TABLE 2.—Foreign Earnings and Remittances to the U.S. by U.S. Direct 1 1 After payment of foreign withholding taxes. 'Dividends include the effect of the 60-day dividend election, as data above are on an OFDI regulatory basis. For adjustment to a calendar year basis, see Footnote 1 of Table 1. 3 * Earnings of unincorporated AFN's assumed remitted to the U.S. TABLE 3.-Foreign Earnings and Remittances to the U.S. by U.S. Direct 1 After payment of foreign withholding taxes. 'Dividends include the effect of the 60-day dividend election, as data above are on an OFDI regulatory basis. For adjustment to a calendar year basis, see Footnote 1 of Table 1. 3 Earnings of unincorporated AFN's assumed remitted to the U.S. TABLE 4.-Foreign Earnings and Remittances to the U.S. by U.S. Direct 1 After payment of foreign withholding taxes. 'Dividends include the effect of the 60-day dividend election, as data above are on an OFDI regulatory basis. For adjustment to a calendar year basis, see Footnote 1 of Table 1. The data collected by OFDI differs principally in definition from payments data pertaining to direct investment collected by the Office of Business Economics (OBE). Transactions are reported differently to the two offices, according to their respective needs. For example, the OFDI definition of "direct investor" excludes U.S. financial institutions, and the two offices have different tests for distinguishing between direct and portfolio investment. OFDI includes retained earnings as a part of program direct investment, while OBE does not treat these as a balance-of-payments flow. OFDI collects data from most direct investors while OBE collects data by a sampling method. The OFDI definition of long-term foreign borrowing differs from the conventional definition of long-term used in U.S. international payments data. OFDI assigns foreign branches or subsidiaries to particular scheduled areas according to its regulatory standards, whereas OBE has different criteria. XIII. SUMMARY The Foreign Direct Investment Program was initiated on January 1, 1968, as a temporary measure aimed at improving the U.S. balance of payments by a reduction in the amount of U.S. source funds used to finance direct investment in overseas business ventures by U.S. persons. Direct investment, the sum of the direct investor's net transfers of capital to its foreign affiliates plus the direct investor's share of the reinvested earnings of such affiliates, was restricted each year to that generally authorized by the Regulations or specifically permitted by the Office after case-by-case analysis. The world is divided into three scheduled areas for purposes of administering the restrictions, which are strictest for the developed countries of Western Europe (Schedule C) and more liberal for the less-developed countries (Schedule A). Direct investment in excess of that generally allowed under the Program is permitted if financed by qualifying long-term foreign borrowings. The Program is not intended to inhibit gross direct investment activities such as plant and equipment expenditures as long as foreign source funds are used. Although at the Program's inception such availability could only be presumed, in fact foreign capital markets have expanded considerably to meet the needs of direct investors. The amount of foreign debt used by direct investors in the 1965/67 period of the voluntary direct investment program averaged $400 million annually, contrasted with an average of over $2 billion per year in 1968/69. The evidence available to the Office indicates that the Program so far has induced the shift from U.S. source to foreign source financing with a minimal effect on either gross direct investment activities or U.S. exports. The rate of growth of foreign plant and equipment expenditures slowed down almost to a standstill in 1968, perhaps partially due to the imposition of these new controls, but more probably because of a change in general economic conditions abroad. However, in 1969 the growth rate returned to 15% and is expected to continue at that level for 1970 and 1971. Exports from a direct investor to its affiliates are restricted by the Program only if the credit extended in connection with such exports increases over the course of the year. To minimize any harmful effects of the Program on exports to affiliates, the Office grants relief upon application for increases in export credit that do not represent an evasion of the intent of the Program. Relatively few direct investors have taken advantage of this opportunity, which supports the view that any problems with export financing have been resolved in other ways. The Program has been substantially liberalized and simplified in 1969 and 1970 from that in effect for 1968. Direct investors have generally learned to live with these restrictions, but potential problems may arise if direct investment continues to grow, the Program is not further liberalized, and foreign capital is not readily available. |