Senator JAVITS. The other question I would like to ask you is this. If this cannot be dealt with in open session, then I think you should say so. I have no desire to have you disclose any governmental secrets or studies which could in the judgment of the CIEP, be embarrassing to our country. I am warning you in advance that what I am going to ask you may involve your consideration or submission to the committee of the issue of classification. Is it a fact that your committee has made some estimates of the capability of foreign investment to act contrary to the national interest, of the domestic economy, or the national security? Now, that's very much what the military people do. They analyze things in terms of the word "capability" is used in its military sense, and if you do have at least a-some analysis of what such investment, if politically motivated, this, that or the other thing, can do-not will do, or should do, but can do-respecting American business in which it invests. It seems to me that that, too, would be an extremely useful piece of information for this committee in considering S. 425. Mr. NIEHUSS. Senator, I think I can answer that. First of all, to my knowledge there has been no broad study of the type that you refer to. In considering of our policy towards foreign investment, it seemed to us essential that we try to understand the nature of the threat that might be posed by foreign investment. What you may be referring to was some material prepared by the CIEP staff which I discussed with various congressional staff members. It dealt with our assessment of the kind of potential dangers of foreign investment in the United States and also our assessment of the adequacy of our existing laws to deal with these threats. The result of our study, which was not-I should emphasize-intended to be a definitive, comprehensive study, indicated that our laws were adequate to deal with the vast majority of threats that we could realistically expect from foreign investors in the United States. Senator JAVITS. Now, is that would that study, if requested, be available to a congressional committee? Mr. NIEHUSs. I would have to take that under advisement. Senator JAVITS. That's why I asked that you be good enough to do. If this committee, Banking and Currency, shouldn't be interested, I am ranking Senate Member of the Joint Economic Committee, but I believe, Senator Williams would be. If you would be good enough to ascertain that and advise the chairman, I would appreciate that. I had in mind such things, for example, as control of an industry or business which, let us say, would be making drilling equipment for oil. The OPEC countries might have some particular reason why they would like to see the policy of such a company directed in a given way. I had in mind also, for example, the possibility of OPEC interests coming back into Lockheed where the Textron deal has just fallen down. That may not necessarily be bad, but at least we should understand what's at stake. With respect to the Pan Am deal and what it meant to us, Pan Am's technical capacity should be available to the national airline of Iran, because that is a run which Pan Am itself makes and it's a matter in a sense of strengthening its own competition. These are the important points. Also, Mr. Niehuss, I would like to repeat to you one thing that occurred yesterday so that your committee-and I hope your reportwould get the flavor of this. Nobody is fighting about foreign investment. I have spent all my life, like so many others have the next witness, for example encouraging foreign investment. But we face a new situation here in which through foreign investment, our national well-being could be harmed because of the political motivation and the vast sums of money and the already evident narrowness of view with which the investment has been projected. Second, most of the American people do not consider that we are paying an economic price for oil on any basis, even on the theory that they are entitled to more money. Incidentally, I think, they were. If they hadn't sandbagged us this way, we probably would have paid more over a period of time and been glad to do it. But most people feel it's a holdup, and the holdup countries are now pouring their investment in here. Without making invidious comparisons or in any way insulting those nations, which I have not the remotest desire to do-it's simply a question of making our domestic policy in some way come abreast of the situation, that is the fundamental purpose as I see it. My mind isn't closed in any way to even the points which are going to be made by the business community, that we shouldn't have legislation I am willing to examine that, provided that they will in turn examine the new situation and won't dig their heads in the sand with respect to it. That's the same plea I would like to address to your committee. Would you have any comment on that? Mr. NIEHUSS. Well, I think, that we share many of those same concerns and we will certainly keep them in mind. Senator JAVITS. I would like to say on the record that, I think, the President's statement was most admirable. I am sure it made most Americans feel very proud and much more comfortable. Thank you very much. Senator WILLIAMS. Thank you. Was that clarified on your inquiry of whether any assessment has been made of the potential dangers to national security and foreign investment? Senator JAVITS. Yes. Senator WILLIAMS. Can we expect a communication from you on that? This has been part of deliberations, I know, in the Council and one of the Departments. Mr. NIEHUSS. As I said, I will have to take that under advisement. Senator STEVENSON. Thank you, Mr. Chairman. I have no questions. Senator WILLIAMS. I know there have been informal discussions with the staff and we appreciate that. I hope we can look forward to more consultation as this whole subject matter is developed. Mr. NIEHUSS. Senator, I can only assure vou we are anxious to work with you and your staff on this issue. As I indicated in my testimony, CIEP has been involved in this area since the middle of 1973, and we are glad to work with you and your staff on it. Senator WILLIAMS. Have you been there since the inception? Senator WILLIAMS. Thank you. We look forward to further consultation. [Complete statement of Mr. Niehuss follows:] STATEMENT OF JOHN M. NIEHUSS, ASSISTANT DIRECTOR OF COUNCIL ON INTERNATIONAL ECONOMIC POLICY U.S. GOVERNMENT DATA COLLECTION ACTIVITIES WITH RESPECT TO FOREIGN Thank you, Mr. Chairman, for your invitation to appear before this Subcommittee to discuss S. 425, the Foreign Investment Act of 1975. Yesterday you heard Treasury, State and Commerce Department witnesses outline our current policy towards foreign investment in the U.S. and the basic reasons why they oppose S. 425. The Council on International Economic Policy (hereinafter referred to as "CIEP") is in agreement with the Administration position as it was expressed yesterday and, therefore, will not repeat testimony that has already been presented to you. Accordingly, our statement this morning will be limited to the question of reporting and disclosure requirements with respect to foreign investment in the U.S. More specifically, our testimony (1) reviews the Administration's past position with respect to the adequacy of existing data concerning such investment, (2) discusses the findings of a recently completed CIEP/OMB study on our reporting procedures and (3) comments briefly on S. 425. PRIOR ADMINISTRATION REVIEW OF DATA WITH RESPECT TO FOREIGN INVESTMENT IN THE UNITED STATES In the later part of 1973 the Executive Committee of the Council on International Economic Policy examined our general policy towards foreign investment in the U.S. In connection with this review, the general problem of the quality of information available with respect to foreign investment in the U.S. was considered, and it was concluded that steps should be taken to obtain more comprehensive data. Therefore, the Administration strongly supported the approach adopted by Senator Inouye and embodied in the Foreign Investment Study Act of 1974, which President Ford signed last October 1974. As you recall, this Act requires the Treasury and Commerce Departments to undertake a major study of foreign investment in the U.S. The study involves a statistical benchmark survey of the extent of foreign investment in the U.S. as the end of 1974 as well as an economic analysis of various aspects of such investment. REQUIREMENTS OF FOREIGN INVESTMENT STUDY ACT OF 1974 RE DATA COLLECTION The act also requires the Executive Branch to study the adequacy of our current data gathering, disclosure and reporting requirements with respect to foreign investment in the U.S. and to make recommendations for keeping our information on such investment current. Because of these requirements, the Administration refrained from endorsing the so-called Metzenbaum bill (S. 3955) prior to comprehensive review of our existing reporting procedures. While the need for better information was recognized, it was felt that the approach adopted by the bill represented only one alternative method of improving our information on foreign investment in the U.S. and prejudged the results of the comprehensive review required by the Foreign Investment Study Act of 1974. We had hoped that any Administration recommendations as to improved data collection would be presented to Congress for consideration as part of the final report under the Study Act in early 1976. However, given the growing public and Congressional concern with foreign investment in the U.S., Ambassador Eberle agreed during testimony last Fall on the Metzenbaum bill to make an effort to accelerate the Administration's review of our existing reporting requirements. CIEP/OMB REVIEW OF EXISTING REPORTING REQUIREMENTS The initial phase of this review has been completed and I am pleased to submit for the record copies of a report entitled "United States Government Data Collection Activities With Respect to Foreign Investment in the United States." The report is intended as a catalogue of existing requirements and, as such, provides a basis for further Congressional and Executive Branch consideration of the need for new reporting procedures. The basic information in the report was provided to CIE and the Office of Management and Budget by twenty government agencies and was catalogued and summarized by Price Waterhouse and Co. The report is in two basic parts. The first provides an overview of U.S. Government activities by (1) agency; (2) data collected on individual investors; (3) disclosure procedures and (4) data collected by major industry. The second part provides details of the information collected by 20 government departments and agencies. The report was completed last week and the Administration has not had an opportunity to analyze fully its implications. However, there are a number of major findings and conclusions which emerge from the report which I would like to briefly outline. CONCLUSIONS OF CIEP/OMB REPORT First, it is clear that many agencies of the federal government carry out extensive data collection and reporting activities which provide information with respect to foreign investment in the U.S. However, no single agency either coordinates, complies or discloses to the public a comprehensive, overall picture of foreign investment in the U.S. It is obvious, therefore, that one simple way to significantly improve our information about foreign investors operating in the U.S. is to give a single agency responsibility for drawing together in one place the information that is currently available. Such information could be summarized and made public on a regular basis to provide more current, comprehensive data than is now available. Second, most information collected by federal agencies on foreign investment is a by-product of their program related activities carried out pursuant to a wide range of enabling legislation. Most of the existing data collection activities have not been designed specifically for the collection of foreign investment data and foreign investors must normally report in the same way as domestic investors. This means that most of the information we now collect on foreign investment in the U.S. is not gathered because of a concern about foreign investment but is obtained as an incident to the collecting agency's broader responsibilities. For example, the SEC obtains a substantial amount of data on foreign investors in publicly held companies but collects such information as part of its regulatory responsibility with respect to the securities industry and not because of its concern for foreign investment and the effects it might have on our economy. A third major conclusion emerging from the study is that the agencies vary widely in the extent to which they make individual investment data available to the public and other federal agencies. There is no consistent practice with respect to disclosure. While many agencies are able to make the reports filed with them available to the public, other agencies (like the Bureau of Economic Analysis (BEA) in the Commerce Department) operate under strict confidentiality requirements. Fourth, most of the agencies covered in this review require identification of individual investors by name and domicile or address. However, there are only limited instances where the nationality of foreign investors is identified. Furthermore, even when information is collected on individual investors, confidentiality requirements often prevent disclosure of such information to the public and even other government agencies. Fifth, identification of the "beneficial owner" is often requested by the data collecting agency but it is usually provided by the reporter only when such information is known and available to him. In addition, the definitions of "beneficial owner" are generally not consistent among different agencies. Sixth, most information on foreign investment is collected after the investment is already made. There are only a few requirements for potential foreign investors to submit prior notification of their intention to make the investment. Prior notification is required by the SEC in connection with cash tender offers which would result in the acquisition of more than 5% of a registered security. In addition, certain applications for approval of investments submitted to the Maritime Administration, the Federal Reserve Board, and various regulatory agencies require advance notice. Seventh, the report clearly indicates that various agencies monitor or restrict the control of particular companies or industries. However, there is no uniformity in the definition of control as it may be defined as a percentage of stock ownership varying from 5 to 50%, by the degree of foreign involvement with management or the board of directors, or by subjective judgments of the federal agencies involved. Lastly, there is little information collected with respect to foreign investment in real estate in the U.S. CIEP POSITION ON S. 425 I would now like to discuss briefly CIEP's position on S. 425. CIEP is in accord with what seem to be the bill's main aims-i.e. to provide better information on foreign investment in the U.S. and to protect our essential national interests from abuse by foreign investors. However, the bill is, in our view, not currently needed to accomplish these objectives. There is no clear indication of potential abuse of foreign investment in the U.S. that can't be handled by existing laws and the proposed prior consultations with major government investors which are part of the Administration's program announced yesterday. More detailed Administration comments on S. 425 were discussed yesterday by the other Administration witnesses but can be briefly summarized as follows: 1. The bill goes far beyond the measures currently needed to safeguard our essential national interests; 2. It could have the effect of discouraging substantial amounts of beneficial foreign investment; 3. It would violate fifteen treaties of Friendship, Commerce and Navigation; 4. It would be a major, and in our view, unnecessary departure from our traditional liberal investment policy; and 5. Restrictive U.S. legislation would tend to give respectability to additional restrictions on U.S. firms by foreign governments. Although we believe that the bill as a whole is unnecessary, it contains a number of specific proposals which should be carefully considered by the Executive Branch in its continuing review of our data requirements. These include increased disclosure of beneficial ownership, more effective sanctions to ensure such disclosure and identication of the nationality of foreign shareholders. CONCLUSION The Executive Branch has not had an opportunity to digest or fully review the implications of the recently completed CIEP/OMB study. Therefore, I am not in a position today to make any statement with respect to what recommendations (if any) the Administration might make as a result of the survey. However, one of the high priority tasks of the proposed new office announced yesterday would be to work with other government agencies and interested Congressional committees to develop methods to improve our data gathering and disclosure with respect to foreign investment in the U.S. The CIEP/OMB report will hopefully provide a useful starting place for the detailed analysis that is required before any revision is made in our current procedures. Mr. Chairman, that concludes CIEP's formal statement and I would be pleased to try to answer any questions the Subcommittee might have on my testimony. Senator WILLIAMS. Mr. Ian MacGregor, chairman of AMAX, and Mr. George Ball of the U.S. Council of the International Chamber of Commerce. STATEMENT OF IAN MacGREGOR, CHAIRMAN, AMAX INC., AND GEORGE W. BALL, PARTNER, LEHMAN BROTHERS, ON BEHALF OF THE U.S. COUNCIL OF THE INTERNATIONAL CHAMBER OF COMMERCE, INC. Senator WILLIAMS. Welcome to the committee, Mr. MacGregor and Mr. Ball. Proceed as you please. Mr. MACGREGOR. Thank you very much, Senator Williams. We appreciate the opportunity to testify before your committee on this matter of concern to all Americans. |