INTERNATIONAL TECHNICAL COOPERATION ACT OF 1949

THURSDAY, OCTOBER 6, 1949

HOUSE OF REPRESENTATIVES,
COMMITTEE ON FOREIGN AFFAIRS,

Washington, D. C.

The committee met at 10 a. m., Hon. John Kee (chairman) presiding. Chairman KEE. The committee will come to order.

We will continue this morning with the hearings on the bill, H. R. 5615, having as its object the implementation of the President's Point. IV program.

We have as our first witness today the Honorable Spruille Braden, one of the very distinguished men in this country, a friend of mine, I am glad to say, and we are very happy to have him testify on this

measure.

Mr. Braden, if you have a written statement you may read it, or you may testify orally as you see fit.

STATEMENT OF HON. SPRUILLE BRADEN, FORMERLY ASSISTANT SECRETARY OF STATE FOR AMERICAN REPUBLIC AFFAIRS

Mr. BRADEN. Thank you very much, Mr. Chairman. I deeply appreciate the honor of this invitation to appear before the distinguished Committee on Foreign Affairs.

Perhaps it is pertinent very briefly to summarize my connection with work of this kind, by saying that I have been connected throughout my life with the underdeveloped areas of this hemisphere, beginning from boyhood in Mexico and then in Chile, and then when I graduated from college, I became associated with my father in the development of large copper properties and other minerals on the west coast of South America, remaining in that for some 5.5 years, after which I resigned in order to form a Chilean company to bid on the electrification of the Chilean State Railroad, a bid in which we were successful.

In connection with that we had to get financing, both for the railroad and for the Chilean Government, financing, which, by the way, was paid off in full. I think that particular electrification is probably one of the largest anywhere in the world outside the United States even today.

I was also associated in other business as, for instance, certain loans, such as for the municipality of Santiago, and then in business in this country and continued on in business until 1933, at which time I had my first diplomatic experience as a delegate at the Seventh International Conference of American States, and following that at the Commercial Conference in Buenos Aires. Then I was appointed chairman of the United States delegation in the Chaco Peace Conference, which

settled the war between Bolivia and Paraguay. I had the rank of Ambassador. I was there for a little over 3 years. Following those 3 years I was Ambassador to Colombia for another 3 years, and 3 years as Ambassador to Cuba, and after a brief sojourn of a little over 4 months as Ambassador to the Argentine, finally as Assistant Secretary of State, in charge of American Republic affairs.

So that I not only have a business background but also a diplomatic background.

My statement is as follows:

To reach the humane ends sought by President Truman under Point IV of his inaugural address-"to promote the development of economically undeveloped areas of the world"-at best will be a vastly complicated undertaking, requiring years of hard work, wisdom, and eventually enormous capital investment.

Tragic as are the living conditions of the majority of mankind today, we must not be misled by our emotions into adopting measures, which while not improving their lot might impoverish us. Unduly to burden our material and other resources in this way would lower our scale of living and weaken our powers of defense. Instead, we must, step by step, confine ourselves to limited and clearly obtainable objectives.

To initiate the Point IV program without prior, thorough, and deliberate study of all the varied and conflicting factors involved would be to court failure. It would play into the hands of the Communists or other antidemocratic elements, since we and our system would be blamed for the failure.

The purpose of H. R. 5615 is so intimately connected, so almost identical in broad objective, with that of S. 2197 as to make their separate consideration difficult if not actually unwise. Both bills are part of the same package. Therefore, with the committee's approval I should like to present, for the record and as an integral part of my statement, a copy of an address which I delivered on the Point IV program at the conference on foreign affairs at Colgate University on July 26, 1949.

Chairman KEE. That will be incorporated in the record. (The address referred to appears on p. 227.)

Mr. BRADEN. Among the facts reviewed in this speech are:

Neither the United States Government, nor any other, possesses any great store of scientific and industrial knowledge, experience, and techniques. Nor is any officialdom, irrespective of how carefully selected and wise it may be, competent to master and direct all the intricate and powerful economic forces of this Nation, and still less of the world.

Neither can the less experienced United Nations and Organization of American States supply these things.

United States business and capital actively and successfully have been carrying out the purposes of Point IV all over the earth for more than half a century. In the most constructive fashion, they have borne our scientific advances, industrial and agricultural progress, and technical knowledge to the remotest corners of the globe, and in so doing they have materially raised living standards and promoted the achievement of peace, plenty, and freedom. All this they have done with substantial benefits for everyone concerned especially for the peoples and governments where they have operated.

"Exploitation for foreign profit" or the "old imperialism," with insignificant exceptions and those mostly in the distant past, have not been practiced by United States private enterprises abroad. On the contrary, they are the ones who have suffered from unfair treatment and abuse. Despite these discouraging impediments and attacks, net private new United States investments, not including reinvestment of local currency earnings, have continued to be substantial-somewhat less than $1,000,000,000 in 1948. This has been done with scant support and, at times, even in the face of obstructions by our own officials. There has been much said about the United States Government trying to improve the climate abroad for our investors, but there has been little effective action. True, I understand that the Department of State is now negotiating one or more investment treaties. On the other hand, it has entered into such unsound undertakings as the Bogota economic agreement, which is especially unfortunate in its provisions relating to compensation in the event of expropriation, the so-called Grau Doctrine of Economic Aggression, and other matters.

If the conditions both at home when I say "conditions at home," I mean parenthetically that capital will not be tempted to take speculative risks outside this country, when here, due to high taxes and other circumstances, it can get 5 to 7 percent yield by purchasing seasoned securities on the New York Stock Exchange. Some of those securities can be purchased for less than their net quick assets.

As I say, if conditions both at home and elsewhere for foreign investment and enterprise in the underdeveloped areas of the earth are made satisfactory, so that capital can go abroad with a sense of security and assurance of reasonable profits which can be brought home, business, so soon as confidence is reestablished, will gladly continue in even greater measure the splendid job it has been doing for so many years. Fair treatment by the foreign countries and adequate and just protection of our legitimate interests by the United States Government is all-I repeat, all-that is needed.

By continuing to employ these tried and proven methods the job can be done most widely and effectively and without drain on the United States taxpayers. In this connection, I am especially preoccupied by the Export-Import Bank guaranties proposed under S. 2197. Such guaranties or insurance may turn out to be more pernicious even than the system of government-to-government loans or grants which, except in a very few instances, should be abandoned. Loansand grants-frequently harm both lender and borrower. In fact largesse of this type received from the United States Government has contributed to the creation of unfavorable climates abroad for our enterprises and investors. I should like to amplify my views on the subject of guaranties by including as part of this statement for the record, copy of my August 23 letter to Congressman Herter. Chairman KEE. It will be included in the record. (The letter referred to follows:)

Hon. CHRISTIAN HERTER,

AUGUST 23, 1949.

Washington 9, D. C.

Foreign Service Educational Foundation,

DEAR CHRIS: Since writing you on August 10, some further thoughts and questions have occurred to me in connection with the proposal that guaranties be

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given by the United States Government under the Point IV program. (See pp. 18-22 of my Colgate address.)

(1) I am increasingly preoccupied by the plan for the Eximbank to guarantee investments, which would flow automatically and voluntarily, without any such governmental incentive, if only the undeveloped areas would create favorable climates. (See pp. 22-26 of my Colgate address.) To deprive United States taxpayers of their hard-earned money in order to finance developments in countries which have not even started to create these favorable climates, but are doing the exact contrary, is the height of cranial obesity.

(2) It is alarming when responsible officers of the State Department and other agencies suggest that, perhaps, developments abroad should preferably be financed by United States Government funds on a 3-percent basis rather than by private capital requiring a higher yield of, say, 10 percent. Or, as these officials say, the United States Government should "take considerable risks"-with the taxpayers' money—in order “to assume the substantial flow of investment” from this country to foreign areas.

Worse still is the following statement:

"We are thinking of this applying to new investments on the theory that that is our objective. It is a rather cold and calculated theory, perhaps, that the old investors have already made their investments and that no inducement is required; that where you need the inducement is on new investments."

Incidentally, this means that the old investors will be taxed to finance the new, possibly even including competitors.

These officials are the same ones who talk of compensation for expropriation being acceptable in local currencies.

(3) Depreciation and obsolescence can be handled under the guaranty system, but what is to be done about depletion for mineral and oil reserves?

(4) Presumably, as I understand is the case with ECA, a large measure of discretion will be vested in the Administrator of Point IV as to when a loss results from foreign laws and regulations (such as those relating to taxes, material embargoes or allocations, minimum wage, and other labor enactments, etc.) which prevent further conduct of a business. Such a provision at best is not likely to be very tempting to an investor. Moreover, it may be possible to conduct a business but without profit or while actually going into the red.

To place such powers in bureaucrats' hands will be extremely dangerous. In practice it will mean global planning by incompetent, inexperienced, and lowpaid employees, who prepare the cases for the Administrator. Yet there will have to be authority delegated to make many important decisions, since to cover every contingency in the guaranty or insurance policy to be issued will be a Sisyphean task.

(5) The disposition of foreign governments often will be to regard any profits or other sums, which exceed the amount guaranteed by the United States Government, as fair pickings.

(6) Insofar as registration of capital or profits and governmental supervision or interference are concerned, the investor under the guaranty system will have two instead of only one government continuously breathing down his neck, not a procedure conducive to encouraging private capital to go abroad.

(7) The dishonest recipient of a United States guaranty, especially in conspiracy with crooked foreign authorities, could readily and safely get away with all manner of fraud and thievery-faked expropriations, devious regulations, currency manipulations, and some other devices which an honest man could never foresee and rarely discover. The fly-by-night promoter could borrow in the local market or buy currency in the black market, turn it in, and under the guaranty get dollars at a much higher exchange rate. It would be impossible for us to set up an organization abroad to audit, investigate, and expose all these tricks.

If an insuree is guaranteed and pays his premiums for protection against inconvertibility, expropriation, and destruction of property and all three things occur, does he get $300 for each $100 invested, while at the most the United States Government can recover only $100?

What, if any, ceiling is to be placed on the amount of a single guaranty? If too low, it will discourage investment; if too high, it will tempt fraud and trickery.

(8) Supposing a guaranty on convertibility is issued to an enterprise going into Argentina and that from foreign sales it acquires large amounts of Russian rubles, or Paraguayan pesos. Does the guaranty apply to those currencies? And what would we do with them if we got them?