U.S. POLICIES AND PROGRAMS IN SOUTHEAST ASIA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84B00148R000400810013-0
• Release Decision: RIFPUB
• Original Classification: U
• Document Page Count: 162
• Document Creation Date: December 20, 2016
• Document Release Date: July 2, 2007
• Sequence Number: 13
• Publication Date: June 8, 1982
• Content Type: REPORT

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U.S. POLICIES AND PROGRAMS IN SOUTHEAST ASIA
HEARINGS
SUBCOMMITTEE ON
EAST ASIAN AND PACIFIC AFFAIRS
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
NINETY-SEVENTH CONGRESS
U.S. POLICIES AND PROGRAMS IN SOUTHEAST ASIA: TO EX-
AMINE INTERESTS IN SOUTHEAST ASIA-POLITICAL, ECO-
NOMIC, AND MILITARY-THE THREATS TO THESE INTERESTS
AND THE POLICIES AND PROGRAMS DESIGNED TO FURTHER
THESE INTERESTS
JUNE 8, 10, AND 18, AND JULY 15, 1982
Printed for the use of the Committee on Foreign Relations
U.S. GOVERNMENT PRINTING OFFICE
95-0200 WASHINGTON : 1982
It
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COMMITTEE ON FOREIGN RELATIONS
CHARLES H. PERCY, Illinois, Chairman
HOWARD H. BAKER, JR., Tennessee CLAIBORNE PELL, Rhode Island
JESSE HELMS, North Carolina JOSEPH R. BIDEN, JR., Delaware
S. I. HAYAKAWA, California JOHN GLENN, Ohio
RICHARD G. LUGAR, Indiana PAUL S. SARBANES, Maryland
CHARLES MCC. MATHIAS, JR., Maryland EDWARD ZORINSKY, Nebraska
NANCY L. KASSEBAUM, Kansas PAUL E. TSONGAS, Massachusetts
RUDY BOSCHWITZ. Minnesota ALAN CRANSTON, California
LARRY PRESSLER, South Dakota CHRISTOPHER J. DODD, Connecticut
EDWARD G. SANDERS, Staff Director
GERYLD B. CHRISTIANSON, Minority Staff Director
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CONTENTS
Hearing :daY Page
June 8,1982-------------------------------------------------- 1
June 10,1982------------------------------------------------- 169
119
June 18,1982------------------------------------------------- 119
July 15,1982-------------------------------------------------
Statement of-
Albrecht, Anthony C., Deputy Assistant Secretary of State for East
Asian and Pacific Affairs_____________________ --- -- -- 70
Armitage, Richard L., Deputy Assistant Secretary of Defense for East 7
Asia and Pacific Affairs--------------------------------------- 87
Bohn, Hon. John A., Jr., U.S. Executive Director, Asian Develop-
ment Bank __-_--_
Du Pont, Hon. Elise R., Assistant Administrator, Bureau for Private
Enterprise, Agency for International Development__________ ___ 78
Holdridge, Hon. John H., Assistant Secretary of State for East Asian 3, 142
and Pacific Affairs-----------------------------------------
Nalen, Hon. Craig A., president, Overseas Private Investment Cor-
poration 23
---------------------------------------------------
Insertions for the record:
Prepared statement of Hon. John H. Holdridge------------------- 5, 147
Prepared statement of Richard L. Armitage---------------------- 10
Prepared statement of Hon. Craig A. Nalen_______________________ 27
Prepared statement of Anthony C Albrecht---------------------- 72
Prepared statement of Hon. Elise R. W. du Pont------------------ 81
Prepared statement of Hon. John A. Bohn, Jr-_______-_
Summary of private sector reconnaissance team reports-submitted by 100
AID-----------------------
State Department's responses to additional questions submitted for the
record-----------------------------------------------------
----------------------------------------------- ---116,157
AID's responses to additional questions submitted for the record- - __ 117
Prepared statement of James P. Rooney, chairman, Asia-Pacific
Council of the American Chamber of Commerce, Bangkok, Thai-
land 120
------------------------------------------------------- 154
State Department's responses to additional questions submitted by
Senator Glenn ----------------------------------------------
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U.S. POLICIES AND PROGRAMS IN. SOUTHEAST ASIA
TUESDAY, JUNE 8, 1982
UNITED STATES SENATE,
SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS,
of TIDE COMMITTEE ON FOREIGN RELATIONS,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:07 a.m., in room
4221, Dirksen Senate Office Building, Hon. S. I. Hayakawa. (chairman
of the subcommittee) presiding.
Present : Senator. Hayakawa.
Also present: Hon. Prok Amaranand, Ambassador from Thailand
to the United States.
Senator HAYAKAWA. The Subcommittee on East Asian and Pacific
Affairs will please come to order.
This morning we begin a series of hearings on U.S. policies and pro-
grams in Southeast Asia. The series will take as its departure point the
hearings on Southeast Asia which we held about this time last year.
So, in effect, it will be an update on our relations with the countries of
this very important area of the world.
We have several purposes in mind in embarking on these hearings :
first, to examine American interests in Southeast Asia, political, eco-
nomic, and military, and the threats to those interests and the policies
and programs designed to further those interests; second, to determine
the state of U.S. relations with the countries of Southeast Asia; and
finally, to highlight the prospects and problems for American trade
and investment in the area.
We have a distinguished group of witnesses to assist us in our exami-
nation of U.S. involvement in Southeast Asia. This morning it is a
pleasure to welcome Hon. John H. Holdridge, Assistant Secretary of
State for East Asian and Pacific Affairs, who will provide a general
overview of the area.
We also have the pleasure of having Mr. Richard Armitage, Deputy
Assistant Secretary of Defense for International Security Affairs, who
will describe U.S. military interests in Southeast Asia, the threats
thereto, and the policies and programs designed to further U.S.
interests.
Later, we shall have with us Hon. Craig A. Nalen. Mr. Nalen is presi-
dent of the Overseas Private Investment Corporation (OPIC] and
will discuss the role of this corporation in furthering U.S. commercial
interests in Southeast Asia, the prospects for expanding trade and in-
vestment and the impediments thereto.
So welcome back to the committee, Mr. Holdridge and Mr. Armi-
tage. We will turn to your testimony in a moment and will hear first
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from Mr. Holdridge and then from Mr. Armitage. Later, we will hear
from Mr. Nalen.
In subsequent hearings, on June 10, June 18, and July 15, we will
hear from Anthony C. Albrecht, Deputy Assistant Secretary of State
for East Asian and Pacific Affairs on U.S. economic interests in the
area; Hon. Elise R. W. duPont, Assistant Administrator, Bureau for
Private Enterprise, AID, on the role played by the private sector in
the economic development of the area; Hon. John A. Bohn, Jr., U.S.
Executive Director, Asia Development Bank, on the role of the Bank
in furthering our interests in Southeast Asia, as well as the Bank's
problems and prospects; and James P. Rooney, Chairman, Asia Pacific
Council of the American Chambers of Commerce, Bangkok, Thailand,
with a current assessment of economic and commercial prospects in
Southeast Asia.
The series of hearings will conclude on July 15 when Ambassador
Holdridge reports to the committee on the ASEAN and ANZUS min-
isterial meetings which will have just terminated and which he will
have attended.
And now I would like to make a few prefatory remarks before we
turn to the first witness.
During my visit in Southeast. Asia last summer, I gained the im-
pression that the ASEAN nations are all prosperous, vigorous, and
optimistic. There is (rreat hope for the future in Southeast Asia. Yet,
all have difficult challenfres ahead. They must narrow the gag, between
the rich and the poor. They must raise the overall standard of living,
of their people. All of the ASEAN nations in seekingr this goal will
need to some degree technology and managerial skills, which the
United States has in abundance.
In addition, U.S. trade and investment will play a major role. As I
reported to my colleafrucs upon my return, I believe we hold many
important values and ideals in common with the ASEAN nations, and
this will make our collective efforts easier.
For example, all five of the ASEAN nations are devoted to the prin-
ciple of free enterprise and free trade. They are dedicated to the con-
cept of democracy, though there are authoritarian aspects to several
of the governments. They are united in the belief that communism has
no place among the ASEAN partners. All, in different ways, perceive
a threat to their independence from the Soviet Union and China.
The five ASEAN governments, whose officials I visited, were en-
thusiastic in their support of a reinvigorated, firm, and consistent
America. There is an important role for the United States to play in
promoting the peace and prosperity of Southeast Asia.
In the intervening months since my visit in the area, several trends
appear to have developed which are disturbing. First, the deepening
impact of recession in the industrialized countries on the economies
of the ASEAN countries, particularly the. Philippines; second, the
growth of, differences between ASEAN and China over Kampuchea;
and third, a perceptible increase in the ASEAN governments' crit-
icism of certain U.S. policies-for example, preferential tariffs for
Caribbean countries, sugar quotas, and our failure to sign the Law
of the Sea Treaty.
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We therefore look forward to your assessment of these and other
problems which confront us as we begin this very important series of
hearings.
The distinguished Ambassador from Thailand, Ambassador Prok,
has ]oined us.
Mr. Ambassador, we are very glad to have you with us today, sir.
We are delighted to have you.
Ambassador Holdridge and Mr. Armitage, you may proceed. It is
my understanding that you will speak first, Mr. Holdridge, and will
be followed by Mr. Armitage. We will then ask questions of the two
of you, before we turn to Mr. Nalen.
Ambassador Holdridge.
STATEMENT OF HON. JOHN H. HOLDRIDGE, ASSISTANT SECRETARY
OF STATE FOR EAST ASIAN AND PACIFIC AFFAIRS
Ambassador HOLDRIDGE. Thank you very much, Mr. Chairman.
As always, it is a pleasure to be before this committee and to discuss
the concerns which occupy your attention.
I think it is particularly appropriate that I appear at this time
because, as you mentioned, I will be accompanying the Deputy Secre-
tary to the ASEAN extended foreign ministers meeting and then to
the ANZUS Council meeting and will be in the area for quite some
time. I will not be returning until around the second of July.
I intend to leave the party in Canberra following the ANZUS
Council meeting and return through a number of the ASEAN capitals.
In fact, I think it is going to be possible for me to visit all five of them
plus Burma on my way to and from the region. So I think I will be
very well equipped-I hope I will be-when I subsequently talk at
the ASEAN foreign ministers meeting in Singapore this year.
Let me say that certainly the situation in Southeast Asia continues
to be remarkably stable. When one looks at the world as a whole,
unexpectedly, it appears that Southeast Asia is something like an
island of calm in the midst of a very turbulent sea. This is particu-
larly true, of course, for the ASEAN countries who have coped re-
markably well with the difficulties-economic, political, and security-
which have affected them over the last several years.
Certainly, on the economic side it has been possible for the ASEAN
countries working together to maintain a rather remarkable rate of
growth, all things considered. Of course, it varies from country to
country.
Nevertheless, the signs are very positive, and they have been able to
keep up with the buffetings of the international market situation quite
well, to the point where certainly Singapore, in particular, has been
able to maintain a rate of growth of about 10 percent per annum,
which, under the circumstances in this day and age, is rather
remarkable.
The countries have also stayed together very well indeed in the
political sense. They work together very effectively, increasingly so
indeed over the years, and with particular reference to the situation
in Kampuchea, occupied still by the Vietnamese with 180,000 troops,
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which are posing a security threat to the adjacent countries, particu-
larly Thailand.
Thanks to the ASEAN countries working together, it was possible
last year in New York City to come up with a resolution supported by
a very large number of the world's countries, including nonalined
countries, calling for the withdrawal of Vietnamese troops from Kam-
puchea, for free elections, and the creation of a neutral state, a truly
neutral state of that country which would be acceptable to all parties
concerned.
So ASEAN has really done very well indeed, but this does not dis-
guise the fact that there are problems. I think that the ASEAN foreign
ministers meeting and the extended meeting that will take place in
Singapore are going to have to look more to the future than to the
past. It is not enough to rest on past achievement, but they must grap-
ple with the problems of the present.
One of these, of course, will be the international economic situation,
the trade situation. And as you mentioned, Mr. Chairman, there have
been some problems about commodities. Some of the principal exports
of the ASEAN countries are falling into difficulties. I could refer to
sugar; I could refer to tin. I could also refer to rubber. And there has
been a tendency on the part of some of the ASEAN countries to pull
away from the world free market situation and to look toward restric-
tive arrangements, which I do not think would be very helpful to them
or very helpful to the world economy.
Of course, there is the concern about protectionism on the part of
the ASEAN countries. As you mentioned, all of them rest on exports
in order to keep themselves going. Their trade is essentially with the
West, and if a protectionist trend occurs within the world economy,
especially the Western economy, the ASEAN countries are going to
feel that very promptly.
So what we are going to be doing in the ASEAN extended foreign
ministers meeting is to reassure them that we ourselves do not intend
to withdraw from the world free trade system; on the contrary, we
want to strengthen that system. And we also hope that the ASEAN
countries will remain within it as well. I just mentioned the question
of commodities. And it certainly would not be beneficial if there are
restrictive arrangements affecting some of the export commodities of
the ASEAN countries.
I think the Versailles meeting which has just taken place is pointing
the way to a determination on the part of the big contributors to the
world economy to point in the direction of free trade to sustain this
system which has been so beneficial over the years. And we will be pre-
senting our views on that to the ASEAN countries as well. And cer-
tainly, we want to make sure that everyone who can stays within an
effective world free market situation.
Now to turn to the Kampuchean situation. That is still going to be
a very complex issue, and I think it is going to comprise a lot of at-
tention of the ASEAN foreign ministers in meeting with Secretary
Stoessel and the others. Vietnamese intransigence in Kampuchea, its
continued resort to force, including the use of lethal chemical agents
against the Indochinese population, and the growing Soviet military
presence in Indochina are causes for concern.
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In Singapore we will, of course, reconfirm our determined support
for ASEAN's lead on Kampuchea. This has been a policy of this ad-
ministration from the very beginning. And I think that it is under-
stood and appreciated. But we will also stress our reliability as a treaty
ally to the countries with whom we have relationships-that is, Thai-
land and the Philippines-but in addition, we will stress our relia-
bility as a friend and as a backstop to all of the countries of the region
with whom we have military programs and to whom we provide se-
curity assistance. And I would like to say that security assistance does
not only exist in the military sense. We are also providing economic
assistance, and we believe that is important, too, to maintain the se-
curity of the region.
Another area which is going to be of concern to us and certainly to
the ASEAN countries is the question of refugees. We will be dealing
with that, I think, to some extent, perhaps to an appreciable extent,
in the extended ASEAN foreign ministers meeting.
On our side what we are looking for is obtaining complete account-
ing for U.S. servicemen missing in action in Vietnam and Laos. And
we will press Vietnam to continue to provide access to information on
POW's and MIA's.
Let me recapitulate, Mr. Chairman, in saying again that Southeast
Asia, ASEAN in particular, has remained remarkably stable, remark-
ably cohesive, remarkably progressive. I,think that this is attributable
to the wise leadership which we can discern in these countries.
The leaders of all of them, I believe, are remarkably uninfluenced
by ideology; they approach the problems which beset them-which are
real problems-in a very realistic and pragmatic way. And hence, they
are a success. They have been able to respond to changes in the world
scene very quickly and very effectively. And there is very little credit
we in the United States can claim for this situation. We happen to be
very fortunate that the leadership is so perceptive and so able in that
part of the world.
What we can do, however, is to continue what we have done already,
and that is providing the kind of political support, the kind of eco-
nomic support, the kind of security assistance which has allowed these
countries to move in the direction which is favorable to them and fa-
vorable to us. And I am sure that we can count on the assistance of the
Congress in that regard.
Thank you very much, Mr. Chairman.
[Ambassador Holdridge's prepared statement follows:]
PREPARED STATEMENT OF HON. JOHN H. HOLDRIDGE
Mr. Chairman, I greatly welcome your invitation to speak on U.S. policy toward
Southeast Asia. This hearing is timely as Deputy Secretary Stoessel and I will
next week be meeting with the ASEAN Foreign Ministers in Singapore, where
many of the issues I will mention today will undoubtedly be addressed.
FAVORABLE TRENDS
Few would have thought twenty years or even ten years ago that Southeast
Asia would be described this year in the financial section of the New York Times
as "the most upbeat area of the world." Although I have not measured Southeast
Asia's claims to this distinction against those of other parts of the globe, several
important developments in my view, justify an overall positive assessment both of
developments in the region and of our relationships there.
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Particularly encouraging is the successful manner in which many Southeast
Asian nations have carved out for themselves increasingly important roles in
the world's free market. The economic growth of most of our Southeast Asian
friends to which I draw attention in my appearance before this Subcommittee
last summer, has continued despite a less than favorable international environ-
ment, particularly as regards demand for their principal export commodities. The
ASEAN states in particular have both drawn strength from-and lent strength
to-the world market economy.
Another positive feature is the effectiveness with which ASEAN countries
continue to rally international support for resolution of the Kampuchean prob-
lem. They have met continued Vietnamese intransigence with resolution and
resourcefulness. ASEAN's success has been reflected in another decisive vote on
Kampuchea in the U.N. General Assembly last -Call, equally broad support for its
approach to a political solution to the Kampuchea problem spelled out in the
Declaration of last July's International Conference on Kampuchea, and broad
cooperation in applying strong economic pressure on Vietnam to help persuade
it to negotiate a comprehensive political solution in Kampuchea as outlined by
ASEAN in the International Conference.
We can also point to favorable trends in popular political participation paral-
leling the emphasis that a market economy approach places on freeing individual
initiative. Three of the five ASEAN states held national elections this year and
the other two held important bi-elections, adding to the foundation of demo-
cratic development. While progress in this area may be regarded by some as un-
even, the trend is encouraging when viewed over the long term. Certainly pros-
pects are bright when contrasted with conditions in Indochina, which possesses
the region's principal alternative governing system.
CURRENT CHALLENGES
When we meet with ASEAN Foreign Ministers in Singapore later this month,
the focus will be less on past accomplishments, of course, than on challenges that
lie before us-and there are many.
The ASEAN governments are particularly concerned about the current state
of the world economy, which has placed strains on them and on their relation-
ship with us. As we are all aware, economic growth such as many ASEAN
countries have experienced often increases popular expectations faster than
actual incomes, and the depressed market for certain export commodities has
had a widespread effect within their domestic economies. Some governments
are under pressure to withdraw from competition through restrictive and thus
ultimately self-defeating trade arrangements. There is a widespread fear that
the United States itself might turn to protectionism. We will stress our commit-
ment to get our own economy into order, to resolve trade and investment prob-
lems in a manner which will deepen attachments to the market economy, and to
contribute to balanced growth through investment, trade and development assist-
ance programs. Improving the global economic climate will also be important
in this respect and I think that we will soon be able to point to some positive
movement arising from the Versailles Summit. We will ask in return for
ASEAN's continued cooperation in assuring that the world market from which
we all have drawn our strength remains competitive and thus efficient.
Continued Vietnamese intransigence on Kampuchea and the threat Vietnamese
forces pose to our good friend, Thailand, are also matters of immediate and great
concern to ASEAN and the U.S. alike. The repressive measures used by the
Indochinese regimes to control their own people including the use of lethal
chemical agents against civilian populations is an additional disturbing element.
Pressing for a political solution to the Kampuchea problem while strengthening
the military forces of Thailand and its friends in the area are parallel. comple-
mentary measures to meet this challenge. We will reassure the ASEAN states
that they can rely on our firm support for their efforts to promote a Kampuchean
settlement based on the declaration of the International Conference on Kam-
puchea. We believe ASEAN governments should continue to take the lead on this
issue because of their demonstrated success in marshalling international support
and because of their sound approach to the problems involved. At the same time,
we will stress the reliability of the United States as a treaty ally to Thailand, as
a counterweight to the growing Soviet military presence in Indochina, and as a
reliable supplier of credit, equipment and training for the modest military mod-
ernization programs of friendly Southeast Asian countries.
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While Indochinese refugee flows have fortunately diminished markedly in past
months, they remain a problem for the first asylum countries. It is important that
the residual refugee population in Thailand, Malaysia and Indonesia continue to
decrease, and we will work with other resettlement countries toward this end.
The lack of a complete accounting for U.S. servicemen missing in action in
Vietnam and Laos is a bilateral problem to which we assign highest priority. We
will continue strenuous efforts to obtain the cooperation of the governments of
Vietnam and Laos on this matter, as a humanitarian issue to be handled expedi-
tiously and separately from other concerns.
Mr. Chairman, Southeast Asia has for many years been known as the home of
some of the world's most intractable and dangerous problems. Many of them are
still with us. Today, however, Southeast Asia is also the home of some of the
world's more effective problem-solving governments-and this has made a differ-
ence.
I think we might sum up the sources of favorable developments in Southeast
Asia by singling out three characf-eristies of our friends there. First, they have
strived hard to compete in the world market economy. Their overall growth rates,
which are far abo' a the world average, testify to the efficiency and strength they
have gained from such competition. Second, they have sought to cooperate in
preserving the economic system which gives them this growth. ASEAN, which
found common economic goals for countries whose economies are not comple-
mentary and which has now become a potent constructive force in world political
councils, is proof of their success in this field. Finally, they have recognized and
demonstrated that local initiative is the basic building block for economic develop-
ment, social progress and security.
The United States has great interest in assuring that Phis competitive spirit,
cooperative attitude and local initiative continue to thrive. Our objectives, there-
fore, remain much as I described them to you in last year's hearing. In coopera-
tion with our ASEAN friends we will seek to curl) the security threat posed by
Vietnamese aggression and the Soviet military presence, and to alleviate the
economic pressures cau-ed by the current world slump and imbalances within
our system. The progress and stability of our friends and allies in ASEAN `ate
the heart of our policy, since they form the foundation for the favorable trends
we have thus far witnessed in Southeast Asia.
In pursuing these goals, Mr. Chairman. I feel certain that we will have the
continued cooperation of your subcommittee and other Members of Congress.
Senator HAYAKAWA. Thank you very, very much, Mr. Holdridge.
We will proceed now to Mr. Armitage's testimony.
STATEMENT OF RICHARD L. ARMITAGE, DEPUTY ASSISTANT SEC-
RETARY OF DEFENSE FOR EAST ASIA AND PACIFIC AFFAIRS
Mr. ARMrrAGE. Thank you, Mr. Chairman. As usual, I am filled with
enthusiasm and not a small bit of trepidation appearing before you. I
would like to request that my written remarks be submitted for the
record and, with your permission, I will give just a few preliminary
remarks.
Senator HAYAKAWA. Without objection, it is so ordered.
Mr. ARMITAGE. Thank you. Prior to entering into those preliminary
remarks, I would like to make a short statement concerning one aspect
of your own career. As I am not sure how many more times I will have
the pleasure of appearing before you in this committee, I would like to
take the opportunity as a DOD representative and indeed as an ad-
ministration representative to thank you for your strenuous and
tedious efforts toward the resolution of the prisoner-of-war/missing-
in-action issue.
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You have kent this issue in the forefront of the minds of the Ameri-
can people and indeed of the minds of your colleagues. I think the
League of Families, the Department of Defense, all of us. owe you a
great deal of gratitude. You have demonstrated graphically that we
do not for and that we shall not forget these people.
Senator HAYAKA WA. Thank you, Mr. Armitage.
Mr. ARMTTAGE. I have listened with a great deal of interest to Sec-
retary Holdridce's remarks and I have to say that I share his en-
thusiasm for ASEAN as a region and. his enthusiasm on the economic,
cultural, political, and social growth of the region.
But as a Department of Defense witness. I have to concentrate on
a not so happy area: that is, the threat. Unfortunately, when we turn
to consideration of the, security threat. I cannot say that the picture has
been much relieved from when I was privileged to come before this dis-
tin..-nished committee last July. I pointed out then that after the events
of 1975, events which went, very much against our interests, the un-
fraternal Communists of Vietnam and Kampuchea fell into a bloody
and thus far unrelenting struggle, a struggle which like an open fire
still threatens the peace and security of the region.
I also reported that these events had once again opened the region
to the rivalries of the great flowers, rivalries which the countries of the
region strongly wish to avoid. Today the Vietnamese divisions remain
at their work attempting to pacify Kampuchea. The fighting between
the Vietnamese and the Khmer resistance groups along the Thai-
Kampuchean border, if anything, has been more intense this year than
in past years.
The tragic byproduct of this upheaval is the flow of refugees out
of Indochina continues. Above all, the fighting puts at risk the sta-
bility of the region, which has seen far more than its share of trouble
and which is of abiding importance to our own national interests.
If I may, I would like to call your particular attention to two
countries, Thailand and the Philippines, which stand as our principal
security partners in upholding the interests of the free world in
Southeast Asia. I will turn briefly to Thailand and then go on to the
Philippines.
As regards Thailand, she has continued a military modernization.
This modernization has been given day-to-day impetus by events
along her eastern border. Last October we enjoyed the visit of Prime
Minister Prem to Washington. At that time the President assured
the Prime Minister that the United States would adhere to the
security guarantees we gave Thailand in the 1954 Manila Pact.
We have requested increased FMS credits and increased IMET in
recognition of Thailand's increased front-line status. We have en-
gaged in joint military training exercises with the Thai forces and are
assisting the Thais in a joint logistics planning project, a project
which we trust will identify the weaknesses of the Thai logistics
system.
Recently, in January, we delivered some air defense weapons to
the Thai. And just on May 22, in answer to an urgent Thai request,
we delivered 155-mm. howitzers and M48A5 tanks. It is our inten-
tion, I think you can see from the remarks just given, to do all that is
possible to help this valuable ally obtain the means for her own self-
defense.
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Regarding the Philippines; last year in my testimony I referred to
the Philippines as a vital, irreplacable ally. Indeed, the Philippines is
the keystone of our defense arrangements in Southeast Asia. It is our
feeling in the Department of Defense that over this year we have
markedly advanced our political-military relations, primarily through
a series of high-level visits, capped, if you will allow, by Secretary
Weinberger's trip to Manila in March.
Of great interest to me as we planned for the Secretary's trip was
the realization that it had been 12 years since a Secretary of Defense
of the United States had visited the Philippines. The message that
the Secretary carried, indeed the message that all our high-level visi-
tors have carried, was that Philippine cooperation in our concert of
defense arrangements is respected and appreciated.
Much is made of the special relationship that exists between the
Philippines and the United States. If I may, I will, with a very
brief anecdote, relate how this was brought home to me very graphi-
cally by a recent visitor to the United States.
Major General Ramas, who is the commanding general of the
Philippine Army, was recently a visitor here as a guest of General
Meyer, Chief of Staff of the U.S. Army. In an after-dinner toast
General Ramas was remarking on the special relationship. He said
that during the war, after the United States had left the Philippines
and the Japanese occupied the Philippines, over 1 million Filipino
men, women, and children lost their lives fighting the occupation
troops. And then as the United States and MacArthur indeed
returned, the Filipinos joined with us to fight, and defeat the
common foe.
General Ramas pointed to the difference between this action on
the part of the Filipinos and the actions that took place in Indochina
and all over Southeast Asia where other countries such as the
Indonesians took advantage of the occupiers to throw off the yoke
of colonialism.
Remember when the Filipinos fought side by side with us under
the same flag to defeat the common foe, they were basically still a
colony of the United States. But because they share the same values
and the same adherence to the general principles that we do, they
chose to fight under our flag.
And they did believe the words of the first civil governor of the
Philippines, the first U.S. civil governor, William Taft, who in 1901
took as his motto, "The Philippines for the Filipinos." Of course, in
1946 they were granted full and complete independence.
But this very graphically pointed out to me the very special rela-
tionship that does indeed exist. It is not a one-way relationship. It is
not just in our minds. It is in both the minds of the Americans and
the Filipinos.
Sir, in closing I would like to make the following remark. As we
seek to protect our interests in the region and those of our friends
and allies against the growing potential threat, we believe that our
policies and approach enjoy inherent advantages over those of the
Soviet Union and its surrogates. The Soviets appear to believe that a
country must be remodeled in the Soviet image if it is to be a reliable
friend. Others must be intimidated by military power.
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10
Our. interests, however, are not threatened by true independence
and diversity. Our policies support independence, strengthen the
capabilities and confidence of our allies and friends to resist intimida-
tion and do so without demanding conformity. Our force presence
in the western Pacific offers reassurance that we can come to the
aid of our friends against external threats which are too big for
them to handle alone.
Our security assistance helps each country strengthen its own self-
defense capabilities, reducing the probability that it would need to
ask for help from outside military forces. At the same time, security
assistance, combined exercises, and military-to-military contacts
make the military forces of our friends in the region more able to
operate with our own and thereby more capable of effective combined
operations were they ever required.
In closing, I would like to mention something which I feel has not
gotten sufficient public recognition. Recently, President Reagan made
a very wonderful decision, to my mind, and extended Adm. Bob Long
for another year until July 1983 as commander in chief of our Pacific
forces.
I certainly feel, and know the Department of Defense will echo
this, and I am sure Secretary Holdridge will echo these views, that
in Bob Long we have not only a superior military strategist but
indeed a politician and statesman. This is echoed throughout the
region.
Thank you, Mr. Chairman.
[Mr. Armitage's prepared statement follows:]
PREPARED STATEMENT OF RICHARD L. ARMITAGE
Mr. Chairman, I, like Ambassador Ho'dridge. have been pleased at the many
positive trends we see in Southeast Asia and at the growing strength of the
friendly governments in the region. They stand in dramatic contrast to the eco-
nomic and social tragedies spawned by the Communist regimes of Indochina.
Unfortunately, when we turn to consideration of the security threat. I cannot
say that the picture has been much relieved from when I was privileged to come
before this distinguished committee last year at this time. I pointed out then that
after the events of 1975, events which went very much against our interests, the
unfraternal Communists of Vietnam and Kampuchea fell into a bloody and, thus
far, unrelenting struggle-a struggle, which like an open fire, threatens still the
peace and security of the region. I also reported that these events had once again
opened the region to the rivalries of the great powers, rivalries which the coun-
tries of the region strongly wish to avoid.
Today, the Vietnamese divisions remain at their work attempting to "pacify"
Kampuchea. The fighting between the Vietnamese and the Khmer resistance
groups along the Thai/Kampuchean border, if anything, has been more intense
than in past years. The tragic by-product of this upheaval. the flow of refugees
out of Indochina, continues. Above all, the fighting puts at risk the stability of
this region, which has seen far more than its share of trouble, and which is of
abiding importance to our own national interests.
If I may, I would like to call your particular attention to two countries, the
Philippines and Thailand. which stand as our principal security partners in up-
holding the interests of the free world in Southeast Asia.
Thailand continues a gradual military modernization given day-to-day impetus
by the events along her eastern border. When Thailand's Prime Minister, Prom
Tinsulanonda, came to Washington last October in a very successful visit. Presi-
dent Reagan. noting Thailand's status on the front lines. reassured him of this
country's firm adherence to the security guarantees we gave Thailand in the 19.54
Manila Pact. We have backed these assurances with foreign military sales and the
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provision of military training (IMET), both at expanded levels. By this assist-
ance, we play a major role in upgrading Thai forces.
We do not expect that Thailand can become a military match for the Vietnam-
ese, who, after all, have the fifth largest military force in the world. But we are
certain that, if pressed, the Thai Armed Forces would give a good account of
themselves in the event of invasion of their homeland. In slowing down a Viet-
namese assault, they would buy the time for Thailand's friends to come to her
assistance.
We conduct periodic training exercises with the Thai and with other friends
in the region. Just two weeks ago, U.S. Navy and Marine units together with
corresponding units in the Thai Armed Forces took part in a large combined
military training exercise, Operation "Cobra Gold." Out in the Gulf of Siam and
along the beaches of the southern Thai peninsula, this exercise combined what
had previously been a number of individual exercises into a comprehensive array
of naval and marine maneuvers. Also, over the last several months, we have
worked to increase the Thai Armed Forces' inventory of especially needed mili-
tary equipment. In January, we provided air defense weapons long requested by
the Thai Government. In the last several weeks, we airlifted 155mm howitzers
and expedited the shipment of M48 tanks. These items had been the subject of
urgent Thai Government requests for speeded up delivery.
In our presentations to the Congress earlier this year for security assistance
to Thailand in fiscal year 1983, we asked for foreign military sales allocations
of $50 million in direct credit and $41 million in guaranteed loans. We have asked
for another $25 million in fiscal year 1982 supplemental funds. These are, at
least in the East Asia region, large amounts. It is our intention to do all that
we can to meet the needs of this ally in acquiring the means of self-defense.
The military situation on the border, particularly in the dry season months
just past (the late winter and early spring of this year) has brought about
an acceleration of Vietnamese attacks on the several Kampuchean resistance
groups standing between Vietnamese forces and the Thai border. These attacks
have been pressed more stringently than in past years. The nature of the fight-
ing in western Kampuchea, however, is such that fast moving, lightly equipped
guerrilla groups have, in fact, many advantages over the more conventionally
operating and numerically superior Vietnamese. The military situation shows
every sign of continuing as it is ; essentially a cyclical pattern of fighting adding
up to a stalemate for some time to come. The Vietnamese have by no means wiped
out the resistance ; thee groups seem as determined as ever not to acquiesce in
the Vietnamese dominance of Kampuchea. Indeed, the seeds of Khmer national-
ism have proved very resistant to eradication.
I cannot leave a discussion of Indochina without mentioning another important
and continuing U.S. interest in that area. That is our concern for nearly 2,500
Americans missing as a result of the Vietnam war. In the nearly 91/2 years since
the Paris agreement was signed, we have seen little improvement in the coopera-
tion of the Communist governments of Indochina. We know they can be more
forthcoming on the PW/MIA issue and we are committed to seeking every
possible assistance from them to obtain the fullest possible accounting for those
who remain missing. Because it is a humanitarian matter, resolution of the
accounting issue is not linked to progress or lack of progress on other contentious
issues between the United States and the Indochina governments. The United
States Defense Department looks forward to national PW/MIA recognition day
on July 9 as an opportunity show again that we have not forgotten.
In my statements last year I referred to the Republic of the Philippines as a
vital irreplaceable ally. I am more than ever convinced that the Philippines is
the keystone in our structure of defense arrangements in Southeast Asia. The
Philippines provides the platform on which our forces would stand and from
which they would operate in the event of emergencies in East Asia, the Indian
Ocean area or Southwest Asia. Without this platform our ability to back up our
interests would be much lessened.
I'm happy to say that over the last year our relations in the political/military
field with the Philippines have advanced markedly. We have had a series of high
level visits, capped, if you will, by that of Secretary Weinberger to Manila in
late March. With all our Defense Department visitors has gone the message that
Philippine cooperation in our concert of defense arrangements is respected and
appreciated.
Over the years, our relationship with the Philippines has come to be known as
a "special relationship". This signifies that the United States does more than
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count the Philippines among its friends in the region. The Republic of the
Philippines was our first ally in Asia. The U.S.-Philippines Mutual Defense
Treaty, signed in 1951, predates our bilateral defense pacts with Korea and
Japan, as well as our multilateral pact with Australia and New Zealand and
the Manila Pact which includes Thailand.
General Ramas, commanding general of the Philippine Army, pointed out to me
during a recent visit that the terrible suffering endured by the Philippine people
during the Second World War was totally unlike the experiences of other colonial
peoples of Southeast Asia. The Filipinos fought against the Japanese invaders,
while their country was still a dependency of the United States. Unlike the
history of neighboring Indochina, Malaysia and Indonesia, there was on anti-
colonial movement to throw the Americans out at the end of the war. The
Filipinos had been promised their independence and they got it, on time, in 1946.
General Ramas made the point that both our countries shared many of the same
values and had roughly the same ideas about free societies. Therefore, we fought
together under the same flag as brothers-indeed, a special relationship.
Situated at the geographic-'hinge between our Pacific area military resources
and the petroleum-rich areas of Southwest Asia, the Philippines are strategically
vital in any event. We recognized early that the Philippines was key to an
American military presence In the western Pacific. Together with our military
facilities in Northeast Asia, Subic Bay Naval Base and Clark Air Base provide
the forward positions from which we can respond as required to threats through-
out this large region.
I do not mean to say that our facilities in the Philippine bases are irreplace-
able. Facilities which could provide much of what is already at Subic and Clark
could. indeed. he constructed in Guam and other locations in the islands under
our jurisdiction in the western Pacific. These facilities, however, would be
farther from the hinge and would, in most cases, have to be built up from present
rudimentary facilities or built up from scratch.
Particularly as the Soviet use of bases in Vietnam becomes more apparent
and, unfortunately, more regular we believe the Philippine Government sees
our use of facilities in the bases as contributing directly to the defense of their
homeland. Similiarly, we have heard expressions of other friends in the South-
east Asia region that our use of facilities in the Philippine bases makes a con-
tribution to the stability of the whole region.
We do not wish to see renewed and increased military rivalries in Southeast
Asia. While American economic interests have proceeded to grow steadily in the
region and our political relationships have continued strong, we have not sought
to build up a military presence beyond what we felt necessary for the protection
of our standing interests, including the defense of our two treaty allies in the
region.
Since 1978, however, the Soviets have introduced their ships and planes to
bases along the coast of Vietnam, concommitant with major growth in Soviet
naval and naval air strength in the whole Pacific region. They have deployed
SS-20 missiles to areas of the Soviet Far East. The region has come under an
increasing potential threat which shows no signs of abating.
Moreover, as I pointed out in my testimony this time last year, the Soviet
Union appears in many respects to have its own agenda in the Indochina coun-
tries. It Is not just backing up the enterprises of its surrogate. Soviet aid,
approximately two-thirds in basic food stuffs and one-third in military equip-
ment, continues to flow to the Hanoi government-aid which translates directly
into Hanoi's ability to continue the fighting in Kampuchea. But of perhaps
greater importance, Soviet long range reconnaissance aircraft are permitted in
return to operate out of Vietnam to carry out surveillance missions over the
South China Sea.
The sea lanes from the Indian Ocean through the Strait of Malacca, around
Singapore and up through the South China Sea are the petroleum lifeline of our
friends in East Asia. Any potential adversary's ability to choke off these narrow
seas must be, inevitably. of abiding concern to our friends in that part of the
world. We have seen since 1g78, the product of what must be a determined
Soviet Intent to establish this kind of potential choking grip.
As we seek to protect our interests in the region and those of our friends
and allies against the growing potential threat, we believe that our policies
and approach enioy inherent advantores over thoF-e of the Soviet TTnion and its
surrogates. The Soviets appear to believe that a country nmst he remolded in
the Soviet image if it is to be a reliable friend. Others must be intimidated by
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1s
military power. Our interests, however, are not threatened by true independence
and diversity. Our policies support independence, strengthen the capabilities and
confidence of our allies and friends to resist intimidation, and do so without de-
manding conformity. Our force presence in the Western Pacific offers reassur-
ance that we can come to the aid of our friends against external threats which
are too big for them to handle alone. Our security assistance helps each country
strengthen its own self-defense capabilities, reducing the probability that it
would need to ask for help from outside military forces. At the same time,
security assistance, combined exercises, and military-to-military contacts make
the military forces of our friends in the region more able to operate with our
own and thereby more capable of effective combined operations were they ever
required.
We have healthy bilateral defense relations with Indonesia, Malaysia, and
Singapore as well as with our treaty allies, Thailand and the Philippines. We
also encourage and support-without seeking to dominate or, unless. asked, even
participate in-the various arrangements for mutual cooperation established
by the nations of the region. We see as in our interest as well as theirs, the
evolution of ASEAN from purely economic cooperation toward political coopera-
tion, most notably in their concerted policies toward Vietnamese occupation of
Kampuchea.
We are also pleased to see the continuation of the five power defense arrange-
ment, a defense agreement which Includes the commonwealth partners-Malay-
sia, Singapore, Australia, New Zealand, and Britain. They hold a series of mili-
tary exercises involving the small but important Australian and New Zealand
air and ground units which are maintained in Malaysia and Singapore and the
increasingly competent forces of those two countries. Because it strengthens
the ability of its members to resist Soviet and Vietnamese intimidation, the five
power defense arrangement is an excellent example of regional cooperation in
which our interests, as well as those of its members, are served without our
participation.
The pattern of defense cooperation in the region is that of multiple bilateral
U.S. relationships and regional arrangements in which our efforts play a sup-
porting role. Within this loose framework of defense relationships among the
countries of Southeast Asia there is a recognition of the need for the United
States to play a responsible and sustainable role in upholding the stability of
the region. Our ability to play a sustainable role depends, in the main, on the
support the American people and the Congress give to this effort. The continua-
tion of an American commitment to this region, to our two treaty allies espe-
cially, cannot stand without firm roots here at home. We have, since the Second
World War, spent immeasurable amounts of blood and treasure in this part of
the world. We have seen, particularly over the last decade, American economic
interests in these resource-rich, fast-developing countries grow steadily. We
know that particularly in the ASEAN group there are some of the most vibrant
economies in the world today. This region is not one we can walk away from.
We are tied by treaties, by friendly relations, and by our self4nterest to the
success of our friends there.
Ambassador HOLDRTDGE. May I quickly endorse what Secretary
Armitage has just said about Admiral Long. I regard him as en out-
standing soldier and statesman. I am just delighted personally and
officially that he will be kept on for another year.
Senator HAYAKAWA. Thank you, Mr. Holdridge, and thank you,
Secretary Armitage.
Is Mr. Nalen here yet?
[Pause.]
Senator HAYAKAWA. I see that he is.
Good morning, Mr. Nalen. I will call on you after I have questioned
Mr. Holdridge and Mr. Armitage.
Mr. Holdridge, we have learned through the press that the President
approved an 8-page national security decision memorandum on our
national strategy during the third week of May.
The press has also given considerable coverage to a speech by the
national security adviser, Judge Clark, which he made to the George-
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town University Center for Strategic and International Studies on
May 21, apparently explaining "a new global strategy."
The Congress has been in recess much of the time since these events.
Would you elaborate on the press coverage and tell us what the main
features in the strategy might be, particularly as they'may relate to the
East Asian and Pacific region.
Ambassador HOLDRIDGE. Let me simply say, Mr. Chairman, that I
know there has been a considerable amount of press attention to an
alleged change in U.S. strategy. But I want to say, regardless of what
the reports may indicate, that the thrust of these reports is not correct.
There has been no change in our security relations with East Asia, and
there likewise has been no change in the priority and importance we
give to our security relationships and to our military presence in the
area.
Senator HAYAKAWA. Thank you. What were they talking about,
then?
Ambassador HOLDRIDGE. I beg your pardon?
Senator HAYAKAWA. What were these newspaper stories talking
about, then?
Ambassador HOLDRIDGE. Well, I am afraid that sometimes the press
may pick up certain aspects of a situation and take these aspects out of
context. But again, I want to reiterate, there has been no change in our
posture or in our policy with respect to our security relationships.
Senator HAYAKAWA. I am relieved to hear that.
Mr. Armitage, the press has also reported extensively on what is
described as "the first complete defense guidance of the Reagan Ad-
ministration," a 126-page document recently approved by Secretary
Weinberger.
Could you explain how this defense guidance affects our policies and
programs in the East Asian and Pacific affairs?
Mr. ARMITAGE. Well, Mr. Chairman, indeed it does exist. I have it
here. I do not know whether it is 126 pages or not, but I would say that
I cannot go into much detail at all. It is a classified document and I
would be glad to discuss it in closed session with you.
However, I can say, as Secretary Holdridge has already stated,
there is absolutely no change in our policy toward East Asia. Indeed,
in my preliminary remarks I referred to' the extraordinary number
of high-level visits we have had to the region. Secretary Weinberger's
trip to the Philippines was the first by a Secretary of Defense in at
least 12 years. I think this gives you an indication of the high interest
we have in the region.
Senator HAYAgAwA. Thank you.
To come back to you, Mr. Holdridge, you alluded in your prepared
statement to elections in several ASEAN countries, an6 I believe In-
donesia was one of these.
Ambassador HOLDRIDGE. Yes.
Senator HAYAgAwA. Did these elections extend to Timor?
Ambassador HOLDRIDGE. Yes, Mr. Chairman, this election did ex-
tend to Timor. There were four people elected from Timor to the Na-
tional Assembly and 34, I believe, to the provincial assembly. East
Timor is a province of Indonesia, so elections did take place both on
a national scale and on the provincial side.
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Senator HAYAKAWA. There were four that went to the national as-
sembly?
Ambassador HOLDRIDGE. Yes, four went to the national assembly, and
I believe it was 34 that were elected to the provincial assembly in the
course of these elections.
Senator HAYAKAWA. Thank you very much.
[Pause.]
Ambassador HOLDRIDGE. I am sorry, Mr. Chairman. I believe it was
32 that were elected to the provincial assembly.
Senator HAYAKAWA. In your prepared statement you mentioned that
you hoped you could point to some positive results from the Versailles
summit. Now that the summit has concluded, what do you consider
to be its principal accomplishments and how will these affect our
friends in Southeast Asia?
Ambassador HOLDRIDGE. Well, I would say certainly a reaffirmation
of the world free trade system and the resolution to resist protection-
ist pressures and trade distortion practices, working toward the open-
ing of markets, to cooperate with the developing countries, to
strengthen and improve the multilateral trading system, to expand
trading opportunities for the newly industrialized countries. to main-
tain a high level of financial flows and official assistance to the de-
veloping countries, to support the work of the regional development
banks and cooperate with the developing countries in innovations in
the World Bank, and to seek the progress in countering instability of
commodity export earnings and the encouragement of private capital
flows.
All of these came out of the Versailles summit, and of all of these
should be of great assistance to the developing countries in general
and to the ASEAN countries in particular.
Senator HAYAKAWA. Thank you. I am very glad to hear that.
You also mentioned the use of chemical agents in Indochina. I be-
lieve the Department has recently released another report on what is
called yellow rain. Do you believe the U.N. investigation will go
forward?
Ambassador HoLDRIDGE. Yes ; indeed it will.
Senator HAYAKAWA. What does the administration plan to do next?
Ambassador HoLrRrooE. Well, we of course are going to encourage
the United Nations and other international bodies and world public
opinion to continue to focus on this issue. The facts are now conclu-
sive. I don't think anyone would argue that there has been other than
a deliberate campaign by the Vietnamese, with Soviet support to
carry on the biological warfare campaign in Kampuchea and Laos.
And we also see evidence in Afghanistan.
We have, as you have said, issued a white paper on this subject.
This is an unclassified document. We have recently sent a mission
around to various world capitals which repeated the same informa-
tion, but in a more classified form.
This is the kind of thing we will continue to do to focus the atten-
tion of appropriate agencies, officials and public opinion on the facts
of this situation.
Senator HAYAKAWA. Thank you, Mr. Holdridge.
You discussed the ASEAN position on Kampuchea in your pre-
pared remarks. But you did not mention the "Chinese factor," which
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16
I mentioned in my opening remarks. Could you describe for the com-
mittee the Chinese position and how we and the ASEAN governments
view it?
Ambassador HOLDRIDGr. First, Mr. Chairman, let me say there is no
difference between the ASEAN countries, the United States and China
on the basics of the Kampuchean situation, which is to get the Vietnam-
ese out of the country and to permit, the exercise of the free will of
the Kampuchean people and to establish a neutral government which
is acceptable to all.
This was embodied in the resolution of the International Conference
on Kampuchea of July of last year. We have all subscribed to that.
So essentially there is no difference in the basic policy or the objectives.
But when it comes to how this is to be brought about, there may be
some differences, for example, with respect to a, coalition government.
But certainly, while there may be differences with the Chinese view of
a coalition government and the ASEAN view of a coalition govern-
ment, the essentials are still there.
I might say, the coalition government is by no means the crucial ele-
mnent in this situation. It is important to keep the Vietnamese isolated
politically and economically, and there is agreement on that score.
Again let me say, in general, while there may be some differences
of approach on the question of the coalition, there is no question or
difference on the basics of the situation. We all are pointed in the same
direction on that one.
It remains our policy to support the ASEAN countries in what they
want to do. As I mentioned in my extemporaneous remarks, we have
been following this policy since the beginning of the administration
and will continue to do so.
Senator HAYAKAWA. Thank you.
We really do not have any serious differences with the ASEAN
countries on Kampuchea and the necessity of driving the Vitnamese
out?
Ambassador HOLDRIDGE. No; we do not. There may have, seemed, a
year ago in July in New York, a difference. Each side, that is the Chi-
nese on the one hand and the ASEAN countries on the other, thought
we were leaning in the other direction. But our job was to try to bring
together two widely separated points of view.
We thought that it was important that there not he a division be-
tween the Chinese and the ASEAN countries on the floor of the Inter-
national Conference on Kampuchea. The only beneficiary of a situation
such as that would have been the Vietnamese, and of course the Soviets
who support the Vietnamese. So we suggested that it was not beyond
the realm of diplomacy to bring these two widely divergent points of
view closer into accord.
That is actually what happened finally. There was indeed a resolu-
tion which was supported by the ASEAN countries, by China, and
by all the other participants in the International Conference. includ-
ing ourselves. That has been the position we have been following ever
since, calling for the withdrawal of all Vietnamese troops from Kam-
puchea, the exercise of self-determination by the Kampuchean people.
and the establishment of a regime truly neutral and acceptable to all
parties.
Senator HAYAKAWA. Thank you.
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17
You mentioned the refugee situation. The committee was recently
informed that additional Cambodian refugees will be admitted to the
United States, but we understand this policy has run into some road-
blocks at the Immigration and Naturalization Service.
What is the status of the Cambodian refugee problem right now?
Ambassador HOLDRIDGE. We are concerned about the fact that there
has been apparently some difference or misunderstanding as to what
the guidelines should be between officers in the field and headquarters,
so to speak, back in Washington, D.C. We have been working very
closely with INS to remove these misunderstandings. We anticipate
that if any problems have cropped up they will be eliminated shortly.
Senator HAYAKAWA. Thank you.
I am pleased that you say the administration assigns highest priority
to the problem of U.S. servicemen missing in Laos and Vietnam. Could
you tell us the status of the request for information which I made to
the Laotian Government last August? Have you followed. up with
the Lao on these dossiers?
Have the Vietnamese agreed to visit our Casualty Resolution Center
in Hawaii as a result of the Armitage mission to Hanoi earlier this
year? Perhaps Mr. Armitage would also like to answer this : Has the
center's liaison officer in Bangkok gained permission to visit Hanoi?
Ambassador HOLDRIDGE. Let me pick up on the first element. As far
as Laos is concerned, we regret that' the Lao have not been as forth-
coming as we had anticipated following your visit. I have just pre-
sented you the letter which they have written to you concerning the
question which you had raised. I do not find it particularly responsive.
Instead of talking about ordnance disposal and assistance in that
regard, they in effect have asked for reinstitution of an aid program
in Laos, and have made no reference to assistance of any tangible and
direct nature in the question of locating the remains of MIA's. They
talk about it in general terms, but not in specifics.
I think we need to have some more discussions with the Lao. As you
know, we made some gestures toward the Lao in trying to see if we
could not get some response from them. Again, we were disappointed
in their reaction.
When Secretary Armitage was with his group, we asked that the
group stop off in Vientiane following its visit to Hanoi, and the
Lao said no. There the matter rests. We are not going to let it just
be static. We will continue to pursue the situation with _the Lao.
But I have to say, so-far we have not received much response to
our own expressions of goodwill and our efforts to get them to be
more responsive on their side.
Now, on the question of what the Vietnamese are doing, as you
know, the VVA [Vietnam Veterans of America] was just there and
the Vietnamese have apparently asked for more information concern-
ing MIA's. We are not sure exactly what is involved here, because for
it long period of time we have provided information as to crash sites
and the names of people we identified as having gone down with their
aircraft and so on.
So we are not sure exactly what the Vietnamese are asking for
here. But if they want some more information as to, say, ways of
identifying through medical records, dental records and so on these
persons, we will be happy to provide this information.
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18
As one of the results of my colleague's visit to Hanoi, they have
agreed -to send some people to the JCRC Center in Hawaii and will
be going I suppose some time during the summer. They have agreed
in principle to accept further visits from some of our people in
Thailand.
But we will continue to chip away at this problem. It is one we
are not going to let rest.
Perhaps I could call on Mr. Armitage to add a few words.
Senator HAYAKAWA. "Chip away" is a good term to use. It con-
jures up a very specific image.
Mr. ARMITAGE. It is indeed extraordinarily frustrating, and we do
indeed seem to chip away at the issue.
As Secretary Holdridge correctly points out, the Vietnamese indi-
cated during my visit that they would like to send a team to Honolulu.
This was at our invitation. They have further indicated that late
summer looks like a convenient time. It also looks like it will be con-
venient to us, so we hope to entertain that trip.
Regarding the VVA trip to Hanoi, we took note of the fact that
the Vietnamese spokesman, in his mention of the turning over of
remains or at least of the information or remains to the delegation,
stressed that he was dealing with the American people. I will say
this is a direct result of the visit that. we undertook in February,
where we stressed that the interest in the MIA/POW matter is not
simply the interest of the Reagan administration, but is the interest
of every administration, because it is very high in the minds of all
of the American people.
So we feel there has been some progress made.
Ambassador HOLDRIDGE. May I add, Mr. Chairman, that the Viet-
namese now seem to think that it is appropriate for them to work
through the VVA. We think a better way of handling this problem is
directly government to government, and not through our private orga-
nizations. It is much more effective.
Indeed, the Vietnamese are obliged to provide information on
POW's and MIA's. The best way to handle that in our judgment is on
a government-to-government basis.
Senator HAYAKAWA. Thank you.
I have one final question to you, Ambassador Holdridge. One coun-
try in Southeast Asia which has not been mentioned in all of this dis-
cussion is Burma. How would you ::haracterize our relations with
Burma?
Ambassador HOLDRIDGE. I think our relationship is good. I would
hope to see the relationship grow. The Burmese are now looking more
toward outside assistance in developing the Burmese road to socialism.
In this regard, we have been able to increase the amount of economic
development assistance provided to Burma, and we are considering
other ways in which we might be helpful.
As I mentioned to you, Mr. Chairman, I myself plan to stop in Ran-
goon in the course of my visit to Southeast Asia, and I hope to be able
to talk to appropriate officials in Burma to see where we might be
supportive of the kind of things in which they are interested.
I might add that the Burmese have also been quite cooperative with
respect to the narcotics issue, and perhaps there is more we might be
able to do in that regard as well.
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Senator HAYAKAWA. That is good. Thank you.
Mr. Armitage, you mentioned that the fighting in Kampuchea has.,
if anything, intensified this past dry season. What do you assess to be
the net result of the campaign just concluded? Are the Vietnamese
in a better position than a year ago or are the Pol Pot forces? What
is the status of the Sonn Sarin forces?
Mr. ARMITAGE. I did indeed remark that the Vietnamese had pressed
the attacks more strenuously than in the past years, with, I think, lim-
ited military results. They have not been able, of course, to pin down,
if you will, the most formidable foe that they face, the troops of Pol
Pot. They fight a series of shadowy battles. The DK does slip away
from them whenever they try to get them committed to a decisive
battle.
So militarily they are basically in the same position, except as re-
gards the forces of the KPNLF. As we all know, there was a rather
set piece battle against some of Sonn Sann's forces at Sckh San and a
defeat was administered to the KPNLF troops at that spot.
But the Vietnamese are in a better position in that they have re-
mained in Kampuchea for a further year. They have strengthened their
hold over Kampuchea. So in that regard they are in a somewhat better
position.
As regards the status of Sonn Sann's forces, it is our unclassified es-
timate that there are 6,000 to 8,000 effectives.
Senator HAYAKAWA. 6,000 to 8,000 what?
Mr. ARMITAGE. 6,000 to 8,000 effective fighters.
And as regards the troops of Pol Pot, between 20,000 and 35,000
effective troops.
Ambassador HOLDRIDGE. May I add a word?
Senator HAYAKAWA. Please do.
Ambassador HOLDRIDGE. While I would agree that the Vietnamese
certainly were more active and that they have put the Kampuchean
resistance forces on the defensive pretty well, and that they are pretty
much a factor in Kampuchea, it does not mean the resistance is crum-
bling. The resistance is still there.
What we have seen is a completion of a dry season offensive by the
Vietnamese troops, and it has now been raining in Kampuchea for over
a month. The rains came early this year. Many people expect that the
gains militarily which the Vietnamese achieved' during the dry season
probably will be undone during the rains.
In fact, I have seen some military reports coming out which speak
of large sections of the railroad from Batambang back through Phnom
Penh having been cut for periods of time, and roads which also have
been cut. In other words, the struggle still goes on with no end in sight.
This, of course, will be a drain on Vietnamese resources, manpower
and economic backing. It will put a strain on the whole body politic,
and I think it is being felt.
Senator HAYAKAWA. In other words, that is reasonably good news.
Ambassador HoLDRIDGE. Well, the war goes on. It is the kind of situ-
ation which the Vietnamese are going to have to endure-the fact that
they are now isolated to a very remarkable extent politically on the
world scene, and also economically, thrusts them on the resources of
one donor nation essentially, the Soviet Union, and the Soviets have
their problems as well.
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20
It is quite clear, I think, from watching developments in Hanoi over
the last year, especially the Party Congress which took place in March,
that the Vietnamese are indeed feeling the pinch.
Mr. ARMITAGE. I might just add, sir, that the Vietnamese put a great
deal of store and faith in their nationalism, but they now have found
out that the seeds of Khmer nationalism are extraordinarily difficult
to eradicate.
Senator HAYAKAWA. Mr. Armitage, in January we sent air defense
weapons requested by the Thai Government, and in the last several
weeks we airlifted howitzers and expedited a shipment of M-48 tanks,
and so on. The Thai have expressed a need for aircraft. That has not
been mentioned.
What plans does the administration have 'for additional aircraft?
Mr.' ARMITAGE. I must say, we have not received an additional re-
quest from the Thai Government for aircraft, Mr. Chairman. As you
are so aware, we know that their present inventory consists of many
types of aircraft-F-5A's and F-B's, F-E's and F-F's, T-28's OV-
10 s, A-37's, transport aircraft, C-47's, C-130's and C-123's. And we
know that the Thai Government is very interested in an advanced
aircraft the F-16, the F-5G, and the A-10.
But as yet they have not officially requested pricing data on any
specific aircraft for purchase.
Senator HAYAIKAWA. Thank you.
I am very glad that you gave quite a bit of space to the Philippines
and to what you describe as our very special relationship with the
Philippines. When I visited there last, Gen. Carlos Romulo talked
at length about the feeling of blood brotherhood that the Filipinos
had toward America because we had shed blood together against the
Japanese.
But the same thing was told to me by the proprietor of a little Fili-
pino cafe, and was told to me by a taxi driver: That the Americans
and Filipinos have this deep blood brotherhood. The cafe operator,
once he found out I was a Senator, wanted to know immediately if I
could get his son into the U.S. Navy.
But this kind of special relationship does exist. There is no question
about it, except that the people on this side of the ocean. in the United
States, many of us do not know about it. But I was very much im-
pressed with the depth of that feeling.
Though you discussed our relationship with the Philippines, you
.did not mention the status of the Moro rebellion in the south or the
activities of the New People's Army. These are pretty serious prob-
lems, are they not?
Mr. ARMITAGE. Yes; they are. Before I answer my question, I .Just
want to say something. I am delighted to see that a Senator rides in a
taxi like the rest of us. [Laughter.]
Regarding the MNLF and the New People's Army in the Philip-
pines, the Moro National Liberation Front, which is primarily active
in Mindanao, Mr. Chairman, numbers approximately 12,000. Over the
past year we have seen a decrease in activities. This is not due solely
to an increase in Philippine military activity. There have been politi-
cal and civic action programs applied against the MNLF.
I mentioned President Marcos' successful trip to Saudi Arabia,
where he was, it appeared, somewhat able to keep international Is-
lamic sympathy for the MNLF down, which of course is helpful.
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There has been an increase in civic action programs in Mindanao and
this helps eliminate some of the causes for the ethnic insurgency.
Now, as regards the New People's Army or the NPA, it is our un-
classified estimate that there are perhaps 6,000 regulars, if you will,
with perhaps again as many sympathizers. These insurgents are basi-
cally conducting two-pronged approaches. One is rural and the other
is urban.
As we are all aware, and as Secretary Holdridge mentioned in his
testimony, there is high unemployment, I believe reaching as high as
24 percent, in Manila, and this gives rise to urban dissatisfaction. Of
course, the sugar, copper and coconut markets are down, and this gives
rise to rural dissatisfaction.
The New People's Army has been able to take advantage of this.
Though their numbers are not great as the MNLF as yet, they have
been slowly increasing over the years. So this is certainly not a favor-
able sign.
Senator HAYAKAWA. I am a member of the Agriculture Committee,
so this question bothers me. What about our sugar program and our
protection of our beet sugar people? Does that adversely affect the
Filipinos and their sugar exports?
Ambassador HoLDRTDGE. I think I can answer that, Mr. Chairman.
In the case of the Philippines, no. They have been able to handle a lot
of their sugar exports by switching them over pretty well to the So-
viet Union. And the quotas that we have in effect for the Philippines
will adequately take care of Philippine export requirements. It is not
going to be a hardship for the Philippines, though it will be a hard-
ship for some of the other countries, who will find they will be ship-
ping less, in some cases considerably less, than they have been ship-
ping in previous years.
We are trying to work this out in such a way that we can minimize
the adverse economic effects on all the countries concerned in East
Asia.
Senator HAYAKAWA. I am a little bit uncomfortable about that sugar
program. I will discuss that with the Agriculture Committee.
Mr. Armitage, you discussed the Soviet presence in Southeast Asia.
But I do not have a feel for whether it has increased, decreased, or is
essentially the same as last year.
Mr. ARMTTAGE. As far as the Soviet military presence in the three
countries-Laos, Kampuchea, and Vietnam-the total numbers are
approximately the same as regards military presence. The civilian
presence has increased slightly, primarily in the economic ministries
of these governments. They are there, we feel, primarily to handle the
aid which is funneled into these countries.
So overall you have a slight increase in personnel, military and
civilian, in Indochina. But of course, the Soviet presence is much more
than just people on the ground. We have made much of the Soviet use
of Danang and Cam Ranh Bay, the use of those former bases of ours.
We found again an increase in the area. On any given day, you may
have four or so Soviet aircraft operating out of the region and
as many as 8 to 10 shins of all different sizes in Southeast Asia. That is
a slight increase, Mr. Chairman.
Senator HAYAKAWA. Thank you.
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While I am on the subject, our two bases in the Philippines, at
Subic and Clark, what is the timetable for review of the agreement
on these bases? What do you believe will be the issues involved in this
review?
Mr. ARMITAGE. We have agreed with the Government of the Philip-
pines to enter into the review in the late summer of next year, that is
the summer of 1983. Of course, the review is to be completed by 1984.
As for the review, I think the issue clearly will be one of compensa-
tion. '
Senator HAYAKAWA. I see. There are no ideological or political prob-
lems involved, then? It is just money?
Mr. ARMITAGE. Well, none have cropped up on the horizon yet. We
feel we have been very successful in implementing the 1979 amend-
ments to the Bases Agreement, in removing most of the irritants that
existed them.
Ambassador HOLDRIDGE. May I add, Mr. Chairman, at the moment
we are discussing with the Philippine authorities the subjects of cus-
toms, immigration, and quarantine at the U.S. facilities at Subic and
Clark. These are minor irritants, as Mr. Armitage has said. If we can
get these out of the way as we sit down with the Philippine Govern-
ment and talk about the review of the bases agreement, then I think it
will simplify our situation considerably.
So we are trying to address these other problems first and clear
them off the table, so to speak.
Senator HAYAKAWA. My last question, Mr. Armitage, is this. You
said that the Soviets have deployed SS-20 missiless to the Far East
region of Russia. What is the range of these missiles? Do they directly
threaten our friends in Southeast Asia?
Mr. ARMITAGE. Well, in kilometers it is 5,000, so that is somewhat
over 3,000 miles, about 3,100 or 3,150 miles. 5,000 kilometers is what
we state as the range of an SS-20. Of ?.ourse, they are mobile, so
they can be moved.
Senator HAYAKAWA. They could be.
The Joint Chiefs of Staff in their annual report to Congress said
the United States-Soviet military balance in East Asia and the Pacific
is unfavorable and continues to deteriorate. Is this serious? Is this a
serious deterioration in our situation there?
Mr. ARMITAGE. Well, indeed. The deterioration is because of the
years that we went by with no augmentation to our forces, while at
the same time, the Soviets were putting massive amounts of their
GNP into military modernization. So they are now taking delivery
of their systems and we are on the drawing boards with ours. So,
consequently there is a deterioration in the balance that exists at
present.
We feel qualitatively that we certainly are a match for the Soviets
in East Asia. But quantitatively there has been a serious deterioration.
Senator HAYAKAWA. Ambassador Holdridge and SecretaryArmi-
tage, I am very grateful to you both for your very expert testimony
this morning. I find this to be the most exciting and fascinating of
my subcommittees, and I am very grateful to you for the additional
light you have thrown on these problems for us this morning.
Thank you, Ambassador Holdridge and Mr. Armitage.
Mr. ARMITAGE. Thank you for your interest this morning.
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Ambassador HOLDRIDGE. Thank you very much, Mr. Chairman. It
was our pleasure.
Senator HAYAKAWA. Mr. Nalen, would you please come forward to
the witness table.
Our next witness is Mr. Craig A. Nalen, president of the Overseas
Private Investment Corp.
We will be grateful for your presentation, Mr. Nalen. I would
appreciate it if you would summarize your statement somewhat and
give us the gist of it, so that we can proceed to some questions. Please
proceed, Mr. Nalen.
STATEMENT OF HON. CRAIG A. NALEN, PRESIDENT, OVERSEAS PRI-
VATE INVESTMENT CORPORATION
Mr. NALEN. Thank you very much, Mr. Chairman.
Let me at the outset assure you that we will not go through the 23
pages of my prepared statement. In fact, the testimony which we sub-
mitted to this subcommittee is rather comprehensive on the subject.
With respect to that statement, I would like, with your permission,
to submit it for the record.
I would also like to take this opportunity to submit a copy of our
annual development report which, by mandate, we are required to
publish each year. This has recently been completed, and I would
like to also submit that for the record, sir.
Senator HAYAKAWA. We are very grateful for that and it will be
included in the record. Thank you.
Mr. NALEN. Thank you.
To ask us to talk about OPIC's role in Southeast Asia is a bit like
asking a Congressman to talk about his golf game. [Laughter.] You
have really hit upon one of our strengths, and we will proceed with a
great deal of enthusiasm.
Actually, OPIC has spent a great deal of time and paid a great deal
of attention to Southeast Asia, although much of the publicity that
has been focused on OPIC recently is in connection with other areas,
such as our Caribbean Basin program, which was in response to the
President's highly publicized Caribbean Basin Initiative, and of
course the President's recent trip to the Caribbean, which we were
asked to join. Some attention has also been focused on our involvement
with the African nations, again partly because of an extended trip we
undertook earlier this year with Secretaries Baldrige and Block.
More recently a lot of attention has been focused on our Egyptian
involvement, wherein last month we produced and sponsored the
world's first "Telemission," which was essentially an investment mis-
sion linking President Mubarak and his chief ministers in Cairo with
700 Americans in six U.S. cities via satellite technology.
In spite of all these other activities, Southeast Asia has been an area
of considerable interest and activity for OPIC. The fact that you
might not be aware of this, however, is not surprising. OPIC, as the
old saw goes, continues to be Washington's best kept secret. We have
been working very diligently to correct this problem, this image or
awareness problem, and I think we are making some progress.
The fact is, we were invited here this morning to make an appear-
ance before this distinguished subcommittee, and that in itself is a
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major achievement for us. Needless to say, one thing we are not is
bashful, and we are delighted to have this opportunity.
OPIC has been exceptionally active in Southeast Asia. Perhaps the
best way to reflect that is to talk just a little bit about a couple of the
projects that we have been doing in this region, which I think gives
you an insight into the kind of activity. in-. which OPIC is engaged.
Let us take one project, the Freeport Minerals copper mine in Irian
Jaya, Indonesia. Not only is this a very major undertaking, but to
give you some statistics, it will provide $140 million of copper exports
for Indonesia, and it will provide foreign exchange savings of over
$47 million. But beyond the financial impact, there is the transfer of
tremendous amounts of mining technology. And beyond that, this
very far sighted company has engaged in setting up health care fa-
cilities, free medical services, three separate clinics, provided educa-
tional facilities, free education, college scholarship programs, and
agricultural endeavors in the development of hybride vegetable seeds
which are improving food strains in Indonesia.
Essentially, it is what I would consider the ideal type of develop-
mental project for a Third World country. One should not lose sight
of the U.S. effects of this project; it will create over $40 million of
new U.S. exports per year.
OPIC's projects range from that to smaller companies, which I will
not get into in much detail. However, we have assisted metal stamping
companies, companies that manufacture rubber gloves, and other
projects. In the pharmaceutical area, beyond just employment and
foreign exchange benefits, and technology transfer benefits, Abbott
Laboratories was a product that it is producing in Indonesia, Etham-
butol, which is an inhibitor of tuberculosis and has had a major impact
in cutting down on that disease in Indonesia.
Perhaps the largest and best known project that we have been asso-
ciated with in Southeast Asia has been in Thailand, and that has been
a natural gas project. There is an estimated import substitution of
$340 million per year for Thailand due to this project, and foreign
exchange savings of over $270 million.
There are U.S. benefits as well. Out of the total of $351 million of
investment, about $128 million will be spent in the United States on
engineering services. The project will return an estimated $65 million
a year to the United States for the 20-year life of the project, or about
$1.3 billion total.
Finally, there is another company, a private agricultural company
that again exemplifies a variety of developmental impacts in a re-
mote area of Thailand which the government is trying to develop.
It is a tapioca processing operation, which will have a significant
transfer of technology benefit in pelletizing tapioca for export, export
in this case to the Common Market of Europe. It employs about 200
people and will have over $43 million of exports per year.
So these are some of the kinds of projects that we are engaged in
in Southeast Asia. Now what is OPIC doing to increase U.S. invest-
ment there? A whole variety of techniques which we have described
in some detail in the written testimony ranging from seminars that
we are holding throughout the United States to investment missions,
which we have alluded to. And as a matter of fact, we will be taking
an investment mission to Thailand within the next month.
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We offer feasibility studies, which are so important to encourage
U.S. investment in Third World countries.
Unfortunately, the demand for those is far exceeding our supply,
which is regrettable, since these are major elements in encouraging
investment in Third World countries. We are utilizing training grants,
which again are describing in the testimony, in a very developmental
project where we are cosponsoring and in fact are the lead sponsor.
It involves the host countries' private sectors providing funds, as well
as U.S. private sector companies, to educate and train approximately
50 middle management executives in each of the five ASEAN coun-
tries in U.S. technology.
And finally, we have personal commitments by myself and other
officers in our corporation. Our general counsel has just returned from
Southeast Asia and China. Mr. Gaines, our executive vice president,
sitting behind me, has conducted a food production seminar here in
this country. He and I have attended and spoken at ASEAN-United
States business councils in Kuala Lumpur within the last several
months. Mr. Gaines also will be the chairman of the forthcoming in-
vestment mission to Thailand.
What have been the results of OPIC's efforts? I think taking a look
at the bottom line is the best way to answer that. There has been a
tenfold increase in new investments in Southeast Asia supported by
OPIC within the last 4 years. Specifically, back in 1978 OPIC was
involved with investments of $32 million for the ASEAN countries.
Last year, 1981, that total exceeded $400 million.
The cumulative value of ASEAN investments supported by OPIC
insurance as of April of this year has reached $597 million. Perhaps
another way to measure is that the ASEAN projects represent about
20 percent of OPIC's worldwide portfolio.
The developmental impact on the ASEAN countries is also impres-
sive. Back in 1978, those projects had produced, by estimate, about
1,900 jobs. In 1981 that figure had reached almost 6,000 jobs. And
there has been a positive impact, I might add, on our own U.S. econ-
omy, where there were some 4,400 jobs created in 1981 as a result of
these ASEAN investments. Finally, the foreign exchange accrued an-
nually to the ASEAN countries has gone from $15 million in 1978 to
$44 million in 1980 to over $300 million in 1981.
Well, that is the good news. The had news is we have only scratched
the surface of the opportunities in Southeast Asia. Southeast Asia
represents a region of the world that has tremendous potential for the
development of U.S. trade and investment activities, and thus far we
have really not fulfilled that potential.
We lag behind-and this is important-we lag behind our com-
petitors, and in some cases we lag behind significantly. I am referring
there not only to European countries, but of course most specifically to
Japan.
At the risk of oversimplification, I would like to conclude this testi-
mony by mentioning three factors that have traditionally kept our
private sector from achieving its full potential in Third World mar-
kets in general and in Southeast Asia in particular.
The first of these three are performance requirements and redtape
which are so prevalent in these host countries. But having said that,
I would also like to add that there has been a very noticeable trend,
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26
ineasureable in fact even over the last 4 to 9 months, of a relaxing of
many of these impediments.
As an example, I was interested to hear Ambassador Holdridge talk
about the Philippines and the good relations that he is finding there.
This was not always the case with OPIC, but thanks to a great deal of
ground work by our agency and a personal conversation I was fortu-
nate enough to have with Mrs. Marcos back in December, where I re-
vealed to her the fact that because of Philippine "redtape," we were
holding up on some 30 projects of American investors wno wanted to
go forward with investment in the Philippines. Mrs. Marcos appar-
ently personally intervened and suddenly some doors opened and the
logjam was freed up.
Since then, even more barriers have been removed and projects are
going forth in the Philippines at a very heartening rate, so much so
that I have accepted her invitation to visit the Philippines on the
return from my forthcoming mission to Thailand to discuss the possi-
bility of conducting an investment mission there perhaps early next
year.
But beyond that, I think we are seeing in these Third World coun-
tries around the world, but even more particularly in the ASEAN
region, a very active campaign by the countries themselves to attract
foreign investment. I think they see the writing on the wall with re-
spect to reductions in concessional foreign aid from the developed na-
tions and, rather than the general misconception of a resentment of
foreign investment, they welcome it very actively.
The second impediment that we see that prevents us from fulfilling
our potential there, is the very aggressive competition we are getting
from other developed nations, and particularly I refer to Japan, and
not only from the private sector companies themselves, but from the
far more aggressive investment encouragement programs coming from
the governments of our competing developed nations.
I am afraid the level of competition from our Japanese competitors
is not likely to go away. In fact, it will probably continue to intensify
and we are seeing the same thing coming from the Germanies and the
Frances of this world. I do not know whether these governments will
continue to as aggressively encourage private investment and work
closely with their private sectors. For example, I refer to very aggres-
sive insurance programs similar to OPIC's.
The third stumbling block is quite different from the first two.
I think, as Pogo said in his comic strip a decade or so ago, "we have met
the enemy and he is us." And by that I am referring to indifference
here in our own country to business opportunities overseas.
I do not think there is any question that the American business
community has been asleep at the switch with respect to the opportu-
nities overseas, and we can only blame ourselves. Although again I
am cautiously optimistic in believing that we are seeing a shift in
sentiments and actions here in the United States. From a government
level, there seems to be a growing awareness of the need to modify
certain tax and legislative programs that have become serious disin-
centives to American businessmen.
By that I am referring to the tax on foreign earned income, and
also a move by the administration to modify somewhat the Foreign
Corrupt Practices Act. In addition, there are recent efforts to develop
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BIT's, or bilateral investment treaties, which are going to have a very
positive impact on the U.S. private sector.
In addition to these developments, I think there is no question that
President Reagan and his administration have been very effective in
focusing attention on the role that he expects the private sector to
play. I think the private sector is gradually beginning to respond.
All this has made our role at OPIC a little bit easier. Our programs
are being better received. There seems to be a lot more interest, not
only in terms of the support we are getting from the White House,
but in terms of the private sector's response.
And this finally brings us to the private sector itself, and here there
does seem to be a shift in attitudes, spurred in part, as I mentioned,
by this administration's support, and perhaps partly from the dis-
co very that it is not so easy any more to look to our own economy for
year-to-year increases in sales and earnings. Our economy is perhaps,
at least temporarily, reaching some limitations, and the private sector
is now beginning to view the opportunities that have existed collec-
tively in the Third World market, which is the fastest growing mar-
ket, as we all know, in the world.
In any event, I think we are seeing a very heartening reawakening
of the old Yankee trader spirit. And so, while it is important not to
get swept away on a cloud of euphoria with respect to the trends that
we think we may be seeing in the levels of U.S. investment through-
out the developing nations of the world, and particularly in South-
east Asia, I do think it is fair to say that the signs look very en-
couraging.
It will, however, take a continued and concerted effort on the part
of the business community and the Government to insure that the
United States strengthens its commercial presence in Southeast Asia
in a way that continues to serve the vital development interests of the
host country themselves, as well as the interests of the American private
sector.
Thank you, Mr. Chairman.
[Mr. Nalen's prepared statement follows-,
PREPARED STATEMENT OF HON. CRAIG A. NALEN
Mr. Chairman and Members of the Committee : I am pleased to have this op-
portunity to discuss with you the role of the Overseas Private Investment
Corporation in furthering U.S. investment, trading interests, and overall devel-
opmental impact on Southeast Asia. OPIC has historically focused considerable
energies on the Southeast Asian region, and under this Administration these ef-
forts have been intensified with an associated increase in U.S. business activity.
This is not to say that formidable challenges and impediments to U.S. commercial
interests in this region do not exist. The increasing prevalence of trade-distorting
performance requirements and other investment practices, and direct competition
for Southeast Asian trade and investment from third-countries pose particular
problems for both OPIC and the U.S. investor. Nevertheless, we are confident that
the U.S. public and private sectors have the capability to successfully meet these
challenges in the coming years and that prospects for expanding U.S. trade and
investment in Southeast Asia are bright.
OPIC'S ROLE IN SOUTHEAST ASIA
As you know, OPIC is responsible for providing political risk insurance and
financial services to U.S. investors in approximately 100 developing nations, our
objective Leing the promotion of the development of these countries through selec-
tive encouragement of U.S. investment and trade. Over the past 4 years, OPIC's
involvement in Southeast Asia, largely concentrated in the ASEAN countries, has
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increased significantly. In fact, during this period, the total value of new ASEAN
investments supported by OPIC services has risen over ten-fold, from $32 million
for 11 projects in fiscal year 1978 to $403 million for 17 projects in fiscal year
1981. Over half of the increase occurred between fiscal years 1980 and 1981. While
the majority of the projects were supported with OPIC political risk insurance,
two investments in Indonesia of $101.5 million and $7.7 million, respectively,
benefitted from OPIC financial assistance. Outside of the ASEAN group, a large
mining investment in Papua, New Guinea, for which an OPIC loan guaranty was
provided, was also supported by OPIC during this 4-year period.
Within the ASEAN group, OPIC insured in fiscal year 1981 six projects in
Thailand with total investments worth $359 million. One of these projects, a large
natural gas investment, accounted for approximately 90 percent of this total.
This epitomizes OPIC's desire to encourage the development of indigenous energy
sources. OPIC-assisted projects in other ASEAN countries included four projects
in the Philippines with total investments of $16 million ; three projects in Malay-
sia valued at $8 million ; and two projects in Indonesia valued at $8 million. Al-
though our Insurance program is restricted in Singapore by its high GNP per
capita one $3.5 million project was insured. In the first 6 months of fiscal
year 1982, OPIC insurance has thus far been provided for two projects in the
Philippines valued at $22 million and one project in Thailand valued at $8 mil-
lion. The cumulative value of investments in ASEAN supported by active OPIC
insurance contracts as of April 30th of this year was $597 million, consisting
of $228 million in the Philippines, $166 million in Thailand $140 million in In-
donesia, $50 million in Malaysia, and $13 million in Singapore.
With respect to OPIC financing within the ASEAN group, Indonesia and the
Philippines have been the primary users of this service. In fiscal year 1981 we
provided a guaranteed loan to Indonesia for an automobile component factory
with a total investment of $7.7 million and are currently considering an applica-
tion for financing a cement plant. In the Philippines, we also funded a feasibil-
ity study in fiscal year 1981. Other projects in Thailand, Indonesia, and the
Philippines, under consideration for financing, are at a more preliminary stage.
The availability of alternative forms of below-market financing make OPIC
financing less attractive, though still available, to Malaysia and Singapore.
OPIC's financing is at near-commercial rates of interest, with ;. typical repay-
ment period of 5 to 12 years and in most cases is provided on a true project finance
basis, (i.e., without recourse to the project sponsors or the host government.)
The impact of these OPIC-assisted projects over the past 4 years, and particu-
larly last year, on both the development of the ASEAN countries and the econ-
omy of the United States is impressive. The estimated ASEAN employment sup-
ported by these projects, in the fifth year of their operation, has increased from
approximately 1,900 jobs for the fiscal year 1978 projects to 5,900 jobs for the
fiscal year 1981 projects. In addition, the net positive foreign exchange estimated
to accrue annually to the ASEAN countries as a result of these projects increased
from $15 million for the fiscal year 1978 projects, and $44 million for the fiscal
year 1980 projects, to a sizeable $300 million for the fiscal year 1981 projects.
These projects have brought benefits to the U.S. economy as well. Estimates of
U.S. employment stimulated by these projects, due to initial procurement and
annual production input needs over a 5-year period of project operation, have
also shown significant increases. Over the last 4 years these U.S. employment-
generated estimates have increased from 680 jobs for the fiscal year 1978 projects
to 4,400 jobs for the fiscal year 1981 projects.
In summing up our role in Southeast Asia, OPIC has conducted a considerable
volume of business in this region over the recent past, with increased emphasis in
fiscal year 1981 under the initiative and direction of this Administration. This
effort has resulted in our underwriting political risk insurance valued at approx-
imately $285 million 1 for the ASEAN region in fiscal year 1981. This represents
nearly 20 percent of OPIC's total worldwide insurance portfolio for fiscal year
1981. Moreover, cumulative OPIC insurance presently active in this region
amounts to $1.5 billion. On the finance side, over 20 percent of OPIC's worldwide
finance portfolio of $350 million has been devoted to funding projects in Southeast
Asia.
I would like to underscore to you that our success in facilitating U.S. invest-
ment in the Southeast Asian nations has only served to increase our awareness
of the numerous opportunities yet to be tapped. In the coming year OPIC could
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do considerably more business in the ASEAN region. We currently have pending
applications for 80 projects for which additional insurance valued at $1.7 billion
may be required. these pending applications represent investments valued at
$617 million, the majority of which are in Indonesia ($413 million), followed by
the Philippines ($9b million), Malaysia ($84 million), Thailand ($18 million),
and Singapore ($7 million). This potential business does not include some 10
energy projects, also pending, that would result in a significantly higher amount
of insurance issuance.
While the aggregate numbers reported in the preceding section demonstrated
in macro terms our commitment to providing insurance and other OPIC services
to U.S. Investors in Southeast Asia over the recent past, I would now like to
focus more specifically on some examples of the types of business activities that
OPIC has assisted in this region.
One of the projects with which we have been most proud to be associated has
been an investment by Freeport Minerals Company in a copper mine in Irian
Jaya, a remote area in Indonesia. OPIC proviaed both insurance and financing
for the 1979 expansion of the mining enterprise, facilitating the development of a
new underground copper deposit. The project is not only generating $140 million
in copper exports for Indonesia each year, resulting in annual foreign exchange
savings for the country of over $47 million, but has resulted in a significant
transfer of mining technology to Indonesia.
The U.S. investor operates a sophisticated training facility offering programs
teaching such skills as welding, electrical and mechanical maintenance, heavy
equipment operation, and general management. Freeport has also brought
advanced health care techniques to the area, providing free medical services at
the three clinics it has built, as weal as funding major tropical disease research
programs. Employees and their families are offered language and other educa-
tional programs, and the investor makes grants to local and national university
scholarship programs. Improved strains of vegetable seeds have been distributed
to villages in the mine area, and the villagers are now selling their produce to the
Company's stores.
It is apparent to us that this U.S. investor has taken very seriously its obliga-
tions as a corporate citizen in an underdeveloped region, contributing measurably
to upgrading the skills and standard of living of the local populace. That Free-
port has also been able to realize a good profit while promoting U.S. exports to
the tune of some $40 million per year is evidence that U.S. private investment in
Southeast Asia can be of great benefit for all concerned.
As you know, one of OPIC's mandates is to assist small business in their efforts
to invest in developing countries. In 1980 we helped Buckbee-Mears Company,
a small manufacturer of precision metal stampings and precious metal platings
used in the electronics industry, to establish a subsidiary in Singapore. The
project employs 44 Singaporeans and is training several of them in tool and
die-making. Buckbee-Mears' output is both sold locally and exported to Singa-
pore's ASEAN partners. The increased availability of these stampings and plat-
ings in the region should enable local users of lead frames to expand their
production and may facilitate the growth of the integrated circuit manufactur-
ing industry in the ASEAN region.
Sometimes the benefits of private investment for a country go beyond increased
employment, foreign exchange savings, and technology transfer. I am referring
to those cases where the product itself has a lasting and beneficial impact on
the developmental process. An example of this would be the recent expansion
of Abbott's pharmaceutical operations in Indonesia. The plant is the only one in
the country that manufactures ethambutol, a major component in the medicine
used to combat tuberculosis. Together with the company's research in this area,
the increased availability of this product has contributed to the drop in the inci-
dence of this disease in Indonesia.
Among the key concerns of the majority of the ASEAN nations, are the decen-
tralization from major industrial centers and the on-site processing of primary
raw materials. An OPIC-assisted project in Malaysia, undertaken in 1980 which
was a joint venture between two U.S. firms and the Malaysian Government,
accomplishes both of these goals. The investors established a plant that manufac-
tures rubber gloves for household, industrial, and medical use. It is located in the
State of Kedah, away from the large cities of Kuala Lumpur and Penang, and
utilizes Malaysian rubber, providing value-added for a local product.
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In recent years, OPIC has developed several programs designed to promote
investment in certain key sectors. One of the most successful has been our con-
tractors' insurance program, wherein OPIC insures letters of credit that con-
tractors often must post as bid bonds, performance bonds or advance payment
guaranties against arbitrary drawdown by the host government. In Thailand. we
provided such coverage last year to Harza Engineering Company International, a
U.S. engineering company, when it contracted to perform engineering consulting
services in connection with the Nam Mun and Lam Sae dams. These dams are
part of a World Bank-sponsored project consisting of the construction of storage
dams on the headwaters of the Mun River and the development of agricultural
irrigation systems in the surrounding areas.
Thailand is also the location of another project assisted by one of OPIC's spe-
cialized programs. Under our oil and gas insurance contract program, we provided
$100 million in coverage for a U.S. investment for the development of a natural
gas field in the Gulf of Thailand. This project will provide significant financial
benefits to the country. Estimated gas production will result in import substitution
amounting to some $340 million annually : the net foreign exchange savings for
Thailand should be approximately $270 million per year ; and taxes on the invest-
ment will amount to approximately $45 million.
The financial benefits to the United States from this gas project are not insig-
nificant either. Of the projected $351 million in total initial investment in the
project, it was expected that $128 million would be spent in the United States for
engineering services and equipment. Another $77 million would be spent in Singa-
pore and Indonesia. The investor calculates that its average dollar return will be
$65.2 million annually over the 20-year productive life of the project, totalling
some $1.3 billion. In addition, the project has rendered feasible the establishment
of a $500 million port-pipeline complex of which nearly $100 million will be pro-
cured by U.S. contractors and suppliers.
Finally, an OPIC-assisted investment that exemplifies a variety of develop-
mental benefits is the recently insured Cargill project in Thailand which involved
the drying, pelletizing, and shipping of tapioca for export to the European Com-
mon Market. The value of these exports is expected to exceed $43 million annually.
The project will also provide employment and training for about 185 Thais. In
addition, the project is stimulating agricultural development in the northern part
of the country, a key priority for the Thailand Government.
I believe that these examples illustrate the positive effect of OPIC's various
programs upon economic development in Southeast Asia as well as on the U.S.
economy.
OPIC EFFORTS TO FURTHER U.S. INVESTMENTS
Although OPIC's services have typically been in great demand in the ASEAN
region, we are taking specific steps to further stimulate U.S. investments in this
area. Consistent with the Administration's objective to expand the role of the
private sector in economic development, we are endeavoring to increase our busi-
ness volume, and facilitate U.S. investment in the region. We have targeted spe-
cific industries that have been designated by developing nations as priority
sectors. We have also targeted several regions of the world as being high prior-
ties for OPIC, either because their markets provide the greatest opportunities for
the U.S. business expansion-such as ASEAN-or because of U.S. Government
foreign policy interests-such as the Caribbean Basin. OPIC services ? are being
promoted in the ASEAN region through seminars, missions, feasibility studies,
and training programs. In addition, OPIC has actively participated in the activi-
ties of various U.S. Government, host-government, multilateral, and business orga-
nizations interested in ASEAN affairs that will contribute to fulfilling oui
mission.
OPIC has sponsored various successful seminars for U.S. investors interested
in ASEAN and other Southeast Asian countries. In fiscal year 1980 OPIC spon-
sored a seminar on the international hardwood industry that highlighted, in part,
investment opportunities in the Southeast Asian countries of Indonesia, Malay-
sia and Papua New Guinea. Also, in fiscal year 1981, we sponsored a seminar on
the international construction materials and equipment manufacturing industry
with Indonesia as one of the focal countries. Of particular importance, however,
was the OPIC seminar held in April of this year centering on potential investment
opportunities in the food production and processing industry in the ASEAN re-
gion. This seminar reflected OPIC's newly developed promotional approach, fo-
cusing as it did on a high priority industry and on those countries having con-
siderable business and developmental potential.
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During the course of this seminar, numerous investment opportunities for U.S.
firms in food production and processing were identified, primarily in Indonesia,
Malaysia, the Philippines, and Thailand. The seminar introduced some 40 U.S.
firms to these opportunities through presentations of, and consultations with,
experts from the U.S. private and public sectors, and the ASEAN governments.
The program focused particularly on fruit and vegetable processing, animal feed
production, livestock and dairy operations, and fish and seafood processing. The
investment climates in the specific countries, as well as the region in general, were
reviewed from economic, technical, political, and financial perspectives. The semi-
nar revealed that most of the investment interests of the U.S. firms were in Indo-
nesia and Malaysia and that the areas of greatest interest were livestock opera-
tions, fishing and canning, and animal feed production.
OPIC will also be sponsoring a series of Investment Missions to the ASEAN
region in the next 18 months. The first mission is scheduled for Thailand from
July 10 through 17 of this year. An investment mission gives potential investors
the opportunity to visit a particular country, meet with business leaders and
government officials, explore investment opportunities in detail, and visit invest-
ment sites. During the course of the mission, the OPIC staff will ensure that
each participant has many opportunities to attend pre-arranged meetings with
local business counterparts who have specific ventures in mind. You might say
that we function as match-makers between United States and host country
businessmen in search of partners.
The mission to Thailand and the others planned for the ASEAN region should
be even more fruitful than the highly acclaimed 1978 investment mission to the
ASEAN region. We plan to establish target areas and projects based in part on
the information provided by Thai investors and the Thai Government prior to
the trip. Moreover, those participating in the mission will be selected based on
their potential to undertake an investment in Thailand. Mission participants
will acquire a better understanding of the investment climate in Thailand and of
specific investment opportunities through investment briefings, individual busi-
ness appointments, and meetings with Thai officials. The mission will be co-
chaired by L. Ebersole Gaines, Executive Vice President of OPIC, and Herbert
L. Lucas, Jr., former President of Carnation International-a longstanding
OPIC client with current operations in Thailand.
Another very important means by which OPIC provides assistance to U.S.
firms doing business abroad is through partially funding feasibility studies.
Feasibility studies are exceedingly important both to stimulating interest in
viable overseas investments and in promoting trade. A number of developed
countries, such as Japan, are increasingly using this form of official assistance to
improve access into the ASEAN region for their businessmen. Not only do feasi-
bility studies support home-country businesses in taking advantage of investment
opportunities, but these studies also establish criteria generally favoring exports
(procurement and production inputs associated with the investment) of the
nation providing the assistance. Although in the past, OPIC activity related to
feasibility studies for the ASEAN countries was limited-as it has been else-
where-we anticipate the expansion of this OPIC service in the Southeast Asian
region. OPIC will be endeavoring in the future to increase its activities in this
vital area.
One of our more innovative steps to promote U.S. investment and the positive
developmental impact on the ASEAN countries is a management training pro-
gram in the technology transfer area, recently supported by an OPIC grant to-
gether with contributions from private sector sources. As you know, under the
provisions of Section 234(e) of OPIC's statute, the Corporation is authorized to
support special training programs and to faci:itate the technology transfer proc-
ess. In March of this year, OPIC entered into an agreement with the Fund for
Multinational Management Education (FMME), a non-profit organization, to
establish a self-sustaining training program in the acquisition, use, and manage-
inent of U.S. technology in each of the five ASEAN nations. The genesis of this
program was the third ASEAN-U.S. dialogue conducted a few years ago in
Manila. The ASEAN nations made clear at that time that they were searching
for alternatives to the Japanese and European technologies that are predominant
in the area. Under FMME auspices courses will be offered twice a year through
local managerial institutions. As a result, each year approximately 40 to 50 upper
and upper-middle management executives per country will become well equipped
to plan, purchase, install and manage U.S. technology for their company's opera-
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tions. We are very proud of the unique role that OPIC played in bringing this
project into being.
There will be two beneficiaries of the OPIC-supported FMME program. First,
the ASEAN nations will benefit as they will now have alternatives to Japanese
and European technologies. In addition, we expect that increased competition
in this market will lower costs to the A SEAN consumer. Moreover, to the extent
that new technology becomes more avai'able to ASEAN firms, we anticipate
that the development process will lie stimulated. The, second beneficiary will be
the U.S. firms that supply the technology. Many small U.S..suppliers of technologv
simply cannot get out to this region in order to demonstrate and sell their prod-
ucts. Teaching ASEAN company representatives how to access smeller U.S. tech-
nology suppliers should go a long way to helping to resolve this problem and help
the U.S. trade balance at the same time.
I have discussed our assistance to FMME in some detail because I know that
the Subcommittee is interested in what new actions the U.S. Government might
fruitfully consider to promote U.S. commercial interests in Southeast Asia. Al-
though very small, I think that the FMME project exemplifies what the USG
might consider doing; on a grander scale-that is, provide training to ASEAN
businessmen in U.S. technology management. U.S. industry is justifiably reknolvn
in many sectors for its manacement expertise and technological innovation and
the demand for these capabilities is potentially very great in the ASEAN coun-
tries. I believe that Japanese and Western European competitors have been very
active in this training area for the techn.'ogies of their comnnuies. This chal-
lenge is certainly far greater than OPIC alone can address. While OPTC will be
making a small contribution to meeting this challenge, I feel that this is an area
that merits exploration both within the government and in the private sector in
order to discover the approach best suited to our national needs.
Finally, I would like to conclude my remarks on OPIC efforts to further
U.S. investment in Southeast Asia on one other area of activity. Concommitant
to our objective of furthering development in this region is the need to continue
OPTC's participation in various public and private sector activities associated
with Southeast Asia affairs. For example, L. Ebersoic Gaines and I were pleased
to attend and formally address the ASEAN-U.S. Business Council meeting in
Kuala Lumpur this year. More recently, we played an active role in the fourth
ASEAN-U.S. Dialogue conducted at the State Department. We came away from
both meetings with a better understanding of the ASEAN nations' conce-ns. I
am sure that the ASEAN participants came away with a much better under-
standing of OPIC's unique role and of the mutual benefits of doing business
with U.S. firms. Taking the knowledge that we have gained, and drawing upon
the talents of the OPIC staff, we think we can do a lot more in the ASEAN
region and I believe that the various programs I have outlined here under-
score that belief.
FUTURE INVESTMENTS: CHALLENGES AND SOLUTIONS
The advanced developing nations, which include some of the countries of
Southeast Asia, are major and growing markets for U.S. trade and investment.
As a region, ASEAN is the fifth largest trading partner of the United States,
having total trade of goods and services valued at $23 billion in 1981 of which
U.S. exports were $9 billion. In addition, the value of U.S. direct foreign
investment in the region exceeded $5 billion in 1981. In spite of our historically
close economic ties with Southeast Asia and the major commercial opportuni-
ties that will be available in the future, it is essential that we are realistic
in understanding that our future trade and investment relations with Southeast
Asia will face challenges as well as opportunities.
I believe that there are two general areas of challenge-one potential and
one very actual. First, of increasing potential importance is the imposition
of trade-distorting performance requirements and other investment practices
and barriers erected by host governments that disadvantage U.S. trade and
investment. Second, there is a very real competitive challenge to U.S. commercial
interests in Southeast Asia from Japan and other OECD countries that have
developed technologies competitive with those available from U.S. firms and
which tend to aggressively pursue export and investment markets. While formid-
able, these challenges are not insoluable problems. And they are problems for
which OPIC is at least a small part of the solution. Allow me to briefly elaborate
on each of these challenges.
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In an effort to maximize the flow of investment into their economies on terms
that are supportive of their national and economic goals, nations are increas-
ingly exercising greater control over the terms of investment in their countries.
Incentives are used to attract foreign capital and performance requirements
seek to ensure that investments are geared toward promoting host country de-
velopment. While yielding short-term benefits to the host country, these practices
can distort the natural benefits that flow to both the host country and the U.S.
investor from the free movement of capital. This constitutes a totally new type
of "nontariff barrier" to investment-and potentially to trade. Consistent with
our statutory mandate to review each potential project for performance, require-
ments and to decline to support projects that would "reduce substantially the
positive trade benefits likely to accrue to the United States from the invest-
ment," OPIC seeks to discourage Southeast Asian and other nations from em-
ploying such practices. Thus far in our review of the effects on U.S. trade of
performance requirements imposed by countries of this region, OPIC has not
yet declined its assistance to a project. We have acquired a solid base of em-
pirical information on performance requirements that we have shared with
other USG agencies. OPIC has and will continue to work with other agencies
to assess the extent, nature, and effect of performance requirements and the
policy position that the USG should take in light of U.S. political, economic, and
commercial interests.
The most well-known challenge to U.S. commercial interests in Southeast Asia
is competition from other developed countries that aggressively pursue trade and
investment opportunities in that region. Often these countries have long-estab-
lished commercial relations with particular Southeast Asian nations, that are
difficult for the U.S. investor to supplant. In addition, businessmen within most
OECD countries tend to pursue foreign commercial opportunities more ageres-
sively-often with government-supported programs-than U.S. firms. Official
export financing at below-market rates of interest, exporter insurance, loan
guarantees, and mixed-credit financing are generally available on what often
seems to be an unlimited basis, enabling the foreign businessman to more easily
seize foreign trade and investment opportunities. While I am not advocating
that our government necessarily adopt the same type of programs, I do believe
it is essential that we safeguard the interest, of U.S. business that may be
jeopardized by unfair foreign practices. In some instances, we can do this through
the GATT or the OECD; other times it requires a Government effort designed
to neutralize the advantage hoped to be gained through the foreign program.
Other witnesses that have or will appear before this Committee have far
greater expertise in some of these areas than I ; I will leave it to them to testify
on the appropriate solutions to those aspects of this complex challenge. From
OPIC's perspective we have sought to keep abreast of investment insurance de-
velopments of other OECD nations, and within the limits of our legislation, we
have sought to improve our programs' effectiveness. We have sought to maximize
the benefits of our programs through an improved feasibility study program,
innovating training grants and improved insurance coverage of licensing and
leasing investments.
These two major challenges that the United States faces in Southeast Asia
have the tremendous advantage of being easily identified and labeled. It must be
acknowledged, however, that there are hundreds, maybe thousands, of other con-
straints-some real, some imaginary, some public, some private, some in the
United States, some in Southeast Asian countries-that hinder and impede the
commercial activities of the U.S. businessmen. From talking with scores of U.S.
businessmen from both large and small firms, high technology and low technology
firms, agricultural firms and electronics firms, there emerges a bewildering
variety of concerns. I certainly do not wish to list all of these concerns. My pur-
pose in mentioning them is only to observe how they conjure up the image of an
economic giant of a country tied down by myriads of constraining threads.
Cutting through these constraining threads is not just a challenge to be ad-
dressed only by governments, but by the private sector as well. American indus-
try must become more aggressive in seeking out new trade and investment op-
portunities in Southeast Asia. U.S. business must become more flexible in tailor-
ing products and services to the specific needs of local markets. U.S. businessmen
need to dispell some of the unnamed fears and trepidations that render them so
parochial in the international marketplace. For its part, the Reagan Administra-
tion is aware of the need for modifying laws, regulations, and government pro-
cedures that excessively encumber U.S. business activities overseas. As you are
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34
aware, the Administration has already made important strides in removing some
of these constraints and has pledged to continue these efforts. For our part at
?OPIC, we are examining where we can reduce the burdens on investors in deal-
ing with us and where we can improve our services to match foreign government
programs.
CONCLUSION
Mr. Chairman and Members of the Committee, I have sketched what I believe
to be a comprehensive overview of OPIC's activities in Southeast Asia, of which
we are extremely proud. I am confident that, consistent with the Administration's
emphasis on the private sector's contribution to furthering economic development
in the Third World, OPIC's future role in mobilizing U.S. investments in South-
east Asia will grow. This will particularly be the case as we expand our activities
into new program areas that better serve the interests of both the U.S. investor
and the nations of the region. Through a concerted effort of business and govern-
ment, we can ensure that the United States maintains a strong commercial pres-
ence in Southeast Asia that serves the interests of the private sector and the
United States as a whole.
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DIWEIOPMENT
REPORT
FISCAL 1981
Overseas Private Invesfinent Colimm tion
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37
This Report is a comprehensive re.
view of the development activities
of the Overseas Private Investment
Corporation (OPIC) during fiscal
year 1981 and an examination of the
international economic environment,
the problems faced by the develop-
ing countries and the leading role
which ODIC can and has played in
U.S. efforts to respond to these prob.
lems. In addition to detailing the de-
velopmental effects of OPIC's activi-
ties, the Report specifically reviews
how OPIC meets the development
needs of the low- and middle-income
developing countries. This is fol-
lowed by an in-depth look at certain
critical areas: energy, food and the
Caribbean Basin. Finally, since OPIC's
programs not only promote develop-
ment in the developing countries,
but benefit the U.S. economy as well,
these U.S. benefits are also discussed.
This Development Report has been
prepared by OPIC for the United
States Congress in compliance with
Section 240A of the Foreign Assis-
tance Act of 1961, as amended. As re-
quired by the Act, the Development
Report makes an assessment of the
economic and social development
impact and benefits of the projects
supported by OPIC during fiscal year
1981. It also reviews the extent to
which OPIC's operations comple-
ment or are compatible with the de-
velopment assistance programs of the
United States and other public and
private, national and international,
donors.
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II. Development and the World Economy ............................................... 5
Outlook for the 80's ............................................................................................ 5
Policy Implications for the Developing Countries .................................... 5
The U.S. Policy Response .................................................................................. 6
OPIC's Special Role ............................................................................................. 6
IV. Meeting the Development Needs of the Low- and Middle-
Income Developing Countries ................................................................. 11
OPIC Projects in Low-Income Developing Countries 11
OPIC Projects in Middle-Income Developing Countries ......................... 13
V. Special Development Initiatives .............................................................. 14
Energy ............................................. ................................ ........... ......................... ...: 14
Food Production and Food Processing ......................................................... 15
Caribbean Basin .................................................................................................... 15
Investment Encouragement Assistance .......................................................... 16
Investment Missions and Industry Seminars ............................................... 17
VII. OPIC's Future Developmental Role and Activities 20
Services and Special Initiatives ........................................................................ 20
Appendix
List of Investors Insured in FY 1981 .............................................................. 21
Finance Projects Committed in FY 1981 ....................................................... 25
The World of OPIC ............................................................................................. 26
OPIC's Country and Area List ........................................................................... 28
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O PIC was created by the Foreign
Assistance Act of 1969 for the
purpose of facilitating the flow of pri-
vate U.S. capital and skills to the
friendly countries of the developing
world. OPIC's programs also serve
both the strategic and economic in-
terests of the United States.
OPIC operates two main programs:
it insures U.S. private investments in
over 90 developing countries against
certain political risks, and it finances
the investigation and development of
projects by U.S. investors in those
countries. (See Appendix for Country
and Area List.) Substantial financial
reserves back OPIC's insurance and
guaranty obligations; moreover, the
full faith and credit of the United
States of America is pledged for the
full payment and performance of
OPIC's commitments.
OPIC is totally self-sustaining and
receives no Congressional appropria-
tions. The operational revenues of
OPIC are used to build its insurance
and guaranty reserves, expand the di-
rect loan program and promote addi-
tional small business enterprise
abroad. Fiscal year 1981 marked the
strongest performance in OPIC's his-
tory, with gross revenues reaching a
new high of $86.7 million and net in-
come after operating expenses total-
ing $76.2 million. These figures rep-
resent increases of 14 percent and 16
percent, respectively, over the pre-
vious year.
Over the past year, OPIC's opera-
tions were stimulated by a height-
ened awareness in the private sector
of the value of OPIC's services in the
uncertain economic and political en-
vironment which exists in many de-
veloping nations. By facilitating larger
flows of U.S. investment to less de-
veloped countries, OPIC contributed
importantly to the economic well-
being of both those countries and
the United States. As described be-
low, the need for increased invest-
ment in the less developed countries
has never been greater.
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T he past year witnessed the contin-
uation of trends that had been in-
hibiting the growth prospects of
many developing countries for sev-
eral years. The problems noted in
last year's Development Report-a
stagnant world economy, high oil
prices, inflation, and external debt-
have continued to frustrate the
growth prospects of many develop-
ing countries.
The slow growth of the industrial.
ized countries in 1980 faltered even
further in 1981. Collectively, the in-
dustrial economies saw their annual
growth rates held to under 2 percent
in 1981, after enjoying a 3.5 percent
annual growth average in 1970-78. In
several countries, including the
United States, slow growth has given
way to actual negative growth and
recession. The result has been a de-
cline in world trade, resulting in an
estimated 2 percent decrease in real
terms in aggregate world trade for
1981. The adverse implications for
developing countries whose econo-
mies are dependent on exports to
developed country markets are
patent.
Despite the weakening ability of
OPEC members to raise petroleum
prices and the relief provided by a
temporarily glutted market, the high
price of imported oil remains one of
the key constraints to accelerated
growth for developing countries. The
financing of imported oil in 1981
continued to exacerbate balance of
payments problems, forcing finance
ministries to concentrate their efforts
on short-term foreign exchange
crises rather than long-term develop-
ment plans. The poorest of the devel-
oping countries have had no choice
but to severely curtail oil imports,
while other nations have incurred
massive external debt and accepted
slower growth rates by continuing to
import needed oil supplies.
The implications of continued high
rates of inflation for developing and
developed countries alike have also
become clearer over the last year.
The tight monetary policies em-
ployed by the developed countries in
order to control inflation have kept
interest rates at record high levels
and have made external financing ex-
tremely difficult for all but the most
creditworthy developing countries.
Inflation-fighting goals have also pre-
vented the developed countries from
pursuing expansionary fiscal policies
that would in turn increase demand
for developing countries' exports.
The problems that developing
countries face in acquiring and serv-
icing foreign financing remain cen-
tral to any discussion of future
growth prospects. Massive current ac-
count deficits since the last oil price
shock have been financed in a variety
of unprecedented ways-debt re-
scheduling and the drawing down of
reserves to dangerously low levels-
that cannot be sustained in the fu-
ture. The composition of foreign bor-
rowing has also changed, moving
sharply from predominantly long-
term to short-term commercial flows.
Combined with reduced concessional
lending, these developments point to
ominous debt servicing problems in
the near future for the developing
countries that are the heaviest
borrowers.
Outlook for the 80's
All the above factors will combine to
make the achievement of healthy
growth rates difficult for both devel-
oped and developing economies. In-
flation-fighting policies in the devel-
oped countries will continue to take
precedence and will dictate that ex-
pansionary fiscal policy be modest in
scope and carefully paced. Slow
growth will continue to be the rule,
which will translate into only slowly
.growing world trade.
The implications of slow growth in
the world economy for developing
countries are quite readily apparent.
First, the developed countries will
continue to be forced by budget con-
siderations to constrain levels of
concessional assistance in both multi-
lateral and bilateral forms. Second,
slow growth in world trade will con-
strain developing country exports,
preventing them from keeping pace
with developing country needs for
foreign exchange.
Policy Implications for
Developing Countries
The governments of developing
countries will have to take into ac-
count all of these factors when de-
signing economic policy in the fu-
ture. Developing countries will need
to concentrate their efforts on the
mobilization and efficient use of
their own resources. Sound domestic
economic policy will be the key to
rekindled growth.
In many developing countries pub-
lic sector expenditures make up the
bulk of economic activity. Public sec-
tor activity in some areas can pro-
mote faster growth and equity. In
other areas, however, public expend-
itures and government-owned or
-controlled enterprises have created
inefficiencies and have wasted scarce
resources. Pruning an overly ex-
tended public sector can free up re-
sources for more important uses.
Market-determined price policies
in such critical areas as food and en-
ergy can have a beneficial effect on
developing economies. Government
controlled price levels can produce
surpluses when set too high, or can
discourage local production when set
too low. Market-determined prices
eliminate the need for expensive
price subsidies in the case of overly
high price levels. When prices are ar-
tificially low, the removal of price
controls encourages local produc-
tion, thus reducing imports.
In addition, the governments of
developing countries can harness the
creative resources of the private sec-
tor. Private investment has the poten-
tial to play a critical development
role in terms of both size and effi-
ciency. Governments can increase
the magnitude of private transfers of
capital and technology through the
use of judicious foreign investment
policies.
Private sector financing and exper-
tise can be crucial in replacing
concessional aid and restoring
growth rates battered by balance of
payments constraints. The productive
activities of foreign investors can
earn needed foreign exchange for a
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developing country through exports
or can enable the country to produce
locally products which were previ-
ously imported, both of which con-
tribute to an improved balance of
trade position. In the case of energy
exploration and production, the bal-
ance of trade benefits can be poten-
tially even larger and more
immediate.
The importance of private sector
transfers has not been lost on devel-
oping country officials. The antipathy
to foreign investment that was char-
acteristic of a decade ago has largely
been replaced by a new pragmatism
that is not concerned with whether
or not foreign investment should be
permitted, but rather with how it can
be attracted and regulated to maxi-
mize its contribution to national de-
velopment plans, Accordingly, many
developing countries have devised
elaborate investment incentive and
performance requirement regulations
in order to encourage and control
foreign investment.
Efforts by a developing country to
improve its investment climate can
have positive effects for both that
country and developed countries
when they result in the elimination
of unnecessary regulations and the
promulgation of clear and consistent
laws in conformance with the princi-
ples of international law. However,
some investment incentives and
trade-related performance require-
ments have the potential to distort
trade and investment flows in ways
that harm both developed country in-
terests and the long-run development
prospects of the developing country
that has enacted them. In order for
private investment to he most effi-
cient in promoting growth, it should
flow in response to bona fide, long
run economic opportunities, not ar-
tifical situations created by govern-
ment regulations.
The U.S. Policy Response
Given the increasingly critical prob-
lems faced by those in the process of
development, the need for a new
U.S, development strategy has be-
come increasingly clear. In response
to this challenge, the Reagan Admin-
istration has instituted a fundamental
reformulation of U.S. development
policy which recognizes that efforts
by the industrialized nations to re-
store healthy, non-inflationary growth
and efforts by the developing coun-
tries to implement sound economic
policy can complement and support
each other.
The recognition that the prospects
for economic health and growth of
both industrialized and developing
countries are inextricably hound to-
gether has introduced a growing
pragmatism into discussions of mu-
tual problems. Sharp differences re-
main, but perspectives are undenia-
bly closer than in the past.
At the Cancun Summit and in nu-
merous other fora, the Reagan Ad-
ministration has set forth a develop-
ment agenda to face the realities of
the 80's. The agenda takes as its start-
ing point the fact that large increases
in U.S. concessional aid-let alone
the massive, unilateral transfer of
productive assets proposed by cer-
tain developing countries in the
past-are neither possible for devel-
oped countries nor good policy for
promoting long-term economic de-
velopment. Rather, the new agenda
emphasizes the potential of the exist-
ing free market system to promote
efficient and rapid growth for all par-
ticipants. The Administration recog-
nizes that the rational allocation of
resources is best served by allowing
private investment, both local and
foreign, to flow to those opportuni-
ties where the incentives of the mar-
ketplace are the highest.
This new development agenda
proposes that new efforts be made to
liberalize trade, develop energy and
food resources, and establish an im-
proved international investment cli-
mate. Progress in these areas will
lead to sustained, balanced growth
for developed and developing coun-
tries alike.
The overriding theme throughout
the Administrations development
agenda is increased reliance on the
private sector. It is generally ac-
cepted that the decade of the 1980's
will be a period of capital scarcity for
both industrialized and developing
countries. As developing countries at-
tempt to bolster growth rates, capital
shortages will become increasingly
serious. Concessional capital flows
will be pinched the hardest by the
realities of slow growth in the indus-
trialized economies and tight world
financial markets. Private sector in-
vestment will become an increasingly
critical source of financing and tech-
nology. Moreover, the management
expertise and access to global mar-
keting systems that such investment
brings is often of equal importance.
OPIC's Special Role
OPIC's programs will, of course, play
a central role in a U.S. development
policy that emphasizes the private
sector. As the senior U.S. Govern-
ment entity charged with promoting
private investment, OPIC has had
over a decade of experience in mo-
bilizing private capital and skills for
the economic and social develop-
ment of developing countries. Its in-
surance and finance services and its
special programs have track records
of proven success.
Recent events in Afghanistan, Iran
and Nicaragua have impressed upon
private investors the importance of
evaluating political risk factors in
their investment decisions. The avail-
ability of political risk insurance can
be of critical importance in the deci-
sion to invest in a country where the
perception of risk is substantial, or to
undertake a project in a sector such
as energy or minerals where the ini-
tial investment is large. Moreover,
the problems of the convertibility of
local earnings have been exacerbated
by the continuing balance of pay-
ments problems of non-oil-exporting
developing countries. The availability
of convertibility insurance can be a
crucial factor for an investor whose
project will require the repatriation
of foreign receipts.
OPIC's financial services have suc-
cessfully mobilized and comple-
mented traditional sources of long-
term financing in the developing
countries. The provision of loan
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The primary purpose of OPIC's Direct
Investment Fund loan program is to
encourage and finance investment
projects involving U.S. small busi-
nesses that contribute to the economic
development of less developed coun-
tries. Such projects can promote de-
velopment in a variety of ways. Most
notably, they can foster expansion of
the host country's small-scale indus-
tries, as well as provide appropriate
technology and managerial expertise
to local entrepreneurs.
In the last fiscal year OPIC com-
mined $10 million in loans to help fi-
nance the establishment of 14 small-
and medium-sized businesses. These
loans mobilized an additional $12 mil-
lion of local investment capital which
may otherwise have lain dormant or
been invested abroad, thus not con-
tributing to the countries' economic
development. The funds to be in-
vested in these 14 projects will also
create employment for 43 persons per
million dollars of investment, an ex-
ceptionally high ratio. In addition, 10
THE DIRECT
INVESTMENT FUND
of these projects will be located in
less developed countries whose popu-
lation is less than five million and
hence were not especially attractive to
major U.S. corporations as locales for
their investments.
OPIC's fiscal year 1981 direct invest-
ment fund projects fulfilled a wide va-
riety of developing country needs. In
the Sudan, for example, a direct in-
vestment fund loan will be used to
develop new cargo handling facilities
and specialized trucking services, both
at Port Sudan and inland. Transport
problems have been a major con-
straint to Sudan's economic growth,
impinging particularly on petroleum
exploration and development projects.
This project directly meets that urgent
infrastructure need, while at the same
time generating $3 million in new
government revenues and $6.56 mil-
lion in foreign exchange earnings
over its first five years of operation.
Another loan to a US.-owned dis-
tributorship of refrigeration equip-
ment in Peru will allow the investor to
enlarge warehousing and repair facili-
ties and add two new lines of equip-
ment for sale. The project supports
the Peruvian fishing industry through
its equipment sales and services. Peru
has been striving to add fresh fish
production to its traditional produc-
tion of fishmeal. Modern refrigeration
equipment will be indispensable to
the achievement of this goal.
An investment in St. Vincent will es-
tablish a plant to manufacture security
devices used In the cable television
industry. The plant will employ 136 la-
borers or 1.4 percent of the estimated
unemployed work force on the island.
These laborers, who have no experi-
ence in electronic assembly, will re-
ceive on-the-job training. Export of the
security devices will generate approxi-
mately $4 million in foreign exchange
over the first five years of project
operation.
guaranties can convince lenders to
extend financing in countries where
internal exposure limits have been.
reached, or where certain forms of
political risk are present. OPIC par-
ticipation can thus help leverage
more funds, increasing capital flows
to promising investment opportuni-
ties. In addition, loans from OPIC's
Direct Investment Fund (DIF) can be
channelled to smaller investors and
innovative projects that might nor-
mally be shut out of international
credit markets. The medium- to long-
term structure of these DIF loans can
allow investors to take on more eas-
ily available short-term commercial
credit, increasing overall capital
flows. It also allows for the extension
of pay-back periods over a longer pe-
riod of time, permitting projects to
be more developmental in design.
The wide range of special services
OPIC offers to U.S. businesses and
developing countries was expanded
further in fiscal year 1981. Major,
new emphasis was placed on bring-
ing U.S. investors in touch with op-
portunities in the developing world
through investment missions and
seminars. OPIC also offers assistance
for feasibility studies and pilot proj-
ects after investment opportunities
have been identified. Its expertise in
bringing together the various compo-
nents of a foreign investment project
can ensure success in both commer-
cial and developmental terms.
OPIC also supports activities that
do not involve specific investment
projects. For example, OPIC has ex-
tended assistance for the training of
foreign investment officers at the
United Nations Industrial Develop-
ment Organization (UNIDO) in New
York. OPIC has also funded grants
for private voluntary organizations
that disperse seed loans to new small
businesses. Other grants have sup-
ported vocational and technical train-
ing in developing countries. Re-
newed and expanded grant activities
in the coming year will help OPIC
serve one of its most important
goals: the encouragement of entre-
preneurship and a healthy private
sector in developing countries.
The key to continued growth and
development in the 1980's will be ef-
ficiency. This is precisely the most
important virtue of the private sector.
If the developing countries are to
make the structural adjustments
needed in their economies for re-
newed growth, the use of private in-
vestment will be indispensable. The
strength of all of OPIC's programs is
that they complement, rather than
supplant, private market mechanisms.
By removing some of the political
risks and providing supporting ser-
vices OPIC can induce increased
flows of private capital and technol-
ogy. Most importantly, OPIC does
this in an economic manner, allow-
ing investment to flow to real oppor-
tunities. In so doing, the need for
special incentives is reduced.
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M. THE DEVELOPMENT IMPACT OF OPIC's FY 1981 ACTIVITIES
In fiscal year 1981, OPIC made
commitments to insure or finance
113 projects in 37 countries. Fifty-five
of these projects are in manufactur-
ing, 19 in banking and finance, 12 in
agribusiness, 12 in services, 10 in
construction, and 5 in minerals or
energy (Figure 1). Forty-five proj-
ects, or 40 percent, are located in
countries with a per capita GNP of
$520 or less computed in 1975 dol-
lars.' There were 33 projects assisted
in Latin America, accounting for 29.2
percent of the total, (Figure 2),
compared to 17.9 percent the pre-
vious year. All but three of these
projects were located in the Carib-
bean Basin, helping to support the
Reagan Administration's initiative in
this critical area. The second largest
concentration of projects was located
in the Near East (33), followed by
East Asia (30), Africa (11) and South
Asia (6).
Total investment in the 113 OPIC-
supported projects is estimated at
$4.5 billion. U.S. investors will supply
41 percent of this capital, or $1.9 bil-
lion. Host country investment will to-
tal $2.06 billion, third country partici-
pation $559 million, and multilateral
lending institutions will supply an es-
timated $62 million (Figure 3). Lo-
cal ownership will be involved in 62
of the 113 projects; in 44 cases these
local joint venture partners will own
50 percent or more of the enter-
prises. Moreover, under its mandate
from Congress, OPIC is continuing
its efforts to encourage small busi-
ness entry into overseas markets.
Some 30 percent of the projects as-
sisted in fiscal year 1981 involved
U.S. small businesses and coopera-
tives (Figure 4).
During their first five years of op-
eration, these projects are expected
to directly create some 20,600 new
jobs in the developing nations, of
which 17 percent will be manage-
ment/professional positions. These
'ODIC is dbected in Its statute to gitr
prrfc atrial assistance to protects in the least
desnloped counsles Under OPIC's 1981
reautboalzation l gislation the tens 'least
dcaetoped" bas been modified to include
tbunh6 o Ith a per capita GNP of $680 or
less in 1979 dollars.
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projects also will create thousands of
peripheral job opportunities because
they will increase the need for local
goods and services. Approximately
$915 million of the original invest-
ment funds will be spent locally and
an additional $92 million spent in
other less developed countries.
The net effect of these projects on
the host countries' balance of pay-
ments will be decidedly positive.
While average annual production-re-
lated imports will amount to $2.28
billion and capital outflows will be
$307 million, the projects will allow
the host countries to replace an an-
nual average of $3.12 billion in im-
ports and will generate $657 million
in export earnings, thus allowing a
net foreign exchange savings of $1.20
billion annually during their first five
years of operation. In addition, the
average annual net income from the
taxes and duties paid to host coun-
tries will amount to $349 million
during the same period.
The record-setting developmental
benefits in fiscal year 1981 are a fit-
ting culmination to a period of rapid
Figure 4
FY 1981 PROJECTS
INVOLVING INVESTMENT
BY SMALL BUSINESSES &
COOPERATIVES
Figure 5
COMPARISON OF INVESTMENT IN OPIC-ASSISTED
PROJECTS, FY 1978=81
Figure 6
COMPARISON OF NET FOREIGN EXCHANGE IMPACT' OF
PROJECTS ASSISTED BY OPIC, FY 1978-81
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growth in OPIC's activities since the
previous reauthorization legislation
was passed in 1978. The cumulative
rive year host country developmental
effects of projects assisted by OPIC
between the 1978 and 1981 reauthor-
izations are shown in Table I. The
amount of investment Facilitated by
ODIC rose sixfold during the 1978-81
period, from $665 million in 1978 to
$4.5 billion in 1981 (Figure 5). The
developmental benefits of OPIC-as-
sisted projects also exhibited a strong
upward trend during the period. The
annual foreign exchange generated
in the host developing countries by
projects assisted in 1981 was 7.4
times as great as for projects assisted
in 1978 (Figure 6), while host gov-
ernment revenues were 9.6 times the
1978 amount (Figure 7).
Figure 7
COMPARISON OF NET GOVERNMENT REVENUES'
ACCRUING FROM PROJECTS ASSISTED BY OPIC,
FY 1978-81
'Average annual fiscal impact in the host developing country during the first five years of
project operations.
Estimated Five Year
Developmental Effects of
OPIC-Assisted Projects
for FY 1978-81
Number of Projects Assisted:
Agribusiness
49
Manufacturing
172
Services and Tourism
117
Construction
34
Minerals and Energy
25
Total
398
Source of Project investment
($ millions):
U.S.A.
$3,585
Host Country
2,879
Third Country
1,963
Multilateral Institutions
132
Annual Foreign Exchange
Earnings and Savings to Host
Country ($ millions):
Imports Replaced
$4,260
Exports Generated
2,163
Total A
$6,423
Project Imports
$3,179
Capital Outflows
837
Total B
$4,016
Net Foreign Exchange
Benefit (A less B)
$2,407
Net Annual Taxes, Revenues and
Duties Paid to Host Government
($ millions): $679
Local Employment Generated:
Technical and Managerial 16,420
Skilled and Unskilled 57,058
Total 73_,478
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IV. MEETING THE DEVELOPMENT NEEDS OF THE LOW- AND MIDDLE-INCOME
DEVELOPING COUNTRIES
tle developing countries face
many common problems-un-
employment, poor infrastructure and
capital scarcity, for example-they
are as diverse from an economic de-
velopment standpoint as they are in
the forms of economic and political
organization they employ. In attempt-
ing to come to grips with the diver-
sity of developing countries and their
problems, development institutions
have found it useful to distinguish
between groups of countries on the
basis of per capita income level.
While this is admittedly only a rough
indicator of a country's level of de-
velopment, it still helps to indicate
where scarce resources should be di-
rected to maximize their benefit.
The lowest-income developing
countries desperately require help in
establishing the rudiments of a pro-
ductive economy. Efforts to meet
basic human needs for food, employ-
ment and health care need to be un-
dertaken, The economic infrastruc-
ture-transportation networks,
electricity, water supply-is often
poor or non-existent and in need of
extensive investment. Improvements
in these areas can increase the pro-
ductivity of available human and
physical resources and establish the
necessary preconditions for further
development.
On the other hand, many middle-
and higher-income developing coun-
tries have already developed small
but rapidly growing industrial sec-
tors. In order to maintain growth,
they must improve their external
debt management by reducing en-
ergy and food imports and increasing
and diversifying exports. Only then
will continued private international
financing be available for future de-
velopment efforts.
OPIC's 1981 insurance and finance
activities dealt directly with the di-
verse priorities of low- and middle-
income developing countries.
OPIC Projects in
Low-Income Developing
Countries
In the low-income developing coun-
tries-defined as having an average
Figure 8
PROJECTS ASSISTED IN FY
1981 BY PER CAPITA
INCOME LEVEL
per capita GNP of less than $520 in
1975 dollars-OPIC insured or fi-
nanced 45 projects in 1981. This
number represents 40 percent of the
projects for the year (Figure 8). To-
tal investment in these projects from
all sources will surpass $850 million.
These 45 OPIC-financed or -insured
projects will assist these nations to
address a variety of their develop-
ment problems, including unemploy-
ment and underemployment, provi-
sion of health care, infrastructure
needs, technology transfer, and a sta-
ble tax base.
1. Unemployment and Underem-
ployment. Labor remains the most
plentiful resource of nearly all the
low-income developing countries.
The available unemployment figures,
while discouraging in themselves (av-
eraging 30 percent among the Carib-
bean islands, for example), grossly
underestimate the true magnitude of
the problem. If workers are under-
employed, that is, employed in activi-
ties that contribute very little in
terms of real productivity, this under-
employment must also be taken into
account when considering the coun-
try's total labor situation.
Foreign investment in labor-inten-
sive activities can contribute the jobs
and basic training which these coun-
tries need to meet their employment
problems and improve the productiv-
ity of their labor forces. A variety of
the projects that OPIC financed or in-
sured in 1981 were highly labor-inten-
sive. For example, OPIC provided
insurance for Owens-Illinois, Inc., to
construct a glass container manufac-
turing facility in Egypt that will em-
ploy 470 Egyptians in both manage-
rial and labor positions. Under its
technical assistance agreement, Ow-
ens-Illinois will provide ongoing em-
ployee training in the areas of manu-
facturing, merchandising, accounting
and management. The facility will
also induce increased employment in
other areas of the economy through
its large procurements of locally-pro-
duced soda ash, lime and silica sand.
2. Adequate Health Care. Human
services such as health care are usu-
ally among the first governmental
programs to suffer in times of ex-
treme budgetary constraint. Imported
drugs and pharmaceutical supplies
often account for 20 to 40 percent of
the health care budgets of the poor-
est developing countries. OPIC as-
sisted three projects in fiscal year
1981 for the production of pharma-
ceutical products in Pakistan, Indone-
sia and Kenya. The Merck, Sharp and
Dohme project in Pakistan is an ex-
pansion of an existing plant that will
generate an additional $45.3 million
in foreign exchange savings over the
next five years as local production
replaces imports. The Richardson-
Vicks Inc. project in Kenya and the
Abbott laboratories project in Indo-
nesia will also allow those countries
to replace expensive imports with lo-
cally manufactured products. Projects
such as these can do much to re-
move the foreign exchange con-
straint on the provision of basic
health care in low-income develop-
ing countries.
3. Infrastructure. The lack of a
basic economic infrastructure, which
is endemic to most of the low-in-
come developing countries, discour-
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Foreign governments, particularly
those in the Middle East, often require
construction and service contractors to
provide bid, performance and advance
payment guaranties in the form of un-
conditional, irrevocable stand-by let-
ters of credit instead of the condi-
tional payment bonds offered by
surety companies that are traditionally
used in the United States. This re.
quirement and the possibility it cre-
ates of losses due to an arbitrary
drawdown Inhibit U.S. firms from sub-
mining competitive bids, This results
not only in the loss of business for the
U.S. firm but also in higher costs on
these projects for the developing
countries. OPIC's special program to
insure contractors against loss due to
arbitrary drawings of these letters of
credit has been eminently successful.
This coverage is also available to U.S.
exporters, who may be required to
post similar guaranties.
The availability of this coverage al.
lows American firms to bid more
competitively on foreign construction
and service contracts and fosters the
recycling of US. dollars. In fiscal year
1981, OPIC provided letter-of-credit
Insurance to 25 U.S. companies in
connection with 27 projects, eight of
which involved small-sized businesses.
Guaranties posted by two small-sized
companies which OPIC Insured in-
volve contracts valued at $1.4 million
to provide consulting services for dam
construction in Thailand and valued at
$4.4 million to prepare environmental
studies. Blount Incorporated was in-
sured against an arbitrary drawing on
a performance letter of credit it was
required to post upon being awarded
a $1.7 billion contract involving the
construction of university facilities in
Saudi Arabia. General Electric was
similarly insured with respect to a
$220 million project to design and
construct an electric power plant
Total expenditures for the 27 proj-
ects will be $2.3 billion, $914 million
of which is expected to be used to
purchase U.S. machinery and equip-
ment in addition to the contract fees
which are to be paid to the U.S. com-
panies. It is estimated that more than
13,500 man-years of U.S. employment
will be created in connection with the
production of machinery and equip-
ment to be used for the projects. Also,
U.S. companies will be the most likely
recipients of ongoing maintenance
service contracts and orders for spare
and replacement parts in the future.
ages both local and foreign invest-
ment. A number of OPIC-supported
projects in 1981 directly address in-
frastructure needs. Armco, Inc., for
example, is building a plant in Zaire
that will enable that country to man-
ufacture rather than import corru-
gated steel drainage pipe for its road
system. The project output will both
contribute to infrastructure develop-
ment and save foreign exchange for
a country whose foreign currency re-
serve situation is critical. In a similar
manner, the Phelps Dodge project in
Honduras will manufacture copper
and aluminum electrical cable to
meet a growing demand that has also
run up against the foreign exchange
constraint. Local production will ben-
efit the electrical power and commu-
nications networks.
4. Technology Transfer. Another
set of problems for many developing
countries relates to technology trans-
fer. The poorer developing countries
have neither the expertise nor the
foreign exchange to "unbundle" the
package of technology, management,
and marketing skills that comprise
many investment projects. In addi-
tion, some developing countries de-
mand productive technologies that
are appropriate for neither the factor
endowments of the country nor the
size of the market likely to he
served.
Judicious foreign investment can
overcome many of these difficulties.
The Metal Fabricators of Zambia Ltd.
project is an outstanding example.
Copper is Zambia's most important
natural resource and the basic input
for the country's most active manu-
facturing sector. Zambia has sought
to avoid exclusive reliance on raw
material exports by undertaking
some further processing of copper
locally. This project involves the in-
stallation and operation of a continu-
ous casting copper rod mill utilizing
an improved technology developed
by Outokumpu Cry of Finland. The
new continuous casting technology
will allow Metal Fabricators to use a
lower cost copper in cathode form as
a production input. Cost savings will
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allow exports to grow and will bene-
fit local manufacturers involved with
further processing of the rods.
5. Reliable Revenue Base. Many
governments in the poorest develop-
ing countries are also dependent on
small or unreliable revenue sources,
due to either the absolute size of the
tax base or the unreliability of the
collection system. Foreign invest-
ments can provide dependable, sig-
nificant additions to these revenues.
The American President Lines project
in the Philippines, for example, will
provide the Philippine Government
with $480,000 annually in new tax in-
come. The project, which involves
the installation and operation of
loading cranes for the port of Manila,
complements a World Bank project
for the upgrading of port facilities in
the Philippines.
OPIC Projects in
Middle-Income Developing
Countries
OPIC's activities in middle-income
developing countries were also sub-
stantial in 1981. Sixty-eight projects
were insured or financed, represent-
ing $3.7 billion in total investment.
The majority of the projects re-
sponded to the two most pressing
needs of the middle income coun-
tries: the diversification and stimula-
tion of exports and the reduction of
food and energy imports.
1. Diversification and Stimula-
tion of Exports. Exports earn the
foreign exchange necessary for the
import of capital goods and energy
often needed by nascent industries.
Many developing countries rely on a
loans to developing countries, prog-
ress in this area pays off in increased
access to credit.
OPIC's 1981 projects will generate
export earnings of $657 million an-
nually for project countries. In Costa
Rica, for example, a project estab-
lished by A.B.A. Industries will pro-
duce special order, precision metal
machine parts for export. The Fabri-
tek La Romana project in the Domini-
can Republic, which is partially fi-
nanced by OPIC, will produce cotton
gauze surgical sponges for export.
Peru will gain over $10 million in
net foreign exchange earnings an-
nually from the sale of a high protein
food additive that will be produced
from fresh fish by the Concentrados
Marinos Bayovar project.
2. Reduction of Food and Energy
Imports. In trying to manage exter-
nal debt and maintain high growth
rates, middle-income developing
countries often find themselves faced
with difficult import policy choices.
Bills for food and energy imports can
be a heavy drain on export earnings
and foreign exchange reserves. More-
over, demand for imports of food
and energy are not as easily "com-
pressed" as demand for consumer
goods in periods of fiscal austerity.
Domestic production can go a long
way toward easing the pressure.
Jamaica offers a good example.
The scarcity of pork and beef in Ja-
maica makes poultry one of the
country's primary sources of protein.
Consumption levels have been re-
strained, however, by the necessity of
importing either the poultry itself or
the fertile broiler eggs for local
hatchery operations. The OPIC-fi-
nanced Jamaica Broilers, Ltd. project
involves the start-up of a breeder
farm operation that will increase the
productivity of the local poultry in-
dustry and reduce fertile broiler egg
imports. Both local nutrition and the
Jamaican trade balance will benefit.
While many middle-income coun-
tries have experienced rapid growth,
there remain large gaps in the com-
plex web of input and output needs
between various industries. These
gaps are usually filled by expensive
imports and can be potent drags on
related industries and raise prices
throughout an economy. The Air
Products and Chemicals Inc. project
in Korea demonstrates how foreign
investment can fill one of these gaps.
A cryogenic air separation unit for
the production of industrial gases
that uses rubber and plastic scrap as
a raw material will be constructed.
The recycling technology used will
allow the foreign enterprise to pass
on savings to customers in the elec-
tronic, metal producing, rubber, plas-
tic and food industries. Earnings and
productivity in these other sectors
will improve, and foreign exchange
previously used for industrial gas im-
ports will become available for other
imports.
few key commodities for their export
earnings, Their development plans
can thus become extremely vulnera-
ble to fluctuations in commodity
prices and declining terms of trade.
Diversification of exports helps stabi-
lize and increase foreign exchange
earnings. Further, since export diver-
sification is one of the key indices
that the international financial com-
mygity examines in considering
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V. SPECIAL DEVELOPMENT INITIATIVES
In response to the urgent need of
developing countries for improved
domestic sources of energy and food,
OPIC has been involved with a num-
ber of projects which deal directly
with these two critical sectors. OPIC
has also undertaken projects which
strengthen American foreign policy.
During the last half of the fiscal year,
OPIC's assistance efforts directed to-
ward the Caribbean Basin were
stepped up in support of the Admin-
istration's recognition of the region's
strategic importance to the United
States. Investment assistance, invest-
ment missions and industry seminars
represent additional key areas where
ODIC has made special efforts. This
section of the report highlights
OPIC's activities in these areas and
demonstrates how OPIC has helped
to involve private enterprise in the
U.S. response to urgent development
and policy needs.
Energy
The quintupling of oil prices (in real
terms) over the last decade has cre-
ated severe problems for the devel-
oping countries. In several develop-
ing countries such as Brazil, Turkey
and India, over 50 percent of export
earnings is absorbed by payments for
oil imports. Moreover, many of these
countries are "captives" of imported
oil because they lack the infrastruc-
ture, such as coal handling and burn-
ing facilities, to switch to lower cost
alternative fuels.
The less developed countries have
had to increase their international
borrowing in large part to pay for
more expensive oil imports. Their
debt burden rose from $68 billion in
1971 to a nearly unmanageable $439
billion in 1980. Much of this debt
burden has been concentrated in de-
veloping countries like Brazil and
Turkey where small but rapidly
growing industrial sectors are already
in place. The poorest developing
countries have simply not been able
to find financing, and have had to
drastically reduce imports of oil.
A number of indirect effects have
compounded the problem. As house-
holds and small industries substitute
firewood for oil, as much as forty 40 wells. The gas will be transported
percent of the developing world's by an underwater pipeline, to be par-
timber reserves may be depleted. tially funded by the World Bank, to a
Deforestation reduces the amount of site near Bangkok, where it will he
arable land, necessitating increased used to power two electric genera-
imports of food. tion facilities. The first year's produc-
Furthermore, the dramatic increase tion of 150 million cubic feet will
in oil prices has contributed to eco- represent 100 percent of Thailand's
nomic stagnation and inflation in the gas production and approximately 25
developed countries. The first effect percent of its current petroleum im-
has resulted in decreased demand ports. By the fourth year of opera-
for exports from developing coun- tion, production will increase to 250
tries, exports that are needed to earn million cubic feet but will account
crucial foreign exchange. The second for a smaller market portion as addi-
effect, inflation, has led to restrictive tional gas fields come on stream,
monetary policies and unusually high Projected gas production will result
interest rates. High interest rates in a substitution for imports amount-
have in turn placed an increased ing to $341 million annually and af-
debt servicing burden on the devel- ter remittance of profits, loan repay-
oping countries. ments and fees of approximately $64
Part of the solution to the severe million, will produce net foreign ex-
problems brought on by higher oil change savings of approximately
prices is to increase energy supplies. $270 million annually.
Constituting one of the least ex- The Dominican Republic imports
plored areas, energy-importing devel- all its petroleum requirements. Last
oping countries represent one of the year, its petroleum expenditures
tal required to develop new sup- ect the will involve oil and gas ex-
plies.' Hence, there must be substan- ploration, development and
tial foreign investment and technical production in the promising San
assistance. To help accomplish this Juan Basin. While the quantities of
goal OPIC initiated a special energy hydrocarbons that,might be discvw
program. Since its inception fivej,, s ered cannot be predicted fly fhe: fth
years ago, the program has resulted year of production?the project possl-
in assistance for 10 oil and gas explo- bly could supply abott'half of Do-
ration, development and production minican petroleum needs, Extensive
projects in eight non-OPEC develop-
ing countries. These projects have in-
volved over $1 billion in total invest-
ments and are expected to generate
average annual foreign exchange
earnings of $749 million.
In fiscal year 1981 OPIC assisted a
Union Oil Company investment in
Thailand involving development and
will be provided for the 80 local na-
tionals employed in the exploration
and production stages of the project
to bring their skill level up to that of
similar employees in the industry. In
addition, scholarships will be granted
to deserving employees for special-
ized studies abroad, and courses will
production of natural gas from an be provided for the advancement of
offshore field. Investment of $35 mil- Dominican workers, technicians and
lion will be used to construct drilling professionals when necessary.
and production platforms and to drill These projects will do more than
The World Bank estimates that energy
der eipment programs in the oil-importing
developing countries milt require capital
expenditures of around $40 billion a year
beturen 1982 and 1985 including about $5
billion a year for oil and gas.
just provide direct benefits to the
host countries. By increasing world
supplies of energy, they will have a
moderating influence on oil prices,
which will benefit other developing
countries as well as the United States.
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Food Production and Europe. The project complements re- and the countries of Central America
Food Processing cent Kenyan efforts to improve pro- are high rates of inflation, wide-
ductivity in the agricultural sector. spread unemployment, and heavy de-
Developing countries increasingly The Terre Aride project in Haiti is pendence on imported food and en-
are realizing the importance of a in direct support of the Haitian Gov- ergy. The small size of many of the
large, healthy and growing agricul- ernment's effort to diversify cash Caribbean Basin countries' e'cono-
[ural sector to their long-term eco- crop production. The project in- mies means that these nations are
nomic development. The-"short-cut" volves the establishment of a jojoba often especially dependent on the in-
policies of the past-such as attempts bean plantation that will employ ternational economic system and are
to industrialize behind overvalued more than 500 Haitians during the disproportionately affected by fluc-
exchange rates-discouraged the ex. harvesting periods. Jojoba beans are tuations in the health of the world
pansion of the agricultural sector. an experimental new cash crop for economy. Frequent changes of gov-
The results were a lack of diversifica- Haiti, and, if successful, could lead to ernment and government policies in
tion in foreign-exchange-earning cash further investments for oil extraction many of these countries further con-
crops and increased food imports. and processing. tribute to their development
The external shocks of the seven- In Egypt, International Multifoods difficulties.
ties and the resulting need for struc- Corporation is investing in the manu- OPIC has played, and will continue
tural adjustment have caused many facture and sale of pasta and Euro- to play, a special role in the Adminis-
developing countries to reform their pean-style bread products. The proj- tration's Caribbean priorities. In fiscal
internal price policies for agricultural ect will service approximately one year 1981, OPIC assisted 30 projects
products and exchange rates. A large, million Egyptians with previously un- located in II Caribbean Basin coun-
diversified agricultural sector is now available quality foodstuffs. In addi- tries, including 9 in the Dominican
increasingly viewed as an efficient Lion to providing direct employment Republic, 6 in Haiti and 3 in Hondu-
"buffer," helping to insulate an econ- for 1,264 Egyptians, the project will ras. Seventeen of these were new
omy from external shocks, and as an indirectly increase employment and projects and 13 were expansions of
important source of indigenous in- investment in other areas of the existing projects. These projects in-
come, generating the savings neces- economy by stimulating related activ- creased employment, expanded ex-
sary for investment. ities such as establishment of a yeast port capacity, developed local food
OPIC places a high priority upon plant to manufacture yeast for me- and energy sources, and improved
food production and processing, in- chanical bakeries, construction of agricultural productivity. They repre-
suring or financing many agricultural roads to the plant site and construe- sent nearly $460 million worth of
projects over the last year. An OPIC tion of railroad siding. Training pro- new investment in the region and
project in the Bayovar region of grams are being developed for Egyp- will employ 6,200 workers by their
Peru, for example, involves the con- tian technicians and operators at fifth year of operation. The projects
struction of a fresh fish processing facilities in Switzerland, Germany will also generate net foreign ex-
plant and installation of custom-de- and Italy. A program of on-the-job change savings of $129.8 million an-
signed equipment. The plant will skills training will also he imple- nually for the host countries.
produce fish oil for the domestic mented by project technicians. It is Jamaica has received special atten-
market, defatted fish meal for the an- estimated that 15 percent of produc- tion within the overall Caribbean
imal feed export market, and a new tion will be exported to other Middle Basin effort. OPIC-sponsored projects
U.S. Federal Drug Administration-ap- Eastern countries, which, in combina- support the Jamaican Government's
proved fish protein isolate for local tion with import substitution, will commitment to the important role
consumption and export as a high- help Egypt realize foreign exchange the private sector must play in the
protein food ingredient. This project savings of almost $2,200,000 annually. development process. During fiscal
will provide jobs in a region of high year 1981, OPIC made commitments
unemployment and will have a signif- Caribbean Basin
icant impact upon the development The Reagan Administration has as- wto assist two proj in hich together hadta totalninvest-
of the fishing industry in the Bayovar signed to the Caribbean Basin a cen- ment value of $134 million and laid
region. tral role in its global development the groundwork for many additional
An OPIC-financed hybrid flower strategy, based on the region's eco- projects for fiscal year 1982. To intro-
and vegetable seed production and nomic and geopolitical importance to duce members of the U.S. business
processing facility in Kenya will em- the United States and because of the community to Jamaica, OPIC con-
ploy more than 80 Kenyans at all lev- realization that the widespread pov- ducted an investment mission to the
els when it reaches full capacity. All erty persisting in much of the region country in November 1981. The mis-
the Facility's production will he ex- must he alleviated. Among the most sion brought 24 U.S. business execu-
ported for sale to farmers and seed serious economic problems of the tives to Jamaica for five days of dis-
companies in the United States and small island-states of the Caribbean cussions on the investment climate
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and potential investment opportuni-
ties. As a result of this mission, 12
business or investment transactions
have either been consummated or
are under active negotiation as of
this writing.
The Alumina Partners of Jamaica
project demonstrates how foreign in-
vestment can contribute to a devel-
opment program based on the
growth of the private sector. This
project involves a capital improve-
ment program to open a new bauxite
mine and make extensive cost-reduc-
ing modifications to an existing alu-
mina plant. Benefits to the Jamaican
economy will be twofold. First, baux-
ite levy revenues to the government
will be sustained as the new mine is
brought into production and the old
mine site is phased out. Second, the
increased cost effectiveness brought
about by the plant improvements will
render the operation less vulnerable
to production cut-hacks in periods of
slack demand. Both Jamaican em-
ployment and revenues will thus be
stabilized.
OPIC also organized an investment
mission to Haiti in December 1981.
With a per capita GNP of only $257,
Haiti remains one of the world's
poorest countries. The 10 new invest-
ments that were finalized during the
mission or are under active negotia-
tion have the potential to generate
thousands of jobs in Haiti.
In fiscal year 1981 OPIC insured a
$1,125,000 investment by A-T-O Inc.
which will provide jobs for 429 Haiti-
ans, The plant's production of leather
baseball gloves will net foreign ex-
change earnings of nearly $250,000
annually for the Haitian economy. Lo-
cal managers and labor will be
trained in plant operations and ac-
quire new skills while earning a
yearly payroll of approximately
$330,000. In turn, their increased
earning power will provide addi-
tional stimulation to the Haitian
economy.
Building a basic transportation in-
frastructure is a major development
priority in Guatemala, and the Guate-
malan Government expects to begin
a $1.5 billion national highway proj-
ect in the near future. In fiscal year
1981 OPIC insured a $270,000 invest-
ment sponsored by the Tri-State Cul-
vert Corporation which will produce
metal culverts and related metal
products for use in the road building
effort. In addition, the new facility
will provide training for approxi-
mately 40 previously unskilled local
employees and will have a positive
net foreign exchange impact of
$165,000 a year.
Food supply, particularly meat pro-
tein, presents a serious problem for
many countries, including the Do-
minican Republic. The destruction
caused by Hurricane David in 1979
drastically reduced livestock and
poultry production. This was fol-
lowed by an African swine fever epi-
demic that devastated the traditional
local pork supply. The expansion of
the integrated broiler facility run by
AgroTech Dominica S.A. was crucial
in the attempt to counteract the ex-
pected decline of locally produced
meat over the next five years. OPIC
participated in this project in fiscal
year 1981 by providing a $400,000
loan which will allow production to
increase from 55,000 to 90,000 chick-
ens a week. In addition to improving
the local meat supply, the AgroTech
facility also involves the transfer of
technology to the Dominican Repub-
lic's economy, further supporting that
country's development program.
Investment Encouragement
Assistance
In addition to its Direct Investment
Fund, OPIC also provides financial
assistance in the form of loans and
grants to encourage private invest-
ment. Through financial and advisory
support it seeks to promote the de-
velopment of human resources, skills
and technology. Activities are also
undertaken to stimulate capital sav-
ings and the growth of financial insti-
tutions necessary for a sound private
sector.
In fiscal year 1981, OPIC com-
mitted $224,200 to help finance ten
feasibility surveys by potential U.S.
investors. Most of these funds will be
expended to survey projects that will
increase food production in the host
countries or the manufacture of
products customarily imported, re-
sulting in the saving of precious for-
eign exchange.
Investment encouragement grants
and concessional loans aggregating
$385,000 were committed to two
non-profit organizations, Accion In-
ternational and Witherspoon Interna-
tional. Accion International assists lo-
cal organizations in South America in
providing business training and fi-
nancing to micro-entrepreneurs.
Witherspoon International provides
equity and loan funds to U.S.'small
businesses and local firms in the Car-
ibbean. The businesses assisted by
Witherspoon International include a
small vacation resort complex in An-
tigua, a dog chew manufacturing op-
eration in Haiti and a printing busi-
ness in St. Kitts.
OPIC also extended grants
amounting to $123,500 under its
Business Management Education and
Manpower Training Program. These
funds will be utilized by seven U.S.
small businesses to provide educa-
tion and training to local employees
of their joint venture enterprises. For
example, the technical capabilities of
unskilled workers will be upgraded
to increase the productive capacity of
an enterprise to assemble electronic
products and technical training will
be provided to foremen and laborers
in quality control procedures related
to a fish processing plant. While this
program is designed to contribute to
the economic success of individual
investment projects, it also facilitates
the transfer of technology and mana-
gerial techniques to those less devel-
oped countries whose small business
entrepreneurs lack such expertise.
A further example of OPIC's invest-
ment encouragement activities is its
active support of an important and
successful program, sponsored by
the UNIDO Investment Promotion
Service, which provides training to
middle-level government officials of
developing countries in foreign in-
vestment promotion. Since the pro-
gram's inception in 1978, OPIC, as a
co-financer of the program, has given
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52
grants to UNIDO aggregating $303,000
The New York-based program par-
ticipants receive a year's on-the-job
training under the guidance of
UNIDO officers in preparing and im-
plementing comprehensive invest-
ment promotion activities to encour-
age U.S. investment in their
respective countries, They learn how
to identify specific investment oppor-
tunities and develop pertinent infor-
mation related to the projects for
presentation to and discussion with
potential U.S. investors. Projects re-
ferred to potential U.S. investors are
generally eligible to receive OPIC's
insurance and finance assistance.
During the three years of the pro-
gram's existence, 76 government offi-
cers from 24 less developed coun-
tries have been trained as investment
promotion officers. All are now serv-
ing in senior official positions either
in the United States as head of invest-
ment promotion offices established
here by their governments or in min-
istries of their respective countries
which have jurisdiction over the es-
tablishment of foreign enterprises.
Collectively, past participants have
been responsible for inducing capital
investment aggregating $46 million
involving I I investment projects, and
it is estimated that these projects will
create some 5,000 new jobs in the
host countries. In addition, several
other projects under current consid-
eration involve investments of ap-
proximately $425 million.
The demonstrable success of the
training program has justified crea-
tion of a UNIDO office in Los Ange-
les, scheduled to open in mid-1982.
This office will be oriented toward
encouraging expansion of U.S. invest-
ments in the ASEAN countries.
Investment Missions and
Industry Seminars
Promoting U.S. investment in devel-
oping countries requires convincing
U.S. businessmen that there are via-
ble investment opportunities avail-
able to them and dispelling miscon-
ceptions about doing business in
these countries. Often the most effec-
tive promotional tool for a potential
investor is the opportunity to make a
personal assessment of the invest-
ment opportunities in a developing
country. OPIC's investment mission
program and industry seminars are
designed for this purpose. (Expenses
for these missions are paid by the
U.S. businesses participating).
In fiscal year 1981, OPIC organized
and led three investment missions
which together took 55 senior execu-
tive officers of U.S. companies to
Kenya, Morocco and Papua New
Guinea. These officers met with high
level government officials and pro-
spective joint venture partners front
the local business communities. As a
result of these missions, six letters of
intent were exchanged between U.S
companies and local businessmen,
and nine joint venture projects are
under active negotiation. Also during
fiscal year 1981, the planning and re-
cruiting was carried out for the first
two missions of fiscal year 1982, to
Jamaica and Haiti.
Industry seminars held in the
United States can also provide corpo-
rate executives with information on
where and how to develop new busi-
ness through overseas investment.
OPIC held a seminar for the con-
struction industry in Washington,
D.C., in September 1981. The 100
representatives of U.S. manufacturers
of construction equipment and mate-
rial attending the seminar heard gov-
ernment officials of five less devel-
oped countries speak about
proposed construction activities in
their countries. In addition, partici-
pants were informed about assistance
available from OPIC, the Department
of Commerce and the State Depart-
ment. As a direct result of this semi-
nar, six participants initiated discus-
sions with OPIC officers and officials
of the less developed countries to
undertake projects in the construc-
tion materials and equipment manu-
facturing sector. Additional industry
seminars in food production/process-
ing and medical supplies/equipment
are planned for fiscal year 1982.
COMPLEMENTARILY WITH
OTHER DEVELOPMENT ORGANIZATIONS
OPIC's programs directly complement
the efforts of other development or-
ganizations. Through its insurance
program, OPIC can help encourage
more private participation in World
Bank projects. OPIC's finance activi-
ties-either loan guaranties or
loans-can make major contributions
to the International Finance Corpora-
tion's efforts to support private-sector
projects in developing countries.
OPIC's insurance and finance pro-
grams thus have the ability to help
multilateral development institutions
maximize their available resources.
In 1981 OPIC insured or financed
eight projects which were also sup-
ported by other development organi-
zations. In Zambia, OPIC guaranteed a
$30 million loan to Nchanga Consoli-
dated Copper Mines for the construc-
tion of a facility to leach tailings. The
International Finance Corporation, the
Commonwealth Development Corpo-
ration and the European Investment
Bank are.among the other backers of
the project.
Through its letters of credit pro-
gram, OPIC insured three perfor-
mance letters of credit posted for
projects in Pakistan, the Yemen Arab
Republic and Syria. In Pakistan, the
U.S. Investor will supply and Install a
telecommunications network for the
Pakistani railway network In a project
financed by the World Bank. In
Yemen, an American Investor will im-
plement.a manpower training pro
gram for the maintenance of the Ye-
meni road system. The project is
being funded by the International De-
velopment Association, the World
Bank's soft-term loan affiliate. A U.S.
contractor in Syria will provide engi-
neering and consulting services in
connection with the construction of a
four-lane highway between Damascus
and the Jordanian border. The U.S.
Agency for International Development
has committed approximately $45 mil-
lion in credit for completion of the
highway.
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pit as every project proposed to
PIC is analyzed to ensure that it
will make a positive contribution to
the development of the host nation,
each insurance or finance application
also is analyzed carefully to ensure
that it will not have a significant ad-
verse effect on U.S. employment.
ODIC evaluates the impact in the U.S.
and host country of projects by ana-
lyzing the investor's projections and
monitoring the subsequent effects. As
part of this ongoing program, OPIC
monitored 49 projects last year. This
entailed both contact with the U.S.
investors' home offices and visits by
OPIC staff to the project sites for in-
terviesvs with officers of the foreign
enterprises. In general, the moni-
tored projects grew at a faster rate
than had been expected, and their
developmental benefits-including
job creation, worker training, foreign
exchange savings, government reve-
nues and community involvement-
were much greater than had been
originally predicted. The benefits to
the United States also slightly ex-
ceeded original estimates.
OPIC's economists, in consultation
with other U.S. Government and pri-
vate sector experts, carefully evaluate
the probable impact proposed proj-
ects will have on the United States,
including factors such as the level of
domestic employment, exports, bal-
ance of payments and the transfer of
high technology abroad. OPIC denies
assistance to "runaway plants" or
other projects that might result in a
significant loss of U.S. jobs, either
through increased U.S. imports or a
loss of export markets for U.S. prod-
ucts. Since 1974, OPIC has rejected
81 such projects formally, and many
others informally.
Foreign private investment by U.S.
corporations not only promotes eco-
nomic development in the host
countries, but contributes to the
growth of the U.S. economy as well.
Such overseas investments create
new and continuing demands for ex-
pons of U.S.-manufactured goods,
raw materials, and agricultural
products.
The need to expand markets for
U.S. products in the developing
countries has taken on added signifi-
cance in light of the United States
merchandise trade deficit. Economic
growth in the developing countries is
accelerating steadily, and they now
represent our most promising mar-
kets. An indication of the potential
offered by these markets is the phe-
nomenal growth of developing coun-
try imports from the U.S. Imports of
U.S. products by the developing
world grew from $10 billion in 1970
to over $87 billion in 1980, account-
ing for a 39 percent share of U.S. ex-
ports-larger than exports to the
EEC countries, Eastern Europe, Japan
and Australia combined.
The natural linkage between pri-
vate investment in a foreign country
and exports from the parent com-
pany to the project can provide an
effective means to tap this growing
market. About one-third of all U.S.
exports in 1980, for example, were
shipped to overseas affiliates and
subsidiaries of U.S. corporations.
These overseas subsidiaries are much
more inclined to buy U.S. products
and equipment than are foreign-con-
trolled companies. In many instances,
foreign investment allows the U.S.
investor to reach markets that cannot
be served competitively from the
United States. This process, in turn,
opens new export opportunities for
One of the projects chosen for the
1981 monitoring effort was the Societe
D'Investissement Rwandals du The.
OPIC in conjunction with the Interna-
tional Finance Corporation (IFC) and
the Rwanda Development Bank pro-
vided financing for the establishment
of a tea processing factory and mar-
keting company in 1977. Prior to the
factory 's establishment all tea factories
in Rwanda, one of the poorest coun.
tries in the world, were government
owned. Production has increased each
year since 1979, and the marketing
company has begun to sell tea from
other government-owned factories as
well as Its own. The project comple-
ments earlier foreign aid projects
which planted tea plants and trained
farmers in its cultivation. Over 3,000
farm families now supply tea to the
processing factory. Through both its
sophisticated marketing skills and its
technology, the project has helped
Rwanda diversify its exports and sup-
port rural farm families.
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Values
(Millions of Dollars)
FY 78
FY 79
FY 80
FY 81
Total
Total Project Investments Assisted
$665
$894
$2,465
$4,533
$8,557
U.S. Investment in Projects
$317
$499
$ 917
$1,851
$3,584
U.S. Percent of Total
48%
56%
37%
41%
42%
U.S. Exports
Initial Procurement
$136
$330
E 564
$1,571
$2,601
Follow-on Procurement of Production Inputs (5 years)
$671
$637
$ 670
$ 791
$2,769
Total Direct U.S. Project Exports (5 years)
$807
$967
$1,234
$2,362
$5,370
U.S. goods and services as local con-
sumers become familiar with U.S.
products, quality and standards.
The 113 projects which OPIC as-
sisted in fiscal year 1981 are ex-
pected to result in some $1.6 billion
in initial purchases of U.S. machin-
ery, equipment and supplies for use
in their establishment. During the
first five years after start-up, these
projects will purchase an additional
$791 million of U.S. exports. The net
direct U.S. trade benefit of these
projects will amount to $2.4 billion
in new U.S. exports. The U.S. inves-
tors report that these projects will
generate some 38,200 man-years of
employment in the United States to
manufacture, mine, grow, process
and ship these additional U.S. exports.
The projects also will generate a
positive net capital flow to the United
States within five years of $176 mil-
lion, resulting in an overall com-
bined benefit to the U.S. balance of
payments of $2.6 billion during this
five year period.
The U.S. economic benefits result-
ing from projects assisted by OPIC
between reauthorization have exhib-
ited a steady upward trend as shown
in Table 11.
U.S. BENEFITS
U.S. investors abroad tend to look to
American sources of supply for the
materials and equipment needed to
establish and operate a foreign enter-
prise. For example, during the past
year more than 55 percent of Initial
foreign procurement for OPIC proj-
ects will come from U.S. sources. A
Western Electric project in Korea in-
volving production of electronic
switching equipment will result in
over $77,500,000 in initial U.S. pro-
curement and the purchase of an esti-
mated $135,000,000 in production in-
puts from the United States over the
next five years.
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0 Pic's developmental efforts over
the past year-and over the four
years since the 1978 reauthoriza-
tion-have been clearly successful.
Developmental challenges facing
OPIC in the 1980s will be great,
given a forecast that the developing
nations will Find it increasingly diffi-
cult to service debt, obtain long-term
concessional financing, and improve
their standard of living. As the U.S.
Government turns to the private sec-
tor to provide a greater stimulus to
the development process, OPIC will
be called upon to play an ever more
important role.
OPIC is prepared to handle this
new and important challenge. This
ability has emerged from OPIC's long
and extensive experience with the
promotion of U.S. private direct for-
eign investment, which has earned
recognition for OPIC as the senior
U.S. Government agency in this area.
In addition, OPIC has recently under-
taken a number of new and ex-
panded measures (consistent with its
reauthorization legislation and spe-
cial initiatives of interest to Congress
and the Administration) designed to
assist investors. Moreover, OPIC has
recently initiated an extensive mar-
keting effort to alert U.S. business to
OPIC's services. This effort will focus
new attention on the challenge of
matching potential U.S. investors with
business opportunities in the devel-
oping countries.
Services and Special
Initiatives
Certain established services relating
to OPIC's small grant and feasibility
study programs have received new
emphasis and direction during fiscal
year 1981 and will play an important
role in supporting OPIC's fiscal year
1982 efforts to promote overseas
investments.
Assistance to private voluntary or-
ganizations, non-profit organizations
and cooperatives in fiscal year 1981
amounted to $743,000, a substantial
increase over the previous year's
program expenditure of $537,500.
Training grants, a program initiated
in fiscal year 1981, provided financ-
ing valued at $123,500 for seven proj-
ects. Other grant activities, designed
to encourage overseas investment
through remuneration of certain
transactional costs (such as legal, ac-
counting, consultant or life insurance
costs) amounted to $48,476 for 13
projects in fiscal year 1981-an in-
crease over similar activities under-
taken in the previous fiscal year
amounting to $28,764 for 10 projects.
OPIC's participation in feasibility
studies in fiscal year 1981 was ap-
proximately $224,200 for ten projects
(investor participation amounted to
$136,800), compared to approxi-
mately $211,300 for eight projects
(investor participation $141,400) in
the previous fiscal year. The program
serves to protect the interests of both
the small investor and the host coun-
try by assisting the investor to assess
the viability of an investment.
OPIC will continue to be respon-
sive to new developmental chal-
lenges. In the past this has been ex-
emplified by its participation in
various initiatives of special interest
to Congress and the Administration-
for example, energy and the Carib-
bean Basin. In the future there will
undoubtedly be unanticipated chal-
lenges that OPIC will be called upon
to meet. One challenge has been
clearly identified already however-
the challenge to communicate effec-
tively to U.S. businessmen about op-
portunities in the developing world.
In its initial response to this chal-
lenge, OPIC has created a new de=
partment to coordinate its marketing
efforts which were inaugurated in fis-
cal year 1981. The marketing activi-
ties will involve not only increased
education of the U.S. business com-
munity about OPIC services and in-
vestment opportunities in the devel-
oping world, but also the provision
of mechanisms for bringing the U.S.
investor and host country together.
An array of educational tools, in-
cluding audio-visual materials, bro-
chures, advertising and other com-
munications techniques, will be
employed directly and through inter-
mediaries to reach potential inves-
tors. Investment missions will be re-
lied upon more heavily to bring
potential investors in contact with in-
terested host country governments
and potential joint venture partners.
In addition, OPIC has added a new
and innovative marketing activity,
similar in concept to investment mis-
sions, but using satellite communica-
tion in place of travel-so-called
"telemissions".
Telemissions will use satellite com
munication to link potential U.S.
investors and interested host country
participants in live two-way television
broadcasts between U.S. and foreign
cities. The first telemission took
place between Cairo and selected
U.S. locations in the Spring of 1982.
Top Egyptian officials simultaneously
talked with interested businessmen at
6 sites in the United States. Subse-
quent to a careful evaluation of the
results of that effort, further telemis-
sions with other developing nations
will be planned.
OPIC's new marketing efforts will
be targeted to take into consideration
the special developmental benefits of
certain types of projects. An extensive
target sector study, completed in fis-
cal year 1981, indicated the need to
focus marketing efforts in three ma-
jor'industrial sectors: food processing
equipment; medical equipment and
supplies; and agricultural enterprises
such as seed propagation, fisheries,
and poultry. These major sector areas
will be evaluated further to narrow
the scope to specific subsector tar-
gets. OPIC will make special efforts ?
to reach targeted sectors through ac-
tive trade association contacts, a com-
pany calling program, and project in-
troduction and matching.
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56
APPENDIX: LIST OF INVESTORS INSURED IN FY 1981
Member of Multi-Investor
Consortium
"Includes Technical Assistance,
Services, or Rights
'Technical Assistance or
Management Services Only
LettcratCredit
Company
Country
or Area
7bta1
Itti'estnaent
Insured
This Investor
Largest
Single
Marinunn
Coverage
Manufacture metal.
$ 70,000
$ 63,000
machine parts
Pharmaceutical production
1,496,000
1,481,000
Air Products and
Korea
(expansion)
Manufacture industrial gases
2,785,000
2,506,500
Chemicals, Inc.
American Express
Turkey
Branch bank
5,000,000
4,500,000
International Banking
Corporation
American Express
International
Banking Corporation
American President
Sri Lanka
Philippines
Branch bank
Install crane and port
1,882,057
1,693,851
Lines, Ltd.
American Standard, Inc.
Thailand
terminal assets (expansion)
Manufacture vitreous china
105,000
1,093,500
American Standard, Inc.
Dominican
sanitaryware (expansion)
Manufacture vitreous china
510,000
1,377,000
Ampex Corporation
Republic
Taiwan
sanitaryware
Manufacture electronic
10,781,697
11,200,000
Andre Greenhouses, Inc.
Dominican
components (expansion)
Construct and operate
500,000
765,000
The Anschutz Overseas
Republic
Dominican
greenhouses for rose production
Hydrocarbon exploration
83,333,333
75,000,000
Corporation
Applied Magnetics Corporation
Republic
Korea
development and production
Manufacture magnetic
1,400,000
2,965,500
recording heads (expansion)
Manufacture fixed wirewound
300,000
200,000
resistors and coils
Cargo handling, customs
993,432
2,005,014
clearance and transportation
services
Manufacture nestable,
galvanized corrugated steel pipe
Manufacture baseball and
softball gloves
Bank of America NT&SA
Pakistan
Manufacture electric wire
and cable
Branch bank (expansion)
787,180
708,462
Blount, Inc. & Blount
Saudi Arabia
Construct academic facilities
122,222,222
110,000,000
International Limited""
Boggs, G.E. &
Associates, Inc.'"""
Boggs, G.E. &
Associates,Inc.""""
Boudet, James L., et at
Brothers, William C.
Syria
Costa Rica
Belize
Construct and install
dispatching system to regulate
water flow (expansion)
Install communication
subsystem linking water
stations and main control center
(expansion)
Plant and cultivate lime and
orange groves
Cedar shingle mill (expansion)
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Country
or Area
Project
Singapore
Manufacture metal platings
and stampings
Caltex (Overseas) Ltd.
The Carlson Group, Inc.""
Chase Manhattan Bank, N.A.
Chase Manhattan Bank, N.A.
Chase Manhattan Bank, N.A.
Chicago Bridge and Iron
Company'
Chicago Bridge and Iront
Company*
Citibank, N.A.
Citibank, N.A.
Citibank, N.A.
Citibank, N.A.
Citibank, N.A.
Citibank, N.A.
Citibank, N.A.
Citibank, N.A.
Citibank Overseas Investment
Corporation
Citibank Overseas Investment
Corporation
Consumer Services
International Corp.
The Continental Group
Continental Illinois National
Bank & Trust Co. of Chicago
Continental Illinois National
Bank & Trust Co. of Chicago'
Crescent Corset Company, Inc.
Korea
Saudi Arabia
Dominican
Republic
Dominican
Republic
Thailand
Netherlands
Antilles
Panama
Indonesia
Korea
Malaysia
Pakistan
Senegal
Turkey
Yemen (North)
Zambia
Korea
Taiwan
Taiwan
Korea
Korea
Netherlands
Antilles
Honduras
Oil refinery (expansion)
Construct student housing and
vocational training center
Branch bank (expansion)
Branch bank (expansion)
Branch bank (expansion)
Petroleum blending,
transshipment and marine
bunkering facilities
Construct petroleum pipeline
Branch bank (expansion)
Branch bank (expansion)
Branch bank (expansion)
Branch bank (expansion)
Branch bank (expansion)
Branch bank
Branch bank (expansion)
Commercial bank
Lease to industrial, construction
and medical sectors (expansion)
Trust and investment bank
(expansion)
Trust and investment bank
(expansion)
Manufacture aluminum
beverage cans
Branch bank (expansion)
Petroleum blending)
transshipment and marine
bunkering facility
Process pre cut textiles
Dominican
Republic
Saudi Arabia
Manufacture baseballs and
softballs
Construct and install desalting
facilities
Ecology and Environment
International''''
Federal Electric
Corporation**--
FMC Corporation....
Saudi Arabia install hyperbolic radio
navigation system
Saudi Arabia Manufacture and deliver
traveling water screens and
traversing trash rakes
tPledge of Existing Securities
'Memher of Multi"Investor
Consortium
"Includes Technical Assistance,
Services, or Rights
Technical Assistance or
Management Services Only
"" Letter ofCredit
7blal
Largest
Imeslnnent
Single
Inswred
Marirno'n
This Investor
Coverage
S 3,500,000
$ 3,150.000
3,810,585
7,621,170
3,377,316
3,039,585
999,320
899,388
1,000,000
900,000
4,000,000
3,600,000
6,500,000
7,420,500
-0-
11,966,025
6,800,000
6,000,000
1,700,000
1,530,000
2,716,000
2,444,400
885,100
796,590
1,136,000
1,022,400
1,000,000
900,000
1,315,068
1,183,561
2,500,000
2,750,000
3,983,673
7,170,611
1,278,500
1,925,000
1,278,500
1,925,000
4,800,000
4,320,000
849,185
764,266
6,000,000
12,000,000
300,000
270,000
11,780,000
8,485,612
963,636
867,272
1,063,426
871,847
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Gountry
Company or Area
tPledge of Existing Securities
'Member of MulU.lnvestor
Consortium
Includes Technical Assistance,
Servi or Rights
?'? Technical Assistance or
Management Services Only
' LetterofCredit
7btal Largest
Investment Single
Insured Maximum
This Investor Coverage
Manufacture industrial
process control instrumentation
(expansion)
$ 419,244
General Electric Company
General Electric Company""""
General Instrument of
Canada, Ltd.
Gerber Scientific, Inc.
B.F. Goodrich Co.'...
Goodyear Tire & Rubber
Company
Philippines
Saudi Arabia
Malaysia
Israel
Syria
Taiwan
Manufacture television receiver
components
Manufacture watt-hour meters
Install turbine generator
electric power plant
Manufacture opto-electronic
devices (expansion)
Manufacture computer-
controlled sewing systems and
security systems (expansion)
Manufacture chewing gum and
specialty food products
Supply of tires and tubes
Tire plant (expansion)
503,925
26,906,420
214,515
625,500
2,721,195
24,215,778
193,064
938,250
Harza Engineering Company
International"""'
Health Care International"'"
Thailand
Saudi Arabia
Consult on dam construction
Staff and operate hospital
203,080
950,000
135,912
855,000
Intel Corporation
Intelco, Ltd.""""
International Multifoods
Corporation""
ITC Industries (HK) Ltd.
Israel
Saudi Arabia
Egypt
Dominican
Republic
Manufacture semi-conductors
Design and erect transmitting
center
Manufacture pasta and bread
15,000,000
350,000
1,100,000
1,080,000
40,500,000
315,000
1,620,000
972,000
Supply and install
telecommunication network
Louisiana Land &
Exploration Egypt, Inc.
Egypt
Marine Travelift, Inc.""
Mathieu, Ralph
Mobil International Petroleum
Corporation
Motorola International
Development Corporation
Tunisia
Haiti
Ivory Coast
Philippines
Supply and erect two mobile
boat hoists
Jojoba bean plantation
Oil refinery (expansion)
75,000
3,186,061
69,750
8,602,365
Northville Terminal
Corporation?t
Panama
Pepper Construction Saudi Arabia
International, Ltd.""""
Consult on electrical power
generator
Manufacture glass containers
Construct urea berthside
loading facility
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'Member of Multi-Investor
Consortium
Includes Technical Asssistance,
Servi or Rights
"'Technical Assistance or
Management Services Only
""Letter of Credit
Company
Country
orArea
Project
7btal
Investment
Insured
This Investor
Largest
Single
Maairnum
Coverage
Phelps Dodge Corporation"
Honduras
Manufacture electrical building
$ 1,127,950
$ 1,605,465
Philadelphia International
Investment Corporation
Thailand
wires and cables
Investment bank (expansion)
234,955
648,616
Planning Research
Yemen (North) Highway maintenance training
514
645
463
181
Corporation""
program
,
,
Raymond International
Saudi Arabia
Supply steel pipe for water
14,317
000
12
885
300
Builders, Inc.""
Raymond International,
""
Saudi Arabia
desalination
Construct berthing facilities
,
1,000
000
,
,
900
000
Inc.
Reading & Bates Construction
Saudi Arabia
,
10
000
000
,
15
300
000
Company
REPCO, Ltd.
Honduras
Manufacture semi-finished
,
,
68,850
,
,
185,895
wood products (expansion)
Cosmetics distributorship
856,000
2,430,056
Richardson-Vicks,Inc.
Kenya
(expansion)
Manufacture health care products
594,949
1,013,349
Robertson, H.H. Company""
Saudi Arabia
Supply and install wall enclosures
387,500
348,750
Equip and service oil spill
179,515
161,563
Somerset Welding &
Syria
protection program
Supply 27 dump trucks and
167
305
150
575
Steel, Inc.""
Southern Wood Piedmont
Syria
accessories
Supply chemically treated
,
980,000
,
882
000
Company'-
Sprague Electric Company
Philippines
wooden electric utility poles
Assemble transistors and
990,000
,
1,782,000
Standex International
Haiti
integrated circuits (expansion)
Assemble capacitors
770
000
729
225
Corporation
Sylvania Overseas Trading
Haiti
Assemble metal and plastic
,
1
750
000
,
750
1
000
Corporation
components (expansion)
,
,
,
,
Jordan
Implement database
30,000 .
27
000
Ti ppetts-Abbelt.'McCa rthy-
Syria
management information system
Provide engineering services
184,500
,
166
050
Stralton-'
Tri-State Culvert Corporation
Guatemala
for highway building project
Manufacture metal culvert pipe,
300,000
,
810,000
flood protectors and grain silos
Union Oil Company of
281
120
000
100
000
000
Thailand
Universal Leaf Tobacco
,
,
1
649
250
,
,
4
452
975
Company, Inc.
,
,
,
,
Warner-Lambert Company
Egypt
Manufacture chewing gum and
i
-0-
4,500,000
Western Electric International, Korea
spec
alty food products
Supply telephone
3
532
217
3
178
996
Inc.""
Western Electric Company, Inc. Korea
exchange equipment
Manufacture electronics/
,
,
9,156,756
,
,
8,241,080
World's Finest Chocolate Inc. St. Lucia
telecommunications equipment
Rehabilitate cocoa plantation
598,500
1,077,300
(expansion)
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Total
Project
Amount of OP/C
Financing
Alumina Partners of Jamaica
Dominican
Republic
Jamaica
Poultry breeding and broiler farm
expansion
Bauxite mine
130,100,000
50,000,000
Andre Greenhouses, Inc.
Dominican
Rose growing operation
500,000
250,000
Republic
specialized trucking services
Fish processing plant
12,300,000
2,595,000
Expansion of inductive electronic
701,450
520,000
Fabritek La Rornana
Dominican
components assembly plant
Manufacture cotton gauze for
3,000,000
2,000,000
Goldsmith Seeds Incorporated
Republic
Kenya
surgical sponges
Hybrid flower and vegetable seed
600,000
260,000
production and processing
Manufacture toys
600,000
300,000
Expansion of integrated poultry
3,815,000
1,000,000
operation
Hydraulic, electronic and
500,000
300,000
Merck, Sharp and Dohme of Pakistan
Pakistan
refrigeration components
distributorship
Pharmaceutical formulation and
4,521,000
2,930,000
Limited
Metal Fabricators of Zambia Limited
Zambia
packaging operation
Expansion and modernization of
5,984,817
2,200,000
Nchanga Consolidated Copper Mines
Zambia
a copper casting mill
Tailings leach plant
250,000,000
30,000,000
Limited
Pioneer Tuna Fishing Company
Ghana
2,000,000
Limited
Polymer Lanka Inc.
Sri Lanka
Manufacture solid rubber tires
300,000
P.T. Spicer Indonesia
Indonesia
'and shock absorber bushings
Vehicle parts assembly plant
7,713,000
3,850,000
T.K.F: American Egyptian Co. Ltd.
Egypt
Design, assemble and sell
1,400,000
700,000
Witherspoon International
Corporation
Regional-
Caribbean
industrial conveyor systems
Relending program to small
business projects
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OPIC has agreements with all of the able in most participating countries
listed countries and areas to permit and areas although coverages are
the operation of insurance and Ii- limited in some respects in higher
nance programs. income areas which are indicated by
OPIC programs are presently avail- an asterisk.
Afghanistan
Guatemala
Paraguay
Antigua
Guinea
Peru
Argentina
Guyana
Philippines
Bangladesh
Haiti
Portugal
Barbados
Honduras
Romania
Belize
India
Rwanda
Benin
Indonesia
St. Kitts-Nevis
Bolivia
Israel'
St. Lucia
Botswana
Ivory Coast
St. Vincent
Brazil
Jamaica
Saudi Arabia'
Burundi
Jordan
Senegal
Cameroon
Kenya
Sierra Leone
Central African Rep.
Korea
Singapore'
Chad
Lebanon
Somalia
Chile
Lesotho
Sri Lanka
China
Liberia
Sudan
China (Taiwan)
Madagascar
Swaziland
Colombia
Malawi
Syria
Congo, People's Rep.
Malaysia
Tanzania
Costa Rica
Mali
Thailand
Cyprus'
Malta
Togo
"
Dominica
Mauritania
Trinidad-Tobago
Dominican Rep.
Mauritius
Tunisia
Ecuador
Morocco
Turkey
Egypt, Arab Rep.
Nepal
Uganda
El Salvador
Neth. Antilles
Upper Volta
Ethiopia
Nicaragua
Venezuela*
Fiji
Niger
Western Samoa
Gabon'
Nigeria
Yemen Arab Rep.
Gambia
Oman'
Yugoslavia
Ghana
Pakistan
Zaire
Greece'
Panama
Zambia
Grenada
Papua New Guinea
For current information regarding OPIC services offered in specific countries
and areas, including their potential availability in nations not listed, or
possible temporary limitations due to administrative or underwriting
considerations, please call OPIC's Information Officer, Overseas Private
Investment Corporation, Washington, D.C. 20527-[phone].
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Senator HAYAxAwA. Thank you, Mr. Nalen. We are very grateful
to you for your testimony.
I would like to ask you a few questions now if I may.
Mr. NALEN. Yes, sir.
Senator HAYAKAWA. Basically, the purpose of OPIC is to get pri-
vate companies in this country to invest in foreign countries.
Mr. NALEN. Yes, sir, in friendly Third World countries.
Senator HAYAKAWA. So that these American companies will make
money, and at the same time it will help in the development of indus-
try elsewhere in other countries.
Mr. NALEN. Precisely.
Senator HAYAxAwA. So it is both for our benefit and for theirs.
Mr. NALEN. Yes, sir.
Senator HAYAKAWA. The overall effect of this, besides the economic
benefits conferred on both sides, is a reduction in the provincialism
with which our business has often been afflicted. We have ignored very
often the fact that there are export markets out there and opportuni-
ties for foreign investment that would be beneficial to the American
businessman.
There are so many American businessmen who never think beyond
our own borders, and it takes a great wrench of the imagination for
some of them to even think of exporting as far as Winnipeg, let alone
Indonesia. I am sure you have run into that.
Mr. NALEN. We most definitely have, sir.
Senator HAYAxAwA. In your prepared statement you spoke of the
seminars you held and the mission you are about to undertake in Bang-
kok. Tell me a little bit more in detail about how you organized your
mission to Thailand. How did you select American business repre-
sentation, how did you select your target audience in Thailand.
And since we have the Ambassador to Thailand, Ambassador Prok,
here, I would like him to comment on your answer. How would that
be? Ambassador Prok, would you care to come up to the witness table,
please. We rarely have the opportunity to have the Ambassador of one
of the nations we are discussing present at our hearing, so it would be
very nice to have you take part in this discussion.
You are most welcome, Mr. Ambassador. Mr. Ambassador, this is
Mr. Nalen.
Mr. NALEN. Thank you, Mr. Chairman. The distinguished Am-
bassador and I had the good fortune to meet one another last night,
it so happens, by coincidence.
Senator HAYAKAWA. All right.
The question is, How did you put together these seminars? How did
you select the American companies and American business representa-
tion to take part in these seminars? How did you select your target
audience in Thailand?
Mr. NALEN. Thank you. First of all, I will tell you, it was not an easy
job and it takes many months of preparation. It involves working very
closely with our own private sector, obviously, but it also requires the
close cooperation of our Embassy in the host country, in this case
Thailand, and of course working very closely with both the govern-
ment and the private sector in the host country.
The selection of Thailand as an investment mission target was
influenced in part by our close cooperation with AID. Ms. du Pont's
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PRE [private enterprise office], has a program of sending some pre-
liminary missions over where they do some groundwork. They do not
actually execute business deals, but they determine where there might
be opportunities. We feed that information into our own data bank,
which, in turn, helps highlight areas where investment opportunities
might exist. We have also established four target sectors for invest-
ment which are generally applicable for most developing nations, and
they are : food production, construction materials, energy projects, and
medical supplies.
We have selected those for two very good reasons : First, they are
generally sectors that the host countries themselves have urgent, needs
for; second, they have great developmental impact on the host coun-
tries themselves; and third-and this is very important-they are
areas in which there are many U.S. companies, and most of them small-
and medium-sized companies, that are well positioned to take advan-
tage of these particular business opportunities. I think you know one
of our mandates is to become involved more and more with smaller
businesses, rather than the Fortune 1000.
So we have a computer set up, Mr. Chairman, where we feed in
both the needs and desires of companies both in this country who are
looking for opportunities, as well as requests we get from Thailand,
in this case from particular segments within these areas. And we act
as a matchmaker, if you will.
We send out thousands of direct mail pieces to company executives
telling them about the forthcoming mission. We interview them- indi-
vidually, those who show some interest, and we are constantly build-
ing our own opportunity bank in this matchmaking process. And from
that we will select about 20-and we found 20 is about a workable
size-20 representatives from the private sector to participate in the
investment mission and spend a full 5 or 6 working days in Thailand.
I would like to take this opportunity to thank the Ambassador for
the help and cooperation his counterparts back in Bangkok gave us.
Senator HAYAKAWA. Mr. Ambassador, would you care to comment?
Ambassador PROK. Mr. Chairman, thank you so much for inviting
ine here. It is a rare honor and privilege.
The seminar in Bangkok, as you heard, has been well conceived
and carefully planned. I followed the work and activities on this
proiect with great interest.
First of all, Thailand felt very greatly privileged to be singled out
as one of the few target countries for this particular purpose. As
far as the American business community in Thailand, I think it is
well organized. And because of that, I think it is partially responsible
for the seminar being well organized and well prepared.
I think the seminar will help identify problems that American
businessmen and potential investors from the United States have
been facing.
As I see it, the U.S. businessmen in Thailand have been put in
some disadvantageous positions vis-a-vis the other foreign investors
in that same country. Therefore, I think this will be a very important
achievement which I think that the seminar will have.
Senator HAYAKAWA. I ask my next question of both of you : What
are the industries in which outside capital, outside technology, out-
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side expertise are most needed? Would this be in heavy industries?
Would this be in pharmaceuticals?
Mr. NALEN. I will take a crack at that first. Mr. Chairman, and will
mention the target sector philosophy which we have adopted which
is provided in my testimony. Very briefly, it focuses on four major
areas where we believe there is the greatest opportunity for tech-
nology transfer, the greatest opportunity to have a developmental
impact on the host country itself and at that the same time where
there would be many companies here in the United States that can
take advantage of that opportunity.
At the risk of oversimplifying these are the energy area; the food
production area-agribusiness, essentially; construction materials; and
medical supplies.
Senator HAYAxAwA. Did you say instructional materials?
Mr. NALEN. Construction materials, such as those used in housing.
Senator HAYAKAWA. I see. What was your last one?
Mr. NALEN. The last one was medical supplies.
Senator HAYAKAWA. Does that include pharmaceuticals and medical
instruments?
Mr. NALEN. Exactly. I would be interested in hearing the Ambas-
sador's response.
Senator HAYAKAWA. What would you put as the foremost important
areas, Mr. Ambassador, where investment and technology can help?
Would you agree with that list?
Ambassador PROK. Well, I would look at it from another angle,
though I do not disagree with my friend here. I think the answer
would be the same, but I would look at it from the development plans
point of view. Thailand is just beginning to develop two or three new
industries and areas. One is in agro-based industries, using agricul-
tural products, not only food but other agricultural products as well,
such as agro feeds and so on.
Then we are just getting natural gas onstream. Natural gns will be a
big surplus very soon. So we need things associated with natural
gas, refining natural gas and converting it into chemicals for other
industries. That would be the basis of the high-technology industries
for which we need expertise es well as finance.
We also just fortunately discovered oil for the first time on land,
not off-land or offshore. This also will be a very important thing for
Thailand in the future of its economy.
Senator HAYAKAWA. Does the exploitation of oil require foreign
assistance and foreign capital?
Ambassador Pnox. I am sure of it. Also, there will be some other
downstream industries which will require both expertise and finance.
Then we have a new project which is coming up on the eastern sea-
board. The eastern seaboard development is to develop the whole area
which will be partly a deep seaport.
And also there will be a sort of industrial estuary area. This will be
where the petroleum and natural gas industries will be located. The
whole area will have to be developed and it will require many things
such as infrastructure, particularly communications, railways, and
so on.
All of these things, Mr. Chairman, will require anew look which
will convert or change the face of the economy of Thailand. It will re-
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quire tremendous investment, and I think this is where American
expertise is available.
Senator HAYAKAWA. Your east coast then would become like the
Kamaishi area in Japan with Osaka and Kobe and Nagoya, the big
seaports, shipbuilding industry, energy all coming together; is that
the idea?
Ambassador PRoK. Yes, sir, because that is the natural area for a
deep seaport, unlike Bangkok, which is already congested and it is
now the only real industrial center. Therefore, there will be a shift, as
you say, Mr. Chairman.
Mr. NA EN. I might say that that offshore gas project which the
Ambassador mentioned is one that has been supported by OPIC. It is
one of our projects. This entire project which includes the port fa-
cility which has been stimulated by the offshore gas field is a $500
million project, of which I believe $100 million will be used to procure
U.S. contractors and supplies and so forth. So again it is a perfect
example of where everybody comes out a winner, certainly our own
economy as well as the Thai economy.
Senator HAYnxawn. Well, I do have some other questions, but I
think we have gone pretty deeply into all of these subjects today. We
have all been sitting here for too long.
I do recall that I had a conversation with the president of Union Oil
Co. at breakfast in Bangkok last August. And one of the things we
talked about was natural gas. I myself feel that Thailand is one of
the important developing nations in the world, and our friendship with
Thailand, as with many other of the nations of ASEAN, is a very
important part of our future in America. So I am very grateful to
you, Mr. Ambassador, for joining our discussion.
And I am very grateful to you, Mr. Nalen, for informing us about
your work in OPIC. I shall read your whole statement later this eve-
ning. I do look forward to reading it with great pleasure and learning
a number of things I did not know before.
Let me say to both of you as well as to Mr. Holdridge and Mr. Ar-
mitage, who were here earlier, that this has been one of the most in-
teresting hearings that I have had for a long, long time, and I have
enjoyed it personally very much. So with many thanks to all of you
and to the audience, I declare this meeting adjourned.
[Whereupon, at 11:38 a.m., the subcommittee adjourned, to recon-
vene at 2 p.m., Thursday, June 10, 1982.]
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U.S. POLICIES AND PROGRAMS IN SOUTHEAST ASIA
THURSDAY, JUNE 10, 1982
UNITED STATES SENATE,
SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS
OF THE COMMITTEE ON FOREIGN RELATIONS,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:05 p.m., in room 4221,
Dirksen Senate Office Building, Hon. S. I. Hayakawa (chairman of the
subcommittee) presiding.
Present : Senators Havakawa and Biden.
Senator HAYAKAWA. The Subcommittee on East Asian and Pacific
Affairs will please come to order.
This afternoon we begin the second in a series of hearings on U.S.
policies and programs in Southeast Asia. As I mentioned at the begin-
ning of the first hearing in the series, we will take as our departure
point the hearings on this subject a year ago. So in effect, we are trying
to determine what is new and different in the summer of 1982.
Last Tuesday, Assistant Secretary of State Holdridge and Deputy
Assistant Secretary of Defense Armitage set the scene for us by de-
scribing overall U.S. interest in this very important part of the world.
They analyzed for us the state of our relations with our ASEAN
friends and outlined the problems confronting our Government. Mr.
Armitage presented a very thorough analysis of the Soviet threat to
our interests in the western Pacific.
Mr. Nalen, the president of the Overseas Private Investment Cor-
poration [OPIC1, told us of the very important work of his corpora-
tion in promoting U.S. trade and investment in the area. It is this sub-
ject that we will explore today.
It is extremely important to the United States and to the five coun-
tries comprising the Association of Southeast Asia Nations [ASEAN]
that we concert our efforts in the economic area so that two-way trade
expands as rapidly as possible and so that investment opportunities
are made known to the business world. As President Reagan so often
has emphasized, the private sector can and. should make the major con-
tribution to the development of the Third World and thus to the better-
ment of their peoples.
During my tenure as chairman of this subcommittee, I have taken as
one of my objectives to publicize the importance of the role of private
enterprise and to promote the expansion of U.S. trade and investment
in Southeast Asia.
We have with us this afternoon a distinguished panel of witnesses
to assist us in our examination of the problems and prospects for trade,
investment, and development in Southeast Asia. The witnesses are :
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Mr. Anthony C. Albrecht, Deputy Assistant Secretary of State for
East Asian and Pacific Affairs, who will discuss economic interests in
the area. We are glad to have you with us, Mr. Albrecht.
We also have the Honorable Elise R. W. du Pont, Assistant Admin-
istrator, Bureau for Private Enterprise, AID, who will describe the
role played by the private sector in the economic development of the
area. You are most welcome, Ms. du Pont.
We have also the Honorable John A. Bohn, Jr., U.S. Executive
Director, Asian Development Bank, who will speak on the role of the
Bank in furthering our interests in Southeast Asia, as well as the
Bank's problems and prospects. You are most welcome, Mr. Bohn.
Welcome back to the committee, Ms. du Pont and Mr. Bohn. And
it is a pleasure to welcome you for your first appearance, Mr. Albrecht.
Since we have no other members of the subcommittee here to make
introductory statements, we are ready to proceed. We will hear first
from Mr. Albrecht, then from Ms. du Pont, and then from Mr. Bohn.
When all of you have finished summarizing your remarks, we will pro-
ceed to questions for all of you as may seem necessary and appropriate.
Mr. Albrecht, you may proceed. If you have a paper of some length,
I would be grateful if you would summarize its contents. We will put
your full statement into the record. Please proceed, Mr. Albrecht.
STATEMENT OF ANTHONY C. ALBRECHT, DEPUTY ASSISTANT
SECRETARY OF STATE FOR EAST ASIAN AND PACIFIC AFFAIRS
Mr. ALBRECHT. Thank you, Mr. Chairman. I am very pleased to be
here today to discuss one of my favorate subjects.
I would like to say first, however, that I want to express my per-
sonal appreciation for the efforts that you, your committee, and your
staff have made to bring greater attention and understanding on the
part of the United States and U.S. businessmen and Government offi-
cials and others to this important area, which is extremely dynamic
and is going to be very important for the future of the United States.
If I might briefly summarize-the subject is Southeast Asia-I
noted a few points with respect to our contacts with Burma and Bru-
nei and the situation with respect to Vietnam, and I will leave that as
it is in my testimony and will move on to our relations with ASEAN.
I think the fundamental point to make is that the development of
ASEAN and the strength of ASEAN really have taken off since 1976.
I think as far as we are concerned we have to begin with an apprecia-
tion of the nature of ASEAN. First, as I noted in my testimony, agri-
culture and the production of basic commodities are the principal eco-
nomic activities in ASEAN, with the exception, of course, of the
highly industrialized activities in Singapore.
As a consequence, some of the commodity issues become absolutely
vital. And as all of us are aware, the ASEAN nations are particularly
concerned about such items as tin. We have had intense discussions
with them on that subject.
As far as economic growth is concerned, over the last decade the 7-
percent economic growth-that is real growth per year, average
growth-has earned ASEAN the reputation as perhaps the most dy-
namic area in the world. And significantly for this hearing, the pri-
vate sector has played a very key role in this. This in my view makes
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it quite easy for the United States to work with ASEAN and to
strengthen our trade and investment relations.
At the present time, the ASEAN countries face a very difficult
world economic situation, particularly with respect to their tradi-
tional export commodities, and the slow growth in the industrialized
nations has led to very extreme difficulty on the ASEAN side.
I might note that I brought with me today the first-quarter statis-
tics which bear this out, Mr. Chairman. U.S. imports from ASEAN
actually declined by 23 percent in the first quarter. I think that is a
reflection of some of the weakness in U.S. demand. Fortunately, our
exports for the first quarter were up by 7 percent.
As to the fundamental importance of ASEAN, this is a group with
a population of 256 million people and a GNP of nearly $200 bil-
lion. In addition, as was discussed by Ambassador Holdridge, it oc-
cupies an extremely vital strategic position astride sealanes, not only
with respect to the Indian Ocean, but the supply lines to Japan for
oil and for a great deal of trade in the area.
As noted in my testimony, they are very important suppliers of key
raw materials and a very good environment for U.S. investment. As
far as trade is concerned, as I mentioned, we had approximately $22
billion in two-way trade in 1981. That makes ASEAN our fifth
largest trading partner. If you take the European Community as our
No. 1 trading partner, ASEAN would be our No. 5 trading partner.
Of course, the Export-Import Bank is quite active in the area. Presi-
dent Nalen has pointed out also the activities of OPIC. So in addition,
I think there is the beginning of a recognition of the need to participate
in this area.
I might also note that U.S. investment is quite strong in ASEAN.
The figure for foreign direct investment used by the Commerce De-
partment is $5 billion. We have made an estimate in my office that the
total investment might be closer to $10 billion in 1982. In this, we are
estimating total U.S. investment, including the investment-type ex-
penditures of U.S. oil companies in exploration and development of
oil and gas production under production-sharing arrangements with
Indonesia and Malaysia. This is not usually calculated in this man-
ner, and we are going to be doing additional work on this. I have been
concerned that the $5 billion direct investment figure may- .understate
the degree of American involvement.
Finally, on the private sector side, I have outlined in some detail
in my written testimony and would like to stress the role of the
ASEAN-U.S. Business Council. In my view, this business council,
which was set up as a consequence of the 197 8 ministerial meeting here
in Washington, has been a model of what can be accomplished by hav-
ing governments on both sides encourage and facilitate contact be-
tween the business communities. They have quite an active program,
in which they develop their own projects in direct cooperation between
the business communities.
This has led not only to technology transfer, education, and under-
standing, but it has resulted in actual additional business deals, as
the businessmen become acquainted with each other.
I think another important dimension of the ASEAN-U.S. Business
Council is the fact that they make recommendations to governments.
From our point of view, it is extremely helpful to have recommenda-
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tions which come from the business community as to how the Govern-
ment should proceed in the area.
With respect to government-to-government consultations, since 1977,
we have had economic dialog with the ASEAN nations as a group-
the so-called ASEAN-U.S. Economic Dialogue. In these meetings, we
review the multilateral or international issues of mutual concern, as
well as the bilateral issues, problems, and programs that we have.
I think what is most important in these meetings is the degree of
candor with which we discuss the issues. This was particularly notice-
able in the last meeting, where I had the pleasure to chair the U.S. dele-
gation. We had a very detailed discussion of ASEAN's concern about
tin, and of course about the Caribbean Basin Initiative, and their con-
cerns over the possibility of graduation from GSP.
We were able to explain the U.S. position thoroughly. I included in
my testimony the joint press statement issued at the end of that meet-
ing, which I think is instructive as to the kind of dialog that we had.
Finally, I want to note that there have been some intimations that
perhaps ASEAN is not a very strong economic organization because it
is not proceeding the same way the European Community has pro-
ceeded in terms of fulfilling the, requirements of the Treaty of Rome.
ASEAN takes a different approach, a sui generis approach, and I think
we should perhaps judge ASEAN on the basis of the achievement of
the five countries in terms of their economic growth and dynamism,
rather than on an abstract model of what we believe they might be
achieving or should achieve.
I think according to those criteria, based on the resources that they
have, the economic leadership that they have developed and the
strength of the private sector, they will continue to be an area of very
strong economic growth. And furthermore it is an area and a grouping
with which the United States can work and should work very closely
to support peace and stability in Southeast Asia. It is very much in our
national interest.
Thank you, Mr. Chairman.
[Mr. Albrecht's prepared statement follows:]
PREPARED STATEMENT OF ANTHONY C. ALBRECHT
Mr. Chairman, I am pleased to be with you today to discuss our economic
relations with Southeast Asia. Our ties with ASEAN are increasing in importance
as our economic interdependence with this dynamic region expands and demands
priority attention.
Our contacts with the Burmese government have expanded significantly since
our cooperative narcotics program began in 1974. AID programs, beginning in
1980, have further expanded these contacts at the same time that Burma has
been refusing lucrative approaches by the Soviet Union. Although we do not
expect a change in Burma's basic commitment to neutrality, it is in our interest
to encourage a continued, quiet Burmese opening toward the United States and
the West. Brunei, a small, oil rich country on the north coast of Kalimantan
(Borneo) will become fully independent next year, and will probably be invited
to join ASEAN at that time. With respect to Vietnam. the United States has
actively cooperated with the ASEAN efforts to restrict multilateral development
aid so long as Vietnamese forces continue their occupation of Cambodia.
U.S. ECONOMIC RELATIONS WITH ASEAN
Since its establishment in August 1967, the Association of Southeast Asian
Nations (ASEAN), comprosing Indonesia, Malaysia, Singapore, the Philippines
and Thailand, has emerged as a growing economic and political force in South-
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east Asia and on the world scene. ASEAN's announced goals are to strengthen
regional cohesion and self-reliance while promoting economic development. The
organization developed slowly during the first decade of its existence due to the
diverse background of its member states and the competitive nature of their
economies. By it gained rapid momentum following the first Summit Conference
of ASEAN leaders in Bali in 1976. Since that time its political cohesiveness has
strengthened and regional cooperation activity greatly expanded. Our coopera-
tion with ASEAN on Kampuchea has become especially important.
Agriculture and the production of basic commodities remain the principal eco-
nomic activities in ASEAN, with the notable exception of the highly industrial-
ized city state of Singapore. As a result, commodity market issues such as price
stabilization and market growth are of vital importance. Tin, natural rubber,
vegetable oils, tropical timber and sugar are especially important. Our decision
not to join the Sixth International Tin Agreement and GSA sales of excess tin
stocks have become especially contentious issues over the past year.
The real annual GNP growth of over 7 percent over the past decade has earned
ASEAN a well deserved reputation as one of the most promising growth areas in
the developing world. 'ihe private sector has played a key role in this economic
dynamism. The ASEAN countries recognize that private enterprise must be
involved in the development process and that foreign investment should play an
important role. ASEAN looks to the United States, as well as to other developed
nations, for support and cooperation in providing market access, investment capi-
tal and economic assistance to help promote its economic development goals.
The ASEAN nations now must cope with lagging sales of export commodities,
increasing costs in financing investment and slower growth in the OECD coun-
tries. ASEAN needs a prosperous and open U.S. market if it is to continue to
grow-but we also need ASEAN for vital raw materials, as a growing market
for U.S. exports, and as an attractive home for U.S. private investment.
IMPORTANCE OF ASEAN
The population of ASEAN is about 256 million people, comparable to that of
the United States and Canada combined. Estimated per capita GNP's range from
$420 in Indonesia to $4,480 in Singapore. ASEAN's total GNP is nearly $200
billion. It is rich in natural and human resources and occupies a key strategic
position astride vital sea lanes.
ASEAN countries are important suppliers of essential U.S. Imports. For ex-
ample, in 1980, 89 percent of our natural rubber, 65 percent of our tin, 6 percent
of crude petroleum, 28 percent of our hardwood lumber, as well as 99 percent of
our palm oil and 95 percent of our coconut imports came from ASEAN. Most of
our tantalum/niobium and much of our tungsten is imported and the region is a
vital supplier of these minerals. But ASEAN is not only a source of key resources
needed by the United States to assure our security and prosperity. ASEAN is
likewise an important and rapidly growing market for a wide range of U.S.
machinery, chemicals and foodstuffs. Thus in 1981 our exports reached nearly
$9 billion, an increase of 30 percent since 1979. Total two-way U.S. trade with
the ASEAN countries was about $22 billion last year, making ASEAN our 5th
most important trade partner. Total trade has more than doubled since 1977.
The U.S. Export-Import Bank, with an exposure of over $2 billion, has fostered
increased exports to ASEAN.
The ASEAN countries appreciate that their economic advance requires close
cooperation with and financial support from foreign investors. We estimate that
total U.S. investment in ASEAN, including the expenditures of U.S. oil com-
panies in exploration and development in oil and gas production-sharing arrange-
ments with Indonesia and Malaysia, now amounts to about $10 billion.
ASEAN-UNITED STATES BUSINESS COUNCIL
Because all of the ASEAN governments perceive a major role for business and
strive to foster it, cooperation within ASEAN and with the international busi-
ness community has grown rapidly. The ASEAN Chambers of C^mmerce and
Industry are playing an increasingly important role in ASEAN. The ASEAN-
U.S. Business Council, which joins the business communities of the United States
and ASEAN in the fostering of trade, investment and cooperative projects, has
given a new and important dimension to our relationship with Southeast Asia.
We look increasingly to the Council to help promote closer ties with ASEAN
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and consider its activities to be an important complement to the official dia-
logue. Recognition of this role was emphasized by Secretary Haig in his address
before the UN General Assembly last September when he painted out that the
"ASEAN-U.S. Business Council is a model of how our private sectors can work
together for mutual benefit."
We will continue to support and encourage the Business Council. It carries out
activities and programs which governments cannot do, especially in the fields of
training and technological transfer. It also fosters direct contacts and coopera-
tion between business people which results in increased trade and investment and
greater understanding.
Since its establishment in July 1979 the Council has undertaken various pro-
grams which have increased the flow of information, people and ideas between
the United States and ASEAN. Among the more notable accomplishments were
an ASEAN-U.S. Seminar on Science and Technology for Development held in
Singapore in OctoLer 19E0: and a Seminar on ASEAN-U.S. automotive develop-
ments held in Detroit in June 1981. Working Groups on Technology, Education
and Training to facilitate technology transfer between the United States and
ASEAN have been formed, and a financial conference was held in Kuala Lumpur
in November 1981. We look forward to the fall meeting of the ASEAN-U.S.
Business Council which will bring about 100 of ASEAN's leading business figures
to Washington. A brief description of the Business Council is attached as Annex I.
CONSULTATIONS WITH ASEAN
The United States has found that it works well with ASEAN and that we
are able to cooperate to promote economic growth and to solve mutual problems
because our approach to most basic economic issues is similar. At the June 1981
meeting of ASEAN Foreign Ministers, Secretary Haig stressed that U.S. policy
toward ASEAN rests on three important commitments : To economic develop-
ment and commerce for mutual benefit, to fruitful bilateral relations, and to a
genuine dialogue between equals on matters of common concern. Indeed the
term "Dialogue" has been the name given to the special kind of relationship
A SEAN carries on with its major world partners. Our economic Dialogue with
ASEAN is a continuous operation at all levels. Since 1977 the United States and
representatives of the ASEAN nations have had four formal meetings at Minis-
terial or sub-Ministerial level to discuss common concerns and to seek solutions
to problems in the economic, social and cultural spheres. Unlike many inter-
national conferences, our ASEAN dialogues have been characterized by straight
talk and an honest attempt to deal with issues that trouble both sides. For
examp'e, at the recent March 1982 Dialogue in Washington, ASEAN representa-
tives clearly and frankly told us of their serious concern over our GSA tin
disposal policy and the new Caribbean Basin Initiative (CBI). On tin. we were
able to offer further consultations, and we are willing to discuss modification
in GSA sales practices that may go some way to meet their concerns. On the
CBI, we explained U.S. goals carefully and tried to reassure them that their
Interests would not be neglected in the pursuit of our Caribbean efforts.
That meeting also reviewed our cooperative regional development assistance
program with ASEAN, as well as special educational/cultural exchanges. We
now cooperate to enhance regional institutions in areas of non-conventional
energy, tropical medicine, plant quarantine, and agricultural development plan-
ning. We are looking at the possibility for new ways to cooperate such as in
marine science and to promote small and medium scale industry. A copy of
the Joint Press Statement of the March 1982 ASEAN-U.S. Dialogue is attached
at Annex II.
Because the nature of ASEAN as an organization may not be fully under-
stood. I want to conclude with a brief view of how it operates and where we
perceive ASEAN to be going. Most importantly ASEAN should be seen as a
pragmatic, cooperative organization that is sui generis. It is not like the
European Community, and its success should not be judged by criteria applied
to the EC. It has a wide variety of cooperative economic and technical activi-
ties and joint industrial projects and there are increasing efforts to lower trade
barriers within ASEAN. ASEAN functions mainly through regular meetings
of its Foreign Ministers and Economic and other Ministers, through national
secretariats in each of the Foreign Ministries, and through a series of technical
intergovernmental committees in areas such as food and agriculture, finance and
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banking, and industry, minerals and energy. There Is a small ASEAN Secretariat
in Jakarta, but the governments have until now strictly limited its size and role.
The ASEAN Secretariat and most of the committee structure is focussed on
the original non-political goals of the organization as outlined in the ASEAN
Declaration of 1967: Fostering of collaboration in "economic, social, cultural,
technical, scientific and administrative fields." In addition, ASEAN government
representathes haN a tended to work together as a group to formulate common
positions in UN and other international fora on issues such as commodity
policy, global negotiations, refugees and Kampuchea. Their ability to take
common positions has been a source of enhanced strength and influence for the
ASEAN nations. Though clearly associated with the so-called "Third World"
group, the ASEAN countries have tended toward a moderate role on most
North/South issues, a factor of great interest to us as we strive for their
resolution. ASEAN has also operated as an effective unit and enhanced its
bargaining power by establishing bilateral economic dialogues with third coun-
tries such as the United States, Japan, Australia, New Zealand, Canada and
with the EC.
ASEAN's future seems bright. ASEAN's rich resource base and Its proven
economic vitality and success make it a leading candidate for strong economic
growth in the next decade. While there are no major proposals for an economic
union of the five, ASEAN Economic Ministers have agreed recently to study
establishment of an ASEAN-wide free trade area.
But regardless of what organizational forms it takes and how cooperative
efforts evolve in ASEAN, we feel confident that the ASEAN-U.S. economic rela-
tionship will continue to be one of increasing interdependence. There will be
problems typical of any close relationship. In a period of slower world growth,
there will be protectionist pressures on both sides, which must be resisted. IZow-
ever, in the light of our shared goals and our common interest in an open world
economic system and our common approach toward peace and stability in South-
east Asia it is in the U.S. interest to continue to support the demonstrated inde-
pendence, self-reliance and economic dynamism of ASEAN.
ANNEx I
DESCRIPTION
The ASEAN-U.S. Business Council was established in 1979 at the request of
the respective governments to enable ASEAN and U.S. business leaders to con-
duct an effective and continuing dialogue on bilateral economic relations, to pro-
vide a mechanism for identifying policies which would strengthen commercial
ties, and to stimulate two-way trade and investment. The Council is cosponsored
by the Chamber of Commerce of the United States and the ASEAN Chambers of
Commerce and Industry (ASEAN CCI).
The five countries of the Association of Southeast Asian Nations (ASEAN)-
Indonesia, Malaysia, Philippines, Singapore and Thailand-have achieved eco-
nomic growth rates averaging 7 percent per annum and represent the fifth larg-
est U.S. trading partner, with U.S. investment over $5 billion in the region and
two-way trade reaching nearly $30 billion in 1981.
William E. Tucker, Chairman and Chief Executive Officer of Caltex Petro-
leum Corporation, is Chairman of the Council's U.S. Section which consists of
70 senior management executives of U.S. firms active in the region. The Chair-
man of the ASEAN Section is Fred J. Elizalde, President of Central Azucarera
de la Carlota in the Philippines. Mr. Elizalde is also President of the Philippine
Chamber of Commerce and Industry.
The Council's current work program includes (a) preparation of an exporter's
handbook on the U.S. GSP System for the use of ASEAN firms; (b) development
of a management training program; (c) convening of an ASEAN-U.S. Finance
Conference last November; (d) preparation of market profiles on ASEAN prod-
ucts with potential for export to the United States ; (e) copublication with the De-
partment of Commerce of a Guide to doing business in the ASEAN countries ;
(f) promoting cooperation between the nineteen ASEAN industry clubs and
counterpart U.S. trade associations ; and (g) ongoing consultations with relevant
U.S. government agencies and the Congress on the full range of ASEAN-U.S.
economic issues.
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The Council sponsored a recent seminar on doing business with ASEAN and
a joint Executive Committee meeting, both in San Francisco. An ASEAN-U.S.
Automotive Seminar was also held in Detroit under Council auspices.
The third.meeting of the full Council was held in Kuala Lumpur, November 18-
20, 1981. The session was cosponsored with the ASEAN Banking Council and
devoted special attention to strengthening ASEAN-U.S. financial cooperation.
The Council's next meeting will be held in Washington, D.C., November 10-12,
1982.
ANNEX II
The fourth meeting of the ASEAN-U.S. Dialog took place in Washington, D.C.,
U.S.A., from March 9 to March 11 in the Department of State.
The ASEAN delegations were led by H.E. Atmono Suryo, Director-General,
ASEAN-Indonesia, HE. Mohd. Yusof bin Hitam, Director-General, ASEAN-
Malaysia ; H.E. Vicente B. Valdepenas, Jr., Deputy Minister of Trade ard Indus-
try, Philippines, and HE. Sime D. Hidalgo, Director-General, ASEAN-Philip-
pines; H.E. Punch Coomarasawamy, Ambassador of Singapore to the United
States ; and H.E. Vudhi Chuchom, Director-General, ASEAN-Thailand. H.E.
Vicente B. Valdepenas, Jr., leader of the Philippine Delegation, was the ASEAN
spokesman. H.E. Narciso G. Reyes, ASEAN Secretary General and members of
his staff were also present.
The U.S. Delegation was led by Anthony C. Albrecht. Deputy Assistant Secre-
tary of State for East Asian and Pacific Affairs. The U.S. Delegation was made
up of representatives of the Departments of State, Commerce, Treasury, Agricul-
ture, the U.S. Trade Representative, AID, Council of Economic Advisors, OPIC
and Export-Import Bank.
The meeting opened with a welcoming statement by Walter J. Stoessel, Deputy
Secretary of State. The Deputy Secretary reaffirmed the close and friendly ties
between the United States and ASEAN, the increasingly prosperous effective
grouping of five nations in Southeast Asia. Secretary Stoessel went on to state
that this administration is determined to continue the high level of cooperation,
friendship and openness which has been established with the ASEAN states. The
dialog process has helped ASEAN achieve some very impressive accomplish-
ments, including concrete and practical improvements in the economic and com-
mercial relations between. ASEAN and the United States. Regarding the role of
the private sector, the ASEAN-U.S. Business Council is proving to be most impor-
tant in promoting long-run economic progress and increased trade and investment.
Anthony C. Albrecht, Deputy Assistant Secretary of State for East Asian and
Pacific Affairs and head of the U.S. Delegation, in introductory remarks noted
the importance of ASEAN as the fifth largest trading partner with the United
States, the total trade having reached $22 billion in 1981 and that U.S. investment
in the region was now over $5 billion with more to come. He referred to $2.2 bil-
lion in EXIM loans and guarantees over the past five years. OPIC has provided
$315 million of insurance on 16 projects in ASEAN.
Dr. Vicente B. Valdepenas, Jr., as the ASEAN spokesman, welcomed the Fourth
Dialog as an opportunity for both the United States and ASEAN to resolve their
common concerns and hoped that the Dialog would further strengthen the part-
nership between ASEAN and the United States.
Both sides noted with satisfaction the progress of the ASEAN-U.S. Dialog as
evidenced by the expanding development cooperation program, cultural, educa-
tional, joint narcotics control activities, and the increasing flow of technicians
and officials between the two sides.
INTERNATIONAL ECONOMY
There was a wide-ranging discussion of the issues facing the world economy.
Particular reference was made to the importance of revitalizing the U.S. economy
in order to restore the prosperity and the growth of the world trading system,
including the ASEAN area. The United States welcomed the continuing vigorous
growth exhibited by the ASEAN economies, expressing the view that the role of
the private sector was one of the major elements in their prosperity.
The ASEAN side reassured the U.S. side that ASEAN states have always
taken a positive attitude in searching for a healthy international political and
economic environment. However, the ASEAN delegations expressed concern over
certain recent developments such as the U.S. policy on commodities of interest to
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ASEAN particularly tin and sugar; on the Integrated Programme for Commod-
ities (IPC) ; U.S. Policy on Multilateral Development Banks (MDB's) ; ECDC
activities; and the U.S. position on Global Negotiations. Nonetheless, ASEAN
is hopeful that the spirit of genuine cooperation and meaningful consultations
fostered at the Cancun Summit, which has characterized the ASEAN-U.S.
Dialogue and its activities would result in mutually beneficial and cooperative
endeavors.
TRADE AND COMMODITIES
Both sides discussed the results of the MTN including the reduction of tariffs
and the agreements on non-tariff measures. Both sides noted that slow economic
growth and unemployment led to rising protectionist sentiment in many coun-
tries and pointed to the advantages of maintaining an open international trad-
ing system and the need to resist protectionist trends.
Both ,ides referred to the importance of the upcoming GATT Ministerial
Meeting and view it as a forum to improve the multilateral trading system.
The ASEAN side expressed appreciation for the U.S. GSP scheme which has
benefitted ASEAN exports, particularly of manufacturers and welcomed the
U.S. efforts to further improve the scheme as well as assist ASEAN countries in
better utilizing the scheme. The ASEAN side further stressed the importance of
making the GSP scheme a permanent feature of the U.S. trade policy.
The ASEAN side emphasized the importance of basic commodity exports in
their resrective economies. They expressed their concern at the slow progress
of the Integrated Programme for Commodities (IPC) in the establishment and
operation of effective international commodity agreements which will contribute
to the stabilization of prices. The ASEAN side reiterated their strong concern
with regard to GSA release of tin onto the world market. The U.S. side recog-
nized the views of ASEAN on commodities and reiterated its policy of support
for a case-by-case approach toward commodity matters. The United States cited
its active participation in the International Natural Rubber, Sugar and Cof-
fee Agreements. The U.S. side felt that GSA sales had not disrupted the tin
market but expressed its understanding of the ASEAN concern with regard to
GSA sales of tin and in this context offered to hold special consultations with
ASEAN countries. At the same time the U.S. Government wished to assure tin
producers that it would cooperate with the Sixth ITA and expects that con-
sumers and producers would join even though for well-known reasons the United
States would be unable to participate in the Agreement.
The A SEAN side expressed serious concern on the possible adverse effects of
the Caribbean Basin Initiative on ASEAN exports to the United States, in par-
ticular sugar, a substantial portion of which have been subject to full tariff
duties and fees not only on account of their being ineligible under the U.S.
GSP but also due to the U.S. Sugar Price Support Program. The ASEAN side
believed that the tariff benefits that would be accorded beneficiary sugar ex-
porting countries under the CBI would result in a competitive disadvantage for
ASEAN sugar exports. The U.S. side indicated that an objective of the overall
CBI is to encourage diversification away from sugar and that the United States
does not expect that Caribbean sugar exports to the United States will rise sig-
nificantly above historical levels.
INVESTMENT AND FINANCE
Both sides recognized the vital role of private capital in economic development
and stressed the importance of maintaining a favorable investment climate.
The ASEAN side requested the United States to facilitate ASEAN's efforts to
raise financing for their development projects, to organize investment seminars,
and to undertake other measures to promote U.S. investment in the ASEAN coun-
tries. On financial cooperation, ASEAN requested the United States first, to en-
courage U.S. financial institutions to work on ASEAN industrial project financing ;
second, to make available technical expertise of financial issues ; third, to organize
programs such as seminars, study tours and on-the-job training to assist ASEAN
access to the U.S. capital market ; fourth, to organize study tours or training pro-
grams on insurance; and finally, to encourage the U.S. Export-Import Bank to
continue its efforts to promote ASEAN development.
The U.S. side indicated that they understood and supported the economic devel-
opment objectives which underlay these proposals, and they would give serious
consideration to them. In particular, regarding seminars, investment missions and
feasibility studies the United States agreed to make further proposals. The U.S.
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representatives pointed to the programs of several U.S. Government agencies-
including the U.S. Export-Import Bank, OPIC, the Department of Commerce,
Agency for International Development, and the Trade and Development Pro-
gram-which are active in the ASEAN region in support of U.S. investment. The
EXIM Bank has sizeable commitments in the ASEAN region and is prepared to
increase these commitments. Similarly, the United States noted that OPIC had
been active in providing insurance, loan guarantees, and feasibility studies grants
in the ASEAN area ; still there is considerable scope for expansion of OPIC activi-
ties in the region.
Both sides welcomed the special presentation closely related to trade and invest-
ment issues made by Mr. William E. Tucker, Chairman of the U.S. section of the
ASEAN-U.S. Business Council. His reference to the training and technology trans-
fer opportunities offered by U.S. firms for the ASEAN area was welcome. Both
sides considered that the possibility of future participation by private sector rep-
resentatives in appropriate Dialogue sessions, by invitation, would be desirable.
Both sides expressed satisfaction with the progress made in six ongoing
ASEAN-U.S. development projects in the fields of agriculture, energy, public
health, and academic training and research. ASEAN-U.S. projects are now under-
way or planned in all five member countries.
The growing success of the cooperation between ASEAN and the United States
with AID funding was underlined by the signing of the seventh project agreement
between the USG and ASEAN during the Dialogue by AID Administrator M. Peter
McPherson on behalf of the United States, and Ambassador of the Republic of
Indonesia to the United States, D. Ashari, on behalf of ASEAN. The Agreement
provides $1.0 million of AID assistance over three years. This is the second energy
project between ASEAN and the United States in the very important area of
energy planning and development.
The first ASEAN-U.S. development cooperation agreement was signed in 1979
and since then AID has committed $16.5 million in economic assistance to ASEAN
regional projects.
Other topics discussed during the meeting included Narcotics Control, Coopera-
tion in Science and Technology, Agriculture, Education, Cultural Affairs, and
Shipping. On ocean shipping policy ASEAN requested the U.S. Government to
approve as soon as possible its proposed legislation to exempt the shipping lines
of developing countries from being classified as controlled carriers. Both sides
agreed to study carefully the proposals and suggestions exchanged in the various
fields during these discussions with the aim of strengthening ASEAN-U.S.
cooperation.
Senator HAYAKAWA. Thank you, Mr. Albrecht.
Ms. du Pont, would you care to proceed?
STATEMENT OF HON. ELISE R. W. du PONT, ASSISTANT ADMINIS-
TRATOR, BUREAU FOR PRIVATE ENTERPRISE, AGENCY FOR IN-
TERNATIONAL DEVELOPMENT
Ms. DU PONT. Thank you, Mr. Chairman. I am pleased to appear
today before this subcommittee, and I would like to give you a sum-
mary of my prepared remarks which already have been submitted,
and I ask that they be integrated into the record.
Senator HAYAKAWA. They will be printed in full in the record.
MS. DU PONT. Ours is a new program at the Agency for Interna-
tional Development [AID]. Our mission is to encourage the growth
of private enterprise worldwide. We believe it is the engine for
growth and that it can be the appropriate mechanism for develop-
ment. We expect to use the United States private sector in that process.
Our focus will be the local private sector.
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The program is based on the belief that if you give a man a fish
you feed him for a day, but if you teach a man to fish he will feed him-
self for a lifetime. Our approach will be that of a laboratory,aimited
in money, at least initially. We have in the last year incorporated a
number of ongoing elements that existed within the Agency into our
new program.
The first, with which you may be familiar, is the housing guarantee
program, which provides a U.S. guarantee for U.S. financing of shel-
ter in the developing world.
The second program that has been integrated into our new Bureau
is the International Executive Service Corps, started by Frank Pace
some 20 years ago, which brings to bear the skills of U.S. businessmen
in the developing world. It is a business-to-business foreign aid pro-
gram, which is operated on a fee basis and at almost no cost to
the U.S. Government.
In addition, we have established a liaison role with the Trade and
Development Program and with the Overseas Private Investment
Corporation.
Our new Bureau, in the less than 1 year in which we have been
active, has sent out a number of factfinding missions. I would like to
focus my remarks, if I might on the mission to Thailand which I
headed in February. The focus of the new Bureau is narrow in defini-
tion and we have therefore tried to focus our program in a small num-
ber of countries, at least initially. Thailand and Indonesia are two of
those countries that come under this subcommittee purview.
We took a factfinding mission there. The purpose of the mission was
to investigate the investment climate and the barriers to a free market
economy that existed there, with an eye toward promotion of both
local and U.S. investment in Thailand.
We were asked by the Thai Government to concentrate in five sec-
tors : agribusiness, management training, capital markets, energy, and
electronics. We brought a group of urivate sector experts in each of
those areas to Thailand to conduct field investigations.
We brought Lowell Hoskins, who is president of Arbor Acres, Glas-
tonbury, Conn., for the agribusiness area; Tracy Park, vice president
of Tenneco Gas, who is incidentally a former AID mission director
who served in Thailand 15 years ago ; Prof. Margaret Graham, who is
an assistant professor at Harvard University's business school, was
involved in the management training area ; Daniel Hefter, who is a
semiconductor expert from the Arthur D. Little Corp. in Cambridge,
Mass., also served on the mission. In addition, we had Ed Cooper, who
heads Chase Manhattan's branch in Thailand, looking at the capital
market situation for us.
On our arrival in Thailand, our schedule was coordinated and or-
ganized by the Thais, both the private sector and the Thai Govern-
men`. They sent our participants out into the field to look at such areas
in the farming community as poultry farms, rice and, swine farms. In
the energy area, they looked at gas facilities. And there was consider-
able study of management training institutions, among a good many
other activities that the participants engaged themselves in.
I met with Thai officials at the ministerial level, as well as American
Chamber of Commerce members. Our mission there was concluded
when I spoke before the American Chamber in Thailand. We left be-
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hind a design team. We have compiled considerable country reports
that are available for both Thailand and for Indonesia, which we
would be happy to make available to this committee should the com-
mittee be interested in having them made a part of the record.
That is a rough outline of one of our factfinding missions in your
area, Mr. Chairman. I would like to move now, if I might, to the kinds
of projects that we see ourselves becoming involved in. There are a
number that are already on the table for this new Bureau that came
into our Bureau when we added the components that I mentioned
earlier. In addition, there are some new projects that will be coming
on stream shortly which I might be able to outline for you on a hypo-
thetical basis, as they are not yet completed.
With regard to the first category-those projects that are already
on our plate-the International Executive Service Corps in Thai-
land, the group of retired executives who bring to bear their skills
in the private enterprise area, has undertaken some 231 projects in
Thailand since its inception.
There is a country staff of four people there, and we will be adding
an agribusiness adviser since our focus in this program will be on the
agribusiness area.
In the housing guarantee program area, there is a $50 million proj-
ect under way in Thailand, which will be involving itself in slum up-
grading and the construction of some 20,000 core shelter units.
The trade and development program, with which we have a liaison
relationship, has had some 10 projects related to oil substitution in
Thailand. And the Overseas Private Investment Corporation, headed
by President Nalen who appeared before you last week, is planning an
investment mission of private sector business leaders to Thailand in
July as a consequence of the mission that we led earlier.
Upcoming activities, projects that we expect to be funding in the
near future, which I would like to share with ou and which comes as
a result of our February mission, are as follows : First, we expect to
execute a contract soon with the Young Presidents Organization to
bring entrepreneurs from the United States into factories in Thailand.
Second, we will be having short-term management training sem-
inars starting in mid-July.
Third, there are three projects of a proprietary nature, so I am not
going to be permitted to discuss the terms and the names of the proj-
ects, and I hope the committee will permit me to do that. The first is a
project related to a line of credit to a bank which would be "on-lend-
ing" in Thailand to small and medium-size agribusiness enterprises.
The second project that we seen coming onstream fairly soon is a
seminar in the natural gas area which would cover the.subjects of op-
eration and maintenance.
And the third project, which is already completed. is a commodity
futures trading study, which we could make available to the commit-
tee should you so desire.
In conclusion let me say that, although this is a new program, we
believe it can be highly effective. It is designed to help meet the needs
of the poor majority and in doing that to bring private enterprise to
bear in the Third World and to use it as an element to promote devel-
opment.
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I thank you for allowing me to appear before you today, and I
would be pleased to answer any questions.
[Ms. du Pont's prepared statement follows:]
Mr. Chairman and members of the subcommittee, I am pleased to appear before
you today to describe the activities of AID's bureau for private enterprise.
We believe that the program we are developing and are about to implement
can have a long-range beneficial impact on economic progress in the developing
world, including the area under the purview of this subcommittee. We are espe-
cially aware of this potential in the context of the interest of the countries of the
Association of Southeast Asian Nations in strengthening their private sectors
and in attracting investment from abroad.
I would like to outline our objectives and the major areas on which our efforts
are focused, noting the bureau's significant role as a source within AID for new
ideas. I would also like to indicate how our program differs from past AID
activities, describe our project selection criteria, and explain our relationships
with other internationalty oriented agencies and organizations. Finally, my state-
ment will touch on specific activities that relate to the East Asian and Pacific area.
This will inciude activities of the housing guaranty program, a component of our
bureau.
OBJECTIVES OF THE BUREAU
The bureau for private enterprise has two complementary objectives. First, our
goal is to help strengthen the private sectors of developing countries-the enter-
prise;: and institutions that we view as the potential engines for self-sustaining
growth in those countries. Second, we intend to involve the American private
sector actively in that process.
The view of the private sector as a force for development is deeply rooted in
this administration. President Reagan, in his speech to the International Mone-
tary Fund last September, pointed out that those countries that hat e achieved the
most dynamic economic progress in the shortest period of time have been those
whose economies relied on "the magic of the marketplace." He repeated this
theme in his meeting with Third World heads of government in Cancun, Mexico,
stating: "History demonstrates that time and again, in place after place, eco-
nomic growth and human progress make their greatest strides in countries that
encourage economic freedom."
'ri,e encouragement of market economies and private enterprise in AID-
assisted countries is the basis for the administration's private sector initiative.
The establishment of the Bureau for Private Enterprise by AID Administrator
M. Peter McPherson in July 1981 was structural evidence of that commitment.
Under this approach, we will seek to help put Third World nations on the road
to self-supporting economies that generate jobs, income and higher living stand-
ards. We consiuer that these benefits resulting from a properly functioning mar-
ket economy are essential to meeting the needs of the poor majority in de-
veloping countries. As such, we view our program as firmly in step with tra-
ditional development goals and one that supplements, reinforces and, indeed,
strengthens AID's response to the focus on basic human needs that was man-
dated by Congress in 1973.
The Bureau has the lead role in bringing agency activity to bear on three areas.
These are support of the indigenous private sector as a whole ; the formulation
and use of new financing methods ; and the support of agribusiness development
in Third World countries.
Let me describe these areas in turn.
First, we plan to work with host governments to provide the environment
needed for private enterprise to function effectively.
These services come in three categories. One, we will help governments identify
and remove bottlenecks to private investment, both indigenous and external. Two,
we are prepared to provide financing for projects that help build the manage-
ment and technical skills base necessary for vigorous private sector action. Lack
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82
of these skills can be a significant constraint to development. Three, we will
support the development or improvement of capital markets and other financial
structures that generate savings and direct them into productive investments.
Improvement of the indigenous climate and infrastructure for private enter-
prise, it should be pointed out, has significant long-term benefit potential for the
United States private sector as well.
While the creation of jobs and economic opportunity locally is our primary pur-
pose, these efforts lead as well to the kind of economy that enhances developing
countries as commercial partners. Namely, as strong, sophisticated markets for
U.S. products and services and as hospitable locations for investments and joint
venturing by U.S. companies seeking stable, risk-taking environments. In addi-
tion, the type of robust indigenous private sector we are trying to help develop
will produce strong demand for loans from U.S. banks and other lending institu-
tions, including financing in which AID can participate.
Second, the Bureau for Private Enterprise serves as a laboratory for the agency
as a whole in testing new and cost-effective financing methods that leverage, or
stretch out, tax dollars by attracting dollars from elsewhere-United States and
indigenous private sectors, lending institutions, and multilateral organizations,
such as the international finance corporation (IFC).
The IFC',s experience in supporting private enterprise projects worldwide is one
example of the kind of leveraging, or multiplier effect, we are seeking at AID.
For example, the IFC has been successful over the years in attracting nearly four
additional dollars from other sources for every investment dollar of its own.
The new financing methods we are prepared to use include direct loans to in-
digenous enterprises whose investments have a high development impact ; loan
participation with U.S. lending institutions (with AID taking the longer maturi-
ties) ; and the capitalization of private financial intermediaries.
In this latter case, we would provide lines of credit that would he matched by
private host country institutions such as commercial banks in order to provide
a fund for on-lending to private enterprises. Other examples are lines of credit and
"seed" capital for leasing and venture capital firms. This mechanism is especially
valuable in making available funds to small and medium-size enterprises that
local capital markets are not now providing.
New financing approaches are uniquely applicable to our third priority area,
agribusiness. The bureau's focus here complements AID's long experience in fos-
tering agricultural production and research, in close cooperation with multilateral
institutions, private voluntary organizations and host governments.
Bureau attention will be on marketing, processing and inputs to farmers,
working with and through the private sector. We are prepared to provide the
lines of credit just described to generate loans for small and medium-size agri-
businesses, working through commercial banks, venture capital firms, and leasing
firms. Leasing is an effective option for farmers who cannot afford to buy equip-
ment and machinery outright. We would also provide direct lending to enter-
prises where the development impact is significant and the chance for replication
good. We think the agribusiness emphasis will provide significant opportunities
for the transfer of U.S. technological and marketing know-how to the develop-
ing world. In focusing on these three areas, we believe we will lay a solid founda-
tion for a long-term program in AID aimed at building up indigenous private
sectors and serving the poor majority of developing countries. In our "labora-
tory" role, the bureau intends to develop model projects that can be tested in
the field and, if successful, used throughout the agency.
HOW THE PROGRAM DIFFERS FROM PAST EFFORTS
The bureau's program differs from past and present AID practices in at least
six categories.
The first is our new focus on dealing directly with developing-country private
enterprises and private institutions. AID's past activities, by and large, have
been based on government-to-government relationships.
The second is the new financing mechanisms touched on earlier. We plan
to provide loans to indigenous businesses both directly and through co-financing
with U.S. financial institutions and private financial intermediaries in host coun-
tries. We also plan to use, for the first time in AID, convertible debentures as
an instrument of assistance. Under this mechanism, we would advance money
to an enterprise and take convertible debentures in return to provide support
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83
during a period of greatest risk for the enterprise. When the enterprise is on
its feet, we could sell these instruments to private investors.
The third major difference is our relationship to developing-country inter-
mediaries, private organizations which AID does not normally deal with directly.
In addition to Enancial intermediaries using our lines of credit for on-lending,
we intend to support venture capital companies and leasing companies as noted
earlier-new areas for AID.
A fourth difference is in our loan approach, which will not be concessionary in
the traditional sense. Our participation is to make available funds for local entre-
preneurs in cases of capital market deficiencies, such as when medium-term financ-
ing is not otherwise available. Our terms are designed to be consistent with a free
and open market philosophy and to encourage competitive, self-sustaining indige-
nous enterprises.
A fifth difference is in project development. Under streamlined bureau proce-
dures, businesses that propose projects to us design the project, put up the money
and take the risks. This shortens lead time and reduces red tape.
Sixth difference is our focus on working with host governments to adopt policies
that encourage private enterprise and change those that produce bottlenecks to
private sector development. We plan to pursue this activity vigorously.
In order to use effectively our modest budget of $26 million for fiscal year 1982,
we are concentrating our efforts on no more than 10-15 countries over the coming
months. These are countries which are strategically and commercially important
to the United States, that have viable private sectors supported by the host gov-
ernments and where AID bilateral assistance missions are in place.
Of particular interest to this subcommittee is that Indonesia and Thailand are
among these priority countries. Private sector teams assembled and led by bureau
officers have gone on investment reconnaissance missions to identify both oppor-
tunities and constraints in eight countries, including Indonesia late last year and
Thailand in early February.
So far as these priority countries are concerned, the Bureau for Private Enter-
prise works closely with AID's regional bureaus on obligation of funds and project
development and implementation. Additionally, all bureaus are under new policy
directives to identify and develop, where feasible, private sector programs in gen-
eral. For our initiative to succeed, we believe we must ultimately rely on the
regional bureaus to design and carry forward private sector programs in AID-
assisted countries across the board.
AID's Bureau for Private Enterprise has developed effective working relation-
ships with other agencies involved with investment or trade matters affecting the
developing world.
We have a complementary role, for example, with the overseas private invest-
ment corporation (OPIC), wherein our focus on indigenous private sector de-
velopment merges well with OPIC's focus on investment opportunities for Amer-
ican firms. We meet regularly with OPIC to review matters of mutual interest.
as well as with other U.S. agencies such as the trade and development program
(TDP), office of the U.S. trade representative (USTR), and the Department of
Commerce.
We also work with the U.S. Export-Import Bank, whose export financing ac-
tivities complement activities of our bureau. And we have reviewed projects
with the World Bank's International Finan?e Corporation (IFC) to find proj-
ects amenable to joint financing.
Since our establishment, the bureau has forged strong links with the American
business and banking communities and has benefited from a continuing dialogue
with corporations, lending institutions and associations.
In addition, we have formed working partnerships with a number of out-
standing private sector organizations. The International Executive Service
Corps (IESC), which recruits experienced executives, mainly retired, for short-
term volunteer assignments abroad as advisers to local firms, has recently been
transferred to our bureau for management purposes. We are encouraging IESC
to expand its excellent technical and managerial assistance activities.
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We are working with the Young President's Organization (YPO), made up
of younger senior U.S. corporation executives, to provide a series of seminars,
lectures and discussions on entrepreneurial problem solving in several target
countries. We are working with business international to develop country spe-
cific information on laws, regulations and policies in developing countries that
affect investment. The conference board, the well-known corporate research
organization based in New York City, has agreed to provide information to us
on U.S. multinational development activities, including problems encountered
in specific countries, from its vast data base.
PROJECT GUIDELINES
Currently we are inviting proposals from agribusiness firms and lending in-
stitutions both in the United States and in the bureau's target countries. Three
separate announcements have been entered for publication in the Federal Reg-
ister and Commerce Business Daily, and are being mailed to a large number of
prospective applicants for bureau financing.
One announcement, printed in the Federal Register and Commerce Business
Daily on May 13, is directed to U.S. lending institutions with branches in target
countries. It invites proposals in which bureau funds may be combined with the
banks' own funds and with local investor funds for agribusiness projects with
significant development impact.
American banks operating in our priority countries offer an important potential
source for additional financing in local capital markets. In participatory loans,
we would expect to provide the medium-term financing needed for the bank to
become involved in what would otherwise be a commercially viable project. This
underscores the bureau's role in acting as a catalyst for drawing resources to
development projects that would not normally be forthcoming. The bank, taking
the shorter maturities, would manage the credit just as it would for projects
financed wholly with its own funds. We look on the American banking community
as essential to our overall program. Experts from U.S. lending institutions have
also been an important segment of many of our investment reconnaissance mis-
sions-to target countries.
A second announcement is directed to indigenous agribusiness firms and inter-
mediate credit institutions in the priority countries. It offers ether direct loans
or, in the case of the intermediaries, funds for matching and on-lending, as
described earlier. The announcement appeared in the Federal Register on June 1.
The third announcement is directed to American agribusiness concerns which
are seeking joint ventures with indigenous enterprises in the target countries.
Many of our financing projects will involve indigenous enterprises which joint
venture back with U.S. firms, thus enhancing the transfer of skills and technology.
The announcement was published in the Federal Register on June 1.
We are looking for projects with development impact in terms of generation
of jobs, foreign exchange and technology transfer and of management and
technical skills development. The bureau will participate as minority investor
only, with a maximum participation of 25 percent of total project costs. We will
provide loans up to $2.5 million maximum, with a preferable range of between
$250.000 and $1 million. Grace periods and repayment schedules are negotiable.
The initial response to our announcements indicates a great reservoir of
interest on the part of the U.S. private sector In participating in our effort.
We are also reviewing many proposals which come to us directly or in the
course of investment reconnaissance missions to priority countries.
As mentioned earlier in my statement, bureau reconnaissance missions have
been sent to Indonesia and Thailand, looking specifically at the priority areas
of climate and infrastructure for private sector development, financing through
intermediate financial institutions, and agribusiness. We worked closely with
the U.S. Chambers of Commerce in those countries in that regard. I shall be
pleased to make reports on those missions available to this subcommittee. `
Regarding mission followup, we have subsequently sent agribusiness consult-
ants to Indonesia and Thailand to identify specific investment opportunities in
that sector. In the case of Thailand, the survey was undertaken to support an
OPIC investment mission to that country scheduled for July.
We have under review support for a venture capital firm and a leasing firm
in Indonesia. We expect a request from Indonesia that the bureau provide
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advisory services on capital markets. We also intend to provide advisers next
month to look at short-term, high-impact management training programs.
In Thailand, a project for an agribusiness investment fund in an indigenous
commercial bank is under review. The International Executive Service Corps,
at our request, is planning to add an agribusiness adviser to its staff in Thai-
land. In addition, we have arranged for the financing of a seminar on operation
and maintenance of Thailand's natural gas complex. Now that our announce-
ments have been released, we expect to receive a number of proposals, partic-
ularly in agribusiness.
The Young Presidents' Organization has agreed to conduct its management
seminars for us in both Thailand and Indonesia.
Acting on a desire by the Government of Thailand for information about
establishment of a commodities futures market, the bureau for private enter-
prise funded a study by the E. F. Hutton Company. Basically, it recommended
measures to strengthen the domestic marketing situation. Incidentally, the study
was drawn upon by the Cancun initiative team of agricultural experts that has
just returned from Thailand. David Flood, who conducted the E. F. Hutton
study, was recommended by our bureau for a fellowship awarded by the council
of foreign relations. In that context, he will work closely with AID and the
World Bank over the next year on commodity price-risk management in the
general Southeast Asia area.
I would also mention that the trade and development program, allied with AID
under the umbrela organization, the International Development Cooperation
Agency, has been very active in Thailand, Indonesia, Burma and the Philippines.
As you know, TDP plays a unique role in fostering progress in developing coun-
tries while promoting the export of U.S. goods, services and technology. A repre-
sentative of TDP is present at this hearing and available to report on country-
specific programs in Asia if the subcommittee so desires.
An important component of the bureau for private enterprise is the Housing
Guaranty (HG) program. This program provides another example of how the
United States and indigenous private sectors work together in development.
Among the AID-recipient nations of immediate concern to this subcommittee,
Thailand alone has an active HG program.
Generally speaking, the HG program finances shelter projects meeting normal
AID development criteria. It differs from most AID programs in that the actual
financing comes from loans from private U.S. credit markets. AID guaranties re-
payment of loans to approved proje^ts and. through fees collected from host-
country borrowers, pays the operating expenses of the program. To date, the pro-
grain is self-sufficient. It uses no congressionally appropriated funds.
The Housing Guaranty program introduces indigenous borrowers to the U.S.
credit markets where project financing is assembled and where, eventually, long-
term banking and trading relationships may be established. Where, as in Thailand,
housing finance institutions are the objet of AID's assistance, the guaranty pro-
gram provides the services of U.S. housing finance experts. One U.S. expert who
has served as an AID financial adviser and has influenced housing finance policy
in Southeast Asia is Richard Pratt, now serving as the administration's ap-
pointee as chairman of the Federal Home Loan Bank Board.
Thailand's national housing authority has been developing strategies less
dependent on subsidies for incorporation into an overall plan focusing invest-
ment in slum upgrading and core housing projects that can be expanded. Repre-
senting a major policy shift, the program is aimed at delivering shelter and serv-
ices at costs affordable to low-income groups and reducing subsidy levels con-
siderably, thus spreading the investment over a greater number of beneficiaries.
AID's $50 million housing guaranty, authorized in 1979, directly supports this
program. Our guaranty loan will finance about 50 of the upgrading projects,
30 percent of the core housing projects in Bangkok, and 50 percent of parts of
the program for regional cities. World Bank and Asian Development Bank
Funds are also involved in the housing authority program.
A central policy message of the housing guaranty program is that the private
sector, not government, should build houses for low-income people and that the
public sector agencies should use their limited resources to provide only that
which the private sector cannot, such as potable water, sewerage, and roads.
Consistent with this policy, AID is currently developing a project in Thailand
under which private developers will be encouraged to move into the low-income
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housing construction field. As in the United States, the government of Thailand
will take actions in the area of finance to stimulate the Private sector.
To summarize, AID's private sector initiative is designed to meet the critical
and fundamental needs of supporting self-sustaining private enterprises in de-
veloping countries. We will finance projects that. generate jobs and income and
that develop and upgrade skills needed for a productive local private sector
economy. We be.ieve that this approach combined with more traditional AID
approaches, can help provide momentum to break down barriers that have denied
the majority in the developing world access to a better life.
Our three-fold thrust focuses on the host-country environment, new methods
of financing that enlist the energies and resources of the U.S. private sector
and on agribusiness as a source of jobs, income and skill-upgrading, each thrust
consistent with the basic human needs focus of AID. It is a program that will
advance development and, in doing so, build markets for U.S. goods and services
and open up opportunities for profitable joint ventures by American and in-
digenous entrepreneurs.
I greatly appreciate the opportunity to participate in these hearings and will
be pleased to answer any questions you may have. Thank you.
,
Mr. Bohn, would you please proceed?
STATEMENT OF HON. JOHN A. BORN, JR., U.S. EXECUTIVE DIREC-
TOR, ASIAN DEVELOPMENT BANK
Mr. Boiix. Thank you, Mr. Chairman. I have submitted a written
statement which I hope will be received for the record.
Senator HAYAKAWA. Thank you. Your entire statement will be
printed in the record.
Mr. BoHN. Thank you. I am particularly pleased to be here today to
be given this opportunity to give wider exposure to a comparatively
little-known organization which in my judgment is a very important
one in terms of our economic and commercial interest.
The Bank itself is owned by 45 countries, and the United States and
Japan each share a 16-percent equity interest. That is to say, Japan has
16 percent and we have 16 percent of the capital. It is administered by
a president and a board of 12.
One of the easiest ways to think of how the Bank functions is to
divide it into its hard loan window and its soft loan window. The soft
loan window, or the Asian Development Fund [ADF], really relates
to lending to the South Asian countries. By far the largest percentage
of these funds go to countries like Pakistan, Bangladesh, and Nepal.
The hard loan window, the Asian Development Bank [ADB] proper
is dominated by loans to four of the ASEAN countries. I think Mr. Al-
brecht has quite dramatically demonstrated to us here the importance
of ASEAN in our own international interest.
It is important, however, to note that the role of the Bank in the
region is really quite small when compared to the overwhelming im-
portance of private capital flows. The Bank itself provides some 3.5
percent of the foreign exchange brought into the area. Even if you take
all of the multilateral banks and all of the funds, that together repre-
sents only 29 percent. By far the largest part of the activity which has
been alluded to heretofore is a result of private trade and investment.
It is important also to note that the loans made by the Asian Develop-
ment Bank constitute only about a third of the total value of the proj-
Senator HAYAKAWA. Thank you
Ms. du Pont.
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ects which are implemented as a result of those loans. Of the remaining
two-thirds, roughly 85 percent of the funds are provided by the coun-
tries themselves from their own domestic resources. A recipient coun-
try's own economic performance and their own priority plans and their
own domestic policies provide a very important part of the teamwork
between ADB and themselves.
With that as a background, I would like now to focus on how! the
Bank relates to the private sector and particularly to U.S. business.
Of the Bank's activities, agriculture and agribusiness represent about
32 percent of its lending. Energy represents about 29 percent; social
infrastructure, about 21 percent; and the development banks, that is
to ;;ay Asian Development Bank funding for the indigenous develop-
ment finance institutions, represent about 12 percent. It is through this
latter vehicle that the Bank makes loans directly available to the
smaller and medium-sized private enterprises in this area.
U.S. business performance, however, I am afraid is somewhat dis-
appointing. Of the total procurement possible over the period that
the Bank has been in existence, the United States has been able to
gather only about 7.3 percent or some $327 million.
It is interesting to note that in certain areas, however, U.S. business
does very well. In the technical assistance area, the United States gets
about 18.5 percent of all of the contracts that are let. In the case of the
consulting services, the United States is far and away the largest, with
about 21 percent.
What is worth noting, Mr. Chairman, is that of the supply contracts
which are actually bid on by American firms, we win about a third.
So one of the areas that I think is very important is to increase the
awareness of the procurement possibilities under the Asian Develop-
ment Bank programs for American business, because when American
business does, in fact, bid it does very well indeed.
It is important also to note that these figures have a very large-20
to 25 percent-unknown factor. Of the total procurement dollars,
about 25 percent are unknown with respect to source of goods supplied.
My sense of it-and I think it is the sense of the Bank management-
is that some substantial part of this unknown amount also accrues to
American business from purchases through affiliates, subsidiaries, and
joint ventures of American companies.
In our offices at ADB, my staff and I spend a great deal of time
talking with visiting businessmen and corresponding with American
businessmen and consultants who have inquiries about the Asian De-
velopment Bank.
When we are here, we visit with business groups throughout the
country, explaining procedures, talking about procurement, going
through the different areas which we think hold promise, and where
we think the Bank and American business have a common interest.
There is available from the Bank on a monthly basis a publication
for $28 a year, which gives a very good up-to-date summary of the
projects the Bank is considering. Indeed, the Commerce Department
from time to time publishes in its newspaper various activities and
proposals which the Bank is considering.
There are two particular areas to which I would like to draw your
attention if I might, Mr. Chairman, that are relatively new as far as
the bank is concerned. As you know, we are in a time of economic tur-
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moil and stringency, and the Bank is looking within itself to make a
better use of the funds and resources that it has. One of the tools which
it is beginning to develop and I think is seriously along the way is
cofinancing.
The concept of cofinancing is a fairly simple one. The bank will put
some dollars into a project and then will go to the marketplace to
bring other resources into the region. An example might be a project
in the energy sector where the Asian Development Bank will have
looked very thoroughly at it, found the project to cost about $100 mil-
lion. The bank will declare its intention to put perhaps $50 million
and will assist the recipient government in raising the other $50 mil-
lion from the international capital markets.
Immediately preceding the last annual meeting in Manila in April,
ADB organized a full day seminar which attracted 190 bankers and
export credit experts from around the world. The purpose of the sem-
inar was to acquaint the private sector with the activities in this co-
financing area that the bank is undertaking.
The bank has created a separate department. They are working out
the details, the different kinds of agreements that will be available.
They recognize the need to be flexible, and they are moving ahead
quite aggressively.
The second new consideration is the bank's proposal to go into the
equity business. It is thought by a number of members of management
and a number of members of the board that there is a very important
niche for equity investment in the promotion of the private sector's
evolution in a number of developing countries.
The particular niche that we see as making sense from the point
of view of American business perhaps is a situation where an Amer-
ican company wishes to invest in a host country. For either interna-
tional reasons or lack of experience or whatever there exists some
degree of suspicion between the host country government and the in-
vesting company. With a small infusion of equity from a. neutral en-
tity like the Asian Development Bank, these tensions can be reduced
and the investment go forward. We have had several comments a]-
ready from potential investors that the procedure outlined would
ease the entrance, both from the point of view of the host country and
from the point of view of the foreign investor.
Both sides feel that they then will have in. effect, though a minority
partner, a partner nonetheless, who is committed to objectivity and has
the interest of both sides at heart. We think this is an area where
ADB, with its expertise in the area, and with its indigenous nature as
an Asian institution, can provide, particularly in the lesser developed
countries, that spark, that beginning push. if you will, toward an
expansion of the private sector and mobilization of additional re-
sources for development.
You have asked for a couple of suggestions, Mr. Chairman, on what
we might do to increase the knowledge and effectiveness in getting
business as far as Asia is concerned. One, of course, is very importantly
the function of this committee, and again I join Mr. Albrecht in en-
dorsing your activities here. The greater the knowledge of Asia that
U.S. business has, and the wider exposure that Asia has, the more
we can expect to increase our business in that area.
We must keep trying.
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89
Regarding the trade and development program, I have heard per-
sonally from a number of people who come through my office that it is
very well received. Also, we need American businessmen in the field.
The tax changes last year I think have made a great difference, cer-
tainly in ADB, where we had lost almost all of the American staff
and are now built up I think to a full complement.
Mr. Chairman, I think ADB is a very important institution. I very
much appreciate the opportunity to be here. In a larger sense, the bank
is really a means for planting and putting our philosophy to work in
this area of development.
The ASEAN countries have demonstrated what dedication to the
free market can do. I think the Asian Development Bank through its
assistance, through working with these countries, can provide a very
important bridge for American business. I applaud your efforts in this
area.
Thank you.
[Mr. Bohn's prepared statement follows:]
PREPARED STATEMENT OF HON. JOHN A. BOHN, JR.
I appreciate the opportunity to come before you today to discuss how the
Asian Development Bank serves U.S. interests-particularly, U.S. economic and
commercial interests-in southeast Asia and the Pacific.
The United States had a central role in founding the Bank in the mid-1960's.
Our motives then, as now, were, in large measure, our Interest in the economic
and political stability of southeast Asia, and our genuine concern for the millions
of the world's poor located in that Region. Since then, many of these countries
have dazzled the world with their growth and development. Largely as a result
of market-oriented domestic police together with private sector trade and
investment, this area now accounts for a larger proportion of our trade than
the EC, and has some 11 percent of total U.S. foreign investment, approximately
$22 billion in 1980. Twenty-five percent of our total Exim Bank exposure is
in East Asia alone, and in 1980, 31 percent of our agricultural exports were
channelled there, some $12.8 billion.
Successful development in the region has led to an evolving role for the
ASEAN countries in the Bank. The economic and financial strength of Singa-
pore has grown rapidly in recent years. As a consequence of Singapore's high
standing in private financial markets and strong creditworthiness, Asian De-
velopment Bank lending to the city-state has been inactive in recent years in
the interest of making resources available to less creditworthy members.
Similarly, the growing financial strength of Indonesia, the Philippines and
Thailand means that these countries will soon phase out of borrowing from the
Bank's soft loan window and rely exclusively on the hard loan window for
Bank funding. Like Malaysia for several years, these three countries do not
need the concessional support of interest-free, long-term loans and can carry on
their Bank-supported development programs on the near-market terms of the
Bank's hard window.
Our large trade and investment stake in the region place our economic and
commercial concerns in the forefront of U.S. interests. As I hope to describe
briefly, the Bank provides direct and indirect support to these interests.
At the outset it is important that the Asian Development Bank be seen in a
proper perspective. Forty-five countries are shareholders, with Japan and the
United States sharing the lead with approximately 16 percent each.' In its 15
years of existence, loans from the ordinary capital resources have amounted to
some $7 billion. The largest recipients of these loans over the years are coun-
tries whose names and importance to the United States are known to you all:
Indonesia ($1.40 billion, 21 percent), Korea ($1.37 billion, 20 percent), Philip-
pines ($1.27 billion, 19 percent), and Thailand ($1.0 billion, 15 percent). Indeed,
75 percent of total bank commitments in 1981, some $863 million, went to four of
the five ASEAN countries alone.
1 In order, the next three are : India, 7.7 percent, Australia, 7.0 percent, and Indonesia,
6.6 percent.
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By contrast, loans from the Asian Development Fund, or soft loan window,
go primarily to South Asian countries, except India which does not borrow.
The Bank has approved over 500 projects, has loan commitments as of year
end 1981 of some $9.8 billion dollars, and has borrowed some $3.1 billion from
the world capital markets to fund its activities.
It is important to note, too, that ADB provides only 3.3 percent of all foreign
exchange flowing into the region. Indeed, even including World Bank resources
into Asia only 29 percent of foreign exchange inflows are provided from all
multilateral agency sources. Far and away the largest inflows into this dynamic
region are from private trade and investment. Therefore, in addition to providing
direct loan funds for development projects, the Bank plays an important develop-
ment role through technical assistance grants, and its in-house consultative
expertise. By encouraging domestic policies in recipient countries which foster
private sector development and a free market orientation, the Bank acts as a
catalyst to improve the climate for foreign investment, and trade, thus adding ?
to resource available for regional development. Finally, it should be emphasized
that Bank lending represents the only foreign exchange costs, about 37 percent
of total funding of a typical project costs. Of the balance, some 84 percent
comes from the countries themselves, with the remaining 16 percent from co-
financing sources.
It is illuminating as well to look at ADB lending by sector from both windows.
Agriculture and agroindustry---------------------------------------
28.7
32.6
32.3
Energy-----------------------------------------------------------
25.0
27.2
28.6
Industry and nonfuel minerals--------------------------------------
3.8
.9
.8
Development banks-----------------------------------------------
13.4
10.7
12.2
Transportation and communication----------------------------------
14.0
9.5
4.3
Water supply-----------------------------------------------------
8.5
7.8
7.4
Urban development, education, health and population-----------------
6.6
11.3
14.5
Agriculture and agroindustry predominate, with energy ?a close second and
moving up. Social infrastructure, too, occupies an important place, along with
aid to the private sector through the development finance institutions.
Given this level of activity within the region, how has U.S. business fared in
its dealings with Asia, particularly with respect to the ADB? Since its inception,
the Bank has awarded some $4.3 billion in contracts, $3.7 of which have already
been disbursed. In terms of direct contracts, U.S. business has received some
$327 million, roughly 7.27 percent of the total. By contrast, Japan has obtained
some 31.4 percent or about $1.4 billion, though it should he noted that despite
our equal shareholding Japan is the largest single contributor providing cash
payment of almost $1.9 billion or 32 percent of total cash payment. The United
States is the second largest contributor having provided over $1 billion or 18
percent of total cash contributions. What remains more troublesome is that the
U.S. share has remained roughly constant over the life of the Bank, rather than
growing. Moreover, just behind the United States with substantially less finan-
cial commitment, comes Germany, with procurement valued at $238 million (5.3
percent), Italy, $143 million (3.2 percent), and India $123 million (2.7 percent).
In some areas, U.S. business does comparatively well. In technical assistance
operations, the United States obtained some 18.7 percent ($14.6 million) of all
contracts, followed by the United Kingdom, 13.9 percent, Japan, 10 percent, Aus-
tralia, 6.3 percent, and India, 5.6 percent. In consulting services, U.S. business
does even better, obtaining some 21 percent of all country contracts awarded,
some $54 million, followed by Japan, 12.5 percent, United Kingdom, 9.7 percent,
Canada 8.1 percent, Germany 8.0 percent and Italy 7.9 percent. Of some signifi-
cance, moreover, are Bank estimates that of the goods and services contracts ac-
tually bid by U.S. business concerns, U.S. companies win about 33 percent. One
should be aware that there is a large (22 percent) undetermined item in the
sources reports and one can be reasonably certain that a substantial part of that
is represented by goods and services from U.S. affiliates, subsidiaries, or joint ven-
tures. The picture, therefore is not either black or white, but rather gray. What
might we do to improve it?
I view an important part of my task as Executive Director to increase U.S.
participation in ADB projects. I spend a substantial part of my time meeting
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91
with U.S. business groups in Asia, and in meeting, and corresponding with U.S.
businessmen who visit Manila. Recently, the Asian-Pacific Council of American
Chamber of Commerce endorsed the creation of a U.S. Advisory Committee of
its members to work with our office in this regard, both in developing informa-
tion on projects and progress therein and in creating an awareness among U.S.
businessmen of the opportunities in ADB projects. I visit with business and pro-
fessional groups throughout the United States regularly to explain procurement
rules, go over opportunities and hear complaints.
Equally important, there is a strong, new emphasis in the Bank on developing
ways of co-financing with private financial institutions. We have strongly sup-
ported this idea and are very impressed with the Bank's vigorous pursuit of oppor-
tunities. Thus far, private institutions have helped to support only nine projects
totaling $125 million out of total loans of $9.8 billion. But I expect this cumulative
sum to grow rapidly in the coming years and to measurably add to the capability
of ASEAN countries to tap private capital market and to provide opportunities
for U.S. private financial institutions to invest in sound, well-targeted economic
activities.
An even newer idea has been growing in the Bank in the last year or so : a pro-
gram to provide equity capital to private firms in the developing members coun-
tries of the ADB. The program, patterned after the World Bank's successful
International Finance Corporation, would funnel equity investments and some
lending to private firms in developing countries.
Although U.S. firms would not benefit directly from this source of.flnancing, the
indirect benefit is potentially large. Strong private sectors in these countries,
drawing financing from diverse sources, can become sophisticated and reliable
customers and business partners. The ASEAN economies are reaching the level of
complexity and sophistication where government support for business develop-
ment can entail excessive restriction and regulation. A vigorous and independent
private sector in these countries will be increasingly important to our commercial
interests in the future. The ADB's equity program, if it comes to fruition, offers a
sound instrument to strengthen the private sector. Perhaps most important, a
minor equity participation by the ADB in a new project or industry should go a
long way to mitigate the mutual suspicion that often exists at first between a
foreign investor and a host country government or firm, hopefully facilitating
more rewarding, "hassle-free" joint venture prospects.
You've asked for some suggestion in increasing U.S. business activity with ADB.
Most of the suggestions can be more broadly applicable to increasing U.S. business
in Asia, most of which you've heard before, I am sure :
-more knowledge by U.S. business of opportunities in Asia is required; the
U.S. Chamber, Asean-U.S. Business Council and the Asia-Pacific Council of
American Chambers of Commerce and others, are all doing their best, but we
must keep trying.
-The trade development programs, giving U.S. business some support at the
initial stages of project development, have been well received in the field
and should prove helpful;
-We need American businessmen in the field. The tax changes made last year
for expatriates have been enormously helpful, not the least in making it pos-
sible to recruit Americans in ADB senior staff positions.
-U.S. business should be encouraged to use U.S. embassy people where pos-
sible to put their case for participation in development projects to recipient
governments. The recipient government makes the final selection, and while
we can insist on integrity in the system of procurement, in the end the host
country decides.
-If a businessman has a problem they should feel free to call or write us di-
rectly. We cannot influence the bank in favor of particular company. But
my experience indicates that the Bank is most careful of the integrity of
the selection process and we can assure that bids and requests are fairly and
promptly treated.
-Size of projects is often a problem ; sometimes they are too small for the
largest U.S. companies. Therefore, we need to encourage and assist smaller
companies to get involved. The export trading company concept is an excel-
lent vehicle for this. Moreover, it permits the "packaging" of several prod-
ucts from different suppliers to meet bid terms. It is more and more diffi-
cult for the individual company representative to be successful on a single
product basis in the face of competition from other nation's trading firms.
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92
More broadly, U.S. commercial interests in ASEAN are advanced by strong
Bank support for :
-free and open markets.
-reduced barriers to private investment flows.
-limiting the scope of governmental regulation and intervention in economic
life.
The Bank is, ultimately, a means for planting and nurturing this philosophy
in its developing member countries. In this role, it lends strong support to U.S.
interest in the region.
In the coming months, the Administration will be completing negotiations for
a substantial increase in the capital of Bank. having just completed negotiations
for a replenishment of the Bank's soft loan window, the Asian Development
Fund. We have been consulting regularly with the Chairman and Ranking Mi-
nority Member of the full Committee on the negotiations.
In light of the stringent budgetary conditions, our commitment in these nego-
will necessarily be constrained, but I believe our interests in Asia will
tiations ?
be fully served by the continuing substantial U.S. financial role in the Bank.
I hope we can count on the members of this Subcommittee for support when
authorizing legislation and an initial appropriation request are submitted next
year.
One observation needs to be inserted here. As the only regional institution of
any magnitude in Asia in which the United States is an important member, our
attitude toward the Bank is viewed in Asia as reflecting our attitude toward
Asia generally, toward development, and toward assistance to the poor. In addi-
tion to the economic significance of our policies toward ADB, this is an impor-
tant foreign policy perspective which must not be overlooked.
Senator HAYAKAWA. Thank you very much, Mr. Bohn.
I would like now to proceed to some questions. First of all, Mr. Al-
brecht, you suggest the possibility in your prepared paper that Brunei,
a small, oil-rich country, will probably be invited to join ASEAN.
Would you tell us more about this? Is there the possibility of ASEAN
expanding its membership?
Mr. ALBRECHT. Yes, Mr. Chairman, I think of other countries or soon
to become countries in the area. Brunei is the only one that had been
mentioned to me by ASEAN officials as being likely in the foreseeable
future to attain membership.
Senator HAYAKAWA. A year ago we were told that there is very
little likelihood of an increase in membership. Has the situation
changed since then?
Mr. ALBRECHT. Perhaps it has. I think I would have said a year ago
that there was little chance, but that Brunei might be the only one on
the horizon.
Senator HAYAKAWA. Is there the possibility perhaps that Papua-
New Guinea might also he interested in joining?
Mr. ALBRECHT. I am not certain about that. I heard somewhere, that
they might be invited to be observers at certain meetings, but I have
not heard any discussion of membership.
Senator IIAYAHAWA. You alluded, Mr. Albrecht, to problems with
our ASEAN friends over our tin disposal policy, the Caribbean Basin
Initiative, and commodities such as tungsten and rubber. Would you
elaborate on these and tell us something more about the nature of the
problems in these areas?
Mr. ALBRECHT. Yes. First, with respect to the Caribbean Basin Ini-
tiative, I think the ASEAN countries, based on the discussions that
we have had, have some considerable sympathy for the objectives of
the administration in trying to strengthen the economic and social fab-
ric and foundations of the area. However, obviously, where there is a
departure in terms of trade discrimination they are quite concerned
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that this could have adverse effects on their own exports or on their
possibilities for attracting investment.
Senator HAYAKAWA. That is, the Caribbean Basin Initiative involves
free trade between the United States and the nations of the Caribbean
Basin, does it not ?
Mr. ALBRECHT. That is correct.
Senator HAYAKAWA. That might mean, from the point of view of the
ASEAN nations, that they could get frozen out'?
Mr. ALBRECHT. Well, for example, it might serve as an incentive for
foreign companies to invest in the Caribbean, rather than in ASEAN,
in order to take advantage of the free access to the U.S. market. In
addition, they are aware of the possibility that there might be invest-
ment incentives to U.S. companies to invest in the Caribbean. So like-
wise, they would be concerned that this might detract from their
opportunities to encourage U.S. firms in ASEAN.
We have tried to reassure them that we did not think that their
competitive position would be damaged because of the difference in
the nature of the economies of the Caribbean as compared to their
own. But one has to recognize, I believe, that their concerns are
legitimate.
Senator HAYAKAWA. You have tried to reassure them?
Mr. ALBRECHT. We have tried to reassure them. But they remain
concerned, because they do not know what the effects might be on them
in the future.
With respect to the commodities that you mentioned, on tin the
ASEAN countries are very concerned over the continued sales from
our GSA tin stockpiles at a time when there is what they consider to
be weakness in the tin market. We have explained to them that we
believe that the actions taken by the GSA do not unduly disrupt the
market and are in small amounts.
But they see it differently. We have discussed it in very great detail,
and as a matter of fact we have offered consultations to ASEAN on
this and we are in the process of working out an acceptable time and
place to see if we can explore some way that the sales might take place
in a manner that would be somewhat more satisfactory to them. So
we hope to have these consultations as soon as we can work out dates.
With respect to tungsten, the situation is generally similar. This is
a particular concern to Thailand. There is a large overhang in the
U.S. stockpile of tungsten, which they believe depresses world market
prices.
With respect to rubber, we have again in this situation a weakness
in price. However, I believe that in the case of rubber we are satisfied,
and we believe that the new international rubber agreement, of which
we are a member along with the ASEAN countries, is a very good
agreement and has the potential to work well.
We are concerned at some indications that producers may wish to
act to restrict supplies. If this were inconsistent with the terms of the
agreement, we would naturally be very concerned.
Senator HAYAKAWA. Thank you.
You raised the question of the growth rate of the ASEAN nations.
There has been some controversy over what in fact the growth rate in
the Philippines in 1981 was and what its projected growth rate might
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be for 1982. Would you give us your assessment? I mean, the Philip-
pines is enjoying a steady growth rate, is it not?
Mr. ALBRECHT. Yes; I believe that the growth rate during the seven-
ties was around 6 percent, which was quite strong, healthy and consist-
ent with the general ASEAN performance. I think in 1981 there was
a lower growth rate due to an increase in the cost of imports and very
soft prices for the Philippines' traditional exports, such as sugar,
copra, copper and so forth.
Now, as far as the actual figures are concerned, at one point our
own estimate based on embassy reporting was 4.9 percent. I think the
official Philippine Government figure was 3.8 percent. These may vary
somewhat. I have seen figures, estimates in the press that It was lower
than that.
As far as the projection for the future is concerned, for 1982 I would
think that we would have to be quite conservative in cur estimates,
but I would not expect to see a strong resurgence in economic growth.
I would not expect to see it go back to 6 percent. So I would estimate
that it would be somewhat like the 1981 performance.
Senator HAYAKAWA. Mr. Bohn, would you care to comment on the
matter of the growth rate in the Philippines?
Mr. BORN. There was some dispute with the IMF team that came to
tl.e Philippines. The Philippines had projected somewhere, 4.9 or
something like that, and there was some discussion during the team's
visit.
My recollection of the figure that emerged was something like 3.3
percent for 1981.
My sense of 1982-and I would certainly agree with Mr. Albrecht
on this-is that one of the major problems the Philippines has is a
significant energy shortage, so they are bending all efforts toward
finding alternative sources of energy distinct from their oil importa-
tion, which cost them a staggering amount over the last few years,
particularly with the oil price increases.
I think they are making great strides to find alternative energy
sources through the dendrothermal and through the geothermal facil-
ities that they have in fact been working on for some time. But it is
still going to be a while, at least in my estimation, before they get
back to the 6 percent figure.
Senator HAYAKAWA. Thank you.
To come back to you, Mr. Albrecht, you mention the ASEAN-U.S.
Business Council and its activities in the field of training and tech-
nology transfer. Could you tell us some of the details of these activ-
ities and demonstrate how they further the interests of the United
States and the host nation in these matters?
Mr. ALBRECHT. Yes, I would be glad to.
Senator HAYAKAWA. How does that United States-ASEAN Business
Council work?
Mr. ALBRECHT. It was organized in 1979. Basical, there are two
sections. There is the U.S. section, which is made up* of executives, a
limited but quite interested and active group of U.S. chief executives.
I would be pleased to submit additional information on who they are,
the latest membership, to the committee if that would be of interest.
They work with the ASEAN businessmen who are organized in the
chambers of commerce and industry, the so-called ASEAN CCI. The
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95
chairman of their side is drawn from that group. Now, the way they
work together is through a series of meetings. They have annual meet-
ings and they have executive committee meetings. Then they u have set
up work groups in a number of fields.
They have held seminars, for example, in science and technology and
in the automotive sector. The working groups facilitate technology
transfer. This happens through the contacts that are made, the semi-
nars that are held, and the mutual awareness of the businessmen of
0
the two areas. For example, if American businessmen go out to the
ASEAN areas. as they do for the conferences, there is a great deal of
discussion of common problems and joint activities.
The working groups try to examine, for example, which policies-
for example, in the trade field there has been a great deal of coopera-
tive, work done on the generalized system of preferences {GSP] of the
United States to make sure that the ASEAN business community is
taking advantage of this very excellent program that the United States
has enacted. This is more difficult than it would appear, because the
regulations have to he understood and the procedures followed. To
facilitate ASEAN utilization of this program the business commu-
nity, the U.S. section has worked very closely with the Office of the
U.S. Special Trade Representative, which has done an excellent job
in this area.
So T believe the fundamental value comes from the fact that the busi-
nessmen who are engaged in these activities are able to share and share,
quite frankly, some of the concerns that they have about how govern-
ment policies may have adverse effects.
This leads sometimes to ioint recommendations, which as T men-
tioned earlier are very powerful expressions of what governments
should do. If you already have the business community on your side
and they know the practical difficulties that are faced, government I
think is well advised to take very seriously whatever they sungest.
Senator HAYAKAWA. I have two more questions for you. You speak
early in your paper of lagging sales. increased financing costs and
slower growth rates in the industrialized nations, presumably Western
Europe, the United States. and so on. And at the same time. toward the
end of your paper. you say that ASEAN's future seems bright indeed.
When you say that ASEAN's future looks bright, are you thinking
about short- or lone-term predictions?
Mr. AL?nRECT-TT. Well. Mr. Chairman, you are right. There may seem
to be a degree of inconsistency there. Perhaps my enthusiasm and
optimism is the only shield that one can carry into the battles these
days.
From my point of view. there are two substantive points which
underpin my optimism. First of all, the major threat, I believe, to the
continued growth of ASEAN would he protectionism : protectionism
in the TTnited States, in Europe. and in Japan. I believe that the leaders
of these countries, particularly in lircht of the Versailles summit, have
taken a strong stand against that. I think that stand against protection-
ism is supported by the international business community and also by
the ASEAN nations, who have a real stake in an open international
trading system.
So I think that the threat is understood and will be addressed. We
will act as best we can against protectionist pressures.
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The second reason for optimism, I believe, is perhaps a more funda-
mental characteristic, and it is this: The ASEAN nations are well
equipped in terms of resources, both natural and human. Fundamen-
tally, they have very good educational systems and effective training
for workers, which I think will be increasingly important. They have
good economic leadership, which is invaluable.
I mention these factors because I believe the economic growth that
they can achieve will be based on their relative position compared to
other possible competitors in the world economy. I think that they are
very well placed, as indeed are other nations in East Asia, and have
some of the strongest and most dynamic economies, dynamic in the
sense that they have the capacity to change, to adapt to the world
economy, and to find a market for their goods.
I think the problems which they face can be overcome based on the
experiences of past years and their capacity for diversification based
on these factors. So I am optimistic and I will try to stay that way.
Senator HAYAKAWA. Thank you very much, Mr. Albrecht. I will go
on and question Ms. du Pont next.
I would like first to say as part of the general background that this
hearing is a matter of great importance to me. This is our quiet but
nevertheless, I hope, successful opposition to the spread of communism.
Every one of the ASEAN countries has had leadership at one time or
another which was tempted by communism or which flirted with the
idea and could have gone over. Indonesia did for awhile. But they got
wiped out in a rather cruel way.
But we are saying we are providing an alternative system of keeping
human beings free to make their own economic decisions, work out
their own economic destinies.
Through our longer experience with the free enterprise system and
through the service of our retired executives that Ms. du Pont has
been telling us about-and I would like you to at least, expand on that a
little bit later, Ms. du Pont-we encourage the enterprise system and
the economic freedom and therefore all the other freedoms that go with
it, culminating in political freedom, religious freedom, freedom of con-
science and everything else that, goes into a free society.
You may get bored stiff with a discussion of specific commodities,
whether they are bananas, tungsten, zinc or whatever but the exchange
of these, the sale of these, the manufacturing and processing of these,
and the free trade of these is the very heart, is it not, of the free enter-
prise system?
And so this is why I regard this kind of hearing and the kind of en-
terprise you are engaged in, all three of you, as a matter of very great
importance to the future of our country.
So I support you, Ms. du Pont. I want you to know that I back
you 100 percent.
Ms. DU PONT. Thank you, Mr. Chairman.
Senator HAYAKAWA. Now, for my questions. I do not know is this is
one that you are ready to tackle. But in all of the business of encourage-
ment of the enterprise system and the private sector, what did Japan
do for the ASEAN nations?
Ms. DU PONT. What does our plan do?
Senator HAYAKAWA. No; what does Japan do for the ASEAN na-
tions?
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Ms. DU PONT. Well, it, certainly is a competitor of the United States.
Senator HAYAKAWA. Does it invest?
Ms. DU PONT. Yes, it does invest. At least in Thailand it is a very
vigorous investor. The Japanese have presented a good deal of stiff
competition to the United States. They have a very healthy relation-
ship with the Thai in the investment field.
The Japanese, for instance, make rt a point to study the language in
Thailand and to come to be familiar with the customs that are attend-
ant with business negotiations; a good deal more so, I suspect, than
Americans do. There is very strong Japanese activity in that part of
the world.
Senator HAYAKAWA. Mr. Albrecht, would you care to respond to
that question, too?
Mr. ALBRECHT. I would agree in general with what Ms. du Pont has
said. I think, in addition, we should recognize the impact of the Japa-
nese assistance aid programs, both through the Asian Development
Bank, where they are a major contributor, their own bilateral aid
programs in the five nations of ASEAN, and their investment activi-
ties. In all of these things they are extremely active. Their presence is
felt.
They are doing everything they can. both from an economic, diplo-
matic, and political point of view, to support the ASEAN countries.
That includes obviously a great deal of private sector competition,
competition from Japanese firms that have the full support of the
Japanese Government. So there is both competition with us and yet
very fundamental economic assistance and economic activity. So on
balance, it is a plus.
I think the implications of it are-what can we do as Americans to
be more competitive?
Senator HAYAKAWA. Ms. du Pont, you pointed out early in your
paper that one of your objectives is to involve the American private
sector actively in the development process, something which President
Reagan has emphasized repeatedly. What. sort of reception have you
received from American businesses? Are they helpful? Do they view
American business participation as an altruistic effort on their part
or as one which serves their own purposes as well?
Ms. DU PONT. Of course, as I indicated a moment ago, our program
is a new one. But we have had, so far, a very enthusiastic reception
from American businesses. We have had support from the U.S. Cham-
ber, for instance.
I do not think that U.S. business support is looked upon as an
altruistic matter, however. Ours is a market-oriented approach. We
expect to be and are using firms to serve our own objectives. They, of
course are interested in profits, the bottom line. I think that we have
a good deal of ground in common and are going to be able to bring
both of our objectives to bear on the development situation in these
countries.
Senator HAYAKAWA. That is a very reassuring answer. It is not a
charity case to them.
You mentioned that you plan to work with host governments to pro-
vide the environment needed for private enterprise to function effec-
tively. You also expressed the hope of helping remove bottlenecks and
of building the management and technical skills base needed for a
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vigorous private sector. How do you go about doing all of these
things?
Ms. DU PONT. Well, I agree it does sound like a tall order. Insofar
as Thailand is concerned, which is the area I have spoken to most re-
cently, we are bringing a group from the Young Presidents Organi-
zation into that country.
Senator HAYAKAWA. Young Presidents Organization?
Ms. DU PONT. Yes. The U.S. Young Presidents Organization.
Senator HAYAKAWA. That is a lively outfit.
Ms. DU PONT. And very much involved in small- and medium-size
enterprise, which, of course, is one of our main focuses. They will be
going into Thailand with a hands-on attitude toward assisting small-
and medium-sized businesses in that country, going into the factory
giving seminars, providing 2-day sessions which would be available to
Thai businessmen.
WWWe also have set up a management training program which we will
be starting in July for midlevel management training in Thailand
again which we view as a real need in Thailand.
Another example, not related to the ASEAN area, is an African
example. The Government of Kenya has asked us to come in and pro-
vide advisory services.
Senator HAYAKAWA. Who is that?
Ms. DU PONT. The Government of Kenya. in Africa-unrelated to
this particular area-has asked us to provide advisory services with
regard to studying its financial markets. This is the kind of example
that we would expect to be able to implement throughout the ASEAN
area as our program expands.
Senator HAYAKAWA. That is wonderful. You alluded to the long-
term benefits which would accrue to the U.S. private sector from your
plans. I do not disagree with you, but I wonder if von could elaborate
on this for the record. What are the long-term benefits?
Ms. DU PONT. I think the best measure of that, perhaps, is the way in
which we could strengthen private enterprise and promote growth
within these countries and, in so doing, to build markets for U.S.
goods in the long run.
I think to have a strong economy in each one of these countries is
the best measure we could have of what the long-run benefits could be.
Senator HAYAKAWA. Ms. du Pont, you do"cribed your planned ac-
tivities with agribusiness. and it seems to me that your activities there
will require an entirely different sort of agricultural expert than has
previously been available within the AID nersonnel field. If this is
correct, it makes me wonder whether you are encountering any diffi-
culties finding the right people to carry forward your plans.
Ms. DU PONT. Well, you are certainly correct that the kinds of agri-
business skills that are involved in our new program are not widely
available in the Agency for International Development at the moment.
There are some of them in the Science and Technology Bureau avail-
able to us as resources.
However, we have been engaged in two activities. We have been
using extensively the service on a short-term basis of consultants in
the agribusiness area. IBEC has been very helpful. the Agribusiness
Associates, which is a consulting firm associated with Prof. Ray Gold-
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berg, a professor of agribusiness at Harvard who has been helpful to
us.
In addition, we are bringing on board the Bureau staff an agribusi-
ness expert who will be helping us put together our agriculturally re-
lated projects. So I think we will be able to bring to bear those skills
which, you are quite correct, we will be needing.
Senator HAYAKAWA. In your prepared statement, your discussion
of how your program differs from past efforts evokes two questions :
First, what bureaucractic control mechanisms are you creating to
manage your efforts; and second, are we going to see an increase in the
size of AID staffing?
Ms. DU PONT. If I may, I would like to address those in reverse order.
Senator HAYAKKAWA. All right.
Ms. DU PONT. We do not expect to increase the AID staffing level.
We would expect to operate within existing ceilings.
I think, insofar as the first portion of your question is concerned-
the bureaucratic controls mechanism-our proposals to the business
community as my prepared remarks indicated, are printed in the Fed-
eral Register and the Commerce Business Daily. Also, announcements
will be going out to different private enterprises-those private enter-
prises will be asked to provide for us, once a project is initiated, quar-
terly statements of their activities. Those will be financial statements.
In addition, we expect to be able to provide oversight activities with
respect to the field by sending out experts from Washington to investi-
gate the nature of the enterprises and their current activities.
Senator IIAYAKA\A. I am glad to know that you are going to be
bureaucratically penurious.
Your discussion of convertible debentures would seem to me to
involve the U.S. Government heavily in the foreign marketplace. Is
that the case? Do you see any problems in this involvement?
Ms. DU PONT. I can understand the chairman's concern. It is an
unusual step, to be utilizing convertible debentures and in a foreign
government's marketplace. However, our use of them, we believe,
would be on a very rare basis. We would be limiting their use to only
those circumstances in which the institution could not generate suf-
ficient cash flow to pay high interest rates in the first few years of op-
eration-for example, a venture capital firm-or where we could facili-
tate capital market development and indigenous private ownership
over time.
Indeed, we will be further limiting our use of convertible debentures
because we would only, even in that rare instance, be using them for
a startup operation and indeed only in perhaps a high-risk situation
so that we could take some of the risk up front.
Further, our statutory authority does not permit us to take an
equity position, so we would be holding these debentures as debt and
then selling them at some future date and promoting the use of equity
in the marketplace in these countries.
We would be using these on a very limited basis. That is my point.
Senator HAYAicAWA. You mentioned your Bureau's missions to In-
donesia and Thailand and offered to provide their reports. First, could
you tell us a little more of the activities of these missions? Second,
would you provide the reports for today's record?
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Ms. DU PONT. We brought the reports today, Senator. I would be
happy to supply them for the record.
[The information referred to follows:]
AOENCY FOR INTERNATIONAL DEVELOPMENT, BUREAU FOR PRIVATE ENTERPRISE-
SUMMARY OF PRIVATE SECTOR RECONNAISSANCE TEAM REPORT ON INDONESIA,
OCTOBER 25-NOVEMBER 6, 1981
Members of the team : Edgar C. Harrell, Deputy Assistant Administrator, Bu-
reau for Private Enterprise; Joel Goldhar, Executive Director, Manufacturing
Studies Board. National Acadh,my of Sciences National Research Council, Wash-
ington, D.C.; Ronald Katz, Esq., Gaston Snow & Ely Bartlett, Palo Alto, Cali-
fornia ; L. H. Jordan, International Agribusiness Consultant, New York, New
York ; and George Ferris, Jr., Chairman of the Board, Ferris & Company, New
York, New York.
Goals of the mission : To explore private sector development opportunities in
Indonesia.
During the exploratory team visit to Indonesia, the participants met with
the Indonesian Ministers of Finance, Agriculture, Industry and Foreign Af-
fairs, as well as Indonesian private business executives representing key finan-
cial, agricultural, industrial and resource sectors of the economy. Discussions
were held with American businessmen representing U.S. private sector ventures
currently operating in Indonesia and the American Chamber of Commerce.
Meetings were held with Kadin, the Indonesian Chamber of Commerce. Meetings
were also held with the U.S. Ambassador and members of his staff, as well as with
the AID Mission. The Reconnaissance Team was received with courtesy and
responsiveness by all upon which it called.
The Indonesian economy is both sufficiently advanced to support dnd will
benefit from the further development of an entrepreneurial and managerial
middle c'ass. The.TJ.S. private sector in particular can be a catalyst in this ex-
pansion. The Indonesian Government will need, however, better defined admin-
istrative, regulatory, legal, and capital market. procedures. The U.S. Government
can assist in this effort. The Government of Indonesia has shown a willingness
to adapt policies to aid U.S. companies now operating in Indonesia, but consid-
erably more encouragement is needed in this regard to attract new U.S. private
investors. Existing Indonesian commercial, financial and industrial organizations
provide a core around and through which the AID Bureau for Private Enter-
prise can work to define and encourage joint private sector projects. Ancillary
accounting, legal, banking, and financial support is available as will be needed
by new ventures and investors through the sizable U.S. business community
already resident in Jakarta. While investment obstacles exist, most notably in
Indonesian law and fiscal policies, many sound opportunities for participation
of U.S. business in The development of Indonesia are apparent.
Training in management, technology, engineering and finance to increase the
depth of indigenous expertise available to all types of projects.
Capital markets need to be strengthened and innovative techniques used to
enable expansion of Indonesian private sector development and investment.
Agribusiness offers a wide spectrum of opportunity but initial efforts would
best be directed toward processing because Indonesian land law effectively ob-
viates direct foreign private investment in food production.
Light manufacturing of products to substitute for imports or for export to third
countries (not to the United States), can increase employment 1e-vels in Indonesia
while improving Indonesian balance of payments on both the import and export
fronts. Examples of light manufacturing facilities needed are for machine tools,
small power tools, wire mesh for concrete and other uses, and food preservation
and packaging. Downstream light manufacturing facilities are both sought from
and suitable for private investment to complement heavier industry sectors which
exist largely in the public domain.
Communications of commodities and information, including word processing,
printing and graphic arts, advertising, public relations, and transportation can
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benefit from U.S. private sector expertise, and the availability of these tech-
nologies will speed the development of projects in other areas.
In the first year or two of PRE support for private sector development in In-
donesia, efforts should be focused on a limited number of key private sector sup-
port projects such as training, finance and communications to strengthen visibil-
ity and to elicit the action by both the Government of Indonesia and the private
business community. Efforts to adapt local administrative regulations and laws
should be directed ,nitially toward specific changes for specific projects which
the Government of Indonesia can endorse as mutually beaeficial leaving broader
accommodations in Indonesian policies for an appropriate later stage when the
mutual desirability of such changes will be more apparent.
Emphasis in the selection of projects must include: (1) attention to the mutual
priorities and interests of both the Indonesian Government and the United States
and Indonesian private sectors; (2) employment generation; (3) the transfer of
U.S. private sector expertise in training, technology, management, marketing,
finance; and (4) the products and services needed within Indonesia or as im-
port substitutions and/or exports to third countries where they will not be com-
petitive with U.S. products.
A low cost, highly effective way of fostering joint venture private sector invest-
ment would be to set up a United States/Indonesian Investment Opportunities
Commission to act as a vehicle to screen projects, to familiarize United States and
Indonesian businessmen with opportunities and the necessary procedures, and to
act as a "broker" in bringing interested parties together. This interpersonal co-
operation and understanding is essential to the long run success of all ventures.
In the area of training, a two-fo'd approach is recommended. Senior executive
and MBA-level management training is a top priority for technology, accounting
and finance. At the same time, attention must be given to the development of trade
skills such as welding, tool and machine repair, bookkeeping, etc. This two track
training approach can best be implemented ~Aith private sector components of new
project proposals, with associated costs included in initial capital requirements
for start-up. Efforts must be made simultaneously to encourage an active dialogue
with existing local organizations such as the Association of Young Indonesian
Businessmen (Hipmi). Efforts to establish a more formal working relationship
between Hipmi and the U.S. Chapter of the Young President's Organization
(YPO) shou'd be undertaken. Also, the International Executive Service Corpora-
tion (TESC) is doing a good job in Indonesia and should be encouraged to take an
active role in training efforts.
The capital market system in Indonesia is limited at present, with little avail-
ability of equity financing for Indonesian firms and a local tax system which
inhibits public offering of stock shares. Nevertheless. two opportunities geared to
improving this situation exist. The first-and most immediately feasible-is the
development of private venture capital firms that offer not only financing, but
advice on management and technology to Indonesian private business. Second, is
a plan to expand public offerings on the Indonesian stock exchange.
It is not recommended that U.S. AID advisors be offered for assignment to
Ministries of Indonesia concerned with private sector development, with the pos-
sible exception of the Ministry of Agriculture for which this widespread support
is needed. In general the team felt that it was inappropriate to add to the Indo-
nesian bureaucracy.
As an aIjunct to training program development. it is strongly recommended
that special training facilities and courses be organized to cover the key compo-
nents of private sectr)r methods and philosophy ; that a senior staff member from
USAID/Indonesia attend these executive level sessions along with Indonesian
candidates.
AGENCY FOR INTERNATIONAL DEVELOPMENT, BUREAU FOR PRIVATE ENTERPRISE-
SUMMARY OF PRIVATE SECTOR RECONNAISSANCE TEAM REPORT ON THAILAND,
FEBRUARY 1-5, 1982
Members of the team: Elise R. W. du Pont, Assistant Administrator, Bureau
for Private Enterprise; Edgar C. Harrell. Deputy Assistant Administrator, Bu-
reau for Private Enterprise; Lowell Hoskins, President, Arbor Acres Farms, Inc.,
Glastonbury, Connecticut: Tracy S. Park, Jr., Vice President, Tenneco, Inc.,
Houston, Texas; Margaret B. W. Graham, Assistant Professor, Harvard Univer-
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sity Graduate School of Business Administration, George F. Baker Foundation,
Cambridge. Massachusetts : and Daniel F. Hefler, Jr., Semiconductor Specialist,
Arthur D. Little, Inc., Cambridge, Massachusetts.
Project design group: John D. Montgomery. Professor, Kennedy School of Gov-
ernment, Harvard University, Cambridge, Massachusetts ; and Robert Muscat,
Consultant.
Goals of the mission : To explore private sector development opportunities in
Thailand.
I. RECONNAISSANCE TEAM OBJECTIVES
At the request of the Royal Thai Government. an AID Bureau for Private
Enterprise (PRE) reconnaissance team visited Thailand during February 1-5,
1982. to evaluate the general potential for increased private investment in three
sectors: natural gas related industry, agribusiness, and e'ectronics. The team also
evaluated the business management sector. The team was able to obtain an over-
view of the investment potential of these sectors and the general investment cli-
mate in Thailand. The team also provided impetus to a U.S. Government private
sector initiative in Thailand comprising (1) a program to increase the flow of
private investment into priority development areas (Thailand is one of only ten
countries worldwide that will be initial beneficiaries of this program). (2) an
Overseas Private Investment Corporation (OPIC) investment mission to Thai-
land. (3) a USATD/Thailand bilateral project to complement the PRE program
of increasing private sector participation in meeting Thailand's development
objectives.
II. ASSESSMENT OF GENERAL INVESTMENT CLIMATE
The team concluded that the general investment climate in Thailand is quite
favorable, although some areas of concern are also obvious.
The Thai infrastructure and economy is superior to that of many developing
countries : highway, rail, air transport and telephone facilities are good through
most of Thailand; however, irrigation infrastructure, particularly in the North-
east appears to need further development/improvement. With regard to educa-
tion, there appear to be numerous people with advanced degrees from Thai.
European, and U.S. universities at the high levels of both government and
private business although shortages of skilled and experienced manpower at
several levels are becoming increasingly common. In the energy area there are
many new discoveries of natural gas, but virtually all crude oil and some refined
products must currently be imported.
The population growth rate is moderate (2.1 percent annually but declining) ;
but it is observed that Thais are in the initial stages of a massive shift from
a rural to an urban society (75-80 percent currently rural). Thailand's economy
is among the world's fastest growing and between 1975-1979 GDP grew an
average rate of 8.7 percent annually.
Thailand is one of the world's few net food exporters, and agriculture-rice,
cassava, rubber, corn, livestock, fish-accounts for 60 percent of exports. Despite
generally increasing exports, balance of trade problems have become painfully
unfavorable in recent years primarily due to the rapid increase in oil prices. In
1980 oil products accounted for almost one-third of imports by value.
The Thai Government seems to have had more success than most other develop-
ing countries in encouraging its private sector to flourish. Nevertheless, although
Thai officials know well the generally negative effects of price controls and of
regulation, these same officials may not have the power to change these dis-
incentives. The American Chamber of Commerce and Thai businessmen seem to
have an easy, mutual confidence and the current Thai administration is striving
to improve the public/private sector dialog and this healthy trend appears well-
established.
The team would like to note that Thailand's growth in investment, productiv-
ity, and balance of trade has been excellent over a sustained period. Its ability
to grapple successfully with changing energy costs, world-wide inflation, price
policies, new agricultural technologies, and over-regulation is as encouraging as
its prospects for the future in natural gas and utilization of its efficient and
productive labor force.
There is no need for drastic measures or changes of direction. The United
States should refrain from implying that there is; but some developments can
be encouraged, current and emerging weaknesses corrected, and potential prob-
lems averted by judicious action.
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A. Private Sector Capacity.-Private Thai associations meet regularly to con-
sider their common interests, but none has a professional staff nor has financial
capacity to hire private consultants. USAID could contribute by funding an
American consulting group to serve these organizations.
B. Public Sector Capacity.-Primary responsibility for attracting and facili-
tating private investment in Thailand lies with the Board of Investment which
has limited staff capacity. Thailand needs to better promote its potential to over-
seas investors and more effectively respond to investor's needs. Here again an
American consultant group could greatly improve the situation by strengthening
the capabilities of BOI and helping it to carry out a targeted promotional
campaign.
C. The Public-Private Interface.-Create a constructive dialogue on important
public issues through voluntary associations in the United States with a small
board of distinguished leaders from the private and public sectors, academics as
well as small entrepreneurs whose voices are seldom heard in large commercial
and industrial associations and government circles.
D. The U.S./Thai Private Sector Interface.-The sharing of effective technol-
ogy and management techniques could be facilitated by formal linkages between
industry clubs in the United States and Thailand. The Marshall Plan, "Pro-
ductivity Team" concept might serve as a useful model to apply in this effort.
E. Senior Seminars.-Thailand's policy makers could benefit from increased
exposure to the U.S. free market system to see for themselves its strengths and
weaknesses. A senior seminar for senior government officials is recommended
under the sponsorship of an appropriately prestigious United States institution.
F. Industrial Development Financial Packaging.-Thailand's financial institu-
tions could benefit from assistance in identifying and packaging potentially, at-
tractive investment projects. Technical assistance and some initial financial as-
sistance is recommended to start a pilot program.
G. Management Training.-Rising costs make it increasingly difficult for indi-
viduals in Thailand to finance educations and management training involving one
or two years in an American university. Training in public and private adminis-
tration would be welcomed in Thailand. Judicious support to such efforts could
contribute substantially to their quality and capacity. Further investigations of
this are planned to determine possible options for an AID program.
H. Negotiate/Ratify Tao Treaty.-A tax treaty to resolve the double taxation
problem would undoubtedly improve the investment climate for potential U.S.
businesses in Thailand.
I. Topics for Further Study.-Topics which might be studied to improve the
environment for private enterprise are:
1. Appropriate training and technical assistance to implement Government
Fifth Plan goals ;
2. Comparative study of specific industrial policies and practices in East and
Southeast Asia to help Thailand identify areas in which it can improve its
position ;
3. Study applications to the BOI for support which were withdrawn by Foreign
and Thai entrepreneurs to see why incentives offerings were deemed of little
value; describe cricumstances leading to withdrawal to provide base for com-
parative analysis ; and
4. Explore experiences of small enterprises to see what can be learned from suc-
cesses and disappointments suffered.
A. Training
While the uses of natural and financial resources have received much consid-
eration in Thailand's recent planning process, the critical issues of manpower-
specifically the depth of management capability and availability of skilled and
semi-skilled labor-have been inadequately identified. Thai Government officials
and private sector managers alike, as well as members of the American invest-
ment community, have spoken of management and skilled labor as problem areas
serious enough to be a potential brake on the country's rapid development. There
is little doubt that the availability of adequate trained or trainable internal
manpower resources is a significant factor in the attractiveness of any country's
investment climate to future investors, whether domestic or foreign.
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1. Defining the Needs
To date, management and technical expertise and availability has been ade-
quate for Thailand's growing economy, but shortages are emerging and are ex-
pected to become worse. Competition for qualified managers has become increas-
ingly intense as evidenced by compensation for managers with advanced degrees
which in turn depletes the ranks of lower paid management professors and
managers in smaller to medium-sized firms. This situation has resulted in the
following identifiable problems :
(a) an absolute scarcity of mid/upper level ex-'erienced managers;
(b) the absence of key management skills, particularly in general management
and in technology transfer ;
(c) lack of basic management skills in small /medium businesses, and especially
needed if agricultural projects are expanded ;
(d) severely inadequate management course materials, particularly in the
Thai language or adequate skill in English ;
(e) inadequate incentives for retaining of skilled management teachers; and
(f) a scarcity of semi-skilled workers across-the-board although workers are
easily trainable.
2. Training Projects Identified
(a) Chulalongkorn/wharton & Northwestern Joint Project.-This proposal,
the most fully developed thus far, suggests an English language graduate man-
agement program with heavy emphasis on marketing, finance, and general man-
agement. Chulalongkorn University and the American management schools would
each provide an equal number of management faculty to teach 20 carefully chosen
students. The program has support to roughly $500,000 from the Thai private
sector and there is talk of enlarging the enrollment. More realistic budgeting
may be necessary as well as an assessment of the feasibility of finding sufficient
qualified applicants were the project to be expanded.
(b) Thai management association proposal.-This program addresses an im-
provement in quality and amount of suitable Thai language management training
materials and supports a case-writing workshop specifically geared to the ex-
perience and needs of business in Thailand. The plan is compatible with the
ASEAN-U.S. Business Council "Training the Trainers" program. There is a
particular need for materials useful to managers of small and medium-sized
businesses written in or translated into Thai.
(c) Improving compensation for "trainers" [Thai management association
(TMA) proposal].-As research money presently offered is not on a par with con-
sulting fees available from the private sector, it is suggested that funding be
made available to supplement course development compensation for those quali-
fied to do work, but who now use their time for more lucrative endeavor.
(d) Management consulting and training for agribusiness (a TMA proposal).-
This would be a business extension program but the idea and its funding have
not been well-defined as yet. As part of the consideration process, the team felt
that encouraging a broader definition to include all sorts of enterprises might be
appropriate.
(e) The teaching of entry level basic skills.-Again not well-defined as yet, this
would be a pilot program to prepare semi-skilled workers in skills useful to and
needed in a variety of industries.
3. Recommendations
Recommendations for action center on a plan for awarding funding on a sup-
plementary or matching basis for several different programs already proposed
in some form by the Thai universities or Thai private sector. To use new pro-
grams or to develop new institutions is felt to be inadvisable insofar as they
would only compete with an already limited supply of manpower and training
resources. So great is the need for additional training in management and tech-
nology in Thailand and so supportive are the Thai educational and business
communities in developing this capability, that using existing resources is not
only advisable but likely also in the longer run to produce programs which will
endure.
B. Electronics
It is expected that the new wave of investment in the semi-conductor indus-
try will not reach the magnitude seen in the past. Because leading United States,
European and Japaneses firms are turning toward automation, becau,e fewer
chips will be packaged as 1k, 4k, and 16k RAMS are replaced by 64k and 256k
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RAMS. In this difficult environment, Thailand in particular will have to stretch
to attract potential investors as the country cannot be marketed as a "low-cost
environment" such as Sri Lanka or Indonesia. Nevertheless, companies in the
semi-conductor industry have traditionally tried to spread their investments to
lessen political and policy risks. Thailand is therefore potentially attractive, but
may find greater success in stressing opportunities in hardware manufacture,
capitalizing on the proportionately high level of technical education there.
1. Problems identified and recommendations
(a) A cheerful helpful welcome to investors is reeded and follow-up should
be improved. Action : Create n small cadre of technica'ly and business trained
investment officers (in the RTG) who can identify and undertake action to re-
move investment obstacles, provide assirtanee with applications, and help in
obtaining expeditious actions on formal applications.
(b) Semi-conductor and high-technology investors, are inordinately adversely
affected by delays between completion of investment project planning and the
granting of approval to proceed. Action : Empower the BOI to grant immediate
approval of all projects in advanced technology areas and to do so in the lan-
guage of the applicant, rather than in Thai.
(c) The BOI creates an initial cumbersome and confusing impression upon
entry to their offices. Action : Create an attractive reception area and greeting/
conference room to dramatically change this first impression and even create a
favorable second impression whe> the prospective investor is led through past
files of previous investment applications.
(d) BOT cannot be expected to maintain expertise in all areas, but the Agency
should inventory and promote all opportunities for investment in Thailand.
Action : Supply a technology development counseling officer to work with the
BOI.
2. Specific project proposals
(a) Telecommunications.-Finance cost/benefits study. Need for 3 million ad-
ditional telephone lines estimated between now and 1991.
(b) Consumer Electronic Products.-Finance cost/benefit study on domestic
manufacture of these products and the `ripple effect' such manufacture would
have on the Thai economy.
(c) Glass Picture Tube Components.-Study feasibility of manufacture for
use in color and black and white tubes, Thailand endowed with natural gas to
provide low cost energy and low-iron sand is believed available for a viable
world-scale picture glass tube components industry.
C. Agriculture
1. Areas of investment opportunity identified
(a) Farm Machinery & Implements.-There are two Thai/Japanese diesel
engine plants which are operating successfully and which are Thai controlled
and managed. There are more than 100 makers of tractors and implements, but
they are small operations which need consolidation or tying into a management
system to achieve standardized, interchangeable parts and economies of scale.
(b) Rice.-This is Thailand's largest crop, a diet staple which also com-
prises 18 percent of total Thai exports. The rice is mostly grown in small plots,
is hand harvested, threshed, etc., and there are an estimated 30,000 small mills
for hulling and polishing. Many Thai farmers are barely in the cash economy.
but large rice farmers are prosperous. Nevertheless, they need incentives to use
more modern methods to reduce losses through kernal breakage in milling.
(c) Corn and Sorghu.m.-Better seed hybrids are needed for these crops.
(d) Soy/bean's.-Current imports from the United States.
(e) Cotton.-Cotton is imported from the United States. Some is grown in
Thailand, but the industry is not well-developed. Cotton is labor-intensive and
requires substantial quantities of fertilizer and pesticides.
(f) Agricultural, Chemicals.-A Scandinavian group is constructing a large
nitrogenous fertilizer plant which should supply Thailand with all its needs plus
some for export. Potash is plentiful in Thailand but phosphates must be im-
ported. Pesticides are desperately needed as imports are now approaching $60
million per year. Both fertilizers and pesticides are vastly underutilized in Thai-
land at present.
(g) Cassava.-This is Thailand's second 'argest export (for animal feed). It
enjoys a low EEC tariff vs. grain, but it has no protein (vs. grain) and there-
fore is not attractive to other countries which import ingredients for feeds.
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(h) Poultry.-Industry is well-advanced and far superior to much of the
world's. Poultry is exported in growing quantities and is an excellent example
of what can happen to markets left to themselves with little Thai Government
involvement.
(i) Swine.-Pork is popular in the Thai diet. There have been considerable
efforts to improve breeding stock and to increase swine production. Slaughter-
houses are government operated. It is doubtful if foreigners can or should get
involved in local production.
(k) Food Processing.-Thai food stores are heavily stocked with a variety of
canned goods and processed meats. Pineapple and marine products are the pri-
mary export items in the processing group.
2. Recommendations
(a) Farm Machinery and Implements.-The future appears to be in consolida-
tion and rationalization of smaller manufacturers, not in large tractors and not
in assembly of imported equipment. The market may be too specialized or frac-
tionalized for U.S. manufacturers.
(b) Rice Farming and Milling.-Get specialists to assess situation, especially
with respect to obsolescent mills and using larger mills to provide greater final
value to the crop.
(c) FertilizerlPesticides.-There is a special need to educate farmers to usage
of these chemicals and to arrange cash and credit to improve demand for these
needed agents. This area should be examined in greater detail.
(d) Cassava.-Take no action. The industry is expected to decline.
(e) Northeast Thailand.-Check the situation near the Laotian border where
RIG is trying to spur agricultural growth. The problems are the same in this area
as in others, but the situation is more difficult and could use productive U.S. help.
(f) Cold Storage and Grain Drying Facilities.-These exist and are increas-
ing, but more are needed.
D. Natural Gas Industry
In 1966, the Royal Thai Government (RTG) with a grant from USAID began
an administrative and legal process for the development of energy resources in
Thailand. Following this initiative and the ensuring legal framework. the decade
of the 1970's witnessed a surge in exploration and drilling activity in the Gulf of
Siam. The search for oil was unsuccessful, but heavy hydrocarbon-rich natural
gas has been found in abundance and commercial production commenced in Sep-
tember 1981. The volume of future drilling activity will depend on the willingness
of the RTG to agree to purchase prices that reflect an acceptable rate of return
to the oil companies conducting the exploratory drilling, considering the large
capital outlays and associated risks.
1. Organizational Structure
The organizational structure of the gas industry in Thailand is as follows :
(a) Private international investors are permitted to find and produce hydro-
carbons tinder a royalty and corporate tax system mutually acceptable to them
and the RTG.
(b) The RTG, through thA Petroleum Authority of Thailand (PTT). will own,
operate and maintain gas pipeline transmission and distribution facilities from
the fields to the RTG or privately-owned user.
(c) The PTT is extending its authority one more step in the downward ver-
tical integration of the gas industry-that is. the PTT will own and operate the
gan se-aration plant to be built in Rayong. This facility will separate ethane and
other LPGs from the gas stream.
(d) All further downstream processing will be offered to private or possibly
mixed-sector investment in o'efin and pet*oehemical pants, utilizing residual
pireline methane as well as ethane and propane from the gas s'paratinn plant.
Methane is an ideal fuel for electric power generation, general industrial heating,
and as a feedstock for the manufacture of ammonia and methanol.
2. Investment Climate for Gas Related Industry
In the natural gas industry, it is essential for investors to understand the RTG
entities, individuals or organizations, who make or influence decisions. Knowl-
edge of applicable laws, taxes. and regulations are also important.
The Japanese possess considerable advantages in the Thai business commu-
nity. In addition to good technology, low-cost quality goods, and attractive finan-
cial packages, they operate successfully in less tangible ways : they are less con-
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cerned with Thai laws and regulations than with the individuals who administer
them and they take great pains to learn the Thai language. Nevertheless, the
United States has ample opportunity to narticinate in Thailand's natural gas-
based industries because (1) U.S. technology, equipment, management, and ex-
perience in nipelining and processing are superior: and (2) the RTG wants a
hallnce of foreign investment from a variety of sources which already include
Norway and Germany, and the United States.
Political instability is always possible, but experience has shown that in spite
of changes in government, Thai investment policies have remained fairly stable.
Thn. tax code is a far greater uncertainty as there are inconsistencies between
the Thai General Revenue Code and the Thai Petroleum Law. This has already
caused problems for U.S. petroleum concessionaries which usually have regional
headquarters in Singapore. Thailand has a double taxation treaty with several
countries. including Singapore. Tax treatment of foreign companies and contrac-
tor' in Thailand must be clarified by the RTG.
One must appre2iate. however, the candid self-criticism on the part of both
RTG officials and private Thai businessmen in viewing their own internal prob-
lem. They are frank in dis2ussions. public and private. The RTG has estab-
lished a tax board to examine and, hopefully, redress grievances.
In late 1979 or early 1980 the RTG extended a hand of cooperation to the
private sector as some government officials who had worked in the private sector
returned to RTG with a new respect for the importance of a viable business
community unencumbered with unreasonable government control. If the RTG
will allow market-oriented economic forces to prevail by relaxing central plan-
ning and control. entrenrene""rial instincts and aggressiveness of businessmen
could enable Thailand to replicate the economic performances of Taiwan, South
Korea, and Singapore.
3. Opportunitics for Investment in Energy-Related Projects
The That fifth five-year plan structures the types and quantifies of downstream
petrochemical intermediate and end products to be produced. The reality of the
situation, therefore. is that RTG agencies will impact significantly on any in-
vestment plans a U.S. firm may have, especially in the energy-related area.
The existing RTG-owned pipeline can handle all the foreseeable production
in the Gulf of Siam. About four other pipeline proje-ts are under study by the
PTT to handle additional gas quantit'es from the six offshore gas fields. Two
PTT-owned gas separation plants are planned for operation by 1984 and 1987.
Thus, gas production is in private hands, predominantly American, and gas
pipelining and processing (separation) are state-owned and operated. Down-
stream from this point, the RTG plans to invite the private sector to make its
entry.
(a) Fertilizer.-With sufiinieney in natural gas. Thailand can have its own
fertilizer industry. There is little possibility for U.S. direct investment in
fertilizer be^ause a Scandinavian consortium has already been selected to
invest, build. and operate a complex to produce urea and ammoniated phosphates.
(h) Potash.-Thailand has world-class deposits of potash in the northeast.
A U.S. firm may seize the opportunity to mine, pro^ess, and export potash.
(c) Ethylene Production (olefins).-Ample supplies of ethane and propane
are ideal for cracking into ethylene. The question of wheather ethylene can be
produced in Thailand and sold at competitive world prices is being studied by
foreign advisors to the PTT. A current proposal suggests construction of a
300.000 metric tons per year ethylene plant. This facility would he the upstream
unit of a petrochemical comp'ex. Polymer grade ethylene and propylene must be
produced in this plant for downstream production into primary plastics polymers.
Production, however, would be sized to Thailand's domestic market, plus a
margin for growth and export if such sales can be managed.
Th's ethylene facility, planned for operation in 1987, may he a candidate for
engineering design, construction management, and equity participation by a U.S.
firm.
(d) Petrochemicals & Piasti"s.-The ethylene plant will in turn be the source
of feedstock for a host of petrochemical plants producing intermediate monomer
and primary plastic polymer materials. This can be the dawn of a new era for
petrochemicals in Thailand. The chain is a long one and will he vertically
integrated from off-shore gas platforms to final plastic products. There are now
literally hundreds of small scale plastic fabricators, employing nearly 50,000
people or about 3 percent of Thailand's industrial workforce. The plastics indus-
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try, going back to the 1950's, began in Thailand based on import substitution,
thus focusing on end products. This explains the existence of numerous small
fabricators and compounders for whom risks and investments were low and
the scarcity of firms engaged in basic production where attendant capital and
feedstock requirements are huge.
When new plants come onstream as planned in about 3987. however, import
requirements for polymers should fall sharply. Thus, Thailand's plants, if built
to world-class size may experience difficulty in marketing their exportable
surplus at prices high enough to cover costs. Petrochemical complexes including
polyethylene plants will also be coming onstream at about the same time in
other parts of the world; i.e.. huge complexes at Jubail and Yanbu in Saudi
Arabia. Costs and final prices are therefore crucial.
Nevertheless, at any point in the vertical integration of this industry the
RTG can offer feedsto^k subsidies on natural gas. ethane. propane, or ethylene.
With this in mind plus promotional privileges offered by the BOI, RTG can
make these young energy-related industries competitive with world market
prices. But, this could come at a heavy sacrifice for the RTG and the Thai popu-
lation to bear. Much depends on progress in the global economy.
4. Conclusions for Gas Related Industry
Thailand has not been receiving its share of foreign investment. Thai business-
men seem ready to believe that the Thai government will make the private sector
an integral part of Thailand's development program. Especially important now
is that foreign investors become similarly convinced. Three strong Thai private
associations can help in this endeavor. The Association of Thai industries ; the
Board of Trade ; and the Thai Bankers Association. Thailand's business leaders
are on the threshold of a new and exciting opportunity unparalleled in the
nation's history.
U.S. expertise in petrochemical processing and related equipment design is
good. Significant amounts of U.S.-manufactured machinery and materials can
be supplied to Thailand if American firms receive contracts and chemical
companies make investments.
Export financing has and will be the major obstacle for U.S. private sector
investment. U.S. exhort financing is now at least 3 percent above credit terms
offered by competing countries. Also other countries have the advantage of offer-
ing mixed-credit programs, of intermingling their export finance programs with
concessionary aid. The United States and Norway are about the only industrial-
ized countries which do not offer mixed-finance packages.
5. Recommended Actions
(a) Natural Gas Seminar.-Sponsor seminar in Thailand 10 days-2 weeks.
For the benefit of management, engineering, accounting and field operating and
maintenance personnel of PTT. Use American teaching staff from U.S. gas trans-
mission companies. Because of the dire need within PTT for training, this should
be undertaken immediately. If all downstream users of natural gas, starting with
the gas separation plant, are going to be assured of a reliable supply, the PTT
must learn to operate and maintain the system properly.
(b) AID Technical Contract Advisor.-Recruit a qualified chemical engineer-
ing consultant, knowledgeable of U.S. chemical companies which own and operate
petrochemical plant and engineering fi'?ms that have technology they are willing
to license. The scope of his work would be: (1) assess Eastern Seaboard Master
Plan and type, capacity and projected capital investments required for new petro-
chemical plants; (2) determine interest of U.S. firms and communicate all
information to them; (3) promote general U.S. capabilities to PTT, NESDB,
MOT, etc.: (4) assist interested U.S. firms in all possible ways; (5) become
familiar with private Thai chemical companies interested in joint ventures. This
advisor should not be on board as advisor to the PTT because advice he gives
will be to private sectors.
Ms. nu PONT. I dealt in my verbal remarks briefly with our activi-
ties in Thailand. We felt that there was a considerable need for mid-
level management and expertise. And we recommend in the reports
that whatever necessary should be done to promote midlevel manage-
ment expertise. We see a vigorous private sector in Thailand. We see
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a new dialog between the Thai private sector and the Thai Govern-
ment sector which we would encourage and do what we can to promote.
I think we see perhaps not the identical situation in Indonesia, but
certainly a vigorous private sector there. Both of those countries, of
course, are prime candidates for our kind of effort.
Senator HAYARAWA. Good. I was interested to learn that the Inter-
national Executive Service Corps recently was integrated in your
Bureau. This is something that interests me because these are people
that are just about my ape, I guess.
Senator WIDEN. Oh? T1,ev are 35, Sam? [General laughter.]
Senator HAYAKAWA. That is right.
I would like to know a little more about how you find them, how
you place them, and how they do when they get there.
Senator BIDTN. And if they have the energy of Senator Hayakawa,
you will be in serious trouble because they will drive you crazy.
Ms. DU PONT. You are quite correct. That is exactly what the point
is. These are people who are recently retired, who have a great many
skills that we do not want to leave underutilized. So as a consequence,
this program was designed about 20 years ago by Frank Pace to bring
to bear those skills in private enterprise in the developing world. It
does so on a business-to-business basis.
There is a fee charged to the client enterprise. The program has been
established in some 70 countries. In Thailand, as I mentioned earlier,
there are four permanent people there who administer the program.
I think there are some 231 projects that have been administered in
Thailand since its inception.
Senator HAYAKAWA. That must be a very exciting career for these
people.
Ms. DU PC'NT. I think it must be, Senator.
Senator HAYAKAWA. Let me turn next to Mr. Bohn. Thank you very
much, Ms. du Pont.
In your prepared testimony, Mr. Bohn, you mentioned that the Bank
ssistance grants and has in-house consultative ex-
provides technical assistance'
pertise that can be made available. Can you tell us of specific examples
of assistance that you have provided in these areas,?
Mr. BOIIN. Mr. Chairman, there are really a great number of ex-
amples. I think in 1981 alone there were 49 technical assistance grants
amounting to almost $15 million.
One has to distinguish the technical assistance grant that is given by
itself from those which are given in conjunction with project prepara-
tion. Many times in conjunction with a loan, for example, the Bank's
appraisal mission determines that the implementing agency or that
arm of the Government which is supposed to be dealing with the
project needs strengthening or can use some technical expertise. It
will include as an element also a technical assistance package. In that
case, it is part of the loan as distinguished from the grant.
The purpose of the grants is often to help a recipient government
work out a priority selection process in its own 5-year plans, so that
there will be some consistency in terms of what that plan asks for over
the period of 5 years and what might be feasib'e from the Asian Devel-
opment Bank, what might be available from the World Bank, and so
forth.
os_ggn o - 82 - 8
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For some concrete examples, there was a fisheries development proj-
ect in Java for which a grant of $180,000 was made. There was a land
area development project in Nepal where there were some very impor-
tant irrigation issues that had to be resolved from an engineering point
of view, at 1.2.
Also, in the technical assistance area, the Bank holds a number of
seminars both in procurement and in project implementation, some in-
country and some at the Bank itself.
An analogous kind of thing which I think is perhaps best illustra-
tive of what the Bank is trying to do is this : In Bangladesh at this
moment they have some gas resources, and the Bank is providing a
loan to that country for a technical evaluation of a national energy
plan designed to make the most efficient use of that energy over the
course of its development. There are some 85 international firms bid-
ding, and I am pleased to say that there are at least three major
American firms that are in contention.
Senator HAYAKAWA. I will ask one more question of you, Mr. Bohn,
and then we will have Senator Biden ask some questions.
You mentioned that U.S. businesses have been awarded only 7 per-
cent of the contracts led by the Bank since its inception while the
Japanese have obtained some 31 percent. What is the explanation for
this ?
Mr. BOHN. Let me offer two or three possibilities, Mr. Chairman, if
I might. Certainly, the Japanese position in the Bank from a cash
disbursement point of view is significantly larger than ours. But I
would hesitate to give that as a major reason. Over the course of this
development process, the Japanese businessman has been very
aggressive.
You asked the question earlier what does Japan do for ASEAN, and
I guess my answer to that question would he : everything. They have
engineers and company representatives everywhere. They come in
teams. They work with both the recipient country in the development
of their plans. They are at least, as I think has been proven in Asia,
very good at providing flexible responses to project needs.
One of the issues that complicates the American businessman's life
in Asia is that often in the case of ADB the projects are smaller that
might be economical in the case of a company located in the United
States. The Japanese have been, I would suggest, more adaptable
in many ways in terms of tailoring some of the products that are
supplied.
They have done a very aggressive job. but part of it is simply
distance. In addition, there are areas in the marketplace out there
which I think it is really unrealistic to expect American business to
be as competitive as the Japanese.
Senator HAYAKAWA. Thank you.
Senator Biden.
Senator BTDEN. Thank you, Mr. Chairman.
I would like to follow up on that, if I may, and digress for a brief' moment. In speaking to the chambers of commerce of America, as I
often do, I attempt to point out a view that I hold that American busi-
ness, with the exception of the large multinational corporations, seems
not to have a sense of the marketplace beyond the borders of the United
States.
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And you mentioned something that intrigued me at the end of your
answer to Senator Hayakawa. You said some of these projects are
smaller and they do not attract American enterprise because of their
lack of scope and lack of size. Is that a product of the attitude of Amer-
ican business generally toward foreign investment, or is that truly
an economic problem?
In other words, I will give you a specific case and then I will make
sure I am making the point I want to make as clearly as I can. And I
would like really for the three of you to respond to this, if you would.
Ms. du Pont may know that person I am about to mention. There is a
young, very enterprising fellow in the State of Delaware, and his name
? is Wayne Wyman. He is head of a group of contractors that have a
lobbying group. And he is very efficient at what he does. He has a fire
sprinkler business that provides sprinkler systems for industrial com-
plexes and high-rise buildings.
We were talking about the competition or lack thereof in that field
and about the growth of the industry and where the growth was going
to b3 in the next 5 or 10 years. And I said, well, how much have you
done abroad? He was talking about some foreign competition that is
competing with him. And I said, well, how much have you done ? And
he said, well, I would not know how to go about that ; what do you
mean? How would I do that? Who would I see? How would I begin?
Now, his is a small business, he is a very bright guy, runs a tight ship,
has great relations with labor. He was unionized not long ago, which
was viewed as the bane of the existence of anyone in his business, and
he has turned lemons into lemonade. He has a great operation going.
It would seem to me that that entrepreneurial spirit is the thing that
really drove American business for so long. And yet he will not cross
the border, whether it be Canada, Mexico, or Thailand. He does not
know how to go about it.
Is he an exception? And is the Japanese businessman of the similar
size different in terms of his psychology and thinking? I am not talk-
ing about the big guy, now. I am not talking about the Hondas of the
world and General Motors and the Du Pont companies and so forth.
I am talking about the little guy.
Mr. Boaz. The direct response to your question is:..Rather than
being different, I think he is quite representative of middle-size busi-
ness in the United States.
Perhaps I can offer a couple of suggestions. First, part of it is a
legacy. Our marketplace has been so much larger internally than the
Japanese that the dynamics requiring export have simply not been
there historically. Please do not hold me to exact figures. but something
like 3 percent of our GNP 10 to 15 years ago was represented in the
trading sector; it has now, I think, increased to perhaps 6 or 7.
But the internal marketplace where there are no barriers is just very
large, and so the dynamics of growth in this country historically have
not focused most companies outside the barriers.
Second, in the case of the size issue, it is exactly this size company
which has a real economic problem dealing internationally. In my pre-
pared remarks I noted the advantage that I see, at least from my end
of the telescope, to the concept at least of the export trading company
which permits the actual export process, the market-penetration proc-
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cess, the market-evaluation process, essentially to be pooled for a num-
ber of these kinds of companies.
A typical evolution of an international company starts with the
company selling its products through freight forwarders. It then
creates an export department and gets larger and gets an international
division which then begins to integrate its entire production process.
Senator BIDEN. You are talking about an American firm?
Mr. BOHN. Yes, an American firm.
Senator BIDEN. Let me stop you there and ask you a question to get
some information. This is the very point that I am looking for. Dces
the Japanese entrepreneur of a similar size just buy a plane ticket and
go to Thailand and go shopping? Or does he do what you are suggest-
ing: Does he go through the same process first through a shipper, then
sets up an international division, and so on and so forth? My impres-
sion is that the Japanese medium-sized and small-sized entrepreneur
gets on a plane with a bagful of widgets and goes and knocks on doors
in Thailand and wherever else to sell his widgets? Is that incorrect?
Senator HAYAKAWA. You are describing my father's firm. [General
laughter.]
Senator BIDEN. Well, obviously, your father was successful.
I am serious. I would like to be educated on this point. That is my
impression. Would you comment on that?
Mr. BOHN. Senator, my initial reaction to that would be to go back
into the structure of the Japanese industry. Most of the trading that is
done by Japan is done by the large companies and the production
process is done through a very elaborate subcontracting process where
many small companies produce into a very large company.
I would think it would be fairly unusual for a Japanese for the
first time to get on an airplane with a sack of widgets and go to
Thailand.
What, he is more likely to do is to go to the local office in his district
of Jetro [Japanese Export Trading Organization], which is one of
many export promotional quasi-governmental activities that Japan
has, find out a great deal about where he is going. about the market-
place, and probably will first sell his products through one of the
large trading companies or one of the medium-size trading companies.
It is unlikely that the producer, in your example in Delaware, would
simply get on an airplane and go to'Thailand. In the first place, it is
unlikely that he would speak the langauge.
In the second place, unlike the American who has access to a lot
of market data should he choose to look for it, the Japanese small
company is usually so involved in the production on a daily basis that
his horizons are not apt to be, without going through' this large
trading company, broadened to the extent that he would think about it.
Senator BIDEN. That is very helpful. Mr. Albrecht, would you care
to respond?
Mr. ALBRECHT. I agree in general with what John gave as an
explanation. I might just say in general that on the question of size
and competitiveness with which you started out, I think there are some
very fundamental competitive advantages for the Japanese with
respect to their location and just the generally deeper relationships
that they have through investment and through their trading com-
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panics. So that there are a lot of efficiencies in that, just in terms
of communications and transport.
But getting back to the AI)B procurement, there may be items
where the Japanese happen to produce goods which are very competi-
tive and very high quality in their own right, so that the combination
of the lower basic cost of the piece of machinery plus the transport
distance, plus other things, gives them a very substantial advantage
that is tough for us to overcome in free competition.
Senator BIDEN. Thank you. Ms. du Pont?
Ms. DU PONT. Yes, Senator. In building on the two sets of remarks
that were just given, we, of course, would agree but we have a
slightly different approach insofar as a solution may be possible, if it
is possible.
We believe that particularly the small- and medium-size entrepre-
neuer, whom I think you referred to when you speak of Wayne
Wyman, has a knowledge problem. He does not know what the
markets are. He has no access to market data. We would like to see
ourselves become a vehicle to bring the parties together and to promote
joint ventures between small- and medium-sized enterprises.
Currently we are running announcements in the Commerce Business
Daily and in the Federal Register advertising only in the area of agri-
business enterprises in our 10 target countries. We hope to be involved
in a modest way in financing some of those joint venture opportunities
and we hope to bring to bear the expertise of the Young Presidents
Organization, which has been working closely with us and which, as
you know, is very much involved in small- and medium-sized entre-
preneurial activity.
Senator BIDEN. Well, this is not an area of expertise on my part,
obviously, but it would seem to me that if we are to believe-and I do
believe-the statistics that are generated by the State Department, by
any of your operations, that if we look 10, 20, or 30 years down the
road, part of the game is going to be access to and larger percentages
of foreign markets, not merely for major traders.
I have a sense that born out of what you said, sir, that for so long
American business has been fat and happy with the biggest and most
lucrative market in the world and that it is only as a consequence of
penetration of that market have they become more aware of the need
to be competitive and we are left with one or two options in a general
sense-and you know this better than 1.
One is that we either move to protect that market, which I think
would be foolhardy, and extremely counterproductive and I think
those are the things that start wars more than nuclear arms races or
anything else, or we get that Yankee ingenuity functioning not only
to build a better mousetrap and compete in this market but to compete
in other areas of the world.
From testimony of previous witnesses I heard, not only the Japa-
nese, the Germans, and the French in some cases, having the advantage
of time and distance, depending on where the market is, but they even
are outcompeting us in places there that is a disadvantage to them,
that is not merely that they have a historic tie relations'iip and under-
standing of the culture that surpasses ours when dealing in the Far
East but also when dealing in Latin America or in Africa.
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They still are, as they say down in Dagsboro, whuppin' us at that
level. That is why I am particularly supportive of the notion ti,at is
being espoused by your shop. Ms. du Pont, and that is somehow
American business has to gain access to the knowledge of how to com-
pete and to know that it is not irrational to think about that. I cannot
understand how some very fine medium-sized businesses-some $200-
million-a-year businesses in America-just are petrified of the notion
of competing beyond the territory of the United States.
It is a notion that frightens us. They think in terms of "I do not have
an international department. I do not have lawyers who know that
area and they do not know." Well, I am talking more than I am asking
questions.
Let me ask one more question and then I will cease, with your per-
mission, Mr. Chairman. I guess this would be most appropriately di-
rected to Ms. du Pont because she is in the most innovative aspect of
this, and how it flies and if it flies is still a question.
To what extent have your efforts to forge this new area been im-
pacted upon in a negative way by the state of the U.S. economy? Has
our hopefully temporary economic difficulty had a serious adverse
impact upon your plans? Obviously you do not have what I would
call a staggering budget with which to work. We have not been over-
generous, in my opinion, in that regard. That, coupled with the dif-
ficulties in the U.S. economy-is there any relationship between the
two? Have they caused you any problem?
Ms. nu PONT. Ours is a new program, Senator, so we really have not
had the time to implement and see the consequences of the present eco-
nomic state of the country. We address ourselves to two particular
American enterprises : U.S. banks and agribusiness enterprises.
Our response to our announcements, which have only been out now
for a week or 10 days, in the Federal Register and the Commerce Busi-
ness Daily, has been quite strong so far, which may indicate that there
is interest in becoming involved in the developing world. We will have
to wait and see.
Senator BIDEN. That is something that I believe-I cannot speak for
anyone on the committee but me-but I suspect the whole committee
will be very interested because one of the questions that we discuss on
occasion is whether or not the depressed state of American agriculture
at this moment, the agribusiness economy domesticall y, whether or not
that is likely to encourage people to look elsewhere in the hustle for
that, or whether the inclination will be to hunker down and turn in.
That is something I realize it is too early to tell, but it is something
that. I think this committee will be very interested in knowing.
Mr. Chairman, I have about a half a dozen cuestions for each of the
witnesses. I have only two more for Ms. du Pont and several for the
other gentlemen on the panel and with your permission I would like
to suggest that I submit them to the witnesses and that they be an-
swered in writing for the record.
I do not want to make a lot of work for your staffs. They are nothing
very complicated. If it would be all right with you, Mr. Chairman,
I would like to do that.
Senator HAYAKAWA. We would be happy to have that done. Without
objection, it is so ordered.
Senator BIDEN. Thank you, Mr. Chairman.
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Senator HAYAKAWA. Thank you for your questions, Senator Biden.
I would like to make a few remarks at this point because, as I said,
my father was in the import-export business. My late father died
7 years ago at the age of 91. I remember him very vividly before the
beginning of World War II, before Pearl Harbor. I visited him in
1937.
The great trading companies of Japan are very famous, but there
are thousands of small trading companies such as my father had-
little, tiny trading companies. They did not manufacture a darn
thing, but I do remember that my father had an office of about 20 or
30 clerks and one prerequisite to working in his office was to be able to
write and answer letters in two languages other than Japanese or at
least one language other than Japanese. In fact, if you did not know
Japanese it did not matter.
His offices were in Osaka, Nagoya, and Kobe. All of this was wiped
out by American bombers during World War II. But at any rate, very
obscure manufacturers, very small ones, would bring merchandise to
him and he would sell them. I remember this very vividly. He would
sell them in Central America, Asia, Africa, Mexico, Canada, the
United States-all over the darn place.
And he always had these clerks, so that someone in the office could
read the letter, wherever it came from. I asked him once, don't you
ever get a letter in a language that no one else can understand? He
said : "If it is an order we understand it and if it is a complaint, we
cannot." [General laughter.]
Well, anyway, the war wiped him out completely and he started
another tiny little trading company after the war, but that was not as
successful as the previous one.
The point I wanted to make is this. As you point out, Senator Biden,
we have been content in the United States with a huge internal market
to which you can add Canada. But Japan, like Denmark, England and
other smaller European countries, has been brought up feeling export
or die. We rarely have that feeling in the United States, that you
either export or die. But in Japan they have it.
I do not know what percentage of their total gross national product
they export, but it must be a very large percentage compared to ours.
But the one important thing that we can contribute is that right now
we are exporting agricultural products, which is one of the things that
I learned through my work in the Agriculture Committee, in enor-
mous quantities to Japan and elsewhere where they have limited land
resources, limited agricultural resources.
We send fantastic amounts of agricultural products from Cali-
fornia, Illinois, Kansas, and other States to all over the world. Ulti-
mately the point is that this whole matter of international trade
underlines our human interdependency all over the world. This is why
I am sure you agree with me that every way in which we can fight
protectionism, every way we can open up the barriers that exist to
trade, is a step in the direction of the unification of humankind.
Forgive me for being sentimental, but my father had as a motto
for his company, Unitas Trading Co.: "World Unity Through World
Trade." He was very proud of that.
Ms. du Pont, Mr. Bohn, Mr. Albrecht, the committee is very ap-
preciative of your contributions here this afternoon. It is obvious that
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you have put a lot of thought and hard work into the papers that you
have prepared for us today and the analyses of the opportunities and
problems which confront. the United States and Southeast Asia.
You, M. Bohn, have cone all the way from Manila to attend our
meeting- and I am very gr"aeful to you for having done that. You are
a former Californian, I understand.
Mr. BoHN. Yes, Senator, I am.
Senator HAYAKAWA. You worked with the Wells Fargo Bank and
my wife recently closed an account there. [General laughter.]
Mr. BolIN. After I left, I hope, Senator.
Senator BIDEN. But only because you are in Manila. [General
laughter.]
Senator HAYAKAWA. I want to thank you all very much for your
appearance before the committee and helping us in our examination
of what the United States can do to further its interest in this very
important area of the world, especially Southeast Asia, while at the
same time contributing to the betterment of our whole attitude toward
trade-international trade-and our position in the world.
The subcommittee will stand adjourned to reconvene on Friday,
June 18, for the third in our series of hearings.
[Additional questions and answers follow:]
STATE DEPARTMENT'S RESPONSES TO ADDITIONAL QUESTIONS SUBMITTED FOR THE
RECORD
Question 1. I am interested to learn that we might cooperate with the ASEAN
governments in the field of marine science. but I am curious about what exactly
you might have in mind. I am also interested in your comment about promoting
small- and medium-sized industry. Can you tell us some more about these projects
and how they might support U.S. economic objectives in Southeast Asia?
Answer. We are now identifying scientific and technical bodies in the United
States and the ASEAN member countries to ascertain their interest in and
capacity for cooperation in those areas of the marine sciences embodied in the
proposal. A special effort will be made to engage appropriate elements of the
private sector.
Our initial thinking on how the United States might respond to the ASEAN
proposal is that four avenues of cooperation should be explored: training;
Identification of and contact with technical counterparts in the ASEAN coun-
tries; exchange of information (publications, proceedings of meetings, research
documents) ; and use of the Asian Institute of Technology in Bangkok as the
focal point for developing a regional capability in the marine sciences in ASEAN,
especially the application of remote sensing technology to fisheries, weather
phenomena and pollution. For example, NOAA could train ASEAN nationals in
fisheries assessment and coral reef and mangrove resources. NSF is planning
research projects in biological oceanography in Indonesia, the results of which
will be relevant to all five ASEAN countries and arrangements can be made to
share the results of those studies.
On the second question concerning small and medium scale industry (SMI),
the United States has a standing request from ASEAN for various kinds of as-
sistance to support the establishment and upgrading of smaller industrial enter-
prises. We recognize that this is a crucial element in these nations' attempt to
attack the mounting problem of unemployment and underemployment, partic-
ularly in overpopulated areas of Indonesia, the Philippines and Thailand. There
are a great number of American agencies. private and public. including Appro-
priate Technology International, VITA, OPIC, IESC. and Georgia Tech engaged
in support of small-scale industry. The World Bank and ADB are also active
in this field. In our bilateral aid programs, Indonesia, Thailand and the Philip-
pines are increasingly looking at new projects to foster private sector growth
with a major focus on SMI.
We are studying how these and other activities could be enhanced in response
to the ASEAN request.
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Question 2. How are the continuing border tensions along the Thai-Kampuchea
border impacting on attracting new and retaining existing foreign investment
in Thailand?
Answer. The tensions along the border have had no identifiable impact on
the level of foreign investment in Thailand. The concern for the security of
Thailand is, of course, a factor in the general evaluation of investment in
Thailand, but we know of no instance in which border incidents have had a
direct effect on operations of any foreign investor.
Question 3. What is Thailand's balance of trade deficit and how does this figure
compare to the figures for the last decade and the years immediately preceding
the oil embargo of 1973?
Answer. The estimated trade deficit of Thailand for 1981 is slightly less than
$2.4 billion. This deficit is about the same as the year-end figure for 1980 ($2.37
billion U.S. dollars) according to the World Bank. The annual deficits in trade
are sharply higher than the average for the 1970's which was `$605 million. Most
of the growth in the deficit has occurred after 1978, although there was a sub-
stantial increase in trade deficits after 1974, from an annual average of around
$350 million to $661 million in 1975. Much of the increase was attributable to the
run-up in petroleum prices, since more than 70 percent of the energy produced in
Thailand is based on imported fuel, according to recent estimates. This depend-
ence is expected to remain steady or decline, as natural gas is substituted for
imported petroleum products in the generation of electrical energy in the
Bangkok area.
Question 4. Who are Thailand's major trading partners and what would be
the impact on Thailand's economy if there were any disruption by the Soviets in
the sea lanes of communication between the Indian and Pacific Oceans?
Answer. Major Thai exports-rice, tapioca, rubber, tin and sugar-are
destined mainly for markets in Japan, the United States and Western Europe.
Imports, mainly capital equipment, petroleum and petroleum products, are drawn
mainly from Japan, the United States, the FRG, the UK, and oil-producing
states. A disruption of the sea lines between Thailand and the ports of the Middle
East and Western Europe would have a very serious impact on Thai trade, felt
most seriously in the area of energy supply. Imports of crude oil and petroleum
products in 1980 made up more than one-third of all Thai imports, and most Of
these imports were from the Middle East.
AID'S RESPONSES TO ADDITIONAL QUESTIONS SUBMITTED FOR THE RECORD
Question 1. Describe the Bureau for Private Enterprise's relationship with the
IFC.
Answer. We have a cooperative relationship with the IFC In which we mu-
tually share information and, on occasion, jointly review portfolios. We expect to
do some co-financing of selected projects with IFC in this fiscal year-e.g., leas-
ing and venture capital firms in selected countries.
Our program differs from that of IFC in several respects. We have an agri-
business focus to our program while they have a broader scope. We can do only
debt finan ing whi'e they have authority to take debt and equity positions in a
project. Finally, IFC has limited resources available for advisory assistance.
We intend to actively pursue opportunities to provide U.S. technical assistance
particularly in such areas as capital market development, investment laws and
management training.
Question 2. What criteria does your Bureau use in selecting agribusiness proj-
ects and could you please provide example?
Answer. Many of our fiscal 1982 projects financed will have an agribusiness
focus. Criteria used for determining eligibility for financing include : demonstra-
tion of significant development impact (such as employment creation), foreign
exchange earnings, and technology transfer among others. For example, we are
currently working with local commercial financial institutions in two countries
(Thailand and Kenya) to establish an agribusiness fund in each one. These funds,
made up of the AID loan and an equal counterpart contribution from the respec-
tive institution, would be used to finance small and medium-sized agribusiness ac-
tivities in the two countries. We are also consider'ng a loan to an Indonesian
leasing company which would make capital equipment available to local firms.
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Question S. Can you describe how the Bureau for Private Enterprise coordi-
nates with OPIC, TDP, and USTR? Is there a formal mechanism established to
accomplish this or is one needed?
Answer. We have a working, cooperative relationship with OPIC and TDP
and an informational one with the U.S. Trade Representative's Office. Key staff
in the PRE Bureau meet with OPIC management on a biweekly basis to share
information on potential investment/reconnaissance missions. There is an open
invitation for OPIC and PRE to participate in each other's respective missions.
We also exchange valuable information on potential feasibility study and project-
related financing. We find that OPIC's and our own activities are very comple-
mentary to each other. With the information that PRE's reconnaissance mis-
sions provide, OPIC can evaluate the feasibility and desirability of a follow-up
investment mission.
There is a natural coordination with TDP in that it originated as part of the
AID program and part of its function is to stimulate follow up programs which
would be authorized by AID. Moreover, TDP coordination is insured in that, the
Director of the Trade and Development Program is a Deputy in the Private
Enterprise Bureau at A.I.D.
Question 4. Regarding the Bureau's invitation of proposals from agribusiness
firms, what responses have you had? How will you go about seledting firms? How
will you publicize your efforts other than through the Federal Register and the
Commerce Business Daily?
Answer. By the end of June we had received several hundred responses to our
announcement in the Federal Register and the Commerce Business Daily. In
addition, we have set up a mailing list of approximately 250 agribusiness firms
whose names were provided to us through several sources including the U.S.
Chamber of Commerce. We made a direct mailing to these firms and have already
received numerous follow-up requests/inquiries and many potential project
proposals.
[Whereupon, at 3 :44 p.m., the subcommittee adjourned, to reconvene
at 10 a.m., Friday, June 18, 1982.]
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U.S. POLICIES AND PROGRAMS IN SOUTHEAST ASIA
FRIDAY, JUNE 18, 1982
UNITED STATES SENATE,
SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS
OF THE COMMITTEE ON FOREIGN RELATIONS,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:23 a.m., in room
S-116, The Capitol, S. I. Hayakawa (chairman of the subcommittee)
presiding.
Present : Senator Hayakawa.
Senator HAYAKAWA. The Subcommittee on East Asian and Pacific
Affairs will come to order.
It is a pleasure to welcome Mr. James P. Rooney, Jr., chairman of
the Asia-Pacific Council of the American Chambers of Commerce from
Bangkok, Thailand, who will brief the committee on his assessment of
U.S. economic and commercial prospects in the area. Mr. Rooney is
accompanied by Mr. Oakley Johnson, director, Asia-Pacific Affairs
and executive secretary of the ASEAN-U.S. Business Council at the
U.S. Chamber.
Welcome to you, Mr. Rooney and Mr. Johnson. It is a pleasure to
have you with us. I understand you arrived in town only last night
from Bangkok, Mr. Rooney, and I know from personal experience that
this is a long and arduous flight. We are appreciative of your making
the effort to accommodate the committee's scheduling problems and
to be with us so soon after stepping off the plane. We shall turn to your
briefing in just a moment, but first I would like to give you a little
background on these haerings, since you have not been with us or seen
the record of the hearings as yet. Since I became chairman of the sub-
committee in January of last year, I have focused the subcommittee's
attention primarily on Southeast Asia. In the midst of wars in the
Mideast, antinuclear demonstrations in Europe and this country,
START negotiations with the Russians, a summit at Versailles, and a
war in the South Atlantic, we tend to lose sight of longer range con-
siderations in other parts of the world. We tend to overlook the tre-
mendous importance to us of Southeast Asia and particularly our
friends in ASEAN-Indonesia, Malaysia, the Philippines, Singapore,
and Thailand. We are less attentive than we should be to the tremen-
dous interests we have in common with these countries-political in-
terests, security interests, and, perhaps above all, economic interests.
We have, therefore, been examining these vital common interests
in this series of hearings, in an effort to improve our knowledge and
strengthen our relations with our ASEAN friends. We have heard
from the State and Defense Departments, AID, the Asia Development
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Bank, and the Overseas Private Investment Corp. We will turn now to
the view as seen from the private sector. As President Reagan has so
often said, we must rely heavily on private enterprise to promote trade,
development, and U.S. investment in the developing countries of the
world in order to improve their way of life as well as our own.
We are delighted to have you with us this morning, Mr. Rooney,
and look forward to your assessment of this very important subject.
Mr. Rooney, I would appreciate it if we could enter your prepared ?
testimony in the record and proceed directly to our questions.
Mr. ROONEY. I would appreciate it if you would do that, sir.
[Mr. Rooney's prepared statement follows:]
PREPARED STATEMENT OF JAMES P. ROONEY, CHAIRMAN, ASIA-PACIFIC COUNCIL OF
THE AMERICAN CHAMBER OF COMMERCE (APCAC), BANGKOK, THAILAND
My name is James P. Rooney, Chairman of the Asia-Pacific Council of Ameri-
can Chambers of Commerce (APCAC), on whose behalf I appear today. I am
also Managing Director of J. P. Rooney and Associates, Ltd., a business con-
sulting firm specializing in the fields of investment, management, personnel,
computerized operations, and corporate/individual taxation. Our firm is head-
quartered in Bangkok, Thailand, with offices in Hong Kong and Singapore. It
has been my privilege to work in the exciting region of Southeast Asia for the
last 12 years.
APCAC was formed in 1968 to represent the views and interests of some 6,000
U.S. business executives living and working in the Asia/Pacific region. It
presents its views to the Legislative and Executive branches of the U.S. Govern-
ment and to U.S. business, labor and the American people. Its member AmChams
are located in Australia, Guam, Hong Kong. Indonesia, Japan (Tokyo and
Okinawa), Korea, Malaysia, New Zealand, Philippines, Singapore, South Africa,
Taiwan and Thailand. Attached to this testimony is a brief description of
APCAC objectives and a copy of the policy resolutions adopted at our last
regional meeting held in March of this year in Hong Kong.
At the outset, let me congratulate this subcommittee for holding hearings on
U.S. economic interests within a most important area of the world. The five
countries of the Association of Southeast Asian Nations (ASEAN)-Indonesia,
Malaysia, Philippines. Singapore and Thailand-are all strong growth economies
with significant growth potential for the forseeable future. As a regional entity,
ASEAN is developing slowly but surely. We have witnessed over the past several
years increased political cooperation among the five countries which has, in turn,
led to increased economic cooperation. But, we should not draw comparisons
between ASEAN and the highly structured European Community (EC). Instead,
ASEAN is working toward a cooperative environment that has yielded, and will
yield, results in cultural, economic, commercial and political terms for all of its
265 million people.
The United States has an important role to play in furthering ASEAN objec-
tives. First and foremost is the need to develop a greater awareness of the
strategic and economic significance of the ASEAN region to the American public.
Regrettably, while established 25 years ago, ASEAN is far from a household
word in the United States, despite the fact that it represents our fifth largest
trading partner, and is the location of up to $10 billion in U.S. foreign invest-
ment. Furthermore, U.S. business people resident in the ASEAN region are the
first to recognize the growing opportunities for U.S. trade and investment-based
on the many public and private projections that classify the ASEAN region as
one of the highest, if not the highest, growth areas in the world for the balance
of this century.
Recognizing that our attention tends to focus on crises or other short-term
challenges, we should not divert attention from the significance of ASEAN simply
due to pressures in other parts of the world.
Clearly, an important means by which the United States can promote ASEAN
objectives is through expanded trade, investment and joint ventures APCAC
fully supports the U.S. policy to encourage greater private sector participation in
economic development and ASEAN. But, we also point out the need to maintain
an adequate level of bilateral and multilateral official development assistance to
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address the many needs of ASEAN that cannot be fully satisfied by the private
sector.
Since its establishment in 1979, the American Chambers in the ASEAN coun-
tries have participated in, and supported the activities of the ASEAN-U.S. Busi-
ness Council. This joint undertaking, between senior business representatives of
the United States and ASEAN, provides a unique channel for discussion of cur-
rent economic and commercial policy issues. Also, the Council has played a very
positive role in carrying out joint projects and developing policy recommenda-
tions to enhance mutually beneficial trade and investment.
The U.S. Government must devote continued, high-level attention to ASEAN
through participation of top Congressional and Executive branch officials in
ASEAN meetings. U.S. participation in meetings held this week in Singapore
with the ASEAN Foreign Ministers, as well as regular ASEAN-U.S. Eco-
nomic Dialogues, are to be supported and strengthened.
Despite the growing strength and influence of the private sector in most
ASEAN countries, U.S. Government policy should be sensitive to subsidized com-
petition as in certain agricultural and commodity sales. Furthermore, our major
trading competitors in Europe. Japan and Australia have been quick to recognize
the emerging potential of ASEAN as a market for their products and services,
and as a source of supply for raw materials and light manufactured products.
The governments of these countries have provided very effective support to their
businesses in competing in the region. U.S. policy must recognize that much of
this support is concessionary, if not predatory, in nature. Therefore, U.S. pro-
grams to provide competitive export financing, pre-feasibility studies, investment
insurance and other forms of assistance need to match those of our competitors.
For many years, APCAC has drawn attention to the serious disadvantages
created for ourselves by numerous disincentives enacted into U.S. law. No area of
the world provides better evidence of the detrimental affects of these disincen-
tives than does the ASEAN region. We are very pleased to note that the senti-
ment in Congress today seems to favor removal or modification of disincentives
affecting foreign taxation, Foreign Corrupt Practices Act, antitrust laws and
other self-imposed barriers. Speedy action is urgent toward the complete resolu-
tion of many of these continuing disincentives.
It should be noted that APCAC supports the freest possible flow of goods, serv-
ices, capital, technology and people between the United States and ASEAN. In
this regard, we are mindful of not only the many remaining tariff and non-tariff
barriers confronting U.S. business in the ASEAN region, but also the growing
concern within the region over perceived protectionist sentiment in the United
States. We must be cautious of non-tariff harriers in the United States which
might be detrimental to trade with ASEAN, particularly any new protectionist
legislation.
Finally, the countries of ASEAN could help enhance their own image in the
United States by taking a more visible posture on behalf of their interest, by
increasing frequency of interaction with U.S. business and other private sector
representatives. and by reducing their own disincentives to trade and investment.
Again, Mr. Chairman, let me congratulate you for holding these hearings, and
thank you for this opportunity to present the views of American business based
in the Asia/Pacific area.
[Attachment]
THE ASIA-PACIFIC COUNCIL OF AMERICAN CHAMBERS OF COMMERCE (APCAC)
The Asia-Pacific Council of American Chambers of Commerce (APCAC) was
formed in 1968 to represent the views and interests of some 5,000 American
business executives in the Asia-Pacific region in the legislative and executive
branches of the U.S. government and with U.S. domestic business, labor and the
American people.
The objectives of APCAC are:
To promote and represent the viewpoints and interests of American business in
the Asia-Pacific area ;
To study and develop areas of mutual interest among member AmChams in
the region ;
To strengthen the influence of member AmChams in matters reflecting their
individual and regional interests ; and
To present the views of American business in the respective host countries to
agencies and organizations within the region and in Washington, D.C.
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From the outset, APCAC has emphasized the need for a new V.S. economic
diplomacy in the region. It has stressed that the greatest shortcoming of U.S.
policy has been the absence of a coordinated foreign economic program. APCAC
has called for a greater emphasis on economic interests and less on military
and political considerations.
In this connection, APCAC has strongly recommended the establishment of a
U.S. Department of International Trade and Investment (DITI) with authority
over government planning, administration and coordination of U.S. "Economic
Diplomacy."
APCAC has also supported (1) new legislation to provide the necessary govern-
ment support to promote U.S. business interests abroad, including export finances
and taxation of U.S. citizens abroad; (2) the goals and objectives of the Asso-
ciation of Southeast Asian Nations (ASEAN) ; and (3) the U.S. Eximbank,
OPIC and the Asian Development Bank; and has (4) opposed the proposed
elimination of the Domestic International Sales Corporation (DISC) and the tax
deferral on foreign earnings; (5) advocated the right of Americans overseas to
vote in U.S. elections; and (6) cautioned the U.S. Congress on the extraterritorial
application of U.S. laws and regulations affecting American competitiveness
in the areas of antitrust, antiboycott, taxation, human rights, environmental
standards, information disclosure and export controls.
APCAC holds two meetings a year in the region, which are attended by more
than 100 delegates from 13 countries. In addition, APCAC carries out a regular
series of briefings with the chiefs of mission and economic/commercial officers
in the region and sends a delegation to Washington each spring to meet high level
government, business, press and labor officials.
[Attachment]
U.S. BUSINESS LEADERS ENDORSE PRIVATE SECTOR ROLE BUT CALL FOR
CAUTION IN WITHDRAWAL BY ADMINISTRATION
HONG KONG, March 7.-One hundred and fifty American business leaders from
13 countries in the Asia-Pacific today pledged their continuing support for private
sector involvement in expansion of trade and investment in the regon. In en-
dorsing the Reagan Administration's initiatives in this area, however, they cau-
tioned the Government against hasty withdrawal from trade and export support
programs until alternatives are in place.
Meeting under the auspices of the Asia-Pacific Council of American Chambers
of Commerce (APCAC), the delegates forcefully reminded the Administration
that private enterprise does not have the resources to replace the Government
role in such areas as export financing.
Turning to trade disincentives, APCAC called on the United States to redouble
its efforts to break down host-nation barriers to freer trade and investment.
APCAC said strong and continuing pressure was needed to ensure national
treatment for U.S. companies which are currently disadvantaged as a result of
discrimination by host nation governments.
In wide-ranging deliberations, APCAC also urged the U.S. Congress to enact
changes in the Foreign Corrupt Practices Act, which it said contributes in a
significant way to lost business opportunities.
APCAC, the regional umbrella organization which represents over $20 billion
in U.S. investment in the region, also identified these other four areas as top
priority issues :
1. Competitive U.S. Export Financing-calling for an increase to $8.7 billion
in Exim Bank lending authority at competitive rates and terms for all products
without unit or contract value restrictions.
2. U.S. Income Tax-to resist efforts to dilute the beneficial effects of the
1981 tax laws.
3. Patents and Copyrights-urging adequate protection for U.S. patents,
copyrights, property and technology.
4. Foreign Corrupt Practice Act-calling for swift adoption by the House of
the Chafee Bill already passed by the Senate.
APCAC was formed in 1968 to distill the concerns of American business in the
Asia-Pacific and to relay these concerns to Washington. In recent times, the
organization has been working actively to develop a joint approach to many
issues with American labor unions.
Represented at the meeting were delegates from Australia, Japan, Hong Kong,
Thailand, Singapore, Malaysia, Philippines, Republic of China, Indonesia, Korea,
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South Africa, New Zealand, Saipan, Guam and Hawaii. Also attending were
United States Government officials from Washington and the United States
Chamber of Commerce.
ASIA-PACIFIC COUNCIL OF AMERICAN CHAMBERS OF COMMERCE, SEMI-ANNUAL
MEETING, HONG KONG, MARCH 4-7, 1982
Protectionism
a APCAC expresses its concern with the continued existence in many Asian
countries of tariff and non-tariff barriers which far exceed those facing Asian
goods and services in the U.S. market.
APCAC reaffirms its support for the Administration's efforts to open foreign
markets -to U.S. products, services and investment through multilateral and
bilateral negotiations based on principles of free trade and national treatment.
APCAC urges concerned governments to take the immediate actions necessary
to redress inequalities in access to markets, in order to ward off a resurgence of
protectionist sentiment which could retard world trade and investment.
Export financing
One in every seven Americans working in manufacturing plants is involved in
the production of manufactured goods sold abroad. One of the important ways the
U.S. can help create additional jobs plus retain existing jobs in our manufactur-
ing industries against severe foreign competition is to provide the Eximbank with
additional lending authority, while ensuring that Eximbank's programs are
competitive.
Each $1 billion increase in Eximbank's annual lending authorization will
result in an estimated $1.3 to $1.5 billion in incremental exports, 35,000 to 40,000
additional jobs and $1 billion benefit to the federal budget (not counting the tax
revenues on the export and subcontractor sales). Eximbank plays a significant
role in almost every state in the nation in terms of jobs and trade. Effective
Eximbank programs bring incremental and permanent income to the U.S. Loss
of these sales is not a deferral of demand but a permanent loss and often an
ongoing erosion of the U.S. market share.
APCAC supports the U.S. Government commitment to a strong export poP
based on removal of both disincentives and artificial stimulants to export, in-
creased reliance on the free market and allowing the private market to determine
priorities.
However, the U.S. cannot expect to convert overnight the other 21 countries in
the Consensus on Guidelines for Officially Supported Export Credit to this
policy. The recent negotiations show that this objective can only be achieved
gradually.
In the interim, U.S. Government export financing programs must: "provide
guarantees, insurance and extensions of credit at rates and on terms and other
conditions which are competitive with the government-supported rates and terms
and other conditions available for the financing of exports from the principal
countries whose exporters compete with United States exporters."
Matching foreign government-supported export financing interest rates is more
important than assuring that the Export-Import Bank stays in the black. The
Export-Import Bank is an export promotion tool, not a bank.
APCAC urges Congress and the Export-Import Bank to not unilaterally disarm !
High priority should be given in fiscal year 1982/fiscal year 1983 to making far-
reaching improvements in the U.S. export financing programs:
A fighting-sized Eximbank lending authority covering all products without unit
or contract value restrictions to "neutralize" the competitive advantages other
? countries' exporters currently have. APCAC believes that Eximbank should have
lending authorization of $8.7 billion consisting of $5.7 billion for long term and
$3.0 billion for medium term financing. This means over 300,000 jobs and an esti-
mated $13 billion in exports.
Revised Eximbank programs which are cost effective, competitive and promote
a broad spectrum of U.S. products :
Interest rates and fees competitive with the rates and fees of other OECD
countries and adequate financing available for all eligible products without unit
or contract value restrictions.
Eliminate self-imposed sub-limits on length of terms.
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Increase coverage to meet foreign competition to at least 75 percent of contract
value.
Offer a yen option competitive with Japan's 9.25 percent p.a. with all Japanese
governmental approvals already arranged or assured.
Reduce paperwork and time required for obtaining commitments and loans.
Optimized use of Eximbank funds through effective targeting at additionality
on both medium term and long term financing where sales meet these three
conditions :
a. Foreign competition is known to be and/or can be presumed to be benefiting
from foreign government supported export financing.
b. Sale won't go forward without U.S. Government financing support and
c. Sale will be lost to foreign competitor if not supported i.e. not just postponed.
On a longer term basis, APCAC's suggests that as part of an overall-interna-
tional economic policy, it is timely to consider a unified, comprehensive approach
to U.S. export and investment credit and guarantee programs for improved effec-
tiveness and efficiency. Attention should particularly be focused on coordinating
use of field representatives and cofinancing by Eximbank, OPIC, AID, FCIA and
private enterprise. We also support the initiative by Senator Heinz to draft legis-
lation to address some of the long term requirements to strengthen U.S. export
financing competitiveness and funding.
U.S. income tam-Section 911
APCAC considers the revision of IRC Section 911 in the Economic Recovery Tax
Act of 1981 as a positive step in eliminating disincentives to U.S. citizens working
abroad. This revision helps U.S. citizens compete on an equal basis with foreign
competitors and encourages U.S. citizens to live and work overseas to promote
the sale of U.S. goods and services. Accordingly, APCAC strongly opposes the
inclusion of the Section 911 benefit as a tax preference item for purposes of the
minimum tax or similar legislation which would be detrimental to the competitive
position of U.S. business in the world market place.
Industrial and intellectual property
APCAC calls upon the Government of the United States to exploit every appro-
priate opportunity to express its serious concern over inadequate protection of
American industrial and intellectual property rights abroad. This issue should
be raised, for example, in all U.S. trade discussions with APCAC member host
governments.
APCAC encourages APCAC member host governments to recognize the growing
importance of industrial and intellectual property rights by enacting more effec-
tive patent /trademark laws and enforcement systems and allow a reasonable fee
for their use.
APCAC calls upon the U.S. Government and all APCAC member host govern-
ments to oppose attempts within WIPO to revise the Paris Convention in such a
way as to weaken the international patent and trademark systems.
APCAC urges the U.S. Government to negotiate, under the aegis of GATT, an
international code to discourage international trade in counterfeit goods, and
endorsing, in this connection, the draft GATT Anti-Counterfeiting Code.
Foreign Corrupt Practices Act of 1977 (FCPA)
APCAC congratulates the U.S. Senate in general and Senator Chafee in par-
ticular for the passage in November 1981 of S. 708 amending the Foreign Corrupt
Practices Act of 1977.
APCAC urges that committee action on H.R. 1530, the Companion Bill of
S. 708 be completed and that the Bill be favorably and urgently reported out
for House action.
Passage of H.R. 1530 in this session of Congress is needed to remove major
obstacles to American competitiveness overseas.
In this connection, we reiterate our concerns that the FCPA as it now stands
contains onerous provisions.
GATT code for services
APCAC recognizes the increased interest by the U.S. Government in the
services sector but calls for more active support of American service indus-
tries abroad. APCAC encourages continued efforts aimed at "GATT Code for
Services" as enunciated recently by U.S. Trade Representative Brook. Secre-
tary of State Haig also stressed the importance of American services in his
appearance before the Senate Subcommittee on International Trade.
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Service industries such as banking, communications, insurance, engineering.
accounting, trading etc. make a significant contribution to the U.S. balance of
payments. Recent studies indicated that contributions from these industries to
the services account of the balance of payments are growing even more rapidly
than are U.S. merchandise exports as a whole. The value of this contribution
must be recognized, strengthened, and actively supported by a GATT Code.
National treatment for U.S. banks
APCAC endorses U.S. Government policy that provides national treatment
for foreign banks operating in the U.S. and promotes national treatment of
U.S. banks' operations in foreign countries.
Recent efforts by the State Department, Treasury Department and U.S. Trade
Representative's Office to include services, and especially banking, as part of
U.S. trade policy are encouraging.
? However, in many countries in Asia, U.S. banks do not receive national treat-
ment. These countries include, among others, Korea, Taiwan, Thailand and
Australia.
APCAC resolves that the U.S. Government should actively promote national
treatment of U.S. banks operating in Asia, make the treatment of U.S. banks
an important part of its overall relationship with foreign governments and
include banking in bilateral trade negotiations related to services conducted by
the U.S. Trade Representative.
U.S. export trading companies
APCAC calls for the Houses of Representatives of the United States to
promptly enact legislation such as S. 734, the Export Trading Company Act of
1981. This will positively encourage and facilitate the formation and operation
of export trading companies which can support the U.S. export effort in the
same way that Japanese and other foreign trading companies support their
countries' exports. APCAC expects that the chief beneficiaries of such legis-
lation would be small and medium-size manufacturers that today are not large
enough to enable them to export effectively. APCAC believes such legislation
will be a concrete means of redressing the current trade deficit by expanding
U.S. exports effectively and competitively in world markets thereby creating
more jobs at home and abroad. Legislation must amend existing banking ex-
clusions, anti-trust constraints, and provide additional incentives to export U.S.
products and services. Upon passage, the business community and the U.S.
Government should undertake efforts to promote and encourage the establish-
ment of such companies.
APCAC also cautions that any quantitative limitation on operations of Export
Trading Companies would hinder these companies in competing freely with
foreign trading company competitors.
U.S. Government policy toward American investment overseas
APCAC is pleased to note that the U.S. Government has changed its policy
on American private sector investment overseas from one of neutrality, of
neither encouraging nor discouraging such investment, to one of actively promot-
ing investments abroad.
APCAC calls on the Government to clarify the remaining ambiguities that
seem to exist in the effective implementation and coordination of this new policy.
U.S. disincentives to trade
To improve America's ability to compete in foreign markets in the future and
to strengthen the U.S. trade performance in goods and services, the United
States must increase the growth of the market place, not shrink it, by remov-
ing the disincentives which limit American export and investment, e.g.:
Extra-territorial applications of U.S. anti-trust legislation in cases where
there is no impact on U.S. commerce. APCAC calls for the establishment of a
Presidential task force to review and rewrite all U.S. anti-trust legislation as
it applies to the competitiveness of American business abroad. APCAC draws
the attention of the U.S. Government to the "White Paper on U.S. Manufactur-
ing Investment" prepared in February 1980 by the American Chamber of Com-
merce in Japan and the recommendations for actions in the Investments Work-
ing Paper presented at the October 1980 APCAC Conference in Kuala Lumpur.
Ambiguous standards and the dual jurisdiction (S.E.C. and Justice) of the
Foreign Corrupt Practices Act. APCAC supports action along the lines of the
Chafee/Rinaldo Bills S. 708/H.R. 1530.
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Excessive U.S. regulations and red tape (E.P.A., O.S.H.A. etc) which unneces-
sarily raise the cost of U.S. products.
Unreasonable restrictions and delays in technology transfer through the failure
of the Commerce Department to implement fully the Export Administration Act
of 1979 and subsequent administration policy announcements.
Lack of competitive Double Taxation Treaties and/or the presence of Treaties
in urgent need of updating to address today's business proceedings.
Foreign commercial service
For many years, APCAC has called for a reorganization of the Agencies of the
U.S. Government to achieve an integrated international trade and investment
policy.
APCAC continues to call for the ultimate establishment of a structurally
acceptable Department of International Trade and Investment (DITI) to pro-
vide the framework that is required if Americans are to be competitive in inter-
national markets.
Meanwhile, a priority effort in 1982 will be to continue to work closely with
the existing Foreign Commercial Service (FCS) in its respectivg overseas posts,
to capitalize as fully as possible upon changes in U.S. Government organization
for international trade and investment. Our position on the effectiveness of the
FCS will be reviewed at the 1983 spring APCAC meeting.
Recognizing that the current FCS falls far short of being a DITI, we :
1. fully endorse the current role of the FCS;
2. strongly urge the United States Government to continue to implement
its new positive policy toward overseas investment and give a mandate to
the FCS actively to promote U.S. investment abroad ;
3. call on the United States Government to ensure that the FCS, its major
foreign trade development Agency, is adequately funded and staffed ;
4. recommend that FCS be given flexibility in the application of an ade-
quate budget, including travel and representational allowances, so that it
can place competent personnel and necessary funds in overseas markets
where they are most needed and,
5. encourage the United States Government to afford more freedom to the
FCS in pursuing its objectives, and provide flexibility for Field Offices so
they can have an enlarged responsibility for policy formulation on trade
development and investment.
Labor participation
APCAC believes that efforts to arrest the nagging trade imbalance and restore
the United States to preeminence as an exporter will depend in a significant
way on the support labor unions are prepared to give to such a campaign. Ac-
cordingly, APCAC restates its willingness to work with labor to achieve these
goals, and encourages labor leaders to join it in its twice-yearly meetings which
explore many of the obstacles clogging the way to freer trade and investment
and job creation.
ASEAN
APCAC applauds the expansion of public and private sector contracts between
ASEAN and the U.S.
APCAC recognizes the importance of the U.S. relationship with ASEAN and
encourages the U.S. Government and the American business community to ensure
continued progress. Programs to facilitate two way trade and investment and a
strengthened dialogue should be continued.
Small business
APCAC calls upon the Congress of the United States to immediately change
provisions of the Internal Revenue Code which discriminate against small busi-
ness and professional entrepreneurs abroad. Specifically we recommend to the
Congress the following actions:
The elimination of the language of Sec. 911(d) (2) (b) which allows only
30 percent of the entrepreneur's share of net profits to be considered as earned
income for the purposes of claiming the Sec. 911 exclusion of income earned
abroad. This provision virtually limits the exclusion available to entrepreneurs
and virtually forces them to establish foreign corporations in order to limit their
personal tax liability.
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The changing of the language of Sec. 911(d) (6) to permit the deduction of
all legitimate business expenses in determining earned income. If such expenses
are not allowed, entrepreneurs are effectively denied the same benefits as corpo-
rate emp'oyees. It is another example of tax provisions that force small busi-
nesses to operate abroad in corporate form with a significant increase in cost
and administrative burden.
The elimination of See. 6046 requiring the reporting of the acquisition of
5 percent or more of the shares of a foreign corporation within 90 days of such
acquisition. Although most Americans are completely unaware of this obscure
provision of the law, failure to file within the 90 day period can result in the
imposition of a $1,000 civil penalty. If the Congress feels that such a report is
necessary, then we recommend that the report be filed as an attachment to the
income tax return for the year of the acquisition. Since the civil penalty is
almost always imposed upon entrepreneurs solely because of their ignorance of
the law, we recommend that the penalty for failure to file such return be
eliminated.
Major projects
APCAC recognizes the contribution a current regional major projects list can
make the United States exports. Accordingly, the Council strongly urges a more
determined effort by both business and Government to compile and disseminate
regular regional updatings of such a list for distribution to both corporate head-
quarters and field offices. Further, APCAC calls for a major increase in Grant
Feasibility funds to ensure a continued and expanded role for American business
in projects in the Asia Pacific.
Visa waiver
APCAC recognizes that tourism and travel are currently the third largest
retail industry in the United States ; foreign travel into the United States is cur-
rently estimated to bring in, directly and indirectly, revenues of $28 billion.
APCAC further recognizes that U.S. trade and export of products and services
will only increase with easier access to the United States that would enable for-
eign employees of U.S. firms to readily attend seminars, conferences, and tech-
nical or sales meetings.
Therefore, APCAC supports President Reagan's attempt to update sections of
the Immigration and Nationality Act and calls upon the U.S. Senate and House
of Representatives to enact legislation that would grant visa waivers for up to
90 days to citizens or nationals of countries willing to extend reciprocal privileges
to U.S. citizens.
Trade centers
APCAC restates its firm support for Trade Centers or International Marketing
Centers (IMC), readily recognizing the important role these facilities play in
stimulating U.S. exports.
APCAC also supports the equal role of private enterprise in trade exhibition
activity. However, it believes that in countries like Australia, where the IMC
has its own exhibition space, these facilities offer small and medium size com-
panies and companies new to market an undeniable stimulus to venture into
important new export fields. Accordingly, these facilities should be retained.
Trade promotion
APCAC believes that trade show programs of the private sector and the U.S.
Trade Centers are an effective part of the U.S. export promotion program and
contribute positively to U.S. trade.
APCAC strongly urges the private sector and the U.S. Government to broaden
their export promotion activities in the Asia Pacific region and to consider addi-
tional private sector and U.S. Government complementary export promotion
programs.
Asian Development Bank
The Council reaffirms it strong support for the Asian Development Bank and
urges the Congress to provide the full level of authorization and appropriations
for U.S. contributions to the Asian Development Fund.
Domestic International Sales Corporation (DISC)
APCAC believes that United States exporters need liberal and expanded DISC
or DISC-type benefits. It is the only tax benefit they have to counteract the large
tax incentives bestowed on their foreign competitors.
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'Accordingly, APCAC strongly opposes the inclusion of the DISC benefits as a
tax preference item and believes the benefits should not only be retained but also
expanded to cover services and provisions made available to the new export trad-
ing companies. In addition, a roll-back of the restrictive 1976 Tax Reform Act
provisions should be made.
To provide DISC operators with more confidence, the rules should be modified
so that failure to meet DISC qualifications would only result in the loss of bene-
fits for the particular year involved. It should not result in the loss of all DISC
deferral in the past.
The DISC regulations need to be rewritten in such a way that the basic
requirements for the qualifications of a DISC are straightforward, clearly shown
and can easily be made by companies that are indeed exporting, and thereby sat-
isfying the purpose for which the DISC provisions were enacted.
Overseas Private Investment Corporation (OPIC)
APCAC supports the Overseas Private Investment Corporation (OPIC). OPIC
provides, at a profit to the U.S. Government an essential service in supporting
U.S. private investment in developing countries in Asia-investments which
bring about essential development benefits to host countries and an extension of
the export of U.S. goods and services.
To improve the U.S. competitive position in the region, APCAC supports a five-
year extension of OPIC operating authority and action on existing restrictions
that inhibit OPIC's effectiveness, specifically :
Removal of the 1978 limitation on the countries in which OPIC's services
are available based on an arbitrary GNP per capita formula ;
Substantial modification of the provision that prohibits OPIC from insur-
ing or financing labor intensive projects. These projects are often of the
greatest developmental benefit to host countries ;
Elimination of guidelines on total portfolio which discriminates as to
availability of OPIC insurance and financing based on size of company ; and
Elimination of arbitrary OMB guidelines which are not mandated by Con-
gressional action.
Security in the Asia Paeifo
APCAC urges the U.S. Government to maintain a strong military presence in
the Asia Pacific in view of the continuing threat to the peace and stability of the
region and the need to continue to demonstrate to our Asia Pacific allies the U.S.
commitment to the defense of the region.
'Senator HAYAKAWA. Mr. Rooney, you suggest that it would be bene-
ficial for the Congress to be represented at ASEAN meetings. Do you
mean an interparliamentary exchange, such as we had with Western
European countries or congressional representation at meetings, such
as the ASEAN ministerial meetings taking place in Singapore this
week?
If the latter, what would be the benefits on both sides of this con-
gressional participation?
Mr. RooNEY. My comments were based on the feeling in ASEAN
that a greater degree of participation between the two countries would
be best.
I think the ASEAN meeting that is going on now is very apprecia-
tive of the fact that the Secretary of State was to be there. They were
disappointed that he could not be there, but were very understanding
of the fact that he could not.
ASEAN is very sensitive to its position and to the relations and
importance that others attach to it. Indicative of this, I think, is the
reaction of the downgrading of the representation from the EEC,
to which the response of ASEAN was to remove the EEC from the
dialog, until such time as it decided to send its previous representation.
I would feel that the greater amount of dialog and interchange
that we could have between ASEAN, both in the political and eco-
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nomic areas, would be to the greater benefit of both countries. I feel
that we need to create and foster a greater understanding of ASEAN;
that ASEAN also would benefit from a greater understanding of our
own position.
Senator HAYAKAWA. The EEC withdrew, is that what happened?
Mr. ROONEY. There was a representative from the EEC. I forget
exactly who it was. They advised ASEAN that he could not attend.
At that point, I understand that the ASEAN Secretariat stated
that, since he could not attend, they would simply remove the item
from the agenda.
They subsequently responded that they found that the previous rep-
resentative would, indeed, have time to come.
Senator HAYAKAWA. You speak of the fact that U.S. Government
policy should be sensitive to subsidized competition, as in certain agri-
cultural and commodity sales. Would you tell us a little more about
that?
Mr. ROONEY. The ASEAN countries note with a great degree of
interest the subsidized efforts or subsidized sales, such as commodity
sales to Korea, and U.S. activities with regard to tin stockpiles because
these are areas that are of importance to the ASEAN countries.
Thailand. for instance, is an exporter of rice; so they are sensitive to
any subsidized rice sales within the area.
The feeling is, if the United States is a supporter of free trade,
we should perhaps demonstrate this free trade by not promoting
subsidized sales.
Now, ASEAN also is very realistic. They recognize the impact
and the significance of several of the areas in the United States, one
being the agricultural sector. However, it is still a bit difficult to ex-
plain why we would like to support free trade, reduction of any tariff
or nontariff barriers, or reduction of subsidies at the same time that
we support subsidized sales in the area.
Senator HAYAKAWA. We don't subsidize rice, do we?
Mr. ROONEY. We have. There was a sale-and I cannot recall
whether it was rice or maize-within the last month or so to Korea-
I believe it might have been maize-which was directly competitive
with Thailand.
Senator HAYAKAWA. I would also like a little clearer description
of what you call the concessionary, if not predatory, support that
ASEAN governments provide to their local businesses. What would
you have the U.S. Government do to effect this support?
Mr. ROONEY. I think here we should recognize several factors.
First, probably Europe, in particular, Germany, France, the United
Kingdom, Australia, and Japan, recognize and pay more attention to
ASEAN and are paying more attention to increasing their market
share in the area than are we.
The ASEAN countries are growing economies. They are exciting
economies to be in. In the 12 years that I have been there, I am amazed
at the growth that has gone on there.
They will, from time to time, need to take certain efforts that they
feel would be necessary to support their own economies. I think it is
important to note, however, that they have very strong private sectors
in many of these countries, in particular in Singapore, Thailand, and
the Philippines.
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The objectives and goals of these private sectors are very much the
same as the objectives and goals of American business working within
the area. We both support and endorse the activities of these govern-
ments to move away from any type of tariff and nontariff barrier.
As we watch our competition, we notice that our competition is
offering concessionarv. if not predatory, terms in their dealings within
Asia, and within ASEAN. We would like very much to be able to
compete equally, to have a basis where we are on an equal footing with
our competitor nations.
I would like to extend this to bring in some of the other areas which
would handicap American business, the disincentives to trade which
would incorporate, for example, the Foreign Corrupt Practices Act,
antitrust regulations, and extraterritorial applications of certain acts,
where U.S. law hinders or restricts our ability to compete effectively
in some of these areas.
Senator HAYAKAWA. You mentioned prefeasibility studies, and that
seems to be one of the keys to expansion of trade and investment in
the area.
How can the United States, either the Government or the private
sector, expand the availability of funding for these prefeasibility
studies?
Mr. ROONEY. There are several programs currently. There is the
trade development program, which offers partial financing for pre-
feasibility studies for projects; there are various investment and "re-
con" missions that have gone out to the ASEAN area to identify sectors
of interest.
I think the benefit here is that we-"we" being the United States-
are now taking a more aggressive position than we have in the past.
Our competitor nations, and in particular Japan, have been very active
in providing Government support in identifying or studying market
opportunities in the area to assist the private sector companies when
they come in. The provision of greater funding or prefeasibility stud-
ies, such as in trade development, greater participation in trade mis-
sions, greater activity and interchange in these groups going back and
forth to ASEAN, will help to create a greater awareness of the oppor-
tunities within the area.
Senator HAYAKAWA. You mentioned the disincentives enacted in
U.S. laws and self-imposed barriers which impede the expansion of
U.S. trade and investment. You cite as example taxation of U.S. cit-
izens abroad.
That has been considerably modified, has it not?
Mr. ROONEY. That has been modified. However, I understand that
there are attempts to modify it again.
This was our No. 1 priority. We spent a great deal of effort trying
to explain what we felt were the disadvantages of taxation of Amer-
icans abroad. We were very pleased at the results last year.
However, we are concerned that we may be back in a position where
we may have to come back and argue the same position again. We are
concerned that the bill passed last year, which we all felt was very
fair, may be modified to our disadvantage.
Senator HAYAKAWA. I had not heard that. I am glad to be so warned.
Mr. ROONEY. I understand there is a bill introduced before the
House which would cut the taxation benefits in half. There are some
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considerations to include the foreign-source income in the alternative
minimum tax computation.
Senator HAYAKAWA. I am very, very glad to be warned about that.
What about the Foreign Corrupt Practices Act?
Mr. ROONEY. We have argued long and strong against this bill. We
do not support bribery and we do not condone it. I think it is important
to note that most American companies have antibribery or ethical
codes of conduct, which are far stronger in terms of the way the officials
of those companies conduct business in Asia, than perhaps is the bill.
However, the reporting and accounting requirements of the bill are
so stringent that it devotes a tremendous amount of: attention away
from the doing of business and into reporting.
They also have the effect, which I think no one ever interpreted, of
perhaps causing foreign governments not to even want to include U.S.
companies in the bidding process for fear that someone 'may raise the
allegation of bribery or corruption, which would not be to their benefit
at all.
So, we are precluded from doing business in many cases which we
may otherwise have had a chance to do so.
Senator HAYAKAWA. This no doubt is all part of the Lawyers and
Accounts Full Employment Act. [General laughter.]
Are there other examples? You mentioned the antitrust laws. In
what ways do they hinder you?
Mr. ROONEY. We have strongly supported the Export Trading Com-
panies Act. One of the factors that is slowing that down in passage
through the House is the consideration of antitrust applications
overseas.
This affects us in several other areas as well.
None of our competitor nations really are affected by antitrust-type
legislation in their dealings, as they try to act and support and pro-
mote international trade. We are. We would encourage that we be able
to conduct business without concern of antitrust regulations and
restrictions in the United States.
I think, as one looks at ASEAN, in my own country of Thailand I
think we have a very good example where we are looking at develop-
ment of the eastern seaboard of Thailand, with the discovery of nat-
ural gas. The size and scope of the projects require in many cases that
one or more companies join together. We find that our European and
Japanese competitors can do this very well; but we are restricted from
it. We would like to see the extraterritorial application of these laws
rescinded, if possible.
Senator HAYAKAWA. Am I right when I say that the antitrust laws,
which were originally intended to prevent the formation and excessive
power of trusts within the United States, have had a kind of unex-
pected application outside the United States, which sort of gums up
our export trade?
Mr. ROONEY. Yes, sir, and it restricts, in many cases, the ability of
American companies to form a consortium among themselves.
If one were to look at several projects that are formed right now, in
the energy field, in particular, where the investment is substantial, one
would generally see a consortium of companies.
In our competitive efforts against Japan, we may see two or three
Japanese companies in that same consortium.
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Senator HAYAKAWA. The Japanese trading company, as it is struc-
tured in Japan to do business with the rest of the world, would be
illegal if formed in the United States, would it not?
Mr. ROONEY. Yes, sir.
Senator HAYAKAWA. So, we are at a disadvantage, then.
Mr. RooNEY. The Jananese trading company is the front of the cut-
ting edge. You also find very significant representation from Javanese
industry within the countries and the ability of those companies them-
selves to take. advantage of market onportunities.
Senator HAYAKAWA. You mentioned tariff and nontariff barriers
which confront you in the region. Do you believe that our ambassadors
and their staffs in the area are doing an effective job in arguing your
case with host governments?
What more do you think could be done?
Mr. ROONEY. We recently have surveyed our member countries which,
as you will note from my testimony, stretch from Australia. up through
Japan, and down through Hong Kong and into the ASEAN area. We
find that our embassies are very supportive.
Regarding the question of tariff and nontariff barriers, we have a
long history of being free traders. We are strongly in favor of trying
to achieve market access. We support the removal of tariff and non-
tariff barriers.
I think it is interesting to note that, over the past year, we have seen
a change in our list of priorities, and the No. 1 priority issue right now
is the question of market access. Our concern is that the United States
may pass protectionist, or reciprocity-type, legislation.
We, as Americans doing business in Asia-and I should note that
this includes some 6,000 U.S. companies in the area and perhaps some
20,000 businessmen-are concerned that the United States may pass
protectionist or reciprocity-type legislation, which would create, in its
own way, a nontariff barrier in doing business with the United States.
It makes it difficult for us to support in our host countries the re-
moval of tariff and nontariff barriers.
I also should note that the private sector companies and the private
sector representatives in these areas generally feel much the same way
we do. We work very much in concert with them.
Our embassies all have been made aware of our problems, and we
work hand in hand with the embassies as well to try to put these
through.
We feel that the best way to try to counteract these problems is to
have steady, even, consistent pressure applied throughout. One of our
residential concerns is that if a bill is passed, this bill may possibly be
viewed as a cure or a one-stop fix of the problem, which it is not. It is
a long-term problem, and it will take time to correct it.
I think the host countries are aware of the problems and many of
them are taking steps in this direction.
Senator HAYAKAWA. I would like to go back to the first question
again about the EEC having failed to send a representative to the
interparliamentary ASEAN meeting.
Do we send such a representative?
Mr. ROONEY. As I understand it, the Secretary of State was going
to attend.
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The ASEAN nations are realists. They understood the difficulties
of the situation at the time. However, since it is an area which is not
fraught with crises and problems, but on the other hand is a successful
area with strong growth and even stronger potential growth, it does
not receive the attention that we oftentimes pay to areas where there
are crises.
Senator HAYAKAWA. Such as the Middle East in recent days.
Mr. ROONEY. Yes. The wheel that squeaks gets the attention.
I feel that ASEAN is such a successful area that we, as a country,
should continue to devote the highest possible attention that we can
to their efforts, to pay attention to them, to try to assist them, to work
together with them, and to try to foster the greatest degree of coopera-
tion that we can.
Because of the fact that I represent the private sector, I tend to
focus on economic cooperation.
We have noted that the increased political integration in ASEAN
has stimulated greater economic activity and will probably continue
to do so.
Senator HAYAKAWA. So, what you say in your prepared statement
is important, then :
The U.S. Government must devote continued high-level attention to ASEAN
through participation of top Congressional and Executive Branch officials in
ASEAN meetings.
Mr. ROONEY. This can be through interchange, through official meet-
ings, through business with ASEAN.
Mr. JOHNSON. Mr. Chairman, may I add a point here?
Senator HAYAKAWA. I would be very grateful if you would, sir.
Mr. JOHNSON. I want to give you an example of a possible
opportunity.
This November, here in Washington, the ASEAN-U.S. Business
Council will hold its fourth meeting, but it is the first meeting ever to
be held in the United States.
Senator HAYAKAWA. When will this be held?
Mr. JOHNSON. During the middle of November-November 9
through 12.
Senator HAYAKAwA. This is important and I want to write it down.
Mr. JOHNSON. The purpose of holding the meeting in Washington
is to provide an opportunity for the expected 100 business leaders
who will he coming from the ASEAN region to meet with executive
branch officials and congressional leaders on a wide range of political
and economic issues which confront the United States and ASEAN
group.
This would be an example of an opportunity to perhaps you or
other Members of the Congress to participate in an ASEAN-United
States event.
Mr. ROONEY. I would add that the businessmen who are active in
ASEAN really are the business leaders of those countries. It would
be the same as taking a sampling of the top business leaders of
America.
In their own countries they are important, significant individuals.
Senator HAYAKAWA. I am very glad to hear about this, Mr. John-
son. I certainly would hope to attend something like this. I look
forward to that opportunity.
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Mr. JOHNSON. We look forward to having you attend. Senator.
Senator HAYAKAWA. There is a vote coming up on the floor of the
Senate very soon. So we will have to proceed rapidly.
In your information sheet on the functions of the Asia-Pacific
Council, you deplore the absence, Mr. Rooney, of a coordinated for-
eign economic policy for our Government.
Have you observed any improvement in this area since the advent
of the current administration? Short of the establishment of another
Cabinet-level department concerned with international trade and
development, what would your recommendations be in this area?
Mr. ROONEY. We have been concerned with this issue for a consid-
erable period of time. We feel that the international economic policies
of the United States happen rather than evolve out of a plan; that
they are the result of actions without coordination in a number of
areas.
We note with encouragement the greater attention that this ^dmin-
istration places with the private sector. We feel that there still are
difficulties in developing closer private-public sector cooperation, but
that over a period of time this cooperation, this increased cooperation,
can only benefit us.
In the past, we have been very supportive of, say, a Department
for International Trade and Investment. We also have been support-
ive of the Foreign Commercial Service in the Department of Com-
merce, and continue to be so.
We, as a whole, would support any action or activities that would
lead to greater integration of international economic policy into the
conduct of our economic activities. We feel that, at present, the degree
of attention that has been paid to the domestic economy may be
slightly out of proportion. We realize the necessity for a strong
domestic economy; but we also feel that in today's world the inter-
action of the American economy in the international economic scene
cannot be disregarded. We must pay attention to it and we must be
aware of our position.
I think also supporting this is the fact that many of our major com-
panies depend very strongly on their international sales activities for
substantial parts of their future growth.
So. it is impotant to us and we should pay attention to it.
I feel very supportive of the free trade and market access attitude
of our Government. The statements by the U.S. Trade Representative
and the Secretary of Commerce in these areas are very akin to our own
thoughts.
Senator HAYAKAWA. That is very good. I am very glad to hear that.
I must leave now to cast my vote.
I have a number of other questions, some of which you have already
answered or partly answered. I would like to submit them to you. If
you would care to comment on them in writing, I would be most
grateful.
Mr. RooNFY. I should be pleased to do so. Mr. Chairman.
Senator HAYAKAWA. I want to apologize to everyone for having
started this meeting so late, but I was involved in trying to net an
amendment passed on the floor regarding bilingual ballots, as it is so
called.
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135
Mr. JOHNSON. Were you successful?
Senator HAYAKAWA. Unfortunately, I was not. My amendment was
defeated by a vote of 54 to 32.
Mr. ROONEY. Mr. Chairman, may I thank you for allowing us the
opportunity to express our views on ASEAN. At the same time, I
want to congratulate von for holdinn these hearings on what we feel
is a very important part of the world.
Senator HAYAKAWA. Thank you very much. To me it is a very
important part of the world.
I am chairman of this subcommittee, which deals with this area.
The more I learn about this part of the world, the more impressed
I am with the imnortance of my position.
[General laughter.]
I am very happy to serve on this subcommittee, and I look forward
to coming out to at least some part of Asia soon.
Mr. ROONEY. We hope you will be able to come out and visit us
again. We very much enjoyed your previous visit, Senator.
Senator HAYAKAWA. Mr. Rooney, let me say again how very much
we appreciate your being with us this morning. Here in Washington,
we all too often see things myopically-only through "government
eyes." It is refreshing and most helpful to us to have the views and
recommendations of an American businessman, resident abroad, who
pursues our economic and commercial interests on a daily basis, in the
real world of the marketplace. Thank you again, Mr. Rooney, and we
wish you every success in your endeavors.
The committee will stand adjourned, to meet next, for the final ses-
sion in this series, on July 15, at 3 :30 p.m., in this room, to hear Assist-
ant Secretary Holdridge's report on the ASEAN ministerial meeting.
A portion of that meeting will of necessity be held in executive session.
Thank you both very much. Now, I am afraid, I must leave.
[Whereupon, at 10:50 a.m., the subcommittee adjourned, to recon-
vene at 3:30 p.m., Thursday, July 15,1982.]
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U.S. POLICIES AND PROGRAMS IN SOUTHEAST ASIA
THURSDAY, JULY 15, 1982
UNITED STATE SENATE,
SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS
OF THE COMMITTEE ON FOREIGN RELATIONS,
Washington, D.C.
The subcommittee met, pursuant to notice. at 3:36 p.m., in room
S-116, the Capitol, the Honorable S. I. Hayakawa (chairman of the
subcommittee) presiding.
Present : Senators Hayakawa and Glenn.
Ambassador HOLDRIDGE. Good afternoon. Mr. Chairman.
Senator HAYAIiAWA. Good afternoon, Ambassador Holdridge.
We come today to the fourth and final hearing in our series examin-
ing U.S. policies and programs in Southeast Asia. This afternoon
we shall hear from the Honorable John H. Ho]dridge, Assistant Secre-
tary of State for East Asian and Pacific Affairs, who will brief us on
the recently concluded ASEAN and ANZUS ministerial meetings
which he attended.
We welcome you back to the committee, Ambassador Holdridge, and
we look forward to your briefing.
Before turning to Ambassador Holdridge's briefing, I would like to
make a few observations based on our et aminaticn of our policies and
programs in this very important part of the world.
Barring unforeseen circumstances, today's hearings will conclude
our examination of our relations with Southeast Asia and particularly
the ASEAN nations-Thailand. Indonesia, Malaysia, Singapore, and
the Philippines-which we commenced with the convening of the
97th Congress. I I_'nitjate is 18-month low,,,- in-cstigatiQxbecause it
seemed to me that the Southwest Pacific is an area essential to our
security and economic interests, about which we in the Congress have
insufficient knowledge and understanding. Indeed, I believe this can
be said to a greater or lesser degree of the Government as a whole, of
the business world, and of the average American.
We here in the Senate, and elsewhere in 1V^shington. tend to focus
on the crisis of the moment, be it the budget, the Falkland Islands or
Lebanon. All of these are important, if not vital to us. But in so doing,
we ignore areas and issues where great opportunities lie for our
country.
Southeast Asia is just such an area and we must do all we can to
improve our relations with our friends wh'i lire in this Hart of the
world. Our interdependence with our ASEAN friends will be evident
to those who have followed these bearings. Whether in the area of
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raw materials, markets, industrial development, agriculture, trade or
security, we are each dependent upon each other. We must recognize
this interdependence and take advantage of the opportunities it offers.
In this regard, as one who has spent a lifetime helping to bridge the
gap between East and West, I would like to commend to my colleagues'
attention the comments of the distinguished Prime Minister of Singa-
pore in his opening remarks to the assembled foreign ministers of the
ASEAN nations last month. Prime Minister Lee Kuan Yew, with
whom I conferred last summer and whom I look forward to seeing
again next week, said that the five ASEAN countries have made prog-
ress "in an Asian manner," not through rules end regulations but
through consensus.
He said that the five had made a habit of working together and of
consulting each other over common problems. There is much that we
in this country could learn from this example. It is important that we
learn this lesson in our relations with our friends in Southeast Asia,
and I am confident that we are doing so.
Let me turn for a moment to several more specific problems on the
horizon. As I reported to my colleagues upon my return from a fact-
finding mission to Southeast Asia last August, all of the ASEAN
nations perceive a threat to their independence from the Soviet Union
and from China. Their perceptions of the details of this threat vary,
as one might expect. But they are united in the belief that communism
has no place among them.
While we in the United States tend to be more concerned about the
magnitude of the Soviet presence in and around Southeast Asia-
and with our global responsibilities, we must indeed be concerned-
our friends in ASEAN tend to be more concerned about subversion of
thier societies and institutions from within. We must understand and
be sympathetic to this point of view. We must take it into account,
particularly in our dealings with China, which is an overwhelming
presence in the region.
But in the final analysis this problem-like others confronted by our
ASEAN friends-must and will be solved by the peoples of these five
great nations themselves. As my esteemed friend, General Romulo,
Foreign Minister of the Philippines, said in Singapore last month, if
the threat to ASEAN security is from subversion, then the real de-
fense must rest on the strong will and unity of the people, enhanced by
economic development. I agree with General Romulo and I believe that
we in the United States can play a significant role in this economic
development.
As I mentioned at our June 10 hearing, it is my belief, as it is Presi-
d 1 ]d k th ma'or
a e e
t
h
or can an s Zou m
e private sec
dent Reagan s, that t
J
contribution to the development of the Third World. I commend the If
administration on its efforts in this area, which were described to us
by the able representatives of the Overseas Private Investment Cor-
poration [OPIC], and the Agency for International Development
[AID]. '
But we must not rely on Government-related programs alone. The
private sector must be encouraged at every opportunity to seize the
initiative abroad to increase U.S. trade and investment to its own
betterment and to the betterment of our trading and investment part-
ners abroad.
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The phenomenon of protectionism which we are observing among
the industrialized nations must be resisted. Both tariff and nontariff
barriers must be eliminated, so that trade is free and unhindered by
Government regulation. We must also work to offset or equalize the
comparative advantage that some of our foreign competitors enjoy as
a result of concessionary financing. We must find money to support
feasibility studies which would result in the expansion of trade and
investment by our corporations abroad.
One area that is of particular concern to me is the trading company.
I have a special interest in this area. if for no other reason than that
my father was head of a small trading company. It was small, but his
customers ranged over three continents : Asia, Africa, and North
America. He had the organization and the know-how to expedite the
sale of goods manufactured by small companies which could not by
themselves afford a worldwide distribution system.
We must not forget that the largest part of our gross national
product [GNP] is produced by what we call "small business." Yet
thesa small businessmen and women are inhibited from combining to
trade abroad by fear of our antitrust laws and policies. We must
change this.
It was the ingenuity of the "Yankee trader" buying and selling over
the seven seas which made this country great. We must reinstill this
spirit in our everyday lives and in our commercial endeavors.
And finally on this subject, I must add that our embassies abroad
must work hand in glove with our entrepreneurs abroad to assure that
trade and investment flourish and development proceeds rapidly. As
General Romulo said, this is the best assurance against subversion
and, I would add, against domination of the area by either the Soviet
Union or by China.
Now I would like to turn to three areas of great importance to me
and I believe to our country: The Indochina situation, the refugee
situation and the POW/MIA issue. First, Indochina. We will
shortly hear from Ambassador Holdridge on his discussions at the
ASEAN meeting on this subject and I do not know what he will say.
But I would like to commend the ASEAN governments on their
leadership in seeking a solution to the Cambodian problem. I was
encouraged by the agreement of the three factions to form a govern-
ment in exile. At the same time, I was somewhat disturbed at the
thought that the United States might be asked to provide anything
other than humanitarian assistance to this government.
I think we must constantly bear in mind that the Chinese do not
appear to be prepared to a:cept any diminished role for their Cam-
bodian clients in this situation. Our aid will inevitably benefit this
faction, and we certainly do not wish to be tarred with the brush of
Pol Pot or his suc essors any more than we are now.
Insofar as the Vietnamese are concerned, their government has a
long history of intransigence and resistance to pressure. I doubt se-
riously that they can be persuaded by isolation from the international
community to cease their occupation of Cambodia, certainly not so
long as the Soviets continue to underwrite the Vietnamese economy.
I fear, therefore, that Indochina will remain a problem on the inter-
national scene for many years to come, much as it has been for the past
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40 years or so. I can only counsel patience and more patience, as the
history of the Orient teaches us.
As a direct result. of course, of the problems of Indochina, we con-
tinue to be faced with a stream of refugees fleeing Communist rule.
We have not discussed the refugee situation extensively in these l,-ear-
ings, but it is nevertheless a very important issue and a problem which
I believe will also be with us for many years. As long as Indochina
remains under the Communist yoke and the people are able to "vote
with their feet," because they ran vote in no other meaningful way,
we will be called unon to provide asylum for these oppressed people.
I applaud the administration's decision to admit additional Cam-
bodian refugees to our shores, but I am disturbed by recent reports
that we continue to try to ascribe economic motives to their flight
from their homelands, rather than political ones. I have visited ref-
ugee camps in Thailand and talked to innumerable refugees, but I do
not believe I have ever talked to one whom I would consider an
"economic refugee." I find this an almost impossible distinction to
make among those fleeing the oppression of Vietnam and Cambodia.
We in the United States must never lose sight of the origins of our
country and what has made it a dynamic and growing so-iety for over
200 years. That is, the arrival on our shores of talented, energetic
refugees, seeking a better way of life.
Finally, I would like to turn to the question of those missing in
Laos and Vietnam as a result of the Indochina conflict. It seems wise
to me to treat this as a hmmqnita,rian issue, which it certainly icz, rais-
ing it above the level of political questions. I commend the adminis-
tration on taking this approach to this very difficult problem.
But there is an obvious corollary to this approach, as vet unac-
knowledged by our Government. That is that greater participation
in trying to gain a final a-counting of our missing will be required
from humanitarian or nongovernmental organization. In other words,
the Government is by definition a political organization and its
actt'Tities are therefore snsnect.
If we are to pursue a humanitarian approach-and T believe we
should-we must not only permit but encourage the participation in
the effort of responsible and knowledgeable humanitarian organiza-
tions. There are, of course, dangers inherent in this approach, as there
are in any.
Hanoi is liable to use such efforts for its own propaganda or polit-
ical purposes. But I believe we will simply have to accept this if we are
to respond, as we must, to the thousands of American families who
want to know the fate of their loved ones.
I have imposed too lone on your time and. patience, so I will simply
say this in conclusion : First, this is the situation in Southeast Asia
as I understand it. There area number of serious problems confronting
us. They are difficult. Many are intractable.
But there are opportunities as well, and this brings me to myy second
point. The future of Southeast Asia holds great promise, both for the
peoples of the area and for us as their partners. There is no more prom-
ising area of the world.
Thank you very much.
Senator Glenn, do you have a statement?
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141
Senator GLENN. I will give a brief statement of my own and then,
because I could not stay for the whole meeting, I will get back as fast
as I can.
I want to start off today by thanking Senator Hayakawa. I want to
compliment you on your thoughtful observations on U.S. policies and
programs in Southeast Asia. 1 share your concern about the Indochina
situation, refugees, and the POW/MIA issue.
I also want to compliment Senator Hayakawa on the subcommittee's
examination of our policies and programs in this very vital.part of the
world. I think you have done a great job in this regard. No other sub-
committee chairman, to my knowledge, has worked as hard to investi-
gate the problems and prospects in this region as he has. His persistent
efforts, of course, have paid off. The record he has compiled provides
valuable information to the public and has influenced U.S. policy in a
positive way. So again, I want to compliment Senator Hayakawa on
a job well done.
If I might, I would like to shift gears and discuss China policy very
briefly. I recognize, Mr. Holdridge, that we are here today to have you
brief us on ASEAN and ANZU S affairs. Before we get into that, I
will make a few comments on your negotiations with the Chinese re-
garding Taiwan arms sales.
Being from the State Department, you are interested certainly in the
fine print of an agreement. Being from the Congress, sometimes we
focus more on the bottom line of what does it all mean.
For example-and these are the questions that I would hope we
could get into later, either in open or closed session-if the Chinese
accept our latest proposal will we be able to sell arms to Taiwan based
solely on our judgment of Taiwan's needs?
No. 2, if 10 years from now Taiwan needed a brand new air defense
fighter to repiace the then obsolete F-5E s, we could do it under your
proposal; osal; is that the understanding of this? We are not saying to the
Chinese, are we, that we will never sell F-5G's or F-16/79's to
Taiwan? I am assuming that necessary qualitative improvements will
be allowed.
No. 3, I would also assume that if the Chinese agree to our.proposal
we will have settled the arms sales issue once and for all-no more
discussions, no more People's Republic of China demands; that China
will have agreed not to seek more concessions in the future.
And fourth, finally, I hope that we have not granted the People's
Republic of China its claim of sovereignty over Taiwan, have we, in
any of these new agreements? If the people of Taiwan freely choose to
drop the Rupublic of China view of there being only one China and
move to a more independent course, the United States would not have
to oppose that, would we? We would not have to go to Taipei and say,
you cannot do this, you really belong to China?
In the words of the Taiwan Relations Act we would still "consider
any efforts to determine the future of Taiwan by other than peaceful
means, including by boycotts or embargoes, of grave concern to the
United States" and will "maintain the capacity of the United States to
resist any resort to force or other forms of coercion that would
jeopardize the security or the social or economic system of the people
onTaiwan," is that correct?
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So those are some questions we would want to address later on.
They are not easy questions. I realize that. But they are things that
I think we have needed to have spelled out better in the past, and I
hope we could get some definition of those at this hearing.
I do have a 4 o'clock group waiting for me in my office. But I will
come back.
I do want to repeat the first part of my statement. I want to thank
you, Mr. Chairman, and I want to compliment, you on your thoughtful
observations about U.S. policies and programs in Southeast Asia. I
want to repeat that I share your concern regarding the Indochina situ-
ation, the refugees and the POW/MIA issue.
I also want to compliment you on the subcommittee's examination
of our policies and programs in this very vital part of the world. I
think you have done a great job, and no other subcommittee chairman
to my knowledge has worked as hard to investigate the problems and
prospects in this region as you have.
Your persistent efforts, of course, have paid off. The record you
have compiled provides valuable information to the public and has
influenced U.S. policies in a positive way. So again, Sam, I want to
compliment you on a job well done.
Senator HAYAKAWA. Thank you.
Senator GLENN. I have listed some additional questions and I will
be back as soon as I can.
Senator HAYAKAWA. Thank you very much, Senator.
Senator GLENN. If perchance I am net able to get back, Mr. Chair-
man, if the. questions 1 listed here could be answered t. day, fine. If
not, I would appreciate an answer in writing to them. We would be
glad to supply a copy of them to Ambassador Holdridge.
Ambassador HOLDRIDGE. We would be very happy to answer them,
either orally or in writing.
Senator HAYAKAWA. Ambassador Holdridge, do you have a pre-
pared statement ?
STATEMENT OF RON. JOHN H. HOLDRIDGE, ASSISTANT SECRETARY
OF STATE FOR EAST ASIAN AND PACIFIC AFFAIRS
Ambassador HOLDRIDGE. Thank you very much, Mr. Chairman. I do
have a prepared statement and I would like to submit it for the record
if I may. Rather than go through it in all of is detail, .I would like to
give you a brief rundown of all of the elements that I would like to
bring up this afternoon in conjunction with your own remarks.
Senator HAYAKAWA. Thank you very much. We would be delighted
to do that.
Ambassador HOLDRIDGE. But before I do that, Mr. Chairman, I
would like to say a few remarks. In echoing what Senator Glenn said
a few moments ago, I would like to add some of my own words of
appreciation to those of Senator Glenn for your own superb leader-
ship of the Subcommittee on East Asia and Pacific Affairs. I think
your personal interest in Southeast Asia in general and in ASEAN
in particular has been particularly heartening and has been crucial,
really, in focusing public attention on an area of vital U.S. concern
and continuing interest.
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In my opinion, you have done more than any one person on the Hill
to highlight the Association of Southeast Asian Nations [ASEAN]
as the most important new political and economic fact of life in South-
east Asia to emerge since 1975. You have correctly identified ASEAN
as a key aspect of U.S. policy in that region, and through your per-
sonal visits to ASEAN capitals and in hearii.'gs of this subcommittee
you have given a much needed emphasis to ASEAN's significance.
As Secretary Stoessel said in the post-ministerial meetings in Singa-
pore, we regard ASEAN as a key element in our policy toward South-
east Asia, and it is very important, I think, that American public
opinion is aware of this feature of our policy. And so I would like to
express my own personal opinion, or rather, thanks for your efforts
and add to those the thanks of the Department of State in general.
Now, I would like to say too that I was very much interested in
what you have just said in your statement, and I can say a priori
that I certainly would agree without any question with most of what
you say, and in areas where we might have some different shadings
I am sure that we can come to some meeting of the minds in the give
and take of the questioning session.
Let me say that I would like to endorse in particular your com-
ments about the role of economic affairs in our foreign policy. I think
this is an aspect which is all too often neglected and I personally
believe it is crucial that we pay attention to economic matters.
In fact, as you spoke about Secretary Romulo's remarks, I would
like to get into those a little bit later in my own rundown of what we
saw in ASEAN. But the role of U.S. Government support for Amer-
ican economic efforts abroad I think is extremely important, as well
as is the necessity for our embassies and our businessmen to work very
closely together. This has always been a firm conviction on my part.
You may be sure that in the East Asian Bureau we take this to heart
very much, indeed.
If I may, I would like to run down some of the experiences that
I had in my visit to Southeast Asia with Secretary Stoessel and then
on my own once I left Secretary Stoessel in Canberra and retraced
my steps. I went with the Secretary first to the Philippines on the
way to the ASEAN post-ministerial dialog and had an opportunity
there with the Secretary to discuss matters with President Marcos.
Then we went to Singapore for the postministerial dialog, and
while there the Secretary and I had a chance to sit in with discussions
with Prime Minister Lee Kuan Yew. Following the ASEAN post-
ministerial discussions we went to Canberra for the ANZUS Council
meetings, and Secretary Stoessel then had private talks with Prime
Minister Fraser and also with the leader of the opposition, Mr. Hay-
den, in Australia, along with other Australian leaders of a wide
variety.
At this point we separated company. Secretary Stoessel went to
New Zealand and had conversations with Prime Minister Muldoon
and other leaders of the New Zealand Government, and with the lead-
er of the opposition. Mr. Bowling. I went back in the other direction,
via Jakarta, Bangkok, Rannoon, Hone Kong, and home. So with the
single exception of Malaysia, I have had a chance now to visit all
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144
of the countries of Southeast Asia recently, and I did visit Malaysia
last November.
So I have had a chance as Assistant Secretary to see all of these
places. But let me say that the visit of Secretary Stoessel to these two
conferences and his conversations with the leaders individually in the
course of his visit were extremely useful; and were very helpful in
terms of U.S. policy. Taken together, the detailed multilateral and
bilateral consultations were not only timely and extremely useful, but
they indicated a very strong continuing U.S. interest in that part of
the world and highlighted the importance that the administration
attaches to our relationship with our friends and allies in these two
strategi:ally vital regions of Asia.
In my written statement, I provided the detailed description of what
I believe we accomplished at these meetings, and I would' like to sum-
marize briefly some of the highlights as I perceive them. At ASEAN
the content and tenor of discussions concerned the correctness of our
policy of making ASEAN, as I said, the keystone of U.S. interests
in Southeast Asia. We had three objectives in Singapore :
First, we sought to emphasize that the United States sees ASEAN
as the central element in our policies in Southeast Asia and to dispel
any impression that U.S. interest in the region had lessened because
of preoccupations with pressing crises elsewhere. As you know, the
Secretary of State was personally unable to attend the ASEAN post-
ministerial meeting because of the pressures of the Middle East and
Europe and the President's visit to Europe. But that did not mean any
diminished interest on our part. Quite the contrary, the point we
stressed all along was that ASEAN, and the region indeed together,
rank very high in our judgment.
Another point we wanted to stress was we wanted to reiterate U.S.
support for ASEAN's strategy for finding a political solution to the
Kampuchea problem. I stress here, a political solution. It is not the
policy of the U.S. Government, as has been charged, to bleed Vietnam
to death. We support a political solution as soon as possible.
Finally, we wanted to address and discuss frankly a number of spe-
cific ASEAN concerns. Although these were mainly in the economic
area, we knew that the Law of the Sea, Indochinese refugees, and the
United States bilateral relationship with China, as you outlined your-
self, Mr. Chairman, would also be issues of importance to our hosts.
Now, turning to the important issue of Kampuchea, without excep-
tion the ASEAN representatives made clear their firm agreement that
their goals were total withdrawal of Vietnamese troops and a neutral,
independent Kampuchea. They stressed their goal of a political set-
tlement of the problem, as 1 have indicated. They reaffirmed their
commitment to the declaration of the international conference on
Kampuchea as both the instrument and framework for ASEAN's
policy objectives.
Fortuitously, while we were at the ASEAN meeting, it was possible
for Tan Sri Ghazali, the Foreign Minister of Malaysia, to announce
agreement on the part of the three Kampuchean factions-that is, the
DK or the Khmer Rouge, if you will, Prince Sihanouk and Son Sann-
to come together in forming a coalition government and joining their
forces so best to resist the Vietnamese aggression against Kampuchea
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and continued occupation of that country. And we were able to indi-
cate our support.
For our part, Deputy Secretary Stoessel declared that ASEAN, as
I mentioned, was the keystone of U.S. policy toward Kampuchea and
Indochina, and said that we fully support ASEAN's strategy and re-
spect ASEAN's leadership role in the region. We would continue to
work closely with ASEAN on regional issues.
? Secretary Stoessel said that we shared ASEAN's goals as elaborated
in the declaration of the international conference and would work
with ASEAN to realize the objectives of total Vietnamese withdrawal
from Kampuchea and a neutral, independent Kampuchea. We also
strongly favor a comprehensive political settlement. And as I said,
we regard the establishment of the coalition government of Democratic
Kampuchea as an encouraging development in this regard.
In both the public and private sessions, the ASEAN ministers ex-
pressed clear appreciation for the firm political support from the
United States on the Kampuchean issue. Our basic approach of sup-
porting ASEAN was very much appreciated, as I have said, but the
delegation's public statements had in addition a very positive effect in
the public affairs dimension.
As planned, the Deputy Secretary's arrival statement, his speech in
the so-called five plus one, that is the five ASEAN foreign ministers
meeting directly with Secretary Stoessel, and his intervention in the
five plus s'x, that is the five ASEAN foreign ministers plus the six
dialog partners, the remarks in the joint press conference, and his
department press conference stressed the key role ASEAN occupies
in our Asian policy.
Now, apropos of China, let me add here that one question which
came up in the Secretary's remarks in the press conference had a bear-
ing on the concern which you, sir, have expressed with respect to the
Chinese role. He was asked about U.S. policy toward China possibly
taking precedence over U.S. policy with respect to ASEAN, that is,
our interest in a strategic relationship with China conceivably caus-
ing us to downgrade our relationship with ASEAN.
He made it very plain that this was not the case. He said, as I
noted, that we regard our relationship with ASEAN as the keystone,
the key element of our policy toward Southeast Asia, and we would
not let the relationship with China interfere with our relationship
with the ASEAN countries. That point was very well regarded in the
press and in the private remarks we had from the ASEAN leadership.
Senator HAYAKAWA. Was that Secretary Stoessel?
Ambassador HOLDRIDGE. That was from Secretary Stoessel and his
press conference at the conclusion of 0- ASEAN dialog.
Pres- reports and statements by ASEAN leaders indicated an end
to earlier concerns about a possible downgrading of U.S. involvement
in the region and a downgrading of our relationship of ASEAN as a
consequence of our relationship with China.
There were a couple of other matters touched upon which you in
your statement mentioned, Mr. Chairman, and one concerns refugees.
Secretary Stoessel made it very plain to all the ASEAN countries,
especially those with a refugee problem within their borders, that
we would continue our support for the policies which have served us
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so well up to now, that is the policy of support for the principle of
first asylum and also our efforts to continue the onward movement of
refugees to the United States within the numbers that we have worked
out with the Congress.
The statement from Secretary Stoessel was very much appreciated.
We do not intend, if we can help it, to allow large numbers of un-
assimilable refugees to remain within the borders of these countries
and cause concern.
Another issue which Secretary Stoessel touched upon in his state-
ment with the ASEAN dialog was our concern over the POW/MIA
issue. Now, this is not something necessarily of direct concern to the
ASEAN countries, but he did want it on the, record in the context of
the ASEAN meetings that this is an element in our policy toward
Southeast Asia and will continue. We will certainly press hard for
an accounting of the POW/MIA's and we will not let our endeavors
in this region flag.
Now, there were some problems that came up in our discourse with
the ASEAN leaders and these really rotated especially on economic
and trade matters, as well as the Law of the Sea. It was apparent that
ASEAN nations had some reservations about, if not clear opposition
to, a number of U.S. positions. I think we have to be candid on that
score.
They talked about tin and other commodities. They talked about
North/South matters. They talked about our stand against the Law
of the Sea ratification. They did not know what our policy was at that
particular time. And they were wondering about continued access to
U.S. markets, in other words the growth of protectionism in the
United States.
I think that we were able to reassure them on all of these scores. At
least we told them that in the case of U.S. receptivity to exports from
the ASEAN countries, that our markets will continue to be open. In
fact, in terms of protectionism, the United States need not be ashamed,
that we have been leading the world, in fact, in trying to set the pace
on the maintenance of the principle of free trade in international
markets.
I think the media did reflect the fact that we made our points, that
we were listening to the areas of ASEAN's concern. Secretary Stoessel
said he would report back the areas of particular concern and then
we would followup in areas where we could.
So I am confident that as a result of this year's ASEAN postminis-
terial dialog the ASEAN countries, as well as other dialog partners,
are reassured about ASEAN's importance and the high priority we
give Southeast Asia and our relationship with the five ASEAN coun-
tries. It is an interesting feature here that, really sneaking very candid- in a political sense we had no problem. We found ourselves very
much on the same wavelength on political matters on the issues that
are of concern to us all, on the approach that ASEAN wants to take,
and on our support for the approach that ASEAN is taking.
Of interest is the fact that the problem areas were all of an economic
nature, including the Law of the Sea. I woiil,-ln't want to say that
these problem areas are of a magnitude yet sufficient to overcome the
good political relationship which exists, but I have to say that that
is a garden that needs constant tending and that we cannot downgrade
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the importance of ASEAN and the concerns in the minds ' of the
ASEAN leaders in our calculations. This is the point I intend to make
back here.
Now, let me turn briefly to the ANZUS situation. As I mentioned,
following the ASEAN meeting we went on to Canberra for the
ANZUS situation. As I mentioned. following the ASEAN meeting
we went on to Canberra for the ANZUS Council meeting. It is an an-
nual affair. Once again, Secretary Stoessel, as I mentioned, had the
chance to have individual meetings with important leaders in Aus-
tralia, and we had a ch:once, in concert with our ANZUS partners, to
discuss areas of continuing mutual concern.
This would involve the Soviet threat, relations between the United
States and China, always an area of continuing interest, and the
problem of arms reductions, our policies in areas of a number of
interesting and important features, world economies, North/South
issues, and so on. One thing I would like to highlPght is this: In the
ANZUS communique there was a statement.-this was not written by
us, but by our Australian and New Zealand friends-which called for
the continued visits of U.S. warships to Australian and New Zealand
ports as being in the interest of our ANZUS partners and in fact
making it plain that they hoped these visits would continue without
interference.
In Secretary Stoessel's private conversation with the leader of the
Australian Labor Party, the subject did come un. He explained our
position to Mr. Hayden, the leader of the New Zealand opposition-
the Labor Party. I think this discussion may have had a_bearing on
the fact that the Australian Labor Party's position on the visits of
U.S. warships has now shifted in favor of allowing U.S. vessels
access to Australian ports. I think it was a very important develop-
ment.
Finally, in New Zealand Secretary Stoessel had the opportunity
to meet with a number of important leaders. Again, the question of
access to New Zealand ports as well as Australian ports came up. I
think that Mr. Bowling, the leader of the New Zealand opposition
party, now has a better appreciation of our views.
Let me say concerning my own further trip to Djakarta, Bangkok,
Rangoon, and home, the other countries that I visited that I thought
the conversations there were extremely useful and gave me a better
perception of their interests and concerns, and then, a better knowledge
of what the United States was prepared to do in support of their
policies.
Thank you very much, Mr. Chairman. I think that the full-scale
discussion of my visit to the other countries is contained in my pre-
pared statement and I need not elaborate any further. But I would
be very happy to answer any questions that you put my way.
[Ambassador Holdridge's prepared statement follows:]
Mr. Chairman, on the eve of my departure for Asia with Deputy Secretary
of State Stoessel June 9, I appeared before this Subcommittee to review the
Administration's p'Pcy towards Southeast Asia. As promised at that time, I am.
reporting to you today on the results of the Deputy Secretary's attendance at
the ASEAN Post-Ministerial consultations in Singapore, June 17-18, and at the
ANZUS Council in Canberra, June 21-22. Our participation in these two con-
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ferences slgniflcantly furthered the objectives of U.S. Policy in Southeast Asia
and the South Pacific. The Deputy Secretary also met in Manila with President
Marcos. in Singapore with Prime Minister Tee Knan Yew, in Canher,a with
Prime Minister Malcolm Fraser and in Wellington with Prime Minister Muldoon.
Taken together, these detailed multilateral and bilateral consultations were
timely and extremely useful. They served to highlight the importance whi^h the
Administration attaches to the United States' relationship with our friends and
allies in two strategically vital regions of Asia. During this period. there also
oc'urred an event of major political significance regarding Tcampu^hoa : the
announcement of the agreement for a coalition of the three Khmer resistance
groups, together with the meeting in Kuala Lumpur of their leaders.
ASEAN POST-MINISTERIAL CONSULTATIONS, SINGAPORE, JUNE 18-19, 1962
Following the praotice which has become standard. the five ASEAN Foreign
Ministers, after the'r private delil,erations. met with the Foreign Ministe*s of
ASEAN's six "dialogue partners"-the United States. Japan. Canada. Australia,
New Zealand and the Enronean Community-for two days of intensive dis"us-
sions. These took place in the plenary "Five-Plns-Six" session where all were
nresent: in the "Five-Plus-One" session, where the ASEAN Ministers met with
individual dialogue counterparts; and in various bilateral meefinns. Denrlty
Secretary Stoessel had the opportunity to meet bilaterally with all the ASEAN
delegations. with the Foreign Minister of Janan. and with Europein Community
representatives, including Belgian Foreign Minister Tirdemans. We astablished
beforehand several U.S. objectives for these consultations at ASEAN.
First. we sought to emphasize that the United States sees ASEAN as the
central element in our policies in Southeast Asia and to dispel any impression
that U.S. interest in the region had lessened because of preoccupations with
pressing crises elsewhere. Second, we wanted to re?terate U.S. support for
ASEAN's strategy for finding a political solution to the Kampuchea pr^blem.
Finally, we wanted to address and discuss frankly a number of spe^ific A SEAN
concerns. Although these were mainly in the economic area, we knew that Law
of the Sea, Indochinese refugees and the U.S. bilateral relationship with China
would also be issues of importance to our hosts.
In his remarks at the "Five-Pills-One" meeting, Deputy Secretary St?essel
underscored U.S. support for ASEAN and our trust in and respect for ASEAN's
regional leadership role. Here, our firm backing of ASEAN's Kampuchea strategy,
including maintaining economic and political pressure on Vietnam to negotiate
a peaceful solution, received special emphasis. The Deputy Secretary pledged to
continue mutually reinforcing U.S.-ASEAN efforts on a broad range of endeavors.
And he expressed confidence that in difficult times as in good, ASEAN will have
no cause to doubt U.S. support. In our judgment, the ASEAN nations were re-
assured in Singapore concerning U.S. reliability, our determination to take their
interests fully into account, and the emphasis we give our ASEAN relationship.
Without exception, the ASEAN representatives made clear their firm agree-
ment that their goals regarding Kampuchea were total withdrawal of Vietnam-
ese troops and a neutral, independent Kampuchea. They stressed their goal of a
political settlement of the problem. They reaffirmed their commitment to the
Declaration of the International Conference on Kampuchea as both the instru-
ment and framework for ASEAN's policy objectives.
For our part, Deputy Secretary Stoessel declared that ASEAN was the key-
stone of U.S. policy toward Kampuchea and Indochina. We fully support
ASEAN's strategy and respect ASEAN's leadership role in the region. We would
continue to work closely with ASEAN on regional issues.
We share ASEAN's goals as elaborated in the Declaration of the International
Conferenec and work with ASEAN to realize the objectives of total Vietnamese
withdrawal and a neutral, independent Kampuchea. We also strongly favor a
comprehensive political settlement.
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149
In both the public and private sessions, the ASEAN Ministers expressed clear
appreciation for the firm political support from the United States on the Kam-
puchean issue.
In the days prior to the conference, there had been indications that the three
Khmer resistance factions-the KPNLF under Son Satin, Prince Sihanouk and
the Khmer Rouge-were near agreement on terms for a coalition to work for an
end to the Vietnamese occupation and the restoration of Khmer self-determina-
tion. The success by the Khmer leaders in joining a coalition was hailed by
ASEAN governments at the Joint Press Conference June 20. Actual formation
of the coalition Government of Democratic Kampuchea (CGDK) was expected
to take place subsequently inside Kampuchea. This occurred July 9.
Deputy Secretary Stoessel welcomed agreement on a coalition. He reiterated
that the United States would continue to provide political and moral support
for the non-communist Khmer resistance, and promised to consult closely with
ASEAN on how we could be of further help. The Deputy Secretary stated that,
in any event, the United States would provide no military assistance. He emphat-
ically ruled out aid to or contact with the Khmer Rouge.
International reaction to the coalition has generally been positive. The Euro-
pean community, Japan and Canada are among those nations which have warmly
welcomed the coalition agreement.
While not involved in the process or negotiations for the coalition, we have
welcomed the Khmer coalition as a step toward a peaceful political settlement
in Kampuchea as envisioned in the Declaration of the International Conference
on Kampuchea.
Following the ASEAN post-ministerials, Hanoi surfaced a revamped pro-
posal which offered a unilateral withdrawal of an unspecified number of Its
troops from Kampuchea, called for the Thais to disarm the Khmer resistance,
and renewed Hanoi's call for a conference on Southeast Asia with expanded
participation including the United States and U.N. Secretary General, in his
private capacity.
Despite the new packaging, the proposal incorporates Hanoi's standard posi-
tions. Evidently Hanoi's economic deterioration and political isolation, com-
pounded by the formation of the coalition, led Hanoi to refurbish its proposals.
The proposals, however, fail to deal with the core issues, Vietnamese military
occupation of Kampuchea and the denial of Khmer self-determination as called
for in the Declaration of the International Conference on Kampuchea, which
we continue to support fully.
INDOCHINESE REFUGEES
All five ASEAN Foreign Ministers sought continued international support on
the refugee problem and emphasized that the granting of first asylum depends
on the commitment of resettlement in third countries and the avoidance of a
residual refugee problem, i.e., those persons not resettled under any of the
national or international programs. The Foreign Ministers were convinced that
the boat refugee problem needs to be tackled at its source and urged Vietnam,
the U.N. High Commission for Refugees (UNHCR) and resettlement countries
to strive for an effective implementation of the Orderly Departure Program.
On Khmer refugees, the Foreign Ministers reiterated their support for a safe,
voluntary repatriation program while urging the international community to
help resettle those Khmer who are unable to return to their country. They
noted with appreciation with contributions by donor countries to the U.N.
Kampuchean Emergency Relief Program have saved millions of Kampucheans
from famine and disease.
The Deputy Secretary said we would continue to do our part to ease the
burden on the first asylum countries and urged others to contribute as well.
We are also continuing our efforts through UNHCR for a fuller utilization of the
Orderly Departure Program.
In his press conference, Deputy Secretary Stoessel also addressed the re-
ported remarks of Vietnamese Foreign Minister Nguyen Co Thach saying that
Vietnam would release all inmates in reeducation camps if the United States and
others would accept them. Ambassador Stoessel stressed that we would consider
all those who qualify under the Orderly Departure Program, currently targeted
at 1,000 per month.
We are seeking clarification of Minister Thach's remarks through the UNHCR.
Should the proposed UNHCR-SRV discussions concerning the possible considera-
tion of some reeducation camp inmates for the Orderly Departure Program indi-
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cate a need for additional refugee numbers for East Asia, we are hopeful that
the Congress would view this need with understanding.
ECONOMIC ISSUES
Although Kampuchea tended to monopolize the spotlight in Singapore, eco-
nomic matters, as we had anticipated, received more prominent billing at the
meetings and in the media than in the past. The ASEAN nations have been hit
by the world recession and they find the markets for their key products and
their growth and prosperity severely affected. At the "Five-Plus-One" session
Philippine Foreign Minister Romulo presented ASEAN's economic concerns.
Romulo noted the "cloud of international economic gloom"-high interest rates,
unemployment, protectionism, and discrimination. He urged the United States
not to succumb to protectionism, citing U.S. textile and sugar quotas and "signs
of further restrictions". Romulo said ASEAN was worried about the future of
the U.S. program of Generalized System of Preference (GSP). He protested the
restrictions found in our GSP and the uncertainty of product-by-product gradua-
tion. Romulo echoed statements by others which stressed standard concerns about
commodities, especially GSA tin sales, and United States cuts in appropriations
for international lending agencies. Romulo said some progress has been made on
economic matters via the U.S.-ASEAN dialogue but added that ASEAN would
like to strengthen this dialogue.
Throughout the meetings, there was recurring concern about the effects of
the recession in the United States and elsewhere and its implications for ASEAN.
Some delegates were disturbed at what they described as a trend in the United
States toward hardening or even regression of views on international commodity
arrangements and the Common Fund. While some of the ASEAN countries were
encouraged by the strong U.S. stand on free trade, they also expressed skepticism
about the industrial countries' ability to improve the GATT system in the near
term.
In comments to the ASEAN nations our delegation acknowledged that we
realize the degree to which the massive U.S. economy affects the world envi-
ronment and that this is a major reason why the present Administration has
placed top priority on getting its domestic economy in order. We stressed that
in doing so the United States has eschewed controls and resisted pressures for
increased protectionism ; the United States also looks forward to the GATT
Ministerial in the fall where our goal is to foster a freer flow of trade, invest-
ment, and technology, all matters of importance to the ASEAN countries as well
as the United States. We also repeated our offer to hold special consultations
on GSA tin disposal with the ASEAN tin producing countries.
The ASEAN countries did not take a confrontational stance on these issues
but handled them in a spirit of interdependence and mutual cooperation. For
our part, we assured them that we will be attentive to their concerns, that we
value our trade relationships with ASEAN, our fifth largest trading partner,
and recognize the need to oppose protectionist trends.
CONCLUSION
Our participation in the ASEAN post-ministerial consultations in Singapore
was highly successful. The content and tenor of the discussions confirmed the
correctness of our policy of making ASEAN the keystone of U.S. interests in
Southeast Asia. Our basic approach of supporting ASEAN was appreciated.
The delegation's public statements had a positive effect. As planned, the Deputy
Secretary's arrival statement, his speech in the "Five-Plus-One," his interven-
tion in the "Five-Plus-Six," the remarks in the joint press conference, and
his departure press conference stressed the key role ASEAN occupies in our
Asia policy. This theme was well represented in the Singapore media and other
ASEAN capitals. Likewise, press reports and statements by ASEAN leaders at
the close of the conference indicated an end to earlier concerns about a possible
downgrading of U.S. involvement in the region. On some economic and trade
matters and Law of the Sea, it was apparent that the ASEAN nations have
reservations a!,out. if not clear opposition to, a number of U.S. positions. Yet
the media reflected the ASEAN delegates' perceptions that we had listened
seriously to ASEAN's v'-ews, that the Deputy Secretary would carry those views
back to Washington, and that ASEAN's concerns would be carefully considered
in future decisions affecting Asia. I am confident that as a result of this year's
ASEAN post-ministerial dialogue the ASEAN countries, as well as other dialogue
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partners, are reassured about ASEAN's importance and the high priority we
give Southeast Asia and our realtionship with the five ASEAN countries.
ANZUS COUNCIL MEETING, JUNE 21-22, 1982
Background on ANZUS
Under the ANZUS Security Treaty, Australia and New Zealand cooperate on
a wide range of defense and other matters as fully and closely with the United
States as any of America's other allies. Our ANZUS allies' highly trained and
well equipped armed forces make a vital contribution to the Western strategic
posture in the Pacific Indian Ocean regions. Australia and New Zealand partici-
pate in military exercises with the United States, seek to adopt mutually com-
patible defense equipment and doctrines. exchange military personnel and wel-
come port calls by all USN ships. In addition, Australia and the United States
jointly operate several electronic installations in Australia that are critical to the
Western alliance, the defense of Australia, and the national defense of the
United States.
Within their own region, Australia and New Zealand make important security
and economic contributions to the ASEAN nations and to the new countries of
the Southwest Pacific which complement American efforts and contrbute sub-
stantially to stability in- this region. Australia and New Zealand play particularly
valuable roles in the Five Power Defense Arrangement (with Malaysia, Singa-
pore and the UK). Moreover, Australian economic assistance to South Pacific
nations this year is about $300 million as compared with $4.2 million for the
United States, while New Zealand's economic assistance is $53 million despite
its small size and economic difficulties. The level of economic assistance which
our ANZUS allies are providing to the island countries of the Southwest Pacific
is both generous and supportive of our shared interest in the stability of the
region.
Although it is not directly related to ANZUS commitments, it is worth noting
that Australia and New Zealand have contributed an air services unit to the
Sinai Multinational Force and Observers (MFO). In doing this, both the
Australian and New Zealand Governments overcame domestic political opposition
in order to make a positive contribution to the peace process in the Middle East.
Resumd of the ANZUS Council Meeting
Deputy Secretary of State Stoessel met with Australian Foreign Minister
Anthony Street and New Zealand Foreign Minister Warren Cooper in Canberra
June 21-22, 1982 for the 31st ANZUS Council which all sides agree was an
unqualified success. The mood of the Council meeting was appropriate to a meet-
ing of close allies who view world and regional issues in essentially the same
way. Foreign Minister Street set the tone of the meeting by pointing to the
success of the ANZUS alliance over 30 years and noting its continued validity
and general acceptance. The useful and full discussions covering a wide
spectrum of issues and the resulting communique reflect both the high degree
of congruence in the policies of the three ANZUS partners and the remarkable
openness and vitality of ANZUS and the relationships between the three allies.
The validity of the alliance was underscored by the willingness and ability
of the partners to grapple with the sensitive political issues of port access for
nuclear-powered and nuclear-armed warships. The leaders of the opposition
Australian Labor Party (ALP) have called into question continued port access
for USN ships, thus triggering a heated public controversy on this issue on the
eve of the Council. This was not a problem at the Council meetings and the final
communique stated unequivocally that Australia and New Zealand "declared
their continued willingness to accept visits to their ports by United States Naval
vessels whether conventional or nuclear-powered." Immediately following the
communique, William Hayden, leader of the ALP Parliamentary Opposition,
made a dramatic reversal of his earlier opposition to visits by nuclear-
armed warships. His statement also made clear that the ALP supports ANZUS.
Subsequently, the ALP Party Conference endorsed Hayden's position.
The Council also addressed and reached agreement on broad international
issues. Regarding the U.N. Special Session on Disarmament, members reaffirmed
their commitment to the negotiation of effective balanced and verifiable measures
of arms control including reductions of the nuclear armaments. They welcomed
the agreement between the United States and the U.S.S.R. on the opening of nego-
tiations on strategic arms reductions. The Council members also were in complete
agreement on the need for continuing efforts to inhibit the spread of nuclear
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weapons as well as for action by the international community toward the conclu-
sion of a verifiable and effective ban on chemical weapons.
The South Pacific region received special attention, and the importance of a
stable security environment to regional development was underscored. Similarly,
the members reaffirmed their support for ASEAN and its efforts to strengthen
peace and security in the region.
Addressing the world economy, Council members specificall;, agreed on the need
to strengthen their efforts to stop the slide toward protectionism, including agri-
cultural protectionism, to support measures to dismantle protectionist barriers
and to strengthen and improve the multinational trading system. They added that
economic relations with the U.S.S.R. and Eastern Europe should ue consistent
with political and security interests. Finally, they underlined the importance of
a?sisting the developing countries to overcome their difficulties and to participate
fully in the Western economic system.
Despite a difference of opinion on LOS (Australia and New Zealand want the
United States to sign), the ANZUS Council meeting can be called an unqualified
success.
During his visit to Canberra, Deputy Secretary Stoessel also met separately
with Australian Prime Minister J. Ma-color Fraser and with ALP leader Hayden
to discuss issues of mutual concern.
New Zealand visit
Following the ANZUS Council Deputy Secretary Stoessel visited New Zealand
June 23-25 where he had an excellent and prouuctive meeting with Prime Min-
ister Robert Muldoon followed by a luncheon hosted by the Prime Minister and
a series of useful meetings with Foreign Minister Cooper, Attorney General
McClay, and other senior iNew Zealand Government officials. During these meet-
ings, new Zealand officials noted the importance of completing the ratification
process on the four Pacific Island treaties currently pending before the Senate
and expressed interest in discussions on a possible antitrust cooperation agree-
ment. In addition, Deputy Secretary Stoessel also had a cordial meeting and valu-
able exchange of views with Wallace "Bill" Rowling, leader of the opposition
Labor Party in New Zealand.
Finally, I would mention that I engaged in extensive consultations e'sewhere
in Southeast Asia immediately following the ASEAN and ANZUS meetings, visit-
ing Jakarta, Bangkok and Rangoon, for calls on ranking host government offi-
cials. In Jakarta I was received by Foreign Minister Mochtar for an extremely
useful discussion on a range of bilateral and regional issues, and also met with
other cabinet officials of the Indonesian Government. In Thailand I called on the
King, and the.i met with Prime Minister Prem and senior Thai military officials.
I visited Chiang Mai for briefings on the Goluen Triangle area from which comes
a significant portion of heroin entering the international drug market. I also
visited refugee camps in eastern Thailand for a firsthand look at this tragic prob-
lem which remains important in our relations with ASEAN, especially Thailand.
In my talks with the Thai, I reiterated Deputy Secretary Stoessel's assurances
given at the ASEAN meetings that the United States would, in cooperation with
continued reduction of the heavy refuge burden on Thailand. The two day visit
the international effort, sustain a substantial resettlement program to permit a
continued reduction of the heavy refugee burden on Thailand. The two day visit
to Burma was my first as Assistant Secretary and provided the opportunity for
excellent tasks with the Burmese Foreign Minister U Chit Hlaing and other
high ranking officials of the Burmese Government, with part'cular emphasis on
narcotics control, our development assistance programs, and the quiet warming
of United States-Burmese relations.
Senator HAYAKAWA. Thank you very much, Ambassador Holdridge.
Ambassador HOLDRIDGE. I think at this point, Mr. Chairman, we
agreed that we should go into executive session.
[Whereupon, at 4:18 p.m., the subcommittee recessed, to reconvene
immediately in executive session.]
[Whereupon, at 4:34 p.m., the subcommittee reconvened in open
session.]
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Ambassador HOLDRIDGE. If I may say one thing with respect to the
questions on China posed to me by Senator Glenn, I can either handle
those in writing or, if he would prefer, I am supposed to see the
Senate Foreign Relations Committee a week from today, the 23d of
this month, and I would be happy to address those orally at that time.
Now, he can choose however he would like me to respond to those
questions.
Mr. CARL FORD [professional staff member]. I will check with him.
It is nmy understanding that if he could not come back he would like
to get as much of it in open session, and if there was some question
then we would have to go to a closed session. If he was not here,
then we would like it in writing, so that he would be able to have
something to release, so that they would not have to be sanitized.
Ambassador HOLDRIDGE. There are some aspects of those questions
that I would prefer to deal with in a closed session.
Mr. FORD. It would be up to you how to answer the questions.
Ambassador HOLDRIDGE. If you would be so kind, then, as to send
me the questions in writing, I will then answer them as best as we
can in writing for release to the public,,and the more sensitive aspects
I can deal with either with Senator Glenn directly or in the session
scheduled a week from today.
Senator HAYAKAWA. I would like to say that we on the committee
and the public at large are very grateful for your cooperation and
assistance in the conduct of these hearings, Mr. Ambassador, and
we thank you for this. We would appreciate your conveying our
thanks to your staff as well. Their cooperation and yours has been
a model of the consultative process between the two branches of our
Government, which should pervade all of our activities. And we
thank you very much for your contribution to this effort.
Ambassador HOLDRIDGE. Thank you, Mr. Chairman. May I say that
I much appreciate your efforts with respect to the situation in Laos,
the question of the removal of ordnance. I had the opportunity just
the other day with the new Lao charge to bring this up as a positive
gesture we have offered on our side, with no response from the Lao
Government. So I hope this matter will still remain under considera-
tion and we will get a favorable response in due course.
Senator HAYAKAWA. We are not asking quid pro quo on this, are we?
Ambassador HOLDRIDGE. Well, we are not linking the two issues of
POW's and MIA's and positive gestures on our part directly. But I
would point out that one way the Lao Government can make a posi-
tive response to the offers which we have made, yours and also the
medicines which we have offered for the Mahasot Hospital, would be
to be more forthcoming and more positive with respect to POW/
MIA's.
Senator HAYAKAWA. That is putting it fairly clearly.
Ambassador HOLDRIDGE. I do not think that they would miss the
point of what I had to say.
Senator HAYAKAWA. And they are quite badly in need of those
medicines?
Ambassador HOLDRIDGE. Yes, they are, very much so.
Senator HAYAKAWA. Thank you very much.
This subcommittee is hereby adjourned.
[Additional questions and answers follow:]
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STATE DEPARTMENT'S RESPONSES TO ADDITIONAL QUESTIONS SUBMITTED BY
SENATOR GLENN
Question 1. What specific criteria does the State Department employ in arriving
at judgments on Taiwan's defense needs?
Answer. This involves an assessment of the threat to Taiwan, the state of
Taiwan's defenses, and the capability these defenses provide for Taiwan to
maintain a credible deterrent. In making this assessment, the Department of
State relies not only on its own resources, but those of the Department of De-
fense and the CIA as well. In addition, it solicits the views of the Congress.
Question 2. Do you contemplate that in the future Taiwan will require a re-
placement aircraft for the F-5E's currently in its inventory?
Answer. As you know, on January 11 the Department issued a statement re-
garding replacement aircraft for Taiwan. The statement said that concerned
agencies of the U.S. Government, including the Departments of State and De-
fense and other national security elements, concluded that no sale of advanced
fighter aircraft to Taiwan was required because no military need for such air-
craft existe3. The Statement went on to say that Taiwan's defense needs could
be met as they arose, and for the foreseeable future, by replacing aging aircraft
in the Taiwan inventory with comparable aircraft and by extension of the F-5E
coproduction line in Taiwan. There has been no new information in the inter-
vening period to alter these conclusions.
Question S. Do you anticipate implementing quantitative and qualitative re-
strictions, as a matter of U.S. policy, on arms sales to Taiwan? If so, what
specifically do you have in mind?
Question 4. What sort of qualitative improvements i.e., modernization of Tai-
wan's forces, will be permitted under these restrictions? How will these judg-
ments be made?
Answer. The above questions address areas dealing with our sensitive dis-
cussions with the Chinese. We have made clear that our policies will continue to
be consistent with the Taiwan Relations Act, and the Administration will not seek
revision of the TRA. I will be happy to go into fuller detail in a classified
briefing.
Question 5. Since you seem to agree that the current discussions with the PRC
will not settle our dispute with China over Taiwan arms sales, haven't we just
postponed the day when Peking will again demand that we end all arms sales to
Taiwan? What have we gained by such a postponement? How do we strengthen
our bargaining position by making further concessions now?
Answer. Our current discussions with Beijing will not produce a complete
resolution of all our differences over arms sales to Taiwan. This is not the type
of issue that lends itself to completely definitive agreements. Instead, we have
sought a means of achieving a practical modus vivendi by which we can reduce
and contain the inherent tensions over this issue which now threaten our rela-
tions, thus enabling both sides to continue to broaden and strengthen our re a?
tionship. We seek an outcome now which will preserve our respective principles
and which, if carefully and thoughtfully implemented on both sides will enable
us to move forward with our bilateral relations while still maintaining the
basis for our unofficial relations with the people of Taiwan.
Question 6. Has our position on the PRC's claims of sovereignty over Taiwan
changed in any way since 1972? If so, why?
Answer. No, our position has not changed, notwithstanding slight differences in
the language used to express that position since 1972.
Question 7. Why has the legal rationale for maintaining our unofficial relations
with Taiwan provided me by Powell Moore been classified? (What portions of
the letter have never been released to the public?)
Answer. This letter was provided to you following a classified hearing. We have
reviewed the text and with one minor deletion concur with you that it can be
declassified. I am enclosing a new, unclassified version of the letter for you.
DEPARTMENT OF STATE.
Washington, D.C., July 16, 1982.
Hon. CHARLES H. PERCY,
Chairman, Committee on Foreign Relations,
U.S. Senate.
DEAR MR. CHAIRMAN : During John Holdridge's appearance before the Com-
mittee on April 14, Senator Glenn asked what the Department's legal rationale
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was for maintaining relations with Taiwan, and inquired whether the Depart-
ment has prepared a formal legal opinion on this subject. We have not prepared
such an opinion. The legal basis of these relations has been clear from the time of
our recognition of the People's Republic of China and can be summarized as
follows.
Initially, distinction must be made between domestic and international law.
Under domestic law, relations with the people on Taiwan are based in the first
instance on President Carter's decision on December 5, 1978 to recognize the
People's Republic of China as the sole legal government of China. A Joint Com-
4 munique issued on that date by both China and the United States contained the
following language :
"The United States of America recognizes the Government of the People's
Republic of China as the sole legal government of China. Within this context,
the people of the United States will maintain cultural, commercial and other
unofficial relations with the people of Taiwan."
Under Article 2. Section 3 of the Constitution. the President is empowered to
extend diplomatic recognition to foreign states and governments. This is an exclu-
sive power and thus the President's action of December 15, 1978 did not require
implementation by Congress insofar as it concerned the question of recognition of
the PRC or the nature of our relations with the people of Taiwan.
We wished to ensure. however, that clear authority existed under domestic
law for the continuation of cultural, commercial and other unofficial relations
with the people of Taiwan. This was the purpose of the Taiwan Relations Act
and, in particular, Section 4 of the Act which provides for the continued appli-
cation to Taiwan of U.S. laws which refer or relate to foreign countries, nations,
states, governments or similar entities. and the continuation of programs, trans-
actions and the relations pursuant to such laws. Section 7 of the TRA designated
the American Institute in Taiwan as the conduit through which unofficial rela-
tions would he conducted, and authorized the AIT, in the manner and to the
extent directed by the President, to perform any act with respect to Taiwan
which the President or any agency of the United States Government is author-
ized to perform. The President's recognition decision and the Taiwan Relations
Act complement each other and together form a firm and effective basis under
domestic law for the continuation of unofficial relations with the people of
Taiwan.
Under international law, states may conduct relations with entities they may
not recognize as sovereign states. The Joint Communique sets forth the condi-
tions under which the People's Republic of China and the United States agreed
to extend mutual recognition and to enter into diplomatic relations. The most
important of these conditions is that the people of the United States would
maintain unofficial relations with the people of Taiwan notwithstanding our rec-
ognition of the government of the People's Republic of China as the sole legal
government of China. Unofficial relations have continued on this basis without
major disagreement between the United States and China.
There have, of course, been disagreements on the issue of U.S. arms sales to
Taiwan. This was an issi;e on which the Unitcd States and the People's Re-
public of China were unable to reach agreement at the time of normalization.
The fact that disagreement on this subject continues does not reflect any change
in the legal rationale underlying unofficial relations, but merely the continuation
of a dispute which could not be resolved at the time of normalization.
Senator Glenn referred in his remarks to the testimony of Professor Victor Li
before the Committee during consideration of the TRA. Professor Li set forth
two legal hypotheses under which relations with Taiwan could continue; recogni-
tion of the PRC as a "successor government" exercising sovereignty over Taiwan,
or recognition of the Taiwan authorities as exercising de facto sovereignty over
the island. We understand that Senator Glenn stated on April 14 that the TRA
adopts the latter approach, but that, in his view, the Administration had re-
cently switched to the former in the area of arms sales to Taiwan. The Depart-
ment believes this is incorrect.
The implication which appears to follow Senator Glenn's view is that it was,
ry and is, necessary for the Congress and the Executive to choose one of the two
theories identified by Professor Li. Although both of these theories are legally
plausible, they do not constitute the only legal bases for the continuation of re-
lations with Taiwan. The Taiwan question was unprecedented in many respects.
The approach proposed by the Executive Branch and reflected in the TRA was a
pragmatic one not based on either of these theories. It sought legislation which
would provide a domestic legal foundation for the continuation of those commer-
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cial, cultural and other relations which were referred to in the Joint Com-
munique.
During consideration of the TRA, Administration witnesses repeatedly refused
to adopt either of the theories identified by Professor Li. Mr. Hansell, then the
Department's Legal Adviser, stated that the Administration took no position on
the question of sovereignty over Taiwan.' In response to a written question by
Senator Glenn, the Administration declined to extend de facto recognition to the
authorities on Taiwan.' At the same time, the Administration did not deny that
there were authorities maintaining order and exercising jurisdiction over the
island of Taiwan.'
The TRA does not purport to extend de facto recognition to the Taiwan au-
thorities. As you noted, "the exact legal status of Taiwan is not resolved in this
bill."' Congress did amend the Administration's bill extensively. It did not, how-
ever, seek to change the legal theory underlying the Administration's approach,
i.e., to create a practical framework for the continuation of relations which was,
as you phrased it, "agnostic" on the issue of Taiwan's legal status'
We believe experience has demonstrated that our approach is a workable one.
I hope that this response will prove helpful to Senator Glenn and to the Com-
mittee. I regret that our response to this question has been delayed.
With cordial regards,
Sincerely,
POWELL A. MOOSE,
Assistant Secretary for
Congressional Relations.
Question 8. If the Chinese accept our latest proposal, will we still be able to
sell arms to Taiwan based solely on our judgment of Taiwan's needs?
Answer. We are committed to the implementation of the Taiwan Relations Act
and our policies are completely consistent with the Act. Our relations with China,
as you know, are predicated on our expectation, not our hope, but our expectation
that the Taiwan issue will be resolved peacefully by the Chinese people them-
selves. It is in this context that we have been and will continue to judge Taiwan's
defense needs.
Question 9. If, 10 years from now, Taiwan needed a brand new air defense
fighter to replace the then obsolete F-5E's. we could do it under your proposal,
is that right? We are not saying to the Chinese. are we, that we will never sell
F-5G's or F-16/79's to Taiwan? I am assuming that necessary qualitative im-
provements will be allowed.
Answer. I cannot speculate on events that may or may not occur ten years
hence. However, while our actions relating to specific arms sales to Taiwan will
be in the context of our expectation that the Taiwan question be resolved peace-
fully by the Chinese people themselves, our standard now and in the future will
continue to be our judgment of Taiwan's genuine defense needs.
Question 10. I also assume that if the Chinese agree to our proposal, we will
have settle l the arms sales issue once and for all-no more discussions, no more
PRC demands-China will have agreed not to seek more concessions in the
future.
Answer. I do not believe, and will not lead you to believe. that these latest dis-
cussions, if successful, will totally end our disagreement with the Chinese on
this-or any other-issue once and for all. To ourselves, as well as the Chinese,
our differences are over fundamental matters of principle, and interpretations
may vary over time.
I fully expect, however, that our differences over this particular issue will have
been reduced significantly and stabilized with the resolution of these latest
discussions.
Question 11. Finally, we haven't granted the PRC its claim of sovereignty over
Taiwan, have we? If the people on Taiwan freely choose to drop the ROC view
of there being only one China and move to a more independent course, the United
States would not have to oppose that, would we? We wouldn't have to go along to
Taipei and say, "you guys can't do this, you belong to China."
' Taiwan ; Hearings Before the Committee on Foreign Relations, United States Senate,
90th Congress, 1st session, p. 95.
2 Id., p. 727-728.
3 Id., p. 89.
4 Id., p. 104.
6 Id.
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In the words of the TRA, we would still "... consider any effort to determine
the future of Taiwan by other than peaceful means, including boycotts of
embargoes ... of grave concern to the United States ..." and will ". . . maintain
the capacity of the United States to resist any resort to force or other forms of
coercion that would jeopardize the security, of the social or economic system, of
the people of Taiwan." Is that correct?
Answer. We have said publicly, and to both sides of the Taiwan Strait, that we
acknowledge that there is only one China and that Taiwan is part of China. This
is our position, and it has not changed since it was originally enunciated in the
Shanghai Communique of February 1972 and the Joint Communique of January 1,
1979.
To speculate publicly on our response to hypothetical developments, particu-
larly ones which would be as destabilizing in the area as those you have raised,
would be imprudent. I will determination of the future of reiterate, must be decided peacefully by the Chinese
people themselves.
STATE DEPARTMENT'S RESPONSES TO ADDITIONAL QUESTIONS SUBMITTED
FOR THE RECORD
Question 1. The ASEAN communique alludes in several places to the rising tide
of protectionism and the need to guard against this. How serious a threat do the
ASEAN governments judge this to be and do you agree with their judgment?
Answer. This is a topic that was frequently raised in our discussions with the
ASEAN leaders. Several of these countries are significant exporters of manufac-
tured goods to the United States, Japan, and Europe and all are committed to
industrial expansion and exports to create employment and improve their eco-
nomic well being. They have noted increasing tendencies in all the advanced
countries in a time of world reces-ion to tighten restrictions on competition from
exports from all sources. They are concerned that GSP benefits may be eroded by
rpstrlctive rules for product grad r~'tion. For onr cart we advise the ASEAN
Governments in the context of the United States/ASEAN economic dialog on how
they can use GaP more enectively, and how they can petition to expand the GSP
product list.
During the Singapore post-Ministerial meeting we noted we shared ASEAN's
concerns with the apparent rising protectionism in both developing and developed
nations. We did stress that the United States has nothing to apologize for in that
regard because we view our markets as among the most open in the world and we
have a good record of opposing protectionism wherever it is found.
Qacstiois 2. The communique mentions the establishment of the "Common
Fund." What is this fund and what is its purpose?
Answer. The Common Fund is an institution designed to assist in the financing
of measures to reduce problems in international commodity markets. It was
proposed in a resolution adopted by the fourth conference of the United Nations
Conference on Trade and Development in 1976. Many developing countries are
dependent on the export of one or two commodities for most of their foreign ex-
change earnings, so the potential price stabilization and market expansion fea-
tures of the Fund are of great interest to the Third World. The First Account of
the Common Fund will offer financing for the buffer stocking operations of quali-
fied international commodity organizations. By pooling the resources of these or-
ganizations, the Fund is expected to offer financing at advantageous rates. The
Second Account of the Fund will use voluntary contributions to finance research
and market development activities in commodities. The United States has said
that it will not contribute to the Second Account.
Negotiations on the Articles of Agreement establishing the Common Fund were
completed in June 1980. The Fund was to have come into operation in March
1982, but only 32 of the 90 nations required for entry into force have ratified
the Agreement. Time United States signed the Agreement in November 1980, but
has not ratified it. The Administration will consult with the Congress regarding
ratification and budget authority for the $74 million U.S. contribution to the
Fund at an appropriate time in the near future.
Question S. The Foreign Ministers expressed their satisfaction with the prog-
ress of the ASEAN industrial projects, but their description of that progress was
somewhat vague. Are these projects successful and worthwhile?
Answer. Two of the ASEAN Industrial Projects (AIP), the Urea Fertilizer
Plants in Indonesia and Malaysia are already under construction, and completion
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is expected in 1983 and 1985 respectively. The Rock Salt Soda Ash Project in
Thailand has recently been initiated by the ASEAN Foreign Ministers and con-
struction is expected to get underway before long. Studies are underway on a
more recent proposal for a Copper Fabrication plant in the Philippines. Singapore
has dropped plans for its diesel engine plant as not being economically feasible.
The two urea fertilizer plants, using a surplus raw material, natural gas are ex-
pected to assure greater self-sufficiency in fertilizer production for the region. One
cannot speak of success of any of the plants as none are yet in operation. The fer-
tilizer technology is, however, similar to that employed in several plants operating
successfully in Indonesia and increasing amounts of fertilizer are needed to help
meet the growing needs of Southeast Asia.
Question 4. The communique spoke of expanding and liberalizing intra-ASEAN
trade and referred to 8,563 items which are covered by agreements. It is difficult
to judge from this number whether or not this is significant. Do you judge that
trade among the five is indeed being liberalized significantly?
Answer. Detailed data on the results of the ASEAN tariff preferential system
have not been published but the volume of trade under this system is not thought
to yet be large. As is to be expected a number of the items accepted for the early
lists were not ones in which there was a great deal of intra-ASEAN trade and com-
petition. However with the ever increasing number of products covered and in-
creased margin of preference the volume of preferential trade should grow.
Question 5. The ministers commented that cooperation with Dialogue coun-
tries-presumably including the United States--on market access has not been up
to expectations. Do they have specific complaints about the United States and, if
so, what are we doing about them?
Answer. It is our view that the ASEAN concerns on market access are more
aimed at some of the restrictive policies of the EC and Japan than at U.S. trade
policy. However most of the ASEAN countries face U.S. volume limitations under
the MFA on the exports of textiles and garments, a manufacturing field into which
they have moved in a major way with the ability to manufacture high-quality
products. There are also concerns about the quota levels for tuna fish and FDA
standards which restrict the import of Malaysian pineapple. These latter are ques-
tions that we are dealing with respectively with legislation in the case of tuna and
proposed FDA hearings in the case of pineapple.
Question 6. From the Committee's study of our relations with ASEAN, it ap-
pears that the commodity issue (sugar, rubber, tin, palm oil) is a serious one.
Deputy Secretary Stoessel's prepared remarks only alluded to this in passing. Did
you discuss this subject with the ministers and, if so, what were their views?
Answer. The subject of commodities, especially tin, was raised by the ASEANS
in various bilateral discussions and their comments reflected great concern that
the United States was becoming less sympathetic and less cooperative on these
issues. In the case of tin there was of course reference to GSA tin disposal policy.
During the 5 on 1 meeting references were made to what the ASEAN countries
perceive to be our less than forthcoming stance on commodity prices and the
Common Fund. The Deputy Secretary assured them of our continuing serious
attention to these concerns.
Question 7. The formation of a coalition government for Cambodia must have
received great attention, though the formal signature of the document by the three
parties did not occur until after the ministerial meeting. Do the ASEAN govern-
ments view this as a major step forward? Does our government?
Answer. ASEAN and we welcomed formation of the Khmer resistance coali-
tion. ASEAN regards this an important step in their strategy. The coalition
strengthens ASEAN's arguments for holding Kampuchea's United Nations seat
for Democratic Kampuchea while denying legitimacy to it or to the Heng Samrin
regime installed by the Vietnamese. The coalition also increases pressure for
political settlement along the line of the ICK Declaration, which calls for polit-
ical pressure on Vietnam to negotiate withdrawal of Vietnamese forces from
Kampuchea and restoration of an independent and neutral Kampuchea.
Question 8. What sort of a scenario d9 you envision unfolding as a result of the
formation of the coalition? What benefits will accrue to the parties involved, to
the ASEAN countries, to us?
Answer. It is too early to predict how the formation of the coalition may alter
events but it is worth noting that subsequent Vietnamese maneuvers-including
the announcement of a pirtial troop withdrawal from Kampuchea-suggest the
Vietnamese are now feeling additional pressure. This is of clear benefit to
ASEAN's strategy for a political settlement which produces total Vietnamese
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withdrawal and an independent and neutral Kampuchea. Formation of the coali-
tion places non-Communist Khmer in positions of conspicuous leadership of all
Khmer opposed to Vietnamese occupation and the Vietnamese-installed Heng
Samrin regime, and could strengthen the role they might play in a negotiated
political settlement.
Question 9. Is it realistic to expect that the coalition will be able to make deci-
sions of any import when its operations are based on the principles of ". . . tri-
partism, equality and non-preponderance" or consensus and. one of the three
partners has overwhelming military forces (in comparison to the other two) ?
Answer. It cannot now be predicted how effectively the coalition will function.
Question 10. The press has reported that Prince Sihanouk intends to come to
the United States soon to request aid for the coalition. What type of assistance
are we prepared to give? What kind of help will the ASEAN governments
provide?
Answer. As I stated in my prepared remarks on July 15, the United States will
continue to provide political and moral support for the non-Communist Khmer
resistance, and consult closely with ASEAN on how we could be of further help.
In any event the United States will provide no military assistance. We emphat-
ically rule out aid to or contact with the Khmer Rouge. It is our understanding
that ASEAN as an organization will not provide material support to the coalition
but that individual ASEAN member states are free to do so. Various ASEAN
states are now consulting amongst themselves on how they could be of further
help.
Question 11. If China continues its military assistance to the Pol Pot faction,
will the other factions receive similar assistance and, if so, from whom?
Answer. Both Prince Sihanouk and Son Sann have repeatedly appealed for mil-
itary assistance for their factions. I do not know whether the factions will receive
military aid, but as I stated in my prepared statement, the USG will provide no
military assistance.
Question 12. The Belgian Foreign Minister, representing the EEC countries at
the ASEAN meeting, was quoted in the press as having "a certain guarded sym-
next that Is this areal concern and abstain
does this
U.N. y vofor te onlseating Cambodia suggesting
threaten the ASEAN position?
Answer. Foreign Minister Tindemans told the press following announcement
of the signing of the coalition agreement that in light of the formation of the
coalition, the same EC countries which have in the past voted to maintain DK
credentials would continue to do so. He could not speak for the three who ab-
stained (France, Netherlands, and Ireland). We anticipate strong and widespread
support at the UNGA for the ASEAN position.
Question 13. The ASEAN communique expressed concern that humanitarian
assistance to Cambodia had been diverted to other purposes. What lies behind
this concern? Does it involve U.S. assistance through U.N. agencies? What can
be done to assure that the Vietnamese backed regime does not benefit?
Answer. The United States has contributed heavily to the international pro-
grams of emergency relief for the victims of the famine and turmoil in Kam-
puchea. Major donors to these programs, including the United States, as well as
the international organizations which administer them, have been concerned
about reports of diversion of portions of the emergency relief to purposes or
recipients for which it was not intended. As these international programs have
evolved, arrangements have been made to monitor better the distribution of the
relief, and I believe considerable progress has been made. We and the other
donors continue to watch for reports of diversion and to ensure that measures
are taken to eliminate it.
Question 14. The communique noted that the Ad Hoe Committee of the Inter-
V national Conference on Cambodia had commenced its work. What has the com-
mittee accomplished or what does it hope to accomplish?
Answer. With ASEAN's encouragement, the Ad Hoc Committee has recently
begun to search for ways to play a more active role in fostering a comprehensive
political settlement in Kampuchea. An Ad Hoc Committee mission is visiting
European and Southeast Asian countries this summer to explore avenues to
achieve such a settlement. In a separate initiative, Austrian Foreign Minister
Pahr, Chairman of the International Conference on Kampuchea, earlier this
month visited Hanoi where among other things he stressed that it was in the
interest of Vietnam to participate in the International Conference framework,
remove its troops from Kampuchea, and accept a solution which would leave
Kampuchea neutral and nonaligned.
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Question 15. The communique emphasized the importance to the refugee pro-
gram of a continuing commitment of third countries to resettlement of Viet-
namese and Cambodians. How cooperative have the other resettlement countries
been recently?
Answer. Since 1975, over 609,000 Indochinese refugees have been resettled
in the United states and over 601,000 have been resettled elsewhere. In re?ent
months, third country resettlement directly from countries of first asylum has
exceeded our own. In Miy 1982 we accepted 982 refugees directly from first
asylum and other countries accepted 2,456. In June the figures were 1,106 and
2,257 respectively. However, when we include refugees resettled from the refugee
processing centers (in the Philippines and Indonesia), third country resettle-
ment figures total roughly one-third of United States resettlement figures.
Question 16. The communique also alluded. somewhat mysteriously, to the
avoidance of residual problems in the area-presumably refugee problems. What
problems are the ministers referring to?
Answer. The ASEAN ministers are referring to the problems of being left
with refugees who are not offered resettlement by the United States or any
other country and who would thus constitute a residual population. First asylum
is offered to refugees contingent upon their eventual departure. The ASEANS
do not offer resettlement in place.
Question 17. Deputy Secretary Stoessel mentioned (in his prepared remarks
at the ASEAN meeting) our concern about the use of lethal chemical agents in
Indochina. Was this discussed by the ASEAN ministers and, if so, what was
their view? Have they any suggestions as to what can be done about it?
Answer. The issue was raised with concern in a general way, but there was
no detailed discussion of the subject.
Question 18. Ambassador Stoessel also mentioned the Bush trip to China and
our discussion with the Chinese over arms sales to Taiwan. What advice did
the ASEAN ministers have for you on this subject? Do they believe we 'should
continue to sell arms to Taiwan?
Answer. The ASEAN ministers have not offered specific advice on the question
of U.S. arms sales to Taiwan. The principle concern voiced by the ASEAN min-
isters was that a downgrade of United States-China relations over the Taiwan
arms sales issue would harm the prosFects for resolution of the Kampuchean
issue or otherwise cause destabilization in the region.
Question 19. The ASEAN communique menti.,ns the presence as observers of
representatives of Brunei and Papua-New Guina. Are there any plans for bring-
ing these two governments (or other governments) into ASEAN?
Answer. We understand from our talks with officials of the ASEAN govern-
ments that Brunei is expected to join ASEAN sometime after Brunei achieves
independence in January 1984. Until then, Brunei will retain its observer status.
We have no reports regarding possible inclusion of Papua-New Guinea in
ASEAN. Because Papua-New Guinea regards itself more as a South Pacific than
a Southeast Asian nation, it is more likely in our view to wish to maintain
its current observer status.
Question 20. In your appearance before the committee last month. Ambassador
Holdridge, you mentioned you were going to Burma. What did you find to be the
state of our relations with the Burmese? Is their opening to the West continuing?
Answer. Our relations with Burma are good ; during my Rangoon stop June 28-
30, I was well received by the Foreign Minister, the Minister for Home and Reli-
gious Affairs (who has purview over the narcotics control program), the Minister
for Agriculture and Forests, and by other SRUB officials. We discussed the U.S.
economic assistance program and our narcotics control program, which currently
are running at $12.5 million and $6 million respectively. This was my first visit to
Burma in my current position of Assistant Se^retary, and it was clear that the
Burmese wanted to mark the occasion as indicative of the quiet warming trend in
our bilateral relationship. With regard to their "opening" to the West in general
(and Japan), I think this is proceeding at a modest pace. Western business over-
tures are more welcome now than previously, but change is occurring slowly and
we should not expert flr-t;n -_
been raised in both countries. Would the United States belu able to fulfill its re-
sponsibilities without access (to Australian and New Zealand ports)?
Answer. Access by United States Naval ships to the ports of its treaty partners
is a critical factor in its efforts to maintain strategic deterrence and to carry out
its responsibilities under the ANZUS treaty.
Question 22. Would the nature or character of ANZUS change if the United
States were denied access (to Australian and New 2PAInnd -to,
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Answer. If U.S. Navy ships were denied access, the United States would have
difficulty In carrying out its treaty obligations. This in turn would clearly affect
the effectiveness of the alliance.
Question 23. What Is the opposition party's position on port access? Do you
believe the U.S. would be denied access if the Labor Party came to power?
Answer. The Labor Party, at its July 5-9, 1982, national conference in Canberra,
went on public record in support of access by U.S. Naval vessels, whether con-
ventional or nuclear-powered. The Labor Party also accepts that U.S. Navy policy
is not to reveal whether or not its vessels are armed with nuclear weapons. The
Labor Party supports Australian membership in ANZUS and wishes to avoid
action that might weaken the alliance. The Labor Party, however, opposes the
homeporting of foreign vessels in Australia, the storage of nuclear weapons on
Australian territory, or the launching of operations involving nuclear weapons
from Australian territory.
Question 24. Have you seen any public opinion surveys of Australian and New
Zealand sentiments on the port access question?
Answer. We are not aware of any Australian polls on this subject. A recent
national survey in New Zealand revealed that the public supported nuclear-
powered warships visits by a margin of 50 percent in favor to 38 percent opposed.
Question 2.5. What is the general public's view on the (port access) issue, from
your own assessment? Is there a difference between Australia and New Zealand
public attitude?
Answer. There are vocal anti-nuclear groups in both Australia and New Zea-
land, as there are in the United States and other Western democracies. However,
there is no question that the vast majority of people in both Australia and New
Zealand fully appreciate the significance of ANZUS to their own national security.
The majority therefore supports ship visits as an essential aspect of the alliance.
Visits of U.S. Navy ship: to Australian and New Zealand ports have been uni-
formly very well received by the great majority of the public. We are not able to
distinguish any significant differences between the public attitudes in the two
countries.
Question 26. What issues were raised by the Australian and New Zealand dele-
gations during the Council meeting? Was the Administration's position on the
Law of the Seas Treaty discussed? What is the Australian and New Zealand view
of the situation in the Middle East, particularly in Lebanon?
Answer. The ANZUS Council meeting covered a great number of subjects,
among them being ship visits, defense cooperation, the U.N. Special Session on
Disarmament. strategic weapons, non-proliferation, chemical weapons, the recent
NATO summit, ASEAN, Cambodia. Thailand, the Khmer people, development of
thn South Pacific region, the Law of the Sea, China, Korea, Japan's role in the
Pacific, the Falklands, Afghanistan, the Middle East, the world economy, energy,
East-West trade and assistance to developing countries. LOS was discussed, and
Australia and New Zealand urged that the United States should most carefully
consider the various aspects of the question before deciding its attitude toward
signature of the Convention. Regarding the Middle East, the ANZUS partners
expressed full support for the Lebanese Government and for the sovereignty and
territorial integrity of Lebanon. They also expressed support for Security Coun-
cil resolutions 508 and 509 calling for an immediate cessation of military activi-
ties and demanding that Israel withdraw all its military forces forthwith and
unconditionally.
gv,Qfi~v J' Ar, wA evpl^rine the. pn-?!,?lity of homeporting ships at the Cock-
burn Sound Naval Australian Base in Western Australia? How would this be
useful to the United States?
Answer. The Australian Government has o ered to discuss homeporting a U.S.
aircraft carrier at Cockburn Sound near Perth in Western Australia. A U.S.
Navy technical team was sent to Australia last year to evaluate Cockburn
Sound as a base for U.S. ships. (There is already a small Australian Naval base
there.) This study was carried out in the context of world-wide needs for U.S.
Naval deployments and included other possible locations as well as Australia. A
judgment has still not been rendered whether (a) homeporting a second carrier
abro"d would substantially assist in meeting the U.S. Navy's requirements and
obligations. and (b) if so, whether Cockburn Sound is the optimum choice. What-
ever the decision, U.S. Navy ships visit western Australia regularly and no place
Is more popular with our sailors than Perth.
[Whereupon, at 4:38 p.m., the subcommittee adjourned, subject to
call of the Chair.]
O
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