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

179. Letter From Acting Secretary of State Irwin to the President’s Assistant for International Economic Affairs (Flanigan)¹

Washington, June 27, 1972.

Dear Peter:

Thank you for responding so quickly to my telephone request last Friday² and sending over for our comments the draft Presidential memorandum with respect to delegations of authority under the Gonzalez Amendment.³

It was not entirely clear to me from what you said whether this draft language has already been approved by the President. As you know, this is the first time that I or, to my knowledge, anyone else in State has had a chance to review the language or to comment on it, although I had called George Shultz to ask about it two weeks ago. If the President has already approved it, so that it is impossible to consider a substantial revision, I would like to suggest as a minimum the addition of the following sentence at the end of your draft language.

“When the Secretary of the Treasury intends not to follow the recommendations reached through these CIEP review procedures, he shall give sufficient prior notice of this intent to the agencies participating in the CIEP review to allow the issue to be brought to the attention of the President in appropriate cases.”

This addition is intended to allow time for further discussion with the Secretary of the Treasury and, where appropriate, reference to the White House, whenever a decision reached in the CIEP process is not going to be followed by the Secretary of the Treasury. As we understand it, the Secretary would be empowered under the language of the draft memorandum to make his own “determinations” and to issue instructions in disregard of the CIEP recommendations if he saw fit.

If, on the other hand, your draft language has not yet been approved by the President, or if it seemed to you advisable to go back to the President on this issue, we would prefer a more substantial revision of the draft memorandum along the lines of the attachment to this letter.⁴

There are two types of Presidential powers involved in the Gonzalez Amendment. The first is the power of the President to instruct the United States representatives to the international financial institutions. The second is the power of the President to make various determinations on which these instructions must, under the terms of the Amendment, be based. These include determinations, first, as to whether nationalization, expropriation, repudiation of contracts or the imposition of discriminatory taxes has taken place, and, second, if so, whether an arrangement for prompt, adequate, and effective compensation has been made, whether the parties have submitted the issue to international arbitration or whether good faith negotiations are in progress. The first type of power, the power to instruct representatives, already has been delegated to the Secretary of the Treasury under Section 3(a) (1) of Executive Order 11269. We agree that it is useful to confirm that this delegation applies to instructions under the Gonzalez Amendment.

At the same time, subsection (c) of Section 3 provides “Nothing in this section shall be deemed to derogate from the responsibilities of the Secretary of State with respect to the foreign policy of the United States.” The question we have is whether the second type of power, the power to make the determinations referred to above, can be delegated to the Secretary of the Treasury without causing just such a derogation.

You will recall that the Gonzalez Amendment as originally drafted provided that the Secretary of the Treasury would make all such determinations. The House-Senate Conference Committee, in considering the bill, changed the language in order to make clear that it is the President who has this power. The Department of State had argued forcefully for this change in order to preserve the prerogatives of the President and the foreign relations responsibilities of the Secretary of State.

All of the determinations called for under the Gonzalez Amendment rest essentially upon interpretations and applications of international law. Whether nationalization, expropriation, repudiation of contracts, or the imposition of discriminatory taxes have taken place, as well as what constitutes prompt, adequate, and effective compensation, are questions which can be answered only by reference to international law. The Convention for the Settlement of Investment Disputes, referred to in the Gonzalez Amendment, is an international treaty whose interpretation and application depend upon international law. Clause (C) of the Gonzalez Amendment explicitly refers to “applicable principles of international law” for purposes of defining what is prompt, adequate and effective compensation towards which “good faith negotiations” are to be aimed.

Primary responsibility and expertise for questions of international law have always rested with the Department of State and specifically with the Legal Adviser’s Office. No other government agency has this authority with respect to questions of international law. Moreover, these questions bear directly upon the overall foreign policy of the United States. For these reasons, we consider that delegation of exclusive authority to make determinations under the Gonzalez Amendment to any agency or body in which the Secretary of State or his representative does not fully participate would be inconsistent with Subsection 3(c) of Executive Order 11269.

There is a further point to be made with respect to the Secretary of State’s responsibility. It is the settled policy of this Administration, as evidenced in the President’s policy statement of January 19 1972, that the invocation of any sanctions in cases of expropriations be weighed against our overall national interest. Because the necessary flexibility in this area was not provided for, the Gonzalez Amendment was opposed by the Administration.

Even in the absence of a national interest exception, however, it is inevitable that interpretations of the facts in close cases will be influenced to some degree by concern for critical national interests. These interests involve considerations of general foreign relations, of defense and national security, of the financial and banking integrity of the multilateral financial institutions and of general commercial and investment policy. Given the variety of interests which are likely to be involved in these close cases—and we are already seeing a number of such cases—we believe the perceptions, not of just one agency, but of all concerned agencies, should be brought to bear on the “determinations” which must be made under the Gonzalez Amendment.

Your memorandum of March 8 established the CIEP interagency staff coordination group to review expropriation cases, make findings for purposes of policy implementation, and recommend courses of action for the United States Government. The matters for its determination, governing bilateral as well as multilateral assistance, are precisely the same as those set forth in the Gonzalez Amendment. We consider, therefore, that the CIEP interagency mechanism offers the most comprehensive means of reconciling the furtherance of our many national interests with the requirements of the Amendment. This mechanism can also assure that our approach to bilateral assistance issues remains as parallel as possible with our approach to multilateral assistance issues.

Finally, there is the question of maintaining an effective method for resolution of differences between interested agencies. At the heart of the CIEP arrangements set up by your memorandum of March 8 is the appeal mechanism through you to the President. Under the proposed draft memorandum there seems to us the danger that the time for such an appeal might not be available in cases where the original CIEP review did not involve a Presidential decision. Our preferred redraft would take care of this problem automatically, since the determinations required by the Gonzalez Amendment would be made through the CIEP procedures. If our preferred redraft is not acceptable, we would at least urge the addition of language such as I suggested at the outset of this letter, to preserve an effective right of appeal to the President.

With best regards,

Sincerely,

Jack

1. Source: National Archives, RG 59, Central Files 1970-73, E 1 US. No classification marking. Copies were sent to Shultz, Kissinger, and Weinberger.
2. June 23. Attached is a June 23 memorandum from B. Scott Custer to Executive Secretary Eliot indicating that Irwin had just called Flanigan and explaining Irwin’s efforts to get hold of the draft directive and Shultz’ reportedly less than forthcoming response.
3. Flanigan’s draft was sent under cover of a June 23 memorandum from Deane Hinton to Irwin, which is attached to Irwin’s letter. The final sentence reads in part: “the Secretary of the Treasury, after taking into account the recommendations reached through the CIEP expropriation policy coordination and review procedures, is to make determinations and to give instructions to the representatives of the United States to (the IFIs pursuant to the applicable sections of the legislation).”
4. Not printed. The State Department’s proposed language indicated that, in the event of disagreements, the “provisions of Mr. Flanigan’s memorandum of March 8, 1972 will apply.” See Document 175.