Foreign Relations of the United States, 1949, National Security Affairs, Foreign Economic Policy, Volume I

NAC Files, Lot 60D137¹

Memorandum by the NAC Staff Committee to the National Advisory Council

confidential

[Washington,] June 13, 1949.

NAC Doc. No. 838

Subject: Treaty Provisions Covering Protection of United States Foreign Investment

Discussion

In its consideration of the commitments regarding investments which should be incorporated in treaties the Committee has endeavored to strike an appropriate balance between the following: (a) commitments which are sufficiently strong to encourage new investments, (b) commitments which have a reasonable prospect of being acceptable to foreign countries, (c) commitments which are feasible from the standpoint of U.S. laws and probable congressional views, and (d) commitments which are considered fair and reasonable from the standpoint of both parties.

The Committee has considered the views of private organizations and individuals, of existing multilateral commitments of governments and of existing and proposed provisions in treaties of friendship, commerce and navigation. It has set forth its recommendations as to the principles which should be incorporated in investment clauses under five main headings as follows:

1. Equitable treatment.

2. Reasonable freedom to operate, control and manage an enterprise.

3. Expropriation and compensation therefor.

4. Withdrawal of funds and exchange restrictions.

5. Taxation.

The majority of the Committee accepted mutuality as a basis for all commitments.

With the exception of item 4, the Committee has not attempted to draft precise language. However, with respect to the other sections, it is the opinion of the Committee that the State Department draftsmen should follow where practicable the language used in the statement of principles, and that a model draft of articles incorporating the principles should be presented to the NAC and ECEFP for consideration.

The recommendations with respect to the content of investment clauses represent the majority views of the working group and of the Staff. In the main, the results of the work represented a compromise of shades of view. It was felt, however, that the Council might wish to note the minority views on three issues:

1. Withdrawal of funds and exchange restrictions.

It was the view of some members on the Staff that, with respect to the withdrawal of funds and exchange restrictions, the investment clauses should provide some guaranties of minimum annual withdrawals of earnings and capital, even in times of exchange stringency, with the exception that such guaranties would not be binding if the International Monetary Fund specifically found that the exchange position of the country did not warrant any servicing of foreign investments. Such minimum guaranties would not necessarily be uniform for all countries.

2. Expropriation and compensation therefor.

It was the view of the minority that transfers into dollars of payments for expropriated property should not be subject to exchange restrictions. The only exception would be in connection with measures necessary to protect a country’s essential security interests.

3. Reasonable freedom to operate, control and manage an enterprise.

It was the view of the minority that the provisions relating to this subject should specifically include clauses permitting, in cases where United States investors so desire, majority ownership of stock and majority control of the Board of Directors or other governing body.

1. The National Advisory Council on International Monetary and Financial Problems (the NAC was established in August 1945 pursuant to the provisions of the Bretton Woods Agreements Act of July 31, 1945 (59 Stat. 512), to effect coordination in the formulation and implementation of the foreign financial policies of the United States.