7. That the advance notice disclosure statement should include not only a certified financial statement and full disclosure on just the borrowed funds used to purchase stock of the U.S. target company, as now provided in S. 425, but also should include full disclosure on all borrowed funds for a period of at least two years prior to the planned investment of the foreign investor. The disclosure information should provide, but not be limited to, the source, the amount, and the use of all borrowed funds during this period.

8. That the bill S. 425 provide sanctions such as a mandatory permanent injunction against an investor in a U.S. company found repeatedly guilty of non-disclosure of material information required under bill S. 425 or the Williams Act.

9. That the language of bill S. 425 be amended to impose explicit sanctions upon the foreign investor's U.S. professional advisors who have failed to exercise due diligence in carrying out their responsibility to the investor, the public, and the government.

10. That in addition to requiring the reporting of the identity, residence and the nationality of a beneficial owner of a U.S. company stock, as now proposed in S. 425, this bill should impose sanctions against the holder of record of these securities for failure to comply with such reporting requirements within a specified period of time.

During his testimony, Mr. Aronson said that Ronson has been the target of a takeover attempt by a foreign corporation, Liquigas S.p.A., Italy, during 1973 and 1974. Through its tender offer, Liquigas acquired 36.4% of the shares of Ronson, far short of the 51.9% it desired for control. The contested tender offer was followed during May-June 1974 by a proxy contest between Liquigas and Ronson management which was won by the Ronson management.

In making the Committee aware of the scope of Ronson's product diversification and multinational operations, Mr. Aronson pointed out that during the past two decades Ronson had grown from a one-product company manufacturing cigarette lighters to a diversified multinational corporation with more than 7,000 employees, eight wholly-owned foreign subsidiaries, sales of about $128,000,000 in 1974, assets in excess of $100,000,000 and a diversified product line which includes gas and electric appliances, rare earth metals and alloys, helicopter operations in New Jersey and hydraulic valves for the aerospace industry.

Senator WILLIAMS. Can we come to order again, please.

After our brief recess we will hear the statement of Mr. John Leslie, who is the chairman of Bache & Co. and also chairman of the New York Stock Exchange Advisory Committee on Foreign Invest

ments.

Mr. Leslie.

STATEMENT OF JOHN LESLIE, CHAIRMAN, BACHE & CO., CHAIRMAN, NEW YORK STOCK EXCHANGE ADVISORY COMMITTEE ON FOREIGN INVESTMENTS; ACCOMPANIED BY GORDON L. CALVERT, VICE PRESIDENT-GENERAL COUNSEL, JEFFREY M. SCHAEFER, DIRECTOR OF INTERNATIONAL FINANCE, NEW YORK STOCK EXCHANGE, AND JAMES K. C. DORAN, ASSISTANT VICE PRESIDENT

Mr. LESLIE, Mr. Chairman, first I would like to convey a message from Jim Needham who asked me to convey to you, Senator Williams, his regrets he can't be here. They have a board meeting today. He is

very sorry.

I am John F. Leslie and I am chairman of the New York Stock Exchange's advisory committee on international capital markets as well as chairman and chief executive officer of Bache & Co., Inc. With me today are Gordon L. Calvert, vice president-general counsel, Washington, Jeffrey M. Schaefer, director of international finance of the New York Stock Exchange, and Mr. James Doran, assistant vice president.

We appreciate the opportunity to appear before this subcommittee to present the exchange's views on the proposed Foreign Investment Act of 1975, S. 425.

In recognition of the increasing importance of international trade and finance in shaping worldwide economic development, the chairman of the New York Stock Exchange, James J. Needham, established the advisory committee on international capital markets late in 1972. The advisory committee includes distinguished and knowl edgeable individuals in the area of capital markets and international finance, as well as prominent men who have served the public at the highest levels of government. I have attached a list of the names and affiliations of the present committee members to my statement.

The exchange has long been a proponent of free capital flows across national borders and of initiatives that will encourage greater internationalization of capital markets in the years ahead. We have on many occasions gone on record in favor of stimulating the flow of capital among nations and have recommended policies designed to stimulate international capital flows.

The New York Stock Exchange believes the unhampered movement of both direct and particularly portfolio investment into the United States has been advantageous to this country, both in its favorable impact on the U.S. balance of payments and in the support it has provided for U.S. investment abroad. Moreover, the steadily increasing interdependence of nations in the areas of trade, investment, and finance warrant a national commitment basically to a policy of free capital flows to the greatest degree consistent, however, with the national interest.

Last year, foreign interest in U.S. stocks waned to some extent. In 1973, net purchases by foreigners of U.S. stocks and long-term bonds were reported at a record high of $4.7 billion, with net purchases of corporate stock alone reaching $2.8 billion. In sharp contrast, the 1974 figures show that foreign interest in the U.S. securities markets has come down very sharply. Through the first 11 months of 1974, net foreign purchases of U.S. securities, excluding U.S. Government obligations, of course, came to only $1.5 billion, with net purchases of stock amounting to barely more than $300 million.

Today, as we all know, there is considerable concern over the prospect of massive, concentrated foreign investment that could lead to control of major, vital U.S. industries. The OPEC nations have recently been the central focus of such concern, since their sudden accumulation of vast amounts of investable funds could theoretically enable them to buy large parts of our industry and thereby might subject this Nation's economic destiny to control by outsiders.

In 1974, the distribution of OPEC surplus funds was not concentrated in any particular country. Much less oil money, we understand, entered the United States than had been predicted. Indeed, as the year progressed, the proportion of OPEC funds placed in this country actually diminished. Of the total OPEC surplus of $55 billion, only about $11 billion entered the United States. Of the $11 billion, less than $1 billion was placed in real property and corporate equities. Recently, signs have appeared that world oil prices may be coming down a little bit. This fact, together, with new projections of OPEC surplus funds, indicates that earlier estimates of OPEC financial

accumulations were on the high side. In terms of constant dollars, the latest estimates project substantially lesser OPEC surpluses within the next 5 years than was widely anticipated a year ago. Perhaps some of you will remember the estimates which have been revised downward sharply earlier this year. Thus, the initial alarm about the vast funds flowing to OPEC nations is beginning to abate somewhat.

The United States must not turn its back on foreign capital. Other countries offer attractive investment opportunities for foreign funds, and today, the United States is competing with those other nations for whatever investment funds may be available. As the figures for last year demonstrate, foreign investors can and are channeling much of their funds into other markets. If too many obstacles are put in the path of foreign investment in the United States, such funds will simply be diverted to other countries waiting with open arms.

The crucial long-term reason for encouraging foreign investment is rather simple. The domestic saving capacity of the economy may be insufficient to meet America's capital needs. This is the conclusion of a recent Exchange research report on the capital needs and saving potential of the U.S. economy. This report is submitted for the record.

The Exchange is not alone in focusing on the enormous financing needs facing this Nation. Studies undertaken, for example, by the economic research departments of the General Electric Co. and the Metropolitan Life Insurance Co. confirm that there will be a capital shortage in the years ahead. These conclusions are further buttressed by a just-released Atlantic Council report on financing energy supply and use. The study suggests that earlier research, including that of the Exchange, may have been on the low side in projecting future investment requirements for the energy sector.

A short fall in savings in this country will result in a diminished rate of growth, making current economic problems more difficult.

Reduced productive capacity will have a particularly adverse impact on U.S. export industries, reducing their competitiveness in world markets. Social and economic inequities could arise, as economic growth-the main vehicle of social progress-slows to a snail's pace. Clearly, one of the ways to help overcome any deficiency in domestic savings is to stimulate foreign investment. Foreign capital inflows would help put the full productive capacity of the country to work, creating additional jobs and economic opportunities. Moreover, foreign investment would help offset the balance-of-payment difficulties we are now experiencing and will, in all likelihood, continue to face in the years ahead. The balance-of-payments problem has led to a substantial weakening of the dollar, thereby increasing the price of imports and the domestic price level.

For years, U.S. official and private sources have maintained that American investment abroad has been instrumental in reconstructing the European economy, as well as in stimulating the growth of the developing nations. Few other economic factors have been as crucial to upgrading the world's standard of living as investments abroad by U.S. corporations.

Given the far greater amount of U.S. investment abroad than foreign direct investment in this country, it would be somewhat difficult for this country to impede foreign investment here. According to the Commerce Department's latest estimates, the total book value of foreign investment in the United States increased steadily over the past

decade from $7.6 billion in 1962 to $17.7 billion in 1973. Nevertheless, U.S. foreign direct investment has been far greater, increasing from a book value of $37.2 billion in 1962 to $107.3 billion in 1973. Thus, our direct investment abroad is about six times greater than foreign investment in this country.

The larger that foreign investments become in this country, the greater will be the concern of foreign investors with this country's economic health. It is very unlikely that foreigners would initiate policies which might undermine their own investments or invite retaliatory action.

With relatively few exceptions, the United States has not discriminated between investment from abroad and domestic sources. The foreign investment community is aware of and undoubtedly understands the need for existing restrictions on foreign investments in certain sensitive areas of the economy. These areas include communication, transportation, atomic energy, public lands and others.

Various legal barriers to foreign investment also apply under the antitrust provisions of the Sherman, Clayton, and Robinson-Patman Acts. At a time when balance-of-payments and capital shortage considerations are of significant importance, the existing restrictions would seem to be sufficient to safeguard vital U.S. interests.

The New York Stock Exchange shares Congress' awareness of the limited information now available on foreign investment into this country. The Foreign Investment Study Act of 1974 should do much to narrow this gap.

Incidentally, as this subcommittee may know, the New York Stock Exchange has recently developed a data bank designed to monitor the foreign activities of our member firm community. Reports summarizing the data collected for the first three quarters in 1974 have been well received. Although still in its early stages, the data bank has proved useful in supplementing the available Government statistics on foreign portfolio investment; and we are constantly updating the statistics and expanding the output.

We are keeping the staffs of the various interested governmental agencies and departments informed of our efforts and progress. The most recent report is being submitted for the record.

Turning to section 3(a) of S. 425, it is pertinent to note that, in 1970, the exchange testified in support of legislation which, among other things, reduced the level at which reporting was required under subsection 13(d) of the Securities Exchange Act of 1934 from 10 percent to the current level of 5 percent. The exchange supports the proposed amendments to paragraph (1) of subsection 13(d) of the 1934 act in section 3(a) of S. 425 requiring persons reporting under this subsection to disclose their residence and nationality and, in addition, to file financial statements and information regarding the identity of any person who possesses sole or shared voting rights evidenced by the equity securities so acquired. Basically, the exchange favors the disclosure of acquisitions of the equity securities of publicly owned companies which have a bearing upon corporate control.

Nevertheless, we believe that several provisions of S. 425 could prove detrimental to U.S. interests. Section 3(b) of S. 425 would require prior notification and Presidential approval for foreign purchases exceeding 5 percent or more of the stock of a U.S. company. Senator JAVITS. Mr. Chairman, may I interrupt?

Senator WILLIAMS. Senator Javits.

Senator JAVITS. You say, "Presidential approval." I understand the President may also disapprove.

Mr. LESLIE. Well, I guess you are right, Senator. That is looked at from the other way.

Senator JAVITs. It is very important.

Mr. LESLIE. It is important. It is seen from the other side.
Senator JAVITS. Thank you very much.

Mr. LESLIE. It would seem more appropriate for an investor to know what he can do prior to making his commitments. The review procedure outlined in section 3(b) will create uncertainty in the minds of foreign investors over whether the United States really welcomes foreign investment. As past history has demonstrated time and again, investors avoid countries or projects that increase the risk or uncertainty of their investment decisions.

Basically, we believe that it is in this country's interest to retain an open-door policy with respect to foreign investment. This belief is also shared by many Senators, Congressmen, and the administration. However, clearly, every nation has the right to protect its national security and foreign policy as well as maintain effective control over its economic environment.

Clearly, those companies and industries considered sensitive for this country's national security should be controlled by U.S. citizens. At the same time, many companies are involved in economic activities which are not critical to U.S. national defense or security. For these companies, existing regulations and requirements, such as those contained in sections 13, 14, and 16 of the Securities Exchange Act of 1934, pertaining to disclosure, are sufficient. Such regulations should be reviewed if there is concern over enforcement and compliance with them.

To balance the two goals of preserving national security and economic independence and attracting sorely needed foreign capital, it might be useful to have appropriate governmental agencies prepare a list of those companies or sectors in which substantial foreign investment might have to be approved. In this manner, large potential foreign investors would learn beforehand that their investment may be subject to governmental review. This procedure would be fairer to both the company and investor than a Presidential review of all foreign investments exceeding 5 percent of a U.S. company.

Mr. JAVITS. Mr. Chairman, again if you will allow me to ask the witness a question: Would the stock exchange recommend to us what it considers to be appropriate sectors?

Mr. LESLIE. I would say what the appropriate sectors are probably, in my own opinion, Senator Javits, should probably be determined by those governmental agencies or departments that have information: State, Defense, Treasury. I think they are in a much better position to know what is sensitive, which particular companies and which particular sectors. I think it would go beyond the information and the expertise of the stock exchange but I cannot speak for the board.

Senator JAVITS. Would you handle that by the rulemaking power? Mr. LESLIE. I am not sufficiently familiar with the particular statutes, whether rulemaking power would be sufficient or whether it would require new legislation.