International Economic Policy and Trade of the House Committee on Foreign Affairs in support of legislation to authorize the Overseas Private Investment Corporation to provide its services to United States investors in projects in the People's Republic of China. He stated in part: PRESIDENTIAL DETERMINATIONS OPIC's authority is derived from the Foreign Assistance Act of 1961, as amended-FAA. Section 620(f) of the act provides in essence that no assistance shall be furnished under the act to any Communist country unless the President finds and promptly reports to Congress that (1) such assistance is vital to the security of the United States, (2) the recipient country is not controlled by the international Communist conspiracy, and (3) such assistance will further promote the independence of the recipient country from international communism. The phrase "Communist country" specifically includes, but is not limited to, 18 countries named in this subsection of the act, including the People's Republic of China. It would be extremely cumbersome for the President to go through the complex procedures to make the findings required to waive the applicability of this restriction on foreign assistance. It is more practical to enact legislation authorizing OPIC programs for investments in the People's Republic of China. There is precedent for this approach. In 1971, the FAA was amended to authorize OPIC's programs for investments in Yugoslavia and Romania if the President determines the operation of such programs is important to the national interest. The President has determined that it is important to the national interest for OPIC's programs to be available in Yugoslavia and Romania. OPIC's programs are presently operable in those countries, subject, of course, to the normal criteria applied to the availability of its programs in any other country. It is less complex for the President to determine that the availability of OPIC's programs in the People's Republic of China is important to the national interest, than it would be to make the three specific findings necessary under section 620(f) to waive the restriction against the availability of all forms of assistance under the act to the People's Republic of China. The presently proposed legislation would, therefore, allow the President to place the People's Republic of China in the same category as Romania and Yugoslavia in regard to the availability of OPIC programs. Once the legislation is enacted, and the President makes the national interest determination regarding the People's Republic of China, a bilateral agreement covering the operation of the OPIC programs must be negotiated between the People's Republic of China and the United States. The standard form of bilateral agreement between the United States and other countries generally provides for: (1) subrogation of OPIC to the interest of its investors in the event OPIC is required to pay a claim related to an investment in such country; (2) resolution of investment disputes between OPIC and the host country by means of arbitration under international law standards; and (3) the host government's approval for each OPIC-assisted investment to be covered by such bilateral agreements. BENEFITS OF U.S. INVESTMENT IN CHINA In approaching the subject of private investment in the People's Republic of China, I believe we should consider the needs and opportunities involved from the standpoint of both countries. The President has determined that a strong and economically independent China is important to the national interest and that the administration should support the developmental process in that country. During his visit to the People's Republic of China, Vice President Mondale made specific reference to early authorization for OPIC programs as a key incentive to potential U.S. investors. Thus, while opening access to this new market may take longer than was first anticipated, I suggest that with the necessary legislation in place we will be in a position to respond to events as they occur. The passage of enabling legislation will not imply any commitment on specific investments before the necessary agreements are finalized, and since both nations recognize that private investment will be of mutual benefit, to delay action will serve no useful purpose. The People's Republic of China, a nation of nearly 1 billion people, is faced with staggering problems as it undertakes a program for economic development unparalleled in scope and concept. Its leaders are well aware of the need to attract outside capital and expertise if their developmental goals are to be successful. Their planning envisions modernization of virtually every sector of the economy from basic food production, processing and distribution, to manufacturing and technological capability. Estimates are that the effort could require upward of $600 billion in investment to reach their goals by 1985. This is an ambitious objective and may not be realized, but it obviously represents new market potential for the U.S. business community. Perhaps even more important will be the opportunity to demonstrate the positive contributions which private enterprise can make to the development process. CHINA'S JOINT VENTURE LAW To attract the kind of private investment that will contribute substantially to development, it is essential that the host country establish clear laws and regulations concerning the treatment of foreign investors. In this connection, investors and OPIC may look to two sources. On July 1, 1979, China adopted a joint venture law establishing overall guidelines for formation of joint ventures between foreign investors and Chinese entities. In broad terms, this law assures protection of the capital and profits of the foreign participant and their repatriation in accordance with established exchange control laws and regulations. The required joint venture agreement will generally establish the rights and obligations of the investor upon which an insurance contract would be issued or financing extended. In this respect, the Chinese system compelling a joint venture agreement for every investment may establish more specific rights and obligations for the investor than is usually the case. The existence of formal, internal commercial codes is of secondary importance as these relate only to the joint venture's dealings with third parties, including the People's Republic of China. OPIC would be concerned only with whether the joint venture is the subject of discriminatory treatment. Any departure from the customary practices ordinarily the subject of commercial codes would probably be readily apparent as it would involve direct Government action. We are informed, however, that China is currently preparing various formal commercial codes. Also, the joint venture law and Chinese practice promote conciliation and arbitration as the primary means of resolving disputes between joint venture participants. This can be conducted in neutral third countries and by non-Chinese arbitrators if the joint venture agreements so specify. This reliance on international arbitration, as opposed to a standard judicial system, is an added assurance of fair treatment to foreign investors. OPIC Services for U.S. Investors in China: Hearing and Markup before the Subcomms. on Asian and Pacific Affairs and on International Economic Policy and Trade of the House Comm. on For. Affairs, 96th Cong., 2d sess. (1980), pp. 2-4. See, further, P.L. 96-327, approved Aug. 8, 1980, 94 Stat. 1026; 22 U.S.C. 2199(f). §5 National Legal Provision for Chapter 10 INTERNATIONAL ECONOMIC LAW §1 International Monetary Law International Monetary Fund Bretton Woods Agreements Act Amendments On October 7, 1980, President Carter approved Public Law 96-389, 94 Stat. 1551, amending the Bretton Woods Agreements Act, as amended, 22 U.S.C. 286 et seq., which, among other things, authorized the United States to participate in a 50-percent increase in quotas in the International Monetary Fund. Section 1 of Public Law 96-389 added to the Bretton Woods Agreements Act (new) section 32, which, as amended by section 11 of Public Law 96-389, authorized the United States Governor of the Fund "to consent to an increase in the quota of the United States in the Fund equivalent to 4,202.5 million Special Drawing Rights, limited to such amounts as are appropriated in advance in appropriation Acts." (The dollar value of the authorized United States quota increase, as of the date of enactment of Public Law 96-389, was $5,533,852,000 (1 SDR = $1.3168).) Section 2(a) of Public Law 96-389 added to the Bretton Woods Agreements Act (new) section 33, 22 U.S.C. 286s. Section 33(a) requires United States officials to "use all appropriate means to encourage countries, in formulating economic adjustment programs to deal with their balance of payments difficulties, to design those programs so as to safeguard, to the maximum feasible extent, jobs, investment, real per capita income, policies to reduce the gap in wealth between rich and poor, and social programs such as health, housing, and education." Subsection 33(b)(1) requires the United States representatives to the International Monetary Fund to recommend changes in Fund guidelines, policies, and decisions to permit standby arrangements between the Fund and borrowing countries to be extended beyond three years, to provide that borrowers' economic adjustment programs take basic human needs into account, and to provide that letters of intent submitted by borrowing countries reflect that such needs have been taken into account in economic adjustment programs. Subsection 33(b)(2) requires the United States Executive Director to review and take into account prior to voting, analyses prepared either by the Fund or the member country which examines the impact on human needs in accordance with (b)(1). Subsection 33(b)(3) requires United States representatives to the Fund and the World Bank to improve coordination among those institutions, in particular, to try to formulate programs in association with Fund adjustment programs which will promote employment, investment, real income per capita, improvements in income distribution, and the objectives of social programs and which will, consistent with the borrowing country's needs to improve its balance of payments position, ameliorate any adverse effects on the poor. Subsection 33(b)(4) requires United States representatives to the Fund and the World Bank to try to amend institutional policies: to provide that where borrowers are seeking Extended Fund Facility or upper credit tranche drawings from the Fund and are eligible to receive financing from the Bank, both institutions coordinate their policies to take into account the effects of economic adjustment programs on jobs, investment, income, income distribution, and social programs; to provide Bank project loans designed to safeguard human needs in countries adopting Fund adjustment programs; and to provide Bank financing for programs of structural adjustment to boost production and meet basic human needs in the long-run. Subsection 33(b)(5) requires the U.S. representatives to the Fund and Bank to request the Fund and Bank to analyze the effects of economic adjustment programs on jobs, investment, real income per capita, income distribution, and social programs. Subsection 33(c) requires the National Advisory Council on International Monetary and Financial Policies to include in its annual reports to the Congress a statement detailing the progress made in carrying out the requirements of subsections (a) and (b). Section 2(b) of Public Law 96-389 extends the requirement, formerly applicable only to loans made from the Supplementary Financing Facility, that the Fund's stabilization programs foster production and employment. 22 U.S.C. 286e-9. Sec. 4 of P.L. 96-389 concerned recycling balance-of-payments surpluses. Par. (a) stated the sense of the Congress that (1) the interests of the United States and those of other member countries require an effective International Monetary Fund equipped with resources adequate to facilitate orderly balance-of-payments adjustments; (2) persistent balance-of-payments surpluses in oil exporting countries have placed, and will continue to place, severe strains on the resources of oil importing countries and on the liquidity of the Fund; (3) these strains can only be relieved if the oil exporting countries assume a greater burden for financing balance-of-payments deficits through direct methods of recycling their surpluses and through proportionally greater contributions to the Fund and to the international lending institutions; and (4) the Fund must explore innovative proposals to encourage more direct recycling of oil surpluses and to increase its own liquidity. Sec. 4(b) added (new) Section 34 to the Bretton Woods Agreements Act, requiring the Secretary of the Treasury, in consultation with the United States Executive |