Foreign Relations of the United States, 1969–1976, Volume E–10, Documents on American Republics, 1969–1972

45. Minutes of Senior Review Group Meeting¹ ²

Washington, August 4, 1971, 2:50–3:40 p.m.

Subject:

• Expropriation

Participants:

• Chairman—Henry A. Kissinger
• State—John N. Irwin
  Nathaniel Samuels
  Sidney Weintraub
  George Aldrich
• Defense—David Packard
  Armistead Selden
  Sheila Buckley
• JCS—Adm. Thomas H. Moorer
  Col. William R. Hanks
  Lt. Walter B. Ratliffe
  Gen. Francis J. Roberts
• Commerce—Harold Scott
• CIA—Richard Helms
  Maurice Ernst
• AID—Lloyd Jonnes
• Treasury—Charls Walker
  John Petty
• CIEP—Peter Peterson
  Deane Hinton
• OMB—Kenneth Dam
• NSC Staff—Col. Richard T. Kennedy
  Robert D. Hormats
  Arnold Nachmanoff
  Jeanne W. Davis

SUMMARY OF CONCLUSIONS

It was agreed that

—Options 2 and 5 could be dropped from consideration;

—A memorandum to the President would be prepared, laying out the issues the options, and agency views, and circulated to the agencies for comment before presentation to the President.

Mr. Kissinger: I thought today we could consider our basic policy on expropriations and then shift its implementation to other groups. Our principal focus should be to get a policy framework. The genesis of this meeting was a discussion between the President and the Secretary of the Treasury in which it was agreed there should be an effort to toughen our general stance on expropriations on the ground that, until now, it has been too riskless to challenge the US on host of issues. This discussion has generated various papers, in which two basic views have emerged. One is that expropriation results from economic and political nationalism, that we must be careful in dealing with it so as not to damage our overall interests, and that an ad hoc approach to each individual case is best. The other believes that a firm US policy, made known in advance, may affect a country’s decision to expropriate an American concern. I suggest we focus our consideration by discussing the various options which have been presented rather than engaging in a theological discussion of whether to be firm or not firm. Do you all agree?

All agreed.

Mr. Kissinger: There are five basic options in the paper, and I have taken the liberty of throwing out Option 5 as not falling within the charter for consideration of the problem. If someone insists, this option will go to the President, but it is not consistent with the purpose of this exercise. That leaves four options remaining.

Option 1 calls for an immediate cut-off of all new and existing economic benefits—aid loans, PL-480, OPIC guarantees, Eximbank credits and guarantees, military sales and assistance—immediately upon expropriation.

Option 2 would set an interim period during which a settlement or progress toward a settlement could take place before instituting the cut-offs. That is essentially the Hickenlooper approach.

We have three variations of Option 3: 3A—a temporary cut-off of new commitments pending a determination as to whether and to what extent to cut off new or existing benefits; 3B—an immediate decision on how to proceed without a predisposition either to suspend or continue with new commitments; and 3C—an immediate determination as to whether and to what extent to cut off new or existing commitments without a temporary cut-off of new commitments until the determination is made.

Option 4 calls for no decision on a cut-off of new benefits until “a reasonable time has elapsed.”

Exactly what do we mean by expropriation? Would all of these actions be triggered as soon as the expropriation action had been taken, even if compensation were promised and there appeared a reasonable chance that it would be made? What is the definition of expropriation under which we are operating?

Mr. Irwin: In terms of the options, we had assumed that the actions would be triggered by the act of expropriation, irrespective of the question of compensation.

Mr. Kissinger: That’s a logical way of reading it. Does everyone agree that the process would be triggered when a company is expropriated even if there is no doubt of favorable compensation?

Mr. Samuels: That applies to the first three options.

Mr. Seldon: Unless a country expropriates and at the same time compensates the company.

Mr. Walker: Treasury prefers that the process begin with the act of expropriation. We want to deter both uncompensated and compensated expropriation.

Mr. Seldon: Of course this is not our traditional policy. We have always recognized reasonable efforts at compensation.

Mr. Irwin: We have assumed it means the act of expropriation.

Mr. Kissinger: So we would read the options to mean even if a country announces a process for fair compensation.

Mr. Irwin: It depends on which option you’re talking about.

Mr. Kissinger: Would any option be triggered by the act of expropriation?

Mr. Irwin: Yes.

Mr. Kissinger: I think that is a viable approach.

Mr. Irwin: If it were read the other way, we might want to take a different view of the options. We have another question too. Are we talking about expropriation of a whole company, or of 25% or 50% of its holdings, or expropriation on a creeping basis? It’s a very complicated problem.

Mr. Helms: Most expropriations follow political yearnings and pressures. Unless we take it at the beginning we won’t get at the political problem until too late.

Mr. Kissinger: What triggers the process—passage of the law or its implementation?

Mr. Walker: We should move as early as feasible. If the legislation says the action will be taken in two months, we should commence our action when the legislation is passed.

Mr. Irwin: We are talking on the basis of expropriation of property, but there are other types of takings that should be considered.

Mr. Kissinger: How do we answer the argument that our investment in many of these countries is larger than any economic benefits they get from us? Peru, for example, had a $700 million US investment and only $35 million in economic programs. If the cut-off of the $35 million leads to nationalization of the $700 million, what have we accomplished? You can argue that cutting off economic benefits may penalize us still further.

Mr. Packard: That depends on whether the $700 million figure is a realistic one. If that represents the original investment, that is one thing. But if it is a realistic appraisal of the productivity, that is another. We should consider our interests in terms of capital earnings. That’s all it’s worth.

Mr. Walker: I agree, but I would go beyond this point. Such things as access to raw materials go beyond the question of dollar flow.

Mr. Kissinger: I believe we can drop Option 5 as not being within the charter. And Option 2 appears to be the Hickenlooper approach and this Administration has recommended that Hickenlooper be dropped. Do we want to resurrect Hickenlooper in the guise of this study? I’m open to the possibility but question whether we want to do it. Does anyone favor keeping in Options 2 and 5?

No one did.

Mr. Kissinger: If we want an immediate determination, it should probably be in accordance with Options 3A or 3C. Option 3B doesn’t seem too practical. So we would be left with Options 1, 3A, 3C or 4.

Mr. Packard: Why rule out 3B? Why not stay flexible?

Mr. Samuels: I’d like to defend 3B. When an expropriation occurs, the mechanism could be set up to make the decision as to the US reaction. There would probably be a hiatus between the act of expropriation and its implementation. We may want to consider whether, during this interim period, we want to cut off or to continue benefits.

Mr. Kissinger: But 3A cuts off new commitments while a decision is being made, and 3C calls for an immediate decision whether or not to cut off. Under 3B would you go ahead with new commitments in this interim period? As I understand Mr. Walker’s view, there should be no commitments until a Review Group has met and decided the best course of action. Expropriation would automatically cut off new commitments. Then there would be an urgent meeting of the Review Group and, if there were a good case for making new commitments, the Group could approve them.

Mr. Selden: You might get a quicker determination under either 3A or 3B.

Mr. Peterson: I agree.

Mr. Irwin: (to Walker) You’re talking about 3A?

Mr. Walker: Except that we would want a Presidential policy statement to make it clear that there is a presumption that all new commitments would be cut off.

Mr. Irwin: But this would mean an immediate confrontation with the country without knowing what the country intends to do about compensation. It is accepted by many in international law that a country has a right to expropriate if it makes fair compensation.

Mr. Kissinger: What practical difference would the various options have made in Chile?

Mr. Walker: They would have known our position ahead of time. If we have made a clear policy statement on what we would do, the confrontation would not be triggered by us but by the expropriating country. I recognize the arguments of international law, but nowhere in international law does it say that we have to continue preferential benefits for a country which has expropriated, even if it grants compensation.

Mr. Irwin: We can do that without a presumption of a cut-off.

Mr. Kissinger: If we don’t have that presumption, how does it differ from existing policy?

Mr. Samuels: The decision on confrontation is not automatic but comes after a consideration of all factors. Our present policy is to take no steps while we see if the country will provide fair compensation. But the determination of US policy doesn’t depend on the other government’s showing us that they intend to compensate.

Mr. Kissinger: So after an expropriation, there would be a meeting of the group to decide what to do.

Mr. Packard: That’s what we do now.

Mr. Walker: The President’s options have been severely limited in this respect by our actions in past cases.

Mr. Selden: I agree we ought to have a policy announcement and abide by it.

Mr. Packard: Under international law, anyone can expropriate. We’re talking about adequate compensation, but we really can’t control it. We have to be realistic. No country will act any differently no matter what we say. We can talk about making no new commitments, but we won’t reverse any actions by our statements. These countries consider their raw materials as their property. That’s just a fact of life.

Mr. Peterson: I think there are two different criteria for evaluating the options. First is their operational effectiveness in actual practice. But second is how the President can best present himself in a new policy position. This requires some statement of thrust and direction different from saying we will sit down and review the matter. We have to consider how it sounds both abroad and here—how the President should position himself in this country. We should recognize the increasing intensity of feeling in this country and its impact on the substance of the options and what we do afterwards.

Mr. Walker: We’ve had considerable experience on this on the Hill. In the IDA legislation, for example, there was a long debate about some tie to Hickenlooper. The actual Treasury option is close to Options 1 and 3C: (reading)

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.

3) While this general policy would be publicly announced, when an expropriation actually took place no public announcements of cutoffs of foreign assistance or other preferential benefits would be made.

Mr. Kissinger: You would cut off even though you had reasonable assurance that compensating steps would be taken?

Mr. Walker: Yes. We think this formula has the flexibility of Options 3B and 3C and avoids confrontation. It would be applied to significant cases.

Mr. Kissinger: You wouldn’t resume preferential benefits until compensation is made?

Mr. Walker: Until it is agreed to.

Mr. Kissinger: The Review Group wouldn’t be able to determine that a country is a good risk until they have agreed to compensate. Let’s assume the UK expropriated Ford and told us they would compensate. We assumed they would. The Review Group couldn’t meet?

Mr. Walker: Oh yes. This would be the presumption.

Mr. Kissinger: If I may sum up. State wants an immediate review and then make a decision.

Mr. Irwin: Yes, but taking into account all US interests in the country.

Mr. Kissinger: You would offer no guidelines now and have the action depend on the circumstances.

Mr. Irwin: We think the President should have flexibility.

Mr. Kissinger: Treasury prefers a presumption of a cut-off unless fair compensation is agreed to. In practice, benefits would be cut off until the Review Group had met and made a determination.

Mr. Walker: Or unless there were other compensatory US interests.

Mr. Irwin: Suppose you had announced this presumption and there was an expropriation. The committee meets and says the presumption doesn’t apply in this case. In another situation, the committee says the presumption does apply. The presumption puts us in immediate confrontation with the country unless we say otherwise.

Mr. Scott: We think Option 3A provides for the Treasury position.

Mr. Kissinger: (to Scott) Do you go along with the Treasury version?

Mr. Scott: Yes.

Mr. Peterson (to Irwin) How much weight would you put on the second criterion I mentioned? Do you agree there should be a public announcement of US policy, and if so, what kind of an announcement would you envisage?

Mr. Irwin: We could make a public announcement. I’m sure we could find words designed to deter expropriation and assure compensation.

Mr. Kissinger: What if the President wanted to express his concern over expropriations. What should he say?

Mr. Dam: What about the commitments flowing along in the interim before compensation is agreed?

Mr. Packard: It would be logical to cut off any action which would encourage further expropriations. What would be cut off?

Mr. Kissinger: All preferential benefits.

Mr. Walker: Both bilateral and through multilateral institutions.

Mr. Selden: There is a middle ground. There could be an immediate determination—it could be anything the group decides—and there would be no new commitments until the group had decided.

Adm. Moorer: Do you mean a temporary hold on existing commitments?

Mr. Walker: No, on new commitments.

Mr. Kissinger: So our choices are: 1) to stay flexible, cut off nothing, and have an early meeting to consider what we should do; 2) cut off immediately, with the presumption at the meeting that the cut-off will continue; 3) do not cut off immediately, and have a meeting with the presumption that the cut-off will be made; 4) cut off immediately and have the meeting with no presumption either way. I think we have carried this as far as we can at this meeting.

Mr. Irwin: I agree that the domestic scene is important, and we have a draft of a possible policy statement. There are a lot of voices in Congress in favor of Hickenlooper, but there are also a lot of voices opposed to a flat confrontation. In the foreign policy field, it would coalesce opposition against us abroad which would extend far beyond any action on a particular expropriation or beyond the charge of economic aggression. In Latin America, for example, we would certainly feel the effects in the Law of the Sea discussions. We must strike a reasonable balance between the attitudes here and the effect on us overseas.

Mr. Peterson: We haven’t discussed the question of leverage in multilateral institutions.

Mr. Kissinger: We appear to have two unreconcilable issues: whether Treasury can make decisions on votes on loans in multilateral institutions without State concurrence, or whether State has a veto.

Mr. Peterson: There is another aspect to this problem on which we have been criticized by some outside experts. Other industrial countries have interests similar to ours in the matter of expropriations. There would be some advantage to us to get the rest of the world with us on some of these matters, particularly if we are working through multilateral institutions. Some experts believe we haven’t been bold enough or strong enough in the multilateral institutions to garner this kind of support.

Mr. Petty: It is very difficult for us to deter the IBRD from making a loan when we are continuing bilateral assistance to the country in question. I agree we should try to get a cohesive US Government policy. For 25 years the World Bank has had a policy of not making loans to countries which have expropriated without fair compensation.

Mr. Irwin: It’s more complicated than that. For tactical reasons we might be willing to go ahead with some small loans in the IDB but not with a larger loan from the World Bank. For example, in Peru we approved some small loans but nothing for copper. I agree with Pete (Peterson) as to the future. I’m on a different side from Treasury on how to go about it, but whether the US decides to go ahead or hold up on loans, it would make sense to get support from others for our action.

Mr. Samuels: If we don’t get the support of the other industrial countries we could still go without them.

Mr. Peterson: We can consult with them item by item or try for some general form of consultation. I don’t know how hard we’ve pushed other countries with an interest in avoiding uncompensated expropriation to support us.

Mr. Samuels: Their attitude depends on whose property has been expropriated.

Mr. Petty: They’re inclined to take a narrow country-by-country view.

Mr. Kissinger: Are you suggesting that if we intend to vote against a loan we should try to get support from other countries for our position, or that we shouldn’t vote against a loan unless we can get others to support us? What is your proposition? The first is essentially tactical; the second is an important political point.

Mr. Irwin: We could have an initial general discussion with other countries on their attitude. Or if a loan is coming up in the World Bank which we think we might want to oppose, rather than wait until the moment of the vote, we could try to find out if we would have any support for our opposition.

Mr. Peterson: I was just making a general statement that while the industrial countries appear to have a common interest in this matter there have been no common criteria nor common action.

Mr. Kissinger: How would you trigger such consultation? Would we hold our policy decision until we hear what the others have to say?

Mr. Peterson: I am speaking at the most general level. There has not been much discussion on the desirability of seeing if we can get agreement on a set of criteria for common policies in multilateral institutions. Most industrial countries have a lot in common. But, of course, we should never let ourselves be put in a position that we couldn’t vote a loan if we wanted to.

Mr. Kissinger: We’ll see how best to get a decision on this and then put together a memorandum for the President laying out the issues, the options and the views of the Departments. We’ll circulate that to everyone, then put it before the President. We’ll have a decision for you within a month.

1. Source: National Archives, Nixon Presidential Materials, NSC Files, NSC Institutional Files (H-Files), Box H–112, SRG Minutes (Originals), 1971. Secret. The meeting took place in the White House Situation Room. An attached August 11 covering memorandum from Davis to Kissinger was stamped “HAK has seen” on September 7. Copies were sent to Kennedy, Hormats, and Nachmanoff. The participants discussed a July 31 paper prepared by an ad hoc group chaired by Legal Advisor John R. Stephenson which is published in Foreign Relations, 1969–1976, vol. IV, Foreign Assistance, International Development, Trade Policies, 1969–1972, Document 157. The undated memorandum to the President mentioned in the Summary of Conclusions is printed as Document 168, ibid.
2. The Senior Review Group discussed options for responding to the expropriation of property owned by U.S.-based companies overseas.