Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

45. Paper Prepared in the Department of Commerce¹

Washington, February 18, 1965.

PROGRAM OF VOLUNTARY COOPERATION WITH THE BUSINESS COMMUNITY TO IMPROVE THE U.S. BALANCE OF PAYMENTS

I. Program Objective

The program is designed to encourage business executives to achieve improvements in the balance of payments on certain international transactions of their firms. The balance can be improved either by increasing credits, i.e., exports, earnings from foreign investments, repatriations of capital, or by reductions in debits, chiefly new investments. The methods by which these improvements can be achieved will be left to the decisions of each company participating in the program.

Most companies now have an excess of credits over debits in their international transactions, i.e., their net transactions tend to be a favorable factor in the balance of payments. Only a few corporations pay more to foreigners through capital investments than they receive from them through investment incomes and exports.

—But it is necessary to ask the business community to expand substantially their contribution toward balancing our foreign accounts.

Voluntary cooperation is sought only with respect to selected transactions with developed countries. Investments in less developed countries continue to be encouraged. Exports to both developed and less developed countries will also be encouraged.

II. Which Firms will be Asked to Participate

Firms with investments in developed countries of $10 million or more at the end of 1964 or exports of $10 million or more during 1964 will be asked to participate in the program. These criteria will produce a roster of 400–500 companies.

III. Periodic Reports will be Requested

1. The firms will be requested to fill in a quarterly questionnaire containing data on their past transactions and quarterly projections for the following year. The first questionnaire will also cover 1964 as a whole.

2. The chief executives of each firm will be asked to return with each questionnaire a commentary describing the steps they have taken to achieve the improvement indicated and the reasons for short-falls, if any.

3. Each participating firm will be requested to notify the Secretary of Commerce of new investment projects of $10 million or more to be undertaken in developed foreign countries. The notification should include a general outline of the proposed financing arrangements.

IV. Alternative Means of Achieving Improvements

Business firms will be encouraged to pursue a number of policies to improve the balance in 1965:

1. Expansion of exports through independent channels and to or through foreign affiliates.

2. Development of new export markets in countries in which they are not now active.

3. Acceleration in the repatriation of income earned in developed countries.

4. Avoidance or postponement of direct investment in marginal projects and in projects which do not quickly result in higher exports or investment incomes in developed countries.

5. Restraint in financing new direct investments in developed countries with funds raised in the United States or earned abroad and which would ordinarily be repatriated.

6. Greater use of funds raised in developed countries to finance direct investments in those countries, although the financing charges are higher than in the United States.

7. Sale of equities in foreign subsidiaries to residents of the host countries.

8. Increased use of American flag vessels and airlines.

9. In the short run major improvements in the balance of payments can be achieved by minimizing the outflow of short-term financial funds and by orderly repatriation of such funds previously invested abroad.

V. Guidelines for Improvement in 1965

The program does not require that the Commerce Department set specific and detailed goals for individual businesses. But it does appear desirable to suggest the type of improvement toward which individual enterprises should aim:

1. Short-term Foreign Financial Assets. These foreign assets (mainly interest-bearing deposits and short-term commercial and government obligations) held by United States nonfinancial corporations amounted to about $2.0 billion at the end of last year, having increased by at least $0.5 billion during the year.

• —These holdings (except for small balances required for working capital) should not be increased above the volume outstanding on December 31, 1964.
• —Wherever possible, these holdings should be reduced in an orderly fashion, during the course of 1965, to a level roughly equal to the amount outstanding at the end of 1963.

2. Exports, Earnings on Investments and Other Capital Transactions. Corporations should review all of their opportunities to make a greater contribution to the improvement in the Nation’s balance of payments.

Improvements could result from:

• —An increase in exports.
• —An increase in earnings on investments and income from royalties, fees, etc.
• —A reduction in capital outflows for direct investment.

Each of these should be examined separately, but which of these means (taken alone or in combination with others) the corporation adopts is a matter to be decided by the chief executive of each firm.

• —However, the general aim should be an improvement during 1965 amounting to about 15–20 per cent of the performance in 1964.
• —Moreover, firms enjoying favorable markets abroad are expected to contribute relatively more to the improvement in the balance of payments than those firms whose markets are growing more slowly.
• —Appropriate contributions are also expected of those firms whose new investments in 1964 were substantially financed by foreign receipts.

VI. Administration of the Program

1. The questionnaires, commentaries and advance notifications are to be returned to the Office of the Secretary of Commerce. The Secretary has assigned the Assistant Secretary for Economic Affairs the responsibility for operation of the statistical and analytical part of the program within the Department.

2. A staff responsible to the Assistant Secretary for Economic Affairs will examine the returned questionnaires and commentaries and evaluate them to determine whether the improvements set by the firms conform to the recommended goal, and whether the actual performance conforms to the previously set targets.

3. In those cases where the questionnaires and commentaries indicate a less than desirable performance, they will be brought to the attention of the Secretary of Commerce who will designate one of his Secretarial Officers to discuss with the responsible executives means to improve the performance of their firms. If these discussions are not successful, the Secretary of Commerce himself will contact the firm.

4. In the conduct of the program, the Secretary will have the assist-ance of an Advisory Committee of prominent business executives.

1. Source: Washington National Records Center, RG 40, Records from the Office of Franklin D. Roosevelt, Jr., Under Secretary of Commerce, 1963–June 1965: FRC 68 A 5947, Correspondence: The President, 1965. No classification marking. The source text bears no drafting information.