162. Memorandum From the Under Secretary of the Treasury (Walker) to the President’s Assistant for National Security Affairs (Kissinger)1

SUBJECT

  • Policy Towards Expropriation

I thought it would be useful if I wrote down the Treasury policy option which I described and you identified as one of the three from which the President would be asked to choose. (It is neither option 1 nor 3(a) of the State paper.)2

What I call the “presumption option” has the following elements:

(a)
There would be a presumption that if a significant United States interest is expropriated, new preferential benefits to the expropriating country would be suspended. This presumption would be applied to suspend such benefits unless it was determined that the expropriating country was taking reasonable steps to provide compensation or that the presumption was overcome by major factors requiring continuance of all or part of these benefits.
(b)
New loans from multilateral institutions would be deferred and we could vote against them if necessary.
(c)
The United States would take an active role in judging whether reasonable steps had been taken.
(d)
Preferential programs would not be resumed until the expropriating country had taken reasonable steps to assure prompt, adequate, and effective compensation.
(e)
While this general policy would be publicly announced, when an expropriation actually took place no public announcements of [Page 426]cutoffs of foreign assistance or other preferential benefits would be made.

The major thrust of this option is to put governmental decision making on expropriation into a policy framework where it is possible to take decisions to protect our overseas economic interests. This is done by the presumption that preferential benefits would not be continued unless this presumption was overcome by overwhelming other factors. Other options without this presumption make the cutoff extremely unlikely and thus limit the President’s ability to respond to expropriation problems.

Yet the presumption which is the vital element of the option I have outlined retains flexibility to react to difficult situations. There are several points that should be mentioned.

  • First, the presumption of suspension of assistance would apply to new preferential benefits; existing benefits would not be cut off pending a decision on suspension of them. This avoids confrontations with governments in the interim period before a decision is made on whether or not there are sufficient factors present in the case to overcome the presumption of suspension.
  • Second, the policy applies only to significant cases of expropriation. It could be decided, as we have done in Indonesia, that no significant U.S. interest is affected.
  • Third, the policy applies unless reasonable steps have been taken to provide compensation. This gives two important elements of flexibility:
    (a)
    It would allow a decision from the very outset that a country had taken reasonable steps to effect compensation. If a country had a history of adequate compensation and made specific provisions for compensation in its law, the policy on expropriation would not have to be applied.
    (b)
    It would assure that the U.S. Government maintained control over policy and was not helpless in the hands of a difficult American investor who demands unreasonable compensation. Although most U.S. investors need U.S. Government protection in order to have adequate bargaining leverage against a foreign government, in the case of an unreasonable U.S. investor the U.S. Government could determine that the host government was taking reasonable steps and resume assistance to that country.

Finally, in making decisions in the light of the presumption that preferential benefits would be suspended, the President would have the options to, for example,

(a)
allow all assistance to continue
(b)
narrow the scope of the cutoff of preferential benefits
(c)
allow continued humanitarian assistance.

Because of this flexibility, the presumption option has none of the disadvantages which the State options paper ascribes to options 1 and [Page 427]3(a). This option, together with new decision-making machinery, should contribute in a major way to curbing the rising trend of expropriations and restore the President’s ability to take initiatives which are denied to him under present machinery and policies.

Charly
  1. Source: National Security Council, Secretariat, Box 98, 8/4/71 SRG Meeting-Expropriations (NSSM 131). Confidential. Walker and Petty were the Treasury attendees at the SRG meeting on August 4 (see Document 161). This memorandum was prepared to describe further the Treasury Department position.
  2. Document 157.