Overseas Private Investment Corporation: Financing Requirements and Restrictions

Overseas Private Investment Corporation: Financing Requirements and Restrictions

Order Code RS21575
July 22, 2003
CRS Report for Congress
Received through the CRS Web
Overseas Private Investment Corporation:
Financing Requirements and Restrictions
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Summary
Congress established the Overseas Private Investment Corporation (OPIC) in 1969
to promote and assist U.S. business investment in developing nations. As part of its
responsibilities, Congress has appropriated OPIC’s budget and determined its overall
lending levels annually and has reauthorized the corporation on a periodic basis. OPIC
was last reauthorized in 1999 (P.L. 106-158; H.R. 3381) through September 30, 2003.
The Corporation is a U.S. government agency that provides project financing,
investment insurance, and other services for U.S. businesses in 150 emerging markets
and developing economies. OPIC is directed to “mobilize and facilitate the
participation of United States private capital and skills in the economic and social
development of less developed countries and areas, and countries in transition from
nonmarket to market economies.”1 Since Congress established OPIC it has amended
the corporation’s legislation to restrict OPIC’s ability to approve transactions with firms
involved in certain specified activities. It is difficult to estimate how these restrictions
have affected demand for OPIC’s services. This report will be updated as warranted by
events.
Overview
OPIC’s programs are intended to promote U.S. private investment in less developed
countries by reducing risks, especially political risks (including currency inconvertibility,
expropriation, and political violence), for U.S. firms associated with overseas investment.
To accomplish these goals, OPIC is authorized to finance U.S. investment through loans
and guarantees, insure against political risk, and provide various investor services.
OPIC’s authority to guarantee and insure U.S. investments abroad is backed by the full
faith and credit of the U.S. government and OPIC’s own substantial financial resources.
Although OPIC offers U.S. firms an array of services, its activities can be grouped into
three categories: finance, including direct loans; insurance, primarily insurance against
1 22 U.S.C. Section 2191.
Congressional Research Service ˜ The Library of Congress

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currency inconvertibility, expropriation, and political violence; and investment
development, or pre-investment services to aid U.S. investors.
Congressional Restrictions
In establishing OPIC, Congress directed the Corporation to assist U.S. firms and
small businesses’ foreign operations and focus on projects that have “positive trade
benefits for the United States.” Congress also directed OPIC to decline its services under
certain circumstances by utilizing “broad criteria,” without reference to any specific
industries, projects, or economic sectors within the U.S. economy. Specifically, Congress
directed OPIC to decline its services for projects it determines could reduce production
or employment in the United States, either because a U.S. firm shifts part of its production
abroad, or because output from an overseas investment will be shipped to the United
States and “reduce substantially the positive trade benefits” of the investment.2 Through
successive amendments, Congress also barred OPIC from participating in projects that
pose an “unreasonable or major environmental health, or safety, hazard,” or participating
in countries that do not “extend internationally recognized workers rights,” or that impose
domestic content requirements.
U.S. Production.
In 22 USC Section 2191(3), Congress placed a number of restrictions on OPIC’s
activities. These restrictions, added in 1974 (P.L. 93-390) and 1978 (P.L. 95-268), were
the first restrictions Congress placed on OPIC’s activities. In subsection (k)(1), OPIC is
restricted from providing its services if it determines that a potential investment may have
a negative impact on U.S. production:
[OPIC is] to decline to issue any contract of insurance or reinsurance, or any
guaranty, or to enter into any agreement to provide financing for an eligible investor’s
proposed investment if the Corporation determines that such investment is likely to
cause such investor (or the sponsor of an investment project in which such investor
is involved) significantly to reduce the number of his employees in the United States
production [sic] he is replacing his United States production with production from
such investment which involves substantially the same product for substantially the
same market as his United States production; and (2) to monitor conformance with the
representations of the investor on which the Corporation relied in making the
determination required by clause (1);
U.S. Employment.
Through the Public Laws adopted in 1974 and 1978, Congress requires OPIC in 22
USC Section 2191(3)(l) to decline its services if it determines that a foreign investment
may result in a “significant reduction” in U.S. employment:
(OPIC is) to decline to issue any contract of insurance or reinsurance, or any guaranty,
or to enter into any agreement to provide financing for an eligible investor’s proposed
investment if the Corporation determines that such investment is likely to cause a
significant reduction in the number of employees in the United States;
2 22 U.S.C. Section 2191, 3(k)(1).

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Foreign Performance Requirements.
In 1981, Congress amended OPIC’s statutes through P.L. 97-65 to require it in 22
USC Section 2191(3)(m) to decline its services if a foreign investment involves foreign
content requirements that reduce the positive trade benefits for the U.S. economy:
(OPIC is) to refuse to insure, reinsure, or finance any investment subject to
performance requirements which would reduce substantially the positive trade
benefits likely to accrue to the United States from the investment;
Environment, Health, Safety.
OPIC is also required in 22 USC Section 2191(3)(n), amended in 1985 through P.L.
99-204, to decline its services if it determines that the foreign investment will have a
negative effect on the environment, health, or pose a safety issue:
(OPIC is) to refuse to insure, reinsure, guarantee, or finance any investment in
connection with a project which the Corporation determines will pose an unreasonable
or major environmental, health, or safety hazard, or will result in the significant
degradation of national parks or similar protected areas.
Workers’ Rights.
In 22 USC Section 2191a(1), also amended in 1985 through P.L. 99-204, OPIC is
required to decline its services if it determines that the country where the investment is
located is not recognizing certain basic worker rights:
The Corporation may insure, reinsure, guarantee, or finance a project only if the
country in which the project is to be undertaken is taking steps to adopt and
implement laws that extend internationally recognized worker rights, as defined in
section 2467(4) of title 19, to workers in that country (including any designated zone
in that country).
OPIC may gain a waiver from the above requirement upon the determination of the
President that the investment is in the “national economic interests” of the United States,
as indicated in 22 USC Section 2191a(a)(3):
Paragraph (1) shall not prohibit the Corporation from providing any insurance,
reinsurance, guaranty, or financing with respect to a country if the President
determines that such activities by the Corporation would be in the national economic
interests of the United States. Any such determination shall be reported in writing to
the Congress, together with the reasons for the determination.
Environmental Impact.
Congress has adopted various measures that require OPIC, and other government
agencies whose operations have an effect beyond U.S. borders, to take into account the
impact their programs may have on the environment of developing countries. These
measures include:

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Provisions of a measure enacted in 1972, through P.L. 92-226, codified in 22 USC
2199(g) and amended extensively in 1985 through P.L. 99-204, requiring OPIC to
conduct environmental impact assessments:
The requirements of section 2151p(c) of this title relating to environmental impact
statements and environmental assessments shall apply to any investment which the
Corporation insures, reinsures, guarantees, or finances under this subpart in
connection with a project in a country.
(h) Preparation, maintenance, and contents of development impact profile for
investment projects; development of criteria for evaluating projects. In order to
carry out the policy set forth in paragraph (1) of the second undesignated paragraph
of section 2191 of this title, the Corporation shall prepare and maintain for each
investment project it insures, finances, or reinsures, a development impact profile
consisting of data appropriate to measure the projected and actual effects of such
project on development. Criteria for evaluating projects shall be developed in
consultation with the Agency for International Development.
In 1985, through P.L. 99-204, Congress amended 22 USC Section 2191 to require:
The Corporation, in determining whether to provide insurance, financing, or reinsurance
for a project, shall especially -
(3) ensure that the project is consistent with the provisions of section 2151p of this
title, section 2151p-1 of this title, and section 2151q of this title [originally designated
as sections 117, 118, and 119; redesignated by the Special Foreign Assistance Act of
1986] relating to the environment and natural resources of, and tropical forests and
endangered species in, developing countries, and consistent with the intent of
regulations issued pursuant to section 2151p of this title, section 2151p-1 of this title,
and section 2151q of this title.
Other Environmental Restrictions.
OPIC is also subject to three provisions of the Foreign Assistance Act, the first of
which is contained in 22 USC Section 2151p. This provision was adopted in 1979
through P.L. 96-53 in accordance with Ex. Ord. No. 12163, Sept. 29, 1979, 44 F.R.
56673, as amended. The section provides for protecting the environment and natural
resources of developing countries. It authorizes the President to furnish assistance to
developing countries to assist them in protecting and managing their environment and
natural resources.
The next provision, 22 USC Section 2151p-1, adopted by Congress through P.L. 87-
195 Dec 30, 1969, as amended, provides for protection of tropical forests, by placing a
high priority on “conservation and sustainable management of tropical forests” and to “the
fullest extent feasible” support programs and other efforts that carry out this objective.
The final section, 22 USC Section 2151q, was adopted through P.L. 98-164 as the
“International Environment Protection Act of 1983,” and concerns preserving and
protecting endangered species as another consideration in U.S. programs abroad.
In addition to the provisions of the Foreign Assistance Act, Congress added 22 USC
Section 2191(3)(n) to OPIC’s charter in 1985 through P.L. 99-204. The provision states
that:

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[the Corporation, utilizing broad criteria, shall undertake] - to refuse to insure,
reinsure, guarantee, or finance any investment in connection with a project which the
Corporation determines will pose an unreasonable or major environmental, health, or
safety hazard, or will result in the significant degradation of national parks or similar
protected areas.
In 1985, through P.L. 99-204, Congress also added 22 USC Sec. 2197(m)(1) to OPIC’s
environmental requirements.
Before providing insurance, reinsurance, guarantees, or financing under this subpart
for any environmentally sensitive investment in connection with a project in a
country, the Corporation shall notify appropriate government officials of that country
of -
(A) all guidelines and other standards adopted by the International Bank for
Reconstruction and Development and any other international organization relating to
the public health or safety or the environment which are applicable to the project; and
(B) to the maximum extent practicable, any restriction under any law of the United
States relating to public health or safety or the environment that would apply to the
project if the project were undertaken in the United States. The notification under the
preceding sentence shall include a summary of the guidelines, standards, and
restrictions referred to in subparagraphs (A) and (B), and may include any
environmental impact statement, assessment, review, or study prepared with respect
to the investment pursuant to section 2199(g) of this title.
In 1999, Congress also directed OPIC through P.L. 106-158, in 22 USC Section
2191a(b), to decline its services if it determines that an activity will have an adverse
environmental impact that is “sensitive, diverse, or unprecedented”:
The Board of Directors of the Corporation shall not vote in favor of any action
proposed to be taken by the Corporation that is likely to have significant adverse
environmental impacts that are sensitive, diverse, or unprecedented, unless for at least
60 days before the date of the vote - (1) an environmental impact assessment or initial
environmental audit, analyzing the environmental impacts of the proposed action and
of alternatives to the proposed action has been completed by the project applicant and
made available to the Board of Directors; and (2) such assessment or audit has been
made available to the public of the United States, locally affected groups in the host
country, and host country nongovernmental organizations.
OPIC is also subject to Executive Order No. 12144 (44FR 1957) entitled
“Environmental Effects Abroad of Major Federal Actions.” The Executive Order requires
federal agencies that take actions that are subject to the Order to implement procedures
that are consistent with the Order. On September 4, 1979, OPIC adopted a series of
procedures to comply with the Executive Order. These procedures are contained in
OPIC’s Environmental Handbook, which is available over the World Wide Web.3
Implications for Congress
Congress has amended OPIC’s statutes at times to meet various objectives, domestic
and foreign. Often these amendments have restricted OPIC’s activities relative to a
3 OPIC’s web address is: [http://www.opic.gov/].

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particular type of economic activity or have acted to advance other U.S. goals and
objectives, such as improving workers’ rights or protecting U.S. jobs. It is difficult to
estimate what impact such restrictions and requirements have had on OPIC’s activities.
The nature of OPIC’s activities means that it responds to, rather than generates, requests
for its services from U.S. firms that have invested abroad. Ostensibly, such firms likely
are aware of Congressional actions regarding OPIC and, therefore, likely would not apply
for OPIC’s services with projects that clearly violate a Congressionally-mandated
restriction. Generally, OPIC receives more requests each year than it can accept due to
Congressional limitations on the overall level of financing OPIC is allowed to obligate.