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misunderstanding by playing an active role in the United Nations. All these things we do, in the last analysis-all these things-are measures of national security, the broadest kind of security for our free and democratic way of life.
This legislation that is before you, this Act for International Development, has the same broad purpose. In a very real sense, it is a security measure. And, as a security measure, it is an essential arm of our foreign policy, for our military and economic security is vitally dependent on the economic security of other peoples.
CONSTRUCTIVE CHARACTER OF OUR FOREIGN POLICY
But our foreign policy is not based on security alone. We have never been satisfied merely to resist a threat-of communism or any other ism. Our policy is broader than this. It is essentially constructive. It is based on the assumption that, in the world as it is today, our own welfare is closely related to that of other peoples. We can participate in this kind of program because it serves both the interest of other peoples and our own interest as well.
Economic development will bring us certain practical material benefits. It will open up new sources of materials and goods which we need, and new markets for the products of our farms and factories. Our friends in Europe, who depend far more than we do on foreign goods and markets, will benefit in similar ways. The volume of world trade will inevitably expand.
And, finally, the peoples of the underdeveloped areas will begin to see new opportunities for a better life, and they will associate those opportunities in their minds with the helping hand of the American people. But, even more important, they will associate economic progress with an approach to the problems of daily life that preserves and enlarges the intitiative, dignity, and freedom of the individual.
THE BILL ESTABLISHES NEW NATIONAL POLICY
The bill now before you establishes economic development of underdeveloped areas for the first time as a national policy. Its purpose is to encourage the exchange of technical skills and promote the flow of private investment capital where these skills and capital can help to raise standards of living, create new wealth, increase productivity, and expand purchasing power.
There are other conditions. American aid will be furnished only where it contributes to the development of a balanced economy. It may go only where it is actually needed, and where the country receiving it cannot provide skills and capital for itself.
CAPITAL TO COME FROM UNDERDEVELOPED AREAS
Most of the capital needed for economic development must come from the underdeveloped areas themselves. However, foreign capital will be needed from three main sources: from private investors, from the International Bank for Reconstruction and Development, and from the Export-Import Bank. The latter two should supplement, not compete with, private capital. They should finance projects, such as transportation and irrigation, which are foundations for economic
development and which are not ordinarily attractive to private investment. We put primary emphasis, however, on the need for stimulating an expansion of private investment not only to provide capital but also to provide the technical and managerial skills that come with capital.
On the subject of capital investment, the bill makes some important findings. It recognizes that, if investment is to do its job, the people of these underdeveloped areas must have confidence that foreign investors will not squander their natural resources, will pay taxes, will obey the local laws, and will provide decent wages and working conditions.
At the same time, it recognizes the fact that investors must have confidence that their property will not be confiscated without fair compensation; that they can take their legitimate profits and their capital out of the country, and that they can have reasonable freedom to manage their own business, subject to local laws that apply to everybody equally.
PROTECTION OF PRIVATE INVESTMENT
Senator WILEY. How are you going to bring that about, Mr. Secretary?
Secretary ACHESON. I go on to discuss that, Mr. Senator. We point out that, in a nutshell, the essence of the investment problem, as we see it, is a matter of confidence. I don't think there is any quick or easy solution to this problem. We are, however, taking steps which seem likely to help solve it. We are negotiating for treaties with other countries which will protect our investors from some of the risks I have mentioned.
Senator WILEY. Do you mean the Government will insist that treaty rights between nations will be respected; that the rights of citizens of America who invest in these places are such that the Government will stand back of that investment?
Secretary ACHESON. We have examples of these treaties, Senator, which are now before your committee. One of them is a treaty which we have recently negotiated with Uruguay, which is now before the Foreign Relations Committee of the Senate. A treaty in a somewhat similar vein is the treaty with Italy, which you have before you, and we are negotiating with a number of other countries to provide these treaties which do guarantee protection along the lines which I have indicated for investment capital, for the right to do business, for the right to have managerial personnel come to the country and operate the business, equality of application of local laws such as taxes, et cetera, et cetera. Some of these treaties have been negotiated. Some are before your committee; others are being negotiated.
NOT A NEW POLICY
Senator WILEY. I realize that. But too often in the past our treaties in that respect have been mere scraps of paper, because we have not gotten back of our citizens in their investments. We have let them be sold down the river when other countries simply stepped in, or the nationals of other countries simply took advantage of our invest
I want to know if there is a new policy. I think this is very fine, if you mean business. If you are going to tell other countries that you mean what you say and you are going to back up the rights of the citizen to protect his investment, I think you have something. The CHAIRMAN. This is not a new policy. This is a policy we have always adhered to. We haven't always done it successfully.
THE FLAG WILL NOT FOLLOW INVESTMENTS
Secretary ACHESON. We are expanding the treaty protection which was available for our citizens in the past into the field of investment. That is a new development.
Senator WILEY. That is a new development. Does it follow up the old English concept: where Englishmen went the Government went? Secretary ACHESON. I do not think I' subscribe to that statement altogether. I do not think we are going into some idea of intervention in the internal affairs of other countries, but what we are doing is agreeing with these countries on a broader area of protection. When those treaties are made, we shall insist that other countries live up to their obligations just as we expect them to insist that we live up to ours. I think it is becoming increasingly clear in the world that you cannot expect investment without such assurances and that the penalty for nonprotection of investors comes by itself through lack of investment. Particularly in this hemisphere of ours I think we are making very rapid progress toward a better understanding of this problem.
A TWO-WAY STREET
Senator WILEY. I am glad to get that assurance; but, if it does mean a change, I think it is a rather dramatic change in policy, and I think we will go places, particularly in South America, if they understand we mean business and that the executive branch of the Government means business when it enters into a treaty of that kind, to the end that the investor is not going to be shaken down. I think South America will benefit and the whole world will benefit. I think, Mr. Secretary, you know what I mean. We have too often been, or our investors have, the target of foreign folks who haven't the same idea of the validity of a contract that we have. It is the ancient concept of the British that a contract is a two-way street. It requires obligations to be performed by both, and if that thing were made universal in this world of ours and other people saw it as we see it in this country I think we would go a long way toward creating a better economic stability throughout the world: So, if you are going along with this, you have something on the ball.
GOVERNMENT INSURANCE OF INVESTMENTS ABROAD
Secretary ACHESON. I think we can agree to take your slogan literally. We mean business. We mean more business, better business and safer business, and these treaties are defining much more clearly and much more broadly the areas of protection. As you say, we shall insist and they shall insist that we will live up to our obligations under the treaty and the contracts which are made under it.
Now, we point out here that protection for some of the risks of doing business abroad cannot be provided by treaty, no matter how sincere the intentions of the participating government, therefore a bill has been introduced and favorably reported by the Senate Banking and Currency Committee which will permit the Export-Import Bank to sell certain kinds of guaranties-in other words insurance to investors; specifically against expropriation, confiscation and seizure, and against inability to convert local currencies.
Senator WILEY. Now you are going back again. You are going back on the theory that you want the Government to guarantee the investor, and you admit there will be seizure and appropriation and all this and that. Are you going to let them get by with that seizure and appropriation? Or are you going to insist that the treaty rights, not exactly that the flag follows the treaty but the inherent rights of contract will be protected by the nation whose investors have gone into other nations. I think there is a difference. I think you weaken your proposition here again if you are going to simply say to the American investors. "We will make good any losses" and you do not say to the nation where you make your investment that you mean business.
Secretary ACHESON. Senator, let me put it this way. We have in practically every city in the United States laws that have to do with the prevention of fire. We have in every city of the United States fire departments. We enforce the laws. The fire departments are good and efficient. But we also have in the United States fire insurance, and insurance companies will sell citizens of the United States insurance policies to protect them against loss by fire.
That does not mean that we think the laws having to do with fire protection and the elimination of fire hazards are not any good or are not going to be enforced. It does not mean the fire departments aren't any good and aren't effective. But it does mean that a citizen. who wants added protection can buy it. That is what we are offering here, and we are offering it for the purpose of encouraging our people to go abroad. We say to them, "We are going to have treaties with these nations. We are going to insist that the treaties be lived up to. And in addition to that, if you are still worried and if you are still nervous and if you believe, as is always the case, that disasters can happen to people even though they are sincere, you can buy insurance against that."
Senator WILEY. Are you charging them a premium for it?
Senator WILEY. Then the Government is going into the insurance business on foreign investments?
Secretary ACHESON. That is exactly what it is doing, against certain hazards-not against business hazards, but against certain hazards.
Senator WILEY. Against confiscation. That is one of your terms. Secretary ACHESON. Absolutely, just as you have insurance against fire. That does not mean you like fire, that you put up with fire, but it means that you expect that there will be, no matter what the protection, some slip-ups and some fires. That may very well happen in this area, and I would not be at all honest if I came here and told you that under the treaties which we are negotiating there is absolutely no possibility of some confiscation. That just would not be an honest statement on my part, and it does not do the citizen any
good to know that we may go after the other government and press it and insist that compensation is paid, and perhaps get compensation some years later. The citizen wants to be insured against that, and that is what we are doing. It does not weaken our position; it strengthens our position, and it means that the United States has an added reason, by reason of the payments out of its own Treasury, to insist that other nations shall not do what by treaty they agree not to do.
A DIFFERENCE BETWEEN CONFISCATION AND LOSS BY FIRE
Senator WILEY. You are a good logician, but there is quite a radical difference between confiscation and loss by fire. The result may be the same, but I still say that if you make it significant enough to the foreign government that we don't stand for confiscation we won't have it. But if, on the other hand, you create an escape valve whereby the investors can make the investment and then you say you won't lose anything if there is confiscation, you are sort of putting a little bait out in front.
Secretary ACHESON. I am sorry to say that I do not agree with you.
A "FAVORABLE CLIMATE" FOR INVESTMENT
Now, we are also trying to work out other proposals which we believe will help this business of foreign investment. We are trying to work out proposals to amend our tax laws to give some measure of tax relief as an added incentive to investors. We are also trying to make treaties to avoid the hardship of double taxation.
But when you put all these things together, I think you will find that there is no foolproof way of guaranteeing investors against the variety of nonbusiness risks that they face in many parts of the world. Fortunately, we can go ahead with a program of technical cooperation, while we are trying to develop what the economists call a "favorable climate" for investment. In fact, it seems clear that one of the best possible ways to help create that climate is to get on just as energetically as we possibly can with technical cooperation.
As you know, the United States Government has been in the business of technical cooperation for 10 years. Most of the work has been concentrated in South America. A little has been done in the Far East. Now this bill authorizes the President to do three important and necessary things.
PRESIDENT AUTHORIZED TO DO THREE THINGS
First, it authorizes him to expand the work and to spread it to underdeveloped areas where the right conditions prevail.
Second, it authorizes him to coordinate all the work of our Government in this field.
Third, the President may contribute funds and personnel to the United Nations and to other international organizations for such technical cooperation programs as he is convinced they can carry on as well as we can, or perhaps better than we can.