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Dept. of State Bulletin, Vol. LXXII, No. 1865, Mar. 24, 1975, pp. 378-380.

At the same Subcommittee hearings on March 4, 1975, Jack F. Bennett, Under Secretary of the Treasury for Monetary Affairs, proposed on behalf of the executive branch administrative actions to supplement existing laws and regulations:

-by establishing a new continuing high-level, inter-agency committee to report to the President's Economic Policy Board and to serve as the focal point within the executive branch for insuring that foreign investments in the United States are consistent with our national interest;

-by creating a new office to serve that committee and all other parts of our Government by monitoring foreign investment and producing analysis both of developing trends in various categories of investment and of the prospective impact of significant individual investment proposals;

-by using the new office to centralize and improve the gathering of information on foreign investment and its dissemination to appropriate parts of the Government; and

-by negotiating procedures with the principal foreign governmental investors for advance consultation with the U.S. Government on prospective major direct investments in the United States.

Dept. of the Treasury News, March 4, 1975.

In a Joint Communique issued on Feb. 27, 1975, on the first session of the U.S.Saudi Arabian Joint Commission on Economic Cooperation, the two governments agreed that participation in productive ventures in each other's economies should be mutually beneficial and that such activities would require close consultation. “Consequently, they agreed that each government would consult with the other regarding significant undertakings of this type.” Dept. of State Bulletin, Vol. LXXII, No. 1865, Mar. 24, 1975, pp. 369-371.

President Ford, on May 7, 1975, issued Executive Order 11858 establishing the Committee on Foreign Investment in the United States, composed of representatives of the Secretaries of State, Treasury, Defense, and Commerce, the Assistant to the President for Economic Affairs, and the Executive Director of the Council on International Economic Policy. The Committee has primary responsibility within the executive branch for monitoring the impact of foreign investment in the United States, both direct and portfolio, and for coordinating the implementation of U.S. policy on such investment. The Executive order requires the Committee to:

(1) arrange for the preparation of analyses of trends and significant developments in foreign investments in the United States;

(2) provide guidance on arrangements with foreign governments for advance consultations on prospective major foreign governmental investments in the United States;

(3) review investments in the United States which, in the judgment of the Committee, might have major implications for United States national interests; and

(4) consider proposals for new legislation or regulations relating to foreign investment as may appear necessary.

As the need arises, the Committee is to submit recommendations and analyses to the National Security Council and the Economic Policy Board, and prepare periodic reports. The Secretary of Commerce is given special functions in the collection and use of data on foreign investment.

Fed. Reg., Vol. 40, No. 91, May 9, 1975, pp. 20263–20264.

On May 27, 1975, Gerald L. Parsky, Assistant Secretary of the Treasury, released a memorandum summarizing the laws and regulations applicable to foreign investment in the United States. In an accompanying statement he emphasized the Treasury Department's interest in insuring that the United States continue to provide an open climate for investment from abroad. He stated that with a few exceptions to assure national security and to protect vital national interests, the United States does not impose special restrictions on foreign investment. Pointing out that most of the relevant legal provisions were designed primarily to regulate the domestic business community, he suggested that foreign investors obtain the advice of competent legal counsel in the United States.

Part I of the summary prepared by the Treasury Department details specific provisions of Federal law which restrict participation by aliens, foreign corporations, foreign governments, and foreign-controlled enterprises in U.S. economic activity. Part II covers laws of general applicability such as the antitrust laws, Federal and State securities laws, and the tax laws.

The Treasury Dept. summary follows:
SUMMARY OF FEDERAL LAWS BEARING ON FOREIGN INVESTMENT

IN THE UNITED STATES

Part I
SPECIFIC FEDERAL RESTRICTIONS ON PARTICIPATION OF FOREIGN-
CONTROLLED ENTERPRISES OR FOREIGN NATIONALS IN UNITED STATES

ECONOMIC ACTIVITY

1. Communications.

1. Radio and Television Licensing
2. Telegraph Operations
3. Radio and Television Operators
4. Communications Satellite Corporation
5. Foreign Investment in U.S. Newspapers and Magazines

II. Energy and Natural Resources.

1. Atomic Energy
2. Pipelines and Mineral Leasing on Federal Lands
3. Land

4. Fishing
III. Transportation and Trade.

1. Aviation 2. Shipping

3. Customs House Brokers IV. Government Procurement and Benefits.

1. Procurement

2. Subsidies, Insurance, and Other Government Benefits V. Banking.

1. National Banks
2. Edge Act Corporations
3. Bank Holding Company Act

4. Federal Reserve Membership and FDIC Coverage VI. Defense.

1. Industrial Security Program
2. Priority Performance Statutes

Part II

GENERAL LAWS AFFECTING THE CONDUCT OF BUSINESS IN THE UNITED

STATES BY FOREIGN INVESTORS

I. Antitrust Legislation.
II. Securities Laws and Regulations.

1. Federal Securities Laws
2. Membership on the New York and American Stock Exchanges
3. State and Local Securities Laws

4. Institutional Disclosure III. Taxation.

1. Summary of Present Tax Treatment 2. Source of Income 3. Nature of Income 4. Summary of Current Treatment 5. Gift Tax 6. Foreign Investors Tax Act of 1966 7. Tax Treaties 8. Estate Taxes 9. Capital Gains 10. State Taxes IV. Visa Requirements.

1. Nonimmigrants 2. Immigrants

FEDERAL RESTRICTIONS ON PARTICIPATION OF FOREIGNCONTROLLED ENTERPRISES OR FOREIGN NATIONALS IN UNITED

STATES ECONOMIC ACTIVITY

I

COMMUNICATIONS

1. Radio and Television Licensing. The Federal Communications Act prohibits aliens, representatives of aliens, foreign governments or their representatives, or foreign-registered, foreign-owned, or foreign-controlled corporations from receiving a license from the FCC to operate an instrument for the transmission of communications. A corporation is considered foreign-owned if any director or officer is an alien, or if more than 20 percent of its capital stock is owned by aliens, by a foreign government, or by a corporation organized under the laws of a foreign country. A corporation is considered foreigncontrolled if any officer or more than one-fourth of the directors are aliens or if it is directly or indirectly controlled by a corporation, 25 percent of the capital stock of which is owned by foreign interests. Certain exceptions can be made if the FCC determines that the grant of a license would be in the public interest (e.g. broadcasting operations ancillary to another business of a foreigncontrolled corporation). 47 U.S.C. 310(a).

2. Telegraph Operations. The FCC is prohibited from approving a merger among telegraph carriers which would result in more than 20 percent of the capital stock of the carrier being owned, controlled, or voted by an alien, a foreign corporation, a foreign government entity or a corporation of which any officer or director is an alien or of which more than 20 percent of the capital stock is owned or controlled. 47 U.S.C. 222(d).

3. Radio and Television Operators. Foreign citizens may not be licensed by the FCC as operators in radio or television stations. Waiver of the citizenship requirement is permitted for certain licensed aircraft pilots. 47 U.S.C. 303(1).

4. Communications Satellite Corporation. Not more than an aggregate of 20 percent of the shares of stock of Comsat which are offered to the general public may be held by aliens, foreign governments, or foreign-owned, registered or controlled corporations. 47 U.S.C. 734(d).

5. Foreign Investment in U.S. Magazines and Newspapers. There are cur. rently no prohibitions against foreign investment in U.S. newspapers. However, the Foreign Agents Registration Act (22 U.S.C. 611) applies to any U.S. corporation (e.g. a newspaper or magazine) which is controlled or financed by a foreign entity if it carries on any activity in the United States intended to influence U.Š. domestic or foreign policy, or to promote the interests of a foreign government. The scope of the law is broad and requires registration with the Attorney General and filing and disclosure with respect to a wide range of political propaganda disseminated in the United States on behalf of foreign interests. However, if the registration requirement is satisfied and the publication is properly labeled as propaganda, the Act does not permit the Government to control content. Exemptions are permitted for (1) diplomats, (2) nations deemed vital to our national defense, and (3) various nonpolitical

activities.

II

ENERGY AND NATURAL RESOURCES

1. Atomic Energy. The Atomic Energy Act prohibits the issuance of licenses for the operation of atomic energy utilization or production facilities to aliens, foreign governments, foreign corporations, or corporations owned, controlled, or dominated by such foreign interests. In defining foreign ownership or control, there is no threshold test of percentage ownership or other rule of thumb. Determinations are made on a case by case basis. 42 U.S.C. 2133, 2134.

2. Pipelines and Mineral Leasing on Federal Lands. Under the Mineral Leasing Act of 1920, aliens or foreign-controlled enterprises may not acquire rights of way for oil pipelines, or acquire any interest therein, or acquire leases or interests therein for mining coal, oil, or certain other minerals, on Federal lands other than the Outer Continental Shelf. However, a foreign-controlled corporation may hold such an interest if its home country grants reciprocal rights to United States corporations. 30 U.S.C. 22, 24, 71, 181,

185, 352, 42 CFR 3102.1-1; see generally 43 CFR Chapter II (Bureau of Land Management) However, a foreign-controlled corporation may hold and exploit a lease on the Outer Continental Shelf under the Outer Continental Shelf Act and Department of Interior regulations (43 U.S.C. 331-43; 43 CFR 3300.1). Foreign ownership up to 100% is permitted.

Under the Geothermal Steam Act (30 U.S.C. 1001-1025), leases for the development of geothermal steam and associated resources may be issued only to United States citizens and corporations organized under the laws of the United States or of any State. 30 U.S.C. 1015. However, a domestically incorporated enterprise may be foreign-owned or controlled.

3. Land. Federally-owned land may be transferred or leased only to (i) U.S. citizens or persons having declared their intention to become U.S. citizens; (11) partnerships or associations, each of the members of which is a U.S. citizen; and (111) corporations organized within the United States and permitted to do business in the State in which the land is located, and States, municipalities or other political subdivisions. 43 U.S.C. 682c. There is no limit upon the percentage of foreign ownership that a domestically-incorporated firm may have, provided that the country whose citizens own shares of the U.S. firm grants reciprocal privileges to U.S. citizens. Where there is no such reciprocity, an American corporation purchasing public land must be majority owned by United States citizens. In addition there are restrictions on alien land ownership in territories of the United States; however, these have little contemporary relevance to foreign investment in view of the small portion of United States land remaining in a territorial status. 48 U.S.C. 1501-1508.

4. Fishing. Foreign vessels may not fish in the territorial waters or fishing zone of the United States or land fish caught on the high seas in the United States. 16 U.S.C. 1081 et seq., 1091 et seq. The restrictions apply to foreigncontrolled fishing companies unless certain management restrictions are met. (The president or chief executive officer of a domestic corporation must be a United States citizen; foreign citizens serving as directors cannot be more than a minority of the number necessary to constitute a quorum.)

III

TRANSPORTATION AND TRADE

1. Aviation. A foreign-controlled enterprise (e.g. a foreign air carrier) may not acquire control of a company engaged in any phase of aeronautics unless approval is grante the Civil Aeronautics Board. Under the Federal Aviation Act, ownership of 10 percent or more of the voting securities gives rise to presumption of control. In addition, aggregate foreign equity holdings are limited to 25 percent. 49 U.S.C. 1301 (1) and (13); 1378(1).

A foreign-controlled enterprise may not be issued a permit for intra-United States air commerce or navigation (cabotage). (49 U.S.C. 1371, 1401(b), 1508). Domestic air transit (with limited exceptions based on reciprocity by the carrier's home country) is limited to domestically registered aircraft. Eligibility to register aircraft in the United States is limited to

1. individual United States citizens;
2. partnerships in which all partners are United States citizens;

3. corporations formed in the United States in which the president and at least two-thirds of the directors and other managing officers are United States citizens and at least 75 percent of the voting stock is owned by United States citizens. 49 U.S.C. 1371 and 1401.

2. Shipping.

a. Coastwise Shipping. Under the Jones Act of 1920, coastal and fresh water shipping, including towage, of freight or passengers between points in the United States or its territories must be done in vessels which were built and are registered in the United States and which are owned by United States citizens. As in the case of aviation, for a corporation to register a ship in the United States, the corporation's principal officer must be a United States citizen and 75 percent of the stock must be owned by United States citizens. 46 U.S.C. 802, 883, 888. Certain exceptions are permitted to this general rule, for example, shipping incidental to the principal business of a foreign-controlled United States manufacturing or mining company. 46 U.S.C. 883–1. There is also an exception for intercoastal transportation of empty items such as cargo vans, containers, tanks, etc., where the country of the vessel's registry grants reciprocal privileges to United States vessels. 46 U.S.C. 883.

b. Transfer of Shipping Facilities during War or National Emergency. During time of war or national emergency proclaimed by the President, a foreign-controlled enterprise may not acquire or charter, without the approval of the Secretary of Commerce, United States flag vessels, vessels owned by a United States citizen, or shipyard facilities, or acquire a controlling interest in corporations owning such vessels or facilities. 46 U.S.C. 835.

c. Salvage. To engage in dredging or salvage operations in United States waters, a foreign-controlled enterprise must satisfy certain management restrictions. To register a vessel to engage in these activities, the president or chief executive officer of a domestic corporation, and the chairman of its board, must be United States citizens, and foreign citizens serving as directors cannot be more than a minority of the number necessary to constitute a quorum. 46 U.S.C. 316(d), 11.

d. Transportation of Government Financed Commodities. A foreign-controlled enterprise must meet certain management restrictions (see c. above) to transport certain commodities procured or financed for export by the United States Government or an instrumentality thereof. 15 U.S.C. 616a; 46 U.S.C.

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