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Appeal of Arbitration Award

On July 26, 1976, OPIC appealed to the U.S. Court of Appeals for the District of Columbia Circuit, the July 20, 1976, judgment of the U.S. District Court, in Overseas Private Investment Corporation v. The Anaconda Company, 418 F. Supp. 107 (1976). The District Court denied OPIC's motion to vacate a decision of a panel of the American Arbitration Association holding OPIC liable for payment of expropriation insurance claims filed by the Anaconda Company. Anaconda had filed claims for $154 million in connection with the expropriation in 1971 of two of its Chilean mining properties. Following OPIC's denial of the claims in 1972, Anaconda had submitted the case to arbitration as provided in its insurance contract with OPIC. The arbitration panel, in July 1975, had decided that OPIC was liable, leaving the determination as to the amount of liability to a second stage of the arbitration proceedings. See the 1975 Digest, pp. 497-498.

OPIC's motion to vacate the arbitrators' decision was based on failure to disclose negotiations that allegedly occurred during the arbitration proceedings between one of the arbitrators and a law firm which assisted in the preparation of Anaconda's case. OPIC maintained that the negotiations led to an affiliation of the arbitrator with that firm and that neither the negotiations nor the affiliation were disclosed until after the arbitrators' decision.

OPIC Topics, Vol. 5, No. 4, July/Aug. 1976, p. 7.

Proposed Legislation

The House of Representatives on August 24, 1976, passed by voice vote proposed legislation (H.R. 14681) that would terminate OPIC insurance for companies making significant payments to influence foreign officials. In testimony before the International Relations Committee of the House on August 5, Marshall T. Mays, President of OPIC, opposed the bill on the ground that it was unnecessary and would require OPIC to assume regulatory functions that would have a substantial adverse effect on OPIC's operations without significantly influencing the overall problem of questionable payments made by U.S. companies abroad.

In his testimony, Mr. Mays pointed out that provisions contained in existing OPIC insurance contracts handle the problem of illegal payments in a manner consistent with OPIC's operating procedures. He continued:

They permit OPIC to operate as an insurer, carrying out U.S. policy by controlling the transfer and assumption of risks. Under the contract, the investor, rather than OPIC, assumes the

risk of illegal activity. At the same time, OPIC's insurance provides a substantial measure of protection to investors threatened with adverse governmental action unless demands for payments are met. When the corporate executive is complying with the law and refusing to make payment on an extortion demand, he knows he has the backing of our insurance.

Indeed, the result achieved under OPIC's standard insurance contract fully carries out the basic objective of all these bills in that OPIC's insurance for investment projects creates substantial disincentives to illegal payments and corrupt business practices on the part of the U.S. investor in carrying out the project.

Mr. Mays stated that the bill, as written, could require OPIC to use its insurance and reinsurance programs as a means of regulating conduct that may be neither illegal nor related to the risks covered by the insurance. He said:

There is a deep and important conflict between OPIC's assumption of a regulatory function and its present statutory mandates and operating structure. OPIC provides investment incentives on commercial terms to stimulate private sector development in the LDC's [less developed countries]. It has neither a regulatory function nor the tools of regulation in the sense of the SEC [Securities and Exchange Commission] or the FTC [Federal Trade Commission] . . . . We submit that the use of OPIC as a regulatory agency would constitute a reversal of these mandates and could undermine our efforts to achieve greater private participation.

Mr. Mays also expressed concern that the legislation might be interpreted as applying to contracts already in force and the possibility of the termination of vested contract rights for which substantial premiums already had been paid. "If so," he said, “there are substantial questions as to the constitutionality of the bill." Mr. Mays concluded:

[There is] broad question of the extent to which the United States should undertake unilaterally to solve the problem of questionable payments by U.S. businessmen overseas. . . . In the final analysis, the solution of this problem is in the societies concerned. The United States and other countries can stimulate the activity.

*

OPIC Topics, Vol. 5, No. 4, July/August 1976. No action was taken by the Senate on H.R. 14681 in the 94th Cong.

Chapter 10

INTERNATIONAL ECONOMIC LAW

81

International Monetary Law

International Monetary Reform

The Interim Committee of the Board of Governors of the International Monetary Fund (IMF), meeting in Jamaica January 7 and 8, 1976, reached agreement on the main elements of a monetary reform package involving a major revision of the IMF Articles of Agreement (TIAS 1501; 60 Stat. 1401; entered into force for the United States December 27, 1945). An IMF quota increase of about one-third and a number of measures to provide a sizable augmentation of IMFrelated balance of payments financing were also decided upon.

The monetary reform package included agreement on two principal elements. The first involved amending the IMF Articles so as to bring alternative exchange arrangements, including floating rates, within the legal framework of the Fund. The second established arrangements on gold to remove it from the center of the international monetary system. The amended Article IV, dealing with exchange rate obligations of Fund members, was based on a U.S.French compromise reached at the Rambouillet summit in 1975, meeting a primary U.S. negotiating objective of allowing countries freedom to choose among exchange rate arrangements those best suited to their own circumstances; e.g., independent or joint floating arrangements or pegging to another currency, or the Special Drawing Rights (SDR), provided that the countries observe basic obligations, such as promoting exchange stability, or not manipulating exchange rates for competitive advantage. A provision for reestablishment of a general par value system is included, subject to agreement by 85 percent of the Fund's voting power. However, even after such decision is reached, individual countries could opt not to observe par values.

The gold compromise was intended as a step toward ultimately phasing the metal out of the monetary system. It would also permit IMF gold to be a source of funds to give concessional payments assistance to the poorest developing countries over their next difficult years. The use of a portion of the IMF gold for the benefit of developing countries is to be matched by an equal portion to be returned to all IMF members in proportion to their IMF quotas.

Three major IMF-related measures agreed upon would expand official balance of payments support for less developed countries. First, a major liberalization of the IMF compensatory financing facility, in line with Secretary of State Kissinger's 1975 proposal at the Seventh Special Session of the General Assembly of the United Nations for a "Development Security Facility." See the 1975 Digest, pp. 501, 577. Second, the agreement on gold paved the way for establishment of the Trust Fund, also a U.S. initiative, that would use profits from the sale of a portion of Fund gold for concessional payments assistance to IMF members with a per capita income not exceeding SDR 300. Finally, pending enlargement of the IMF quotas, access to each IMF credit tranche would be expanded by 45 percent, bringing total access to Fund credit to 145 percent of the IMF quota, with the possibility of additional assistance in exceptional circumstances. The 45 percent increase was equivalent to about $3,500,000 for non-oil exporting developing countries.

Provisions of the agreement involving amendment of the IMF Articles and the quota increase required submission to the IMF Board of Governors for approval, after which ratification by individual countries would be required for implementation. However, the measures designed to meet balance of payments needs were to be made available "without delay."

For the text of the press communique issued at the conclusion of the fifth meeting of the Interim Committee of the IMF Board of Governors, see Dept. of State Bulletin, Vol. LXXIV, No. 1912, Feb. 16, 1976, pp. 197-199. For a statement by Ambassador Daniel P. Moynihan, U.S. Representative to the United Nations, before the Governing Council of the U.N. Development Program, on Jan. 27, 1976, regarding the decisions reachby the IMF Interim Committee, see Press Release USUN-12(76), Jan. 27, 1976.

On October 19, 1976, the President signed Public Law 94-564 (90 Stat. 2660), "To provide for amendment of the Bretton Woods Agreements Act, and for other purposes." The amendatory Act authorizes the U.S. Governor of the International Monetary Fund (IMF) to accept the amendments approved by the Fund's Board of Governors in January 1976, supra. It also authorizes the United States to accept the approximate $2 billion increase in its IMF quota approved by the Board at the same time. In addition, the new Act makes related changes in other U.S. laws pertaining to participation in the international monetary system and U.S. intervention in the foreign exchange markets.

Section 3 provides for congressional oversight of certain U.S. activities in relation to IMF. It amends section 5 of the Bretton Woods Agreements Act to prohibit U.S. representatives to the IMF from proposing a par value for the U.S. dollar and from voting to approve the establishment of any additional trust fund whereby resources of the IMF would be used for the special benefit of a single member, or

of a particular segment of the membership of the Fund, unless Congress authorizes such action by law.

See also H. Rept. 94-1284 and S. Repts. 94-1148 and 94-1295. For statement by the President on signing P.L. 94-564, see Weekly Compilation of Presidential Documents, Vol. 12, No. 43, Oct. 25, 1976, p. 1547.

Exchange Rates

In Truong Xuan Truc v. United States, 212 Ct. Cl. (slip opinion of November 17, 1976), the U.S. Court of Claims construed the phrase "legal rate of exchange" in the payment clause of the contracts between ten South Vietnamese contractors and the defendant acting through the U.S. Department of the Navy.

The rate of exchange system prevailing in South Vietnam during the period of December 29, 1966, to August 28, 1967, when the contracts in question were negotiated, was described by the Court of Claims as follows:

In substance, the official rate of exchange . . . was 80 Vietnamese [piasters] to 1 [U.S. dollars]. Parenthetically, this was also the rate at which the United States was authorized by the Government of the Republic of South Vietnam to buy piasters in South Vietnam. There also existed another rate of exchange called a "Consolidation Premium" or "Consolidation Tax," which consisted of a subsidy of 38 piasters to the official rate of exchange of 80 piasters to produce a rate of exchange of 118 to 1. This subsidy, which was made available to selected entities [other than the U.S. Government]. . ., enabled those entities to purchase piasters in South Vietnam at the exchange rate of 118 to 1. . . . It seems clear that very few, if any, private transactions took place at the rate of 80 to 1 and that the exchange rate of 118 to 1 was the rate at which most transactions occurred.

Of the ten contracts in question, nine contained the following language:

The consideration under this contract in the lump sum amount of [stated contract price in dollars] is expressed in U.S. dollars; however, the U.S. Government reserves the right to make payments in Vietnamese piasters at the legal rate of exchange between the U.S. dollars and Vietnamese piasters in effect on the date approved invoices are presented to Finance Officer for payment. [Emphasis added.]

The tenth contract had the identical language up to the word "exchange" after which the following language appears:

.. between the two currencies in effect at the time any invoice is presented for payment. [Emphasis added.]

As a result of a South Vietnamese decree law effective October 1, 1967, the U.S. Government was authorized to buy piasters at the

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