CONTROLS ON OPEC INVESTMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000600010029-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 13
• Document Creation Date: December 12, 2016
• Document Release Date: April 13, 1999
• Sequence Number: 29
• Publication Date: February 21, 1975
• Content Type: MFR

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21 February 1975
MEMORANDUM FOR THE RECORD
SUBJECT: Controls on OPEC Investment
The attached summaries of US government policy
papers -gin inward investment were prepared for the DDI
in, response to a telephone call on 20 February 1975.
Attachments:
As stated
Distribution:
(S-6798)
Chief
Trade and Monetary Analysis Branca
Office of Economic Research
1 - D/OER, SA/ER
1 - D/I
St/P
2 - T /TM
OER/I/TM, a/7717
NO FO i u1~:SLh
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N0 FOREIG;d DISSE
SUMMARY OF TABS
IO FOREIG 'i DISSEM
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SUMMARY OF TAB B
The paper indicate: that the general policy toward
foreign investment in the United States is one of non-
intervention. Nevertheless, several safeguards already
exist that would prevent abuse of control by foreign
interests and, in some cases, prevent foreign ownership
altogether. Reporting requiremunts have also been recently
strengthened to give a more accurate picture of foreign
influence in US firms.
Anti-trust laws, state laws relating to minority inter-
ests, and the power to control exports, all act as deterrents
to possible abuses by foreign investors. Administrative
emergency powers under the Trading With the Enemy Act and
other regulations designed to deal with enemies or
hostile aliens could be used to aucment the restrictions. Laws
regulating defense contracts would effectively preclude
foreign control of a company with extensive defense
contracts -by virtue of the threat that future defense
dealings would be curtailed or that security clearances
would be revoked. Laws relating to atomic energy, mining
and a.,_ U.lling, fishing, and certain other activities either
place foreign ownership under strict regulatory control
or preclude foreign owne.:ship altogether.
Several measures designed.to further restrict or
inhibit foreign investment have been discussed by the
93rd and 94th Congresses. The proposals include:
?Percentage limitations on foreign equity owner-
ship.
?Improved reporting requirements.
?Requirements for prior notification of purchase
and government approval of prospective purchases.
The only concrete step taken so far, however, is aimed
at more complete disclosure of foreign interests in US
firms. The US Treasury survey which identifies foreign
purchases of US securities by country has been augmented
by more stringent SEC disclosure requirements. A new
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Department of Commerce bench-mark survey designed to
identify foreign interests in medium and large US firms will
help upgrade information on foreign ownership at the end
of 1974.
No FOREIGrI CISSEM
CONFIDENTIAL
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SUMMARY OF TAB C
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The paper argues unrestricted inflows of foreign
investment benefit the US economy by directly augmenting
capital formation, reducing the overall cost of capital,
and spurring competition. OPEC investments in corporate
stocks and bonds will provide an important source of much
needed capital to individual corporations and will, by
exerting a general upward pressure on security prices and thus a downward pressure on yields -- encourage
investment elsewhere in the economy. This assumes that
funds are less fungible than has.been generally implied
in other studies of the implications of OPEC investment.
The paper also points out that foreign investment
in the United States could adversely affect the national
interest by resulting in technology transfers to potential
competitors, increasing future-obligations to foreigners,
and diluting national economic sovereignty. Nevertheless,
the paper indicates these fears are without strong support.
Technology transfers to the primitive OPEC economies are
not likely to generate- effective competition for US producers
for many years to come, if ever. Current foreign investments
do give rise'to future outflows or resources, but these
outflows are necessarily less than the increase in national
wealth generated by the investment. The vast size of the
US economy relative to potential OPEC investment insures
that foreign ownership of productive resources will not
exert a significant influence on aggregate US economic
activity. The paper fails to consider the balance of
payments and exchange rate implications of a substantial
additional foreign investment inflow. .
NO FOEEIU,1 DISSEo~i
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110 FOREIGN DISSENT
SUMMARY OF TAB D
The paper argues that increased restrictions on
foreign investment in the United States could, under
certain circumstances, provoke an adverse foreign
reaction -- both from OECD and OPEC countries. The
paper points out that the United States currently has
a far more liberal foreign investment policy than most
countries. Thus, modest increases in controls, such as
registration and public disclosure -- if they are in-
stituted with prior discussion and imposed on a non-
discriminatory and non-arbitrary basis -- would probably
be acceptable to most foreign governments. However,
more stringent restrictions such as screening or new
sectoral limitations risk undermining foreign confidence
in the safety of US investments. This could cause foreign
investors to shift their funds to markets where investment
restrictions are weaker. Discriminatory restrictions
against OPEC countries would be criticized both by OECD
and OPEC countries and could prompt a significant
reduction in investment and cutbacks in oil. production.
-The paper fails to note that most OECD countries are
also considering implementing new restrictions designed
to control OPEC investors.
NO FO EIG' I71SSE19
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SUMMARY OF TAB E
The paper is divided into two sections: a survey
of recent projections of the OPEC surplus and the preliminary
results from a new OASIA research study. The general finding
of the recent studies is that OPEC accumulations would total
about $200 to $300 billion in 1974 dollars in 1980, or about
$400 billion in current dollars. This is consistent with
our own estimates.
The getiieral conclusion of Treasury's research is that
total OPEC accumulation by 1980 will total only $200 to
$250 billion in 1974 dollars, or about $310 billion in
current dollars. Moreover, it is argued that OPEC's
overall current account balance will turn negative by the
early 1980s so that total asset accumulations in 1985 are
unlikely to be substantially higher than in 1980. We feel
the Treasury estimates are somewhat optimistic.
NO F0 wEIDN DISSE'i
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SUMMARY OF TAB F
The papers claim that foreign investment policy is
based on the premise that the operation of free market
forces will foster the well-being of the international
and the US economy. The US negotiating objective has been
to press for reduced restrictions on capital movements,
a decrease in discrimir:atory treatment against foreign
capital, and for a mechanism to arbitrate international
disputes related to foreign investment. In line with
this objective, US policy has been to admit foreign
capital freely and to treat it on an equal footing with -
US capital (with certain well-defined exceptions). The
paper argues the adoption of new restr:.ctions would
undermine our efforts to liberalize international trade and
investment and would advezsely affect the national welfare.
[10 FD c1DIj DISSEJ1
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Italy, Finland, Japan, and Austria. A number of new proposals
are being actively negotiated by the interested countries.
A General Agreement on Cooperation of the Soviet Union
and Japan has been signed for exploring and extracting oil
and gas on the shelf of Sakhalin Island. That agreement, as
well as*large scale agreements concluded last year on Soviet-
Japanese'cooperation to exploit the forest resources of
Siberia and the Far East, to mine coking coal deposits in
southern Yakutsk, and to explore natural gas deposits in Yakutsk
provides a long-term basis for developing mutually beneficial
trade-economic relations in the interests of both countries.
Although trade turnover between the USSR and USA in 1974
was less than in 1973, the total' of 742 million rubles was
rather considerable compared with what it was previously. in
recent years, several important agreements have been concluded
between the USSR and USA which create a basis of their own for
the favorable development of mutually beneficial trade and
economic collaboration to accord with the great potential of
both countries. A case in point is the well-known agreement
.with the American company "Occidental Petroleum Corporation"
concluded in April 1973. This agreement calls for the
delivery of equipment, materials, and technical documentation
for an industrial complex to produce 4 million tons of ammonia
and one million tons of urea per year, and also the delivery
to the USSR by Occidental of superphosphoric acid for a 20-year
period, beginning in 1978.
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Positive changes are contemplated in the commodity
structure of mutual trade, reflecting one of- the characteristic
natural developments in contemporary international trade as
a whole.
In filling the large orders for delivery of American
equipment to the USSR, not only do the firms with which
contracts were signed, participate, but so do a considerable
number of other companies --? subcontractors. Thus, more than
80 US firms aze'.engaged in filling the orders for Kama.
However, the discrimination permitted by the US in trade with
the Soviet Union remains as before, and is an obstacle to the
further development of trade between the USSR and USA.
-Total exports in 1974 amounted to 20.8 billion rubles, i.e.,
31.:'$ increase over 1973. Exports of machinery and equipment
.in 1974 amounted to 4.0 billion rubles -- a growth of 16.2%
over the 1973 level. Last year, the following were e--=o:ted:
17,000 metal-working tools, 41,000 tractors, 286 mainline
diesel locomotives, 95 airplanes, 143 helicopters, 323,000
passenger cars, and 38,000 trucks. Exports of raw materials
continued to increase in 1974. Exports included 22 million tons
of coal, 81 million tons of crude oil, 14 billion cubic
meters of natural gas, 43 million tons of iron ore, about
5 million tons of pig iron, 14 million cubic meters of logs,
and 8 million cubic meters of lumber.
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Total imports in 1974 were 18.8 billion rubles -- a
21.2% increase over 1973. In 1974 imports of machinery and
equipment amounted to 6.0 billion rubles, or 32% of total
Soviet imports. In particular, in 1974 deliveries included:
? technological equipment for the Kama
Truck Plant;
three'ccr lete sets of plant equipment
for the o cfuczicn of sulphuric acid
by the flotation pyrite method;
? equipment for the second line of the
large sheet rolling :sill "3600".
.As before, machinery and equipment for agriculture, electronic
computer equipment, transportation equipment, and other items
-were imported.
In 1974 considerable attention was given to importing
consumer.coods and the raw materials for their production.
The. share of this group of goods in the total imports of the
Soviet Onion in 1974 amounted to about 40%. Deliveries to
the national economy in 1974 of a few of the major consumer goods
were: 97,000 tons of wool; 142,000 tons of cocoa beans;
522 million rubles worth of sewn goods; 250 million rubles in
knitted wear; 445,000 tons of citrus fruit; and 60 million
pairs of leather shoes. _
In 1975, foreign trade will continue to grow. The
socialist countries will continue to occupy the principal place
in Soviet foreign trade, especially the CEMA countries with
whom cooperation is based on the broad development of the
processes of socialist economic integration.
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One can also expect that in the future USJR foreign
trade will develop at a steady rate. In particular, it is
because in the Soviet Union, with its constantly growing
economic and scientific-technical potential and rich natural
resources, hundreds of new enterprises are put into operation,
completely new production facilities are created through
scientific-technical progress and industrial installations
.and entire complexes unique in their scale are built every year.
-Success in the development of Soviet machine-building
should lead to an expansion of exports cf machinery and
equipment, transport facilities and a variety of household
equipment from the Soviet Union to the developed capitalist
countries. Consequently, the further development of Soviet
trade with the developed capitalist countries will depend on
.increasing the exchange of goods, particularly of this group,
as well as on both sides making full use of available
.opportunities. Undoubtedly, it is in this area that interestin g
and mutually profitable solutions can be found.
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