Foreign Relations of the United States, 1964–1968, Volume IX, International Development and Economic Defense Policy; Commodities

112. Airgram From the Mission to the Organization for Economic Cooperation and Development to the Department of State¹

CEDTO A–254

Paris, October 29, 1965.

SUBJECT

• Meeting of DAC Working Group on Private Investment

REF

• TOCED 242²

ADCOR.

Summary and Major Conclusions

The first meeting of Working Group on Private Investment was held on October 25 under the chairmanship of Lamby, Ministry of Cooperation, Bonn, to begin task of setting up a work program to recommend to DAC in the field of private investment. The meeting addressed itself to questions of what topics should be considered, who should undertake work and what procedure should be followed.

The Chairman and Secretariat expressed satisfaction with the results of the meeting which was satisfactory also from US viewpoint as points made by US (following lines of reftel) were largely accepted without impression of US domination of meeting. Major results included:

(1) Identification of at least three areas of possible activity for future work program:

(a) improvement of statistical base in capital exporting countries for reporting data on private capital flows to and from LDCs.

(b) exchange of experience on investment incentives offered by industrialized nations and assessment of degree of influence which such incentives exert on investment decisions.

(c) study of stress of possible cooperation and coordination between public aid and private investment, e.g., training and technical assistance in LDCs, and government equity institutions such as German Development Company.

(2) Agreement to invite five international organizations to future sessions (IMF, IBRD, IFC, BIAC, OECD Development Centre).

(3) Encouragement of preparation of papers prior to next meeting, with specific offers made by US and Secretariat (see below).

(4) Agreement to meet on December 7 with specialized institutions represented, to delve into proposed topics at technical level and prepare for third meeting in January at which proposed work program would be finalized for submission to DAC.

Representation and Country Positions

All DAC countries except Belgium, Canada, Portugal and Sweden were represented but only Germany, Netherlands and US sent delegates from capitals.

Most active speakers were US, UK, Netherlands and Austria. Chairman exercised considerable initiative, opened with sweeping tour d’hor-izon, then focused attention on need to study investment incentives. He showed great concern for procedural matters, warning against confusing substance of work with organization and reminding members that group’s mandate was to design and recommend work program to DAC, not to undertake substantive work directly.

Sole French delegate (from Quai d’Orsay) virtually missed a.m. session, was late to p.m. session, although he insisted this was due to pressing engagements and not lack of French interest; his single intervention was decidedly negative, expressing concern at proliferation of items for consideration and suggesting that WG limit itself to one topic (which French had raised at May meeting), that of improving statistical data on flow of private capital to LDCs.

UK delegate (Harding) displayed caution on specific issues, but on balance supported objectives of WG. On the positive side, he shared the US view that the already agreed top priority work in the field of statistics should begin as soon as possible and need not wait for rest of program to be formally approved by DAC in January. Harding repeated old UK view that DAC should stay out of research work and that Development Centre should be used to maximum extent. He also expressed the view that it is unrealistic for OECD to initiate multilateral agreements such as multilateral investment guarantees and convention for protection of foreign property, since these arrangements must be negotiated and implemented by an institution where LDCs are represented, e.g., IBRD. He therefore cautioned against making any unilateral proposals which would be unacceptable to LDCs. He stressed that investment climate studies would not be appropriate for DAC but might be undertaken by major donors or consortia. Harding also doubted wisdom of US proposal for study of overall economic effects of private investment of LDCs. Perhaps speaking from point of view of ex-Colonial Office official, he pointed out that in historical perspective much foreign investment in LDCs took place when LDCs were colonies or territories whose relations with industrialized nations were very different from today and that extractive nature of early investments might tarnish the image of private investment as a development catalyst which the study would be designed to promote. Harding mellowed somewhat when the US delegate pointed out that this did not apply to the bulk of post-war investments, especially in the manufacturing field, citing investments in Latin America as an example, and at close of meeting said he would welcome US paper on this subject. Harding also expressed a real interest in US Catalog of Investment Opportunities.

Netherlands delegate supported Chairman’s proposal for exchange of experience on investment incentives. He also associated himself with UK position that study of economic effects of private investment might produce undesirable results because of the nature of early investments. He reacted favorably to the US investments symposia proposal and expressed interest in the US Catalog, adding that opportunities for LDC investments should be publicized more in other DAC countries.

Austrian delegate favored bring BIAC and Development Centre in WG at early stage and asking Centre to undertake research oriented items. He supported work on statistics, incentives, and investment symposia.

Japanese delegate made a strong pitch for improvement of statistics, placing special emphasis on repatriation of profits.

Other Issues

In addition to the three priorities generally agreed to, the Chairman raised other issues for discussion, but as no delegations were inclined to support them, the Chairman postponed them for possible future consideration. These items include:

1. Collection of data on pre-investment and feasibility studies undertaken by member countries and UNSF. Secretariat and others pointed out that US Catalog already contains substantial listing of surveys and that majority of Special Fund’s surveys are of large infrastructure variety which are not usually privately financed. However, general intent was shown in making more extensive use of US Catalog.

2. Study of role of development banks to promote private investment. This may be examined further when the Development Centre’s directory is completed.

3. Consideration of possible uses of counterpart funds generated from two-step loan procedure. It was agreed that at the present time this is not of general interest because only two countries (US and Germany) are involved.

Preparation for December Meeting

US offered to prepare brief papers: (a) describing function of Catalog of Investment Opportunities and Information, and suggesting how it could be more widely used in other DAC member countries; (b) developing ideas of investment “symposia” proposed at May meeting; and (c) defining purpose and scope of study on economic effects of private investment in selected LDCs. Secretariat will prepare a paper on what statistical data is most needed but now lacking on flow of private resources. All delegations were encouraged (but not obligated) to report on experience with investment incentives. At least Germans and Dutch are likely to provide papers on this subject. Chairman at first opposed the US suggestion that papers be prepared for next meeting, not wanting to overburden capitals, but agreed to voluntary preparation as described above, on the understanding that papers would be working documents aimed at determining suitability of topics for inclusion in the work program.

Brown

1. Source: Department of State, Central Files, AID 1. Limited Official Use. Drafted by E. M. Gilbert on October 28, cleared by Frank M. Coffin (in draft) and P. R. Cook, Jr. (Secretary of Delegation), and contents approved by Alice May. Passed to the Department of Commerce. Attached to the source text is the “Report of First Session of the D.A.C. Ad Hoc Group on Private Investment held on 25th October, 1965” (DAC(65)40), October 28, not printed.
2. Document 111.