Japan, U.S. investment is not accorded the same kind of treatment that we accord Japanese investment in this country. However, we feel that that treaty has been very helpful in bringing about a more liberal attitude and regulations in Japan than would have otherwise been the case. This does not mean that we do not wish Japan to liberalize further to the point where their laws would accord with the provisions of the FCN Treaty. In fact, we have indicated many times to the Japanese our hope that they will continue to liberalize. Senator WILLIAMS. Is the United Kingdom one? Mr. ROBINSON. It is not. Senator WILLIAMS. Well, this Nation has the longest history of friendship with Australia, Canada, and the United Kingdom. Maybe the reason they are not part of the treaty is that they all do exactly what this bill is aimed at doing. In each case, the trigger figure designed to allow the opportunity for prior review, in its own interest, of whether foreign investments should made may vary. For example, Canada uses the same 5-percent figure that we use in this bill. Canada's Foreign Investment Act requires official approval of acquisition of 5 percent or more of the voting securities of a public company. Maybe I could just come to the end of the line and inquire right here if you don't agree that what this bill would do is to put us in a very close parity with the monitoring and authority of some of our traditionally friendly nations? Mr. ROBINSON. [Passage of S. 425 would place the United States in the position of being more restrictive than some of our most important FCN cosignatories. Germany, for example, is clearly trying to avoid legislation like S. 425 because they recognize that screening might jeopardize the proper flow of investment into their country. They are working on a gentlemen's agreement approach. Senator WILLIAMS. You saw that happened with Daimler-Benz, when a foreign investor acquired a substantial share of the outstanding stock of that company. It was the government that promoted a major bank to go in the market and buy controlling securities to insure that control of Daiml-Benz remained in Germany. Mr. ROBINSON. Subsequent to that, the German Government has decided that, rather than pass legislation to prevent this sort of action, it was in their interests to deal on a gentlemen's agreement basis, which they are now doing, and through which they expect to prevent this sort of thing occurring. Senator WILLIAMS. They certainly are gentlemen, but they are wiser gentlemen now. We will have testimony tomorrow to suggest that in their new wisdom the gentlemen of Germany are moving towards the approach embodied in S. 425. Mr. ROBINSON. But their present position is that they will deal with the inward investment problem through a gentlemen's agreement approach and not through legislation, although that could change. Senator WILLIAMS. It is not "ungentlemanly" to tell a nation that they are clearly violating natural principles of ethics and morality, as in the case of the Arab boycott; such conduct, in my opinion, is clearly not gentlemanly. I will now yield to Senator Tower. Senator TOWER. Thank you, Mr. Chairman. I was not here at the opening of the committee's session because I was hosting a congressional meeting with the Finance Minister of Iran on the subject of Iranian investments in the United States. I would like to ask unanimous consent that my opening statement be placed at the appropriate place in the record. Senator WILLIAMS. It certainly will be. [Senator Tower's opening statement follows as though read:] STATEMENT BY SENATOR TOWER Senator TOWER. The hearings which this subcommittee embarks on today are certainly as important as they are timely. They focus on an area of growing national concern-that is the issue of foreign investment in the United States and the emotion-laden question of whether or not foreign investors will buy up America if given half the chance. The amendments to the Securities Exchange Act which this subcommittee will be considering are designed to coordinate the Nation's approach to foreign investment through disclosure, notification, and other procedures designed to monitor such activities. I believe that the approach taken in this legislation recognizes this country's need for large amounts of new capital in the future, which could be met, at least in part, out of increased foreign investment. As the chairman of this subcommittee noted when introducing this bill: *** the United States must continue to leave the welcome mat out for foreign investors, for their capital may be essential to American business. There is a question in my own mind, however, whether or not even the limited action proposed in this legislation might discourage muchneeded foreign investment from taking place in the United States over the period ahead, and whether or not it could undo much of what has been done to free up the international flow of capital both here and abroad. Certainly, a great deal of the financing needs of this Nation may be met through increased lending from abroad, to which this bill, of course, is not directed. But, in the future, our ability to borrow abroad may be contingent on our attitude toward equity investment, to which this bill is directed. Perhaps no one really knows what effect this bill will have on encouraging or discouraging the flow of funds from abroad into productive channels here at home. Hopefully, however, the witnesses which appear before this subcommittee will provide the subcommittee with their views regarding this important matter. Senator TOWER. Mr. Robinson, is it true that the United States will have to recycle more petrodollars than is represented by our oil deficit because of the state of the economies of other industrial nations? Mr. ROBINSON. That is a difficult question to answer, Senator, but I think that the United States may well prove to be a more desirable place for investment, for lending of funds than some of the other nations. such as Italy. And I think that is the reason we have to participate in international organizations through the IMF, through the proposed safety net in IEA to adjust for imbalances and undue strain in certain of the OECD countries. That concludes my statement, Mr. Chairman. Mr. Robinson, would you anticipate that the enactment of S. 425 might bring on retalitatory actions by other countries impacting adversely on American investments in those countries? Mr. ROBINSON. I think it is very likely and it would be the normal expectation that this will happen, yes. Senator TOWER. In the arrangements Ireland had with Germany, I believe they acquired 25 percent of Krupp Steel, isn't that correct? Mr. ROBINSON. That is correct. Senator TOWER. What would be considered the controlling interest of an American company? What normally is considered controlling interest in terms of the equity ownership of stock by one entity? Mr. ROBINSON. Ten percent is quite often viewed as presumptive of control, although I think it differs from company to company. And it depends upon the diversity of the stockholder group. Quite often I would say 10 percent to 25 percent-in that rangeis generally believed to represent controlling interest. Senator TOWER. Thank you. Mr. Robinson. I have no further questions. Senator WILLIAMS. Senator Helms? Senator HELMS. Thank you. Mr. Chairman. Senator Tower asked two questions which I had on my mind. I have two or three others. Do you have any estimate, satisfactory to yourself, as to the amount of petrodollars invested in the American equity securities, that is to say. corporate common stock? Mr. ROBINSON. The OPEC investments are primarily in bank deposits. We do have figures on OPEC investments in equities, but I would have to Senator HELMS. Mr. Chairman, let me ask unanimous consent that he supply those for the record. Mr. ROBINSON. I will be glad to do that. Senator WILLIAMS. Without objection, that will be submitted. [In response to Senator Helms' request for information on the amount of petrodollars invested in U.S. equity securities, the Treasury Department submitted the following for the record:] The Treasury Department estimates that the total of both short- and long-term OPEC funds directly placed in the United States during 1974 was approximately $11 billion and that less than $1 billion of this total went into all forms of longterm private-sector investment (covering corporate shares, real estate, private. long-term debt obligations, etc.). Senato HELMS. Let me be just for a moment the devil's advocate in following up a question of retaliation raised by Senator Tower. It is not unique to see boycott actions between nations. For example, I have difficulty in explaining the United States' position on Rhodesia. We certainly are boycotting them; is that correct? Mr. ROBINSON. That is correct. Senator HELMS. Whether we like it or not-and I don't like it-the Israelis and the Arabs are enemies. In this country we, the Congress of the United States, have passed a Trading With the Enemy Act; is that correct? Mr. ROBINSON. That is correct. Senator HELMS. I don't recall--and I am asking you, sir, if you do recall--any objection on the part of members of the Congress or for that matter, objection on the part of the public to the enactment of a Trading With the Enemy Act? It is normal, isn't it, when you are involved in hostilities of one nation versus another? Mr. ROBINSON. That is correct-although I don't know whether there was any opposition voiced to the enactment of that legislationit is an established principle. Senator HELMS. How are we going about trying to find out whether the oil-rich countries have invested their money? Have we asked the governments to let us know? Mr. ROBINSON. We have had discussions with three major countries that are accumulating surpluses; Kuwait, Saudi Arabia, and Iran, and have specifically requested that they consult with us and that we work with them in the pattern of their investments in the United States. We do not have official commitments but we do have understandings that this will be done and they have indicated they are prepared to work with us on their plans for investment, official investment as opposed to private investment. Senator HELMS. Then would it be fair to say that you are optimistic about cooperation in that regard? Mr. ROBINSON. I think they recognize it is in their best interests. They do not want to put their funds into a hostile environment, and they share with us the feeling that they should know in advance that their investment is going to be welcome here. Senator HELMS. Very well. Mr. Chairman, I ask unanimous consent that at the appropriate place in the record the Washington Star interview with Secretary of Treasury William Simon under the headline "Arab Money-No Threat," be inserted. Senator WILLIAMS. Without objection it will be included. [The article follows:] [From the Washington Star, Feb. 26, 1975] ARAB MONEY NO THREAT, SIMON SAYS Secretary of the Treasury William Simon was interviewed by Question. Last week the Iranians were allowed to buy a major share of Pan American Airways. Do you favor oil-rich countries buying large chunks of American firms or do you see this as a threat? Answer. I think that the fears that were held by some have diminished rather dramatically, that people realize that it is not the desire of the sheiks and the members of the oil producing nations to come over and control companies in this country. They have great desires for the diversification and industrialization of their own count.ies and tremendous internal demands for funds. Certainly they're going to make investments and certainly we should encourage foreign investment as part of our basic philosophy of a free and open world trading order. Question. Are there adequate controls? Answer. We obviously have to be very sensitive to national security constraints. We have many safeguards that we already have in place to protect our national security-the Defense Department, antitrust laws, the Security and Exchange Commission, various Treasury regulations and other laws. We are conducting several studies and a plan will be announced within two weeks but basically we favor foreign investment and indeed, encourage it within these constraints. Question. How do you prevent someone from buying into a defense industry. . say Lockheed? Answer. These countries come to the United States government to discuss their intentions to invest and they will continue to. Obviously people make investments where they're going to be welcome. And we welcome people to make investments in this country within the constraints of our national security. If it's of a sensitive nature, we have to sit down and talk about it and the decision is made by the President. Question. Do we know right now where OPEC countries have investments in the United States? Answer. Not precisely, we don't. There is a lag in our information but we have pretty good ideas on their investments. Again, the important point is that these countries have no desire to come in and take over major proportions of any of our companies. Their desires differ from country to country. In Saudi Arabia they wish to industrialize, diversify their economy and they will make investments in allied companies over here as well as real estate, government bonds and corporate bonds. They'll have a diversified portfolio. Kuwait is doing the same thing. No major portion of their money goes in any one specific firm. They are very sophisticated and very conservative investors. Question. How are we going about trying to find out where the oil-rich countries have invested? Have we asked the governments to let us know? Answer. Financial transactions, by and large, are reported figures. There are lots that aren't-stock that is purchased in nominee names or through foreign banks and that's very difficult, although I don't consider that a major amount of stock purchased. Question. Are we looking for foreign investment because of our current economic situation and our need for capital? Answer. It's not our current economic situation. We always have a need for capital in this country. And we've encouraged foreign investment in this country just as other countries have encouraged our multinational companies and others to invest in their countries. Question. But in the last year or so there is much more in the news Answer. Of course it's in the news because you're seeing the Mideast as the focus of news these days because of the transfer of resources of money to the Mideast. Now, obviously that's a vast pool of savings, if you will, and this pool of savings should be put to productive use in all of the developed and developing countries of the world. Question. What sort of things have we urged them to invest in? Answer. We don't. It's not the function of the United States government to urge them to invest in specific things in this country. Question. Are there any directions we've already discovered we should go in terms of investment guidelines? Answer. No, that would be a little bit early. Of course that doesn't prohibit us from taking up issues on a case by case basis-such as Pan American, where the Economic Policy Board discusses all the ramifications of an investment in Pan American and then we go to the President for his decision. Question. Are there any other companies that you know of which are now talking to OPEC countries? Answer. Yes, there are several that have been to see me. Question. Can you name them? Answer. No, if I did that would be a violation of a confidentiality as far as the negotiations concerned. But they do come to the Treasury quite often to ask whether this is something that they should explore further, or to say they have been approached or they are thinking of approaching someone. As you know we've been in a profit depression in this country for 10 years and there are many companies, financial as well as non-financial corporations, that are suffering from severe illiquidity and they need equity and debt money, equity and debt investment. The OPEC nations, the producing nations of the world, provide this pool of savings which they will try to utilize by offering them what they consider a sound investment opportunity. Question. Are there any other deals brewing like Pan Am? Answer. There are lots of deals brewing. Sure. But you say 'like Pan Am'. When we talk about Pan Am, some people are under the impression that they're out buying 51 percent. It's 13 percent. . . some can say that that's a controlling interest, maybe it is, maybe it isn't. But that depends on the company. Question. Cartoons often show an oil-rich sheik on the board of GM-is that conceivable? |