Foreign Relations of the United States, 1969–1976, Volume IV, Foreign Assistance, International Development, Trade Policies, 1969–1972

113. Memorandum From the President’s Assistant for National Security Affairs (Kissinger) to President Nixon ¹

Washington, May 28, 1969.

SUBJECT

• Application of A.I.D. Country Restrictions to New Overseas Private Investment Corporation

An issue has arisen with reference to the Aid Bill. It is whether all the country prohibitions which now apply to A.I.D.’s own operations should also apply to the proposed Overseas Private Investment Corporation (OPIC). A.I.D. and all other agencies take the position that only the restrictions applying to Communist countries, countries to which the U.S. has no diplomatic relations and the Hickenlooper Amendment should apply to the corporation. (Hannah’s memorandum to you on this is at Tab A.)

Arthur Burns feels that all the other restrictions should apply to the corporation as well.

The arguments for limiting the number of prohibitions applying to the OPIC are:

• —The major new feature of your aid program for FY 1970 is the Overseas Private Investment Corporation. The main objective of the corporation is to induce increased participation by private enterprise in the development process by reducing government interference and bureaucratic red tape from their activities.
• —The application of all of the country restrictions would run directly counter to that objective.
• —Under these restrictions, U.S. firms could not be sure that their OPIC guarantees and insurance would not be withdrawn as a result of such (for them) fortuitous events as mob attacks on U.S. embassies, delinquencies of payment of UN dues, and non-repayment of debts owed to the U.S. Government or U.S. private citizens by the government of the country involved. Furthermore, the tightened provisions which prohibit aid to countries trading with Cuba, as well as those shipping to Cuba, could circumscribe seriously the area of potential U.S. private investments.
• —At present, application of these restrictions would prohibit extension of guarantees or insurance only to a few relatively minor countries. The main problem is their potential extension to numerous developing countries, such as Guinea (on repayment of A.I.D. loans), Ecuador (on government debts to private citizens) and even Mexico (due to trading with Cuba).

The Burns arguments are (Tab B):²

• —The OPIC is, in effect, a Government agency with virtually the same lending authority as AID. To exempt the Corporation from the restrictions would be the same as exempting that part of the AID program that will be transferred to the OPIC.
• —The political risks that apply to trying to reduce or remove the restrictions on AID in Section 620 would be the same should you decide to remove them from the OPIC.

On balance, I think Hannah is right on this issue.

Apply all country prohibitions to the OPIC ³

Limit the application of country prohibitions as proposed by AID

Tab A

Washington, May 28, 1969.

Memorandum From the Administrator of the Agency for International Development (Hannah) to President Nixon ⁴

SUBJECT

• Exemption of the Overseas Private Investment Corporation from some of the political proscriptions of the Foreign Assistance Act

Recommendation No. 1:

That the Overseas Private Investment Corporation programs be subject to the provisions of the Foreign Assistance Act requiring withholding or termination of the Corporation’s programs in countries which are found in violation of the Hickenlooper Amendment, countries with which we do not have diplomatic relations and Communist countries.⁵

Recommendation No. 2:

That the Overseas Private Investment Corporation programs be exempted from all other proscriptive paragraphs of Section 620 of the Foreign Assistance Act in the same way that programs of the Peace Corps, the Export-Import Bank and the State Department Cultural Exchange programs are exempt.⁶

Discussion:

There has been some dispute as to the interpretation of your wishes on this issue because the matter of exemption of the Private Investment Corporation from some of the political proscriptions was not separately posed as an issue in the Budget Director’s memorandum which you considered on May 22.⁷

It was my understanding, endorsed by some members of your immediate staff, that you agreed with our desire to make the operations and public image of the Private Investment Corporation as “private” as possible and to give the Corporation’s management a charter permitting them to enter into long-term undertakings with U.S. private investors.

Consequently, we have concluded that the Corporation (like the Export-Import Bank and Peace Corps) should not be required by law to back off of pending investment guarantees covering joint undertakings of private U.S. and foreign businessmen and banks, when the government of the less developed country concerned commits any of these Section 620 offenses against the U.S. Government:

(1) Fails to prevent ships under its registry from calling at Cuban or North Vietnamese ports or sells any goods to those countries;

(2) Fails to pay government debts to U.S. private citizens;

(3) Attends an international conference planning aggression or subversion;

(4) Is more than six months in default on A.I.D. loans.

The foregoing are the mandatory Section 620 proscriptions from which we propose to exempt the Private Investment Corporation.

The purpose of these proscriptions was to use the threat of withholding U.S. aid to obtain favorable action by governments of less developed countries. We do not believe that U.S. private investment should be used as a tool of political leverage in such cases. To do so subjects a U.S. private investor who has at considerable time and expense worked up a project with local private interests to the risk of loss, uncertainty and embarrassing identification as an instrument of U.S. political policy. One of our concerns in promoting through a government corporation program U.S. private investment in less developed countries has been the vulnerability of such investment to the charge of “dollar imperialism”; these political strings would compound the problem by associating private investment with unrelated U.S. Government policy considerations.

Congressman Adair, starting from the opposite point of view, has come around to our view on this issue.

The minor change in the present law which we propose can be accomplished by adding to Section 638 the underlined words in the following provision:⁸

“Sec. 638. Peace Corps Assistance.—No provision of this Act shall be construed to prohibit assistance to any country pursuant to the Peace Corps Act, as amended; the Mutual Educational and Cultural Exchange Act of 1961, as amended; or the Export-Import Bank Act of 1945, as amended, or with the exception of sections 620(b), (e), (f), and (t), pursuant to Chapter 3, Title II, Part I.

This change also would relieve the Corporation of having to “take into account”, in a non-mandatory sense, a variety of other political matters such as the failure of a less developed country government to keep up-to-date on its UN dues or to prevent mob action against U.S. Government property or to respect the 12-mile limit rule on fishing rights.

The Acting Secretary of State concurs in these recommendations.

John A. Hannah

1. Source: National Archives, Nixon Presidential Materials, NSC Files, Agency Files, Box 193, AID, Volume I 1969. Confidential.
2. Not found, but see Document 9.
3. This option was checked, apparently by Kissinger. A marginal notation indicates that AID was notified on May 29 at 3 p.m.
4. Limited Official Use.
5. President Nixon signed the Approved option.
6. The President signed the Disapproved option.
7. See footnote 5, Document 8, and Document 10.
8. Printed here in italics.