Attached are brief outlines of the following important problems faced by
the Bureau of Inter-American Affairs:
Attachment No. 2
FOREIGN MINISTERS MEETING OF THE OAS
Following the Council of the OAS
decision of November 12 to convoke a Meeting of Foreign Ministers
(MFM) on strengthening
representative democracy, a Committee was appointed to recommend the
date, site and agenda. The Committee, which includes the United
States, decided to postpone fixing the time and place until more of
a consensus on the agenda is reached. A working document, based on
an informal
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United States
draft declaration, is under informal discussion as are other
suggestions which the MFM might
consider regarding affirmative actions to promote democracy, human
rights, and preventive measures against coups.
Little progress has been achieved in reaching a consensus as to what
resolution should come out of an MFM
meeting. As a practical matter, it does not seem likely an MFM can be called before mid-January.
As the time for the MFM extends into
the new year, it is quite possible that there will be increasing
sentiment not to hold the MFM at
all, but to consider the matter at the Eleventh Inter-American
Conference, scheduled to meet in Quito, Ecuador April 1.
Attachment No. 3
PRINCIPAL PROBLEMS OF UNITED STATES
PRIVATEINVESTMENT
It is impossible to generalize about the climate for U.S. investment
in Latin America. The rising tide of nationalism has created
antiforeign sentiment which is often directed against foreign
investment, particularly when it dominates the economic life of the
country as copper does in Chile and oil in Venezuela. The political
leadership of the left combines its own antagonism to the private
enterprise system and the U.S., as the main representative of it,
with a synthetic nationalism to belabor this issue unceasingly. In
some countries these elements are joined by certain parts of the
local business community who resent foreign competition as
disturbing their comfortable high profit, low volume enterprise.
There are, however, increasing elements in every country that
recognize the value of the capital and the technical skills which
foreign enterprise brings.
In practical terms both through the Alliance for Progress commitment
and the continuing public statements every country welcomes private
enterprise and foreign investment. Several of them have taken new
initiatives recently to encourage it, including opening offices in
New York to make contact with potential investors.
On the other hand several governments have taken action with respect
to a few specific kinds of foreign investment which, despite their
disclaimers of any intent to discourage investment, generally have
in fact been discouraging to the world investment community. These
involve oil contracts or concessions in Argentina or Peru, public
utility and mining investments in Brazil and Chile and drug
operations in Colombia
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and
Brazil. Public utilities are, of course, a border line issue
everywhere as are extractive industries like petroleum and mining
which demagogues can allege are taking national wealth away without
adequate reinvestment. The drug problems are similar to, and in part
stem from, the activities of Senator Kefauver in this country.
In addition to these specific actions there are, of course, a wide
variety of irritating difficulties faced by foreign firms in dealing
with most Latin American governments which reflect in part a
negative attitude toward such investments and in part the
inefficiency of the bureaucracy. There is no evidence, however, that
this problem has worsened in recent years.
As a result of anti-investment publicity, of the actions in the
limited number of situations referred and of a general concern about
the political stability of Latin America in the face of Castro
communism and of both political and economic instability in
Argentina and Brazil, where U.S. investments had been moving in
large volume, new funds have not been directed to Latin America by
U.S. firms in the past two years in the amounts hoped for. However,
new investment in manufacturing alone has been substantial and
reinvestment of earnings of firms already operating in Latin America
has been large and is increasing.
There is considerable evidence that European and Japanese capital
have been less timid about investing in Latin America in recent
years than U.S. business.
There follows a thumbnail sketch on each of the major problems
referred to above.
Oil
Argentina Cancels Oil Contracts. Argentina’s
new Government announced the annulment of all oil exploration and
production contracts on November 15. The oil companies involved (six
of which are American) are discussing compensation and possible new
working arrangements with Argentine officials. We warned the
Argentine Government repeatedly before it acted that annulment of
the contracts would have serious repercussions in the United States
and we are currently seeking to promote a settlement of this problem
which would protect the United States interests involved.
International Petroleum Company of Peru.
Following failure of negotiations with the company, the Peruvian
Government has submitted to the Congress a bill to establish an
entirely new operating regime for the IPC, a subsidiary of Standard Oil of New Jersey with an
investment of about $190 million in Peru. The Bill provides that, if
the regime is not acceptable to the company, it would be taken over
by the Government. The company maintains that the proposed regime
would be confiscatory. Thus the question of the applicability of the
Hickenlooper Amendment could arise. The Government insists it wishes
the company to continue operating,
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and there are some hopeful signs that it would
not be averse to a modification of the Bill in the Congress,
although this may be difficult. IPC
officials are at present talking to Congressional leaders.
Utilities
The American and Foreign Power Company (AMFORP)
Case. On April 22, 1963, AMFORP reached an agreement with
the Brazilian Government on the terms to be incorporated into a
subsequent contract, details of which are still under negotiation,
although very recently the Minister of Mines announced that
negotiations would be postponed until such time as the company
inventories are completed which, he said, may take up to as much as
twelve months. The April agreement provided for the purchase of all
AMFORP interest in all of its utility subsidiaries in Brazil for
$135 million, 75 per cent of which would be reinvested by AMFORP in
Brazil in nonutility enterprises.
The AMFORP agreement has become the target for political demagoguery
and it is obvious that the Brazilian Government is reluctant to move
ahead with it. A new problem has arisen in connection with a recent
request of the Brazilian Government to AMFORP to install $30 million
worth of new generators at AMFORP’s Peixoto power plant. The company
is unwilling to proceed in view of its present uncertain
situation.
Mining
The Hanna Mining Company Case (Brazil). In
September 1963, the Hanna company lost its appeal to a Federal
Appeals Court for an injunction against cancellation of several of
its iron ore mining concessions in Minas Gerais. The company has
appealed this decision to the Supreme Court of Brazil. The Minister
of Mines recently announced that the Brazilian Government would not
authorize cancellation of Hanna concessions pending a final decision
by that Court. The outcome of this case is an important precedent
for the future development of mineral resources and foreign private
investment in Brazil.
The Copper Problem in Chile. American copper
mines in Chile are currently being taxed at high and discriminatory
rates, but there is no immediate prospect of nationalization. The
taxes coupled with general unease regarding the Chilean political
situation have made the American companies extremely reluctant to
increase investment. Anaconda owns two large mines, and Kennecott
owns another; the total investment is around $500 million. A law
passed in 1955 gave these companies assurances of lower taxes as
they increased investment and production. Part of that law was
reversed when extraordinary taxes were imposed in late 1961. Both
companies (but particularly Anaconda) have negotiated with the
Chilean Government for a reduction of taxes and a bill for that
purpose is soon to go to the Chilean Congress. However, we doubt
that the bill can be passed since the Presidential election is only
10 months away.
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Speeches
by Senator Morse critical of
Chile have irritated Chilean public opinion and alarmed Government
officials. We believe the current tax problem is just one aspect of
the unfavorable situation confronting these wholly-owned United
States companies as nationalism rises in Chile. We are submitting
the entire “copper company problem” to the Randall Committee,
probably in early December, asking the Committee for suggestions as
to how we can help the companies and what the companies might do to
improve their political position.
Drugs
Drugs in Colombia. The Colombian Government
has issued permissive decrees providing for the marketing of drugs
under their generic names at low prices. Most of the United States
and Colombian drug industry have strongly opposed this program. The
Government of Colombia’s reaction has been to introduce legislation
requiring compulsory licensing of drug patents and reducing the
duration of drug patent protection. Neither the draft bill nor the
previous decree appear to infringe on rights of the United States
companies. The draft law is similar to legislation introduced by
Senator Kefauver in the United States Congress. Senator Hart’s
sub-committee is considering whether to continue investigations
which may involve Colombian operations of United States companies.
With the help of the Randall Committee, we hope to work out with the
United States drug industry some positive response to the growing
Latin American demand for cheaper drugs and better public health
programs.
Discrimination Against Foreign Drug and
Pharmaceutical Companies in Brazil. There is a definite
discriminatory trend against foreign drug and pharmaceutical
companies in Brazil. Recently, an executive government body called
GEIFAR was created to oversee the prices of drugs and
pharmaceuticals, promote national production of essential drug
products and supervise a research fund for nationally-owned
laboratories. The foreign companies believe that GEIFAR will be used
against them. The Minister of Health, Wilson Fadul, recently charged
certain foreign laboratories with over-invoicing imports in order to
remit profits abroad clandestinely, a charge which the foreign
companies have vigorously denied. Recent legislative measures have
been introduced into the Brazilian Congress which would increase
discrimination against foreign drug firms. One such measure would
create FARMACOBRAS, which would be a monopoly on all drug and
pharmaceutical imports. Another measure would freeze pharmaceutical
prices for one year.
[Here follow attachments 4-8.]
