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

161. Memorandum From the Deputy Assistant Administrator for Program and Policy Coordination, Agency for International Development (Jonnes) to the Administrator of the Agency for International Development (Hannah)¹

Washington, August 5, 1971.

SUBJECT

• SRG Meeting—NSSM 131—U.S. Policy in Cases of Expropriation

I attended the SRG meeting yesterday at which the study on our policy toward expropriation of U.S. private investment by less developed countries was discussed. Dr. Kissinger turned immediately to consideration of the options which, you will recall, were five-fold. Broadly stated, these were:

1. To suspend economic benefits in each significant case of expropriation, immediately upon expropriation, until reasonable provision for compensation or arbitration is agreed, unless the U.S. determines otherwise.

2. To suspend economic benefits in each significant case of expropriation against a fixed deadline—say six months.

3. To determine in each significant case of expropriation whether or to what degree economic benefits would be suspended.

This had three sub-options—

a. No new commitments made pending the determination.

b. An interim determination of how to move in the interim would be made pending the determination.

c. New commitments would be made pending determination.

4. Withholding economic benefits, but only after a determination of what course all U.S. interests in the country would dictate, allowing reasonable time to elapse to permit the expropriating country to purge itself and ensuring that withholding would be effective.

5. Traditional diplomatic protection.

He quickly eliminated option 5 as being unrealistic. He also eliminated option 2, arguing that basically this is the Hickenlooper approach which we have already decided should be reversed.

In the discussion of the options, Mr. Irwin argued most persuasively that of course the U.S. has a variety of interests which would in effect be prejudiced if there were a general presumption that in each case of expropriation, the economic benefits would be forfeited. Mr. Walker of Treasury moved away from the first option, which Treasury had at one time espoused, suggesting that while indeed there should be a presumption that benefits not be accorded to the expropriator, they would not make this an automatic action. Rather the situation should be reviewed immediately by whatever group is established to handle these questions.

This discussion, then, left basically two options, cast in terms of whether we should examine expropriation actions with a presumption that we would withhold preferential benefits in any case or whether we should approach the individual case without this presumption. Mr. Packard suggested that in the real world it seems very unlikely to him that any kind of statement of action which the U.S. proposes to take vis-a-vis countries that expropriate would deter significantly these actions. Moreover, he noted that the U.S. policy should hardly be designed to restrain expropriation for we recognize this right in international law assuming that fair compensation be paid. It developed, however, from Treasury remarks and those by Mr. Peterson that in their judgment a tough line on expropriation action would be justified more in terms of the impact upon the domestic scene than upon the restraints it would exercise upon countries involve.

The discussion of the international lending agencies was not particularly clear for the amount of information available on past efforts to arouse an international consensus among the developed countries on actions which they might take jointly was limited. It was agreed that we should explore possibilities of joint action with other developed nations.

Under Secretary Irwin needed no particular help in defending his view. It would, however, be useful for you to send a note to Dr. Kissinger on this subject along the lines of the attached.² It seems important to me that we help to nail down the arguments made by Mr. Irwin.

Recommendation: That you sign the attached memorandum.

1. Source: Washington National Records Center, Agency for International Development, AID Administrator Files: FRC 286 75 A 13, Chron, August 1971. Confidential.
2. Memorandum from Hannah to Kissinger, August 6, endorsing the approach to expropriation cases that Irwin had espoused at the August 4 SRG meeting; not printed.