Jus-
tice which would substantially narrow its appli-
cation and bring it into line with Justice's pre-
sent concept of the applicability of the Sherman
Act to refusal to deal actions by U.S. firms pur-
suant to the Arab boycott.
Advantages:
Seeking a compromise from the outset through consulta-
tions with key Members of Congress and Jewish leaders
would avoid a confrontation with them and could ulti-
mately make an acceptable compromise easier to achieve.
Enactment of Stevenson's legislation should substantially
undercut the prospects for more harmful legislation.
The Administration could provide Congress with the
precise changes it would like in the bills before they
move so far down the legislative path as to make changes
difficult.
Disadvantages:
This would appear as a retreat from the Administration
position held since November 20. Once the Administra-
tion signallled a willingness to compromise, Members of
Congress and others who support strong anti-boycott leg-
islation may assume that they are in a strong position
and do not need to accept a compromise.
Some legislation would result which, depending on its
nature, could create serious difficulties for U.S.
foreign policy and economic interests in the Arab world
and raise additional barriers to U.S. firms doing busi-
ness in Arab countries.
CONFIDENTIAL
CONFIDENTIAL
- -6-
FORD & LIBRARY
Decision
Option 1
Maintain the position outlined in your Novem-
ber 20 statement and strongly oppose all addi-
tional legislation as unnecessary and counter-
productive, but do not indicate that you would
necessarily veto any additional legislation
thus leaving open the possibility of compro-
mise later if sufficient opposition to the
legislation does not develop.
Supported by:
Option 2
Modify your opposition to any additional legis-
lation be beginning work immediately with key
members of Congress to reach agreement on an
amended bill.
Supported by:
CONFIDENTIAL
From Meno Case Leach to Cannon re tiab Bazcoff 5/5/76
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MAJOR ANTI-BOYCOTT LEGISLATION
SENATE BILLS
BERALD FORD LIBRARY
1. Stevenson-Williams Bill (S. 953)
Title I
Would require that U.S. firms report to the Department of
Commerce on whether they intend to comply and whether
they have complied with boycott requests which they receive.
Would require that boycott reports hereafter filed with the
Department of Commerce be made public, except that com-
mercial information regarding the value, kind, and quantity
of goods involved in any reported transaction may be kept
confidential.
Would prohibit U.S. firms from furnishing, pursuant to a
boycott request, any information regarding the race, religion,
or nationality of its employees, shareholders, officers, or
directors, or the employees, shareholders, officers, or
directors of any other U.S. company.
Would prohibit U.S. firms from refusing to do business with
other U.S. firms pursuant to a boycott request.
Maximum administrative penalties applicable under the Act
would be increased from $1,000 to $10,000. In addition,
would make it clear that export privileges may be suspended
for a violation of the anti-boycott provisions of the Act.
Would require public disclosure of Commerce Department
charging or warning letters against U.S. companies for
failing to comply with anti-boycott provisions of the Act.
Would require that the Commerce Department provide the
State Department with summaries of the information contained
in boycott reports for appropriate action by the State Department.
SENA IE BILLS
2
Would require that the semi-annual reports to Congress under
the Export Administration Act include an accounting of what
action the Executive Branch has taken to effect the anti-boycott
policy of the Act.
Would clarify the Act to leave no doubt that it applies to banks,
other financial institutions, insurers, freight forwarders, and
shipping companies.
FORD
Title II
Would amend section 13(d) of the Securities Exchange Act to
expand the disclosure requirements imposed thereunder on
those who acquire the beneficial ownership of more than 5%
of any equity security by requiring disclosure of the following:
(a) The residence, nationality, and nature of the beneficial
ownership of the person acquiring the securities. (The
latter would include, for example, whether the beneficial
owner has the right to direct the voting of the securities,
the receipt of dividends, or the proceeds of sale);
(b) The background and nationality of each associate of the
purchaser who has a right to acquire additional shares
of the insurer.
Would impose new disclosure requirements as follows:
Every holder of record, of, and any other person having an
interest in, 2% or more of a class of any equity security,
would be required to file reports as prescribed by the SEC
at such time as the SEC may require. The SEC would have
authority to make such exceptions to the above as are not
inconsistent with the public interest or the protection of
investors.
The 2% threshhold is to be reduced to 1% on September 1, 1976
and to 1/2 of 1% on September 1, 1977. However, the SEC may
extend or shorten such periods if the SEC, after public comment,
concludes that such change is not inconsistent with the public
interest or the protection of investors.
SENATE BILLS
3
The bill was originally reported out of the Senate Banking and
Currency Committee on February 6, 1976. However, it was
decided to defer full Senate action until legislation to provide a
simple extension of the Export Administration Act was considered,
at which time the two pieces of legislation would be combined.
This did, in fact, occur at the subcommittee level on April 27
when the extension bill, S. 3084, was favorably reported to the
full Committee with the Stevenson-Williams bill incorporated in
it. Full Committee mark-up and final reporting of the legislation
is expected Thursday, April 29 or Friday, April 30.
2. Ribicoff Bill (S. 3138)
18990 GERALD
The bill would deny tax benefits on foreign source income to tax-
payers who participate in or cooperate with the boycott of Israel.
These benefits include the foreign tax credit and tax deferral, and
DISC. The denial would apply to that foreign source income derived
through direct or indirect dealings with boycotting countries.
The bill is pending before the full Senate Finance Committee where
no action is currently scheduled.
HOUSE BILLS
It is anticipated that those House bills pending before the International
Relations Subcommittee on International Trade and Commerce will be
considered as amendunents to legislation to extend the Export Administra-
tion Act scheduled to come before the full committee some time in June.
1. Bingham Bill (H. R. 4967)
The bill would prohibit US companies from answering or complying in
any way with boycott requests.
The bill is pending before the IRC Subcommittee on International Trade
and Commerce.
FORD
2. Drinan Bill (H. R. 5913, 5997, 6431, 6661 and others)
GERALD
LIBRARY
The bill would make it unlawful for any US exporter to engage in such
practices as:
-furnishing information to a foreign agent concerning the race, religion
or national origin of its employees or the employees of firms with which
it does business;
-furnishing information on business dealings with a boycotted country
or firm; or refusing, because of dealings with a foreign agent, to do
business with a boycotted country or firm.
The bill would require the Secretary of Commerce to revoke the export
license of any exporter violating these provisions.
The legislation is pending before the IRC Subcommittee on International
Trade and Commerce.
3. Koch Bill (H. R. 11464)
This bill is almost identical to the Stevenson-Williams Bill and has been
dually referred to the House International Relations Committee and
Interstate and Foreign Commerce Committee.
4. Holtzman Bill (H. R. 5246 and others) (almost 100 cosponsors)
The bill would prohibit any business enterprise from using economic
coercion to induce another not to do business with, employ or otherwise
discriminate against (on the basis of race, religion, etc. ) any US or
foreign person in respect to its activities in the United States. The bill
would also make it unlawful to yield to such coercion or take discrimina-
tory action to prevent the coercion from ever occurring.
The bill is pending before the Judiciary Subcommittee on Monopolies.
Estimates of Petrodollar Surplus Are Cut;
Some Predict Additional Downgradings
5-23-75
Surplus for 1975
By CHARLES N: STABLER
crease), and that will just do more eco-
According to Morgan Guaranty's
Staff Reporter of THE WALL STREET JOURNAL
nomic damage to a variety of countries.'
monthly publication, World Financial Mar-
NEW YORK-Petrodollar watchers are
Mr. Simon was in New York to address a
kets, OPEC oil production in the first quar-
sharply downgrading earlier estimates of
dinner meeting of the American Iron and
ter of this year averaged 26 million barrels
the volume of surplus funds accumulating in
Steel Institute.
daily; down 14% from the average for all
>n>
ylenn Ichleede
LETTLEY
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
ASSISTANT SECRETARY
September 13, 1976
DERALO FORD LIBRARY
MEMORANDUM FOR: MEMBERS OF THE COMMITTEE ON FOREIGN
INVESTMENT IN THE UNITED STATES
HONORABLE JAMES M. CANNON
HONORABLE BRENT SCOWCROFT
HONORABLE ALAN GREENSPAN
HONORABLE FRANK G. ZARB
ne
Subject: Working-level Meeting on OPEC Investments
in Energy Sector
The FEA has requested that the Committee on Foreign
Investment in the United States (CFIUS) review current
U.S. policy and procedures on foreign investment in the
United States in regard to direct investments by OPEC
governments in the energy sector. Accordingly, I have
asked Deputy Assistant Secretary John M. Niehuss to hold
a working level meeting of the CFIUS to give FEA an
opportunity to explain why current U.S. policy and pro-
cedures should be changed in this regard. (Attached is a
FEA memorandum on this subject.) The report of this
working group will be transmitted to the Committee with a
recommendation for any further action by the CFIUS.
Pursuant to Section 1 (a) of the Executive Order
creating the CFIUS, representatives of FEA, CEA, NSC and
the Domestic Council are also invited to participate in
the working group.
The working group meeting will be held on Thursday,
September 16 at 30 p.m in Room 4125, Main Treasury
Please notify Mr. Niehuss' office (964-5881) as to who will
attend for your agency.
Gerald L. Parsky
Attachment
09138
LIMITED OTHORIE
FEDERAL ENERGY
FEDERAL ENERGY ADMINISTRATION
WASHINGTON, D.C. 20461
ADMINISTRATION
OFFICE OF THE ASSISTANT ADMINISTRATOR
FORD
MEMORANDUM FOR FRANK G. ZARB
CBT
FROM:
CECIL B. THOMPSON
SUBJECT:
OPEC GOVERNMENT DIRECT INVESTMENT IN THE
U.S. ENERGY SECTOR: ISSUES PAPER
Attached is a revised draft of the OPEC investment issues
paper, reflecting comments by you and John Hill. The key
issues posed are:
Do OPEC government investments in the U.S. energy
sector warrant special review beyond existing safe-
guards/procedures?
If so, what review/monitoring procedures are
required?
The discussion notes that while presently proposed OPEC
investments in the U.S. energy sector are limited, the
potential risks associated with such investments may
justify special treatment. The paper does not, however,
make any formal policy recommendation.
Enclosure
cc: Alan Greenspan
Gerald Parsky
John Niehuss
John Hill
Bruce Pasternack
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ISSUE: What Should be the U.S. Government Policy toward
Direct Investment bv OPEC Governments in the
U.S. Energy Sector?
SOURCE: Office of International Energy Affairs
BACKGROUND:
As a result of the oil price increases of 1973-1976, OPEC
governments are earning revenues surplus to their estimated
development and consumption requiréments. These surplus
revenues (perhaps $200 billion by 1980) are concentrated
among the Persian Gulf nations, and give Iran, Saudi Arabia,
Kuwait, Qatar and the United Arab Emirates the financial
capability to invest downstream in the operations of firms
operating within the U.S. energy sector. Moreover, these
governments have periodically expressed the intent to
invest directly in the energy companies of oil consuming
countries; various companies have expressed a willingness
to accept their participation.
The USG has by tradition maintained an "open door" policy
which has been relatively liberal toward foreign direct
investment (FDI) in the U.S. Such a policy makes the U.S.
an attractive market for investment capital; it reflects
a basic premise that investment will be governed by com-
mercial factors and that investment by U.S. entities
abroad will receive reciprocal treatment by host govern-
ments.
Recent events suggest that the basic premise underlying
the FDI policy may not be valid where OPEC government in-
vestment in U.S. energy is concerned, and that such
investments in energy mav warrant special treatment and
safeguards. Such treatment and safeguards already
exist in the case of FDI in nuclear energy, detense, com-
munications, transportation, and banking.
The principal recent events and trends that led to this
concern are as follows:
o The embargo and subsequent oil and gas pricing actions which
demonstrated that international energy pricing and trade are
the subject of extensive political negotiations, and are
no longer governed primarily by commercial considerations.
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2
Actions of OPEC governments to nationalize domestic pro-
duction; these governments have exercised their sovereign
prerogatives, but in the process have altered drastically
the regime of reciprocal treatment.
In direct response to the embargo and pricing actions, the
U.S. and other major oil importing nations have adopted
energy objectives requiring safeguard measures, beyond those
typically provided for in conventional international com-
merce, aimed at reducing their dependence on OPEC oil, to
alleviate price and supply security concerns; energy has
thus been singled out as a critical economic sector by
both producing and consuming countries.
As a result of the embargo, nationalization actions and the
responses of the oil importing countries have limited the
extent to which purely commercial factors will determine the
supply and price of oil. It is appropriate and timely,
therefore, to review these new "terms of trade" to determine
whether any modification of FDI policy is warranted to
reflect these new conditions.
DISCUSSION:
Expanded OPEC Role
To date the most active OPEC government in exploring FDI
prospects with the U.S. energy sector has been Iran. Dis-
cussions were held in 1974 with Ashland Oil; in 1975 with
Shell Oil Corporation (U.S.), and with the U.K. Government
concerning British Petroleum (with SOHIO holdings); and
most recently with Occidental Petroleum Corporation, NEPCO,
Crown Central Petroleum Corporation, and again with Ashland
Oil.
In addition, the Sun Oil Company is actively sounding out
prospective buyers, including OPEC governments or national
oil companies, to dispose of its Caribbean refinery.
It is in the specific context of this sequence and timing of
ventures that various USG agencies and coordinating groups
have dealt with the issues posed by FDI in the energy sector.
To broaden the perspective on these developments, it is use-
ful to consider briefly the basic premise of U.S. open door
policy; exceptions to this policy, FDI safeguards in place
domestically; safeguard measures in selected other IEA
countries; and the consistency between energy policy goals
and FDI policy.
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3
FORD
Premises to U.S. Open Door FDI Policy
Foreign investment has played an important role in the
economic development of the United States. In the 19th
century, foreign direct investment provided capital for the
railroads and remained a major source of capital for industry
until World War I. Since World War II, however, U.S. direct
investment abroad has expanded rapidly and now exceeds the
amount of foreign investment within the U.S. In 1974 U.S.
direct investment abroad had a book value of $118.6 billion
while foreign direct investment in the United States totalled
$21.7 billion, of which approximately one-third was committed
to the U.S. energy sector.
U.S. policy at the Federal and local levels traditionally
has encouraged foreign investment. This policy is one of
the foundations of U.S. international economic policy, and
reflects U.S. commitments to:
Free market mechanisms, affording maximum productive,
profit-maximizing latitude to commercially motivated
investors, and
Reciprocal treatment of U.S. investors by foreign govern-
ments
The benefits of this policy are considerable, and well-known.
In the present; international setting of attempts to create a
"new economic order," it is particularly important to main-
tain the validity of fundamental U.S. economic policies such
as those pertaining to FDI.
U.S. Exceptions to the Open Door Policy
The principal rationale for the exceptions in place appears to
derive from a combination of national security concerns, and
reciprocal treatment for U.S. investment abroad.
Some of the major economic sectors which have been singled
out for special treatment through safeguard measures are:
Broadcast communications industry;
Commercial banking;
Defense-related industries;
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4
Transportation;
Commercial and non-commercial development of nuclear
FORD VIBRARY
power
Communications. The Federal Communications Act of 1934 requires
that the FCC receive disclosure of stockholders of licensees
seeking to invest in the communications field. Federal
statute prohibits foreign-owned or controlled corporations
from receiving a license to operate an instrument for the
transmission of communications. A corporation is considered
alien if any director or officer is an alien, or if more
than one-fifth of its capital stock is own by aliens.
Banking. Only banks incorporated within the United States
may become members of the Federal Reserve System and/or the
Federal Deposit Insurance Corporation. However, foreign
banks may operate in many states if they conform to state
and federal standards.
Defense. The National Disclosure Policy and the Industrial
Security Program, as codified in various statutes and regulations
(most notably the National Security Qualifications of any
foreign-owned, controlled, or influenced corporation which
has work contracts related to classified material. Any
company engaged in classified defense contract work is
required to keep the Department of Defense informed on
changes in its managerial personnel or board of directors
and/or transfers of ownership. National security is the
predominant rationale behind this policy.
Transportation. The most stringent restrictions are those
designed to prohibit foreign participation in coastal
maritime trade (cabotage), as set forth in the Merchant
Marine Act of 1920, the Shipping Act of 1916 and the Registry
Acts (1792). Similar federal restraints exist in aviation,
as codified in the Federal Aviation Act of 1958. In the
case of railroads, several state laws prohibit foreign owner-
ship but no federal restrictions exist.
Nuclear Power. The Mining Law of 1872 restricts uranium
mining to U.S. corporations while the Atomic Energy Act and
other statutes prohibit aliens or alien-controlled corporations
from operating nuclear reactors.
Other Restrictions. As thoroughly documented by the 1976
Commerce Department's Report to Congress on Foreign Direct
Investment in the United States, numerous restrictions exist
in other sectors, especially electric utilities and insurance.
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U.S. FDI Safeguards
The United States has in place a number of safeguard
mechanisms to monitor the scope and nature of foreign direct
investment in the United States. At least 20 federal agencies
compile data on foreign direct investment activities; the
following paragraphs summarize the principal efforts:
In May, 1976, a joint Commerce-Treasury study group
published an exhaustive benchmark survey of foreign
direct investment, as required by the Foreign Invest-
ment Study Act of 1974.
On May 7, 1974, the President issued Executive Order
11858, establishing an interagency Committee on
Foreign Investment in the United States (CFIUS) under
the chairmanship of the Department of the Treasury.
The Committee is supported by an Office of Foreign
Investment in the United States in the Department of
Commerce. FEA has been granted "permanent advisory
status" to the interagency committee
Section 26 of the Federal Energy Administration Act
requires the Administrator to monitor "Foreign
Ownership of, Influence on, and Control of Domestic
Energy Sources and Supplies;" this responsibility has
been extended.
The Department of Commerce regularly collects reports
quarterly and annually, from foreign persons which hold,
either as individuals or as affiliates, controlling
interest in a business enterprise operating in the
U.S. A report must be submitted for foreign direct
investments amounting to 25 percent or more of a U.S.
corporation's voting stock, owned directly or indirectly.
Exempt from such reporting are business organizations
whose value is less than $2 million. Commerce also
collects certain balance of payments information from
a sample of 400 foreign companies in the United States.
The Security and Exchange Commission, by virtue of the
Securities Act of 1933, the Securities and Exchange Act
of 1934 and its recent amendment, gathers a wide variety
of ownership data, including information on any investor
proposing to acquire more than 5% of the shares of a
company.
The Internal Revenue Service also collects ownership
information for taxation purposes.
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6
Although the Federal Trade Commission does not
GERALD FORD VIBRARY
gather ownership data on a regular basis, the
Commission does collect such information during
special reviews or in their study of proposed mergers.
In addition, the recently published Report to Congress
on Foreign Direct Investment in the United States has
recommended improvements to these monitoring systems
to provide for more comprehensive oversight of FDI
activities in the U.S. economy.
a
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7
Safeguards in other IEA Countries
FORD (IBRARY
Concern in other IEA member countries over OPEC government
FDI has resulted from two specific actions which occurred in
the Federal Republic of Germany (FRG) : the July 1974 purchase
of a 25 percent share in the steel making division of the
Krupp holding group by Iran, and the December 1974 purchase
of a 14 percent share in Daimler-Benz by Kuwait. Chancellor
Schmidt's response was that "there are limits
we
would
step in with legal measures. The countries which expressed
the most concern were those which have healthy economies and
would provide the most attractive places for OPEC FDI, e.g.,
Japan, France (not an IEA member) and the Netherlands. These
countries have taken the most aggressive posture toward OPEC
FDI. Japan and France immediately initiated high-level
internal reviews of the prospects for OPEC FDI and their
policies towards it. The Dutch Parliament has openly
considered legislation which would limit FDI. Other countries
such as the United Kingdom, whose economies would be assisted
by OPEC FDI, have either been more neutral of have stated
their willingness to accept OPEC FDI.
These differences notwithstanding, there are points of
commonality. European countries make a distinction
between acquisition of existing enterprises and new invest-
ments in which control is retained by the domestic
participant. Established FDI in most all cases is afforded
national treatment by the host. Almost all developed
countries restrict FDI in selected key sectors considered
to be of national importance (e.g., public utilities, raw
materials). Compulsory reporting of investment transactions
is the norm but the coverage and detail required very
widely.
Beyond these points of commonality national strategies for
dealing with potential FDI by OPEC governments take on
a more individual character.
FRG
.
Starting with Iran and Kuwait, has discussed with OPEC
governments the creation of specific bilateral arrange-
ments regarding advance notification of FDI;
uses banking and industrial organizations to provide
warning of overture by OPEC governments to purchase
sizeable blocks in German private sector;
in the private sector some firms seek to preempt unwanted
FDI or control its effect by limiting shareholder voting
rights.
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Netherlands
relies upon voluntary reporting by the participants them-
selves;
requires prior agreement by the Board of Directors of the
target firm (thus, realistically, Royal Dutch Shell is
immune from OPEC FDI).
Japan
has no specific requirements for notification of intended
OPEC government FDI, but induces voluntary prior
notification by delaying its decision until the investor
withdraws its investment or agrees to government terms;
requires prior agreement by the Board of Directors (which
in effect means government approval) of the target firm.
United Kingdom
exercises control through 50% or greater participation
in energy production ventures;
Italy
has preempted foreign commercial activities through con-
cessions and favored treatment of domestic national oil
company;
avoids specific legal restrictions by providing direct
government assistance to competing firms to make FDI in
target firm unattractive.
Canada
continues to welcome FDI in its energy sector from all
sources;
but Foreign Investment Review Board carefully reviews all
FDI.
France (not an IEA member)
requires government approval before a substantial FDI can
be made;
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9
GLEATE FORD LIBRARY
if FDI is opposed by the government, investment in the
target firm by another domestic company is sometimes
encouraged to prevent FDI.
Other methods which have been applied in IEA countries include:
reductions of the proportion of equity that can be acquired
by the foreign firm;
assurances that no FDI above the original level will be
obtained.
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Energy Policy Goals and FDI Policy
In response to the Embargo and OPEC, the U.S. has singled
out its energy sector for policy treatment which runs
counter to the domestic laissez-faire policy tradition.
In particular, to meet the price and supply risks posed by
the oil producer countries, specific national energy targets
have been developed, and are gaining general acceptance.
Implicit in these import and domestic resource development
goals is the recognition that conventional international
economic exchanges will not meet our broader interests. Theory
shows that unfettered international trade and specialization
maximize collective economic well-being. However, the U.S.
and the IEA countries collectively have determined to accel-
erate the development of their costlier indigenous, alterna-
tive energy resources, at a measurable, recognized loss of
optimal economic well-being, because of the unacceptable
risks which would result from continued, high dependence
upon OPEC.
The issue that is thus posed is whether the prospects and
consequences of OPEC investment are consistent with the
overall strategy of risk containment within the U.S. and
IEA, and with the energy policies and goals recently developed.
Approach
a
To assess the impact of FDI by OPEC governments in the U.S.
energy sector, the following topics are discussed below:
An assessment of the risk posed by OPEC government invest-
ment in terms of:
- U.S. energy supply security, including long-term energy
objectives;
- U.S. energy prices, including risks of extension of
cartel rents downstream;
- Impact on credibility of U.S. energy policies and
posture.
A discussion of existing control mechanisms to deal with
risks identified above;
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Conclusions concerning the probability of the risks
posed by OPEC FDI;
Policy options to deal with risks, if warranted.
Risk Assessment
As noted above, OPEC government may accumulate surplus
revenues on the order of $200 billion by 1980. For com-
parison, Table 1 shows the net value of U.S. assets held
by 30 international petroleum companies.
Table 1
Net Investment in Fixed Assets (Dec 31, 1974)
30 International Petroleum Companies
($ billion)
U.S.
World
Production
25.9
37.9
Transportation
4.0
10.6
Refining/Chemical Plants
11.7
23.1
Marketing
7.9
16.1
Other
2.5
3.6
TOTAL
51.9
91.2
Source: Chase Manhattan Bank, 1974 Financial Analysis of a
Group of Petroleum Companies
Assets of natural gas, coal and uranium producers are more
difficult to estimate; the increase in value of U.S. energy
company assets is at least $25 billion.
Energy Supply Security and U.S. Long-Term Energy Objectives
The intentions of certain OPEC governments to use energy as a
political instrument raise concerns that these governments
might use their investments in U.S. energy companies to:
In the short-term, render an embargo more effective
by obstructing implementation of the IEP; and
In the longer-term, increase U.S. dependence on OPEC
oil, at the expense of non-OPEC supplies.
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Short-Term Supply Security
A major area of concern is the potential for obstruction of
the IEP. Through downstream petroleum investments, OPEC
governments could acquire the potential to target an embargo
through access to the IEA emergency sharing system, through
expanded control of logistics (especially tankers and refineries)
and through an enhanced monitoring capability resulting from
involvement in domestic operations.
In other energy sectors, the risks posed by OPEC are much
less severe. In coal, given the U.S. position as a net ex-
porter, there is little reason for concern. In uranium and
nuclear technology, preventing nuclear weapons proliferation
is the principal issue; this transcends specific energy con-
cerns, and is receiving priority attention.
Long-Term Energy Development
The possibility of conflict arises perhaps most acutely in
this area, because domestic supply development goals are
not necessarily consistent with the investment behavior of
a transnational corporation with rigorous return on invest-
ment concerns. While it is impossible to quantify expected
effects, the following hypotheses probably apply to a trans-
national firm at the margin of its financial, entrepreneurial
or technical resources:
A U.S. -controlled enterprise is more likely to accept for
overriding national reasons a less-than-optimal investment
strategy, than a foreign controlled enterprise.
An enterprise subject to OPEC government influence, if not
control, would be less likely to accept a diminished rate
of return as a fee for "good corporate citizenship."
In the case of two energy investment prospects with
apparently identical ROI, one in the U.S. and one
overseas, OPEC influence and political motivation
increase the likelihood of a bias against the U.S.
venture.
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The USG has a wide range of tax measures and regulatory
controls which govern the operations of domestic energy
companies; these controls apply equally to all U.S. corpora-
tions regardless of the nationality of the stockholders.
Underlying these controls, however, is the premise that
corporations are profit-maximizers and will act accordingly.
?
It is possible that the motives of an OPEC-controlled com-
pany might cause decisions which, though legal, would run
counter to the objectives of U.S. energy policy.
If OPEC governments proceed with plans to construct export
refineries, OPEC-owned marketing companies may be required
to sell OPEC-refined products over non-OPEC products. Such
distortions could reduce domestic refinery utilization and
increase U.S. balance of payments due to the higher cost of
products.
The prospect of OPEC preventive investment in coal or
uranium in order to slow their development seems far-fetched.
Some OPEC governments, including Iran, have substantive con-
cerns about their own future energy needs following depletion
of their oil reserves. Downstream investment in uranium
enrichment, nuclear technology and solar research may simply
reflect a realization that these energy sources will be
essential a decade or two hence as depletion sets in.
Energy Prices
OPEC controls world oil pricing through its reserves.
They might attempt to extend this cartelization to downstream
petroleum operations (tankers, refining, marketing) or into
other energy sectors to extract additional rents. Such an
OPEC strategy, however, appears improbable if undertaken
solely to gain pricing leverage.
Downstream petroleum operations are the most likely target,
based on recent activity. However, the magnitude of
financial outlays required and the diversity of commercial
interests involved would make an extension of OPEC control
extremely costly and become ipso facto a large potential
liability (subject to expropriation) and manifest itself
visibly and easily. Cartelization of crude oil production
has proven the most cost-effective pricing strategy; incre-
mental steps downstream yield little.
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Moreover, even by OPEC standards, the capital required is
considerable. It should be noted, however, that an invest-
ment of less than 50 percent of market value is frequently
sufficient to gain effective control of a large corporation.
Thus an outlay of less than half of the estimated market
value of the U.S. oil industry would be sufficient to
achieve effective control, absent measures which would
prevent such an occurrence.
The risks are probably the greatest in the area least under
U.S. Government control: tanker fleets. Given the depressed
condition of the world tanker market, the opportunity exists
for OPEC governments to expand rapidly their investments in
tankers at bargain prices. If OPEC governments were to
acquire a substantial portion of the world fleet and impose
flag preferences, the potential for monopoly rents in trans-
portation tariffs would be very real.
In other energy sectors, OPEC control over pricing would
require sizeable outlays with little chance for success.
OPEC governments at present have no significant investments
in coal or uranium reserves. The magnitude of investments
required to impact on the prices of these resources would
be enormous, and constitute an investment hostage in host
countries.
Credibility of:U. S. Energy Posture
In this amorphous area, the perceptions by the public
at large, the Congress, other IEA countries, and OPEC
itself of the U.S.'s ability to implement its energy
goals are an intangible but important element which
affects the U.S. energy policy process.
More specifically, the coincidence of possible near-
term price actions by OPEC, and a series of highly
visible OPEC movements into the U.S. energy sector
could create the appearance of U.S. helplessness,
notwithstanding technical counter-arguments about
downstream competitive structures, and monitoring
committees and statutes currently in place.
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Existing Control Mechanisms
BERALD FORD CIBRARA
There are in place control mechanisms which restrict the
scope of any proposed OPEC government investment in U.S.
energy sectors.
Current USG Foreign Investment Review: The Commit-
tee on Foreign Investment in the U. S. (CFIUS) is
charged with the responsibility of monitoring the impact of
foreign investment in the United States and for coordinating
the implementation of U.S. policy on such investment. One
of its major tasks is to review investments which, in its
judgment, might have major implications for our national
interest. Since its establishment in May 1975, the Committee
has considered several investments, including the proposed
Rumanian investment in the Island Creek Coal Company, the
proposed takeover of Copperweld, Inc. by Imetal, and most
recently, the proposed joint venture between the National
Iranian Oil Co. (NIOC) and Occidental Petroleum Co. From
the Committee's consideration of at least the first two
of these cases, there was no inherent contradiction between
the general policy of allowing a free flow of investment
into the U.S. economy, including the energy sector, and
energy objectives. Consequently no objection was raised
to these investments on the basis of their implications for
the national interest.
Federal and State Regulation and Oversight: oversight of the
U.S. energy sector is already extensive. While OPEC-owned
companies might behave differently, they would be subject to
regulations and laws which insure the compatibility of industry
actions with national goals and policies.
The Interior Department has limited powers over the national-
ity of corporations leasing of public land, including the OCS.
Foreign control of onshore leases through U.S. incorporated
entities can be prevented if it can be proven that reciprocal
rights are denied in the relevant foreign country.
The Nuclear Regulatory Commission may deny licenses for
reactors or nuclear processing plants to an alien or a foreign-
controlled corporation.
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In addition to these authorities and measures, there are
other general avenues for dealing with foreign investment
GERALD FORD
behavior in the U.S. :
U.S. antitrust legislation, which provides a means of
limiting some forms of foreign investment. Under pro-
visions of the Clayton and Sherman Acts, foreign govern-
ment ownership of U.S. energy facilities could be
restricted to prevent concentration or anti-competitive
practices, particularly if the cumulative level of such
investments threatened to give OPEC governments a major
share of the U.S. market.
The Trading with Enemy Act, which gives the President
authority in time of war or national emergency to take
a wide variety of protective measures vis-a-vis enemy
or hostile-controlled enterprises. This authority was
invoked to create the Office of Foreign Direct Invest-
ments in 1968 and more recently to impose temporary
export controls. Since this statute requires a Presi-
dential declaration of national emergency, its use
poses a number of difficult political problems.
It is often argued that downstream investments render OPEC
government more vulnerable given the threat of expropriation.
While theoretically correct, this argument ignores the
political and statutory obstacles to such action. In the
absence of a declaration of war, special legislation would
be required to seize the assets of an OPEC government; even
then, compensation would have to be paid. Moreoever, such
action could jeopardize the status of U.S. investments
abroad.
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Conclusions
1)
OPEC governments have the capability and have indicated
the intent to expand their investments in the U.S. energy
sector to secure market access, as reflected in:
Accelerated foreign direct investment by major OPEC
countries, notably Kuwait and Iran, in OECD countries;
and
Focussed interest in U.S. energy companies on the part
of Iran; in particular, Iran has proposed to acquire
an interest in Occidental Petroleum
The OAPEC Secretariat has recently characterized
energy downstream investment by producers as a necessary
response to the IEP, thus introducing a political
element in what has been represented to date as a com-
mercial strategy.
2)
In direct contrast to OAPEC's tone and the active
Iranian interest, the official Saudi Government position
is conservative. The Saudis are increasing their longer
term holdings and direct placement loans, particularly
in U.S. corporations. Investment criteria are specific:
the Saudi Arabian Monetary Agency has instructed its
portfolio managers to keep investments below 5% of out-
standing equity in each venture.
As of late 1975, SAMA had not invested directly in the
equity of any firm and apparently had no interest in
acquiring any management interest. Other guidelines limit
tne amount of portfolio assets in any one industry and
in any one company. Saudi private investors have, however,
been encouraged to expand the Saudi flag tanker fleet.
The Kuwaiti Government has expressed intentions to limit
investment abroad in much the same manner. The future
stability of all governments in the Persian Gulf, however,
can be questioned.
3)
There are substantial supply security, and less severe
price concerns which would arise from OPEC investment in
U.S. energy sectors; the problems of public perceptions
in the U.S. and IEA may be significant.
4)
Existing control mechanism can limit the risks associated
with OPEC government investment in the U.S. energy sector,
but cannot assure complete compatibility of such invest-
ments with evolving U.S. energy objectives.
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5)
Although the U.S. policy towards FDI is generally
RALD LIBRARY FORD
characterized as "open door", there are restrictions
which limit or prohibit foreign investment in
certain sectors both on grounds of national security,
and extension of reciprocity to U.S. investors abroad.
6)
There is also evidence of emerging sentiment in other
IEA countries to safeguard basic industries and key firms
from OPEC government influence or control, e.g.,
German conditions upon Iranian investment in Krupp;
Chancellor Schmidt's statement "there are limits
we would step in with legal measures."
7)
OPEC governments have nationalized U.S. producer com-
panies and assets, and have restricted or banned further
investment in their energy sectors.
8)
OPEC investments in the U.S. energy sector might render
those governments vulnerable to expropriation or
retaliation in the event of a confrontation with the
U.S.; however, use of this sanction is extremely con-
tentious and difficult, and should be viewed only a
last-resort measure.
a
LIMITED OFFICIAL U
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20
LIMITED OFFICIAL USE
19
ISSUES/OPTIONS ANALYSIS
FORD LIBRARY
The first issue which must be resolved can be simply stated:
Is OPEC government investment in U.S. energy sectors suf-
ficiently different to warrant special consideration? If
the answer is affirmative, there are two sets implementing
options which must be addressed:
What type of review procedure is required?
What degree of FDI monitoring in U.S. energy sectors
is desirable?
ISSUE 1: Should U.S. policy be modified to provide for
distinct treatment of OPEC government direct
investment in the U.S. energy sector?
Any proposed deviation from the tradition of non-discriminatory,
open-door policy toward foreign direct investment in the
U.S. economy should be assessed very carefully.
The issue raised here involves a difficult judgment between
the maintenance of the open-door policy, with all of its
obvious and coñsiderable benefits to date: and the safe-
guarding of energy policy goals, there progress to date has
been laborious.
The underlying question is a judgment of whether the com-
bination of real and perceived risks stemming from OPEC
investment warrants special and visible safeguards by the
U.S. Government.
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20
Option A - Treat OPEC Distinctly
FORD LIBRARY
PROs:
Elevates national energy sector to the level of policy
concern about defense, transportation; communications,
and banking, as reflected in existing foreign invest-
ment safeguards under U.S. legislation.
Meets actively some of the public, Congressional and
international concerns about effectiveness of U.S.
energy policies.
Protects parts of U.S. energy infrastructure from OPEC
takeover at distressed price levels, brought about
(in part) by OPEC actions.
Avoids adding an additional incendiary dimention to
the domestic divestiture debate.
Reflects Congressional interest, as expressed in Section 26
of the FEA Act, to give special attention to this issue.
CONs:
Significant conceptual departure from open-door principles.
Will have the effect of discouraging or delaying
potentially-productive ventures.
May appear gratuitously confrontational, at a time
of incertainty concerning CIEC resumption, and other
economic dialogues with the Third World.
May spark OPEC price reaction, or appear to legitimize
imminent price action by OPEC.
Option B - Do not Treat OPEC Distinctly; Rely on Existing
Mechanisms
[The Pro-Con discussion above applies here, reversed].
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21
FORD LIBRAS
ISSUE 2: How Should the USG Review OPEC Direct Involvement
in the U.S. Energy Sector?
The CFIUS mechanism has no statutory authority. The Executive
Order does not impose upon CFIUS any periodic monitoring
function, or any before-the-fact evaluation procedure.
The following options could formalize and tighten the CFIUS
mechanism.
Option A - Review by CFIUS of OPEC investment in U.S. energy
sector, at stated periodic intervals.
PROs:
Minimum intervention within existing mechanism.
Does not require implementing legislation.
Can be presented as mild, non-confrontational measure.
CONs:
May not address issue of central concern, if risks inherent
in OPEC FDI are judged to be high.
May not be sufficient to allay Congressional and public
concerns, if stepped-up OPEC investment proposals
materialize.
Option B - Require prior consultations by venturing firms,
U.S. and OPEC, with CFIUS
[Sub-Option: threshold test of financial size and energy
impact can be established to screen out in-
significant ventures.]
PROs:
Significant improvement in effectiveness over retro-
spective reporting approach in Option A.
Meets many of the Congressional and public concerns.
Can be broadened through CFIUS to allow for prior consulta-
tion with other key groups such as Congressional leaders and
IEA countries.
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LIMITED
22
GERALD FORD LIBRAR,
CONs:
Interposes time-consuming procedure in an investment
environment that may be severely over-regulated as it
stands.
Formalization of prior consultation into a requirement
will probably necessitate new legislation.
Imposes potentially-heavy administrative burden on CFIUS
and its member agencies.
Option C - Mandatory prior consultations with CFIUS;
recommendations by CFIUS to ERC/EPB on
desirability of each major proposed venture.
PROs:
Most rigorous procedure for review if risk is assessed to
warrant careful scrutiny.
Gives USG latitude to respond flexibly to OPEC actions,
to the extent that OPEC ventures continue to be proposed.
CONs:
Major intervention; puts USG into role of assessing an
open-ended number of ventures, and possibly having to
justify these assessments in diverse forums such as the
courts, international negotiations, and the Congress.
May engage USG in continual, venture-by-venture bargaining
and specifications traditionally left to market mechanisms.
May politicize domestic investment decision-making.
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23
Policy Guidelines
Whichever option is selected, an important ingredient in
GERALD FORD
any process will be the elaboration of coherent policy
guidelines. The important issues which these guidelines
should treat include:
1) Nationality of prospective investor (OPEC vs non-OPEC,
Arab vs non-Arab)
2) Degree of ownership
3) Type of managerial control
4) Company position in U.S. energy market
5) Company position in IEP
6) Company position in world energy market particularly
tanker fleet ownership
7) Other energy investments by the same investor
8) Cumulative effect of all investors' interests on his
position in the U.S. and world energy markets
When the ERC selects the preferred option, an ERC task force
should immediately develop guidelines for CFIUS which
answer these and other pertinent questions.
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LIMITED OFFICIAL USE
24
FORD
ISSUE 3: To What Extent Should the USG Monitor Foreign
Investment in U.S. Energy Companies
Monitoring to date by FEA has been on an annual, ad hoc
basis out of existing resources. The first report was
published in December, 1974. A new report is in final
draft form. There are reasons to argue that additional
monitoring is not necessary.
Option A - Annual Reports with Existing Resources of Major
Changes in Energy FDI Only
PROs:
1.
No new commitment of resources
2. Supply continues existing practice and thereby
minimizes adverse effects on future investment
3.
Meets minimum requirements of Section 26 of the
FEA Act.
CONs:
1.. Strains existing resources since monitoring is
conducted on an ad hoc basis
2.
Monitoring is at present incomplete
3. Does not provide adequate basis for detecting port-
folio investment
Option B - Semiannual Reports with Additional Resources and
Monitoring on Both FDI and Portfolio Investment
PROs:
1. Would ensure maximum compliance with Section 26 of
the FEA Act.
2. Would provide an even more accurate data base for
policy determinations regarding limitations on foreign
investments.
3. Would answer Congressional and public criticism and
allay fears of foreign "takeovers" of U.S. energy
facilities.
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25
4.
Would relate to need for greater "transparency"
NOR-FORD LIBRARY
of energy industry.
CONs:
1. Would require commitment of considerable resources.
2. Even comprehensive monitoring would not reveal with
certainty, the full extent of portfolio investment by
foreigners.
3. Would require either changes in existing reporting
forms or the promulgation of new questionnaires.
4.
Substantial field investigations would be required.
Questionnaires alone would not suffice.
5. Might tend to discourage desirable foreign investment.
6.
Might threatend status of U.S. investments abroad.
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THE WHITE HOUSE
WASHINGTON
October 5, 1976
MEMORANDUM FOR:
ART QUERN
FROM:
PAUL LEACH
SUBJECT:
Arab Boycott Memorandum
for Secretary of Commerce
I have no objection to this, which probably has more domestic
benefit than international cost. Also, there is a school of
thought which argues that the Sunshine Act will have the same
result, so why not issue this order now?
THE WHITE
ACTION MEMORANDUM
WASHINGTON
LOG NO.:
Date:
October 4, 1976
Time:
FOR ACTION:
CC (for information):
Phil Buchen
Jack Marsh
1976
Jim Lynn (Paul O'Neill)
Jim Cannon
Brent Scowcroft
Bob Hartmann37
Max Friedersdorf
Bill Seidman
FROM THE STAFF SECRETARY
DUE: Date:
October 5, 1976
Time:
C.O.B.
SUBJECT:
Proposed Presidential Letter to
Secretary of Commerce rè: Boycott Reports
Fasin
ACTION REQUESTED:
X
For Necessary Action
For Your Recommendations
Prepare Agenda and Brief
Draft Reply
X For Your Comments
Draft Remarks
REMARKS:
The Original of this memorandum was taken
by the Presidential Party
---
your comments
must be dexed to them as promptly as possible --
therefore - the reason for the quick turnaround.
Thank you.
PLEASE ATTACH THIS COPY TO MATERIAL SUBMITTED.
If you have any questions or if you anticipate a
delay in submitting the required material, please
Jim Connor
telephone the Staff Secretary immediately.
For the President
THE WHITE HOUSE
WASHINGTON
October 4, 1976
MEMORANDUM FOR
THE SECRETARY OF COMMERCE
SUBJECT:
Boycott Reports
I would like the Department of Commerce to take
appropriate steps to permit, prospectively, the
public inspection and copying of boycott-related
reports filed with the Department of Commerce.
Only business proprietary information regarding
such things as quantity and type of goods exported,
the release of which could place reporting firms
at a competitive disadvantage, should not be made
available to the public.
During the past year, there has been a growing
interest in and awareness of the Arab boycott on
American business. Disclosure of boycott-related
reports will enable the American public to assess
for itself the nature and impact of the Arab boycott
and to monitor the conduct of American companies.
To provide adequate notice to American exporters of
this new policy, these inspection procedures should.
be placed in effect for reports filed after December 1,
1976.
In contrast to legislative proposals which were pending
when Congress adjourned, public disclosure of boycott
reports will strengthen existing policy against the
Arab boycott of Israel without jeopardizing our vital,
diplomatic and economic interests in the Middle East.
I continue to believe that a lasting Middle East peace
represents the only true means to end the Arab boycott.
THE WHITE HOUSE
WASHINGTON
FORD
October 4, 1976
The President today directed the Secretary of Commerce
to take appropriate steps to permit, prospectively, the
public inspection and copying of boycott-related reports
filed with the Department of Commerce. Only business
proprietary information regarding such things as quantity
and type of goods exported, the release of which could
place reporting firms at a competitive disadvantage, will
not be made publicly available.
During the past year there has been a growing interest
in and awareness of the impact of the Arab boycott on American
business. Disclosure of boycott-related reports will enable
the American public to assess for itself the nature and
impact of the Arab boycott and to monitor the conduct of
American companies. To provide adequate notice to American
exporters of this new policy, the President asked the Secretary
of Commerce to place it in effect for reports filed after
December 1, 1976.
Public disclosure of boycott reports will complement
positive steps already taken by my Administration to imple-
ment this Nation's policy in opposition to restrictive trade
practices and boycotts. Other affirmative steps taken during
the past year to give full effect to national policy have
included the following:
1. On December 1, 1975, the Export Administration
Regulations were amended to prohibit compliance
with any boycott request which would discriminate
against U.S. citizens or firms on the basis
of race, color, religion, sex or national origin.
2. On December 1, 1975, the Regulations were amended
to extend the reporting requirements to any person
or firm other than the exporter handling any phase
of the export transaction (such as banks, insurers,
shipping companies, and freight forwarders.)
In addition, other actions taken by the Administration
to implement the anti-boycott policy include:
1. On October 1, 1975, the reporting requirements
were amended to require reporting firms to
indicate whether or not they had complied, or
intended to comply, with the reported boycott-
related requests.
-2-
2.
On December 1, 1975, the Department of Commerce
ceased dissemination of information on trade
opportunities containing boycott requests.
3. On April 29, 1976, the Secretary of Commerce
directed that all charging letters alleging
violations of the Export Administration
regulations relating to the boycott be made
public.
4. On a continuing basis, the Department of
Commerce has referred and continues to refer
reports of boycott requests that call for
discriminatory actions against U.S. antitrust
laws to the Departments of State and Justice
for appropriate action.
In contrast to legislative proposals which were pending
when Congress adjourned, public disclosure of boycott reports
will strengthen existing policy against the Arab boycott
of Israel without jeopardizing our vital, diplomatic and
economic interests in the Middle East. Lasting Middle East
peace, a primary diplomatic goal of the Administration,
represents the only true means to end the Arab boycott.
FOR IMMEDIATE RELEASE
OCTOBER 7, 1976
Office of the White House Press Secretary
Lead
THE WHITE HOUSE
The President today sent the following Directive to the
Secretary of Commerce.
Would you please assure that the Department of Commerce takes
steps to permit the public inspection and copying of boycott-related
reports to be filed in the future with the Department of Commerce.
Only business proprietary information regarding such things as
quantity and type of goods exported, the release of which could
place reporting firms at a competitive disadvantage, should not be
made available to the public.
During the past year, there has been a growing interest in and awareness
of the impact of the Arab boycott on American business. Disclosure of
boycott-related reports will enable the American public to assess for
itself the nature and impact of the Arab boycott and to monitor the
conduct of American companies.
I have concluded that this public disclosure will strengthen existing
policy against the Arab boycott of Israel without jeopardizing our
vital interests in the Middle East. The action I am directing today
should serve as a reaffirmation of our national policy of opposition
to boycott actions against nations friendly to us.
# # #
FORD in LIBRARY GIVH
FOR IMMEDIATE RELEASE
OCTOBER 7, 1976
Office of the White House Press Secretary
(Los Angeles, , California)
THE WHITE HOUSE
FACT SHEET
The President today directed the Secretary of Commerce to take appro-
priate steps to permit, prospectively, the public inspection and copying
of boycott-related reports filed with the Department of Commerce. Only
business proprietary information regarding such things as quantity and
type of goods exported, the release of which could place reporting firms
at a competitive disadvantage, will not be made publicly available.
During the past year there has been a growing interest in and awareness
of the impact of the Arab boycott on American business. Disclosure of
boycott-related reports will enable the American public to assess for
itself the nature and impact of the Arab boycott and to monitor the conduct
of American companies. The Departmen of Commerce will commence
public disclosure of reports regarding boycott-related requests
received by American companies on or after Cctober 7, 1976.
Public disclosure of boycott reports will complement positive steps
already taken by the Ford Administration to oppose the boycott and to
insure that American citizens and firms will be fully protected from any
discrimination on the basis of race, color, religion, national origin,
or sex that might arise from foreign boycott practices. These steps
have included the following:
1. In March, 1975, the President established a special White House task
force under the direction of the Office of the White House Counsel to
conduct a study and to make recommendations regarding actions which
could be taken in connection with various aspects of the impact of foreign
boycotts and related discrimination.
2. Effective October 1, 1975, the Department of Commerce made it
mandatory rather than optional for United States firms to inform the
Department whether or not they had complied with requests from foreign
governments for information on boycott-related matters.
3. In November, 1975, President Ford announced the most far-reaching
Executive Branch actions ever directed at foreign boycott practices.
This action was the culmination of the study which the President had
directed be undertaken earlier in the year. The President announced
decisions and actions to insure that American citizens and firms will be
fully protected from any discrimination on the basis of race, color,
religion, national origin or sex that might arise from foreign boycott
practices. The President further issued specific directives to implement
his decisions.
(a)
The President signed a Directive to the Heads of All Depart-
ments and Agencies which prohibited under Executive
Order 11478 and relevant statutes, any Federal agency from
taking into account in making selections for overseas assign-
ments any exclusionary policies of a host country based upon
race, color, religion, national origin, sex or age. Federal
agencies were requested to inform the State Department of visa
rejections based on exclusionary policies and the State Depart-
ment would attempt through diplomatic channels to gain entry
for those individuals.
(MORE)
-2-
(b)
The President instructed the Secretary of Labor to require
Federal contractors and subcontractors that have job appli-
cants or present employees applying for overseas assign-
ments to inform the Department of State of any visa rejections
based on the exclusionary policies of a host country. The
Department of State would then attempt, through diplomatic
channels, to gain entry for those individuals.
(c)
The President proposed the Economic Coercion Act of 1975
to prohibit a business enterprise from using economic means
to coerce any person or entity to discriminate against any
U.S. person or entity on the basis of race, color, religion,
national origin, or sex.
(d)
The President directed the Secretary of Commerce to amend
the Export Administration Act's regulations to:
(1)
prohibit compliance with any boycott request which
would discriminate against U.S. citizens or firms on
the basis of race, color, religion, sex or national origin.
(2)
extend the reporting requirements to any person or firm
other than the exporter handling any phase of the export
transaction (such a banks, insurers, shipping companies,
and frieght forwarders).
(e)
The President state d that his Administration would not tolerate
discrimninatory commercial banking practices or policies based
upon the race or religious belief of any castomer, stockholder,
employee, officer or director of a bank and that such practices
or pòlicies are incompatible with the public service function of
a banking institution in this country.
(f)
The President supported legislation to amend the Equal Credit
Opportunity Act, which covered sex and marital status, to
include prohibition against any creditor discriminating on the
basis of race, color, religion, or national origin. against
any credit applicant in any aspect of a credit transaction. This
legislation passed the Congress and was signed by President
Ford on March 23, 1976.
(g)
The President urged the Securities and Exchange Commission
and the National Association of Securities Dealers to take
whatever action necessary to insure that discriminatory exclu-
sion in the investment banking industry was not tolerated and
that non-discriminatory participation was maintained.
4. On December 1, 1975, the Secretary of Commerce ceased Commerce
Department dissemination of information on trade opportunities containing
boycott requests.
5. On January 16, 1976, the Department of Justice filed a civil antitrust
suit against an American company charging it with implementing an
agreement to refuse to deal with U.S. subcontractors blacklisted by
certain Arab countries and to require U.S. subcontractors to refuse to
deal with blacklisted persons or entities.
(MORE)
- 3
6. On April 29, 1976, the Secretary of Commerce directed that all
charging letters issued for violations of the Export Administration Act
regulations relating to the boycott be made public.
7. On October 4, 1976, President Ford signed the Tax Reform Act under
a provision of which foreign source income attributable to certain boycott-
related activity will lose the tax benefits of the foreign tax credit, the
Domestic International Sales Corporations (DISCs), and the deferral
of United States tax on foreign source income.
These actions have put an effective end to foreign discrimination against
American firms or citizens on the basis of religion, national origin,
race, color, or sex. Public disclosure of boycott reports will further
strengthen existing policy against the Arab boycott of Israel without
jeopardizing our vital interests in the Middle East.
LIBRARY
####
materials varied from commerce
10/20/70 but rever used.
Arab Boycott
FORD
Q. Mr. President, since the second debate, you
have successfully addressed the question of
Eastern Europe, but you haven't really followed
up on the Arab boycott issue. (1) Can you tell
us why you told the American people that past
participants in the boycott would be revealed?
(2) Can you respond to Democratic charges that
your Administration blocked legislation this
year? (3) Can you tell us what Arab boycott
legislation you are prepared to support this
January?
A. First let's look at the record. Boycott
practices began in 1952. After more than 20
years of inactivity, I am the first American
President to look seriously at the problem
and take corrective action to deal with it.
-- In March 1975, I directed the Secretary
of Commerce to study the matter comprehensively
and to give me recommendations for dealing
with it.
-- As a result of that study I implemented
proposals in November 1975 which have put an
effective end to practices of discrimination
against Americans on the basis of religion,
national origin, race or sex.
-- The Anti-Trust Division of the Justice
Department has brought the first suit against
U.S. business for boycott practices.
-- On October 4 of this year I signed the
tax bill which included anti-boycott provision.
-- In addition, I proposed constructive
compromises to other legislation being considered
in the closing days of this Session.
- 2 -
-- When Congress adjourned without taking
final action, I acted on October 7 by directing
the Department of Commerce to do what the Con-
gress failed to do; namely, to require public
disclosure of future reports on the Arab
boycott, effective immediately.
-- There was no suggestion by the Congress
of retroactivity in its proposals nor do I
think it would be wise in view of the confiden-
tiality which was promised when past reports
were submitted to the government.
GERALD
With respect to legislation in the future,
I beleive it is premature to speculate on what
may be required. My proposals announced in
November 1975 together with the additional
measures I have tken since then provide a basis
for substantial progress in this area. I believe
it would be useful to assess the effect these new
efforts will have before proceeding to new mea-
sures.
MIDDLE EAST
FORD POSITION
We are involved in the Middle East negotiation because vital US
interests (moral, strategic, economic) are at stake.
-- Our commitment to the survival and security of Israel is
non-negotiable.
-- The Middle East is a strategic crossroads.
-- The 1973 embargo and oil price rise cost Americans half 2
million jobs and one percent of national output, and added at
least five percentage points to the price index.
We engaged in the negotiation at the request of the parties.
The step-by-step process achieved remarkable results (Egyptian-
Israeli disengagement agreement of January 1974; between Syria and
Israel in May 1974; Egyptian-Israeli Sinai Agreement of September 1975).
We are not wedded to one approach. It was always our expectation
that at some point the step-by-step efforts would give way to a more
comprehensive approach. Resuming the Geneva Conference might be
appropriate at some point. It will depend on what is most workable and
acceptable to all the parties.
Face to face negotiations are certainly 2. goal. We will seek them,
but we are willing to continue our mediating role if this is desired. All
the agreements thus far involved face-to-face talks at certain stages
before or after.
- 2 -
We will proceed in all future negotiations, as we have in the past,
in the closest consultation with Israel.
Israel's current proposal -- substantial territorial concessions,
in return for an end to the state of war -- is a proposal that should
be discussed.
The PLO is excluding itself from any negotiation as long as it
refuses to recognize Israel's right to exist as a Jewish state.
US aid to Israel from FY '76 through FY '77 totals over $4.2 billion.
All US aid from Israel's independence (1948) through FY '75 totaled
$6.1 billion.
Prime Minister Rabin has said that Israel's relations with the US are
"at a peak, " and he's right.