No. 473 NAI DFA 305/57/14
Memorandum by the Department of External Affairs
'American Private Investment under ERP'
Dublin, 24 January 1948
- The proposals before Congress contain provision for the official encouragement by the US Government of direct investment in the participating countries by American concerns ('Outline of a European Recovery Programme', page 47). The encouragement would take the form of US Government guarantees of the transfer into dollars of the local currency earnings derived from such investment.
- These provisions were not proposed at the Paris Conference or discussed at the talks in Washington. They are a new detail in the ERP picture. They are thought to be the consequence of representations made to the US Government by American private firms anxious to establish themselves in Europe.
- It is desirable to consider the question what concern, if any, these provisions are to us, and what action, if any, we should take with regard to them at this stage. The following observations on these points are put forward for purposes of discussions.
- The fullest possible utilization of our productive resources must always be a major object of public policy. This is particularly so as regards agriculture. At the best, however, progress in agriculture must be a gradual and long-term process. The determining factors in the increase of agricultural productivity lie to a large extent outside the reach of public policy. Predominantly important as agriculture is, therefore, industrial and commercial expansion must always be a constant, positive aim, particularly as it is in these fields, rather than in agriculture, that lie our best chances of securing a better distribution of our foreign earnings and of checking the drain of emigration.
- The considerable development of manufacturing industry already achieved has been practically confined to production catering for the home market with the help of protective tariffs. It is a question whether - so far as industrial production in this category is concerned - we are not already within sight of saturation point. The more this is so, the more our possibilities of further industrial development must come to depend on production specifically directed towards export markets.
- Although some of the biggest exporting firms in the world enjoy protection of their home markets, the export potential of tariffed industries is, for obvious reasons, usually low. At the present stage of our industrial development, that is probably true in our case. If, therefore, as is suggested, the possibilities of further industrial expansion catering primarily for the home market are small, then to confine our prospects of building up an export trade in manufactured or semi-manufactured goods to the industries established under tariff to cater for the home market would be to limit considerably our possibilities of development in the very direction in which we must expand if we are to secure full employment for our national energies.
- Industrial production for export calls for highly specialised qualities of enterprise, experience, and skill in business and technical management. This will be all the more so according as world conditions improve and export markets become more and more competitive. It is no reproach to ourselves to say that our resources of the kind of experience and skill required for the successful conduct of an export trade in industrial goods are very limited. The co-existence in this country of abundant financial resources and a relatively heavy rate of emigration are an indication, if not a proof, of the fact.
- The foregoing considerations lead up to the question whether - assuming that our industrial expansion must come to depend more and more on the development of industrial exports - it is better for us to promote the investment of our own capital resources in industrial production of that kind, employing whatever specialised managerial and technical skill we must import from abroad in a salaried capacity, or whether we would not do well - to some extent at least - to afford positive encouragement to foreign firms with existing export businesses and established connections in foreign markets to come to this country and engage in production here. In practice, most American foreign investment consists in the establishment of branch plants and sales subsidiaries abroad. It is assumed that that is the only type of American foreign investment in which we would be interested. In the particular context of ERP, the question may be put in the form whether it is not better that American firms should so invest here under the proposed official guarantees than that we should contract dollar indebtedness under the Plan on the purchase of capital equipment.
- There are many reasons why American firms contemplating the establishment of European subsidiaries should consider Ireland favourably. We have the advantages of stable Governmental and social institutions, a sound currency, relatively low taxation, a competitive wage level, a favourable geographical position, passive balances with foreign markets (important in bilateral trading), abundant resources of local capital, and an ample supply of industrious and intelligent workers. Our position in the sterling area, our remoteness from Russia, and the absence here of Communist and similar subversive movements likely to result in civil disorder, the confiscation of private property, etc., are other factors in our favour. These are the kind of considerations which must weigh heavily with American concerns contemplating investment in Europe. Taking our present advantages in conjunction with the private investment provisions of ERP, it may be said that, if foreign investment is to play a part in our industrial expansion at any stage, now is the time to act. We have a more favourable opportunity of promoting such development on suitable terms now than we are likely to have again in this generation.
- A policy of allowing direct foreign investment carries with it, of course, certain risks. The risks involved, however, can normally be provided against by proper measures taken beforehand. In practice, American direct investment in European countries - which is more substantial than one would think - has not given rise to difficulties. Treaty provisions covering such matters as double taxation, establishment rights, etc., are desirable. As against the risks must be placed the advantages. Historically, foreign investment of an entrepreneurial character has been a tremendous aid to national industrialisation and has contributed to development and higher efficiency standards in national industry.
- So much on the question whether American investment here under the provision of ERP would be desirable. If it is desirable, what action should we take now? Negotiations are due to begin between ourselves and the United States for the conclusion of Double Taxation Conventions and a basic Treaty of Commerce and Establishment. What else need be done? Further steps which might be considered are:-
- Presentation of a memorandum to the United States Government, and public agencies in the United States likely to be concerned, making clear our attitude towards American investment in this country and pointing out the advantages which this country offers in that regard.
- A definition of our policy on the matter by the Minister for Industry and Commerce in a public speech at the appropriate time.
- The consideration of legislation providing inducement for the establishment here of manufacturing concerns catering for export markets.
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