in this country. The Treasury Department requires monthly reports from brokers, banks, and other firms participating in long-term securities transactions with foreigners. The Commerce Department collects and publishes data, on a quarterly basis, on foreign direct investment in U.S. firms where the foreign participation has a book value of over $2 million in the equity and debt accounts.

In addition, the Commerce and Treasury Departments are now, pursuant to the Foreign Investment Study Act of 1974, undertaking a one-time detailed benchmark survey of foreign investment in the U.S. outstanding as of the end of last year. The data from this survey will show foreign investment in every U.S. company of significant size, broken down by type of investment, kind of investor and by country of residence. A preliminary report on this survey will be sent to the Congress this fall."

The data we now have show that foreign long-term investment in the U.S. private sector at the end of 1973 had a book value totaling $55 billion, consisting of $18 billion in direct investment plus $37 billion in portfolio investment. These numbers are not large relative to our U.S. private sector's long-term investment abroad, which had a reported book value at the end of 1973 totaling $132 billion, consisting of $107 billion in direct investment and $25 billion in portfolio.

In 1973 the inflows reported in our balance of payments from all foreign investors were $6.6 billion. In the first three quarters of 1974 the rate of inflow fell. It was only $4.2 billion. Of this amount in 1974 $2.9 billion was direct investment and $1.3 billion was portfolio.

We do not yet have an estimate of foreign direct investment in the United States during the fourth quarter, but we do know that foreign portfolio flows into U.S. private securities declined quarter-by-quarter last year and actually turned into a net outflow in the fourth quarter. Foreign investors apparently did not take advantage to any substantial extent of the bargains which were available in our securities markets last year.

During the year 1974 the governmental and private investors from the OPEC countries did appear in our market in larger volume than before, but their aggregate long-term investment was quite small. Out of the approximately $60 billion in short- and long-term investment obroad which they accumulated during the year, less than $1 billion was placed in long-term private investment in the United States, and the bulk of that investment was made in portfolios of securities chosen and managed for the investors by U.S. financial institutions.

One billion dollars of investment represents less than one-tenth of 1 percent of the current market value of outstanding U.S. securities even when leaving out of account the value of the real estate and housing area, in which the OPEC investors are placing some of their investments. During the year there was only one large direct investment by an OPEC country in a U.S. corporation, and that investment was in a U.S. company whose productive assets were largely in the country from which the investment came.

It is, of course, not easy to predict precisely what will be the course of foreign investment in our economy in 1975 and beyond. We hope that many investors from many areas will come here, and specifically

we hope that investors from the OPEC countries will make substantial investments here.

In view of the build-up of their liquid assets last year we particularly hope they will be making a larger proportion of longer-term investments. Yet, we must take into account that their total funds available for investment this year will probably be significantly less than last year's $60 billion. And the next year's total will be smaller again. In fact it is quite possible that the OPEC countries will become net disinvestors in total well before the end of this decade, and that some important investors last year-for example, Iran— will become disinvestors much sooner.

One or two of the lesser producers will even be in deficit possibly

this year.

At its peak the foreign investment accumulation of the OPEC nations may not exceed $200 or $250 billion. Of this amount much will continue to be held in short-term form; some has already been committed in loans to foreign governments and agencies, including the International Monetary Fund and the World Bank.

Moreover the OPEC investors are following conservative investment policies which rely heavily on geographic diversification in their investments. Taking these factors into account I would be extremely surprised if we were able to attract as much as $5 billion of OPEC funds into long-term investment in the U.S. private sector in 1975.

It is clear that major OPEC investors now realize that we do not wish foreign investors-from any area abroad-to gain control of industry sectors or corporations in our economy vital to our security, to our national interest or to our public communication. A number of major potential investors have indicated a willingness to discuss with us in advance their plans to invest in U.S. productive ventures.

The consultations with the Iranian Government on a loan to Pan American World Airways provide one illustration. The recently established joint economic commissions between the United States and a number of other countries, including some of the countries with the largest volume of funds available for investment, provide a convenient framework for such consultations.

Informal consultations can be flexible and tailored to the circumstances of each proposed investment. Because there will be continuing informal contact, we shall obtain information on proposed major investments at an early stage.

You will have noticed that the public communique issued last week at the conclusion of the meeting of the United States-Saudi Commission specifically notes that the two governments recognize that participation in productive ventures in each other's economies requires close consultation to assure consistency with their national policies and objectives. It was agreed that each government will consult with the other regarding significant undertakings of this type.

Our interest in the fuller information on foreign investment in this country represents in no sense a departure from our conviction that free market forces are the best means for directing worldwide investment flows into the most efficient uses. It is a basic U.S. policy objective to achieve an environment for international investment in which

capital flows are responsive to market forces and government policies neither encourage nor discourage investment flows.

We offer foreign investors in this country no special incentives to attract them and with a few internationally recognized exceptions, impose no special barriers to their entry. This policy is consistent with our overall dedication to the freest possible economic relations among countries and is also consistent with our various international obligations.

In a statement last week, the President made clear that foreign businessmen and investors are welcome in the United States when they are willing to conform to the principles of our society. We feel strongly that foreign firms which come to the country should not attempt to use economic pressure to force U.S. firms to take actions on matters unrelated to their business relationships.

We are not aware of any occasions in which a U.S. firm has succumbed to such pressure. We do not believe any responsible U.S. firm will do so. As the President said: "Discrimination is totally contrary to American tradition and repugnant to American principles."

Apart from these new consultation procedures we shall make full use of the existing laws and regulations giving us information and powers to protect the national interest.

In addition to the information collected by the Treasury and the Commerce Departments for statistical purposes, we have available a vast amount of information collected for regulatory purposes. As your committee is aware, the Securities and Exchange Commission and other Federal regulatory commissions require reports on ownership in connection with various applications and thereafter; these reports are also open for public inspection.

In many cases, these agencies also require reports on the indebtedness of U.S. companies including the identity of individual creditors. The Department of Defense requires each contractor to submit a certificate pertaining to foreign affiliation to meet its industrial security regulations. If the total foreign ownership is above 6 percent, the firm must identify the individual owners. The Council on International Economic Policy and the Office of Management and Budget have already completed a comprehensive review of these data collecting programs and Mr. Niehuss will submit their report to the committee tomorrow.

We shall also act in full awareness that exising law provides a formidable array of safeguards against unwanted foreign investment or undesirable activity by foreign investors. Federal restrictions which limit the amount of foreign investment apply in the fields of atomic energy, radio and telegraph communications, domestic air transport, acquisition or exploitation of Federal mineral lands or hydroelectric power, and shipping. These restrictions are generally accepted internationally and are incorporated into most of our bilateral treaties. Additionally, the Department of Defense Industrial Security Regulations make it a practical impossibility for a foreign-controlled firm to obtain the security clearance necessary to perform classified work. Restrictions applicable to foreign investment, particularly in banking, insurance and land ownership are also improved by many States. Finally, and perhaps most importantly, there are two other significant sources of protection. First, the actions of foreign investors are

fully subject to all of our business regulation laws-for example, the antitrust and securities laws-as well as to our export controls. Moreover, under the Trading with the Enemy Act, in time of war or national emergency, the President has broad authority to regulate or prohibit undesirable activities of foreign-owned enterprises in the United States.

We recognize that the responsibilities for gathering of statistics on foreign investment in the United States and for surveillance of particular types of investment activity are widely dispersed within the administration to agencies with various kinds of specialized knowledge. To insure that the information available in the various parts of the Government is brought together in a coordinated fashion both for the review of overall trends and for the consideration of specific important investments, we have decided to establish the new centralized office within the executive branch and the new high-level interagency committee. These organizations are not intended to replace the existing specialized authorities, but to insure that a comprehensive view can be taken.

The new organizations will be asked to publish periodic reports on foreign investment activity. They will be charged with reporting any need which may develop for new legislation to enhance our powers in the field of foreign investment.

In our recent interagency review we did consider carefully the legislative proposals which have been put to the Congress including your bill, S. 425, Mr. Chairman. Our conclusion was that, as compared to the approach we have adopted of more active administrative monitoring of foreign investment here, new legislation directed to foreign investment reporting and control would not provide any significant additional safeguards but would, in practice, be likely to deter a substantial amount of beneficial investment in the United States.

Insofar as S. 425 addresses itself to the objective of more thorough disclosure of the beneficial ownership behind nominee shareholdings in U.S. corporations we have-as I indicated earlier-considerable sympathy for the objective. We feel, however, that this subject should not be addressed in a bill primarily related to foreign investment.

As you recognize, the U.S. investing public should be equally entitled to this knowledge whether the beneficiary is an American or a foreign investor. We do not feel that any change in our law in this respect should be undertaken in a context discriminating against the foreign investor.

In our negotiations with foreign governments we rightly ask that U.S. firms operating in their countries be accorded equal treatment with their investors. If the United States should now introduce general discriminatory provisions we could expect that we would encourage the growth of retaliatory and discriminatory restrictions on U.S. investment operating in foreign countries.

Moreover, the provisions of S. 425 which would require foreigners to provide advance notice of proposed acquisitions of equity in U.S. companies and would authorize the President to prohibit any such acquisitions would, if broadly implemented, violate a number of existing treaties of friendship, commerce and navigation and other international agreements.

I can assure you that, without this legislation, the administration will carefully monitor foreign investment in the United States and will take prompt action, in consultation with the Congress, when necessary to protect the U.S. national interest. Meanwhile, we feel it is crucial that we recognize that foreign investment in the United States is contributing to the dynamism of the American economy by stimulating competition in seeking out new investment opportunities. It is bringing much needed new resources to our economy.

In conclusion I urge that we observe foreign investment in our economy carefully, but let us not make the surveillance so oppressive as to drive it away. We need it.

Thank you, Mr. Chairman.

Mr. Chairman, I would be happy to answer questions. If you prefer to listen to the other witnesses first, I will come back. It's your choice. Senator WILLIAMS. You indicated earlier that you would be able to remain and answer questions after the next witness. I think that is the way we will proceed.

Senator Javits, our procedure is next to hear the second administration witness, Mr. Charles W. Robinson, Under Secretary of Economic Affairs, Department of State.

I indicated to you we would have your statement at your convenience. Is it convenient for you to stay with us?

Senator JAVITS. I will wait.

Mr. Chairman, may I say I am deeply grateful to share this unusual courtesy of being allowed to sit with the committee. I realize it is an unusual courtesy that you show.

Senator WILLIAMS. We are grateful for your contribution. We are very pleased that you have joined us.

STATEMENT OF CHARLES W. ROBINSON, UNDER SECRETARY FOR ECONOMIC AFFAIRS, DEPARTMENT OF STATE; ACCOMPANIED BY RICHARD J. SMITH, DIRECTOR OF THE OFFICE OF INVESTMENT AFFAIRS; AND MARK B. FELDMAN, DEPUTY LEGAL ADVISOR

Mr. ROBINSON. Mr. Chairman, I should introduce the witnesses here with me. On my left is Mr. Smith, who is Director of the Office of Investment Affairs in the Department of State. To my right is Mr. Feldman, Deputy Legal Advisor to the Department of State.

I welcome this opportunity to testify before you on S. 425, the Foreign Investment Act of 1975 which provides for notification by foreign investors of purchases of equity shares in U.S. firms and gives the President authority to screen and at his discretion, block investments which would result in a foreigner acquiring beneficial ownership of more than 5 percent of the equity securities of a U.S. company.

Since other witnesses, including representatives of Treasury, Commerce, and SEC, are speaking to the technical aspects of the bill and its implications for financial markets. I will confine my remarks principally to the foreign policy issues which it raises.

The traditional policy of the United States has been to minimize the barriers to investment as well as to trade flows. Our own actions have reflected this, and we have taken a leadership role in seeking

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