123. Letter From the Assistant Secretary of State for Economic Affairs (Kalijarvi) to the Assistant Secretary of Agriculture (Butz)1

Dear Mr. Butz : The following represents the views of the Department of State with respect to the so called Cooley amendment to Public Law 480 recently incorporated by the House in the Bill increasing the PL 480 authorization from $3 billion to $4 billion. As you know, the amendment provides that up to 25 percent of local currency proceeds shall be made available to United States business enterprises through the Export-Import Bank for business development and trade expansion and for activities increasing the consumption of U.S. agricultural products.

[Page 312]

The Department believes that the objective of the Cooley amendment is a desirable one as reflected by the fact the U.S. Government has for a year now been engaged in negotiating set-asides of specific portions of PL 480 sales proceeds for loaning to private enterprise, including U.S. enterprise, on a non-discriminatory basis through established banking facilities in the host country. In the period during which this policy has been in operation approximately $100 million in funds have been set aside for this purpose. We believe this is a highly encouraging result, especially when one recognizes that some of the countries with which we have PL 480 agreements are not now likely candidates for private enterprise, e.g.: Poland, Yugoslavia. We recognize that there has been considerable criticism from U.S. business of the present system perhaps largely because very few of the funds have actually moved into the hands of private entrepreneurs. This situation may be relieved as the funds actually start to move into private channels. In any case, we have received no specific complaints of discrimination from any U.S. firms. Under such circumstances we believe that the present policy should be given an adequate opportunity to prove itself.

There are a number of reasons why the Cooley amendment might have adverse effects on our foreign relations. It is quite possible that in a number of countries it would be viewed as an attempt to discriminate in favor of U.S. business as opposed to private enterprise in the country itself, especially where the terms of our loans would be more favorable than those generally available in the other country. Certain elements might seize the issue and make charges of U.S. imperialism, however unjust. The consequence might be that the host government would be most reluctant to enter into an agreement with such a provision and thus possibly expose itself to charges of undue obeisance to the U.S.

There are many cases, especially in Latin America, where available funds will not meet the total desires of U.S. business firms. In such cases it would be necessary for a U.S. agency to ration the available funds among U.S. firms. In this connection it should be borne in mind that the local currency is a claim on the resources of the host country in contrast to dollars which are a claim on U.S. resources. There might be serious question as to the desirability from a foreign policy point of view of having a U.S. agency determine when, how and which U.S. firms should exercise such claims. It might become necessary for the Export-Import Bank to engage in a considerable amount of analysis of various proposals with a resulting need for substantial increase in staff. The number of U.S. personnel abroad is already a problem.

It should be noted that the local currencies under PL 480 loans now made to foreign countries now contain an exchange rate guarantee [Page 313] which assures the U.S. of an equivalent value in local currency when the loan is repaid. It is assumed that such a requirement would not prevail in the case of loans to U.S. business firms and in such circumstances, of course, if the foreign currency were devalued the repayment received by the U.S. would be substantially less in value than the amount loaned.

For the above reasons the Department believes it unwise to accept the specific proposal contained in the Cooley amendment, even though its objective is laudable. We would prefer to be given the opportunity to proceed in our attempt to improve the present flexible system. In the long run we may be of more help to U.S. enterprise in this manner than by an attempt at a direct attack on the problem.

Sincerely yours,

Thorsten V. Kalijarvi 2
  1. Source: Department of State, Central Files, 411.0041/6–2657. Drafted by James A. Lynn, Economic Development Division of the Office of International Financial and Development Affairs. Cleared in substance by the International Resources Division of the Office of International Trade and Resources; the Office of Financial and Development Affairs; the Office of the Special Assistant for Mutual Security Affairs; and the Bureaus of Inter-American Affairs, Far Eastern Affairs, European Affairs, and Near Eastern, South Asian, and African Affairs.
  2. Printed from a copy which bears this typed signature.