Our first witness this morning is the Honorable Marc Leland, Assistant Secretary for International Affairs, Department of the Treasury.

STATEMENT OF MARC E. LELAND, ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS, DEPARTMENT OF THE TREASURY Mr. LELAND. Thank you, Mr. Chairman.

I welcome this opportunity to appear before the subcommittee to testify on the activities of the Committee on Foreign Investment in the United States, more commonly known as CFIUS, with respect to the investments in the United States by firms owned by the Government of Kuwait.

When I was before this subcommittee last month, I discussed U.S. policy toward international investment. Since that policy is germane to many of the questions raised in your request for testimony from the Treasury Department, I think it is appropriate that I reiterate some of the central points today. I shall attempt to do so briefly.

First, the U.S. policy toward foreign investment is this. The United States has a long history of welcoming foreign investment in our country on a nondiscriminatory basis. We adopted this policy not to accommodate foreigners and foreign governments, but because it provided substantial benefits to the United States.

Thus, although total foreign direct investment in the United States is still very small, $65 billion at the end of 1980 in our over $2 trillion economy, foreign investment has provided jobs and new technology, strengthened U.S. capital markets, and by lowering the cost of capital to U.S. corporations encouraged domestic invest

ment.

In addition, the United States has a stock of direct investment abroad, over $213 billion by the end of 1980, that greatly exceeds the foreign direct investment in the United States. Our overseas direct investment is an important positive factor in the United States balance of payments. In 1980, United States investment income on direct investment abroad totaled $37 billion.

Much of the U.S. international trade is also related to our overseas investment. A recent Department of Commerce survey shows in 1977 $40.8 billion in U.S. exports, a third of total exports, was shipped to foreign affiliates of U.S. corporations, and $41.5 billion of U.S. imports was shipped from those affiliates. We, therefore, have a particular interest in maintaining an open international investment system.

As to CFIUS, the Committee on Foreign Investment in the United States was established by Executive order in May 1975. That order specified that the Committee, which is chaired by the Treasury Department and includes representatives from the Departments of State, Defense, and Commerce, the Office of U.S. Trade Representative and the Council of Economic Advisers, should monitor the impact of foreign investments in the United States, both direct and portfolio, and coordinate the implementation of U.S. policy on such investment.

The CFIUS was specifically instructed to review investments in the United States which, in the judgment of the Committee, might

have major implications for U.S. national interests. The establishment of the CFIUS did not, however, represent a departure from our traditional open policy on foreign investment here.

The CFIUS is a monitoring body. It has not been given authority to approve or disapprove foreign investments in the United States. However, through its review and monitoring activities, the CFIUS does focus executive branch attention on issues with respect to a given investment to which various U.S. laws apply. Application of these laws may result in the denial, in whole or in part, of an acquisition by a foreign investor of a U.S. energy concern.

Of course, the United States has a variety of antitrust laws to maintain competition in its economy, and the applicability of these laws does not turn on whether an investor is foreign or domestic, private or governmental. For example, the Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires premerger notifications of the Antitrust Division of the Justice Department and to the Federal Trade Commission where the merging entities have sales above a certain level.

Such notifications have already been filed by the Kuwait Petroleum Corp. [KPC] and Santa Fe International. If either of the two enforcement agencies determines in its independent discretion that the merger may tend substantially to lessen competition or to create a monopoly in any line of commerce in any section of the United States, that agency may bring action to obtain a preliminary injunction and later a permanent injunction against the merger's being consummated.

As a result of a CFIUS review, the Interior Department will be alerted if the U.S. firm has Federal mineral lands under lease, and Interior will review the laws and policies of the country of the acquirer in the light of the reciprocity requirements of the Mineral Lands Leasing Act of 1920. The Interior Department has participated in the CFIUS meetings held to date concerning the KPCSanta Fe merger and is now reviewing the mineral lands leasing laws of Kuwait.

CFIUS will also examine the extent to which the firm to be acquired holds U.S. Government contracts. The Department of Defense gives particular attention to its contracts with the acquired firm. Generally, Defense denies to foreign-controlled corporations the security clearances necessary to carry out a contract involving classified information, and this could be an important deterrent to the acquisition by a foreign entity of a U.S. firm with extensive Defense Department contracts.

CFIUS is thus useful in focusing the attention of the broad range of U.S. Government agencies which participate in CFIUS on matters of concern to these agencies. These agencies are able to review how a proposed acquisition squares with the laws which they are responsible for administering. Once this review is complete, CFIUS is able to inform the foreign investor as to whether the proposed investment is likely to cause problems to the United States.

The Committee, since its formation, has operated on the basic premise that its review activities should be limited to cases where there is a genuine concern about the U.S. national interest. It has also continued to make a distinction between private foreign investment and investments by government-controlled firms.

It is also important to remember that we have a number of restrictions on activities of foreign investors in certain key sectors. These are listed in my testimony, so I will not mention them.

I do not want to suggest, however, that we are at all complacent about our policy. I chair a special working group under the Cabinet Council on Economic Affairs which has begun reviewing U.S. policy toward foreign investment. We have started examining possible problems associated with investments in the United States by foreign government-controlled entities, the adequacy of the current mandate of the CFIUS and our statistics on direct investment. The working group is composed of representatives from the Departments of State, Commerce, Labor, Defense, Interior, Justice, and Energy, and from the Offices of the U.S. Trade Representative, and Management and Budget, and the Council of Economic Advisers. In addition, the group will seek the advice of business and independent agencies, such as the Federal Reserve Board, the Federal Trade Commission, the Securities and Exchange Commission, and the Overseas Private Investment Corporation.

I would like to turn now to the recent investments in the United States by the Kuwait Petroleum Corp. which is owned by the Government of Kuwait. I am concerned, Mr. Chairman, that investments by foreign governments could be politically motivated or that such entities could enjoy special advantages over their private competitors. It is for these and other reasons that we are examining this issue closely in the working group on international investment policy and reviewing KPC investments in the CFIUS. I might add that our concerns are not confined to investments by companies owned by OPEC governments. The CFIUS is reviewing the takeover of Texasgulf by Elf-Aquitaine, two-thirds of the stock of which is owned by the French Government.

Let me give some chronology on the investments in the United States by KPC and the CFIUS reviews of those investments. The first such proposed investment was in July 1980, when KPC was considering purchasing a block of stock in Getty Oil. However, when KPC approached Getty concerning the deal, officials of Getty Oil objected, and KPC immediately decided not to pursue the investment. Therefore, there was no need for the CFIUS to conduct a formal review, although the Government of Kuwait was contacted. The Committee was prepared, however, to conduct a review if the investment had proceeded.

The Committee conducted a rather lengthy examination of the planned joint venture between the Kuwait Petroleum Corp. and Pacific Resources, Inc., a Hawaiian oil refiner, and its potential impact on U.S. national interests. The Committee determined, based on that review, that the planned joint venture was unlikely to have negative implications for the U.S. national interest. It requested a final copy of the joint venture document when it becomes available. That deal has not yet been finalized.

The Committee is also reviewing a planned joint venture between the Kuwait Petroleum Corp. and AZL Resources, an Arizona-based minerals firm. That joint venture has not been completed. Finally, the Committee is also reviewing the proposed investment by Kuwait Petroleum Corp. in Santa Fe International, a Cali

fornia-based company engaged in drilling, construction, and engineering. The company is also engaged in oil and gas production.

The CFIUS, in the course of its review of the last three cases, has been in contact with the Government of Kuwait and with the American companies. With respect to the proposed merger of Santa Fe International and KPC, the Kuwaiti Ambassador informed us of the merger on Monday, October 5, and I met separately with officials of Santa Fe International and KPC on Friday, October 9.

The Committee has not requested a delay since the merger will not be effected until the Santa Fe shareholders' vote, currently scheduled for December 1. We will be able to complete the review before the merger is consummated. We have already had a staff meeting and a full CFIUS meeting on this issue, and the Cabinet Council on Economic Affairs has been informed of our activities.

At no time has Treasury taken any action with respect to these or any other investments, or proposed investments, to help Kuwait or any other OPEC member to acquire U.S. energy companies or to qualify for such an acquisition.

The CFIUS does not have any written guidelines that impose limitations on foreign or OPEC member country ownerships of U.S. energy companies. The Committee's 1978 guidelines, which will be reviewed as part of the administration's overall review of U.S. international investment policy, state that the Committee has consciously avoided the formulation of criteria for judging major implications for U.S. national interests. It is our opinion that judgments of this type are best made on a case-by-case basis. The ČFIUS has not halted or otherwise attempted to discourage any foreign takeover of a U.S. energy firm. We did request that the French Government delay the takeover of Texasgulf by Elf-Aquitaine in order to avoid potentially larger problems that might arise should the CFIUS make a negative determination after the investment has been completed. The French Government, however, chose not to intervene and the CFIUS review is proceeding.

When it reviews any investment, the CFIUS gathers information on the activities of the U.S. company, the foreign investor, and the home country involved. We, of course, work closely with other Government agencies in our reviews. In the case of the proposed investment in Santa Fe International, for example, we will work with the Securities and Exchange Commission, and the Departments of Interior, Energy, Justice, and the FTC in addition to formal CFIUS members.

To sum up, Mr. Chairman, I'd like to indicate that the United States welcomes foreign investment because of the benefits it provides. We have a number of laws and regulations that limit the activities of foreign investors. In addition, foreign investors are subject to the same legal requirements as domestic investors.

The Committee on Foreign Investment in the United States was set up to review exceptional investments which might have major implications for U.S. national interests. The Committee is currently reviewing several proposed investments by the Kuwait Petroleum Corp.

The administration is also in the process of reviewing our overall policy toward international investment. That review will cover issues such as possible problems with investments in the United

States by foreign government-controlled firms and possible changes in the CFIUS.

Thank you.

Mr. ROSENTHAL. Who is the Chairman of the CFIUS working group?

Mr. LELAND. I'm the Chairman of CFIUS. That is essentially the group. There is a staff-level group that meets.

Mr. ROSENTHAL. How many times have you met, for example, in 1981?

Mr. LELAND. The actual group that I chair first met because of the Pacific Resources issues that came up.

Mr. ROSENTHAL. Go ahead.

Mr. LELAND. Eight or nine times.

Mr. ROSENTHAL. You are the Chairman of CFIUS. You have met eight or nine times?

Mr. LELAND. Half a dozen times.

Mr. ROSENTHAL. The number is very important to us.

Mr. LELAND. I couldn't give it to you exactly.

Mr. ROSENTHAL. Do you keep minutes of the meetings?

Mr. LELAND. Not formal minutes. I could give you the dates of

when they were held. I have them on my calendar.

Mr. ROSENTHAL. Could you give us the dates of the meetings?

Mr. LELAND. Yes.

Mr. ROSENTHAL. Could you give them to us now?

Mr. LELAND. I don't have them with me.

Mr. ROSENTHAL. You don't keep minutes of these meetings?

Mr. LELAND. Not formal minutes.

Mr. ROSENTHAL. When you leave the meeting, does anybody dictate the minutes after the meetings are concluded?

Mr. LELAND. Notes are typed up. There are some indications of the discussion.

Mr. ROSENTHAL. Who keeps or has possession of the notes?

Mr. LELAND. Probably the general counsel, in his office. I really couldn't tell you.

Mr. ROSENTHAL. Will you provide for us the minutes or notes for all meetings of this year?

Mr. LELAND. I'd have to review them. I don't think there would be any problem. I would leave the final decision to our general counsel as to what can be provided and what cannot.

Mr. ROSENTHAL. Well, it is a rather important Committee with extraordinary responsibilities; don't you think so?

Mr. LELAND. Yes.

Mr. ROSENTHAL. And you don't keep minutes?

Mr. LELAND. We keep records of what goes on. If there are formal decisions, we make regular reports to the Council on Economic Affairs.

Mr. ROSENTHAL. You are leaving to go to the North-South meeting in Cancua, Mexico, momentarily?

Mr. LELAND. Yes.

Mr. ROSENTHAL. How soon can we get copies of the reports and the minutes?

Mr. LELAND. I would have to ask both my staff and the general counsel. I would hope as soon as they can pull them together. [Summary of minutes can be found in appendix 9.]