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FOREIGN INVESTMENT AND ARAB BOYCOTT LEGISLATION
HEARINGS
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL FINANCE
OF T H E
COMMITTEE ON
BANKING, HOUSING AND URBAN AFFAIRS
UNITED STATES SENATE
N I N E T Y - F O U R T H CONGRESS
FIRST
SESSION
ON
S. 425, Amendment No* 24 Thereto; S. 953,
S. 995, and S. 1303
LEGISLATION
CONCERNING FOREIGN INVESTMENT
T H E A R A B BOYCOTT
J U L Y 22 A N D 23, 1975
P r i n t e d f o r the use of the
C o m m i t t e e on B a n k i n g , H o u s i n g a n d U r b a n A f f a i r s
AND
C O M M I T T E E ON BANKING, HOUSING A N D U R B A N
W I L L I A M P R O X M I R E , Wisconsin,
J O H N SPARKMAN, Alabama
H A R R I S O N A. W I L L I A M S , JR., New Jersey
T H O M A S J. MCINTYRE, New Hampshire
A L A N CRANSTON, California
A D L A I E. STEVENSON, Illinois
JOSEPH R. B I D E N , JR., Delaware
ROBERT MORGAN, North Carolina
AFFAIRS
Chairman
J O H N TOWER, Texas
E D W A R D W. BROOKE, Massachusetts
BOB PACKWOOD, Oregon
JESSE H E L M S , North Carolina
J A K E GARN, Utah
KENNETH A. MCLEAN, Staff Director
ANTHONY T. CLUFF, Minority Staff Director
SUBCOMMITTEE ON INTERNATIONAL FINANCE
A D L A I E. STEIVENSON, Illinois, Chairman
W I L L I A M P R O X M I R E , Wisconsin
BOB PACKWOOD, Oregon
H A R R I S O N A. W I L L I A M S , JR., New Jersey J O H N TOWER, Texas
T H O M A S J. M c I N T Y R E , New Hampshire
JESSE H E L M S , North Carolina
A L A N CRANSTON, California
J A K E GARN, Utah
JOSEPH R. B I D E N , JR., Delaware
STANLEY J. MARCUSS, Counsel
(ID
CONTENTS
Page
S. 4 2 5
24
A m e n d m e n t N o . 24
35
39
S. 9 5 3
S. 9 9 5
41
R e p o r t f r o m t h e D e p a r t m e n t of State
48
S. 1303
51
LIST
OF
W I T N E S S E S
TUESDAY, JULY
22
J o h n K . T a b o r , U n d e r Secretary of Commerce
G e r a l d L . Parsky, Assistant Secretary, T r a d e , E n e r g y a n d F i n a n c i a l
Resources P o l i c y C o o r d i n a t i o n , D e p a r t m e n t of T h e T r e a s u r y
R a y G a r r e t t , Jr., C h a i r m a n , Securities a n d Exchange Commission, accomp a n i e d b y A l a n B . Levenson, D i r e c t o r , D i v i s i o n of C o r p o r a t e F i n a n c e ;
a n d C a r l T . Bodolus, Chief, I n t e r n a t i o n a l Finance Office
A n t o n i n Scalia, Assistant A t t o r n e y General, Office of Legal Counsel,
D e p a r t m e n t of Justice, accompanied b y D a v i d M a r b l e s t o n e , Staff
Attorney
WEDNESDAY, JULY
STATEMENTS
AND
138
159
177
322
336
DATA
A l l i e d V a n Lines I n t e r n a t i o n a l Corp., r e p r i n t of brochure t i t l e d " C u s t o m s
Information"
A m e r i c a n Insurance Association, l e t t e r f r o m W a l t e r D . V i n y a r d , Jr.,
counsel
A m e r i c a n Society of C o r p o r a t e Secretaries Inc., m a n u a l f o r p r o x y solicitat i o n of stock i n brokers' names
A n t i - D e f a m a t i o n League of B ' n a i B ' r i t h :
D o c u m e n t a t i o n concerning t h e A r a b b o y c o t t of Israeli-connected
firms a n d A m e r i c a n Jewish
firms
Exchange of correspondence w i t h D e p a r t m e n t of Commerce regarding
the Arab boycott
L e t t e r t o D e p a r t m e n t of H e a l t h , E d u c a t i o n , a n d W e l f a r e r e l a t i v e t o
I l l i n o i s Office of E d u c a t i o n
M a n d a t o r y disclosure of b o y c o t t compliance a n d s e l f - i n c r i m i n a t i o n . _
Belvedere Products I n c . , l e t t e r f r o m T e d Cowen, president, enclosing a
c o m m u n i c a t i o n f r o m t h e League of A r a b States
C i t i b a n k M o n e y I n t e r n a t i o n a l , r e p r i n t of article prepared b y C i t i b a n k ' s
economics d e p a r t m e n t on " O P E C C a p i t a l S u r p l u s "
(in)
70
23
D a v i d B r o d y , D i r e c t o r , W a s h i n g t o n office, A n t i - D e f a m a t i o n League,
accompanied b y M e y e r Eisenberg, member, A D L N a t i o n a l C o m mission, J u s t i n Finger, associate director, C i v i l R i g h t s D i v i s i o n
Joseph W . L e i m e r t , c h a i r m a n , task force o n i n t e r n a t i o n a l f i n a n c i a l affairs,
N a t i o n a l Association of M a n u f a c t u r e r s , accompanied b y J o h n K l i n e ,
director, I n t e r n a t i o n a l P r o g r a m D e v e l o p m e n t D e p a r t m e n t , a n d J o h n
F i n c h , assistant general counsel, I n t e r n a t i o n a l Affairs
D a v i d T . D e v l i n , vice president, F i r s t N a t i o n a l C i t y B a n k of N e w York__
ADDITIONAL
2
179
359
398
212
201
282
195
69
343
IV
Equal E m p l o y m e n t O p p o r t u n i t y Commission, p a r t i c i p a t i o n i n a case of
discrimination against an American employee of an overseas corporation.
Justice Department, subsequent letter received f r o m A n t o n i n Scalia,
Assistant A t t o r n e y General
Labor Department, reprint of report t i t l e d " L a b o r L a w and Practice i n
the K i n g d o m of Saudi A r a b i a "
League of A r a b States, Damascus, S.A.R., letter f r o m M o h a m m e d M a h m o u d Mahgoub, commissioner general
N a t i o n a l Association of Manufacturers, letter i n response t o request of
Senator Stevenson, f r o m J. P. Leimert, chairman, Task Force on I n t e r national Finance Affairs
New Y o r k Stock Exchange:
L e t t e r t o George A. Fitzsimmons, Secretary, Securities and Exchange
Commission
Statement and additional material received for the record
Securities and Exchange Commission:
R a y Garrett, Jr., Chairman, statements before:
I n t e r n a t i o n a l Finance Subcommittee
Securities Subcommittee
M e m o r a n d u m of M a r c h 5, 1975, containing analysis of S. 425
State Department, statement of Thomas O. Enders, Assistant Secretary
for Economic and Business Affairs, before the Senate Subcommittee on
Foreign Commerce
Treasury D e p a r t m e n t :
Gerald L . Parsky, Assistant Secretary, statements before:
House Committee on Foreign Affairs
Senate Subcommittee on I n t e r n a t i o n a l Finance
R e p r i n t of cable sent t o all diplomatic posts abroad
Summary of Federal laws bearing on foreign investment
U n i t e d States Council of the I n t e r n a t i o n a l Chamber of Commerce, Inc.,
statement on S. 1303
U n i v e r s i t y of Petroleum and Minerals, Dhahran, Saudi Arabia, r e p r i n t of
letter sent to an American
firm
Page
275
174
278
69
331
380
362
144
148
152
48
104
79
134
110
353
181
FOREIGN INVESTMENT AND ARAB BOYCOTT
LEGISLATION
T U E S D A Y , J U L Y 22, 1975
U . S . SENATE,
C O M M I T T E E ON B A N K I N G , H O U S I N G A N D U R B A N A F F A I R S ,
S U B C O M M I T T E E ON I N T E R N A T I O N A L F I N A N C E ,
Washington,
D.C.
The subcommittee met at 10:08 a.m. in room 1224 of the Dirksen
Senate Office Building; Senator Adlai Stevenson, chairman of the
subcommittee, presiding.
The chairman announced that Mr. Packwood was necessarily absent
because he was attending a meeting of the Senate Finance Committee.
Senator STEVENSON. The meeting of the Subcommittee on International Finance will now come to order.
This morning we continue our hearings on foreign investment and
Arab boycott legislation.
These hearings began more than a year ago. No legislation has been
reported.
Since the hearings first began, there have been a number of changes.
OPEC monetary surpluses have accumulated. Evidence of Arab boycott pressures has mounted.
I n 1974 the monetary surpluses of the oil producing states rose to
$60 billion. The dimensions of those surpluses this year and next are
in doubt. But another oil price increase is probable in the near future.
This mounting wealth in Arab States brings with it, of course, a
vast increase in power.
For 1974 as a whole, U.S. firms reported 785 transactions involving
$9.9 million of e* ports which they had asked to apply with Arab boycott request. But for the first half of 1975—this is just the first half—
the number of such transactions had climbed to 1,996 involving well
over $200 million in U.S. exports as opposed to 9.9 million for all of
1974.
The purpose of these hearings is to address this challenge to U.S.
interests and U.S. principles.
The U.S. commitment to an open door policy assumes that others
will do likewise. When they do not, it is time to reexamine our policy.
Our purpose is to encourage the free flow of goods and services
in world commerce, and to discourage such restrictive practices as the
Arab boycott.
Our first witness this morning is Mr. John Tabor, the Under
Secretary of Commerce.
Mr. Tabor, you are welcome to either read this statement or, if
you prefer to summarize it, in which case I would be glad to enter
the full statement in the record.
(1)
2
STATEMENT OF JOHN K. TABOR, UNDER SECRETARY OF
COMMERCE
Mr. TABOR. Mr. Chairman, first of all, it is a pleasure to be here
before you. I hope you w i l l forgive a froggy throat, but I w i l l attempt
to communicate clearly with you.
Substantially, I would like to read the statement as is and I certainly want to make myself very fully available on questions to the
Chair and the members of the committee.
A t the outset, Mr. Chairman, I would like to state that the Department of Commerce opposes, as does the U.S. Government, the Arab
boycott and the Department of Commerce fully supports the declarations of policy which are well expressed in the existing Export Administration Act covering this and other boycotts.
I would also like to state at the outset, Mr. Chairman, Commerce's
wholehearted support of the President's statement in February that
commercial discrimination based on religion or race has no place in
the United States and that U.S. Government instruments w i l l not
be used to aid or abet such a rationale or religious discrimination.
But, recognizing, as we do, these broad and very sound principles,
we want very much to comment on the particular pieces of legislation
which your committee now has under review.
I f I may, I would like to comment first on S. 958 and Senator
Williams' amendment to S. 425, as both would impact on the Arab
boycott situation.
I w i l l then turn to the broader issues of foreign investment addressed
in S. 425, S. 995 and S. 1303.
Speaking first, Mr. Chairman, about S. 958, this bill contemplates
four changes in the Export Administration Act of 1969.
First, sections 3(5) ( A ) and 3(5) (B) of the act declares that the
policy of the United States is:
( A ) to oppose restrictive practices or boycotts fostered or imposed by foreign countries against other countries f r i e n d l y to the U n i t e d States, a n d ( B ) to
encourage and request domestic concerns * * * to refuse to take any action * * *
w h i c h has the effect of f u r t h e r i n g or supporting * * * (such restrictive practices
or boycotts).
S. 953 would extend the scope of the above declarations of policy
to include restrictive practices or boycotts against U.S. concerns as well
as "other countries friendly to the United States."
Second, S. 953 would amend section 4(b) (1) of the act that requires:
* * * that all
f o r m a t i o n or the
act) * * * must
as he may deem
domestic concerns receiving requests f o r the f u r n i s h i n g of insigning of agreements as specified i n * * * (section 3 ( 5 ) of the
report this f a c t to the Secretary of Commerce f o r such action
appropriate t o c a r r y out the purposes of t h a t section.
That is the present language.
S. 953 would amend the act to read " * * * for such action as the
President may deem appropriate * * * " thereby transferring the
authority from the Secretary of Commerce to the President, who could
then delegate it as he saw fit.
The third amendment contemplated by the bill would require U.S.
concerns, when reporting on boycott requests such as those described
in the declarations of policy, to include:
3
A n y other i n f o r m a t i o n w h i c h the Secretary (of Commerce)
regarding such request and intended compliance t h e r e w i t h * * *
may
require
This provision makes somewhat more specific the discretionary
authority currently assigned to the Secretary of Commerce.
Finally, and this is the focus of the major interest we have, S. 953
would amend section 4(b) (1) of the act to provide that boycott requests received by domestic concerns should be reported:
* * * f o r such action as the President may deem appropriate to carry out
the purposes of t h a t section, including the curtailment by any United States
concern of exports to, investments in, or any other economic transactions
w i t h countries which impose boycotts or engage i n restrictive trade practices
as presently i n effect.
As presently drafted, section 4(b) (1) does not specify or illustrate
the kind of action which the President might take to deal with a boycott.
Mr. Chairman, it is our view that under the foreign policy provisions of the Export Administration Act the President currently
has the authority to curtail exports from the United States to cope
with a boycott.
Accordingly, the proposed reference to curtailment of exports is
merely illustrative of present authority and in our opinion is unnecessary.
The specific reference to other measures such as curtailment of investments in, or any economic transactions with, countries imposing
boycotts gives us in the Department of Commerce particular difficulty.
As you know, such authority exists under section 5 (b) of the act of
October 6, 1917, and was in fact exercised in 1968 to restrict U.S. investments abroad on balance-of-payments grounds when President
Johnson established by Executive order the foreign direct investment
program that has been terminated as of the beginning of January of
1974.
We question the wisdom of enlarging the scope of the Export Administration Act to provide authority going beyond the regulation of
exports.
The amendments contemplated by S. 953 are obviously aimed at the
secondary boycott imposed by the Arab nations against firms in third
countries undertaking activities which the Arabs consider as contributing to the economic and defense capabilities of the State of Israel.
Even though, under the language of the bill, the authorities provided by the four amendments are discretionary, we have reservations
about the effect of their enactment.
I n addition to the reasons noted above, enactment of this bill could
place the United States in an undesirable posture in relation to the
Arabs at this moment when we are making strong efforts to achieve a
peaceful solution to the Middle East situation.
Mr. Chairman, we believe, S. 953 is unnecessary as to control of exports for foreign policy reasons and unwise as to control of investment
or other economic actions.
We have grave doubts as to the timing of the action proposed because
of the negotiations now proceeding.
There is also a Presidential review underway. We expect it to result
in recommendations and actions and we believe it wiser to await the
4
results of this Presidential study, before undertaking new legislative
initiatives.
Let me turn to the boycott amendment to S. 425.
The proposed amendment would, in effect, and with specified extensions and exceptions, prohibit the acquisition of substantial equity
interest in U.S. companies—or, alternatively, could lead to divestiture
of such interest or the voting rights of such investors—on the part of
foreign investors who, within 1 year, have taken actions to discriminate
against any U.S. company, or person, because of the latter's dealings
with the government or a resident of any country with whose government the United States had diplomatic relations.
The basic principle underlying U.S. investment policy has always
been an open door to and national treatment of, foreign investment.
This amendment would represent a very fundamental departure
from that liberal policy, based solely on our disapproval of certain
foreign government policies. This is something we have never done
before.
The effect of enacting this amendment would be potentially to exclude virtually all equity investment in the United States by Arab
countries.
A t a time when the Arab countries are receiving vast inflows of
capital which their economies cannot absorb, the adverse effects of
such legislation on the recycling of such transfers could be serious.
The language of the proposed amendment is designed to protect
the interests of governments and residents of friendly countries.
I t may be appropriate here to recount briefly the operation of the
Arab boycott.
As you know, the boycott has its origins in the long-standing ArabIsraeli dispute resulting from the creation of the state of Israel in
1948.
The boycott has worldwide application and is, by no means, directed
only at U.S. interests. I t operates both as a primary boycott aimed at
preventing direct economic relations between Arab States and Israel,
and as a secondary boycott by seeking to influence firms in third countries not to establish certain types of relationships with Israel.
I n that context, it generally is applied to firms undertaking activities which the Arabs consider as contributing to the consolidation of
the economic and defense capabilities of Israel, with which the Arab
nations are in a state of conflict.
Thus, it is possible for firms to trade with the state of Israel and with
Arab countries as long as the involvement with Israel does not reach
a level which the Arabs consider to be beyond normal commercial
activities.
This is illustrated by the types of questions generally contained in
most Arab boycott questionnaires sent to firms with which the Arabs
contemplated doing business.
Such questionnaires typically inquire:
1. Do you have main or branch factories, assembly plants, or joint
ventures in Israel ?
2. Do you hold shares in Israeli companies ?
3. Do you provide technical assistance or consultative services to
Israel ?
5
4. D o y o u m a i n t a i n general agencies or m a i n offices i n I s r a e l f o r
M i d d l e E a s t operations ?
5. D o y o u license technology t o I s r a e l ?
6. A r e y o u prospecting f o r n a t u r a l resources i n Israel?
7. A r e y o u a c t i n g as the p r i n c i p a l i m p o r t e r o r agency f o r I s r a e l i
goods ?
T h e enactment o f the amendment w o u l d be i n t e r p r e t e d b y t h e A r a b
countries as a s h i f t i n U . S . f o r e i g n p o l i c y a n d c o u l d jeopardize ong o i n g efforts at a c h i e v i n g a peaceful settlement o f t h e M i d d l e E a s t
situation.
W e continue t o believe v e r y s t r o n g l y t h a t t h e o n l y viable means o f
completely e n d i n g the A r a b boycott lie i n the conclusion o f t h e state
o f conflict w h i c h p r e v a i l s i n the M i d d l e East a n d a settlement o f the
u n d e r l y i n g issues w h i c h p r o m p t e d i t .
Chances f o r such a settlement could be jeopardized b y t h e enactment o f t h i s amendment.
E n a c t m e n t o f t h i s amendment, moreover, w o u l d n o t p u t an end
t o t h e economic sanctions against the state o f Israel. T h e r e is every
l i k e l i h o o d t h a t t h e A r a b s w o u l d , a n d could, find other uses f o r t h e i r
c a p i t a l , i f t h e y were d e p r i v e d o f investment o p p o r t u n i t i e s i n the
U n i t e d States.
I t should be noted t h a t no other c o u n t r y i n t h e w o r l d has enacted
any l e g i s l a t i o n o p p o s i n g t h e A r a b boycott o f Israel. T h e A r a b s could,
therefore, be expected t o invest i n other c a p i t a l markets.
A s t o S. 425, S. 995 a n d S. 1303, t h e D e p a r t m e n t has previously
testified on S. 425 before t h e B a n k i n g Committee's Subcommittee on
Securities on M a r c h 4, 1975, a n d o n S. 995 a n d S. 1303 before the
Commerce Committee's Subcommittee on F o r e i g n Commerce and
T o u r i s m , and o u r views respecting these b i l l s r e m a i n unchanged.
S. 425 w o u l d amend the Securities E x c h a n g e A c t t o require residence, n a t i o n a l i t y a n d other a d d i t i o n a l i n f o r m a t i o n o n beneficial
owners a f t e r acquisition o f over 5 percent o f t h e shares o f a p u b l i c l y
t r a d e d corporation.
I t w o u l d also require advance filing b y f o r e i g n investors a c q u i r i n g
5 percent or more o f t h e equity o f a U . S . company w i t h assets exceedi n g $1 m i l l i o n .
Such acquisitions w o u l d be subject t o P r e s i d e n t i a l review a n d disa p p r o v a l , i f f o u n d adverse t o the U . S . domestic economy, f o r e i g n
p o l i c y , o r n a t i o n a l security.
T h e r e are provisions f o r n u l l i f i c a t i o n o f acquisitions, f r e e z i n g o f
v o t i n g r i g h t s a n d divestiture.
S. 995 also proposes an investment review procedure, i n t h i s case
t o be c a r r i e d o u t b y the Secretary o f Commerce, a n d l i m i t e d t o f o r e i g n
g o v e r n m e n t investments.
I n t h e case o f investments a m o u n t i n g t o 1 percent o f t h e equity
or debt obligations o f U . S . firms w i t h assets over $100 m i l l i o n , o r real
estate investments o f $4 m i l l i o n , t h e Secretary w o u l d make a n a t i o n a l
interest d e t e r m i n a t i o n w i t h i n 9 months, the c r i t e r i a b e i n g the f u l f i l l ment o f developmental c a p i t a l needs or e m p l o y m e n t expansion.
T h e r e w o u l d be a 60-day w a i t i n g p e r i o d a f t e r a p p r o v a l . T h e Secret a r y w o u l d make a d e t e r m i n a t i o n w i t h i n 60 days i n the case o f investments i n smaller firms or lesser real estate investments.
6
Foreign government investments would be barred in communications and defense industries.
T h e D e p a r t m e n t o f Commerce opposes enactment o f S. 425 and
S. 995 because they represent a substantial d e p a r t u r e f r o m o u r t r a d i t i o n a l open door p o l i c y on f o r e i g n investment w h i c h has b r o u g h t great
benefits t o t h e U n i t e d States.
I believe Assistant Secretary Parsky will develop that point in
considerable depth.
I f u l l y appreciate t h e concern expressed t h r o u g h t h e proposed legisl a t i o n over t h e effects o f recent a n d a n t i c i p a t e d f o r e i g n d i r e c t investments on o u r n a t i o n a l security a n d o n o u r n a t i o n a l economy.
On the basis of data currently available, we have no reason to believe
they represent a threat to our security or that there is any movement
toward foreign control of our economy.
U n w a r r a n t e d restrictions on f o r e i g n investments i n v i t e r e t a l i a t i o n
against our s i x f o l d l a r g e r investments abroad. T h e y i n t e r f e r e w i t h the
most efficient exchange o f the w o r l d ' s economic resources. T h e y i n j e c t
g o v e r n m e n t a l j u d g m e n t s i n t o p r i v a t e enterprise operations. T h e y
create vast a n d expensive bureaucracies.
The imposition of investment controls here would militate against
our continued leadership in international efforts to liberalize trade,
investment, and financial flows.
Restrictions will deter beneficial foreign investments here that could
contribute importantly to domestic economic growth and employment
and provide new technology and new, better and cheaper products for
the American public.
I observed earlier, M r . C h a i r m a n , t h a t the urgency o f t h e need f o r
the t y p e o f action proposed b y these b i l l s has n o t been demonstrated.
B e f o r e c o m m e n t i n g f u r t h e r on t h e issue, I w o u l d l i k e t o summarize
the provisions o f S. 1303.
I t establishes a F o r e i g n I n v e s t m e n t A d m i n i s t r a t i o n i n the D e p a r t ment o f Commerce t o collect a n d analyze i n f o r m a t i o n on f o r e i g n
investments i n t h e U n i t e d States.
I t requires the r e p o r t i n g o f any f o r e i g n investments i n companies
where shares are p u b l i c l y t r a d e d w h i c h result i n 5 percent o r more
direct or i n d i r e c t ownership b y the f o r e i g n investor.
M o r e o v e r , i t requires r e p o r t i n g o f investments i n companies whose
stocks are n o t p u b l i c l y t r a d e d a n d have assets o f $3 m i l l i o n o r more
w h i c h result i n 10 percent f o r e i g n ownership a n d i n real estate exceedi n g $50,000 i n value.
Additionally, investments in U.S. Government securities exceeding
$1 million must be reported.
These reports, which are to contain details on the investment and
the name and nationality of the investor, are also required, respecting
investments in the form of loans, long-term contracts, or ownership of
property which provide or could provide a foreign investor predominant influence in company management or operations or property
ownership valued at over $i million.
The Secretary of Commerce would publish quarterly reports, including information on aggregate foreign investment trends, and a
list of transactions.
He would make an annual report which would contain a detailed
analysis of the previous year's investments, together with policy
recommendations.
7
W h e n t h e D e p a r t m e n t o f Commerce testified on S. 1303, we stated
t h a t there was m u c h i n the proposed legislation w h i c h was appealing,
because i t sought to f i l l an i n f o r m a t i o n gap w h i l e w i t h h o l d i n g j u d g ment t h a t there is a need f o r a case-by-case review b y the G o v e r n m e n t
o f proposed investment transactions.
W e recognized there was a b r o a d consensus t h a t the A m e r i c a n
people and the Congress need t o be i n f o r m e d b o t h o f general developments respecting f o r e i g n investments i n the U n i t e d States and o f
m a j o r specific investment activities i n v o l v i n g n a t i o n a l security or
n a t i o n a l interest considerations.
I n f o r m a t i o n on f o r e i g n investments i n the U n i t e d States is needed
b y the Congress i n the f o r m u l a t i o n o f legislative proposals i n the
investment field; and also b y t h e executive b r a n c h w h i c h has s i m i l a r
needs t o f u l f i l l i t s p o l i c y f o r m u l a t i o n a n d p r o g r a m i m p l e m e n t a t i o n
requirements.
Balanced against these needs are the basic p r i n c i p l e s o f m i n i m u m
g o v e r n m e n t a l interference w i t h p r i v a t e business a c t i v i t y and o f protection o f business f r o m revelation of confidential i n f o r m a t i o n essent i a l to l e g i t i m a t e business a c t i v i t y .
A d d e d t o these considerations are the a d m i n i s t r a t i v e costs o f any
extensive d a t a - g a t h e r i n g , analysis, and r e p o r t i n g p r o g r a m a n d the
corresponding cost to business o f c o m p l y i n g w i t h such a p r o g r a m .
I f there were a clear and demonstrable present danger t o our nat i o n a l security or o u r n a t i o n a l interest, we could understand the need
f o r establishing a rigorous and costly investment m o n i t o r i n g regime
such as the amendment purposes.
H o w e v e r , we do n o t believe t h a t the m a g n i t u d e o f c u r r e n t and neart e r m f o r e i g n investment represents a t h r e a t w h i c h w a r r a n t s t h a t
response.
There is no question t h a t o u r i n f o r m a t i o n g a t h e r i n g efforts need
to be i m p r o v e d ; b u t there is l i t t l e reason t o believe at t h i s t i m e t h a t
m a j o r transactions o f n a t i o n a l significance have been or w i l l be consummated w i t h o u t o u r notice.
I base t h a t , M r . C h a i r m a n , on t w o m a j o r efforts u n d e r w a y to i m prove o u r store o f i n f o r m a t i o n , t o analyze such i n f o r m a t i o n , a n d t o
i m p r o v e o u r d a t a - g a t h e r i n g mechanisms.
F i r s t , we are w e l l advanced i n our studies o f a l l aspects o f f o r e i g n
direct investment i n the U n i t e d States called f o r by P u b l i c L a w 93479, t h e F o r e i g n Investment S t u d y A c t o f 1974.
W e shall be s u p p l y i n g an i n t e r i m r e p o r t to t h e Congress i n late
October and a final r e p o r t at the end o f A p r i l 1976.
T h e T r e a s u r y D e p a r t m e n t is p r e p a r i n g a p a r a l l e l study on p o r t f o l i o
investments.
I n a d d i t i o n t o our statistics survey based on m a n d a t o r y responses
to thousands o f questionnaires mailed out early t h i s year by our B u reau o f t h e Census, we s h a l l have a q u a l i t a t i v e analysis respecting
the m o t i v a t i o n s f o r f o r e i g n investments i n the U n i t e d States, t h e i r
techniques, t h e i r economic effects, and the comparative p o l i c y and
legal climate affecting i n w a r d f o r e i g n direct investments i n t h i s count r y a n d other host countries.
I should l i k e t o p o i n t out t h a t the t h r u s t o f the study is not s i m p l y
f a c t u a l — n o t m e r e l y a r e c i t a l o f w h a t has happened i n the past—
b u t , r a t h e r , i t looks i n t o the f u t u r e .
8
T h e real concern a t t h i s t i m e is n o t so m u c h w i t h investment i n creases reflecting general commercial considerations as w i t h those
t h a t have occurred o r are l i k e l y t o occur i n connection w i t h t h e rec y c l i n g o f petrodollars, the i m p a c t o f t h e q u a n t u m j u m p i n energy
costs, a n d t h e interest i n greater access t o and use o f o u r n a t i o n a l
resources b y f o r e i g n - c o n t r o l l e d companies here.
I n a d d i t i o n t o t h e s t u d y w h i c h Congress m a n d a t e d t o M a y 7 o f
t h i s year, t h e President issued E x e c u t i v e O r d e r 11858 establishing a
h i g h - l e v e l I n t e r a g e n c y C o m m i t t e e on F o r e i g n I n v e s t m e n t i n the
U n i t e d States t o survey investment developments t o ascertain t h e i r
p o t e n t i a l i m p a c t on o u r n a t i o n a l interest, and t o take a p p r o p r i a t e
actions consistent w i t h o u r policies a n d laws where specific investment
plans i n d i c a t e reason f o r concern.
A c e n t r a l element o f t h e p r o g r a m is g o v e r n m e n t - t o - g o v e r n m e n t
consultations t o insure t h a t government investments f r o m abroad
are n o t adverse t o o u r n a t i o n a l security interests.
T h e E x e c u t i v e order also requires the Secretary o f Commerce,
t h r o u g h an office w h i c h is established t o collect a n d analyze d a t a on
f o r e i g n investment i n t h e U n i t e d States; t o i m p r o v e procedures f o r
the collection a n d dissemination o f such d a t a ; t o observe closely f o r e i g n investments here; t o prepare reports a n d analyses o f t r e n d s a n d
developments; t o evaluate significant investment t r a n s a c t i o n s ; a n d
finally t o s u b m i t reports, analyses a n d recommendations t o t h e comm i t t e e created b y t h e E x e c u t i v e order.
P u r s u a n t t o t h i s E x e c u t i v e order a special "Office o f F o r e i g n I n v e s t m e n t i n the U n i t e d States" has been established, a n d its staffing a n d
p r o g r a m p l a n n i n g are w e l l u n d e r w a y i n the D e p a r t m e n t o f Commerce.
I t s f i r s t order o f business has been t o w o r k j o i n t l y w i t h a m a n agement c o n s u l t i n g f i r m to develop procedures t o r a t i o n a l i z e t h e datag a t h e r i n g efforts o f t h e Federal agencies on f o r e i g n investments i n
t h i s c o u n t r y a n d t o develop a system f o r p r o m p t d e l i v e r y o f u s e f u l
d a t a t o t h e Office.
W e i n Commerce are confident t h a t t h e p r o g r a m s w h i c h I have
j u s t o u t l i n e d w i l l p r o v i d e the Congress a n d the executive b r a n c h
w i t h adequate i n f o r m a t i o n on w h i c h t o make n a t i o n a l p o l i c y decisions
i n t h e f o r e i g n investment field.
O n t h i s basis we are opposed to the enactment o f S. 1303 as b e i n g
n o t o n l y unnecessary b u t undesirable.
M r . C h a i r m a n , I t h a n k you, and I stand ready t o answer any quest i o n s y o u or the members o f t h e committee m a y have.
Senator STEVENSON. T h a n k you, M r . T a b o r .
I t h i n k we o u g h t t o s t a r t b y c l a r i f y i n g the i n t e n t i o n o f S. 425. I t
is n o t clear f r o m the present d r a f t i n g , but as I u n d e r s t a n d i t . the
a u t h o r o f t h a t legislation was a t t e m p t i n g t o address t h e secondary
b o y c o t t s i t u a t i o n i n w h i c h the f o r e i g n government prevents a U . S .
concern f r o m d o i n g business i n t h e f o r e i g n c o u n t r y i f i t does business
w i t h another U . S . concern.
T h e i n t e n t i o n o f S. 4 2 5 , 1 am t o l d b y its a u t h o r , was t o address t h e
secondary boycott situation. T h a t is n o t clear f r o m the language.
T h e A r a b government, f o r example, w h i c h says t o I B M y o u can't
do business i n o u r c o u n t r y i f y o u do business w i t h some o t h e r U . S .
concern.
9
N o w , w i t h t h a t u n d e r s t a n d i n g o f t h e i n t e n t , w h i c h I g r a n t y o u requires c l a r i f i c a t i o n i n the language, w o u l d y o u r views r e m a i n the
same?
M r . TABOR. W e l l , M r . C h a i r m a n , as I understand S. 425, a n d also
the secondary boycott doctrine here involved, the secondary boycott
operates w h e n a company i n t h i s c o u n t r y has dealings o r activities
w h i c h s u b s t a n t i a l l y strengthen t h e m i l i t a r y or economic capacity and
v i a b i l i t y o f t h e State o f Israel.
I t h i n k the p r i m a r y boycott is aimed a t r e s t r i c t i n g commercial act i v i t i e s between the A r a b nations and the State o f Israel. T h e seco n d a r y boycott is directed at U . S . firms, E u r o p e a n firms, or A s i a t i c
f i r m s w h o are neither allies o f t h e A r a b s n o r I s r a e l i , b u t w h i c h have
engaged i n commercial relations w h i c h the A r a b s believe contribute
to t h e economic or defense capabilities o f t h e State o f I s r a e l . . . i t is
an a t t e m p t t o make f i r m s i n t h i r d countries such as t h e U n i t e d States,
not i n v o l v e d i n t h a t w a r d i r e c t l y , observe so t h a t t h e y cease f r o m g i v i n g t h e k i n d o f economic assistance w h i c h w o u l d strengthen t h e State
o f Israel.
T h a t is w h a t I understand the secondary boycott t o be.
I h a d not heard or read o r seen any evidence o f t h e d e s c r i p t i o n t h a t
y o u have given. I surely have n o t heard o f t h e A r a b s a t t e m p t i n g t o
prevent one U . S . f i r m ( c a l l i t X ) f r o m p u r c h a s i n g any a n d a l l goods
or services f r o m another U.S. f i r m ( c a l l i t Y ) w h i c h is blacklisted.
I have heard o f t h e A r a b s a t t e m p t i n g t o prevent o u r U . S . firm ( X )
f r o m selling goods t o the A r a b s w h i c h X m a n u f a c t u r e d u s i n g goods
or services purchased f r o m Y w h i c h is blacklisted.
Senator
STEVENSON.
Page
2,
starting at line
2.
M r . TABOR. T h i s is of 425 ?
Senator STEVENSON. T h i s is the amendment to 425. I t says the
President shall p r o h i b i t any investment i f he d e t e r m i n e s — I am parap h r a s i n g — t h a t the f o r e i g n investors has caused or attempted to cause
any U . S . company w i t h respect to its business i n any c o u n t r y not t o
do business w i t h any person.
T h e n i t expressly excepts a c o u n t r y w i t h w h i c h such f o r e i g n investors does n o t have d i p l o m a t i c relations.
I t is v e r y c o n f u s i n g l y d r a f t e d , to say the least. I am h a v i n g a l i t t l e
trouble myself.
M r . TABOR. N a t u r a l l y I agree, perhaps i t could be cleaned up.
Senator STEVENSON. B u t assuming t h a t y o u get the language
straightened out and t h a t i t applies o n l y t o a f o r e i g n c o u n t r y w h i c h
boycotts, not countries, b u t a U . S . company because i t does business
w i t h some other U . S . company w h i c h i n t u r n does business i n Israel,
w o u l d y o u r views r e m a i n the same about t h i s amendment?
M r . TABOR. AS I said earlier, M r . C h a i r m a n , I d o n ' t read the act as
doing that.
Senator STEVENSON. NO; b u t t h i s is something t h a t the act does
w h i c h I a m t o l d is the i n t e n t i o n o f its author.
M r . TABOR. W e also have n o t seen any evidence o f inquiries, f o r example, i n all o f the i n f o r m a t i o n w h i c h is required under the present
l a w t o be filed.
There has not been that kind of request either for information or
for a ction by the Arab countries.
10
So t h a t i t is something t h a t we j u s t h a v e n ' t seen i n action a n d I
a m n o t sure t h a t we o u g h t t o be l e g i s l a t i n g f o r problems f o r w h i c h
we d o n ' t have c u r r e n t evidence to the best o f m y knowledge.
Senator STEVENSON. M r . T a b o r , y o u a l l u d e d i n y o u r t e s t i m o n y t o
w h a t I t h i n k y o u said were t y p i c a l A r a b questionnaires.
M r . TABOR. Y e s .
Senator STEVENSON. Does the A r a b boycott have s t a n d a r d questionnaires or are there a v a r i e t y o f d i f f e r e n t questionnaires d e p e n d i n g on
t h e c o u n t r y t h a t is i n v o l v e d or other factors ?
M r . TABOR. I w i l l ask M r . H u l l , t h e assistant general counsel, t o supplement, a n d M r . H a l e also, t o supplement m y answer on t h i s f o r
the chair.
I t is m y u n d e r s t a n d i n g t h a t one o f t h e t h i n g s t h a t does occur is t h a t
either b y l a w or r e g u l a t i o n i n some o f the A r a b countries t h e y req u i r e c e r t a i n t h i n g s t o be determined b y p r i v a t e companies operati n g i n those countries w h e n t h e y deal i n t h e a t t e m p t t o enforce t h e
secondary boycott w i t h companies i n t h i r d countries such as ours.
I s there a s t a n d a r d l i s t o f questions ? M r . H a l e , w h o is t h e d i r e c t o r
o f t h e Commerce A c t i o n G r o u p , N e a r E a s t , so-called C A G N E . M r .
Hale,
M r . HALE. I w o u l d believe the seven questions i n t h e t e s t i m o n y
c o u l d be viewed as standard. M a n y o f the various A r a b countries
supplement these or take some o f t h e m off u n d e r various circumstances.
B u t t o the best o f our knowledge t h e s t a n d a r d questionnaire w o u l d
include questions o f t h i s type.
I n a t r a n s a c t i o n where a couple o f these questions m i g h t be t o t a l l y
i r r e l e v a n t , say questioning a f i r m t h a t is obviously p u r e l y j u s t an
e x p o r t manager, they w o n ' t get i n t o t h e investment questions since
the f i r m w o u l d n o t have any reason t o have any investment.
B u t generally speaking t h i s w o u l d be the s t a n d a r d f o r m as requested
b y t h e boycott office i n Damascus requesting t h e member countries o f
the A r a b League t o raise these questions.
Senator STEVENSON. I ask t h a t question because a company i n
I l l i n o i s , Belvedere Products, I n c . , sent me a copy o f t h e questionnaire
w h i c h i t h a d received, a n d I raise i t n o w because i t is relevant t o t h e
question we were discussing earlier about the r e l a t i o n s h i p between
U . S . companies a n d the r e s t r i c t i v e practices o f f o r e i g n governments
w i t h respect t o companies t h a t do business w i t h other U . S . companies.
These gentlemen have i n d i c a t e d t h a t they are w i l l i n g t o have t h i s
correspondence, i n c l u d i n g the questions, made public.
So, w i t h o u t objection, I w i l l enter t h i s letter t o me f r o m M r . T e d
Cowen o f Belvedere P r o d u c t s i n t h e record a l o n g w i t h t h e questionnaire w h i c h he received dated M a r c h 27, 1975, f r o m t h e League o f
A r a b States, Secretariat General, Damascus.
T h i s company, I should say at the outset, was sold b y R e v l o n . A n d
R e v l o n a p p a r e n t l y is a company on t h e boycott l i s t .
T h i s company w h i c h was sold b y R e v l o n was t r y i n g t o get off the
boycott list.
i n response t o its efforts t o get off the b o y c o t t l i s t , i t was asked,
a m o n g other t h i n g s , t o s u p p l y the f o l l o w i n g i n f o r m a t i o n : a document
s h o w i n g the names and n a t i o n a l i t i e s o f t h e company's shareholders; a
statement s h o w i n g the names a n d n a t i o n a l i t i e s o f t h e company's
b o a r d o f d i r e c t o r s ; a document s h o w i n g whether the company con-
11
tinues t o have any dealings w i t h R e v l o n ; a declaration s h o w i n g
whether the c o m p a n y participates or owns shares i n I s r a e l i f i r m s or
businesses outside o r inside I s r a e l ; a declaration s h o w i n g w h e t h e r the
company represents any I s r a e l i f i r m o r business i n I s r a e l or abroad.
M r . TABOR. C o u l d y o u read t h a t again, M r . C h a i r m a n , a declaration ?
Senator STEVENSON. T h e last one, a declaration s h o w i n g whether the
company represents any I s r a e l i firm or business i n I s r a e l or abroad.
T h e y d o n ' t make i t clear w h a t t h e y mean b y I s r a e l i f i r m outside or
inside Israel, w i t h business i n I s r a e l o r abroad.
T h i s goes beyond t h e k i n d o f i n f o r m a t i o n t h a t y o u were a l l u d i n g t o
earlier.
I s t h i s a special k i n d o f s i t u a t i o n ? I t is s l i g h t l y d i f f e r e n t f r o m t h e
context we were discussing earlier.
I n t h i s case the company is t r y i n g t o get off the list. I t was on
because i t h a d been a subsidiary o f Revlon.
M r . TABOR. M r . C h a i r m a n , I a m d e l i g h t e d t o have t h a t called t o our
attention. I do have a couple o f comments. I w o u l d d i s t i n g u i s h between
requests concerning n a t i o n a l i t y a n d those concerning n a t i o n a l o r i g i n .
I t h i n k i t is r e p u g n a n t t h a t t h e y should i n q u i r e about the n a t i o n a l
ethnic o r i g i n o f any b o a r d member, any stockholder, anybody. T h i s
w o u l d d i s c r i m i n a t e between A m e r i c a n s on the basis o f t h e i r ancestry
or t h e i r place o f b i r t h . I t h i n k we are a l l i n t h i s c o u n t r y t o t a l l y opposed t o t h a t . W e must also d i s t i n g u i s h between questions r e g a r d i n g
" I s r a e l i " o w n e r s h i p or c o n t r o l o f a firm a n d questions t h a t w o u l d
i n q u i r e about " J e w i s h " ownership or control.
I w o u l d l i k e t o j u s t note, M r . C h a i r m a n , t h a t when we l e a r n about
t h a t k i n d o f r e p u g n a n t i n q u i r v w h i c h involves the n a t i o n a l o r i g i n
or t h e r e l i g i o n o r t h e race of i n d i v i d u a l s as opposed t o inquiries
designed to determine whether a company is owned or c o n t r o l l e d b y
I s r a e l i nationals, o r is h e a v i l y i n v o l v e d i n c o n t r i b u t i n g t o the economic
development o f I s r a e l , we r e p o r t such i n q u i r y t o the D e p a r t m e n t s o f
State and Justice.
Recently, M r . C h a i r m a n , we h a d j u s t such a r e p o r t f r o m a company.
W e took i t t h r o u g h d i p l o m a t i c channels t o the v e r y h i g h levels o f the
government i n v o l v e d a n d the result o f t h a t wasi t h a t there was a clear
d e t e r m i n a t i o n a n d a statement b y the A r a b c o u n t r y i n v o l v e d t h a t t h i s
was not consistent w i t h t h a t country's p o l i c y and t h a t i t was not condoned a n d n o t approved a n d t h a t t h e y w o u l d do w h a t t h e y could t o
cure the s i t u a t i o n i n t h e f u t u r e .
I do t h i n k our experience is t h a t such ethnic or religious i n q u i r i e s
are isolated actions b y overzealous A r a b i n d i v i d u a l s other t h a n representative o f A r a b p o l i c y i n a d m i n i s t e r i n g the secondary boycott.
O b v i o u s l y , t h i s was, as I understand i t , R e v l o n was on the blacklist.
H e r e is a company t h a t was a t t e m p t i n g t o fret off the b l a c k l i s t o r get
away f r o m t h a t company w h i c h was blacklisted f o r whatever reason.
Senator STEVENSON. W e l l , we w i l l c e r t a i n l y r e f e r t h i s p a r t i c u l a r
m a t t e r t o you.
W e do have evidence o f other s i m i l a r situations.
I have a t e l e g r a m f r o m another company located i n Chicago w h i c h
indicates t h a t a subcontractor's contract w i t h a m a n u f a c t u r e r s u p p l y i n g bus seats f o r General M o t o r s buses to be sold t o S a u d i A r a b i a was
canceled a f t e r General M o t o r s raised the question o f whether t h e subcontractor was blacklisted.
12
A p p a r e n t l y that was a question raised by General Motors of the
seat manufacturer i n response to what concerns or pressures we don't
know.
The contract w i t h the subcontractor was canceled by G.M.'s supplier, evidence again of an effective secondary boycott against U.S.
firms.
M r . TABOR. Secondary boycott and action between firms w i t h i n the
U n i t e d States.
Senator STEVENSON. Yes. I t may not be clear, but that is one of the
concerns of S. 425. W h a t law is there to discourage such practices and
protect such companies? Should we do nothing? Should we just rely
on case-by-ease action by Commerce and the State Department?
I t sounds like on the basis of the evidence we have these situations
are not isolated or unusual. We do have others, as I mentioned.
M r . TABOR. W e l l , I t h i n k , M r . Chairman, the question raised by S.
425 is what action does one take. Clearly the action of i n v o l v i n g national o r i g i n and race is repugnant and we w i l l do what we have done
i n the past as soon as those arc brought to our attention. A n d I t h i n k
we are h a v i n g success.
I n terms o f the issue before us i n S. 425, the question is whether we
should express!v either mandate or make permissive the power of the
Department of Commerce to impose export controls i n that situation.
T h e burden of our testimony is that i n terms of authority, i f this
is a foreign policy question, and I believe that i t is, t h a t a u t h o r i t y
already exists f o r the Department of Commerce to exercise t h a t aut h o r i t y should i t determine that that is the appropriate t h i n g to do.
So t h a t the need f o r S. 425 is not really there. The authority already
exists.
Now, when you come on to the next question as to whether the executive branch through Commerce—and we obviously act i n these f o r eign policy areas i n consultation w i t h State as well as other interested
Departments—whether we ought at this point to interject export controls to deal w i t h that aspect of the embargo or boycott, this is a very
sensitive question at this particular time.
I t is our best judgment that i t is not advisable at this particular
time either through Executive decision or t h r o u g h a congressional
grant of authority or t h r o u g h a congressional mandate of a d u t y to
require t h a t action or take t h a t action at this time.
Senator STEVENSON. W e l l , what w o u l d your opinion be about legislation to simply make such discriminatory practices as we have referred to by one U.S. company against another illegal ?
M r . TABOR. W e l l , that is something t h a t I would certainly want to
give some careful thought to, to determine the extent of t h a t k i n d of
activity. A s I stated earlier, we have no evidence t h a t the Arabs are
seeking t o have one American company boycott another, other than
i n the contact of the purchase by the Arabs of goods and or services
f r o m t h a t particular companv.
Senator STEVENSON. W o u l d n ' t i t help these companies withstand
such pressures i f it were a U.S. crime to accede t o them ?
M r . TABOR. W e l l , I t h i n k there are a number of factors to weigh there
t h a t m i g h t help them withstand it.
I t m i g h t cause the loss of that particular economic opportunity w i t h
the jobs involved as well.
13
There is no necessity, when there is a refusal to comply w i t h these
requests, f o r the A r a b purchaser to purchase f r o m this country. A n d
I t h i n k that is one of the aspects that we have to bear i n mind. A n d
enacting legislation to p r o h i b i t such a practice does not mean that
the A r a b conduct ceases. I t just means that we may be excluding ourselves f r o m that particular market. I n other words, the Arabs w i l l
purchase elsewhere.
Senator STEVENSON. W e l l , I understand that, but i t seems to me that
w i t h l i t t l e or no action, we simply encourage continuation of such
restrictive trade practices.
There are analogies i n our laws internally, laws such as the Robinson-Patman A c t , which prohibit certain discriminatory forms of economic behavior. So to a degree there is precedent i n the U n i t e d States.
There is the pragmatic concern; the consequence m i g h t be to discourage such pressures on the one hand; on the other hand there is
the concern you mentioned, that i t m i g h t simply lead to loss of business that gets placed elsewhere.
M y own way of t h i n k i n g is that i n such ambiguous circumstances
we ought to side w i t h principle and take some chances and i n this case
attempt to discourage such commercial practices instead of doing l i t t l e
or nothing, and apparently encouraging such pressures upon our own
companies. A n d they are mounting, at least on the basis of the evidence
that is available to us, most of i t f r o m your Department.
M r . T A B O R . I would like to comment on that, M r . Chairman, because
at the very outset of your comments you noted that increased reported
dollar volume that is subject to the reporting requirement or has been
reported, and also the increased number of reports that have come
in.
I t h i n k i t is basically that increase that is the result of a much more
vigorous enforcement by the Department of Commerce i n the year
1975 than i n the year 1974 of the reporting law.
A s you perhaps are aware, I t h i n k we have t r i e d to keep you and
your staff i n f o r m e d ; beginning i n early 1975 we sent out over 30,000
notices to all exporters listed i n the American International Trader's
Index, reminding them of this law which they are required to comply
with.
W e also undertook to go back against people who had previously
been warned once of not complying w i t h the law, and we found five
violators.
W e brought charges against those. A n d that has all been i n the
newspapers. A n d I t h i n k i t does stimulate compliance w i t h the law
and the increased reporting: for those five.
F o u r of those five, incidentally, have consented to the m a x i m u m
fine and the fifth one is i n contest w i t h us.
B u t I t h i n k that those increased dollar volumes that you mentioned
earlier do not neeessarilv reflect an increase i n the intensity of the
A r a b effort. I t h i n k that they clearly reflect an increase i n the intensity
of enforcement by the Department of Commerce and the much greater
volume of reports that we are now getting on the A r a b boycott.
Senator STEVENSON. W h a t do you do i n cases of reported compliance ?
M r . T A B O R . Reported ?
Senator STEVENSON. Compliance w i t h the A r a b boycott.
5 8 - 5 2 7 O - 75 - 2
14
M r . HALE. A t this point, M r . Chairman, there is no legal d u t y on
the Department of Commerce t o do anything. A t this point i t is not
illegal i n this country to comply w i t h the A r a b boycott request.
I t is illegal f o r a company not to report t h a t request to enable the
Congress and the executive branch t o know the state of the boycott
strength.
Senator S T E V E N S . I t is not illegal, but i t is contrary to the policy
of the U n i t e d States to participate i n restrictive trade practices. I t is
U.S. policy to oppose such practices, and such policy is expressly
stated i n the E x p o r t A d m i n i s t r a t i o n A c t .
M r . T A B O R . T h a t is correct. A n d , M r . Chairman, i n the literature
w h i c h we have sent out, the notices, we not only reflect the E x p o r t A dministration A c t policy, w h i c h is to discourage compliance, but the
Secretary personally i n the notice which goes out to the reporting firm,
expressly states tihat he encourages and requests individuals and firms
receiving such requests to refuse to comply w i t h them.
Senator STEVENSON. A n d he also reminds the company t h a t they are
not prohibited f r o m complying and that completion of the i n f o r m a t i o n
i n this item would be h e l p f u l to the U.S. Government, but is not
mandatory.
M r . T A B O R . I t h i n k that is on item 10 of the reporting form.
Senator S T E V E N S O N . T h a t is item 10.
M r . T A B O R . A l l other aspects of this f o r m are mandatory. A n d the
provision which expressly states that the companies are not legally
prohibited f r o m complying is an accurate statement of the law. A n d
i t is preceded and followed by a request and encouragement not to
comply.
Senator S T E V E N S O N . I t e m 10 is the p a r t which questions compliance. W e have not, w i l l not comply, and so on.
M r . TABOR. Y e s .
Senator S T E V E N S O N .
W h y shouldn't that part, item 10, which reports
compliance or noncompliance, be made mandatory ?
M r . T A B O R . W e l l , I t h i n k i t is conceivable that i t could be made. I
tihink the fact certainly can be i n some cases that there may not be
knowledge at the time that the request f o r compliance is received.
There may not be a decision made by the company that i t w i l l or
won't.
I am sure some companies can make that decision very quickly and
decisively. I t h i n k some others probably have a very difficult decision
to make on exactly what the economic impact on them is going to be,
and they may not know the answer at the time of reporting.
Senator S T E V E N S O N . W e l l , they could, at the time of reporting, then
say we have not decided.
M r . T A B O R . Many do. T h a t is a very frequent response that we
receive.
Senator S T E V E N S O N . M y question is twofold. F i r s t , w h y should these
companies be reminded that this is not mandatory. A n d , second, more
i m p o r t a n t l y , w h y shouldn't the reporting of such i n f o r m a t i o n as I
have proposed be made mandatory ?
M r . T A B O R . I would answer that, M r . Chairman, by saying t h a t the
law encourages noncompliance, but does not f o r b i d compliance.
The present law does not p r o h i b i t compliance and there is n o t h i n g
illegal i n the U n i t e d States w i t h complying w i t h
15
Senator STEVENSON. We make the laws, and we are examining the
adequacy of the law. That is not the issue. I t is not what the law is
now. I t is what it should be.
I am asking whether we shouldn't at the very least mandate the
supply of this kind of information about compliance or noncompliance.
We were discussing earlier this question of how you discourage such
practices. I t doesn't seem to me this is a very effective means of discouraging compliance with the boycott when the companies are not
required to furnish the information on the forms.
Mr. TABOR. They are required, of course, to supply everything but
their intended action.
Mr. Chairman, you posed the question with the revised law which
would prohibit compliance.
Senator STEVENSON. That was one question. Prohibiting compliance.
And, two, short of prohibiting compliance, to require reporting of
compliance intentions.
I will come to a third question in a moment.
Mr. T A B O R . Why should we not prohibit compliance?
Senator STEVENSON. We have already discussed that one. A t least
mandate reports of compliance and noncompliance. Or other decisions.
Mr. TABOR. Well, we do have the authority under the present law
to prohibit, should we deem that to be in the national interest. I n
determining the national interest we must also consider foreign policy
and economic consequences.
The Congress has three time, I think three times, declined to take
the step of prohibiting firms from complying with boycott requests.
Senator STEVENSON. Y O U take the position that you have the authority now under the Export Administration Act, to do what ? To prohibit?
Mr. T A B O R . T O prohibit compliance. I t is within the broad powers
of the Secretary under the Export Administration Act.
Senator STEVENSON. T O prohibit exports in compliance with
Mr. TABOR. T O prohibit compliance with the boycott request.
Senator STEVENSON. Have you ever taken any such action?
Mr. T A B O R . N O ; we have not. Based on two things. No. 1, the decision
of the Congress which carefully considered this issue I think on two,
perhaps three occasions and decided that it would not make the prohibition mandatory. And also based on discussions within the executive
branch involving State and the other affected departments of Government, we concluded on foreign policy and economic grounds that it
was not appropriate to mandate noncompliance, although we do encourage and request firms not to comply.
Senator STEVENSON. D O you have the authority in the bus seat case
that I mentioned to prohibit the cancellation of the contract with a supplier for bus seats as the result of pressure from some foreign government?
Mr. T A B O R . We certainly don't on a single case basis, Mr. Chairman.
We have no regulations which establish that. That would be absolutely
at this point without due process and fair notice.
Senator STEVENSON. That is the point. I don't think you do have
that power.
Mr. T A B O R . I will ask General Counsel here for the Domestic and
International Business Administration to comment on the scope of the
authority we now have. Mr. Richard Hull.
16
Mr. H U L L . Mr. Chairman, the legislative history of the amendments to the act in 1965, which lead to the so-called Arab boycott
amendments, indicate that Congress initially wanted to make this prohibition mandatory. And in view of the objections raised by the administration, Congress agreed to provide us with discretionary authority.
They did this by making several amendments to the act. So that
we would be able to prohibit a firm from complying with a boycott
request when that request led to an export.
That would not give us authority to interfere with decisions and
contracting between companies which did not result in an exportation.
But we are empowered to prohibit the firm from answering a questionnaire and sending it back to an Arab country.
There was a specific amendment made to prohibit the exportation of
information. And the legislative history indicates it was so we could
prohibit a firm from answering the questionnaire, filling out an
application.
Moreover, the President has the authority on foreign policy grounds,
as the Under Secretary stated, to curtail exports. I think the legislative
history bears out fully, that we were given discretionary authority.
Now, I don't know whether in the particular situation which you
described, it would be possible to prohibit a cancellation of a contract.
Obviously there is an evidence problem, too. I t would have to be
shown that this cancellation of the contract was based on an Arab
boycott request. But, more fundamentally, i t would have to be linked
in some way to an exportation.
Senator STEVENSON. Well, my bus situation, you could indicate, I
suppose, that action might be taken against the export of the buses
i f the exporter implied that he had canceled the contract of the supplier in order to carry out the boycott.
Mr. H U L L . I f we had exercised that authority and issued the regulations and again i f the evidentiary problem could be overcome, yes, we
could act.
Senator STEVENSON. But to date no such action has been taken in any
of these situations?
Mr. H U L L . That is correct. This is being done because of the foreign
policy considerations and the economic considerations of what the
prohibition against compliance of boycott requests would do.
The trade volume with the Arab countries has grown substantially
as has, for that matter, been the trade with Israel. And it was felt that
because the Arabs can purchase almost everything they purchase from
us from other countries which have no restrictions on the Arab boycott that i f they found themselves unable to obtain the assurances
they seek in trading with American companies, they would just take
their business elsewhere and purchase from other countries.
Senator STEVENSON. The legislative response we have mentioned
would mandate that reports include information from companies on
their intention with respect to compliance or noncompliance and go
one step farther and make them public.
Now, what is the position of the Commerce Department on that
proposal, to make these public ?
Mr. TABOR. Our view on that is, Mr. Chairman, so long as there is
nothing prohibited concerning compliance and where there is so much
17
confusion in the public mind as to the fact that this law only requires
r eporting that to get all that data on a mandatory basis runs risks of
exposures which could indeed be very unfair and inequitable if data
were made available in violation of the limitations of section 7(c) of
the Export Administration Act.
I f I could just explain that, i f there were statements here required
to be made and there were showings that certain companies did comply with the boycott request which under present law is a legal thing
to do, although you and I may have different personal views concerning that, and if that information that they had complied with the
request were made public through leakage, through whatever manner,
they would, I think, run the risk of suffering the confusion in the
public mind that they had done something illegal when in fact they
had complied with existing law.
I t is that balance which caused the Department of Commerce to
say that, so long as there is no mandatory prohibition and so long as
compliance with boycott requests is still legal as determined by Congress and the executive branch, then the answer to Item 10 should be
optional and none of the information reported by the exporters
should be disclosed.
Senator STEVENSON. That strikes me as another way of saying that
the public just can't be trusted to be very intelligent with such information. And therefore, we better keep the public in the dark. That is
a hard proposition for me to accept.
Mr. TABOR. Mr. Chairman
Senator STEVENSON. I n fact, why isn't it subject to disclosure now
under the Freedom of Information Act?
Mr. TABOR. Well, it is the opinion of our General Counsel, and I believe the Attorney General, although I can't state that authoritatively,
that the Freedom of Information Act exempts from disclosure information such as section 7(c) information which is expressly made confidential by a statute. I believe this exemption is referred to as exemption (b) (3) of the Freedom of Information Act.
I n terms of your earlier comment, Mr. Chairman, I would like to
say that I do think that the problem is to get the facts accurately to
the public. We do provide the public with aggregate statistics on the
Arab boycott requests reported to us. Area statistics indicate the types
of requests and the countries from which they originated.
I have no question that the public, when they get the facts accurately, make very sound judgments. However, this is a very confidential
issue and if the companies receiving the requests were identified, these
could be subjected to certain consumer boycotts, when they have not
done anything illegal.
These are highly emotional areas, obviously. There can be distortions of the facts. And the question is the risk that one is going to have
of emotional reactions by certain domestic groups as opposed to one
where the facts are put forward in relatively unemotional discussions
such as we are having here.
Senator STEVENSON. Mr. Tabor, you indicated that you thought
that the reported increases in requests to participate in restrictive practices was due very largely to improved administration of this law by
the Commerce Department. Is that the full explanation ?
18
Mr. TABOR. No. I think there are many factors. I think that publicity
was one obvious factor in bringing more reports in than we ever had
in recent months. I t is very hard to identify the degree to which an
increase in trade and commerce with that part of the world also contributes to an increased number of requests, but I am sure that is a
factor.
The exports in that area will probably reach about $5 billion this
year, and it is a very lively area of export to the Arab countries, to
Iran and to Israel.
So I am sure there is more trade, there are more reports.
Senator STEVENSON. Are you aware of any situations in which an
Arab investment in the United States was made conditional on a
refusal to deal with Jewish persons or concerns?
Mr. T A B O R . I am not personally aware of any such matter. I don't
recall any such matter having surfaced to date in the Office of Foreign
Investment which is in the process of establishment.
I do recall the contrary situation out in California when there was
an attempt by some Arab investors to purchase the majority shares
or the f u l l shares of a bank, and they were not able to do that.
Mr. Parsky might be able to shed a little more light on that investment side than I , but I personally have no knowledge of an Arab
investment in this country, certainly in a direct investment situation,
being conditioned upon the nationality or the race of the officers or
stockholders in the company.
Senator STEVENSON. Has the Department of Commerce made any
effort to investigate and determine whether there is substance to the
reports and rumors that such conditions are being imposed ?
Mr. T A B O R . Well, the Office of Investment which is in the process
of establishment, about which I testified, will have a number of questions to keep alert to.
I am not personally aware that that is one of the questions. But I
can certainly note it.
Senator STEVENSON. I think that does it, Mr. Tabor. We will refer
these particular cases to you. And I hope that you might give further
thought to the response to the question of whether under certain circumstances it should be made a crime to discriminate against U.S.
concerns as a result of pressures from foreign governments.
Mr. T A B O R . That is in your General Motors bus seat situation is
what you are citing there ?
Senator STEVENSON. Yes. I think you indicated some indecision
when I raised that question earlier. And i f you have any further
thoughts on that subject as a means of helping the countries to withstand such pressures, they would be of interest to us.
Mr. T A B O R . Very well, we will consider that one and i f we have any
further thoughts on it, Mr. Chairman, we will be back to you. I
would be happy to do that.
Senator STEVENSON. Thank you, Mr. Tabor.
Mr. T A B O R . I should like to take advantage of the opportunity which
you have given me, Mr. Chairman, to make a statement concerning
the so-called bus seat question. Let us distinguish two different situations.
First, there is the possible situation where the Arabs would attempt
to prohibit American companies from buying any goods or services
19
from a blacklisted company. This would be most repugnant. We have
no information that the boycott is attempting to do this.
The second situation is the attempt by the Arabs under the boycott
to prevent those U.S. firms who sell goods or services to the Arabs
from including in those goods or services any goods or services
produced by a blacklisted company. Obviously, this is an attempt by
the Arabs to prevent blacklisted companies from selling to the Arabs
indirectly what the Arabs would not buy from them directly.
The bus seat example falls within this latter category.
This latter category, in our opinion, raises the same questions as the
direct boycott of a blacklisted company. While there are some jurisdictional differences, we think the direct and the indirect cases raise
identical policy considerations—no more no less.
You ask whether we should prohibit the "bus seat" or indirect
boycott.
Our answer is: That question involves a number of judgments.
There is first the moral judgment which you mention and in which
we concur. There is second an economic or commercial judgment,
raised by the fact that we will find that the Arabs in most cases will
turn to alternate foreign sources, i f compliance with their boycott is
prohibited in the United States. I n your example, they could and
probably would purchase their buses elsewhere. This, in turn, poses
the question of how many jobs we can afford to lose in America and
what loss of exports we can afford as the price of our moral convictions.
The third consideration is foreign policy: To what extent would
prohibition of compliance with the boycott be perceived by the Arabs
as a shift in U.S. Near East policy ? How would this affect U.S. ability
to bring about a Near East settlement? Obviously, the overriding
object in the boycott situation is to end. Ending the war will accomplish this; prohibiting compliance with the boycott will not.
A sound answer to these various questions requires inputs from
various agencies of the Government. As you know, in March of this
vear, President Ford directed an interagency review of the Arab
boycott issue and its implications on this Nation. He requested that the
agencies concerned submit recommendations as to what measures
should be taken to deal with this issue.
We anticipate that these recommendations will be submitted to the
President in the very near future.
T believe it would be premature ifor the Congress to legislate a prohibition against compliance with a direct or indirect bovcott request,
until the interagency review has been completed, the President has
considered the interagency recommendations, and he has acted thereon.
Senator STEVENSON. Thank you. Mr. Tabor.
("The complete statement of Mr. Tabor, copies of the bills being
considered, a report from the Stnte Department, and some letters
submitted for the record from the office of Senator Stevenson follow:]
STATEMENT
OF J O H N
K.
TABOR, UNDER
SECRETARY
OF
COMMERCE
M r . C h a i r m a n , members of the subcommittee, I a m pleased t o be here today
to present the Department's views o n legislation i m p a c t i n g on t w o v i t a l issues,
the A r a b boycott and f o r e i g n investment.
20
I f I m a y , I w o u l d l i k e t o comment f i r s t on S. 953 a n d Senator W i l l i a m s '
amendment t o S. 425, as b o t h w o u l d i m p a c t on the A r a b boycott s i t u a t i o n . I w i l l
t h e n t u r n t o t h e broader issues of f o r e i g n i n v e s t m e n t addressed i n S. 425, S. 995,
a n d S. 1303.
S. 9 5 3 A M E N D M E N T S TO T H E EXPORT A D M I N I S T R A T I O N
ACT
S. 953 w o u l d m a k e f o u r changes i n the E x p o r t A d m i n i s t r a t i o n A c t o f 1969.
F i r s t , Sections 3 ( 5 ) ( A ) a n d 3 ( 5 ) ( B ) of the A c t declares t h a t t h e p o l i c y of
the U n i t e d States is " ( A ) t o oppose r e s t r i c t i v e practices or boycotts f o s t e r e d or
imposed by f o r e i g n countries against other countries f r i e n d l y to t h e U n i t e d
States, a n d ( B ) to encourage a n d request domestic concerns . . . t o refuse t o
t a k e a n y a c t i o n . . . w h i c h has the effect of f u r t h e r i n g o r s u p p o r t i n g . . . ( s u c h
r e s t r i c t i v e practices or b o y c o t t s ) . " S. 953 w o u l d e x t e n d t h e scope of t h e above
d e c l a r a t i o n s of policy t o i n c l u d e r e s t r i c t i v e practices or boycotts against U n i t e d
S t a t e s c o n c e r n s as w e l l as " o t h e r countries f r i e n d l y t o t h e U n i t e d States."
Second, Section 4 ( B ) ( 1 ) of t h e A c t requires
. . t h a t a l l domestic concerns
receiving requests f o r t h e f u r n i s h i n g of i n f o r m a t i o n or t h e s i g n i n g o f agreements as specified i n . . . (Section 3 ( 5 ) of t h e A c t ) . . . m u s t r e p o r t t h i s f a c t to
t h e Secretary of Commerce f o r such a c t i o n as he m a y deem a p p r o p r i a t e t o c a r r y
out the purposes of t h a t section." S. 953 w o u l d amend t h e A c t t o r e a d " . . . f o r
such a c t i o n as the President m a y deem a p p r o p r i a t e . . . " t h e r e b y t r a n s f e r r i n g
the a u t h o r i t y f r o m the Secretary of Commerce to the President, w h o c o u l d t h e n
delegate i t as he saw fit.
T h i r d , the B i l l w o u l d r e q u i r e U n i t e d States concerns, w h e n r e p o r t i n g on boycott requests such as those described i n the declarations of policy, to i n c l u d e " a n y
o t h e r i n f o r m a t i o n w h i c h the Secretary ( o f Commerce) m a y r e q u i r e r e g a r d i n g
such request a n d intended compliance t h e r e w i t h . . . " T h i s p r o v i s i o n makes somew h a t more specific, the d i s c r e t i o n a r y a u t h o r i t y a l r e a d y assigned to the Secretary
of Commerce.
F o u r t h , S. 953 w o u l d amend Section 4 ( b ) (1) of t h e A c t to p r o v i d e t h a t boyc o t t requests received by domestic concerns should be r e p o r t e d " . . . f o r such
a c t i o n as the President m a y deem a p p r o p r i a t e to c a r r y out the purposes of t h a t
section, i n c l u d i n g the c u r t a i l m e n t by any U n i t e d States concern of e x p o r t s to,
i n v e s t m e n t s i n , or any other economic t r a n s a c t i o n s w i t h countries w h i c h impose
boycotts or engage i n r e s t r i c t i v e t r a d e practices as presently i n effect."
A s presently d r a f t e d , Section 4 ( b ) (1) does not i l l u s t r a t e t h e k i n d of a c t i o n
w h i c h the President m i g h t t a k e t o deal w i t h a boycott. U n d e r the f o r e i g n policy
provisions of the E x p o r t A d m i n i s t r a t i o n A c t , the President c u r r e n t l y has the
a u t h o r i t y t o c u r t a i l exports f r o m the U n i t e d States.
A c c o r d i n g l y , the proposed reference to c u r t a i l m e n t of exports is m e r e l y i l l u s t r a t i v e of present a u t h o r i t y a n d t h e r e f o r e unnecessary. T h e specific reference to
o t h e r measures such as c u r t a i l m e n t of investments in, or any economic t r a n s actions w i t h countries i m p o s i n g boycotts gives us p a r t i c u l a r d i f f i c u l t y . As y o u
k n o w , such a u t h o r i t y exists u n d e r Section 5 ( b ) of the A c t of October 6, 1917, a n d
was i n f a c t exercised i n 1968, t o r e s t r i c t U.S. investments a b r o a d o n balance-ofp a y m e n t s grounds, w h e n President Johnson established by E x e c u t i v e O r d e r the
F o r e i g n D i r e c t I n v e s t m e n t P r o g r a m w h i c h w a s t e r m i n a t e d i n 1974. W e question
the w i s d o m of e n l a r g i n g the scope of the E x p o r t A d m i n i s t r a t i o n A c t to p r o v i d e
a u t h o r i t y going beyond the r e g u l a t i o n of exports.
T h e amendments contemplated by S. 953 are obviously aimed a t the secondary
b o y c o t t imposed by the A r a b nations against firms i n t h i r d countries u n d e r t a k i n g
a c t i v i t i e s w h i c h the A r a b s consider as c o n t r i b u t i n g t o the economic a n d defense
c a p a b i l i t i e s of I s r a e l . E v e n though, u n d e r t h e language of the B i l l , t h e a u t h o r i t i e s
p r o v i d e d by the f o u r amendments are d i s c r e t i o n a r y , we have reservations about
t h e effect of i t s enactment. I n a d d i t i o n to the reasons noted above, enactment
of t h i s B i l l could place the U n i t e d States i n a n undesirable posture i n r e l a t i o n t o
the A r a b s a t a t i m e w h e n we are m a k i n g s t r o n g efforts t o achieve a peaceful
s o l u t i o n t o the M i d d l e E a s t s i t u a t i o n .
"BOYCOTT"
AMENDMENT
TO S. 42 5
T h e proposed amendment w o u l d , i n effect, a n d w i t h specified extensions a n d
exceptions p r o h i b i t the a c q u i s i t i o n of s u b s t a n t i a l e q u i t y i n t e r e s t i n U n i t e d States
companies (or, a l t e r n a t i v e l y , could lead to d i v e s t i t u r e of such i n t e r e s t ) on t h e
p a r t o f f o r e i g n investors who. w i t h i n one year, have t a k e n actions to d i s c r i m i n a t e
against a n y U n i t e d States company ( o r person) because of the l a t t e r ' s dealings
21
w i t h the government or a resident of any country w i t h whose government the
U n i t e d States had diplomatic relations.
T h e basic principle underlying U.S. investment policy has always been an
•'open door" to and " n a t i o n a l t r e a t m e n t " of, foreign investment. T h i s amendment
would represent a fundamental departure f r o m t h a t liberal policy based solely
on our disapproval of certain foreign government policies.
The effect of enacting t h i s Amendment w o u l d be potentially to exclude v i r t u ally a l l equity investment i n the United States by A r a b countries. A t a t i m e
when the A r a b countries are receiving vast inflows of capital which t h e i r economies can not absorb, the adverse effects of such legislation on the recycling of
such transfers could be serious.
The language of the proposed amendment is designed to protect the interests
of governments and residents of f r i e n d l y countries. I t may be appropriate here to
recount briefly the operation of the A r a b boycott.
As you knowT, the boycott has its origins i n the longstanding Arab-Israeli dispute resulting f r o m the creation of the State of Israel i n 1948. I t has worldwide
application and is, by no means, directed only at U.S. interests. I t operates both
as a p r i m a r y boycott aimed at preventing direct economic relations between
A r a b States and Israel and as a secondary boycott by seeking to influence firms
i n t h i r d countries not to establish certain types o f relationships w i t h Israel. I n
t h a t context, i t generally is applied to firms undertaking activities which the
Arabs consider as contributing to the consolidation of the economic and defense
capabilities of Israel, w i t h which the Arab Nations are i n a state of conflict.
Thus, i t is possible f o r firms to trade w i t h the State of Israel and w i t h A r a b
countries, as long as the involvement w i t h Israel does not reach a level which the
Arabs consider to be beyond normal commercial activities. T h i s is illustrated by
the types of questions generally contained i n most A r a b boycott questionnaires
sent to firms w i t h which the Arabs contemplated doing business. Such questionnaries typically i n q u i r e :
1. Do you have m a i n or branch factories, assembly plants, or j o i n t ventures i n
Israel ?
2. Do you hold shares i n I s r a e l i companies?
3. Do you provide technical assistance or consultative services t o Israel?
4. Do you m a i n t a i n general agencies or main offices i n Israel f o r Middle East
operations ?
5. Do you license technology to Israel?
6. A r e you prospecting f o r n a t u r a l resources i n Israel ?
7. A r e you acting^ as the p r i n c i p a l importer or agency f o r I s r a e l i goods?
The enactment o'f the Amendment would be interpreted by the A r a b countries
as a s h i f t i n U.S. foreign policy and m i g h t w e l l jeopardize ongoing efforts at
achieving a peaceful settlement of the Middle East situation. We continue to believe t h a t the only viable means of completely ending the A r a b boycott l i e i n the
conclusion of the state of conflict which prevails i n the M i d d l e East, and a
settlement of the underlying issues which prompted it. Changes f o r such a settlement could be jeopardized by the enactment of this Amendment.
Enactment of this Amendment would not put an end t o the economic sanctions
against the State of Israel. There is every likelihood t h a t the Arabs would, and
could, find other uses f o r their capital i f they were deprived o f investment opportunities i n the U.S. I t should be noted t h a t no other country i n the w o r l d has
enacted any legislation opposing the A r a b boycott of Israel. The Arabs could,
therefore, bo expected to invest i n other capital markets.
S. 425, S. 995 and S. 1303
The Department of Commerce testified on S. 425 before the B a n k i n g Committee's Subcommittee on Securities on M a r c h 4, 1975, and on S. 995 and S. 1303
before the Commerce Committee's Subcommittee on Foreign Commerce and
Tourism, and our views respecting these bills remain unchanged.
S. 425 w o u l d amend the Securities Exchange A c t to require residence, nat i o n a l i t y and other additional i n f o r m a t i o n on beneficial owners a f t e r acquisition
of over 5 percent of the shares of a publicly-traded corporation. I t would also
require advance filing by foreign investors acquiring 5 percent or more of the
equity of a U.S. company w i t h assets exceeding $1 million. Such acquisitions
would be subject to Presidential review and disapproval i f found adverse to
the U.S. domestic economy, foreign policy, or national security. There are provisions f o r nullification of acquisitions, freezing of voting rights and divestiture.
22
S. 995 also proposes an investment review procedure, i n this case to be carr i e d out by the Secretary of Commerce, and l i m i t e d to foreign government investments. I n the case of investments amounting to 1 percent of the equity or debt
obligations of U.S. firms w i t h assets over $100 m i l l i o n , or real estate investments
of $4 m i l l i o n , the Secretary w o u l d make a n a t i o n a l interest determination w i t h i n
9 months, the c r i t e r i a being the f u l f i l l m e n t of developmental c a p i t a l needs
or employment expansion. There would be a 60-day w a i t i n g period a f t e r approval.
The Secretary w o u l d make a determination w i t h i n 60 days i n the case of investments i n smaller firms or lesser real estate investments. Foreign government
investments w o u l d be barred i n communications and defense industries.
The Department of Commerce opposes enactment of S. 425 and S. 995 because
they represent a substantial departure f r o m our t r a d i t i o n a l open door policy
on foreign investment which has brought great benefits to the U n i t e d States.
I f u l l y appreciate the concern expressed through the proposed legislation over
the effects of recent and anticipated foreign direct investments on our n a t i o n a l
security and on our national economy. On the basis of data currently available,
we have no reason to believe they represent a threat to our security or t h a t there
is any movement t o w a r d foreign control of our economy. U n w a r r a n t e d restrictions on foreign investments here i n v i t e r e t a l i a t i o n against our s i x - f o l d larger
investments abroad. They i n t e r f e r e w i t h the most efficient exchange of the
world's economic resources. They inject governmental judgments i n t o p r i v a t e
enterprise operations. They create vast and expensive bureaucracies. T h e imposit i o n of investment controls here w o u l d m i l i t a t e against our continued leadership
i n i n t e r n a t i o n a l efforts to liberalize trade, investment, and financial flows. Restrictions w i l l deter beneficial foreign investments here t h a t could contribute
i m p o r t a n t l y to domestic economic g r o w t h and employment and provide new
technology and new, better and cheaper products t o the American public.
I observed earlier t h a t the urgency of the need f o r the type of action proposed
by these bills has not been demonstrated. Before commenting f u r t h e r on the
issue, I w o u l d l i k e first to summarize the provisions of S. 1303.
S. 1303 establishes a Foreign Investment A d m i n i s t r a t i o n i n the Department
of Commerce to collect and analyze i n f o r m a t i o n on foreign investments i n the
U n i t e d States. I t requires the reporting of any foreign investments i n companies
where shares are publicly traded w h i c h result i n 5 percent or more direct or indirect ownership by the foreign investor. Moreover, i t requires r e p o r t i n g of investments i n companies whose stocks are not publicly traded and have assets of
$3 m i l l i o n or more which result i n 10 percent foreign ownership and i n real
estate exceeding $50 thousand i n value.. A d d i t i o n a l l y , investments i n U.S. Government securities exceeding $1 m i l l i o n must be reported. These reports, which
are to contain details on the investment and the name and n a t i o n a l i t y of the
investor, are also required respecting investments i n the f o r m of loans, longterm
contracts, or ownership of property which provide or could provide a foreign
investor predominant influence i n company management or operations or property ownership valued at over $1 million. The Secretary of Commerce w o u l d
publish q u a r t e r l y reports, including i n f o r m a t i o n on aggregate foreign investment
trends, and a l i s t of transactions. H e would also make an annual report which
w o u l d contain a detailed analysis of the previous year's i n v e s t m e n t s , together
w i t h policy recommendations.
W h e n the Department of Commerce testified on S. 1303, we stated t h a t there
was much i n the proposed legislation which was appealing because i t sought to
f i l l an i n f o r m a t i o n gap w h i l e w i t h h o l d i n g judgment t h a t there is a need f o r a
case-by-case review by the Government of proposed investment transactions. W e
also receignized there is a broad consensus t h a t the American people and the
Congress need to be informed both of general deve^pments respecting foreign
investments i n the U n i t e d States and of m a j o r specific investment activities w h i c h
involve national security or national interest considerations.
I n f o r m a t i o n on foreign investments i n the U n i t e d States is needed by the
Congress i n the f o r m u l a t i o n of legislative proposals i n the investment fieM; and
the Executive B r a n c h has s i m i l a r needs to f u l f i l l its policy f o r m ^ a t i o n and
program implementation requirements. Balanced against these needs are the
basic principles of m i n i m u m governmental interference w i t h p r i v a t e business
a c t i v i t y and of protection of business f r o m reve'ation of confidential i n f o r m a t i o n
essential to legitimate business a c t i v i t y . Added to these considerations are the
a d m i n i s t r a t i v e costs of any extensive data-gathering, analysis, and reporting
program and the corresponding cost to the business community of complying
w i t h such a program.
23
I f there were a clear and demonstrable present danger to our national security
or our national interest, we could well understand the need f o r establishing a
rigorous and costly investment monitoring regime. However, we do not believe
t h a t the magnitude of current and near-term foreign investment represents a
threat which w a r r a n t s t h a t response. There is no question t h a t our i n f o r m a t i o n
gathering efforts need to be i m p r o v e d ; but there is l i t t l e reason to believe at this
time t h a t m a j o r transactions of national significance have been or w i l l be
consummated w i t h o u t our notice.
We are m a k i n g m a j o r efforts to improve our store of information, to analyze
such information, and to improve our data-gathering mechanisms.
F i r s t , we are w e l l advanced i n our studies of a l l aspects of foreign direct investment i n the United States called f o r by Public L a w 93-479, the Foreign Investment Study A c t of 1974, and shall be supplying an i n t e r i m report to the
Congress i n late October and a final report at the end of A p r i l 1976. The Treasury
Department is preparing a parallel study on portfolio investments.
I n addition to our statistical survey based on mandatory responses to thousands
of questionnaires mailed out early this year, we shall have a qualitative analysis
respecting the motivations f o r foreign investments i n the United States, their
techniques, their economic effects, and the comparative policy and legal climate
affecting i n w a r d foreign direct investments i n this country and other host
countries.
I should like to point out t h a t the t h r u s t of the study is not simply factual—
not merely a recital of w h a t has happened i n the past—but rather i t looks into
the future. The real concern at this time is not so much w i t h investment increases
reflecting general commercial considerations as w i t h those t h a t have occurred or
are likely to occur i n connection w i t h the recycling of petrodollars, the impact of
the quantum j u m p i n energy costs, and the interest i n greater access to and use of
our national resources by foreign-controlled companies here.
On May 7 of this year, the President issued Executive Order 11858 establishing
a high-level Interagency Committee of Foreign Investment i n the United States to
survey investment developments to ascertain their potential impact on our
national interest, and to take appropriate actions consistent w i t h our policies and
laws where specific investment plans indicate reason f o r concern. A central element of the program is government-to-government consultations to insure t h a t
government investments f r o m abroad are not adverse to our national security
interests.
The Executive Order also requires the Secretary of Commerce to collect and
analyze data on foreign investment i n the United States; to improve procedures
for the collection and dissemination of such d a t a ; to observe closely foreign
investments here; to prepare reports a n d analyses of trends and developments: to
evaluate significant investment transactions; and to submit reports, analyses
and recommendations to the Committee.
Pursuant to this Executive Order a special Office of Foreign Investment i n
the United States has been established, and its staffing and program planning
are w e l l underway. I t s first order of business has been to w o r k j o i n t l y w i t h a
management consulting firm to develop procedures to rationalize the data-gathering efforts of the federal agencies on foreign investments here and to develop a
system f o r prompt delivery of useful data to the Office.
I am confident t h a t the programs which I have j u s t outlined w i l l provide the
Congress and the Executive Branch w i t h adequate i n f o r m a t i o n on which to make
national policy decisions i n the foreign investment field. On this basis we are
opposed to the enactment of S. 1303 as being not only unnecessary but
undesirable.
M r . Chairman, this completes my testimony. I would be pleased to answer any
questions f r o m the Committee on the views which I have expressed.
24
94TIT C O N G R E S S
1ST SF.SSION
I X
T H E
FJ
J
M
^
^
SENATE
OE
T H E
U N I T E D
STATES
JANUARY 27,11)75
M r . WILLIAMS introduced the f o l l o w i n g BILL; which was road twice and r e f e r r e d
to the Committee on B a n k i n g , H o u s i n g and U r b a n A f f a i r s
A BILL
To amend the Securities Exchange A c t of 1934 to require
notification by foreign investors of proposed acquisitions of
equity securities of United States companies, to authorize
the President to prohibit, any such acquisition as appropriate for the national security, to further the foreign policy,
or to protect the domestic economy of the United States,
to require issuers of registered securities to maintain and
file w i t h the Securities and Exchange Commission a list of
the names and nationalities of the beneficial owners of their
equity securities, and for other purposes.
1
Be
it
enacted
of the United
hn
(he
and
in
of
liepreserda-
(Jonf/ress
assembled,
tires
3
That this A c t mav be cited as the "Foreign Investment
4
A c t of 1975".
of America
House
2
II
Stales
Senate
25
2
1
SEC. 2. Subsection (a)
of section 3 of the Securities
2
Exchange A c t of 1934 (15 U.S.C. 78c (a) ) is amended as
3
follows:
4
(a)
5
follows:
6
Paragraph
"(9)
(9)
thereof is amended to read as
The term 'person' means a natural person, corn-
7
pany, government, or political subdivision, agency, or in-
8
strumentality of a government.".
9
(b)
10
follows:
11
Paragraph
"(19)
(19)
thereof is amended to read as
The terms 'investment company', 'affiliated per-
12
son', 'insurance company', 'separate account', and 'company'
13
have the same meanings as in the Investment Company A c t
14
of 1940.".
15
16
17
(c) The subsection is further amended by adding at the
end thereof the following new paragraphs:
"(22)
The term 'United States company' means any
18
corporation, limited partnership, or business trust organized
19
in one of the United States, the Canal Zone, the District of
20
Columbia, Guam, Puerto Rico, the V i r g i n Islands, or anj^
21
other possession of the United States (hereinafter i n this title
22
collectively referred to as the 'United States') or any other
23
company w i t h its principal place of business in the United
24
States.
25
"(23)
The term 'foreign investor' means—
26
3
"(1)
2
States;
3
4
a natural person resident outside the United
"(2)
a company
other
than
a United
States
company;
5
"(3)
a
government of a country other than the
6
United States or a subdivision, agency, or instrumental-
7
i t y of such a government (hereinafter in this title col-
8
lectively referred to as a 'foreign government 7 ) ;
9
"(4)
a United States company controlled by a
10
person described in paragraph
11
this subsection; or
(1),
( 2 ) , or
(3)
of
12
" (5) two or more persons acting in concert for the
13
purpose of acquiring, holding, voting, or disposing of se-
ll
curities, at least one of whom is a person described in
15
paragraph ( 1 ) , ( 2 ) , ( 3 ) , or (4) of this subsection.'
16
SEC. 3. Section 13 of the Securities Exchange A c t of
17
18
19
1934 (15 U.S.C. 78ni) is amended as follows:
(a)
Paragraph
(1)
of
subsection
(d)
thereof
is
amended to read as follows:
20
" ( d ) (1) A n y person who, after acquiring directly or
21
indirectly the beneficial ownership of any equity security of
22
a class which is registered pursuant to section 12 of this
23
title, or any equity security of an insurance company which
24
would have been required to be so registered except for the
25
exemption contained in section 1 2 ( g ) (2) (G) of this title,
27
4
1
or any equity security issued by a closed-end investment
2
company registered under the Investment Company Act of
3
1940, is directly or indirectly the beneficial owner of more
4
than 5 per centum of such class shall, within ten days after
5
such acquisition, send to the issuer of the security at its prin-
5
cipal executive office, hy registered or certified mail, send to
7
each exchange where the security is traded, and file with the
g
Commission, a statement containing such of the following in-
9
formation, and such additional information, as the Comniis-
10
sion, by rule, may prescribe as necessary or appropriate in
the public interest or for the protection of investors—
12
"(-M
the background, identity, residence, and na-
13
tionality of such person and all other persons by whom
14
or on whose behalf the purchases have been or are to be
15
effected;
16
17
"(B)
financial
statements (which must be certified
if required by the Commission) of such person;
18
" (C) the source and amount of the funds or other
19
consideration used or to be used in making the purchases,
20
and if any part of the purchase price or proposed pur-
21
chase price is represented or is to be represented by funds
22
or other consideration borrowed or otherwise obtained
23
for the purpose of acquiring, holding, or trading such
24
security, a description of the transaction and the names of
25
the parties thereto, except that where a source of funds is
28
5
1
a loan made i n the ordinary course of business by a bank,
2
as defined in section 3 (a) (6) of this title, if the person
3
filing such statement so requests, the name of the bank
4
shall not be made available to the public ;
5
" (D) if the purpose of the purchases or prospective
6
purchases is to acquire control of the business of the
7
issuer of the securities, any plans or proposals which such
8
persons may have to liquidate such issuer, to sell its
9
assets to or merge it w i t h any other persons, or to make
10
any other major change in its business or corporate
11
structure;
12
"(E)
the number of shares of such security which
13
are beneficially owned, and the number of shares con-
14
corning which there is a right to acquire, directly or
15
indirectly, by (i) such person, and (ii) by each associate
1(>
of such person, giving the background, identity, resi-
17
dence, and nationality of each such associate;
18
" (^ ) the number of shares of such security w i t h
19
respect to which any person (other than the beneficial
20
owner)
21
the voting rights evidenced by such securities and the
22
background, identity, residence, and nationality of any
23
such person; and
24
25
possesses sole or shared authority to exercise
"(G)
information as to any contracts,
arrange-
ments, or understandings w i t h any person w i t h respect
29
to any securities of the issuer, including but not limited
2
to transfer of any of the securities, joint ventures, loan
3
or option arrangements, puts or calls, guaranties of loans,
4
guaranties against loss or guaranties of profits, division
5
of losses or profits, or the giving or withholding of
6
proxies, naming the persons with whom such contracts,
7
arrangements, or understandings have been entered into,
8
and giving the details thereof.".
9
10
11
(b)
The section is further amended by adding at the
end thereof the following new subsection:
" ( f ) (1) ( A )
I t shall be unlawful for any foreign in-
12
vestor, directly or indirectly, to acquire the beneficial owner-
13
ship of any equity security of a United States company
14
which had total assets exceeding $1,000,000 on the last day
15
of its most recent whole fiscal year, if after such acquisition
16
such foreign investor would, directly or indirectly, be the
beneficial owner of more than five percent of the class
18
thereof, unless at least thirty days prior to such acquisition
19
such foreign investor has filed w i t h the Commission a state-
20
ment containing the name of the United States company,
21
the address of its principal executive officers, and such of
22
the information specified in subsection
23
and such additional information as the Commission, by rule,
24
may specify as necessary or Appropriate in the public inter-
25
est or for the protection of Investors. Securities held by or
58-527 O - 75 - 3
(d)
of this section
30
7
1
for the account of the United States company
(or a sub-
2
sidiary that may not vote the securities) shall be disregarded
3
i n determining the percentage of beneficial ownership.
4
" ( B ) Promptly after the filing of a statement pursuant
5
to this paragraph, the Commission shall transmit a copy of
6
the statement, to the President. Notwithstanding the provi-
7
sions of section 24 of this title or any other provision of law,
8
such statement shall not be disclosed to the public.
9
"(C)
I n exercising its authority under this paragraph,
10
the Commission shall consult and cooperate w i t h the Presi-
11
dent to assure that its actions are i n accordance w i t h the
12
President's powers and responsibilities w i t h respect to the
13
activities of foreign investors in the United States.
14
" (2) A t any time w i t h i n thirty days of the date of the
15
filing of a statement pursuant to paragraph (1) of this sub-
16
section, the President is authorized, by order, as he deems
17
appropriate for the national security of the United States,
18
to further the foreign policy of the United States, or to
19
protect the domestic economy of the United States, to pro-
20
hibit the acquisition to which the statement relates. The
21
President, by rule or regulation, shall prescribe the proce-
22
dure applicable to any exercise of the authority vested i n
23
h i m by the preceding sentence. Such rules or regulations
24
shall, as a minimum, provide that prompt notice shall be
25
given of any exercise of such authority and that such notice
31
8
1
shall be accompanied by written reasons. The functions
2
exercised by the President under this subsection are excluded
3
from the operation of subchapter I I of chapter 5 of title 5,
4
United States Code."
5
SEC. 4. Section 14 of the Securities Exchange A c t of
6
1934 (15 U.S.C. 78n) is amended by adding at the end
7
thereof the following new subsection:
8
" (g) (1) ( A ) Every holder of record of any security of
9
a class described in section 1 3 ( d ) (1) of this title holding
10
such security for the account of another person shall file
11
reports w i t h the issuer of such securities in such form, at
12
such times, and containing such information w i t h respect
13
to the identity, residence, and nationality of the beneficial
14
owner of such securities and any person
15
beneficial owner)
16
exercise the voting rights evidenced by such securities, as
17
the Commission, by rule, may prescribe.
(other than the
possessing sole or shared authority to
18
" ( B ) Every person for whom a second person is hold-
19
ing any security of a class described in section 13 (d) (1) of
20
this title who, i n turn, is holding such securities for the
21
account of a third person shall file reports w i t h such second
22
person in such form, at such times, and containing such
23
information w i t h respect to the identity, residence, and na-
24
tionality of the beneficial owner of such securities and any
25
person (other than the beneficial owner) possessing sole or
32
9
1
shared authority to exercise the voting rights evidenced by
2
such securities, as the Commission, by rule, may prescribe.
3
"(2)
Every issuer of a security of a class described
4
i n section 13 (d) (1) of this tile shall maintain in such form
5
as the Commission, by rule, may prescribe a reasonably eur-
6
rent list of the identity, residence, and nationality of the
7
beneficial owners of the securities of each such class and the
8
persons (other than the beneficial owners)
9
or shared authority to exercise the voting rights evidence
10
by such securities. Every such issuer shall file such list, or
11
any specified part thereof, w i t h the Commission at such times
12
as the Commission, by rule, may prescribe, but in no event
13
shall such list or specified part thereof be filed less frequently
14
than annually or more frequently than quarterly.
15
"(?>) I
n
possessing sole
exercising its authority under this subsection,
1G
the Commission shall determine (and so state) that its ac-
17
tion is necessary or appropriate in the public interest or for
18
the protection of investors/'.
19
SEC, 5. Section 21 of the Securities Exchange A c t of
20
1934 (15 U.S.C. 78u)
21
thereof the following new subsections:
22
" ( g ) (1)
is amended by adding at the end
The Commission, the Attorney General, a
23
United States company in which a foreign investor has ac-
24
quired or proposes to acquire any equity security, or a holder
25
of record of any equity security of such a United States
33
10
1
company, may bring an action in a district court of the
2
United States (or a court of general jurisdiction, however
3
designated, i n any place, other than a State, under the juris-
4
diction of the United States) to enjoin such foreign investor
5
from violating, or to enforce compliance by such foreign in-
6
vestor with, the provisions of section 13 (f) of this title and
7
the rules and regulations thereunder. On a showing that the
8
foreign investor has engaged, is engaged, or is about to
9
engage in acts or practices constituting such a violation the
10
court shall grant appropriate relief in the form of temporary
11
or permanent restraining orders and injunctions and orders
12
enforcing compliance. Without limiting the generality of the
13
foregoing, the court, on such terms and subject to such con-
14
ditions as it considers proper, may order ( A ) the revocation
15
or suspension, or any period specified in the order, of the
16
voting rights evidence b y securities of the United States
17
company acquired by the foreign investor i n violation of
18
such provisions, and
19
acquired.
(B)
the sale of any securities so
20
" (2) I f any foreign investor against whom an order or
21
injunction entered pursuant to paragraph (1) of this sub-
22
section fails, w i t h i n such reasonable time as is fixed by the
23
court, to comply w i t h the order or injunction, the court may,
24
by order, vest any securities acquired by such foreign investor
34
11
1
i n violation of the provisions of section 13 (f) of this title
2
in a trustee named by i t who may thereupon, notwithstanding
3
any other provision of law, do all such things and execute
4
all such documents as are necessary to give effect to the
5
order or injunction of the court, and any proceeds of any sale
6
of such securities received by h i m shall first be applied to
7
payment of his fees and expenses in acting as trustee and
8
thereafter any balance remaining shall be paid by h i m to such
9
person as would, but for the order vesting such securities i n
10
him, have been entitled to receive the same.
11
" (h) F o r purposes of subsection (e), ( f ) , and (g) of
12
this section, it is unlawful for any person to cause, command,
13
induce, procure, or give substantial assistance to the com-
14
mission of an act or practice constituting a violation of any
15
provision of this title or the rules or regulations thereunder.".
16
SEC. 6. Section 32 of the Securities Exchange A c t of
17
1934
(15 U.S.C. 78ff ( b ) )
18
mediately following the first sentence thereof the following
19
new sentence: " A n y foreign investor which fails to file a
20
statement required to be filed under subsection (f) of section
21
13 of this title or any rule or regulation thereunder, shall
22
forfeit to the United States the sum of $1,000 for each an
23
every day such failure to file shall continue.".
is amended by inserting im-
35
94TH C O N G R E S S
1ST SESSION
I N
T H E
R I
A
^
SENATE
OF
C K ^
J F C
T H E
U N I T E D
STATES
MARCH 3 (legislative day, FEBRUARY 21), 1975
Referred to the Committee on B a n k i n g , H o u s i n g and U r b a n A f f a i r s and ordered
to be p r i n t e d
AMENDMENTS
Intended to be proposed by M r . WILLIAMS
M r . BROOKE)
(for himself and
to S. 425, a bill to amend the Securities
Exchange A c t of 1984 to require notification by foreign
investors of proposed acquisitions of equity securities of
United States companies, to authorize the President to pro>
hibit any such acquisition as appropriate for the national
security, to further the foreign policy, or to protect the
domestic economy of the United States, to require issuers
of registered securities to maintain and file w i t h the Securities and Exchange Commission a list of the names and
nationalities of the beneficial owners of their equity securities, and for other purposes, viz:
1
On page 7, line 20, after the period insert the following:
2
"The President shall prohibit any such acquisition, if he
3
determines that any foreign investor on whose behalf such
4
acquisition is to be made or any person controlling any such
Amdt. No. 24
36
2
1
foreign investor lias, directly or indirectly, w i t h i n one year
2
of the date of filing such statement, caused or attempted or
3
conspired to cause—
4
" ( A ) any person (other than a person resident or
•)
organized in the country of which such foreign investor
(i
is the government or a subdivision, agency, or instru-
7
mentality of the government or in which such foreign
8
investor or a person controlling such foreign investor is
9
resident or organized) not to do business with, to subject
10
to economic loss or injury, or otherwise to discriminate
11
against any United States company, because such United
12
States company or an officer, director, employee, stock-
13
holder, or creditor thereof is or has been, or i n order
34
to deter such United States company or any officer,
15
director, employee, stockholder, or creditor thereof from,
16
directly or indirectly, supporting or dealing w i t h (i) any
17
foreign government w i t h which the United States has
18
diplomatic relations, or
19
operating in, or dealing with, any country w i t h whose
20
government the United States has diplomatic relations;
21
or
22
(ii)
any person resident or
" ( B ) any United States company w i t h respect to its
23
business in any country
24
which such foreign investor, if such foreign investor is
25
a foreign government, or person controlling such foreign
(other than a country
with
37
3
investor, if such person is a foreign government, does
2
not have diplomatic relations) not to do business with,
3
to subject to economic loss or injury, or otherwise to
4
discriminate against any person (other than a person
5
which is, or is controlled by, a foreign government w i t h
6
which such foreign investor, if such foreign investor is
7
a foreign government, or person controlling such foreign
8
investor, if such person is a foreign government, does
y
not have diplomatic relations), because such person or
10
an officer, director, employee, stockholder, or creditor
11
thereof is or has been, or in order to deter such person
12
or any officer, director, employee, stockholder, or credi-
13
tor thereof from, directly or indirectly, supporting or
14
dealing w i t h
15
the United States has diplomatic relations or (ii)
16
person resident or operating in, or dealing with, any
17
country w i t h whose government the United States has
18
diplomatic relations.".
19
On page 7, line 23, strike the phrase "the preceding
20
sentence" and insert in lieu thereof the phrase "this para-
21
graph".
22
23
24
25
(i)
any foreign government w i t h which
any
On page 10, between lines 19 and 20, insert the following:
"(3)
I f any foreign investor, directly or indirectly,
having the beneficial ownership of more than 5 per centum
38
4
1
of any class of equity securities of a United States company
2
causes such United States company to engage in any act
3
by reason of which it would he prohibited pursuant to section
4
13 (f)
5
the beneficial ownership of more than 5 per centum of any
6
class of equity securities of any other United States company,
7
the Commission, the Attorney General the holder of record
8
of any equity security of such United States
9
or any person aggrieved by such act, may bring an action
10
in a district court of the United States (or a court of general
11
jurisdiction, however designated, in any place, other than a
12
State, under the jurisdiction of the United States) to divest
13
the foreign investor of beneficial ownership of equity securi-
14
ties of such United States company. On a showing that the
15
foreign investor has engaged in any such act, the court, by
16
order, shall revoke or suspend, for any period specified in
17
the order, the voting rights evidenced by equity securities
18
of such United States company beneficially owned by such
19
foreign investor and order the sale of all such securities.".
20
On page 10, line 20, strike " ( 2 ) " and insert i n lieu
21
22
23
of this title from acquiring, directly or indirectly,
company,
thereof " ( 3 ) " .
On page 10, line 21, insert after " (1) " the phrase "or
(2)".
24
On page 11, following line 1, insert the following:
25
"nv the sale of which was ordered pursuant to paragraph
26
(2) of this subsection".
39
94TH C O N G R E S S
1ST SESSION
I N
THE
S. 953
SENATE
OF T H E
MARCH
Mr.
UNITED
STATES
5,1975
introduced the following b i l l ; which was read twice and referred
to the Committee on Banking, Housing and Urban Affairs
STEVENSON
A BILL
To amend the E x p o r t Administration A c t of 1969 to clarify
and strengthen the authority of the Secretary of Commerce
to take action i n the case of restrictive trade practices or
boycotts.
1
2
Be it enacted by the Senate and House of
tives of the United States of America
3
SECTION 1.
(a)
Section 3 ( 5 )
Representa-
in Congress assembled,
(A)
of t h e E x p o r t
Ad-
4
ministration A c t of 1969, as amended (the " A c t " ) , is fur-
5
ther amended by inserting immediately after "against" the
6
following: " U n i t e d States concerns and".
7
(b)
Section 3 ( 5 ) ( B )
of the A c t is further amended
8
by inserting immediately after "against"
9
" U n i t e d States concerns and".
II
the
following:
40
2
1
SEC. 2. Section 4 (b) (1) of the A c t is further amended
2
by striking out the next to the last sentence thereof and
3
inserting i n lieu thereof the following: "Such rules and regu-
4
lations shall implement the provisions of section 3 (5)
5
this A c t , and require that any domestic concern which re-
6
ceives any request for information, for participation i n agree-
7
ments, or for the taking of any other action as specified i n
8
that section report the same to the Secretary of Commerce,
9
together w i t h any other information which the Secretary
10
may require regarding such request and intended compliance
11
therewith, for such action as the President may deem appro-
12
priate to carry out the policy of that section, including the
13
curtailment b y any United States concern of exports to, in-
14
vestments in, or any other economic transactions w i t h coun-
15
tries which impose boycotts or engage in restrictive trade
16
practices as specified i n that section.".
of
41
94TH C O N G R E S S
1ST SESSION
£ |
^ ^
K P
J J
I N T H E S E N A T E OF T H E U N I T E D
MARCH
STATES
6,1975
Mr. R O T H introduced the following bill; which was read twice and referred
to the Committees on Banking, Housing and Urban Affairs, and Commerce
A BILL
To regulate investment by foreign governments and foreign
government enterprises i n certain United States business
enterprises.
1
2
Be it enacted by the Senate and House of
tives of the United States of America
3
4
5
in Congress assembled,
SHORT TITLE
SECTION 1. That A c t may be cited as the "Foreign
Government Investment Control A c t of 1975".
6
7
Representa-
DEFINITIONS
SEC. 2. As used i n this A c t , the term—
8
(1) "Secretary" means the Secretary of Commerce;
9
(2)
10
"enterprise" means any corporation, partner-
ship, trust, joint venture, or other association of entity;
II
42
2
1
(3)
"American enterprise" means any enterprise
2
located wholly or substantially i n the United States or
3
which is owned or controlled wholly or substantially b y
4
individuals who are residents of the United States or b y
5
any person owned or controlled b y such individuals;
5
(4) "foreign government" means any government
7
of a foreign country or any international agency or other
g
association whose members are governments of a foreign
9
country or any foreign official institution such as foreign
10
central banks or development banks as defined by the
11
Secretary, or any individual acting on behalf of or as an
12
agent for such government; and
13
(5)
"foreign government enterprise" means any
14
enterprise or instrumentality which, i n the judgment of
15
the Secretary, is wholly or substantially, controlled b y a
16
foreign government or combination of foreign govern-
17
ments, or any individual acting on behalf of or as an
18
agent for such enterprise.
19
FOREIGN GOVERNMENT
INVESTMENT
CONTROLS
20
SEC. 3. (a) (1) A foreign government or foreign gov-
21
ernment enterprise may invest i n an American enterprise
22
on
23
approves such investment pursuant to an application i f —
24
( A ) (i) the investment involves the purchase of any
25
equity or debt obligation of an American enterprise
ly
u
P o n the expiration of sixty days after the Secretary
43
3
1
whose total consolidated assets are worth more than
2
$100,000,000 and (ii)
3
or debt obligation would result in that foreign govern-
4
ment or foreign government enterprise owning more
5
than 1 per centum of the equity or debt obligations of
q
such enterprise, or result in the aggregate ownership
rj
by all foreign governments and foreign government en-
g
terprises of more than 3 per centum of the equity or debt
g
obligations of such enterprise;
10
the acquisition of such equity
( B ) the investment involves the acquisition or control, directly or indirectly, of an American enterprise
12
whose total consolidated assets have a value of more
13
than $10,000,000; or
14
(C) the investment involves a real estate or prop-
15
erty having a fair market value of $4,000,000 or more.
16
(2) U p o n receipt of an application for investment in
17
an American enterprise by a foreign government or foreign
18
government enterprise under paragraph ( 1 ) , the Secretary
19
shall conduct an inquiry to determine whether the proposed
20
investment is beneficial to the national interests of the United
21
States. I n making his determination, the Secretary shall
22
consider as beneficial to the national interests of the United
23
States, investment which provides, capital needed for the
24
economic expansion of the United States or net additional
25
employment in the United States but which does not result
44
4
1
i n control of an American enterprise by a foreign govern-
2
ment or foreign government enterprise or have other con-
3
sequences which the Secretary deems prejudicial to the
4
national interests of the United States. I n the course of his
5
inquiry, the Secretary shall seek the opinion of the Secretary
6
of Labor w i t h regard to the impact of the proposed invest-
7
ment on conditions of employment, labor, and equal oppor-
8
tunity i n the United States, the opinion of the Secretary of
9
Defense w i t h regard to the impact of the proposed investment
10
upon the national security of the United States, the Secretary
11
of the Treasury w i t h regard to the impact of the proposed
12
investment upon the balance of payments of the U n i t e d
13
States, and the opinion of the Secretary of State regarding
14
the impact of the investment on the foreign relations of the
15
United States. The Secretary shall also seek the advice of
16
the Governor of the State w i t h i n which the proposed invest-
17
ment is to take place regarding opinion w i t h i n that State on
18
the investment. The Secretary shall make such determination
19
prior to the expiration of two hundred and seventy days after
20
the application is submitted. I f the Secretary determines that
21
the investment is i n the national interests of the United States,
22
he shall immediately transmit a copy of his determination to
23
approve the proposed investment to the Congress.
24
(b) A foreign government or foreign government en-
25
terprise may invest in an American enterprise only upon
45
5
1
the expiration of sixty days after i t notifies the Secretary of
2
its intention to make such investment if the investment
3
involves—
4
(1) the acquisition of any equity or debt obligation
5
of an American enterprise whose total consolidated assets
6
are w o r t h $100,000,000 or less and the acquisition of
7
such investment would result i n that foreign government
8
or foreign government enterprise owning more than 1
9
per centum of the equity or debt obligation of such
10
American enterprise, or result in the aggregate owner-
11
ship by all foreign governments and foreign government
12
enterprises of more than 3 per centum of the equity or
13
debt obligations of such enterprise;
14
(2) the acquisition of ownership or control, directly
15
or indirectly, an American enterprise whose total con-
16
solidated assets have a value of $10,000,000 or less; or
17
(3) the acquisition of real estate or property having
18
a fair market value between $1,000,000 and $4,000,-
19
000;
20
i t shall notify the Secretary of its intention to make such
21
investment. The investment may not take place prior to the
22
expiration of sixty days after such notification, during which
23
time the Secretary may review the investment. I f the Sec-
24
retary determines that the proposed investment is contrary
25
to the national interests of the United States, he shall trans-
58-527 O - 75 - 4
46
6
1
m i t a copy of his findings to the Congress and shall inform
2
the foreign government or foreign government enterprise
3
and any American enterprise or other person involved that
4
the investment has been prohibited.
5
(c)
N o foreign government
or foreign
government
q
enterprise may hereafter invest i n any American enterprise
7
which (1) manufactures sophisticated defense articles for the
8
United States,
9
information of the U n i t e d States, (8)
(2)
possesses confidential national defense
operates a radio or
10
television station i n the United States,
11
newspaper for sale to the public i n the United States, or
12
(5) operates an interstate telephone or telegraph network
13
i n the United States.
14
(4)
publishes a
IMPLEMENTATION
15
SEC. 4. The Secretary shall establish such procedures
16
as may be necessary to enforce this A c t , and to insure the
17
confidentiality of all matters concerning any
18
which would not otherwise be made available to other parties
19
under law.
20
LIST
21
OF
FOREIGN
GOVERNMENTS
AND
investment
FOREIGN
GOVERNMENT ENTERPRISES
22
SEO. 5. The Secretary shall make and keep current a
23
list of all foreign governments and foreign government enter-
24
prises which he determines are subject to this A c t .
47
7
PENALTIES
SEC. 6. Whoever willfully violates any provision of this
Act or fails to comply with any regulation issued under this
Act shall be fined not to exceed
$10,000.
PROHIBITION
SEC. 7. I t shall be unlawful for any foreign government
or foreign government enterprise to exercise any right or
interest acquired in violation of or without compliance with
any provision of this Act.
EXPIRATION
SEC. 8. This Act shall expire on June 30, 1980.
48
DEPARTMENT
OF
STATE,
W a s h i n g t o n , D . C . , M a y 2 9 , 1975.
Hon. WILLIAM
PROXMIRE,
C h a i r m a n , C o m m i t t e e on B a n k i n g , H o u s i n g a n d U r b a n A f f a i r s , U . S . S e n a t e .
DEAR MR. CHAIRMAN : P u r s u a n t t o y o u r request of M a r c h 12 f o r the comments
of t h e D e p a r t m e n t of State concerning S. 995, the F o r e i g n G o v e r n m e n t C o n t r o l
A c t of 1975, I a m enclosing a copy of a statement r e l a t i n g t o t h i s b i l l (as w e l l as
to several others) presented t o t h e Senate Subcommittee on F o r e i g n Commerce
a n d T o u r i s m on M a y 7 by A s s i s t a n t Secretary of State f o r Economic a n d B u s i ness A f f a i r s Thomas O. Enders.
I hope t h a t y o u w i l l c a l l on me i f y o u believe t h a t I can be of f u r t h e r assistance.
Sincerely,
ROBERT
J.
MCCLOSKEY,
Assistant Secretary
for Congressional Relations.
S T A T E M E N T OF T H O M A S O . E N D E R S , A S S I S T A N T S E C R E T A R Y OF S T A T E FOR E C O N O M I C
AND BUSINESS
AFFAIRS
BEFORE T H E
SENATE
SUBCOMMITTEE
ON
FOREIGN
COMMERCE
FOREIGN I N V E S T M E N T
IN
THE
UNTTED
STATES
M r . C h a i r m a n , I appreciate t h i s o p p o r t u n i t y t o present t o y o u r c o m m i t t e e t h e
A d m i n i s t r a t i o n ' s views on S. 1305, S. 995, a n d S. 329 r e l a t i n g t o f o r e i g n investment i n t h e U n i t e d States. Y o u a n d the o t h e r members of t h i s c o m m i t t e e have
made a n i m p o r t a n t c o n t r i b u t i o n to the development of U.S. policy i n t h i s area.
W e i n the A d m i n i s t r a t i o n were pleased to be able to w o r k w i t h y o u t o w a r d the
enactment of the F o r e i g n I n v e s t m e n t Study A c t l a s t f a l l . W e expect t h a t o u r cons i d e r a t i o n of t h i s new l e g i s l a t i o n w i l l proceed i n the same c o n s t r u c t i v e a n d coo p e r a t i v e manner.
Since other A d m i n i s t r a t i o n witnesses are addressing themselves t o t h e techn i c a l a n d domestic economic policy issues raised by these t h r e e bills, I w i l l d i r e c t
m y comments p r i m a r i l y to the f o r e i g n policy issues w h i c h they raise.
I t has l o n g been the policy of the U n i t e d States Government g e n e r a l l y t o w e l come f o r e i g n investment i n recognition of the benefits w h i c h i t b r i n g s to o u r
economy. A t the same time, b o t h t h e l e g i s l a t i v e a n d executive branches of the
U.S. Government are a w a r e of t h e necessity t o t a k e w h a t e v e r measures i n the
i n v e s t m e n t field are necessary t o protect o u r n a t i o n a l interests, recognizing,
however, t h a t such measures m a y i n v o l v e costs i n t e r m s of our o t h e r objectives.
T h u s , i n the past, we have i n s t i t u t e d r e s t r i c t i o n s on f o r e i g n i n v e s t m e n t o n l y i n
those areas of t h e economy w h e r e i t was d e t e r m i n e d t h a t the n a t i o n a l i n t e r e s t req u i r e d them.
A s y o u k n o w , M r . C h a i r m a n , t h e E x e c u t i v e B r a n c h recently conducted a n
extensive r e v i e w of U.S. p o l i c y on i n w a r d i n v e s t m e n t i n w h i c h w e e x a m i n e d t h e
adequacy of e x i s t i n g safeguards i n l i g h t of, i n t e r a l i a , t h e r a p i d a c c u m u l a t i o n
i n t h e hands of a f e w o i l p r o d u c i n g governments o f f u n d s a v a i l a b l e f o r investm e n t abroad. A s was e x p l a i n e d by A d m i n i s t r a t i o n witnesses before the Senate
Subcommittee on Securities on M a r c h 4, t h e basic conclusion o f o u r r e v i e w w a s t o
r e a f f i r m the t r a d i t i o n a l c o m m i t m e n t of the U.S. G o v e r n m e n t t o " n a t i o n a l t r e a t m e n t " (i.e., t r e a t m e n t no less f a v o r a b l e t h a n t h a t w h i c h i t accords t o i t s o w n
citizens i n l i k e circumstances) f o r f o r e i g n investors. I n a d d i t i o n , however, w e
concluded t h a t we should t a k e the f o l l o w i n g a d m i n i s t r a t i v e actions t o g u a r d
against t h e p o t e n t i a l problems of f o r e i g n i n v e s t m e n t i n the U n i t e d S t a t e s : ( 1 )
establish a n e w high-level inter-agency body t o serve as a f o c a l p o i n t w i t h i n
the E x e c u t i v e B r a n c h f o r i n s u r i n g t h a t f o r e i g n investments i n t h e U n i t e d States
are consistent w i t h o u r n a t i o n a l i n t e r e s t s ; ( 2 ) create a new office t o gather,
consolidate, a n d r e p o r t on i n f o r m a t i o n on f o r e i g n i n v e s t m e n t i n t h e U n i t e d
States w h i c h i s collected by t h e v a r i o u s agencies of t h e U.S. G o v e r n m e n t ; a n d
( 3 ) seek assurances f r o m those f o r e i g n governments t h a t are capable o f m a k i n g
v e r y s u b s t a n t i a l investments t h a t t h e y w i l l consult w i t h the U.S. G o v e r n m e n t
before m a k i n g m a j o r investments i n t h e U n i t e d States.
W e have n o w m a d e significant progress i n t h e i m p l e m e n t a t i o n o f t h i s n e w
p r o g r a m . A n interagency C o m m i t t e e on F o r e i g n I n v e s t m e n t i n t h e U n i t e d States
a n d a n Office of F o r e i g n I n v e s t m e n t i n the U n i t e d States are presently being
organized. I n a d d i t i o n , we have a l r e a d y discussed t h e i n w a r d i n v e s t m e n t issue
w i t h t h e p r i n c i p a l o i l producer governments. W e h a v e f o u n d t h a t t h e y a r e
49
understanding of our concerns i n this area, and now expect t h a t they w i l l consult
w i t h us i n advance of any m a j o r investments i n the United States. Our consultations w i t h I r a n concerning its prospective investment i n Pan A m w i l l set a useful
precedent f o r these discussions.
I w o u l d l i k e to review several advantages of this A d m i n i s t r a t i o n program.
F i r s t , i t does not represent a departure f r o m t r a d i t i o n a l policy on i n w a r d investment, and hence is unlikely to have the negative effects upon U.S. foreign policy
t h a t new legislative restrictions on i n w a r d investment m i g h t produce. The United
States remains a leader i n i n t e r n a t i o n a l economic relations. Other nations look
to us to prevent a r e t u r n to the divisive economic nationalism of the 1930s. I n
the past, the U n i t e d States has f u l f i l l e d this role i n p a r t by seeking acceptance
of the principle of non-restrictive treatment of foreign investment through an
extensive network of b i l a t e r a l Friendship, Commerce and Navigation ( F C N )
treaties. I n addition, the U n i t e d States has played a key role i n w i n n i n g international support f o r the principles of the Code of Liberalization of Capital Movements of the Organization f o r Economic Cooperation and Development.
This Code and the F C N treaties have contributed to the achievement of a regime of relatively unrestricted movements of capital among the developed nations
of the world, a regime under which American investors have made investments
i n foreign countries t o t a l l i n g more than $100 billion i n book value. Today, as we
consider new safeguards f o r our own economy, we must remember t h a t the comm i t m e n t of other nations t o liberalized treatment of foreign investment, i n some
cases not as strong as our own commitment, may well prove to be a l l too easily
reversible should the United States abandon its role of leadership i n this area.
A second advantage of the A d m i n i s t r a t i o n program is t h a t i t provides us w i t h
an effective central a u t h o r i t y f o r the f o r m u l a t i o n and implementation of a coherent investment policy. P a r t i c u l a r l y i m p o r t a n t i n this regard, the new machinery w i l l act as a vehicle f o r the compilation and analysis of data on i n w a r d
investment currently collected by a number of U.S. Government agencies. W e anticipate t h a t i n p e r f o r m i n g these functions, the new Office and Committee w i l l be
able to correct many of the shortcomings of current data collection programs revealed i n the recent C I E P - O M B report. On the other hand, should any significant
deficiencies prove intractable using existing powers, the Committee would make
recommendations f o r new administrative or legislative action to deal w i t h them.
Given the advantages which we see i n this new A d m i n i s t r a t i o n program, we
w o u l d like to give i t an opportunity to prove its w o r t h before reaching conclusions concerning the need f o r new legislation. Therefore, although we share most
of the concerns of the sponsors of S. 1303, S. 995, and S. 329, the Department of
State cannot support the passage of these bills, at least u n t i l we have had the
opportunity to assess the effectiveness of the A d m i n i s t r a t i o n program.
I n giving the Department's views Of these bills, I w i l l address myself first to
S. 995 and then, since they are i n many respects quite similar, to S. 1303 and
S. 329 together.
S. 905, the Foreign Government Investment Control Act, would impose broad
new restrictions upon investment i n the United States by foreign governments
and government enterprises. I t aims to achieve by legislation part of w h a t we are
seeking to accomplish through the A d m i n i s t r a t i o n program. There are t w o m a j o r
reasons f o r our preference f o r the administrative approach.
First, a mandatory screening requirement of the k i n d proposed i n S. 995 would
tend to call i n t o question our commitment to a policy of national treatment f o r
foreign investors. B y avoiding mandatory screening i n favor of a more flexible
approach, we are i n d i c a t i n g t h a t although we have concerns about i n w a r d investment and are acting upon them, we nevertheless w i l l seek to preserve our
overall adherence to the national treatment principle. W e believe t h a t the Adm i n i s t r a t i o n program w i l l provide a satisfactory balance between our need to
protect our national interests and our desire to minimize the burdens w h i c h w«i
impose on foreign investors.
I n addition, i t w i l l permit us to welcome acceptable investments by governments i n a manner consistent w i t h the s p i r i t of cooperation upon which we are
seeking to base our overall relations w i t h those countries.
A second problem of S. 995, related to the first, concerns our treaties of Friendship, Commerce and Navigation. A number of these treaties assure nationals of
each of the parties to the treaty of non-discriminatory treatment w i t h respect to
the establishment or acquisition of interests i n enterprises i n the t e r r i t o r y of
the other party. N o t h i n g i n these treaties indicates an intention to treat government investment differently f r o m private investment.
50
S. 995 w o u l d derogate f r o m this n a t i o n a l treatment principle by subjecting
foreign governments to special restrictions not applied to domestic investors or
to other, non-governmental foreign investors. The A d m i n i s t r a t i o n p r o g r a m is
designed to m a i n t a i n the i n t e g r i t y of these treaties, w h i c h are of importance to
the actions of American investors and businessmen abroad.
I n a d d i t i o n to the t w o general problems j u s t mentioned, I w o u l d also mention
t h a t the Department of State questions the need f o r Section 3 ( c ) of S. 995
w h i c h identifies areas of the economy i n w h i c h foreign government investments
are to be prohibited. I t is not clear w h y these p a r t i c u l a r areas were chosen,
especially since we already have restrictions on foreign investment f r o m a l l
sources i n a number of these sectors.
I w i l l now present the views of the Department of State concerning S. 1303
and S. 329. Since these t w o bills are p r i m a r i l y designed to restructure and extend
existing procedures f o r gathering data on i n w a r d investment, t h e i r f o r e i g n
policy implications are relatively minor and I w i l l make my remarks very brief.
F i r s t , the Department of State is concerned t h a t S. 1303 and S. 329 w o u l d
impose a d d i t i o n a l reporting requirements where we may i n f a c t already have
the i n f o r m a t i o n w h i c h we need or are capable of getting i t under existing reporti n g requirements. F o r example, based i n p a r t upon the findings of the C I E P - O M B
study, we are encouraged by the potential f o r obtaining i n f o r m a t i o n on most
foreign investment i n the U n i t e d States through improvement i n the Securities
and Exchange Commission reporting system. I t was f o r this reason t h a t the Adm i n i s t r a t i o n last m o n t h indicated a desire to examine more closely those provisions of S. 425, the proposed " F o r e i g n Investment A c t of 1975," designed to obtain
increased disclosure of beneficial ownership, more effective sanctions to ensure
such disclosure, and identification of the n a t i o n a l o r i g i n of foreign shareholders.
Reliance upon the SEC f o r the collection of data w o u l d also have the advantage of avoiding the appearance of discrimination against foreign investors
since the SEC collects needed i n f o r m a t i o n f r o m .both foreign and domestic
investors oh a non-discriminatory basis. F r o m a foreign policy point of view,
we find this approach preferable to t h a t of placing special reporting burdens on
foreign investors only.
Under the new A d m i n i s t r a t i o n program, an Office of Foreign Investment
i n the U n i t e d States w i l l be assigned the task of gathering data on i n w a r d
investment being collected under existing programs. T h i s effort, to be carried
out i n conjunction w i t h the second stage of the C I E P / O M B study, should pinpoint any serious gaps i n the data available to us. Since excessive reporting
requirements are costly and may themselves serve as a deterrent to investment,
we recommend t h a t new ones not be imposed u n t i l the existing ones have been
f u l l y evaluated.
M y second point relates to Section 5 ( 7 ) of S. 1303 under which the proposed
A d m i n i s t r a t i o n is called upon to make policy recommendations directly to the
Congress, and to Section 7 under w h i c h the Secretary of Commerce is authorized
to issue guidelines and policy statements w i t h respect to foreign investments.
I n view of the f a c t t h a t the i n w a r d investment issue is a broad one i n v o l v i n g
concerns of many agencies, we feel t h a t responsibility f o r f o r m u l a t i n g and maki n g recommendations concerning i n w a r d investment policy should not be given
to any one Department. Such responsibility would better be lodged w i t h the
Commtitee on Foreign Investment i n the U n i t e d States, comprising representatives of the State, Treasury, Defense, and Commerce Departments, and of the
Assistant to the President f o r Economic A f f a i r s ( w i t h other agencies partici p a t i n g as appropriate), c u r r e n t l y being established under the new A d m i n i s t r a tion program.
M r . Chairman, although the A d m i n i s t r a t i o n cannot support passage of this
legislation at this time, our opposition is founded less on substantive disagreement w i t h the bills t h a n on a desire to avoid overreacting to an issue w h i c h we
are hopeful can be handled w i t h the resources already at our disposal. I t is
reassuring to find t h a t the sponsors of S. 995, S. 1303 and S. 329 a l l share our
commitment to the principle of freedom of i n t e r n a t i o n a l capital movements. I n
conclusion, I w o u l d urge t h a t we seek together to pursue a course of action t h a t
w i l l not endanger t h a t commitment.
51
94TH
CONGRESS
S. 1303
1ST SESSION
I N T H E S E N A T E OF T H E U N I T E D
MARCH 21
Mr.
INOUYE
(legislative day,
(for himself, M r .
ALLEN,
Mr.
STATES
MARCH 1 2 ) , 1975
BAYH,
Mr.
HUDDLESTON,
Mr.
MET-
CALF, M r . PEARSON, and M r . STONE) introduced the f o l l o w i n g b i l l ; w h i c h
was read twice and, by unanimous consent, referred to the Committee on
Commerce and, i f and when reported, then to the Committee on Banking,
Housing and Urban Affairs
A BILL
To regulate the foreign commerce of the United States by prov
Viditrg means to assure full disclosure of significant foreign
investment i n the United States, and for other purposes.
1
2
Be it enacted by the Senate and House of Representalives of the United States of America
in Congress assembled,
3 , That this A c t may be cited as the "Foreign Investment
4
Disclosure A c t of <1975".
5
DECLARATION
6
SEC. 2.
7
8> ?
(a)
OF
POLICY
The Congress finds and declares that—
(1) Foreign investment in the United States has
increased in recent years.
I I
52
2
1
2
(2) Such investment could significantly affect the
economy of the United States.
3
(3) Large monetary reserves and capital accumula-
4
tions exist in many oil exporting nations and other for-
5
eign countries and these reserves and accumulations may
6
be invested in this Nation.
7
(4) The potential consequences of foreign invest-
8
ment, particularly on a massive scale, cannot be calcu-
9
lated because the Federal Government lacks sufficient
10
information on foreign investment and its actual or pos-
11
sible effect on the national security, commerce, employ-
12
ment, inflation, and the general welfare.
13
(5) Federal agencies responsible for the collection
14
of data on foreign investment do not maintain adequate
15
programs for the gathering and analysis of sufficient de-
16
tailed data and information on such foreign investment
17
and planned investment and lack sufficient authority to
18
collect information sufficient to enable the Congress to
19
formulate and enact a reasoned and comprehensive pol-
20
icy with respect to such investment.
21
(b) I t is therefore the purpose of the Congress in this
22 Act to—
23
(1) require foreign investors and their agents to
24
make public disclosure of their identities and the identi-
25
ties of their principals;
53
3
1
(2) discover and disclose the nature and scope of all
2
significant foreign investment in the United States; and
3
(3) direct the Secretary of Commerce to analyze
4
such investments and planned investments and make
5
recommendations with respect to foreign investment
6
policy.
7
(c) Nothing in this Act is intended to restrain or deter
® foreign investment in the United States or to discriminate
9 against any particular foreign investors.
DEFINITIONS
H
SEC. 3. As used in this Act, the term—
(1) "Administration" means the Foreign Investment Administration, established by this Act;
^
(2) "foreign investment" means the ownership or
control, by ownership of stock or other securities, by contractual commitments or otherwise, by any foreign investor, of all or part of a United States company or prop!
19
erty which is located wholly or substantially in the
United States;
OA
(3) "foreign investor" means—
91
oo •
.
mentality thereof;
23
24
''
(A) a foreign government, agency, or mstru-
(B) an international agency or organization, as
defined by the Secretary;
54
4
1
2
(C) a natural person who is not a citizen of the
United States;
3
4
(D) a company other than a United States
company;
5
(E) any person who, directly or indirectly, is
6
owned or controlled by or acting as agent or trustee,
7
for one or more such government, agencies, orga-
8
nizations, or persons; or
9
(F) two or more persons acting in concert foa*
10
the purpose of acquiring, holding, voting, or dispos-
al
ing of securities or for the purpose of acquiring,
ing, or disposing of property, at least one of whom
is a person described in any of the preceding sub-
^
paragraphs of this paragraph;
(4) "person" includes any government or agency
ifi
or instrumentality thereof;
17
(5) "property" means any real or personal property and any other thing of value, including the right
to acquire or control any real or personal property;
(6) "Secretary" means the Secretary of Commerce, or his delegate;
22
(7) "United States company" means any corporation, syndicate, partnership or other business unit
24
organized in one of the United States, the Canal Zone,
55
5
1
the District of Columbia, Guam, Puerto Rico, the Vir-
2
gin Islands, or any other possession of the United States.
3
4
FOREIGN I N V E S T M E N T
ADMINISTRATION
SEC. 4. (a) There is established in the Department of
5 Commerce an agency to be known as the Foreign Invest6 ment Administration. The Secretary shall carry out the
7 provisions of this Act through the Foreign Investment Ad8 ministration and shall supervise the Director of such Ad9
10
ministration.
(b) The agency shall be administered and supervised
11 by a Director, who shall be appointed by the President, by
12 and with the advice and consent of the Senate. The Director
13 shall receive compensation at the rate now and hereafter
14 prescribed for offices and positions at level V of the Execu15
16
tive Schedule (5 U.S.C. 5316).
(c) The Director shall appoint a Deputy Director who
17 shall serve as Acting Director during any period of absence
18 or incapacity of the Director and who shall carry out any
19 duties delegated or assigned to him by the Director. The
20 Deputy Director shall receive compensation at a rate now
21 and hereafter prescribed for offices and positions at level of
22
23
(JS-18
on the General Schedule (5 U.S.C. 5332).
(d) The Director may procure the temporary or inter-
24 mittent services of experts and consultants in accordance
25 with the provisions of section 3109 of title 5, United States
56
6
^
Code. Persons so employed shall receive compensation at a
2 rate to be fixed by the agency, but not in excess of the maxi3 mum amount payable under such section. While away from
4 his home or regular place of business and engaged in the
5 performance of services for the Administration, any such per6 son may be allowed travel expenses, including per diem in
7 lieu of subsistence, as authorized by section 5708 (b) of title
jg 5, United States Code, for persons in the Government serv9 ices employed intermittently.
10
The Secretary is authorized, after investigation, to
11 transfer the whole or part of the functions of any office sub12 ject to his jurisdiction to the Administration, upon the prepa13 ration of a reorganization plan for the making of the reorga14 nization as to which he has made findings and which he in15 eludes in the plan, and upon the submission of such plan to
IQ Congress together with a declaration that such reorganizaYj tion is necessary or appropriate to further the purpose of this
Act: Provided, That such reorganization plan shall not become effective if either House of Congress within sixty days
20 after the date of transmittal passes a resolution stating in sub21 stance that such House does not favor; the reorganization
22
PLAN-
23
24
A D M I N I S T R A T I V E POWERS
1
SEC. 5. The Administration is authorized—
25
(1) to issue such rules and regulations, in accord-
57
7
1
ance with section 553 of title 5, United States Code, as
2
it deems necessary and appropriate to carry out the pro-
3
visions of this Act;
4
(2) to the extent necessary or appropriate to the
5
policy of this Act, to acquire and maintain property
6
(real, personal, or mixed, tangible, or intangible, or any
7
interest herein) by purchase, lease, condemnation, or in
8
any other lawful manner to sell, lease, or otherwise dis-
9
pose of such property in any manner; and to construct,
10
operate, lease, and maintain buildings, facilities, or other
11
improvements on such property;
12
13
(3) to accept gifts or donations or services, money,
or property in any form;
14
(4) to enter into contracts or other arrangements
15
or modifications thereof, with any person, any depart-
16
ment or agency of the United States, and any State gov-
17
ernment or political subdivision thereof;
18
(5) to make advance, progress, or other payments
19
which the Director deems necessary or appropriate to
20
further the policy of this Act;
21
(6) to hold such hearings and to conduct investiga-
22
tions at such times and places as the Director determines
23
to be appropriate ;
24
(7) to propose, in the discretion of the Director,
25
additional programs in furtherance of the policy of this
58
8
2
Act to the Committee on Commerce of the Senate and
2
the Committee on Interstate and Foreign Commerce of
3
the House of Representatives without prior submission,
4
review, or clearance of any other agency or officer of
5
the United States; and
6
7
(8) to take such other action as may be necessary
to carry out the provisions of this Act.
8
9
FOREIGN I N V E S T M E N T
DISCLOSURE
SEC. 6. (a) The Secretary may require any person sub-
10 ject to the jurisdiction of the United States to maintain a full
11 and accurate record of any information (including journals
12 or other books of original entry, minute books, stock transfer
13 records, list of shareholders, or financial statements) germane
14 to the purpose of this Act, and to furnish under oath, in the
15 form of a report or otherwise, such information as the Secre16 tary may determine may be necessary to enable him to carry
17 out his responsibilities under this Act. The information which
18 may be required shall not be limited to holdings or transac19 tion but shall include any information necessary to the Sec20 retary's functions under this Act in the possession of such
21 person, from whatever source derived, concerning foreign
22 direct investment and foreign portfolio investment by any
23 person whatsoever.
24
(b) (1) The Secretary shall, by regulation, order, or
25 otherwise, establish procedures which require the mainte-
59
9
1 nance of records and the submission of reports by foreign
2 investors, and by such other persons as he determines to be
3 appropriate with respect to—
4
(A) any foreign investment in a United States com-
5
pany whose equity security is publicly traded on a na-
6
tional securities exchange or otherwise in the United
7
States if, after such investment, the foreign investor owns
8
or controls, directly or indirectly as the beneficial owner,
9
5 per centum or more of the equity securities of such
10
company, except that the Secretary may by regulation
11
establish a lower percentage of ownership requirement
12
consistent with the purposes of this Act—
13
(i) if he has reason to believe that two or more
14
foreign investors have acted in concert, or may act
15
in concert in the future, to acquire an aggregate of 5
16
per centum or more of such companies; or
17
(ii) in other circumstances where the impor-
18
tance of an industry, or the highly dispersed owner-
19
ship of a given industry or company makes it ad-
20
visable to establish a lower percentage requirement
21
in order to fulfill the objectives of this Act.
22
(B) any foreign investment in the United States
23
company whose stock is not publicly traded on a na-
24
tional securities exchange or otherwise in the United
25
States, if—
S. 1303.
2
60
10
1
(i) after such investment 10 per centum or
2
more of the equity securities of such company is
3
owned or controlled, directly or indirectly as the
4
beneficial owner, by the foreign investor; and
5
(ii) at the time of such investment the total
6
assets of such company have a value of $3,000,000
7
or more.
8
(C) any foreign investment in the United States,
9
including but not limited to loans, long-term contracts,
10
and the ownership of property or interests in property
11
which the Secretary determines, on the basis of objective
12
economic and other criteria, shall be subject to the reeordkeeping and reporting requirements under this sub-
14
section, if the substantial effect of such investment is—
15
(i) to give or could be to give the foreign in-
16
vestor a predominant influence on the management
17
or operation of a United States company described
18
in paragraph (A) or (B) of this subsection; or
19
(ii) to result in the ownership or control by
20
a foreign investor of more than $1,000,000 in
21
property in the United States except that the Secre-
22
tary may establish a lower figure if he determines
23
that a lower figure is necessary to identify significant
24
foreign investments in the United States.
25
(D) any foreign investment in the United States in
61
11
1
real property with a fair market value in excess of
2
$50,000, except that the Secretary may waive this
3
requirement if, after review, he determines that such
^
property is intended solely for personal use and contains
g
no exploitable natural resources and if such investment
6
does not exceed $250,000;
rj
(E) any foreign investment in United States Gov-
g
ernment or agency securities, notes, certificates of de-
g
posit,
1Q
or
other
marketable
instruments
exceeding
$1,000,000 per issue.
^
(2) The records and reports required under this section
shall include but not be limited to—
^
14
(A) the name or names of the foreign investors
involved;
(B) the nationality or citizenship and residence
15
16
of the foreign investor or investors;
(C) the country or countries with which any agency
17
18
19
or other organization which is a foreign investor is
affiliated or organized;
(D) the extent of the ownership or control which
20
21
is exercisable by such foreign investor, including—
(i) the details of any loan agreement, long-
22
23
term contract, or sale of assets; and
(ii) the number of shares beneficially owned,
24
including the number of shares to which there is a
25
5 8 - 5 2 7 O - 75 - 5
62
12
1
right to acquire, directly or indirectly, by such for-
2
eign investor and by each member of the group
3
of such investors;
4
(3) Any report required under this section with respect
5 to an acquisition made after enactment of this Act shall be
g submitted not later than ten days following the date of the
7 acquisition. Reports required under this section with respect
3 to existing foreign investments in the United States shall
9 be submitted to the Administration not later than ninety
10 days following enactment of this Act.
11
(c) The Secretary is further authorized to issue such
12 rules and regulations as he deems appropriate in accordance
13 with the purpose of this Act to require any United States
14 company which knows or has reason to know of a foreign
15 investor in that company qualifying under subsection (b)
16 of
this
section
to
report
such investment
to
the
17 Administration.
18
(d) The Secretary shall publish a quarterly report on
19 the nature and scope of foreign investment in the United
20 States during the quarter covered by the report. Such re21 port shall include, but not be limited to, a listing of trans22 actions whose disclosure is required by this Act, the names
23 of United States companies in which foreign investments
24 covered by this Act have been made and the extent of such
25 investments, the Secretary's assessment of any significant
63
13
1
trends, on an industry-by-industry basis and in the aggre-
% gate, of foreign investment in the United States during such
3 quarter, anrd such other info^mfttidn he deeiiis appropriate,
4 but it shall not include any information whose disclosure
5 would cause competitive? iAjilry to the foreign investor or
6 the United States company. The first report shall be due
7 ninety days after enactment of this Act and shall be issued
8
9
Quarterly thereafter.
(e) The Secretary shall issue air annual report to the
10 Congress no later than ninety days after the end of each
11 year on foreign investment in{ the United States. Such rb12 port shall include, but not be limited to, the nature and
13 scope of foreign investment in the United States during
14- " m previous year," 'thie"industries and'economic sectors $n
15 which significant foreign investoent occurred; a list of
16 major tjnited States companies in which significant foreign
17 investment occurred; an identification of the geographical
18 regions, to the extent practicable, where significant foreign
19; investment was made; an analysis1 bf the economic impact
20 ' of foreign investment in the United States during the pre21 vious year, including' the effects oi ^ach investment on the
22 United States balance of payments, balance of trade, em23 ployment, arid economic competitiveness; a summary of
24 significant actions taken by the United States Government
25 to improve and consolidate programs;1 miles, and regular
64
14
1
tions relating to foreign investment in the United States; a
2 list of policy changes or recommendations issued by the
3
Secretary; and such other factors as the Secretary deems
4 relevant and appropriate.
5
6
GUIDELINES
SEC. 7. The Secretary is authorized, after such hear-
7 ings and consultations with other agencies and individuals
8
as he deems necessary and appropriate, to issue periodically
9 statements pertaining to United States policies on foreign
10 investments in the United States companies and properly.
11 Such statements shall contain recommendations and guide12 lines on foreign investments in United States companies or
13 industries which are determined to be important for reasons
14 of national security, foreign policy, or economic security.
15 Such statements shall be printed in the Federal Kegister
16 and be made available
for
distribution through the
17 Administration.
18
19
USB OF INFOEMATION
SEC. 8. (a). The Administration may secure from any
20 agency of the United States any information relating to for21 eign investment in the United States necessary to enable it
22 to carry out its duties under this Act. Upon request of the
23 Director, each such department or agency is authorized to
24 furnish such information to the Administration on a reimburse
25 able basis or otherwise. The Administration may also supply
65
15
1
information obtained under this section to other Federal
2
agencies and to foreign governments as deemed appropriate
3
by the Director except as otherwise provided in this Act.
4
(b) The provisions of section 1905 of title 18, United
5
States Code, shall apply to the Administration, its officers
6 and employees, with respect to information obtained under
7
this section or in any other manner. The Administration shall
8 not release, without written permission of the person to whom
9 it relates, any information described in section 552 (b) of
10 title 5, United States Code. In addition to the Secretary, the
11 only individuals who may have access to information ob12 tained under this Act but not required to be published are
13 those sworn employees, including consultants, of the Depart14 ment of Commerce designated by the Secretary.
15
(c) Except for a proceeding under section 9 (b) of this
16 Act, no report or constituent part thereof may be produced
17 for any Federal judicial or administrative proceeding. No
18 agency of the United States or employee thereof may compel
19 the Secretary or the Director or any person which maintained
20 or furnished any report under section 6 (a) or 6 (b) to submit
21 any such report or constituent part' thereof to that agency
22 or any other agency of the United States.
23
(d) Nothing in this Act shall be construed to require
24 or to authorize the Secretary to publish or make available
25 to any other person or organization in any manner except
66
16
1
as herein authorized information which, if disclosed, would
2 encourage speculation or cause competitive injury to the for3 eign investor or United States company.
4
5
ENFORCEMENT
SEC. 9. (a) Whoever willfully fails to furnish any
6 information required pursuant to the authority of this Act,
7 whether required to be furnished in the form of a report or
8 otherwise, or to comply with any rule, regulation, order, or
9 instruction promulgated pursuant to the authority of this
10 Act may be assessed a civil penalty not exceeding $10,000
11 for eafch infraction on a proceeding brought under subsection
12
13
(b) of this section.
(b) Whenever it appears to the Secretary that any
14 person has failed to furnish any information required pur15 suant to the provisions of this Act, whether required to be
16 furnished in the form of a report or otherwise, or has failed
17 Jto comply with any rule, regulation, order, or instruction
18 promulgated pursuant to the authority of this Act, he may
19 in his discretion bring an action, in the proper district court
20 of the United States or the proper United States court of
21 any territory or other place subject to the jurisdiction of the
22 United States, seeking a mandatory injunction commanding
23 such person to comply with such rule, regulation, order, or
24 instruction, and upon a proper showing a permanent or
25 temporary injunction or restraining order shall be granted
67
17
1
without bond, and such person shall also be subject to the
2
civil penalty provided in subsection (a) of this section.
3
(c) I n any case in which the Secretary determines that
4 any foreign investor has made an investment subject to the
5 requirements of section 6 (b) and that such person has failed
q
to comply with the provisions of such section, after such
7 notice and opportunity fo^ hearing as he determines to be
3 appropriate, he may bring an action in the proper United
9 States district court seeking the suspension of any and all
10 voting rights of the securities until such time as the foreign
investor or his agent complies with the provisions of this
12 Act or such securities are sold. If the court determines that
23 the company's financial condition requires the exercise of
14 voting rights, it may authorize the Secretary to exercise
15 such rights. In the case of loan or long-term contractual
16 agreements, the Secretary may bring an action in the proper
17 United States district court to prohibit the exercise of any
18 provision of such loan agreement or contract with respect
19 to management or operational rights until the foreign iii20 vestor or his agent complies with the provisions of this Act
21 or until such loan or contract agreement terminates.
22
(d) Whoever willfully fails to submit any information
23 required pursuant to this Act, whether required to be fur24 nished in the form of a report or otherwise, or willfully
25
violates any rule, regulation, order, or instruction promul-
68
18
1
gated pursuant to the authority of this Act shall, upon
2
conviction be fined not more than $10,000 or, if a natural
3 person, may be imprisoned for not more than one year or
4
both, and any officer, director, or agent of any corporation
5 who knowingly participates in such violation may be pun6 ished by a like fine, imprisonment, or both.
7
(e) The Secretary or his duly authorized agent shall
8 have authority, for any purpose related to this Act, to sign
9 and issue subpenas for the attendance and testimony of wit10 nesses and the production of relevant boots, papers, and
11 other documents, and to administer oaths. Witnesses sum12 moned under the provisions of this section shall be paid the
13 same fees and mileage as are paid to witnesses in the courts
14 of the United States. I n case of refusal to obey a subpena
15 served upon any person under the provisions of this section,
16 the Secretary or his delegate, may request the Attorney^
17 General to seek the aid of the United States district court for
18 any district in which such person is found to compel that
19 person, after notice, to appear and give testimony, or to
20 appear and produce the documents before the agency.
21
22
A U T H O R I Z A T I O N FOR
APPROPRIATION
SEC. 10. There is authorized to be appropriated sums
*
23 as may be necessary to carry out the provisions of this Act.'
69
BELVEDERE PRODUCTS, I N C . ,
Belvidere, III., April 15,1915.
S e n a t o r A D L A I E . STEVENSON,
Old S e n a t e Office B u i l d i n g ,
Washington, B.C.
DEAR SENATOR STEVENSON : A t t a c h e d is a l e t t e r w h i c h I received f r o m the
League of A r a b States. Recently we discovered t h a t we were on a l i s t b o y c o t t i n g
Belvedere P r o d u c t s f r o m doing business w i t h A r a b countries and, of course, there
is no c u r r e n t reason. O r i g i n a l l y we h a d been a s u b s i d i a r y of R e v l o n a n d so, sort
of to find out w h a t the problem was, I w r o t e a n d asked h o w w e got off. I t h o u g h t
y o u w o u l d be interested i n r e a d i n g the seven points, a n d p a r t i c u l a r l y t h e last
point, i n d i c a t i n g t h a t they need 25 copies t r a n s l a t e d to A r a b i c .
I t h i n k t h i s is r e a l r i d i c u l o u s a n d I hope y o u do also. I s t h e r e a n o t h e r government body, a local one t o see, or w h a t e v e r t h a t m i g h t m a k e t h i s m u c h simpler?
I w o u l d appreciate y o u r recommendation.
Yours v e r y t r u l y ,
TED COWEN, P r e s i d e n t .
L E A G U E OF A R A B S T A T E S ,
D a m a s c u s , S. A . R., M a r c h 21,1975.
BELVEDERE PRODUCTS, I N C . ,
725 Columbia Avenue, Belvidere, III.
GENTLEMEN : W e have the honour to acknowledge receipt of y o u r l e t t e r dated
M a r c h 10, 1975 w h e r e b y y o u i n q u i r e about the reason f o r p u t t i n g the name of y o u r
company on t h e l i s t of firms banned i n the A r a b countries a n d w i s h t o t h a n k y o u
for your communication.
I n t h i s regard, we should advise t h a t dealings w i t h y o u r company i n the A r a b
countries were banned since 1966 because i t is a s u b s i d i a r y of t h e A m e r i c a n
company Revlon, I n c . w h i c h is banned i n a l l countries of the A r a b w o r l d . H o w ever, i n the l i g h t of y o u r statement t h a t Revlon is no longer p a r t i c i p a t i n g t o the
ownership of y o u r company w h i c h became independent f r o m R e v l o n a f t e r i t s
purchase by a g r o u p of employees, the A r a b B o y c o t t A u t h o r i t i e s w i l l be pleased
to consider r e m o v i n g the ban imposed on y o u r company a n d g i v i n g i t the chance
to resume i t s business relations w i t h the vast m a r k e t of the A r a b countries, i f
y o u w i l l a r r a n g e t o prespnt the f o l l o w i n g d o c u m e n t s :
1. A n official copy of the A r t i c l e s of Association of y o u r company a n d a n y
amendments made thereto.
2. A document e x t r a c t e d f r o m the records of y o u r company s h o w i n g the t o t a l
number of i t s share c a p i t a l a t the present t i m e and the names a n d n a t i o n a l i t i e s
of n a t u r a l a n d / o r corporate persons o w n i n g the said shares now.
3. A copy of t h e A g r e e m e n t / s u n d e r w h i c h t h e Revlon, Inc. sold y o u r company
Belvedere Products, Inc. t o the purchasers.
4. B a n k e r s ' d o c u m e n t a t i o n evidencing t h a t Revlon a c t u a l l y received the cons i d e r a t i o n f o r s e l l i n g Belvedere Products.
5. A statement s h o w i n g the names and n a t i o n a l i t i e s of the members of y o u r
company's B o a r d of D i r e c t o r s p r i o r to i t s sale by R e v l o n as w e l l as a f t e r the
sale. Y o u w i l l also give t h e names o f the parties represented by the present members o f the B o a r d .
6. A document s h o w i n g w h e t h e r y o u r company has any agreement w i t h
R e v l o n f o r m a n u f a c t u r i n g c e r t a i n products of Revlon's products, f o r u s i n g any
names or t r a d e m a r k s of R e v l o n or any o f i t s subsidiaries o r f o r a c q u i r i n g techn i c a l c o n s u l t a t i o n or k n o w - h o w f r o m any of the R e v l o n companies.
7. A d e c l a r a t i o n s h o w i n g t h e n a t u r e of y o u r relations a n d those of y o u r subs i d i a r y companies w i t h I s r a e l i n the l i g h t of t h e f o l l o w i n g questions :
D o y o u o r any of y o u r s u b s i d i a r i e s :
( a ) H a v e n o w or ever h a d m a i n or b r a n c h factories or assembly plants
i n Israel?
( b ) H a v e o r ever h a d i n I s r a e l general offices f o r regional or i n t e r n a t i o n a l
operations ?
( c ) G r a n t o r ever g r a n t e d the r i g h t of u s i n g y o u r names, t r a d e m a r k s , manu f a c t u r i n g licenses, patents r i g h t s etc., t o I s r a e l i persons or firms ?
( d ) P a r t i c i p a t e or o w n shares, now or i n t h e past, i n I s r a e l i firms or businesses outside o r inside I s r a e l ?
(e) Render or ever rendered any technological assistance to any I s r a e l i
firm or business?
70
( / ) Represent or ever represented any Israeli firm or business in Israel
or abroad?
(g) Please give the names and nationalities of all companies into which
you own shares or with which you are associated as well as the proportion
of your shareholding in each of them.
We should draw your kind attention to the fact that all the above requested
documents should be duly certified by your chamber of commerce or industry,
or executed before a notary public and then authenticated by the closest consulate or diplomatic mission of any Arab country. Moreover, the English legalised originals of such documents should be accompanied by 25 copies of the
Arabic translation of each of them.
We remain,
Very truly yours,
MOHAMMED
MAHMOUD
MAHGOUB,
Commissioner
General.
Senator STEVENSON. The next witness is Gerald L. Parsky, Assistant Secretary of Treasury for Trade, Energy, and Financial Resources Policy Coordination.
Thank you, Mr. Parsky, for joining us this morning.
As I indicated to Mr. Tabor, you will be welcome to condense and
I will enter into the record i f you prefer.
STATEMENT OF GERALD I . PARSKY, ASSISTANT SECRETARY,
TRADE, ENERGY, AND FINANCIAL RESOURCES POLICY COORDINATION, DEPARTMENT OF TREASURY
Mr. PARSKY. Mr. Chairman, I would like to do that i f I could. I
noted you have asked a number of questions already of Mr. Tabor,
and he has been able to express the administration position on a number of issues.
I would like to go through certain points in my testimony, but I
would appreciate it i f you would submit it in full for the record.
Senator STEVENSON. The f u l l statement will be entered into the
record.
Mr. PARSKY. Let me begin, i f I could, Mr. Chairman, by offering
some general observations about the policy, I think, that we should
be pursuing with respect to foreign investment in this country, the
Arab boycott and the items of legislature.
First, we believe this Government should maintain its commitment
to free and open international capital markets, imposing limitations
only in narrowly defined circumstances where essential national interests are involved.
Second, we do not believe the fact or the amount of the recent accumulations of wealth in certain oil-producing countries warrants a
deviation from this policy.
Third, we do not believe that the answer to the Arab economic
boycott lies in additional legislation authorizing a response in kind
by this Government.
And, fourth, with regard to foreign investment in the United States,
we believe existing laws are adequate to combat discrimination against
U.S. nationals on religious, ethnic or other grounds. We are, however,
reviewing the scope of present authority in this area and will recommend new, reinforcing legislation i f this is necessary.
I have divided the testimony into two parts, the first to discuss
issues related to foreign investment, and then the second to treat
71
the Arab boycott question, specifically in the context of the proposed
legislation.
Our policy with respect to foreign investment is based on the belief
that free market forces will direct worldwide capital flows in the
most productive way and that such an open policy toward foreign
investment will result in direct benefits to our economy.
I go through a number of these benefits in my text, Mr. Chairman.
First, maintenance of our open policy toward foreign capital flows
gives the U.S. firm maximum flexibility in seeking needed capital
funds.
Second, foreign direct investors have contributed substantially to
the competitiveness and efficiency of our national economy.
Third, as this subcommittee is particularly aware, we are by far
the largest foreign investor in the world. The book value of our direct
investments alone is well over $100 billion; some six times greater
than direct investments in this country.
Finally, a fourth, more subtle reason for caution is the leadership
role we play in the world economic picture. We need only recall the
experience of the 1930's, when the willingness of the United States
to adopt restrictive trade practices resulted in retaliatory conduct
by other nations and helped turn a recession into a full-fledged world
depression.
As I mentioned, Mr. Chairman, each of those points I raised are
enumerated in some detail in the text of the testimony.
This leadership role may have been a factor in the decisions of other
industrialized countries to refuse to respond to OPEC accumulations
with investment restrictions.
I n many of these countries, there were fears about the possible
harmful effects of substantial investments by the oil-producer countries. These countries have much smaller economies and financial markets than the United States and thus have less capacity to absorb
sizable foreign investments. Nevertheless, there is general agreement
that the industrialized countries should maintain the current degree
of freedom for international capital movements.
I t is important to recognize that while the existing foreign investment policies of the industrialized countries range from the very
liberal to the quite restrictive, I think it is noteworthy that a general
move toward new restrictions has not taken place.
Since the sharp rise in the price of oil, no industrialized nation has
indicated an intention to apply discriminatory treatment to foreign
direct investment from the oil-producing states.
And no country plans to give special incentives to such direct investments, recognizing that i f this were to become the policy of some
countries, it could lead to distortions in capital flows and undesirable
competition between the industrialized countries for OPEC funds to
the net detriment of all.
I firmly believe that this policy, consistently applied throughout the
world, will best serve the cause of international economic and political
well-being. And, after careful review, we can state that there is nothing
in the conduct of the OPEC investors which should lead us to deviate
from such a policy.
Contrary to some popular expectations, there has not been a massive
influx of money, nor has there been increased takeover activity by
72
investors from the oil-producer nations. Instead, the United States
has been receiving a relatively modest share of the investable funds
accumulated by these countries. I n 1974, less than $1 billion of the oil
producers' $60 billion investable surplus was invested in corporate
securities, real estate and other private sector investments. Even when
passive investments in U.S. Government securities and commercial
bank deposits are included, our share of the worldwide total was less
than 20 percent.
Flows this year have slowed substantially, which has been the result
of smaller surpluses being accumulated by the producers, and there
has been a significant reduction of the proportion of these funds being
placed in the United States.
Through the first half of the year, investments in the United States
by the oil-producing nations totaled about $2*4 billion, only about
9 percent of the estimated $24 billion surplus accumulated by the oil
producers during this period.
This 9 percent, as I said, is in contrast to the approximately 20 percent we received last year.
A n increasing proportion of these funds is being placed in longer
term investments, including bank time deposits, government bonds,
and corporate bonds and equities. This reflects the increasing economic
sophistication of the oil producers and their recognition that their
long-term interests are, in a large part, dependent on the economic
strength of the industrialized world.
I t , of course, also reflects the recent improvements in the relative
yield of long-term investments as compared to short term.
Despite this longer term interest, I would be very surprised i f as
much as $3 billion of OPEC funds were to be invested in what we call
long-term instruments in the private, corporate and real estate sectors
in i975.
This figure, which includes investments in a broad variety of assets,
is less than 2 percent of the 1973 transaction volume on the New York
Stock Exchange alone. I t would represent barely 23 percent of the
foreign purchases of U.S. securities in 1973, which were nearly $13
billion. Our economy certainly is not being overwhelmed by OPEC
funds.
A highly significant development is the decline in OPEC surpluses
as a whole. This year we anticipate the total OPEC surplus will be on
the order of $45 billion, a 25-percent reduction from last year. This
sharp reduction is due in large part to a reduction in the demand for
OPEC oil; 30 percent of OPEC available capacity has been closed
down to maintain current oil price levels.
Another important factor reducing the surplus is the strong
growth in OPEC imports of goods and services. The OPEC countries
may increase their import volumes some 30 to 35 percent this year on
top of nearly a 40-percent increase in 1974.
We now expect the cumulative surplus to peak somewhere in the
range of $175 billion to $250 billion in 1974 dollars far below the scare
figures of early this year.
While it is impossible to predict accurately what portion of future
surpluses will be channeled into direct investments in U.S. industry, it
is reasonable to expect that the proportion will be small. The producers
73
will continue to place the majority of their funds in portfolio investments and various government-to-government transactions.
Even i f we agree that the amount of funds OPEC will have available for investment does not warrant a change in policy, it is still
important, we feel, to consider the policies these countries are pursuing
with respect to the funds that are available.
Although the approaches to investment differ among the OPEC
countries, each emphasizes return on investment. These countries have
neither the desire to control nor the manpower to manage companies
in the United States. Instead, we can expect them to act like our domestic institutions, widely diversifying their portfolios in a manner
designed to yield the best long-term return.
As a practical matter, only Kuwait, the Gulf States, and Saudi
Arabia will accumulate far more in revenues than they can hope to put
to use domestically. The Kuwaitis are particularly sophisticated in the
field of foreign investment, and they are exploring the entire spectrum
of profitable long-term investment opportunities. They will be seeking
to acquire assets that are at least no less valuable, in their view, than
oil in the ground. They have told me that they do want to participate
in our equity markets, because they believe they provide opportunity
for long-term growth.
They have little interest, however, in obtaining controlling interests
in existing firms. The other Gulf States are likely to follow investment
policies quite similar to those of Kuwait.
I n my discussions with the financial leaders in Abu Dhabi, they
expressed an interest in real estate as well. They indicated that they
would invest up to 15 percent of available funds in the real estate
sector.
I would point out with respect to Abu Dhabi, they don't anticipate
any surplus funds being available in 1975, as a result of substantial aid
commitments but, again, the desire is for safe, long-term investment
and not control.
Saudi Arabia, the country that will have the largest surpluses, has
developed an investment strategy which emphasizes stability as reflected in requiring a steady pattern of dividend payments—growth—
as reflected in requiring a steady pattern of earnings increases and diversification. They have been most conservative in their investment
policy in the past and I believe they will continue to be. They too are
beginning to look more to equity investment, but I would be surprised
based on my discussions to see the Saudi Arabian Government invest
more than 5 percent in any particular company.
Iran's foreign investment policies are strongly influenced by its internal development needs. Because of their capacity to develop their
own country, Iran will not have a significant amount of surplus funds
available for long-term investments abroad. I n fact, Iran will most
likely be a net borrower of funds within a year. The long term investments it does make will be concentrated in companies which can help
Tran expand its domestic industrial base by providing i t with access to
foreign products, increased technology, manpower skills, and resources
of a portfolio nature. I do not believe Iran will be interested in investing in real estate or highly speculative ventures.
74
The remaining OPEC countries are likely to concentrate on liquid,
short-term investments. Few long term direct foreign investments by
these countries are likely.
A l l of these countries realize that the investment decisions they make
now are their insurance for the future. Thus, they will seek secure,
sound investment opportunities. A recent example of such an investment is the purchase by Saudi Arabia of a $100 million note of American Telephone and Telegraph Co., which will not result in control of,
or any voice in A.T. & T. activities.
Further, it's interesting to note that the company chosen for the investment is subject to extensive State and Federal regulation. To me
this provides a good illustration of a responsible investment based on
long-term financial objectives. It's the kind of approach that I believe
will dominate the investments of these countries in the months ahead.
Despite the fact that we see no prospect that the major OPEC' investors will seek to obtain control over sectors of our economy, it is still
important to make sure that existing laws and regulations provide
adequate safeguards against undesirable activity by foreign investors
The administration undertook such a review earlier this year. We concluded that there was no need for further legislation in this area because safeguards in existing law are adequate to meet forseeable
potential problems.
I believe, Mr. Chairman, that in my statement I outlined a number of
the laws that are currently in effect and that we feel do adequately provide safeguards. They are broken down into various categories, those
which restrict investment in certain sectors, those which prevent abuse,
and I also mentioned the fact that every foreign investment is subject to the same laws and regulatory constraints which control U.S.
business. I think it is important to focus on these. I will leave them
for the record in terms of all of the laws mentioned.
I also might mention that I have prepared and would like to submit
for the record a detailed report on all U.S. laws and regulations which
are of particular relevance to foreign investment in the United States
and, i f you will permit, I would submit that for the record.
Senator S T E V E N S O N . I t will be entered into the record.
Mr. P A R S K Y . Along with confirming the adequacy of existing safeguards, the administration's review reaffirmed the traditional foreign
investment policy of our Government and concluded that no additional
limitations on investment were warranted. A t the same time, however,
we did decide that it would be desirable to take several administrative
actions to supplement present arrangements.
First, the President has established a continuing, high level, interagency Committee on Foreign Investment in the United States to serve
as the focal point within the executive branch for coordinating foreign
investment policy and to address specific foreign investment issues.
Second, the Department of Commerce has created a new office of
Foreign Investment, which will centralize and improve the gathering
of available information on foreign investment and its dissemination.
Third, we have advised all foreign governments that the United
States will expect any foreign government contemplating a major
direct investment in the United States to seek advance consultations
with us on the prospective investment.
75
I personally have discussed this policy with the major potential governmental investors in the Middle East and found a broad acceptance
of the concept as long as it applied to all governments on a nondiscriminatory basis. The response by these governments was varying,
some being willing to have a much more formalized government-togovernment mechanism than others; but, on general, I would say there
was broad acceptance of the concept.
To some extent such consultations had already been taking place.
Iran, for instance, did discuss their potential purchase of an interest
in Pan American. Recently, we learned of a potential joint venture by
the Government of Romania and the Island Creek Coal Co. in a coal
mine. We have contacted the Romanian Government and they will be
consulting with us on this potential investment.
This process of consultations is, we believe far preferable to the legislative proposals for formal screening or prenotification mechanisms,
such as the ones contained in S. 425. Our approach will be much more
selective, involving only those few major direct investments that may
raise important public policy issues. The important thing to emphasize
is that our interest is not to raise any new barriers to foreign investments but to provide a mechanism by which a foreign government can
learn of the U.S. Government's views on a prospective major direct
investment before it is undertaken. Therefore, the process will minimize
the possibility of misunderstandings or future investment disputes.
Such consultations will thus prove beneficial to the prospective investors as well as to the United States.
W i t h respect to the other investment aspects of S. 425,1 would like
to reiterate the views that former Under Secretary Jack F. Bennett
presented to the Subcommittee on Securities in March. Our overall
conclusion was that new legislation directed to foreign investment reporting and control would not provide any significant additional
safeguards, but would in practice be likely to deter a substantial
amount of beneficial investment in the United States. Moreover, these
provisions would, i f broadly implemented, violate a number of existing
Treaties of Friendship, Commerce, and Navigation and other international agreements.
Insofar as S. 425 is designed to improve disclosure of beneficial
ownership of U.S. corporations, the administration generally supports
this objective. However, I will say that we would oppose any provision
which discriminates in this regard against foreign investors. We have
been working with the Securities and Exchange Commission (SEC)
in this area, and I understand Chairman Garrett of the SEC will address this issue in considerable detail.
I n our negotiations with foreign governments we have consistently
asked that U.S. firms operating in their countries be accorded equal
treatment. I f the United States should now introduce discriminatory
provisions, we can expect retaliation in the form of discriminatory
restrictions on U.S. investments in foreign countries.
Let me now turn to S. 953 and the subject of the Arab boycott.
S. 953 would amend the provisions of the Export Administration Act
to broaden the reporting requirements of the act, authorize the Secetary of Commerce to require firms to supply additional information
including intended compliance, and give the President express authority to order "the curtailment by any U.S. concern of exports to,
76
investments in, or any other economic transactions with countries
which impose boycotts or engage i n restrictive trade practices."
Mr. Chairman, you have made clear that this bill has been proposed
primarily with the current Arab economic boycott of Israel in mind.
The position of the Treasury Department on the Arab boycott and on
religious and other discrimination against Americans has been expressed in detail in testimonies I and other Trea-sury officials have
given before several Senate and House Committees. My testimony on
March 13, 1975, before the Subcommittee on International Trade and
Commerce of the House Committee on Foreign Affairs treats the
subject in extension depth and I would like to submit a copy of that
statement for the record.
Senator STEVENSON. That will be entered in the record. (See p.104.)
Mr. P A R S K Y . Stated most simply, we strongly oppose the boycott.
We have, and will continue to carry out, in a manner consistent with
laws and policies of the United States, the policy set forth in the Export Administration Act to oppose any restrictive trade practices or
boycotts and encourage U.S. firms to refuse to act in furtherance or
support of such restrictive trade practices or boycotts. The Department of Commerce has taken steps to insure enforcement of the reporting requirements of the Export Administration Act. I t has sent a
circular to U.S. firms engaged in export activities drawing their
attention to the requirement of the Export Administration Act, and
Secretary Tabor outlined a number of other activities Commerce has
undertaken.
Perhaps more importantly, we are continuing our efforts to demonstrate to Arab countries the importance to their own development
efforts of unfettered trade and economic relations with all U.S. firms.
We believe this process w i l l help create the conditions which will
enable even more U.S. firms to maintain commercial ties with both
Israel and the Arab world.
Further, with respect to discrimination against Americans based
on religious, ethnic or other grounds, the President has declared in
the strongest possible terms his determination to prevent such practices. We will not permit others to impose such discrimination upon
our society. Department of Justice representatives have recently testified before the House Committee of the Judiciary on the broad range
of actions which can be taken under current laws to prevent discrimination of this type and the Comptroller of the Currency has issued
a directive to all national banks warning against discriminatory practices and noting that compliance will be assured by means of regular
bank examinations.
I n addition, the administration is in the process of reexamining our
legal and other means in this area of religious, ethnic or other discrimination. A n interdepartmental study is being conducted to determine the adequacy of existing U.S. laws and what additional steps, i f
any, should be taken by the Government in response.
Turning to the specific provisions of S. 953, the broader reporting
requirements prescribed therein would present no problem to the
Treasury Department, and we do not oppose them. The troublesome
aspect of the bill in our mind is the provision for action against boycotting countries, which although stated in broad discretionary terms
would specifically authorize our curtailment by any U.S. concern of
77
exports to or other types of economic transactions with countries imposing boycotts.
Although, as a technical matter, I realize that the discretionary
authority need not be exercised by the President, I believe that this
legislation raises important issues that must be addressed before we
move in this direction. First of all, we believe that the retaliatory
provisions of the bill would not alleviate the Arab boycott, but instead would risk aggravating it.
The policy of the Arab States will not be affected positively by the
threat of action by the United States as proposed in S. 953. Rather,
a possible action by the United States of curtailing exports or other
transactions by American firms complying with the boycott would in
most cases merely cause the Arab States to seek other sources of supply, thus adversely affecting our own economic interests. Such occurrence would damage U.S. interests, both here and in the whole Middle
East area.
Moreover, the bill would inject an element of uncertainty into existing U.S. business relations with the Arab world, since the President
could at any time act to prohibit exports and other economic transactions with any of the Arab countries.
For these reasons, it would place us at a competitive disadvantage
potentially vis-a-vis the industrialized countries of Europe and Asia
which actively compete with us for export sales and other transactions in the expanding Middle East market. A t a time of gradual
economic recovery and continuing high unemployment in the United
States, it would not be advisable to take action which would fail to
achieve its proclaimed objective and which could have adverse effects
on our economy.
The broad authority given to the President to take action including
curtailment by a U.S. concern of exports to, investments in, and other
economic transactions with Arab countries also raises a number of issues affecting international trade and investment policies as a whole.
We should be very cautious in taking action which would undermine
our traditional policies of a free and open market for trade and investment, both in the United States and in foreign countries.
Finally, it should be underscored that the boycott arose out of the
Arab-Israeli conflict, and continues to be viewed as part of that conflict. We believe it can best be resolved through a peaceful settlement
in the Middle East, and not by imposing or threatening to impose
restrictions on investment or on severing economic ties.
We strongly oppose the so-called "Boycott amendment" to S. 425
for many of the same reasons. Although i shall not discuss this aspect
of S. 425 in detail—instead referring the subcommittee to testimony
given before the Securities Subcommittee—I should point out that S.
425 may be far more dangerous and self-defeating than S. 954. By authorizing the President to prohibit direct investments in the United
States by boycott participants, it virtually guarantes constant confrontations and potentially closes our economy to an important potential source of investment capital.
Contrary to such a potentially harmful and self-defeating aproach
through coercive legislation, we believe we are in a real sense working
to end the boycott of U.S. firms by promoting closer economic ties
with all of the nations in the Middle East. These ties serve to demon-
5 8 - 5 2 7 O - 75 - 6
78
strate the potential contribution of U.S. firms to their economies.
There is economic cost to the Arab countries involved in boycotting
U.S. firms—the opportunity cost of foregoing U.S. technology, managerial talent, and capital—and this cost will become clearer as economic cooperation increases.
We believe this is an especially important consideration with regard to the non-oil-producing countries in the Middle East which are
more readily inclined to the removal of impediments to their own economic growth. Thus, we have seen cases where companies have been
permitted to do business in these non-oil-producing countries, although they continue their relationship with Israel.
These actions are part of a continuing initiative to make clear to
Arab governments that we consider the boycott injurious to our bilateral relations and to their development efforts. These points are
being made clear in our regular diplomatic contacts and in the context of the bilateral joint commissions we have with several Arab
countries.
Finally, we are working to create an economic and political climate in which a lasting peace settlement in the Middle East is possible. Such a peace settlement is clearly the best way to bring a definitive end to the Arab boycott.
Ladies and gentlemen, it is not an overstatement to say that the
questions facing this subcommittee today are of utmost importance
to countries around the world. Clearly we could take actions to restrict
investment or terminate economic relations with countries with whom
we do not always agree. This would take us down the path of economic warfare. On the other hand, we also have the ability to seek
solutions to the problems of the world by bringing parts of that world
closer together and creating greater understanding. That is the path
that I believe is essential to bringing about peace.
Mr. Chairman, we are opposed to the Arab boycott. Under Secretary Simon's leadership, we in the Treasury have taken an active
role in working with both Israel and the Arab countries to fashion
an economic climate in which both sides can achieve the economic development they rightfully seek. We will continue these efforts. We
must avoid actions which would frustrate, i f not terminate, these
efforts and potentially damage the critical political negotiations as
well.
Thus, I strongly urge the Congress not to yield to the temptations
of retaliating through trade and investment curbs. We must recognize that economic warfare, or the threat of such warfare, will be
counterproductive to everyone.
Thank you, Mr. Chairman. I would be glad to answer any questions.
[These documents follow in this order: 1. Statement of Assistant
Secretary of the Treasury Gerald L. Parsky, of July 22, 1975; 2.
Statement of Assistant Secretary of the Treasury Gerald L. Parsky,
of March 13, 1975; and, 3. Document, "Summary of Federal Laws
Bearing on Foreign Investment in the United States":]
79
FOR RELEASE UPON DELIVERY
STATEMENT BY THE HONORABLE GERALD L . PARSKY
ASSISTANT SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL FINANCE
SENATE COMMITTEE ON BANKING, HOUSING AND
URBAN AFFAIRS
TUESDAY, JULY 2 2 , 1 9 7 5 , AT 1 0 : 0 0 A . M .
Mr.
the
in
Chairman,
I
am p l e a s e d
Administration's
this
country,
now p e n d i n g
policy
the
before
Arab
this
the
areas.
its
policy
First,
circumstances
involved.
amount
oil
economic
WS-36 2
we do n o t
only
these
believe
lies
believe
in
the
fact
of wealth
a deviation
that
the
additional
i n k i n d by t h i s
maintain
capital
defined
interests
are
or
in
the
certain
from
answer
this
to
legislation
government.
discuss
legislation
important
should
in narrowly
national
warrants
we do n o t
boycott
in
government
accumulations
countries
of
to
investment
observations
and open i n t e r n a t i o n a l
essential
a response
foreign
items
some g e n e r a l
this
limitations
recent
Third,
authorizing
free
where
Second,
the
producing
policy.
Arab
of
to
opportunity
to
and t h e
we s h o u l d be p u r s u i n g
imposing
the
Subcommittee.
we b e l i e v e
commitment
markets,
have
respect
Boycott
L e t me b e g i n by o f f e r i n g
about
to
with
the
80
And,
fourth,
we b e l i e v e
with
existing
against
U.S.
We a r e ,
however,
will
would
investment
place
S.995
question
including
capital
fits
to
needed
U.S.
in
the
of
or
issues
on
I
other
if
this
related
context
treat
of
grounds.
is
to
and
necessary.
foreign
which
investment,
will
U.S.,
authority
legislation
such
the
discrimination
present
legislation
Then,
respect
that
free
market
flows
our
in
the
most
foreign
would
including
the
Arab
proposed
boycott
legislation,
Policy
to
on
Foreign
foreign
forces
will
productive
investment
investment
direct
way
will
Investment
and
based
on
worldwide
that
result
is
in
such
an
direct
open
bene-
economy:
maintenance
flows
gives
capital
of
the
funds.
on
towards
the
At
and
in
a
it
time
would
flows
this
open p o l i c y
firm
available
capital
formation.
our
U.S.
requirements,
economy
capital
restrictions
with
restrictions
policy
scope
discuss
Administration
toward
financing
to
combat
ethnic
and p r o p o s e d
policy
First,
capital
U.S.
and S . 1 3 0 3 .
of
belief
policy
the
to
in
S.953.
Advantages
Our
adequate
reinforcing
specifically
investment
on r e l i g i o u s ,
first
the
additional
S.425,
the
new,
foreign
are
reviewing
like
in
to
laws
nationals
recommend
I
regard
2 -
maximum
when
not
be
respect
are
wise
to
to
beneficial
in
facing
raise
capital.
conducive
is
foreign
flexibility
firms
sources- o f
is
towards
difficult
new
Our
a healthy
to
seeking
open
growing
domestic
81
- 2 Second, f o r e i g n d i r e c t
tially
i n v e s t o r s have c o n t r i b u t e d
t o the competitiveness
economy.
and e f f i c i e n c y o f our
substan-
national
These c o n t r i b u t i o n s have come i n t h e f o r m o f new
p r o d u c t s or p r o c e s s e s and new management t e c h n i q u e s and
that,
skills
i n many c a s e s , have been d i f f u s e d t h r o u g h o u t our economy.
The p h a r m a c e u t i c a l i n d u s t r y i s a good example o f t h e
introduction
by f o r e i g n i n v e s t o r s o f i m p o r t a n t new. t e c h n o l o g y .
Many p e o p l e a r e n o t aware o f t h e f a c t t h a t some o f
b e s t - k n o w n companies are p a r t i a l l y
investors.
our
or t o t a l l y - o w n e d by
foreign
Companies such as S h e l l , Lever B r o t h e r s , and N e s t l e
y i e l d t h e U.S. economy t h e same b e n e f i t s as t h e i r
owned c o u n t e r p a r t s
--
that
is,
domestically-
employment o p p o r t u n i t i e s ,
r e v e n u e s , and c o m p e t i t i v e l y - p r i c e d goods and s e r v i c e s .
direct
Foreign
i n v e s t m e n t s a r e o f t e n i n U.S. i n d u s t r i e s t h a t are
t i v e l y concentrated,
and t h e e n t r a n c e o f f o r e i g n f i r m s
results
increases i n the l e v e l of
in desirable
i n these i n d u s t r i e s ,
benefits.
Still
rela-
usually
competition
a development f r o m w h i c h t h e whole economy
o t h e r s have p l a y e d a major r o l e i n
development o f a p a r t i c u l a r
California,
tax
s t a t e or r e g i o n .
the
For example,
in
i n v e s t m e n t s such as Paul Masson, Sony and T o y o t a
mean more j o b s and o t h e r
important b e n e f i t s t o the
state's
economy.
More i m p o r t a n t l y ,
not d i f f e r
t h e b e h a v i o r o f t h e s e companies does
f r o m d o m e s t i c a l l y - o w n e d companies.
The o w n e r s h i p
o f t h e s e companies has n o t a l t e r e d t h e way i n w h i c h t h e y
function --
t h e y s t i l l must a b i d e by our l a w s , and t h e y
must compete i n our market
place.
still
Co.,
82
- 2 T h i r d , as t h i s Subcommittee i s p a r t i c u l a r l y aware, we
are by f a r the l a r g e s t f o r e i g n i n v e s t o r i n the w o r l d .
The
book value of our d i r e c t investments alone i s w e l l over $100
.billion;
some s i x times g r e a t e r than d i r e c t investments
t h i s country.
negotiated
in
As we have i n v e s t e d around the w o r l d , we have
numerous t r e a t i e s of f r i e n d s h i p , commerce and
n a v i g a t i o n under which i n v e s t o r s from other n a t i o n s are promised
equal t r e a t m e n t w i t h American c i t i z e n s w i t h respect to
ments w i t h i n the U n i t e d S t a t e s .
As we consider changes i n our
p o l i c i e s , we must be cautious not t o endanger these
commercial
invest-
important
treaties.
Finally,
a f o u r t h , more s u b t l e , reason f o r c a u t i o n i s the
l e a d e r s h i p r o l e we p l a y i n the world economic p i c t u r e .
We need
only r e c a l l the experience of the 1 9 3 0 ' s , when the w i l l i n g n e s s
of the U n i t e d S t a t e s t o adopt r e s t r i c t i v e
trade practices
resulted
i n r e t a l i a t o r y conduct by other n a t i o n s and helped t u r n a
r e c e s s i o n i n t o a f u l l - f l e d g e d world depression.
I f the U n i t e d
S t a t e s , w i t h our h i s t o r i c a l support of f r e e c a p i t a l movements,
were to adopt investment r e s t r i c t i o n s ,
t h i s a c t i o n might
ence o t h e r n a t i o n s t o take s i m i l a r measures.
influ-
At a time when the
need f o r worldwide cooperation i s a t peak, the n a t i o n s of the
world,
l e d by the United S t a t e s , would be r e t r e a t i n g
i s o l a t e d economic
into
shells.
Foreign Investment P o l i c i e s of Other Countries
This l e a d e r s h i p r o l e may have been a f a c t o r i n the d e c i s i o n s
of o t h e r i n d u s t r i a l i z e d c o u n t r i e s to r e f u s e to respond to OPEC
accumulations w i t h investment
restrictions.
83
-5 I n many of these c o u n t r i e s , t h e r e were f e a r s about the
p o s s i b l e harmful e f f e c t s of s u b s t a n t i a l investments by
the o i l producer c o u n t r i e s .
These c o u n t r i e s have much
smaller economies and f i n a n c i a l markets than the U n i t e d
States and thus have less c a p a c i t y to absorb s i z e a b l e
f o r e i g n investments.
Nevertheless,
there
is
general
agreement t h a t the i n d u s t r i a l i z e d c o u n t r i e s should maint a i n the c u r r e n t degree of freedom f o r i n t e r n a t i o n a l
capital
movements.
While the e x i s t i n g f o r e i g n investment p o l i c i e s
the i n d u s t r i a l i z e d c o u n t r i e s range from the very
to the q u i t e r e s t r i c t i v e ,
I think i t
of
liberal
i s noteworthy
that
a g e n e r a l move towards new r e s t r i c t i o n s has not taken p l a c e .
Since the sharp r i s e i n the p r i c e of o i l , no i n d u s t r i a l i z e d
n a t i o n has i n d i c a t e d an i n t e n t i o n to apply
discriminatory
treatment t o f o r e i g n d i r e c t investment from the
oil
producing s t a t e s .
special
And no country plans to g i v e
incentives to such d i r e c t investments, r e c o g n i z i n g
if
that
t h i s were t o become the p o l i c y of some c o u n t r i e s ,
it
could lead to d i s t o r t i o n s i n c a p i t a l flows and u n d e s i r a b l e
c o m p e t i t i o n between the i n d u s t r i a l i z e d c o u n t r i e s f o r OPEC
funds to the n e t d e t r i m e n t of
all.
84
- 25 Germany i s an i n s t r u c t i v e case.
Germany has long
f o l l o w e d l i b e r a l f o r e i g n investment p o l i c i e s
to those of the U n i t e d S t a t e s .
similar
Over the past y e a r ,
t h e r e have been s e v e r a l major investments by o i l
i n important German companies - - Krupp by I r a n ,
producers
Daimler-
Benz by Kuwait,, f o r example - - and these t r a n s a c t i o n s
to increased pressures f o r new r e s t r i c t i v e
led
policies.
However, the German government has c o n s i s t e n t l y opposed
legislative restrictions,
i n s t e a d adopting the approach
of seeking p r i o r c o n s u l t a t i o n s on any major
i n German e n t e r p r i s e s .
They have such an agreement w i t h
Saudi A r a b i a and are seeking s i m i l a r
w i t h other o i l
I
investments
understandings
producers.
firmly believe that this policy,
consistently
a p p l i e d throughout the w o r l d , w i l l best serve the cause
of i n t e r n a t i o n a l economic and p o l i t i c a l w e l l - b e i n g .
a f t e r c a r e f u l r e v i e w , we can s t a t e t h a t
And,
t h e r e i s nothing
i n the conduct of the OPEC i n v e s t o r s which should l e a d us to
d e v i a t e from such a p o l i c y *
O i l Producer Surpluses and Investments
Contrary to some popular e x p e c t a t i o n s ,
t h e r e has not been
a massive i n f l u x of money,nor has t h e r e been increased
takeover a c t i v i t y by i n v e s t o r s from the o i l
producer
85
- 25 nations.
I n s t e a d , t h e U n i t e d S t a t e s has been r e c e i v i n g
a r e l a t i v e l y modest share o f t h e i n v e s t a b l e f u n d s accumul a t e d by t h e s e c o u n t r i e s .
the o i l producers'
I n 1974, l e s s t h a n $1 b i l l i o n
of
$60 b i l l i o n i n v e s t a b l e s u r p l u s was
invested i n corporate s e c u r i t i e s ,
p r i v a t e sector investments.
r e a l e s t a t e and o t h e r
Even.when p a s s i v e
investments
i n U.S. Government s e c u r i t i e s and commercial bank d e p o s i t s
a r e i n c l u d e d , our share o f t h e w o r l d w i d e t o t a l was l e s s
t h a n 20 p e r c e n t .
Flows have slowed s u b s t a n t i a l l y t h i s y e a r ,
w h i c h have
been t h e r e s u l t o f s m a l l e r s u r p l u s e s b e i n g accumulated by
t h e p r o d u c e r s and t h e r e has been a s i g n i f i c a n t
reduction
of
t h e p r o p o r t i o n o f t h e s e funds b e i n g p l a c e d i n t h e U n i t e d
States.
Through t h e f i r s t h a l f o f t h e y e a r ,
investments
i n the U n i t e d S t a t e s by t h e o i l p r o d u c i n g n a t i o n s
about $2 1 / 4 b i l l i o n ,
totaled
o n l y about n i n e p e r c e n t o f
the
e s t i m a t e d $24 b i l l i o n s u r p l u s accumulated by t h e
oil
producers d u r i n g t h i s
period.
An i n c r e a s i n g p r o p o r t i o n o f t h e s e funds i s
placed i n longer-term investments,
deposits,
equities.
including
being
bank-time
government bonds, and c o r p o r a t e bonds and
This r e f l e c t s
t h e i n c r e a s i n g economic
c a t i o n o f t h e o i l p r o d u c e r s and t h e i r
long-term interests
recognition that
are, i n a large p a r t ,
dependent on
t h e economic s t r e n g t h o f t h e i n d u s t r i a l i z e d
sophisti-
world.
their
86
-
It,
of course, also r e f l e c t s
8
-
the recent improvements i n the
r e l a t i v e y i e l d of l o n g - t e r m investments as compared to
short-
term investments.
Despite t h i s longer term i n t e r e s t ,
I would be very
s u r p r i s e d i f as much as $3 b i l l i o n of OPEC funds were
to be i n v e s t e d i n long term instruments i n the
corporate and real estate sectors in 1975.
private,
This figure, which includes
investments in a broad variety of assets, is less than two percent
of the 1973 t r a n s a c t i o n volume on the New York Stock
Exchange a l o n e .
I t would r e p r e s e n t b a r e l y
23
percent
of the f o r e i g n purchases of U.S. s e c u r i t i e s i n 1973, which
were n e a r l y $13 b i l l i o n .
Our economy c e r t a i n l y i s not
being overwhelmed by OPEC funds.
A h i g h l y s i g n i f i c a n t development i s the d e c l i n e
OPEC surpluses as a whole.
This year we a n t i c i p a t e
in
the
t o t a l OPEC surplus w i l l be on the order of $45 b i l l i o n ,
a 25 percent r e d u c t i o n i n one y e a r .
This sharp r e d u c t i o n
i s due i n l a r g e p a r t to a r e d u c t i o n i n the demand f o r
OPEC o i l :
30 percent of OPEC a v a i l a b l e c a p a c i t y has
been closed down to m a i n t a i n c u r r e n t o i l p r i c e
levels.
Another, important f a c t o r reducing the surplus i s
strong growth i n OPEC imports of goods and s e r v i c e s .
OPEC c o u n t r i e s may increase t h e i r
import volumes some 30
to 35 percent t h i s year on top of n e a r l y a 40 percent
i n c r e a s e i n 1974.
the
The
87
- 25 We now expect the cumulative surplus to peak somewhere i n the range of $175 b i l l i o n to $250 b i l l i o n
1974 d o l l a r s ,
year.
f a r below the scare f i g u r e s of e a r l y
While i t
in
this
i s impossible to p r e d i c t a c c u r a t e l y what
p o r t i o n of f u t u r e surpluses w i l l be channeled i n t o
investments i n U.S. i n d u s t r y ,
it
direct
i s reasonable to expect
t h a t the p r o p o r t i o n w i l l be s m a l l .
The producers
will
continue to place the m a j o r i t y of t h e i r funds i n p o r t f o l i o
investments and various
government-to-government
transactions.
Investment P o l i c i e s of Producer Governments
Even i f we agree t h a t the amount of funds OPEC w i l l
have a v a i l a b l e f o r investment does not warrant a change i n
policy,
it
is s t i l l
important to consider the p o l i c i e s
these
c o u n t r i e s are pursuing w i t h respect to the funds t h a t are
available.
Although the approaches to investment
differ
among the OPEC c o u n t r i e s , each emphasizes r e t u r n on i n v e s t ment.
These c o u n t r i e s have n e i t h e r the d e s i r e to c o n t r o l
nor the manpower to manage companies i n the U n i t e d S t a t e s .
I n s t e a d , we can expect them to act l i k e our domestic
insti-
t u t i o n s , w i d e l y d i v e r s i f y i n g t h e i r p o r t f o l i o s i n a manner
designed to y i e l d the best long term r e t u r n .
As a p r a c t i c a l m a t t e r , only Kuwait, the Gulf
States,
and Saudi Arabia w i l l accumulate f a r more i n revenues than
88
- 25 they can hope to put to use d o m e s t i c a l l y .
The Kuwaitis
are p a r t i c u l a r l y s o p h i s t i c a t e d i n the f i e l d of
foreign
investment and they are e x p l o r i n g the e n t i r e spectrum of
p r o f i t a b l e l o n g - t e r m investment o p p o r t u n i t i e s .
They w i l l
be seeking t o acquire assets t h a t are a t l e a s t no less
valuable,
i n t h e i r v i e w , than o i l i n the ground.
have t o l d me t h a t they do want to p a r t i c i p a t e
They
i n our
e q u i t y markets because they b e l i e v e they provide
f o r l o n g - t e r m growth.
They have l i t t l e
opportunity
interest,
however,
i n o b t a i n i n g c o n t r o l l i n g i n t e r e s t s i n e x i s t i n g f i r m s . The other
Gulf States are l i k e l y to f o l l o w investment p o l i c i e s
s i m i l a r to those of Kuwait.
quite
I n my discussions w i t h the
f i n a n c i a l leaders i n Abu Dhabi, they expressed an i n t e r e s t
i n r e a l e s t a t e as w e l l .
They i n d i c a t e d t h a t they would
i n v e s t up to 15 percent of a v a i l a b l e funds i n the
estate sector.
Again, the d e s i r e i s f o r s a f e ,
investment and not
real
long-term
control.
Saudi A r a b i a , the country t h a t w i l l have the
largest
s u r p l u s e s , has developed an investment s t r a t e g y which
emphasizes s t a b i l i t y as r e f l e c t e d i n r e q u i r i n g a steady
p a t t e r n of d i v i d e n d payments - - g r o w t h - - a s r e f l e c t e d
r e q u i r i n g a steady p a t t e r n of earnings
in
increases-and
89
- n diversification.
investment
They have been most c o n s e r v a t i v e i n
their
p o l i c y i n t h e p a s t and w i l l c o n t i n u e t o be.
They t o o are b e g i n n i n g t o l o o k more t o e q u i t y i n v e s t m e n t , but I
w o u l d be s u r p r i s e d t o see t h e Saudi A r a b i a n Government
i n v e s t more t h a n 5 p e r c e n t i n any p a r t i c u l a r
company.
I r a n ' s f o r e i g n i n v e s t m e n t p o l i c i e s are
strongly
i n f l u e n c e d by i t s
their
i n t e r n a l development needs.
c a p a c i t y t o d e v e l o p t h e i r own c o u n t r y ,
have a s i g n i f i c a n t
Because o f
Iran w i l l
amount o f s u r p l u s funds a v a i l a b l e
long term investments abroad.
l i k e l y be a n e t b o r r o w e r o f
w i t h i n a year.
In f a c t ,
Iran w i l l
not
for
most
funds
The l o n g t e r m i n v e s t m e n t s i t
does
make w i l l be c o n c e n t r a t e d i n companies w h i c h can h e l p
I r a n expand i t s
d o m e s t i c i n d u s t r i a l base by p r o v i d i n g
w i t h access t o f o r e i g n p r o d u c t s ,
manpower s k i l l s ,
increased
technology,
and r e s o u r c e s o f a p o r t f o l i o
nature.
I do n o t b e l i e v e I r a n w i l l be i n t e r e s t e d i n i n v e s t i n g
r e a l e s t a t e or h i g h l y s p e c u l a t i v e
short term investments.
likely.
to
concen-
Few
l o n g t e r m d i r e c t f o r e i g n i n v e s t m e n t s by t h e s e
are
in
ventures.
The r e m a i n i n g OPEC c o u n t r i e s are l i k e l y
t r a t e on l i q u i d ,
it
countries
90
- 25 A l l of these c o u n t r i e s r e a l i z e t h a t the
investment
decisions they make now are t h e i r insurance f o r the
Thus, they w i l l seek secure, sound investment
future.
opportunities.
A r e c e n t example of such an investment i s the purchase by
Saudi Arabia of a $100 m i l l i o n note of American Telephone
and Telegraph Company, which w i l l not r e s u l t i n c o n t r o l o f ,
any voice i n AT§T a c t i v i t i e s .
Further,
it's
interesting
to note t h a t the company chosen f o r the investment i s
to extensive s t a t e and f e d e r a l r e g u l a t i o n .
subject
To me
t h i s provides a good i l l u s t r a t i o n of a responsible
ment based on l o n g - t e r m f i n a n c i a l o b j e c t i v e s .
invest-
It's
k i n d of approach t h a t I b e l i e v e w i l l dominate the
the
investments
of these c o u n t r i e s i n the months ahead.
E x i s t i n g Safeguards i n U . S . Law
Despite the f a c t t h a t we see no prospect t h a t
the
major OPEC i n v e s t o r s w i l l seek to o b t a i n c o n t r o l over
sectors of our economy, i t
is s t i l l
important to examine
our laws and r e g u l a t i o n s to assure t h a t they provide
adequate safeguards
against
u n d e s i r a b l e a c t i v i t y by f o r e i g n i n v e s t o r s .
The Adminis-
t r a t i o n undertook such a review e a r l i e r t h i s y e a r .
concluded t h a t t h e r e was no need f o r f u r t h e r
We
legislation
i n t h i s area because safeguards i n e x i s t i n g law were
adequate to meet f o r e s e e a b l e p o t e n t i a l problems.
or
I would
91
- 25 l i k e to o u t l i n e b r i e f l y some of these safeguards which
may be of p a r t i c u l a r i n t e r e s t to t h i s
First,
Subcommittee
t h e r e i s a r e l a t i v e l y short l i s t of laws which
p r o h i b i t or l i m i t f o r e i g n investments i n c e r t a i n sectors
f o r reasons of n a t i o n a l s e c u r i t y or to p r o t e c t an e s s e n t i a l
national interest.
domestic a i r l i n e s ,
These sectors i n c l u d e atomic energy,
s h i p p i n g , f e d e r a l l y - o w n e d l a n d , communi-
c a t i o n s and media, and f i s h i n g .
Second, t h e r e are many laws which prevent abuses i n
s p e c i f i c s e c t o r s , f o r example, the defense a r e a .
Defense Department may deny s e c u r i t y clearances
The
required
to do c l a s s i f i e d work f o r the government to any f i r m under
" f o r e i g n ownership, c o n t r o l or i n f l u e n c e . "
Foreign owner-
ship of producers of defense m a t e r i a l s i s not
p r o h i b i t e d ; but i t
expressly
i s e f f e c t i v e l y d e t e r r e d by the
prospect t h a t such a c q u i s i t i o n would l i k e l y cause the
f i r m to lose i t s c l a s s i f i e d government business.
exports of arms and of c l a s s i f i e d technology
to defense manufacture are e f f e c t i v e l y
Finally,
Also
related
controlled.
every f o r e i g n investment i s s u b j e c t
to
the same laws and r e g u l a t o r y c o n s t r a i n t s which c o n t r o l
U.S. business.
These laws provide broad p r o t e c t i o n
a g a i n s t the p o s s i b i l i t y t h a t any owner, i n c l u d i n g a
foreign investor,
injury.
could use h i s p o s i t i o n to i n f l i c t
economic
Consider the p r o t e c t i o n the f o l l o w i n g laws p r o v i d e :
92
- 25 (1) Our a n t i t r u s t
laws apply f u l l y to
foreign
i n v e s t o r s and prevent a f o r e i g n i n v e s t o r from monopolizing
a s p e c i f i c s e c t o r , or engaging i n v a r i o u s
practices.
anti-competitive
They also prevent a f o r e i g n i n v e s t o r
from
making a purchase o f , or engaging i n a merger or
venture w i t h , a U.S. f i r m i f
joint
the r e s u l t would be to
s u b s t a n t i a l l y lessen competition or tend to c r e a t e a
monopoly.
These laws would also prevent such a c t i o n s
by a group of f o r e i g n i n v e s t o r s a c t i n g i n c o n c e r t .
(2) Our export c o n t r o l a u t h o r i t y provides
protection
a g a i n s t the export of any product or resource i f
national
security is threatened,
drain
if
t h e r e i s an excessive
of scarce m a t e r i a l s and a serious i n f l a t i o n a r y
from f o r e i g n demand, or i f
U.S. f o r e i g n p o l i c y .
impact
c o n t r o l s are needed to
S p e c i a l , more d e t a i l e d ,
further
rules
apply to exports of armaments and energy m a t e r i a l s .
(3) The s e c u r i t i e s laws r e q u i r e d i s c l o s u r e of
significant
f o r e i g n ownership and prevent harmful
a c t i v i t i e s w i t h respect to tender o f f e r s ,
stock p r i c e
m a n i p u l a t i o n and p r e s e r v a t i o n of an o r d e r l y market.
(4) Our labor laws r e q u i r e a l l f i r m s o p e r a t i n g
the U n i t e d States to r e f r a i n from u n f a i r labor
in
practices
and to assure a l l workers safe and h e a l t h f u l working
conditions.
(5) Our broad emergency powers, i n c l u d i n g the Trading
w i t h the Enemy A c t , a u t h o r i z e the P r e s i d e n t , during n a t i o n a l
93
- 25 emergency, t o c o n t r o l c o m p l e t e l y any p r o p e r t y i n t h e U.S.
i n w h i c h any f o r e i g n c o u n t r y or n a t i o n a l t h e r e o f has any
interest;
t o condemn any p r o p e r t y w i t h i n our
jurisdiction;
and t o o r d e r t h e p r i o r i t y p e r f o r m a n c e o f defense
contracts,
t o a l l o c a t e m a t e r i a l s and f a c i l i t i e s
related
necessary
f o r n a t i o n a l d e f e n s e , and t o p l a c e p r i o r i t y o r d e r s f o r a
p a r t i c u l a r p r o d u c t and t a k e p o s s e s s i o n o f t h e f a c i l i t y
they are not
fulfilled.
I have p r e p a r e d , and would l i k e t o submit f o r
record,
if
the
a d e t a i l e d r e p o r t on U.S. laws and r e g u l a t i o n s
which are of p a r t i c u l a r
i n the United
relevance to f o r e i g n
investments
States.
G e n e r a l P o l i c y and A d m i n i s t r a t i v e
Actions
A l o n g w i t h c o n f i r m i n g t h e adequacy o f
existing
safeguards,
the A d m i n i s t r a t i o n ' s
traditional
f o r e i g n i n v e s t m e n t p o l i c y o f our Government
and c o n c l u d e d t h a t no a d d i t i o n a l
were w a r r a n t e d .
review r e - a f f i r m e d the
limitations
A t t h e same t i m e , however, we d i d d e c i d e
t h a t i t w o u l d be d e s i r a b l e t o t a k e s e v e r a l
a c t i o n s t o supplement p r e s e n t
First,
high l e v e l ,
on i n v e s t m e n t
administrative
arrangements.
t h e P r e s i d e n t has e s t a b l i s h e d a c o n t i n u i n g ,
i n t e r - a g e n c y Committee on F o r e i g n
i n the United States
Investment
t o s e r v e as t h e f o c a l p o i n t
t h e E x e c u t i v e Branch f o r c o o r d i n a t i n g f o r e i g n
investment
p o l i c y and t o address s p e c i f i c f o r e i g n i n v e s t m e n t
t h a t may a r i s e .
5 8 - 5 2 7 O - 75 - 7
within
issues
94
- 25 Second,
the Department of Commerce has c r e a t e d a
new o f f i c e of Foreign Investment i n the U n i t e d S t a t e s ,
which w i l l c e n t r a l i z e and improve the g a t h e r i n g of
b l e i n f o r m a t i o n on f o r e i g n investment and i t s
availa-
dissemination
to a p p r o p r i a t e p a r t s of the Government.
T h i r d , we have advised a l l f o r e i g n governments
the U.S. w i l l expect any f o r e i g n government
that
contemplating
a major d i r e c t investment i n the U n i t e d States to seek
advance c o n s u l t a t i o n s w i t h the U n i t e d States Government
on the p r o s p e c t i v e
investment.
I p e r s o n a l l y have discussed t h i s p o l i c y w i t h the
major p o t e n t i a l governmental i n v e s t o r s i n the Middle East
and found a broad acceptance of the concept as long as
a p p l i e d t o a l l governments on a n o n d i s c r i m i n a t o r y
it
basis.
To some e x t e n t , such c o n s u l t a t i o n s had a l r e a d y beei* t a k i n g
place.
I r a n , f o r i n s t a n c e , d i d discuss t h e i r
purchase of an i n t e r e s t i n Pan American.
potential
R e c e n t l y , we
l e a r n e d of a p o t e n t i a l j o i n t venture by the Government of
Romania and the I s l a n d Creek Coal Co. i n a coal mine.
We
have contacted the Romanian Government and they w i l l be
c o n s u l t i n g w i t h us.
This process of c o n s u l t a t i o n s
i s , we b e l i e v e
f a r p r e f e r a b l e to the l e g i s l a t i v e proposals f o r
formal
screening or p r e n o t i f i c a t i o n mechanisms, such as the
95
- 25 ones contained i n S. 425.
selective,
Our approach w i l l be much more
i n v o l v i n g only those few major d i r e c t
invest-
ments t h a t may r a i s e important p u b l i c p o l i c y issues.
i n t e r e s t i s not to r a i s e any new b a r r i e r s to
Our
foreign
investments but to provide a mechanism by which a f o r e i g n
government can l e a r n of the U.S. Government's views on
a p r o s p e c t i v e major d i r e c t investment before i t
taken.
i s under-
T h e r e f o r e , the process w i l l minimize the possi-
b i l i t y of misunderstandings or f u t u r e investment
disputes.
Such c o n s u l t a t i o n s w i l l thus prove b e n e f i c i a l to the
p r o s p e c t i v e i n v e s t o r s as w e l l as to the United S t a t e s .
Proposed L e g i s l a t i o n
S.425.
and the Arab Boycott
With respect to the investment aspects of S.425, I
would l i k e to r e i t e r a t e the views t h a t former Under Secretary
Jack F. Bennett presented to the Subcommittee on S e c u r i t i e s
i n March.
Our o v e r a l l conclusion was t h a t new l e g i s l a t i o n
d i r e c t e d to f o r e i g n investment r e p o r t i n g and c o n t r o l would
not provide any s i g n i f i c a n t a d d i t i o n a l safeguards but would
i n p r a c t i c e be l i k e l y to d e t e r a s u b s t a n t i a l amount of
b e n e f i c i a l investment i n the U n i t e d S t a t e s .
Moreover,
these
p r o v i s i o n s would, i f broadly implemented, v i o l a t e a number
of e x i s t i n g T r e a t i e s of F r i e n d s h i p , Commerce, and N a v i g a t i o n
and other i n t e r n a t i o n a l
agreements.
972
18
Insofar,
•
as S.425 i s designed to improve d i s c l o s u r e
b e n e f i c i a l ownership of U.S. c o r p o r a t i o n s ,
g e n e r a l l y supports t h i s o b j e c t i v e .
the A d m i n i s t r a t i o n
However, I w i l l say t h a t we
would oppose any p r o v i s i o n which d i s c r i m i n a t e s against
investors in t h i s regard.
of
foreign
We have been working w i t h the
S e c u r i t i e s and Exchange Commission (SEC) i n t h i s a r e a , and I
understand Chairman G a r r e t t of the SEC w i l l address t h i s
i n considerable
issue
detail.
I n our n e g o t i a t i o n s w i t h f o r e i g n governments we
have c o n s i s t e n t l y asked t h a t U.S. f i r m s o p e r a t i n g i n
c o u n t r i e s be accorded equal t r e a t m e n t .
I f the U.S.
their
should
now introduce d i s c r i m i n a t o r y p r o v i s i o n s , we can expect
r e t a l i a t i o n i n the form of d i s c r i m i n a t o r y r e s t r i c t i o n s on
U.S.
investments i n f o r e i g n
S. 953.
countries.
Let me now turn to S.953 and the subject of the
Arab Boycott.
S. 953 would amend the p r o v i s i o n s of the
Export A d m i n i s t r a t i o n Act of 1969 to broaden the
reporting
requirements of the A c t , a u t h o r i z e the S e c r e t a r y of Commerce
t o r e q u i r e firms to supply a d d i t i o n a l i n f o r m a t i o n
including
intended compliance, and give the President express
authority
to order "the c u r t a i l m e n t by any U.S. concern of exports
investments i n , or any other
to,
97
19 economic t r a n s a c t i o n s w i t h c o u n t r i e s which impose boycotts
or engage i n r e s t r i c t i v e
Section [ ( 3 ) ( 5 ) ]
t r a d e p r a c t i c e s as s p e c i f i e d
in
of the A c t . "
Mr. Chairman, you have made c l e a r t h a t
this
bill
has been proposed p r i m a r i l y w i t h the c u r r e n t Arab economic
boycott of I s r a e l i n mind.
The p o s i t i o n of the Treasury
Department on the Arab boycott and on r e l i g i o u s and other
d i s c r i m i n a t i o n against Americans has been expressed i n
d e t a i l i n t e s t i m o n i e s I and other Treasury o f f i c i a l s have
given before s e v e r a l Senate and House Committees.
My
testimony on March 13, 1975 before the Subcommittee on
I n t e r n a t i o n a l Trade and Commerce of the House Committee
-on I n t e r n a t i o n a l R e l a t i o n s t r e a t s the s u b j e c t i n depth and
I would l i k e to submit a copy of t h a t statement f o r
the
record.
S t a t e d most simply, we s t r o n g l y oppose the b o y c o t t .
We have, and w i l l continue to c a r r y o u t , i n a manner
c o n s i s t e n t w i t h laws and p o l i c i e s of the United S t a t e s ,
the
p o l i c y set f o r t h i n the Export A d m i n i s t r a t i o n Act to
oppose any restrictive trade p r a c t i c e s or boycotts
and encourage U.S. firms to refuse to act
in
f u r t h e r a n c e or support of such r e s t r i c t i v e t r a d e p r a c t i c e s or
boycotts.
The Department of Commerce has taken steps to
ensure enforcement of the r e p o r t i n g requirements of the
Export A d m i n i s t r a t i o n A c t .
I t has sent a c i r c u l a r
to
U.S. f i r m s engaged i n export a c t i v i t i e s drawing t h e i r
98
- 25 a t t e n t i o n to the requirement of the Export A d m i n i s t r a t i o n
Act t h a t U.S. exporters n o t i f y the Commerce Department
when they r e c e i v e requests f o r i n f o r m a t i o n t h a t would
f u r t h e r the Arab b o y c o t t .
Commerce i s a c t i v e l y
investi-
g a t i n g i n d i v i d u a l company compliance w i t h the Act and has
announced p e n a l t i e s a g a i n s t s e v e r a l
firms.
Perhaps more i m p o r t a n t l y , we are c o n t i n u i n g our
e f f o r t s to demonstrate to Arab c o u n t r i e s the importance to
t h e i r own development e f f o r t s of u n f e t t e r e d t r a d e and
economic r e l a t i o n s w i t h a l l U.S. f i r m s .
We b e l i e v e
process w i l l help c r e a t e the c o n d i t i o n s which w i l l
this
enable
even more U.S. f i r m s to m a i n t a i n commercial t i e s w i t h
both I s r a e l and the Arab w o r l d .
F u r t h e r , w i t h respect to d i s c r i m i n a t i o n
Americans based on r e l i g i o u s ,
e t h n i c or other
against
grounds,
the P r e s i d e n t has d e c l a r e d i n the strongest p o s s i b l e terms
h i s d e t e r m i n a t i o n to prevent such p r a c t i c e s .
We w i l l
not
p e r m i t others to impose such d i s c r i m i n a t i o n upon our
society.
Department of J u s t i c e r e p r e s e n t a t i v e s have
r e c e n t l y t e s t i f i e d before the House Committee of the
J u d i c i a r y on the broad range of a c t i o n s which can be taken
under c u r r e n t laws t o prevent d i s c r i m i n a t i o n of t h i s
type
99
21
and the Comptroller of the Currency has issued a d i r e c t i v e
a l l n a t i o n a l banks warning against d i s c r i m i n a t o r y
to
practices
and n o t i n g t h a t compliance w i l l be assured by means of
regular
bank examinations.
In addition,
the A d m i n i s t r a t i o n is i n the process
of reexamining our l e g a l and other means i n t h i s
area.
An i n t e r d e p a r t m e n t a l study is being conducted to determine
the adequacy of e x i s t i n g U.S. laws and what
steps, i f
additional
any, should be taken by the Government
in
response.
Turning to the s p e c i f i c provisions of S.
the broader r e p o r t i n g requirements p r e s c r i b e d
953,
therein
would present no problem to the Treasury Department, and
we do not oppose them.
bill
The troublesome aspect of the
i s the p r o v i s i o n f o r a c t i o n against
boycotting
c o u n t r i e s , which although s t a t e d i n broad d i s c r e t i o n a r y
terms would s p e c i f i c a l l y a u t h o r i z e our c u r t a i l m e n t by any
U.S. concern of exports to or other types of economic
t r a n s a c t i o n s w i t h countries imposing b o y c o t t s .
Although, as a t e c h n i c a l m a t t e r ,
I r e a l i z e that
d i s c r e t i o n a r y a u t h o r i t y need not be exercised by the
the
President,
I b e l i e v e t h a t t h i s l e g i s l a t i o n r a i s e s important issues
must be addressed.
F i r s t of a l l ,
we b e l i e v e t h a t the
that
retaliatory
p r o v i s i o n s of the b i l l would not a l l e v i a t e the Arab b o y c o t t ,
but i n s t e a d would r i s k aggravating
it.
100
- 25 The p o l i c y of the Arab s t a t e s w i l l not be a f f e c t e d
positively
by the t h r e a t of a c t i o n by the United States as proposed i n
S. 953.
Rather, a possible action by the U.S. of curtailing exports or other
t r a n s a c t i o n s by American f i r m s complying w i t h the boycott
would i n most cases merely cause the Arab s t a t e s to seek other
sources of supply, thus adversely a f f e c t i n g our own economic
interests.
Such an occurrence would damage United S t a t e s
i n t e r e s t s , both here and i n the whole Middle East a r e a .
Moreover, the b i l l would i n j e c t
an
element
of u n c e r t a i n t y i n t o e x i s t i n g U.S. business r e l a t i o n s
with
the Arab w o r l d , since the P r e s i d e n t could a t any time
a c t to p r o h i b i t exports and other economic
transactions
w i t h any of the Arab c o u n t r i e s .
For these reasons,
i t would place us a t a c o m p e t i t i v e
disadvantage v i s - a - v i s the i n d u s t r i a l i z e d c o u n t r i e s
Europe and Asia which a c t i v e l y compete w i t h us f o r
of
export
s a l e s and other t r a n s a c t i o n s i n the expanding Middle
East market.
At a time of gradual economic recovery and
c o n t i n u i n g high unemployment i n the U n i t e d S t a t e s ,
i t would
not be a d v i s a b l e to take a c t i o n which would f a i l to achieve
i t s proclaimed o b j e c t i v e and which would have adverse
e f f e c t s on our economy.
101
- 25 The b r o a d a u t h o r i t y g i v e n t o t h e P r e s i d e n t t o
take
a c t i o n i n c l u d i n g c u r t a i l m e n t by a U.S. concern o f e x p o r t s
investments
in,
to,
and o t h e r economic t r a n s a c t i o n s W i t h Arab
c o u n t r i e s a l s o r a i s e s a number o f i s s u e s a f f e c t i n g
t r a d e and i n v e s t m e n t p o l i c i e s .
international
We s h o u l d bfe v e r y c a u t i o u s
in
t a k i n g a c t i o n w h i c h would undermine our t r a d i t i o n a l p o l i c i e s
of
a f r e e and open market f o r t r a d e and i n v e s t m e n t , b o t h i n t h e
U n i t e d S t a t e s and i n f o r e i g n
Finally,
it
countries.
s h o u l d be u n d e r s c o r e d t h a t t h e
arose o u t o f t h e A t a b - i s t a e l i c o n f l i c t ,
be v i e w e d as & p a r t d f t h a t c o n f l i c t .
bdycdtt
and c o n t i n u e s
b e s t be r e s o l v e d t h r o u g h a p e a c e f u l sfettlemertt i n
Middle
to
We b e l i e V e i t
can
the
East.
Amendments t o S . 4 2 5 .
We s t r o n g l y oppose t h e
so-called
" B o y c o t t amendment" t o S.425 f o r many o f t h e same r e a s o n s .
A l t h o u g h I s h a l l n o t d i s c u s s t h i s a s p e c t o f S.425 i n d e t a i l
-
i n s t e a d r e f e r r i n g t h e Subcommittee t o t e s t i m o n y g i v e n b e f o r e
the S e c u r i t i e s
Subcommittee - -
t should p o i n t out t h a t
S.425
may be f a r more dangerous atid s e l f - d e f e a t i n g
than S.953.
a u t h o r i z i n g the President t o p r o h i b i t
investments i n
U.S. by b o y c o t t p a r t i c i p a n t s ,
confrontations
virtually
guarantees
and Closes o u r economy t o an i m p o r t a n t
source o f investment
it
direct
capital.
By
the
constant
potential
102
- 25 P o s i t i v e Steps Being Taken
Contrary to such a p o t e n t i a l l y harmful and s e l f d e f e a t i n g approach through coercive l e g i s l a t i o n , we b e l i e v e we
are i n a r e a l sense working to end the boycott of U.S.
firms by
promoting c l o s e r economic t i e s w i t h a l l the nations i n the Middle
East.
These t i e s serve to demonstrate the p o t e n t i a l
t r i b u t i o n of U.S. firms to t h e i r economies.
con-
There i s
economic cost to the Arab c o u n t r i e s i n v o l v e d - i n b o y c o t t i n g
U.S.
firms --
the o p p o r t u n i t y cost of foregoing U.S.
managerial talent,
and c a p i t a l - -
technology,
and t h i s cost w i l l become c l e a r e r
as economic cooperation i n c r e a s e s .
We b e l i e v e t h i s i s an e s p e c i a l l y
important c o n s i d e r a t i o n w i t h regard to the n o n - o i l producing
c o u n t r i e s i n the Middle East which are more r e a d i l y i n c l i n e d to
the removal of impediments to t h e i r economic growth.
Thus,
we have seen cases where companies have been p e r m i t t e d to do
business i n these c o u n t r i e s , although they continue
relationship with
their
Israel.
These a c t i o n s are p a r t of a c o n t i n u i n g i n i t i a t i v e
c l e a r to Arab governments t h a t we consider the boycott
to our b i l a t e r a l r e l a t i o n s and to t h e i r development
These p o i n t s are being made c l e a r i n our r e g u l a r
to make
injurious
efforts.
diplomatic
contacts and i n the context of the b i l a t e r a l J o i n t
Commissions
we have w i t h s e v e r a l Arab c o u n t r i e s .
F i n a l l y , we are working to c r e a t e an economic and p o l i t i c a l
c l i m a t e i n which a l a s t i n g peace s e t t l e m e n t i n the Middle East
is possible.
Such a peace s e t t l e m e n t
i s c l e a r l y the best way
to b r i n g a d e f i n i t i v e end to the Arab b o y c o t t .
103
- 25 Ladies and Gentlemen, i t
i s not an overstatement to say
t h a t the questions f a c i n g t h i s Subcommittee today are of
utmost importance to c o u n t r i e s around the w o r l d .
could take a c t i o n s to r e s t r i c t
C l e a r l y we
investment or t e r m i n a t e economic
r e l a t i o n s w i t h c o u n t r i e s w i t h whom we do not always agree.
would take us down the path of economic w a r f a r e .
This
On the other
hand, we also have the a b i l i t y to seek s o l u t i o n s to the problems
of the world by b r i n g i n g p a r t s of t h a t world c l o s e r
and c r e a t i n g g r e a t e r understanding.
together
That i s the path t h a t
I
b e l i e v e i s e s s e n t i a l to b r i n g i n g about peace.
Mr. Chairman, we are opposed to the Arab b o y c o t t .
Under
Secretary Simon's l e a d e r s h i p , we i n the Treasury have taken an
a c t i v e r o l e i n working w i t h both I s r a e l and the Arab countries
to fashion an economic c l i m a t e i n which both s i d e s . c a n achieve
the economic development they seek.
efforts.
We w i l l continue these
We must avoid actions which would f r u s t r a t e ,
t e r m i n a t e , t h e s e e f f o r t s and p o t e n t i a l l y damage the
if
not
critical
p o l i t i c a l n e g o t i a t i o n s as w e l l .
Thus, I s t r o n g l y urge the Congress not to y i e l d to the
temptations of r e t a l i a t i n g through trade and investment
We must recognize t h a t economic w a r f a r e , or the t h r e a t
such w a r f a r e , w i l l be counterproductive to everyone.
curbs.
of
104
DepartmentoftheTREASURY
WASHINGTON. D.C. 20220
TELEPHONE W04-2041
FOR RELEASE
UPON
DELIVERY
STATEMENT BY THE HONORABLE GERALD L . PARSKY
A S S I S T A N T SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON I N T E R N A T I O N A L TRADE AND COMMERCE
HOUSE COMMITTEE ON F O R E I G N A F F A I R S
THURSDAY, MARCH 1 3 , 1 9 7 5 , AT 2 : 0 0 P . M .
Mr.
as
the
Chairman,
It
is
and
nations
in
the
of
to
establish
in
the
as
in
through
Mid-East
closer
Middle
East.
case
of
bilateral
and
approach
and
economic
WS-254
Saudi
to
economic
progress
could
the
economic
States
all
be
with
as
well
countries
informal,
formal,
Egypt,
the
is
with
undertaken
and
with
At
with
that
ties
has
been
relationships
are
to
political
have
speak
Israel.
encourage
economic
Emirates,
Israel,
heart
the
interrelated.
short-lived.
to
of
countries
Government
commissions
progress
to
Pursuant
among o t h e r s .
economic
afternoon
boycott
cooperation
the
this
Department
further
efforts
and
here
closer
U.S.
These
Kuwait
will
with
that
economic
Arabia,
these
United
relations.
belief
stability,
be
economic
cooperation
the
to
Treasury
Arab
the
diplomatic
the
economic
peace
policy
in
as
the
the
the
and economic
policy,
of
concerning
w h i c h we h a v e
Iran,
am p l e a s e d
representative
on m a t t e r s
trade
I
of
belief
Without
However,
our
that
peace,
through
105
economic
peace.
progress,
I
relationships
which
wide
I
and,
found
range
to
of
commission
because
tion,
U.S.
face
its
considerably
by t h e
are
technology.
Investment
The
in
for
these
questions,
hand,
in
possible
practices.
In
of
of
of
the
problems
in
their
and t h e
is
Its
Treasury
investment,
have
think
arisen
the
it
is
understanding
economic
I
the
stated
is
also
and
U.S.
Trade
and
enhance
trade,
raw
cooperation.
States
of
Second
and s c i e n c e
to
of
Coopera-
industrialization,
w i t h ways
United
policies.
h e a d e d on
been d e a l i n g
areas
the
Each
for
and d i s c r i m i n a t o r y
us.
Committee
light
I
dealing with
Treasury.
agriculture,
particular,
the Arab
the
and s c i e n t i f i c
the
policies
Commissions,
Joint
questions
these
between
the
achieve
these
Joint
Kissinger
programs
Secretary
supply
appropriate
of
U.S.-Israel
w h i c h has
Recently,
clearest
Secretary
to
of
C o m m i s s i o n on E c o n o m i c
Saudi A r a b i a ,
training,
the
collaboration
materials
of
to promote
manpower
Chairman o f
Joint
own s e t
by S e c r e t a r y
Prime M i n i s t e r
trade,
for
vary
Arabian
all
confronting
countries
established
purposes
in
i n our
be a sound v e h i c l e
issues
efforts
has had t o
the
side
our
actively
in p a r t i c u l a r ,
economic
The U . S . - S a u d i
Deputy
we c a n a s s i s t
have p a r t i c i p a t e d
as
to
whether
Government
to
Arab b o y c o t t .
important
of
the
would l i k e
boycott
of
activities
to
In
Israel,
is
pursue
answering
beg'in w i t h
nature
to
it
of
the
the
Arab
distinguish
on t h e
one
b a s e d on r e l i g i o u s
or
106
- 3
e t h n i c grounds on t h e
other.
The Arab b o y c o t t o f I s r a e l has been i n o p e r a t i o n
the l a t e 1940's.
countries
boycott
It
is both a primary boycott
do n o t do b u s i n e s s w i t h I s r a e l ,
in that
it
in that
operates to prevent c e r t a i n
businesses
b u s i n e s s u n d e r t a k i n g s w i t h Arab f i r m s i f
e s p e c i a l l y c l o s e economic t i e s w i t h I s r a e l ,
contribute
into
t h e y have
or i f
to the I s r a e l i defense c a p a b i l i t y .
they
Although
t h e e x i s t e n c e o f t h e b o y c o t t m a c h i n e r y may have i n
p a s t r e s u l t e d i n some i n s t a n c e s o f r e l i g i o u s
the
discrimination,
t h e b e s t i n f o r m a t i o n a v a i l a b l e t o us i n d i c a t e s t h a t
b o y c o t t has been based p r i m a r i l y on t h e s e economic
the
factors.
To o u r k n o w l e d g e , q u e s t i o n n a i r e s d i s t r i b u t e d by t h e
office
boycott
f o c u s on t h e economic r e l a t i o n s o f b u s i n e s s e s
Israel;
Arab
and a s e c o n d a r y
f r o m d o i n g b u s i n e s s i n Arab c o u n t r i e s o r e n t e r i n g
joint
since
t h e y g e n e r a l l y do n o t r e q u e s t r e l i g i o u s
or
to
racial
information.
I
b e l i e v e t h a t any c o u n t r y has t h e r i g h t
w i t h whom t h e y w i l l
that
do b u s i n e s s .
I also believe,
t h e r e i s no p l a c e i n o u r s o c i e t y f o r
based on r e l i g i o u s
or e t h n i c
to
g r o u n d s , and no one s h o u l d be
The U.S.
Government has c o n s i s t e n t l y opposed t h e b o y c o t t ,
and we
The Department o f S t a t e has
r e p e a t e d l y made known our d i s a p p r o v a l o f t h e
through diplomatic
however,
discrimination
a l l o w e d t o impose such d i s c r i m i n a t i o n on u s .
s h a l l c o n t i n u e t o oppose i t .
determine
boycott
c h a n n e l s and has on numerous
occasions
107
19
o f f e r e d a s s i s t a n c e to a f f e c t e d U.S.
firms.
Treasury-
Department o f f i c i a l s have made c l e a r to Arab
representa-
t i v e s t o J o i n t Commissions t h a t we oppose the boycott
*
and consider i t
i n j u r i o u s to our b i l a t e r a l
and to t h e i r development
relations
efforts.
Furthermore, we b e l i e v e we a r e ,
working to end the boycott of U.S.
c l o s e r economic t i e s w i t h a l l
in a real
sense,
firms by promoting
the nations i n the M i d - E a s t .
These t i e s serve to demonstrate the p o t e n t i a l
of U . S . f i r m s to t h e i r economies.
contribution
There i s an economic
cost to the Arab c o u n t r i e s involved i n b o y c o t t i n g U.S.
firms --
the o p p o r t u n i t y cost of foregoing U.S.
managerial t a l e n t ,
clearer
and c a p i t a l
--
We b e l i e v e
important c o n s i d e r a t i o n w i t h regard
to the n o n - o i l producing c o u n t r i e s
are more r e a d i l y
to t h e i r
and t h i s cost w i l l become
as economic c o o p e r a t i o n i n c r e a s e s .
t h i s i s an e s p e c i a l l y
technology,
i n the Middle East which
i n c l i n e d to the removal of
economic growth.
impediments
Thus we have seen cases where
companies have been p e r m i t t e d to do business i n these
countries,
although they continue t h e i r r e l a t i o n s h i p
with
Israel.
More i m p o r t a n t l y , we are attempting to create, an
economic and p o l i t i c a l c l i m a t e
settlement
i n the Mid-East
i n which a l a s t i n g peace
is p o s s i b l e .
The boycott
arose
as p a r t of the c o n t i n u i n g c o n f l i c t between the Arab c o u n t r i e s
and I s r a e l ,
and i t w i l l most e f f e c t i v e l y be d e a l t
in that context.
bring a d e f i n i t i v e
A peace s e t t l e m e n t
with
i s the best way to
end. to the Arab b o y c o t t .
108
We must, however, r e c o g n i z e t h a t the increased economic
power of the Arab o i l - e x p o r t i n g c o u n t r i e s has
substantially
enhanced the p o t e n t i a l e f f e c t of the b o y c o t t .
Being
b o y c o t t e d by the Arab league i s a much more serious
situation
f o r most American f i r m s i n 1975 than i t was i n 1955.
i n r e c o g n i t i p n of t h i s ,
I think i t
is altogether
t h a t we re-examine our l e g a l and o t h e r means to
counter the e f f e c t s of the b o y c o t t .
appropriate
effectively
As you are aware,
P r e s i d e n t Ford has ordered an i n t e r - d e p a r t m e n t a l
study which
i s p r e s e n t l y being conducted to determine what U . S .
may be brought to bear on t h i s problem and also what
steps,
if
And
laws
additional
any, should be taken by the Government i n response.
I do not b e l i e v e , however, t h a t the answer to the b o y c o t t
issue l i e s
i n increased c o n f r o n t a t i o n ,
nor i s i t
properly
addressed by a l t e r i n g our t r a d i t i o n a l p o l i c i e s of a f r e e
and open market f o r t r a d e and investment.
w e l l as the Executive Branch,
policy in t h i s area.
The Congress, as
is reviewing United States
As we do so, I would urge t h a t we
keep i n mind t h a t f o r e i g n investment,
and the p o l i c i e s we
adopt w i t h r e s p e c t to such i n v e s t m e n t , has a s i g n i f i c a n t
impact on o t h e r m a t t e r s .
I t w i l l have an o v e r a l l . e f f e c t
on the domestic economy; i t w i l l have an impact on c a p i t a l
f o r m a t i o n i n the U . S . and on our a b i l i t y
to s a t i s f y
c a p i t a l requirements of our businesses; and i t w i l l
consequences w i t h r e s p e c t to our f o r e i g n p o l i c y .
the
have
We have had
109
a long-standing
international
to market
commitment
investment
forces
We f e e l
l o n g - t e r m economic
cautious
efforts
have r e s u l t e d
consistent
This,
that
is
in
investors
that
friendship
extremity
of p o l i t i c a l
5 8 - 5 2 7 O - 75 - 8
helps
and we
and
will
this
the
disputes,
economic
agreeing
are
hopeful
policy.'
interdependence
an a t m o s p h e r e o f
and c o o p e r a t i o n
should
objectives.
and we a r e
follow
maximize
significant
development
respect
can h e l p
can s o l i d i f y
and c a n h e l p r e s o l v e
us.
policy
such i n v e s t m e n t s
policies
recognizing
we b e l i e v e
facing
that
responsive
s u c h an
Our r e c e n t
to undertaking
to assure
standing,
problems
create
this
it.
are
for
influence
s e v e r a l Arab governments
a positive
In conclusion,
understandings
flows
to help
that
altering
w i t h our n a t i o n a l
foreign
economies,
strongly
before
in order
t o me,
all
countries
w i t h us p r i o r
investments
i n which c a p i t a l
g r o w t h and p r o d u c t i v i t y ,
be v e r y
to consult
an e n v i r o n m e n t
unencumbered by g o v e r n m e n t a l
and we h a v e u r g e d o t h e r
environment.
to achieve
to
of
the
and u n d e r -
temper
the
political
the c r i t i c a l
world's
economic
110
Department
of the Treasury
June 1975
Summary of
Federal Laws bearing on
. foreign,
investment
in the United States
Ill
DEPARTMENT OF THE TREASURY
WASHINGTON. D.C. 20220
ASSISTANT SECRETARY
The Department of the Treasury has an important responsibility with
respect to economic relations with the other nations of the world. In this
regard, we have taken a keen interest in insuring that the United States
continues to provide an open climate for investment from abroad. A
fundamental aspect of such an effort must be a candid and thorough
understanding of the laws and regulations applicable to investment in
this country. The accompanying memorandum, which has been prepared
by the Treasury Department, is designed to serve that objective. Part I
of the summary details specific provisions of Federal law which restrict
participation by aliens, foreign corporations, foreign governments and
foreign-controlled enterprises in United States economic activity. Part I I
of the summary covers laws of general applicability such as the antitrust
laws, Federal and state securities laws, and the tax laws.
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 in this country. However, because some of the most
relevant legal provisions are designed primarily to regulate our domestic
business community, foreign investors may be unfamiliar with our procedures and may therefore find compliance to be complex. Accordingly, I
strongly urge that any investor obtain the advice of competent legal
counsel in this country. Such a precautionary step will do much to prevent
confusion and misunderstandings at a later time.
Again I wish to reiterate our sincere interest in maintaining a continuing volume of investment flows to this country through preservation
of a free market. Such flows are good for our domestic economy, good for
the investors and in the interest of increased worldwide economic cooperation. The facilities of the Treasury Department will be available to
anyone who desires further explanation as to our laws and our policies.
GERALD
Assistant
L.
PARSKY
Secretary
June 1975
iii
112
Table of Contents
PART L Specific Federal Restrictions on Participation of ForeignControlled Enterprises or Foreign Nationals in United States Economic
Activity
Page
I.
Communications
1.
2.
3.
4.
5.
II.
-
Banking
Defense
1. Industrial Security Program
2. Priority Performance Statutes
3
3
4
4
-
National Banks .
..
Edge Act Corporations ..
Bank Holding Company Act
Federal Reserve Membership and FDIC Coverage
2
2
2
3
3
Government Procurement and Benefits
1.
2.
3.
4.
VI.
-----
Transportation and Trade
1. Procurement
2. Subsidies, Insurance, and Other Government Benefits
V.
1
1
1
1
1
2
Atomic Energy
Pipelines and Mineral Leasing on Federal Lands
Land
Fishing
1. Aviation
2. Shipping
3. Customs House Brokers
IV.
1
Radio and Television Licensing
Telegraph Operations
Radio and Television Operators
—
Communications Satellite Corporation
—
Foreign Investment in U.S. Newspapers and Magazines
Energy and Natural Resources
1.
2.
3.
4.
III.
-
4
4
5
5
5
5
6
6
6
7
113
PART II. General Laws Affecting the Conduct of Business in the
United States by Foreign Investors
Page
I.
II.
Antitrust Legislation
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.
2.
3.
4.
5.
6.
7.
8.
9.
IV.
Source of Income
Nature of Income
Summary of Current Treatment
Gift Tax
Foreign Investors Tax Act of 1966
Tax Treaties
Estate Taxes
Capital Gains
State Taxes
Visa Requirements
1. Nonimmigrants
2. Immigrants
9
11
11
12
12
IB
13
13
13
13
14
14
14
14
15
15
15
15
16
114
PART I. Specific Federal Restrictions on Participation of
Foreign-Controlled 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 foreign-controlled 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 foreign-controlled 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 currently 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.S. domestic or foreign policy, or to promote
115
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, i f 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 I I (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; 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; (ii) partnerships or associations, each of the members of which
is a U.S. citizen; (iii) corporations organized within the United States
and permitted to do business in the state in which the land is located; and
(iv) 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 territortes of the
United States; however, these have little contemporary relevance to
116
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
foreign-controlled 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 granted by 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(f).
A foreign-controlled enterprise may not be issued a permit.for intraUnited 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.
117
b. T r a n s f e r of Shipping
F a c i l i t i e s during
W a r or N a t i o n a l E m e r gency. 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. T r a n s p o r t a t i o n of Government
Financed
Commodities.
A foreigncontrolled 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. §1241
e. O f f i c e r s of Vessels. Foreign citizens may not act as officers of or
serve in certain other positions on certain vessels. 46 U.S.C. § 221.
3. Customs House Brokers.
For a foreign-controlled firm to obtain a license
to operate as a customs house broker, at least two of the officers must be
United States citizens. 19 U.S.C. § 1641.
IV.
Government Procurement and Benefits
1. Procurement.
At least two federal statutes require that, with certain
exceptions, government agencies purchase only items produced in the
United States. However, neither statute restricts procurement from a
foreign-controlled U.S. corporation which is producing domestically. The
Buy American Act 41 U.S.C. § 10a. - d. requires that government agencies
acquire for public use only materials produced or manufactured in the
United States. These provisions do not apply where the agency head determines that they would be "inconsistent with the public interest", or
that the cost of the domestic articles is unreasonable (generally 6-12 percent above the foreign bid price, 41 CFR 1-6.104-4) ; nor do they apply to
items purchased for use outside the United States, or to items not produced
in the United States "in sufficient and reasonably available commercial
quantities and of a satisfactory quality."
A second restriction on federal procurement is the "Barry Amendment" to the Defense Appropriations Act (Section 724) (86 Stat. 1200),
which restricts the Department of Defense from procuring articles of food,
clothing, cotton, silk, synthetic fabric or specialty metals which are not
produced in the United States.
2. Subsidies.
Insurance.
and Other Government
Benefits.
Foreign-controlled
enterprises operating in the United States, whether in branch or subsidiary form, may not:
118
(a) obtain special government loans for the financing or refinincing
of the cost of purchasing, constructing or operating commercial fishing
vessels or gear. 16 U.S.C. § 742(c) (7).
(b) sell obsolete vessels to the Secretary of Commerce in exchange
for credit towards new vessels. 46 U.S.C. § 1160.
(c) receive a preferred ship mortgage. 46 U.S.C. § 922.
(d) obtain construction-differential or operating-differential subsidies
for vessel construction or operation. 46 U.S.C. §§ 1151 et seq., 1171 et seq.,
802.
(e) purchase vessels converted by the government for commercial
use or surplus war-built vessels at a special statutory sale price. 50 U.S.C.
App. §§ 1737, 1745.
(f) obtain certain types of vessel insurance unless the management
restrictions applicable to companies operating vessels in salvage are satisfied. 46 U.S.C. §§ 1281 et. seq.
(g) obtain war-risk insurance for aircraft. 49 U.S.C. §§ 1531, 1533.
(h) purchase Overseas Private Investment Corporation insurance or
guarantees. However, foreign corporations, partnerships or other associations, wholly owned by one or more United States citizens, corporations,
partnerships, or other associations are eligible (up to 5 percent of the
shares may be held by foreigners if required by law without affecting
"wholly owned" status.) 22 U.S.C. § 2198(c).
(i) obtain special government emergency loans for agricultural purposes after a natural disaster (7 U.S.C. § 1961) or government loans to
individual farmers or ranchers to purchase and operate family farms.
7 U.S.C. §§ 1922, 1941.
V.
Banking
1. N a t i o n a l Banks.
Under the National Bank Act, as amended, every director of a national bank must, during his whole term of service, be a
citizen of the United States. 12 U.S.C. § 72. Although there are no restrictions on the degree of foreign ownership of national banks, such ownership is inhibited by the citizenship requirements for directors.
2. Edge Act Corporations.
An Edge Act Corporation may be organized
for the purpose of engaging in international or foreign banking or other
international or foreign financial operations. A majority of the shares of
the capital stock of an Edge Act Corporation must at all times be held
and owned by citizens of the United States, by corporations the controlling
interest in which is owned by citizens of the United States, chartered under
the laws of the United States or of a State of the United States, or by
firms or companies the controlling interest in which is owned by citizens
of the United States. 12 U.S.C. § 619. Moreover all of the directors must
be United States citizens.
3. Bank Holding
Company
A c t . At present, the Bank Holding Company
Act contains no specific restrictions on foreign banks. However, under the
general provisions of the Act, which apply equally to domestic banks, any
foreign company establishing a United States banking subsidiary or ac-
119
quiring control of an existing domestic bank must be approved by the
Board of Governors of the Federal Reserve Board. (Acquisition of a 25
percent interest creates a conclusive presumption of control. In addition,
lesser ownership amounts—down to 5 percent—are likely to be found to
constitute control.) There have been a number of recently established foreign subsidiaries approved by the Board under the Act {e.g., Sanwa Bank
of California, Mitsubishi Bank of California, Banco di Roma of Chicago).
4. F e d e r a l Reserve
Membership
and F D I C Coverage.
A foreign banking
operation in the United States may take the form of a branch, agency,
subsidiary, or representative office. Of these, only subsidiaries incorporated
under State or Federal law may become members of the Federal Reserve
System and/or the Federal Deposit Insurance Corporation 12 U.S.C.
§§ 321,1814-16. Thus, at present, neither branches nor agencies of foreign
banks are members of or subject to regulation by the Federal Reserve.
NOTE: Pending
F o r e i g n Bank Legislation
(the " F o r e i g n Bank Act of
1975"). S. 958, the "Foreign Bank Act of 1975" has been introduced in
the 94th Congress at the request of the Federal Reserve Board. The bill
would place foreign bank operations in the United States under effective
Federal control. I t would bring United States branches and agencies of
foreign banks within the purview of the Bank Holding Company Act. That
Act's restrictions on multistate branching and nonbank activities would
then apply to such foreign bank operations. All subsidiaries, branches, and
agencies of foreign banks having worldwide assets of $500 million or more
would be required to become members of the Federal Reserve System. In
addition, all foreign banks covered by the bill would be required to carry
coverage of the Federal Deposit Insurance Corporation.
The bill would require a foreign bank to obtain a Federal banking
license from the Comptroller of the Currency as a pre-condition of obtaining a state charter. Licenses would be issued only with the approval of the
Secretary of the Treasury after consultation with the Secretary of State
and the Federal Reserve Board. The bill also would provide for chartering
by the Comptroller of the Currency of a branch of a foreign bank as a
"Federal branch", permitted to conduct a banking business on the same
basis as a national bank in its state of operation.
The bill would make it possible for foreign banks to establish national
banks and Edge Corporations. I t would amend the National Bank Act to
allow up to half of the directors of a national bank to be noncitizens. With
respect to Edge Corporations, the bill would permit the Federal Reserve
Board to waive the requirements of majority ownership by United States
citizens and the citizenship requirement applicable to directors.
The Administration has not taken a position on many of the specific
provisions of the legislation. I t is likely that in the course of the legislative
process, substantial changes in the proposal will be introduced. Neither
the timing nor the substance of Congressional action can be predicted at
this time.
VI.
Defense
1. I n d u s t r i a l Security
P r o g r a m . The Executive Orders and Department
of Defense regulations which constitute the Industrial Security Program
120
(Executive Orders 10450, 10865, and 11652: DoD 5220.22-R, Section I I ,
part 2) make i t very difficult for foreign-controlled corporations, except
possibly subsidiaries of Canadian or U.K. parents, to obtain the security
clearances necessary to carry out a classified contract. Both a "facility"
clearance and individual clearances for key management personnel and
others who may have access to classified information are required.
Generally, facilities which are "under foreign ownership, control or
influence" are ineligible for facility clearances, and foreign nationals are
ineligible for individual clearances. There are certain limited exceptions
for facilities owned or controlled by foreigners, and a foreign-controlled
U.S. subsidiary might obtain clearances by forming a "voting trust," in
which it gave up management rights but retained rights to profits.
2. P r i o r i t y P e r f o r m a n c e Statutes.
While not aimed specifically at foreign
investors, the priority performance statutes bear on the operation of a
United States business by foreign investors.
a. Defense
Production
A c t . Under Title I of the Defense Production
Act of 1950, the President possesses the authority to require that performance under defense contracts take priority over other contracts. The
Act also authorizes the President to require acceptance and performance
of such contracts by any person he finds capable in preference to other
orders or contracts and further authorizes him to allocate materials and
facilities in such manner and under such conditions as he deems necessary
to promote the national defense. 50 U.S.C. App. § 2071. Any willful failure
to perform any act required by the Act is punishable by fine of $10,000 or
one year in prison. 50 U.S.C. App. § 2073.
b. Selective
Service A c t . Under Section 18 of the Selective Service Act
(50 U.S.C. App. § 468), the President, whenever he determines that i t is
in the interest of national security, may place an order for articles or
materials, the procurement of which has been authorized by Congress
exclusively for the use of the armed forces of the United States, with any
person capable of producing them. Under this authority, the President may
assign such contracts as "rated orders" which take priority over any unrated order. Procurements for military assistance programs are included.
121
PART II.
General Laws Affecting The Conduct of
Business in the United States By
Foreign Investors*
I.
Antitrust Legislation
The antitrust laws are applied equally to both U.S. and foreign corporations in order to preserve competitive market structures and to forbid
specific anti-competitive practices. By maintaining a competitive market,
the antitrust laws do not discourage foreign investment in the U.S. but,
generally, make the U.S. more attractive for the international investor.
However, while acquisition of a U.S. company may be the easiest form of
entry into the U.S., the antitrust laws may prevent the particular acquisition by either domestic or foreign investors because of its effect on actual
or potential competition. Such restrictions would, in such a case, either
prevent foreign investment or direct it to de novo entry.
Section 7 of the Clayton Act is the principal statute which provides
safeguards against further industrial concentrations in the United States.
Section 7 prohibits any merger or acquisition which may tend substantially to lessen competition or to create a monopoly in any line of commerce
in any section of the United States. Under this statute, foreign direct investment is subject to antitrust scrutiny when such investment involves a
purchase of or merger with an existing American firm, or a joint venture
with a U.S. or foreign firm to operate an enterprise.
The antitrust laws are applicable in the following situations: the
merger of actual competitors in the United States market; the merger of
potential competitors in the United States market; joint ventures between
actual competitors in the United States market; and joint ventures between potential competitors in the United States market. Relevant competition includes not only competition between firms where production facilities are located within the United States but also competition between such
firms and firms where production facilities are located abroad, that is,
among exporters to the United States. A merger between an important exporter to the United States and a significant United States producer will be
treated much in the same way as would the merger of two United States
producers with corresponding market shares.
In the context of foreign commerce, the importance of the concept of
potential competition is somewhat greater than in the purely domestic
* Excerpted and adapted f r o m a summary prepared by the Council on International
Economic Policy Interagency W o r k i n g Group on Foreign Investment in the United
States. Hearings on Foreign Investment in the United States before the Subcom. on
Foreign Economic Policy of the House Comm. on Foreign Affairs, 93d Con., 2d Sess.
231 (1974).
122
context. Factors such as tariff rates, governmental import and export
barriers and exchange rates may have an effect in determining whether
a particular foreign firm can compete in the United States market.
In proposed mergers between United States companies and foreign
firms, the factual determination of whether the two companies are substantial, actual or potential competitors in the United States market
depends on various criteria—e.g. whether there is objective evidence
that the foreign company would have entered the United States market
by de novo investment in new facilities or acquiring another firm
or partner; how soon such entry might reasonably be expected; whether
the market position of a large American company may be further entrenched by the acquisition.
I n addition to mergers involving actual or potential horizontal
competitors, mergers involving firms in a buyer-seller relationship, socalled vertical acquisitions, may raise antitrust objections. An example is
purchase of a United States manufacturer by a foreign supplier of raw
materials. The possible hazard to competition of such an arrangement is
that other domestic companies may lose a source of raw materials. Section 7 also applies to such mergers.
The basic factors affecting the legality of joint ventures are the
same as those affecting the legality of mergers. Joint ventures with domestic firms may sometimes provide the only means for foreign firms to
enter markets in the United States. However, joint ventures can have an
adverse effect on American domestic markets. For example, joint ventures
in which the foreign firm is removed as a potential competitor may
present substantial antitrust concerns.'
A recent case in the foreign direct investment and joint venture area
will show how the above-described policy is put into effect. In the 1969
BP-Sohio merger case,- BP, already a major petroleum marketer on the
East Coast, acquired Sohio which had about 30 percent of the Ohio market.
The Department of Justice objected to the merger on the grounds that
BP was a potential entrant into Ohio, Sohio's primary market and the
merger would foreclose an independent entry into that market. The case
was settled by a consent decree under which the merger was allowed to
proceed provided that Sohio divested, by sale or exchange for stations in other parts of the country, stations handling a total of 400
million gallons of fuel per year in the Ohio market. This case indicates
the Department of Justice will challenge an acquisition when a major foreign firm, an actual or potential competitor in the United States market,
merges or enters into a joint venture with a major United States firm in
a concentrated United States market and the effect is to foreclose independent entry or expansion of the foreign firm.
With respect to the second objective of the antitrust laws, prohibiting
anticompetitive practices, foreign firms which invest in the U.S. (whether
de novo investment in new facilities or purchase of existing facilities
from other firms) are also subject to U.S. standards concerning monopolization under Section 2 of the Sherman Act and concerning price
'See, e.g., United States v. Pom-Oliv
Chemical, 378 U.S. 158 (1964), a case
involving domestic firms only, but which describes the anticompetitve effects of such
arrangements.
•United
States v. British
Petroleum
Co., Civ. No. 69-954 ( N . D . Ohio 1969)
settled by consent decree, 1970 Trade Cases Par. 72, 988.
123
fixing, group boycotts, market allocation and the like under Section 1
of the Act.
Should a foreign firm alone control a sufficiently high percentage of
the U.S. market, or should a foreign firm engage in conduct with its
competitors which amounts to express collusion on prices, division of
markets, or group boycotts, then the Sherman Act provisions would be
applied with equal impact on the foreign and domestically owned companies involved.
Foreign firms which contemplate an investment in the United States
by purchase or merger of an existing firm may wish to consider using
the Business Review Procedure of the Antitrust Division (28 CFR
50.6) whereby the Division will state its present enforcement intentions
as to proposed business conduct, such as a merger or purchase of an
American firm. Under this procedure, businessmen may inform the
Division of proposed domestic or foreign activities, alone or jointly with
other firms and receive a statement of the Division's enforcement intentions with respect to their specific proposal. Firms may, of course, if they
wish, make any purchase agreement or major outflow of funds dependent
on receiving information via the Business Review Procedure from the
Division on its present enforcement intentions, based upon the material
submitted by the firms seeking review.
II.
Securities Laws and Regulations
Our securities laws and practices are generally more rigorous than
those in many foreign countries and foreigners in certain cases may
consider our system burdensome. U.S. securities laws and practices apply
equally to U.S. and foreign investors or issuers. However, in applying the
securities laws the SEC has tended to accomodate foreign investors
through exemptions from and modification of certain provisions of the
laws. Our high standards of disclosure and fair practice may be important factors in attracting foreign capital.
1. Federal
Securities
Laws.
I f a foreign direct investment project is
partly dependent on U.S. sources of financing, the foreign issuer-investor
may be subject to the provisions of the U.S. securities laws. Certain types
of transactions (commercial bank loans and private placements) may be
exempt from the laws; however, if the investor wishes to raise funds from
an offering of securities to the public, the issue in most cases must be
registered under the Securities Act of 1933. Upon completion of a public
offering, the issuer would be subject to the reporting requirements of the
Securities Exchange Act of 1934.
In addition, Section 13(d) of the Securities Exchange Act of 1934
requires an investor acquiring more than 5% of the beneficial ownership
of a class of securities registered under Section 12 (which applies to
most public companies) to file with the Securities and Exchange Commission the name and occupation of the purchaser, the source of funds
employed, the purpose of the transaction and other pertinent data. Section 14 requires an investor intending to make a tender offer or take-over
bid for more than 5% of the shares of a company to file the information
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called for on Schedule 13D with the SEC prior to commencing the tender
offer.
Section 16 of the 1934 Act calls for investors owning beneficially
more than 10% of a public company and "insiders" (e.g. directors or
officers) to file with the SEC a statement of the amount of securities
owned and to file an updated statement each time the amount of shares
owned changes. Furthermore, with very limited exceptions, 10% owners
and insiders of a company are liable to turn over to the company any
profit realized on certain purchases and sales of the company's securities
which take place within a six month period.
The U.S. securities laws often call for more disclosure than foreigners
are accustomed to providing. Furthermore, the form and content of the
financial statements, as well as the requirement for independent audits,
can present foreign issuers with difficult problems. The Commission has
proved willing in the past to accomodate foreign issuers as to the nature
of information disclosed and to permit reconciliation, rather than reconstruction, of accounting data. The U.S. laws apply even if a substantial
portion of the offering is sold to foreigners.
2. Membership
on the New Y o r k and A m e r i c a n Stock Exchanges.
The
rules of the New York and American Stock Exchanges do not permit
membership by foreigners. Since the SEC has not disapproved of these
rules, they are, in a sense, an extension of the federal securities laws.
Foreigners may establish a U.S. based brokerage or investment banking
business, which can become a member of the National Association of
Securities Dealers, Inc. (NASD) and participate in underwritings and
in brokerage transactions off the New York and American exchanges.
However, such a dealer generally must work through a member should
it seek to execute brokerage transactions on either exchange and pay a
commission to the member firm.
3. State and Local Securities
Laws.
Although registration laws vary
from state to state, a model act has been adopted by many states which
presents few problems to established companies. Furthermore, offerings by
companies with securities listed on major national securities exchanges in
the U.S. are generally exempted from qualification under most state laws.
However, this exemption does not eliminate the issuer's potential liability
for any violation of the laws of states in which the offering is made.
Many state securities laws are disclosure statutes similar to the
Securities Act of 1933. However, a number of states attempt to evaluate
securities and prohibit offerings which are considered too speculative or
the terms of which are deemed "unfair". Some of these laws vest considerable discretion in the state administration as to whether an issue
may be registered, offered, and sold.
Registration is only required in the states in which the securities are
offered. Small offerings can usually be made in a relatively small number
of states, allowing the issuer to avoid the more burdensome problems of
having the issue approved in many states or throughout the country.
Broker-dealers and their individual registered representatives must
be registered in the states in which they wish to conduct business, as well
as with the NASD. There are no specific restrictions on foreign controlled
firms at the state level so long as they comply with the laws applicable
to U.S. owned broker-dealers.
12
125
4. I n s t i t u t i o n a l Disclosure.
Legislation requiring large institutional investors to report holdings and transactions above a certain size has recently been enacted. Foreign institutions would presumably be covered
by this legislation, which would add to their record keeping and reporting
obligations.
III.
Taxation
U.S. Taxation of foreign individuals and foreign legal entities ("corporations") on their U.S. direct or portfolio investment depends upon the
relationship of the foreign taxpayer to the U.S. and the geographic source
and nature of his income.
1. Source of Income.
The Internal Revenue Code (IRC) divides income
into two classes: U.S. source income and foreign source income. I f income
is partially from within the U.S. and partially from without, it must be
allocated between the two sources. Generally, U.S. source income includes:
(1) income from personal services performed in the U.S.; (2) interest
paid by a U.S. citizen, resident, corporation, state or local public entity
and a pro rata portion of interest paid by certain foreign corporations
which derive a substantial portion of their gross income from U.S. sources;
and (3) dividends paid by U.S. corporations and a pro rata portion of
dividends paid by those foreign corporations which have substantial U.S.
source business income.
2. N a t u r e of Income.
Treatment of income also varies according to its
nature:
A. Passive investment income, e.g.. dividends, interest, rents, and
royalties, is subject to a withholding tax at source of 30% (or lower
treaty rate) on gross income; and
B. Business income "effectively connected with the conduct of a
trade or business in the U.S." (including income described in paragraph
1) is taxed at progressive rates on taxable income. The "effectively connected" concept was added to the Code in 1966 to segregate business
income taxed at progressive rates from investment income taxed at the
30% withholding rate. Among the factors considered are whether the
income is derived from assets used in the trade or business, whether the
activities of the trade or business were a material factor in the realization of the outcome and whether the asset or the income was financially
accounted for through the trade or business.
3. Summary
of C u r r e n t T r e a t m e n t . Putting these variables together,
U.S. income taxation of foreign individuals and corporations can be
roughly summarized as follows:
(1) Resident alien individuals are taxed at progressive rates both
on their U.S. and foreign source taxable income, just as are U.S. citizens.
(2) Non-resident alien individuals are taxed at 30% (or lower
treaty rate) on gross U.S. source investment income and taxed at progressive rates on U.S. and foreign source taxable income effectively
connected with a trade or business conducted in the U.S. In addition,
if a non-resident alien is physically present in the U.S. for more than 183
days during a taxable period, his net capital gains from U.S. sources not
5 8 - 5 2 7 O - 75 - 9
126
"effectively connected" are taxed at 30% (or lower treaty rate). Such
individuals are not taxed on foreign source investment income, nor on
foreign source income not effectively connected with the conduct of a
trade or business in the U.S.
(3) Foreign corporations engaged in trade or business in the U.S.
are taxed in the same manner as U.S. corporations on their U.S. source
income that is effectively connected with such trade or business, as well
as upon certain categories of foreign source income effectively connected
with the U.S. trade or business. Non-effectively connected U.S. investment
income is taxed as described in para. 4.
(4) Foreign corporations not engaged in trade or business in the
U.S. are taxed at 30% (or lower treaty rate) on gross U.S. source investment income. Since the corporation has no U.S. trade or business, by
definition it will not have any U.S. source business income or effectively
connected foreign source income. Such corporations are not taxed by the
U.S. on their foreign source investment income.
4. G i f t T a x . U.S. gift tax is paid by resident aliens in the same manner as
U.S. citizens. Gifts of intangible property by non-resident aliens are
exempt from the tax. Corporations are not subject to the gift tax
provisions.
5. F o r e i g n Investors
Tax Act of 1966. The present status of U.S. treatment of foreign investors is largely the product of past attempts to
remove restraints on such investment. The Revenue Act of 1936 liberalized
U.S. taxation of capital gains realized in the U.S. by certain foreign individuals and corporations. In 1963 President Kennedy appointed a task
force to examine means of encouraging increased foreign investment in
the U.S. and increased foreign financing by U.S. corporations operating
abroad. A report ("Fowler Report") was issued by this task force in 1964
containing thirty nine recommendations on how to accomplish those objectives.
Legislation incorporating these recommendations, introduced in
March, 1965, underwent extensive modification by the Ways and Means
Committee in which the focus changed from encouraging foreign investment to providing equitable treatment of such investment. The resulting
"Foreign Investors Tax Act of 1966" ( F I T A ) enacted all the recommendations contained in the Fowler Report except complete exemption from U.S.
estate tax of all intangible personal property of non-resident alien decedents located in the U.S. Instead, F I T A substantially reduced the tax rates
applicable to foreign decedents and increased the available exemption from
$2,000 to $30,000. In addition, F I T A extended U.S. taxation for the first
time to certain classes of foreign source income of non-resident aliens and
foreign corporations if that income is effectively connected with the conduct of a trade or business in the U.S.
6. Tax T r e a t i e s . In addition to legislation, treaties have a major impact on the tax treatment of foreign investment in the U.S. The tendency
of recent treaties negotiated by the U.S. has been to incorporate the
statutory changes effected by F I T A and to provide for a mutual reduction
of withholding rates.
7. Estate
Taxes.
Estates of resident aliens are taxed on all property
wherever located, just as are estates of U.S. citizens. Estates of non-resi14
127
dent alien individuals are taxed only on property deemed situated in the
U.S. Stock and debt obligations issued or made by a U.S. person or entity
are deemed situated in the U.S. regardless of the physical location of the
certificate or the note or the non-resident alien at death. After January 1,
1977, deposits with U.S. banks or domestic branches of foreign banks
will be deemed situated in the U.S.
8. Capital
Gains. In general no capital gains tax is imposed on a foreign investor not engaged in a trade or business in the United States.
However, i f the foreign individual is physically present in the United
States for more than 183 days during a taxable period he is liable for the
tax.
9. State Taxes.
State taxes, including corporate income and franchise
taxes, personal income taxes, excise taxes, and property taxes may
influence the size, type and location of foreign investment. Since state tax
rates are substantially less than federal rates, they probably do not constitute a major overall deterrent. However, bilateral tax treaties do not
reduce or eliminate these taxes.
State taxes have little effect on the portfolio investments of nonresident alien individuals or foreign corporations since such taxes usually
would not apply to dividends or interest paid to those foreign investors or
to any gains realized upon final disposition of the securities.
The situation confronting direct investors is more complicated. In
addition to the tax rates themselves, investors must consider the basis on
which a state premises its taxing jurisdiction and the manner in which
it determines the amount of income subject to tax.
IV.
Visa Requirements
1. N o n i m m i g r a n t s . Any nonimmigrant alien in the United States may,
unless precluded from doing so because of restrictions in the foreign
exchange area or because of actions or policies of his government, invest
in any lawful venture. However, he may not, in the absence of official
permission granted by the Immigration and Naturalization Service, engage
in gainful employment or remain beyond the period of time authorized by
that Service.
Of the several nonimmigrant visa classifications, four authorize
foreigners to work for remuneration here, pursuant to bilateral agreement on reciprocity for U.S. citizens. These are: treaty trader, treaty
investor, temporary workers, and intra-company transferee. The first
two mentioned classifications were designed specifically to provide for
those aliens desirous of investing here, or to otherwise engage in substantial business ventures. The latter are relatively new, having been established by legislation in 1970. So long as aliens in any of these four classifications maintain status with approval of the Immigration and Naturalization Service, there is no prescribed limit on the total length of time they
may remain in the United States.
There is one other nonimmigrant classification that is available to
the foreign businessman who wishes to invest in the United States:
temporary visitor for business. Foreign businessmen admitted in this
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classification may not engage in gainful employment, however, nor may
they remain longer than six months in the absence of Immigration and
Naturalization Serice authorized extensions to stay.
2. I m m i g r a n t s . A foreign businessman who intends to reside in the
United States for an indefinite period or permanently in connection with
his investment and who cannot qualify for any of the non-immigrant
classifications described must obtain an immigrant visa. In applying for
an immigrant visa, he must meet the labor certification requirement of
the Immigration and Naturalization Act by establishing that he
. . is
seeking to enter the United States for the purpose of engaging in a commercial or agricultural enterprise in which he has invested, or is actively
in the process of investing, capital totalling at least $10,000, and establishes
that he has had at least one year's experience or training qualifying him
to engage in such enterprise." Also, a labor certification will usually be
granted by the Department of Labor on an intracompany transfer basis
for key personnel who have been employed by the firm abroad for a continuous period of more than one year. Once this requirement has been met,
the foreign businessman will then complete the normal procedural requirements and, if a visa number is available for his use, will receive an immigrant visa without delay.
There are limitations imposed by law on the number of immigrant
visas which may be issued each year—170,000 to persons born in the
Eastern Hemisphere; 120,000 to persons born in independent countries of
the Western Hemisphere (North and South America). Because the demand
for immigrant visas is variable, there may be a waiting period before an
immigrant visa number will become available for a qualified applicant. A
foreign businessman intending to immigrate to the United States in connection with his investment in this country must consult the nearest
American Embassy or Consulate for precise details of the process of
applying for, and obtaining, an immigrant visa and for information concerning the waiting period, if any, which he may face before a visa
can be made available for his use.
GPO 890-514
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Senator S T E V E N S O N . Thank you, M r . Parsky. A t several points i n
your statement, you indicated i t is best to leave trade and investment
decisions alone i n a free and open market. B u t we are here this morni n g because i t is not a free and open market. A n d because we are considering means o f making i t free or less restrictive. So to that extent at
least, I don't t h i n k there is any disagreement w i t h what you have said.
Our purpose is not to engage i n restrictive investment trade policies
practiced by others. A n d how you do that by acquiescing i n such restrictive practices as the A r a b boycott, some of us find a l i t t l e difficult
to understand. I don't t h i n k that is much of an overstatement.
We pay the price. I t is a one-way street over and over again. I w i l l
give you a chance t o comment. B u t you said that the laws on investment were adequate. B u t then you went on to refer t o the interdepartmental study which you said was reviewing the adequacy of the law.
Aren't you prejudging the case on investment ?
M r . P A R S K Y . W e l l , M r . Chairman, i f I might. F i r s t of all, I do
understand t h a t your purpose is to maintain a free and open market.
B u t the issue t h a t we have to face is the means by which we w i l l do
that. W e can seek to maintain that freedom by assuming a leadership
role w i t h respect t o the policies we employ or we can somehow feel
we can create greater freedom by imposing or threatening to impose
restrictions on t h a t market. T h a t is the basic issue I t h i n k we have to
face. I t is m y position, the position of the administration, that a react i o n i n k i n d to the A r a b boycott or other restrictive practices not only
won't alleviate the boycott, but i t w i l l not achieve the objective o f
maintaining freedom i n the marketplace.
Now, w i t h respect to the review of the laws that I referred to, perhaps I wasn't as clear as I should have been. I t r i e d to differentiate between the approach t h a t we must take w i t h respect to a resolution of
the A r a b boycott problem and what we must do w i t h respect to any
discrimination that exists i n this country on the basis of religious,
ethnic, or other grounds. I draw that distinction i n addressing this
issue because i t is a distinction that is stated as part of the policy of the
boycott. I have spoken to the leaders i n the A r a b countries about this
issue. A n d they have stated to me i t is the policy of the boycott they
w i l l not do business w i t h Israel and they w i l l not do business w i t h
entities that provide the economic support w i t h Israel.
I t is not based on religious grounds. F o r the moment we must examine whether i n practice that is the way i n which i t works. I t h i n k t h a t
is important. I don't draw the distinction i n order to support one
practice and object to the other. W e are opposed to both, the boycott
and the separable issue, i f you w i l l , of religious or ethnic discrimination. B u t the question we have to address is what is the best way t o go
about eliminating both. A n d i t is my feeling t h a t w i t h respect to the
first, the boycott, restrictions on investment or severing economic relations w i l l not adequately address the boycott.
Reaching the conclusion, I would say no additional legislation is
needed w i t h respect to addressing the issue of the boycott as so defined.
W i t h respect to religious or ethnic discrimination, I t h i n k there may
be additional legislation that would be called for. I t is i n that area
that we have a review underway now. A n d i t is i n t h a t area t h a t I don't
believe i n m y testimony that I have closed off recommendations comi n g forward. So I t h i n k that the U.S. Government also can do a great
130
deal i n terms of the potential f o r any religious or ethnic discriminat i o n i n existence.
W e i n the Treasury Department do not have an extensive role w i t h
respect t o the overall relationships w i t h these countries. B u t we have
a major role i n the economic area. W e have j o i n t commissions w i t h a
number of these countries. There has been some concern expressed as
to what our policy would be w i t h respect t o the assignment of personnel to these countries.
I have discussed this issue very f r a n k l y and openly. A n d I have t o l d
the countries t h a t I have spoken t o that there w i l l be a number of
people v i s i t i n g their country p r o v i d i n g expertise as p a r t of these commission activities. They w i l l be selected on the basis of t h e i r a b i l i t y ,
not on the basis of their religion. A n d there w i l l be many people of
various religious beliefs t h a t go t o these countries and I w o u l d expect
they would be accepted. A n d the response has been t h a t they w i l l be.
A n d I have no indication that t h a t policy won't be adhered to.
Pursuing avenues like that, I t h i n k , can assist the process. A d o p t i n g
legislation of a restrictive nature or potentially restrictive nature on
investment won't address the boycott and potentially could h u r t us.
Senator S T E V E N S O N . Y o u r study then is confined t o discrimination
on religious or ethnic grounds as opposed to political ?
M r . P A R S K Y . The current review underway is aimed at that, yes, sir.
Senator S T E V E N S O N . H O W about my bus situation. I s t h a t a situation
that should be excluded f r o m any consideration either i n your study
or by the Congress w i t h respect to the possibility of m a k i n g such discriminatory behavior illegal?
M r . P A R S K Y . W e l l , I t h i n k that there are a number of provisions.
A n d I don't profess to be an expert as far as the antitrust laws are concerned. B u t I know that there are a number of provisions at the Justice Department's disposal that would in fact prevent any company
for refusing to deal w i t h another company for numerous reasons. I
would refer the issue to the Justice Department as to whether or not
i t is needed. M y point is that the k i n d of legislation that we are t a l k i n g
about here which potentially would aim at imposing some f o r m of restrictive action on investment by countries or potentially would impose
some sort of impediments to f o r m a l trade practices is not the way i n
which to address the problem.
I f a U.S. corporation is succumbing to pressure to not deal, there
are a number of avenues that are open where disciplinary action could
bo taken.
Senator S T E V E N S O N . L i k e what?
M r . P A R S K Y . W e l l , let's take, for example, the instances that received
a lot of publicity that had to do w i t h the investment b a n k i n g communi t y . I would vield on the details of this to Ray Garrett, who w i l l testif y after me. I am not aware of any instance i n which a U.S. investment
banking firm has refused to participate w i t h another firm because of
pressures being exerted upon them on religious or ethnic grounds.
There was an instance that received a lot of publicity i n which a f i r m
i n fact refused to do that and didn't succumb. M y feeling, and I have
discussed this w i t h the Securities and Exchange Commission, is that
the N A S D and S E C have authority to take disciplinarv action i n an
instance where a U.S. firm does refuse to transact business w i t h a company i n a situation l i k e that. They have the authority to act. A n d i t is
my understanding that they w i l l .
131
Senator S T E V E N S O N . M r . Parsky, you rely heavily i n your testimony
on advance consultation w i t h respect to the foreign investment issue.
H o w can you be assured of an opportunity f o r advance consultation
unless you are assured of advance notice ?
M r . P A R S K Y . W e have not sought a r i g i d screening process because
we felt that this could be detrimental to the normal investment flows.
I personally have discussed the issue w i t h all of the major investors,
and a notification as to this policy has gone to all governments. A l l of
the countries I have talked to have expressed a willingness to discuss
significant investments w i t h us i n advance before the transaction is
consummated. B u t this policy is not aimed at seeking consultations
on normal portfolio investments.
Senator S T E V E N S O N . T h a t would apply then just to investments by
foreign governments?
M r . P A R S K Y . That's correct.
Senator S T E V E N S O N . O f course, some proposals that are before us
would apply across the board, to governmental as well as private foreign investment. A n d without some such proposal, you have no assurance of advance notice. Y o u may through committee get advance
notice of government investment. Gould we obtain f o r our record copies of the notification given to other governments w i t h some summary
of the responses of those other governments ?
M r . P A R S K Y . Sure, I would be glad to provide that.
Senator S T E V E N S O N . A n d we have a rollcall now. I want t o let you
off i f I can before I have to recess the hearing. A final question. A t the
present time as you know, companies are required to make periodic
reports under the E x p o r t A d m i n i s t r a t i o n Act. A n d the forms include
provision f o r information about requests to comply w i t h restrictive
trade practices. The supply of that i n f o r m a t i o n is not mandatory.
M r . P A R S K Y . I understand.
Senator S T E V E N S O N . The first question is should provision of such
information be made mandatory i n order to give ourselves a better
data base.
M r . P A R S K Y . W e l l , as I have indicated, I certainly t h i n k we should
have as much i n f o r m a t i o n on the whole question of foreign investment
and the boycott as we can have. I t h i n k that the Commerce Department who has experience i n this area has testified w i t h respect to the
policy decision as to whether or not i t should or shouldn't be made mandatory and I would support that approach. The Congress has looked
at the issue, the Congress i n the past has decided i t should not be mandatory by law. The Commerce Department has looked at the issue and
decided by administrative action i t should not be mandatory and I
would support their experience.
Senator S T E V E N S O N . W o u l d Treasury oppose a proposal to make i t
mandatory and public ? Y o u are not supporting it. A r e you opposing
it?
M r . P A R S K Y . W e wouldn't oppose that. B u t again I would yield to
the Commerce Department i n terms of voicing the administration's
position. They are the ones responsible.
Senator S T E V E N S O N . Thank you, M r . Parsky. I have to r u n to catch
that vote. The committee is recessed f o r about 10 minutes.
[The f o l l o w i n g letter w i t h enclosures was received f o r the record
from Mr. Parsky:]
132
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
ASSISTANT SECRETARY
Dear M r .
Chairman:
A t t h e t i m e o f my appearance b e f o r e y o u r s u b c o m m i t t e e ,
y o u asked what a s s u r a n c e we had t h a t advance c o n s u l t a t i o n s
w i t h prospective major governmental i n v e s t o r s would a c t u a l l y
take place.
I am e n c l o s i n g a S t a t e D e p a r t m e n t c a b l e o f May 2 3 ,
1975, s e t t i n g f o r t h t h e U . S . G o v e r n m e n t ' s a d m i n i s t r a t i v e
actions concerning f o r e i g n investment i n the United States.
The c a b l e , s e n t t o a l l d i p l o m a t i c p o s t s a b r o a d , r e v i e w s t h e
p o l i c y c o n s i d e r a t i o n s b e h i n d ' t h e measures and s t a t e s t h a t
"we e x p e c t f o r e i g n governments t h a t a r e c o n t e m p l a t i n g m a j o r
i n v e s t m e n t s i n t h e U . S . t o c o n s u l t w i t h us on such i n v e s t ments."
The c a b l e g i v e s t h e r a t i o n a l e f o r advance
c o n s u l t a t i o n and i n s t r u c t s t h e p o s t s t o p r o v i d e t h e h o s t
governments w i t h c o p i e s o f t h e E x e c u t i v e Order o f May 7 ,
w h i c h p r o v i d e d f o r t h e e s t a b l i s h m e n t o f advance c o n s u l t a t i o n procedures.
We have made c l e a r t o a l l f o r e i g n governments t h a t
advance c o n s u l t a t i o n s on m a j o r i n v e s t m e n t s i n t h e U n i t e d
S t a t e s a r e an e s s e n t i a l f e a t u r e o f o u r p o l i c y t o w a r d f o r e i g n
i n v e s t m e n t , and, as i n d i c a t e d i n t h e e n c l o s e d c a b l e , we
e x p e c t a l l f o r e i g n governments t o a b i d e by t h i s p o l i c y i n
t h e i r dealings i n the United States.
You asked f o r a summary o f o t h e r g o v e r n m e n t s '
r e s p o n s e s t o t h e p r o c e d u r e o f advance c o n s u l t a t i o n s .
We
have n o t r e q u e s t e d governments t o r e s p o n d f o r m a l l y t o t h e
announcement o f t h i s new f e a t u r e i n o u r p o l i c y t o w a r d
f o r e i g n investment.
We have seen t h a t f o r e i g n g o v e r n m e n t s
a r e c o m p l y i n g w i t h t h i s new r e q u i r e m e n t , h o w e v e r , and we
have no r e a s o n t o e x p e c t a l l governments w i l l n o t r e s p e c t
our concern i n t h i s m a t t e r .
No government has r e f u s e d t o
consult.
133
- 2 -
As I emphasized i n my s t a t e m e n t t o y o u r s u b c o m m i t t e e ,
I have h a d numerous p e r s o n a l c o n t a c t s w i t h o f f i c i a l s o f t h e
m a j o r o i l e x p o r t i n g c o u n t r i e s and have f o u n d t h a t t h e s e
c o u n t r i e s r e c o g n i z e our l e g i t i m a t e concerns r e g a r d i n g the
p o t e n t i a l f o r major i n v e s t m e n t s i n U.S. f i r m s .
Their response t o t h e c o n c e p t o f advance c o n s u l t a t i o n s has been
g e n e r a l l y f a v o r a b l e as l o n g as i t a p p l i e s t o a l l g o v e r n ments on a n o n d i s c r i m i n a t o r y b a s i s .
Sincerely
yours,
The H o n o r a b l e
A d l a i E. S t e v e n s o n , I I I
Chairman, Subcommittee on I n t e r n a t i o n a l F i n a n c e ,
Committee on B a n k i n g , H o u s i n g and Urban A f f a i r s
U n i t e d S t a t e s Senate
W a s h i n g t o n , D.C.
20510
Attachment
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STATE
STATE
1?1?7$
07956?
1.
O N MAY 7 , P R E S I D E M T FORD S I G N E D E X E C U T I V E ORDER 1 1 8 5 8
TO I M P L E M E N T NEW A D M I N I S T R A T I V E A R R A N G E M E N T S R E L A T I N G TO
FOREIGN' I N V E S T M E N T I N T H E U . S . P U R S U A N T TO E X E C U T I V E O R D E R , •
THE F O L L O W I N G ARE B E I N G E S T A B L I S H E D :
A. C O M M I T T E E O N F O R E I G N I N V E S T M E N T I N U . S . , TO B E
COMPOSED O F R E P R E S E N T A T I V E S ( N O T BELOW L E V E L O F A S S I S T A N T
SECRETARY) O F S E C R E T A R I E S O F S T A T E , T R E A S U R Y , D E F E N S E , A N D
COMMERCE AND O F A S S I S T A N T TO P R E S I D E N T • F O R E C O N O M I C A F F A I R S
AND C I E P EXECUTIVE D I R E C T O R .
R E P R E S E N T A T I V E O F TREASURY
SECRETARY IS TO B E C O M M I T T E E C H A I R M A N , AND UNDER S E C P E T A R Y
FOR M O N E T A R Y A F F A I R S J A C K B E N N E T T H A S B E E N D E S I G N A T E D .
COMMITTEE '.'ILL A S S E S S G E N E R A L T R E N D S AND S I G N I F I C A N T
DEVELOPMENTS I N F O R E I G N I N V E S T M E N T AND R E V I E W I N V E S T M E N T S
IN THE
WHICH, I N C O M M I T T E E ' S J U D G M E N T , M I G H T H A V E
MAJOr
-v _ I C A T I O N S FOR U . S . N A T I O N A L I N T E R E S T S .
COMMITTEE
uSO O V E R S E E A R R A N G E M E N T S O N A D V A N C E C O N S U L T A T I O N S
V:
r O R E I G N G O V E R N M E N T S O N S P E C I F I C MAJOR P R O S P E C T I V E
INVESTMENTS B Y SUCH G O V E R N M E N T S .
I T WILL B E RESPONSIBLE
FOR C O N S I D E R I N G P R O P O S A L S FOR NEW L E G I S L A T I O N OR A D D I T I O N A L
ADMINISTRATIVE ACTIONS.
A S NEED A R I S E S , T H E C O M M I T T E E W I L L
MAKE R E C O M M E N D A T I O N S TO T H E NSC AND T H E E P 3 .
B.
O F F I C E O F FOREIGN INVESTMENT I N THE U N I T E D S T A T E S ,
I N T H E D E P A R T M E N T O F COMMERCE TO O B T A I N , C O N S O L I D A T E , A N D
ANALYZE I N F O R M A T I O N ON F O R E I G N I N V E S T M E N T I N T H I S .
COUNTRY AND ALSO S U B M I T TO C O M M I T T E E R E P O R T S , A N A L Y S E S ,
D A T A , AND R E C O M M E N D A T I O N S R E L A T I N G TO F O R E I G N I N V E S T M E N T ,
I N THE U N I T E D S T A T E S , I N C L U D I N G R E C O M M E N D A T I O N S A S TO HOW
I N F O R M A T I O N ON S U C H I N V E S T M E N T CAN B E V £ P T C U R R E N T .
2.
E X E C U T I V E O R D E R WAS P R O M U L G A T E D TO G I V E E F F E C T T O
STATEMENTS BY A D M I N I S T R A T I O N WITNESSES I N HEARINGS
MARCH A B E F O R E S E N A T E S U B C O M M I T T E E O N S E C U R I T I F S - T H A T
A D M I N I S T R A T I O N HAD MADE . I N T E N S I V E * R E V I E W O F USG P O L I C Y O N
INWARD F O R E I G N I N V E S T M E N T AND C O N S I D E R E D NFW L E G I S L A T I O N
UNNECESSARY AT T H I S T I M E .
(SEE R E F T E L . ) ' A S I N D I C A T E D .
UNCLASSIFIED
136
MESSAGE
RECEIVED AT
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1?1276
AT THAT T I M E , HOWEVER, WE HAVE CONCLUDED T H A T I N V E S T M E N T S
BY GOVERNMENTS MAY I N V O L V E S P E C I A L C O N S I D E R A T I O N S A N D ,
T H E R E F O R E , WE E X P E C T F O R E I G N G O V E R N M E N T S T H A T ARE C O N T E M P L A T I N G MAJOR I N V E S T M E N T S I N THE U . S . TO C O N S U L T W I T H U S
ON SUCH I N V E S T M E N T S . .
3.
WE '-'ANT TO A V O I D G I V I N G T H E I M P R E S S I O N T H A T USG PLANS
A GENERALIZED SCREENING PROCEDURE.
WF E X P E C T C O M M I T T E E
TC CONCERN I T S E L F ONLY W I T H A FEW E X C E P T I O N A L CASES AND
THUS DO MOT REGARD OUR NEW PROCEDURES AS A D E P A R T U R E * F R O M
CUR T R A D I T I O N A L O P E N - D O O R P O L I C Y TOWARD F O R E I G N I N V E S T MENT I N T H I S C O U N T R Y .
A • C O N S U L T A T I O N PROCEDURE W I L L G I V E USG O P P O R T U N I T Y TO
COMMENT O N I N D I V I D U A L I N V E S T M E N T S . B Y F O R E I G N GOVERNMENTS
W H I C H , I F CONSUMMATED, M I G H T HAVE MAJOR I M P L I C A T I O N S FOR
THE N A T I O N A L I N T E R E S T OR R A I S E I M P O R T A N T P U B L I C ' P O L I C Y
ISSUES,
USG V I E W S SUCH C O N S U L T A T I O N S AS E E N E F I C I A L TO
P R O S P E C T I V E I N V E S T O R G O V E R N M E N T S AS WELL AS TO T H E USG
I N THAT THEY W I L L R E D U C E THE P O S S I B I L I T I E S FOR MISUNDER-?
STANDINGS.
5.
C O N S U L T A T I O N S W I L L E E L I M I T E D TO S P E C I F I C , P P O S P E C T I V E I N V E S T M E N T T R A N S A C T I O N S , AND WE ARE S E E D I N G TO A V O I D
P R E C I S E OR R E S T R I C T I V E G U I D E L I N E S fiS TO K I N D S O F I N V E S T MENTS OF W H I C H USG SHOULD B E N O T I F I E D .
CONSULTATION
PROCEDURES W I L L B E F L E X I B L E , AND EACH I N V E S T M E N T T H A T
COMES B E F O R E THE C O M M I T T E E W I L L B E C O N S I D E R E D O N I T S
MERITS.
ADVANCE C O N S U L T A T I O N S W I L L NOT E E F X P E C T E D I X
CASE O F D I V E R S I F I E D P O R T F O L I O I N V E S T M E N T S I N U . S . .
CORPORATE S E C U R I T I E S E V E N THOUGH AGGREGATE AMOUNT B Y A
F O R E I G N GOVERNMENTAL I N V E S T O R MAY B E S U B S T A N T I A L .
NOR DO '
F O R E I G N GOVERNMENTAL I N V E S T M E N T S I N U . S . G O V E R N M E N T S E C U R I T I E S FALL W I T H I N T H E S E TEPMS O F R E F E R E N C E .
USG HAS NO
W I S H OR I N T E N T TO I N T R U D E U N N E C E S S A R I L Y UPON R E L A T I O N S H I P B E T W E E N F O R E I G N GOVERNMENTAL I N V E S T O R S AND T H E I R
INVESTMENT COUNSELORS.
€.
A D D R E S S E E S ARE R E Q U E S T E D TO P R O V I D E H O S T G O V E R N M E N T S
W I T H C O P I E S O F E X E C U T I V E ORDER AND P R E S S R E L E A S E I S S U E D
UNCLASSIFIED
137
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STATE
121276
AFTER F I P S T M E E T I N G O F C O M M I T T E E - ( B E I N G
SEPTEL).
KISSINGER
NOTE B Y O C T :
TRANSMITTED
POUCHED CURACAO AND B A G H D A D .
UNCLASSIFIED
138
Senator S T E V E N S O N . The meeting w i l l come back to order.
The next witness is M r . Ray Garrett of the Securities and Exchange
Commission.
M r . Garrett, I apologize for the long delay and thank you f o r ^our
patience. Y o u have testified on these subjects before. The Securities
Subcommittee of the B a n k i n g Committee has transferred some of the
legislation which i t has considered on this subject to the subcommittee
that I am chairman of f o r purposes of further hearings.
I hope that f r o m these hearings we w i l l be able to report out comprehensive legislation dealing w i t h the subject.
Y o u are welcome, as I indicated to the other witnesses, to either read
the f u l l statement, otherwise, I w i l l be glad to enter i t into the record.
STATEMENT OF RAY GARRETT, JR., CHAIRMAN, SECURITIES AND
EXCHANGE COMMISSION, ACCOMPANIED BY ALAN B. LEVENSON,
DIRECTOR, DIVISION OF CORPORATION FINANCE, AND CARL T.
BODOLUS, CHIEF, OFFICE OF INTERNATIONAL CORPORATE
FINANCE, DIVISION OF CORPORATION FINANCE
M r . G A R R E T T . M r . Chairman, I appreciate the opportunity t o be
here. I thank you for your consideration of our time, and I shall reciprocate by summarizing, rather than reading, my prepared statement.
Senator S T E V E N S O N . The f u l l statement w i l l be entered into the
record.
M r . G A R R E T T . Thank you very much.
I would like first to introduce two members of the Commisssion's
staff who are w i t h me. On my r i g h t is A l a n B. Levenson, director of the
Commission's Division of Corporation Finance, and on my l e f t is
Carl T . Bodolus, chief of the Office of International Corporate Finance
of that Division.
The major concerns of the Securities and Exchange Commission
w i t h respect to the legislation that you are now considering relate to
S. 425, rather than the other bills, since only S. 425 directly involves the
jurisdiction of the Commission. Our concerns are, I suppose, somewhat
tangential to the primary concern of these hearings, which is, I understand, the desirability of establishing a process to screen foreign investments, i n the sense of permitting them to occur or f o r b i d d i n g them
to occur. On this issue, the SEC takes no position. W e are not invested
w i t h any official expertise, and we have no special insight i n this area.
There are, however, some important aspects of S. 425 that do cut
rather deeply into an area of considerable concern to us. I am referring,
of course, to the provisions of S. 425 relating to the disclosure of beneficial ownership of securities.
Under section 13 of the Securities Exchange A c t of 1934, any person who becomes, directly or indirectly, the beneficial owner of more
than 5 percent of any equity security, of what I w i l l loosely call a class
of publicly held securities, must report that fact to the SEC, to each
exchange where the security is traded, and to the issuing corporation.
F o r purposes of this provision, a class of publicly held securities includes any class of securities registered pursuant to section 12 of the
Exchange A c t , issued by registered, closed-end investment companies,
or issued by certain insurance companies otherwise exempt f r o m registration under section 12.
139
S. 425 would add to these provisions. I n addition to requiring a
"notice of i n t e n t " and so-called screening through the Office of the
President, S. 425 would require disclosure of the nationality of the
5-percent beneficial owners of such securities, as well as certain financial statements relating to the owners.
W e expect shortly t o release f o r public comment proposed amendments t o the Commission's rules under section 13 of the Securities E x change A c t , which would define beneficial ownership t o include the
power to direct the vote or disposition of shares, and the power to
receive or direct the receipt of dividends or proceeds f r o m the sale
of shares, plus certain f a m i l y holdings. T h i s proposed defiinition w i l l
get closer to concerns about the influence of shareholders upon corporate control than do the concepts of beneficial ownership accepted
today, which rely more on economic interest. W e also w i l l include provision f o r disclosure of the nationality of 5 percent beneficial owners.
W e have some question as to whether we t h i n k i t is justifiable to
require financial statements, particularly of individuals or privately
held companies, where the only fact 'being reported is the existence
of the more than 5-percent beneficial ownership and where there is no
active intent to proceed to acquire control.
We also are considering requiring companies to disclose, i n periodic
reports, the top <30 holders of record of their equity securities, i n line
w i t h the recommendations of an intergovernmetal committee that was
established last year to attempt to achieve some u n i f o r m i t y among the
different agencies t h a t require reporting of stock ownership. Reporti n g of the 30 largest holders of record w i l l not be very i l l u m i n a t i n g as
to foreign ownership, even i f we require—and this would be a further
step—disclosure of the record holders' residence or nationality. I say
this only because of the various means by which beneficial ownership
is obscured t h r o u g h street-name holdings or other use of record holders.
O f more concern to us t h a n the proposed amendments relating to
disclosure of nationality is the proposal to add a new section 14(g) to
the Securities Exchange A c t , which would require all record holders
of shares of publicly owned companies, who hold f o r the benefit of
someone else, to report the i d e n t i t y of that someone else to the issuing
corporation, and would require the corporation to collect and keep a
list of this information, filing w i t h us so much of i t as we m i g h t
require. We t h i n k this proposal would overdestroy the target, since i t
would require, i n effect, a v i r t u a l l y complete list of beneficial owners
of all shares of a l l publicly owned companies, reaching down theoretically t o the owner of one or two shares. W h i l e some corporate secretaries m i g h t like to have such a list, for direct m a i l i n g purposes, we
t h i n k , overall, t h a t the burden upon the various persons involved i n
complying w i t h such a multitiered reporting system, and the invasion
of privacy of the individuals involved, would not be justified by any
benefit to the public or t o investors. W h i l e we would oppose requiring
this type of disclosure about owners of small amounts o f securities
we are considering—and this would require legislation—a provision
that would lower the threshold f o r reporting of beneficial ownership to
below 5 percent. The most obvious place to stop would be 2 percent,
which has an analogy i n the present Exchange A c t , or possibly even 1
percent.
I should point out, and the committee should be aware, that the d i f ference i n quantity of disclosure would be spectacular. Based on i n f o r -
140
mation available to us, i t appears t h a t i t would be common f o r a corporation w i t h 50,000 shareholders to have only one or possibly five or
six persons beneficial owners of 1 percent or more of any class of its
equity securities, and corporations would have no beneficial owner at
a l l of 2 percent or more of any class of their equity securities. Nevertheless, we t h i n k such a lower threshold point perhaps would be a reasonable compromise, i n l i g h t of the various considerations involved, including costs and other burdens, reasons f o r privacy and the interests
of investors and other persons i n k n o w i n g who controls companies.
There is another aspect of S. 425, which is o f great interest t o us,
and t h a t relates t o the problems of enforcing disclosure. S. 425 proposes, as a means of enforcing what I w i l l loosely call the "screening"
provision that is, the requirement that advance notice be filed and permission granted or not denied before the acquisition of 5 percent or
more of a class of equity securities—judicil disenfranchisement o f the
securities held and, where appropriate, court-ordered divestiture of
ownership of the securities involved w i t h the proceeds held and remitted net, of course, to the foreign shareholder.
W e have had a great deal of difficulty enforcing any disclosure
requirements w i t h respect to persons who are not residents of the
U n i t e d States and who hold t h r o u g h foreign fiduciaries, p a r t i c u l a r l y
i n countries t h a t have so-called bank secrecy laws. O u r efforts to pierce
the veil, so to speak, of the Swiss bank secrecy laws is o f long standing, and we are s t i l l way behind. A l t h o u g h a treaty was negotiated
w i t h Switzerland, i n v o l v i n g only c r i m i n a l matters, we don't yet even
have t h a t treaty i n force.
The idea o f judicial disenfranchisement or divestiture offers promise
as a means of compelling disclosure by foreign fiduciaries. W e are concerned here w i t h fairness among the various classes of
fiduciaries,
domestic and foreign, t h a t is, how much secrecy they can provide to
their customers, where their customers want that.
W e are developing legislative proposals which would provide a court
w i t h similar powers w i t h respect t o the enforcement of the r e p o r t i n g
provisions of section 13 (d) of the Securities Exchange A c t .
W e have not yet drafted the details of our proposals, but we t h i n k
these enforcement ideas offer promise. The power to i m p o u n d d i v i dends m i g h t be added to these. W e have been informed i n f o r m a l l y ,
by persons f a m i l i a r w i t h investors abroad, t h a t denying foreign investors the opportunity to vote their stock m i g h t not attract much attention, since stockholders i n European corporations apparently don't
vote very much anyway, but impounding dividends would attract attention, as would, of course, divestiture.
These are the matters o f concern to us, M r . Chairman.
I also would like t o discuss briefly the A r a b boycott, and the extent
to which the Commission has jurisdiction to act i n the l i m i t e d area of
u n d e r w r i t i n g syndications, previously alluded to by M r . Parsky. H e
correctly described our position and our view of the situation.
W e do have a peculiar involvement where a boycott affects investment bankers and their u n d e r w r i t i n g activities. American investment
bankers generally are members of the National Association o f Securities Dealers, which has a special quasi-official status under section
15 ( A ) of the Securities Exchange A c t . T h e N A S D has rules r e q u i r i n g
the observance of just and equitable principles of trade, and i t has
141
legal authority to enforce those rules. A n d , the N A S D has informed
us that, i n its opinion, compliance w i t h the so-called A r a b boycott
would be a violation of those rules and t h a t i t would propose t o take
action, i f i t came upon a case i n which action appeared necessary.
F u r t h e r , under the amendments t o the Securities Exchange A c t t h a t
were enacted last June, the Commission has authority t o enforce
N A S D rules directly. W h i l e we have no reason to believe i t would be
necessary to do so, the Commission could move directly under that
authority, i f i t d i d become necessary.
W e and the N A S D have been monitoring the situation f r o m time
to time. W e are not aware at the moment of any problem t h a t is not
being adequately handled by the members of the investment banking
industry. No one has come to us complaining or requesting assistance
or protection. W e do study syndicates, as they are published, f r o m
time to time, but of course, one cannot always t e l l just f r o m looking
at a list of names how i t came about. B u t , I do believe t h a t i f there
were problems of any serious dimensions, somebody very directly
affected would have come to us. So, I am f a i r l y confident i n saying we
are not aware of any serious problems i n this particular area.
I must observe, however, t h a t unlike industry i n general i n this
country, i t would be quasi-unlawful, at least under the N A S D ' s rules,
f o r our investment banking firms to comply w i t h requests to honor the
so-called A r a b boycott.
W e are prepared to respond to questions.
Senator S T E V E N S O N . W o u l d you repeat that again? I t would be
quasi-unlawful under what ?
M r . G A R R E T T . I used quasi-unlawful because i t would be a violation
of the N A S D rules, and there are penalties t h a t could be assessed f o r
violation of those rules.
Senator S T E V E N S O N . I f what happened ?
M r . G A R R E T T . I f a member of the N A S D violates just and equitable
principles of trade. Therefore, i f a member of the N A S D , which includes v i r t u a l l y a l l of our American investment banking firms, were
to comply w i t h a demand for a boycott of another American f i r m i n an
u n d e r w r i t i n g situation on grounds of race, ethnic background or support of Israel, the N A S D is of the opinion i t could proceed against
that firm. A n d we share t h a t opinion.
Senator S T E V E N S O N . A n d what would the sanction be?
M r . G A R R E T T . The possible sanctions include expulsion f r o m the
N A S D , suspension of membership i n the N A S D , fines, censure, or a
combination thereof. The appropriate sanction would be a matter of
judgment, based on the particular facts and circumstances of each case.
Senator S T E V E N S O N . When do you expect the regulations t o issue
which w i l l require disclosure of nationality ?
M r . G A R R E T T . Our target is before Labor Day.
Senator S T E V E N S O N . A n d the point you are making, one of the
points, as I understand i t , is t h a t you w i l l require disclosure of the
nationality of the beneficial owners, but i t is pretty h a r d to go beyond
that t o i d e n t i f y the real beneficiaries i f they seek to conceal their
ownership.
M r . G A R R E T T . W h a t I alluded to was the situation where a beneficial owner sets up one or more Swiss bank accounts, w h i c h i n t u r n
have accounts w i t h broker-dealers here. I n other words, where you
5 8 - 5 2 7 O - 75 - 10
142
have a series of nominees between the holder of record and the beneficial owner. I t h i n k i t is probably correct to say t h a t a routine type of
reporting procedure w i l l probably never guarantee disclosure of every
person who wants to hide his ownership. W e do t h i n k we can d r a f t
legislation which, by making the potential penalties significant, can
greatly increase the chances of obtaining i n f o r m a t i o n about the true
beneficial owner.
Senator S T E V E N S O N . A r e you preparing such legislation recommendations now?
M r . GARRETT. Y e s , w e are.
Senator S T E V E N S O N . A n d when do you expect those to be ready ?
M r . G A R R E T T . B y Labor Day. W e hope to submit proposed legislation to Congress at the same time we publish our proposed rules. W e
had hoped to have had this done long before now, but the critical
persons involved have been absorbed i n other matters.
Senator S T E V E N S O N . Don't you have situations i n which the laws of
foreign countries protect the confidentiality of beneficial owners? F o r
example—maybe I shouldn't make this hypothetical—doesn't Switzerland have a law that prohibits disclosure of beneficial ownership? A n d
i f so, how could the owner of record comply w i t h the U.S. law i f i t
meant violation of Swiss law? A r e there such situations?
M r . G A R R E T T . Oh, yes, indeed, there are. I understand that i t is a
crime under Swiss laAv for a Swiss bank to disclose the name of the
person f o r who°e account they hold securities, without such person's
permission. A n d there is no way we can change that directive.
The suggestion wdiich I draw f r o m S. 425. and f r o m some enforcement cases that we have had i n this country, based on violations of
our reporting requirements bv 5 percent holders, is to deny the r i g h t
of those shares to vote, unless there is disclosure of the person wTho is
directing the vote.
N o w ; i n my earlier remarks. I alluded to the fact that I have been
t o l d that p r o v i d i n g f o r a loss of v o t i n g rights m i g h t not attract much
attention. Investors may not care whether or not they can vote, although, of course, i f they are interested i n exercising control, then
thev would want to vote.
The other device suggested bv S. 425. and I want to make i t clear
t h a t we wTould suggest this i n a somewhat different context than is
contemplated by S. 425, would permit a court to order the sale of the
stock f o r consistent refusal to disclose. W h i l e we wouldn't impose an
obligation on the Swiss bank, we could make i t unattractive to individuals to hold substantial blocks of stocks i n American corporations t h r o u g h Swiss bank accounts, w i t h o u t g r a n t i n g the banks permission to disclose who they are. T h a t is the objective.
Senator S T E V E N S O N . W i l l these regulations and such legislative proposals afford advance notice or w i l l it be after the fact?
M r . G A R R E T T . T h i s would be after the fact. W e don'T contemplate
changing the law i n this regard. The present law requires r e p o r t i n g
after the fact, i f a person acquires more than 5 percent. I t is not very
long after the fact, 10 days, but i t is after the fact.
I f the 5-percent or more is intended to be acquired through a tender
offer, there is concurrent filing. I f control is to be acquired t h r o u g h
other devices, such as a merger that w^ould require solicitation of
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proxies, or through an exchange of securities, then there is advance
notice.
Senator S T E V E N S O N . Plow do you feel about proposals to require
advance notice i n the second class of cases ? Leave aside the threshold
question at the moment ? Is i t unreasonable to require advance notice ?
M r . G A R R E T T . I t h i n k of these i n terms of the W i l l i a m s A c t , because
the relevant provisions in the Securities Exchange A c t came into our
law a few years ago i n amendments sponsored by Senator Williams.
The threshold began at 10 percent, incidentally, and was shortly
amended down t o more than 5 percent.
I t h i n k both originally, and at the time of the amendment, there
was considerable debate on the question whether there should be
advance f i l i n g or not, i n public tender offer situations. We were thinki n g of it, of course, not i n terms of foreign persons, but i n other terms.
A l a n Levenson reminded me some persons wanted 7 or 10-day advance f i l i n g at the SEC, while others objected to it. The legislation
finally enacted requires concurrent filing.
The problems that were most on people's minds at the time the
W i l l i a m s A c t was adopted, were whether the SEC should have an opportunity to review tender offer material i n advance, on the one hand,
and whether or not there m i g h t be a leak of inside information on
the other. The object was to prevent information which is not yet
available to the public f r o m being used u n f a i r l y and improperly.
I imagine the same k i n d of considerations w i l l come up again.
A l a n , you may have further thoughts on this.
Senator S T E V E N S O N . Excuse me, i f I could add this question at this
point. W o u l d n ' t t h a t be a concern of yours about S. 425?
M r . G A R R E T T . Yes. I should have mentioned that. I t is i n our w r i t t e n
statement. We are nervous about s i t t i n g for <30 days on a report of a
proposed acquisition that is not made public, particularly i f i t should
happen to come at a time when we are also w o r k i n g on a registration
statement of that company or a proxy statement or something else.
We have suggested that we at least be authorized to make the fact of
the proposed acquisition public as necessary i n order to avoid that
conflict.
Senator S T E V E N S O N . Thank you.
I am sorry, M r . Levenson.
M r . L E V E N S O N . Just to supplement Chairman Garrett's remarks,
the S E C i n the 1968 hearings before Senator W i l l i a m s d i d recommend strongly a f> and 10-day pre-filing for a proposed tender offer.
This d i d not apply to an acquisition statement, that is, for an ordinary
open-market purchase.
A t that time, the interest and purpose behind the 5 or 10-day period
was not to screen the merits of the investment. I t was merely designed
to assure f u l l and f a i r disclosure to the security holders who would be
the recipients of the tender. Congress decided at that time that, i n
order not to t i p the scales between incumbent management or the
b i d d i n g company, the f i l i n g should be contemporaneous.
M r . G A R R E T T . One can imagine, i n terms of advance acquisition
statements f o r open-market purchases, the objections that would be
raised on the part of anybody who let i t be known he is going into the
market to acquire substantial amount of stock, particularly the fear
that he would be murdered i n the market place.
144
Senator STEVENSON. I n this instance, the sort of screening t h a t we
are t a l k i n g about would require more than 5 or 10 days, I would t h i n k .
M r . GARRETT. S . 4 2 5 would provide a 30-day period.
Senator STEVENSON. I t h i n k the W i l l i a m s b i l l contemplates 30 days.
M r . GARRETT. I would expect any substantive proceedings on the
merits of an acquisition would require about 30 days.
Senator STEVENSON. Can you generalize about the procedures i n
other countries, Canada, f o r example ? A r e n ' t there procedures t h a t effectively screen foreign investment i n Canada and other countries?
M r . GARRETT. I don't know them i n great detail, but Canada, Japan,
and other countries have had such screening laws for some time. Some
of them are simply flat prohibitions.
Senator STEVENSON. D O they have such screening procedures as are
proposed by Senator W i l l i a m s i n S. 425? I f so, have there been any
adverse effects upon investors of the k i n d t h a t you were mentioning?
M r . GARRETT. I can't answer i n any detail, M r . Chairman.
A r e you f a m i l i a r w i t h any, Carl ?
M r . BODOLUS. W e have heard of no problems. Canada certainly has
the 5-percent limitation. They are going on strictly an economic and
nationalistic basis i n their law. I t is not aimed at any particular foreign investors, but all foreign investors. Nationalism is the backbone
of their particular foreign investment screen.
Senator STEVENSON. I S that advance notice confidential ?
M r . BODOLUS. A S f a r as I know, yes, sir.
Senator STEVENSON. Maybe that confidentiality obviates concern f o r
the investors.
M r . GARRETT. Yes, I t h i n k i t does require a resolution of the conflict
that we have pointed out. One way you could free us f r o m i t would
be to have the document filed some place else. B u t as f a r as public
investors are concerned, there would s t i l l be a 30-day period i n which
they would be ignorant of the proposal.
Senator STEVENSON. Thank you, M r . Garrett. I don't believe I have
any f u r t h e r questions. I t was a h e l p f u l statement.
T h a n k you, gentlemen.
[ T h e complete statement of M r . Garrett f o l l o w s : ]
STATEMENT
OF R A Y
GARRETT, JR., C H A I R M A N ,
COMMISSION
SECURITIES
AND
EXCHANGE
M r . C h a i r m a n , members of the S u b c o m m i t t e e : I a m pleased t o appear before
t h i s Subcommittee today to present t h e Commission's views on S. 425, " t h e F o r eign I n v e s t m e n t A c t of 1975." W i t h me t h i s m o r n i n g is A l a n B. Levenson, D i r e c t o r
of the Commission's D i v i s i o n of C o r p o r a t i o n F i n a n c e , a n d C a r l T. Bodolus, C h i e f
of t h a t D i v i s i o n ' s I n t e r n a t i o n a l Finance Office.
A l t h o u g h t h e Subcommittee w i l l also be considering S. 953, S. 995 a n d S. 1303,
w h i c h w o u l d g r a n t the Secretary of Commerce c e r t a i n powers w i t h r e g a r d t o
f o r e i g n investment, I w i l l generally r e s t r i c t m y comments today to S. 425, since
only t h a t b i l l relates d i r e c t l y t o the j u r i s d i c t i o n of the Commission.
S. 425 was i n t r o d u c e d i n J a n u a r y of t h i s year, by Senator W i l l i a m s , a n d hearings on i t were h e l d l a s t M a r c h , before t h e Subcommittee on Securities. S. 425
w o u l d , among other t h i n g s r e q u i r e increased disclosures about owners of m o r e
t h a n five percent of the securities of p u b l i c l y - o w n e d corporations, and disclosure
of a l l t h e beneficial owners of e q u i t y securities of a public-held company. L a s t
M a r c h , w h e n I testified on behalf of the Commission, I expressed o u r general
support f o r the provisions of S. 425 t h a t are aimed a t i m p r o v i n g the disclosure
of e q u i t y ownership. W e w e r e — a n d s t i l l a r e — p a r t i c u l a r l y troubled, however,
w i t h the provisions of S. 425 r e q u i r i n g disclosure of a l l the beneficial e q u i t y
145
owners of publicly-held companies and the burdens such a requirement l i k e l y
w o u l d impose, w i t h o u t any commensurate benefit to investors.
Rather t h a n repeat t h a t testimony i n f u l l today, I request t h a t a copy of my
earlier testimony be included i n the record of these hearings, along w i t h a copy
of the Commission's detailed w r i t t e n comments t h a t were submitted to the Subcommittee on Securities i n connection w i t h its hearings.
When I last testified on S. 425,1 stated t h a t the Commission's staff was w o r k i n g
on developing disclosure rules t h a t would, i f adopted, effect disclosure of some
of the i n f o r m a t i o n t h a t would be required by S. 425. I understand t h a t the Subcommittee w o u l d like me to describe i n more detail the status and nature of the
rules our staff is considering, and highlight my earlier testimony briefly.
As you know, Section 13(d) of the Securities Exchange A c t requires certain
disclosures by persons who acquire the beneficial ownership of more than five
percent of the equity securities of large, publicly-held American companies. S.
425 would amend Section 13(d) to require, subject to our rulemaking powers,
t h a t such a person also disclose his residence, nationality, and financial condition ; the background, identity, residence and n a t i o n a l i t y of any associated persons who own equity securities of t h a t issuer; and the background, identity
residence and n a t i o n a l i t y of any other persons sharing or having exclusively the
a u t h o r i t y to exercise the voting rights of those securities.
W h i l e we have supported this provision of S. 425, i t should be borne i n m i n d
t h a t Section 13(d) of the Securities Exchange Act presently requires the disclosure of not only the i n f o r m a t i o n therein specified, but also "such additional inf o r m a t i o n . . . as the Commission may by rules and regulations prescribe. . . ."
'This rulemaking a u t h o r i t y is quite broad and open-ended, and could be used to
promulgate rules r e q u i r i n g disclosure of the same i n f o r m a t i o n sought to be required by S. 425.
I n fact, we are presently developing proposed rules under this existing authori t y . I n this connection, last f a l l we held a Public Fact-Finding Investigation i n
the M a t t e r of Beneficial Ownership, Take-overs and Acquisitions by Foreign and
Domestic Persons. Our staff has generally concluded its review of the extensive
record compiled d u r i n g t h a t public investigatory proceeding, at least w i t h regard
to certain questions relating t o the disclosure of beneficial ownership.
As a result of t h a t review, last May, the Commission received tentative and
general staff recommendations concerning the appropriate use of our rulemaking
a u t h o r i t y , and these were, w i t h some modifications, conditionally approved. Our
staff is now i n the process of developing detailed proposals f o r rule and f o r m
changes, and these proposals should be on active docket by the end of August.
Subject t o the time expenditures required by the A d m i n i s t r a t i v e Procedure Act's
notice and comment provisions, and a review of the anticipated extensive and detailed public comments, these proposals are being given high p r i o r i t y , and t h e i r
adoption, subject to whatever views we might receive, should be effected as expeditiously as possible, assuming t h a t any proposals we publish are not preempted
by legislation.
Among other things, we are considering proposing a rule defining the t e r m
"beneficial owner," f o r purposes of Sections 13(d) and 1 4 ( d ) . T h a t definition
w o u l d focus p a r t i c u l a r l y on the power to direct the vote of securities, t o direct
the disposition of those securities, and would also include persons w i t h the r i g h t
to receive certain economic benefits f r o m the securities. I n addition, we are considering rules making i t clear t h a t beneficial ownership could result from, among
other things, certain f a m i l y relationships.
'Similarly, our staff is w o r k i n g on proposals w h i c h would require more disclosure of the nature of the beneficial ownership i n Schedule 13D—the f o r m we
require to be filed w i t h us pursuant to Section 1 3 ( d ) . F o r example, disclosures
m i g h t be required concerning the power of the person filing the statement to direct
how such securities should be voted or, i f such power, is lacking, disclosures might
be required of the situs of such power, as w e l l as the n a t i o n a l i t y of the persons filing the form.
The definition of the term "beneficial ownership" under consideration is f a i r l y
broad. Presumably, i t would encompass a number of financial institutions as w e l l
as individuals. For example, certain bank t r u s t departments t h a t serve as trustees,
and certain broker-dealers who manage discretionary accounts, might be considered to be the beneficial owners of the securities held i n the trusts or t h e
accounts, respectively.
Rather than exclude such institutions f r o m the definition of "beneficial owner,"
w h i c h m i g h t result i n a definition t h a t was too n a r r o w l y drawn, we are consider-
146
i n g ways of alleviating some of the burdens t h a t surely w o u l d devolve upon these
i n s t i t u t i o n s i f our broad definition required them to file unnecessarily extensive
disclosure reports. Section 1 3 ( d ) (5) of the A c t authorizes the Commission to
promulgate a short f o r m notice of acquisition, where the acquisition is i n the
o r d i n a r y course of business and is not made f o r the purpose, and does not have
the effect, of changing or influencing corporate control. A short f o r m notice could
be used by certain financial i n s t i t u t i o n s to report their holdings, and we are considering rules to t h a t effect.
'These rules, i f adopted i n any f o r m s i m i l a r to w h a t I have discussed, w o u l d i n
p a r t accomplish the objectives contained i n certain of the proposed amendments
to Section 1 3 ( d ) . Perhaps the most significant rule, and the one most diflicult to
formulate, is one defining the t e r m 4 'beneficial owner" f o r purposes of Section
1 3 ( d ) . Whether or not S. 425 is adopted, there w i l l s t i l l be a need f o r such a
rule, since S. 425 does not presently contain such a definition. W e are not contemplating proposing any rules, however, w h i c h would require a l l 5 percent owners of equity securities to file personal financial statements w i t h the Commission,
as S. 425 w o u l d require. W h e n I testified before the Subcommittee on Securities I
d i d not express our concern w i t h this provision. H a v i n g considered i t f u r t h e r , we
do not believe i t is necessary f o r the protection o f investors when the a c q u i r i n g
person is not seeking control of the issuer. The public benefits w o u l d be too remote
i n such cases, the burdens of compliance too heavy, and the invasion of p r i v a c y
unwarranted.
I n a d d i t i o n to amending Section 13(d) of the Exchange A c t to increase disclosure about owners of more t h a n five percent of a class of equity securities,
S. 425 also w o u l d add a new Section 14(g) to the Securities Exchange Act,
creating a m u l t i - t i e r e d reporting procedure by record holders to issuers, so
t h a t American companies w i t h a registered class of equity securities could obtain
i n f o r m a t i o n to compile a l i s t of the names, residences and nationalities of a l l the
beneficial owners of such securities, as w e l l as i n f o r m a t i o n w i t h respect to the
locus of a u t h o r i t y to exercist the v o t i n g rights of the securities held of record
by other persons.
Disclosure of beneficial ownership when separate f r o m record ownership,
however, is another matter. Under the present l a w there is no general requirement f o r such disclosure below the 5 percent level, nor is there any adequate
means of enforcement against fiduciaries. W e generally favor increased statut o r y a u t h o r i t y i n this direction.
As to creating a multi-tiered r e p o r t i n g procedure by holders of record, we agree
w i t h the objective of this provision, but believe t h a t its scope and extent are not
necessary f o r the protection of investors. The burden on nominees w o u l d appear
to be excessive and the benefits to the public too remote.
However, we are considering a rule proposal t h a t w o u l d require the issuer
to disclosure i n its annual report filed w i t h us, as w e l l as i n certain registration
statements, the 30 largest holders of record of any class of v o t i n g security and
the extent of t h e i r voting a u t h o r i t y , i f k n o w n to he issuer. I f such proposal is
made, i t probably w o u l d exempt disclosures of very s m a l l holdings. Our staff
is, i n developing this proposal, t a k i n g into careful consideration the recommendations of an Interagency Steering Committee on U n i f o r m Corporate Reporting, which, i n cooperation w i t h Senator Metcalf's staff, has developed a f o r m
of Model Corporate Disclosure Regulations ( J a n u a r y 1975).
There comes a point, of course, at w h i c h disclosure of ownership, when balanced
against the need f o r such disclosure, becomes too burdensome, and constitutes
an unreasonable and unnecessary invasion of personal privacy. I n t h a t regard,
we have several problems w i t h the solution proposed by S. 425.
W e are concerned, f o r one thing, about the substantial costs t h a t this proposed
amendment w o u l d impose on brokerage firms, banks, t r u s t companies and
especially transfer agents, as w e l l as the issuing companies, i f the precise provisions of S. 425 were enacted, since the b i l l w o u l d apply to a l l beneficial owners,
even the owner of one share of common stock. I t is not unusual f o r a large company to have over 100,000 record holders of its common stock. A T & T has millions. So much data is too expensive to provide and more t h a n anyone can effect i v e l y and properly use.
I f the i n t e n t i o n of this section of the b i l l is to elicit significant i n f o r m a t i o n
regarding beneficial owners, the Congress should consider less burdensome, alternative means of accomplishing this goal. A t the very least, the disclosure i n filings should be limited, perhaps, to the 20 or 30 largest holders, or any holder
of more t h a n some percentage, such as 2 percent or 1 percent. T h i s Subcommittee
147
should be aware t h a t many large companies w i t h 50,000 or more record shareholders may have no more than three or f o u r who own beneficially as much as
one percent of the company's shares.
The problems i n obtaining meaningful disclosure of stock ownership has always
been the holding of record by fiduciaries who feel constrained, by l a w or custom
or good business practice, f r o m their point of view, to decline to disclose the
identities of the persons f o r whom they hold the stock, except i n response t<
legal process. Foreign fiduciaries, i n many cases, w i l l not even recognize our
legal process f o r this purpose. Most fiduciaries w i l l disclose the extent to which
they hold shares f o r others but possess sole or j o i n t v o t i n g power, but not the
the i d e n t i t y of the beneficial owner or of any other person who holds the power
solely or j o i n t l y w i t h the fiduciary.
The idea of r e q u i r i n g fiduciaries to disclose t h e i r beneficiaries, or at least
those beneficiaries w i t h voting power, on a regular basis f o r public filings raises
other considerations t h a t must be carefully weighed. One is the longe-standing
t r a d i t i o n and policy i n our l a w of protecting the privacy of private trusts. Compelling the public disclosure of the portfolios of private trusts—even i f only to the
extent t h a t they hold equity securities of publicly-owned U.S. companies f o r
w h i c h the beneficiaries hold the voting power—is a fundamental departure
f r o m our settled norms. Of course, we have long since made this departure where
the beneficiary is a reporting person under Section 16 of the Securities Exchange
Act or i t is otherwise a control person, or affiliate, of the p o r t f o l i o company, or
one who has acquired five percent and becomes subject to Section 1 3 ( a ) . B u t
the proposed Section 14(g) is a far-reaching departure.
One approach to the problems raised m i g h t be to require such disclosure only
when the shares constitute more t h a n a specified percentage of the outstanding
shares, but m a k i n g the percentage much lower t h a n 10 percent or even 5 percent.
One and t w o percent have been suggested w i t h appropriate r u l e m a k i n g power
vested i n the Commission. The theory, then, w o u l d be t h a t an investor can preserve privacy t h r o u g h a personal t r u s t and yet r e t a i n v o t i n g power so long as
he keeps his positions i n publicly-owned companies insignificant i n terms of
voting strength. Above that, public policy f a v o r i n g disclosure w i l l p r e v a i l over
t h a t f a v o r i n g the privacy of personal investments.
Another consideration is one of competitive fairness among
fiduciaries—
broker-dealers a n d t r u s t companies and U.S. and foreign banks. The foreign p a r t
T
of the problem is not j u s t one of even application of the law as w r i t t e n , but also
as enforced. W e have been engaged i n long, and so f a r futile, efforts to compel
disclosure of bank customers i n some countries, even f o r purposes of c r i m i n a l
investigation. Here, S. 425 offeris a device t h a t m i g h t do the job, namely the
j u d i c i a l disenfranchisement or divestiture of the stock. S. 425, as presently
drafted, would employ this device only f o r violations of the screening provisions.
We suggest t h a t i t be expanded to cover violations of the disclosure provisions,
both foreign and domestic. Consideration should also be given to the impounding
of dividends f o r non-compliance.
I t is t r u e companies have complained t h a t they are sometimes unable t o
determine who actually owns t h e i r securities and t h u s cannot communicate
effectively. W e do not believe t h a t the solution to t h i s problem need be as allencompassing as t h a t proposed i n S. 425. Pursuant to our new legislative mandates, our staff is considering ways to encourage or require t h a t brokers w h o
hold securties f o r t h e i r customers make sure t h a t t h e i r customers receive issuer
communications. W e believe t h a t this, i n conjunction w i t h a rule r e q u i r i n g issuers
to provide sufficient quantities of m a t e r i a l to brokers and others f o r t h e i r customers, w i l l enable companies t o communicate effectively w i t h t h e i r shareholders.
S. 425 also w o u l d add a new Sectiorf 1 3 ( f ) t o the Securities Exchange Act,
to require any foreign person, company or government to file w i t h the C o m m i t
sion a confidential statement, containing certain specified information, t h i r t y
days i n advance of any acquisition by w h i c h t h a t foreign investor w o u l d o w n
more t h a n five percent of any class of equity securities of any United States
company w i t h more t h a n one m i l l i o n dollars i n assets.
The Commission would be required to t r a n s m i t the preacquisition statement
to the President, who would be authorized to p r o h i b i t the acquisition i f he finds
i t necessary to do so i n order to protect the national security, foreign policy of
the domestic economy of the U n i t e d States. A n amendment to S. 425 has been
proposed by Senators W i l l i a m s and Javits w h i c h w o u l d require the President
to p r o h i b i t such a n acquisition i n certain instances, p r i n c i p a l l y dealing w i t h
discriminatory conduct.
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I n my testimony last March, I voiced our concern t h a t t h i s proposed section
m i g h t engender conflicts of interest w i t h i n the Commission, w i t h respect to our
duties to require f u l l disclosure, i f we should receive nonpublic i n f o r m a t i o n
pursuant to these provisions. F o r example, under this bill, the Commission could
receive secret, but material, i n f o r m a t i o n regarding a proposed acquisition of
equity securities of an issuer by a foreign investor w h i l e the Commission's staff
is reviewing the adequacy of disclosures i n a filing relating to a public offering
of t h a t issuer's securities or r e l a t i n g t o corporate actions t o be adopted by a
vote of t h a t issuer's security holders.
Accordingly, the Commission requests that, i f the screening provisions of the
b i l l are enacted, and the Commission is designated as the repository f o r the preacquisition filings, the Commission be authorized to require the publication of
those reports i f we find i t necessary i n the interests of investors.
Beyond, w i t h respect to the substance of Section 1 3 ( f ) , as i t w o u l d be amended
by S. 425, and the other bills t h a t you are considering here today w i t h provisions f o r screening or otherwise controlling f o r e i g n investment i n A m e r i c a n
companies we do not t h i n k i t appropriate f o r the Commission to state a position.
Other t h a n our interest i n preserving the i n t e g r i t y and success of our c a p i t a l
markets, the Commission is not i n any position to, and does not have any special
expertise for, comment on the desirability of the screening process t h a t w o u l d be
established by S. 425, or on the powers r e l a t i n g t o foreign investors t h a t w o u l d
be granted to the Secretary of Commerce pursuant to the other bills mentioned.
The Subcommittee no doubt recognizes, however, t h a t any deterrent to f o r e i g n
investments i n the United States could have an adverse impact on the f u t u r e
a b i l i t y of public companies to raise capital i n the U n i t e d States, and could i m p a i r the f u t u r e depth and l i q u i d i t y of t r a d i n g markets i n the securities of
U n i t e d States companies. S i m i l a r l y , legislation of t h i s nature could lead to the
enactment of s t i l l more protectionist legislation by other countries w h i c h may
i m p a i r the a b i l i t y of U n i t e d States companies to raise or invest capital abroad.
The Commission supported the enactment of the Foreign Investment Study
A c t of 1974. Presently, the Departments of Treasury and Commerce are conducti n g an extensive study of foreign investments i n the United States pursuant to
t h a t Act. A n i n t e r i m report f r o m those Departments to the Congress is due on
or about November 1, 1975, and a final report is due sometime around M a y 1,1976.
I n addition, by Executive Order of May 7, 1975, the President has established
a Committee on Foreign Investment and directed the Commerce Department t o
obtain and analyze i n f o r m a t i o n on foreign investment i n the U n i t e d States. T h e
Commission's staff is w o r k i n g closely w i t h Commerce to increase the a v a i l a b i l i t y
of i n f o r m a t i o n on foreign investment, and we expect the amendments t o our rules
w h i c h I discussed earlier to f a c i l i t a t e this effort.
I f Congress determines t h a t t i m e permits, i t may be appropriate to review the
findings of the Commerce and Treasury p r i o r to the enactment of any screening
legislation i n this area.
T h a t concludes my prepared remarks. Messrs. Levenson, Bodolus and I w o u l d
be happy to respond to any questions you may have.
STATEMENT
OF R A Y
COMMISSION,
GARRETT,
BEFORE T H E
JR., C H A I R M A N ,
SECURITIES
AND
EXCHANGE
S U B C O M M I T T E E ON SECURITIES, M A R C H
5,
1975
M r . Chairman, members of the Subcommittee: I am pleased t o appear today
before t h i s Subcommittee t o t e s t i f y on S. 425, " t h e Foreign Investment A c t of
1975." W i t h me this m o r n i n g is A l a n B. Levenson, Director of the Commission's
D i v i s i o n of Corporation Finance.
S. 425 apparently is intended to serve t w o p r i m a r y purposes. F i r s t , this b i l l
w r ould, i f enacted, enable the Commission to elicit more i n f o r m a t i o n regarding
persons m a k i n g acquisitions of the equity securities of American companies. I t
w o u l d also make more effective any m o n i t o r i n g of foreign investments i n the
equity securities of most large, publicly-owned, American companies.
Second, S. 425 would impose a screening process f o r significant foreign investments i n American companies. I t would authorize the President, i n his discretion,
to p r o h i b i t any foreign person f r o m acquiring more t h a n five percent of any class
of equity securities of any large United States company, i f the President determines t h a t such an acauisition is not i n the national interest.
The need f o r accurate and c u r r e n t i n f o r m a t i o n concerning the record and beneficial ownership of equity securities issued by American companies is w e l l
149
established. T h i s Subcommittee, and p a r t i c u l a r l y its Chairman have been instrumental i n proposing and f a c i l i t a t i n g the enactment of legislation to require
improved disclosures by certain holders of equity securities and by persons contemplating acquiring such securities, And, i n response to the g r o w i n g importance
of i n s t i t u t i o n a l investors i n our capital markets, this Subcommittee has endorsed
legislation r e q u i r i n g increased and u n i f o r m disclosure of i n s t i t u t i o n a l portfolio
holdings and significant transactions.
The Commission supports the efforts by the Subcommittee to improve the disclosures required under the Securities Exchange Act. Pending the passage of any
new legislation, we have continued to appraise the effectiveness of the disclosures
we presently require under our existing a u t h o r i t y and the need f o r f u r t h e r
disclosures of the i d e n t i t y and background of shareholders. As p a r t of this appraisal, last f a l l the Commission ordered a Public Fast-Finding Investigation i n
the M a t t e r of Beneficial Ownership, Takeovers and Acquisitions by Foreign and
Domestic Persons, i n order to determine whether we should exercise our rulem a k i n g a u t h o r i t y under the Securities Exchange Act, or recommend legislative
changes, to require additional disclosures.
Our staff is s t i l l reviewing the record compiled d u r i n g t h a t public investigatory
proceeding—consisting, as of this date, of 1,667 pages of t r a n s c r i p t s ; 25 prepared
oral statements ; 30 e x h i b i t s ; and 78 letters of comments f r o m interested persons.
We are hopeful that, d u r i n g May or June of this year, we can publish f o r comment some new disclosure rule proposals, assuming, of course, t h a t new legislation, m a k i n g our proposals unnecessary or superfluous, has not already been
enacted.
Although we believe we presently have significant rulemaking authority to
require the new disclosures proposed i n S. 425 for five percent equity shareholders
or persons proposing to acquire five percent of the equity shares of a company,
we generally support the bill's proposal to improve these disclosures by statute.
S i m i l a r l y , the Commission is generally i n favor of improved disclosure of the
i d e n t i t y of the persons w i t h the power to vote the equity securities of large
American companies who would not otherwise be required to file reports under
Section 13(d) of the Securities Exchange Act, although we are troubled by the
specific approach to obtain this i n f o r m a t i o n embodied i n S. 425. The Commission
also concurs i n the assumption underlying S. 425—that improved disclosures
demand explicit legislative recognition of new enforcement remedies—although
we have not h a d serious difficulty persuading the federal courts to fashion effective equitable remedies under existing laws. We are, however, troubled by the
decision to l i m i t these new remedies only to violations i n v o l v i n g foreign investors,
and, even then, only to violation of the new screening provisions t h a t would be
added to the Act.
F i n a l l y , w h i l e we have some comments on the mechanics of the screening provisions of S. 425, the Commission has no comment on the desirability of these
provisions of the Act. As made clear by proposed new Section 1 3 ( f ) ( 2 ) , at page
7 of S. 425, the need for, and use of, screening powers raises questions of "nat i o n a l security" and "foreign policy" ; these are matters beyond the responsibility
of this Commission.
I should l i k e briefly to summarize the provisions of S. 425 t h a t are of most
importance to us. The Commission's detailed, w r i t t e n , comments on S. 425 have
already been furnished to the Subcommittee and its staff, and w i l l , I assume, be
made a p a r t of the Subcommittee's record of hearings on this bill.
I M P R O V E D DISCLOSURES B Y 5 - P E R C E N T S H A R E H O L D E R S OF E Q U I T Y
SECURITIES
S. 425 proposes to amend Section 13(d) of the Securities Exchange Act to require, i n addition to existing provisions of lawT, t h a t persons who have acquired,
or who propose to acquire, five percent of the equity shares of large American
companies must, subject to our rulemaking powers, disclose the residence, ident i t y and financial statements of the beneficial owner of those securities; the
background, identity, residence and n a t i o n a l i t y of any associated persons who
participated or are expected to participate i n the acquisition; and a detailed
description of any other persons sharing or having exclusively the a u t h o r i t y to
exercise the voting of rights of those securities.
Since Section 13(d) of the Securities Exchange Act presently requires the disclosure not only of the i n f o r m a t i o n there specified, but also "such additional inf o r m a t i o n . . . as the Commission may by rules and regulations prescribe . . ,"
there is no strict need for the additional disclosures S. 425 proposes to add.
Nevertheless, we f u l l y support this provision of S. 425.
150
Since S. 425 proposes to amend Section 13(d) and, therefore, reports required
to be filed pursuant to Section 14(d) of the Securities Exchange Act, the Subcommittee may w i s h to consider proposing comparable amendments f o r reports
required to be filed w i t h the Commission by directors, officers and p r i n c i p a l stockholders pursuant to Section 16 (a) of t h a t Act.
D I S C L O S U R E OF B E N E F I C I A L O W N E R S H I P
S. 425 would also add a new Section 14(g) to the Securities Exchange Act,
creating a multi-tiered reporting procedure so t h a t American companies) w i t h a
registered class of equity securities could compile an accurate l i s t of the names,
residences and nationalities of the beneficial owners of such securities, as w e l l as
i n f o r m a t i o n w i t h respect to the locus of a u t h o r i t y to exercise the voting r i g h t s
of the securities held of record by other persons. The Commission w o u l d be
granted r u l e m a k i n g a u t h o r i t y w i t h respect to an issuer's obligation to compile
such a l i s t of beneficial owners and to file such a list, or a portion thereof, w i t h
the Commission, presumably as a public document.
The Commission has previously supported the desirability of r e q u i r i n g the disclosure of the situs of significant voting power, p a r t i c u l a r l y when t h a t power is
p a r t i c a l l y or completely vested i n persons other t h a n the record owrner of the
shares. We support such disclosures, however, f o r both foreign and American investors. W h i l e wre have some a u t h o r i t y to, and are s t i l l exploring whether we
should, propose appropriate disclosure rules i n this regard, legislation governi n g this subject m a t t e r appears preferable, since i t would resolve any doubts
about the existence, extent, scope and effectiveness of our a u t h o r i t y to compel
such disclosures.
S. 425, however, may not accomplish its goals. As presently drafted, the b i l l
f a i l s to accomplish its avowed purpose of p r o v i d i n g a comprehensive l i s t of the
names, residences and nationalities of beneficial owners. F o r example, an investor owning less t h a n five percent of the equity securities i n a large, publiclyowned U n i t e d States company may easily arrange to have the certificates evidenci n g such securities registered i n his name and have a l l dividend, annual reports
and proxy statements sent to a m a i l i n g address i n the United States. Since the
record holder is the beneficial owner and is not holding on behalf of another person, these provisions of S. 425 w o u l d be inoperative. I t should be noted that, i n
such a case, the public company's list of stockholders would only contain the
investor's name, his United States m a i l i n g address and the number of shares
owned. Thus, the public company would not know the n a t i o n a l i t y or residence of
such a foreign investor.
More i m p o r t a n t l y , we are concerned about the substantial costs t h a t would be
imposed on brokerage firms, banks, t r u s t companies and, especially, transfer
agents, as well as the issuing companies, i f the precise provisions of S. 425 were
enacted, since the b i l l w o u l d apply to a l l beneficial owners, even the owner of one
share of common stock. The burden of receiving so much m a t e r i a l w o u l d also
be severe on the Commission. Computer print-outs of stock records of widely-held
companies can easily fill a large file drawer, and there are some 9,000 companies
presently registered under the Exchange Act. I t is not unusual f o r a large company to have over 100,000 record holders of its common stock. A T & T has millions.
So much data is too expensive to collect and more t h a n anyone can effectively and
properly use.
I f the i n t e n t of this section of the b i l l is to elicit significant i n f o r m a t i o n regarding beneficial owners, the Congress should consider less burdensome, alternative means of accomplishing t h i s goal. A t the very least, the disclosure i n
filings should be limited, perhaps to the 20 or 30 largest holders, or any holder
of more t h a n some percentage such as 2 percent or 1 percent.
T h e problem i n obtaining meaningful disclosure of stock ownership has always
been record ownership by fiduciaries who feel constrained by l a w or custom or
good business practice, f r o m their point of view, to decline to disclose the identities of the persons f o r whom they hold the stock, except i n response to legal
process. Foreign fiduciaries, i n many cases, w i l l not even recognize our legal
process f o r this purpose. Most fiduciaries w i l l disclose the extent to w h i c h they
have the power to vote shares held i n their name or the names of t h e i r nominees,
but not the identity of any other person who holds the power solely or j o i n t l y
w i t h the fiduciary.
The idea of requiring fiduciaries to disclose t h e i r beneficiaries, or at least those
beneficiaries w i t h voting power, on a regular basis f o r public filings raises other
151
considerations t h a t must be carefully weighed. One is the long-standing tradit i o n and policy i n our l a w of protecting the privacy of private trusts. Compelling
the public disclosure of the portfolios of private trusts—even i f only to the extent
t h a t they hold equity securities of publicly-owned U.S. companies f o r which the
beneficiaries hold the voting power—is a fundamental departure f r o m our settled
norms. Of course, we have long since made this departure where the beneficiary
is a reporting person under Section 16 of the Securities Exchange Act or is otherwise a control person, or affiliate, of the portfolio company, or one who has acquired five percent a n d becomes subject to Section 1 3 ( a ) . B u t we are now considering a more drastic and far-reaching departure.
One approach m i g h t be to require such disclosure only when the shares constitute more than a specified percentage of the outstanding shares, but making
the percentage much lower than 10 percent or even 5 percent. One and two percent have been suggested. The theory, then, would be t h a t an investor can preserve privacy through a personal t r u s t and yet retain voting power so long as he
keeps his positions i n publicly-owned companies insignificant i n terms of voting
strength. Above that, public policy f a v o r i n g disclosure w i l l prevail over that
f a v o r i n g the privacy of personal investments.
Another consideration is one of competitive fairness among
fiduciaries—brokerdealers and t r u s t companies and U.S. and foreign banks. The foreign part of the
problem is not j u s t one of even application of the l a w as w r i t t e n , but also as enforced. T h i s Subcommittee is f a m i l i a r w i t h our long, and so f a r futile, efforts to
compel disclosure of bank customers i n some countries, even f o r purposes of
c r i m i n a l investigation. Here, S. 425 offers a device that m i g h t do the job, namely,
the disenfranchisement of the stock. S. 425, as presently drafted, would employ
this device only f o r violations of the screening provisions, but i t m i g h t also be
used to obtain disclosure, both foreign and domestic.
As I have stated, these proposals, although well-motivated, appear t o be too
all-encompassing f o r any reasonable use, and therefore should be revised. We are
not yet prepared to recommend specific legislation t o do this, although we hope
to be soon, a f t e r we have reviewed our voluminous hearing record.
S C R E E N I N G OF F O R E I G N I N V E S T O R S
S. 425 also would add a new Section 1 3 ( f ) to the Securities Exchange Act t o
require any foreign person, company or government to file w i t h the Commission a
confidential statement, containing certain specified information, 30 days i n advance of of any acquisition by which that foreign investor would own more than
five percent of any class of equity securities of any United States company w i t h
more than $1 m i l l i o n i n assets. The Commission would be required to transmit
the pre-acquisition statement to the President, w h o w o u l d be authorized to proh i b i t the acquisition i f he finds i t necessary t o protect the national security,
foreign policy or the domestic economy of the United States.
These proposed screening provisions involve significant national policy matters
w h i c h can only be decided by the Congress. The Subcommittee no doubt recognizes
that any deterrent to foreign investments i n the United States could have an adverse impact on the f u t u r e a b i l i t y of public companies to raise capital i n the
United States and could i m p a i r the f u t u r e depth and l i q u i d i t y of t r a d i n g markets
i n the securities of United States companies. M r . Bennett, Undersecretary of the
Treasury, gave some statistics i n his testimony yesterday w h i c h would indicate
t h a t at least i n the recent past the impact of the deterrent, w h i l e adverse, would
have been small. The f u t u r e possible impact, w h i l e difficult to estimate, is w h a t
must be considered.
S i m i l a r l y , legislation of this nature could lead to the enactment of s t i l l more
protectionist legislation by other countries which may i m p a i r the a b i l i t y of
United States companies to raise or invest capital abroad.
I n the past, the Commission has supported the enactment of the Foreign
Investment Study Act of 1974. Presently the Departments of Treasury and
Commerce are conducting an extensive study of foreign investments i n the United
States pursuant to t h a t Act. A n i n t e r i m report f r o m the Departments of Treasury
and Commerce to the Congress is due on or about November 1, 1975, and a final
report is due sometime around May 1, 1976. I f congress determines t h a t time
permits, i t may be appropriate to review the findings of the Commerce-Treasury
report p r i o r to the enactment of any screening legislation i n this area.
Nevertheless, i f the Congress should deem i t appropriate to adopt some type
of screening legislation at this time, we are troubled by the provisions prescribing our involvement i n the filing and consideration of pre-acquisition statements.
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F i r s t , proposed Section 1 3 ( f ) (1) ( C ) , on page 7 of S. 425, w o u l d require that,
" i n exercising its a u t h o r i t y . . . , the Commission shall consult and cooperate w i t h
the President to assure t h a t its actions are i n accordance w i t h the President's
powers and responsibilities w i t h respect to the activities of foreign investors i n
the U n i t e d States." W h i l e we acknowledge t h a t we are one logical repository f o r
pre-acquisition reports, i f required, we are troubled by the requirement t h a t we
"consult" w i t h the President i n c a r r y i n g out our functions. T h i s requirement w o u l d
t h r u s t us i n t o an area—the establishment of national foreign p o l i c y — i n w h i c h
we have no expertise. I f reports are to be required, and i f we are to receive
them, we prefer not to have any nonsecurities policy-making functions vested
i n us.
Second, the Commission m i g h t become enmeshed i n significant conflicts of
interest i f we are the repository f o r these pre-acquisition reports and the present provisions of the bill, relating to the confidentiality of these reports, are
maintained. F o r example, under this bill, the Commission could receive secret,
b u t material, i n f o r m a t i o n regarding a proposed acquisition of equity securities
of an issuer by a foreign investor w h i l e the Commission's staff is simultaneously
reviewing the adequacy of disclosures i n a filing relating to a public offering
of t h a t issuer's securities or relating to corporate actions to be adopted by a
vote of t h a t issuer's security holders.
Accordingly, the Commission requests that, i f the screening provisions of the
b i l l are enacted, and the Commission is designated as the repository f o r the preacquisition filings, the Commission be authorized to require the publication of
those reports i f we find i t necessary i n the interests of investors.
ENFORCEMENT
POWERS
S. 425 proposes to amend Section 21 of the Securities Exchange Act by adding
explicit sanctions—loss of voting powers or f o r c i n g the sale of any securities
acquired—against foreigners who f a i l to file a pre-acquisition report w i t h the
Commission. These sanctions would be enforceable not only by the Commission,
but by the Attorney General and any record holder of the equity securities of the
company whose shares are involved. The b i l l also proposes to make the a i d i n g
and abetting of any violation of the Securities Exchange Act a specific statutory
violation, as the federal courts repeatedly have held over the last ten or more
years.
As I noted earlier, we have been successful i n obtaining a variety of equitable
sanctions f o r violations of the provisions of the laws we administer. The specific
remedies proposed for violations of the screening provisions would, however, be
effective deterrents to such violations. B u t , i f the Congress intends to provide
e x p l i c i t l y f o r such remedies, we urge t h a t the Subcommittee extend these
remedies to a l l other provisions of the Act to w h i c h they may be relevant, to
avoid any confusion about the broad equity powers of the courts under the federal securities laws. N a t u r a l l y , i f such a change were made, i t would be inappropriate, we believe, to extend c i v i l enforcement powers to any e n t i t y or
person other t h a n the Commission and, i n appropriate instances, such as cases inv o l v i n g violations of the proposed beneficial ownership reporting requirements,
the issuing company might be given explicit standing to sue.
F i n a l l y , we strongly endorse the provisions of S. 425 m a k i n g the a i d i n g and
abetting of a violation of the Securities Exchange A c t an explicit v i o l a t i o n of
t h a t Act, although, as I have noted, under the cases construing the Act, a i d i n g
and abetting has always been deemed to be a violation of the Securities Exchange Act.
MEMORANDUM
OF T H E
SECURITIES
AND
EXCHANGE
COMMISSION,
MARCH
5,
1975
INTRODUCTION
As stated i n the purposes clause of the bill, S. 425 would amend the Securities Exchange Act of 1934 ("Exchange A c t " ) 1 to require notification by foreign
investors of proposed acquisitions of equity securities of U n i t e d States companies ; to provide notice to the President so t h a t he may take action to proh i b i t any such acquisition, as appropriate, i n the national i n t e r e s t ; and to provide a system by w h i c h issuers of securities registered under the Exchange A c t
115 U.S.C. 78a, et seq.
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can m a i n t a i n a list, to be filed w i t h the Securities and Exchange Commission
(the "Commission"), stating the names and nationalities of the beneficial owners of their equity securities.
ANALYSIS
OF T H E
BILL
The b i l l would amend and expand existing Section 13(d) of the Exchange A c t
to require, explicitly, t h a t statements of beneficial ownership of equity securities (Section 13(d) statements) must include i n f o r m a t i o n w i t h respect to the
beneficial owner's residence, nationality and financial status. Also, the Section
13(d) statement would be expanded to require i n f o r m a t i o n as to the background, identity, residence, and n a t i o n a l i t y of any person, other t h a n the beneficial owner who files the report, who possesses sole or shared a u t h o r i t y to exercise the voting r i g h t s evidenced by the securities being acquired.
As a means of obtaining i n f o r m a t i o n w i t h respect to acquisitions of equity
securities of " U n i t e d States companies" by "foreign investors," as those terms
are defined i n Section 2 of the bill, S. 425 also would require t h a t a Section
13(d)-type statement be filed confidentially w i t h the Commission 30 days i n
advance of any proposed transaction pursuant to which a foreign investor would
acquire beneficial ownership of more than 5 percent of a class of any equity
security of a U n i t e d States company w i t h more than $1 m i l l i o n of assets. This
provision would apply regardless of whether the U n i t e d States company has
securities registered under the Exchange Act. Once a foreign investor has filed a
statement w i t h the Commission, the b i l l states t h a t the Commission shall
t r a n s m i t the statement to the President f o r appropriate action. S.425 also would
vest a u t h o r i t y i n the President to p r o h i b i t acquisitions by foreign investors as
he deems appropriate to protect the national security, foreign policy or domestic
economy of the U n i t e d States.
The b i l l also creates a reporting structure pursuant to which certain issuers
of securities can compile lists of their beneficial owners. Thus, the b i l l imposes
an obligation on every holder of record, f o r another person, of any security described i n Section 13(d) to file certain reports w i t h the issuer. The content of
these reports w o u l d be subject to the Commission's rulemaking a u t h o r i t y and
would contain i n f o r m a t i o n such as the identity, residence and nationality of the
beneficial owner of such securities and any person, other t h a n the beneficial
owner, possessing sole or shared a u t h o r i t y to exercise the voting rights of the
securities. To provide necessary i n f o r m a t i o n by w h i c h the record holder may
compile the above statement, S. 425 would also impose a series of obligations
on each other person who stands as an intermediary holder between a record
holder and the beneficial owner. Each intermediary holder would be required to
f u r n i s h i n f o r m a t i o n to the person who holds f o r his account, and the information,
subject to the Commission's rulemaking a u t h o r i t y , would describe the identity,
residence, and n a t i o n a l i t y of the beneficial owner and any other person possessing
sole or shared voting a u t h o r i t y w i t h respect to such securities. Subject to the
Commission's rulemaking a u t h o r i t y , the issuer would be required periodically to
file w i t h the Commission a list of the beneficial owners of its equity securities.
W i t h respect to the advance notice requirement f o r acquisitions by foreign
investors of equity securities of a U n i t e d States company, S. 425 specifies sanctions and remedies f o r violations; the Commission, the Attorney General, a
U n i t e d States company i n which a foreign investor has acquired or proposes to
acquire an equity security or a holder of record of any equity security of such
a U n i t e d States company may b r i n g actions i n Federal d i s t r i c t court to enjoin
violations or enforce compliance by the foriegn investor. The b i l l also states
t h a t the court may order appropriate relief, including the revocation or suspension of voting rights of securities acquired by foreign investors i n violation of
new Section 1 3 ( f ) and the sale of any securities so acquired.
The b i l l defines the terms " U n i t e d States company" and "foreign investor"
and makes certain other revisions i n the Exchange A c t definitions of the terms
"person" and "company."
D E S C R I P T I O N OF T H E PRESENT L A W S C O N C E R N I N G A C Q U I S I T I O N S
Under Section 13(d) as i t presently exists, any person, directly or indirectly,
becoming the beneficial owner of more than five percent of any class of equity
securities registered w i t h the Commission pursuant to Section 12 of the Exchange
Act, or any equity security issued by a closed-end investment company, or of
certain equity securities of insurance companies, must file w i t h the Commission
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a n d send to the issuer a n d each exchange w h e r e t h e security is traded, a statem e n t c o n t a i n i n g i n f o r m a t i o n specified i n t h e subsection, a s w e l l as a n y a d d i t i o n a l
i n f o r m a t i o n t h e C o m m i s s i o n by r u l e m a y p r e s c r i b e . T h e Commission h a s adopted
a f o r m f o r t h i s purpose—Schedule 13D 2 —to specify the i n f o r m a t i o n r e q u i r e d
t o be filed. Schedule 13D m u s t be filed w i t h i n ten days f r o m the d a t e of the
acquisition. 3 T h e Schedule 13D is r e q u i r e d t o be amended p r o m p t l y i f any mater i a l change occurs i n t h e facts set f o r t h i n e a r l i e r filings.
U n d e r Section 1 2 ( i ) of the Exchange A c t , c e r t a i n banks a n d savings a n d l o a n
associations s a t i s f y c e r t a i n filing requirements u n d e r the Exchange A c t , i n c l u d i n g the requirements a r i s i n g p u r s u a n t t o Section 1 3 ( d ) , by filing specified f o r m s
w i t h a n d p u r s u a n t t o regulations of t h e F e d e r a l Reserve B o a r d , t h e C o m p t r o l l e r
of the Currency, the F e d e r a l Deposit I n s u r a n c e C o r p o r a t i o n a n d t h e F e d e r a l
H o m e L o a n B a n k B o a r d . A n d , p u r s u a n t t o P u b l i c L a w 93-495, those agencies
a r e generally r e q u i r e d to issue regulations s u b s t a n t i a l l y s i m i l a r to those prom u l g a t e d by the Commission p u r s u a n t t o Section 1 3 ( d ) a n d o t h e r sections of the
Securities Exchange A c t .
N e w T e r m s D e f i n e d i n 8 . J^25
"United States
company"
Section 2 of S. 425 defines the t e r m " U n i t e d States c o m p a n y " to mean a n y
c o r p o r a t i o n , l i m i t e d p a r t n e r s h i p or business t r u s t organized i n one of t h e U n i t e d
States, i t s t e r r i t o r i e s or possessions, as w e l l as any other " c o m p a n y " w i t h i t s
p r i n c i p a l place of business i n t h e U n i t e d States. T h u s , t h e provisions of t h e b i l l
applicable t o U n i t e d States companies w o u l d a p p l y t o a n y c o r p o r a t i o n , l i m i t e d
p a r t n e r s h i p o r business t r u s t organized u n d e r the l a w s of a state, t e r r i t o r y o r
possession of the U n i t e d States, even t h o u g h t h e e n t i t y ' s p r i n c i p a l place o f business is elsewhere. A n y o t h e r " c o m p a n y " w i l l be subject to t h e provisions of t h e
b i l l i f i t s p r i n c i p a l place of business is i n the U n i t e d States.
T h e d e f i n i t i o n of " U n i t e d States c o m p a n y " m i g h t be revised, however, t o
c l a r i f y t h a t a business organized or c h a r t e r e d u n d e r t h e l a w s of t h e U n i t e d
States (as d i s t i n g u i s h e d f r o m "one of the U n i t e d S t a t e s " ) is w i t h i n t h e definition.
"Foreign investor"
T h e b i l l also adds a new p r o v i s i o n to the E x c h a n g e A c t t o define t h e t e r m
" f o r e i g n i n v e s t o r " as meaning any of t h e f o l l o w i n g :
a n a t u r a l person resident outside the U n i t e d S t a t e s ;
a company other t h a n a U n i t e d States company ;
a f o r e i g n government, as described i n t h e b i l l ;
a U n i t e d States company t h a t is c o n t r o l l e d by any person described a b o v e ;
or
t w o or m o r e persons a c t i n g i n concert f o r t h e purpose of a c q u i r i n g , holding, v o t i n g , or disposing of securities, a t least one of w h o m is a " f o r e i g n "
person as described above.
T o c l a r i f y t h a t a " f o r e i g n I n v e s t o r " includes a U n i t e d States company w h i c h ,
t h r o u g h several tiers, is c o n t r o l l e d by a f o r e i g n company, i t is suggested t h a t
proposed Section 3 ( a ) (23) (4) be revised as f o l l o w s :
" ( 4 ) a U n i t e d States company c o n t r o l l e d d i r e c t l y or m d i r e c t l y b y a person
described i n p a r a g r a p h ( 1 ) , ( 2 ) , or (3) of t h i s subsection; o r " .
A m e n d m e n t toSection l S { d )
Section 3 of S. 425 adds several new disclosure requirements f o r statements
r e g a r d i n g e q u i t y securities acquisitions subject t o Section 1 3 ( d ) . 4 One of t h e
new provisions w o u l d r e q u i r e the Schedule 13D t o disclose t h e "residence a n d
n a t i o n a l i t y " of the person a c q u i r i n g the beneficial ownership. T h e purpose o f t h i s
new disclosure is t o e l i c i t p u b l i c l y - f i l e d i n f o r m a t i o n t o i d e n t i f y w h e t h e r f o r e i g n
interests a r e i n v o l v e d i n the Section 1 3 ( d ) acquisition, o r t h e Section 1 4 ( d )
tender offer. S. 425 w o u l d also amend Section 1 3 ( d ) t o r e q u i r e t h a t the Section
2
17 OFR 240.13d-101 ; the Schedule 13D report is also required to be filed In connection
with cash tender, offers subject to Section 14(d) and Rule 14d-l.
3
The Commission's staff is considering rulemaking to clarify the Schedule 13D filiner
retirements applicable to groups. Compare
Bath Industries Inc. v. Blot, 426 F. 2d 97
( C . A . 7, 1970) w i t h GAF Corp. v. Milstein. 453 F. 2d 709 (C.A. 2. 1971).
* The information requirements proposed to be added to Section 13(d) would apply
both to acquisitions subject to Section 13(d) and cash tender offers subject to Section 14(d).
155
1 3 ( d ) or 1 4 ( d ) statement include " f i n a n c i a l statements ( w h i c h m u s t be so certified i f r e q u i r e d by the Commission) of such person."
A l t h o u g h the Commission believes i t a l r e a d y has the a u t h o r i t y t o r e q u i r e such
disclosure u n d e r present l a w , wTe support the i n c l u s i o n of these provisions i n the
statute, recognizing t h a t the A c t vests discretion i n the Commission t o exclude
the r e p o r t i n g of such i n f o r m a t i o n i n a p p r o p r i a t e cases.
S. 425 also w o u l d a d d a new disclosure i t e m t o Section 1 3 ( d ) (1) to r e q u i r e
the Section 1 3 ( d ) a n d 1 4 ( d ) statements t o disclose i n f o r m a t i o n as to t h e v o t i n g
a u t h o r i t y f o r the securities acquired. N e w Section 1 3 ( d ) (1) ( F ) w o u l d r e q u i r e
i n f o r m a t i o n as t o :
" ( F ) the n u m b e r of shares of such security w i t h respect to w h i c h any person
( o t h e r t h a n the beneficial o w n e r ) possesses sole or shared a u t h o r i t y t o exercise
the v o t i n g r i g h t s evidenced by such securities a n d the background, i d e n t i t y ,
residence, a n d n a t i o n a l i t y of any such person."
T h e Commission recommends t w o changes to c l a r i f y t h e above provision. F i r s t ,
i t is recognized t h a t Schedule 13D presently requires i n f o r m a t i o n as t o a l l securities beneficially owned b y the person filing the r e p o r t — n o t j u s t as to the securities acquired i n the specific t r a n s a c t i o n w h i c h caused the five percent t h r e s h o l d
t o be exceeded. T h i s requirement is reflected i n I t e m 5 of Schedule 13D. 5
Second, a r e v i s i o n of the p a r e n t h e t i c a l phrase, " o t h e r t h a n the beneficial o w n e r , "
m i g h t be i n c l u d e d to c l a r i f y t h a t the subject of the p a r e n t h e t i c a l is intended to
be the person filing the statement.
T o i m p l e m e n t these t w o recommendations, we suggest the p r o v i s i o n be revised
as f o l l o w s :
" ( F ) as to the class of security acquired, the t o t a l n u m b e r of shares of t h a t
class beneficially owned by the person filing the s t a t e m e n t ; i f a n y other persons
possess sole or shared v o t i n g r i g h t s evidenced by such securities, the background,
i d e n t i t y , residence a n d n a t i o n a l i t y of such other persons.®
N e w Section 1 3 ( f )
T h e b i l l w o u l d a d d a new Section 1 3 ( f ) to the Exchange A c t to r e q u i r e a statement to be filed w i t h the Commission 30 days p r i o r to a n a c q u i s i t i o n by a f o r eign investor of beneficial ownership o f more t h a n five percent of any equity sec u r i t y of a U n i t e d States company w h i c h h a d t o t a l assets exceeding $1 m i l l i o n on
the last day of i t s most recent whole, fiscal year. T h e proposed new Section 13
( f ) (1) ( A ) w o u l d apply to proposed acquisitions o f e q u i t y securities of any
U n i t e d States company meeting the $1 m i l l i o n assets test a n d is not l i m i t e d to
issuers w i t h securities registered under Section 12 of the Exchange Act.
T h e r e q u i r e d statement w o u l d have to c o n t a i n the name of the U n i t e d States
company, the address of i t s p r i n c i p a l executive officers, a n d such o f t h e i n f o r m a t i o n specified i n Section 1 3 ( d ) a n d such a d d i t i o n a l i n f o r m a t i o n as the Commission by r u l e m a y specify as necessary or a p p r o p r i a t e i n the p u b l i c interest or f o r
the p r o t e c t i o n of investors. I n c a l c u l a t i n g the percentage o f beneficial ownership,
proposed new Section 1 3 ( f ) states t h a t securities held by or f o r the account of
the U n i t e d States company, o r a subsidiary t h a t m a y not vote the securities, s h a l l
be disregarded. Section 1 3 ( f ) (1) ( B ) w o u l d r e q u i r e the Commission t o t r a n s m i t
a copy of the Section 1 3 ( f ) statement to the President p r o m p t l y a f t e r filing a n d
specifies t h a t the statement shall not be disclosed to the public. Proposed Section
1 3 ( f ) (1) ( C ) w o u l d i n s t r u c t the Commission to consult a n d cooperate w i t h the
President to assure t h a t i t s actions are i n accordance w i t h the President's powers
a n d responsibilities w i t h respect to the a c t i v i t i e s of f o r e i g n investors i n the
U n i t e d States.
Section 1 3 ( f ) (2) w o u l d a u t h o r i z e the President, by order, w i t h i n the 30-day
period, to p r o h i b i t the proposed a c q u i s i t i o n i f he deems i t a p p r o p r i a t e f o r the
n a t i o n a l security, to f u r t h e r the f o r e i g n policy, or to protect the domestic economy
of the U n i t e d States. T h e section w o u l d require t h a t the President's actions be
t a k e n p u r s u a n t to rules a n d regulations prescribed by h i m , to include a p r o m p t no5
Item 5 requires a statement of the number of shares of the security which are beneficially owned, and the number of shares concerning: which there is a right to acquire,
directly or indirectly, by (i) such persons, and (ii) each associate of such person. Also,
information is required as to all transactions in the subject class of security during the
past 60 days by the person filing the statement and by its subsidiaries and their officers,
directors
and affiliated persons.
9
Since beneficial ownership would encompass voting rights, including shared voting
rights, this provision might require reports by more than one person with respect to the
same securities.
156
tice of any exercise of such a u t h o r i t y accompanied by a w r i t t e n s t a t e m e n t of the
reasons f o r his actions.
N e w Section 1 3 ( f ) is intended to give the President notice of s i t u a t i o n s i n
w h i c h f o r e i g n investors propose to acquire more t h a n 5 percent of a n y e q u i t y
securities of c e r t a i n U n i t e d States companies. These notice provisions w r ould n o t
a p p l y i f a f o r e i g n investor w e r e a c q u i r i n g a l l or a p o r t i o n of t h e assets of the
specified U n i t e d States company, n o r i f a f o r e i g n investor w e r e a c q u i r i n g a debt
interest i n such company. I n both of these situations, the f o r e i g n investor m a y be
a c q u i r i n g c o n t r o l of the business of a U n i t e d States company, yet t h e t r a n s a c t i o n
w o u l d be outside the r e p o r t i n g requirements of proposed Section 1 3 ( f ) (1) ( A )
a n d the P r e s i d e n t i a l a u t h o r i t y of proposed Section 1 3 ( f ) ( 2 ) .
Proposed Section 1 3 ( f ) also w o u l d apply to s i t u a t i o n s i n w h i c h a U n i t e d
States company undertakes d i r e c t l y to sell more t h a n 5 percent of i t s e q u i t y sec u r i t i e s to a f o r e i g n investor. V i e w e d i n t h i s l i g h t , the p r o v i s i o n m a y serve as a
depressant on the a b i l i t y of U n i t e d States companies t o raise needed c a p i t a l
t h r o u g h sales of securities.
W h i l e the Commission recognizes t h a t the above issues on Section 1 3 ( f ) involve policy questions t o be resolved by Congress, we are concerned t h a t o u r
responsibilities under Section 1 3 ( f ) m a y i n t e r f e r e w i t h , a n d i n some instances be
c o n t r a r y to our obligations under other provisions of the F e d e r a l securities laws.
F o r example, h a v i n g a Section 1 3 ( f ) statement filed w i t h the Commission b u t not
disclosed to the public could create difficulties i n s i t u a t i o n s i n w h i c h , f o r example,
the Commission is considering a request f o r acceleration of a r e g i s t r a t i o n statement under the Securities A c t of 1933 f o r the issuer involved. 7 Also, Section
1 3 ( f ) specifies t h a t the Commission shall r e q u i r e t h a t the Section 1 3 ( f ) statement c o n t a i n i n f o r m a t i o n "necessary or a p p r o p r i a t e i n the p u b l i c i n t e r e s t or f o r
the p r o t e c t i o n of investors" but the Commission is also responsible to t h e President to consult a n d cooperate to assure t h a t Commission actions are " i n accordance w i t h the President's powers a n d responsibilities w i t h respect to t h e a c t i v i t i e s
of f o r e i g n investors i n t h e U n i t e d States" (emphasis a d d e d ) . These s t a n d a r d s are
not p a r a l l e l a n d i n c e r t a i n s i t u a t i o n s may c o n t r a d i c t one another.
As t o more technical comments on Section 1 3 ( f ) , we note the f o l l o w i n g p o i n t s :
(1) Since the section applies to a l l U n i t e d States companies m e e t i n g t h e
assets test, consideration m i g h t be given t o the i n c l u s i o n of a p r o v i s i o n r e l a t i n g
t h e scope of Section 1 3 ( f ) t o the i n t e r s t a t e commerce clause a n d other j u r i s d i c t i o n a l means specified i n Section 12 of the Exchange A c t ;
(2) I t is not clear w h e t h e r the t e r m " a c q u i r e " is intended to a p p l y to passive
or i n v o l u n t a r y acquisitions such as exchanges of securities i n mergers, i n h e r i t ances, stock dividends, conversions of securities, a n d r i g h t s offerings.
(3) I t is unclear w h y a f o r e i g n investor should file a statement c o n t a i n i n g t h e
" n a m e of U n i t e d States company a n d t h e a d d r e s s of i t s p r i n c i p a l e x e c u t i v e
o f f i c e r s " , unless the t e r m "offices" is intended i n l i e u of "officers." 1
(4) T h e i m p o s i t i o n of the r e q u i r e m e n t of t h i s subsection a n d the r e m a i n d e r
of t h i s section on non-resident citizens w h o are defined as " f o r e i g n i n v e s t o r s "
w o u l d appear to make t h i s p r o v i s i o n v u l n e r a b l e to a t t a c k u n d e r the due process
clause of the F i f t h Amendment, especially i n the absence of a c l e a r l y i n d i c a t e d
a n d defined purpose f o r the d i s c r i m i n a t i o n premised on the n a t i o n a l interest.
(5) T h i s subsection implies t h a t i f the President does n o t a c t w i t h i n t h e 30day period, the proposed a c q u i s i t i o n w o u l d be deemed approved. I f such is the case,
perhaps a sentence to t h a t effect should be i n c l u d e d i n the statute.
T h e Commission requests t h a t , i f the screening provisions of the b i l l a r e
enacted, a n d the Commission is designated as the repository f o r the pre-acquisit i o n filings, the Commission be a u t h o r i z e d to r e q u i r e the p u b l i c a t i o n of those reports i f we find i t necessary i n the interests of investors.
N e w Section 1 4 ( 9 )
T h e b i l l adds a new Section 1 4 ( g ) to the Exchange A c t to establish a system
by w h i c h beneficial o w n e r s h i p of an issuer's securities m a y be determined. U n d e r
Section 1 4 ( g ) (1) ( A ) , every record holder of any security of a class described
7
Under Section 8 of the Securities Act, the Commission may accelerate the effective
date of a registration statement:
having due regard to the adequacy of information respecting the issuer theretofore
available to the public, to the facility with which the nature of thf* securities to be
registered, their relationship to the capital structure of the issuer and the rights of
holders thereof can be understood, and to the public interest and the protection of
investors.
157
i n Section 13(d) (1) is required t o file reports w i t h the issuer reflecting informat i o n as to the identity, residence and n a t i o n a l i t y of the beneficial owner of such
securities, and any person (other t h a n the beneficial owner) possessing sole or
shared a u t h o r i t y to exercise the voting rights evidenced by the securities. When
beneficial ownership is several steps or more removed f r o m the record holder,
Section 14(g) (1) ( B ) requires every person for whom a second person is holding any such security who, i n turn, is holding such securities f o r the account of
a t h i r d person, to file reports w i t h such second person containing essentially the
same i n f o r m a t i o n described above. The b i l l gives the Commission rulemaking
a u t h o r i t y to specify the precise i n f o r m a t i o n to be f u r n i s h e d to the issuer and
to intermediate holders. The b i l l requires the issuer to file a l i s t of its beneficial
owners w i t h the Commission i n such f o r m and at such times as the Commission
by rule may prescribe, but i n no event shall the list be field less frequently than
annually or more frequently t h a n quarterly. Section 14(g) applies to any secur i t y of a class described i n Section 13 (d) ( 1 ) , w h i c h includes :
any equity security of a class which is registered pursuant to Section 12 of
this title, or any equity security of an insurance company which would
have been required to be so registered except f o r the exemption contained
i n Section 1 2 ( g ) ( 2 ) ( G ) of this title, or any equity security issued by a
closed-end investment company . . .
As presently drafted, proposed Section 14(g) on i t s face may result i n a disclosure hiatus as to persons who are both record and beneficial owners. A l l substantive provisions of Section 14(g) w h i c h impose disclosure obligations on
record holders apply only when the record holder is holding the security " f o r
the account of another person" or when he is an intermediary h i d i n g the securities " f o r the account of a t h i r d person." I f a person holding less than five percent of the securities i n issue is both a record holder and beneficial owner of
those securities, Section 14(g) imposes no disclosure obligation on h i m to so
advise the issuer. I n t h i s respect, the provision is workable as d r a f t e d only i f the
issuer may assume i n the preparation of i t s report to be filed w i t h the Commission, t h a t each (record holder is the beneficial owner, unless the issuer receives
a report f r o m the record holder to the contrary. However, even on t h a t assumption, there w o u l d be no provision f o r disclosure of the n a t i o n a l i t y or residence
of the record/beneficial owner.
More i m p o r t a n t l y , we are concerned about the substantial costs t h a t would
be imposed on brokerage firms, banks, trust companies and, especially, transfer
agents, as well as the issuing companies, i f the precise provisions of S. 425
were enacted, since the b i l l would apply to a l l beneficial owners even the owner
of one share of common stck. The burden of receiving so much material would
also be severe on the Commission. Computer print-outs of stock records of widelyheld companies can easily fill a large file drawer. I t is not unusual f o r a large
company to have over 100,000 record holders of its common stock. A T & T has
millions. So much data is too expensive to collect and is more i n f o r m a t i o n than
anyone can effectively and properly use.
I f the intention of this section of the b i l l is to elicit significant i n f o r m a t i o n
regarding beneficial owners, the Congress should consider less burdensome,
alternative means of accomplishing t h i s goal. A t the very least, the disclosure
i n filings should be limited, perhaps to the 20 or 30 largest holders, or any holder
of more t h a n some percentage such as 2 percent or 1 percent.
The problem i n obtaining meaningful disclosure of stock ownership has always
been record ownership by fiduciaries who feel constrained by l a w or custom or
good business practice, f r o m their point of view, t o decline to disclose the identities of the persons f o r w h o m they hold the stock, except i n response to legal
process. Foreign fiduciaries, i n many cases, w i l l not even recognize our legal
process f o r this purpose. Most fiduciaries w i l l disclose the extent to which they
have the power to vote shares held i n their name or the names of their nominees,
but not the i d e n t i t y of any other person who holds the power solely or j o i n t l y
w i t h the fiduciary.
The idea of r e q u i r i n g fiduciaries to disclose t h e i r beneficiaries, or at least
those beneficiaries w i t h v o t i n g power, on a regular basis f o r public filings raises
other considerations t h a t must be carefully weighed. One is the long-standing
t r a d i t i o n and policy i n our l a w of protecting the privacy of private trusts. Compelling the public disclosure of the portfolios of p r i v a t e trusts—even i f only to
the extent t h a t they hold equity securities of publicly-owned U.S. companies f o r
which the beneficiaries hold the voting power—is a fundamental departure f r o m
our settled norms. Of course, we have long since made t h i s departure where the
5 8 - 5 2 7 O - 75 - 11
158
beneficiary is a r e p o r t i n g person under Section 16 of the Securities Exchange
A c t or is o t h e r w i s e a c o n t r o l person, or affiliate, of the p o r t f o l i o company, b u t w e
are n o w considering a more d r a s t i c a n d f a r - r e a c h i n g departure.
One approach m i g h t be to r e q u i r e such disclosure only w h e n the shares cons t i t u t e more t h a n a specified percentage of the o u t s t a n d i n g shares, b u t m a k i n g
the percentage m u c h l o w e r t h a n 10 percent o r even 5 percent. One a n d t w o
percent have been suggested. T h e theory, then, w o u l d be t h a t a n i n v e s t o r can
preserve p r i v a c y t h r o u g h a personal t r u s t a n d yet r e t a i n v o t i n g power so l o n g
as he keeps h i s positions i n p u b l i c l y - o w n e d companies i n s i g n i f i c a n t i n t e r m s of
v o t i n g strength. Above t h a t , p u b l i c policy f a v o r i n g disclosure w i l l p r e v a i l over
t h a t f a v o r i n g the p r i v a c y of personal investments.
A n o t h e r consideration is one of c o m p e t i t i v e f a i r n e s s among
fiduciaries—
broker-dealers a n d t r u s t companies and U.S. a n d f o r e i g n banks. T h e f o r e i g n p a r t
of the p r o b l e m is n o t j u s t one of even a p p l i c a t i o n of the l a w as w r i t t e n , b u t also
as enforced. T h i s Subcommittee is f a m i l i a r w i t h our long, a n d so f a r f u t i l e ,
e f f o r t s t o compel disclosure of bank customers i n some countries, even f o r p u r poses of c r i m i n a l i n v e s t i g a t i o n . Here, S. 425 offers a device t h a t m i g h t do the
job, namely, the disenfranchisement of the stock. S. 425, as presently d r a f t e d ,
w o u l d employ t h i s device only f o r v i o l a t i o n s of the screening provisions, b u t i t
m i g h t also be used to o b t a i n disclosure, both f o r e i g n a n d domestic.
These proposals, a l t h o u g h w e l l - m o t i v a t e d , appear to be too all-encompassing
f o r a n y reasonable use, a n d therefore should be revised. W e are not yet p r e p a r e d
to recommend specific l e g i s l a t i o n to do this, a l t h o u g h w e hope t o be soon, a f t e r
wTe have reviewed o u r v o l u m i n o u s h e a r i n g record.
Remedies and Enforcement Provisions
Section 5 of S. 425 amends Section 21 of the E x c h a n g e A c t t o state t h a t the
Commission, the A t t o r n e y General, a U n i t e d States company i n w h i c h a f o r e i g n
i n v e s t o r has acquired or proposes to acquire a n e q u i t y security, or a holder of
record of any e q u i t y security of such a U n i t e d States company, m a y b r i n g a n
a c t i o n i n a d i s t r i c t court of the U n i t e d States to e n j o i n a f o r e i g n i n v e s t o r f r o m
v i o l a t i n g or t o enforce compliance by such f o r e i g n investor w i t h t h e provisions
of Section 1 3 ( f ) . I n l i e u of U n i t e d States d i s t r i c t courts, a c t i o n m a y also be
b r o u g h t i n a c o u r t of general j u r i s d i c t i o n , however, designated, i n any place,
other t h a n a State, under the j u r i s d i c t i o n of t h e U n i t e d States. On proper showings, the c o u r t shall g r a n t a p p r o p r i a t e r e l i e f i n the f o r m o f r e s t r a i n i n g orders
a n d i n j u n c t i o n s and orders to enforce compliance. Also, the b i l l states t h a t the
c o u r t m a y order the revocation or suspension f o r a n y specified p e r i o d of t h e
v o t i n g r i g h t s evidenced by t h e securities a c q u i r e d by t h e f o r e i g n i n v e s t o r i n
v i o l a t i o n of Section 1 3 ( f ) , a n d the sale o f any securities so acquired. T h e b i l l
w o u l d also a d d a new Section 2 1 ( h ) to state t h a t i t is u n l a w f u l , f o r purposes o f
Sections 2 1 ( e ) , ( f ) a n d ( g ) , f o r any person t o cause, command, induce, p r o c u r e
or give s u b s t a n t i a l assistance to the commission of a n act o«r practice c o n s t i t u t i n g
a v i o l a t i o n of the Exchange Act.
Section 6 of S. 425 adds a p r o v i s i o n t o Section 32 of the E x c h a n g e A c t t o
specify a p e n a l t y of $1,000 per day against any f o r e i g n investor w h o f a i l s t o
file a statement r e q u i r e d under Section 1 3 ( f ) .
W e have been successful i n o b t a i n i n g a v a r i e t y of equitable sanctions f o r viol a t i o n s of the provisions of t h e l a w s we a d m i n i s t e r . T h e specific remedies proposed
f o r v i o l a t i o n s of the screening provisions w o u l d , however, be effective d e t e r r e n t s
to such violations. B u t , i f the Congress intends t o p r o v i d e e x p l i c i t l y f o r such
remedies, we urge t h a t t h e Subcommittee extend these remedies t o a l l o t h e r provisions of the A c t to w T hich they m a y be relevant, to avoid any confusion about
t h e b r o a d equity powers of the courts u n d e r the f e d e r a l securities laws. N a t u r a l l y ,
i f such a change w e r e made, i t w o u l d be i n a p p r o p r i a t e , we believe, t o e x t e n d
c i v i l enforcement powers to any e n t i t y or person other t h a n the Commission, and,
i n a p p r o p r i a t e instances, such as cases i n v o l v i n g v i o l a t i o n s of the proposed beneficial o w n e r s h i p r e p o r t i n g requirements, the issuing company m i g h t be g i v e n
e x p l i c i t s t a n d i n g t o sue.
F i n a l l y , w e strongly endorse the provisions of S. 425 m a k i n g the a i d i n g a n d
a b e t t i n g of a v i o l a t i o n of t h e Exchange Act an e x p l i c i t v i o l a t i o n of t h a t A c t ,
a l t h o u g h u n d e r t h e cases c o n s t r u i n g the A c t , a i d i n g and a b e t t i n g has a l w a y s been
deemed to be a v i o l a t i o n .
Senator S T E V E N S O N . We have one more witness. O u r next witness,
I am told, is not here yet. He is about t o arrive. We w i l l have t o recess
temporarily.
1035
[Whereupon, a short recess was taken.]
Senator S T E V E N S O N . The meeting of the subcommittee w i l l come
back to order.
Our final witness is M r . A n t o n i n Scalia, Assistant Attorney General,
Office of Legal Counsel, Department of Justice.
M r . Scalia, you are welcome to either read, or i f you prefer i n the
interest of saving time, to condense this statement. I would be glad to
enter i t into the record.
STATEMENT OF ANTONIN SCALIA, ASSISTANT ATTORNEY GENERAL, OFFICE OF LEGAL COUNSEL, DEPARTMENT OF JUSTICE,
ACCOMPANIED BY DAVID MARBLESTONE, STAFF ATTORNEY
M r . S C A L I A . That's fine.
Senator, I have w i t h me David Marblestone. He is a staff attorney
i n the Office of Legal Counsel.
I want to apologize for not being here when the last witness finished,
but I kept in touch w i t h your staff, and I was told that 1 o'clock would
be the time.
Senator S T E V E N S O N . I am grateful for your presence.
M r . S C A L I A . I f you are agreeable, I w i l l skip over that portion of
my testimony which deals w i t h the existing state of the law w i t h
respect to civil rights and the antitrust. That is testimony that I have
given i n other hearings. A n d I w i l l leave that to you and your subcom
mittee members to read.
Senator S T E V E N S O N . Fine. The f u l l statement w i l l be entered into the
record.
M r . S C A L I A . I would like to move directly, then, to an analysis of
the two pieces of legislation which the committee asked the Justice
Department to comment upon. F i r s t of all, amendment No. 24 to S. 425.
Although my purpose in this testimony is not to discuss the b i l l i n its
entirety, I t h i n k I have to lay a little bit of background so that the
amendment can be understood. S. 425 would amend the Securities and
Exchange A c t of 1934. Section 3(a) of the b i l l would add to section
13 of the act a requirement that any person who, after acquiring—
registered—equity securities of a U.S. company, owns more than 5 percent of any class of such securities must file w i t h the Securities and
Exchange Commission a statement setting forth, inter alia, the person's
nationality. Under section 3(b) of the bill, i t would be unlawful for
any foreign investor to acquire equity securities of a U.S. company i f ,
after the acquisition, the investor would own more than 5 percent of
any class, unless the investor notifies the SEC of the proposed acquisition at least 30 days i n advance. The b i l l further provides that, w i t h i n
30 days of such notice, the President is authorized to prohibit the proposed acquisition for reasons of national security, foreign policy or
protection of the U.S. economy.
T u r n i n g now to amendment No. 24: This would add to the b i l l a
provision stating that the President shall prohibit the acquisition i f
he determines that w i t h i n 1 year of the filing of the notice, the foreign
investor seeking the acquisition has engaged i n any of the following
types of conduct :
( A ) Causing, or attempting to cause, any person—other than a
person of the investor's country—not to do business with, or otherwise
to discriminate against, any U.S. company because of the latter's sup-
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port for a dealings w i t h ( i ) any foreign government w i t h w h i c h the
U n i t e d States hase diplomatic relations or ( i i ) any person resident i n
or dealing w i t h any country w i t h whose government the U n i t e d States
has diplomatic relations.
( B ) Causing, or attempting to cause, any U.S. company w i t h respect
to its business i n any c o u n t r y — w i t h l i m i t e d exceptions—not to do business w i t h , or otherwise discriminate against, any person—with l i m i t e d
exceptions—because of such person's support f o r o r dealings w i t h ( i )
any foreign government w i t h w h i c h the U n i t e d States has diplomatic
relations or ( i i ) any person resident i n or dealing w i t h any country
w i t h whose government the U n i t e d States has diplomatic relations.
The amendment i m p o r t a n t l y would also add a provision authorizing
the SEC, the Attorney General or any aggrieved person t o b r i n g a
divestiture action against a foreign investor, owning more t h a n 5 percent of any class of equity securities of a U.S. company, which causes
the company to engage i n the type of conduct described above.
L e t me note at the outset that the Department of Justice is opposed
to amendment No. 24. O u r opposition goes to the basic concept of the
amendment, as well as to its language or technical aspects.
I presume, to begin w i t h , that the amendment would not mandate
Presidential denial of an acquisition i n any case. F o r although i t states
that the President "shall p r o h i b i t , " this prescription applies only " i f
he determines" that certain facts exist; and there is no requirement
that such a determination be made i n any circumstance. I t is up to the
President, apparently, to decide when suspicion of such prohibited
activities is sufficient to warrant f u r t h e r investigation, and whether,
such investigation having been completed, the requisite determination, f o r factual or policy reasons, ought not to be made. I f , at least,
i t is the intent of the drafters of this provision to mandate Presidential
action, different language should be used. W e would opopse such a
change, since i n our view any matter such as this, i n v o l v i n g significant foreign policy ramifications, should not be treated on a categorical,
inflexible basis, but should enable consideration of the innumerable
relevant factors, i n the exercise of Presidential discretion. This is the
approach taken by the other provisions of S. 425, and we t h i n k i t no
less v a l i d here. F o r purposes of the prohibitions which the amendment
imposes, i t is simply unrealistic to treat all nations w i t h whom we
happen to have diplomatic relations—or w i t h whom the boycotting
country has diplomatic relations—as equivalent, and a l l situations i n
which the boycotting practice may arise as alike.
O f course, the reasons just recited against rendering the Presidential
nction portion of the amendment mandatory argue f o r opposing ent i r e l y that portion of the amendment which gives a cause of action to
private citizens or to the Commission—which, w i t h respect to such
action, would apparently not be subject to the direction of the President—to require divestiture. Once again, i t makes no sense to treat
a l l foreign countries which we recognize and a l l economic pressures
of this sort as invariably the same. I n the l i g h t of our overall foreign
policy and the many subtle considerations affecting our diplomatic interests, i t must be l e f t to the President—if any restrictions of this sort
are desirable—to apply them selectively where necessary.
A major problem w i t h the present proposal is the vagueness and
complexity of the provisions of the amendment. This can be illustrated
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by describing, through direct quotes f r o m the amendment, one type of
proscribed conduct: Acquisition by a foreign investor could be prevented i f , w i t h i n the pertinent period—
A n y person controlling * * * such foreign investor has, directly or indirectly * » * attempted * * * to cause • • * any U n i t e d States company w i t h
respect to its business i n any country * * * to subject to economic loss * • *
any person * * * i n order to deter such person * * * f r o m , directly or indirectly,
supporting * * * any person resident or operating i n * * * any country w i t h
whose government the U n i t e d States has diplomatic relations.
Comprehending such a statute would be difficult even f o r the persons
responsible f o r enforcing i t , not to mention the foreign investors who
would be bound by it. The problem is not, I t h i n k , merely imprecision
or inexactitude of language, which could be remedied. Rather, the very
relationships, motives and effects that are sought to be addressed are
so subtle, so variable, so easily confused w i t h or mistaken for other
phenomena, that any attempt to reach them and only them by legislative language seems doomed to failure. I t is not a practically—much
less a theoretically—satisfactory answer to say that the Government
would only choose to invoke the vague provisions i n those cases which
do exemplify the evils we seek to avoid. The matter is not w i t h i n the
control of the Government alone, since divestiture actions by private
parties would be authorized. I t is entirely predictable that unavoidably
broad language would lead to a considerable volume of vexatious
litigation.
Related to the problem of vagueness is the matter of overbreadth.
1 w i l l explain shortly why we do not consider the amendment to be
an appropriate response to the A r a b boycott. However, the broad
terms of the amendment go f a r beyond the A r a b boycott.
F o r example, paragraph ( A ) relating to discrimination against a
U.S. company would encompass the f o l l o w i n g hypothetical situation:
A Greek company advises a Canadian subsidiary not to do business w i t h a U.S. f i r m because the U.S. f i r m is selling arms to the
Government of Turkey.
The issue here is not whether such conduct on the part of the Greek
company is desirable. The issue is whether such conduct should make
i t impossible f o r the Greek company to make any substantial investment i n the securities of U.S. companies. We see no proper basis f o r
categorically imposing such a sanction, a sanction that i n most cases
would be completely unrelated to the underlying conduct—in the
hypothetical, the advice of the Canadian subsidiary. T h a t is, I t h i n k ,
the p r i n c i p a l p o i n t : The punishment does not fit the crime. I n the
context of the A r a b boycott, i t may seem plausible that a company
which has acted i n this fashion once w i l l do so repeatedly. T h a t is simp l y not the case, however, w i t h respect to most of the situations which
the provision w i l l cover so that the sanction of possible prevention of
investment and of mandatory divestiture is vastly disproportionate, i f
indeed any sanction is desirable at all.
The same k i n d of problem is presented by paragraph ( B ) , which
pertains to a foreign investor which has caused a U.S. company to
discriminate. This provision would apply, f o r example, to the followi n g situation:
A Swiss manufacturer of watches seeks to prevent a U.S. wholesaler f r o m dealing w i t h a Mexican retailer because the retailer
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sells watches manufactured by a Mexican firm. The reason f o r the
action of the Swiss company is that the Mexican manufacturer
has improperly used the trademark of the Swiss company.
The point which I wish to make here is that the amendment's sanctions would apply even though the basis f o r the discrimination was
i m m o r a l or even illegal conduct on the p a r t of the ultimate object of
the discrimination.
O f course, i t should be apparent that this legislation would impose
upon foreign investors restrictions which we do not place upon our
own citizens. Such differentiation is not always inappropriate, but one
wonders whether i n this instance the results can be supported.
Consider, f o r example, the f o l l o w i n g hypothetical situation:
A Canadian investor owns more than 5 percent of the shares of
a U.S. corporation that manufactures photographic equipment.
A group of American shareholders opposed to the racial policies
of the Government of South A f r i c a , seeks to terminate the corporation's dealings w i t h a South A f r i c a n f i r m which provides
substantial support to the Government of South A f r i c a . T h i s
action on the p a r t of the American shareholders is entirely permissible, B u t should the Canadian investor j o i n the effort, he
would be vulnerable to a divestiture suit, whether or not the effort
succeeds.
Beyond being inconsistent w i t h our domestic treatment of our
own investors, the present proposal is inconsistent w i t h the standard
of behavior which we have set f o r American investors abroad. N o t
only do we permit American investors abroad to engage i n conduct
which, i f performed by foreigners in this country, would violate this
b i l l : but some circumstances we positively require it, The Foreign
Assets Control Regulations, 31 C F R 500.101-500.800, issued by the
Treasury Department under the T r a d i n g w i t h the Enemy Act restrict
transactions w i t h certain countries by American-controlled foreign
firms. The nature of these restrictions is such that i f foreign investors
were to observe w i t h i n the U n i t e d States similar restrictions imposed
by their governments ( w i t h respect to countries w i t h whose governments we have diplomatic relations) they would be i n violation of
paragraph ( B ) of the present bill. I t is surely strange to prohibit on
the part of foreign investors in the U n i t e d States action which we not
only permit, but requires on the part of American investors abroad.
W h i c h suggests a f u r t h e r p o i n t : before we put f o r w a r d the provisions
of the present b i l l as a new standard of behavior f o r foreign investment, we had best consider carefully whether that new standard i f
generally adopted would h u r t anyone more than ourselves. I suspect
it would not.
W h i l e producing all these untoward side effects, the proposed b i l l
w i l l i n fact not reach the most effective manifestations of the A r a b
boycott, B y reason of the parenthetical exceptions in both paragraph
( A ) and paragraph ( B ) of the additions to section 1 3 ( f ) , the followi n g would not be included w i t h i n the category of prohibited a c t i v i t y :
A r a b Government direct pressure (through stock ownership or otherwise) upon U.S. companies to cease doing business i n Israel: A r a b
Government and A r a b business pressure upon businesses i n A r a b
countries not to trade w i t h American companies that support Israel.
F r a n k l y , however, what concerns me more than the fact that the
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present b i l l would not reach all significant manifestations of the A r a b
boycott is the fact that we have no real assurance of what its effect
w i l l be w i t h respect to those boycott activities i t does reach. I t seems
to me unwise to enact legislation of this sort without such assurance.
Sometimes, to be sure, we find certain activities so inherently repugnant that we may be w i l l i n g to move against them w i t h m i n i m a l
regard for the practical consequences. This is the case, for example,
w i t h respect to certain racial or religious discrimination which is
alleged to have accompanied the A r a b boycott. B u t the sort of discrimination which this b i l l addresses is not w i t h i n that inherently
repugnant category as is sufficiently indicated by the fact that our
laws not only permit, but sometimes require our own citizens to engage i n similar activities abroad.
The test of the desirability of the present legislation, therefore,
must be its desirable practical consequences. Though I w i l l leave more
intensive discussion of that issue to those agencies such as Department
of Commerce which have special expertise i n the field, I may simply
note that we are unaware of any careful examination which would
demonstrate that these provisions w i l l result i n a relaxation of the
A r a b boycott rather than the mere w i t h d r a w a l of A r a b investment
f r o m the U n i t e d States economy.
I move now to consideration of S. 958. This b i l l would amend the
E x p o r t A d m i n i s t r a t i o n A c t of 1969, as amended, i n several respects.
1. A t present, subsection 3(5) of the act's policy section, 50 U.S.C.A.
A p p . 2402 (5), provides as follows:
(5) I t is the policy of the U n i t e d States ( A ) to oppose restrictive trade practices or boycotts fostered or imposed by foreign
countries against other countries f r i e n d l y to the U n i t e d States,
( B ) to encourage and request domestic concerns engaged i n . . .
[exporting] to refuse to take any action, including the furnishi n g of i n f o r m a t i o n or the signing of agreements, which has the
effect of f u r t h e r i n g or supporting . . . [such] restrictive trade
practices or boycotts . . . , and (C) to foster international cooperation and the development of international rules and institutions
to assure reasonable access to w o r l d supplies.
Section 1 of the present b i l l would amend the foregoing provision
so that i t would refer to restrictive trade practices and boycotts
imposed against " U n i t e d States concerns and other countries f r i e n d l y
to the U n i t e d States." A d d i t i o n of the reference to " U n i t e d States
concerns" seems unobjectionable, but it obviously adds nothing to the
powers which can be applied against the A r a b boycott which, i n all
its aspects, is avowedly directed against Israel.
2. The present section 4 ( b ) (1) of the act provides that to effectuate
the policies set f o r t h i n section 3 of the act, the President may prohibit
or curtail exports f r o m the U n i t e d States, except under rules and regulations prescribed by the President. This paragraph f u r t h e r provides
that the rules and regulations shall require that all domestic concerns
receiving requests f o r the f u r n i s h i n g of information or the signing
of an agreement of the type specified i n section 3(5) must report the
requests to the Secretary of Commerce " f o r such action as he may
deem appropriate to carry out the purposes of . . . [section 3 ( 5 ) ] . "
B y section 2 of the present b i l l , that provision would be amended
to direct that the regulations require any domestic concern receiving
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a request f o r boycott information, et cetera, to report to the Secretary
of Commerce the fact of the request and i n addition "any other i n f o r mation which the Secretary may require regarding such request and
intended compliance therewith." F u r t h e r , the b i l l would substitute
f o r the present language concerning post-report action by the Secret a r y the f o l l o w i n g :
F o r such action as the President may deem appropriate to
carry out the policy of . . . [section 3(5) J, including the curtailment by any U n i t e d States concern o f exports to, investments in,
or any other economic transactions w i t h countries which impose
boycotts or engage i n restrictive trade practices as specified i n . . .
[section 3 ( 5 ) ] .
The Department of Justice opposes section 2 of the b i l l on the ground
that i t is unnecessary.
A s noted above, one effect of the b i l l would be to describe i n more det a i l the k i n d of i n f o r m a t i o n which the Secretary of Commerce could
require. I f our understanding of the b i l l is correct, however, i t w o u l d
not mandate that the Secretary require i n f o r m a t i o n on intended compliance w i t h a request for information, but would merely give h i m
express authority to require it.
The current regulation of the Secretary of Commerce does not require the IT.S. exporter to state whether i t intends to comply w i t h
the request f o r boycott information. B u t i t is i n our view clear t h a t
the present statute authorizes the Secretary to make the f u r n i s h i n g
of such information mandatory. Whether or not i t should be required
is w i t h i n the discretion of the Secretary, and the existence of such
discretion would not be altered by S. 953.
I n that respect, therefore, I do not see that the b i l l makes any change.
The other main aspect of section 2 of the b i l l relates to the k i n d of
action which may be taken by the executive branch upon learning of a
request f o r boycott-type information. Here also, i t does not appear
that the b i l l would expand existing authority. The E x p o r t Administ r a t i o n A c t itself already grants the President authority to effectuate
the policies of the act by p r o h i b i t i n g or c u r t a i l i n g exports. The power
to c u r t a i l investments by U.S. concerns i n foreign countries or other
economic transactions w i t h foreign countries is provided by the T r a d i n g w i t h the Enemy Act. I n view of the foregoing provisions, there
would seem to be no need to add to the E x p o r t A d m i n i s t r a t i o n A c t the
more detailed language regarding steps which may be taken by the
President.
A s you must be aware, serious foreign policy costs w i l l attend any
legislative action w i t h respect to the A r a b boycott. Perhaps the most
important of them is the danger that the U n i t e d States w i l l be regarded
as adopting an anti-Arab international policy at a time when we are
t r y i n g to mediate a lasting peace i n the M i d d l e East. I t is h a r d l v
worthwhile to undergo this risk for the purpose of enacting a piece of
legislation which is fact has no significant practical effect. F o r this
reason, the Department of Justice cannot support adoption of S. 953.
M r . Chairman, that concludes my statement. I would be glad to respond to any questions you may have.
[ T h e complete statement of M r . Scalia and an additional letter
subsequently received f o r the record f o l l o w : ]
165
T E S T I M O N Y OF A N T O N I N S C A L I A , A S S I S T A N T A T T O R N E Y G E N E R A L , O F F I C E OF
LEGAL COUNSEL
M r . C h a i r m a n a n d Members of the S u b c o m m i t t e e : I a m pleased t o present the
views of the D e p a r t e n t of Justice r e g a r d i n g t w o of the measures w h i c h are tl c
subject of these hearings, A m e n d m e n t No. 24 to S. 425, a n d S. 953. I n accord
w i t h y o u r request, I w i l l begin w i t h a discussion of F e d e r a l c i v i l r i g h t s a n d
a n t i t r u s t l a w s w h i c h m a y bear upon the m a t t e r s w h i c h p r o m p t these proposals—
t h a t is, A r a b sanctions against persons t h o u g h t to be associated, i n v a r i o u s ways,
w i t h Israel.
CIVIL RIGHTS L A W S
F o r purposes of t h i s discussion, c i v i l r i g h t s problems w h i c h m a y r e s u l t f r o m
the " A r a b b o y c o t t " can be d i v i d e d i n t o t h r e e categories: d i s c r i m i n a t i o n i n employment, d i s c r i m i n a t i o n i n the selection of suppliers or contractors, and disc r i m i n a t i o n i n the t r e a t m e n t of customers.
D i s c r i m i n a t i o n i n e m p l o y m e n t . — T h e F e d e r a l Government is p r o h i b i t e d f r o m
d i s c r i m i n a t i n g i n employment on the basis of race, r e l i g i o n or sex by the Cons t i t u t i o n i t s e l f . I n f u r t h e r a n c e of t h i s c o n s t i t u t i o n a l p r i n c i p l e , E x e c u t i v e Order
11478 e x p l i c i t l y p r o h i b i t s d i s c r i m i n a t i o n i n the employment practices of F e d e r a l
agencies a n d charges the C i v i l Service Commission w i t h r e s p o n s i b i l i t y f o r enforcem e n t of the p r o h i b i t i o n . I n 1972, d i s c r i m i n a t i o n i n employment practices of
F e d e r a l agencies was made u n l a w f u l by s t a t u t e t h r o u g h the a d d i t i o n of § 717 to
T i t l e V I I of the C i v i l R i g h t s A c t of 1964. E n f o r c e m e n t of § 717 rests w i t h each
agency, w i t h respect to i t s o w n employees, w i t h oversight r e s p o n s i b i l i t y i n the
C i v i l Service Commission. I t should be noted t h a t b o t h E x e c u t i v e Order 11478
a n d § 717 of T i t l e V I I specify t h a t they are not applicable to "aliens employed
outside the l i m i t s of the U n i t e d States." T h e i m p l i c a t i o n of t h i s is t h a t they
do a p p l y to U n i t e d States citizens employed t h r o u g h o u t the w o r l d .
W i t h respect t o d i s c r i m i n a t i o n i n employment by p r i v a t e companies a n d ind i v i d u a l s , T i t l e V I I of the 1964 C i v i l R i g h t s A c t , as amended, p r o h i b i t s a
b r o a d range of " u n l a w f u l employment practices" by a n y p r i v a t e employer "engaged i n an i n d u s t r y a f f e c t i n g commerce w h o has fifteen o r more employees."
T h e p r o h i b i t e d practices include r e f u s a l t o h i r e a n i n d i v i d u a l , or any discrimi n a t i o n r e g a r d i n g the terms or conditions of his employment, based on race,
color, religion, sex or n a t i o n a l origin. Once a g a i n the statue contains an exempt i o n " w i t h respect t o the employment of aliens outside any State," w h i c h i m plies t h a t i t is applicable t o the employment of U n i t e d States citizens by covered
employers a n y w h e r e i n the w o r l d . P r i o r to M a r c h 1974, the D e p a r t m e n t of
Justice h a d c i v i l enforcement r e s p o n s i b i l i t y w i t h respect t o t h i s legislation, b u t
i t is now lodged i n the E q u a l E m p l o y m e n t O p p o r t u n i t y Commission.
I n a d d i t i o n t o T i t l e V I I , there are special r e s t r i c t i o n s upon d i s c r i m i n a t i o n i n
the e m p l o y m e n t practices of persons w h o h o l d contracts w i t h the F e d e r a l Gove r n m e n t or p e r f o r m f e d e r a l l y assisted construction. E x e c u t i v e O r d e r 11246 f o r bids such employers to d i s c r i m i n a t e on the basis of race, color, religion, sex, or
n a t i o n a l o r i g i n . R e s p o n s i b i l i t y f o r securing compliance w i t h the E x e c u t i v e order
belongs to the v a r i o u s c o n t r a c t i n g agencies, subject t o t h e o v e r a l l a u t h o r i t y of
the Secretary of L a b o r . Sanctions include the b r i n g i n g of l a w s u i t s b y the D e p a r t m e n t of Justice, upon r e f e r r a l by the agency, to enforce the n o n d i s c r i m i n a t i o n
requirements. I t should be noted t h a t the order p e r m i t s the Secretary o f L a b o r
t o exempt classes of contracts w h i c h i n v o l v e " w o r k . . . t o be . . . p e r f o r m e d
outside the U n i t e d States a n d no r e c r u i t m e n t of w o r k e r s w i t h i n the l i m i t s o f
the U n i t e d States." T h e clear i m p l i c a t i o n is t h a t , i n general, contracts to be
p e r f o r m e d abroad a r e covered.
W h i l e T i t l e V I I a n d Eexecutive O r d e r 11246 c o n t a i n the p r i n c i p a l F e d e r a l
r e s t r i c t i o n s u p o n d i s c r i m i n a t i o n i n p r i v a t e employment, some agencies have
issued regulations, based upon t h e i r p a r t i c u l a r statutes, concerning employment
practices of f e d e r a l l y r e g u l a t e d or assisted entities See, f o r example, the regulat i o n of the F e d e r a l C o m m u n i c a t i o n s Commission, 47 C F R § 21.307.
D i s c r i m i n a t i o n i n s e l e c t i o n of c o n t r a c t o r s . — T i t l e V I I and the E x e c u t i v e order
discussed above r e l a t e o n l y t o " e m p l o y m e n t . " They do not p r o h i b i t d i s c r i m i n a t i o n i n the selection of suppliers or s u b c o n t r a c t s : n o r does any other gene r a l l y applicable F e d e r a l s t a t u t e or E x e c u t i v e o r d e r . 1 W i t h respect to the procure1
42 U.S.C. 1981 has been held by the Supreme Court to prohibit racial discrimination
In private employment. Johnson v. Railway Express Agency, Inc.. 43 Law Weew 4623
(May 19, 1975), and is lojyicallv extendible to racial discrimination in other areas of
contract. See, e.g., McCrary v. Runyon, No. 73-2348, 4th Cir. (Apr. 15, 1975) (private
school).
166
ment practices of Federal agencies, the C o n s t i t u t i o n w o u l d p r e s u m a b l y p r o h i b i t
any d i s c r i m i n a t i o n , even as between contractors, on the basis of race, color,
r e l i g i o n or n a t i o n a l o r i g i n . W i t h respect t o the c o n t r a c t i n g pratices of p r i v a t e
firms, however, the F e d e r a l c i v i l r i g h t s l a w s impose no c o n s t r a i n t s w h i c h w o u l d
be applicable to the present s i t u a t i o n .
D i s c r i m i n a t i o n i n t h e t r e a t m e n t of c u s t o m e r s . — T h e r e are no generally a p p l i cable F e d e r a l c i v i l r i g h t s l a w s w h i c h p r o h i b i t d i s c r i m i n a t o r y r e f u s a l to deal
w i t h a p a r t i c u l a r customer. 2 T h e closest approach to a b r o a d F e d e r a l proscript i o n is T i t l e V I of the 1964 C i v i l R i g h t s A c t , w h i c h p r o h i b i t s t h e recipients of
F e d e r a l g r a n t s f r o m d i s c r i m i n a t i n g against the i n t e n d e d beneficiaries of fede r a l l y assisted programs on the g r o u n d of race, color or n a t i o n a l o r i g i n — f o r
example, such d i s c r i m i n a t i o n by p r i v a t e hospitals w h i c h receive F e d e r a l money.
Some c i v i l r i g h t s stautes do impose restrictions, unconnected w i t h the receipt of
F e d e r a l money, upon p a r t i c u l a r areas of commerce—for example, T i t l e I I of
the 1964 C i v i l R i g h t s Act, r e l a t i n g t o p u b l i c accommodations, a n d T i t l e V I I I of
the 1968 C i v i l R i g h t s Act, r e l a t i n g to housing. T h e r e are, how r ever, numerous State
l a w s w h i c h impose more general restrictions.
T o s u m m a r i z e : T h e m a t t e r of employment d i s c r i m i n a t i o n on the p a r t of p r i vate i n d i v i d u a l s or companies is the subject of a b r o a d F e d e r a l s t a t u t e a n d
also of a n E x e c u t i v e order w i t h wTide applications. R e s p o n s i b i l i t y f o r overseeing enforcement of these l a w s rests w i t h agencies other t h a n the D e p a r t m e n t of Justice. W i t h l i m i t e d exceptions, none of w h i c h have s i g n i f i c a n t applicat i o n to the present problem, F e d e r a l c i v i l r i g h t s l a w s do not p r o h i b i t p r i v a t e
d i s c r i m i n a t i o n i n the selection of c o n t r a c t o r s or t h e t r e a t m e n t o f customers.
FEDERAL A N T I T R U S T L A W S
T h e o n l y F e d e r a l a n t i t r u s t s t a t u t e h a v i n g significant a p p l i c a t i o n to t h e subject
w e are discussing is the S h e r m a n A c t , w h i c h makes i l l e g a l " e v e r y c o n t r a c t , comb i n a t i o n . . . or conspiracy i n r e s t r a i n t of t r a d e or commerce a m o n g t h e several
States, or w i t h f o r e i g n n a t i o n s . " J u d i c i a l i n t e r p r e t a t i o n has r e a d " r e s t r a i n t of
t r a d e " t o mean "unreasonable r e s t r a i n t of t r a d e , " w i t h reasonableness t o be det e r m i n e d on the basis of common l a w principles a n d subsequent c o u r t elaboration.
T h e p r i m a r y boycott of I s r a e l b y the A r a b countries is n o t a m a t t e r w h i c h
d i r e c t l y affects U n i t e d States commerce o r is cognizable under our a n t i t r u s t l a w s .
I t is the secondary boycott w e are here concerned w i t h , t h a t is, t h e boycott by the
A r a b countries of U n i t e d States businesses w h i c h p r o v i d e c e r t a i n economic advantages to Israel. L e t me discuss first w h a t I m i g h t c a l l the " c o r e b o y c o t t " —
n a m e l y , the agreement among the A r a b n a t i o n s a n d ( l e t us assume) independent
A r a b businesses t o r e f r a i n f r o m d e a l i n g w i t h c e r t a i n U n i t e d States companies.
A n agreement between c o m m e r c i a l firms d o i n g business i n the U n i t e d States t o
boycott another firm i n t h i s c o u n t r y w o u l d c o n s t i t u t e a t r a d i t i o n a l f o r m of res r a i n t of trade, a n d o r d i n a r i l y w o u l d f a l l w i t h i n t h e category of conduct i l l e g a l
per se under the Sherman A c t . T h e r e are, however, some special f e a t u r e s about
t h e present case. Perhaps most i m p o r t a n t i s the d i s t i n c t i v e purpose of t h e boycott, w h i c h i s not t h e usual one of a c q u i r i n g c o m m e r c i a l advantage. T h e boycott
is essentially a phenomenon of i n t e r n a t i o n a l politics, a n d t h a t f a c t is r e l e v a n t i n
d e t e r m i n i n g i t s "reasonableness" u n d e r the S h e r m a n Act. Second, t h e r e is a quest i o n w h e t h e r t h e i m p a c t upon U n i t e d States t r a d e of a boycott of t h i s sort, w h i c h
i n effect requires a n A m e r i c a n company t o choose between c e r t a i n types of business r e l a t i o n s w i t h I s r a e l or dealings w i t h t h e A r a b countries, is so c e r t a i n or
severe as t o j u s t i f y a p p l i c a t i o n of t h e per se r u l e of i l l e g a l i t y a p p l i e d domestically.
T h e r e are some special legal considerations r a i s e d by the g o v e r n m e n t a l character a n d the n a t i o n a l i t y of the b o y c o t t i n g parties. I n general, as a m a t t e r of
i n t e r n a t i o n a l l a w and practice, a sovereign state cannot be made a d e f e n d a n t i n
the courts of another sovereign. T h i s d o c t r i n e only a p p l i e d w i t h respect t o t h e
" p u b l i c or p o l i t i c a l " acts of a state a n d n o t w T ith respect to i t s " p r i v a t e or comm e r c i a l " a c t s ; b u t t h e r e i s at least some question as to w h i c h category t h e A r a b
boycott occupies. A n o t h e r p r i n c i p l e of i n t e r n a t i o n a l l a w is the so-called " a c t of
state d o c t r i n e , " w h i c h holds t h a t o u r courts w i l l not examine the v a l i d i t y of acts
of a f o r e i g n sovereign p e r f o r m e d w i t h i n i t s o w n t e r r i t o r y . I f applied to the present problem, i t w o u l d i n s u l a t e f r o m our a n t i t r u s t lawTs m a n y of the boycott a c t i v i ties u n d e r t a k e n by the A r a b states themselves. F i n a l l y , the d o c t r i n e of f o r e i g n
g o v e r n m e n t a l compulsion provides t h a t a defendant ( w h e t h e r a sovereign or a
2
See F o o t n o t e 1,
supra.
167
p r i v a t e i n d i v i d u a l or corporation) w i l l not o r d i n a r i l y be subject to sanction i n
one j u r i s d i c t i o n f o r acts performed i n another j u r i s d i c t i o n under p a i n of sanction
by the latter. A p p l i c a t i o n of this principle could exclude f r o m l i a b i l i t y even nongovernmental A r a b entities w h i c h participate i n the boycott outside this country
by direction of their own governments.
None of the above-described distinguishing considerations makes i t theoretically impossible to apply the Sherman A c t to the "core boycott" i n the present
case. Cumulatively, however, they create substantial doubt t h a t the courts w o u l d
interpret t h a t flexible statute to require such application—a least absent evidence
of m a j o r economic impact upon U n i t e d States exports. I t has, i n any event, never
been held t h a t a foreign, politically motivated boycott of this sort violates the
Act.
L e t me t u r n now f r o m the "core boycott"—that is, the agreement among the
A r a b Governments and companies themselves—to other agreements affecting
U.S. commerce w h i c h may accompany or flow f r o m the "core boycott." I t w i l l be
difficult to find a Sherman A c t v i o l a t i o n i n the mere u n i l a t e r a l decision of an
American company to r e f r a i n f r o m t r a d i n g w i t h Israel because i t knows t h a t
such trade w i l l result i n loss of A r a b business. V i o l a t i o n of the A c t requires a
"contract, combination or conspiracy," and w h i l e u n i l a t e r a l refusal to deal may
i n some circumstances be pursuasive evidence of concerted action, i t is not itself
a violation. More l i k e l y to contravene the Sherman A c t is an agreement between
an American company and an A r a b company t h a t the l a t t e r w i l l give the former
its business i n exchange f o r a commitment by the former not to trade w i t h Israel.
Even more suspect w o u l d be an agreement by the American company not only to
r e f r a i n f r o m doing business w i t h Israel but to r e f r a i n f r o m doing business w i t h
certain American companies as well. Where there is an agreement t h a t violates
the Act, i t w i l l not suffice as a defense t h a t the agreement was entered into under
the duress of threatened loss of business, or even i n order to avoid becoming an
object of the boycott.
A N A L Y S I S OF A M E N D M E N T NO. 24 TO S. 42 5
A l t h o u g h m y purpose i n t h i s testimony is not to discuss S. 425 i n its entirety,
but only Amendment No. 24 to t h a t bill, nonetheless a brief description of the f u l l
b i l l is necessary as background. S. 425, entitled the "Foreign Investment Act of
1975," w o u l d amend the Securities and Exchange Act of 1934. Section 3 ( a ) of the
b i l l w o u l d add to § 13 of the A c t a requirement t h a t any person who, after acquiri n g (registered) equity securities of a U.S. company, owns more t h a n five percent
of any class of such securities must file w i t h the Securities and Exchange Commission a statement setting f o r t h , inter alia, the person's nationality. Under
§ 3 ( b ) of the bill, i t w o u l d be u n l a w f u l f o r any foreign investor to acquire equity
securities of a U.S. company i f , after the acquisition, the investor w o u l d own
more t h a n five percent of any class of such securities, unless the investor notifies
the SEC of the proposed acquisition at least 30 days i n advance. The b i l l f u r t h e r
provides that, w i t h i n 30 days of such notice, the President is authorized t o proh i b i t the proposed acquisition f o r reasons of national security, foreign policy or
protection of the U.S. economy.
T u r n i n g now to Amendment No. 24: This would add to the b i l l a provision stati n g t h a t the President shall p r o h i b i t the acquisition i f he determines that, w i t h i n
one year of the filing of the notice, the foreign investor seeking the acquisition
has engaged i n any of the f o l l o w i n g types of conduct:
( A ) Causing, or attempting to cause, any person (other t h a n a person of
the investor's country) not to do business w i t h , or otherwise to discriminate
against, any U.S. company because of the latter's support f o r or dealings
w i t h ( i ) any foreign government w i t h which the U.S. has diplomatic relations or ( i i ) any person resident i n or dealing w i t h any country w i t h whose
government the U.S. has diplomatic relations.
( B ) Causing, or attempting to cause, any U.S. company w i t h respect to its
business i n any country ( w i t h l i m i t e d exceptions 3 ) not to do business
w i t h , or otherwise discriminate against, any person ( w i t h l i m i t e d exceptions 4 ) because of such person's support f o r or dealings w i t h ( i ) any foreign
3
E.g.. i f the f o r e i g n investor is a government, t h i s provision w o u l d be inapplicable to
the business of a U . S . company i n a c o u n t r y w i t h w h i c h t h e f o r e i g n i n v e s t o r - g o v e r n m e n t
does not have d i p l o m a t i c relations.
4
E.g., i f t h e f o r e i g n i n v e s t o r is a g o v e r n m e n t , t h i s provision w o u l d be inapplicable to
d i s c r i m i n a t i o n a g a i n s t a n o t h e r f o r e i g n g o v e r n m e n t w i t h w h i c h t h e f o r e i g n investorg o v e r n m e n t does not h a v e d i p l o m a t i c relations.
168
government w i t h w h i c h the U.S. has diplomatic relations or ( i i ) any person
resident i n or dealing w i t h any country w i t h whose government the U.S.
has diplomatic relations.
The amendment would also add a provision a u t h o r i z i n g the SEC, the A t t o r n e y
General or any aggrieved person to b r i n g a divestiture action against a f o r e i g n
investor, owning more than five percent of any class of equity securities of a
U.S. company, w h i c h causes the company to engage i n the type of conduct
described above.
L e t me note at the outset t h a t the Department of Justice is opposed to Amendment No. 24. Our opposition goes to the basic concept of the amendment, as w e l l
as to its language or technical aspects.
I presume, to begin w i t h , t h a t the amendment w o u l d not mandate Presidential
denial of an acquisition i n any case. F o r although i t states t h a t the President
" s h a l l p r o h i b i t , " this prescription applies only " i f he determines" t h a t certain
facts e x i s t ; and there is no requirement t h a t such a determination be made i n
any circumstance. I t is u p to the President, apparently, to decide when suspicion
of such prohibited activities is sufficient to w a r r a n t f u r t h e r investigation, and
whether, such investigation h a v i n g been completed, the requisite determination,
f o r f a c t u a l or policy reasons, ought not to be made. I f , at least, i t is the i n t e n t
of the d r a f t e r s of this provision to mandate Presidential action, different
language should be used. W e w o u l d oppose such a change, since i n our view any
m a t t e r such as this, i n v o l v i n g signficant foreign policy ramifications, should not
be treated on a categorical, inflexible basis, but should enable consideration of
the innumerable relevant factors, i n the exercise of Presidential discretion. T h i s
is the approach taken by the other provisions of S. 425, and we t h i n k i t no less
v a l i d here. For purposes of the prohibitions w h i c h the amendment imposes, i t is
simply unrealistic t o treat a l l nations w i t h w h o m we happen to have diplomatic
relations (or w i t h w h o m the boycotting c o u n t r y has diplomatic relations) as
equivalent, and a l l situations i n w h i c h the boycotting practice may arise as alike.
Of course the reasons j u s t recited against rendering the Presidential action
p o r t i o n of the amendment mandatory, argue f o r opposing entirely t h a t p o r t i o n
of the amendment w h i c h gives a cause of action to p r i v a t e citizens, or to the
Commission (which, w i t h respect to such action, w o u l d apparently not be
subject to the direction of the President) to require divestiture. Once again i t
makes no sense to treat a l l foreign countries w h i c h we recognize, and a l l
economic pressures of this sort as i n v a r i a b l y the same. I n the l i g h t of our
overall foreign policy and the many subtle considerations affecting our diplomatic interests, i t must be l e f t to the President—if any restrictions of this sort
are ever desirable—to apply them selectively where necessary.
A m a j o r problem is the vagueness and complexity of the provisions of the
amendment. This can be i l l u t r a t e d by describing, through direct quotes f r o m the
amendment, one type of proscribed conduct: Acquisition by a foreign investor
could be prevented i f , w i t h i n the pertinent period, " a n y person controlling . . .
such foreign investor has, directly or i n d i r e c t l y . . . attempted . . . to cause . . .
any U n i t e d States company w i t h respect to its business i n any country . . . to
subject to economic loss . . . any person . . . i n order to deter such person . . .
f r o m , directly or indirectly, supporting . . . any person resident or operating
i n . . . any country w i t h whose government the U n i t e d States has diplomatic
relations." Comprehending such a statute w o u l d be difficult even f o r the persons
responsible f o r enforcing it, not to mention the foreign investors who w o u l d be
bound by it. The problem is not, I t h i n k merely imprecision or inexactitude of
language—which could be remedied. Rather, the very relationships, motives and
effects t h a t are sought to be addressed are so subtle, so variable, so easily confused w i t h or mistaken f o r other phenomena, t h a t any attempt to reach them—
and only them—by legislative language seems doomed to failure. I t is not a pract i c a l l y (much less a theoretically) satisfactory answer to say t h a t the Government w o u l d only choose to invoke the vague provisions i n those cases w h i c h do
exemplify the evils we seek to avoid. The m a t t e r is not w i t h i n the control of the
Government alone, since divestiture actions by private parties w o u l d be authorized. I t is entirely predictable t h a t unavoidably broad language would lead to a
considerable volume of vexatious l i t i g a t i o n .
Related to the problem of vagueness is the m a t t e r of overbreadth. I w i l l explain
shortly w h y we do not consider the amendment to be an appropriate response to
the A r a b boycott. However, the broad terms of the amendment go f a r beyond the
A r a b boycott. F o r example, paragraph ( A ) , r e l a t i n g to discrimination against a
U.S. company, would encompass the f o l l o w i n g hypothetical s i t u a t i o n :
169
A Greek company advises a Canadian subsidiary not to do business w i t h a
U.S. firm because the U.S. firm is selling arms to the government of Turkey.
The issue here is not whether such conduct on the p a r t of the Greek company is
desirable. The issue is whether such conduct should make i t impossible f o r the
Greek company to make any substantial investment i n the securities of U.S.
companies. We see no proper basis f o r categorically imposing such a sanction—
a sanction t h a t i n most cases w o u l d be completely unrelated t o the underlying
conduct ( i n the hypothetical, the advice to the Canadian subsidiary). T h a t is,
I t h i n k , the p r i n c i p a l p o i n t : The punishment does not fit the crime. I n the context of the A r a b boycott, i t may seem plausible t h a t a company w h i c h has acted
i n this fashion once w i l l do so repeatedly. T h a t is simply not the case, however,
w i t h respect to most of the situations which the provision w i l l cover—so t h a t the
sanction of possible prevention of investment and of mandatory divestiture is
vastly disproportionate, i f indeed any sanction is desirable at all.
The same k i n d of problem is presented by paragraph ( B ) , w h i c h pertains to a
foreign investor w h i c h has caused'a U.S. company to discriminate. T h i s provision
would apply, f o r example, to the folowing s i t u a t i o n :
A Swiss manufacturer of watches seeks to prevent a U.S. wholesaler f r o m
dealing w i t h a Mexican retailer, because the retailer sells watches manufactured by a Mexican firm. The reason f o r the action of the Swiss company
is t h a t the Mexican manufacturer has improperly used the trademark of the
Swiss company.
The point which I w i s h to make here is t h a t the amendment's sanctions would
apply even though the basis f o r the " d i s c r i m i n a t i o n " was i m m o r a l or even illegal
conduct on the p a r t of the u l t i m a t e object of the discrimination.
Of course i t should be apparent t h a t this legislation would impose upon foreign
investors restrictions which we do not place upon our own citizens. Such differentiation is not always inappropriate—but one wonders whether i n this instance
the results can be supported. Consider, f o r example, the f o l l o w i n g hypothetical
situation :
A Canadian investor owns more t h a n five percent of the shares of a U.S.
corporation t h a t manufactures photographic equipment. A group of American
shareholders, opposed to the racial policies of the government of South
A f r i c a , seeks to terminate the corporation's dealings w i t h a South A f r i c a n
firm w h i c h provides substantial support to the government of South A f r i c a .
This action on the part of the American shareholders is entirely permissible.
B u t should the Canadian investor j o i n the effort, he would be vulnerable to a
divestiture suit—whether or not the effort succeeds.
Beyond being inconsistent w i t h our domestic treatment of our own investors,
the present proposal is inconsistent w i t h the standard of behavior which we have
set f o r American investors abroad. Not only do we p e r m i t American investors
abroad to engage i n conduct which, i f performed by foreigners i n this country,
w o u l d violate this b i l l ; but i n some circumstances we positively require it. The
Foreign Assets Control Regulations, 31 C F R 500.101-500.800, issued by the Treasu r y Department under the T r a d i n g W i t h the Enemy Act, 50 U.S.C. App. 1 et seq.,
restrict transactions w i t h certain countries (the People's Republic of China,
N o r t h Korea, N o r t h Viet Nam, Cuba, South Viet N a m and Cambodia) by American-controlled foreign firms. The nature of these restrictions is such that, i f
foreign investors were to observe, w i t h i n the United States, similar restrictions
imposed by their governments ( w i t h respect to countries w i t h whose governments
we have diplomatic relations), they would be i n violation of paragraph ( B ) of
the present bill. I t is surely strange to p r o h i b i t on the p a r t of foreign investors
i n the U n i t e d States action which we not only permit but require on the part of
American investors abroad. WThich suggests a f u r t h e r p o i n t : Before we put forw a r d the provisions of the present b i l l as a new standard of behavior for foreign
investment we had best consider carefully whether t h a t new standard, i f generally adopted, would h u r t anyone more than ourselves. I suspect i t would not.
W h i l e producing a l l these u n t o w a r d side effects, the proposed b i l l w i l l i n fact
not reach the most effective manifestations of the A r a b boycott. B y reason of the
parenthetical exceptions i n both paragraph ( A ) and paragraph ( B ) of the additions to section 1 3 ( f ) , the f o l l o w i n g would not be included w i t h i n the category of
prohibited a c t i v i t y : A r a b government direct pressure ( t h r o u g h stock ownership
or otherwise) upon United States companies to cease doing business i n I s r a e l ;
170
A r a b government a n d A r a b business pressure u p o n businesses i n A r a b countries
n o t to t r a d e w i t h A m e r i c a n companies t h a t s u p p o r t I s r a e l .
F r a n k l y , however, w h a t concerns me more t h a n t h e f a c t t h a t t h e present b i l l
w o u l d not reach a l l significant m a n i f e s t a t i o n s of the A r a b boycott is the f a c t t h a t
we h a v e no r e a l assurance of w h a t i t s effect w i l l be w i t h respect t o those
boycott a c t i v i t i e s i t does reach. I t seems to me u n w i s e to enact l e g i s l a t i o n of t h i s
sort w i t h o u t such assurance. Sometimes, t o be sure, we find c e r t a i n a c t i v i t i e s
so i n h e r e n t l y repugnant t h a t we may be w i l l i n g to move against t h e m w i t h
m i n i m a l r e g a r d f o r the p r a c t i c a l consequences. T h i s is the case, f o r example,
w i t h respect t o c e r t a i n r a c i a l or religious d i s c r i m i n a t i o n w h i c h is alleged to have
accompanied the A r a b boycott. B u t the sort of " d i s c r i m i n a t i o n " w h i c h t h i s b i l l
addresses is not w i t h i n t h a t i n h e r e n t l y r e p u g n a n t category—as is sufficiently
i n d i c a t e d by the f a c t t h a t our l a w s not only p e r m i t , but sometimes r e q u i r e our
o w n citizens t o engage i n s i m i l a r a c t i v i t i e s abroad.
T h e test of t h e d e s i r a b i l i t y of the present legislation, therefore, m u s t be i t s
desirable p r a c t i c a l effects. T h o u g h I w i l l leave more i n t e n s i v e discussion of
t h a t issue to those agencies, such as D e p a r t m e n t of Commerce, w h i c h have
special expertise i n the field, I may s i m p l y note t h a t we are u n a w a r e of any
c a r e f u l e x a m i n a t i o n w h i c h w o u l d demonstate t h a t these provisions w i l l r e s u l t
i n a r e l a x a t i o n of the A r a b boycott r a t h e r t h a n the mere w i t h d r a w a l of A r a b
i n v e s t m e n t f r o m the U n i t e d States economy.
ANALYSIS
OF S.
953
T h i s b i l l w o u l d amend the E x p o r t A d m i n i s t r a t i o n A c t of 1969, as amended, i n
several respects.
1. A t present, subsection 3 ( 5 ) of t h e Act's policy section, 50 U.S.C.A. A p p .
2402 ( 5 ) , provides as f o l l o w s :
(5) I t is the policy of the U n i t e d States ( A ) to oppose r e s t r i c t i v e t r a d e
practices or boycotts fostered or imposed by f o r e i g n countries against other
countries f r i e n d l y to the U n i t e d States, ( B ) t o encourage and request domest i c concerns i n * * * [ e x p o r t i n g ] to refuse to take any action, i n c l u d i n g the f u r n i s h i n g of i n f o r m a t i o n or the s i g n i n g of agreements, w h i c h has t h e
effect of f u r t h e r i n g or s u p p o r t i n g * * * [ s u c h ] r e s t r i c t i v e t r a d e practices or
boycotts * * *. and ( C ) to foster i n t e r n a t i o n a l cooperation a n d the developm e n t of i n t e r n a t i o n a l rules a n d i n s t i t u t i o n s to assure reasonable access t o
w o r l d supplies.
Section 1 of the b i l l w o u l d amend the f o r e g o i n g p r o v i s i o n so t h a t i t w o u l d
r e f e r to r e s t r i c t i v e t r a d e practices a n d boycotts imposed against " U n i t e d S t a t e s
c o n c e r n s a n d other countries f r i e n d l y to the U n i t e d States." ( E m p h a s i s supplied.)
A d d i t i o n of the reference t o " U n i t e d States concerns" seems unobjectionable, 8
but i t obviously adds n o t h i n g t o the powers w h i c h can be applied against the
A r a b boycott, w h i c h , i n a l l i t s aspects, is avowedly directed against I s r a e l .
2. The present § 4 ( b ) ( 1 ) of the A c t , 50 U.S.C.A. App. 2 4 0 3 ( b ) ( 1 ) , provides
t h a t , to effectuate the policies set f o r t h i n § 3 of the A c t , t h e President m a y
p r o h i b i t or c u r t a i l exports f r o m the U n i t e d States, except under rules a n d
r e g u l a t i o n s prescribed by the President. 6 T h i s p a r a g r a p h f u r t h e r provides
t h a t the rules and regulations s h a l l r e q u i r e t h a t a l l domestic concerns r e c e i v i n g
requests f o r the f u r n i s h i n g of i n f o r m a t i o n or the signing of a n agreement of
the type specified i n § 3 ( 5 ) (e.g., i n f o r m a t i o n to be used to f u r t h e r a b o y c o t t )
m u s t r e p o r t the requests to the Secretary of Commerce " f o r such a c t i o n as he
m a y deem a p p r o p r i a t e to c a r r y out the purposes of * * * [ § 3 ( 5 ) ] . " B y § 2 of
the b i l l , § 4 ( b ) (1) of the A c t w o u l d be amended to direct t h a t the r e g u l a t i o n s
r e q u i r e any domestic concern r e c e i v i n g a request f o r boycott i n f o r m a t i o n , etc.,
t o r e p o r t t o the Secretary of Commerce the f a c t of the request a n d i n a d d i t i o n
" a n y o t h e r i n f o r m a t i o n w h i c h the Secretary m a y r e q u i r e r e g a r d i n g such request
a n d i n t e n d e d compliance t h e r e w i t h . " F u r t h e r , the b i l l w o u l d s u b s t i t u t e f o r t h e
present language concerning post-report a c t i o n by the Secretary the f o l l o w i n g :
f o r such action as the President may deem a p p r o p r i a t e to c a r r y out the
policy of . . . [ § 3 ( 5 ) ] , i n c l u d i n g the c u r t a i l m e n t by a n y U n i t e d States
5
F o r purposes of c l a r i t y , i t m i e h t be p r e f e r a b l e to use the c o n i u n c t i o n " o r . " r a t h e r
t h a n "and.'' T h i s change w o u l d m a k e clear t h a t the policv continues to cover boycotts
a i m e d exclusively a t f o r e i g n countries f r i e n d l y to the U n i t e d States.
fi
Bv E x e c u t i v e O r d e r 1 1 5 3 3 ( 1 9 7 0 ) . the P r e s i d e n t delegated h*s f u n c t i o n s u n d e r t h e
Act to t h e Secretarv of Commerce. E x p o r t r e g u l a t i o n s issued bv t h e D e p a r t m e n t of
Commerce, p u r s u a n t to the act, are contained in 15 C F R p a r t s 3 6 8 - 3 7 1 .
171
concern of e x p o r t s to, investments in, or any other economic transactions
w i t h countries w h i c h impose boycotts or engage i n r e s t r i c t i v e t r a d e practices
as specified i n . . . [ § 3 ( 5 ) ] .
T h e D e p a r t m e n t of Justice opposes Section 2 of the b i l l on the g r o u n d t h a t i t is
unnecessary.
As noted above, one effect of the b i l l w o u l d be t o describe i n more d e t a i l the
k i n d of i n f o r m a t i o n w h i c h the Secretary of Commerce could require. I f our unders t a n d i n g of t h e b i l l is correct, i t w o u l d not mandate t h a t the Secretary r e q u i r e
i n f o r m a t i o n on i n t e n d e d compliance w i t h a request f o r i n f o r m a t i o n , b u t w o u l d
merely give h i m express a u t h o r i t y to r e q u i r e i t .
T h e c u r r e n t r e g u l a t i o n of the Secretary of Commerce does n o t r e q u i r e the U.S.
exporter to state w h e t h e r i t intends to comply w i t h the request f o r boycott i n f o r m a t i o n . See 15 C F R § 369.2(b) (2) ( v i i i ) . H o w e v e r , i t is i n our v i e w clear t h a t
the present s t a t u t e authorizes the Secretary to make t h e f u r n i s h i n g of such
i n f o r m a t i o n m a n d a t o r y . W h e t h e r or not i t should be r e q u i r e d is w i t h i n the discret i o n of t h e Secretary, a n d the existence of such discretion w o u l d n o t be a l t e r e d
by S. 953.
The other m a i n aspect of Section 2 of the b i l l relates t o the k i n d of a c t i o n w h i c h
m a y be t a k e n by the E x e c u t i v e B r a n c h upon l e a r n i n g of a request f o r boycott-type
i n f o r m a t i o n . H e r e also i t does n o t appear t h a t the b i l l w o u l d expand e x i s t i n g
a u t h o r i t y . T h e E x p o r t A d m i n i s t r a t i o n A c t i t s e l f already g r a n t s the President
a u t h o r i t y t o effectuate the policies of the A c t b y p r o h i b i t i n g or c u r t a i l i n g exports.
See § 4 ( b ) ( 1 ) . The power to c u r t a i l investments by U.S. concerns i n f o r e i g n
countries or o t h e r economic t r a n s a c t i o n w i t h f o r e i g n countries is p r o v i d e d by the
T r a d i n g W i t h the E n e m y Act, 50 U.S.C. App. 5 ( b ) . I n v i e w of the f o r e g o i n g provisions, there w o u l d seem t o be no need t o a d d to the E x p o r t A d m i n i s t r a t i o n A c t
the more detailed language r e g a r d i n g steps w h i c h m a y be t a k e n by the President.
As y o u m u s t be aware, serious f o r e i g n policy costs w i l l a t t e n d any legislative
a c t i o n w i t h respect to the A r a b boycott. Perhaps the most i m p o r t a n t of t h e m is
the danger t h a t the U n i t e d States w i l l be regarded as a d o p t i n g a n a n t i - A r a b
i n t e r n a t i o n a l policy at a t i m e w h e n we are t r y i n g t o mediate a l a s t i n g peace i n
t h e M i d d l e East. I t is h a r d l y w o r t h w h i l e to undergo t h i s r i s k f o r t h e purpose of
enacting a piece of l e g i s l a t i o n w h i c h i n f a c t has no significant p r a c t i c a l effect.
F o r t h i s reason, w e cannot support a d o p t i o n of S. 953.
Senator S T E V E N S O N . Thank you, M r . Scalia. T h a t is a very solid
piece of work, and i t raises some impressive paradoxes f o r us.
I s participation i n the A r a b boycott by U.S. firms now illegal i n any
way ? A n d by that, I mean that i f as a result of A r a b pressure, U.S.
businesses refuse to either conduct business i n Israel or w i t h U.S. firms,
are there any possible violations of U.S. law now as a result of participation by U.S. companies i n boycott ?
M r . S C A L I A . Leaving aside more specialized pieces of legislation covering regulated industries—such as the Federal Communications Commission's legislation or the SEC's legislation which would allow special
controls—the two general pieces of legislation which would be most
likely to prohibit at least some practices associated w i t h the boycott
are the c i v i l rights laws, which would prohibit certain practices relati n g to discrimination on the basis of religion—allegations of that type
have been made
Senator S T E V E N S O N . That would be over discrimination on the basis
of race or religion: but how discrimination f o r political purposes?
M r . S C A L I A . I f i t is political, then the other general area of law
would be the antitrust laws. A n d i t may well be that certain types
of cooperation w i t h the A r a b boycott by American companies would
be violative of the antitrust laws. I discussed that at some length i n
the part of my statement which I didn't read. I doubt whether any
of the antitrust laws—the Sherman A c t is the antitrust law that is
most i n point—would be considered to be violated by the A r a b countries or A r a b businesses themselves agreeing w i t h one another not
to do business w i t h certain American firms.
172
B u t when you get away f r o m that, what I call the "core boycott"
i n v o l v i n g just the Arabs, and move into agreements between them and
certain American firms not t o do business w i t h other American firms,
then you get into an area where there is a possibility of violation of
the antitrust laws. O u r A n t i t r u s t D i v i s i o n is currently actively investigating a number of allegations concerning possible violations.
Senator S T E V E N S O N . N O W , would a law mandating disclosure by
companies of their participation i n a boycott—in other words, behavior which violated the Sherman Act—violate a f i f t h amendment
right?
M r . S C A L I A . I t would w i t h respect to any individuals t h a t have
to acknowledge their own violation. W i t h respect to companies, as
companies, i t would not.
Senator S T E V E N S O N . B u t the companies have agents.
M r . S C A L I A . T h a t is correct.
Senator S T E V E N S O N . A n d i t is a personal l i a b i l i t y problem. T y p i cally, don't you have personal as well as corporate responsibility f o r
compliance w i t h the laws, i n c l u d i n g the Sherman Act?
M r . S C A L I A . Yes; that is r i g h t . B u t the f i f t h amendment protections
have been held not to apply to corporations as such. Y o u r u n into a
problem only when an i n d i v i d u a l who is personally responsible f o r
f i l i n g a report is implicated i n some degree w i t h a possible violation.
Senator S T E V E N S O N . Does the Justice Department review the reports on file at the Commerce Department f o r evidence of antitrust
violations or other violations of the law ?
M r . S C A L I A . I don't know, M r . Chairman. I t is, I presume, the
A n t i t r u s t D i v i s i o n that would be most likely to do that. A n d I don't
know7 whether they do. I don't believe they do—or at least they have
not done so as a regular practice u n t i l recent concern over the A r a b
boycott has developed.
Senator S T E V E N S O N . Has the Justice Department taken any action
under the antitrust laws against U.S. participants i n the boycott yet?
M r . S C A L I A . A S I have indicated, a number of alleged violations are
under active investigation. A n d by "active," I mean they have reached
the stage where c i v i l investigative demands have been issued against
certain companies by the A n t i t r u s t Division.
I had better go back to y o u r previous question. I doubt very much
whether the Justice Department has looked into the Commerce reports
because, i f my recollection is correct, those reports are confidential.
A n d I believe that a commitment is made on the p a r t of Commerce
not to distribute them at the time they are sought. A t least that is true
w i t h respect to the portion which would be most likely to show a
violation, that is, the portion asking what action is l i k e l y to be taken
i n response to the boycott request.
Senator S T E V E N S O N . The Commerce Department indicates that the
i n f o r m a t i o n w i l l be treated as confidential. B u t I hadn't realized
that bv labeling i t classified, nobody gets t o look at it. There is not
much point i n requiring i n f o r m a t i o n i f i t is so confidential t h a t not
even the U.S. Government can examine i t .
W h o does examine i t ? B y that, do they mean just we and the Commerce Department w i l l have access to i t ?
M r . S C A L I A . The purpose of the report, as I understand i t , is to
enable the Commerce Department to get a feel f o r what is going on
173
and thus to determine whether any additional administrative or legislative action is necessary. I t s purpose is not to establish any criminal
violations.
I would suppose that i n the course of a criminal investigation which
is otherwise commenced, a c r i m i n a l investigatory agency m i g h t be
given access to such documents. B u t i t doesn't seem to me unreasonable
to tell a businessman, when you are asking h i m t o provide information
v o l u n t a r i l y , that this is f o r the use of this Department only, and we
don't intend to ship the whole b u l k of what you send us over to the
A n t i t r u s t D i v i s i o n o f the Justice Department. T h a t tends to discourage
f u l l r e p o r t i n g by the businesses, to put i t m i l d l y .
Senator S T E V E N S O N . W e l l , I agree. I can see how i t might. Therefore,
I t h i n k we probably ought to mandate compliance w i t h the request
f o r this information. A p p a r e n t l y the E x p o r t A d m i n i s t r a t i o n A c t does
say that while the i n f o r m a t i o n is confidential, i t is confidential unless
the Secretary determines that the w i t h h o l d i n g thereof is contrary
to the national interest.
I would have thought that you m i g h t reasonably conclude that the
w i t h h o l d i n g of evidence of crime was contrary to the national interest.
M r . S C A L I A . A s I indicated, i n the case where there is a criminal investigation already underway and the criminal investigatory agencv
wants to look at a particular report I could understand that provision's
being used. B u t i f that proviso is interpreted to mean that, as a matter
of general policy, the Secretary is going to determine t h a t what he says
is confidential should not be confidential, then i t is a very deceptive
report, indeed.
I don't t h i n k t h a t is the way the Government ought to represent
itself. I gather what you were saying is that the Secretary ought to
make a generalized determination that these reports ought always
to be available to any government official that wants to look at them.
Senator S T E V E N S O N . I f to maintain the confidentiality would be
contrary to the national interest, that is what the law says.
M r . S O A L I A . Y o u are saying that i t would always be contrary to the
national interest?
Senator S T E V E N S O N . N O . I am not saying that i n this context. I n this
particular context we are t a l k i n g about enforcement of the law. A n d
T t h i n k the E x p o r t A d m i n i s t r a t i o n A c t makes i t pretty clear that
i f these reports were to include evidence of crime, notwithstanding
the impact i t m i g h t have on future disclosure by corporations, the
Secretary is under no duty to suppress the evidence, to cover up as we
say nowadays.
I t h i n k he is under some duty, i f not a statutory obligation to disclose anv such possible evidence ito the Justice Department.
M r . S C A L I A . I don't disagree w i t h that where a violation appears.
B u t I draw a line between that and simply saying t h a t since there may
be a violation shown i n all of these reports, we are going to t u r n them
over wholesale to the A n t i t r u s t Division or the C i v i l R i g h t s Divison,
or whomever else, i n order that they may s i f t through them to see i f
thev can find any violations. I t h i n k there is a distinction that can
be drawn.
Senator S T E V E N S O N . T h a t distinction could be made. B u t short of
t u r n i n g i t all over to the Justice Department, he m i g h t routinely go
through those reports to determine i f there is evidence of possible
5 8 - 5 2 7 O - 75 - 12
174
crime and i f so, t u r n them over to the Justice Department. I don't
t h i n k that happens.
Perhaps i t is a suggestion which is best made to the Department of
Commerce. A n d i f a suspect concern is expressed about voluntary
cooperation i n the future, then there would be a l l the more reason
to mandate that cooperation i n the future. Then, you w o u l d have your
fifth amendment problems i n the case of individuals.
M r . S C A L I A . Senator, I keep having the a w f u l feeling i n the course
of this discussion that I really don't know what I am t a l k i n g about,
because i t may well be that the A n t i t r u s t Division at least since the
A r a b boycott has become a cause of major national concern, has indeed
examined at least some of those reports. I t h i n k that I better provide
you a w r i t t e n clarification of that situation.
Senator STEVENSON. Could you do that on that point ?
M r . S C A L I A . Yes, I w i l l .
D E P A R T M E N T OF
JUSTICE,
Washington, D.C. September
Hon.
ADLAI E.
15,
1975.
STEVENSON,
Chairman, Subcommittee on International Finance,
C o m m i t t e e on B a n k i n g , H o u s i n g a n d U r b a n A f f a i r s ,
U.S. Senate, Washington, D.C.
DEAR MR. CHAIRMAN: A t the J u l y 22, 1975 h e a r i n g of the Subcommittee on
I n t e r n a t i o n a l Finance, I u n d e r t o o k to d e t e r m i n e a n d to advise y o u w h e t h e r the
D e p a r t m e n t of Justice reviews " b o y c o t t request" r e p o r t s filed under t h e E x p o r t
A d m i n i s t r a t i o n A c t w i t h the D e p a r t m e n t of Commerce. I find—as I i n d i c a t e d i n
m y t e s t i m o n y I believed to be the case—that i t does not r e v i e w such reports as a
m a t t e r o f course, b u t has done so i n connection w i t h i n v e s t i g a t i o n s conducted by
the A n t i t r u s t a n d C i v i l R i g h t s D i v i s i o n s r e l a t i n g t o t h e A r a b boycott.
I w i s h also t o respond f u r t h e r to y o u r i n q u i r y r e g a r d i n g s e l f - i n c r i m i n a t i o n
Issues w h i c h m i g h t be raised by a l a w r e q u i r i n g exporters to disclose p a r t i c i p a t i o n i n a boycott, assuming such p a r t i c i p a t i o n was c o n t r a r y t o l a w . As I s t a t e d
a t the hearing, the F i f t h A m e n d m e n t p r i v i l e g e against s e l f - i n c r i m i n a t i o n is a
personal p r v i l e g e a n d is not a v a i l a b l e t o corporations. See, e.g., B e l l i s v. U n i t e d
S t a t e s , 417 U.S. 85 (1974). Moreover, i t is w e l l established " t h a t an i n d i v i d u a l
cannot r e l y upon the p r i v i l e g e to a v o i d p r o d u c i n g the records of a collective
e n t i t y w h i c h are i n his possession i n a representative capacity, even i f these
records m i g h t i n c r i m i n a t e h i m p e r s o n a l l y . " B e l l i s v. U n i t e d S t a t e s , s u p r a , 417
U.S. a t 88.
I n the circumstances y o u posit, t h e o p e r a t o r of a sole p r o p r i e t o r s h i p m i g h t be
able t o c l a i m the p r i v i l e g e against s e l f - i n c r i m i n a t i o n . T h e e n f o r c e a b i l i t y of a
r e p o r t i n g r e q u i r e m e n t against such a person w o u l d depend upon i t s n a t u r e a n d
purpose. T h e m o r e d i r e c t l y i t is designed to enable discovery a n d prosecution of
v i o l a t i o n s of l a w , the more l i k e l y i t w i l l be subject to a F i f t h A m e n d m e n t
defense. Cf. C a l i f o r n i a v. B y e r s , 402 U.S. 424 (1971).
I hope t h a t t h i s i n f o r m a t i o n w i l l be of assistance.
Sincerely,
ANTONIN
SCALIA,
Assistant Attorney General,
O f f i c e of L e g a l C o u n s e l .
Senator STEVENSON. Thank you. That w i l l be interesting.
D o the screening provisions of S. 425 pose any due process problems ?
M r . S C A L I A . W h a t do you mean by the "screening provisions" ? I am
a f r a i d your committee has developed a j a r g o n on this which I have not
steeped myself in.
Senator STEVENSON. This is the provision i n S . 425 which requires
advance notice of proposed foreign investments. A n d i t then goes on
to state that anytime w i t h i n 30 days of the notice, the President is
authorized, by order, as he deems appropriate f o r the national security
of the U n i t e d States, to f u r t h e r the foreign policy of the U n i t e d
175
States, or to protect the domestic economy of the U n i t e d States, to
p r o h i b i t the acquisition to which the notice relates.
I t is a broad authority to p r o h i b i t
M r . SCALIA. Y e s , i t is.
Senator S T E V E N S O N [continuing]. Foreign investment.
M r . S C A L I A . F r a n k l y , I have not carefully studied the provisions of
S. 425 as such, but have focused just on amendment 24. O f course, I
had to examine the rest of the b i l l to some extent i n order to understand
what the amendment meant.
I t h i n k i t is doubtless f a i r l y broad authority, but no broader than,
as I indicated, some other authority that the President has been given,
particularly i n the foreign affairs field. I t h i n k the courts have been
w i l l i n g to accord much more discretion to the President t h a n this b i l l
would allow, and I w o u l d doubt whether that screening provision
would be considered a violation.
Senator S T E V E N S O N . I t includes those words to protect the national
security, foreign policy, and domestic economy. I t covers the waterf r o n t w i t h no guidelines, no standards.
M r . S C A L I A . Yes, sir, i t is broad discretion. B u t whenever the President acts i n the foreign affairs field, I t h i n k all of those areas are taken
into account.
Senator S T E V E N S O N . B u t here the i m p o r t is on domestic companies
and investors.
M r . S C A L I A . Yes, sir. I t h i n k i t can affect an American company, to
be sure, but the b i l l is directed at the foreign investor. A n d that is not
just a technicality. I t h i n k the whole thrust of the b i l l is to protect our
domestic economy against foreign activities.
Senator S T E V E N S O N . That's r i g h t .
Thank you very much, M r . Scalia. T h a t is an extremely competent
job and very helpful. A n d we w i l l look f o r w a r d to hearing f r o m you
further.
M r . S C A L I A . T h a n k you, sir.
Senator S T E V E N S O N . The subcommittee w i l l recess u n t i l 10 o'clock
tomorrow i n this room.
[Whereupon, at 1:35 p.m., the hearing recessed, to reconvene at 10
a.m. on Wednesday, J u l y 23,1975.]
FOREIGN INVESTMENT AND ARAB BOYCOTT
LEGISLATION
W E D N E S D A Y , J U L Y 23, 1975
U . S . SENATE
COMMITTEE ON B A N K I N G , HOUSING AND U R B A N AFFAIRS,
SUBCOMMITTEE ON I N T E R N A T I O N A L
FINANCE,
W a s h i n g t o n ,
D . C .
The subcommittee met at 10 a.m., i n room 1224, Dirksen Senate
Office Building, Senator A d l a i E. Stevenson (chairman of the subcommittee) presiding.
The chairman announced that M r . Packwood was necessarily absent
because he was attending a meeting of the Senate Finance Committee.
Senator S T E V E N S O N . The meeting of the Subcommittee on International Finance w i l l come to order.
This morning we w i l l continue our hearings on foreign investment
and boycott legislation.
Our first witness is M r . Seymour Graubard, national chairman,
Antidefamation League.
STATEMENT OF DAVID BRODY, DIRECTOR, WASHINGTON OFFICE,
ANTIDEFAMATION LEAGUE, ACCOMPANIED BY MEYER EISENBERG, MEMBER, ADL NATIONAL COMMISSION, AND JUSTIN
FINGER, ASSOCIATE DIRECTOR, CIVIL RIGHTS DIVISION, ANTIDEFAMATION LEAGUE
M r . B R O D Y . M r . Chairman, m y name is David Brody, and I am the
director of the Washington office of the Antidefamation League. M r .
Graubard was scheduled to testify this morning. Unfortunately, a
close business associate of his died yesterday and he w i l l be attending
his funeral this morning, and consequently is unable to be here. He
has asked me to express his regrets at his inability to be here.
I am accompanied this morning by M r . Meyer Eisenberg, a member
of the A D L ' s National Commission, which is the national governing
body of the Antidefamation League, and M r . Justin Finger, the associate director of our civil rights division.
I would like at this point to present for the record M r . Graubard's
prepared statement, and i n the interest of saving time I w i l l merely
refer to some of the highlights of that statement, and when I am
through, M r . Eisenberg w i l l have some additional remarks.
Senator S T E V E N S O N . Very well. The f u l l statement w i l l be entered
i n the record.
M r . B R O D Y . A S I have indicated, I am D a v i d Brody, the director of
the Washington office of the A n t i D e f amation League.
(177)
178
W e appreciate, M r . Chairman, your i n v i t a t i o n to appear before this
subcommittee t o present our views on the legislation before i t , and the
reasons which have prompted the introduction of these measures.
O u r organization has been dedicated f o r the 62 years of its existence
to the preservation of our American constitutional principles and
traditions. W e support the legislation before this subcommittee because
i t is designed to defend the American principles of equal rights and
opportunities against their debasement by foreign investors.
T h a t we need such legislation is g l a r i n g l y obvious. The A r a b o i l
producing countries last year amassed a surplus of about $60 b i l l i o n
and the most conservative estimate is that the surplus w i l l reach a
quarter of a t r i l l i o n dollars by 1980. These countries have made i t
plain t h a t they would like to invest these vast sums of money i n the
U n i t e d States, as well as to step up trade and business w i t h American
firms.
We, i n the A n t i D e f a m a t i o n League, are not opposed to either A r a b American trade or to A r a b investment here. Indeed, we favor i t as a
means of balancing international payments. W h a t we oppose—and
what indeed American law and principle oppose—is the denial o f ind i v i d u a l rights and the o u t r i g h t religious discrimination t h a t have
been part and parcel of A r a b business policy.
I am not speaking merely of the economic boycott of Israel, which
i n itself is repugnant to declared American policy, but more so of the
blacklisting of persons of the Jewish f a i t h , a practice which has already
resulted i n numerous violations by American business firms and Government agencies of the Nation's c i v i l rights laws and of the Constitution itself.
The m i x i n g of economic objectives w i t h political objectives and
religious bias is clearly an A r a b technique. They have distorted the
competitive rules of the marketplace by imposing a boycott on over
1,800 Jewish companies because of their ownership by Jews or business relationships—in many cases tenuous or almost non-existent, w i t h
Israel, or w i t h other companies doing business i n or w i t h Israel.
Contrary to what Treasury and Commerce Department officials have
said, the dichotomy between the boycott directed against companies
doing business w i t h Israel and companies because of their ownership
by Jews is not as clearcut as Treasury and Department of Commerce
officials would make i t out to be.
A s the W a l l Street J o u r n a l observed i n an editorial on February 14.
The blacklisting of these firms appears less to be an attempt to undermine
I s r a e l t h a n an attempt to inject antisemitism i n t o Western business practice.
The Journal continued:
The Arabs have had trouble distinguishing these t w o purposes throughout
t h e i r 30-year-old economic boycott of businesses w i t h ties to Israel.
I n view of this currently increasing A r a b pressure on American business, we believe that more than a mere statement by Treasury officials
is necessary to assure Americans that the huge petrodollar resources
at the command of A r a b nations w i l l not be used to undermine the
premises o f U.S. business, to t u r n American companies into political
weapons aimed at Israel (or any other c o u n t r y ) , or t o curb the rights
of American citizens through sheer bigotry.
179
W e must take steps to outlaw these discriminatory practices which
President F o r d recently characterized as "repugnant to American
principles," before they became commonplace i n the business l i f e of
our community. A s the President also stated.
F o r e i g n businessmen a n d investors are most welcome i n the U n i t e d States
w h e n they are w i l l i n g to c o n f o r m to the principles of o u r society.
I submit, M r . Chairman, that ought to be the g u i d i n g principle
which our country should subscribe to.
Various American firms, exporters, and banks, have t o l d the A n t i Defamation League privately that they would welcome legislation
enabling them to stand up against A r a b demands. They feel, f o r example, that the declaration of American trade policy regarding boycott i n the E x p o r t A d m i n i s t r a t i o n A c t of 1969 is an ineffective weapon
because i t is without teeth, without compulsion. American firms are
being forced, f o r lack of effective sanctions, to comply w i t h and to ask
compliance of others i n a boycott which is contrary to our Nation's declared policy.
I n your remarks accompanying the introduction of your b i l l , M r .
Chairman, S. 953, to strengthen the E x p o r t A d m i n i s t r a t i o n A c t , you
pointed out that the A r a b boycott actions—
Raised grave i m p l i c a t i o n s f o r an open i n t e r n a t i o n a l t r a d i n g system, a nond i s c r i m i n a t o r y U.S. economic system a n d the conduct of U.S. f o r e i g n policy.
These words point perceptively to what are indeed "grave implications" arising f r o m A r a b activities—boycott, discrimination, i n t i m i dation, and strings attached to everything financial or commercal.
I would like to mention a few recent cases of discrimination by
American firms under the impetus of A r a b business which underscore
these grave implications.
Y o u cited one yesterday, M r . Chairman, the case of Belvedere Products i n Chicago. B u t here we have A l l i e d V a n Lines International
of Chicago, surely one of the largest transporters of personal property
i n the world, which recently distributed a brochure entitled "Customs
I n f o r m a t i o n . " Under the heading, " A r a b i a n Countries," which i t
lists as Lebanon, E g y p t , I r a q , Jordan, Syria, Saudi Arabia, K u w a i t ,
and the U n i t e d A r a b Emirates, the brochure states:
Shipper m u s t check w i t h the consulate f o r a p p r o v a l of items to be b r o u g h t
i n t o c o u n t r y . I t e m s produced i n I s r a e l or by J e w i s h firms or associates throughout the w o r l d are blacklisted.
I emphasize: "Jewish firms or asssociates throughout the world."
This is bigotry, not business, not politics.
I would like to submit f o r the record a copy of the brochure which
A l l i e d V a n Lines is distributing.
Senator S T E V E N S O N . I t w i l l be entered into the record.
[The brochure f o l l o w s : ]
C U S T O M S I N F O R M A T I O N — A L L I E D V A N L I N E S I N T E R N A T I O N A L CORP.
ALGERIA
Shipper m u s t o b t a i n f r o m the A l g e r i a n Consulate p r i o r t o his d e p a r t u r e the
f o l l o w i n g documents p e r t a i n i n g to his shipment. These documents should r e m a i n
i n the shipper's possession a n d be s u b m i t t e d to o u r overseas representative at
t i m e of customs clearance. Y o u r office should o b t a i n copies as p r o o f of possession.
Certificate o f Change of Residence
Validated Inventory (translated into French)
ISO
A R A B I A N COUNTRIES
L E B A N O N , EGYPT, I R A Q , J O R D A N , S Y R I A , S A U D I A R A B I A ,
U N I T E D ARAB EMIRATES
KUWAIT,
Shipper m u s t check w i t h the Consulate f o r a p p r o v a l of items t o be b r o u g h t
i n t o c o u n t r y . I t e m s p r o d u c e d i n I s r a e l or by J e w i s h firms or a s s o c i a t e s t h r o u g h
out the w o r l d are blacklisted.
I t e m i z e d I n v e n t o r y ( s t a t i n g "Used Personal & H o u s e h o l d effects have been
used by owner and are f o r personal use.")
N o t e : Several of these countries also r e q u i r e the i n v e n t o r y to be v a l i d a t e d .
Please check w i t h the i n d i v i d u a l Consulate f o r f u r t h e r i n f o r m a t i o n .
ARGENTINA
D u e to s t r i c t government regulations, A l l i e d ' s r a t e D O E S N O T includes the
following charges:
( 1 ) Customs B r o k e r s Fees
( 2 ) Taxes a n d / o r D u t i e s
( 3 ) P o r t Expenses
These charges w i l l be b i l l e d d i r e c t l y t o the shipper by t h e A V L I C ' s destinat i o n representative.
BRAZIL
Shipper m u s t o b t a i n f r o m the B r a z i l i a n Consulate p r i o r t o his d e p a r t u r e the
f o l l o w i n g document p e r t a i n i n g to his shipment. T h i s document s h o u l d remni:.
i n the shipper's possession a n d be s u b m i t t e d t o o u r overseas represent n that t i m e of customs clearance Y o u r office s h o u l d o b t a i n copy as p r o o f of
possession.
V a l i d a t e d I n v e n t o r y ( t r a n s l a t e d i n t o Portuguese)
D u e to s t r i c t government regulations, A l l i e d ' s r a t e D O E S N O T i n c l u d e iV.
f o l l o w i n g charges:
(1) Customs B r o k e r s Fees
(2) Taxes a n d / o r D u t i e s
( 3 ) P o r t Expenses
These charges w i l l be b i l l e d d i r e c t l y to t h e shipper by the A V L I C ' s destinat i o n representative.
M r . B R O D Y . Another case, the American Bureau of S h i p p i n g Technical Services, which is soliciting American personnel f o r its operations i n I r a q and Bahrein, has turned down applicants because they
are Jewish and has openly t o l d them that this is the reason.
I n one case i t was because the applicant had a Jewish relative, and
surely this p a i n f u l l y reminiscent of H i t l e r ' s Nurembery laws. A few
days ago the A n t i - D e f a m a t i o n League filed a complaint against this
company before the E E O C , c i t i n g violations of t i t l e V I I of the C i v i l
Rights A c t of 1964. This is not an isolated case; the league has filed
similar complaints against five other American companies, firms which
r u n the gamut of overseas vocational opportunities, charging them
w i t h d i c r i m i n a t i n g against Jews to accommodate A r a b discriminatory
policies.
A m o n g a number of other examples of boycott pressures which the
league has learned about is a letter sent to an American f i r m by the
University of Petroleum and Minerals i n Dhahran, Saudia A r a b i a ,
asking f o r quotation and specifications on a number of products
offered f o r sale.
T h i s letter states, i n p a r t : "Please do not quote on goods manufactured by companies who are included i n the A r a b bovcott list, t h a t is,
blacklist." T h i s means do not quote on items made by any one of at
least 1,800 American firms that are on the boycott list.
I would like to insert i n the record at this point a copy of that letter.
Senator S T E V E N S O N . I t w i l l be entered i n t o the record.
[ T h e letter f o l l o w s : ]
181
U N I V E R S I T Y OF P E T R O L E U M A N D M I N E R A L S ,
Dhahran, Saudi Arabia, June 9,1915.
A P P L I E D C O N T R O L S CO. I N C . ,
1 2 1 5 - T B l o o m field A v e n u e ,
Fairfield N.J. U.S.A.
G e n t l e m e n : W i l l you k i n d l y send, v i a A I R M A I L , a q u o t a t i o n v a l i d f o r a m i n i m u m of 90 days on the items listed below :
As per specification sheet a n d technical d r a w i n g s attached
Please send details of the c i r c u i t breakers offered b y y o u r Company w h i c :
w i l l include i n f o r m a t i o n on the t r i p p i n g c u r r e n t a n d t h e i r degree of adju>tm<
etc.
Y o u r q u o t a t i o n or 'no bid' i n reply should reach our office w i t h i n f o u r weeks
f r o m date of receipt by you. I n the event t h a t you submit a firm q u o t a t i o n please
use our self addressed label ( w h i c h is attached) on y o u r envelope. K i n d ' ;
state our reference n u m b e r given above when r e p l y i n g to our request.
Please do not quote on goods m a n u f a c t u r e d by companies w h o are i n c l u d e f
i n the A r a b B o y c o t t L i s t , i. e., ( B L A C K L I S T ) .
The f o l l o w i n g i n f o r m a t i o n should be included i n y o u r quotation.
( a ) D e l i v e r y date.
( b ) D i s c o u n t offered to educational i n s t i t u t i o n s .
(c) B r a n d name a n d c o u n t r y of o r i g i n of goods offered.
( d ) A l l related costs such as legalized documents, etc.
( e ) P r e f e r r e d m e t h o d of payment, i.e., L e t t e r of C r e d i t or Sight D r a f t .
K i n d l y note, i t is c o n t r a r y to our business procedure to open a c o n f i r m e d
L e t t e r of Credit. Prices should be C & F D h a h r a n , via a i r f r e i g h t ; a n d C & F
D a m m a m , v i a ocean f r e i g h t .
Y o u r early r e p l y w i l l be appreciated.
Thank you
V e r y t r u l y yours
N A M A N S. E L
Director
ALAMI,
of P u r c h a s i n g .
M r . B R O D Y . Recently the Commissioner General of the A r a b League's Boycott Office has said of the blacklist that i t includes "companies
when i t is proved by definite evidence that they, their proprietors or
controllers have Zionist inclinations."
Fortune magazine, i n quoting this statement i n its issue of J u l y
1975, comments that such "sweeping, convenient, and h i g h l y dubious"
terms give the Arabs "freedom to blacklist almost at w i l l " .
M r . Chairman, we believe that i t is obvious that practices such as
these can onlv increase as the Arabs' accumulation of petrodollars
increases, so long as our Government allows this. W h a t A r a b petrodollars have done in regard to illegal employment recruitment i n the
U n i t e d States, violation of Government policy w i t h respect to boycotts
against f r i e n d l y nations, and exclusion of certain firms f r o m business
contracts is onlv a preamble to what w i l l occur as the Arabs use their
dollars invested i n American business to control and direct the activities of such dominated corporations.
Contrary to what officials of the executive branch testified to yesterday, existing legislative safeguards are not sufficient to present discriminatory practices by foreign investors, let alone end present discrimination by American institutions that comply w i t h the A r a b
boycott.
Nor is a government request f o r voluntary restraint sufficient. W e
have already seen how the declared policy against boycott has been dishonored w i t h o u t shame by thousands of U.S. corporations. W e are
dealing w i t h foreign nationals who have a different and often opposing
foreign policy f r o m ours; whose economic interests and objectives are
at variance f r o m ours; and whose concept of legitimate government
182
action includes, f o r example, actively supporting terrorists who use
indiscriminate murder as a weapon of everday policy. I t would be
foolhardy to believe that we can rely on their sense of ethics to comply
w i t h our laws, whether or not these laws contain sanctions.
Therefore we commend you, M r . Chariman, f o r introducing amendments to the E x p o r t A d m i n i s t r a t i o n A c t which w i l l remedy some of
its deficiencies, particularly i n regard to requiring domestic concerns that report boycott requests also to n o t i f y the Department of
Commerce whether or not they intend to complv w i t h such requests.
W h e n M r . Scalia testified yesterday he said under the existing
law the Department of Commerce had the authoritv to require exporters to indicate whether or not they intend to comply w i t h such
requests.
Y o u r b i l l , S. 953, is also valuable i n that i t authorizes the President
to take action i n c a r r y i n g out U.S. policy against boycotts, action
which could include c u r t a i l i n g economic transactions w i t h countries
which impose boycotts. W e would, however, like to see added to i t
a provision that reports of bovcotts requests to the Department not be
deemed confidential, as is the Department's present policy.
W e have been t r y i n g without success to have the Department of
Commerce make available to us under the Freedom o f I n f o r m a t i o n
A c t the reports of boycott requests which are filed by exporters. W e
have even been denied access to the charging and w a r n i n g letters sent
by the Department to exporters who have failed to comply w i t h the
requirement of the law that they report the receipt of such requests.
This attitude of the Department makes almost a mockery of a statement
which Assistant Attornev General Scalia made when he testified
just 2 weeks ago today before a subcommittee of the House J u d i c i a r y
Committee, when he suggested as one effective way i n dealing w i t h
the boycott the following, and I quote:
F o r example i t occurs to one immediately t h a t the mere l i g h t of publicity m i g h t
be sufficient to prevent the m a j o r abuses.
The one t h i n g the Department of Commerce does is t o use section
7(c) of the E x p o r t A d m i n i s t r a t i o n A c t to provide a sanctuary not
merely f o r those who do report the receipt of boycott requests, but
f o r those who are actuallv violating the law by f a i l i n g to report the
receipt of such boycott requests.
I m i g h t add at this point, M r . Chairman, that you find yourself
i n a position w i t h your b i l l S. 5953 of "heads thev win. tails you, lose."
Yesterday we had M r . Scalia testify, as well as U n d e r Secretary
Tabor, that under existing law, section 4 ( b ) ( 1 ) , we d i d n ' t need this
legislation, that the President already has the power to curtail exports.
B u t when M r . Parsky testified, he opposed the legislation not because the President already has the authority, but because he f e l t t h a t
g i v i n g the President the authority to p r o h i b i t exports would inject
an element of uncertainty into existing U.S. business relations w i t h
the A r a b world, since the President could at any time act to p r o h i b i t
exports and other economic transactions w i t h any of the A r a b countries.
Senator W i l l i a m s has been m a k i n g herioc efforts as the Chairman of
the Securities Subcommittee to obtain i n f o r m a t i o n f r o m the Department of Commerce. He has met w i t h not quite the same obstacles we
have; the Department recently released some i n f o r m a t i o n to h i m , s t i l l
183
incomplete, and what that i n f o r m a t i o n disclosed is I submit profoundly
disturbing.
I t includes the fact that there has been an astounding increase i n
the dollar value of U.S. exports involved i n the A r a b boycott—from
$10 m i l l i o n i n 1974 to a 1975 figure now approaching $204 m i l l i o n — a n d
that many of the largest U.S. corporations are involved.
These facts point, we believe, to the dire need f o r legislation to proh i b i t compliance by U.S. firms w i t h boycott requests.
The history of the last 20 years shows that mere exhortation by
Congress has been ineffective i n dealing w i t h these boycott tactics.
I n fact, what we have seen is executive nullification of congressional
action, where all that is involved is legislation of a precatory type.
I f anything, as we have indicated, the boycott has intensified i n recent
months. The anti-boycott provision of the E x p o r t A d m i n i s t r a t i o n
A c t , first enacted i n 1965, as you have pointed out, M r . Chairman, has
not curbed the boycott, notwithstanding the clear and unequivocal
statement of U.S. policy condemning the boycott.
As originally introduced by Senator W i l l i a m s and 30 other members of the Senate, and i t is an interesting historical sidelight that
Senator Beall, the late Senator Beall was one of the cosponsors of that
resolution and his son, Senator Beall, has been sponsoring legislation
designed to curb the A r a b boycott today.
A s o r i g i n a l l y introduced, the legislation would have prohibited
compliance w i t h boycott requests, but the Department of State and
Commerce prevailed upon Congress to m o d i f y the b i l l to provide
" f l e x i b i l i t y " i n countering the boycott.
One of the problems A c t is that the Department of Commerce never
welcomed the legislation, whether i t is i n the f o r m of a mandatory
ban on complying w i t h boycott requests or whether i t is the hortatory
type now on the books, because when Secretary Connor testified i n
1965 i n legislation to extend and amend the E x p o r t Control A c t of
1949 he said, speaking of both types of legislation: " W e s t i l l t h i n k
that either one of these proposals is undersirable f r o m the point of
view of the foreign relations of the U n i t e d States, and also f r o m the
point of view of its effect on many U.S. manufacturers and other tradi n g organizations."
A n d then he added: "However, i f i t is the wish of the Congress
that there be some such expression of policy, then we would prefer the
House b i l l , " which is the precatory hortatorv tvpe, rather than S. 948,
which was the b i l l introduced by Senator W i l l i a m s and which would
have banned complia nee w i t h the boycott.
I submit that that negative attitude prevailed i n 1965 when the legislation was enacted has persuaded the enforcement and implementation of the existing law to this very day.
Just 19 years ago this month, M r . Chairman, the Senate i n respondi n g to the Saudi-Arabian discrimination against American Jews,
unanimously adopted a resolution condemning efforts by foreign countries to draw distinction among American citizens on the basis of religion and u r g i n g the executive branch to keep this principle uppermost i n m i n d when conducting negotiations w i t h foreign countries.
B u t these same discriminatory practices are still w i t h us today and
command the attention of this committee.
184
The only lesson to be d r a w n f r o m this history is that i f we are serious
about p u t t i n g an end to these practices, Congress must place an outr i g h t ban on them.
The other aspect of the overall problem, the need to monitor foreign
investments, we have alreadv testified i n support of the W i l l i a m s b i l l ,
S. 425, before the Subcommittee on Securities, and I won't repeat t h a t
testimony here.
I would like to conclude my remarks before h a v i n g M r . Eisenberg
make his remarks by c i t i n g some sobering facts and forecasts about
A r a b financial power.
A recent study by M r . W a l t e r J. Levy, a renowned expert i n o i l
matters, estimates that the oil-producing nations w i l l have a $7-million
investment income—that is, apart f r o m oil income—this year, a figure
higher than the total oil revenue i n 1970, and t h a t by 1980 their earnings on reinvestment of surplus alone is likely to reach $30 billion. The
$250 to $300 billion surplus that these countries can be expected to
amass by that time is two to three times the holdings of the Western
nations at the end of 1974.
T h i s vast amount of money available f o r investment inevitably
bears great potential f o r economic and political power over America.
This power is alreadv beginning to make itself felt.
W e believe, therefore, that i t is not too soon to enact legislation to
protect American business and American citizens f r o m i n t i m i d a t i o n
and the other abuses this power carries w i t h it.
[The complete prepared statement of M r . Graubard and additional
material received f o r the record f o l l o w s : ]
185
Statement BySeymour Graubard
N a t i o n a l Chairman
A n t i - D e f a m a t i o n League o f B ' n a i
My name i s Seymour
A n t i - D e f a m a t i o n League o f
B'rith
Graubard and I am N a t i o n a l Chairman o f t h e
B'nai
B'rith.
I a p p r e c i a t e , M r . Chairman,
y o u r i n v i t a t i o n t o appear b e f o r e t h i s subcommittee t o p r e s e n t our
views on t h e l e g i s l a t i o n p r e s e n t l y b e f o r e i t and on t h e dangers i n h e r e n t i n t h e s i t u a t i o n s w h i c h have prompted t h e i n t r o d u c t i o n o f
t h e s e measures.
Our o r g a n i z a t i o n has been d e d i c a t e d f o r some s i x t y - t w o y e a r s t o
t h e p r e s e r v a t i o n o f our American c o n s t i t u t i o n a l p r i n c i p l e s and t r a d i tions.
We s u p p o r t t h e l e g i s l a t i o n b e f o r e t h i s subcommittee w h i c h i s
designed t o defend t h e American p r i n c i p l e s o f e q u a l r i g h t s and o p p o r t u n i t i e s a g a i n s t debasement b y f o r e i g n i n v e s t o r s .
By t u r n i n g t h e
s p o t l i g h t on massive f o r e i g n i n v e s t m e n t , t h e proposed l e g i s l a t i o n
w i l l enable government agencies t o c o o r d i n a t e t h e i r e f f o r t s t o p r e v e n t s u b v e r s i o n o f American p u b l i c
policy.
That our n a t i o n needs such l e g i s l a t i o n i s o b v i o u s .
The Arab
p r o d u c i n g c o u n t r i e s ammassed a s u r p l u s o f about $60 b i l l i o n l a s t
oil
year,
and t h e most c o n s e r v a t i v e e s t i m a t e i s t h a t t h e s u r p l u s w i l l r e a c h a
q u a r t e r o f a t r i l l i o n d o l l a r s b y 1980.
These c o u n t r i e s have made i t
p l a i n t h a t t h e y would l i k e t o i n v e s t v a s t sums o f t h i s money i n t h e
U n i t e d S t a t e s , as w e l l as t o s t e p up t r a d e and b u s i n e s s w i t h
American
firms.
The
A n t i - D e f a m a t i o n League, Mr. Chairman, i s n o t opposed e i t h e r
t o A r a b - A m e r i c a n t r a d e o r t o Arab i n v e s t m e n t h e r e .
I n d e e d , we f a v o r
186
- 10 i t as a means o f b a l a n c i n g i n t e r n a t i o n a l payments.
What we oppose —
what indeed American law and p r i n c i p l e oppose — i s t h e d e n i a l o f
i n d i v i d u a l r i g h t s and t h e o u t r i g h t r e l i g i o u s d i s c r i m i n a t i o n t h a t have
been p a r t and p a r c e l o f Arab b u s i n e s s p o l i c y .
I am n o t s p e a k i n g o f
t h e economic b o y c o t t o f I s r a e l a l o n e — w h i c h i n i t s e l f i s r e p u g n a n t
t o d e c l a r e d American p o l i c y — b u t more so o f a v i c i o u s
blacklisting
o f persons o f t h e J e w i s h f a i t h , a p r a c t i c e w h i c h has a l r e a d y r e s u l t e d
i n numerous v i o l a t i o n s b y American b u s i n e s s f i r m s and government
agencies o f t h e n a t i o n ' s c i v i l r i g h t s l a w s , and o f t h e
Constitution
itself.
The m i x i n g o f economic o b j e c t i v e s w i t h p o l i t i c a l
and r e l i g i o u s b i a s i s c l e a r l y an Arab t e c h n i q u e .
objectives
They have d i s t o r t e d
t h e c o m p e t i t i v e r u l e s o f t h e m a r k e t p l a c e b y i m p o s i n g a b o y c o t t on
o v e r 1 , 8 0 0 U.S. companies because o f t h e i r ownership b y Jews o r b u s i ness r e l a t i o n s h i p
( i n many cases tenuous o r a l m o s t n o n - e x i s t e n t )
I s r a e l o r w i t h o t h e r companies d o i n g b u s i n e s s i n o r w i t h I s r a e l .
d i s c r i m i n a t o r y t a c t i c s have a l s o been used a g a i n s t s o - c a l l e d
c o n n e c t e d " i n v e s t m e n t b a n k i n g houses such as Lazard
with
Arab
"Jewish
F r e r e s i n New Y o r k
and P a r i s , and N.M. R o t h s c h i l d and S. G. Warburg o f London.
The
Wall Street Journal
observed on F e b r u a r y l U :
"The
black-
l i s t i n g o f t h e s e f i r m s appears l e s s t o be a n a t t e m p t t o undermine
t h a n an a t t e m p t t o i n j e c t a n t i - S e m i t i s m i n t o Western b u s i n e s s
The J o u r n a l c o n t i n u e d :
"The
Arabs have had t r o u b l e
practice."
distinguishing
t h e s e two purposes t h r o u g h o u t t h e i r 3 0 - y e a r o l d economic b o y c o t t
businesses w i t h t i e s t o I s r a e l . "
Israel
I n view of t h i s c u r r e n t l y
of
increasing
187
- 10 Arab pressure on
statement b y
American b u s i n e s s , we b e l i e v e t h a t more t h a n a mere
Treasury o f f i c i a l s i s necessary t o assure Americans t h a t
t h e huge p e t r o d o l l a r resources a t t h e command o f Arab n a t i o n s w i l l not
be used t o undermine t h e premises o f U.S. b u s i n e s s , t o t u r n American
companies i n t o p o l i t i c a l weapons aimed a t I s r a e l (or any o t h e r c o u n t r y ) ,
or t o curb t h e r i g h t s o f
American c i t i z e n s t h r o u g h sheer b i g o t r y .
outrageous worldwide Arab b o y c o t t and t h e f o s t e r i n g o f r e l i g i o u s
crimination against
s t a t e d on
The
dis-
Americans b y o t h e r Americans a r e , as P r e s i d e n t
February 2 6 t h , "repugnant t o American p r i n c i p l e s . "
Ford
We c e r -
t a i n l y must make c e r t a i n t h a t repugnant p r a c t i c e s are not i n t r o d u c e d
i n t o our n a t i o n a l
Various
life.
American f i r m s — e x p o r t e r s and banks — have t o l d t h e A n t i -
Defamation League p r i v a t e l y t h a t t h e y would welcome l e g i s l a t i o n e n a b l i n g
them t o stand up a g a i n s t Arab demands.
They f e e l , f o r example, t h a t t h e
d e c l a r a t i o n o f American t r a d e p o l i c y r e g a r d i n g b o y c o t t s i n t h e
A d m i n i s t r a t i o n A c t o f 19&9
an
out t e e t h , w i t h o u t compulsion.
Export
i n e f f e c t i v e weapon because i t i s w i t h American f i r m s are b e i n g f o r c e d , f o r
lack
o f e f f e c t i v e s a n c t i o n s , t o comply w i t h and t o ask compliance o f o t h e r s
i n a b o y c o t t which i s c o n t r a r y t o our n a t i o n ' s d e c l a r e d p o l i c y .
On t h i s
p o i n t , Mr. Chairman, we commend your b i l l , S.953, amending and s t r e n g t h ening t h e Export A d m i n i s t r a t i o n
Act.
I would l i k e t o quote a p o r t i o n
o f t h e remarks you made i n i n t r o d u c i n g i t .
You s t a t e d :
B o y c o t t s and r e s t r i c t i v e t r a d e p r a c t i c e s designed t o
support Arab p o l i c y are a p p a r e n t l y b e i n g p e r p e t r a t e d w i t h
i m p u n i t y a g a i n s t U.S. companies which have d e a l i n g s w i t h
Thousands o f U.S. f i r m s appear on Arab b o y c o t t l i s t s .
Israel.
There
are a l s o i n c r e a s i n g r e p o r t § o f d i s c r i m i n a t i o n a g a i n s t U. S.
f i n a n c i a l and investment i n s t i t u t i o n s w i t h Jewish i n t e r e s t s .
188
-
b -
A number o f i n v e s t m e n t b a n k i n g houses have a p p a r e n t l y been
excluded f r o m f i n a n c i n g s i n v o l v i n g Arab i n v e s t m e n t f u n d s .
R e p o r t s i n d i c a t e t h a t l a s t year more t h a n h a l f o f a l l U.S.
f i r m s w h i c h had been asked t o comply w i t h Arab
restrictive
t r a d e p r a c t i c e s o r b o y c o t t s d i r e c t e d a g a i n s t I s r a e l had complied.
The U . S . Government, t o o , has a p p a r e n t l y bowed t o
Arab demands b y a g r e e i n g t o e x c l u d e J e w i s h p e r s o n n e l f r o m
Army Corps o f
Engineers p r o j e c t s i n Saudi A r a b i a .
Such
a c t i o n s r a i s e grave i m p l i c a t i o n s f o r a n open i n t e r n a t i o n a l
t r a d i n g system, a n o n - d i s c r i m i n a t o r y U . S . economic system
and t h e conduct o f U . S . f o r e i g n p o l i c y .
( C o n g r e s s i o n a l R e c o r d , March 5 , 1975)
S.3064 - 3065
Those words p o i n t e d p e r c e p t i v e l y t o what a r e i n d e e d " g r a v e i m p l i c a t i o n s " a r i s i n g f r o m Arab a c t i v i t i e s — b o y c o t t ,
discrimination,
i n t i m i d a t i o n , and s t r i n g s a t t a c h e d t o e v e r y t h i n g f i n a n c i a l o r commercial.
I would l i k e t o m e n t i o n a few r e c e n t cases o f d i s c r i m i n a t i o n b y
A m e r i c a n f i r m s under t h e impetus o f Arab b u s i n e s s w h i c h u n d e r s c o r e
t h e s e grave
implications.
A l l i e d Van L i n e s I n t e r n a t i o n a l o f
C h i c a g o , s u r e l y one o f t h e
largest transporters of personal property i n the world, r e c e n t l y d i s t r i b u t e d a b r o c h u r e e n t i t l e d "Customs I n f o r m a t i o n . "
Under t h e h e a d i n g ,
" A r a b i a n C o u n t r i e s , " w h i c h i t l i s t s as Lebanon, E g y p t , I r a q ,
S y r i a , Saudi A r a b i a , K u w a i t , and t h e U n i t e d Arab
states:
Jordan,
Emirates, the brochure
" S h i p p e r must check w i t h t h e C o n s u l a t e f o r a p p r o v a l o f
items
189
- 5 t o be b r o u g h t i n t o c o u n t r y .
Items produced i n I s r a e l o r b y Jewish
f i r m s or associates throughout t h e w o r l d are b l a c k l i s t e d . "
phasize:
I em-
"Jewish f i r m s or associates throughout t h e w o r l d . "
i s b i g o t r y , not
This
politics.
A f i r m named t h e American Bureau o f S h i p p i n g T e c h n i c a l S e r v i c e s ,
w h i c h i s s o l i c i t i n g American p e r s o n n e l f o r i t s o p e r a t i o n s i n
Iraq
and B a h r e i n , has t u r n e d down a p p l i c a n t s because t h e y a r e J e w i s h and
has o p e n l y t o l d them t h a t t h i s i s t h e r e a s o n .
I n one case i t was b e -
cause t h e a p p l i c a n t had a Jewish r e l a t i v e — and s u r e l y t h i s i s p a i n f u l l y r e m i n i s c e n t o f H i t l e r ' s Nuremberg Laws.
A few days ago t h e A n t i -
Defamation League f i l e d a c o m p l a i n t a g a i n s t t h i s company b e f o r e t h e
EEOC, c i t i n g v i o l a t i o n s o f t h e C i v i l R i g h t s A c t o f 1964.
an i s o l a t e d
This i s not
c a s e ; t h e League has f i l e d s i m i l a r c o m p l a i n t s a g a i n s t
f i v e o t h e r American companies — f i r m s w h i c h r u n t h e gamut o f o v e r seas v o c a t i o n a l o p p o r t u n i t i e s — c h a r g i n g them w i t h
discriminating
a g a i n s t Jews t o a c c o r d w i t h Arab p o l i c i e s .
Among a number o f o t h e r examples o f b o y c o t t p r e s s u r e s w h i c h t h e
League has l e a r n e d about i s a l e t t e r sent t o an American f i r m b y t h e
U n i v e r s i t y o f P e t r o l e u m and M i n e r a l s i n Dhahran, Saudi A r a b i a ,
asking
f o r q u o t a t i o n s and s p e c i f i c a t i o n s on a number o f p r o d u c t s o f f e r e d f o r
sale.
The l e t t e r s t a t e s , i n p a r t :
"Please do n o t quote on goods
manufactured b y companies who a r e i n c l u d e d i n t h e Arab b o y c o t t
i.e.,
(BLACKLIST)."
T h i s means, do n o t quote on i t e m s made b y any
one o f a t l e a s t e i g h t e e n hundred American f i r m s .
5 8 - 5 2 7 O - 75 - 13
list,
190
- 10 Mohammed Mahgoub, Commissioner
B o y c o t t O f f i c e , has s a i d o f t h e
when i t
General of t h e
Arab League 1 s
B l a c k l i s t that i t includes
"companies
i s p r o v e d b y d e f i n i t e evidence t h a t t h e y , t h e i r p r o p r i e t o r s
c o n t r o l l e r s have
Zionist inclinations."
or
F o r t u n e magazine, i n q u o t i n g
t h i s s t a t e m e n t b y Mahgoub i n i t s i s s u e o f J u l y , 1975> comments t h a t
such " s w e e p i n g , c o n v e n i e n t , and h i g h l y d u b i o u s " t e r m s g i v e t h e A r a b s
"freedom t o b l a c k l i s t a l m o s t a t
will."
M r . Chairman, we b e l i e v e t h a t i t
i s o b v i o u s t h a t p r a c t i c e s such as
t h e s e can o n l y i n c r e a s e as t h e A r a b s 1 a c c u m u l a t i o n o f p e t r o d o l l a r s
c r e a s e s , so l o n g as our government a l l o w s t h i s .
in-
What Arab p e t r o d o l l a r s
have done i n r e g a r d t o i l l e g a l employment r e c r u i t m e n t i n t h e U n i t e d
S t a t e s , v i o l a t i o n o f government p o l i c y w i t h r e s p e c t t o b o y c o t t s
against
f r i e n d l y n a t i o n s , and e x c l u s i o n o f c e r t a i n f i r m s f r o m b u s i n e s s
contracts
i s o n l y a preamble t o what w i l l occur as t h e
invested i n
Arabs use t h e i r
dollars
American b u s i n e s s t o c o n t r o l and d i r e c t t h e a c t i v i t i e s
of
such dominated c o r p o r a t i o n s .
As Senator W i l l i a m s r e c e n t l y s a i d :
"Petrodol^s
can be used —
and t h e b o y c o t t demonstrates t h a t t h e y w i l l be used — t o advance o b j e c t i v e s w h i c h may w e l l be c o u n t e r t o our f u n d a m e n t a l n a t i o n a l commitments."
E x i s t i n g l e g i s l a t i v e safeguards a r e c l e a r l y i n s u f f i c i e n t t o f o r e stall
d i s c r i m i n a t o r y p r a c t i c e s b y f o r e i g n i n v e s t o r s , l e t a l o n e end
present d i s c r i m i n a t i o n by
American i n s t i t u t i o n s t h a t comply w i t h t h e
Arab b o y c o t t .
Nor i s a government r e q u e s t f o r v o l u n t a r y r e s t r a i n t
sufficient.
We have a l r e a d y seen how t h e d e c l a r e d p u b l i c p o l i c y a g a i n s t b o y c o t t has
been d i s h o n o r e d w i t h o u t shame b y thousands o f U. S. c o r p o r a t i o n s .
We
191
- 10 a r e d e a l i n g w i t h f o r e i g n n a t i o n a l s who have a d i f f e r e n t and o f t e n opposi n g f o r e i g n p o l i c y f r o m o u r s ; whose economic i n t e r e s t s and o b j e c t i v e s
a r e a t v a r i a n c e f r o m o u r s ; and whose concept o f l e g i t i m a t e government
a c t i o n i n c l u d e s , f o r example, a c t i v e l y s u p p o r t i n g t e r r o r i s t s who use
i n d i s c r i m i r E t e murder as a weapon o f e v e r y - d a y p o l i c y .
foodhardy t o b e l i e v e
I t w o u l d be
t h a t we can r e l y on t h e i r sense o f e t h i c s t o comply
w i t h our l a w s , whether o r n o t t h e s e laws c o n t a i n s a n c t i o n s .
T h e r e f o r e we commend y o u , M r , Chairman, f o r i n t r o d u c i n g amendments
t o t h e E x p o r t A d m i n i s t r a t i o n A c t w h i c h w i l l remedy some o f i t s
defi-
c i e n c i e s , p a r t i c u l a r l y i n r e g a r d t o r e q u i r i n g domestic concerns t h a t
report boycott requests also t o n o t i f y the
Department o f
Commerce
whether o r n o t t h e y i n t e n d t o comply w i t h such r e q u e s t s .
Your
bill,
S.953> i s a l s o v a l u a b l e i n t h a t i t a u t h o r i z e s t h e P r e s i d e n t t o t a k e
a c t i o n i n c a r r y i n g out U.S. p o l i c y against b o y c o t t s , a c t i o n which could
i n c l u d e c u r t a i l i n g economic t r a n s a c t i o n s w i t h c o u n t r i e s w h i c h impose
boycotts.
We w o u l d , however, l i k e t o see added t o i t a p r o v i s i o n t h a t
r e p o r t s o f b o y c o t t r e q u e s t s t o t h e Department o f Commerce n o t be
deemed c o n f i d e n t i a l — as i s t h e D e p a r t m e n t ' s p r e s e n t p o l i c y .
The A n t i - D e f a m a t i o n League has r e q u e s t e d , under t h e Freedom o f
I n f o r m a t i o n A c t , t h a t u n d e l e t e d r e p o r t s o f b o y c o t t r e q u e s t s be r e l e a s e d
t o t h e League, b u t t h e Department has f o r m a l l y r e f u s e d .
We have even
been d e n i e d access t o t h e c h a r g i n g and w a r n i n g l e t t e r s s e n t b y t h e
Department
t o e x p o r t e r s who have f a i l e d t o comply w i t h t h e r e q u i r e -
ment o f t h e law t h a t t h e y r e p o r t r e c e i p t o f such r e q u e s t s .
meantime, j u s t t h e o t h e r day Senator
In the
W i l l i a m s announced t h a t as a
192
- 10 r e s u l t o f e f f o r t s on h i s p a r t he has r e c e i v e d f r o m t h e Department p r e v i o u s l y u n d i s c l o s e d ("but s t i l l i n c o m p l e t e ) i n f o r m a t i o n r e g a r d i n g such
reports.
The i n f o r m a t i o n -which t h e Senator r e c e i v e d i s p r o f o u n d l y
ing.
disturb-
I t i n c l u d e s t h e f a c t t h a t t h e r e has been an a s t o u n d i n g i n c r e a s e
i n t h e d o l l a r - v a l u e of U.S. exports involved i n the
Arab b o y c o t t
—
f r o m $10 m i l l i o n i n 197^ t o a 1975 f i g u r e now a p p r o a c h i n g $204 m i l l i o n
— and t h a t many o f t h e l a r g e s t U . S . c o r p o r a t i o n s a r e i n v o l v e d .
These
f a c t s p o i n t , we b e l i e v e , t o t h e d i r e need f o r l e g i s l a t i o n i n a d d i t i o n
t o t h a t w h i c h i s b e i n g c o n s i d e r e d t o d a y — namely, l e g i s l a t i o n t o p r o h i b i t compliance b y U . S . f i r m s w i t h b o y c o t t r e q u e s t s .
The h i s t o r y o f
t h e l a s t 20 y e a r s shows t h a t mere e x h o r t a t i o n b y
Congress has been i n -
e f f e c t i v e i n dealing w i t h these boycott t a c t i c s .
I f a n y t h i n g , as we
have i n d i c a t e d , t h e b o y c o t t has i n t e n s i f i e d i n r e c e n t months.
boycott provision of the
Export A d m i n i s t r a t i o n
The a n t i -
A c t , f i r s t enacted i n
1 9 6 5 , as y o u have p o i n t e d o u t , M r . Chairman, has n o t c u r b e d t h e b o y c o t t ,
n o t w i t h s t a n d i n g t h e c l e a r and u n e q u i v o c a l s t a t e m e n t o f U . S .
condemning t h e b o y c o t t .
policy
I n t h a t A c t as o r i g i n a l l y i n t r o d u c e d ,
l e g i s l a t i o n w o u l d have p r o h i b i t e d compliance w i t h b o y c o t t
b u t t h e Departments o f S t a t e and
the
requests,
Commerce p r e v a i l e d upon Congress t o
modify the b i l l t o provide " f l e x i b i l i t y " i n countering the boycott.
And j u s t 19 y e a r s ago t h i s month, t h e
Senate, i n responding t o t h e
S a u d i - A r a b i a n d i s c r i m i n a t i o n a g a i n s t A m e r i c a n Jews, u n a n i m o u s l y adopted
a R e s o l u t i o n condemning e f f o r t s b y f o r e i g n c o u n t r i e s t o draw d i s t i n c t i o n s
among American c i t i z e n s on t h e b a s i s o f r e l i g i o n and u r g i n g t h e E x e c u t i v e
b r a n c h t o keep t h i s p r i n c i p l e uppermost i n mind when c o n d u c t i n g n e g o t i a -
193
- 10 tions with foreign countries.
But t h e s e same d i s c r i m i n a t o r y p r a c t i c e s
a r e s t i l l w i t h us t o d a y and command t h e a t t e n t i o n o f t h i s
committee.
The o n l y l e s s o n t o be drawn f r o m t h i s h i s t o r y i s t h a t , i f we a r e s e r i o u s
about p u t t i n g an end t o t h e s e p r a c t i c e s ,
Congress must p l a c e an o u t -
r i g h t ban on them.
The o t h e r a s p e c t o f t h e o v e r a l l p r o b l e m — t h e need t o m o n i t o r
f o r e i g n i n v e s t m e n t s — i s addressed b y t h e
and t h e o t h e r b i l l s b e i n g c o n s i d e r e d t o d a y .
Williams B i l l ,
S.^25,
We commend i n p a r t i c u l a r
t h e W i l l i a m s B i l l , w h i c h , as an amendment t o our s e c u r i t i e s laws i s
w i t h i n t h e i r s p i r i t o f d i s c l o s u r e and a n a t u r a l e x t e n s i o n o f t h e r e p o r t i n g r e q u i r e m e n t s f o r t h e a c q u i s i t i o n o f shares i n p u b l i c companies. We
commend i t f o r empowering t h e P r e s i d e n t t o b l o c k f o r e i g n i n v e s t m e n t s
U . S . companies p r i o r t o a c q u i s i t i o n ,
in
i f he f i n d s i t n e c e s s a r y t o p r o -
t e c t t h e n a t i o n a l s e c u r i t y , f u r t h e r t h e f o r e i g n p o l i c y , or p r o t e c t the
domestic economy o f t h e U n i t e d S t a t e s .
ment t o t h e b i l l o f f e r e d b y Senator
Commendable a l s o i s t h e amend-
W i l l i a m s , which r e q u i r e s the
P r e s i d e n t t o p r o h i b i t any such a c q u i s i t i o n i f t h e f o r e i g n i n v e s t o r has
a t t e m p t e d t o coerce American f i r m s i n t o b o y c o t t c o m p l i a n c e .
The
W i l l i a m s B i l l a l s o c o n t a i n s what we c o n s i d e r t o be u s e f u l and e f f e c t i v e
enforcement
provisions.
The Stevens
Amendment No. 393 t o t h e Inouye B i l l , S . 1 3 0 3 , i s
to
b e s u p p o r t e d f o r i t s i n c l u s i o n o f domestic b u s i n e s s e s o t h e r t h a n p u b l i c
companies as w e l l as f o r f o r e i g n i n v e s t o r s who a c q u i r e r e a l o r p e r s o n a l
property.
i n the
I t does, however, l o d g e t h e power t o c o n t r o l a c q u i s i t i o n s
Secretary of
Commerce r a t h e r t h a n t h e P r e s i d e n t , and p a s t e x -
p e r i e n c e shows t h a t t h e S e c r e t a r y may be i n need o f c l e a r
guidelines.
legislative
194
- 10 The B o t h
B i l l , S . 9 9 5 , would r e a c h o n l y i n v e s t m e n t s "by f o r e i g n
governments o r agents t h e r e o f .
The Inouye
B i l l i t s e l f , S.1303, w o u l d c r e a t e a m o n i t o r i n g a d -
m i n i s t r a t i o n t o c o l l e c t i n f o r m a t i o n on f o r e i g n i n v e s t m e n t s .
c o n t a i n s , however,
It
ID p r o v i s i o n f o r r e g u l a t i n g such i n v e s t m e n t s o r
f o r p r o h i b i t i n g investments which are c o n t r a r y t o the
national
interest.
M r . Chairman, I w i l l c o n c l u d e b y c i t i n g s o b e r i n g f a c t s and f a r e c a s t s about Arab f i n a n c i a l power.
A recent study b y Mr. Walter
L e v y , a renowned e x p e r t i n o i l m a t t e r s , e s t i m a t e s t h a t t h e
oil-produc-
i n g n a t i o n s w i l l have a $7 b i l l i o n i n v e s t m e n t income — t h a t i s ,
f r o m o i l income — t h i s y e a r , a f i g u r e h i g h e r t h a n t h e t o t a l
The 250 t o
apart
oil
revenue i n 1970, and t h a t b y 1980 t h e i r e a r n i n g s on r e i n v e s t m e n t
s u r p l u s a l o n e i s l i k e l y t o r e a c h $30 b i l l i o n .
J,
of
300-billion-
d o l l a r s u r p l u s t h a t t h e s e c o u n t r i e s can b e expected t o amass b y t h a t
t i m e i s two t o t h r e e times t h e h o l d i n g s o f t h e Western n a t i o n s a t t h e
end o f 1 9 7 ^ .
T h i s v a s t amount o f money a v a i l a b l e f o r i n v e s t m e n t i n e v i t a b l y b e a r s
g r e a t p o t e n t i a l f o r economic and p o l i t i c a l power over
power i s a l r e a d y b e g i n n i n g t o make i t s e l f f e l t .
that i t
ness and
America.
We b e l i e v e ,
i s n o t t o o soon t o enact l e g i s l a t i o n t o p r o t e c t
This
therefore,
American b u s i -
A m e r i c a n c i t i z e n s f r o m i n t i m i d a t i o n and t h e o t h e r abuses
t h i s power c a r r i e s w i t h
it.
195
MANDATORY DISCLOSURE OF
BOYCOTT COMPLIANCE AND SELF-INCRIMINATION
QUERY:
Does mandated d i s c l o s u r e o f i n t e n d e d i l l e g a l a c t i v i t y r u n
a f o u l o f c o n s t i t u t i o n a l protections against s e l f - i n c r i m i n a t i o n ?
Proponents o f t h e s t r e n g t h e n i n g o f t h e Export A d m i n i s t r a t i o n A c t p r o v i s i o n s
r e g a r d i n g b o y c o t t s o f f r i e n d l y n a t i o n s have supported mandatory d i s c l o s u r e o f
i n t e n t i o n t o comply w i t h b o y c o t t r e q u e s t s , even though compliance w i t h such
requests may be i l l e g a l under p r e s e n t o r proposed U n i t e d S t a t e s l a w s ,
A r e v i e w o f p e r t i n e n t d e c i s i o n s appears t o i n d i c a t e t h a t such mandatory
d i s c l o s u r e would, i n d e e d , v i o l a t e t h e r i g h t s o f a n a t u r a l i n d i v i d u a l
complying w i t h t h e b o y c o t t .
illegally
However, t h e v a s t m a j o r i t y o f U n i t e d States compan-
i e s , b e i n g c o r p o r a t i o n s o r o t h e r e n t i t i t e s , do n o t have such a p r i v i l e g e .
I n 1968, t h e U.S. Supreme C o u r t , o v e r r r u l i n g a p r e v i o u s case, h e l d t h a t
s t a t u t o r y o b l i g a t i o n s r e q u i r i n g bookmakers t o r e g i s t e r and pay an o c c u p a t i o n a l
t a x under f e d e r a l wagering t a x s t a t u t e s v i o l a t e d such i n d i v i d u a l s ' F i f t h Amendment p r i v i l e g e a g a i n s t s e l f - i n c r i m i n a t i o n because compliance w i t h t h e s t a t u t o r y
d i s c l o s u r e requirements would c o n f r o n t them w i t h " s u b s t a n t i a l hazards o f
incrimination."
709 / I 9 6 8 7 .
( M a r c h e t t i v . U . S . , 88 S . C t . 697
self-
> Grosso v . U . S . , 88 S. C t .
See a l s o Haynes v . U . S . , 88 S . C t . 722 / 1 9 6 8 7 . )
I n o t h e r cases, t h e Court has d i s t i n g u i s h e d a g e n e r a l requirement t o r e p o r t
i n f o r m a t i o n i n "an e s s e n t i a l l y n o n c r i m i n a l and r e g u l a t o r y area o f
(California v.
flyers,
9 1 S . C t . 1535
ffiWj,
inquiry"
upholding a C a l i f o r n i a State r e q u i r e -
ment t h a t m o t o r i s t s i n v o l v e d i n a c c i d e n t s l e a v e t h e i r i d e n t i f i c a t i o n ) .
Mandating
t h e r e p o r t i n g o f i n t e n t i o n t o comply w i t h an i l l e g a l b o y c o t t r e q u e s t would appear
c l o s e r t o t h e former t h a n t h e l a t t e r
category.
196
-
2
-
W h i l e i n d i v i d u a l s a c c e d i n g t o b o y c o t t r e q u e s t s w o u l d , t h e r e f o r e , be c o n s t i t u t i o n a l l y p r o t e c t e d from t h e n e c e s s i t y t o r e p o r t t h e i r wrongdoing, a l o n g l i n e
o f cases make i t
clear t h a t the c o n s t i t u t i o n a l p r i v i l e g e against
t i o n cannot be u t i l i z e d b y o r i n b e h a l f o f a c o r p o r a t i o n o r o t h e r
( B a l e v . H e n k e l , 26 S . C t . 370
and l a t e r c a s e s .
organization.
See e s p e c i a l l y
George Campbell P a i n t i n g C o r p . v . R e i d , 88 S . C t . 1978
A s s o c i a t i o n v . S h u l t z , 94 S . C t . 1494 / 1 9 7 4 / ) .
self-incrimina-
C a l i f o r n i a Bankers
I n Ufaited S t a t e s v . W h i t e , 64 S . C t .
1243 £ 9 4 4 7 , t h e Court h e l d t h a t an o f f i c e r o f an u n i n c o r p o r a t e d l a b o r u n i o n has
no p r i v i l e g e a g a i n s t s e l f - i n c r i m i n a t i o n i n h i s o f f i c i a l c a p a c i t y , s t a t i n g t h a t
individuals,
"when a c t i n g as r e p r e s e n t a t i v e s o f a c o l l e c t i v e g r o u p , cannot b e
s a i d t o b e e x e r c i s i n g t h e i r p e r s o n a l r i g h t s and d u t i e s i n o r d e r t o be e n t i t l e d t o
t h e i r purely personal p r i v i l e g e s
. . . The c o n s t i t u t i o n a l p r i v i l e g e a g a i n s t
i n c r i m i n a t i o n i s e s s e n t i a l l y a p e r s o n a l one, a p p l y i n g o n l y t o n a t u r a l
self-
individuals."
C l e a r l y , t h e v a s t m a j o r i t y o f American businesses would not be e n t i t l e d t o
such a p r i v i l e g e .
The r e q u i r e m e n t o f d i s c l o s u r e w i l l t h e r e f o r e be a v a l u a b l e
t o o l t o combat t h e B o y c o t t .
The r e q u i r e m e n t c a n be w a i v e d f o r t h e o c c a s i o n a l
i n d i v i d u a l f o r whom i t would, b e c o n s t i t u t i o n a l l y
defective.
197
s . 9 5 3 AND PRESIDENTIAL POWERS
S. 953» i n t r o d u c e d b y Senator Stevenson, amending t h e E x p o r t A d m i n i s t r a t i o n A c t o f 1969, c o n t a i n s t h e f o l l o w i n g proposed language w i t h r e s p e c t t o t h e
implementation o f t h e s e c t i o n concerning f o r e i g n r e q u e s t s f o r American f i r m s
t o participate i n a boycott:
" . . . For such a c t i o n as t h e P r e s i d e n t may deem a p p r o p r i a t e t o
c a r r y out t h e p o l i c y o f t h a t s e c t i o n , i n c l u d i n g t h e c u r t a i l m e n t by
any U.S. concern o f e x p o r t s t o , and investments i n , o r any o t h e r
economic t r a n s a c t i o n s w i t h c o u n t r i e s which impose b o y c o t t s o r
engage i n r e s t r i c t e d t r a d e p r a c t i c e s as s p e c i f i e d i n t h a t
section."
I t has been suggested t h a t t h e proposed amendment i s unnecessary, as t h e
P r e s i d e n t a l r e a d y has such powers under e x i s t i n g l a w .
I t would appear upon e x a m i n a t i o n o f t h e p r e s e n t language o f t h e A c t , and
i t s l e g i s l a t i v e h i s t o r y , t h a t t h e s t a t u t e indeed now g i v e s t h e P r e s i d e n t some,
b u t n o t a l l o f t h e d i s c r e t i o n a r y powers t h e proposed amendment would c o n f e r . .
The A c t , 50 App. § 2^01 e t Beg., c o n t a i n s i n S e c t i o n 2k02,
various
d e c l a r a t i o n s b y Congress o f f o r e i g n p o l i c y o f t h e U n i t e d S t a t e s , i n c l u d i n g a
p o l i c y opposing b o y c o t t s o f f r i e n d l y n a t i o n s .
S e c t i o n 2k03,
(b)(1)
states:
"To e f f e c t u a t e t h e p o l i c i e s s e t f o r t h i n S e c t i o n 3 o f t h i s
A c t [ S e c t i o n 2k02 o f t h i s Appendix 1 t h e P r e s i d e n t may p r o h i b i t o r
c u r t a i l t h e e x p o r t a t i o n f r o m t h e U n i t e d S t a t e s , i t s t e r r i t o r i e s and
p o s s e s s i o n s , o f any a r t i c l e s , m a t e r i a l s o r s u p p l i e s i n c l u d i n g t e c h n i c a l d a t a , o r any o t h e r i n f o r m a t i o n , except under such r u l e s and
t• -
r e g u l a t i o n s as he s h a l l p r e s c r i b e . . .
„
"
198
-
2
-
T h i s language appears on i t s f a c e t o endow t h e P r e s i d e n t w i t h power t o
c o n t r o l e x p o r t s i n f u r t h e r a n c e o f our f o r e i g n p o l i c y , i n c l u d i n g o p p o s i t i o n t o
boycotts.
tions.
An e x a m i n a t i o n o f t h e l e g i s l a t i v e h i s t o r y shows Congress'
inten-
The C o n g r e s s i o n a l Record o f F e b r u a r y 1 7 , 1 9 ^ 9 , pages 1367 e t seq,.,
c o n t a i n s a t r a n s c r i p t o f t h e d i s c u s s i o n i n t h e House o f R e p r e s e n t a t i v e s on t h e
a d o p t i o n o f t h e E x p o r t C o n t r o l A c t o f 19^9* one o f t h e p r e s e n t l a w ' s p r e d e c e s sors.
M r . Sabath, who i n t r o d u c e d t h e b i l l , remarked as f o l l o w s ,
" . . . the
bill
i s r e l a t i v e t o t h e c o n t r o l o f t h e e x p o r t a t i o n o f products t h a t are v i t a l t o the
n a t i o n ' s i n t e r n a l economy as w e l l as t o i t s e x t e r n a l s e c u r i t y .
I t provides
for
the continuation of the President's a u t h o r i t y t o c o n t r o l t h i s v i t a l l i n k i n the
chain of the n a t i o n ' s w e l f a r e . "
(Page 1367, column 3 ) .
The E x p o r t C o n t r o l A c t o f I9U9 was extended i n 1965 and amended.
(The
s e c t i o n d e c l a r i n g t h a t i t i s U . S . P o l i c y t o oppose b o y c o t t s was added a t
time).
this
The 1965 Senate r e p o r t d e s c r i b e s t h e purposes o f t h e b i l l as f o l l o w s :
"The enactment o f t h e proposed l e g i s l a t i o n w o u l d s e r v e t h r e e
p r i n c i p a l purposes . . . t h i r d , i t w i l l f u r n i s h t h e A d m i n i s t r a t i o n w i t h
c l e a r l e g a l a u t h o r i t y t o p r o t e c t American b u s i n e s s f i r m s f r o m competi t i v e p r e s s u r e s t o become i n v o l v e d i n f o r e i g n t r a d e c o n s p i r a c i e s
countries f r i e n d l y t o the United States."
in
( U . S . C o n g r e s s i o n a l and
A d m i n i s t r a t i v e News, 1965, page 1 8 2 6 . )
M r . S t e v e n s o n ' s proposed amendment, however, w o u l d g i v e a d d i t i o n a l powers
t o t h e P r e s i d e n t , namely, t o c u r t a i l i n v e s t m e n t s i n , o r any o t h e r economic
t r a n s a c t i o n s w i t h c o u n t r i e s w h i c h impose b o y c o t t s o r engage i n r e s t r i c t e d t r a d e
practices.
Such P r e s i d e n t i a l powers a r e f o u n d i n t h e T r a d i n g w i t h t h e Enemy
A c t , 50 App* 5 ( b ) ( 1 ) a l t h o u g h under t h e l a t t e r a c t , t h e y may o n l y b e used
199
- 3 d u r i n g a t i m e o f war o r n a t i o n a l emergency.
The p r o p o s e d language o f Senator Stevenson, w o u l d c l a r i f y and expand
t h e o p t i o n s a v a i l a b l e t o t h e P r e s i d e n t t o t a k e f i r m and e f f e c t i v e a c t i o n t o
c a r r y o u t , i n h i s d i s c r e t i o n , t h e announced C o n g r e s s i o n a l p o l i c y
boycotts.
against
I t s passage w o u l d u n d e r s c o r e t h e C o n g r e s s i o n a l i n t e n t t h a t A m e r i -
can c i t i z e n s be p r o t e c t e d i n t h i s
regard.
200
WASHINGTON, D. C. OFFICE
ANTI-DEFAMATION LEAGUE
Of B'nai B'rith
1640 Rhode Island Avenue, N.W. • Washington, D. C. 20036 • [202] 393-5284
NATIONAL COMMISSION
DAVID A. BRODY
Director
DORESCHARY
HENRY E. SCHULTZ
Honorary Chairmen
August
DAVID A. ROSE
Chairman, National
Executive Committee
LEONARD L ABESS
JACK A. G0LDFARB
LAWRENCE A. HARVEY
JACOB K. JAVTTS
PHILIP M. KLUTZNICK
LE0NL0WENSTEIN
ROBERT R.NATHAN
ABRAHAM A. RIBICOFF
MATTHEW B. ROSENHAUS
CHESTER H. ROTH
WILLIAM SACHS
PAUL H. SAMPLINER
MELVIN H. SCHLESINGER
THEOOORE H. SILBERT
Honorary Vice-Chairmen
MRS. ISADORE E. BINSTOCK
MERLE D. COHN
MORTON R. 60DINE
CHARLES GOLDRING
BERNARD D. MINTZ
NORMAN J. SCHLOSSMAN
Vice-Chairmen
MAXWELL E. GREENBERG
Vice-Chairman, National
Executive Committee
BENJAMIN GREENBERG
RICHARD M. LEDERER, JR.
Honorary Treasurers
BUHTON M. JOSEPH
Treasurer
S t a n l e y J . Marcuss, Esq.
Counsel, Subcommittee on
Finance
W a s h i n g t o n , D. C. 20510
Dear
13,
1975
International
Stan:
I t h o u g h t y o u w o u l d l i k e t o see a copy o f t h e
l e t t e r we s e n t t o S e c r e t a r y M o r t o n e a r l i e r t h i s week
c h a r g i n g t h e Commerce D e p a r t m e n t w i t h c o o p e r a t i n g a n d
a s s i s t i n g i n the Arab b o y c o t t by d i s s e m i n a t i n g f o r e i g n
tenders which include boycott provisions against I s r a e l .
I f i t ' s n o t t o o l a t e , y o u may w a n t t o i n c l u d e t h e
l e t t e r i n the record o f the Subcommittee h e a r i n g s .
THOMAS D. MANTEL
Assistant Treasurer
JOHN L. GOLDWATER
Secretary
Sincerely,
NORMAN M. WALL
Assistant Secretary
David A.
DAVID M. BLUMBERG
President, B'nai B'rith
RABBI BENJAMIN KAHN
Executive Vice-President
B'nai B'rith
MRS. MILTON T.SMITH
President, B'nai B'rith Women
DAB : e b o - '
encl.
ARNOLD F0RSTER
Associate National Director
and General Counsel
STAFF DIRECTORS
ABRAHAM H. F0XMAN
Leadership
THEODORE FREEDMAN '
Program, Community Service
J. HAROLD SAKS
Brody
201
ANTI-DEFAMATION
o/
SEYMOUR CRAUBARD
315 LEXINGTON AVCNUC
SCW YORK, N.Y. IOOIO
}
LEAGUE
y ) / t a i
August
11,
1975
Hon. Rogers M o r t o n
Secretary
Department o f Cansnerce
W a s h i n g t o n , D . C . 20230
Dear S i r :
T h i s l e t t e r i s t o p r o t e s t t h e c o o p e r a t i o n and a s s i s t a n c e o f y o u r
Department i n t h e A r a b b o y c o t t o p e r a t i o n s a g a i n s t t h e S t a t e o f I s r a e l .
Enclosed i s a xerox of a n a t i o n a l l y disseminated l e t t e r from t h e
D e p a r t m e n t ' s O f f i c e o f B u s i n e s s Research and A n a l y s i s t o w h i c h t h e
Department a t t a c h e d a June 1975 communication f r o m I r a q . Y o u w i l l n o t e
t h a t t h e I r a q i communication i s a t e n d e r t o p u r c h a s e 3 , 5 5 0 p r e - c a s t ( p r e f a b r i c a t e d ) b u i l d i n g s , t h e t e r m s and c o n d i t i o n s o f w h i c h i n c l u d e a b o y c o t t
provision against I s r a e l .
Paragraph N o . 13 r e a d s as f o l l o w s :
"Country o f O r i g i n :
The t e n d e r e r s h o u l d n o t i n c o r p o r a t e
( s i c ) t h i s t e n d e r any m a t e r i a l t h a t has been m a n u f a c t u r e d i n
I s r a e l o r b y companies b o y c o t t e d o f f i c i a r y b y I r a q i
Government.
(Emphasis o u r s )
When t h e m a t t e r came t o o u r a t t e n t i o n , we t e l e p h o n e d t h e Commerce
Department desk w h i c h c i r c u l a t e d t h i s n a t i o n a l m a i l i n g .
Mr. Charles
P i t c h e r , t h e w r i t e r o f t h e c i r c u l a r l e t t e r , a d v i s e d us t h a t i t i s r o u t i n e
p r a c t i c e t o d i s s e m i n a t e such t e n d e r s as t h e y a r r i v e f r o m f o r e i g n l a n d s .
I n some c a s e s , we were t o l d , t h e Commerce Department " w r i t e s t h e m u p " ; i n
e t h e r c a s e s , t i e d i s t r i b u t i o n i s a r r a n g e d b y c o m p u t e r . We were i n f o r m e d ,
t o o , t h a t t h e s e t e n d e r s a r e r e c e i v e d b y Commerce f r o m t h e U. S . S t a t e
D e p a r t m e n t . The l e t t e r i t s e l f s t a t e s t h a t Commerce r e c e i v e d t h e t e n d e r
f r o m a "U. S. F o r e i g n Service P o s t " .
W i t h t h e f o r e g o i n g i n h a n d , we a s s i g n e d one o f o u r r e p r e s e n t a t i v e s
t o v i s i t y o u r Department o f Domestic and I n t e r n a t i o n a l B u s i n e s s - T r a d e
O p e r a t i o n O f f i c e , and examine t e n d e r s t h a t have b e e n d i s t r i b u t e d b y i t
f r o m a b o u t June 197U t o t h e p r e s e n t , p u r s e a r c h o n l y s p o t - c h e c k e d t e n d e r s
f r o m I r a q , S a u d i A r a b i a , L i b y a , S y r i a , Q a t a r , E g y p t , Lebanon, J o r d a n a n d
The U n i t e d A r a b E m i r a t e s . We f o u n d a t l e a s t one o t h e r i n s t a n c e i n w h i c h
y o u r Department d i s t r i b u t e d a t e n d e r c o n t a i n i n g Arab b o y c o t t p r o v i s i o n s .
I n t h e D e p a r t m e n t ' s I r a q i f o l d e r , t h e r e i s a b i d r e c e i v e d March i f , 1975
i n v i t i n g ^ t e n d e r s f a r a s u p p l y o f i n d u s t r i a l l o c o m o t i v e s f o r t h e Samawah
202
Hon. Rogers Morton
- 2 -
August 11, 1975
Cement Public Company, P.O. Box 5, Samawah, I r a q . Attached t o the standard telegraphed form from the Trade Opportunities Officer, i s a l i s t i n g
of "General Terms and Conditions." I t states i n Section 13: ( t i t l e d
Certificate of Origin)
"Tenderer must submit c e r t i f i c a t e of origin specifying
that the goods are not of I s r a e l i origin, not the company
having a branch i n I s r a e l , and that they w i l l not be shipped
on I s r a e l i or blacklisted vessels* This c e r t i f i c a t e mast be
legalized "by the I r a q i or aay Arab consulate or representative
and i n the case of t h e i r non-existence, legalization by
Chamber of Commerce or Industry i n the Country of Origin or
port of shipment w i l l suffice."
I n addition t o t h i s l a t t e r instance, our search at the Department
turned Tip other questionable informational requirements i n tenders
circulated by Commerce; questionable, because i f complied with, these
provisions would enable the Arab country t o take the next step of r e j e c t ing bids that violate t h e i r boycott rules. For example:
1*
Egypt: bidders must submit offers through Egyptian
commercial companies or through an Egyptian agent (which
may l i m i t freedom of trade by having t o go through such
contacts).
2.
Qatar: i n a bid for tenders received September 2 k $ 197k
re Communication Pipes, "Tenders should include product's
country of origin and name of producers..."
3.
Libya: bid for tenders received August 16, 197^, requires
bidding through Libyan agent. Further, this bid request
for x-ray diagnostic units for eight Libyan hospitals
states "Restricted Tender Board can reject any tender
without explanation."
Because your Department advised us, as indicated above, that the
tenders i t disseminates are received from the U. S. State Department, we
communicated with that o f f i c e . There, we talked by telephone with Nicholas
Lakas, the Director of the Office of Commercial A f f a i r s , who promised t o
look i n t o the matter. Because the subject i s so important, we are writing
t o you, copy t o the U. S. Secretary of State, pending the results of his
.inquiry.
I t i s ironic that your Department distributes warnings t o American
companies t o remind them that the provisions of the Export Administration
Act require a report t o the Department of any request for boycott compliance — while your Department i t s e l f i s disseminating proposed purchases
which include such requests for Arab boycott. We wonder how many conqoanies
203
Hon* Sogers Mart an
- 3 -
August 11, 1975
receiving these mailings have reported, as required under the Act, that
the Commerce Department i t s e l f is guilty of violating the p u b l i c l y
announced policy of our government*
We ask that the Commerce Department comply with American public
policy as set forth i n the Export Administration Act, which opposes submission to boycott demands of friendly countries by other foreign powers.
Very truly yours,
SG:nk
Enc.
cc:
Hon* Henry A. Kissinger
Secretary of State
Department of State
Washington, D.C.
204
UNITED STATES DEPARTMENT OF C O M M E R C E
The Assistant Secretary for Domestic
and International Business
W a s h i n g t o n . D.C.
20230
Mr* Seymour Graubard
National Chairman
Anti-Defamation League of B'nai B'rith
1640 Rhode Island Avenue, S*W*
Washington, D* C* 20036
Dear Mr, Graubard:
This is in response to your letter of August 11, 1975, to
Secretary Morton in which you advise that i t has come to your
attention that this Department recently disseminated to
interested American firms a bid tender for the purchase of
pre-caat buildings by the Government of Iraq which contained
a provision excluding the use of materials of Israeli origin
or materials manufactured by firms boycotted by the Government of Iraq*
We were quite distrubed to leam that, contrary to longstanding
Departmental policy, copies of this tender and other trade
opportunity documents were disseminated without attaching
thereto a statement of United States policy opposing such
restrictive trade practices and requesting the American firms
concerned not to comply with them* Secretary Morton appreciates your bringing this matter to his personal attention*
in order to avoid this occurring again, we have instructed
appropriate officials in the Domestic and International
Business Administration that henceforth a statement should
k® stamped on any documents containing such restrictive trade
clauses which are disseminated by thi3 Department* such
statement will direct the reader's attention to the particular
restrictive clause and advise him of U.S. policy in opposition
thereto*
Although the issue of discrimination because of race, color,
religion, sex or national origin does not arise in the case
you have cited and, in fact, very seldom arises in connection
with an Arab boycott request, I want to assure you that
tenders and other trade opportunity documents which would
have the effect of discriminating against certain U*S*
citizens on such grounds will riot be, and to our knowledge
have not been, disseminated by the Department of Commerce*
205
2
This Administration is fundamentally opposed to the promises
upon which the Arab boycott is based and the Department of
Commerce has made every effort to acquaint the business
community with the declaration of United States policy
currently contained in Section 3 (5) of the Export Administration Act* The Department form on which exporters report
receiving Arab boycott requests includes a statement of that
policy, prominently displayed at the top of the form*
Reprints of this form and of the pertinent provisions of
the Export Administration Regulations were recently mailed
to approximately 30,500 U.S. firna which are listed in the
American International Traders1 Index* A copy of this
document is enclosed for your information* In addition, the
Department has issued several press releases over the past
few months concerning our policy towards the Arab boycott
and actions taken to enforce our reporting requirements*
We do not believe that any useful purpose would be served
i f the Department of Commerce refused to disseminate bid
invitations subject to restrictive clauses, thereby denying
U.S. firms prompt access to business opportunities in the
Arab markets which they are lawfully permitted to pursue*
Our firms might to some extent compensate for loss of this
source of information by attempting to obtain the opportunities directly from Arab sources or through private
trade channels* Forcing them to do so, however, would
put them at a competitive disadvantage with foreign competitors having prompt access to such opportunities through
their own governments • The approach which we have chosen to use
in handling these trade opportunity documents affords us the
means of reminding American firms of the U.s* policy of opposition
to such restrictive trade practices, before such firms have
decided in the exercise of their business judgment* whether or
not to comply with the particular Arab boycott request*
In conclusion, a refusal by the Department to disseminate
such opportunities could have an adverse impact on our
balance-of-trade, and increase unemployment in the United
States without having any impact on the worldwide application
by the Arab countries of th&ir boycott against firms engaging
58-527 O - 75 - 14
206
3
in extensive commercial relations with the state of Israel.
We firmly believe that the only means of ending this boycott
rests in the successful settlement of the Middle East conflict
and the issues underlying i t .
I am sure that you share our
hope that such a settlement will be achieved in the very
near future.
Sincerely,
I
Charles W. Hostler
u ^Deputy Assistant Secretary
for International Commerce
Enclosure
207
/ 3 N
U.S. DEPARTMENT OF COMMERCE
Domestic and International Business
Administration
W a s h i n g t o n . D.C.
20230
Gentlemen:
The
to
the
following
Department
trade
of
opportunities
Commerce b y U.
S.
have been
submitted
Foreign Service
Posts
overseas.
If
please
you are
contact
interested
directly
Sincerely,
C h a r l e s B. P i t c h e r
C o n s t r u c t i o n and B u i l d i n g
M a t e r i a l s Program
O f f i c e of Business Research
and A n a l y s i s
any o f
these
the person l i s t e d
telegrams.
Enclosure
in
opportunities,
on t h e
enclosed
208
tramwnr? &
rrw.iz.
: & Li^ALfi
c : r a z z z L i z : v to?
sc^ssnG
s'^rrjcb
xwjcziuss
x : : : ^ *
3SS0 KMCA3T gOStKS,
1*
Scope o f t h e tenders
3550 houso& proe&it eoa^rot* t o f>o e s t a b l i s h e d
i n the following areasi~
1300
houses i n Baghdad l o c a t e d M
• 700
500
100
1000
400
1C0
150
$00
followst
houses i n Waziriyah
w
w
Abu Ghraib
»
*
Al-Taji
houses i u Ishandafriyah
u
n Uiyala
n
it Sut
N.
t»
ttassiri^ah
tt
19
Basrah
? r t c & f t « J concrete b u i l d i n g s a r e p r e f e r r e d t o preeastod concrete houses*
3«
In
e f b u i l d i n g s , they t r i l l bo of throe f l o o r s o n l y w i t h 3
aparts»nis i n oach b u i l d i n g
4*
I n d i v i d u a l houses t o bo o f about 80 sqcare sisters each w i t h a
70 square raters, s u i t a b l e f o v f i v e a r s o n s t o l i v e i n and consists o f :
2 Bedrooms
Z l i v i n g roou
1 Ball
1 Xiteh^
1 tethrooc w i t h showo* and 1
typo to' bo separated frost the bcthroon*
5*
6«
V«C« o f
oriental
I n ease o f i n d i v i d u a l houses, tho roof w i l l bo l e v o l t o enable i n h a b i t a n t s
t o use i t as a sleoping pl'ace i n s u m e r n i g h t s and t h e r e should bo inside
s t a i r c a s e f o r t h i s purpose*
Saeh* hovse i n Basrah area 'should bo equipped w i t h a i r c o n d i t i o n i n g u n i t
and i n case o f b u i l d i n g s , tho b u i l d i n g should bo c e n t r a l l y a i r ^ o n d i t i o a e d *
As f o r houses/buildings i n othor fcrcc.c, thoy should bo equipped w i t h
ducting systor. f o r desert coolers*
?#
Bach horse should be equipped with' o i l h e a t e r f o r hot water*
8»
A i l roeos should Se equipped w i t h e l e c t r i c a l p a i n t s f o r c e i l i n g f a n s *
9«
O f f e r s should include a l l . u t i l i t i e s f o r housing schenos i n each group
of houses, i * « * p r i u a r y school, na^ket, s o c i a l c e n t r e , n s l i c a l c e n t r e e t c *
10*
Any other s u i t a b l e a l t e r n a t i v e w i l l be t ^ k e n i n t o consideration*
209
U S U I S W T C7 i m D O R l V 6 t s m i s
8 f X 9 B 0SSAH2SA?I0n TOT SlfSZISSBJOtO XfflKJSSBXBS
n<osii» scmss carass
y;?o yg^gQUSEa
fflirorAt
ggpt* a
cog?iy;ons
1*
O f f e r s s h o u l d b o b a s e d o n C&? s i t e o r
tahing into consideration
t h a t i n s u r a n c e t o bo e f f e c t e d l o c a l l y - a t t h e s u p p l i e r ' s c o s t *
2*
full s p e c i f i c a t i o n s , t y p o a n d s a h o o f t i c p a t o r i a l o f f o r o d s h o u l d b e
given as v e i l as country of origin*
3*
t u t o r i a l s s a l l i e d -by t h o t o n Z o r e r s h o u l d e o r p l y w i t h t h o a g r e e d u p o n
s p e c i f i c a t i o n s one: c o n d i t i o n s n o i n c o n c l u d o d c o n t r a c t *
4*
O f f e r s i n t h r o e c o p i o s t o bo s u b m i t t e d i n s e a l o d e n v e l o p e e n d a d d r e s s e d
t o Statfe O r g a n i s a t i o n f o r B n g i n & e r i n g X n d u s t r l o s w i t h tl:e nose t a d n s i & e r
o f t h e t e n d e r w r i t t e n c l e a r l y on t h e e n v e l o p e *
5*
O f f e r s s h o u l d be s u b n i t t c d t o above l e t o s t s 1 2 * 0 0 hours o f t h e d o t i n g
d a t e o f t h e t e n d e r end any o f f e r r e c e i v e d a f t e r t h a t d e t e t r i l l be n e g l e c t e d *
6t
2 f t e n d e r s s e n t b y p o s t , t h e y s h o u l d bo r e g i s t e r e d b u t t h o t e n d e r e r c a s t
mho* s u r e t h a t o f f e r s e r e d e l i v e r e d t o t h e s a i d o f f i c e w i t h i n t h e l i s i t e d
iioo*
.
t h e t e n d e r e r n u s t s u b a i t a p r e l i m i n a r y , d o p o s i t w i t h -the t o n £ e & a s a s e c u r i t y
of h i s f i n a n c i a l standing and as a guarantee t o porfovs h i s o b l i g a t i o n s
teSScr - h o c o n t r a c t c o n d i t i o n s i n a f o r i : o f b e n h g u a r a n t e e i s s u e d b y E o f i S a i ; ?
Bank, amount o f w h i m should n o t be l e s s t h a n
ef the t o t a l value of tho
t e n d e r a n d i t s h o u l d b e v a l i d f o r t w o izontUs a f t e r t h e c l o s i n g d a t e *
6*
Xn case o f t h o s u c c e s s f u l t e n d e r e r , t h o banh 'gcarantea w i l l be r e t a i n e d
u n t i l t h e t e n d e r h a s boon d e f i n i t e l y a c c t i $ t o d *
thereafter deposits shell
be r e t u r n e d t o t h e u n s u c c e s s f u l t e n d e r e r s *
9*
A f t e r tlio reward of
b a n k g;-<armttoe w i l l
G u a r a n t e o amount i n g
one tenth a f t e r t h o
tho tnoder t o tho sucaessful t e n d o r o r , t>o above
bo r e l e a s e d a n d r e p l a c e d b y a p o r f o m e n c e B a n k
t o <$• o f t h o c o n t r a c t t e h d o r f o r a p e r i o d e n d i n g w i t h
¥*n?u Aeeoptanco C e r i f l e a t o d e t o *
10*
The c o n t r a c t o r w i l l be r e s p o n s i b l e o f t h e sseintenance e f t h e houses end
a l l o t h e r u t i l i t i e s f o r one c a l e n d e r y e a r e f f e c t i v e t h e d a t e o f t h e
F i n a l A c c e p t a n c e C e r t i f i c a t e and' f o r t h a t p u r p o s e a b a c h g u a r a n t e e o f
5 * o f t h e * c o n t r a c t v a l u e should he s u b m i t t e d f r o a t h a t ' d a t e u p t ' i l t h e
Cnd o f t h e m a i n t e n a n c e p e r i o d *
11*
?ays»nts
?eyaer.t s h a l l he e f f e c t e d b y e s t a b l i s h i n g a l e t t o r o f c r e d i t
i n t h e nace o f t h e s u p p l i e r t o t.*.o v a l u e o f 1009* o f t h e t o t a l t e n d e r
value payablo i n instfellaents r e l a t e d with t h e progress of t h e
fcliipjing'
and . e r e c t i o n p r o g r e s s *
*
12*
Penalty?
I f the tenderer f a i l s t o d e l i v e r t h e n a t o r i e l I n accordance
vitJfc c o n d i t i o n s a g r e e d u p o n t h o 8 0 3 X s h a l l c a s h t h e B a n k G u a r a n t e e
subfctttod by h i a
s h a l l ' d e d u c t . t h e t a o u n t t h a t s h e l l bo c a l c u l a t e d
on-.th© b a s i s . o f
O r g a n i s a t i o n ami a r e s u l t o f u n satisfactoryquality.
13* • Country o f Origin*
The. t e n d e r e r , should n o t i n c o r p o r a t e - t h - i s - t c r . C o r any
• m t o r i a l t h a t h a s boon j s c s n f a c t u r o d i n I s r a e l o r by companies . b o y c o t t c d
o f f i c i a l l y by I s z q i Government*
14*
Validity's
O f f e r s s h o u l d ho f i r s ; a n d v a l i d f o r CO d a y s a f t e r t h o
date c : ihe tondor*
closing
210
u.ii^-AH
P . O .
BOX
PUBLIC
NO.
5
GEIiERAL T E M
1) T e c h n i c a l
COMPANY
-
SAtilAV/AH
IRAQ
&
CONDITIONS
Specifications:
The t e n d e r documents s u b m i t t o d by the Tenderer s h a l l i n c l u d e
the f o l l o w i n g j a - F u l l d e s c r i p t i o n arid d e t a i l e d s p e c i f i c a t i o n o f o f f e r e d g o o d s ,
b - O t h e r p e r t a i n i n g i n f o r m a t i o n such as C a t a l o g u e s , pamphlets
A n a l y s i s , Samples i f r e q u e s t e d , Standards e t c .
2) h e i g h t s & p r i c e s :
Tenders s h o u l d bo i t e q i i z e d as f a r as p o s s i b l e g i v i n g n e t t and
gross weights.
I t e m i z e d FOB p r i c e s s h o u l d be g i v e n .
E s t i m a t e d f r e i g h t charges a n d * t o t a l C&F p r i c e s t o Basrah and
Baghdad s h o u l d a l s o be s t a t e d .
C u r r e n c y s h o u l d be o f t h a t nf C o u n t r y o f O r i g i n o f g o o d s .
Type o f p a c k i n g : S u i t a b l e f o r e x p o r t , d e t a i l s s h o u l d c l e a r l y
be s t a t e d . .
3)
Validity:
The v a l i d i t y p e r i o d o f the t e n d e r s u b m i t t e d s h o u l d be h o t
t h a n 3 month f r o m c l o s i n g date o f s u b m i s s i o n o f t e n d e r ,
confirming f i r m rate'.
4) Terms o f -payment:
Insurance & L a t t e r of
less
Prodit
B o t h l e t t e r s o f C r e d i t & I n s u r a n c e s h a l l be e f f e c t e d by Samawah
Cement P u b l i c Company.
5) N e u t r a l
Tests:
O f f e r s are t o i n c l u d e an acceptance s t a t e m e n t t o t h e e f f e c t
t h a t Samawah Cement P u b l i c Company, may a p p o i n t a competent
N e u t r a l p a r t y a t i t s expense t o i n s p e c t m a t e r i a j on o r d e r and.
i s s u e r e l e v a n t t e s t c e r t i f i c a t e t o the o f f e e t t h a t t h e m a t e r i a l
b e i n g s h i p p e d c o n f o r m i n a l l r e s p e c t s w i t h t h e agreed upon
specifications.
Bankers e f f e c t e d payment w i l l o n l y do so upon
r e c e i v i n g a copy o f such c e r t i f i c a t e w h i c h have been approved b y
Samawah Cement P u b l i c Company.
6) A complete s e t o f documents i s s u e d w i t h each t o n d o r may bp
Purchased b y ' a n y p e r s o n d e s i r i n g t o p a r t i c i p a t e i n t h e c o n f i d e n t i a l t e n d e r , a g a i n s t payment of an amount f i x e d by t h e Company
f o r each t e n d e r .
T h i s amount -is n o t ' * r e f u n d a b l e u n d e r any c i r c u m s t a n o e s .
7 ) The c l o s i n g d a t e o f .submission o f t e n d e r w i l l bo n o t l a t t e r
than c l o s i n g o f f i c e h o u r s on
Tenders r e c e i v e d a f t e r t h i s time and date s h a l l n o t be a c c e p t e d ,
8) The Company does n o t b i n d i t s e l f t o a c c e p t t h e l o w e s t t e n d e r .
9) Tenders n o t c o m p l y i n g w i t h our s p e c i f i c a t i o n s and terms
be n e g l e c t e d ,
10J Tenders s h o u l d bo submiiLte4 i n s i x c o p i e s .
shall
1) Tenders a r e t o bo s u b m i t t e d " i n s e a l e d e n v e l o p e s , c l e a r l y
i n d i c a t i n g s u b j e c t of t e n d e r , Samples i f r e q u i r e d s h o u l d be
s e n t u n d e r s e p a r a t e c o v e r marked c l e a r l y w i t h t h e r e f e r e n c e
number and s u b j e c t o f t e n d e r .
211
~
2
~
2 ) Tenders a r e t o "be accompanied by a p r e l i m i n a r y
d,n f a v o u r of and p a y a b l e t o the Samav/ah Cement
f o r t h a sum o f 5/« o f the P03 v a l u e of o f f e r " a s
good f a i t h .
5he d e p o s i t w i l l be r e t u r n e d t o u n s u c c e s s f u l .
6 .Calendar* months from* c-Losing -date o f tendo-r.
3) C e r t i f i c a t e o f
bank d e p o s i t
P u b l i c Company,
a guarantee of
Tenderer
afte~
Origin
T e n d e r e r must s u b m i t :
a ) C e r t i f i c a t e o f o r i g i n s p e c i f y i n g t h a t the goods a r e n o t
of I s r a e l i O r i g i n n o t the Company h a v i n g a branch i n I s r a e l
and t h a t t h e y v / i l l n o t be shipped on I s r a e l i .or B l a c k l i s t e d
Vessels.
T h i s C e r t i f i c a t e must be l e g a l i s e d by t h e I r a q i o r
any Arab C o n s u l a t e o r r e p r e s e n t a t i v e and i n case of t h e i r non—
e x i s t a n c e - , l e g a l i z a t i o n by Chamber o f Commerce o r I n d u s t r y i n
t h e Country o f O r i g i n o r p o r t of Shipment v / i l l s u f f i c e .
b ) C o u n t r y o f o r i g i n and p o r t o f shipment o f g o o d s . ,
c) D e l i v e r y period',
ftOTES:
on acceptance o f an o f f e r ,
the f o l l o w i n g : -
Samavvah Cement P u b l i c Company w i l l
require
a ) B'*nk G u r a n t e e .
Such a g u a r a n t e e i s r e q u e s t e d by Samawah Cement P u b l i c Company
i t s amount w i l l n o t exceed 5 p e r c e n t o f FOB v a l u e o f o f f e r and
s h o u l d be v a l i d s i x months a f t e r t h e d a t e o f l ^ s t s h i p m e n t .
to) P r o f o r m a I n v o i c e
C o n f i r m a t i o n o f , o r d e r i s to be accompanied w i t h 10 c o p i e s of
proforma I n v o i c e .
c ) V a l i d i t y of L/C
Due t o the r e g u l a t i o n s o f the C e n t r a l Bank o f I r a q , . L / C can n o t
be opened f o r more t h a n a p e r i o d of 5 months, however i n case o f
t h e . d e l i v e r y p e r i o d b e i n g g r e a t e r t h a n e i g h t months t h e L/C w i l l
bo e x t e n d a b l e p r i o r t o e x p i r y date to cover t h e f u l l p e r i o d d e l i v e r y
time.
d) S h i p p i n g H a r k s
S h i p p i n g marks t o bo mentioned on s h i p p i n g documents as
follows;—
SAKAv/AH CE!I2NT PUBLIC COMPANY.
SAI.LV./AH WORKS
ORDER NO.
e ) I f t h e T e n d e r e r f a i l t o d e l i v e r the m a t e r i a l i n accordance w i t h
the c o n d i t i o n s , The Samav/ah Cement P u b l i c Company s h a l l cash t h e
bank g u a r a n t e e s u b m i t t e d by tho Tenclorer.
212
Cable Address: ANTIDEFAME
ANTI-DEFAMATION LEAGUE OF B'NAI B'RITH
315 LEXINGTON AVENUE, NEW YORK, N.Y. 10016, TEL. 689-7400
NATIONAL COMMISSION
SEYMOUR 6RAURARD
National Chairman
DORE SCHAIY
HENRY E. SCHULTZ
Honorary Chairman
DAVID A. I0SE
Chairman, National
Executive Committee
LEONARD L. ARESS
JACK A. GOLDFARR
JACOI K. JAVITS
PHILIP M. KLUTZNICK
LEON 10WENSTEIN
RORERT R. NATHAN
ARRAHAM A. RIRICOFF
MATTHEW I. ROSENHAUS
CHESTER H. ROTH
WILLIAM SACHS
PAUL H. SAMPLINER
MELVIN H. SCHIESINGER
THEODORE H. SILIERT
Honorary Vice-Chairmen
MRS. ISADORE E. IINSTOCK
MERLE D. COHN
MORTON R. GOBINE
CHARLES COLDRING
RERNARD D. MINT!
NORMAN J. SCHLOSSMAN
Vict-Chairmon
MAXWELL E. GREEN1ERG
Vice-chairman, National
Executive Committee
RENJAMIN GREENRERG
RICHARD M. LEOERER, JR.
Honorary Treasurers
RURTON M. JOSEPH
THOMAS D. MANTEL
Assistant Treasurer
JOHN L. GOLDWATER
August 13, 1975
Hon. A d l a i Stevenson
Chairman o f t h e Subcommittee on I n t e r n a t i o n a l Finance,
Committee on Banking, Housing and Urban A f f a i r s
5230 DSOB - Roam 5310
Washington, D. C. 20510
Attn:
Mr. Edward C. Dicks
Dear Senator Stevenson:
Complying w i t h t h e r e q u e s t made o f us when we
t e s t i f i e d b e f o r e your subcommittee on J u l y 23, 1975, we
are e n c l o s i n g documentation concerning t h e Arab b o y c o t t
o f I s r a e l i - c o n n e c t e d f i r m s and American Jewish f i r m s .
A l s o enclosed are copies o f charges f i l e d b y t h e A n t i Defamation League o f B ' n a i B ' r i t h a g a i n s t seme American
f i r m s a l l e g i n g t h a t t h e y d i s c r i m i n a t e a g a i n s t Jews i n
overseas employment.
We t r u s t t h a t t h i s w i l l be h e l p f u l t o you.
RENJAMIN R. EPSTEIN
National Director
Sincerely yours,
m i l RENJAMIN M. XAHN
Executive Vice-President,
R'nai R'rith
JJF/mac
STAFF DIRECTORS
OSCAR COHEN
AIRAHAM H. FOXMAN
Leadership
THEODORE FREEDMAN
Community Service
IYNNE IANNIEILO
Public Relations
J. HAROLD SAKS
Administration
•tfustin J . / F i n g e r
•/
/ Assistant D i r e c t o r
I C i v i l Rights D i v i s i o n
J1H
? B g 4 jtf 1X t
E
V7HEHB4S, i n tho b e c i n n i n s of 19?'V C . I T O I end
CVRD submitted t o the O r g a n i s a t i o n a proposal d a t e d 2 8
^aftuary 107-1- f o r the establishment o f a p l a n t f o r tho p r o d u c t i o n o f epongo i r o n a t A l e x a n d r i a (Cubjoct t o t U *
avail-
a b i l i t y oi? n a t u r a l r^r. on s i t e ) on t h e bcu'jic of a c a p a c i t y
of
U i l l i c n Ton.^/year ( h e r e i n a f t e r c a l l c d t h o " P I A l t t V )
and
FHERCAS,; C . I T C n , K3H and ITABIRA f u r t h e r j«ropo©o
to participate,
on a j o i n t venture b a s i n , i n a j o i n t
stock
Fgypfcioiv c«-r_r».'.ny t o be- f o r c e d f o r the Tl.MlT under 3av/ K°4J.
l o r tho y e a r 19?/>- concorning the Investment o f Arab cuvi'
F o r c e r * Vunds raid l«r ;e Zones, and,
\vlIEIifKAS, i t i s intended t h a t the c a i d company
w5,ll«ha\'o as
equity
KTH and X I W I T A ,
s h a r e h o l d e r s , TUc O r g a n i s a t i o n , C.XSOH,
find r
V/HSPE AS, the Crganimation r,1 pnod. on 1G A p r i l
,prot<:ool w i t h C r ia';v. by which C• I I ' l l
and CVftD-v/erc
a u t h o r i s e d t o havo c a r r i e d out a p r o f e a n l b i l i t y
tho PIA1IT by a K p o c i a l i s e d
study f o r
coiirultrnt.
W1J3R33AS, tho p r o f e a ? i M 3 i t y f.Uidy hat: aire®Ay
c a r r i e d ' o u t by the' Consultwvt o n . t h e b a s i s o f a c a p a c i t y o f 1 * 6 M i l l i o n tons* per y e a r ahd,
.MIIJE?AS,. t h e p a r t i e s f i n d i t .neccscary t o hrCvo
axdbt atl<?d f e a s i b i l i t y "study o c r r i e d out an a p r e r e q u i s i t e
&or talctnG..a f i n a l ' d o c i s i o i v on the e s t a b l i s h m e n t
cf'the.
T i n i f ojkI Company on t h e b a s i s of - a " c a p a c i t y 1 * 6
nillion
t o n s p o r . y d a r as a f i r s t . s t a g e a n d ' 2 • B i l l i o n s t o n s p e r
y e a r an a second stdec*
tfiflSKEAS, the- p a r t i e s hc.yc concluded' an A c r c o ntent between themselves* t o c a r r y out t h i s f e a s i b i l i t y
study
V/i;E}':UA.c>, the Consultant accepts t o o a r r y cut" t h o
r e q u i r e d f e a s i b i l i t y study i n .accordance w i t h t h e p r o v i s i o n s
l x o r c i n a f t e r s t a t e d>
*
Now t h o r c f o r o , , i t i o hcroby acrood and d e c l a r e d ,
,"
b y mid* between the two p i r t i o s as f o l l o w s t
A-*?,
v if"
v
iO
V
214
Article 1
pBOTCCT Qg T>?3 CONTRACT
Tho Owners hereby cppoir t the Consultant f o r tho
carrying out of the f e a s i b i l i t y etu&y as specified i n t h i s
Contract and the consultant accepts the appointment on tho
fcerjis and conditions not f o r t h i n t h i s Contract,
SC0P3
OF
\?OT>K A N D
COORDmglOIT
2 * 1 The Consultant s h a l l carry out the said f e a s i b i l i t y
study v/ithin 100 days of the pinning of t h i s Contract
or on October ^ l s t 1974 Whichever i s tho l a t e r *
2 * 2 The scope of v/orfc the contents, d e t a i l s , and time
schedule f o r the said f e a s i b i l i t y study are s p e c i f i e d
i n Annexe Ko»
.* I t o t h i s Contract.
> The a c t i v i t i e s of
oach party have also been included.so t h a t the r e quired data w i l l be made a v a i l a b l e , as scheduled, t o
the Consultant* Delays i n the r o c e i p t of data so
scheduled w i l l bo absorbed i n t o t h e schedule to tho
extent possible*
2 * 3 C*ITCH s h a l l be the roprcsentativo of tho Owners
toward* the Consultant only f o r coordination of a l l
a c t i v i t i e s set out i n Annexe No. I , provided however
t h a t i n no circumstances s h a l l C*IT0II be l i a b l e f o r
the consequences of d e f a u l t by any othor p a r t y i n
performing the duties as signed..to. i t i n said Annexe
Ho* 1*
A r t i c l e ft
pRBPAPATXOU ASP PBLIVBKY 0? TKB FEASIBILITY STUDY
3 * 1 The f e a s i b i l i t y study including a l l the data and
documents propaved by the Consultant r h n l l be w r i t ten i i \ the English language and established i n tho
metric nystcn*
#
;
/V,
The Consultant s h a l l px*oparc and d e l i v o r tho I'caoi'*
b i l i t y study and a l l p e r t i n e n t documents t o t)>o O&v.crp
JsV.
k
215
-
OA
-
^rtic^olO^
L I A B X L i r r OP CONSUT/TATTT
The Consultant s h a l l perform I t s services as
an independent contractor i n accordance -with i t s ovu
methods, t h i s C c n t r a c t | and applicable lawn and r e g u l a tions*
Tho Consultant agrees t o c o r r e c t any dcficicnc-ies r e s u l t i n g frosi i t s n e e l i c e n t performance of i t s ccrvicen
which arc diccovcrcd and reported t o tho Consultant
v / i t h i n one year from t h e date of corapletion of i t s s e r v i c e s hereunder.
The Consultant s h a l l only be l i a b l e t o Owner a f o r any
loos or damage a r i s i n g out of t or i n connection vJith
C o n s u l t a n t s nccli^cnt performance of t h o Contract f
such l i a b i l i t y not t o exceed the compensation r e c e i v e d
by Consultant hereunder
Under no circumstances , s h a l l Consultant and i t s subcontractors be l i a b l e t o Ov;noxv» f o r any cono e o u e n t i u l
damages*
A r t i c l e 19•
NON-TRA>:SACTIO?TS WITH ISRAEL
1 9 * 1 The Consultant hereby declared t h a t he does .not
possess any p l a n t , f i r m or branch i n I s r a e l t t h a t he does not p a r t i c i p a t e i n any f i r m or company e s t a b l i s h e d i i i I s r a e l and t h a t he has not any supply manufacturing assembling l i c e n c e or t e c h n i c a l a s s i s tance contract w i t h any f i r m , company or person eest a b l i s h e d , or r e s i d e n t i n I s r a e l ,
1 9 , 2 The Consultant f u r t h e r undertakes not to have e i t h e r
by himself or throuch an intermediary any such a c t i v i t y w i t h I s r a o l and not t o c o n t r i b u t e i n anjr way t o
consolidate tho economy or m i l i t a r y e f f o r t s i n I s r a o i •
19
Should t h e Organization discover* a f t e r s i c n i n g t h i s ,
c o n t r a c t t h a t tho Consultant i s breaking h i n o b l i ^ r t i o : v j r t a i ' d above t h * Cfc\;,*:nis:ati on trhall be c n i . i t .
>
216
- 15
t o capoel ww contract "by a olinpjo not^ca aont t o .
tho Concultant under r o c i n t c r o d cover v/ithout
judiqo t o the Organization 1 s r i s h t to claim f o r i n demnification end to any other r i g h t t o v;hich tho
Organization i s e n t i t l e d .
A r t i c l e 20*
ponmoo?
opsins
i n t o
force,
This Contract i s subject to t h e approval of
a l l the competent a u t h o r i t i e s i n AVR.E. The O r g a n i z a t i o n
s h a l l n o t i f y tho other portion i n w r i t i n g when i t has
obtained a l l such approvals*
The date of t h i s contract, ©owins i n t o f o r c e
fchall he v / i t h i n 30 days frorr i t s signature, during which,
period the f o l l o w i n g conditions s h a l l he f u l f i l l e d *
Approval of the contract by a l l tho coiup&tent author i t i e s i n A.R.E.
J
J*
Z* Submittal of the Consultant's p e r f o r m nee guc:rantoo
r.entionqd i n A r t i c l e 11.
Opening, of the l e t t e r s of Credit as per A r t i c l e 7»
A r t i c l e 21
COPIES 0? OTIB CONTRACT
A A*
The prooent Contract i s drawn up i n E n g l i s h i n
f i v o or±#inalo one signed o r i g i n a l f o r each member of tho
Owners AVand one signed o r i g i n a l f o r tho Consultant.
FOR
THE COI^UItfAlIT
FOR
FOR
TK13 ORGAN JSATlbH
FOR
ITABIRA
//
/ // r - *
217
M f K B A S
1 6 W A L L STREET
TRViT
COMPAKT
N E W YORK. N . V ^ 1 0 0 1 9
* DECEMBER 1 8 . S
A D V K B OFCONFIRMED
IRREVOCABLE STRAIGHT CREDIT
W«areattractedby
CENTRAL BANK OF L I B Y A , T R I P O L I ,
LIBYA
I * Worm yon that they have opened'their irrevocable aedit in your favor for account el UNIVERSITY OF TRIPOt
FACULTY OF SCIENCE T R I P O L I , LIBYA
tor * aim o»«um» in U«S» dollar* not oceedinf a total of TWO THOUSANO FOUR HUNOREO NINETEEN A!
00/100 *
*«$2,419.~*«
available by your drafo on ut, at SIGHT
• to btftsoonpafuodby«
0 8 I G I N A L COMMERCIAL INVOICE IN 7 COPIES ALL OULY SIGNEO I N THE Hi
THE BUYER INDICATING GOOOS OF USA ORIGIN COVERING CHEMICALS AS Pt
QUOTATION OATEO NOVEMBER 4 , 1 9 7 4 TERMS C & F T R I P O L I , L I B Y A .
x
CHAMBER OF COMMERCE CERTIFICATE OF ORIGIN AUTHENTICAtEO BY J t f E ' M
CONSULATE OR EMBASSY•
A DECLARATION DULY SIGNEO BY THE EXPORTER OR THE SUPPLIER STATING
THE COMPANY WHICH PROOUCEO THE COMMOOITY TO BE EXPORTEO RO SUPPtl
BY HIM I S NOT AN AFFILIATE TO OR.A MOTHER OF COMPANIES ON THE ISF
BOYCOTT LLST AND STATING ALSO THAT THE (THE EXPORTER OR THE SUPPt
HAS NO OIRECT OR INDIRECT CONNECTION WHATSOEVER WITH ISRAEL ANO V
ACT ON THE GROUNO ANO REGULATIONS OF THE ARAB BOYCOTT OF ISRAEL*
AIRWAY BILLS SHOWING THE GOOOS CONSIGNED TO UNIVERSITY OF TRIPOl
FACULTY OF SCIENCE T R I P O L I , LIBYA*
,
•
SHIPMENT TO BE MA OS FROM USA TO TRIPOL I , L I 3 Y A BETWEEN' DECEMBER
ANO JANUARY 31,197!> BOTH OATES INCLUSIVE.
PARTIAL SHIPMEMTS MOT PERMITTED*
TRANSHIPMENTS I S P E R M I T
All M t t to drawn mu^t be marked "Drawn under Bankers Tn»t Company Advice No* V?79* 3
Hut credit » nibject to the Uniform Customs and Practice (or Documentary Credit* (1962 Reviuon). International Cht
Commerce Brochure N<x 222.
_SE£ PAGE TWO*
The abov* mentioned corretpoodent engage* with you that all draft* drawn under and in wHinwt with the t o w of ttt
be duly honored on delivery of document* a* *peeifcd. if duly presented at thu ofioe on or before JANURY 3 l t 1 S
WE'CONFIRM'THE CREDIT ANO THEREBY UNOERTAKE THAT ALL ORAFTS DRAWN AN
PRESENTED AS ABOVE SPECIFIED WILL BE OULY HONOREO BY US*
VcrytoMyyoum,
, *»
ACS/CV
ACS/CV
218
Bechtel Incorporated
[^VOICING INSTRUCJIONS]
FA^If FORWARD PROMPTLY Invoicing and packing hst may be a combined document. but must
t^how ill of Ibefollowing information (Furnish sufficient copies tor handling as separate riOLum»"its>
J •Man* and address of shipper; name and address of consignee; as shown on face cf tho purchase crd»!»vd4*e
of shipment.
2 . Purchase Order 1 tem nurrber, quantity, unit and COMPUTE description.
3. ;<et unit prices and extensions.
i'orks. ntnbers, quantity and kind of outside packages,
5. Wross,' tare and net weioht i n pounds and kilos, and the three dimensions of each packane.
6.' t."volces* bqa.^vng. transportation charges nust be supported by carrier's .original receipted freinh* b i l l *
InvoVcoS fnust cover only" i t ens c portions thereof actually shipped." Sfiy additional duties, pei :1 t|«s
Or fines resulting from incorrect invoicing will be for t i e account of the supplier.
0*. Invoices mirtt feear the followlnq certifications:
"V.e W e b y certify that the goods enumerated In this Invoice are not of Israeli origin nor
da hey inntain any Israeli materials nor were they shipped on vessels boycotted by a *
Israel* Boycott Office nor wore they deslgrated to v i s i t an Israeli port nor were they
exported from Israel."
"we hereby certify that the goods enumerated in this invoice are of U.S.A. origin.
A^l prices are true and correct."
Signature-Title
Date
Mo taxes are applicable to this order. Purchaser w i l l furnish proof o f export when
requested.
We hold form 637 Registration No. A469078.
Purchaser will not pay any cartage qr packing expenses unless arranged for before execution of the Purchase
Order
Sold To
PREPARE INVOICE:
I Nl VOICING
Send
Eastern Bechtel Corporation
c/o Bechtel Incorporated
P. 0. Box 3965
San FPanelsco, CA 94119
Forward documents as follaws
INVOICE
Original and 3 copies
jNLAND BILL OF'LADING - 2 copies
*6r Dock-Receipt ^.(Original Signed plus 1 copy)
To:
Eastern Bechtel Corporation
c/o Bechtel Incorporated
Bo
* 3965
Imperattvr signed copy of Bill of Lading or Dock Receipt be included with invoice and packing lists F
tic* comply will delay payment
To: FREIGHT FORWARDER
-ScM.
INVQIOl
9cuiw*
P A C K I N G 11ST
(as I n d i c a t e d on
^copies
J N L A N D B l l i O f LADING •
attached Shipping
lcopy
Instructions (Form P-?)
The above documents are urgently needed to arrange for stealer space and export clearance
Send
INVOICE
2 copies
PACKING LIST
2 copies
INLAND BILL OF LADING - 1 copy
To: Eastern Bechtel Corporation
c/o Bcchtel Incorporated
CA M i l ,
Attn:
Export Shipping
Cash discount ^enod bpqtns with the cfato of receipt of invoini, provided it is •-orrert anil in
u r e x n b e r i .ibowe
219
P E A B O D V S , INC.
Post W ee Box
January ?
:r:
•
r B i - a c h A ' i f g t m o 2 3 4 5 8 (834)
?'j
Tender Ho, 87/1974 - Closing Onto February 20, 19/5
Kleerpak-Coneco Mfg. Co.
13053 Saticoy S t r e e t
North Hollywood, CAL
Centlemon:
Peabody's, I n c . , a c t i n g as Agent f o r the Covernuient of
I r a q , earnestly s o l i c i t s your w r i t t e n proposal l o f u r n i s h
300,000 Metres long P l a s t i c F i l m width 11" usocl for wrapping
s o f t cheese i n accordance w i t h the enclosed S p e c i f i c a t i o n s
and General Terms and Conditions.
We would appreciate r e c e i v i n g t h i s w r i t t e n proposal not
l a t e r than February 15, 1975, i f possible. Telegraphic modi*
f i c a t i o n s may be accepted u n t i l February 16, 1975.
For the purpose of preparing your proposal, you may
disregard the Bank Guarantee required under the O n e r a l Terms
and Conditions. I f you are fhc successful b i d d e r , the Bank
Guarantee would be required p r i o r t o e n t e r i n g an o r d e r .
Please acknowledge r e c e i p t o f t h i s proposal request and
edvise i f you w i l l be able t o quote. I f you ar« unable t o quote,
please advise us of possible sources of supply. Also please
advise i f you a r e i n t e r e s t e d i n quotim; our f u t u r e requirements.
Thank you f o r your assistance.
•
Very t r u l y yours,
Knox R. Burchett
Enclosure
42Bi
220
8 3 S 5 5 2J i S ^ S X A S I t - r . . ^ c i o s r m j ^ K ^
Pgn.THB
StPPLY
QUANTITY
O?, ?OOfOOP
Rfi3UIft2Ds
&&33SL
IX?!G
300,000
Motros
PLASTIC
Long
Fllff
P l a s t i c
P i l m
w i d t h
11"
SPBCTFICft?TO?ISt
1 )
S p e c i a l
s o f t
The
p l a s t i c
cheese
filtsa
s h a l l
v h i o h - i e
a
Site
w i d t h
2)
f i l m
f i l m
blocko
r e e l s
o f
ue
&
s i m i l a r
Oryovao
to
bo
used
f o r
to
the-Httacaed
wrappine
kr®
naiapie
*Q*
s h a l l
be
1 1
inches,
w i t h
100
#au£C
thickness,
3 )
The
f i l n
design
of
s h a l l
A d m i n i s t r a t i o n
4 )
The
r e e l
bo
p r i n t e d
p r i n t l n r
< ' i l l
to
the
dimensions
i n
be
two
colours,
supplied
successful
s h a l l
be
by
t h e
t h i s
bidden,
approximately
ad
follows)
Outer
PACKIHO
d i a u e t o r
I n s i d e
core
Weight
o f
Bach
20
r e e l
SSLXTOTC VitUB
t o
f o r
t e x t
Tho
i n
ono
i n
a
(warranted
a r e
bo
bo
a t
tho
box
and
each
seaworthy
p r o f a n s t o n a l l y
metres
const
be.cinnia,:
i n
al.on/t
Lonn
2
\ l t h
wooden
packed)
o f f e r
o f
connii.nrccnit
b o - i n n l r f
of
P l a s t i c
equal
ivaont
aocond
e a r l i e r *
kg.
c a r t o n
a t
the
20
t r i a l s .
d o l i v c r J d
f i r a t
on
em
s t r o n g
forwarded
300,000
t o
30
13
v>;*i
each
cartons
case
SAI1PI.T23
d i a r o t o r
should
J u l y ,
should
F i l m
arc
consignments.
a r r i v e
1975
an*
a r r i v e
Septosnbor,
Dae'
the
Bachdo
1975
o r
221
earn*"«
A*
Both l o c a l
comply with the
a r s t i t s and fir:r.s bidOin.?o;itly
f o l l o w i n g t o r j i S a n d eonc.i l i o n u ;
r.ri
requirod
t o
1)
p r i c o f o r each o f tho itetrn in
i»» tfonc'er should be
i n d i c a t e d c l e a r l y f o r our cost en leal*
2)
>i~
Prices s h a l l be quoted FU2f 0AI.W r ».fV>ad V i a B e i r u t and
u t t u k i s t and Ca»«ij? i>:<;hd:id v i a ia icrrai •
3)
A fixoti date of d e l i v e r y FOB and nn oatiuatod date o f
d e l i v e r y CandF should be inuiec.teU,
4)
O f f e r s s h r . l l be a u ^ i t t e d i u throo copies o f signed
proforx.. i n v o i c e .
5)
luauran.ee \ . i l l be handled l e c r l i y ana puid f o r by the
Dairy / t ^ i n i s t r a t i o n * /
B«
SAUK
0TJ*n!-?:?S
The M / t f o r ; 5 1 1 dencsit v i . t h t»*o D a i r y - ' . d i . i i i i s t r u t i o n cn
unconditional m u l - . Guarantee f o r t h e a m o u n t o f ' % * o f «hu CcnuF
cost o f t c o Cu f o r o n e y e - r .
T h e d e p o s i t w i l l b e r o t u g & o u to
the unsueessi'ul V o u t f o r o r w i t h i n t h r o e Ciie.i . « r i o n t i ; o f r o * the
e l o s i n , date vX i i o T o i l e r * She V . i r y Ac^iaitiVr.'tioa w i l l hold
tho Sank Giur.inteo o f the succmisful b l i or ; m v i l the - . c o d s are
received r.nd f o u n d t o c o r r e s p o n d i n p p e e i T i e t i o n s , Quantity»
p u e ' e i n : tuxu
di..tc o * u o i v e r y
i^o o r i in a
o; rax*.
2he i-anjc
Guarantee ohouiu be itjaucd o y a n I r a q i
O.ily.
0*
(Wet
a p p l i c a b l e )
D*
nxnjyryr,
Offers are to include ?.n acesptsuce ct^te'.ent to the e f f e c t
t h a t 2he Dairy
i n i c t r u t l o n ^ay .-..>cint a e;;:..po*vent n e u t r a l
p a r t y a t i t s exporue to
.tutorial en orcer to issue relevant
t e a t c e r t i f i c a t e t o tho ci'tecx chat the M a t e r i a l beinr shipped
oonfom i n a l l rospoefcs w i t h the agreed upon a l o e i f i e a t i o n s *
Bankers e f f e c t e d pa;/r»^nt v H l only *o oo u y m ^eooivinr a copy
o f each c e r t i f i c a t e i.uich hrtve
approved hy The Hairy
Administration
B*
Offers which no not c<i»ply w i t h a l l the tenau and conditions
i n d i c a t e d w i l l not i** eonsi*crod*
?•
(not a p p l i c a b l e )
0*
O f f e r j c I. . i t t e d v,re tMron to i r d i e n t o thajb a l l the torms and
conditions o f
tender ore »ccr^;tovi l\y tbo bidder*
H*
T e n d e r e r n«ist submit t h e i r Tender* i n soalcd envelopes
narked "Touoor l.'o#
--) *
X*
1 ) A l l o f f e r * m t . t be received not J i t e r than
2 ) P o r ^ i f i ; b i . < ' c r > j s h o u l d s v u . i t t . i . i r o f f e r s by r e g i s t e r e d
nira^ij.*
-
f
58-527 o - 75 - 15
>./rt r a v t or a i l tho ito&s
222
-
L«
A l l
pftsaln^
and
ix
t h e
be
c h a l l
c l o n l n
i f
e x p i r a t i o n
w i l l
of
t'-e
t h o r e h y
t h e r e o f
Toncier,
g i v e n
ft.
or
end
the
dqyq
i n v o i c e .
a
h i ,
to
tho
.his
accent
or
s h a l l
as
or
not
have
been
or
any
p l a n t
o f
bo
sr.id
the
Pair-
or
any
v a l i d i t y
dato
o f
o f
tl
u x p e d i t
t o
t h e
a(*dr
Tender
any
e o u i
Irnr.i
.-ine
/J"
Courts
a l l
i n c o r p o r a t e
i n
t h i s
i n
I s r a e l
t c y c c t t - j d
itiio
i n
^
of
or
Irar
:
ohal.l
•.•aa c h
by
o f
o f f i c i a l l y
•'•q
a c t i o n s
o f f i o i - U A y
rantoriwis
I s r a e l
i i . / o r t
Tr.
Tho
any'
-anies
:.r;
r
1 ••
or
by
such
by
tho
e o n p a n i
I r a q i
ooi.iponc.-nt
p a r
bjrycott^O
equipment
or
d.
COMT^\CT
have
and
e x c l u s i v e
p r e c o e J i n j j
. j u r i s d i c t i o n
r \ r i s i n
; out
o f
to
h o a r
tho
t
l\HQ'JAa:
A l l
Q«
t ^ e
t h e
de'poo
Tho
Tender
acceptance
da:
vdion
the
p r o v i s i o n a l
M a n u f a c t u r e d
or
i n
components
d o t e r
drawn
( 6 0 )
b e f o r e
tmy
p c r i o u
C o n t r a c t .
P.
3 i x t y
e x t e n s i o n
At . : a i o t r a t i o n .
s h a l l
the
o f
to
i'ontor
p e r i o d ,
ri;:ht
d u r i n g
p e r i o d
su b . j u c t
r a i r y
a c c e p t a n c e
c a p i i
u a u u f a o t u r o u
CC N l ' K A C T
and
o f
f o r
jfrni e r
The
the
Roods
on
a c c o u n t ,
T e n d e r .
t h a t
o f f i c i a l l y ,
materiaJtn
to
A u t h o r i t i e s
c u i v l i o r s
i:> I M ^ o c v LU
v/ithur..vs
(GO)
tfi;»e
date
Tenuoror
been
t h i n
f o r
p r c f c m a
i r r e v o c a b l e
of
s i x t y
any
S y r i a n
a r e
n o t i f i c a t i o n • o (
I s r a e l i
Government
have
a t
tho
The
by
the
T e n v e r o r
r e s e r v e s
tho
m a t e r i a l
s h a r i n g
i n
f o r o i t o d
o f f i c i a l
i n
bo
date
the
A d m i n i s t r a t i o n
p a r t
inponod
••/.•lien T U . ^ R
Tenders
from
-
t e r r i t o r y
c l e a r l y
PERIOD
n e e e s s a r y .
of
feoe
D y r i a n
i n d i c a t e d
unle&3
M.
t a x e s
throu.
2
up
dccu^ontn,
i n
i n s t r u c t i o n s ,
b o o k l e t s
\n.~lish.
SHi;jPIIIu-
KV1K3:
AL B AII
-
O i U " ,'Yt
liC).
nnr' 1
drax.in^a
s h a l l
h
223
PEABODY'S, INC.
Po*-t. Dftirc P i
January 27,
Tender No, 8 7 / 1 9 7 4
:
•
1-
iV;rjt h V^Qinta P3450 (B04) 496-20
1
- C l o s i n g Date February .M. 1
Kleerpak-Conoeo Mfg. Co.
13053 S a t i c p y S t r e e t
North Hollywood, CAL
Gentlemen;
P e a b o d y ' s , I n c . , a c t i n g as Agent f o r tho Ccm rnmont o f
I r a q , e a r n e s t l y s o l i c i t s your w r i t t e n propof .il to f u r n i s h
3 0 0 , 0 0 0 Metres long P l a s t i c F i l m w i d t h 11" nr.cd for wrapping
s o f t cheese i n accordance w i t h the enclosed S p o e j t i c a t ions
and G e n e r a l Terms and C o n d i t i o n s .
We would a p p r e c i a t e r e c e i v i n g t h i s w r i t t e n p r o p o s a l not
l a t e r t h a n February 15, 1975, i f p o s s i b l e .
T e l e g r a p h i c modif i c a t i o n s may be accepted u n t i l February 1 6 , 1975.
For t h e purpose o f p r e p a r i n g your p r o p o s a l , v
may
d i s r e g a r d t h e Bank Guarantee r e q u i r e d under tho
u c r a l Terms
and C o n d i t i o n s ,
I f you a r e the s u c c e s s f u l b i d d c i , the Bank
Guarantee would be r e q u i r e d p r i o r t o e n t e r i n g an o r d e r .
P l e a s e acknowledge r e c e i p t o f t h i s p r o p o s a l request and
a d v i s e i f you w i l l be a b l e t o q u o t e .
I f you a r e u n n b l e t o q u o t e ,
p l e a s e a d v i s e us o f p o s s i b l e sources of s u p p l y .
Also p l e a s e
a d v i s e i f you a r e i n t e r e s t e d i n q u o t i n g our f u t u r e r e q u i r e m e n t s .
Thank you f o r your
assistance.
Very truly you IT,
Knox R. N a r d i l t t
Enclosure
224
gem .TBB.smiY or_?oo# ooo Kagys,. j.r>::o *>»
n o ^ m * ^
QUANTITY R£»lIH2Dt 300,000 Kotros Ion,", Plastic Pilm width IX11
SPEOYPIC^lTrSt
<»
1)
Special plastic film reel? to be used for wrapping
soft eheose blocks of J k
The films shall be similar to the.mtached sanpie
whieh-le a Gryovao "S* f i l n ,
2)
Hie film width shall t» 11 inchos, with 100 gauge
thickness.
3)
the film shall he printed in two colours, the
design of printing w i l l he supplied by this
Administration to the successful bidder.
4)
She reel dimensions shall he approximately as
follows*
Outer diameter*
Inside core diameter
Weight of each reel *
30 em
13 em
20 kg.
PAOKIHO
t
Cach roel in one eurtt n box and each
20 cartons in a strong seaworthy wooden
ease (warranted pro regionally packed)
SAFPL12S
t
are to be for.nrdod alon-s vlth offer
for text t r i a l s .
2>2LxVs3Y *S*W13 i
Tho 3Q0,000 netroa ton*: plastic Pilm are
to ho dolivor jd Jn 2 ociual eonsignaents«
t\xn f i r s t const i w n t should arrive Baghdad
at tho be.Unninr of July, 1975 and the
oeccnd cons^Tunimt should arrive Baghdad
at the bo;;inriin * of September, 1975 or
earlier.
225
A.
Both l o c a l agents and firvia bidciin/* d i r e c t l y are required t o
comply w i t h tho following tor_:;3 and conditions:
1)
Price f o r each or tho i t e r s I n f.iia Tender ohould be
i n d i c a t e d c l e a r l y f o r our coct cal'cul tions.
2)
Pricoa a h a l l be quoted FOB, CAl.DP Baghdad Via B e i r u t and
v i a ' a t t a k i a , and CandF Jbc^hdad v i a jjaorai.
3)
A f i x e d date of d e l i v e r y POD an l an estimated- date of
d e l i v e r y CandF ohould be i n d i c a t e d ,
4)
Offers a h a l l be submitted i n thrco copies of .'signed
proforma i n v o i c e .
5)
Insurance w i l l be handled l o c a l l y and paid f o r by the
Dairy A o a i n i o t r a t l o n .
B,
BANK
0U',RA1:T3E
The bidder w i l l deposit with the Dairy Administration an
unconditional Bank Guaranteo f o r the anount of 5*i of the Candl
cost of the f.oods f o r one year. The deposit w i l l be returned to
the unsuceosful Tenderer w i t h i n three calender nonths from the
o l o s i n ; date of the Tender. The D . i r y Aar'.inistrr.tion w i l l ' h o l d '
the Dank Guarantee of the successful bid ler u n t i l the .^ooda are
reoeived and found to correspond i n s p e c i f i c a t i o n s , q u a n t i t y ,
aokin.* and date of do i v e r y to the o r i g i n a l o i i c r . The Dank
uarantco should be issued by an I r a q i bank Only.
S
0*
(Not a p p l i c a b l e )
NEUTHAL T S 3 T 5 :
Offers are to include an acceptance statement to the e f f e c t
t h a t Tho Dairy Administration may appoint a cc:-.potent n e u t r a l
p a r t y a t i t 3 expense to inspect m a t e r i a l on oruer to issue relevant
t o s t c e r t i f i c a t e to the e f f e c t that the material beinf shipped
conform i n a l l respects with the agreed upon c n e c i f i c a t i o n o .
Bankers e f f e c t e d par/pent w i l l only io so upon r e c e i v i n r a copy
Of each c e r t i f i c a t e vhich have been approved by The Dairy
Administration
g*
Offers which do not ceppty with a l l the ternu and conditions
I n d i c a t e d w i l l not be considered.
V,
(not a p p l i c a b l e )
0*
Offers submitted are tnkon t3 indic ate that a l l the terns and
conditions of t i i i s tender are -iccopted by the bidder.
H*
Tenderers wuot sub.uit t h e i r Tenders i n sealed envelopes
marked "Tender Ko.
ft?—)•
X*
1) A l l offors nuat be r e c e i v e d not l i t e r than'
2) Foreign bi^doru should s u b - i t t n o i r o f f e r s by r e g i s t e r e d
airmail*
J*
Tho Da r y A d n i n i a t r a t i o n fiay accept part or a l l tho i t o c s
o f tho Tenaer oifored by tho bidCiOr.
K«
ii'hia Adroinistration shall not aocey. any claira for pxtrft
c h a r c c a o t i i e r thin t i . o ^ c indicated'in tMe bitidfvr* V r r * *
fralcht
226
-
General Torrja
2
-
andOonultlopB(Contlnupd)
A l l taxes and fees Imposed by S y r i a n A u t h o r i t i e s on goods
passing through S y r i a n T e r r i t o r y a r e Tor c u p v l i o r s a c c o u n t ,
unless i n d i o a t e d o l e a r l y i n the p r o f o r n a i n v o i c e •
M.
p e r i o d F T a r a .mien
wr^n
is
Tenders s h a l l be i r r e v o c a b l e f o r a p e r i o d o f s i x t y ( 6 0 ) days
from the c l o n i n g date of t h i s Sender s u b j e c t to e x t e n s i o n when
necessary*
Xf the Tenderer withdraws h i s Tender before t h e
e x p i r a t i o n of t - e s i x t y ( 6 0 ) days p e r i o d , h i a p r o v i s i o n a l d e p o s i t
w i l l be thereby f o r e i t o d t o The D a i r y A d m i n i s t r a t i o n .
Tho D a i r y
A d m i n i s t r a t i o n reserves tho r i t f i t to accept any Tender o r any
p a r t t h e r e o f a t any time during tho p e r i o d of the v a l i d i t y o f tho
Tender t and the date o f acceptance s h a l l bo the date o f e x p e d i t i o n
o f the o f f i c i a l n o t i f i c a t i o n ol the s a i d acceptance to t h e address
g i v e n i n the Tender.
H.
The Tenderer s h a l l not i n c o r p o r a t e i n t h i s Tender any equipne
o r m a t e r i a l t h a t have been manufactured i n I s r a e l or by corapaniea
• b a r i n g I s r a e l i c a p i t a l o r b o y c o t t e d o f f i c i a l l y by tho I r a q i
Government or any p l a n t or m a t e r i a l s o f which any component p a r t s
have been uanufactured i n Isr.-.el or by c c r sanies bpycotted
o f f i c i a l l y , as the i u p o r t i n t o I r a q of env such equipment or
m a t e r i a l s or components i s o f f i c i a l l y frr
0.
CONTRACT TO BE AIT IP M I CONTRACT
The I r a q i Courts s h a l l have e x c l u s i v e j u r i s d i c t i o n t o hear
And determine a l l a c t i o n s and proceedings a r i s i n g out o f the
Contraot*
P.
LANGUAGE
A l l docuiionto, i n s t r u c t i o n s , b o o k l e t s and drawings s h a l l be
drawn up i n T&glisU.
Q,
SHIPPING m:\K3t ALDAN
-
ORD'TR NO.
-
227
B A I t K B n S
T R U S T
C O M P A N Y
1 0 W A L L STREET
N E W YORK, N . Y., 1 0 0 I S
DECEMBER 1 8 . 1 3
^ / C S O F CONFIRMED
IRREVOCABLE STRAIGHT CREDIT
We are instructed by
CENTRAL BANK OF L I B Y A ,
TRIPOLI ,
LIBYA
to otforat yott that they have opened thrir irrevocable areditb your favor for account of UNIVERSITY OF T R I P O L I
FACULTY OF SCIENCE T R I P O L I . LIBYA
far a aum or aunt in U. S. doflara not exceeding a to til ol TWO THOUSAND FOUR HUNOREO NINETEEN ANI
00/100
**$2,419.--**
available by your drafts on ua, at SIGHT
to be accompanied by:
10 8 I G I N A L COMMERCIAL INVOICE IN 7 COPIES ALL DULY SIGNED I N THE NAI
THE BUYER INDICATING GOODS OF USA ORIGIN COVERING CHEMICALS AS PE
QUOTATION DATED NOVEMBER 4 , 1 9 7 4 TERMS C & F T R I P O L I , L I B Y A .
2-»
CHAMBER OF COMMERCE CERTIFICATE OF ORIGIN AUTHENTICATED BY THE L I
CONSULATE OR EMBASSY.
3-
A DECLARATION DULY SIGNED BY THE EXPORTER OR THE SUPPLIER STATING
THE COMPANY WHICH PRODUCED THE COMMODITY TO BE EXPORTED RO SUPPLI
BY HIM IS NOT AN AFFILIATE TO OR A MOTHER OF COMPANIES ON THE ISR
BOYCOTT L I S T AND STATING ALSO THAT THE (THE EXPORTER OR THE SUPPL
-~HAS NO DIRECT OR INDIRECT CONNECTION WHATSOEVER WITH ISRAEL AND W
ACT ON THE GROUND AND REGULATIONS OF THE ARAB BOYCOTT OF ISRAEL.
4-
AIRWAY B I L L S SHOWING THE GOODS CONSIGNED TO UNIVERSITY OF TRIPOL
FACULTY OF SCIENCE T R I P O L I , L I B Y A .
SHIPMENT TO BE MADE FROM USA TO TRI POL I , L 1 9 Y A BETWEEN DECEMBER 5
AND 'JANUARY 3 1 , 1975) BOTH DATES INCLUSIVE.
utwiDtrt P
PARTIAL SHIPMENTS MOT PERMITTED.
-TPANSHI °MEf;TS I S PERMITT
All drafts »o drawn mu»t be marked "Drawn under B&nkcra Tru»t Company Advice No, V77943
*
Thia credit U subject to the Uniform Customs and Practice for Documentary Credit* (1962 Revisk>n). International Chai
Commerce Brochure No. 222.
-SEE PAGE TWOThe above mentioned correspondent engage* with you that all draft* drawn under and in compliance with the tenia el thb
will be duly honored on delivery of document* aa •pecified, if duly presented at thii office on or before JANURY 3 1 f 1 9
'WE, CONFIRM THE CREDIT AND THEREBY UNDERTAKE THAT ALL DRAFTS DRAWN ANI
PRESENTED AS ABOVE SPECIFIED WILL BE DULY HONORED BY US.
Very txubr youw,
ACS/CV
„
228
Getty Oil Company
(
fXPORT PURCNASK ORDER S H i m N G ANO INVOICING INSTRUCTIONS
TW
FvfctMM Ordvf mutt !>• rotumod
l
Unit coif and discount,
c. Tofol p«r Uom fnttK
"Hm MWwJkf fpp» nilim m i l l bm tottowo4 to
fU« * f tfc« o r * * .
prop«r hondA. Totol por H * f
«. f. 0. H. poi«»,
9« P a r t i a l « W I not t * m«4« wlfkowt prior •wthomotiofr from
Catty Ofl Cempewy, PwbaWnf Doporfmont.
f. Co»W f t m t ,
f.
Ik
H* e * w m * e r y * w Ml«at«4
KHVUWU conwot b« mad*.
CM C i i y » j r « P»rd»o«ln» D*twtm««t,
AN M ' V M
4
It. Cro»» ihip^ng wotfKl.
Oaadaid <|WI|H< pMh, M U U otH*rwU« «<Mt«4
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p w l l w ) M w i < W wdw«< U
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of ••«>»
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of rfc«
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w
w
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of
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ORIGIN NOR DO T H I T CONTAIN ANY O A A t U M A T
O. f o l U . n
f.
Y
0rl«l*o4 o«i »!•»« «»><» »f farwlat, pim >*«
MM! Wo m « l M H i
GtTTY OIL COMPANY
TMASURY MCTTOM. M I X
P. O. »0X 1404
HOUSTON. T | X A 1 T70«1
'
If ony o4JiHo»»ol
GiTTT OIL COMPANY
PURCHASING DtPARTMlNT
P. O. BOX 1404
HOUSTON. TtXAS 77001
PHONI: (713) 228-936J
tv^cmo.
3b • • fit* I * »h* Gotty Oil C«onpo*y Por*l»o«;«f
Toooi
v.M bo avo.loWo for impaction it
(Pm
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y»*t Vm
jiL^i^
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to
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229
IXpOftT PURCHASE ORDIR SHIPPING ANO INVOICING INSTRUCTIONS
th*
f f j of PintlMM'Vrdtr w«i» to r.turw.d
1#. Unit eo»* and rf<t<oMnt.
c. Total p«v ifim fn«l).
I N
M l 4 f | f»fhin»linn n u t to folio*** |a ir»»u». pi«ptr handd. Tofol p n
M k
0. F. 0. B. point,
N r H l t fr^wnwh M l M t fee mo4« «r|tto*4
ouftom.tio* from
f.
Co»h (arm.
OtHy ^tt C m i ^ M f i FMAMIM^ OifNitfwtnli
Nnwfc«f • ( pMh«9**<
FTRTH* •IWRFLFCUI I N IHAIIMI SKT^MI ITMUFO CO»»IN>» to
UflRf
Ott
%n
M
P««to«i«t OwMtrnwrt,
li. CrtH shipping
<MWH«
1.
Nt* v.lgKt.
I
Dim«fiti«<* of poctojo I C H W I M I I .
Mbu
y d i l m fat MN» to MtcfoM* U « m |m«V*t« •» «««K
k. S«to4«»lo " a " iu<>»to* • t o u M ' t o fwiiriitol #
W
W * *
* * mm* to M«w««tr
I.
M l N M *rtfe —
i
f» W A pnk>|>.
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tow*
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to
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m
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l*<«li«ti.
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" W i CIRTIFT THAT T H I GOOOS USTIO A M NOT O f H j U i
ORIGIN NOR 0 0 T H I Y CONTAIN A N T I S I I A t U M A W M * | I »
• • WW»n
ft. Ofl|l»*l
<oH«t •> I w t i h i , plan i m m * l m JK p a & t f
mmI to fn«l)*4 tot
GtTTY OIL COMPANY
TRtAiunr l i e n o r p b k
f . 0 . t o x 1404
HOUSTON. T l X A l
#S
770%1
It ofty . ( M l H t M l InfwmafjM it r i q w t o ^ »>»•••
GSTTT OIL COMPANY
PURCHASING DtPARTMINT
F. O. BOX 1404
HOUSTON, TEXAS 77001
PHONE: I M ) ) 210 V36I
1 | W i
+4
I
W 9 M t v * & OA ftto U «to Gattp Oil Company Pwrttotio*
irtiwl,
T t M l om4 vJll to ovoilaMa for imp.Oie* if
«t l > « f
ife I t
t
Vf—
.Um T » *
atowl^f i
iNlMtf (Hgpr.af* <U««MMn
*»«T»».
THU 0»<U» lor
230
M
a,T7,)
"
7
APPLICATION FOR IRREVOCABLE LETTER 1OF CREDIT
——
BY
CABLE
Credit No.
TO
Opened on
UNITED
COMMERCIAL
HONG
OEAR SIRS. .
_
-
L / C T O B E E S T A B L I S H E D I N NAME O P « S F A C E T I M E E L E C T R O N I C MANUFACTU.tEltS
»
• • ' ""•
PLEASE
-AT.
„
BANK
KONG
ESTABLISH
mV.-.X.ORK
w © a 2 8 1 h
AN
IRREVOCABLE
WITHOUT
RECOURSE
. y A,R
New B X . o . r
StreotA
x j s ^ O I B ^
<SAY>
DRAFTS TO Bl PRAWN AT S I G H T / . D A Y S
1
TO
ORAWSR
CRSDIT
THROUOH
YOUR
ORRICLTAOINTI
FAVOUW or M/» JANArLOW..CO.UHO L t A T I 0 K
^a..10001.
TO
"
, , N T
SIOMT ON US COR FULL
OF
:
.... PER CENT OF INVOICE VALUE OP
MERCHANDISE TO BE DESCRIBED IN INVOICC A*.. XtJ2U1 . JJO . k k l X C U . L a d i f i A . . WA t f i l l . B a O g l & 8 . W i t h . . . .
. . R i i i n o . - j O L t . t a
CiJ^.MaY.emaat.
aJL*o. 6 . 2 x t i . . . . 3 Q O . . . B J C . a A . . y c H o . v f . . i 5 l l t
"'"'"NEW YoVik*
"""
HONG K O N G .
SHIPPED PROM.......
TO
•JN| ONE ^//y^/y'SHIPMENT/*, TRANSHIPMENT DEINQ
ALLOWEO AND ACCOMPANIED BY THE FOLLOWINO
DOCUMENTS COVERINO THE ABOVE-MENTIONED MERCHANDISE.
SIGNED DETAILED INVOICES IN TRIPLICATE CERTIFYING THAT THI GOODS AUK OF
A.?.
°",G,N
Airway H i l l
Respective
Airwi
• PULL SET OF CLEAN " R M I P P C M / M A M M M M M / W M
«»®H«D BY
? W M / ¥ • / * / M M A
MARKS©
PREPAID I f f A r i ^ Y A *
UNTO ORDER OP THB UNITED COMMERCIAL BANK LTD.. M
•ADW
W BANK COVERINO CONSIGNMENT AS AUOVC.
DREW
SSEW
D T/OWTHE
m
M
w
m
m
m
m
m
m
m
m
m
m
',
M
m
m
m
M
m
m
m
i
i
•OR
»MAlllNK ANO WAR RISK INSURANCE HAS BEEN COVERED ON THIS BIOS AND THB COVER DEPOSITED . WITH THE
BANK.
f
,
OTMCW POCUMSNTB^RSOUtRSPt
(PLEASE MARK CROSS WHERE N«CE6SARV)
I I CERTIFICATE OF QUALITY ANO QUANTITY ISSUED BY
| | «CRTIFICAT« OF ORIOIN ISSUED B V T A m O r * c f r n C h a m b e r o f C o i ^ n e r c o
p - j g o o d s a r e 1 0 0 $ 'of. U . S . A . O H i G I N , g i v i n g Names a n d
oertlfying
the
Addresses
of
-Hanurac-turjara*
R
BE
DATED
NOT
LATER
THAN-.^/V75
;;
BILLS OF EXCHANGE MUST DE* DATED ANO NEGOTIATED NOT LATER THAN...^.Q/ik/.7.5..
rtUN^fc.**^ laFOUIOM' OOfWESeONOCNTS.JtO-^aSMOi'MONS'ASESAiaf <OCUUH
^
M i k f a i M L ' K y next A i r
Mail.
CPSCIAL ' INSTRUCTIONS |
ITHESE SHALL PREVAIL OVER ALL PRINTED TERMS IN CASE OF ANY APPARENT CONFLICT)
Packing L i s t regnired in T r i p l i c a t e ^ t v i n g Weisht?_Measurement
A
fulL-dfi taXlA. of..contains...la.e&cti.package.*....
JULrwjay...>tJiXi.. l a f l w . o d b y . . . A i r W n . r H s ^
Blvd.
S u i t e .205[..Jamaica . N . X . l l U 3fi,..
UnlY.;Accep t a b l e
Air Frcis h t
13c n o f 1 c i a r i e a a r e a l l o w e d t o i > r a w i n e x c e a s " o f L / C
a m o u n t tVie a c t i i o i umoiVrit ' o ' f ' ^
E x p r e s a x t t f - t>y
tttticcivtne
Hecwtnt"of—A i t
F r e i g h t p a i d t o thorn.
EXCEPT A* OTHERWISE EXPRESSLY STATEO. THIS CREDIT IS SUBJECT TO THB UNIFORM CUSTOMS ANO PRACTICE
FOR DOCUMENTARY CREDITS (ISSS REVISION). INTERNATIONAL CHAMBER OF COMMERCS BROCHURE NO. 22*.
Yours fsith fully.
231
U
Xnvolet
( • )
t o
Oooda
colour
e a r t i f y
• •
t h a t
i -
auppiied i n « U
r««p«oia •
a t y l e ,
• & • •
p a r l o u p J l t f u b a l t t e d Iqr b t M f l « U r l « a *
(to)
Rtwta A addraaatt
o f
goods*
( o )
The
fiuoda
auti|»llad a r a not o f l a a a a l l Orijtla
d o t h e y Contain any XeraaXl
m a t e r i a l s *
( d )
N e i t h e r b e n e f i c i a r i e s n o r any o f the Muitufae t u r e r a
name a r e i r l v e n < i n v o i c e ,
a r e i n no way u n d a r b y c o t t
Arab Jiycott
o f f i c e *
( a )
Znvoioaa a r e
of
O r i g i n *
to
be
o f
Nanufaeturara
e e r t l f i o d
by
a u p p l y i n *
A
'
Clumber
any
p a r t *
n a l iltar
laauliifi
vhoaa
o f
any
C e r t i f i c a t e
232
WAKA
P.O.
Hox
WA
120
A I\1A . .
SOCIKTY
CA1HO
EGYPT,
Ci.iro,
February
10,
1975
Gentlemen,
This is to enquire of your interest in being considered f o r
appointment as Architect-Engineer.". for tl»e Wafa Wa Aniat Hospital
and Rehabilitation Center in Cairo, Egypt.
email number rf other f i l m s ,
in design of medical facilities.
considered,
It comec to you, and a
on our "understanding of your experience
If you are interested in t>eing
, ,
we request that you submit tho qualifications of your f i r m
and other information required by the enclosed terms of reference.
This information, which w i l l constitute a proposal for
professional services rbould be in the hands of the Society by 2 P . M
March 20, 1075.
Your proposal should be addressed to:
General, D r . Hassan Ilonni,
Medical Director,
Wafa Wa Amal Center,
P . O. IJox 120,
Cairo, Egypt.
233
By tho act of guhmittitift a proposal, tho proposer declares
XhHt lis iloos not poseer« any plant, firm or branch in Israel, that ho
does not participate in any firm or oompany established in Israel, and
he hvs not any supplyt manufacturing, assembling, lic'oiise or technical
assistance agreement with any firm* company or person established or
resident in Israel*
The proposer further undertakes not to have either by himSflf or through an intermediary any such activity in Israel and not to
contribute in any to consolidate the economy ot military efforts of
Israel.
The proposal should be iu English,
Prom information submitted by invited firms, three or four
firm** will be selected for interview.
On the basis qf the total
information avajlablo to the Society, one of the interviewed firms will
be%appointed as Architect-Eiuvmeer.
All correspondence concerning the project should bo addressed
to the Board of the Wafa Wa Amal Society through General, Dr. Hassan
Ilosni,
Very trwljr^yourn,
For the Board.
General, Dr. Hassan Hosni
234
HOUSTON
NEW ORLEANS
1/ n n i i i n i
GAkVCSTOH
rLBVL
NEW YORK, N.Y., 10004
TO WHOM I T MAY CONCERN:
Wa hereby c e r t i f y tiiefc above naracd versel
I s r a e l i o r i g i n <u.d w i l l nst. c a l l
not of
any I s r a e l i ports of c a l l and
nor i e i t to the best of our kaow1 ortge black l i s t e d by the ARAB
Boycott Bureau of I s r a e l i .
Very t r u l y yours.
M. L'itorza
235
\formiM
s m * > s n m CO&pohat ION
120 w A i t
stmt
taw m « c ,
vuiK
touan
•fhe falHSwiwg i a f fuefcimi QOutft-rning t h i s veadcl i a t r u e
' M e t ' w t f i f c l Ife e n r o l l e d u d w
t h a tJeltvid Statew
t t v l i l m i q u i t a.jy aw? Xar.Y*li fturt ? trior CCP c a n i t y
The ycjtt; c f dJfl^arjjv* nawttd
i m * b i l l of: l a d i n g .
Tiris
b l a c k l i f t e d by t h « Arab L*ag
U
bi.ictlloC^d
JU
t h o Gcvv&rirmgue & l
and uo dtwjrt'Ag'. 1 r/r
lr> ba&Ml am H a w Yf
desp<3tcU f i t t
ioeet*
*t
f n u t t i - t t d as. ^ o t t
of
laadin^,,
>-r x r i . i l
Ira
r h i ; V i j - j i ^ i h a s ..-jf c« 1 ltd. a t .my yysrrt i * Cub is « f x t e *
January
th&
i ,
.
vessel
ovft^r
^hfcfr o t U I
which
ureter
f
c
t-tifie-u
Uit'i tjpneract
wmjI
assume 'fatjl
iJASftlNuiOk
t k
ve»s«rl
rtrifcg' A I D
or
^a^'isibilifcy
tfcae
Xfi a^>t -d
hefcii h t u a j i d b y A I D
gt-ods.
tligy
cit . ^ f t i a t c j t
-^iixi-MM
tiaanceri
f u r t k v e«rcifi«8
tv,r
1
a x 'any. o t h i * • a u t h o r i t y
aoy
id
d a i o *
coat
of
filed
that
by
AID/
v i « » i * t i ~ c i riff. cht*
rc qufrgKftgit,
V&ty
VWOTMM
truly
STOAttSHVV'
y
^OtlTC^Ivno^x7
s h e ^ T i C r JZirtf7
...
236
BL ' 27- 10M> R1- 3-67-M
Hoisc-GriffiH
T*Uption«
WHit*h*ll 4-4000
90
N•w
Steamship
Co..
Broad
S»r««»
York
10004
Jhc.
C*bl* Addrcit "BOIGRIP"
N«w Bo* Cod*
•o* Cod*
DATE
REF. M/S
V0Y
B/L
TO WHOM I T MAY CONCERN:
To a t t e s t t h a t t h e above c a p t i o n e d v e s s e l
is
n o t owned by I s r a e l o r an I s r a e l i c i t i z e n and t o t h e b e s t
o f our knowledge does n o t appear i n t h e b l a c k l i s t o f t h e
O f f i c e of Boycott of I s r a e l deposited w i t h the diplomatic
and c o n s u l a r m i s s i o n s o f Arab c o u n t r i e s abroad.
Further,
t h i s v e s s e l w i l l n o t c a l l a t any I s r a e l i p o r t on t h i s
voyage
BOISE-GRIFFIN STEAMSHIP CO., INC
G e n e r a l Agents f o r C o n c o r d i a L i n e
By.
237
CROSSCCSAN SHIPPING COMPANY, INC
17 BATTERY PUCE
NEW YORK
NEW YORK
10004
DATE?
TO WHCM IT MAY CONCERN;,
REFERENCE;
GfflTLMffli
WE WISH TO CONFIRM THE ABOVE MENTIONED CARRYING VESSEL HAS NOT BEEN
BLACKLISTED BY THE ARAB COUNTRIES ABROAD AND IS NOT SCHEDULED TC
CALL AT ANY ISRAEL PORTS OR NAVIGATE I N ISRAELI WATERS PRIOR TO ITS
ARRIVAL AT THE ABOVE MENTIONED PORT,
VERY TRULY YOURS.
CROSSOCEAN SHIPPING COMPANY, INC,
MUHAMMADI STEAMSHIP COMPANY LTD,
LINE MANAGER
58-527 O - 75 - 16
AS AGENTS FOR*
238
IRILBPHONK MA a-«IOO
KCA-TII I I |«*>
WcatfMN UNION aaaxa
YSKITVOC
«II-07»-OBO«
F. W. HARTMANN AND COMPANY, INC.
21 WEST STREET
NEW YORK, N. Y. 10006
DATE.
VESSEL
B/L#
TO WHOM IT MAY CONCERNS
WE HEREBY CERT 8 FY THAT TO THE BEST OF OUR KNOWLEDGE THE
ABOVE MENTIONED VESSEL IS NOT INCLUDED ON THE ARAB BOYCOTT
OP. ISRAELI BLACK LIST*
NOR §S THE VESSEL SCHEDULED TO
CALL ON ANY ISRAELI PORT DUR3NG HER VOYAGE,
VERY TRULY YOURS
F0Wp HARTMANN & C0o 3NC, AS AGENTS
FOR HANSA U N E
FREAGHT CASHIER
58-527
485
239
NEDLLOYD
LINES
INC.
3 0 CHURCH STREET
NEW YORK, N. Y. 10007
TCLCPHONC t a i 2 >
CABLE
» 0 » - I P R ) U t
233-2751
AOOWCSS^COLLOYO
C E P T ' T f C
It
To
Veusttl a
Vlag
( Dutch ,Norw«g I an»<i*r*an )
Port of
DiachurgSf;
B i l l o r Lad i o g No*
T h i s i n t o c e r t i f y t h a t t h e above named v e s s e l
i s not an I s r a e l i v e s s e l uor i s ©htf scheduled t o c a l l a t any
I s r a e l i p o r t s u o r w i l l i^ie t r a n s i t
any I s r a e l i i waters
during
tier present, voyageo
NEDLLCMHO LINKS INC*
GeneraU W e n t a
mx
eve i t *
L
flops
240
F
E 2
S H I P P I N 6
R
A
L
T
A
C O R P O R A T I O N
'
TORM LINES
PERALTA LINE
HARRISON LINE
ne
TO WHOM I T MAY CONCERNS
HB» THE UNDERSIGNED, CERTIPY THAT THE VESSEL ON THE B I L L OP LADING
1 8 NOT THE PROPERTY OP ISRAEL OR AN I S R A E L I SUBJECT AND I S NOT A BLACK
LISTED S H I P .
I N ADDITION, T H I S VESSEL, EVEN I P NOT BELONGING TO
ISRAEL OR TO AN ISRAELI SUBJECT, I S NOT SCHEDULED TO CALL AT AN
ISRAELI POWT BEFORE THE Ov£CH»KRGE OP T H * MERCHANDISE AT THE PORT
T O R M
L I N E S
PERALTA SHIPPING CORPORATION
G e n e r a l Agents
HP:ra
25 BROADWAY, NEW YORK, N Y 10004
H. !>amino
B l l l o f L a d i n g Manager
•
CODE 212. 943-4466
•
CABLE TORMUNE/CORPERAttA.
•
TWX 710-581 2835
241
P
S3
R
3HIPPING
A
L
.
T
A
CORPORATION
TORM LINES
DATE;
PERALTA LINE
HARRISON LINE
W8CM I T K t . t
CMCt&n*
WE, THE TffiDERSICJ-TED, CERTIFY T3AT THE VESSEL NAMED
ON THE B I L L OF L.MU'NG I S NOV THF PROPERTY O f ISRAEL
OR ?ae ISFvAKLi Sf»a<tiCT AND I S iWff
IN ADtir/Ofl,
TH;;. V r £ S f L ,
JSRKST. CI; TO 7
SUTSTECT,
CAI.u AT A«4 t f
PL'-CK L I S T E D S H I P ,
JfVKN I f NO? ICLONCUNG TO
i s MOT SCHSWJLED TO
? X j R T BKfOllB TJIil tttgCfUWGB O f THE
MERCHANDISE AT ','Ri. PORT O f _
_
,
k
T
O P
tt
L I N E S
PSKALTA SHXt^TiiG COPPOJtmCN
Areata
apt**
Bi i i
W M O ^ t V I K C T . NEW YORK, N . Y 1 0 0 0 4
•
COOC212. 9 4 3 - 4 4 6 6 •
o f
K&v&get
CABLE: TORMUHE/CORPCMCrA : •
TWX710*«I-283$
242
C / u w r
tyhwnib/itfi
29
tTBAMSHtP AGENTS
tANHCR OPCf<ATORi
CAM
IC
. AUSTC
i r.!.:
criuns
J.» KI.W VOMK
CMKAf.O
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MAurAK. »:.».
ST. WHN. »I.O.
Tonomo. o«r.
CHUftCMItJU MAN.
f $ r c < t < { ( c < t tf
j i i e c
••KeunuMe"
TCUfHONCs
WHtTCHAU*. 4-4450
TO WHOM I T HAY CONCERN:
VOYAGED
VESSEL:
PORT:
BILL OF ).ADi;:C. NUMBER:
"THIS IS TO CERTIFY THAT T1IE ABOVE VESSEL IS NQT AM
AM ISRAELI SHIP*
NOR IS I T SCHEDULED TO CALL AT ANY ISRAELI
PORT, OK WILL SHE TRAVERSE ISRAELI WATERS DURING HER VOYAGE,
AND ALSO THAT SHE IS NOT TO OUR BEST KNOWLEDGE AND BELIEF,
BOYCOTTED BY THE A^AB LEAGUE OR BLACKLISTED BY ANY ARABIAN
GOVERNMENT.M
VERY TRULY YOURS,
KERR STEAMSHIP C02JPANY, INC,
GENERAL AGENTS
243
H E L L E N I C LINES
LIMITED
PIRAEUS-GREECE
39 B R O A D W A Y
N E W YORK, N . Y., 10006
TOE FENTT^SraMSHlP CO., Ltd.
Bcvk Marks House
Bcvis Maris
London, ECS
A g m h A t A l l Ports in tb*
«ELUN1K!-New YoA"
Ce4«,TiwNewBoe Code
CMeSt
7tU»<HM. Dlgby 4-3)14
World
TO WHOM IT MAY CONCERN:
DATE:.
M/S_
VOY.
GENTLEMEN:
THE FOLLOWING INFORMATION CONCERNING THIS VESSEL IS TRUE AND CORRECT.
FLAG:
1. THIS VESSEL IS REGISTERED UNDER THE GREEK FLAG.
ISRAELI CLAUSE:
2. IT WILL NOT CALL AT ANY ISRAELI PORT PRIOR TO CALLING
AT THE PORT OF DISCHARGE NAMED IN THE BILL OF LADING-
ARAB LEAGUE:
3. IT IS NOT BLACKLISTED BY THE ARAB LEAGUE.
JORDAN:
4. IT IS NOT BLACKLISTED BY THE GOVERNMENT OF JORDAN.
CUBAN CLAUSE:
5. THIS VESSEL HAS NOT CALLED AT ANY PORT IN CUBA SINCE
JANUARY 1. l%3.
.AID BAN:
6. TIU«: VESSEL OWNER OR OPERATOR CERTIFIES THAT THE VESSEL
WHICH WII.I. PERFORM UNDER THIS CONTRACT IS NOT A VESSEL
WHICH HAS BEEN BANNED BY AID FOR TRANSPORTING.AND FINANCED GOODS. THE VESSEL OPERATOR FURTHER CERTIFIES THAT
HE ASSUMES FULL RESPONSIBILITY FOR ANY CLAIM FILED BY
AID WASHINGTON OR ANY OTHER AUTHORITY IN CASE OF VIOLATION OF THE REQUIREMENT.
7 i THIS VESSEL IS A LINER WITHIN THE MEANING OF THE INSTITUTE
CLASSIFICATION CLAUSE.
Very Truly Yours,
MANAGER (Bill of Lading Dept.)
244
b o r t » e f i f t § §
BARBER S T E A M S H I P L I N E S . I N C . , A f t n t *
17 B A T T E R Y P L A C E . NEW Y O R K . N . V. 1 0 0 0 4
TELEPHONE
TELEX
CABLE AOOAESS
212-944-1900
Domtttfc: 710-5*1-3020... Foreign: 222373/4200*7/«272t
DATE
VCSSCL
NEW YORK:
VOYAGE NUMBER
B I L L OF LADING NUKB£R_
FROM NEW YORK TO
TO WHOM I T M Y
CONCERN:
WITH REFERENCE TO T I C VESSEL UNDER CAPTION, WE HEREBY CERTIFY TO THE
FOLLOWING:
THE VESSEL NOT OWNEO BY ISRAEL
THE VESSEL I S NOT OWNED BY AN ISRAELI
CtT|2EN.
TO THE BEST OF OUR KNOV/LfDGr. THE VESSEL DOES tiOT APPEAR IN THE BLACK
L I S T OF THE OFFICL BOYCOTT OF ISRAEL, DEPOSITED WITH THE DIPLOMATIC
AND CONSULAR MISSIONS OF ARAB COUNTRIES ABROAD.
THE VESSEL I S NOT SCHEDULED TO CALL AT ANY ISRAELI PORT DURING HER
VOYAGE:.
MANAGER, B I L L OF LADIMG DEPT.
245
CABLC AOORCSS
States Marine -/sthnuan
A g e n c y ,
\
/ n c .
\
90 B R O A D S T R E E T , N E W Y O R K , N . Y .
10004
TO WD0M IX MIX CONCERN:
Oentlrasn:
3.3.
The following information
#IA0t
1.
TSiia
concerning this Teasel
Is true and correct
Teasel is enrolled under the United States Flag.
I8RABL CIAUSI: 2• I t v l X l not c a l l a t any I s r a e l i port prior to c a l l i n g
a t the port of discharge named I n this B i l l of
lading.
HUB LBMOOEs
3* I t I s not blacklisted by the Arab league.
JORDAN
k* I t I s not on the Black l i s t of the Government of
Jordan*
LIKXR:
5 . This shipment Is based on l i n e r Terms and no Demurrage
or despatch has been Incurred a t port of loading, nor
w i l l be Incurred at discharge port.
CUBAN CIAUSE:
6 . This vessel has not called at any port i n Cuba, since
January 1, 19^3 •
AID BAB:
7* The vessel owner or operator, c e r t i f i e s that the
vessel which v i l l perform under this contract i n not
a vessel vhlch has been banned by AID f o r transporting AID financed goods. Dae vessel owner or operator
further c e r t i f i e s that they assume f u l l responsibility
for any claim f i l e d by AID/washington or any other
Authority I n case of violation of the requirement.
Very t r u l y yours,
STACKS MARINE ISTHMIAN /
INC.
246
CUKQPC A|kAaCJ«T«
aocmtb r o a
SHERATON - WHITEHALL BUILOINO
aAMBKft •TCAHtrtlO U N » , kIMITKO
at ai«MOP»oAT*,
LONDON, C.C.*,CNOhANO
17 BATTERY
NEW YORK, N. Y.
CAvzca. invink a co.iro.
WlkN.WILHKl.MaCN
rcAOMkcv * coca .
PL^CE
a. r. KkAVKNcaa * co,A/a
NOaOANA UNC
10004
TO UHOM IT MA'J C0NCTO
NORteiiiMiN NOTCfc 3M¥»
00000.9
$AILJ*W DATE
0 C> J O tl 0 0 9.C A O
BRL Of UDI1WC HOc
•> c a 0 •
'Mt MS^s VJ m m
THIS v m a
00,600
O C, O O O
©
JS WOT "m
isftftcii
v ^ a Mj c w i ^ irui sr w<o. ^rr
.aa 4T ANY ISRHiU r-1 s?fANft }:> UOa ftUCUU&CD
flr *kC rAJCtf
ftiV^W^
A?:
247
G3KCRA&
cms m m m s &
cm \ m m m x
cmpoamoK
ffmsw
m t xcax, nmt mac
RSs 3/S
B/L ,1_ritii1i ._ _r_r_„.
It
,M .
Ooaocsm:
Siis is to c e r t i f y tliat the afccvaTOKrel± z not
to c a l l a t
^ax'ajli Ports, nor i s t&ta i/msai or Xoraeli
awg**t*yf
Yoarc very tmfty,
c m m L cuw smmsxp
craFcamca
m n i v ^ Q . Mack
j&i'ij. of deling IteparfcrciTfc
vm/ela
248
TO WHOM THIS MAY CONCERN
VESSEL
VOYAGE
THIS IS TO CERTIFY THAT THE ABOVE MENTIONED
VESSEL IS NOT BLACKLISTED & i ANY ARABIAN
COUNTRY ANO WHL NOT CALL AT ANY
ISRAELI PORfrs.
CC&STELLATICN LINE
CONSTELLATION NAVIGATION I N C . ,
(AS AfeENTS)
249
AMERICAN EXPORT
ISBRANDTSEN LINES
I
26 1ROADWAV,
N f W YORK, N. T.
N
C,.^
CABLE ADDRESS: EXFOSHIP
TELEPHONE ( 2 1 2 ) 7 9 7 - 3 0 0 0
10004
To whom i t
may c o n c e r n
Re
S h i p m e n t was n o t e f f e c t e d by an I s r a e l i means o f
transportation.
T h i s v e s s e l i s n o t t o c a l l a t any I s r a e l i p o r t and w i l l n o t
pass t h r o u g h t h e t e r r i t o r i a l waters o f I s r a e l i , p r i o r t o
u n l o a d i n g i n Lebanon, unless t h e ship i s i n d i s t r e s s o r
subject to force Majeure.
No t r a n s h i p m e n t i s a l l o w e d u n l e s s
t h e v e s s e l i s unable to proceed to d e s t i n a t i o n because i t i s
i n d i s t r e s s or subject to force majeure.
We h e r e b y c e r t i f y t h a t t o t h e b e s t o f o u r k n o w l e d g e t h e v e s s e l
c a r r y i n g t h e a b o v e m e n t i o n e d goods i s n o t i n c l u d e d o n t h e
ARAB BOYCOTT BLACKLIST.
Very t r u l y
yours,
AMERICAN EX-PORT ISBRANDTSEN LINES , INC
JRM-F004/72
SHIP AMERICAN
if
TRAVEL AMERICAN
250
FROM:
JAN C„ UITERWYK COMPANY, INC„
80 Broad S t r e e t
Nei# Y o r k , N„Y 0 1000M
CABLES
THONES
T.W.,X0
UITERWYK CO,,
212-3MM-8870
710-581-3097
STEAMER*
SAILING DATEB I L L OF LADING #
THIS IS TO CERTIFY THAT THE ABOVE VESSEL IS A
! CLASSIFIED VESSEL PLYING I N THE REGULAR LINER SERVICE OF SOUTH
SHIPPING LINES ( IRAN LINE ) WHICH IS A MfcMBER OF THE REGIONAL
COOPERATIVE DEVELOPMENT SERVICE ( R . C . D , ) „ AN AGREEMENT BETWEEN
TURKEY, IRAN, & PAKISTANe
251
(PLEASE
PRINT OH TYPE I
tL(X C»»AH« C NO.
f OHM ACPr- »ViO
OM'I NO. 1 2 4 - R O O D I
CHARGE OF DISCRIMINATION
INSTPUCTIONS
ii you h a v * j crr-p»u.nt, n i l in this U m oi.il rr.uil it to th«» P<i<.a' ilxi-loyrr.-r*
Opportunity Cc-.T.sJu-.-tn'a D:«trtct Oiheo in your
». In noul cas*?s, a chcr-:«
T.ust ce fil»'4 "v.:h t c i r . C C within
:»p«t;ifv»d 1 im«; 'itt*>r tl:»> Uiaou.T.ir.atorv ic:
tsc'< place. I T T H E R E " C h t i IMPCHTAN'T T") KHX. YOt!M O'-AhOEI A3
SCCN AS P C i c i l b L L . (Attach extra sheets of paper if
necessary.)
CAUSE O r DISCRIMINATION
|
| «»ct on COLOR
|
| NAT ION AC C-RTLOIN
N*Mi i Indicate Mr. or Ms.)
Anti-Defamation League of B'nai B*xlth
•JAId OF BIRTH
SHEET AOCKESS
SOCIAL SECURITY NO.
CITY.
COUNTY
["""] sex
HELIGICUS CREED
New York
315 Lexington Avenue
STATE, At.it J|P COOE
New York, W.Y. 10016
TELEPHONE NO.
(Include
ar.-a
code)
T H E FOLLOWING PERSON ALWAYS KNOWS WHfc»?£ TO CONTACT ME
TELEPHONE*NO. (Include
(Indicate Mr. or Ms.)
Nr. Arnold Forster, Mr. Justin Finger, Mr* Edward Leavy
N*V&
>?»UT AOOIESS
area codi)
(212) 689-7^00
CITY, STATE. AND ZIP coo-
New York, N.Y. 10016
515 Lexirorton Avenue
LIST T H E EMPLOYER, LABOR ORGANIZATION, EMPLOYMENT AGENCY, APPRENTICESHIP COMMITTEE, STATE OR
LOCAL GOVERNMENT WHO DISCRIMINATED AGAINST YOU (If mor* than coe, list oil)
American Bureau of Shipping Technical Services
Owned by; American Bureau 6 t Shipping
STfttST
ttOMS)
TELEPHONE NO.
(Include area code)
CITY. STATE. AND £IP CODE
New York, N.Y.
U5 Broad Street
OTHERS M»0
DISCRIMINATED
AGAINST YCU
(If any)
rILSO "|7n
STATs/LOCAL GOVT.
AGENCY
SA.'£ FILCJ
AGtWCV CHAHcE IILLO WITH
A?->?C.<IMAT i NO. t - £VfLOY£s.;/MiMafcAS Of COMPANY OH IN ION
C b * » r i t IS fILEO AGAINST
tHIS
(Sane ,n<! wldr'ss)
'JATT MO'.: -F-CINT
» CONTINUING DISCRIMINATION TOO* PLACE
1 Month. >lay, wiycnrf
E>:.c!a;n v.h-:: unfair ih;nq was dene to yon on-1 how other p<ryor..; v/e«e treatc4. .ii::cr»nt:y. Understand:.*.-] that Uus
stTv«T.ent i3 to: the use ot the Unite i States Equal Employment Ccpcr'.unity Cc.T,r.:ss:on, I hereby certify:
|
SEE ATTACHED;
••T.ATSUTJ AM .MVN TO SIEFOHE ME THIS DATE
I 3.v*2r oc -::f.rrr. : r . n I jyjv* r t : - ' »r.e « G V « rhnr«j». .»n-i that it
• S3 i!".* to tr.» b»st z : n y
:n?~»rrn':tion nrM holi-f.
C*VI<JI.<«G PARTY
(Signature)
1 r r
3uescr:o*W 3 n i s * r n "o r«rcr •
~ ) ' . r.-tprox.»n»iUve.
OA f t
>ior.Arte1. ANO TI TIC
lltay, m»nth, and year)
NOTARY PUBLIC
3AfC
I
v'
•iEEOC* junlrs
5
•rttitcns ol th»o torm rrwty be s«s*'i.
•.ir.NAT>lf ,.s 'fi.Hicult ?<-r >m« to per u -Volar* Public to sign
tht\.
yourtt .i,*
.m.t r»nl f.-> th* Hi strict Office. Th•
l.iwn-ntoi wilt notttme the charge for you at a later date.)
252
B ' n a i B ' r i t h , founded i n 18^3, i s t h e o l d e s t s e r v i c e
organization
whose membership i s American Jews.
The ADL was o r g a n i z e d i n 1913 as a s e c t i o n o f B ' n a i B ' r i t h t o a d vance good w i l l and m u t u a l u n d e r s t a n d i n g among Americans o f a l l creeds
and r a c e s , and s p e c i f i c a l l y t o combat a n t i - S e m i t i s m and a n t i - J e w i s h a c t i v i t i e s i n t h e U.S.
The members o f B ' n a i B ' r i t h , as American Jews, a r e s u b j e c t
directly
t o economic i n j u r y b y t h e a n t i - J e w i s h d i s c r i m i n a t o r y p r a c t i c e s o f ABS
Worldwide T e c h n i c a l S e r v i c e s .
ABS Worldwide T e c h n i c a l S e r v i c e s m a i n t a i n s o f f i c e s a t U5 Broad
S t r e e t , New Y o r k , N . Y .
ABS Worldwide T e c h n i c a l S e r v i c e s i s a d i v i s i o n o f t h e American
Bureau o f Shipping o f t h e same a d d r e s s .
ABS Worldwide T e c h n i c a l .Services i s engaged i n t h e b u s i n e s s o f
s o l i c i t i n g Americans w i t h t e c h n i c a l knowledge f o r employment abroad.
ABS Worldwide T e c h n i c a l S e r v i c e s has o p e r a t i o n s i n B a h r e i n and I r a q
and i s s o l i c i t i n g American p e r s o n n e l f o r employment a t t h o s e
operations.
ABS i s aware t h a t some Arab governments d i s c r i m i n a t e a g a i n s t Jews
n o t o n l y i n employment b u t a l s o i n g a i n i n g a d m i s s i o n t o t h e i r
countries.
The ABS employment process a t t e m p t s t o screen o u t Jewish a p p l i c a n t s who
a r e immediately e x c l u d e d .
Employment s o l i c i t a t i o n w i t h i n t h e U . S . f o r American p e r s o n n e l t o
•work abroad i s covered b y T i t l e V I I o f t h e C i v i l R i g h t s A c t o f I96I+ as
amended.
D i s c r i m i n a t i o n on t h e b a s i s o f r e l i g i o n i s p r o h i b i t e d .
f o r e , ABS Worldwide T e c h n i c a l Services i s i n v i o l a t i o n o f t h e
Rights A c t .
There-
Civil
253
SUMMARY OF FACTS
Ms. E r i c a W a g n e r , a n e n g i n e e r ,
responded t o a n ad i n
A p r i l 2 0 i s s u e o f The New Y o r k T i m e s -which c a l l e d f o r
sending o f
the
a resume.
Upon
s u c h r e s u m e , Ms. Wagner 'was c o n t a c t e d "by t e l e p h o n e b y a woman
who i d e n t i f i e d h e r s e l f
Technical Services.
as a s e c r e t a r y t o M r .
she w o u l d b e w i l l i n g t o a c c e p t
informed the
T h e i l h e i m o f ABS W o r l d w i d e
M s . Wagner was t h e n a s k e d b y t h e s e c r e t a r y
secretary that
employment i n I r a q ,
w h e r e u p o n Ms.
she w o u l d b e w i l l i n g b u t t h a t
T h e s e c r e t a r y r e p l i e d t h a t t h e r e w e r e no i n d i c a t i o n s
r e s u m e o r h e r name t h a t
b e q u a l i f i e d t o go t o
she was J e w i s h , b u t
Wagner
she was
from e i t h e r
she w a s ,
Jewish.
the
she w o u l d
not
Iraq.
Mr. Leonard Messer,
i n The New Y o r k T i m e s ,
since
whether
an e n g i n e e r ,
responded t o a March
i n s e r t e d by Search Consultants.
advertisement
Mr.
Messer
tele-
p h o n e d t h e a g e n c y and was i n f o r m e d b y M r . Abrew t h a t t h e j o b w o u l d b e
t h e B a h r e i n I s l a n d and t h a t
his principal,
further
i n q u i r i e s w o u l d h a v e t o b e made
ABS W o r l d w i d e T e c h n i c a l S e r v i c e s .
a p p o i n t m e n t w i t h and was i n t e r v i e w e d b y M r .
Worldwide T e c h n i c a l S e r v i c e s .
M e s s e r was a s k e d w h e t h e r h e o r a n y o f h i s
Mr.
Theilheim that
conversation,
h i s w i f e was J e w i s h .
such i n t e r v i e w ,
r e l a t i v e s were Jewish,
Messer on t h e
to
At
Mr.
that
spot.
Mr. Messer i n f o r m e d
Subsequently,
Mr.
Theilheim
visa requirement.
T h e i l h e i m seemed a n x i o u s t o h i r e M r .
I n a subsequent t e l e p h o n e
M r . M e s s e r made a n
The r e a s o n g i v e n b y M r .
f o r t h e s e i n q u i r i e s was b e c a u s e o f a n I r a q i
point,
of
R o b e r t T h e i l h e i m o f ABS
During t h e course o f
w h i c h he r e s p o n d e d i n t h e n e g a t i v e .
Mr.
M e s s e r was
again
c o n t a c t e d b y M r . Abrew who i n q u i r e d w h e t h e r h i s w i f e w o u l d accompany
t o which Mr.
Messer r e p l i e d i n t h e n e g a t i v e .
s t a t e d t h a t he would attempt t o
M r . Abrew a t t h i s
secure t h e p o s i t i o n f o r Mr.
would not h i r e him because o f t h e r e l i g i o n of h i s
wife.
him,
point
Messer
f i n a l l y g o t b a c k t o h i m w i t h w o r d t h a t ABS W o r l d w i d e T e c h n i c a l
58-527 O - 75 - 17
in
but
Services
254
RELIEF SOUGHT
ABS Worldwide Technical Services has v i o l a t e d and continues t o
v i o l a t e T i t l e V I I o f t h e C i v i l Rights Act o f 196b as amended, c o n s t i t u t i n g a p a t t e r n and p r a c t i c e o f i l l e g a l d i s c r i m i n a t i o n .
Wherefore, complainants r e s p e c t f u l l y r e q u e s t :
1.
A f i n d i n g o f probable cause t h a t ABS Worldwide
Technical Servioes d i s c r i m i n a t e d and continues t o d i s c r i m i n a t e
against Jews w i t h respect t o t h e i r h i r i n g p o l i c i e s .
2.
That, f a i l i n g c o n c i l i a t i o n , an a c t i o n be brought t o
e n j o i n t h e above d i s c r i m i n a t o r y p r a c t i c e s , t o o b t a i n damages
o f back pay t o persons o f t h e Jewish f a i t h who were not employed because o f these d i s c r i m i n a t o r y p r a c t i c e s , and t o obt a i n such other r e l i e f as i s necessary and proper under t h e
circumstances •
3.
granted.
That, i n t h e a l t e r n a t i v e , a r i g h t t o sue l e t t e r be
255
Auurew: ANiiUt-rnMfc.
ANTI-DEFAMATION LEAGUE OF B'NAI B'RITH
315 LEXINGTON AVENUE, NEW YORK, N.Y. 10016, TEL. 689-7400
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hereby authorise the
Ant 1 -Defamation League t o represent me I n a l l natters
pertaining t o ABS Worldwide Technical Services,
Erica Wagner
Sworn t o before me t h i s
•AVIN M. RN
I MREK
(MMMI, R'M) IriHi
A
I RRI BENJAMN
I M. RAMI
day of June 1975*
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STAFF DIRECTORS
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QWsM.l-Azu l*v;>i;Cii «\brch CO, 1977
256
Stato o f New York
)
)
County o f New York )
SS:
ERIKA WAGNER, being duly sworn deposes and says t h a t I
at 150 East 6 l s t S t r e e t , New York C i t y .
reside
I hold a degree i n s t r u c t u r a l
engineering from t h e U n i v e r s i t y of Budapest, Hungary.
On A p r i l 2 0 , 1975 I answered an ad which appeared i n the New York
Times of t h a t day.
Times.
The ad r e q u i r e d t h a t a resume be sent t o Box Z 21+11
On or about A p r i l 28 or 2 9 , 1975, I received a telephone
call*
from a female person who i d e n t i f i e d h e r s e l f as being t h e s e c r e t a r y t o
Mr. Taeilhelm of ABS Worldwide Teclinical S e r v i c e s .
i f I would be i n t e r e s t e d in a job i n I r a q .
She then asked me
I answered her t h a t I would
but I t o l d her t h a t I was' Jewish and I questioned whether I would be
qualified.
She then said "No you would not be q u a l i f i e d " and went on
t o e x p l a i n t h a t from my name and resume t h e y d i d not assume t h a t I was
Jewish.
We then ended the telephone conversation.
E r i k a Wagner
SWORN TO BEFORE ME
257
S t a t e of New York
)
)
County o f New York )
SS
X LEONARD MESSER, b e i n g d u l y swprn, deposes and sayr t h a t
I
r e s i d e a t 51 C a r o l i n e A v e . , E l m o n t , New York and t h a t I am a dulylicensed professional engineer.
On February
, 1975» I had a telephone conversation w i t h
Mr. Abreu of Search Consultants, 10 Forest A v e . , Paraiaus, N. J . ,
in
answer t o an ad which appeared i n the New York Times on tho previous
day a d v e r t i s i n g an opening i n employment f o r an engineer.
Mr. Abreu
informed me the-t the work wan t o be performed i n the Persian Clulf area
and suggested t h a t I send i n my resume.
On February 26, 1975, I
re-
ceived a phono c a l l from Mr, Abreu who stated that, he had not yet
received my resume but t h a t I should c r l l and make an appointnent w i t h
V r , Robert Theilheim of ABS Worldwide Technical Services, lj-5 Broad
S t r e e t , New York, N. Y.
On Thursday, February 27, 1975» I h^d a personal i n t e r v i e w
w i t h Mr. Robert TheiUielm a t the officer, of ABS "Worldwide Technical
Services nt the address previously s t a t e d ,
During the discussion con-
cerning my q u a l i f i c a t i o n s , s a l a r y roquirrr.ients e.rxd other matters
p e r t i n e n t t o emplorient, I w\s t o l d that. the employment would bo on
Bahrein I s l a n d .
you?"
Mr. ThenIheXrn then as\:ed mo "You're not Jewish, are
I answered i n the nop,at.ave.
He ther said t h a t t h e problem i s
you have t o get nn I r a q i v i s * - Ho said "You are a c h r i s t i a n , j^ou're
going t o have t o get an I r a n i v i s a ! !
i n your f a m i l y who's Jewish i s there?"
Ho than asked, "There's nobody
I answered no.
seemed q u i t e anxious to h i r e me on tho npnt.
Mr. Theilheim
The employment contract
was t o be f o r 9 monthr with ?. weeks hack i n U.S. every 2 months.
said I wanted t o discuss i t with my. w V v . .
I
258
After leaving Mr* Theilhelm, I telephoned Mr* Abreu and
informed him about the interview and about the Jewish problem* Abreu
said that be didn't think there was a Jewish problem in Iran*
(He seemed
under the impression that employment vas in Iran*). I told him that jay
wife is Jewish and then he said he didn't see i t as a problem since my
wife was not going with me* I then told him of Theilhelm's concern
about anyone in my family being Jewish*
On March 3rd or H h , 1975, I again spoke to Mr* Theilhelxa and
told him that the jcb offer was very attractive but that I had misled him there is someone in the family who is Jewish and he agreed that that would
disqualify me for the job*
I said I would like to work for the company
in some other country* He thanked me and said he would get in touch with
Later, Mr* Abreu contacted me and told me that he had tried to
"sell" me to Theilhelm but he was told that they could not take anyone
who has Jewish connections*
SHORN TO BEFORE MB THIS
/
259
tt-LtASE
PHlNl
(JK
fYPEi
EEOC CHARGE NO.
FORM APPROVED
OMBNO. 1 2 4 - R 0 0 0 1
CHARGE OF DISCRIMINATION
INSTRUCTIONS
If you have a complaint, n i l m this form a n d mail it to the Equal Employment
Opportunity Commission's District O f f i c e in your area. In most cases, a charce
must be filed with the E E O C within a specified time after the discrimmatorv a c ;
too'* p l a c e .
I T IS T H E R E F O R E I M P O R T A N T T O F I L E YOUR C H A R G E AS
SOON AS P O S S I B L E . (Attach extra sheets of paper if
necessary.)
NAME (Indicate Mr. or Ms.)
CAUSE OF DISCRIMINATION
|
|
j
\ RACE OR COLOR
A
Q J J SEX
| RELI G10US CREED
| NATIONAL ORIGIN
DATE OF BIRTH
A n t i - D e f a m a t i o n League o f B ' n a i
B'rith
STREET ADDRESS
COUNTY
SOCIAL SECURITY NO.
New Y o r k
315 L e x i n g t o n Avenue
CITY. STATE. ANO ZIP COOE
TELEPHONE NO. (Include area code)
New Y o r k , N . Y . 10016
NAME (Indicate Mr. or Ms.)
T H E F O L L O W I N G P E R S O N ALWAYS KNOWS WHERE T O C O N T A C T ME
GUS Finger,
Esq .
TELEPHONE NO. (Include area code)
A r n o l d F o r s t e r , General Counsel
Ed L e a v y , E s q .
STREET ADDRESS
(212)
689-7^00
CITY. STATE. AND ZIP COOE
New Y o r k , N . Y . 10016
315 L e x i n g t o n Avenue
L I S T T H E E M P L O Y E R , LABOR O R G A N I Z A T I O N , EMPLOYMENT AGENCY, A P P R E N T I C E S H I P C O M M I T T E E , STATE OR
L O C A L G O V E R N M E N T WHO D I S C R I M I N A T E D A G A I N S T Y O U (If more than o n e , list all)
NAME
TELEPHONE NO. (Include area code)
Bendix-Siyanco
301-997-9177
STREET ADDRESS
CITY. STATE. ANO ZIP COOE
Route 108
Columbia,
Maryland
OTHERS WHO
DISCRIMINATED
AGAINST YOU
(If any)
CHARGE FILED WITH
STATE/LOCAL GOVT.
AGENCY
•
YES
1
AGENCY CHARGE FILED WITH (Name and address)
DATE FILED
|NQ
APPROXIMATE NO. OF EMPLOYEES/MEMBERS OF COMPANY OR UNION THIS
CHARGE IS FILEO AGAINST
DATE MOST RECENT OR CONTINUING DISCRIMINATION TOOK PLACE
(Month, day, and year)
Explain what unfair thing was done to you and how other persons were treated differently. Understanding that this
statement i s for the use of the United States Equal Employment Opportunity Commission, I hereby certify:
|
See a t t a c h e d .
SUBSCRIBED AND SWORN TO BEFORE ME THIS DATE
(Day, month, and year)
CHARGING PARTY (Signature)
|
Subscribed a n d sworn to before this E E O C representative.
DATE
SIGNATURE ANO TITLE
NOTARY PUBLIC
I swear or a f f i r m that I have read the above charqe and that it
is true to the best of my knowledge, information and b e l i e f .
DATE
EEOC
jun R 72
5
Previous editions of this form may be used.
SIGNATURE (If tl is difficult for you to get a Sotarv Public to sign
this, sign your ou n name and mail to the District Office. The
Commission will notarize the charge for you at a later date.)
260
U. S. U L t
\KTMENT OF L A r O R
O F F r £ o r THE
SECRETARY
WASHINGTON
'<WR 10 1975
MEMORANDUM TO HEADS OF ALL AGENCIES
SUBJECT:
Employment Discrimination Based on Religion or
National Origin by Federal Contractors Engaged
in Operations or Activities Outside the United
States or for Foreign Governments or Companies
Within the United States
Questions have arisen regarding the obligations of Federal
contractors under E. O. 1124 6, as amended, when they are
hiring United States citizens or resident aliens within
the United States for performance of work outside of the
United States or for work in the United States pursuant to
a contract with a foreign Government or company.
E. O. 11246, as amended, and the guidelines issued pursuant
thereto, 41 CFR, Part 6 0-50,
prohibit Federal contractors
f r o m discriminating on the basis of religion or national
o r i g i n (as well as race or sex) when hiring for work to b e
performed in the United States or abroad.
Federal contractors
a r e exempted from this obligation only when hiring persons
outside of the United States for work to be performed outside
O f the United States, 41 CFR 360-1.5(a)(3). *Thus, any Federal
contractor or subcontractor hiring workers in the United
States for Federal or nonfederally connected work would be in
violation of Executive Order 11246, as amended, by refusing
to employ any person because of religion or national origin
regardless of exclusionary policies in the country where the
work Is to be performed or for whom the work" will' b e performed.
A l l agencies are to insure that the equal employment
principles reflected in this Memorandum are fully implemented..
Secretary of Labor
261
ANTI-DEFAMATION LEAGUE OF B'NAI B'RITH
315 LEXINGTON AVENUE, NEW YORK, N.Y. 10016, TEL. 689-7400
NATIONAL COMMISSION
May 2 7 , 1975
DORE SCHARY
HENRY E. SCHUITZ
Honorary Chairmen
DAVID A. ROSE
Chairman, National
e Committee
LEONARD I . ABESS
JACK A. GOLDFARB
LAWRENCE A. HARVEY
JACOB K. JAVITS
PHILIP M. KLUTZNICK
LEON LOWENSTEIN
ROBERT R. NATHAN
ABRAHAM A. RIBICOFF
MATTHEW B. ROSENHAUS
CHESTER H. ROTH
WILLIAM SACHS
MELVIN H. SCHLESINGER
THEODORE H. SILBERT
Honorary Vice-Chairmen
DOROTHY BINSTOCK
MERLE D. COHN
MORTON R. GOD INE
CHARLES GOLDRING
BERNARD D. MINT!
NORMAN J. SCHLOSSMAN
Vice-Chairmen
MAXWELL E GREENBERG
8URT0N M.JOSEPH
THOMAS D. MANTEL
JOHN L. GOLDWATER
NORMANM. WALL
Assistant Secretary
BENJAMIN R. EPSTEIN
National Director
DAVID M. BLUMBERG
HELEN G. SMITH
President, Bnai B'rith Wc
ARNOLD FORSTER
Associate National Directi
and General Counsel
NATHAN PERLMUTTER
Assistant National Directc
Development, Planning
Mr. H. Minton F r a n c i s
Deputy A s s i s t a n t S e c r e t a r y o f Defense
Manpower and R e s e r v e A f f a i r s ( E q u a l O p p o r t u n i t y )
O f f i c e o f t h e A s s i s t a n t S e c r e t a r y o f Defense
Washington, D.C.
20301
Dear M r .
Francis:
P u r s u a n t t o E x e c u t i v e Order 112U6 and O f f i c e o f F e d e r a l C o n t r a c t
C o m p l i a n c e G u i d e l i n e 6 0 - 5 0 , t h e A n t i - D e f a m a t i o n League o f B ' n a i B ' r i t h
c a l l s upon t h e D e p a r t m e n t o f D e f e n s e t o c o n d u c t a f u l l - s c a l e c o m p l i a n c e
review o f Bendix-Siyanco, Columbia, Maryland.
Bendix-Siyanco i s a subs i d i a r y o f t h e Bendix F i e l d Engineering Corporation which i s a d i v i s i o n
o f t h e B e n d i x C o r p o r a t i o n o f M i c h i g a n . As y o u k n o w , t h e B e n d i x C o r p o r a t i o n i s a major defense c o n t r a c t o r .
Bendix-Siyanco1s p r i n c i p a l o p e r a t i o n s are l o c a t e d i n Saudi A r a b i a .
As a d i r e c t consequence o f t h a t f a c t , t h e B e n d i x C o r p o r a t i o n i s d i s c r i m i n a t i n g a g a i n s t a l l Jews who a p p l y f o r employment o r who may be
t h e i r employees b y n o t a s s i g n i n g t h e m t o w o r k i n S a u d i A r a b i a because
As f u r t h e r e v i d e n c e o f t h a t f a c t , t h e B e n d i x - S i y a n c o
of t h e i r r e l i g i o n .
Company has b e e n s o l i c i t i n g r e l i g i o u s i d e n t i f i c a t i o n i n f o r m a t i o n on i t s
a p p l i c a t i o n f o r employment f o r m .
I n v i e w o f t h e s e f a c t s and a l l e g a t i o n s , t h e A n t i - D e f a m a t i o n League
o f B ' n a i B ' r i t h u r g e n t l y c a l l s u p o n t h e D e p a r t m e n t o f Defense t o c o n d u c t
a f u l l - s c a l e c o m p l i a n c e r e v i e w o f t h e p a t t e r n and p r a c t i c e o f d i s c r i m i n a t i o n a g a i n s t A m e r i c a n Jews as i t e x i s t s w i t h i n t h e o p e r a t i o n s o f t h e
B e n d i x - S i y a n c o Company and i t s a f f i l i a t e s .
We f u r t h e r c a l l u p o n t h e
D e p a r t m e n t o f Defense t o d i r e c t t h e B e n d i x C o r p o r a t i o n t o e l i m i n a t e any
and a l l d i s c r i m i n a t o r y p r a c t i c e s a f f e c t i n g A m e r i c a n Jews and t o immedia t e l y i n s t i t u t e a p r o g r a m o f a f f i r m a t i v e a c t i o n t o c o r r e c t and e l i m i n a t e
s u c h v e s t i g e s o f t h a t d i s c r i m i n a t i o n as may c o n t i n u e t o e x i s t .
We a w a i t y o u r e a r l y
report.
Sincerely,
STAFF DIRECTORS
THEODORE FREEDMAN
Program, Community Service
LYNNE IANNIELLO
Public Relations
J. HAROLD SAKS
Arnold Forster
General Counsel
AF : l e
262
POWER OF ATTORNEY
I , Martin A* Watkins, of
North Everhart St* west Chester, Pa.,
hereby authorize the Anti-Defamation League to represent me i n a l l
pertaining to the Bendix-Siyanco Company*
May 2*
1975
Date
^
ponennLf
West Chester, Pa. Chester County
Jlly Commissi*.T
>0 j f T f .
MARTIN A. WATKINS
263
STEINBERG, GENERES,
LUERSSEN
& VOGELSON
A T T O R N E Y S AND C O U N S E L O R S
2 2 0 0 FIDELITY UNION TOWER
DALLAS, TEXAS 7 5 2 0 1
(214) 746*9312
May 14, 1975
Mr. Ira Gissen
ADL of B'nai B'rith
315 Lexington Avenue
New York, N.Y. 10006
Dear Ira,
Enclosed please find affidavit of Herman Eisenkraft in
connection with his receipt of the employment application
from Bendix-Siyanco. I had prepared an authorization for
ADL to represent him in connection with allegations of discrimination, etc.r however, he pointed out to me that he
felt that Bendix-Siyanco had not discriminated against him
since he never completed the application form. He says
that he has no objection to presenting the application blank
to the proper government civil rights agency in the form of
a complaint; provided, ADL believes that i t is a violation
of the law to ask religion on such application form.
l$r. Eisenkraft says that he subsequently received a followup letter from Bendix-Siyanco and he wrote on the letter
that he received, an inquiry about the housing conditions.
He has not heard from them since he returned their followup letter with such inquiry.
Mr. Eisenkraft is quite cooperative and i f you have any
further questions,etc., I believe i t will be a l l right to
telephone him. His office number is 214 651-2639 and his
residence telephohe is 241-1888.
I f I can be of any further assistance,, please let me know.
Sincerely,
LES:hgt
encs.
264
A F F I D A V I T
STATE OF TEXAS
KNOW ALL MEN BY THESE PRESENTS
COUNTY OF DALLAS
)
B e f o r e t h e undersigned a u t h o r i t y appeared Herman
E i s e n k r a f t , who upon o a t h s t a t e s as f o l l o w s :
T h a i J r e s i d e a t 4220 High Summit D r i v e „
Dallas,
Texas 75234? t h a t my t e l e p h o n e number i s a r e a 214 2 4 1 1 8 8 8 ; t h a t 1 am c u r r e n t l y employed i n p u r c h a s i n g by Sanger
H a r r i s Department s t o r e i n D a l l a s ,
Texas.
T h a t i n a p p r o x i m a t e l y January o r F e b r u a r y , 1 9 7 5 ,
I
n o t i c e d an a d v e r t i s e m e n t i n t h e D a l l a s Morning News
a d v e r t i s i n g a p o s i t i o n abroad w i t h B e n d i x - S i y a n c o .
I
sent
my resume, a copy o f which i s a t t a c h e d h e r e t o as E x h i b i t A
and r e c e i v e d i n r e p l y t h e a p p l i c a t i o n a t t a c h e d h e r e t o o f
Bendix S i y a n c o , as E x h i b i t B.
Signed t h i s
HERMAN EISENRRAFT
Subscribed and sworn t o t h e undersigned n o t a r y p u b l i c
and f o r D a l l a s County, Tex»s-
in
265
RESUME*
PURCHASING - MERCHANDISING - ADMINISTRATION
HERMAN EISENKRAFT
4220 High.Summit Drive
D a l l a s , Texas 75234
Telephone:
Age:
(214) 241-1888
50 *
Matried - 3 Children
Honorable Discharge Received from U.S. A i r Force (1940-1945)
Schools:
Erasmus
tf. Y. U. Hall-Brooklyn,
School of R e t aN.
i l i nY.
g - New York, N. Y.
CCNY School of Business - New York, N. Y.
Attended several specialized courses sponsored by Headquarters Army and
Air Force Exchange Service.
Employed by} HQ Army & A i r Force Exchange Service
D a l l a s , Texas 75222
From 1951-1973 - Retired June 30, 1973
Last Position: Merchandise Group Manager
Please r e f e r to attached for d e t a i l s of complete AAFES assignments.
Salary - To be negotiated.
266
Summary of Employment
HQ Army & A i r Force Exchange Service
D a l l a s , Texas 75222
June 1972 to Present
Merchandise Group Manager - HQ AAFES
Electronics & R e t a i l Automotive - 12 people, 3 sections
Responsible for the procurement and r e l a t e d programs f o r home
e l e c t r o n i c s , pre-recorded music (records and tapes) and a l l
r e t a i l automotive products (TBA).
June 1968 - June 1972
Chief, Hardlines Branch - European Exchange System
Branch consisted of 87 people - 6 groups U.S. & l o c a l
n a t i o n a l - Branch responsible f o r purchased of approximately
80 m i l l i o n d o l l a r s (offshore & USA) per year - Merchandise
included:
Home Electronics & Pre-Recorded Music
Photographic
Jewelry (Precious, Semi-Precious & Costume, Clocks
and Watches
Housewares - (non-electric and e l e c t r i c - portable
and major)
Hardware - Garden Supplies and Equipment
Furniture and G i f t s
Toys, Sporting Goods, Hobbies and Luggage
July 1957 - July 1968
Senipr Buyer, HQ AAFES - Supervised 15 people
Housewares - responsible f o r procurement of a l l major and portable
e l e c t r i c appliances, a l l housewares, a l l home furnishings, hardware,
garden, barbecue and p i c n i c .
July 1955 - July 1957
Buyer, HQ AAFES - Supervised 6 people
Home Furnishings - responsible f o r the procurement of luggage, small
leather, goods, f u r n i t u r e , home furnishings, carpets, rugs, garden
supplies, and hardware.
August 1953 - July 1955
Buyer, HQ AAFES - Supervised 4 people
Equipment not f o r resale-responsible f o r contacting sources, securing
bids and negotiating purchases of o f f i c e , f a c t o r y , r e t a i l and reistaurant equipment according to specifications' furnished, including
i n v e s t i g a t i o n and recommendation of new items.
March 1951 - August 1953
Assistant Buyer, HQ AAFES
Began i n the Equipment Section, transferred to Sporting Goods and
returned to Equipment as f u l l buyer.
267
appucath:) pan rr.yigyrewiT
Candidate To
Afflu Photograph Hero
C«i}cst(s) Bsto
Ple*aft, i M » « r «»ch question clearly »nd completely. Type or print In Ink. A work reeume,
ohotflwt full frork •»»je/low_ce/ muet be wttnchud to thle form.
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PRESENT
ADDRESS
PERMANENT
ADDRESS
. NO. AND STREET
7.IP CODE
TELEPHONE NUMOER
NO. AND STREET
ZIP CODE
TELEPHONE NUMBER
PRESENT ClTIZENSHOl CITIZENSHIP A f ~ B W T I ?
fnSfrSflL
ClagU
PAS3POHT NUMBER
D
1
Marriod
•
RELIGION
PLACE OF BIRTH
Y/ldovv<or)U Dlvorcod •
DATE PASSPORT EXPIRED ~1
PREOIiN? MILITARY SERVICE STATUS BRANCH OP SERVICE
Separated
LJ
DATE OF GIRTH
Number «f Chlldre«»s_
WEIGHT
HEIGHT
LENGTH OF SERVICE
SELECTIVE SERVICE CLASSIFICATION WERE YOU EVER COURT MARTIALED?_
DESCRIBE
SOCIAL SECURITY NO.
RANK A T SEPARATION
T Y P E OF SEPARATION
•
HAVE YOU EVER DEEM CONVICTED DY ANY CIVIL OR MILITARY COURT OR LAW ENFORCEMENT <Do not Inclcd*
ffilr.or troftlc violations for which a lino of $2$.00 o* lcoo v/ao pold)'
No
Yoo
It
deocrlba
•
"
OO YOU USE NARCOTICS OR INTOXICANTS H A B I T U A L L Y '
DO YOU HAVE At^Y PHYSICAL D E F E C T S '
>
No_
If Yea, daecrlbo
HAVE YOU'HAD A MAJOR ILLNESS IN THE PAST FIVE YEARS?
_lf yoo, deocrlbo M
POSITION 13) APPLIED FOR_
SALARY DESIRED t
DO YOU ACCEPT ASSIGNMENT AT
ANY PLACE El SAUDI ARAD1A?
CisjjJ^i
SCHOOLS »•
. Tee D
No
WHEN CAN YOU
REPORT FOR WORK'_
O
(circle hijhoet echool grade completed)
' '
NAME AND PLACE
GRADES
Dfttow /
From
To
St'BIECT STUDIED DEGREES REC'D
1 2 3
U 5 6
- CUnMRt»v|
.Junior
7 6 9
Hlqh
10 11
College
13 U 15
16
12
Othero
.Including Mllltarj
and Couroee
•Jew
READ
r«w
OM
WRITE
«"«M
1
1
SPEAK
m**
LIST ANY OFFICE MACHINES AND
AUTOMATIVE EOU1PMENT YOU ARE
ABLE TO OPERATE.:
DO YOU HOLD A VALID
DRIVING LICENSE'
„
PI
YoaLJ
« 1*1
No UJ
268
BENDIX-SIYANCO
M r . Herman Eisenkraft
MAlMfNANCt
COMPANY ITU
4220 High Summit Drive
D a l l a s , Texas 75234
Dear
Mr.
Eisenkraft:
Dec 3 0 , 74
This letter is to acknowledge receipt of your Resume, and to inform
you that a preliminary evaluation reveals you may be qualified to f i l l
a position in our Saudi Arabian Program.
Before we progress further, we w i s h to inform you of our Program and
to determine your interest in working i n Saudi Arabia.
Bendix-Siyanco is currently providing Management personnel, Instructors,
and Technicians to the Saudi Arabian Ordnance Corps Program (SOCP). Enclosed are brochures which w i l l provide some additional information on the
program and Saudi Arabia. W e offer a o n e - y e a r contract to e l i g i b l e applicants
w i t h a large number of our positions as bachelor assignments. Quarters and
local business transportation are provided by the Company. Messing f a c i l i t i e s
are a v a i l a b l e at a reasonable fee; we a l s o provide recreational f a c i l i t i e s and
programs, a desirable rest and recuperation program, v a c a t i o n , sick l e a v e ,
medical f a c i l i t i e s , group insurance, and the l i k e .
«
Most qualified employees elect to remain on extended contracts to take
advantage of the eighteen (18) month tax free clause of the Internal Revenue
Code.
I n the event you w i s h to be considered further for a position in this dynamic
program, please complete the enclosed application and p r e - m e d i c a l form. W e
would also appreciate your comment on accepting a bachelor assignment. W e
must have your reply no later than 30 days from receipt of this l e t t e r . I n the
event we do not receive your comments, your Resume w i l l be removed from
active status.
Additional Comments: Please submit a detailed Resume, per attached format.
w i n f-fld FngiriMnng v..>roc><ation
.".II Ho.Plr 108 C.luMb.J Meryl.H-.it 2IC4S
tl.-lM...i.« Hull 730 3/0(1
t-i. 'vi •• /10 Hl)2 168b lb.-, «'.: ;.<>lbt
i l. « OH / 860 Ihnntlrt rotf,
269
OVERSEAS A S S I G N M E N T S
IN
SAUDI ARABIA
Bendix-Slyanco Offers Excellent Opportunities to U. S. Army
Ordnance Personnel with Experience in the Following
Operations:
• Vehicular Maintenance
o Armament Maintenance
•
Supply
•
Data Processing
o Quality Assurance
© Post Engineering
o Training
Send Resume and Salary Desired to:
Bendix-Siyanco
9250 Rt. 108
Columbia, Md. 21045
58-527 O - 75 -
18
270
ENDIX-SIYANCO
ipliranl:
-
MEDICAL INFORMATION
Please complete this side only, and answer all question** fully. Do not have a physical
examination conducted unless specifically requested by Bcndix.
Date
Marital Status _
id res s _
_ Sex
Height (Actual-Wlthout Shoes)
Weight(Actual-In Street Clothes),
NOTE: If your present weight exceeds the weight limitations on the reverse side of this form,
it will require approval of our plant physician prior to extending an offer of employment.
case of emergency, notify:
Same
Address
Phone
3
Have you ever filed a claim for Workman's Compensation?
Yes
No
If y*s: Nature of Injury
'
Amt. of disability in %
Date
Name of Employer
Address
Have you ever been disabled while in the Gov't. Service?
Yes
No
If yes: Nature of Disability
_ _ Amt. of disability in %
Date
.
If you have ever been found not qualified for military service (classified 4F or 1Y), state date
and reason
List all other Injuries and dates
List all operations and dates _
List all hospitalizations including Armed Servicc or Gov't Hospitals:
Date
Cause
Date
Cause
Cheek if ever employed In: High Altitudes
Tropics
Arctic or Antarctic
Mine
Smelting
Quarry
Foundry
Chemical Processing
Glass Works
Sand Blasting
If you have ever had the following, Indicate at what age and give details below:
Mental Illness.. .Age
Varicose Veins . . • Age
Chest Conditions
. Age
Diabetes
• Age
.Age
. Age
Throat Disease. • Age
Arthritis
• Age
. Age
.Age
Tuberculosis... .Age
. Age
.Age
Silicosis
• Age
,
Rupture or Hernia
- Age
Asthma
Amputations
.Age
•Age
Back Trouble.
. Age
Ulccrs
.Age
Indigestion
.Age
Frequent Headaches..... Age
.Age
Epilepsy or Fits • • Age
Nervous Trouble
. Age
Fainting Spells . •Age
• Age
High Blood Pressure . . .- Age
Head Injury
• Age
.Age
Hepatitis
, Age
Liver Trouble.. .Age
.Age
Dermatitis
. Age
Deformities or Scars
Details
List any other defects and/or disease of the following which you have had and at what age:
Hands
Arms
Age
Age
Legs
Feet
Age
Aga
Back
Ears
Age
Age
Eyes
Nose
Throat
' I certify that the above answers are true and complete and I am aware that any material
fululfloutlons or omission of facts may result in my immediate discharge.
VV 126
Rev 3/72
Applicant Signature.
Age
Age
Age
_
271
BACKGROUND I N F O R M A T I O N
BENDDC-SIYANCO, BASED I N RIYADH, SAtJDI ARABIA SUPPLIES T E C H N I C A L
EXPERTS TO ASSIST THE SAUDI ARABIAN ARMY (SAA) TO OPERATE A M O D E R N
ORDNANCE CORPS. THE CORPS, AS PRESENTLY C O N S T I T U T E D CLOSELY
RESEMBLES, I N F U N C T I O N S A N D M E T H O D S , THE U . S . ARMY ORDNANCE
CORPS. SUPPLY (ORGANIZATIONAL, DIRECT AND GENERAL SUPPORT) IS
CONTROLLED BY A CENTRAL INVENTORY CONTROL POINT U T I L I I N G ADPE.
MAINTENANCE OPERATIONS ENCOMPASS CONTACT TEAMS, DIRECT SUPPORT,
GENERAL SUPPORT A N D DEPOT ORGANIZATIONS. THE EQUIPMENTS SUPPORTED
I N C L U D E WHEELED A N D TRACKED VEHICLES AS WELL AS WEAPONS RANGING
IN*SIZE F R O M E I G H T - I N C H SELF PROPELLED HOWITZERS TO SMALL ARMS;
THESE ARE MOSTLY OF U . S. O R I G I N . MISSILE A N D AIRCRAFT MAINTENANCE
A N D SUPPLY ACTIVITIES ARE NOT I N C L U D E D I N THIS PROGRAM.
THE CONTRACT IS M O N I T O R E D BY THE U . S . CORPS OF ENGINEERS AND
REQUIRES BENDIX TO PROVIDE PERSONNEL SUPPORT TO C O M P A N Y EMPLOYEES.
T H I S SUPPORT I N C L U D E S A D M I N I S T R A T I O N , F O O D , QUARTERS, PAYRO U ,
A N D RECRFATION. AN ADMINISTRATIVE SUPPORT STAFF PROVIDED BY THE
C O M P A N Y OPERATES THESE ACTIVITIES.
272
L O C A T I O N S O r WORK
T H E F O L L O W I N G IS A LIST O r THE L O C A T I O N S , A N D TYPES O F SUPPORT
F U R N I S H E D BY B E N D I X - S I Y A N C O P E R S O N N E L .
HEADQUARTERS
RIYADH
ORDNANCE SCHOOL
TAIF
DEPOT
AL KHARJ
GENERAL SUPPORT
AL KHARJ, T A I F , K H A M I S M U S H A Y T
A N D TABUK
D I R E C T SUPPORT
R I Y A D H , JIDDA A N D D A M M A M
PORT
D A M M A M A N D JIDDA
LIVING CONDITIONS
B E N D I X - S I Y A N C O OPERATES A N D M A I N T A I N S H O U S I N G F A C I L I T I E S FOR
ALL C O N T R A C T O R P E R S O N N E L . L I V I N G TACILITCS ARE AVAILABLE W I T H I N T H E
C A M P SITES I N T H E F O R M OF P O R T - A - C A M P S ,
AND CAMPERS. MESSING,
BACHELOR O F F I C E R QUARTERS
P R O V I D E D BY B E N D I X - S I Y A N C O IS CAPABLE O F
F U R N I S H I N G N O U R I S H I N G MEAL SERVICE U N D C R SANITARY C O N D I T I O N S FOR
ALL C O N T R A C T O R P E R S O N N E L . RECREATION F A C I L I T I E S ARE AVAILABLE AT
E A C H C A M ' S I T E . F A C I L I T I E S I N C L U D E M O V I E THEATERS, S W I M M I N G
LIBRARIES, A T H L E T I C E Q U I P M E N T ,
POOLS,
P I N G P O N C , P O O L TABLES A N D VARIOUS
O T H E R E N T E R T A I N M E N T I T E M S . DISPENSARY F A C I L I T I E S A N D FIRST A I D
E Q U I P M E N T ARE AVAILABLE AT E A C H S I T E . AT R I Y A D H A C O M P L E T E O U T PATIENT A N D N I N E - B E D FULLY EQUIPPED C L I N I C ,
I N C L U D I N G A CASULTY
D E P A R T M E N T IS CAPABLE OF A C C O M M O D A T I N G E M E R G E N C Y A N D C H R O N I C
273
CASES. MAIL SERVICES ARE PROVIDED BY MEAN.1 OF U . S. ARMY POSTAL
SYSTEM OPERATED BY B E N D I X - S I Y A N C O .
DEPENDENT RELOCATION IS DISCOURAGED BECAUSE OF LACK OF SUITABLE
SCHOOLS A N D H O U S I N G . THE DURATION OF THE ASSIGNMENT IS ONE
YEAR AND CAN BE RENEWED. WE PAY TRAVEL A N D EXPENSES T O AND FROM
THE IOB LOCATION BOTH TOR VACATION TRAVE I A N D RETURN TO I * O I N T - O F HIRE U P O N C O M P L E T I O N OF A S S I G N M E N T . O N T H E - J O B PERSONAL EXPENSES
ARE L I M I T E D TO A N O M I N A L FOOD D E D U C T I O N OF ABOUT $100 PER M O N T H
PLUS YOUR NEEDS FOR TOILET ARTICLES. EACH EMPLOYEE RECEIVES A 10
DAY R & R LEAVE W I T H AIR FARE AT ABOUT THE M I D D L E OF HIS T O U R . T W E N T Y ONE DAYS VACATION IS EARNED I N THE FIRST Y1AR A N D RETURN AIR FARE TO
THE U . S . IS PROVIDED.
SKILLS REQUIRED
MOST PROGRAM POSITIONS REQUIRE A BACKGROUND OF EXPERIENCE A N D
E D U C A T I O N COMPARABLE TO THAT POSSESSED HY SENIOR N C O ' S (E7, E8, and
E9), WARRANT OFFICERS A N D C O M M I S S I O N E D OFFICERS UP T O A N D I N C L U D I N G
SENIOR FIELD GRADE. SPECIFIC SKILL AREAS, ALL RELATED TO ORDNANCE
INCLUDE:
MAINTENANCE
PERSONNEL
SUPPLY
DATA PROCESSING
INSTRUCTION
QUALITY ASSURANCE
FISCAL
PROCUREMENT
274
PERSONAL RESUME
DESIRED I OR MAT
NAME:
DATE O r BIRTH:
P I A C E O r BIRTH:
NATIONALITY:
MARITAL STATUS:
MILITARY STATUS:
CIVILIAN EDUCATION:'
MILITARY COURSES:
E M P L O Y M E N T HISTORY:
(STARTING W I T H THE PRESENT ORGANIZATION FIRST,
LIST POSITION T I T E E , DESCRIPTION OF WORK PERF O R M E D , RESPONSIBILITIES H E L D , NUMBER OF
PERSONNEL SUPERVISED, E T C . )
FROfcl:
T O : (PRESENT)
'
FROM:
TO:
FROM:
TO:
NOTE:
ALL APPLICANTS ARE REQUESTED T O S I G N A N D DATE LAST PAGE OF
RESUME
(USE A D D I T I O N A L SHEETS AS NECESSARY)
275
EQUAL E M P L O Y M E N T OPPORTUNITY COMMISSION
W A S H I N G T O N . D.C.
March 17,
20506
19/5
« WHY RErER TO:
Senator Frank Church
Attn: Jeffery Shields
Sub-Committee on Multi-National Corp.
S e n a t e Foreign R e l a t i o n s Comuii.Utce
U.S. Senate
Washington, D.C.
20510
Dear Senator Church:
The following is in response to a telephone
request from Mr. Jeffery Shiolds, March 14, 1975,
concerning whether Title VII of the Civil Rights
Act of 1964, as amended, was applicable to American
companies operating overseas with respect to American
employees of such overseas operations.
The Supreme Court has dearly stated that
Congress has the power to e n a c t legislation which
has extraterritorial effect, see Blackner v. U.S.,
284 U.S. 421, 52 S. Ct. 252 (1.932). Whether a
particular statute does operate extraterritorially
depends on the intent of Congress in enacting the
legislation.
The language of Title VII indicates a
Congressional intent to make t h e Title applicable to
American c i t i z e n s e m p l o y e d b y A m e r i c a n companies
operating overseas.
276
Page 2
Section 703 provides that i t is unlawful to
discriminate against "any individual" with respect
to his employment. The section, in defining what
kinds of discrimination are prohibited, constantly
uses the term "any individual."
The only exception
to "any individual" appears to be that contained in
Section 702, i . e . , aliens working outside the U.S.
and to employees of certain religious and educational
institutions.
Giving Section 702 its normal meaning would
indicate a Congressional intent to exclude from the
coverage of the statute aliens employed by covered
employers working in the employers' operations outside of the United States.
The reason for such exclusions is obvious;
employment conditions in foreign countries are beyond
the control of Congress. The section does not similarly
exempt from the provisions of the Act, U.S. Citizens
employed abroad by U.S. employers.
I f Section 702 is
to have any meaning at a l l , therefore, i t is necessary
to construe i t as expressing a Congressional intent to
extend the coverage of Title VII to include employment
conditions of citizens in overseas operations of domestic
corporations at the same time i t excludes aliens of the
domestic corporation from the operation of the statute.
This interpretation of Section 702 is consistent
with the purpose of the Act, which is remedial, to
remove the barriers that have operated in the past to
favor certain classes of employees over others, Griggs
v. Duke Power Co., 401 U.S. 424, 91 S Ct. 849 (1971).
277
Page 3
O v e r s e a s employment p r a c t i c e s o f c o v e r e d e m p l o y e r s
can h a v e a v e r y s u b s t a n t i a l i m p a c t on t h e employment
o p p o r t u n i t i e s i n domescic c o r p o r a t i o n s *
Overseas
a s s i g n m e n t , f o r e x a m p l e , f o r a p e r i o d o f t i m e may b e
v e r y n e c e s s a r y f o r advancement i n d o m e s t i c o p e r a t i o n s .
T h u s , u n l e s s the A c t i s c o n s t r u e d t o c o v e r ! e m p l o y m e n t
c o n d i t i o n s o f American c i t i z e n s working abroad f o r U . S .
C o r p o r a t i o n s , e m p l o y e e s i n tho c o r p o r a t i o n ' s d o m e s t i c
o p e r a t i o n s w i l l n o t be a f f o r d e d t h e p r o t e c t i o n t h a t T i t l e
V I I was i n t e n d e d t o c o n f e r .
Courts have t r a d i t i o n a l l y
c o n s t r u e d l a w s t o h a v e e x t r a t e r r i t o r i a l e f f e c t when t h e
f a i l u r e t o do so w o u l d h a v e an a d v e r s e d o m e s t i c i m p a c t .
I f we c a n be o f a n y f u r t h e r a s s i s t a n c e p l e a s e do
not h e s i t a t e t o contact us.
Sincerely,
//•''/
( / v
A
- " ' t
c-i
.
L
W i l l i a m A. Carey
General Counsel
cc:
Congressional
Affairs
el
njL-,c
-i
278
Labor Law
and Practice
in the Kingdom
of SAUDI ARABIA
BL8 REPORT 407
U.S. DEPARTMENT OF LABOR
BUREAU OF LABOR STATISTICS
i fj
1972
For sale by the Superintendent of .Documents,
U.S. Government Printing Office. Washington, D.C. 20402
Price: $1.25, domestic postpaid; $1.00, GPO Bookstore
279
system, the I n s t i t u t e of Public Administration began to offer evening courses for civil
servants around 1965. O r a l learning has been
emphasized because of the need of this group
to communicate orally every day w i t h foreign
advisors and technicians. I n the oil sector,
English has been the main language of communication at most levels and is the language
of instruction for technicians. (See the chajfter
on Education.) A r a m c o offers a 7-year English
program through high school; Petromin workers are taught English a t the Language Institute of the College of Petroleum and Minerals
i n D h a h r a n , and they may attend daily English
classas a f t e r w o r k i n g hours; the Engineering
College i n R i y a d h installed a language laboratory in 1968. The Saudi A r a b i a n M i n i s t r y of
Education also maintains an English Language
T r a i n i n g Center in Riyadh.
Religion
Saudi A r a b i a is the center of Islam, and
Mecca, the birthplace of the Prophet Mohammed, is the focus of annual pilgrimage for followers of I s l a m f r o m all over the world. Religion is a social force. The ulema, the religious
council, guards the traditions of the f a i t h and
may influence much social legislation. Islam is
the only recognized religion and the people, 90
percent of whom are Sunni Moslem, form a homogeneous Moslem population. T h e vast m a j o r i t y of these Moslems are followers of Wahhabism, a puritanical revivalist movement originati n g i n Central A r a b i a in the mid-18th Century.
I n the Eastern Province, at Q a t i f and al-IIasa,
is a Shia'h Moslem minority. There are no indigenous non-Moslem minorities. Non-Moslems
m a y be employed but are not permitted to become citizens or enter the holy cities of Mecca
and Medina; Jews have not been p e r m i t t e d to
enter Saudia A r a b i a since 1918.
Although Saudi A r a b i a is influenced by the '
industrial West, until recently the Government and society have remained conservative.
Today the trend t o w a r d secularism is growing.
The Saudi Government requires that foreign
management honor and "respect observances
prescribed by Islam f o r its followers. T h e em-
12
ployer should be f a m i l i a r w i t h these precepts
which influence the philosophy and attitudes
of the Saudi work force. Although conformity
is recognized, so are the needs of progress.
Arabs and foreigners work well together, but
each retains his own character; the labor force
in the oil sector is highly productive. Change is
reflected in many areas of w o r k : N o t long ago
safety helmets were not worn because they
have brims and the eyes may not be shaded
f r o m God; today, helmets are w o r n wherever
needed.
D u r i n g the month-long observance of R a m adan, the ninth month of the Moslem calendar,
food and drink and tobacco are not consumed
d u r i n g daylight hours; a f t e r sunset substantial meals are eaten and people visit and take
care of other social obligations until late into
the night. Business activity slows considerably but observance is less than a decade ago.
T w o months after Ramadan, many workers
leave their jobs to make the hajj; legal provisions are made for such leave.
D u r i n g the hajj, the city of Jiddah which is
close to Mecca and Medina is subject to the
most change. F o r weeks before and a f t e r the
hajj, pilgrims disrupt daily life and business
travelers should avoid Jiddah. M a n y Saudis
leave for Mecca; airports and hotels a r e crowded. I n 1972, the M i n i s t r y of Communications
hired nearly 10,000 workers to handle telecommunications and postal services. T h e Government has established an A i r p o r t P i l g r i m C i t y
in Jiddah to care for pilgrims. The Saudi health
service grew out of the need to care f o r the
annual influx of pilgrims and to protect the
health of the indigenous people.
Religious authorities have a voice in f r a m i n g
domestic and foreign policy; they enforce
public morality, control women's education, and
are consulted by the King. Religious police
(vwtuivai'in)
ensure conformity w i t h the religious laws, especially in the capital. Foreigners
are required to meet behavior and dress standards and action may be taken against those who
do not conform. D r i n k i n g is forbidden, but
smoking, also" traditionally forbidden, is now
common. Restrictions are enforced against f o r eign women.
280
line CHAM* I
IrOHM Al
|(MI NO,
CHARGE OF DISCRIMINATION
124-RD001
C \ U O H DISCRIMINATION
INSTRUCTIONS
II you Iww u «nn|»lu»»il, till in thus l«*m<n.«l will it to t*w» 1 ! I >i}<k»ytr.».«ti'
Q sex
Opportunity OHWHUISKW'S District Ullico in y«»«ir <ir«u. In «;<>:;» co
«i I.IM.-Q)- | } DHE ON COIOR
must bo Mod with tho EL.OC within a !H*n:i»i«»«i imw a l H »»*> HiMrmanatory act
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took place. IT IS IHFiHKrCR::' IMPOHTANT T ' j I II .F! YOtlft CHArlOt: AJ
SOON AS POSSIBU:. (Attach extra sheet* nf pupr, if n e e * s a r y . )
Qmhowi wiem
Htm. dntheate Mr. or U».)
A n t i - D e f a m a t i o n League o f B * n a l B ' r i t h
iiakki
JTeSmrt
315 L e x i n g t o n Avenue
Mew Y o r k
CITY. STATE. ANO UP CODE
New Y o r k , H . Y . 106li6
OATC Of tMRTH
SOCIAL SECURITY NO.
TELEPHONE NO. (Include area
212-689-7^)0
code)
THg FOLLOWING PERSON ALWAYS KNOWS WHERE TO CONTACT ME
NAME (Indicate Mr. or Mm.)
TKLEPNONC.NO. (Include area code)
A r n o l d f b r s t e r , G e n e r a l Counsel
STRUT
CITV. STATE. ANO ZIP COOC
New Y o r k , H . Y * 10016
315 L e x i n g t o n Avenue
212-689-7*100
AOORCSS
J-IST THEi EMPLOYER, LABOR ORGANIZATION. EMPLOYMENT AGENCY, APPRENTICESHIP COMMITTEE, STATE OR
LOCAL GOVERNMENT WHO DISCRIMINATED AGAINST YOU ( I f mora Aon o n * l i s t a l l )
telephone no. (Include area eodeT"
I n t e r n a t i o n a l Schools S e r v i c e s
1
STRCei
CTFV. STATE. ANO ZIP COOS
P r i n c e t o n , New J e r s e y
AOORCSS
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OTHERS WHO
DISCRIMINATED
AGAINST YOU
( I f amy)
AGENCY CHARGE f
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addms)
DNO
LOATC MOST RECENT ORC9NTINUISG DISCRIMINATION TOOK PLACE
|
Explain what unfair thing was done to you and how other persons were treated aifferentiy. Understanding that this
statement is for the use of the United States Equal Employment Opportunity Commission, I hereby certify:
G / f
CMARG
N
IS PARTY
-
if
• . «
•»
Subscribed and sworn to boforo this EEOC representative.
OATC
I
S
O
INATURE ANO TT
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SUMCR
S
IEO ANOyear)
SAORN TO 0EP0RE ME THS
I OATC
(Day. mmm, md
NOTARY PUBLIC
t swear or affirm that I hove road tho above charge an>i that it
Is truo to tho boot of my knowledge, information and boliol.
(Sign**!*)
OATC
Commission wilt notarize the charge for yon o< o later
date.)
|
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EEOC j n * 5
Previous odiuons of this form may bo usod.
CK>: 1VM O • MS* MS
281
ANTI-OWAMATION I.KACIJK ()!•' IfNAI irRITH
:ti;» I.I:XIN<;r<>.N AVI-NIII:. NI:W YCIKK.N.Y HNUU. Ii:i..<iii» 74110
May 27, w r : >
Mr. Peter Holmes, Director
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Office For C i v i l Rights
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Education and Welfare
Washington, D.C. 20202
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Dear Mr. Holmes:
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The I l l i n o i s Office of Education has v e r i f i e d t o us t h a t they have
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received discriminatory job orders from the I n t e r n a t i o n a l Schools SerN
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vices, a non-profit educational corporation whose headquarters are l o M
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cated i n Princeton, New Jersey. The discriminatory job orders received
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by and v e r i f i e d by the I l l i n o i s O f f i c e of Education contain language
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prohibiting
the employment of any teacher who has "a Jewish surname or
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who i s an American Jew or who has Jewish ancestors."
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This recruitment was f o r a school operated by I n t e r n a t i o n a l Schools
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i n the Arab emirate state of Dubai. Such a job order i s c l e a r l y
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v i o l a t i v e of Executive Order 112lt£ and Office o f Federal Contract Compliance Guideline 60-50. I t i s our understanding that I n t e r n a t i o n a l
Schools Services i s a federal contractor and i s under the cognizance,
w i t h respect to equal employment opportunity, of your Department*
The Anti-Defamation League o f B'nai B ' r i t h , therefore, c a l l s upon
the Department of Health, Education and Welfare t o conduct a f u l l - s c a l e
compliance review of I n t e r n a t i o n a l Schools Services' p a t t e r n and pract i c e of discrimination against American Jews and further c a l l s upon HEW
t o order such corrcctive action as i s necessary t o eliminate these
discriminatory practices*
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We await your report.
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Sincerely,
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Arnold Forster
General Counsel
STAFF MIKCtMS
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INtOMRt HUMAN
JUMWIMA«
282
ILLINOIS OFF I CI. OF EDUCATION
jstotccnnijucrcftc
Springfield, Illinois 62706
t m m r m m t
aXKKNMKMtX
JOSEPH M. CROP-*
State Superintendent
•f education
January 31, 1975
DearFlecement Director:
HHar off:ce was contacted yesterday hv ttr. Ila 1 Grceney, Director of the Educational
Staffing Pro-rata, for International ichooh Services in Now Jersey* His organization is in need oI thre»« t« ichors for the fall *ene«;ter and wanted to knot* if
Illinois could help hin on MUM t n&tice.
'MX thrf vacancies are in
name school located in the country of Dubai in Arab
territor/ near the r«ut.ian «*u1l
! . Is- Unol i« K-9 e1c:.ntnry with 350 students,
Mostly American, am! are r'us »«u of oil 'o,ap.»ny erplov.-o;; there*
This is what he no.ulr: 1- i
i:/
I'v.
tviciier, should he tingle (because
oftoutingi'acil* ties .vail..: t».i .ini r*«:.t li^v 2 v.\-»rs of lecrnt tcaching expcricnce.
The salary will he $1 %»A»vo
j kiu. t-oui». it»ve charge eV tile total I •£• ptograiw'
in that school. He also «»>..••
» u-envt t.:_ir.^rjuicxj^x., soeeone, with F*E*»
Parks and Her rent ion b u1.t;$oin»;, 7 t u * e \ p o r icncc in this Hind of position, if .
possible. Thin imlivUf-tl wi '
uu:<k\ t-.. j.ct a protjrar of recreation for all
age levels in the ccuuutUv t:,-rc, The salary range t i l l be from $17,COO - $20,000
3 year. fir. Grceney raid tl.ev vouiJ consider either a male or fenale for this
position*
The third position is for an r • W
a t i t w l o f i j*t. !ic wants soceone with A years
of expericn"* nn a :;ctio%>I ;.t.v*:ir% "I, i-rcfcVui-jy'at the elementary level. At least
one year of exp«tietuo w.t b Sen in a clinical scttinf. The salary for this
.position wiil ranr.e fror. CI?.' VI to 20,Cjd also.
ISS will fay the rcmvl trip travel expense, includinr, d< pondents for those eaployed.
Housinr. w.11 he furnhhed
Al-cr r-wths owrcas, «ll inccre is tax free.
Because ot T:ore of th* J M I * . » I * »?. T H E Middle F.V.U presentIv, tfS cannot
*0?
these • por.i ti on arr* readier
Jc«.. i^i *»rnr.re or t.ac* is an /JRcrican Jcv or wh$
have J ew Ir.h A nee r. t or S. PKMKC rheci on th:r. ho tow > V U refer anyone!
•
There is a sense of urgency al«:o. One of the JSS recruiters will start interviewing,
for these position'; in about ? voeV.. If you haw aav qualified people vho are
interested In an Interview with l.'S, Mr. Crrcney rould ; i t o receive a call to
that effect a :
,.I:»M . V. v. p.»v £ ii i hi a prr.er.nlly, collect, and tell
hi* about tUaso y-.*u are r e i e i P t o a t e do not encourage applicant? to do this
however. Mr. Grceney can be replied «tt 609/921-91)0.
283
tftfcfar*
At
- 2-
JMMKy II, 1975
i M t International Tcachtnn i V i ^ t w i l t k * . tVwfeiewe tn Cb^ ^ s Mr, Creen#y
spoke on the needs of hit; orjta::! %u t«*n ..a.I tv luVo : %n unuh «Kh hi:, ofl we
since thlt tine, IJ
that
.»vv cat* h»*tp ht«» in : t K t
vacancies
Md I know it
Iv a f*\:thei in vottr ci}. to k able to plain one of your
people in any of these position.*;.
If you have Any questions about anvhtt,* I've saK. pleasv f*ei free to call me
(217/762-63*0).
1 would prefer, th-.t y.»a *nke t;».» calls to lu% Crecncy conce ning
bcav: e -tvi kn the* better than anyone e?se,
however* t v i U be happy to asnist i f you wan;
to* Happy hunting I.
any good appi cants yon
t.idcerei",
r. iMrrMl FKer
A«'.|*t*nt Erector
tV*»c»ier Ploi tnent
284
ILLINOIS OFFICE OF FMICATION
s&iMMfxratiuftx
Springfield, Illinois 62706
KHMIMUMXJa
JOSEFtt M. I-SONIN
S t a t e Superintendent
o f Education
M r . i wit o l d F . Croenoy
Director o f the fducattonal
S t a f f i n g ?ro?r-iry
I n t e r n a t i o n a l ^c'loola Service®
126 Alexander ^ t r e r t
r r i n c c t o n » Uev Jersey GSS40
I>oar - r . Oreeners
I have learned t h a t von r o t ! f t e d ny o f f i c e * * A s s i s t a n t M r e c t o r o f t h o Teacher
Placement U n i t , : : r . i i . M r r o l l C i d e r , about vacancies I n t h e Country o f Dubai*.
I un>!or«rt.md you r e r a o n a l l y telephoned h i n and requested h i e a s s i s t a n c e I n
locating possible applicant?.
I n Behind y o u r r o q u e t f o r <i mlic3P.t», X understand you i n f o m e d L i n t*>at a p p l i c a n t s o f a c e r t a i n c t : . n ! c background uould n o t ba corsidcre<* and should n o t
. * ' r . V l i t e r «roeoe«ied t o p u M l n b your r e r j w s t I n w r i t i n g .
r^er »**ate.vcr reason vour j v . o c l a t Joil nay »»t«h t o ^ c r e r n and c o n s i d e r a p p l i c a n t s
f o r f»>n-i?n sr.rvio« p l e c c - v . i t r , T ••>L:iU von t o understand t h a t i t ^s t h e r o l i c y
o f «y o f f i c e t o r e p o r t vicnnev i n f o r m a t i o n i n a r a n n e r t h a t i s t o t a l l y r j m d i o e r t n i n a t o r y . T h i s p o l i o ? i a t o t a l l y co.ia i n t e n t w i t h t h e ro«|uir<wt«mf» o f both
I 1 1 i n o J c and fc«t<?rol n t a t u t ^ a .
I understand the a s s o c i a t i o n o f t h i s o f f i c e w i t h
t h e X c t c r n a l t o n a l Schools S e r v i c e ! ha* t o o n u s e f u l f o r l o c a t i n g f o r e i g n teaching,
p o a i t t o r . j f o r l l l l u o l o p r o f l o c a l e d u c a t o r s . That a s o o e l e t i o n w i l l bo,
itcnediatolv torr.lnatod i f d i n c r i o t n a t o r v q u a l i f i c a t i o n s , in violation o t State
and f e d e r a l s t a t u t e s , a r e placed on a p p l i c a n t s ,
Sincerely,
Joseph t t , C r o n i n
S t a t e Superintendent o f Sducatiod
JMC:SKD:dl
be: l>r« Croatn •
Jack W i t km/sky
A l l a n S. Cohen
Susan K. Bants
285
ILLINOIS OFFICE OF EDUCATION
Joseph M. Cronin
State Superintendent ot Education
100 North First Street
Sptingfiold, Hlinois U J W
62777
March 25, 1975
M r . A. A b b o t t Rosen
Executive D i r e c t o r
A n t i - D e f a m a t i o n League
222 West Adams S t r e e t
Chicago, I l l i n o i s
60606
Dear Mr. Rosen:
I have been asked by D r . A l l a n Cohen, E x e c u t i v e A s s i s t a n t t o t h e S t a t e
S u p e r i n t e n d e n t o f E d u c a t i o n , t o e x p l a i n t o you t h e c i r c u m s t a n c e s s u r r o u n d i n g my t e l e p h o n e c o n v e r s a t i o n w i t h Mr. H a l Greeney, D i r e c t o r o f t h e
E d u c a t i o n a l S t a f f i n g Program, f o r the I n t e r n a t i o n a l Schools S e r v i c e s i n
New J e r s e y .
On January 30, 1975, Mr. Greeney telephoned me i n my o f f i c e w i t h a r e q u e s t
t h a t I a s s i s t him i n l o c a t i n g t h r e e t e a c h e r s f o r t h e f a l l semester t o t e a c h
i n the Country o f D u b a i . Mr. Greeney e x p l a i n e d t o me t h a t because t h i s was
an Arab Country and t h e I n t e r n a t i o n a l Schools S e r v i c e s c o u l d n o t g u a r a n t e e
t h e s a f e t y o f persons who were J e w i s h , t h e I n t e r n a t i o n a l Schools S e r v i c e s
would n o t employ such persons f o r these p o s i t i o n s .
I n c o n v e r s a t i o n w i t h Mr. Greeney, he i d e n t i f i e d t h e s a f e t y f a c t o r f o r persons
o f Jewish background and encouraged me t o make h i s concerns known as p e o p l e
r e q u e s t e d c o n s i d e r a t i o n f o r these p o s i t i o n s .
I spoke w i t h h i m r e g a r d i n g
t h e need t o make t h a t i n f o r m a t i o n a v a i l a b l e and q u e s t i o n e d whether o r n o t
he t h o u g h t I s h o u l d make t h a t i n f o r m a t i o n a v a i l a b l e i n i d e n t i f y i n g t h o s e
vapant p o s i t i o n s .
He i n f o r m e d me t h a t as persons o f Jewish background
would n o t be c o n s i d e r e d f o r those p o s i t i o n s , t h a t I make t h a t i n f o r m a t i o n
a v a i l a b l e t o placement d i r e c t o r s .
He t o l d me t h a t the I n t e r n a t i o n a l S c h o o l s '
S e r v i c e s " c a n n o t employ f o r - these p o s i t i o n s any t e a c h e r who has a J e w i s h
surname or who i s an American Jew o r who has J e w i s h a n c e s t o r s . " He r e q u e s t e d
t h i s be checked o u t b e f o r e anyone was r e f e r r e d , because as he s t a t e d , " I
would have t o check o u t the a n c e s t r y on a l l those p e o p l e . "
I n s t r e s s i n g the
58-527 O - 75 - 19
286
M r . A. A b b o t t Rosen
time f a c t o r
restrictions
t h e y wanted
f r o m people
March 25, 1975
i n l o c a t i n g these i n d i v i d u a l s , Mr. Greeney s a i d t h a t t h e
would be necessary i n o r d e r t o g e t t h e k i n d o f a p p l i c a n t
q u i c k l y w i t h o u t g o i n g t h r o u g h l a r g e numbers o f a p p l i c a t i o n s
t h e y c o u l d n o t use anyway.
I b e l i e v e I a c t e d i n what I t h o u g h t was an e f f o r t t o i d e n t i f y t h e p e r s o n a l
s a f e t y f a c t o r p o t e n t i a l l y i n v o l v e d i n t h a t Arab C o u n t r y . W h i l e r e s p o n d i n g
t o t h e needs o f t h e I n t e r n a t i o n a l Schools S e r v i c e s , I f a i l e d t o c o n s i d e r
t h e d i s c r i m i n a t o r y impact t h i s would have.
I deeply regret t h a t i n a t t e m p t i n g t o respond t o Mr. Greeney's needs, I t h o u g h t l e s s l y a c t e d i n response t^o
h i s need.
Sincerely
S.
yours,
3 / A y
E. D a r r e l l E l d e r
Assistant Director
Teacher Placement
287
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LIST THE EMPLOYER, LABOR ORGANIZATION, EMPLOYMENT AGENCY, APPRENTICESHIP COMMITTEE, STATE OH
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Nashville, Tennessee
H o s p i t a l C o r p o r a t i o n o f America
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288
B ' n a i B ' r i t h , founded i n 1843, i s t h e o l d e s t s e r v i c e o r g a n i z a t i o n o f
American Jews.
The A n t i - D e f a m a t i o n League was o r g a n i z e d i n 1913 as a s e c t i o n o f
B'nai
B ' r i t h t o advance good w i l l and m u t u a l u n d e r s t a n d i n g among Americans o f
all
creeds and r a c e s , and s p e c i f i c a l l y t o combat a n t i - S e m i t i s m and a n t i - J e w i s h
a c t i v i t i e s i n the United States.
Among i t s many a c t i v i t i e s d i r e c t e d t o t h e s e ends, t h e A n t i - D e f a m a t i o n
League has developed and implemented programs t o p r o t e c t t h e w e l l - b e i n g and
s e c u r i t y o f American c i t i z e n s o f t h e J e w i s h f a i t h .
The A n t i - D e f a m a t i o n League
o f B ' n a i B ' r i t h has u n d e r t a k e n an a c t i v e r o l e i n p r o t e c t i n g American Jews, as
w e l l as o t h e r m i n o r i t i e s , f r o m d i s c r i m i n a t i o n .
The members o f ADL, as American Jews, a r e s u b j e c t d i r e c t l y t o economic
i n j u r y by t h e a n t i - J e w i s h d i s c r i m i n a t o r y p r a c t i c e s o f H o s p i t a l C o r p o r a t i o n
o f America.
H o s p i t a l C o r p o r a t i o n o f America i s a c o r p o r a t i o n w i t h o f f i c e s
One Park P l a z a , N a s h v i l l e , Tennessee.
at
Among t h e i r o t h e r a c t i v i t i e s ,
they
s o l i c i t persons f o r employment i n t h e a l l i e d m e d i c a l f i e l d s .
D u r i n g t h e s p r i n g o f I 9 7 U , H o s p i t a l C o r p o r a t i o n o f America a d v e r t i s e d
i n t h e American S o c i e t y o f H o s p i t a l Pharmacist Job Placement S e r v i c e s
circu-
l a r t h a t t h e y were r e c r u i t i n g p h a r m a c i s t s f o r b o t h s t a t e s i d e and overseas
hospitals.
(See a f f i d a v i t o f LYMAN GORDON CHAN annexed h e r e t o . )
On i n f o r m a t i o n and b e l i e f , H o s p i t a l C o r p o r a t i o n o f America had a h o s p i t a l under c o n s t r u c t i o n i n Saudi A r a b i a and were s e e k i n g s t a f f f o r t h a t
hospital.
(See a f f i d a v i t o f LYMAN GORDON CHAN annexed h e r e t o . )
I n o r d e r t o o b t a i n employees f o r t h a t h o s p i t a l ( K i n g F a i s a l S p e c i a l i s t
H o s p i t a l , R i y a d h , Saudi A r a b i a ) , H o s p i t a l C o r p o r a t i o n a r r a n g e d i n t e r v i e w s
t h e i r headquarters i n N a s h v i l l e ,
Tennessee.
at
289
At l e a s t one p r o s p e c t i v e a p p l i c a n t , and on i n f o r m a t i o n and b e l i e f ,
all
p r o s p e c t i v e a p p l i c a n t s were informed t h a t t o o b t a i n employment, t h e y would
have t o produce a b a p t i s m a l c e r t i f i c a t e or a statement o f r e l i g i o n signed by
a m i n i s t e r i n order t o show t h e y were not Jewish.
(See CHAM a f f i d a v i t
annexed h e r e t o . )
H o s p i t a l C o r p o r a t i o n o f America was f u l l y aware o f t h e d i s c r i m i n a t o r y
p r a c t i c e s i n which t h e y were i n v o l v e d .
Indeed, on i n f o r m a t i o n and b e l i e f ,
H o s p i t a l C o r p o r a t i o n o f America was aware t h e y r e c e i v e d t h e c o n t r a c t t o manage
t h e h o s p i t a l i n Saudi A r a b i a because t h e y had no Jewish members on t h e i r
Board o f D i r e c t o r s .
(See A f f i d a v i t #2 o f LYMAN GORDON CHAN annexed h e r e t o . )
R e l i e f Sought
HOSPITAL CORPORATION OF AMERICA VIOLATED AND CONTINUES TO VIOLATE TITLE
V I I OF THE CIVIL RIGHTS ACT OF I96H AS AMENDED, CONSTITUTING A PATTERN AND
PRACTICE OF ILLEGAL DISCRIMINATION.
The l e t t e r o f WILLIAM A . CAREY, General Counsel o f t h e EEOC, t o SENATOR
FRANK CHURCH annexed h e r e t o i s
self-explanatory.
WHEREFORE, complainant r e s p e c t f u l l y r e q u e s t s :
1.
A f i n d i n g o f probable cause t h a t H o s p i t a l C o r p o r a t i o n o f America
d i s c r i m i n a t e d and continues t o d i s c r i m i n a t e i n i t s h i r i n g p o l i c i e s
a g a i n s t Jews.
2.
A f i n d i n g o f probable cause t h a t H o s p i t a l C o r p o r a t i o n o f America
d i s c r i m i n a t e d and continues t o d i s c r i m i n a t e i n i t s appointment t o
Board o f D i r e c t o r s .
its
290
3.
That, f a i l i n g c o n c i l i a t i o n , an a c t i o n be brought t o e n j o i n
H o s p i t a l Corporation from c o n t i n u i n g the above d i s c r i m i n a t o r y p r a c t i c e s ,
t o o b t a i n damages o f back pay t o persons o f t h e Jewish f a i t h who were
not employed because o f these d i s c r i m i n a t o r y p r a c t i c e s , and t o o b t a i n
such other r e l i e f as i s necessary and appropriate i n the circumstances.
U.
That, i n the a l t e r n a t i v e , a Right t o Sue l e t t e r be granted.
291
A F F I D A V I T
i s Lya*n Cordon Chan.
Hy addreee i s 1741 Park Awaua, #26, Long
Beach, C a l i f o r n i a .
I hereby r e a f f i r m a l l of tho stateaents aade i n ay A f f i d a v i t annexed hereto.
During the course of the interview on Deceaber I B , 1974 w i t h Mr. Ronald
Marston and Mr. Charlea .Ahlatraod X aakad how i t waa t h a t a Maahvilla eorporation
had been contracted by tha Saudia to manage t h a i r h o s p i t a l .
X vaa t o l d t h a t the
o r i g i n a l contract was w i t h a B r i t i s h corporation but one of the corporation's
etribsldttries buiXda ships and had sold a aubmajrine t o the I s r a e l i s and aa a r e s u l t
t h a i r contract vaa cancelled.
Because of the c a n c e l l a t i o n , tha Saudis needed a management organisation
vary quickly and approached Hospital Corporation of Aasrica because i t l a one of
tha l a r g e s t corporations of i t s type i n the United States,
I n a d d i t i o n , I was t o l d a factor taken i n t o consideration by tha Saudia
waa t h a t U o a p i t a l Corporation of Anorica had no Jewish members on i t s Board of
Directors.
BTAXS or CALIFORNIA
COUNTY OF LOS 4MCKLKS
f
)) s
) *
f*, / /X< "Before ms, the undersigned,
a Motary Public i n and f o r the said S t a t e , personally
a>
, known t o as to be
appeared •/
/
/ / '
^
tha person whoae nana I s
z
/
/^Atici^
subscribed t o the w i t h i n instrument, and acknowledged
that
executed tha sane.
Witness ay hand and o f f i c i a l seal,
292
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I * m m i s Lynen Gorden
tag
M
,
till
Chan.
Hy «4dr«M l e 1741 >arh
#24,
CiMfmli.
to t t e l p r U | of 1974 X M r l a U a AMricsn Society of Metrical
A U M U C
M
Hicmnt
TORVICM
elrenlar
M
ad placed by Hospital Corpora-
t i o n e f A a i r U a recruiting phaffMcieta l o t both stateeide and oversees
hMpltalo.
X naponded to this ad espraMing an interest l a their overseas
hospitals aad wee subsequently advised that they had a hoepital under eonU M I I M i n Saudi Arabia aad would be contact lag M a t a l a t e r date.
I l a t e r received a l e t t e r dated September 4 , 1974 fron Mr. ftoaald
Mara tea y w d A i a i M r a d a u i l a about tha position aad M applicatiaa f o r *
f a r M t e f i l l ant I f X were interested.
pal lad i t m October 11, 1974.
I completed the applicatiaa aad
I contacted then by telephone oa Deceubor U »
I f 14 t e f o l i o * up ea ay application*
During the course of thla telepheas
tnti>u4nii JL wai invited for aa interview on,
Z believe, Deceaber I I , 1974
a t tha heedquartere of Uoapital Corporatioa of Aanrica, Naehville, Tennessee,
Tha position f a * which I wee to be interviewed was that of A M I s tent Chief
fkernaaiet, King Veiaal Specialist
ttoepltal,
Riyadh. Saudi Arabia.
X WM interviewed by Nr. Ronald Mareton and by Mr. CharlM Ahlatraad.
M B |
the coarse of tha interview they explained to M that i f X MM offered
the poeitlea I t would be neceeesry for M to produce for then a b a p r l s M l
a a r t i f i c a t a or a eteteuent of r e l i g i o n aligned by a minister.
They t o l d ne
that this MM asossssry i n order to show that X was not Jewish.
fubeaiaant to thia interview, X received a l e t t e r deted December f ;
1914 fron Mr. Marston o f f e r i n g M tha position aad requesting, inset other
i t a a * , that X aiao provide than with e i t h e r the baptlenel c e r t i f i c a t e a t a
atatenent of r e l i g i o n .
X ceppllod with e l l of the requirsasnts, provided Uoapital Corporation
o f i M i i c a with everything they requested, aad en January 27, 1975 was hired
f o r tha position.
293
- at 1mi% the Vmitmd States M Jauftiy 21, 1973 and a r r i v a l U
ftiyadh
e» D m — m i n t « l Ja»«trr 30, 1975 M i U o k up ay position aa Aaslataat Chlsf
F M i t s l s t a t the Kiaf Faisal Specialist Hospital.
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Holiday Inn,
King Henry's Road,
Swiss Cottage,
London, N . W . 3
June 24, 1974
M r . Lyman G . Chan,
130th General Hospital,
APO New York, N . Y . 09696,
U.S.A.
Dear M r . Chan,
Thank you very much for your interest in Hospital Corporation of
America and especially the King Faisal Specialist Hospital.
I am most impressed with your credentials and I do want to explore .
your interest further. It w i l l be several months before definite plans are
made regarding the exact date when the professional staff w i l l be required
to be on site.
The hospital w i l l open March 31, 1975 and we feel that
the staff w i l l be "on-board" approximately a month before the opening
date.
As soon as information is available, I w i l l forward it to you for your
evaluation and benefit.
Please be assured that we do appreciate your interest and look forward
to discussing these opportunities with you further.
Sincerely,
Dictated by Ronald C . Marston
and signed in his absence.
RCM/ac
khddU hj»U oflier:
P.O. IU\ 7)t4)
Hnnd,
Ttlrx.'Otn
I hurton:
John C Ntff, Ihomst K J rutjr MD
Robert I' /Ineck, Ctert, At Men}
Jk>MaiW.r*U
AtehHitifif
Ihiptol Cmpmmtim of AMttits
liMtpunkimiki (bgmmhlmJi
296
f
HUSI'l 1AL
, Oiu: Parh
Nashville.
I'la/a;
CORPORATION
:i720.1 (dl V
.llV-MM
of AMERICA
JVimrssn;
SeptOnber 4 , 1974
Mr. Lyman G. Chan
130th General H o s p i t a l
AP0 H e w j f o r k , NY 09696
r
Dear Mr." Chan:
Thank*you very much f o r your request f o r f u r t h e r i n f o r m a t i o n about the
King F a i s a l S p e c i a l i s t H o s p i t a l .
I must a p o l o g i s e f o r my d e l a y i n
r e s p o n d i n g t o your l e t t e r ; however, due t o my t r a v e l schedule and the
d e l a y i n having the i n f o r m a t i o n a l m a t e r i a l s p r i n t e d , I was unable t o
respond e a r l i e r .
The King F a i s a l S p e c i a l i s t H o s p i t a l ' i s a 250-bed r e f e r r a l , r e s e a r c h
c e n t e r t h a t w i l l open Ln A p r i l 1975. We f e e l t h a t the o p p o r t u n i t i e s
the H o s p i t a l w i l l be e x c e p t i o n a l and q u i t e u n i q u e . The H o s p i t a l i d
d e s c r i b e d a s the most modern h o s p i t a l i n the w o r l d .
st
Housing accommodations w i l l be f u r n i s h e d by the H o s p i t a l f o r p e r s o n n e l
who l i v e on campus. These housing u n i t s are c o m p l e t e l y new, a i r - c o n d i t l o r i e d , modern a p a r t m e n t s , having e f f i c i e n c y , one-bedroom and twobedroom accommodations. On the compound w i l l ? b e a swimming p o o l w i t h an
a m e n i t i e s c e n t e r . The a m e n i t i e s c e n t c r w i l l have f a c i l i t i e s a v a i l a b l e
f o r m o v i e s , a r e a d i n g room and music room, a snack b a r , a c e n t r a l lounge
a r e a , as w e l l as a t e n n i s c o u r t and squash c o u r t .
T r a n s p o r t a t i o n f o r new employees w i l l be p r o v i d e d by t h e King F a i s a l
S p e c i a l i s t H o s p i t a l from t h e i r p o i n t of o r i g i n t o Riyadh, Saudi A r a b i a ,
tyousehpjd goods w i l l n o t be shipped a t t h e i r expense s i n c e a l l s i n g l e
housing' u n i t s w i l l be c o m p l e t e l y f u r n i s h e d . V a c a t i o n f o r employees w i l l
be 30 days annual l e a v e w i t h r e t u r n t r a v e l t o the U n i t e d States p a i d a t
the expense of the H o s p i t a l . A d d i t i o n a l p o s t l e a v e w i l l be a v a i l a b l e
whereby the employee w i l l be g i v e n seven days post leave a f t e r the f i r s t
120 days of employment and a g a i n a f t e r 240 days o f employment. N a t u r a l l y , the normal and r o u t i n e m e d i c a l care w i l l be p r o v i d e d by t h e
H o s p i t a l f o r a l l employees, f r e e o f charge.
Other b e n e f i t s are a l s o a t t r a c t i v e and these w i l l be s u p p l i e d l a t e r
p r o v i d e d you have a c o n t i n u i n g i n t e r e s t .
Emergency leave i s a l s o
i n c l u d e d due t o the d i s t a n c e i n v o l v e d and the problems a s s o c i a t e d
therewith.
297
Page 2
The c o n t r a c t f«>r n i l e x p a t r i a t e cmployccn w i l l ho a 25-month c o n t r a c t
I n c l u s i v e o f v u . i t l o n aiul p e n t l e a v e .
Return t r i v e l a f t e r completion of
t h e c o n t r a c t w i l l n l n o he a t t h e expense o f i h e H o n p l t a l .
The t y p i c a l work s c h e d u l e f o r t h e K i n g F a i s a l S p e c i a l i s t H o s p i t a l w i l l "
be a 6 - d a y , 4 8 - h o u r work week w i t h r o t a t i o n a l s c h e d u l e s f o r p e r s o n n e l .
JWe
w i t h our l i b e r a l v a c a t i o n and p o s t l e * v e p o l i c y , as w e l l as t h e
" h o l i d a y ^ t h a t w i l l be g i v e n , a p p r o x i m a t e l y t e r days p e r y e a r , t h a t t h i s
r o t a t i o n a l s c h e d u l e and w o r k week i s a p p r o p r i a t e .
feeJL
. I f * a £ t e r y o u r r e v i e w o f t h i s i n f o r m a t i o n , y o u have a c o n t i n u i n g i n t e r i e s t y Jt^wpuld a p p r e c i a t e y o u r c o m p l e t i n g and f o r w a r d i n g t o me t h e e n c l o s e d . , a p p l i c a t i o n i n d i c a t i n g y o u r f i r s t , second and t h i r d a r e a s o f
p r e f e r e n c e , y o u r s a l a r y e x p e c t a t i o n s and y o u r d a t e o f a v a i l a b i l i t y .
As
I m e n t i o n e d , h o w e v e r , i t w i l l be perhaps March b e f o r e i n d i v i d u a l s a r e
b r o u g h t on b o a r d f o r t h e H o s p i t a l , and t h e n f r o m March t o September we
w i l l c o n t i n u e t o b r i n g s t a f f on b o a r d .
T h e r e f o r e , t h e r e i s ample t i m e
f o r i n d i v i d u a l s t o make p r e p a r a t i o n s f o r s u c h a move.
As q u i c k l y as we have o u r s a l a r y s c h e d u l e c o m p l e t e , I w i l l a l s o a d v i s e
y o u o f t h e b e g i n n i n g base r a t e .
However, t h e s a l a r y i s q u i t e c o m p e t i t i v e w i t h those p a i d i n the United S t a t e s .
We do have p o s i t i o n s - a v a i l a b l e f o r p h y s i c i a n s , s t a f f n u r s e s , c h a r g e
n u r s e s , s u p e r v i s o r s , i n s e r v l c e e d u c a t i o n i n s t r u c t o r s and many o t h e r s .
L i c e n s i n g r e q u i r e m e n t s f o r employment a r c t h o same as t h o s e o f t h e
United States.
We s h a l l be r e c r u i t i n g a few p h a r m a c i s t s f r o m t h e U n i t e d S t a t e s .
Should
your i n t e r e s t c o n t i n u e a f t e r your r e v i e w , then 1 s h a l l look f o r w a r d t o
r e c e i v i n g y o u r c o m p l e t e d employment a p p l i c a t i o n .
"KOTOId C. Mars t o n
D i r e c t o r of I n t e r n a t i o n a l
RCM:sf
Enclosures
Recruitment
298
n v ^ D r i 1/Vij
CORPORATION
of AMERICA
Orvt I'ark Pla/.u;
Nash villa. Tennessee
December 2 6 ,
17203 (015) 327-9551
1974
Mr. .Lyman Gordon Chan
C'/O, Lowenberg
8175 Inverness Ridge Road
Potomac, Maryland 20854
Dear M r .
Chan:
T h i s l e t t e r w i l l c o n f i r m our v e r b a l o f f e r o f employment t o
you'.With t h e King F a i s a l S p e c i a l i s t H o s p i t a l i n R i y a d h ,
Saudi A r a b i a , f o r 25 months.
You have been s e l e c t e d f o r t h e
p o s i t i o n o f A s s o c i a t e C h i e f P h a r m a c i s t and your r e p o r t i n g
Sate w i l l be on or about January 2 9 , 1 9 7 5 .
This o f f e r i s of
course c o n d i t i o n a l upon t h e f o l l o w i n g :
Your a b i l i t y
t o pass a complete m e d i c a l
examination
Your a b i l i t y
t o o b t a i n a v i s a t o e n t e r Saudi A r a b i a
Your o b t a i n i n g c e r t a i n v a c c i n a t i o n s and i n o c u l a t i o n s
s p e c i f i e d by The King F a i s a l S p e c i a l i s t H o s p i t a l *
The c o n f i r m a t i o n o f r e f e r e n c e s and o t h e r d a t a
i n your a p p l i c a t i o n form
included
Documentation by photocopy o f c u r r e n t l i c e n s e s and
e d u c a t i o n a l d i p l o m a s , d e g r e e s and c e r t i f i c a t e s .
The f i r s t t h r e e c o n d i t i o n s s e t f o r t h above a r e a l s o a p p l i c a b l e t o your dependents who p l a n t o r e s i d e w i t h you i n
Saudi A r a b i a .
The a t t a c h e d form s e t s f o r t h your compensation and b a s i c d e ductions.
I t i s understood t h a t the converted values of t h e
Saudi R i y a l and U . S . D o l l a r a r e d e t e r m i n e d by t h e c o n v e r s i o n
r a t e shown on t h e f o r m , which i s s u b j e c t t o some f l u c t u a t i o n s from t i m e t o , t i m e .
I n t h e e v e n t o f m a j o r changes i n
' c u r r e n c y v a l u e s , t h e H o s p i t a l w i l l r e v i e w t h i s compensation
and may make c e r t a i n a d j u s t m e n t s t o a s s u r e e q u i t y i n s a l a r y
payments.
You s h o u l d complete t h e e n c l o s e d forms f o r you and each
d e p e n d e n t t r a v e l i n g w i t h you i n c l u d i n g :
passports, v i s a
c a r d s , t h r e e photographs ( p a s s p o r t s i z e ) , a l s o f o r w a r d i n g a
v a c c i n a t i o n c e r t i f i c a t e showing c u r r e n t s m a l l p o x and c h o l e r a
i m m u n i z a t i o n , and a s t a t e m e n t o f r e l i g i o n o r b a p t i s m a l
r e c o r d s i g n e d by your m i n i s t e r .
Enclose a l s o the completed
e n r o l l m e n t c a r d , tho completed " b l u e f o r m , " as w e l l as a
299
copy o f y o u r m a r r i a g e
certificate.
You w i l l f i n d e n c l o s e d m e d i c a l q u e s t i o n n a i r e s t h a t you and
y o u r f a m i l y s h o u l d c o m p l e t e and g i v e t o t h e p h y s i c i a n who
w i l l g i v e your m e d i c a l e x a m i n a t i o n .
I have e n c l o s e d P r e Employment M e d i c a l E x a m i n a t i o n forms t h a t you s h o u l d g i v e t o
the examining p h y s i c i a n .
I n y o u r c a s e , I ' m a s k i n g you t o
s e l e c t a q u a l i f i e d physician to give the medical examination
t o y o u r f a m i l y and f o r w a r d t h e r e s u l t s t o me i m m e d i a t e l y
with his evaluation.
The c o s t o f t h i s r o u t i n e m e d i c a l
e x a m i n a t i o n w i l l be p a i d by H . C . A .
I l o o k f o r w a r d t o h e a r i n g from you.
I s u g g e s t t h a t you
a r r a n g e t h e m e d i c a l e x a m i n a t i o n s d u r i n g t h e week o f Decemb e r 3 0 , 1.974;
P l e a s e i n d i c a t e t o us i n a l e t t e r o r by
t e l e p h o n e t h e c i t y i n which your f i r s t f l i g h t w i l l o r i g i n a t e .
A l s o , we w i l l need t o know i f you p l a n t o move t o an a l t e r n a t e address b e f o r e d e p a r t i n g .
As soon as we r e c e i v e
y o u r p a s s p o r t s and o t h e r p e r t i n e n t d a t a we w i l l b e g i n
m a k i n g y o u r t r a v e l a r r a n g e m e n t s and y o u r v i s a a r r a n g e m e n t s .
J&nald c . Marston
D i r e c t o r of I n t e r n a t i o n a l
RCMspn
Enclosures
Recruitment
300
Hoi Wood,
Oineto* of Oanmlty/taployoo Mtot^aM
Karoh 10, 1979
tterles B. Jftekean, Dirootor -Dopartrcat of Pharmacy
Enploynent temiaatiaA.of Ztfaan O. Chan. Pbara.D.
Z request that tho contrast offcynanG. Chan bo tomlnatrtd and that to
2» jeo^nrnol. to hi* point ef origin ae coon aa poaalhla,
Bla alisost total dlaszatlsfaatlen after oix tnsoko in Riyadh* in oy
opinion, LA irrovoroiblo. At this critical point 1A tlno a positive
attltodo la seeded for organisational coralo and cot tfca negaUvlea
that SET. Chan baattnanfar dcscnstratcd.
Ctotai Dr. Chon'o point of origin la V i e i l i A , Oolifonla and not
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L O C A L G O V E R N M E N T WHO D I S C R I M I N A T E D A G A I N S T Y O U Of mora then on*, list oil)
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See attached.
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302
IJ'riui I'.'riUi, roundel in
i:; Ui<- o.ldo:;t. r.orvice orr.anizat Lon whose
membership ir, composed of American .Jews.
The A n t i - D e f a m a t i o n League was organized in 1913 as a s e c t i o n o f B ' n a i
B ' r i t h t o advance good w i l l and mutual understanding among Americans o f a l l creeds
and r a c e s , and s p e c i f i c a l l y t o combat a n t i - S e m i t i s m and a n t i - J e w i s h a c t i v i t i e s
i n t h e United States.
The members o f ADL, as A f r i c a n Jews, are s u b j e c t d i r e c t l y t o e.oonomic
i n j u r y by t h e a n t i - J e w i s h d i s c r i m i n a t o r y p r a c t i c e s o f Aramco.
Aramco Services Company i s one o f "the b i g g e s t o i l companies i n t h e w o r l d . "
Aramco has o f f i c e s a t 1100 Milaro, Houston, Texas
77002.
According t o i t s own advertisement (annexed h e r e t o ) , Aramco has been operat i n g i n Saudi A r a b i a since 1933.
On February 2k,
1975, and a g a i n on March 1 0 , 1975, Aramco a d v e r t i s e d i n t h e
American Medical News f o r o b s t e t r i c i a n - g y n e c o l o g i s t s t o apply f o r employment
i n Saudi A r a b i a .
On i n f o r m a t i o n and b e l i e f these two advertisements are o n l y a s m a l l f r a c t i o n
o f Aramco's s o l i c i t a t i o n o f American employees f o r employment i n Saudi A r a b i a .
This agency can t a k e j u d i c i a l n o t i c e o f t h e f a c t t h a t persons o f t h e Jewish
f a i t h have been denied v i s a s and not p e r m i t t e d t o e n t e r Saudi A r a b i a since I9WJ.
On i n f o r m a t i o n and b e l i e f o f f i c i a l s o f Aramco have Knowledge o f t h i s
criminatory r e s t r i c t i o n .
dis-
Indeed, t h e i r employment a p p l i c a t i o n s t a t e s :
" F e d e r a l Law P r o h i b i t s D i s c r i m i n a t i o n Because o f Sex" and ' f e d e r a l Law
P r o h i b i t s D i s c r i m i n a t i o n Because o f A g e " .
I n no place does t h e Aramco employment a p p l i c a t i o n ( " Q u a l i f i c a t i o n Record")
i n d i c a t e t h a t " F e d e r a l Law P r o h i b i t s D i s c r i m i n a t i o n Because o f R e l i g i o n . "
t h e same a p p l i c a t i o n
indicates:
Indeed,
303
"This form i s t o be used only i n connection w i t h applicants f o r employment
t o be h i r e d f o r work i n Saudi Arabia and w i t h applicants who are r e q u i r e d during
the course of t h e i r employment t o t r a v e l t o Saudi Arabia or any other c o u n t r y , "
This q u a l i f i c a t i o n i s added t o the a p p l i c a t i o n form because on i n f o r m a t i o n
and b e l i e f Aramco has knowledge t h a t Jews have not been permitted t o enter Saudi
Arabia since 19^8.
On i n f o r m a t i o n and b e l i e f Aramco requests applicants t o submit a Baptismal
Record or other proof t h a t they are not Jewish.
RELIEF SOUGHT
ARAMCO HAS BEEN AND CONTINUES TO VIOLATE TITLE V I I OF THE CIVIL RIGHTS LAW
OF 1964 AS AMENDED, CONSTITUTING A PATTERN AND PRACTICE OF ILLEGAL DISCRIMINATION.
The l e t t e r annexed hereto from the General Counsel o f EEOC t o SENATOR FRANK
CHURCH speaks f o r i t s e l f .
I t states t h a t American companies employing American
c i t i z e n s f o r employment overseas are covered by T i t l e V I I .
WHEREFORE:
1.
The Anti-Defamation League r e s p e c t f u l l y requests:
A f i n d i n g o f probable cause t h a t Aramco has been and s t i l l i s
d i s c r i m i n a t i n g against persons of the Jewish f a i t h .
2.
B i a t , f a i l i n g c o n c i l i a t i o n , an a c t i o n be brought t o e n j o i n these
p r a c t i c e s o f d i s c r i m i n a t i o n , t o o b t a i n damages of back pay t o Jews who were
not employed because of these d i s c r i m i n a t o r y p r a c t i c e s , and t o o b t a i n a l l
other necessary and appropriate r e l i e f deemed j u s t and proper.
3.
That, i n the a l t e r n a t i v e , a Right t o Sue l e t t e r be granted.
304
«tih amlifairis It* rmpn
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•«•••< . SISIS. s *c•1
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« f opinion. character. ability. reputation end pest conduct, and I authorise
request each individual end orientation M M d ill (Ma application to give such
I »9»h to immmI mvnH (or physical t u m i n M i w by « Company phytkian or • CwmMny^nigiMlfd physician upon w y w t of Km Company.
*
< tmderstand end 191M that if I foil to meet the- Company's physical requirements, or if for any reason the Company dentin!net that I am not qualified
lor employment. I may not be employed and the Company shall not be liable for I o n or damage* because of i n failure or refusal to employ mo.
•4 M
I I employed, I ogre* that in the case of miury or illness arising out of or in the course of my employment, while my Wlignmsnt or duties «re such thot
I «n» not cowered by tho Workmen's Compensation lew of Texas, the Company agrees to pey, and I a^rev to accept. in IwH seHsfection of M y claims based o n twch
injury or ittness. en amount equal to tho amounts which wouM otherwise have been payable under the Workmen's Compensation lew o f Texas. I understand it is tho
* intent of this agreement to extend, by contract, the mutual benefits and Imwtaiom ol the Workmen's Compensation low of Texts to w g l o y t w who would net
tvered. upon the seme terms end conditions as rf such employees had been covered, end the employee's contractual rights hereunder sheM
dr. end exclusive of. all other causes of action he might otherwise have had. excepting only causes ol action ho would havo retained as a covered
r the Workmen's Compensation law o l .Texas Any claim lor compensation under this agreement sheU bo a ratification of this agreement as my
oxdusive basis lor any right o l recovery from the Company and a waiver ol ail other claims as provided herein.
r
'
Should I bo given employment in the position now applied for. or in any other position. I hereby agree that such employment may be terminated by
tho Company at any time without liebdity to me other than for wages, salary or other compensation to which I havo already become entitled lor services
rendered up to the date ol termmetion.
I understand that employment by this Company it ronhnynt upon my ability to obtain a visa from the Saudi Arabian
• of attf other country to whkh I am r v ^ d V S d l w n e t m u m r S S 7 ^ T employ"**'. endelso upon my abilfffTO'scc
shall be governed by the lew of Texas.
Application dated at
Signature
308
I T IS i M M M t O M ANO «fi»«ID THAT A l t H F N f \ | N IA I ION*. HI NT. I N ( . I V I N ( A N M I I U t l M K I ©» MV APPLICATION # 0 * CM*LOVMCNT. ANY Ml$>
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310
Obstetrician-Uynecoiogisi,
let Aramco baby you for nine months.
A n d b a h y y o u w o will
Y o u ' l l w o r k m .in A M A a c credited hospital m Saudi
A r a b i a , with tho latest e q u i p m e n t at y o u r f i n g e r t i p s
A n d y o u ' l l h a v e p l e n t y of h e l p .
Plus, you'll h a v e a million
dollar m a l p r a c t i c e insurance
policy furnished
In a d d i t i o n , y o u ' l l g e t a t o p
salary, an o v e r s e a s allowance,
with housing furnished.
W h o is A r a m c o ? A r a m c o is
o n e of t h e b i g g e s t oil c o m p a n i e s
In t h e w o r l d .
W e ' v e b e e n o p e r a t i n g in
Saudi A r a b i a since 1933.
Will you like S a u d i ? W o don't
k n o w , b u t m o s t of o u r p e o p l e
s l a y a n a v e r a g e of o v e r 12 y o a r s .
Y o u d o n ' t h n v o to s t a y but
t h r e o or four m o n t h s , b u t w e ' d
l i k e to h a v e y o u for n i n e
months There's a possibility
y o u c o u l d stay p e r m a n e n t l y ,
if y o u w i s h .
If y o u ' r e A m e r i c a n B o a r d
c e r t i f i e d or B o a r d e l i g i b l e , a n d
s i n g l e , w e ' d l i k e t o t a l k to y o u .
C a l l u s a n d set u p a t i m e
w h e n w e c a n get together.
W e ' d l i k e to k n o w m o r e a b o u t
y o u a n d w e ' d like to tell y o u
m o r e a b o u t us.
CALL LLOYD DROWN
A R A M C O SERVICES COMPANY
1100 Mil AM/1713) ?37 ^91 b/HOUSTON. TEXAS 77002
AN EQUAL OPPORTUNITY EMPLOYER.
L v ' ' L hm • .
V
K t \ xrl ns
:
HI
Learn more about free'medical birlding
development. Write for cur bforhurc.
Or telephone (414) 276,2277 Collect:'
K
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A
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uiild^V
medical b^dmgguild
1
515 west wells srreer/mllwaukee, W i s c o n s i n 5 3 2 0 $ ^ $ !
V"
AMERICAN MEDICAL NEWS •
'
FEBRUARY 24,
1975
311
WHERE?
Sttouux
W i t t THteUud
ScAMU.
;
Hmtoeuate*
0
Salary and conditions ot employment flexible-depending
on qualifications
Current state (any) licensure required
Excellent promotion outlook
Oppor
Amities for concurrent faculty appointment
#
Liberal fringe benefits: Leave (Vacation, Sick & Military),
Life and Health Insurance; Retirement
. . Expenses for
travel for interview and household relocation usually
H..pltal.
'•""•••iri, H„pi,.(,
Send curriculum vitae and requests for additional mforma
lion to Joseph J Baker, M D . Director. Mental Health &
Behavioral Sciences Service. Veterans Administration (Code
11?f I. Washington. O.C. 70420, Ot. telephoru- collect AC
202/1B9 341G
m
PSYCHIATRIC RESIDENCIES AVAILABLE
l i t A 2nd year Residencies available starting
July '75 or January '76. Program offers
intensively supervised expcricncc in inpatient, outpatient, child psjchialry. liaison/
consultation, neurology, community psychiatry and elective time in alcohol or drug
treatment, day hospital, research, or prcceptorship in private practice. All residents
have the advantage of a comprehensive
core program in addition to seminars and
tutorial experience. For application or further information write. H. Von Bruuchitsch,
M . D . . Director, Residency Training. Department of Psychiatry & Behavioral Scicnccs,
University of Oklahoma Health Scienccs
Center, P.O. Box 26901, Oklahoma 731W
MEDICAL SERVICES
—MEDIPHONE
Nationwide Medical Consultation
-Over 600 Medical Eiperts from 60 Mjioi University
tMicai Centers wiH heiff to soli* difficult medical problems. Low cost (IS for S mmutes. Connections in minutes.
When confronted with a pcrpleimg case c.ill i3I2> 782
TMS/Day or NigM. Ptiier sponsoied
BOOKS
Obstetrician-Gynecologist,
let Aramco baby you fornine months.
A n d b a b y y o u w e will.
Y o u ' l l w o r k in a n A M A a c c r e d i t e d h o s p i t a l i n
S a u d i Arabia, with t h e latest e q u i p m e n t
at y o u r f i n g e r t i p s .
A n d you'll h a v e plenty of h e l p .
Plus, you'll h a v e a million d o l l a r m a l p r a c t i c e
insurance policy furnished.
In a d d i t i o n , y o u ' l l g e t a t o p s a l a r y , a n o v e r s e a s
allowance, with housing furnished.
W h o is A r a m c o ? A r a m c o is o n e o f t h e b i g g e s t o i l
c o m p a n i e s in the^ w o r l d .
W e ' v e b e e n o p e r a t i n g in S a u d i A r a b i a s i n c e 1 9 3 3 .
Will y o u like S a u d i ? W e d o n ' t k n o w , but m o s t of
our p e o p l e stay a n a v e r a g e of over 12 years.
Y o u d o n ' t h a v e t o stay b u t t h r e e o r f o u r m o n t h s ,
b u t w e ' d like t o h a v e y o u f o r n i n e m o n t h s . T h e r e ' s a
p o s s i b i l i t y y o u c o u l d s t a y p e r m a n e n t l y , if y o u w i s h .
If y o u ' r e A m e r i c a n B o a r d c e r t i f i e d o r B o a r d
eligible, a n d single, w e ' d like to talk to you.
C a l l us a n d s e t u p a t i m e w h e n w e c a n
get together.
W e ' d like to k n o w m o r e about y o u a n d w e ' d
l i k e t o tell y o u m o r e a b o u t u s .
CALL LLOYD DROWN
ARAMCO SERVICES COMPANY
312
Senator S T E V E N S O N . Thank you, Mr. Brody.
Mr. Eisenberg?
Mr. E I S E N B E R G . Thank you, Mr. Chairman. There were two themes
that the administration representatives stressed yesterday, one, that
there is no threat, and, two, that these bills jeopardize the chances
for peace in the Middle East.
I think the study that was referred to by Mr. Brody and the article
by Mr. Rowan in the Washington Post of July 6, which discusses
Mr. Levy's study and the study of the International Economic Policy
Association as to the real scope of the threat of accumulating petrodollars. Both studies indicate that there is a real threat.
Mr. Rowan says in his report these studies are an effective rebuttal to
an effort in some quarters to downgrade what OPEC pulled off by
suggesting that the concern over OPEC's buildup has been exaggerated.
The real response to these observations as detailed in these reports
is that OPEC has emerged particularly strong.
The OPEC members are expected to accumulate financial surpluses
of at least $200 to $300 billion by 1980, bringing with it the potential
for great economic power. And the article goes on to indicate the
vast numbers that are really involved.
Perhaps to put it into perspective, when we talk of numbers like
that, we ought to realize that the entire mutual fund industry in the
United States, the net asset value of all of the portfolios of all mutual
funds, is less than $45 billion.
So you are talking about accumulating surpluses in a matter of a
year or two which vastly overshadow the value of all of those investments.
And yet the Assistant Secretary, Mr. Parsky, said yesterday in
effect that there is no threat, and the thrust of the testimony of Mr.
Tabor was that there is no threat.
These bills are really minimal bills. They are not bills that reach
far out. S. 953 is, after all, a bill which the administration says gives
it power which Mr. Parsky says it already has.
Well, i f that is in fact true, that S. 953 does only give power to the
administration that it already has, then certainly the effect of that
bill cannot be, as Mr. Tabor indicated, that the bill would upset our
efforts to make peace in the Middle East and achieve a peaceful solution to that situation.
A t page 7 of his testimony Mr. Tabor indicates: "The enactment
of the amendment"—this is S. 425 the Williams bill—"would be interpreted by the Arab countries as a shift in U.S. foreign policy and
might jeopardize the ongoing efforts of achieving a peaceful settlement."
I don't think that argument holds water for several reasons. I f
minimal bills—essentially disclosure bills—are going to upset the
ability of this country to achieve a settlement in the Middle East,
then perhaps we ought to know about that now. The administration
seems to be saying that a Mid-East settlement will only be achieved by
the United States foregoing its basic antitrust policy and its basic
antidiscrimination policy. I think that will be received by the world
as the United States bending in very basic areas in order to achieve
this "peace." I t would seem that peace probably depends more on an
313
independent U.S. position, not a position which is brought about by
Arab pressure or the perception that the United States bending to
Arab pressure.
As I have noted, i f these minimal bills cannot be passed because the
administration says they are going to threaten the peaceful settlement,
then I think we should know that now before we get involved in that
kind of a situation, before there are guarantees or whatever the
settlement that come up will entail.
These bills give the administration power necessary to deal with
the situation really utilizing reporting and disclosure techniques widely
used in the securities regulation area. The Williams bill, says you
shall report and it tacks onto the existing 13(d) of the Securities and
Exchange Act, reporting by people who acquire over 5 percent of
public companies and gives to the administration the power to prescreen such acquisitions and then the President has the power to say
yea or nay, based on certain standards such as national security.
I f these bills are going to upset the possible peace in the Middle
East, I think we should know it now. I think that is not a real argument. Neither does the argument of a threat hold water. I think the
Levy study, and Mr. Rowan's report of the two studies in the Post
indicate there is substantial threat.
And we are told by Mr. Parsky that the Kuwaitis are after all responsible investors; that they are only investing for return, they are
not pushing their weight around.
I think it was the Kuwait's, i f you recall, Mr. Chairman, that were
the ones that tried to force Rothchild and Warberg out of a syndicate
here and were successful in forcing them out of investment syndicates
in Europe. You will recall that they attempted to force Merrill Lynch
to accept a condition that would oust Lazard Freres from a syndicate
the underwriting of which was led by Merrill Lynch. Fortunately Merr i l l Lynch opposed that pressure and the Kuwaitis were not successful.
But I think the incident, which received wide reportage in the
general as well as the financial press and which was discussed previously at Senator Williams' hearing, indicates that the Kuwaitis are not
really that docile, that they will push the boycott as far as they feel
thev can carry it.
When the pressure was met bv Merill Lynch, they receded. I think
that is a lesson also for this legislation. I f the legislation is passed, and
it is clear that certain practices which this country deems to be contrary to our policy are illegal and will not be tolerated, then there is
a .qreater chance that there will be compliance.
I was really surprised at Mr. Scalia's testimony and his internretation of the antitrust laws, which laws are pointed to as a bulwark
against this kind of thing by some of the other administration witnesses.
Mr. Scalia said in his discussion of the antitrust laws:
A n agreement between commercial firms doing business i n the United States to
boycott another firm i n this country w o u l d constitute a t r a d i t i o n a l f o r m of
restraint of trade and o r d i n a r i l y w o u l d f a l l w i t h i n the category of conduct
illegal per se under the Sherman Act.
I think that is quite true.
There are, however, some special features about the present case. F i r s t , and
perhaps most i m p o r t a n t , is the fact t h a t the u l t i m a t e purpose of the boycott is
314
not to i n j u r e any U n i t e d States firm—nor is i t even a commercial purpose i n
the usual sense. T h e boycott is u l t i m a t e l y a p o l i t i c a l rather t h a n a commercial
phenomenon.
Second, there is a question whether the impact upon U n i t e d States t r a d e of a
boycott of this sort which i n effect requires an American company t o choose
between certain types of business relations w i t h Israel, or dealing w i t h A r a b
countries is so severe as to j u s t i f y application of the per se r u l e of i l l e g a l i t y
as applied domestically.
I have some f a m i l i a r i t y w i t h the a n t i t r u s t laws, and i t seems to me this is a
new doctrine, t h a t there is really no case I am aware of t h a t supports t h a t k i n d
of a statement.
I have some familiarity with the antitrust laws, and i t seems to me
this is a new doctrine, that there is really no case I am aware of that
supports that kind of a statement.
I think that the Supreme Court in Klors and Silver v. NYSE and in
cases which have been cited in previous hearings indicated in the words
of Senator Williams and Javits in their letter to the Attroney General
of February 28—
I n the absence of Government regulation, i t is a crime pure and simple f o r
businesses operating i n t h i s country to combine a n d dictate the terms upon
w h i c h others i n the industry may do business.
The a n t i t r u s t laws are designed to protect both the r i g h t of e n t r y i n t o an
i n d u s t r y and the rights of existing businesses to be free f r o m combinations of
firms acting to l i m i t their freedom to compete. T h a t the instigators are a
foreign government is not a justification f o r the type of pressures exerted to
force Lazard.
I t was in this context that this was written—
Out of the M e r r i l l L y n c h syndicate. The laws recognize no such exemption.
A n y company j o i n i n g such a boycott w i l l i n g l y or under economic duress joins
i n an i l l e g a l conspiracy.
I think the cases more support that view than Mr. Scalia's novel view
of what the antitrust laws reach and do not reach.
I f we are at the point where we are compromising basic antitrust
policy, in order "not to endanger negotiations in the Middle East,"
then that is an additional reason, over and above the questions of discrimination, which have been brought up by Mr. Brody and by others,
not to permit such conduct. We seem to be not only ready to compromise an antidiscrimination policy, we seem also ready to compromise
antitrust policy. Now we will also seem to be compromising tariff
policy. These positions of accommodation to the Arab boycott, which
impinge on specific policies of our laws, are being forced on us by
something which, according to Mr. Parsky, is really not much of a
threat. We are asked to accept his evaluation because he has gone to
the Middle East and has talked to all of these fellows and he thinks
they are reasonable guys. He has not, however, produced much more
than vague assurances.
I f that is the assurance that this committee and the Senate is willing to take and rely on, I think it is a dangerous policy.
I f we are going to hesitate to pass bills which are really minimal
in their effect when balanced against the potential danger, which would
indicate that the Government is willing to stand by its long-standing
policies—the Williams bill, after all, is just an extension of an existing Securities and Exchange Act disclosure kind of provision—then
we are in greater trouble than we thought. The amendment says i f
you get together with others and try to oust someone else from a
315
market or apply pressure on firms not to deal with another—this violation is a traditional antitrust—that is a group boycott or a concerted
refusal to deal, that you can't do it, and that the President should not
approve those kinds of over 5 percent acquisitions where the acquiring party has participated in such activities. I f Mr. Parsky is right
and the Saudis are not really going to acquire more than 5 percent
of any company anyway, then they really shouldn't get very upset
about this.
I t will be too late for legislation after these investments are made.
Now is the time to do something about it.
I will try to wind up quickly here. The problem is that the administration statements yesterday make the boycott seem rational when
in fact the boycott is not rational. I t includes individuals such as
Marlon Brando and Elizabeth Taylor, in addition to various companies whose connections with Israel is remote at best. Arabs who
talk about the boycott are often introduced as rational businessmen,
who are merely conducting investment activities, like Mr. Khashoggi,
who gave an interview to Gil Kaplan of the Institutional Investor. I n
a recent edition of that magazine he was asked: "Isn't there another
aspect to this?" talking of the boycott.
I mean the question t h a t came to l i g h t about the A r a b blacklisting of American
firms, especially the investment bankers who were pressured to exclude some
so-called Jewish firms f r o m i n t e r n a t i o n a l underwritings. There seems t o be considerable confusion about whether this is a " J e w i s h " question or a "Zionist'* one.
I know you are not a Government spokesman, but how do you respond f r o m the
viewpoint of someone who obviously knows w h a t is going on?
And he talks about the differentiation between Jews and Zionists.
Then he says:
B u t Zionism is another matter. I t ' s an ideology, l i k e communism, l i k e facism.
I t ' s a p o l i t i c a l organization.
Then Mr. Kaplan asks him:
H o w do you really make such fine distinctions? As an example, there are some
investment bankers who have Jewish people who are very active i n raising
money f o r Israel on t h e i r staffs and yet are not on the blacklist.
And Khashoggi answers:
When you are at w a r , when you are i n the middle of the battle, you don't
see right, you don't see left. T h i s is a confused period. A n d how can the boycott
office i n Damascus really decide who is what. As a m a t t e r of fact, we have gotten
six companies off the list. We went and fought f o r them and presented t h e i r
cases.
That is good advertisement for Mr. Khashoggi. But the point is
the boycott is not a rational boycott, and for the Justice Department
and the Commerce Department to come here and intimate that it is
rational—that it is a legitimate political policy, that it is one that
deserves deference under the antitrust laws, I think that that kind of
an argument is disingenious at best. The boycott is irrational, it is a
patently discriminatory policy and the administration's spokesmen
are asking us, and asking the Nation to sit by and say, OK, we are
going to let antitrust policy bend—in effect rive them an exception
from section 1 of the Sherman Act—and for what, for legitimate political reasons ? No; for reasons which are discriminatory. I f you want
to conduct a religious or racially discriminatory boycott, there is no
group that can't get together and find political reasons to justify it.
316
I t seems to me the arguments made by the administration yesterday
in terms of no threat, in terms of it will jeopardize the chances for
peace in the Middle East, in terms of we ought to bend long-standing
policy, just do not hold water.
I think the Williams bill (S. 425) and S. 953, are at least the kinds
of bills that should be passed to show businessmen in the United States
and the world that the United States is enforcing its antitrust and
discrimination policies even handedly, to borrow a phrase. Peace depends on what is going on in the negotiations between Israel and
Egypt, not on whether or not the Senate passes these bills. Rather the
failure to pass these bills because of fear of Arab pressure could do
more to undermine the U.S. position as an independent, strong, peacemaker, than the administration realizes.
Thank you.
Mr. BRODY. Mr. Chairman, if I may have a minute or two to supplement one or two things Mr. Eisenberg said, because I think this is
a good example of where an ounce of history is worth a pound of
logic.
I f you read Mr. Tabor's on page 8, where he opposed the legislation, saying the chances for Middle East settlement could be jeopardized by the enactment of the anti-boycott amendment to S. 425, one
would think he is talking about the admittedly delicate negotiations
going on today. But this is really nothing more than a broken record.
Because back in 1969, when the Senate was taking a look at how the
1965 amendment was working, a Commerce Department spokesman
at that time opposing any change in the law said, and I quote:
I n a d d i t i o n , delicate f o r e i g n policy n e g o t i a t i o n s c u r r e n t l y a r e u n d e r w a y t o
b r i n g about a viable settlement of the f u n d a m e n t a l d i s p u t e between I s r a e l a n d
t h e A r a b states.
The State Department spokesman at that time also said:
M a n d a t o r y l e g i s l a t i o n w i l l be s i m i l a r l y r e g a r d e d as one-sided, p r o - I s r a e l legi s l a t i o n a t a t i m e w h e n we are t r y i n g t o help b r i n g about a settlement i n t h e
area.
On another point, we heard yesterday about the steps which the
Department of Commerce is taking to notify exporters of the reporting requirements of the Export Administration Act.
But back in 1967 then Secretary Connor in a letter to Senator
Javits said:
T h e provisions of t h i s amendment c o n t i n u e t o be w i d e l y publicized. I a m
satisfied, a n d I underscore this, t h a t generally t h e t r a d i n g c o m m u n i t y i s a w a r e
of t h e legal requirements t o r e p o r t boycott-type approaches, a n d i s r e p o r t i n g
such approaches u n d e r t h e e x i s t i n g regulations. T h e legal r e q u i r e m e n t s establ i s h e d by the l e g i s l a t i o n t h e r e f o r e appear t o be m e t a n d t h e i r a d m i n i s t r a t i o n
is posing no special difficulties f o r us.
On the second score I would say I would agree with that latter
statement, because I think any fair minded observer has to conclude
there has been no administration of that section in the 10 years since
its enactment.
I would just like to refer to an article which appeared in the Wall
Street Journal, Friday, March 14, when the Wall Street Journal reporter succeeded in ferreting out some information from the Department with respect to the implications and extent of the boycott.
317
A n unnamed Commerce Department official is quoted as saying that
they suspect many companies simply are ignoring the law and many
others may be ignorant of the reporting requirement, although in
1967 as I have indicated the then Secretary was saying that the whole
business community was well informed about the legal reporting
requirements.
<f
We don't know who isn't reporting," said the official, and there
isn't any way with our staff and budget that we can find out."
This is in March 1975, almost 10 years after the law was enacted.
Mr. F I N G E R . Mr. Chairman, I am associate director of the Civil
Rights Division of A D L .
I would briefly like to cite an article that appeared in this morning's New York Times. The headline reads "Saudia Arabia seeks
American Bids For $15 Billion Electrification Plant."
And it says in part and I quote: "Prince Mohamad Faisel said he
met last week in Florida with representatives of leading equipment
makers and outlined engineering details for the program."
I bring this to your attention because what could happen in this situation here in connection with the plans by Saudia Arabia is what
happened in a contract in 1974 for a feasibility study for establishing
a sponge iron complex at Alexandria, Egypt. A contract was entered
into in Cairo on July 29, 1974, among, a number of organizations, an
Egyptian organization, a Japanese organization, a German organization, a Brazilian organization, and the International Engineering Co.,
of San Francisco, Calif., which was the consultant on the job.
I t is interesting that article 19 of the 1974 contract, the one that the
International Engineering Co., signed reads:
The consultant, I n t e r n a t i o n a l Engineering Company, hereby declares t h a t he
does not possess any plants, firms, or branches i n Israel, he does not p a r t i c i p a t e
i n any firm or company established i n Israel, he has n o t h a d any supplier of
m a n u f a c t u r i n g assemblies or technical assistance contract w i t h any firm, company or person established or resident i n Israel. T h e consultant f u r t h e r undertakes not t o have e i t h e r by h i m s e l f or t h r o u g h an i n t e r m e d i a r y any such a c t i v i t y
w i t h Israel, and not t o contribute i n any way to consolidate the economy o r m i l i t a r y efforts i n Israel.
I submit, Mr. Chairman, that this type of restrictive boycott activity
is taking place today, as it was in July and August of i974: and unless legislation such as that recommended and reviewed here this morning is adopted, we will see a continuation of activity which is repugnant to American law and in fact violates the stated policy of the
Export Administration Act.
Thank you.
Senator STEVENSON. Thank you, gentlemen.
Mr. F I N G E R . I f I may, Mr. Chairman, I would offer as an exhibit,
the document, relating to the International Engineering Co., and similar cases of boycott activity.
Senator STEVENSON. The documents will be entered in the committee's records.
Mr. EISENBERG. Mr. Chairman, I have not yet heard a reason which
would stand up as to why Members of the Senate did not receive the
list held by the Department of Commerce, although that has been
asked for by a number of Senators.
58-527 O - 75 - 21
318
Seantor S T E V E N S O N . Gentlemen, we won't have any time for questions i f we don't proceed now.
Mr. E I S E N B E R G . I am sorry.
Senator S T E V E N S O N . Y O U have all supported mandatory disclosure
of boycott requests and compliance therewith.
And you, Mr. Eisenberg, I believe you too, Mr. Finger, have expressed your own opinion that the compliance with certain boycott
requests is violative of U.S. law now.
I f disclosure of compliance with all such boycott requests were mandated, including illegal compliance with boycott requests, would not
such mandated disclosure violate the fifth amendment right against
self-incrimination ?
Mr. E I S E N B E R G . Mr. Chairman, officers of those companies, could
take the fifth amendment and refuse to answer on the grounds of the
fifth amendment. I am not sure that the privilege would run to corporations, because I don't believe, I think the courts have held
Senator S T E V E N S O N . N O ; not corporations.
Mr. E I S E N B E R G . S O the corporations would not be put in jeopardy.
Senator S T E V E N S O N . But the individuals would. Then what is accomplished by mandatory disclosure, if disclosure is prevented by the
fifth amendment ?
Mr. E I S E N B E R G . I think the company would be required to disclose,
because I don't think they could take advantage of the privilege. But I
think most companies
Senator S T E V E N S O N . But i f the corporate disclosure effectively impinges on the fifth amendment rights of the agents of that corporation
who comply with the request, offhand I wTould think such disclosure
would not be permitted.
Mr. E I S E N B E R G . That is not much different than what goes on in the
securities area today, where you have general accounting disclosure of
what the situation is with respect to a company's earnings and the
SEC requires disclosure in perspectuses and proxy statements and i f
there is a false disclosure, that can be prosecuted.
The whole philosophy of the securities laws in terms of forcing
company disclosures, forgetting boycotts or anything that has to do
with this, is generally one which raises the same question, and the
Congress and the courts have accepted disclosure as a way of inhibiting wrongdoing. And that is the philosophy which I think the Williams bill and S. 953 follow.
I don't think it is anything different than exists under the general
securities laws today, 10 (b) (5) and elsewhere.
Senator S T E V E N S O N . We are not sure that that analogy to the securities law holds up. I am not sure that violations of the law are required
to be disclosed there. And in fact the Export Administration Act
protects any individuals who do disclose violations of the law from
prosecution. That might very well be the effect of any mandated disclosure such as you have suggested, immunity for those who disclose
their own illegal acts.
The question I am trying to raise with you is whether we aren't faced
with a choice between disclosure and the prohibitions which you have
supported.
I f you have further thoughts on this or do further legal research on
that general proposition, it would be very helpful.
319
Mr. E I S E N B E R G . I think we would like to submit perhaps a memorandum on that to the committee. I think the securities law fraud
analogy does hold up and I think perhaps we can, hopefully, persuade
you that that is so.
Senator S T E V E N S O N . I would hope so, too.
Mr. B R O D Y . I would make two additional comments. I think you
referred to section 7(b) of the Export Administration Act, which says
no person shall be excused from complying with any requirements
under this section because of his privilege against self-incrimination,
but the immunity provisions of the Compulsory Testimony Act shall
apply with respect to any individual who claims such privilege.
I f Congress were to enact the kind of legislation which I think is
called for, a mandatory ban on complying wTith the boycott, we would
not have the problem.
Senator S T E V E N S O N . N O W I want to come to that alternative. I t is
possibly an alternative to disclosure. You said, Mr. Eisenberg, that
this boycott was irrational, that is how you characterized it. Economic
boycotts are routine in international politics. The United States is a
party right now to economic boycotts. Every country that has the
power to enforce a boycott against its adversary does so routinely. The
United States is a party to at least one boycott as a result of international law.
Now we can't prohibit compliance with economic boycotts in one
case without doing so in all cases.
I don't know whether Israel attempts to enforce boycotts against any
of its adversaries or what the relationship is in that respect between
North and South Korea, for example. But I can certainly conceive of
circumstances in which nations in the future will, as the Arabs have in
this case, enforce boycotts against their adversaries.
One such possible circumstance was mentioned yesterday, Turkey.
What i f Turkey seeks to impose a boycott against Greece ? The effect
is to give U.S. companies a choice of doing business in Turkey or in
Greece.
Your proposal in such circumstances would say you can't do business in Turkey. And the result then is a counterboycott, a boycott
against Turkey.
Now what I am getting at is shouldn't we really try, because of
circumstances which now exist to try to identify the kinds of boycotts
that are most repugnant to U.S. policy and principle and not attempt
the impossible; namely, action against boycotts which are not only
consistent with our own principles, but are in fact being imposed by
the United States right now ?
One such ^orm of boycott is the boycott which forces a U.S. company
to discriminate against another U.S. company for either religious or
political reasons. I don't know whether you were all here yesterday,
but Mr. Brody will remember one of the cases I cited, the bus company
case. This case may already violate U.S. law depending on the antitrust
questions that we were raising earlier. That, it seems to me, is the kind
of a boycott that is clearly repugnant, clearly a form of discriminatory
commercial behavior that could be dealt with under the laws of the
United States, i f it isn't already dealt with.
I don't know i f i t is true. The. allegation is that General Motors
had to terminate a contract with its supplier of bus seats because that
supplier was on the blacklist.
320
Isn't that really the kind of behavior that we ought to be trying
to identify and to prohibit ?
I am not ruling out disclosure. But I am trying to suggest there
may be a choice between disclosure and prohibition, except in certain
cases, such as the one I just mentioned, where it seems to me we probably could effectively prohibit the compliance with the boycott request.
That is a long question and it may be a bit unclear, but I invite
comments on that dissertation.
Mr. EISENBERG. Mr. Chairman, I think i t is a thoughtful comment
and I think I would agree with most of it. I don't really think that
the legislation that is before the committee departs from that very
much, because the legislation here does not say that an Arab government can't boycott Israel or even an American company that deals
with Israel, that the individual Arab governments can do what they
want, they can pass their laws and enforce their laws in their countries.
What this says is that they cannot coerce or pressure or procure compliance by an American company to cut out other American companies,
which is I think what you were talking about.
Senator STEVENSON. Doesn't it really say that i f the Arab nations
'boycott Israel, you have to boycott Egypt, you have to boycott the
Arab States ? Isn't that really the effect of i t ?
Mr. EISENBERG. I don't think so, Senator. I think that what we are
saying, and I think what the amendment to the Williams bill says—
that is what we are really talking about because the other things are
disclosure provisions, really.
But where you talk about the boycott, you are saying the effect in
the United States and I think you are quite correct when you say that
is what we ought to get at.
I t is when companies under pressure to obtain compliance with the
boycott get together and pressure other American companies and say
i f you do business with Israel or with Jewish related businesses or
companies, then we are not going to give you business. A company
cannot join with others to exclude someone from a market, they cannot say to an American company thou shalt not get from supplier X
what he would normally supply to you, or you shall not do other business with Israel.
Senator STEVENSON. They are saying i f you do business with us,
you can't do business with Israel.
The effect is to force a choice.
Mr. BRODY. Mr. Chairman, there is a difference between what we
in the United States do when we restrict trade with Cuba and China,
for example, and what the Arab countries are doing.
The Arab countries are free to tell their nationals not to do business with Israel, and tell their nationals not to do business with companies anywhere around the world which may do business with Israel.
That is all we do, we tell our U.S. citizens you can't do business with
Cuba or China. And I think Senator Williams put this very aptly in
1965 in connection with his S. 948, when he said:
N o r do w e ask the k i n d of question w h i c h the A r a b boycott office seeks t o
e l i c i t f r o m A m e r i c a n businessmen a n d w h i c h the J a v i t s - W i l l i a m s b i l l w o u l d
forbid.
Now we had an experience in both Argentina and in Canada within
the last few years where we, in keeping with our policy of no trade
321
with Cuba, tried to compel subsidiaries, Canadian and Argentine
subsidiaries of American corporations not to do business with Cuba.
And we were forced to back down when Canada said to use that by
our telling a Canadian subsidiary of an American corporation not
to do business with Cuba we were infringing Canada's sovereignty. I
think that same argument holds equally true with respect to the Arab
countries, Arab businessmen coming into the United States and telling
American firms, which are not even subsidiaries of the Arab companies not to do business with Israel.
Mr. E I S E N B E R G . And an Arab company, I do not think, could say
to an American company don't hire blacks or don't hire Jews. That
would be an invasion of their policy. They have the privilege of not
giving them that business, but they cannot require as a condition of
giving a contract that kind of thing which offends our public policy.
I say neither can they do this. I would agree with your basic general statement which introduced this line of questioning, that essentially they cannot force American companies to do things which
violate our public policy.
Senator S T E V E N S O N . I n the United States that's true, but they can,
they certainly do, say that as a condition of doing business in their
countries they cannot do business with Israel.
M r . EISENBERG. Y e s .
Senator S T E V E N S O N . That is different from putting economic pressure on a U.S. company to say you cannot do business in the United
States with another U.S. company. That latter case it seems to me
is much more repugnant, more clearly violative of our principles and
a greater invasion of our sovereignty than the other case.
Mr. E I S E N B E R G . Clearly more blatant, yes. But there is a point where
cases have held, where you can't get together outside of the United
States through subsidiaries and do things outside, which you could not
do inside.
So there is a boundary beyond which this philosophy goes. I n order
to be effective, where you have some extraterritorial reach.
Senator S T E V E N S O N . There is no question that the U.S. exercises
extraterritorial control over its corporations, including their foreign
subsidiaries, in the Cuban situation.
I think you have covered most of the questions that we had. You
anticipated most of them in your testimony.
I think you mentioned, Mr. Eisenberg, the Department of Commerce took the position that it had the authority under the Export
Administration Act now to prohibit compliance with boycott requests, an authority which they conceded had never been exercised.
But it does exist.
Another witness indicated that the administration did not have
any such authority and didn't want it.
I f you are doing a little legal research for us, you might include that
question.
Under the Export Administration Act, with which I am very
familiar, the President does have some verv general authority to carry
out the foreign policy of obiectives of the United States through export
controls. I offhand am hard put to recall anv clear-cut authority under
that law for prohibiting participation in bovcotts with the possible
exception of controls on exports.
322
Of course participation takes many forms, and I am not sure that
even i f that limited authority exists, what the sanctions would be.
But anyway that is something you might want to give some further
thought to and we would welcome some further advice on it.
I have passed over the forms which the boycott takes, because we
have a pretty strong record on that. But i f you have additional evidence of U.S. companies who discriminate against other U.S. companies in the United States, for either religious or political purposes,
that evidence would be of value to us.
Do you have anything you would like to add on that now ?
Mr. F I N G E R . I think some of the documents I have offered this
morning indicate there is discrimination perhaps not against a specifically identified firm, but against a whole class of firms and that would
be the approximately 1,800 firms who are on the boycott blacklist.
I n other words by not doing business with them, by not getting
their supplies from them, in order to carry out the business venture
with the Arab country those firms are being injured.
Senator S T E V E N S O N . I f you have specific instances in which U . S .
companies have been forced to cut off, for example, U.S. suppliers, in
order to do business in an Arab State, it would help us to build the
record for the kind of legislation that you support.
Do you have any such evidence ?
Mr. F I N G E R . I will review what we have on that and turn it over to
the committee.
Senator S T E V E N S O N . Either religious or political.
Mr. E I S E N B E R G . Some of this material has already been made public,
some has not. I think we will not only review what we have, but we are
in the process of looking into material that has been filed with the SEC
in terms of material contracts, which may afford us new material in
this connection.
We will certainly make that available to the subcommittee at the
earliest possible time.
Senator S T E V E N S O N . Thank you very much, gentlemen. We will keep
the record open for that.
The next witness is Mr. Joseph W. Leimert, National Association of
Manufacturers.
STATEMENT OP JOSEPH W. LEIMERT, CHAIRMAN, TASK PORCE
ON INTERNATIONAL FINANCIAL APPAIRS, NATIONAL ASSOCIATION OP MANUFACTURERS, ACCOMPANIED BY JOHN KLINE,
DIRECTOR OP INTERNATIONAL PROGRAM DEVELOPMENT, AND
JOHN PINCH, ASSISTANT GENERAL COUNSEL OP INTERNATIONAL APPAIRS
Mr. L E I M E R T . I f it is satisfactory, Senator, I have prepared a summary of the testimony and I would like to read that.
Senator S T E V E N S O N . The f u l l statement will be entered into the
record.
Mr. L E I M E R T . Thank you.
I have with me John Kline, director of International Program Development for the National Association of Manufacturers. On my left, Mr.
John Finch, assistant general counsel of International Affairs for
NAM.
323
I am Joseph Leimert, vice president, special operations and services,
of CPC International, Inc. Today, though, I am testifying on behalf of
the National Association of Manufacturers as chairman of an N A M
Task Force on International Financial Affairs.
We very much appreciate this opportunity to appear before this
subcommittee to comment on proposed regulation of foreign investment in the United States. Our comments will be largely confined to
three of the bills under consideration by your subcommittee, S. 425,
S. 1303, and S. 995, bills which would alter current regulations and
reporting requirements affecting investment inflow to this country.
I n view of the important role new investment plays in the vital process of capital formation and economic expansion, N A M has a strong
interest in these and related bills presently before the Congress.
The National Association of Manufacturers firmly supports the
principle of the freest possible flow of international investment, consistent with national economic and security interests. This traditional
U.S. policy has helped American business to compete in and serve
foreign markets, and has been important in promoting the overall
process of capital formation and economic expansion.
Historically, foreign investment in the United States has contributed to the development of this Nation's economy. Even before World
War I , foreign equity holdings in U.S. business exceeded $1.3 billion.
Today many foreign-owned producers are welcome and respected corporate citizens of this country, who add to this Nation's productive
capacity, and employ hundreds of thousands of American workers.
Public concern over foreign investment in the United States arose
initially about 3 years ago and was rekindled in 1974 by the possibility
of massive investments in the United States by oil-producing nations.
I n some quarters the fear has been expressed that growing foreign investment may threaten the sovereignty or economic structure of the
United States.
N A M believes these fears have been misguided and highly exaggerated. Such concerns are often based on overstatements as to the
actual extent of foreign investment in the United States and the accumulation of oil revenue abroad available for foreign investment.
Statistics for 1974 indicate that less than $1 billion has actually
been invested in U.S. private long-term investments by OPEC countries, mainly portfolio investments. I t is ironic that those investment
figures are so low, compared to earlier estimates, at a time when the
U.S. economy is facing a serious capital shortage. I n most cases, investments from abroad are encouraged by domestic concerns, and many
States and municipalities actively seek foreign investors. This attitude
stems from a clear recognition of numerous benefits which arise from
new investment including: increased competition, a wider selection
of goods for consumers, and more jobs for American workers.
I n our view, the crucial economic benefit which stems from new
investment is capital formation. The U.S. economy presently needs
new sources of capital in order to stimulate production and achieve
job-creating, noninflationary growth. Statistics released by the Treasury Department show that the United States devotes the lowest proportion of real national output to invesment of all major industrialized
countries. This shortage of capital must be viewed in the context of
the international economic changes which have been emerging since
324
the late 1960's. The key factor from the U.S. perspective is that this
country is now fully tied into a highly interdependent international
economic system.
Low and falling rates of investment must be reversed to lead us out
of the current recession and to increase employment. For these sound
economic reasons, N A M believes it would be unwise to impose or even
to appear to impose restrictions and disincentives on investments from
abroad. Legislation which has this effect would foster uncertainty
among foreign investors. Uncertainty itself would be an effective
barrier to investment. I t would also expose U.S. economic interests
abroad to a potentially harsher nivestment climate where they may
face new governmental restrictions brought on by a trend toward
retaliatory economic nationalism, especially during this uncertain
economic period.
I t is, therefore, the policy of the N A M to support the traditionally
unrestricted flow of capital into the United States, consistent with
essential considerations such as national security. N A M recognizes the
need for proper safeguards to assure that foreign investment in the
United States is not contrary to the national interest. Monitoring and
regulatory devices, i f necessary, should not create unneeded inhibitions
on foreign capital inflows. This type of fair and equitable treatment
of foreign investment in the United States should also encourage renewed efforts to secure similar treatment of American investment
abroad.
Based on the general policy position outlined above, N A M presents
the following brief comments on three bills under consideration by
this subcommittee.
S. 425—Foreign Investment Disclosure Act of 1975.
N A M regards proposals contained in this legislation as unnecessary.
As indicated above, large increases in the level of foreign investment
in the United States have not occurred as predicted, and N A M believes
there has been no proven need for new reporting requirements proposed in this bill.
Additionally, we believe it is important to distinguish (1) the
gathering of new information to determine the extent and trends of
foreign investment in this country from (2) the type of information
called for in this bill, which would be obtained on a prior notification.
The latter carries with it the injection of government into proposed business transactions during the process of negotiation and
could be viewed as the first step toward greater control. This type of
prior notification requirement with its screening mechanism should
carry clear burden of proof as to its necessity in order to justify increased federal involvement in private economic decisionmaking. We
do not believe that this burden of proof has been satisfied in this
case.
Further, bill provisions dealing with the granting of authority to
the President to prohibit foreign investment in the United States
are either duplicative or unnecessary.
Administration witnesses have testified in opposition to this additional grant of authority, stating that they feel there is clearly sufficient power to deal with conceivable difficulties in this area.
On the subject of disclosure of beneficial ownership of securities,
we would note only two considerations. First, this matter is apparently
325
under consideration by the Securities and Exchange Commission and
the SEC may possess sufficient rulemaking authority to make any
necessary improvements on beneficial ownership disclosure. There are
reports that the SEC may publish such suggested changes, perhaps
as early as next month.
While we are certainly not in a position to either endorse or object
to changes which are not yet published, we would in general prefer
that changes be made through currently existing authority wherever
possible.
Second, the N A M strongly supports the nondiscriminatory principle of "national treatment" and we believe that any new disclosure
requirements should apply to both U.S. and foreign investors. Therefore, any legislation on disclosure of beneficial ownership should be
considered separately from legislation on foreign investment in the
United States.
We will make only brief comments upon the proposed amendment
concerning new legislative steps to counter boycott action, which will
also explain why we must decline to comment upon another bill, S.
953, which would amend the Export Administration Act of 1969.
First, there is no official N A M policy on this issue. Second, in general terms, it would appear that international economic boycotts are
normally the result of an underlying political conflict. We therefore
believe that congressional consideration of a proper response to this
boycott issue may be dealt with better in separate hearings and should
not be tied to decisions on regulation of foreign investment in this
country.
S. 1303—Foreign Investment Disclosure Act of 1975.
We believe the need to create a complete new monitoring agency has
not been demonstrated. Nor is the need apparent for new reporting
requirements as proposed in this bill.
I n addition, N A M believes recent actions initiated by the administration, as outlined in Executive Order 11858, issued on May 7, 1975,
represent a constructive response to concerns raised by the sponsors
of S. 1303 and other members of Congress.
Administration efforts to secure the cooperation of major potential
foreign investors by assuring consultations prior to large investments
also provide a concrete response to these issues.
S. 995—Foreign Government Investment Control Act of 1975.
N A M believes that provisions of S. 995, i f enacted, may act as disincentives to beneficial capital inflows into the United States. While
recognizing the concern that may arise at the prospect of investments
in this country by foreign government agencies, N A M feels it should
be recognized that certain potential foreign investors operate within
different economic systems where international economic transactions
of all kinds are carried out directly by the state government or its
agents.
A related concern is that of definition. Legislation like that proposed
in S. 995 requires clear distinctions between Government and private
sector investors, which are in practice quite difficult to determine. The
process of applving these distinctions would involve complex political
problems which would likely complicate legitimate economic transactions.
326
I t is our conclusion that present reporting requirements, regulations
and laws which govern the process of foreign investment in the United
States are adequate.
Passage of new legislation in this area would create uncertainty on
the part of foreign investors and thereby discourage the investment
inflow from abroad that could help to meet the primary need of capital formation in this country. Resolution of the domestic capital
shortage problem is the key to creating new jobs and achieving sustained, noninflationary economic growth. Unnecessary actions that
would tend to exclude new capital sources could prove detrimental to
the national interest.
We recommend, accordingly, that the measures proposed i n pending
legislation before this subcommittee not be adopted. First, because
there is no clear need for such actions. Second, because adoption of
the proposed measures would create uncertainty in the minds of foreign
investors at a time when we need foreign investment.
I n closing, I would like to make a short additional comment. While
we have suggested that no new legislation should be passed that would
increase restrictions on foreign investment in the United States, we
believe that this decision not to act can and should be turned into
positive initiatives, both to encourage needed investment into this
country, and to press for greater multilateral agreement on free capital
flows.
The maintenance of traditional U.S. positions in support of free
capital movement and the "national treatment" principle should encourage renewed efforts to secure similar treatment of American investment abroad.
The U.S. Government should take a positive step forward by
strongly urging renewed implementation of principles contained in
bilateral treaties or multilateral agreements, such as the OECD Code
on Liberalization of Capital Movements.
A t the very least, the reassertion of these principles should reinforce the U.S. position in current OECD deliberations on agreements
concerning "national treatment" for foreign enterprises.
That concludes my remarks, Mr. Chairman. I thank you and am
willing to answer any questions you may have.
[The complete statement and an additional letter follow:]
TESTIMONY
OF T H E
NATIONAL
ASSOCIATION
OF
MANUFACTURED
M r . C h a i r m a n and members of the Subcommittee, I am Joseph Leimert, Vice
President, Special Operations and Services, of OPC I n t e r n a t i o n a l , Inc. I a m
t e s t i f y i n g today on behalf of the N a t i o n a l Association of Manufacturers as Chairm a n of an N A M Task Force on I n t e r n a t i o n a l F i n a n c i a l Affairs. The N a t i o n a l
Association of Manufacturers ( N A M ) is a v o l u n t a r y , non-profit association of
over 13,000 American companies, large and small, located i n every state and
representing the producers of over seventy-five percent of our nation's manuf a c t u r e d output. I n addition, N A M ' s membership employs approximately fifteen
m i l l i o n people. We appreciate this opportunity to appear before this Subcommittee to comment on proposed regulation o f foreign investment i n the U.S.
Our comments w i l l be largely confined to three of the bills under consideration
by your Subcommittee, S. 425, S. 1303 and S. 995, bills w h i c h would alter
current regulations and reporting requirements affecting investment inflow to
t h i s country. I n v i e w of the i m p o r t a n t role new investment plays i n the v i t a l
process of capital f o r m a t i o n and economic expansion, N A M has a strong interest
i n these and related bills presently before the Congress.
327
Recognizing the g r o w i n g public concern over increased foreign investment i n
the U.S., the N A M last year supported i n the Senate a bill, S. 2840, w h i c h called
f o r a f u l l study of foreign investment i n this country. I n October, 1974, this
b i l l became l a w : The Foreign Investment Study Act of 1974 (P.L. 93-479).
This A c t mandated the study of current investment levels—both portfolio and
direct—which is now being conducted j o i n t l y by the Departments of Treasury
and Commerce. N A M regards this information-gathering effort as a constructive
step t o w a r d developing sound i n f o r m a t i o n on w h i c h to base policy decisions
related to foreign investment inflows.
Since this study was initiated, N A M has also been examining some of the
policy aspects related to foreign investment i n the U.S. The I n t e r n a t i o n a l Financial A f f a i r s Task Force considered this m a t t e r and suggested N A M should adopt
new policy language to address this issue. A t N A M ' s Spring Conference i n A p r i l ,
the I n t e r n a t i o n a l Economic A f f a i r s Committee heard representatives f r o m the
Congress, the A d m i n i s t r a t i o n , the business sector and the academic community
present different viewpoints on the topic. The Committee then d r a f t e d new policy
language, which was passed by NAM's B o a r d of Directors i n May, 1975. F r o m
the studied examination w h i c h accompanied these activities, N A M has d r a w n
three m a j o r conclusions:
1. U n i t e d States' interests would appear to be best served by a continuation
of t r a d i t i o n a l policy i n favor of largely unrestricted i n t e r n a t i o n a l investment
flows. We believe this evaluation to hold t r u e under any set of economic circumstances, and especially i n the context of the current economic situation—recession accompanied by persistent inflationary pressures.
2. Statistics indicate t h a t predicted large and sudden increases i n the inflow
of capital f r o m abroad have not occurred, and are not l i k e l y to occur. Thus,
increased regulation of incoming foreign investments does not appear warranted.
3. Recent A d m i n i s t r a t i o n actions aimed at improving policy f o r m u l a t i o n on foreign investment i n the U.S. have taken into account most of the recommendations
contained i n legislation pending before the Congress, and should result i n
better analyses of available i n f o r m a t i o n which can be reviewed by government
policymakers.
P O S I T I O N OF T H E N A M O N FOREIGN I N V E S T M E N T I N T H E U N I T E D S T A T E S
The National Association of Manufacturers firmly supports the principle of the
freest possible flow of i n t e r n a t i o n a l investment, consistent w i t h national economic
and security interests. This t r a d i t i o n a l U.S. policy has helped American business
to compete i n and serve foreign markets, and has been i m p o r t a n t i n promoting
the overall process of capital f o r m a t i o n and economic expansion.
Historically, foreign investment i n the U.S. has contributed to the development
of this nation's economy. Foreign p o r t f o l i o investment was a key factor i n the
development of America's r a i l r o a d system when this country was i n d u s t r i a l i z i n g
and expanding westward. Even before W o r l d W a r I , foreign equity holdings
i n U.S. business exceeded $1.3 billion. Today many foreign-owned producers are
welcome and respected corporate citizens of this country, who add to this
nation's productive capacity and employ hundreds of thousands of American
workers.
Public concern over foreign investment i n the U.S. is a relatively recent development. This concern arose i n i t i a l l y about three years ago and was rekindled i n
1974 by the possibility of massive investments i n the U.S. by oil-producing nations,
where large financial reserves have accumulated as a result of quadrupled oil
prices. I n some quarters the fear has been expressed t h a t growing foreign investment may threaten the sovereignty o r economic structure of the United States.
N A M believes these fears have been misguided and highly exaggerated. Such
concerns are often based on overstatements as to the actual extent of foreign investment i n the U.S., and the accumulation of oil revenue abroad available for
foreign investment. Government statistics indicate direct foreign investment i n
this country represents only sixteen percent of American direct investment holdings abroad: at the end of 1973, long-term investments held by the U.S. private
sector i n foreign countries totaled $132 b i l l i o n ($107 b i l l i o n i n direct investment and $25 b i l l i o n i n p o r t f o l i o ) ; a t the same time, long-term foreign investment i n the U.S. private sector totaled only $55 b i l l i o n ($18 b i l l i o n i n direct
investment and $37 b i l l i o n i n p o r t f o l i o ) . I n addition, the prospect of a massive
influx of investment f r o m A r a b oil producers had failed to materialize. A year
ago, predictions were made t h a t oil-producing nations would have as much as
328
$60 b i l l i o n available f o r investment i n 1974. Statistics f o r 1974 indicate t h a t less
t h a n $1 b i l l i o n has actually been invested i n the U.S., m a i n l y i n p o r t f o l i o investments. I t is ironic t h a t those investment figures are so low, compared to earlier
estimates, at a time when the U.S. economy is f a c i n g a serious capital shortage.
I n most cases, investments f r o m abroad are encouraged by domestic concerns, and
many states and municipalities actively see v foreign investors. T h i s a t t i t u d e
stems f r o m a clear recognition of numerous benefits which arise f r o m new investment, i n c l u d i n g : increased competition, a w i d e r selection of goods f o r consumers,
and more jobs f o r American workers.
I n our view, the crucial economic benefit w h i c h stems f r o m new investment is
capital formation. The U.S. economy presently needs new sources of c a p i t a l i n
order to stimulate production and achieve job-creating, non-inflationary g r o w t h .
Statistics released by the Treasury Department show t h a t the U.S. devotes the
lowest proportion of real n a t i o n a l output to investment of a l l m a j o r i n d u s t r i a l ized countries. This shortage of capital must be viewed i n the context of the int e r n a t i o n a l economic changes w h i c h have been emerging since the late 1960's.
The key factor f r o m the U.S. perspective is t h a t t h i s country is now f u l l y t i e d i n t o
a h i g h l y interdependent i n t e r n a t i o n a l economic system. L o w and f a l l i n g rates
of investment must be reversed to lead us out of the current recession and to
increase employment. For these sound economic reasons, N A M believes i t w o u l d
be unwise to impose or even to appear to impose restrictions and disincentives
on investments f r o m abroad. Legislation w h i c h has this effect w o u l d foster
uncertainty among foreign investors. U n c e r t a i n t y itself w o u l d be an effective
b a r r i e r to investment. I t w o u l d also expose U.S. economic interests abroad to a
potentially harsher investment climate where they may face new governmental
restrictions brought on by a t r e n d t o w a r d r e t a l i a t o r y economic nationalism, especially d u r i n g this uncertain economic period.
I t is, therefore, the policy of the N A M to support the t r a d i t i o n a l l y unrestricted
flow of capital i n t o the U n i t e d States, consistent w i t h essential considerations
such as n a t i o n a l security. N A M recognizes the need f o r proper safeguards to assure t h a t foreign investment i n the U.S. is not contrary to the n a t u r a l interest.
M o n i t o r i n g and regulatory devices, i f necessary, should not create unneeded inhibitions on foreign capital inflows. T h i s type of f a i r and equitable treatment o f
foreign investment i n the U.S. should also encourage renewed efforts to secure
s i m i l a r treatment of American investment abroad.
NAM
POSITION ON B I L L S UNDER
CONSIDERATION
Based on the general policy position outlined above, N A M presents the f o l l o w i n g b r i e f comments on three bills under consideration by this Subcommittee.
S. If25 (Foreign Investment Disclosure Act of 1975)
The b i l l w o u l d amend the Securities Exchange A c t of 1934 i n the f o l l o w i n g
m a n n e r : (1) foreign investors must give 80 days notice before purchasing 5
percent or more of the shares i n U.S. companies; (2) the President shall be
able to p r o h i b i t such acquisitions as appropriate f o r n a t i o n a l security, to
f u r t h e r foreign policy, or to protect the domestic economy of the U.S.; and
(3) issuers of registered securities must file w i t h the Securities and Exchange Commission the names and nationalities of the beneficial owners of
t h e i r securities.
N A M regards proposals contained i n this legislation as unnecessary. As i n d i cated above, large increases i n the level o f foreign investment i n the U.S. have
not occurred as predicted, and N A M believes there has been no proven need f o r
new reporting requirements proposed i n this bill. Congress should r e f r a i n f r o m
enacting such measures unless the more detailed i n f o r m a t i o n on the n a t u r e a n d
extent of current investment i n the U.S., ascertained f r o m the government study
presently i n progress, reveals the need f o r such action. A d d i t i o n a l l y , we believe
i t is i m p o r t a n t to distinguish (1) the gathering of new i n f o r m a t i o n to determine
the extent and trends of foreign investment i n this country f r o m (2) the type of
i n f o r m a t i o n called f o r i n this b i l l , w h i c h w o u l d be obtained on a p r i o r notificat i o n basis. The l a t t e r carries w i t h i t the injection of government i n t o proposed
business transactions d u r i n g the process o f negotiation and could be viewed as
the first step t o w a r d greater control. T h i s type of p r i o r notification requirement
w i t h its screening mechanism should c a r r y a clear burden of proof as to i t s necessity i n oder to j u s t i f y increased federal involvement i n p r i v a t e economic decisionmaking. W e do not believe t h a t this burden of proof has been satisfied i n this case.
329
B i l l provisions d e a l i n g w i t h t h e g r a n t i n g of a u t h o r i t y t o t h e President t o
g r a n t of a u t h o r i t y , s t a t i n g t h a t they feel t h e r e is c l e a r l y sufficient p o w e r t o deal
States, t o f u r t h e r t h e f o r e i g n policy of t h e U n i t e d States, o r t o protect t h e
domestic economy of the U n i t e d States" are also e i t h e r d u p l i c a t i v e or unnecessary. A d m i n i s t r a t i o n withnesses have testified i n opposition t o t h i s a d d i t i o n a l
g r a n t of a u t h o r i t y , s t a t i n g t h a t they feel t h e r e is clearly sufficient p o w e r t o deal
w i t h conceivable difficulties i n t h i s area. T h e passage by Congress of new legislation, even i f i t d i d n o t h i n g m o r e t h a n t o r e a f f i r m the same powers already available to the President, w o u l d i n practice create u n c e r t a i n t y i n t h e m i n d s o f
f o r e i g n investors a n d leave a n undesirable appearance of movement a w a y f r o m
t h i s nation's t r a d i t i o n a l l y open door t o investment.
On the subject of disclosure of beneficial o w n e r s h i p of securities, we w o u l d
note only t o considerations. F i r s t , t h i s m a t t e r is a p p a r e n t l y under consideration
by the Securities a n d Exchange Commission a n d the SEC m a y possess sufficient
r u l e - m a k i n g a u t h o r i t y t o m a k e any necessary i m p r o v e m e n t s on beneficial ownership disclosure. T h e r e are reports t h a t the SEC m a y p u b l i s h such suggested
changes, perhaps as e a r l y as n e x t month. W h i l e we are c e r t a i n l y not i n a posit i o n to e i t h e r endorse or object to changes w h i c h a r e n o t y e t published, w e
w o u l d i n general p r e f e r t h a t changes be made t h r o u g h c u r r e n t l y e x i s t i n g aut h o r i t y w h e r e v e r possible. T h i s consideration a g a i n p e r t a i n s t o the p a r c t i c a l
effect on t h e perceived investment c l i m a t e should new l e g i s l a t i o n be passed
a d d i n g seemingly a d d i t i o n a l r e p o r t i n g requirements o n f o r e i g n investment i n
the U.S. Second, t h e N A M s t r o n g l y supports t h e n o n - d i s c r i m i n a t o r y p r i n c i p l e of
" n a t i o n a l t r e a t m e n t " a n d we believe t h a t any new disclosure requirements should
apply t o b o t h U.S. a n d f o r e i g n investors. Therefore, any l e g i s l a t i o n on disclosure
of beneficial o w n e r s h i p should be considered separately f r o m l e g i s l a t i o n on
f o r e i g n i n v e s t m e n t i n t h e U.S.
A n a d d i t i o n a l amendment t o S. 425 has been proposed t h a t w o u l d absolutely
p l o h i b i t any f o r e i g n i n v e s t o r who h a d engaged i n an i n t e r n a t i o n a l economic
boycott f r o m a c q u i r i n g a n i n t e r e s t o f more t h a n 5 percent i n any U.S. company.
I n a d d i t i o n , i f any f o r e i g n i n v e s t o r w h o h a d p r e v i o u s l y purchased a n interest
of more t h a n 5 percent i n a U.S. company caused t h a t company t o p a r t i c i p a t e i n
such a boycott, h i s v o t i n g r i g h t s could be f r o z e n a n d his i n t e r e s t i n the U.S.
company sold.
W e w i l l m a k e only b r i e f comments upon t h e proposed amendment concerning
new l e g i s l a t i v e steps to counter boycott action, w h i c h w i l l also e x p l a i n w h y we
m u s t decline to comment upon a n o t h e r b i l l , S. 953, w h i c h w o u l d amend the
E x p o r t A d m i n i s t r a t i o n A c t of 1969. F i r s t , t h e r e is no official N A M policy on t h i s
issue. Second, i n general terms, i t w o u l d appear t h a t i n t e r n a t i o n a l economic
boycotts are n o r m a l l y the r e s u l t of a n u n d e r l y i n g p o l i t i c a l conflict. W e therefore
believe t h a t congressional consideration of a proper response to this boycott
issue m a y be dealt w i t h better i n separate hearings a n d should not be t i e d to
decisions o n r e g u l a t i o n of f o r e i g n investment i n t h i s c o u n t r y .
8 . 1 3 0 3 ( F o r e i g n I n v e s t m e n t D i s c l o s u r e A c t of 1 9 7 5 )
T h e m a i n provisions of t h i s b i l l w o u l d establish a F o r e i g n I n v e s t m e n t
A d m i n i s t r a t i o n i n t h e D e p a r t m e n t of Commerce t o m o n i t o r f o r e i g n investm e n t a f t e r i t is made a n d t o issue q u a r t e r l y a n d a n n u a l reports on such
investment. Types of investments t h a t w o u l d be reported include five percent o r more of the shares of p u b l i c l y t r a d e d companies; ten percent or
more o f t h e t o t a l shares of c e r t a i n non-public companies; real estate w o r t h
more t h a n $50,000 a n d more t h a n $1 m i l l i o n w o r t h of any issue of U.S.
g o v e r n m e n t securities.
N A M regards proposals contained i n t h i s l e g i s l a t i o n as unnecessary. W e believe the need t o create a complete new m o n i t o r i n g agency has not been demonstrated. N o r is the need a p p a r e n t f o r new r e p o r t i n g requirements as proposed
i n t h i s b i l l . Congress should r e f r a i n f r o m enacting such measures u n t i l more
detailed i n f o r m a t i o n is a v a i l a b l e f r o m the c u r r e n t government study, due i n nn
i n t e r i m r e p o r t t h i s October, w i t h the f u l l studv t o be completed i n A p r i l . 1976.
I n a d d i t i o n , N A M believes recent actions i n i t i a t e d by the A d m i n i s t r a t i o n , as
o u t l i n e d i n E x e c u t i v e O r d e r 11858, issued on M a y 7, 1975. represent a construct i v e response t o concerns raised by t h e sponsors of S. 1030 and other members
of Congress. T h e f o r m a t i o n of a high-level, inter-agency Committee on F o r e i g n
I n v e s t m e n t to m o n i t o r and analyze the i m p a c t of foreisrn c a p i t a l inflows and
p r o v i d e policy guidance addresses the rationales u n d e r l y i n g a number of proposals before Congress w h i c h seek t o create a new m o n i t o r i n g agency. A t the
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same time, i t is u n l i k e l y t h a t t h i s Committee's operations w i l l become t h e t y p e
of "screening m e c h a n i s m " w h i c h could i n p r a c t i c e deter beneficial f o r e i g n investment i n t h e U.S.
U n d e r the same E x e c u t i v e Order, d a t a collection a c t i v i t i e s a l r e a d y i n place
w i l l be modified so as to p e r m i t proper analyses of c a p i t a l i n f l o w s i n t o t h i s
c o u n t r y . I n f o r m a t i o n - g a t h e r i n g efforts w i l l be centralized w i t h i n t h e D e p a r t m e n t
of Commerce, a n d reports of trends a n d developments i n f o r e i g n i n v e s t m e n t
flows w i l l be prepared on a r e g u l a r basis. A d m i n i s t r a t i o n e f f o r t s t o secure t h e
cooperation of m a j o r p o t e n t i a l f o r e i g n investors by a s s u r i n g consultations p r i o r
to l a r g e investments also p r o v i d e a concrete response t o these issues.
S . 995 ( F o r e i g n G o v e r t i m e n t I n v e s t m e n t C o n t r o l A c t of 1 7 9 5 )
T h i s b i l l makes a n e x p l i c i t p o i n t t o d i s t i n g u i s h between p r i v a t e investm e n t a n d i n v e s t m e n t by g o v e r n m e n t a l agencies, a n d seeks to c o n t r o l t h e
g o v e r n m e n t a l investment. I t establishes categories of i n v e s t m e n t w h i c h a r e
t o be t r e a t e d separately :
1. F o r e i g n government purchases i n sensitive sectors ( m e d i a / c o m m u n i c a tions/defense) a r e p r o h i b i t e d .
2. T h e Secretary of Commerce m u s t m a k e a n a t i o n a l i n t e r e s t determinat i o n or approve applications f o r purchases over one percent of the equity
or debt obligations of c o r p o r a t i o n s w i t h $100 m i l l i o n o r more i n assets;
a c q u i s i t i o n or c o n t r o l of companies w i t h $10 m i l l i o n or more i n assets; or
purchase o f $4 m i l l i o n or m o r e i n r e a l estate.
N A M believes t h a t provisions of S. 995, i f enacted, m a y act as disincentives
to beneficial c a p i t a l i n f l o w s i n t o t h e U.S. W h i l e recognizing t h e concern t h a t
m a y arise a t t h e prospect of investments i n t h i s c o u n t r y by f o r e i g n g o v e r n m e n t
agencies, N A M feels i t s h o u l d be recognized t h a t c e r t a i n p o t e n t i a l f o r e i g n invest o r s operate w i t h i n d i f f e r e n t economic systems w h e r e i n t e r n a t i o n a l economic
t r a n s a c t i o n s of a l l k i n d s are c a r r i e d o u t d i r e c t l y by the state government or
i t s agents. A r e l a t e d concern is t h a t of d e f i n i t i o n . L e g i s l a t i o n l i k e t h a t proposed
i n S. 995 requires clear d i s t i n c t i o n s between g o v e r n m e n t a n d p r i v a t e sector
investors, w h i c h are i n p r a c t i c e q u i t e d i f f i c u l t t o determine. T h e process of
a p p l y i n g these d i s t i n c t i o n s w o u l d i n v o l v e complex p o l i t i c a l problems w h i c h
w o u l d l i k e l y complicate l e g i t i m a t e economic transactions.
A s is t h e case w i t h S. 425 a n d S. 1303, N A M m a i n t a i n s t h a t t h e need f o r
r e q u i r e m e n t s proposed i n S. 995 has not been demonstrated, a n d suggests a
f u r t h e r assessment of t h i s aspect of f o r e i g n i n v e s t m e n t m i g h t be made w h e n
the results of t h e T r e a s u r y a n d Commerce D e p a r t m e n t studies a r e available.
CONCLUSIONS
I t is o u r conclusion t h a t present r e p o r t i n g requirements, r e g u l a t i o n s a n d l a w s
w h i c h g o v e r n t h e process of f o r e i g n i n v e s t m e n t i n t h e U.S. are adequate.
Passage of n e w l e g i s l a t i o n i n t h i s area w o u l d create u n c e r t a i n t y on t h e p a r t
of f o r e i g n investors a n d thereby discourage t h e i n v e s t m e n t i n f l o w f r o m a b r o a d
t h a t could help t o meet t h e p r i m a r y need of c a p i t a l f o r m a t i o n i n t h i s c o u n t r y .
R e s o l u t i o n of t h e domestic c a p i t a l shortage p r o b l e m is t h e key t o c r e a t i n g new
jobs a n d a c h i e v i n g sustained, n o n - i n f l a t i o n a r y economic g r o w t h . Unnecessary
actions t h a t w o u l d t e n d to exclude new c a p i t a l sources could p r o v e d e t r i m e n t a l
to t h e n a t i o n a l interest.
W e recommend, accordingly, t h a t t h e measures proposed i n p e n d i n g legislat i o n before t h i s Subcommittee not be adopted. F i r s t , because t h e r e is no clear
need f o r such actions. Second, because a d o p t i o n of t h e proposed measures w o u l d
create u n c e r t a i n t y i n the m i n d s of f o r e i g n investors a t a t i m e w h e n w e need
f o r e i g n investment.
I n closing, I w o u l d l i k e to make a short comment. W h i l e we h a v e suggested
t h a t no new l e g i s l a t i o n should be passed t h a t w o u l d increase r e s t r i c t i o n s on
f o r e i g n i n v e s t m e n t i n the U.S., we believe t h a t t h i s decision n o t t o act can a n d
s h o u l d be t u r n e d i n t o positive i n i t i a t i v e s , b o t h to encourage needed i n v e s t m e n t
i n t o t h i s c o u n t r y , a n d t o press f o r greater m u l t i l a t e r a l agreement o n f r e e c a p i t a l
flows. T h e m a i n t e n a n c e o f t r a d i t i o n a l U.S. positions i n s u p p o r t o f f r e e c a p i t a l
movement a n d t h e " n a t i o n a l t r e a t m e n t " p r i n c i p l e should encourage renewed
efforts to secure s i m i l a r t r e a t m e n t of A m e r i c a n i n v e s t m e n t abroad. T h e U.S.
government s h o u l d p u t a p o s i t i v e f o o t f o r w a r d by s t r o n g l y u r g i n g r e n e w e d
i m p l e m e n t a t i o n of p r i n c i p l e s c o n t a i n e d i n b i l a t e r a l t r e a t i e s or m u l t i l a t e r a l
agreements, such as the O E C D Code on L i b e r a l i z a t i o n of C a p i t a l Movements.
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A t the v e r y least, t h e reassertion of these principles should r e i n f o r c e the U.S.
p o s i t i o n i n c u r r e n t O E C D deliberations on agreements concerning " n a t i o n a l
t r e a t m e n t " f o r f o r e i g n enterprises.
NATIONAL
ASSOCIATION
OF
MANUFACTURERS,
Washington, D.C., July 31,1975.
H o n . A D L A I E . STEVENSON,
Chairman, Subcommittee o n International Finance, Committee o n Banking,
H o u s i n g a n d U r b a n Affairs, U.S. Senate, Washington, D.C.
DEAR MR. CHAIRMAN : T h i s l e t t e r is i n response to y o u r request made d u r i n g
hearings before y o u r subcommittee on J u l y 23, 1975, f o r f u r t h e r advice f r o m
the N a t i o n a l Association of M a n u f a c t u r e r s on the boycott issue.
A s we stated a t t h a t t i m e — a n d advised y o u r staff p r i o r to t h e h e a r i n g s — N A M
has no specific p o l i c y on t h e A r a b boycott a n d is t h u s precluded f r o m commenti n g on legislative proposals d e a l i n g w i t h t h a t specific subject. W e are happy,
however, t o r e p l y t o y o u r request f o r our f u r t h e r views on boycotts i n general.
O u r comments w i l l deal w i t h three aspects of the boycott issue: d i s c r i m i n a t o r y practices, r e s t r i c t i v e t r a d e practices, a n d t h e parties best qualified to resolve
p o l i t i c a l issues u n d e r l y i n g i n t e r n a t i o n a l economic boycotts.
F i r s t , w i t h respect t o d i s c r i m i n a t o r y practices based on r e l i g i o n or ethnic
heritage, N A M supports President F o r d ' s statement on F e b r u a r y 26 t h a t such
practices have " n o place i n t h e free p r a c t i c e of commerce as i t has
flourished
i n t h i s c o u n t r y a n d i n the w o r l d i n the last 30 years." N A M ' s official policy calls
f o r " e q u a l t r e a t m e n t i n the a d m i n i s t r a t i o n of a l l personnel matters, i n c l u d i n g
h i r i n g , advancement, compensation, t r a i n i n g , t r a n s f e r s , layoffs, a n d employee
privileges w i t h o u t r e g a r d f o r race, color, religion, n a t i o n a l o r i g i n , sex or
age. . . " N A M also supports " p o s i t i v e a n d responsible efforts of g o v e r n m e n t "
f o r the i m p l e m e n t a t i o n of these equal o p p o r t u n i t y goals. W e believe t h a t curr e n t U.S. l a w s are adequate to deal w i t h the d i s c r i m i n a t o r y aspects of t h e boycott issue a n d support President F o r d ' s statement on F e b r u a r y 26 t h a t " a n y
allegations of d i s c r i m i n a t i o n w i l l be f u l l y i n v e s t i g a t e d a n d a p p r o p r i a t e action
t a k e n u n d e r t h e l a w s of the U n i t e d States." W e oppose on p r i n c i p l e any a t t e m p t
or action b y a f o r e i g n c o u n t r y or person t o force U.S. citizens or companies to
act i n v i o l a t i o n of U.S. l a w . F i n a l l y , we note t h a t t h i s aspect of the boycott
issue is presently under intense e x a m i n a t i o n by the House J u d i c i a r y Committee,
w h i c h appears t o be a n a p p r o p r i a t e f o r u m ; a n d w h i c h w i l l undoubtedly recommend new l e g i s l a t i o n i f c u r r e n t l a w is f o u n d inadequate.
Second, w i t h respect to the r e s t r i c t i v e t r a d e aspects of i n t e r n a t i o n a l boycotts,
N A M generally opposes any boycotts because they necessarily d i s t o r t t r a d e flow
t h a t w o u l d otherwise be d e t e r m i n e d by free m a r k e t forces. W e do recognize
t h a t considerations such as n a t i o n a l security m a y a t times lead t o boycotts,
i n accordance w i t h n a t i o n a l a n d i n t e r n a t i o n a l l a w . T h e t r a d e embargo imposed
on Cuba by the U n i t e d States a n d the O r g a n i z a t i o n o f A m e r i c a n States is a n
example of such exceptional circumstances. W e enclose f o r y o u r consideration
a statement on t h i s issue s u b m i t t e d by N A M on J u l y 28, 1975, t o Subcommittees
of t h e House I n t e r n a t i o n a l R e l a t i o n s Committee. As a representative of A m e r i can companies, however, the N A M is c e r t a i n l y n o t i n a position of A m e r i c a n
companies, however, the N A M is c e r t a i n l y not i n a p o s i t i o n to comment on the
j u s t i f i c a t i o n f o r boycotts imposed by other nations. T h i s p o s i t i o n does n o t i m p l y
l a c k of concern on o u r p a r t . W e oppose such boycotts because they d i s t o r t
i n t e r n a t i o n a l t r a d e flows, b u t t h e c e n t r a l questions are w h a t can be done to
remove these f o r e i g n imposed d i s t o r t i o n s a n d by w h o m ? These questions necess a r i l y i n v o l v e complex p o l i t i c a l a n d d i p l o m a t i c considerations focusing on the
reasons f o r the f o r e i g n boycott i m p o s i t i o n , a n d h o w best to resolve the underl y i n g p o l i t i c a l disputes w h i c h are n o r m a l l y the m o t i v a t i n g cause.
T h i s question leads us to our t h i r d comment. N A M does not d i s c l a i m t h e
r i g h t to c r i t i c i z e p o l i t i c a l d i s t o r t i o n s of trade. H o w e v e r , we do not feel t h a t
we are i n a p o s i t i o n t o advise the U.S. government on the d i p l o m a t i c actions
w h i c h should be t a k e n to counter a p o l i t i c a l l y - i n s p i r e d f o r e i g n boycott. Indeed,
as p o i n t e d out i n t h e Association's statement on the U.S. embargo of Cuba, we are
not i n a p o s i t i o n t o j u d g e the c u r r e n t a p p r o p r i a t i o n s of U.S. n a t i o n a l securitv
considerations i n e v a l u a t i n g w h e t h e r to l i f t t h a t embargo, or e x a c t l y h o w a n d
w h a t d i p l o m a t i c actions should be t a k e n t o a t t e m p t t o resolve t h i s t r a d e distor-
332
t i o n . W e believe t h a t the r e s o l u t i o n of i n t e r n a t i o n a l economic boycotts can
be accomplished best by d i p l o m a t i c settlement of t h e p o l i t i c a l d i s p u t e t h a t
b r o u g h t about the boycott. R a t h e r t h a n p r e j u d i c e t h e o f t e n delicate d i p l o m a t i c
negotiations seeking an end of t h i s p o l i t i c a l dispute, we feel i t p r o p e r f o r t h e
Association t o r e m a i n silent on t h i s aspect of t h e issue.
W e hope y o u find t h i s responsive to y o u r request.
Sincerely,
J. W .
LEIMERT,
Vice President, G P G International, Inc.,
Chairman, N A M Task Force on
International Finance Affairs.
Senator STEVENSON. Thank you, Mr. Leimert.
A t the beginning of your statement, you referred to the investment
of $1 billion of the OPEC oil surplus in the United States. Doesn't
that understate OPEC's total investment in the United States? Isn't
it in fact closer to $12 billion when investments in Government securities and commercial bank deposits are included ?
Mr. L E I M E R T . I relied on staff for my authority on that remark. I
think the figure given me was $750 million, and this is in private longterm investments, mainly portfolio-type. I don't know; we can examine the $12 billion, but that is counter to any information I have.
Mr. K L I N E . The figure we were drawing from, Mr. Chairman,
came initially from the hearings before the Williams subcommittee,
and I believe were reiterated yesterday by Mr. Parsky. The higher
figure which he cited included all investment; the less than $1 billion
figure we cited is in the private sector in long-term investments, not
on simply deposits in banks.
Senator STEVENSON. Well, my figure is from Mr. Parsky. And I
raise it because I don't understand why you excluded all investments
in Government securities and commercial bank deposits. When included, the United States has received about 20 percent of the total
OPEC investment of about $60 billion.
Mr. L E I M E R T . We are talking here, Senator, about capital formation,
that kind of investment in the United States which perhaps could
influence or seek to control the management or policies of U.S.
companies.
Senator STEVENSON. What are you talking about, control or capita]
formation? Because capital formation is influenced by short- and
long-term deposits?
Mr. L E I M E R T . Sure, but it is indirect and would not have the direct
effect of—if an Arab nation takes out a certificate of deposit of $2
billion or $3 billion in some bank, this does not give it any management
control over any of the activities of American companies.
Senator STEVENSON. Well, it is $12 billion for capital formation.
You reiterated the support of the N A M for as free as possible flow
of goods, services, particularly investment. And I support as free
as possible a flow of investment, too. That is why we are here today
because the flow is not free. We are here because of restrictions which
have been imposed on investment and on trade by other nations.
Now you reiterated your support for the traditional U.S. open door
policy, at least with respect to investment. I support the open door
policy, too. But how does the open door policy of an obsequious
American Government—I don't know how else to characterize our
Government—encourage other governments to eliminate their restrictions on U.S. investment in their nations. I n fact, hasn't the open
333
door policy of this obsequious government been accompanied by growing restrictions on U.S. investment abroad? How does the open door
policy achieve the result which we both are seeking?
Mr. L E I M E R T . Well, we
Senator S T E V E N S O N . Canada was one of the most recent cases, of
course.
Mr. L E I M E R T . I certainly agree with you that this gives us a problem.
A^ain referring to—putting on my other hat for a second—I am an
officer of a major company involved in international business, and we
are currently experiencing and learning to live with some of these
restrictions. So far, we have not found any of them too onerous to
enable us to deal profitably in these countries, because we have found
that by 'being good citizens of those countries and by observing their
rules and regulations as closely as possible, and by providing good
service and products, that we don't have to be too much concerned.
But it is a trend, and that trend is not being matched by the United
States. I would reiterate it would be a mistake in my mind for the
United States to do this, because i f there is any hope at all of our
getting relaxation, for instance, of some of the restrictions against
foreign investment in Japan, I think it will not come by having such
restrictions or the fear of them, the creation of an uncertain feeling
on the part of potential foreign investors that such restrictions might
be imposed; we won't gain anvthing toward the relaxation of those
restrictions in these other countries through that medium. I think we
must keep our open door policy if we are ever going to achieve our
gop Is outside the United States, and just keep patiently trying to do
it, both through governmental and private negotiations.
Senator S T E V E N S O N . Aren't U.S. corporations concerned about pressures to comply with the policy of foreign nations which prevents
them from doin^r business with certain companies, and with certain
countries, and with other U.S. companies?
Mr. L E T M E R T . Yes, sir, I think the corporation w7ould be concerned.
I think our point here is
Senator S T E V E N S O N . That is not the question. Aren't they concerned ?
Mr. L E I M E R T . Yes. sir, T think thev are.
Senator S T E V E N S O N . Y O U are not disputing the existence of the Arab
boycott ?
M r . LEIMERT. NO, sir.
Senator S T E V E N S O N . Aren't thev concerned ?
Mr. L E I M E R T . We are concerned. We have not in our own case found
it any problem. Nor would we submit to such a thing. But I think
the point that we would like to make, the point we are trying to make
this morning is that any action which the Congress or the administration might take with respect to such problems as the boycott should
be taken separately from the issue of foreign investment, so that we
do not create and mix up what are economic matters with what I
believe to be essentially political matters.
Senator S T E V E N S O N . Y O U sav we w^ould not submit to such a thing.
Would vou elaborate on that statement ? Who is "we" ?
Mr. L E I M E R T . I n that case, I was referring to my own company.
Senator S T E V E N S O N . Y O U aren't suggesting that U.S. corporations
do not
58-527 O - 75 - 22
334
Mr. L E I M E R T . NO, sir, I have no direct knowledge of any that have,
but I have heard all of the testimony; I have read it, and I have seen
statements that such things have been done and I assume that is correct.
Senator S T E V E N S O N . Assuming or accepting the fact that it is
happening, and that some companies do accede, and further that
American corporations are concerned, among other things, about lost
economic opportunities, what do they think—or what does N A M think
that the Government of the United States should do? What should
the United States do, if anything ?
Mr. L E I M E R T . I can't speak for the NAM, because as I just said, the
N A M has no policy in that area. I think perhaps this is something that,
i f you would care to address yourself to, you might, but
Senator S T E V E N S O N . Has it been considered by N A M , discussed ?
Mr. L E I M E R T . Has it, John ?
Mr. K L I N E . Mr. Chairman, our general policy would oppose any
distortion on trade flows and, therefore, boycott action. We realize
that under certain circumstances under U.S. law, the boycott actions
are imposed, and we certainly accept the reasons for these for considerations such as national security. We are not in any position to
judge the justification for the imposition of boycotts abroad.
To the extent that boycotts exercised by other countries would distort trade flows, we would also object to these. We have certainly discussed the specific boycott question under consideration by this
committee in formulating this statement, and in the task force groups
which have considered this question. We do not have a policy within
the association that allows us to go beyond the general statements that
we have made and address this very specific boycott issue.
We feel that it is important that the consideration that does take
place on this issue should not be tied directly to the question of foreign investment in the United States, the desirability of it, or any type
of regulations or restrictions that should be placed on it.
Senator S T E V E N S O N . I n formulating the statement, the N A M has
taken no position with respect to the boycott. That is curious.
The boycott does interfere with free flows of investment and trade,
and U.S. companies, which N A M purports to represent, are being hurt.
I don't think that is just Jewish companies, anv corporation which
seeks suppliers, and suppliers which may be Jewish are vulnerable.
I certainly don't detect any burning indignation or concern on the
part of the NAM, about the economic consequences of this boycott for
its own members or for what it portends about the situation in the
world, which you purport to be very concerned about.
Isn't it possible for N A M to take a position on this issue, or doesn't
it regard it as very important ?
Mr. K L I N E . T O the extent it does distort trade, we certainly object
to it, as we do other obstacles which distort trade flows. We believe
this boycott, as with apparently most other economic boycotts, are
based on political reasons. We are not in a position to judge what
steps the U.S. Government should take to counter such boycott action. We would support the removal of this, or any other obstacle
which does distort trade flow.
Senator S T E V E N S O N . I S that the rationale, i f the distortions of the
free market force are politically motivated, why, then, those distortiors are beyond the concern or competence of the NAM? Any po-
335
liitically motivated interference in the marketplace is all right; is that
really what you are saying?
Mr. K L I N E . I t certainly is not beyond our concern, Mr. Chairman.
But it is beyond, I believe, our competence to address the question of
what type of political action should be taken to specifically counter
this boycott action.
Mr. L E I M E R T . I think, sir, that as part of the statement I just read,
we made the following statement which I will repeat, "We therefore
believe that congressional consideration of a proper response to this
boycott issue may be dealt with better in separate hearings and should
not be tied to decisions on regulation of foreign investment * * *." We
think
Senator S T E V E N S O N . I f I might interrupt, we have had separate
hearings, and we have before this committee separate legislation. That
is what S. 958 is all about.
Mr. L E I M E R T . I t is my understanding that the legislation upon
which we are commenting contains provisions which would mix the
regulation on foreign investment and address itself to the boycott issue as well.
Senator S T E V E N S O N . NO, we have S. 425 and S. 953. S. 425 is the
bill that deals with investment, and S. 953 is my bill which deals with
the boycott. Senator Williams has held hearings on his foreign investment bill; we have had hearings in this subcommittee in the past
on foreign investment. That bill has been referred to this committee.
Now we are holding hearings on both, but primarily on 953, the boycott legislation. And all of the witnesses were notified of that fact.
Mr. F I N C H . Mr. Chairman, i f I may, we did discuss this with a
member of your staff and we did indicate before an official invitation
was tendered that we could not comment on the Arab boycott due to a
lack of official policy and it is with that understanding we accepted
the formal invitation.
Senator S T E V E N S O N . Does N A M expect to adopt an official policy
on the boycott? W i l l it take the matter up so we may receive the
benefit of your wisdom on that rather serious situation?
Mr. L E I M E R T . I think I would urge them to do so and that we can
discuss the matter further and we would be delighted to either address
you a memorandum or appear again, i f that would be your pleasure,
to talk about it.
Senator S T E V E N S O N . We would welcome that opportunity.
Mr. L E I M E R T . I just want to, at the risk of being redundant, say that
what we are trying to do here this morning is separate the two things,
that we think that nothing should be done, no further legislation is
needed to control foreign investment, that in fact we ought to be doing
the opposite, we ought to be encouraging all we can get, because we
really need it. Capital formation, the need for capital formation is, in
my view, probably the outstanding economic problem of the day.
And we need it as much as anyone else i f we are to lead this country
into a period of strong noninflationary growth.
So, therefore, we just don't think we ought to do anything that will
discourage that type of investment, and that these other problems such
as the boycott, should be considered in such a way or handled in such
a way as not to have that result.
336
Senator S T E V E N S O N . Well, I think you have made that very clear,
and I am sympathetic to your purpose of trying to attract foreign
investments to the United States and not to support any legislation
which has the effect of discouraging foreign investment in the United
States, though I am not convinced at the present time that monitoring
investment flows in the United States would have that effect.
Mr. L E I M E R T . A potential investor, even though there is no restriction there per se, wonders why do they want to know this? Why do
they ask this? What are the reasons behind it? Could we be led down
the path as has happened in many countries where one thing leads to
another, and the first thing you know you have nationalization of some
industry. I t is this kind of uncertainty which is just death to anybody's decision to invest. I f he is uncertain about it, he is not going to
invest. That, to me, is the key problem.
Senator S T E V E N S O N . Thank you very much, gentlemen. I f you
do have further advice on the boycott issue, we would appreciate
receiving it.
Our final witness is Mr. David T. Devlin, vice president, First National City Bank of New York.
STATEMENT OP DAVID T. DEVLIN, VICE PRESIDENT, PIRST
NATIONAL CITY BANK OP NEW YORK
Mr. D E V L I N . Mr. Chairman, I would like to include my statement
in the record, along with the appendix.
Senator S T E V E N S O N . I t w i l l be entered in the record including the
appendix.
Mr. D E V L I N . I am an economist, and since November 1973 have been
a vice president of First National City Bank in the economics department, concentrating on issues of international finance. Previously I was
in charge of the work on U.S. balance of payments ana multinational
corporations at the Bureau of Economic Analysis in the Department
of Commerce.
I have been asked to testify on the financial problems associated
with OPEC funds. I will focus on two issues: The likely size of the
OPEC capital surplus; and the need for legislative restraints on investment of such funds—and other investments—in the United States
as embodied in S. 425 and S. 995. I will also be glad to answer any
questions on S. 953.
Citibank has recently published an analysis of the OPEC capital
surplus, and I include that analysis as an appendix to this testimony.
The current account surplus of the OPEC countries in 1974, and
thus their accumulation of capital abroad during the year, was about
$65 billion. The current account covers exports and imports of goods
and services, including income on investments, as well as unilateral
transfers or gifts.
The $65 billion included a buildup in trade credits of some $10 billion, reflecting lags in payments to OPEC for oil and by OPEC for
imports. So the money they had to put into world capital was about
$55 billion, according to our estimates.
I n 1975 the OPEC imports are continuing to rise very fast, and
oil receipts have fallen sharply. As a result their surplus this year
should drop to about $35 billion, perhaps slightly more.
337
Most of the resulting improvement in the current accounts of oil
importing countries has been concentrated in the 10 largest industrial
countries, who are in a deep recession and have been the major suppliers
of the consumer and capital goods imports by OPEC. As a consequence,
the OPEC induced deficit in 1975 appears to be concentrating in the
poorer OECD countries and the nonoil LDCs. Their deficit in 1975
could be just as large as it was in 1974.
For the future it is important to emphasize—although many of us
have put together figures on what the OPEC capital accumulation will
be through 1980 or through 1985—that you can do little more than
create scenarios. You want them to be logically consistent, you want
them to be based on economic theory, but they are scenarios, not projections of estimates, because we don't have the knowledge or certainty to
really do something like that.
The uncertainties include how fast the OPEC development plans will
be implemented, and thus how quickly OPEC imports will grow, the
likely demand for OPEC oil and the price of such oil.
We feel that the central scenario we have created is the most plausible sort of outcome, although we also created a high and a low variant
of it in order to give an idea of the magnitude of the variation of the
capital accumulation.
The scenario is based on economic theories, and history. I t is based
on expectations that the current high price of oil will reduce demand
and increase non-OPEC energy supplies; that OPEC imports will continue to rise, although much slower than the 70-percent increase in
1974; and that in the latter 1970's, as tho non-OPEC supplies come on
line, OPEC will have to accept a reduction in the real price of oil in
order to keep a reasonable share of the total market. The more OPEC
prices are raised in the short run, the faster these pressures will come
to bear.
This scenario assumes that the political cohesion of the OPEC cartel
will mostly be maintained, although that is not sure, but that the lower
the demand for their oil, the harder it will be for them to maintain the
cartel price.
Thus in the 1980's, competition may well develop between the members of OPEC, leading to a reduction in the price of OPEC oil. Such
competition has been a problem historically for most cartels. Despite
the benefits to a producing group as a whole which result from restraint
of production in order to maintain high prices, the incentive of individual members to try to increase their share of the total makes negotiation and allocation of shares very difficult, and extensive price cutting usually results, particularly in the longer run as demand adjusts
and alternative supplies can be developed.
On this basis, the most plausible scenario in our view is for current
account surpluses until 1979, with a total buildup of surplus capital
funds by OPEC on the order of $200 billion in 1979 dollars by then.
After that the OPEC current account should go into deficit—some
countries will maintain small surpluses, but they will be offset by the
deficits of others—with a reduction in the accumulated surplus.
This $200 billion is of course a lot of money; but it is clearly trivial
in terms of the size of world financial markets even by today's standards and will be more so in 1979. What looked like a tiger is thus ex-
338
pected to turn into a Cheshire cat, that poses little threat to the stability
of the world financial system.
Some commentators have interpreted this analysis to imply that
nothing need be done by the United States or other consumer governments in response to the OPEC cartel. That is not so. The essence of a
cartel is to hold the price of a commodity above the free market price
and thus get more income from consumers than otherwise; that is to
say, more automobiles, or capital equipment per barrel of oil.
The basic issue is the transfer of income, rather than whether or not
producers spend it, or how large their accumulation of unspent capital
abroad will be.
While the scenario described is largely based on market forces, i t is
clear that the governments of oil-importing countries, such as the
United States, have every incentive to aid the market process by encouraging reductions in demand for oil and increases in alternative
supplies. This would not only increase the downward pressure on the
cartel price of oil, and reduce the magnitude of the OPEC surplus, but
would also reduce the transfer of income from oil consumers to producers implied by the cartel price.
W i t h this view of the OPEC surplus, we do not see the need for precipitate action to discourage investments in the United States by
OPEC or indeed any other foreign investors.
We have a serious belief in free international flows of capital, generally, which benefit both the investor and the recipient. The benefits of such flows of capital, and in the case of direct investment often
accompanied by transfer of managerial expertise and technology, are
similar to the benefits of international trade in goods, where consumers
on both sides benefit. While there are U.S. national interests that deserve special consideration, we believe that present laws and the bodies
charged with the administration of these laws are adequate to protect
these interests.
[The complete statement and appendix follow:]
339
STATEMENT BEFORE
SENATE BANKING SUBCOMMITTEE
ON INTERNATIONAL FINANCE
BY
DAVID T. DEVLIN, V.P.
FIRST NATIONAL CITY BANK
JULY 23, 1975
I am an economist, and since November 1973 have been a Vice President of
F i r s t National City Bank i n the Economics Department, concentrating on issues
of i n t e r n a t i o n a l finance.
Previously, I was i n charge of the work on the U.S.
balance of payments and multinational corporations a t the Bureau of Economic
Analysis i n the Department of Commerce.
I have been asked to t e s t i f y on the f i n a n c i a l problems associated with OPEC
funds.
I w i l l focus on two issues:
The l i k e l y size of the OPEC c a p i t a l surplus;
and the need f o r l e g i s l a t i v e r e s t r a i n t s on investment of such funds (and other
investments) i n the United States as embodied i n S 425 and S 995.
L.
Citibank has recently published an analysis of the OPEC c a p i t a l surplus,
and I include that analysis as an appendix to t h i s testimony.
The current
account surplus of the OPEC countries i n 1974—and thus t h e i r accumulation
of c a p i t a l abroad during the year—was about $65 b i l l i o n .
(The current
account covers exports and imports of goods and services, including income
on investments, as w e l l as u n i l a t e r a l transfers or g i f t s . )
The $65 b i l l i o n
included some $55 b i l l i o n that was investable and a b u i l d up i n trade
credits of some $10 b i l l i o n , r e f l e c t i n g lags i n payments to OPEC for o i l and
by OPEC for imports.
340
I n 1975, OPEC imports are continuing to r i s e and o i l receipts have f a l l e n
sharply.
Their current account surplus should therefore drop to about
$35 b i l l i o n for the year.
Most of the r e s u l t i n g improvement i n the current
accounts of o i l importing countries has been concentrated i n the ten largest
i n d u s t r i a l countries, who are i n a deep recession and have been the major
suppliers of the consumer and c a p i t a l goods imports by OPEC.
As a
consequence, the OPEC induced d e f i c i t i n 1975 appears to be concentrating
i n the poorer OECD countries and the n o n - o i l LDC's.
This implies t h e i r
d e f i c i t w i l l be as large as i n 197A.
I t i s important to emphasize that a l l figures on the OPEC c a p i t a l
accumulation i n l a t e r years are l i t t l e more than scenarios.
The terms
projections or estimates imply more knowledge and c e r t a i n t y than we have.
There are a number of major uncertainties:
how f a s t the OPEC development
plans w i l l be implemented and thus how quickly OPEC imports w i l l grow;
the l i k e l y demand for OPEC o i l ; and the p r i c e of such o i l .
We f e e l that
the c e n t r a l scenario i n our report i s the most plausible outcome.
It
is
based on expectations that the current high p r i c e of o i l w i l l reduce demand
and increase non-OPEC energy supplies; that OPEC imports w i l l continue to
r i s e , although much slower than the 70 percent increase i n 1974; and that
i n the l a t t e r 1970 f s, as the non-OPEC supplies come on l i n e , OPEC w i l l
have to accept a reduction i n the r e a l price of o i l i n order to keep a
reasonable share of the t o t a l market.
The more OPEC prices are raised i n
the short-run, the faster these pressures w i l l come to bear.
This scenario assumes that the p o l i t i c a l cohesion of the Opec c a r t e l w i l l
mostly be maintained (although that i s not s u r e ) , but that the lower the
341
demand f o r
cartel
their
price.
oil,
the harder
it
Thus i n t h e 1 9 8 0 ' s
t h e members o f OPEC, l e a d i n g
will
be f o r
them t o m a i n t a i n
c o m p e t i t i o n may v e i l
to a r e d u c t i o n i n the p r i c e of
Such c o m p e t i t i o n has b e e n a p r o b l e m h i s t o r i c a l l y
Despite
the b e n e f i t s
restraint
of
i n d i v i d u a l members t o
try
and a l l o c a t i o n
to maintain high p r i c e s ,
to i n c r e a s e
of
results,
particularly
and a l t e r n a t i v e
supplies
can be
basis,
surpluses
on t h e o r d e r
should
go i n t o
$200 b i l l i o n
of
the s i z e
1979,
of
with a total
$200 b i l l i o n
deficit
is,
of
with
course,
of w o r l d
oil.
cartels.
from
incentive
total
makes
and e x t e n s i v e
price
r u n as demand
adjusts
by t h e n .
After
a reduction
a lot
in
surplus
that
it
is
a Cheshire Cat,
poses l i t t l e
a tiger
threat
is
current
capital
the accumulatad
o f money,
for
clearly
account
f u n d s by OPEC
t h e OPEC c u r r e n t
f i n a n c i a l m a r k e t s e v e n by t o d a y ' s
that
the
the
i n our view i s
b u i l d up o f
What l o o k e d l i k e
account
surplus.
trivial
While
in
terms
s t a n d a r d s and
will
thus expected to t u r n
to the s t a b i l i t y
of
into
the world
finan-
system.
Some c o m m e n t a t o r s h a v e i n t e r p r e t e d
b e done by t h e U . S .
That
share of
i n the longer
scenario
be more so i n 1 9 7 9 .
cial
OPEC
developed.
t h e most p l a u s i b l e
until
their
shares very d i f f i c u l t
cutting usually
On t h i s
f o r most
between
t o a p r o d u c i n g group as a w h o l e w h i c h r e s u l t
of production i n order
negotiation
develop
the
is
not
so.
or o t h e r
this
governments
The e s s e n c e o f a c a r t e l
analysis
to imply t h a t
i n response
is
nothing
t o t h e OPEC
to hold the p r i c e
need
cartel.
o f a commodity
\
a b o v e t h e f r e e m a r k e t p r i c e and t h u s g e t more income f r o m consumers
otherwise;
of o i l .
that
is
The b a s i c
to
s a y , more a u t o m o b i l e s ,
issue is
the
transfer
of
or c a p i t a l
income,
than
equipment per
rather
barrel
than whether
or
342
n o t t h e p r o d u c e r s spend i t ,
c a p i t a l abroad w i l l
or how l a r g e t h e i r
l a r g e l y based on market f o r c e s ,
t h e governments of o i l i m p o r t i n g c o u n t r i e s ,
every i n c e n t i v e
demand f o r
unspent
be.
While the scenario described i s
that
accumulation of
it
is
such as t h e U . S . ,
have
to a i d t h e m a r k e t p r o c e s s by e n c o u r a g i n g r e d u c t i o n s
o i l and i n c r e a s e s i n a l t e r n a t i v e
supplies.
clear
in
T h i s would n o t
only
i n c r e a s e t h e downward p r e s s u r e on t h e c a r t e l p r i c e o f o i l and r e d u c e
the
m a g n i t u d e of t h e OPEC s u r p l u s , b u t would a l s o r e d u c e t h e t r a n s f e r
income
f r o m o i l consumers t o p r o d u c e r s i m p l i e d by t h e c a r t e l
price.
W i t h t h i s v i e w o f t h e OPEC s u r p l u s , we do n o t see t h e need f o r
precipitate
a c t i o n t o d i s c o u r a g e i n v e s t m e n t s i n t h e U n i t e d S t a t e s by OPEC o r
any o t h e r
foreign investors.
b e n e f i t both the investor
capital—and
Free i n t e r n a t i o n a l
and t h e r e c i p i e n t .
i n t h e case o f d i r e c t
flows of c a p i t a l
generally
The b e n e f i t s o f such f l o w s
similar
to the b e n e f i t s
n a t i o n a l t r a d e i n goods where consumers on b o t h s i d e s b e n e f i t .
that present
indeed
i n v e s t m e n t o f t e n accompanied by
o f m a n a g e r i a l e x p e r t i s e and t e c h n o l o g y — a r e
are U.S. n a t i o n a l i n t e r e s t s
of
transfer
of
While
interthere
t h a t d e s e r v e s p e c i a l c o n s i d e r a t i o n , we b e l i e v e
laws and t h e b o d i e s charged w i t h t h e a d m i n i s t r a t i o n o f
laws a r e a d e q u a t e t o p r o t e c t t h e s e
of
interests.
these
343
VOL. 3
NO. 5
The Opec capital surplus—from tiger into tabby cat
W h e n the O r g a n i z a t i o n of P e t r o l e u m E x p o r t i n g Countries (Opec) q u a d r u p l e d the p r i c e of o i l i n 1973-74, it
t o u c h e d off a c h a i n r e a c t i o n t h a t began w i t h a cosmic
bang b u t has since got less explosive. Stage I triggered f e a r s — s o m e t i m e s b o r d e r i n g on p a n i c — t h a t the
huge increase i n o i l revenues w o u l d be n e i t h e r lent,
spent nor i n v e s t e d i n the c o n s u m i n g countries and
t h a t an e v e r - g r o w i n g Opec surplus w o u l d d i s r u p t fin a n c i a l m a r k e t s and cause an i n t e r n a t i o n a l economic
" c o l l a p s e . " I n Stage II, it was d e m o n s t r a t e d that the
shock c o u l d be borne, t h a t the p r i v a t e f i n a n c i a l m a r kets, w i t h some assistance f r o m g o v e r n m e n t s and the
I n t e r n a t i o n a l M o n e t a r y F u n d , w e r e able to t r a n s f e r
or " r e c y c l e " Opec c a p i t a l to c o u n t r i e s saddled w i t h
large o i l deficits. I n Stage I I I , just beginning, the likel i h o o d is t h a t sooner or later the o n c e - t e r r i f y i n g Opec
c a p i t a l surplus w i l l be eroded b y a g r o w i n g deficit i n
the Opec c u r r e n t account.
T h e reasons f o r a n t i c i p a t i n g such a t u r n a b o u t f o r
O p e c — i t s e n o r m o u s 1974 s u r p l u s o n c u r r e n t account
d w i n d l i n g i n t o a deficit i n 1980—are t w o f o l d :
• Opec's i m p o r t s — p u r c h a s e s of a l l sorts of goods
and services f r o m the rest of the w o r l d — a r e expandi n g m u c h faster t h a n expected.
• Opec's o i l revenues are m u c h l o w e r t h a n h a d
been generally foreseen. W o r l d d e m a n d f o r o i l has
been weakened, n o t o n l y b y the s w i f t r u n u p i n price
b u t also by the deep recessions i n t o w h i c h most countries have fallen.
Together, these t w o d e v e l o p m e n t s suggest that,
sometime i n the years ahead, Opec's c u r r e n t - a c c o u n t
surplus w i l l i n d e e d be replaced b y a deficit. T h e t i m i n g and d i m e n s i o n s of the t u r n a r o u n d c o u l d be more
or less as suggested i n the table b e l o w . But other
scenarios are possible, too.
T h e outcome w i l l d e p e n d on the e v o l u t i o n of
The rise and fall of the Opec surplus—the central scenario
1974
1973
Oil production, millions of bbl./day
Price per bbl.—current dollars
1975 dollars
Exports of goods and services
Oil exports
Dividends, interest and other
Imports of goods and services
Transfers
Current account
Accumulated capital holdings abroad*
31
$ 3.40
30
11.40
$139 billion in holding's for end-1976.
26
11.30
11.30
1976
27
11.80
11.20
1977
28
11.20
10.20
1978
29
10.70
9.20
1979
30
9.90
8.10
1980
31
9.10
7.10
1985
32
9.10
5.60
45
135
121
134
137
141
142
142
183
38
7
—37
—2
6
126
9
—65
—4
66
66
107
14
—79
—6
36
102
116
18
—92
—5
37
139
114
23
--105
—3
30
169
113
28
—118
—3
19
188
108
34
—131
—3
8
196
103
39
-146
—3
—7
189
107
76
—216
—2
—35
30
t
f Less than $1 billion. All figures are rounded
, so totals may not ado
• Accumulated capital holdings
1975
etich yearend are obtained by adding the currenit-account sur.}lus lor thi»t year U> th«
3 capital holdings of thi
I result "is
Prepared by Citibank's Economics Department for customers of First National City Bank and Citicorp.
344
Opec's current account, which i n turn w i l l depend
mainly on future trends in Opec's revenues and imports. The credit side of a country's current account
is essentially the sum of its exports of goods and services, including net returns on foreign investment. The
debit side reflects its imports of goods and services,
and its gifts or "transfers" to other countries. In any
given year, a surplus on current account indicates
that the country's net claims against the rest of the
world—and hence its capital wealth abroad—have increased for the year. Conversely, a current-account
deficit means that such claims have diminished. Consequently, if Opec runs a current-account deficit in
1980, its store of capital wealth w i l l be less at the end
of 1980 than at the end of 1979.
Current-account analysis is based on accounting
concepts that may require some clarification (box,
page 4). I n particular, last year produced a discrepancy between Opec's current account and its investable surpluses, due to sudden surges in the value both
of its exports and imports. But so large a discrepancy
is not likely to recur. That's why the current account
provides the most solid basis for delving into the
future of Opec's capital hoard.
This approach confronts hard problems in their
most acute form. Indeed, it forces the analyst into a
tight corner where more questions are raised than can
be answered w i t h certitude.
One burning question is how the future demand for
Opec oil w i l l respond to the current high price or to
changes in price. A preliminary answer is that responsiveness, or price elasticity, over the long run
w i l l hinge on a complex set of factors. They include
the impact of high prices on consumption, the growth
of non-Opec oil supplies, the degree to which coal is
substituted for oil, and the speed and efficiency w i t h
which nuclear-energy supplies can be expanded.
2/MI
Then there are the more strictly political questions,
such as the scope of Opec's economic'development
programs and the cohesiveness of the cartel, w h i c h
are even more difficult to answer. Nonetheless, i t is
possible to construct scenarios based on what are
now reasonable assumptions about the factors that
w i l l determine Opec's surpluses.
Four scenarios are offered here; and four corresponding curves—showing the growth path of accumulated Opec surpluses for each scenario—are
sketched i n the chart opposite. The central scenario,
w i t h peak accumulation occurring in 1979, is deemed
the most plausible. The high-afccumulation scenario
moves to a much higher peak i n 1981, as the chart
indicates. A low-accumulation scenario peaks out
sooner, i n 1977. A n d finally, a fourth scenario envisages the possibility that the cartel might break apart.
Figures for the central scenario are provided i n two
tables, on pages 1 and 3.
Oil revenues: The top two lines of the table on page
1 give year-by-year estimates for Opec oil production
and for the price per barrel. These two lines establish
the framework for the central scenario; they exemplify
its basic assumptions.
First of all, it's assumed that the cartel w i l l hold
firmly together through 1985. Secondly, the scenario
starts w i t h the fact that Opec's output was cut
sharply this year to maintain prices in the face of
recession-weakened demand. But it's assumed that
Opec production w i l l increase next year as the w o r l d
economy recovers, and that it w i l l continue to rise
gradually in the years ahead.
This year's cutback was deep—from a high point
of 32 millions of barrels per day (mbd) in June 1974 to
25 mbd last March-April. A l l the same, oil inventories
bulged and little storage space was left. Some Opec
members shaded their prices a bit to maintain output,'
but on average the real price of crude gave very little
ground; and as demand picks up over the next few
months and into 1976, the movement of the price is far
from certain.
However, from 1977 onward, the exploration efforts
launched this year w i l l begin to pay off i n non-Opec
oil, so that Opec w i l l be forced to keep a tight rein
on its own output to prevent a sharp fall in prices.
Later still, other forms of energy w i l l become available in greater volume, while the flow of non-Opec
oil keeps rising. A t that stage, Opec members w i l l
probably step up their production i n an effort to rebuild their dwindling share of the market—an effort
that is unlikely to succeed i n the long run. By 1985,
this combination of events could lower the real price
—expressed in constant 1975 dollars—to an equilibrium level, perhaps $5-6 per barrel.
But a real price at $5-6 would mean that, in 1985,
a barrel of Opec oil would be worth little more than
half as much as in 1975, in terms of the real bundle
of goods and services for which it could be exchanged. Assuming a 5% average annual rate of infla-
345
tion "for the intervening period, the 1985 price per
barrel is estimated at $9.10 i n current dollars.
' Imports: Estimates of imports in the table on page
1 are influenced heavily by what is known about the
cartel's plans to raise living standards through heavy
capital investments. A n d it is i n this respect that the
position of Opec's members, especially those in the
Middle East, is unique. They are committing themselves to long-term capital projects—petrochemical
complexes, gas-gathering systems, desalination facilities and the like—all carrying price tags that run in
the billions of dollars. W o r k on such projects cannot
be halted before completion without incurring hefty
losses and undermining widespread expectations of a
better life.
This suggests that, as revenues grow more slowly
than expected and imports grow more rapidly, the
capital surplus accumulated by Opec w i l l reach a
peak, and then decline. The central scenario puts the
peak at about $196 billion in 1979.
The diversity within Opec
The table below shows how each of the Opec members fares as the central scenario unfolds. As early as
1976, at least five of them—Libya, Indonesia, Algeria,
Iran and Ecuador—find no surplus or even a growing
deficit in their current accounts. From then on, imports into these five continue to rise, but at a slower
rate as they run down their previous accumulations
of capital. After these accumulations are used up, it's
assumed that these countries w i l l keep running moderate deficits and that they w i l l borrow to finance
them. But eventually there w i l l be a limit to borrowing, and imports w i l l be greatly reduced.
By 1977-78, the significant surpluses in the currentaccount balances of Iraq, Venezuela and A b u Dhabi
are also likely to disappear. A n d after 1980, the central
scenario provides that all the Opec countries, except
perhaps Qatar, w i l l have current-account deficits,
financed either by running down accumulated assets
or by borrowing.
But events may take a different course from the one
traced by the central scenario. I n particular, a good
deal of uncertainty surrounds demand for Opec oil
through 1985—which is why it is necessary to present a high-accumulation scenario.
In this scenario, the key assumption is that demand
w i l l remain high in 1975—and that it w i l l grow faster
from then on than was suggested by the central scenario. This rapid rise in demand could reflect sluggish
consumer response to high prices, a slow growth of
non-Opec supplies, or both. The higher the demand,
the easier it w i l l be for Opec to maintain high prices.
Therefore, the high-accumulation scenario assumes
that prices in real terms w i l l decline very slowly. In
1985, the price per barrel might be $15 in current dollars—or $9 in 1975 dollars, again assuming an annual
5% rate of inflation. If w o r l d inflation were to return
to double-digit rates, the 1985 price could be much
higher—especially if Opec prefers present to future
income and decides to raise its price.
But higher revenues might encourage most Opec
states simply to buy more imports. As a result, it's
assumed that, in most Opec countries, the surpluses
w i l l pile up no faster in the high-accumulation scenario
than in the central scenario. However, three countries
spell the difference. They are Saudi Arabia, Kuwait
and Qatar—where the present constraint on imports is
an unwillingness to spend, not a lack of spendable
revenue. As surpluses in these three countries grow
very rapidly, the total Opec surplus peaks at about
$300 billion in 1981, rather than $196 billion in 1969.
A n d w i t h a return to rapid inflation, the high-accumulation peak could be even higher.
But there's a third possibility: Overall demand could
be lower than in the central scenario. In the lowaccumulation scenario, it is assumed that the demand
for Opec oil drops to 25 mbd in 1975, rises temporarily
How the oil states will share the wealth—the central scenario
net assets abroad in billions of dollars
1973
1974
1975
1976
1977
Nigeria
Libya
Indonesia
Algeria
Ecuador
Abu Dhabi
Qatar
5.2
3.5
—4.6
1.1
0.6
—0.6
2.3
—5.1
—2.6
—0.3
0.3
0.5
24.2
10.9
11.0
5.0
8.4
4.2
4.0
—3.4
—2.8
—0.1
2.3
2.5
38.8
17.4
12.0
7.8
14.4
9.0
4.0
—3.0
—5.9
0.2
2.9
4.2
54.6
24.7
13.0
10.3
19.3
14.1
3.7
—3.3
—7.7
0.5
4.2
6.1
69.1
31.7
12.0
11.3
23.0
18.6
2.8
—3.6
—9.1
0.6
4.5
8.1
Total Opec
0.5
66.5
102.3
139.5
169.0
Saudi Arabia
Kuwait
Iran
Iraq
Venezuela
*
1978
197®
1980
1985
81.0
38.0
9.0
11.2
24.7
22.3
2.3
—4.2
—10.7
0.5
4.6
9.8
88.8
43.3
4.0
9.4
24.0
24.7
2.1
—5.1
—11.1
0.5
4.4
11.4
90.4
47.1
—1.1
6.3
20.1
25.4
1.4
—5.8
—11.9
0.3
3.7
12.8
15.8
24.8
—3.8
—3.2
—2.5
3.1
—1.1
—4.3
—13.1
—0.9
0.4
14.9
188.5
196.2
188.7
30.3
Red indicates peak accumulations of net assets abroad.
Ml/3
346
i n 1976-77 as the w o r l d economy revives, then falls to
£0' mbd in 1980 as non-Opec supplies expand rapidly,
and only recovers to 27 mbd in 1985 after sharp cuts in
Opec prices. Prices i n 1985 are assumed to be $4.50
per barrel in 1975 dollars and $7 i n 1985 dollars.
Under these circumstances, Opec's big spenders
would have to cut imports faster than i n the central
scenario because the revenue constraint would come
into play sooner. Opec's accumulation of assets w o u l d
peak at $130 million in 1977, and the reduction in the
Opec: the red and the black
I n the public press, the swift buildup of Opec's
capital wealth is rarely presented in current-account terms. Most estimates of Opec surpluses
focus solely on oil revenues.
But this isolates one segment of w o r l d trade—
oil—and only part of that, from other international transactions. Furthermore, oil revenues are
counted when payments are actually made, not
when the oil is shipped. A l l this makes it difficult
to compare Opec's balance of payments w i t h the
uniform estimates that the International Monetary Fund prepares for all member countries.
Under unusual circumstances, the current-account approach can cause some confusion about
the size of the investable surplus. In 1974, the
total value of Opec exports was $135 billion, of
which oil accounted for $126 billion. Out of this
$126 billion, some $16 billion accrued to private
foreign-owned oil companies. So i n terms of the
current account, this $16 billion was an outflow—
and was included i n the total of Opec's imports.
When imports and transfers were deducted from
total exports last year, there was a $66 billion surplus in Opec's current account.
But because of lags, both on the receipts and
payments side of the ledger, the $66 billion overstated what Opec actually could spend, lend or
invest abroad in 1974. For example, some $19 billion of the $110 billion due to governments wasn't
really going to be paid until 1975, so actual government oil revenues i n 1974 came to about $91
billion. Partially offsetting this was Opec's delay
i n paying for its mighty surge of imports. Perhaps
as much as $7 billion of the $35 billion worth of
imports was not paid for until 1975. So it seems
that Opec's actual investable surplus .was $54 billion in 1974—because 66 —19 + 7 = 54.
A gap of $12 billion between Opec's currentaccount surplus and its investable surplus is a
freak occurrence. Last year was an extraordinary
year for Opec, w i t h extraordinary surges both in
exports and imports. Because it won't happen
again, current-account analysis is a good way of
looking into Opec's future.
4/MI
surplus from the central scenario would be concentrated in the high-surplus countries.
But there's a problem common to all these scenarios
—they assume that, in the future, each Opec member's
share of total Opec revenue w i l l not change significantly from the present or recent past. However, most
cartels break up over the issue of revenue sharing.
Suppose that some Opec members—that have the
ability to increase their output—decide their shares
are inadequate to finance their development plans.
They may seek to build up their shares at the expense
of their fellow cartelists.
I n that event, a "cartel breakdown" scenario could
occur. It would run like this: A n Opec member in need
of more revenue would shade its price to increase its
share of the pie substantially. As its share expanded,
the shares of other Opec members would decrease—
and they could respond by shading their prices. Thereupon the first pricecutter would find its share shrinking back to its original size. Since short-run demand
for oil is fairly inelastic, total revenue would be reduced by the price shading; each member of the cartel
would be worse off. If the original pricecutter tried
once again to increase his share, the other Opec members again w i l l retaliate. The result would be a downward spiraling of the oil price u n t i l i t reached a freemarket level of perhaps $5-6 per barrel i n 1975 dollars.
The price umbrella
But what is the likelihood that the Opec cartel w i l l
fall apart? So far, Saudi Arabia, A b u Dhabi, Libya and
Algeria have been willing to accept major reductions
i n their revenue shares. Of those four, only Saudi
Arabia is in a position where further cuts i n production w o u l d not reduce its oil revenues below what i t
expects to spend for imports i n the near-term future.
However, it is the existence of countries that need
not spend all of their revenues that distinguishes the
Opec cartel from other cartels. As long as Saudi Arabia
and a few others hold up the price umbrella by cutting
production, there is little chance that competition for
shares w i l l cause a sharp fall in price.
Over the longer haul, in the late 1970s and early
1980s, growing non-Opec supplies of energy w i l l
diminish the demand for Opec oil, and the receipts of
countries now enjoying huge surpluses may fall closer
to the level of their spending on imports. If that happens, they w i l l no longer be w i l l i n g to maintain the
price by accepting outsized cuts i n production. Then
Opec would suffer the fate of other cartels.
This possibility should not be lightly dismissed.
While the central scenario now appears the most
plausible, the alternatives—especially a cartel breakdown—cannot be ruled out. However, there is a simpler and more solid conclusion to be drawn. It is that,
whichever scenario unfolds, the accumulated Opec
surpluses w i l l shrink. What first seemed to be a ferocious tiger i n 1,973-74 has since been declawed—and is
now turning injo a Cheshire Cat.
347
Senator S T E V E N S O N . Thank you, Mr. Devlin. Your central scenario
is an optimistic one, and I am glad to have it. I wish I could feel quite
as optimistic as you do, having argued for almost 2 years now with
economists and others about the ability of OPEC to decrease production as opposed to price, only to be proved right so far.
I approach all of the scenarios of economists with some continued
scepticism. Also as chairman of another subcommittee, the Oil and
Gas Production Subcommittee of the Senate, I have some familarity
with wordwide production not just of oil, but of alternative sources,
including other fossil fuels, natural gas, and I guess I just can't be—
well, to begin with, quite as optimistic as you are about reducing demand for oil, partly because of the lag time on the alternative sources,
partly because some sources are rapidly depleting, like natural gas,
unless we reduce the demand, just reduce industrial activity and have
a recession or depression, and that is clearly not the way to do it.
M r . DEVLIN. NO, sir.
Senator S T E V E N S O N . I suppose you have tried to project demand, and
your conclusions are more optimistic than most of ours, and on the
supply side, too.
That has been part of the continuing argument. The economists, the
Secretary of the Treasury and all others say well, you just wait, the
high price of oil is going to produce a lot of new oil; it will come out
of the China Sea, i t will come out of the jungles of the Amazon; we
will all get washed away with it. But it just hasn't happened.
Where are these non-OPEC producers that you have identified? Is
North Sea Production ?
Mr. D E V L I N . I think there have been lists around
Senator S T E V E N S O N . Of future non-OPEC production, additional
non-OPEC supplies?
Mr. D E V L I N . S O far what has happened is the worldwide recession
has sharply cut industrial activity due to consumers not buying things,
and that is part of the drop in the demand for oil since last year.
We have run some regressions associating world demand for oil,
with world economic growth. And from these equations wTe have become convinced that the magnitude of the drop w7e have seen in production so far—the consumption numbers are very soft—suggests that the
fall is more than could be explained by the magnitude of the world
recession. That is what you would expect.
You expect part of the reduction in demand due to the high price
to happen the first year, after the high prices are instituted. But there
are adjustments that take a longer time on the demand side. For instance, you pay attention for the first time to insulation in buildings,
because it is expensive not to. I t is these kinds of factors that will affect demand in the long run.
Now the alternative supplies, I suppose there is a standard list of
them, the North Sea
Senator S T E V E N S O N . This is short-term demand ?
Mr, D E V T . I N . I am really focusing th's analysis on the latter part
of the 1970s when non-OPEC supplies come on strongly. I don't
expect anything this year or next. As you know production in the
United States is actually declining. I think something could be done
about that. A higher price for oil would lead to more production.
348
Senator S T E V E N S O N . Have you taken into consideration, for example,
depleted natural gas supplies in the United States, and the need for
alternatives ?
Mr. D E V L I N . I n respect to the natural gas supplies, i t strikes me
that the price has been held down very low and that has encouraged a
number of people to use natural gas who would not have used it i f i t
were at the market price, and that low price has encouraged a great
deal of people not to look for any more.
Senator S T E V E N S O N . My point is, as the price goes up, and as natural
gas simply runs out they will be encouraged to use oil. Every time the
Geodetic Survey comes up with another report, we have lost another
third of our oil and gas resources.
Mr. D E V L I N . I saw that report, yes.
Senator S T E V E N S O N . The energy has to come from somewhere, at
least we hope so. And most of the alternatives are pretty far distant,
including the technologies for conversion of coal.
Mr. D E V L I N . I would not expect in the kind of scenario that I am
talking about, to depend on any of the more exotic supplies, such as
nuclear fuels, liquified coal, those kinds of things. I really expect this
to happen through increased supplies of oil and coal. An enormous
increase i n the use of coal in the United States is possible, saving a
great deal of oil, despite the fact that the price of coal has gone up i n
sympathy with oil.
I might also say, parenthetically, that I have more or less been
involved in the matter of energy since 4 or 5 years ago when I was
here in Washington. And it struck me both here, and in New York,
that there was a division between the energy economists and financial
economists, such as myself. And the financial types tend to say, well,
i f the price changes, you will have shifts in demand and supply; and
the energy people tend to say, well, the price has never shifted, and
even if it did, there would not be any change in demand or supply.
The facts will prove it one way or another.
Senator S T E V E N S O N . Y O U were going to say something about the
supply side, the n o n - O P E C future sources of oil and I think I interrupted you.
Mr. D E V L I N . I did not have anything new in mind. The conventional
list indicates the North Sea, the North Slope, Mexico, and offshore
areas of the United States. And we will probably discover oil in all
sorts of new places that we had not even thought of, because the
monetary incentive for looking for it is so strong now.
I think it is the small wildcat drillers that tend to be the most enthusiastic and believe this.
Senator S T E V E N S O N . Getting back to the investment of the OPEC
surplus, most of that investment in the United States is short term,
isn't it, bank deposits, and so on, and i f so, what are the banks doing
to protect themselves against investment shifts ? Do you want to elaborate on that subject ?
Mr. D E V L I N . Yes. The money that came into the United States last
year was around $11 billion; something like half of that was in bank
deposits and commercial paper, the other half in U.S. Government and
agency securities, and a trivial amount in private long term investments, real estate, and the stock market.
349
No individual bank has to accept a deposit i f it feels it would in
any sense adversely affect its liquidity structure, and none of the big
banks do it. So what happens i f they do not want deposits ? A l l they
have to do is shave their quotas a little bit, and the deposits go
elsewhere.
There was a great deal of worry about this last summer when short
term interest rates were very high. But what actually happened is
when the big banks did not want the money, it spilled over to the
smaller banks. When short term interest rates came down from the
very high levels they had reached, largely because of inflation, the
funds shifted into the longer term maturities.
One would expect this trend to continue. I might also mention that
i f you have a big deposit and for some reason or other the depositor
takes it out of your bank and puts it someplace else, the total amount
of funds available has not changed. To replace the deposit you lost,
you might go through one or two intermediaries and get the same
amount back.
Money is very fungible in the markets. I think it is very easy to
exaggerate the possibility that any particular bank could come under
great pressures because of some arbitrary switching around of OPEC
deposits, even i f OPEC wanted to do it.
Generally our experience has been they don't want to. That is a
way to lose money. I am speaking not only of switching within national money markets, but also switching between money markets,
thus affecting exchange rates for currencies. There have been some
marginal movements of OPEC funds affecting exchange rates, say
more flows into German marks or Swiss francs than there used to be.
But it is surprising how little of that shifting there is. Of course, a
good deal of the funds will be concentrated in Saudi Arabia and
Kuwait who we believe are very conservative investors, based on our
extensive discussions with them.
Senator S T E V E N S O N . Well, I know a little bit about what it is like
to be an Arab sheik because I once had about a billion dollars to invest
in banks, when I served as a State treasurer in Illinois, and I discovered in that role that I had a certain amount of influence with the
banks and developed some new investment policies which influenced
the lending activities of the banks, the effort being to funnel these
funds into activities that benefit the public.
I mention that experience because of the Arab boycott. And because
it suggests to me that depositors of some billions of dollars potentially
have at least some influence over the activities of U.S. banks.
What is the effect of the boycott on U.S. banks and isn't a bank like
First National City, which acts as a depository for Arab states, under
a great deal of pressure or at least capable of being put under a great
deal of pressure to comply with boycott requests lest it lose deposits.
Is First National City a depository of funds from OPEC or Arab
boy cotters ?
Mr. D E V L I N . Absolutely. When the original flows started we were
often cited as one of the 10 banks to which the funds would go, because
they knew about us, and they didn't know about most banks.
The problem here is partly on the OPEC side, too. They got an
enormous amount of money,'quite suddenly, and it took them some
time to gear up procedures to handle it, and to some extent they very
5 8 - 5 2 7 O - 75 - 23
350
much needed the big banks to give them advice and make sure the
flows kept moving.
I mean you wouldn't want a billion dollars sitting around not paying interest for weeks. So they had to go to the big banks initially.
And I might say that given the relative size of the money and capital markets in the United States and in the Eurodollar market, which
is really an extension of the U.S. money market, OPEC really can't
put its surplus funds very many other places because the other national money and capital markets are so small, it is very hard for them
to absorb large amounts.
So I am saying the dependence is not just one way, it is really a mutual thing. And certainly whenever you enter into a business deal with
anybody, banks, nonbanks, what have you, there is always a certain
interaction. But i t is up to the management of each of the organizations to decide what they are willing to deal about and what they are
not willing to deal about, how far they will go to get certain things
done and how far they won't go. And I should say Citibank is diversified all around the world. Although there is a big source of funds in
the Middle East, we have many other markets as well.
I can probably also say something as to how we think about the
boycott. I t is not really clear to us what should be done about it.
There are three different kinds of boycotts. The first is the primary
one by the Arabs who do not want to buy Israeli goods. And the second is that they don't want to deal with firms, in the United States
and elsewhere, who give major support to Israel. Now just what major
support is very hard to define. You can't find rules which would explain why all of the people on the boycott list are there and why others
are not there. I t is hard to come to a consistent definition of what the
criterion is.
According to statements of the boycotters they are not interested in
preventing firms from doing normal trading with Israel, and I might
say normal banking with Israel. We have a number of correspondent
relations with bankers in Israel, and it is good business.
The third kind of boycott is pressure that would lead to a U.S. firm
discriminating against another U.S. firm or an individual on the basis
of race, color, or creed.
I should say first that all of these types of boycotts, as far as
Citibank can see, don't make any economic or moral sense. On principle, we are one of the firmest supporters of free markets. We believe
in it and we take that view with the U.S. Government or any other
government we talk to.
I n respect to this third kind of boycott, it is even more serious than
the other two. The kind of boycott, where you discriminate on the
basis of race, color or creed, is intolerable, and to the extent i t is not
illegal, it clearly should be.
I might say that a company or country simply can't allow that sort
of thing to occur.
Now as to the second kind of boycott, where to some extent firms
are faced with the choice of either dealing with Israel or dealing with
certain Arab countries, it is very hard to decide what to do about it.
I looked at S. 953, and as far as I can see it says that the President
would have power, presumably if he wished to use i t — I wasn't sure
about that—to slow down or cut back exports to, or investments in
351
countries which discriminate against a country with which we have
friendly relations.
My first question, is all right, what would that do ? What would be
the total result of doing that ?
To the extent the President used that power, and he cut off exports
to or investments in a number of Arab countries, I guess our conclusion is it wouldn't really do much good. The Europeans and Japanese would move in with their exports, and with their investments.
I don't believe Israel would be helped much, because I don't think
they have been hurt much by the boycott. I t has been a nuisance,
but serious economic damage has not resulted. I n addition to that,
during a temporary period while our exports were disrupted, a lot
of workers in the United States would have to make some painful
adjustments.
I n addition, there is a foreign policy argument one can make. That
is, to the extent we are trying to be a peacemaker, a reconciler in the
Mideast, a cutoff of exports and investment would clearly hurt that
effort.
Of course the clear way to get the boycott stopped is to get
what we want for other reasons, and that is peace.
Senator S T E V E N S O N . Has Citibank been requested to comply with
the boycott ?
Mr. D E V L I N . N O ; not to my knowledge. I talked to the responsible
people in the bank and I didn't find that to be the case.
Senator S T E V E N S O N . D O you know about the experience of other
banks ?
Mr. D E V L I N . Not very much. I mean I have read the papers, certainly,
as to what happened in London, where some banks were reported
under pressure, and some so-called Jewish banks were kept out of
or there was an attempt to keep them out of some syndications.
I should say that Citibank, as comanager, has been involved in syn
dications in which there were both Arab banks and some of these socalled Jewish banks. So we have all been together.
Senator S T E V E N S O N . Does Citibank have branches in Arab states?
Mr. D E V L I N . Yes; we have had a branch in Saudia Arabia for 1 0
years, and also have branches in a number of other Arab countries.
Senator S T E V E N S O N . D O you have a branch in Israel ?
Mr. D E V L I N . N O ; we do not have a branch in Israel. I should say we
don't have branches in a number of other countries, also, including
Sweden and some Arab countries, for instance.
We think that branch banking in Israel would not make us enough
money. On the other hand, we do have fairly extensive credit relations
with the commercial banks operating in Israel, and normal commercial
transactions take place.
Senator S T E V E N S O N . D O other banks have branches in both Israel and
Arab states ?
Mr. D E V L I N . My impression—and I am not an expert on it—is that
there are probably no more than one or two American banks in Israel
and they don't have branches in Arab countries. One of those I think is
quite small. Another is part of a consortium of some sort.
I don't think any of the major New York banks have branches in
Israel, although as far as I know they have the same commercial relations with the banks there that we do.
352
Senator S T E V E N S O N . Y O U don't know of any pressure received by
your bank or others to discriminate against, or not do business with
U.S. firms because they are Jewish or because they have associations
with Israel ?
Mr. D E V L I N . I have no knowledge of any case, and I did ask around.
Senator S T E V E N S O N . There is an allegation that American banks
routinely require boycott compliance forms from steamship lines as
one of the documents to be submitted before honorary letters of credit
are given.
Are you familiar with that allegation ?
Mr. D E V L I N . Yes. City Bank acts as an intermediary between say a
U.S. exporter and a bank in say Saudi Arabia who is paying for the
imports from that U.S. exporter. As part of the documentation, a statement from the U.S. exporter is required that the ship on which he is
shipping the goods w i l l not stop in Israel before it stops in say Saudia
Arabia, or wherever it is going. We process these letters of credit, and
I must say we process them in almost a factory like atmosphere, and i f
that is part of the condition on which the payment is made, then we
honor it.
There is also a certification as to the origin of the goods and this is
customary in all foreign trade, I should say, and there is nothing special required by Arab States in respect to that.
Senator S T E V E N S O N . We have a form of such a document, I believe, and it reads as follows:
To Whom I t May Concern:
To attest that the above captioned vessel is not owned by Israel or an Israeli
citizen, and to the t>est of our knowledge does not appear on the blacklist of
the Office of Boycott of Israel deposited with the diplomatic and consular missions of Arab countries abroad. Further, this vessel will not call at any Israeli
port.
Mr. D E V L I N . I have seen different versions of this. I have seen separately the first part of the one you mentioned. I hadn't seen one where
all of that was in there. There are a number of varieties; each country
evidently has its own.
We feel what we do is certainly legal under existing laws, and we
don't feel very much involved. We are just an intermediary between
the exporter and the bank abroad that is paying him; we just process
the stuff for them.
Senator S T E V E N S O N . We have a rollcall in process now, so I think
rather than pursue the colloquy further, though i t has been very helpful, we will adjourn. Thank you.
We will keep the record open for 2 weeks for any additional testimony or comments that anybody would like to submit. Thank you,
Mr. Devlin.
We are adjourned.
[Thereupon, at 12:30 p.m., the hearing was concluded.]
[The following statements and data were ordered inserted in the
record at this point:]
353
United States Council of the International Chamber of Commerce Inc
1212 Avenue oj the Americas Netr York NY 10036 ju 2-4850
T h e U n i t e d S t a t e s C o u n c i l of t h e I n t e r n a t i o n a l C h a m b e r of
Commerce
a g r e e s w i t h m u c h of S e n a t o r I n o u y e ' s s t a t e m e n t of M a r c h 21st w h e n
he i n t r o d u c e d S . 1 3 0 3 .
It is only w i t h some diffidence that w e t a k e
i s s u e w i t h his c o n c l u s i o n s and put t h e C o u n c i l on r e c o r d as opposing
S. 1303.
T h e C o u n c i l c o u l d not h a v e w i s h e d a b e t t e r s t a t e m e n t o n t h e
n e e d f o r a n d c o n t r i b u t i o n of f o r e i g n c a p i t a l t o t h e e c o n o m y o f t h e U n i t e d
S t a t e s o r o n t h e i m p a c t t h a t f o r e i g n i n v e s t m e n t h e r e has h a d h e r e t o f o r e .
A l s o w e a g r e e f u l l y t h a t i t is u n d e s i r a b l e t o a l l o w a n t i - A r a b
sentiments
t o p y r a m i d i n t o a f u l l - s c a l e a t t a c k o n t h e d e s i r a b i l i t y of f o r e i g n i n v e s t m e n t
i n the United States.
T h e U n i t e d States Council also supports the d e s i r e for
s t a t i s t i c s on f o r e i g n i n v e s t m e n t i n the U . S . A .
improved
including
improved
r e p o r t i n g o n b e n e f i c i a l o w n e r s h i p of f o r e i g n i n v e s t m e n t s p r o v i d i n g t h e
e x t e n d a n d c o l l e c t i o n p r o c e d u r e s a r e not so b u r d e n s o m e as t o i n h i b i t t h e
f l o w of c a p i t a l t o t h e U n i t e d S t a t e s .
A c o n s e n s u s of t h e C o u n c i l m e m b e r s h i p
r e c e n t l y t a k e n o v e r w h e l m i n g l y f a v o r e d i m p r o v e d i n f o r m a t i o n w i t h such
limitations.
Of course,
a c l e a r d i s t i n c t i o n m u s t be m a d e b e t w e e n i n f o r m a t i o n
b e f o r e the event, w h i c h w e opposed,
a f t e r the event, w h i c h we f a v o r .
and i m p r o v e d information r e c o r d e d
I t i s one t h i n g f o r G o v e r n m e n t t o i m p r o v e
i t s k n o w l e d g e of w h a t has o c c u r r e d ,
secured
of w h o o w n s w h a t ,
etc.
It is an e n t i r e l y
354
d i f f e r e n t m a t t e r t o i n j e c t the G o v e r n m e n t into p r o p o s e d m a j o r b u s i n e s s
t r a n s a c t i o n s i n v o l v i n g f o r e i g n i n t e r e s t s d u r i n g the p r o c e s s of n e g o t i a t i o n .
Such n e g o t i a t i o n s o f t e n i n v o l v e c o n s i d e r a t i o n of m a n y a l t e r n a t i v e
p o s s i b i l i t i e s and a r e u s u a l l y s e n s i t i v e t o p r e m a t u r e d i s c l o s u r e .
Pre-
s c r e e n i n g of b u s i n e s s a c t i v i t i e s d e s t r o y s any s e m b l a n c e of a m a r k e t
economy.
F o r t h e s e r e a s o n s the U n i t e d States C o u n c i l is opposed
f u n d a m e n t a l l y t o S e n a t o r R o t h ' s b i l l , S.
995.
T h e C I E P a n d O M B study of " U n i t e d States G o v e r n m e n t D a t a C o l l e c t i o n
A c t i v i t i e s W i t h R e s p e c t to F o r e i g n I n v e s t m e n t i n the U n i t e d S t a t e s " ,
published j u s t t h i s S p r i n g , shows c o n c l u s i v e l y t h a t the F e d e r a l G o v e r n m e n t
a l r e a d y c o l l e c t s a m a s s of s t a t i s t i c a l i n f o r m a t i o n on f o r e i g n i n v e s t m e n t
here.
L i t t l e of t h i s i n f o r m a t i o n i s c o o r d i n a t e d .
to other than the collecting agency.
M u c h of i t is u n k n o w n
P e r h a p s a c o n s i d e r a b l e a m o u n t of
i t i s not s u b j e c t to s e r i o u s a n a l y s i s o r u s e by m a n y of the t w e n t y d i f f e r e n t
a g e n c i e s w h i c h a l r e a d y a r e s e c u r i n g such d a t a .
T h e A d m i n i s t r a t i o n i s t a k i n g steps to e f f e c t a c o r r e l a t i o n of t h i s i n f o r m a t i o n
now.
T h e U n i t e d States C o u n c i l supports t h a t e f f o r t r a t h e r t h a n new
legislation.
I f , a f t e r study, the A d m i n i s t r a t i o n finds t h a t a d d i t i o n a l
s t a t u t o r y a u t h o r i t y is needed, t h e n p e r h a p s new l e g i s l a t i o n m a y be h e l p f u l .
355
U n i t e d States C o u n c i l o f the I n t e r n a t i o n a l C h a m b e r o f C o m m e r c e I n c
12 12 Avenue of the Amr/ots
New Y<>rk N V 1 0 0 3 6 J (.;
T h e U n i t e d States C o u n c i l is c o n c e r n e d about the p o s s i b i l i t y of
r e t a l i a t o r y a c t i o n by o t h e r nations i f o u r data c o l l e c t i o n p r o c e d u r e s a r e
too b u r d e n s o m e .
I n g e n e r a l , our m e m b e r s h i p f e a r s that i m p r o v e d
statistical information,
if c o l l e c t i o n p r o c e d u r e s a r e b u r d e n s o m e ,
could
r a i s e s o m e b a r r i e r to the f r e e i n w a r d f l o w of i n v e s t m e n t to the U . S .
A.
at a t i m e w h e n o u r n e a r - t e r m f u t u r e c a p i t a l r e q u i r e m e n t s a r e p a r t i c u l a r l y
heavy.
But m o r e t h a n t h a t is at s t a k e .
E v e r since W o r l d W a r I I , the
U n i t e d States h a d l e d the f r e e nations i n s e e k i n g r e d u c e d b a r r i e r s to the
f r e e i n t e r n a t i o n a l f l o w of c a p i t a l .
Q u i t e a n u m b e r of o t h e r nations have
taken a much m o r e restrained position.
W e r e a l i z e t h a t U n i t e d States
i n v e s t m e n t i n m a n y p a r t s of t h e W o r l d has f a c e d and continues to face
g r e a t e r r e s t r i c t i o n s t h a n w e p l a c e on f o r e i g n i n v e s t m e n t c o m i n g i n to
this country.
But the C o u n c i l s t i l l b e l i e v e s t h a t u n n e c e s s a r y handicaps
to t h e f r e e i n w a r d f l o w of i n v e s t m e n t should be a v o i d e d .
L e t us now r e v i e w s o m e w h a t m o r e s p e c i f i c a l l y the p o s i t i o n of t h e U n i t e d
States C o u n c i l on t h e p r o b l e m s t h a t c o n c e r n t h i s S u b c o m m i t t e e .
I n the f a c e
of the k i n d of q u e s t i o n s t h a t have b e e n r a i s e d r e c e n t l y c o n c e r n i n g the
d e s i r a b i l i t y of p e r m i t t i n g f u r t h e r f o r e i g n i n v e s t m e n t i n t h e U n i t e d S t a t e s ,
we asked our m e m b e r s h i p some relevant questions.
W i t h few e x c e p t i o n s
t h e i r a n s w e r s p r o v i d e a s t r o n g s u p p o r t i n g consensus f o r t h e p o s i t i o n w e
have outlined h e r e i n .
O b v i o u s l y , a consensus is m a d e up of m a n y d i f f e r e n t
356
United States Council of the International Chamber of Commerce Inc
views,
some expressed in individual ways,
1212 Avenue nj the Americas New York NY 10036 JU 2-4850
some qualified and w i t h a
f e w t h a t do not f o l l o w t h e o v e r w h e l m i n g u n a n i m i t y of m a j o r i t y o p i n i o n .
First,
the C o u n c i l a s k e d w h e t h e r its m e m b e r s s t i l l f a v o r
continued
u n r e s t r i c t e d f o r e i g n i n v e s t m e n t in the United States subject only to
p r e s e n t regulations such as those w h i c h apply to defense
W i t h few exceptions,
industries.
the a n s w e r s w e r e resoundingly a f f i r m a t i v e .
O u r m e m b e r s h i p b e l i e v e s o v e r w h e l m i n g l y t h a t o u r p o l i c i e s on f o r e i g n
i n v e s t m e n t have s e r v e d the nation w e l l , that the U n i t e d States should
c o n t i n u e t o l e a d t h e W o r l d i n f r e e i n g t h e f l o w of c a p i t a l a s w e l l a s
t r a d e , t h a t a r t i f i c i a l b a r r i e r s d i l u t e t h e g l o b a l b e n e f i t s of i n v e s t m e n t
and technology,
and t h a t t h e new p o t e n t i a l w h i c h is being c r e a t e d a b r o a d
?for i n c r e a s e d f o r e i g n i n v e s t m e n t i n A m e r i c a n b u s i n e s s a n d i n d u s t r y
should be w e l c o m e d and u t i l i z e d to m u t u a l i n t e r e s t .
Second, as stated b e f o r e , t h e r e was a l m o s t t o t a l a g r e e m e n t a m o n g o u r
m e m b e r s f a v o r i n g i m p r o v e d s t a t i s t i c s on f o r e i g n i n v e s t m e n t s that have
been completed,
ownership.
as w e l l as i m p r o v e d r e p o r t i n g on b e n e f i c i a l f o r e i g n
T h e r e w a s doubt w h e t h e r i m p r o v i n g o u r i n f o r m a t i o n can be
a c h i e v e d w i t h o u t r a i s i n g a b a r r i e r to t h e f r e e i n w a r d f l o w of i n v e s t m e n t .
Third,
the U n i t e d States Council asked its m e m b e r s w h e t h e r they b e l i e v e d
i t p o s s i b l e f o r the U n i t e d States to take r e s t r i c t i v e actions o r i m p o s e
screening on foreign investments here without incurring r e t a l i a t o r y action
357
United States Council of the International Chamber of Commerce Inc
1212 Avenue of the Americas New York NY 10036 j u 2-4850
b y o t h e r c o u n t r i e s a g a i n s t the m u c h l a r g e r A m e r i c a n i n v e s t m e n t s a b r o a d .
A g a i n , t h e o v e r w h e l m i n g consensus of our m e m b e r s is t h a t s c r e e n i n g
o r o t h e r r e s t r i c t i o n s i m p o s e d on f o r e i g n i n v e s t m e n t i n this c o u n t r y
w i l l c a r r y s u b s t a n t i a l p o s s i b i l i t i e s of r e t a l i a t i o n .
U n i t e d States i n d i v i d u a l
and c o r p o r a t e i n v e s t o r s have six t i m e s as m u c h d i r e c t
a b r o a d as f o r e i g n e r s h a v e i n t h i s c o u n t r y .
investment
T h e C o u n c i l w i s h e s to s t r e s s ,
t h e r e f o r e , i n t h e m o s t e m p h a t i c m a n n e r p o s s i b l e , t h a t t h e U n i t e d States
has f a r m o r e to lose i n r i s k i n g such r e t a l i a t i o n t h a n any o t h e r c o u n t r y .
O f c o u r s e , a n u m b e r of our m e m b e r s r e f e r r e d to the r e s t r i c t i o n s on
U n i t e d States i n v e s t m e n t w h i c h e x i s t now i n s o m e f o r e i g n c o u n t r i e s .
A f e w r a i s e d t h e q u e s t i o n of r e t a l i a t i o n a g a i n s t t h e s e .
H o w e v e r , i t is
g e n e r a l l y f e l t , p a r t i c u l a r l y by the C o u n c i l ' s F o r e i g n I n v e s t m e n t
Committee,
t h a t i t is f a r m o r e f r u i t f u l f o r t h e U n i t e d States to c o n c e n t r a t e i t s e f f o r t s
on r e d u c i n g
r e s t r i c t i o n s a b r o a d r a t h e r t h a n r i s k i n g new r e s t r i c t i o n s ,
e v e n t h r o u g h new r e p o r t i n g r e q u i r e m e n t s .
I n o u r v i e w , the U n i t e d States
net b a l a n c e of f o r e i g n i n v e s t m e n t , t a k i n g into account b o t h d i r e c t and
portfolio investment,
is so s t r o n g t h a t w e should not r e l a x o u r W o r l d
l e a d e r s h i p t o w a r d s t h e f r e e i n t e r n a t i o n a l f l o w of c a p i t a l .
A c t i o n to c o r r e l a t e ,
c o d i f y , i m p r o v e , and w h e r e p o s s i b l e , r e d u c e p r e s e n t
r e p o r t i n g r e q u i r e m e n t s w i l l be l e s s l i k e l y to i n c u r r e t a l i a t o r y a c t i o n
a g a i n s t U n i t e d States i n v e s t m e n t s a b r o a d t h a n new l e g i s l a t i o n .
W i t h the
358
huge c a p i t a l r e q u i r e m e n t s of t h e U n i t e d States d u r i n g the next decade
i n f i n a n c i n g jobs f o r the g r o w t h i n o u r l a b o r f o r c e , i n p r o v i d i n g new
d o m e s t i c s o u r c e s of e n e r g y , i n e n v i r o n m e n t a l p r o t e c t i o n , i n defense
e x p e n d i t u r e s a n d o t h e r p r o g r a m s , t h e U n i t e d States C o u n c i l b e l i e v e t h a t
t h e i n w a r d f l o w of c a p i t a l should be e n c o u r a g e d .
359
i 025 C O N N E C T I C U T
A
AMERICAN INSURANCE ASSOCIATION
(202) 293 - 30t 0
August 4 ,
1975
The H o n o r a b l e A d l a i S t e v e n s o n , I I I
C h a i r m a n , Subcommittee on I n t e r n a t i o n a l
Finance
Committee on B a n k i n g , Housing and Urban A f f a i r s
5300 D i r k s e n O f f i c e B u i l d i n g
U n i t e d S t a t e s Senate
Washington, D.C.
20510
Dear S e n a t o r
Stevenson:
S . 425 " F o r e i g n I n v e s t m e n t A c t o f
1975."
On b e h a l f o f our n a t i o n w i d e membership, I would l i k e t o e n t e r t h e
f o l l o w i n g comments i n t h e r e c o r d o f y o u r r e c e n t h e a r i n g s c o n c e r n i n g f o r e i g n
investment i n the United States.
Our companies s u p p o r t S. 425 sponsored by S e n a t o r H a r r i s o n W i l l i a m s
f r o m two p o i n t s o f v i e w :
( 1 ) as c o r p o r a t i o n s owned b y l a r g e numbers o f
p u b l i c s h a r e h o l d e r s , and (2) as i n v e s t o r s i n common s t o c k i s s u e d b y o t h e r
p u b l i c companies.
S. 425 would amend t h e S e c u r i t i e s Exchange A c t o f 1934
( t h e A c t ) t o improve s u b s t a n t i a l l y t h e i n f o r m a t i o n a v a i l a b l e to a p u b l i c l y
h e l d company and i t s s t o c k h o l d e r s i n t h e e v e n t a f o r e i g n i n v e s t o r a c q u i r e s
more t h a n f i v e p e r c e n t o f i t s o u t s t a n d i n g s h a r e s i n p r e p a r a t i o n f o r a t a k e over a t t e m p t .
More i m p o r t a n t l y , S. 425 would a l s o e s t a b l i s h a new p r o c e d u r e whereby
c o r p o r a t i o n s w o u l d be a b l e t o a s c e r t a i n t h e names o f t h e b e n e f i c i a l cwners
o f t h e i r o u t s t a n d i n g s t o c k , r e g a r d l e s s o f w h e t h e r t h e owner i s f o r e i g n c r
domestic.
P e r s o n s who h o l d s t o c k i n t h e r e c o r d f o r t h e a c c o u n t o f an u n d i s c l o s e d
p e r s o n would be r e q u i r e d t o r e p o r t t h e u n d i s c l o s e d name t o t h e company i s s u i n g
the s e c u r i t i e s .
The i s s u i n g company i n t u r n would be r e q u i i e d t o f i l e an
o v m e r s h i p l i s t w i t h t h e S e c u r i t i e s & Exchange Cotvoaissicn (SEC) , w h i c h p r e sumably would become p u b l i c i n f o r m a t i o n .
T h i s p r o c e d u r e w o u l d p r o v i d e a means
f o r removing m i s u n d e r s t a n d i n g s a b o u t t h e o w n e r s h i p o f A m e r i c a n b u s i n e s s .
In
r e c e n t y e a r s , u n f o u n d e d a l l e g a t i o n s have been p o s s i b l e a b o u t i n t e r l o c k i n g
c o n t r o l s on p u b l i c companies b y l a r g e i n v e s t o r s because i n f o r m a t i o n was n o t
a v a i l a b l e a b o u t seme o w n e r s ' t r u e i d e n t i t y .
AVE.,
WASHINGTON, D.C. 20036
360
The H o n o r a b l e A d l a i
August 4 , 1975
P a g e Two
Stevenson,
III
W h i l e we s u p p o r t d i s c l o s u r e o f o w n e r s h i p i n f o r m a t i o n w h e r e t h e number
o f s h a r e s owned i s s u f f i c i e n t t o p r o v i d e a b a s i s f o r an a t t e m p t t o i n f l u e n c e
m a n a g e m e n t , o r t o a c q u i r e c o n t r o l o f t h e i s s u i n g c o m p a n y , S . 4 2 5 as p r e s e n t l y
d r a f t e d would r e q u i r e d i s c l o s u r e of every s h a r e h o l d e r ' s
identity.
I n h i s t e s t i m o n y b e f o r e y o u J u l y 2 2 , SEC C h a i r m a n Ray G a r r e t t
said
t h e " s c o p e and e x t e n t " o f S e c t i o n 1 4 ( g ) i n S . 4 2 5 " a r e n o t n e c e s s a r y f o r t h e
p r o t e c t i o n of i n v e s t o r s .
The b u r d e n on n o m i n e e s w o u l d a p p e a r t o b e e x c e s s i v e
and t h e b e n e f i t s t o t h e p u b l i c t o o r e m o t e . "
We a g r e e .
W i t h i n t h e e x i s t i n g f r a m e w o r k o f t h e A c t , i n c l u d i n g p r e v i o u s amendments i n
t h i s a r e a sponsored by Senator W i l l i a m s , ownership of l e s s t h a n f i v e p e r c e n t o f
t h e s e c u r i t i e s i n a p a r t i c u l a r c l a s s i s n o t deemed s u f f i c i e n t
to invoke the
r e p o r t i n g requirements which provide i n f o r m a t i o n to other i n v e s t o r s .
We s u g g e s t
Section 14(g)
( 2 ) i n S. 4 2 5 be amended as f o l l o w s t o r e q u i r e i s s u e r s t o r e p o r t
o w n e r b h i p i n t e r e s t s t o t h o C o m m i s s i o n o n l y when t h e y e x c e e d t h e f i v e p e r c e n t
level:
" ( 2 ) . . . E v e r y such i s s u e r s h a l l f i l e such a l i s t - - e * - a n y
s p e e i i i e ^ - p a ^ f c - f e h e t e o f - , - o f t h e i d e n t i t y , r e s i d e n c e and
n a t i o n a l i t y o f t h e b e n e f i c i a l o w n e r s o f more t h a n f i v e
p e r c e n t u m o f t h e s e c u r i t i e s o f e a c h s u c h c l a s s and t h e
p e r s o n s ( o t h e r t h a n t h e b e n e f ic.i a l o w n e r s ) p o s s e s s i n g s o l e
or shared aut.hority to oxercj.se the v o t i n g r i g h t s evidenced
b y more t h a n f i v e p e r c e n t u m o f s u c h s e c u r i t i e s w i t h t h e
C o m m i s s i o n a t s u c h t i n e s as t h e C o m m i s s i o n , b y r u l e , may p e r
p r e s c r i b e , b u t i n no e v e n t s h a l l s u c h l x s L 6 * - s p « i e i r i e n
pa3ffe-the.jree£ be f i l e d l e s s f r e q u e n t l y t h a n a n n u a l l y o r
more f r e q u e n t l y t h a n q u a r t e r l y . "
C h a i r m a n G a r r e t t s u g g e s t e d two d i f f e r e n t a p p r o a c h e s t o t h i s s u b s e c t i o n .
F i r s t , d i s c l o s i n g i n r e q u i r e d f i l i n g s t h e l a r g e s t 20 o r 30 s h a r e h o l d e r s
o f any c l a s s o f a c o m p a n y ' s v o t i n g s e c u r i t i e s , a n d t h e e x t e n t o f t h e i r v o t i n g
authority.
T h i s f o r m o f d i s c l o s u r e was d e v e l o p e d by S e n a t o r L e e M e t c a l f i n
c o n n e c t i o n w i t h h i s S u b c o m m i t t e e ' s s t u d y on D i s c l o s u r e o f C o r p o r a t e O w n e r s h i p , .
The p o i n t b e h i n d b o t h S e n a t o r M e t c a l f ' s a p p r o a c h , a n d o u r s u g g e s t e d amendment t o
afS . 4 2 5 i s o w n e r s h i p i n a p u b l i c l y h e l d company s h o u l d be d i s c l o s e d when i t
fects other investors.
The f i v e p e r c e n t l e v e l h a s t r a d i t i o n a l l y b e e n u s e d as
t h e t h r e s h o l d f o r t h i s t y p e o f d i s c l o s u r e , and i n t h i s i n s t a n c e we b e l i e v e
it
s h o u l d be r e t a i n e d .
We h a v e no o b j e c t i o n , h o w e v e r , t o t h e t y p e o f d i s c l o s u r e
d e v e l o p e d by S e n a t o r M e t c a l f .
The s e c o n d a l t e r n a t i v e t o s u b s e c t i o n 1 4 ( g )
(2) p u t f o r w a r d by C h a i r m a n
G a r r e t t i s t h e d i s c l o s u r e r e q u i r e d s h o u l d be l i m i t e d t o a n y h o l d e r o f m o r e t h z n
one o r t w o p c r c c n t o f t h e c o m p a n y ' s o u t s t a n d i n g s t o c k .
VJhile t h i s r o c o g n i z c s t h e
need f o r l i m i t a t i o n s i n 14(g)
( 2 ) , i t o v e r l o o k s t h e f a c t a s u b s t a n t i a l number
o f i n v e s t m e n t s may be d i s t u r b e d b y a n u n n e c e s s a r y c h a n g e i n t h e f i v e p e r c e n t
reporting threshold.
I f the r e p o r t i n g l e v e l were reduced from f i v e t o t h r e e
p e r c e n t , the question i s r a i s e d whether i n v e s t o r s i n t h a t narrow category
w o u l d c h o o s e t o r e d u c e t h e i r h o l d i n g s r a t h e r t h a n s u b m i t t o t h e new r e p o r t i n g
requirements.
The r e s u l t i n g s e l l i n g p a t t e r n m i g h t a f f e c t t h e c u r r e n t r e c o v e r y
•in our e q u i t y m a r k e t s .
One m u s t a l s o a s k w h a t t y p e o f u s e f u l i n f o r m a t i o n w o u l d
b e p r o d u c e d b y r e q u i r i n g r e p o r t s f r o m b e n e f i c i a l o w n e r s o f b e t w e e n t w o and f i v e
to r e t a i n the e x i s t i n g threshold rather than d i s t u r b e x i s t i n g patterns of inv e s t m e n t i n o r d e r t o o b t a i n a s m a l l amount o f i n f o r m a t i o n o f l i t t l e , i f a n y ,
i n t e r e s t to investors.
361
The Honorable Adlai Stevenson
August 4, 1975
Page Three
I hope these comments w i l l be h e l p f u l , and t h a t you w i l l l e t us
know i f any other information might be useful.
362
STATEMENT BY THE NEW YORK STOCK EXCHANGE, I N C . BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL FINANCE OF THE SENATE COMMITTEE
ON BANKING, HOUSING, AND URBAN A F F A I R S ON S . 4 2 5
JULY 2 5 , 1 9 7 5
Introduction
T h e New Y o r k
capital
flows
encourage
years
across
greater
ahead.
stimulating
policies
Stock
designed
flow
tax
U.S.
by
securities
The E x c h a n g e
and
stimulate
Directors
stimulate
the w i t h h o l d i n g
portfolio
capital
capital
of
international
has
on i n t e r e s t
s u c h as
and d i v i d e n d
believes
investment
unhampered
into
the
both
in
United
payments
and
abroad.
Moreover,
the
the
areas
of
trade,
commitment
to
a policy
the
Last
In
1973,
in
a national
greatest
degree
year,
net
bonds were
foreign
reported
in
the
will
in
income
the
favor
of
recommended
flows.
of
The
policies
elimination
at
in
foreigners
a record
movement
favorable
it
has
steadily
with
interest
by
its
support
consistent
purchases
capital
States
of
warrant
country,
the
balance
nations
that
of
received
from
foreigners.
this
of
and have
the
free
in
recommended a d o p t i o n
flows,
of
markets
on r e c o r d
among n a t i o n s
to
dence
initiatives
capital
gone
tageous
investment
been a proponent
and o f
o n many o c c a s i o n s
of
to
Board o f
to
long
internationalization
designed
Exchange's
has
nationa1^borders
We h a v e
the
Exchange
high
of
has
been
impact
investment
free
the
national
U.S.
stocks
direct
advan-
on t h e
provided
increasing
of
both
for
U.S.
U.S.
interdepen-
and
finance
capital
flows
to
interest.
waned
of
U.S.
stocks
of
$4.7
billion,
considerably.
and
long-term
with
net
363
purchases
sharp
of
corporate
contrast,
the U.S.
foreign
purchases
is
may b e
a simple
markets
$1.5
billion,
barely
more
than
long-term
reason
one:
domestic
to
and s a v i n g
potential
is
not
this
under
alone
ments
of
the
Insurance
will
are
fall
focusing
shortage
buttressed
supply
A shortfall
rate
higher
enormous
by
the
Company,
in
of
the
savings
growth,
in
the
invest-
the
economy
This
is
capital
that
this
shortfall
period.
financing
economic
the
needs
amounting
The
Bank,
Council
are
even
report
country
exacerbating
will
current
Life
the
there
conclusions
on
predicting
by
depart-
that
These
anticipated
facing
research
confirm
ahead.
Exchange
needs
the M e t r o p o l i t a n
years
Some s t u d i e s
than
of
needs.
on
capital
1974-85
by an A t l a n t i c
and u s e .
considerably
in
of
foreign
capacity
capital
this
undertaken
Electric
Government
purchases
encouraging
report
the
on t h e
net
million.
saving
Company a n d C h a s e M a n h a t t a n
further
diminished
over
1974,
in
economy.
foresee
$650 b i l l i o n
General
for
the U.S.
economists
be a c a p i t a l
energy
of
Studies
$500
NYSE r e s e a r c h
During
with net
In
interest
excluding U.S.
meet A m e r i c a ' s
a recent
in
nation.
the
foreign
sharply.
only
of
just
tumbled
to
conclusion
to
show t h a t
securities,
insufficient
Exchange
figures
r-eaching $2.8 b i l l i o n .
U.S.
to
crucial
alone
of
came
amounting
The
ment
1974
securities
obligations,
stock
the
stock
financing
a
short-
NYSE.
result
economic
in
a
problems.
364
Reduced p r o d u c t i v e
on U . S .
export
capacity
industries,
markets.
Social
growth
the main v e h i c l e
--
will
have
reducing
and economic
a particularly
their
inequities
of
social
adverse
competitiveness
could
progress
arise,
--
in
as
slows
impact
world
economic
to
a
snail's
pace.
Today,
massive,
trol
of
there
is
concentrated
major,
recently
been
vital
the
theoretically
thereby
control
In
by
the U.S.
the
in
the
focus
of
them t o buy
this
over
that
the
prospect
could
lead
T h e OPEC n a t i o n s
this
concern,
of
investable
amounts
distribution
any p a r t i c u l a r
proportion
of
large
parts
nation's
of
of
to
con-
their
funds
U.S.
of
have
since
economic
OPEC s u r p l u s
country.
Of
OPEC f u n d s
the
entered
billion
placed
was
initial
be
industries.
vast
subject
$11 b i l l i o n
to
investment
than had been p r e d i c t e d .
diminished.
the
of
concern
could
industry
destiny
to
outsiders.
1974,
centrated
U.S.
enable
might
foreign
central
sudden a c c u m u l a t i o n
and
considerable
total
real
alarm about
unfounded.
in
OPEC s u r p l u s
the U.S.
in
Much l e s s
Indeed,
placed
Of
the
property
vast
funds
as
this
of
oil
the
money
year
country
and c o r p o r a t e
of
U.S.
con-
entered
progressed,
actually
$55 b i l l i o n ,
$11 b i l l i o n ,
OPEC c o n t r o l
was n o t
less
only
about
than
$1
equities.
industry
Thus,
appears
365
-
The Need f o r F o r e i g n
eign funds,
offer
f o r whatever
figures
for
are put
such funds w i l l
Clearly,
domestic
the U.S.
is
investment
their
funds
competing w i t h those
foreign
is
investors
i n t o other markets.
foreign
s i m p l y be d i v e r t e d
savings
capital.
As
the
t o o many
i n the
U.S.,
elsewhere.
t h e ways t o h e l p o v e r c o m e a n y d e f i c i e n c y
to stimulate
capital
inflows would help put
country
to work,
creating
for-
can and a r e
If
investment
for
other
f u n d s may b e a v a i l a b l e .
i n the path of
one o f
i t s back on f o r e i g n
investment o p p o r t u n i t i e s
l a s t year demonstrate,
c h a n n e l i n g much o f
obstacles
turn
attractive
and t o d a y ,
nations
-
Capital
The U n i t e d S t a t e s m u s t n o t
Other c o u n t r i e s
4
foreign
the f u l l
investment.
productive
in
Foreign
capacity
a d d i t i o n a l j o b s and economic
of
the
opportuni-
ties.
Foreign
I n v e s t m e n t by U.S.
For y e a r s ,
U.S.
official
t h a t American investment
structing
of
and p r i v a t e
s o u r c e s have
a b r o a d has b e e n i n s t r u m e n t a l
to upgrading
ments a b r o a d b y U . S .
Given the f a r
foreign direct
the w o r l d ' s
economic
factors
standard of
living
recon-
the
growth
have
as
been
invest-
corporations.
greater
investment
58-527 O - 75 - 24
Few o t h e r
maintained
in
t h e E u r o p e a n e c o n o m y , as w e l l as s t i m u l a t i n g
the developing n a t i o n s .
as c r u c i a l
Corporations
amount o f U . S .
in this
country,
investment
it
abroad
w o u l d be
than
somewhat
366
awkward f o r
this
country
t o impede f o r e i g n
cording
t o Commerce D e p a r t m e n t e s t i m a t e s ,
foreign
investment
decade
i n the U.S.
from $7.6 b i l l i o n
Nevertheless,
increasing
times
The l a r g e r
initiate
invite
that
economic h e a l t h .
between investment
barriers
visions
areas o f
of
ficient
is
is
foreign
abroad
investors with
unlikely
that
their
is
this
foreigners
would
own i n v e s t m e n t s
t h e U . S . has n o t
energy,
investment
t h e Sherman,
sources.
a w a r e o f and u n d o u b t e d l y
on f o r e i g n
t h e economy.
foreign
or
and p u b l i c
also apply under
The
foreign
in
shortage
interests.
the
certain
communication,
Various
legal
the a n t i t r u s t
and R o b i n s o n - P a t m a n A c t s .
the e x i s t i n g r e s t r i c t i o n s
U.S.
include
lands.
discriminated
understands
investments
These a r e a s
Clayton,
to safeguard v i t a l
about
country,
It
investment
greater,
i n v e s t m e n t s become i n t h i s
few e x c e p t i o n s ,
atomic
importance,
1974.
country.
t i m e when u n e m p l o y m e n t a n d c a p i t a l
great
in
past
in this
existing restrictions
to
the
1962 t o
investment
f r o m f o r e i g n and d o m e s t i c
community
transportation,
over
of
action.
With r e l a t i v e l y
sensitive
direct
which m i g h t undermine
retaliatory
investment
U.S.
in
Ac-
book v a l u e
$20 b i l l i o n
$37.2 b i l l i o n
than foreign
foreign
total
here.
i n v e s t m e n t has been f a r
be t h e c o n c e r n o f
policies
need f o r
Thus,
greater
the g r e a t e r w i l l
country's
1962 t o a b o u t
foreign direct
i n 1974.
the
increased s t e a d i l y
f r o m a book v a l u e o f
$120 b i l l i o n
about s i x
U.S.
in
investment
considerations
pro-
At a
are
w o u l d seem t o be
of
suf-
367
Government Review o f F o r e i g n
The v a r i o u s
Investment
government agencies
ment h a v e u n d e r t a k e n a t h r e e
and s u p p l e m e n t
Phase one o f
by f o r e i g n
the e x i s t i n g
this
project,
investors,
part
Respect
a review of
Economic
"United States
to Foreign
ment r e v i e w s
Investment
and d e s c r i b e s
tion activities
Efforts
P o l i c y and t h e
investment
are p r e s e n t l y
i n the near
future.
takeovers
information.
i n the
Indeed,
Office
of
t o p u b l i s h an
to foreign
Manage-
investment
than is
is
done,
docu-
and shows
commonly
that
known.
t h e i n f o r m a t i o n on
t h e gaps i n t h e
d e t e r m i n e d and s t e p s
In addition,
with
dissemina-
u n d e r w a y and a r e e x p e c t e d t o be
foreign
completed
existing
can be t a k e n t o
t h e SEC r e v i e w o f
along w i t h the r e l a t e d
owners,
the
excellent
This
d a t a c o l l e c t i o n and
s h o u l d be c o m p l e t e d
U.S.
supplied
Government Data C o l l e c t i o n
and c e n t r a l i z e
and a c q u i s i t i o n s ,
nominees and b e n e f i c i a l
coordinate,
i n the United S t a t e s . "
Once t h i s
d a t a c a n ..be e f f e c t i v e l y
any m i s s i n g
efforts
a r e more e x t e n s i v e
to coordinate
invest-
the data c u r r e n t l y
been c o m p l e t e d .
the U.S.
w i t h respect
present requirements
foreign
data on f o r e i g n i n v e s t m e n t
ment a n d B u d g e t h a v e c o m b i n e d t h e i r
document e n t i t l e d
in
program t o r e v i e w ,
has r e c e n t l y
C o u n c i l on I n t e r n a t i o n a l
interested
obtain
corporate
subject
i n the
of
near
future.
The P r e s i d e n t
mittee
this
on F o r e i g n
Committee's
has r e c e n t l y
Investment
a u t h o r i z e d t h e c r e a t i o n o f a Com-
i n the United States.
responsibility
to monitor
foreign
It
will
be
investment
in
368
-
the United States,
both direct
7 -
and p o r t f o l i o ,
implementation of United States p o l i c y
The w o r k o f
helpful
t h e s e a g e n c i e s and c o m m i t t e e s
vestment
is
essary.
We b e l i e v e
required and-what^ i f
that
Economic
actions
in-
are
nec-
should
t h e s e b o d i e s has been
completed.
boycotts,
of
t h e use o f
as a means t o
eco-
political
We a p p l a u d t h o s e c o m p a n i e s who h a v e r e s i s t e d b e i n g u s e d as
porations
their
It
obvious
that
extremely
any d i s c u s s i o n o f
p u b l i c i z e d Arab e f f o r t s
companies c o n t r i b u t i n g
bilities
of
Israel.
practices
important
that
in boycotts,
U.S.
cor-
regardless
t o Arab b o y c o t t
t o apply such
is
little
a few U . S .
centers
sanctions
evidence of
companies under Arab c o n t r o l ,
that
capa-
discrimina-
there
owned c o r p o r a t i o n s
has
succumbed
demands.
We do n o t b e l i e v e
ownership o f U.S.
that
preventing
corporations w i l l
economic p r a c t i c e s .
economic b o y c o t t s
t o t h e economic and d e f e n s e
While there
by U.S.
b e e n some i n d i c a t i o n
natory
is
ownership.
is
against
It
be p r e c l u d e d f r o m p a r t i c i p a t i n g
around r e c e n t l y
tory
i n f o r m a t i o n on f o r e i g n
the seriousness
specifically
pawns i n s u c h p r a c t i c e s .
of
extremely
Practices
The E x c h a n g e r e c o g n i z e s
nomic s a n c t i o n s ,
should prove
any, l e g i s l a t i v e
the work o f
the
investment.
a c t i o n on any p e n d i n g l e g i s l a t i o n
i n abeyance u n t i l
Discriminatory
ends.
on such
i n f o r m u l a t i n g what a d d i t i o n a l
be h e l d
and t o c o o r d i n a t e
It
is
foreign participation
solve
the problem of
important
in
the
discrimi-
t o d e v i s e a method
to
369
insure
that
discriminatory
foreign capital;
domestically
practices
however,
it
is just
owned c o r p o r a t i o n s
are not imported along
with
as i m p o r t a n t
that
to insure
do n o t p a r t i c i p a t e
in
such
activities.
We b e l i e v e
the focus
of
use o f economic s a n c t i o n s
of
foreign capital
fortable
for
in discriminatory
S. 425 - -
It
13(d)
more i m p o r t a n t
company, r e g a r d l e s s
t o make i t uncom-
ownership,
to
engage
o n S . 4 2 5 l a s t M a r c h , we v o i c e d
t h e p r o p o s e d amendments
of
of
limitation
3 and 4
When t h e E x c h a n g e t e s t i f i e d
section
is
on t h e
the
practices.
Sections
our support o f
designed to prevent
s h o u l d n o t be s o l e l y
inflows.
any U.S.
legislation
to paragraph
t h e 1934 A c t c o n t a i n e d
(1)
of
sub-
i n Section 3(a)
of
S.425.
P e r s o n s r e p o r t i n g u n d e r t h i s s u b s e c t i o n w o u l d be r e q u i r e d t o d i s c l o s e
their
cial
residence
and n a t i o n a l i t y
statements
also
s t a t e d our b e l i e f
to
file
so a c q u i r e d .
that
to U.S.
At
that
time,
several provisions
interests.
We s t i l l
of
finanany
evidenced by
h o w e v e r , we
o f S.425
believe
could
this
so.
Section 3(b)
Presidential
of
sole or shared v o t i n g r i g h t s
securities
prove d e t r i m e n t a l
is
in addition,
and i n f o r m a t i o n r e g a r d i n g t h e i d e n t i t y
p e r s o n who p o s s e s s e s
the e q u i t y
and,
o f S.425 would r e q u i r e
approval
the stock of
a U.S.
for
foreign
company.
prior notification
purchases
exceeding
I t w o u l d seem more
and
5°L
appropriate
370
for
an i n v e s t o r
ments.
The r e v i e w p r o c e d u r e o u t l i n e d
uncertainty
U.S.
i n the minds o f
r e a l l y welcomes
onstrated
that
t o know w h a t he c a n do p r i o r
increase
the r i s k
investment.
investors
create
over whether
the
As p a s t h i s t o r y h a s
avoid countries
or uncertainty
commit-
i n Section 3(b) w i l l
foreign investors
foreign
t i m e and a g a i n ,
t o making h i s
of
their
in
this
or
dem-
projects
investment
deci-
sions .
Basically,
we b e l i e v e
that
it
is
country's
interest
>
t o r e t a i n an o p e n d o o r p o l i c y w i t h r e s p e c t
This b e l i e f
is
also
Administration.
its
national
effective
for
this
s h a r e d b y many S e n a t o r s ,
However,
security
c o n t r o l over
Clearly,
and f o r e i g n p o l i c y
its
economic
nomic a c t i v i t i e s
or security.
quirements,
sufficient.
Exchange A c t o f
Such r e g u l a t i o n s
1934,
economic
the
pertaining
s h o u l d be r e v i e w e d
13,
in
eco-
defense
and
re-
14 a n d 16
of
to disclosure,
if
there
is
are
con-
them.
two g o a l s o f p r e s e r v i n g n a t i o n a l
i n d e p e n d e n c e and a t t r a c t i n g
involved
regulations
in Sections
c e r n o v e r e n f o r c e m e n t and c o m p l i a n c e w i t h
To b a l a n c e
sensitive
to U.S. n a t i o n a l
existing
s u c h as t h o s e c o n t a i n e d
the S e c u r i t i e s
protect
s h o u l d be c o n t r o l l e d b y U . S .
critical
For these companies,
the
maintain
considered
many c o m p a n i e s a r e
which are not
as
to
and
environment.
security
t h e same t i m e ,
investment.
Congressmen,
as w e l l
t h o s e companies and i n d u s t r i e s
At
foreign
e v e r y n a t i o n has t h e r i g h t
country's national
citizens.
to
security
s o r e l y needed f o r e i g n
and
capital,
371
-
it
m i g h t be u s e f u l
pare a l i s t
foreign
of
t o have a p p r o p r i a t e
governmental agencies
i n which
i n v e s t m e n t m i g h t have t o be a p p r o v e d .
foreign
Presidential
In this
manner,
that
to governmental review.
This
t o b o t h t h e company a n d i n v e s t o r
review of a l l
foreign
investments
m i g h t be i n t e r e s t i n g
doing w i t h regard to
than a
e x c e e d i n g 5% o f
foreign
t o know w h a t o t h e r c o u n t r i e s
a
investment.
According
are
to a
recent
i s s u e o f U . S . News & W o r l d R e p o r t , W e s t German o f f i c i a l s
d r a w i n g up a l i s t
of
700 c o m p a n i e s w h i c h a r e t o o
be c o n t r o l l e d b y f o r e i g n e r s .
foreign
investment
the approval of
reasonable
ments
in
ment i s
to request
this nation
S.425,
a sharply
this
foreigners
the
in
that
Naturally,
to
It
planning "substantial"
if
a particular
the n a t i o n a l
the
and a d d r e s s o f
to
any
would
obtain
appear
invest-
appropriate
foreign
interest,
invest-
steps
could
investment.
t h e 1934 A c t as s p e c i f i e d b y S e c t i o n 3 ( a )
improved m o n i t o r i n g d e v i c e on f o r e i g n
country w i l l
of Finance.
to consult beforehand w i t h
considered harmful
W i t h changes
important
The E c o n o m i s t r e p o r t s
the French M i n i s t r y
be t a k e n t o b l o c k
are
o f 20% o r more i n a F r e n c h company m u s t
governmental bodies.
ality
pro-
company.
It
in
pre-
substantial
investors would l e a r n beforehand
i n v e s t m e n t may b e s u b j e c t
c e d u r e w o u l d be f a i r e r
U.S.
-
those companies o r s e c t o r s
large p o t e n t i a l
their
10
be a v a i l a b l e .
I n f o r m a t i o n as t o
5% s h a r e h o l d e r s w i l l
enable
of
investment
the
nation-
governmental
372
- 1L agencies
to " f l a g "
h e l d companies.
track of
substantial
This w i l l
trends
of
so-called
this
topic.
itself
of
In general,
of a l l
"13(d)
In fact,
sets
On t w o r e c e n t
s h o u l d be r e q u i r e d
(i.e.,
As y o u w i l l
this
this
owners o f
t o express
firms
the equity
to furnish
note
stock
stock
views
i n nominee
31,
letter
1974
(Exhibit
and 1 4 ( d )
public
Ownership,
investigatory
Takeovers
t r o u b l e d by a p r o p o s a l
document,
the regulatory
of
similar
our
the submission of w r i t t e n
and
in nature
first
comments
proceedings
review of
the
so-
reiterated
scheme e n v i s i o n e d
t h e Exchange A c t ,
and
Acquisitions
t h e Exchange
13(d)
their
A),
In this
for
form
to the S e c u r i t i e s
called
support
name"
owners).
the Commission's
"Williams Act."
to
regarding
in "street
its
subsections
the
availed
i s s u e r s w i t h t h e names o f
i n the enclosed
Beneficial
its
Persons r e g a r d i n g
continuing
for
of
securities
by F o r e i g n and D o m e s t i c
its
14(g),
issues r e l a t i n g
publicly
departments h o l d i n g
expression involved
of
keep
country.
t h e Exchange has
holding
E x c h a n g e C o m m i s s i o n d a t e d December
i n the matter
to
subsection provides
occasions,
beneficial
i n connection with
publicly
companies".
the o p p o r t u n i t y
such p u b l i c
into
we a r e n o t u n f a m i l i a r w i t h t h e
and banks and t r u s t
in
f o r t h a new s u b s e c t i o n ,
beneficial
the proposal t h a t brokerage
customers
investments
interested parties
investment
the b i l l
t h e Exchange A c t .
identification
allow a l l
in foreign
Section 4 of
foreign
under
a l t h o u g h we w e r e
to Section 4 of
S.
425
373
-
which,
-
as we p o i n t e d o u t , w o u l d c r e a t e a h o s t o f
lems f o r
banks,
transfer
suggested f u r t h e r
holder
the
12
that
communications
identification
agents
and b r o k e r a g e
constructive
c o u l d most e f f e c t i v e l y
of
improvements w i t h i n
t i o n mechanisms w h i c h h a v e e v o l v e d ,
Exchange
changes
in
operational
firms.
The
large
Exchange
i n the area of
be a c h i e v e d
the e x i s t i n g
part,
prob-
share-
through
dissemina-
pursuant
to
Rules.
Additionally,
on M a r c h 6 ,
1975, Mr.
John E. L e s l i e ,
Chairman
>
of
the Exchange's Advisory
Markets
& Co.
Committee on I n t e r n a t i o n a l
as w e l l as C h a i r m a n a n d C h i e f E x e c u t i v e
Inc.,
Capital
Officer
of
presented the Exchange's views r e g a r d i n g the
Investment Act of
1975" b e f o r e
the Senate's
Bache
"Foreign
Subcommittee
on
Securities.
"Beneficial
Ownership"
Insofar
control,
ment,
that
13(d)
directly
Further,
to
for
requirements
t h e p r o p o s e d new s u b s e c t i o n
name.
The c h i e f
It
purpose o f
provided
for
In our
judg-
14(g)
could
drastically
i n bank o r
s u c h r e g i s t r a t i o n has b e e n ,
Rather,
it
is
do n o t
S.425.
registered
i s n o t meant t o c o n c e a l
from issuers.
of having stocks
corporate
that objective.
t h e p r o p o s e d new s u b s e c t i o n 1 4 ( g )
the p r a c t i c e
owners
the d i s c l o s u r e
concerned w i t h
the primary purpose of
affect
misconstrued.
of
Considerations
o f S.425 i s
are adequate
the p r o v i s i o n s
relate
Operational
as t h e t h r u s t
we b e l i e v e
in subsection
--
t h e names o f
at
broker
times,
beneficial
a p r a c t i c a l means o f
providing
374
-
13
-
shareholders w i t h c e r t a i n services
situation,
of
course,
is
provides
a portion of
rities.
As a m a t t e r o f
and b e n e f i t s .
the margin customer
the b e n e f i t s
In addition,
classic
t o whom t h e
broker
t h e f u n d s used t o p u r c h a s e and c a r r y
standard business p r a c t i c e ,
p r o t e c t s h i m s e l f by h a v i n g the s e c u r i t i e s
name w i t h
The
registered
of ownership accruing
many c u s t o m e r s
matter of convenience,
elect,
to leave
of
their
the
their
to
the
secu-
broker
in his
own
customer.
own a c c o r d a n d as a
fully-paid
securities
regis-
"V
tered
i n t h e names o f
maintains
of
custody of
dividends
for his
Under S e c t i o n 4 ,
dated almost
their brokers.
the s e c u r i t y
I n these cases,
and i n s u r e s
prompt
shareholder
lists
i m m e d i a t e l y upon p u b l i c a t i o n because t h e y w o u l d
That f a c t o r
obviate
their
in
usefulness
to corporations
communication requirements
securities
have t o
and d i v i d e n d s .
issuers
laws.
For r e l i a b l e
communications
transmit
really
we f e e l
shareholder
that
the
to
proxy
to b e n e f i c i a l
not
would
corporations
1 4 ( a ) - 3 and 1 4 ( c ) - 7
such m a t e r i a l
facilitate
and u n d e r
as a n n u a l r e p o r t s ,
through the s h a r e h o l d e r s - o f - r e c o r d ,
4 would not
records,
out-
shareholder
and o t h e r nominee h o l d e r s
B e c a u s e SEC R u l e s
to
alone
fulfilling
u n d e r Exchange r u l e s
turn to brokers
such s h a r e h o l d e r
quire
collection
w o u l d b e g i n t o become
subsequent purchases and s a l e s .
still
broker
customer.
reflect
federal
the
would
transmit
material,
already
re-
owners
adoption of
communications.
Section
375
-
In fact,
where a l l
if
s t o c k now r e g i s t e r e d
owners.
-
the S e c t i o n were adopted,
practical matter,
vidual
14
is
shareholders
in
t h e names o f
of
that
s u c h an e v e n t u a l i t y w o u l d b e d e t r i m e n t a l
c o u l d be m a i n t a i n e d b y t h e i s s u e r . '
concerned.
t h e many b e n e f i t s
maintain a written
addition,
s t o c k power - -
the Depository Trust
of
deposit
We w o u l d h a v e t o r e t u r n
between b r o k e r s
registered
in settling
t h e SEC, and t h e
Company
securities
individually
the Congress,
We c o n t e n d
shareholder
in spite
stock
is not
--
seriously
eligible
to physical d e l i v e r y
contracts
--
to
In
(DTC)
- - w o u l d be
of
Along
a doubling of paperwork.
s e t back because
that
indi-
accurate
c o u l d w e l l be j e o p a r d i z e d .
automated bookkeeping t r a n s f e r s
certificates
the
as a
i n a m a r g i n a c c o u n t , b r o k e r s w o u l d have
the purpose o f
i n DTC.
to
The c o n c e p t o f m a r g i n a c c o u n t s ,
they a f f o r d ,
w i t h each c e r t i f i c a t e
arise
the
t h e o n l y way i n w h i c h an o n g o i n g ,
list
and t o a l l
could
i n b a n k o r b r o k e r name w o u l d ,
be r e g i s t e r e d d i r e c t l y
That
a situation
for
of
a procedure
i n d u s t r y have been w o r k i n g
to
eliminate.
Indeed,
o u r most o b v i o u s
to the Section is
operational
considerations
At present,
more t h a n 350 New Y o r k S t o c k E x c h a n g e member
hold
stock
in
--
objection
f o r b o t h t h e b r o k e r and t h e
t h e i r names f o r b e n e f i c i a l
owners.
one
of
issuer.
firms
E a c h company
could
expect
a year
to
to receive
from brokers
the l i s t s
of
the
350
alone,
(annual)
t o 1,400
(quarterly)
lists
a n d t h a t number w o u l d h a v e t o b e added
t h o u s a n d s o f nominee names.
Furthermore,
376
-
all
of
the brokers'
lists
15
-
w o u l d h a v e t o be s e n t
to both
a n d t o DTC f o r r e c o m p i l a t i o n a n d t r a n s m i t t a l
directly
to
T h u s , b y t h e t i m e a company r e c e i v e d a n d p u t t h e m i n t o
order,
the
lists
w o u l d be
Of e v e n g r e a t e r
ever,
is
consequence
to the brokerage
i n s u p p l y i n g such l i s t s .
p r e p a r e and t r a n s m i t
from 8,500 t o 34,000 o f
of beneficial
We h a v e n o t y e t a t t e m p t e d t o c a l c u l a t e
These numbers s p e a k f o r
would far
ceiving
owners,
these
themselves.
would
com-
brokers
would
each
year.
such an
the
opera-
by these
lists
t o companies
re-
them.
Section 4 in Light
We f u r t h e r
o f S.
believe
249
that
of
t h e E x c h a n g e A c t , w h i c h became l a w p u r s u a n t
A c t s Amendments o f
t h e Commission t o s t u d y
securities
in
the b e n e f i c i a l
light
relative
S. 425 a r e p r e m a t u r e
the S e c u r i t i e s
in
the proceedings
of
i/
lists
In short,
they might provide
how-
each b r o k e r
t h e expense o f
t h a t w o u l d be c r e a t e d f o r
o u t w e i g h any v a l u e
industry,
Assuming about 8,500
lists
t i o n a l nightmare
working
p a p e r w o r k and expense t h a t
panies would receive
effort.
issuers.
obsolete.
t h e enormous amount o f
be r e q u i r e d
issuers
o f new s u b s e c t i o n
1975.
the p r a c t i c e
the records
of
the
to
issuer
(m) o f
i n other
owner o f s u c h s e c u r i t i e s . — ^
S e c t i o n 12
the enactment
Subsection
of recording
to Section 4
(m)
of
authorizes
the ownership
t h a n t h e name
Basically,
our
of
of
primary
S u b s e c t i o n (m) a l s o r a i s e s a q u e s t i o n w h e t h e r c o m m u n i c a t i o n s
c a n be f a c i l i t a t e d b e t w e e n i s s u e r s a n d b e n e f i c i a l o w n e r s ,
w h i l e r e t a i n i n g the b e n e f i t s o f such p r a c t i c e .
The E x c h a n g e
m a i n t a i n s t h a t t h e i s s u e o f r e c o r d o w n e r s h i p and t h e q u e s t i o n
o f shareholder communications are key items i n e x t r i c a b l y
l i n k e d t o t h e s u b j e c t m a t t e r o f S e c t i o n 4 o f S. 4 2 5 .
377
-
concern a t
tant
this
to Section 4 w i l l
that
proposal at hand.
a s t r a i g h t f o r w a r d and l o g i c a l
The Exchange f e e l s
and d i r e c t i n g
both preliminary
be d e t e r m i n e d .
impor-
In this
t h e C o n g r e s s i o n a l mandate c o n t a i n e d i n
1975 A c t e s t a b l i s h e s
rizing
-
t i m e h a s t o do w i t h t h e m e t h o d b y w h i c h t h e
issues r e l a t i n g
g a r d , we s u b m i t
16
that
by
t h e C o m m i s s i o n t o make a s t u d y a n d t o
findings
and f i n a l
the
approach t o
the Congress,
conclusions w i t h i n
report
specified
(with respect
S e c t i o n 4 o f S. 425 a n d o t h e r r e l a t e d
for
in-depth
con-
we r e s p e c t f u l l y
urge the
Sub-
structive
analysis.
committee
to consider,
what appears
of
d u r i n g the course o f
proposed p r i o r
frames, which r e l a t e s ,
concentration specified
the s t a t u t o r y
requirement
i n advance o f
its
SEC R e l e a s e No.
Finally,
consider
tions
directly
or
deliberations,
critical
of
the
indirectly,
t o the
( m ) , may t e n d t o
conclusions
and
--
that
above-mentioned
t h a t a s t u d y be made b y t h e
final
to
areas
frustrate
Commission
recommendations.
11243
t h e Exchange s u g g e s t s
of
concern that
reach b e n e f i c i a l
that
the S e c u r i t i e s
11243 d a t e d F e b r u a r y
the proposed l e g i s l a t i o n .
sized i t s
to the t o l l i n g
i n subsection
reporting
the relevance
R e l e a s e No.
its
t o be m o s t o b v i o u s and p a r t i c u l a r l y
any l e g i s l a t i o n
time
Accordingly,
issues)
the
autho-
t i m e f r a m e s , has c r e a t e d a c e n t r a l c l e a r i n g house
i
re-
13,
In this
1975
should
Exchange
1934
Act of
(Exhibit
Release,
proxy materials
owners
the Subcommittee
the
and o t h e r
B, a t t a c h e d )
Commission
issuer
i n a t i m e l y manner d u r i n g
to
reempha-
communicathe
1975
378
-
proxy s o l i c i t a t i o n
e s t e d persons
season.
(including
17
The R e l e a s e a l s o
the p u b l i c )
regarding complaints w i t h respect
Mr.
Lee A .
Pickard,
the Commission,
Director,
bearing
-
to
c o u l d send
No.
of holding equity
in
communications
to
at
S7-552.
in several public
securities
inter-
of Market R e g u l a t i o n ,
I n a s m u c h as t h e E x c h a n g e h a s n o t e d t h a t
persons have a s s e r t e d
that
the d i s s e m i n a t i o n process
Division
the F i l e
indicated
"street
certain
forums
that
interested
the
practice
name" a n d n o m i n e e f o r m has
i
created widespread shareholder
communications
viewed F i l e
No. S 7 - 5 5 2 o n May 2 1 ,
the F i l e
that
at
time which,
10 c o m m u n i c a t i o n s ,
it
is
1975.
re-
Based u p o n a n a n a l y s i s
incidentally,
the p o s i t i o n of
p r o b l e m s , we
contained fewer
t h e Exchange
that
of
than
such
2/
assertions
tent
that
are completely w i t h o u t
the
far-reaching
foundation.—
and c o s t l y
Thus,
reporting requirements
S e c t i o n 4 have been d e s i g n e d t o remedy o p e r a t i o n a l
Exchange c a t e g o r i c a l l y
some;
and,
further,
believes
that
that
to the
they are unreasonably
inappropriate
of
breakdowns,
t h e a d o p t i o n and i m p l e m e n t a t i o n
r e q u i r e m e n t s w o u l d be c l e a r l y
ex-
under any
of
the
burdensuch
analytical
standards.
1/
D u r i n g t h e c o u r s e o f a r r i v i n g a t i t s p o s i t i o n , t h e Exchange
gave s i g n i f i c a n t w e i g h t t o t h e f a c t t h a t t h e F i l e c i t e d o n l y
s i x problem i n c i d e n t s i n comparison t o the hundreds o f thousands
o f a n n u a l r e p o r t s and p r o x y s t a t e m e n t s r e g u l a r l y t r a n s m i t t e d .
379
-
18
-
Conelusion
The t h r u s t
control.
13(d)
o f S. 425 i s
Section 3(a)
of
of
the S e c u r i t i e s
disclosure
at a level of
objective.
Corporations
about
investors
that
national
investment.
ficial
this
amendments
t o have d e t a i l e d
of
foreign
every
security
the b i l l
It
is
of a l l ,
reporting
that
of b e n e f i c i a l
including
of
any s p e c i f i c
1975.
serve
forth
to
foreign
ex-
other
indepen-
funds are welcome.
for
help to achieve
issuing
corpo-
the smallest,
little
benefit
from
t h e names o f e v e r y
for
inquiries
the
benesuch
bene-
brokerage
regarding
the
o w n e r s h i p s h o u l d be d e t e r m i n e d p u r s u a n t
t h e C o n g r e s s i o n a l mandate s e t
ments o f
equity.
and economic
does n o t r e a l l y
issuers would derive
this
information
There are
not necessary
the complete d i s c l o s u r e
We b e l i e v e
for
f o r e i g n investment
investors that their
identity
While
Section
S. 425 w o u l d n e i t h e r
owner w o u l d c r e a t e monumental p r o b l e m s
industry.
to
1934 a n d w o u l d p r o v i d e
inappropriate.
nation's
intent.
t o know t h e
owner.
corporate
n o r encourage s o r e l y needed
Section 4 of
primary
information,
ficial
are e n t i t l e d
company i s
assuring
Finally,
of
ownership which adequately addresses
A Presidential review of
dence w h i l e
rations
Exchange A c t o f
security
protecting
the b i l l ' s
S. 425 c o n t a i n s
Section 3(b)
c e e d i n g 5% o f a U . S .
means o f
the facts
h o l d i n g more t h a n 5% o f a c o m p a n y ' s
We b e l i e v e
protect
to c l a r i f y
i n the S e c u r i t i e s
Acts
to
Amend-
380
EXHIBIT A
m Now York Slock
Mr. G e o r g e A . F i t z s i m m o n s
Secretary
S e c u r i t i e s and E x c h a n g e
Commission
500 N o r t h C a p i t o l S t r e e t
W a s h i n g t o n , D . C . 20549
:
D e c e m b e r 31, 1974
Res
Public Fact-Finding Investigation In The Matter Of Beneficial
Ownership, Takeovers A n d Acquisitions By,Foreign A n d Domestic
: v
. Persons (File No. 4-175)
'
•
Dear M r .
Fitzsimmons:
P u r s u a n t t o the p r o c e d u r e s s e t f o r t h i n t h e S e c u r i t i e s A c t o f 1933
R e l e a s e N o . 5526 dated S e p t e m b e r 9, 1974, t h e N e w Y o r k Stock
E x c h a n g e , I n c . (Exchange) h e r e b y s u b m i t s s p e c i f i c w r i t t e n c o m m e n t s
of i t s v i e w s c o n c e r n i n g c e r t a i n g e n e r a l t o p i c s and s p e c i f i c i n q u i r i e s
b e i n g e x a m i n e d by t h e C o m m i s s i o n d u r i n g the c o u r s e o f the p r o c e e d i n g s
i n c o n n e c t i o n w i t h the a b o v e - c a p t i o n e d i n v e s t i g a t i o n .
I n i t i a l l y , I w o u l d l i k e t o s t a t e t h a t the E x c h a n g e a p p r e c i a t e s b e i n g
a f f o r d e d the o p p o r t u n i t y t o p a r t i c i p a t e i n t h e i n s t a n t p r o c e e d i n g s .
W h i l e the " W i l l i a m s A c t " and t h e a m e n d m e n t s t h e r e t o h a v e h a d a
p o s i t i v e i m p a c t on o u r m a r k e t s s i n c e t h e i r e n a c t m e n t i n 1963 a n d i n
1970, r e s p e c t i v e l y ; n e v e r t h e l e s s , the E x c h a n g e r e c o g n i z e s t h a t t h e r e
a r e c e r t a i n q u e s t i o n s r e g a r d i n g the p r o v i s i o n s of the s t a t u t e and the
r u l e s and r e g u l a t i o n s adopted t h e r e u n d e r . T h e r e f o r e , we b e l i e v e t h a t
a c o m p r e h e n s i v e r e v i e w of t h e r e g u l a t o r y s c h e m e e s t a b l i s h e d b y t h e
" W i l l i a m s A c t " i s b o t h a p p r o p r i a t e and i n the p u b l i c i n t e r e s t a t t h i s
t i m e . I n d e e d , t h e E x c h a n g e s u p p o r t s the C o m m i s s i o n ' s e f f o r t s t o
i d e n t i f y i m p r o v e m e n t opportunities i n connection w i t h the d i s c l o s u r e
of s e c u r i t i e s t r a n s a c t i o n s .
R e g a r d i n g the s u b s t a n t i v e c o n t e n t of t h i s l e t t e r , p l e a s e be a d v i s e d
t h a t i t i s the i n t e n t i o n of the E x c h a n g e t o l i m i t i t s s u b m i s s i o n of f a c t s
t o t h e f o l l o w i n g i s s u e s : c o m m u n i c a t i o n s between i s s u e r s and the
b e n e f i c i a l o w n e r s o f t h e i r s e c u r i t i e s ; t h e d e f i n i t i o n of the t e r m
" b e n e f i c i a l o w n e r " f o r the p u r p o s e s o f s u b s e c t i o n s 13(d) and 14(d)
of the S e c u r i t i e s E x c h a n g e A c t of 1934; and d i s c l o s u r e and o t h e r
r e q u i r e m e n t s i n c o n n c c t i o n w i t h t e n d e r o f f e r s . E a c h of the a f o r e m e n t i o n e d i s s u e s and the c o m m e n t s of t h e E x c h a n g e w i t h r e s p e c t
t h e r e t o a r c set f o r t h below.
381
.Mr,George A. F i t z s i m m o n s
Page
4
December 31, 1974
Communications Between Issuers And The Beneficial Owners Of
Their S e c u r i t i e s
The Exchange has r e v i e w e d the t e s t i m o n y w h i c h c e r t a i n i n t e r e s t e d
persons have given at the C o m m i s s i o n ' s h e a r i n g s w i t h r e s p e c t t o
the a b o v e - m e n t i o n e d m a t t e r . I n v i e w of the f a c t that c e r t a i n s t a t e m e n t s
contained i n that t e s t i m o n y have placed i n i s s u e the e f f i c a c y of the
Exchange r u l e s r e l a t i n g to the t r a n s m i s s i o n of p r o x y and o t h e r
m a t e r i a l by our m e m b e r o r g a n i z a t i o n s , the Exchange w o u l d l i k e
to set f o r t h h e r e i n i t s c o m m e n t s r e g a r d i n g the e x i s t i n g m e c h a n i s m s
and p o l i c i e s w h i c h have been e s t a b l i s h e d p u r s u a n t to such r u l e s .
- A d d i t i o n a l l y , the Exchange deems i t a p p r o p r i a t e at t h i s t i m e t o
c o m m e n t w i t h r e s p e c t to the question of the adoption of a l t e r n a t i v e
p r o x y t r a n s m i s s i o n s y s t e m s i n connection w i t h stock h e l d i n " s t r e e t
name".
V e r y s i m p l y , the Exchange encourages b r o a d c o m m u n i c a t i o n s w i t h
s h a r e h o l d e r s on the p a r t of i t s l i s t e d companies. W i t h r e s p e c t t o
rstock h e l d i n " s t r e e t n a m e " , R u l e s 450-460 and R u l e 465 of the
B o a r d o f D i r e c t o r s of the Exchange have been adopted to f a c i l i t a t e
c o m m u n i c a t i o n s i n v o l v i n g the t r a n s m i s s i o n o f p r o x y and o t h e r
m a t e r i a l .to b e n e f i c i a l o w n e r s . The a b o v e - m e n t i o n e d r u l e s a l s o
s p e l l out how a m e m b e r o r g a n i z a t i o n m u s t s o l i c i t p r o x i e s t o
i n s u r e v o t e s . I t i s n o t e w o r t h y that these r u l e s apply to m e m b e r s
f o r u n l i s t e d as w e l l as l i s t e d s e c u r i t i e s .
F r o m an i n t e r p r e t i v e standpoint these r u l e s a r e f a i r l y s t r a i g h t f o r w a r d . We b e l i e v e , h o w e v e r , t h a t the i m p o r t a n t question i s
whether o r not t h e y a r e being p r o p e r l y f o l l o w e d . I n t h i s r e g a r d ,
the Exchange s u b m i t s f o r the C o m m i s s i o n ' s i n f o r m a t i o n and r e v i e w
a n i n e - p a g e document e n t i t l e d P r o x y Check L i s t ( E x h i b i t I attached
h e r e t o ) . C o m p l e t i o n of t h i s document by Exchange e x a m i n e r s i s
.now s t a n d a r d p r o c e d u r e d u r i n g the c o u r s e o f each R e g u l a r E x a m i n a t i o n
of the o p e r a t i o n s of an Exchange m e m b e r o r g a n i z a t i o n . I t s u t i l i z a t i o n
i s intended to guarantee adherence t o the Exchange p r o x y r u l e s and,
as a consequence t h e r e o f , t o c o n t r i b u t e to the maintenance o f the
highest standards of p e r f o r m a n c e i n connection w i t h the
t r a n s m i s s i o n of p r o x y ana other m a t e r i a l to b e n e f i c i a l o w n e r s .
M o r e o v e r , i n r e v i e w i n g the r e c o r d of the h e a r i n g s we note that
c e r t a i n w i t n e s s e s have suggested t h a t i s s u e r s as w e l l as b r o k e r s
experience d i f f i c u l t i e s i n m e e t i n g p e r f o r m a n c e r e q u i r e m e n t s .
We have taken p a r t i c u l a r note of the s t a t i s t i c a l i n f o r m a t i o n
developed by the A m e r i c a n Society of C o r p o r a t e S e c r e t a r i e s , I n c .
(Socicty) i n i t s p u b l i c a t i o n e n t i t l e d 1974 C o r p o r a t e C o m m u n i c a t i o n s
w h i c h the S e c u r i t i e s I n d u s t r y A s s o c i a t i o n i n t r o d u c e d i n t o the
r e c o r d of the p r o c e e d i n g s on D e c e m b e r 10, 1974. C e r t a i n facts
contained t h e r e i n s t r o n g l y suggest that p u b l i c l y - o w n e d companies
m u s t also s t r i v e to i m p r o v e t h e i r o p e r a t i o n a l methods i n connection
w j t h the t r a n s m i s s i o n of p r o x y and o t h e r m a t e r i a l to s h a r e h o l d e r s .
58-527 O - 75 - 25
382
. M r , George A . F i t z s i m m o n s
Page
4
December 31, 1974
In a f u r t h e r e f f o r t t o achieve the h i g h e s t s t a n d a r d of c o r p o r a t e
c o m m u n i c a t i o n s , the Exchange, i n c o n j u n c t i o n w i t h o t h e r
o r g a n i z a t i o n s , has e s t a b l i s h e d an A d Hoc C o m m i t t e e T o I m p r o v e
P r o x y S o l i c i t a t i o n s ( E x h i b i t I I attached h e r e t o l i s t s the m e m b e r s
-of the C o m m i t t e e ) . One of i t s p r i m a r y functions is to guarantee
that all the p a r t i e s i n v o l v e d i n p r o x y s o l i c i t a t i o n s a r e f u l l y a w a r e
of t h e i r r e s p e c t i v e duties and r e s p o n s i b i l i t i e s . The C o m m i t t e e ,
which m e e t s on a r e g u l a r b a s i s , i s c o m m i t t e d to i d e n t i f y i n g and
i m p l e m e n t i n g o p e r a t i o n a l i m p r o v e m e n t s . The m a i l i n g of the M a n u a l
m e n t i o n e d below to Exchange, A m e x and s e v e r a l h u n d r e d O T C l i s t e d
c o m p a n i e s i s one example of the C o m m i t t e e ' s r e c e n t a c t i v i t i e s . I t
i s o u r o p i n i o n that the C o m m i t t e e ' s e f f o r t s i l l u s t r a t e both a p r a c t i c a l
and a c o n s t r u c t i v e approach t o the r e s o l u t i o n o f p r o b l e m s w i t h
r e s p e c t to s h a r e h o l d e r c o m m u n i c a t i o n s .
A d d i t i o n a l l y , the Society has p u b l i s h e d a b o o k l e t e n t i t l e d M a n u a l
F o r P r o x y S o l i c i t a t i o n O f Stock I n B r o k e r s 1 Names w h i c h delineates
the s p e c i f i c functions i n v o l v e d i n the d i s s e m i n a t i o n of p r o x y m a t e r i a l
t o b e n e f i c i a l o w n e r s . I t i s the E x c h a n g e ' s u n d e r s t a n d i n g that t h i s
p u b l i c a t i o n has a l r e a d y been m a r k e d i n t o the r e c o r d of the p r o c e e d i n g s .
N o n e t h e l e s s , a copy of the p u b l i c a t i o n i s attached h e r e t o ( E x h i b i t I I I ) .
A s y o u w i l l note, both the p r i v a t e s e c t o r and the b r o k e r a g e i n d u s t r y
c o n t r i b u t e d t o the c o m p i l a t i o n of the M a n u a l . I n any event, the Exchange
b e l i e v e s that i f both b r o k e r s and i s s u e r s w e r e to adhere to the
g u i d e l i n e s set f o r t h t h e r e i n , the degree of cohesiveness d e s i r e d
by all i n t e r e s t e d p a r t i e s w o u l d be achieved.
W h i l e s t a n d a r d s o f p e r f o r m a n c e and the c o n t i n u i n g a b i l i t y t o m e e t
s u c h s t a n d a r d s a r e i m p o r t a n t c o n s i d e r a t i o n s i n e v a l u a t i n g the
e f f i c a c y of the Exchange p r o x y r u l e s , the f u n d a m e n t a l i s s u e
w o u l d appear to be w h e t h e r the e x i s t i n g t r a n s m i s s i o n s y s t e m i s
w o r k a b l e f r o m an a n a l y t i c a l standpoint. H a v i n g c o n s i d e r e d the
p r o b l e m s e x p e r i e n c e d by p e r s o n s o p e r a t i n g under the c u r r e n t
s y s t e m , p a r t i c u l a r l y those d i f f i c u l t i e s e x p r e s s e d by c e r t a i n
i n t e r e s t e d p e r s o n s who have given t e s t i m o n y at the C o m m i s s i o n ' s
h e a r i n g s on t h i s s u b j e c t , the Exchange i s i n c l i n e d to conclude
t h a t such p r o b l e m s do not s t e m f r o m an i n h e r e n t l y unsound
s y s t e m ; r a t h e r , i t w o u l d appear t h a t they a r e g e n e r a l l y r e l a t e d t o
p r o c e d u r a l breakdowns s t e m m i n g f r o m a m i s u n d e r s t a n d i n g of
c e r t a i n acceptable p o l i c i e s and g u i d e l i n e s . T h e r e f o r e , i t i s the
o p i n i o n of the Exchange that the d i s s e m i n a t i o n m e c h a n i s m s
e s t a b l i s h e d p u r s u a n t to the Exchange p r o x y r u l e s a r e e f f e c t i v e .
A c c o r d i n g l y , the Exchange h e r e b y r e s p e c t f u l l y suggests that the
C o m m i s s i o n should decline to i s s u e any r u l e o r r u l e s w h i c h w o u l d
have the e f f e c t of i m p l e m e n t i n g an a l t e r n a t i v e s y s t e m w i t h r e s p e c t
t o the t r a n s m i s s i o n of p r o x y and o t h e r m a t e r i a l i n connection w i t h
Stock h e l d i n " s t r e e t n a m e " . F u r t h e r , we r e c o m m e n d that a l l
i n t e r e s t e d p a r t i e s should i n t e n s i f y t h e i r e f f o r t s t o i m p r o v e p e r f o r m ance under the e x i s t i n g m e c h a n i s m s .
383
. M r , George A . Fitzsimmons
Page 4
December 31, 1974
Finally, the Exchange would l i k e t o state s e v e r a l a d d i t i o n a l r e l e v a n t
p o i n t s i n connection w i t h t h i s m a t t e r . I n p a r t i c u l a r , we f e e l c o m p e l l e d
to c o m m e n t r e g a r d i n g the r e c o m m e n d a t i o n that b r o k e r a g e f i r m s
h o l d i n g stock i n " s t r e e t n a m e " and banks and t r u s t d e p a r t m e n t s
h o l d i n g stock i n nominee f o r m should be r e q u i r e d to f u r n i s h i s s u e r s
w i t h the names of t h e i r c u s t o m e r s ( i . e . , b e n e f i c i a l owners) i f
. such c u s t o m e r s consent t o g i v i n g up t h e i r a n o n y m i t y . The stated
o b j e c t i v e of the r e c o m m e n d a t i o n i s to enable i s s u e r s to m a i l p r o x y
m a t e r i a l , annual r e p o r t s , e t c . , d i r e c t l y to s h a r e h o l d e r s . F o r
the reasons stated b e l o w , the Exchange i s not i n a g r e e m e n t w i t h such
a recommendation.
• P a r t i c i p a n t s , b r o k e r s , banks and i s s u e r s , w o u l d encounter
a p p a r e n t l y e x c e s s i v e , and p o s s i b l y p r o h i b i t i v e , cost f a c t o r s
d u r i n g the c o u r s e of developing and m a i n t a i n i n g a p p r o p r i a t e
s y s t e m s t o i m p l e m e n t the r e c o m m e n d a t i o n .
v As it is reasonable t o assume that not a l l b e n e f i c i a l o w n e r s
would consent t o d i r e c t m a i l i n g s , p a r t i c i p a n t s w o u l d be
required to r e t a i n the e x i s t i n g m e c h a n i s m and, at the same
time, t o i m p l e m e n t a new one. T h u s , o p e r a t i o n a l p r o b l e m s
would m o r e than l i k e l y be i n c r e a s e d . C l e a r l y , such a
d e v e l o p m e n t w o u l d not be i n the best i n t e r e s t s o f the
investing public.
. Unfair c o m p e t i t i o n would e m e r g e between b r o k e r a g e f i r m s and
banks i f the C o m m i s s i o n w e r e t o t a k e steps t o i m p l e m e n t the
r e c o m m e n d a t i o n w h i l e the C o m p t r o l l e r of the C u r r e n c y d e c l i n e d
to do so.
• I n s o f a r as a b r o k e r a g e f i r m ' s l i s t of c u s t o m e r s i s concerned,
it is a r g u e d that such a l i s t i s a valuable c o r p o r a t e asset. U n d e r
the p r o p o s e d r e c o m m e n d a t i o n i t w o u l d appear t h a t such an asset
could not be adequately p r o t e c t e d .
. T o the extent that a b e n e f i c i a l owner i s r e q u e s t e d t o give
tip h i s a n o n y m i t y , he w i l l be i n c l i n e d to elect t o h o l d stock
i n h i s own n a m e . We s u b m i t that a c t i v i t y of t h i s type w i l l
d i s r u p t i n d u s t r y e f f o r t s to i m m o b i l i z e stock c e r t i f i c a t e s .
M a j o r o p e r a t i o n a l breakdowns would a l s o o c c u r as the r e s u l t
of v a r i a n c e s i n m a i l i n g and r e c o r d maintenance techniques
u t i l i z e d by b r o k e r s and i s s u e r s ' t r a n s f e r agents who m a i n t a i n
advanced automated s y s t e m s .
384
.Mr,George A . F i t z s i m m o n s
Page
4
D e c e m b e r 31, 1974
The D e f i n i t i o n O f T h e T e r m " B e n e f i c i a l O w n e r " F o r T h e P u r p o s e s
Of S u b s e c t i o n s 13(d) a n d 14(d) O f T h e S e c u r i t i e s E x c h a n g e A c t
Of 1934
The E x c h a n g e i s a w a r e t h a t t h e r e have been v a r y i n g o p i n i o n s handed
down r e g a r d i n g t h i s i s s u e i n j u d i c i a l d e c i s i o n s and C o n g r e s s i o n a l
r e p o r t s w h i c h have t e n d e d t o o b f u s c a t e t h e m e a n i n g of " b e n e f i c i a l
o w n e r " . N a t u r a l l y , t h e o b j e c t i v e s of the p r o v i s i o n s of the s u b j e c t i o n s m a y be f r u s t r a t e d i f t h e c o n c e p t of t h e t e r m i s u n c l e a r .
A c c o r d i n g l y , the E x c h a n g e t a k e s a p o s i t i o n i n f a v o r o f c l a r i f y i n g
the m e a n i n g of the t e r m " b e n e f i c i a l o w n e r " . H o w e v e r , b a s e d i n
p a r t o n t h e f a c t t h a t the a d o p t i o n of a d e f i n i t i o n of " b e n e f i c i a l o w n e r "
m a y tend t o invite evasion of the r e p o r t i n g r e q u i r e m e n t s envisioned
u n d e r t h e " W i l l i a m s A c t " , w e b e l i e v e t h a t t h e t e r m s h o u l d be
c l a r i f i e d b y m e a n s of f l e x i b l e p u b l i s h e d g u i d e l i n e s r a t h e r t h a n
by d e f i n i t i o n . M o r e o v e r , s u c h g u i d e l i n e s s h o u l d be d e v e l o p e d
p u r s u a n t t o the l e g i s l a t i v e i n t e n t o f the A c t a n d i n r e l a t i o n t o
c o n s i d e r a t i o n s w h i c h t a k e i n t o a c c o u n t t h e r i g h t s , p r i v i l e g e s and
p r o t e c t i o n s of the p u b l i c and t h o s e p e r s o n s r e q u i r e d t o f i l e d i s c l o s u r e
statements.
Disclosure A n d Other Requirements In Connection With Tender
Offers
The E x c h a n g e c o m m e n d s a n d e n d o r s e s t h e e f f o r t s o f t h e C o m m i s s i o n
fa c o n d u c t i n g the i n s t a n t i n v e s t i g a t i o n r e g a r d i n g the a b o v e m e n t i o n e d t o p i c . D i s c l o s u r e to s t o c k h o l d e r s of events w h i c h
may a f f e c t i n v e s t m e n t d e c i s i o n s i s and has b e e n f o r m a n y y e a r s
a p r i m a r y o b j e c t of E x c h a n g e p o l i c y . We c o n s i d e r t i m e l y d i s c l o s u r e
so v i t a l t o the f a i r o p e r a t i o n of a s e c u r i t i e s m a r k e t t h a t o u r r u l e s
and procedures subject l i s t e d companies to disclosure r e q u i r e m e n t s
that a r e as s t r i n g e n t as t h o s e c o n t a i n e d i n t h e f e d e r a l o r s t a t e
securities laws.
I n the c o n t e x t of t h i s d i s c u s s i o n , t h e E x c h a n g e w o u l d l i k e t o e x p r e s s
the f o l l o w i n g b a s i c t e n e t s W h i c h , i n i t s v i e w , s h o u l d s e r v e as u n d e r l y i n g
p r i n c i p l e s i n d e t e r m i n i n g w h e t h e r t o adopt o r a m e n d r u l e s , r e g u l a t i o n s
a n d f o r m s r e l a t i n g t o d i s c l o s u r e and o t h e r r e q u i r e m e n t s i n c o n n e c t i o n
with t e n d e r o f f e r s .
1,
U n d e r any and a l l c i r c u m s t a n c e s t h e p u b l i c s h o u l d b e
able to make reasoned investment descisions.
2. R e g u l a t i o n s r e l a t i n g t o t e n d e r o f f e r t r a n s a c t i o n s s h o u l d
be i m p l e m e n t e d w i t h o u t d i s r u p t i n g i m p o r t a n t m a r k e t
p r o c e d u r e s w h i c h have been d e m o n s t r a t e d t o be
w o r k a b l e and i n the p u b l i c i n t e r e s t .
385
. Mr, George A . Fitzsimmons
3.
Page
December 31, 1974
4
M o s t i m p o r t a n t l y , p e r s o n s who m a k e o r a r e a f f e c t e d
by t e n d e r o f f e r t r a n s a c t i o n s should be able t o m a k e
d e c i s i o n s and to conduct t h e i r r e s p e c t i v e business
and i n v e s t m e n t a c t i v i t i e s o n a basis that i s f a i r and
equitable.
The Exchange would also l i k e t o take t h i s o p p o r t u n i t y to propose
a change w i t h r e s p e c t to subsection 14(d) (5) of the Exchange A c t .
It i s h e r e b y suggested that the c u r r e n t m i n i m u m d u r a t i o n of
seven days be extended to ten. T h i s w o u l d b r i n g the p r o v i s i o n
. in l i n e w i t h Exchange p o l i c y and p r o v i d e m o r e adequate p r o t e c t i o n
for i n v e s t o r s .
In conclusion, again, the Exchange would l i k e to thank the
C o m m i s s i o n f o r the o p p o r t u n i t y to p r e s e n t i t s v i e w s . F u r t h e r m o r e ,
it is our u n d e r s t a n d i n g that t h i s p r o c e e d i n g i s e s s e n t i a l l y a f a c t finding e f f o r t and that any r u l e s o r amendments developed as a
result t h e r e o f w i l l be proposed f o r issuance by the C o m m i s s i o n
in a separate p r o c e e d i n g i n w h i c h i n t e r e s t e d persons w i l l be
afforded the o p p o r t u n i t y to p a r t i c i p a t e . I n t h i s r e g a r d , we look
f o r w a r d w i t h i n t e r e s t to y o u r continuing e f f o r t s w i t h r e s p e c t t o
these very i m p o r t a n t i s s u e s .
Very t r u l y y o u r s ,
James E . B u c k
Secretary
Enclosures
58-527 O - 75 - 26
386
PROXY CHECK LIST
er O r g a n i z a t i o n :
LE 450
Examiner:
Date:
RESTRICTION ON GIVING OF PROXIES
NO MEMBER ORGANIZATION SHALL GIVE OR AUTHORIZE THE GIVING
A PROXY TO VOTE STOCK REGISTERED I N ITS NAME, OR I N THE NAME OF
S NOMINEE, EXCEPT AS REQUIRED OR PERMITTED UNDER THE PROVISIONS
RULE 452 UNLESS SUCH MEMBER ORGANIZATION I S THE BENEFICIAL OWNER
SUCH STOCK.
LE 451:
Does member o r g a n i z a t i o n t r a n s m i t t o b e n e f i c i a l owners
of. stock a l l o f t h e m a t e r i a l f u r n i s h e d by proxy s o l i c i t o r ?
Are the b e n e f i c i a l owners made aware o f t h e f o l l o w i n g
-conditions i f they f a i l to f u r n i s h v o t i n g i n s t r u c t i o n s :
A. Record h o l d e r may v o t e t h e p r o x y , i f i n s t r u e t i b n s
from b e n e f i c i a l owners have n o t been r e c e i v e d by
t h e 10th day b e f o r e the m e e t i n g d a t e , and proxy
m a t e r i a l had been sent to t h e b e n e f i c i a l owner
at l e a s t 15 davs b e f o r e the m e e t i n g date?
B. Record' h o l d e r may v o t e proxy 15 days b e f o r e
'meeting d a t e i f proxy m a t e r i a l had been sent
t o b e n e f i c i a l owners 25 days o r more b e f o r e the
m e e t i n g date?
I f member o r g a n i z a t i o n t r a n s m i t s signed p r o x i e s t o
the b e n e f i c i a l owners are t h e f o l l o w i n g p r o v i s i o n s
met:
A. Signed proxy must i n d i c a t e number o f shares h e l d
• f o r the b e n e f i c i a l owner, and c a r r y a symbol or
code number i d e n t i f y i n g the proxy r e c o r d s o f t h e
member o r g a n i z a t i o n ?
B. B e n e f i c i a l owners must a l s o r e c e i v e a l e t t e r
r e q u e s t i n g c o m p l e t i o n o f the p r o x y , and g i v i n g
i n s t r u c t i o n s to f o r w a r d completed proxy t o the
solicitor?
(NOTE:
T h i s r u l e s h a l l n o t a p p l y t o b e n e f i c i a l owners
the U n i t e d S t a t e s ) .
outside
387
j
451.10
Are b e n e f i c i a l owners f u r n i s h e d w i t h annual r e p o r t s
under the same c o n d i t i o n s as those a p p l y i n g t o proxy
s o l i c i t i n g material?
4 5 1 . 2 0 (Does n o t r e f e r t o signed p r o x i e s )
Are b e n e f i c i a l owners f u r n i s h e d w i t h l e t t e r s
v o t i n g i n s t r u c t i o n s and g i v i n g the f o l l o w i n g
requesting
information
A. Broker may v o t e on a l l p r o p o s a l s w i t h o u t
s t r u c t i o n s from b e n e f i c i a l owner?
in-
B. Broker may n o t v o t e on any p r o p o s a l s w i t h o u t
i n s t r u c t i o n s from b e n e f i c i a l owner?
C. Broker may v o t e on c e r t a i n b u t n o t a l l o f t h e
proposals w i t h o u t i n s t r u c t i o n s from t h e b e n e f i c i a l
owner?
LE 4 5 1 . 3 0
I f the member o r g a n i z a t i o n f u r n i s h e s b e n e f i c i a l owner
w i t h signed p r o x i e s , i s the f o l l o w i n g accomplished:
*A. Company o r proxy s o l i c i t o r i s n o t i f i e d o f the
number o f p r o x i e s s e n t , the i d e n t i f y i n g numbers,
and the shares r e p r e s e n t e d by such proxies?
B* F o l l o w up r e q u e s t s sent t o b e n e f i c i a l owners
a t the r e q u e s t o f the s o l i c i t o r ?
C. Records k e p t showing:
Date o f r e c e i p t o f proxy m a t e r i a l
company o r s o l i c i t o r ?
from
2 . Names o f customers f u r n i s h e d proxy
m a t e r i a l and d a t e o f m a i l i n g ?
3 . Number o f shares covered by each proxy?
4 . Code number of each proxy?
388
ysi.Ao
[f signed p r o x i e s a r e t r a n s m i t t e d to b e n e f i c i a l owners, a r e
Letters also f u r n i s h e d i n d i c a t i n g :
A* Proxy c o n t a i n s no proposals to be v o t e d on?
B. Proxy contains proposals t o be v o t e d on?
451.50
ts f i r s t c l a s s m a i l used t o forward proxy m a t e r i a l
[>r signed proxies?
451.60
Does member o r g a n i z a t i o n f u r n i s h proxy m a t e r i a l to
b e n e f i c i a l owner, even though such owner does n o t
want- m a t e r i a l ?
1 451.70
Does member o r g a n i z a t i o n f u r n i s h proxy m a t e r i a l t o
b e n e f i c i a l owners outside the U n i t e d S t a t e s even
though t h i s i s not required?
C 451.80
I f member o r g a n i z a t i o n i s o u t - o f - t o w n o r n o n - c l e a r i n g
v i t h s e c u r i t i e s h e l d i n an omnibus account, do they
bear the r e s p o n s i b i l i t y f o r t r a n s m i t t i n g proxy m a t e r i a l
t o b e n e f i c i a l owners, and do they keep, the proper
.records?
L3S 451.90
Are the f o l l o w i n g charges made by member o r g a n i z a t i o n s
proxy s o l i c i t a t i o n ?
for
50c f o r each set o f proxy m a t e r i a l f o r those meetings t h a t
do not include a proposal which r e q u i r e s b e n e f i c i a l
owner i n s t r u c t i o n s , plus postage, w i t h a minimum of
$ 3 . 0 0 f o r a l l sets mailed;
60$ f o r each set of proxy m a t e r i a l f o r those meetings which
i n c l u d e a proposal r e q u i r i n g b e n e f i c i a l owner i n s t r u c t i o n s
p l u s postage, w i t h a minimum o f $ 3 . 0 0 f o r a l l sets m a i l e d ;
10$ f o r each copy, plus postage, f o r i n t e r i m r e p o r t s or o t h e r
w a ^ n ' n l . w i t h no minimum.
389
Page
5 452
I s the member o r g a n i z a t i o n f a m i l i a r w i t h t h e procedure
f o r g i v i n g a proxy t o v o t e stock i n the absence o f i n s t r u c t i o n s from the b e n e f i c i a l owner, s p e c i f i c a l l y ,
A . Person g i v i n g proxy must have no knowledge
o f any c o n t e s t to a c t i o n a t t h e meeting?
B . Any a c t i o n i s a d e q u a t e l y d i s c l o s e d t o s t o c k holders?
C. A c t i o n does n o t i n c l u d e a u t h o r i z a t i o n f o r a
m e r g e r , c o n s o l i d a t i o n or any o t h e r m a t t e r
a f f e c t i n g r i g h t s o r p r i v i l e g e s " o f stock?
I f member o r g a n i z a t i o n has any stock i n i t s
possession o r c o n t r o l r e g i s t e r e d i n the name o f
another member o r g a n i z a t i o n does i t :
A« .Forward t o 2nd member o r g a n i z a t i o n any v o t i n g
i n s t r u c t i o n s r e c e i v e d from b e n e f i c i a l owner?
B. N o t i f y 2nd member o r g a n i z a t i o n o f n o n - r e c e i p t
of voting instructions?
C. Request from 2nd member o r g a n i z a t i o n t h e
amount o f signed p r o x i e s , i f necessary?
5 452.11
Does the member o r g a n i z a t i o n use the i n f o r m a t i o n c o n c e r n i n g
s t o c k h o l d e r s ' meetings and g i v i n g o f p r o x i e s as p u b l i s h e d
i n the N . Y . S . E . I n c . Weekly B u l l e t i n ? .
I s the member o r g a n i z a t i o n f a m i l i a r w i t h t h e e i g h t e e n
(18) r e s t r i c t i o n s o u t l i n e d i n t h i s r u l e , that prevent
g i v i n g a proxy to v o t e w i t h o u t i n s t r u c t i o n s from the
b e n e f i c i a l owner? ( P l e a s e r e f e r t o f o l l o w i n g page 4 A ) .
; 452.12
I f a member o r g a n i z a t i o n , i n the absence o f i n s t r u c t i o n s , v o t e s , a proxy c o n t a i n i n g d i s c r e t i o n a r y
and n o n - d i s c r e t i o n a r y p r o p o s a l s , does i t cross out
n o n - d i s c r e t i o n a r y p o r t i o n o f proxy?
_
390
<
O
u
CO
X,
Hulc 452 .11
Generally speaking, a member organization may not give a proxy to vote
thout instructions from beneficial owner* when the matter to l>c voted upon:
(1) is not submitted to stockholders by means of a proxy statement
comparable to that specified in Schedule' M - A of the Securities and
Exchange Commission; .
(2) is the subject of a counter-solicitation, or is part of a proposal
made by a stockholder which is being opposed by management (i.e., a
contest);
(3) relates lo a merger or consolidation (except when the company's
proposal is to merge with its own wholly owned subsidiary, provided
its shareholders dissenting thereto do not have rights of.appraisal);
(4) involves right of appraisal;
(5) authorizes mortgaging of property;
(6) authorize* or creates indebtedness or increases the authorized
amount of indebtedness;
(7) authorizes or crcatcs a preferred stock or increases the authorized
amount of an existing preferred stock; .
(8) alters the terms or conditions of existing stock or indebtedness;
(9) involves waiver or modification of preemptive rights (cxcept
when the company's proposal is to waive such rights with respect to
shares being offered pursuant to stock option or purchase plans involving
the additional issuance of not more than 5c/o of the company's outstanding
common shares (see Item 1 2 ) ) ;
(10) changcs existing'quorum requirements with respect to stockholder meetings;
391
(11) alters v o t i n g provisions or the proportionate v o t i n g power of
a stock, or the number of its voter- per share (except where cunuf»:itivc
voting provisions govern the number of votes per share for election of.
directors and the company's proposal involves & change in the number
of its directors by not more than 10r/o or not more than one) ;
(12) authorizes issuance of stock, or options to purchase stock, t o
directors, officers,
employees in an amount which excceds
of the
total amount of tlie class outstanding;
(13) authorizes
a. a new profit-sharing or special remuneration plan, or a new
retirement plan, the annual cost of which w i l l amount to more than
1 0 / i of average annual income before taxes for the preceding five
years, or
b. the amendment of an existing plan which would b r i n g its
cost above 10c/o of such average annual income before taxes.
Exception may he made in cases of
a. retirement plans based on agreement or negotiations w i t h
labor unions (or which have been or arc to be approved by such
u n i o n s ) ; and
b. any related retirement plan for benefit of non-union employees
having terms substantially equivalent to the terms of such unionnegotiated plan, which is submitted for action of stockholders concurrently w i t h such union-negotiated plan;
( H ) changes the purposes or powers of a company to an extent
which would permit it to change to a materially different line of business
and it is the company's stated intention to make such a change;
(15) authorizes the acquisition of property, assets, or a company,
where I lie consideration to he given ha?; a fair value approximating 20 }o
or more of the market value of the previously outstanding shares;
• (16) authorises the sale or other disposition of assets or earning
power approximating 20^; or more of those existing prior to the transaction.
(17) authorizes a transaction not in the ordinary course of business
in which an officer, director or substantial security holder has a direct or
Indirect interest;
(IS) reduces earned surplus by $ ] % or more, or reduces earned
surplus to an amount less than the aggi egatc of three years' common
stock dividends computed at the current dividend rate.
392
452.13
UFter a contest has developed, does a member o r g a n i i t i o n r e f r a i n from v o t i n g any o t h e r p r o x i e s except a t
le d i r e c t i o n o f the b e n e f i c i a l owner.
^52.14
£ a member o r g a n i z a t i o n gives a subsequent proxy, does
w c l e a r l y i n d i c a t e t h a t the proxy i s i n a d d i t i o n t o ,
i s u b s t i t u t i o n f o r , o r i n r e v o c a t i o n o f any p r i o r proxy?
V52.15
re proxies given by member o r g a n i z a t i o n d a t e d and
Learly show number o f shares voted?
E a proxy i s manually signed, i s the name o f the
ariber o r g a n i z a t i o n typed o r rubber stamped on the proxy?
fc52.16
re the f o l l o w i n g proxy records m a i n t a i n e d :
A. Date o f r e c e i p t o f proxy m a t e r i a l from i s s u e r
or•solicitor?
B. Names o f customers to whom m a t e r i a l i s sent
and date o f m a i l i n g .
C. A l l v o t i n g i n s t r u c t i o n s showing whether v e r b a l
or written?
D. Summary o f proxies voted i n d i c a t i n g t o t a l shares
voted f o r each proposal, t o t a l shares voted
against each proposal, t o t a l shares n o t voted
on each proposal?
E. V e r b a l i n s t r u c t i o n s to v o t e :
1 . Date o f r e c e i p t o f i n s t r u c t i o n s ?
2. Name o f r e c i p i e n t o f i n s t r u c t i o n s ?
3. What i n s t r u c t i o n s were received?
Page 5 .
393
A 452.20
Are the f o l l o w i n g records r e t a i n e d f o r n o t l e s s than 3
y e a r s , v the f i r s t two y e a r s i n an e a s i l y a c c e s s i b l e p l a c e
A . A l l proxy s o l i c i t a t i o n
records?
B. O r i g i n a l s o f communications
received?
C. Copies o f communications sent?
IE 453
, Do a l l p r o x i e s g i v e n by t h e member o r g a n i z a t i o n
- • i n d i c a t e the a c t u a l number o f shares voted?
clearly
LE 454
. 'Does the member o r g a n i z a t i o n t r a n s f e r c e r t i f i c a t e s o f
a l i s t e d stock t o i t s own name or name o f i t s nominee
p r i o r t o t a k i n g a r e c o r d o f s t o c k h o l d e r s when so
requested by the Exchange?
LE 456
, Has the member o r g a n i z a t i o n w i t h i n t h e l a s t y e a r
r e p r e s e n t e d s h a r e h o l d e r s i n making demands f o r changes
. i n management o r company p o l i c i e s ?
• I f so, has member o r g a n i z a t i o n :
A. Received p e r m i s s i o n o f such s h a r e h o l d e r s
make such demands?
B. F i l e d w i t h t h e Exchange i n f o r m a t i o n
by Schedule B, where the company i s
to
required
unregistered?
LE 457
>• lias the member o r g a n i z a t i o n engaged, a l o n e or w i t h
o t h e r s , w i t h i n the l a s t year i n any o f the f o l l o w i n g
a c t i v i t i e s r e l a t i n g to a p r e s e n t o r p r o s p e c t i v e
proxy c o n t e s t i n v o l v i n g an u n r e g i s t e r e d company:
394
Page 7 .
A* Requests more than 10 security holders to sign a
proxy (other than normal transmission under Rule 451)?
B. Requests more than 10 security holders to vote for,
o r against, or abstain from voting on any proposal?
•
C. Requests another security holder:
X. To join in calling a meeting of security
holders?
t
2* To join in litigation against an issuer?
3. T
o join or
assist
1 in the formation of a
security
holders
committee?
D. Becomes a nominee for director?
£ • Becomes a member o f a s e c u r i t y
committee o r group?
holders1
F . C o n t r i b u t e s funds toward t h e c o s t o f a
p r o s p e c t i v e o r p r e s e n t proxy c o n t e s t ?
I f so, has member o r g a n i z a t i o n f i l e d w i t h t h e Exchange
i n f o r m a t i o n r e q u i r e d by Schedule B?
US 458
• I f the answers t o q u e s t i o n 28A a n d / o r 28B a r e " y e s " ,
has the member o r g a n i z a t i o n a l s o f i l e d w i t h t h e Exchange
i n f o r m a t i o n r e q u i r e d by Schedule A , and g i v e n a copy
t o each person o f whom such r e q u e s t was made?
pE 4 5 8 . 1 0
I f the member o r g a n i z a t i o n i n t e n d s t o become a c t i v e i n
a proxy c o n t e s t i n v o l v i n g a r e g i s t e r e d company a r e
they aware:
A. T h a t they may a d v i s e a customer on h i s u n s o l i c i t e d
reqviest how t o v o t e i n a proxy c o n t e s t , b u t i f
t h e y v o l u n t e e r the a d v i c e , the member o r g a n i z a t i o n
may have t o f i l e schedule 14-B w i t h t h e SEC under
regulation 240.14a-11.
_ _ _
<
______
395
459
I f the member o r g a n i z a t i o n j o i n s w i t h any other person
i n a c t i v i t y r e f e r r e d to i n question 28A and/or 28B
are they aware t h a t other person must:
A. F i l e w i t h the Exchange Schedules A & B?
B. Give copy o f i n f o r m a t i o n i n Schedule A to each
person of whom such request was made?
459.10
I s the member o r g a n i z a t i o n aware t h a t a l l i n f o r m a t i o n
£ i l e d w i t h the Exchange i n Schedules A & B i s p u b l i c
information?
:. 460. and 460.10
I f a member or member o r g a n i z a t i o n s p e c i a l i z e s i n the
stock of a company are they aware o f the f o l l o w i n g
restrictions:
A. No member, o f f i c e r , p a r t n e r , f i r m , c o r p o r a t i o n ,
or employee s h a l l p a r t i c i p a t e i n a proxy
contest?
B. None o f the above s h a l l be a d i r e c t o r of the
" company?
C. Cannot be i n any c o n t r o l r e l a t i o n s h i p w i t h
company?
D. Cannot accept a f i n d e r ' s fee f r o m ' t h e company?
5 465 and RULE 4 6 5 . 1 0
Does the member o r g a n i z a t i o n f u r n i s h b e n e f i c i a l
owners w i t h i n t e r i m r e p o r t s and other m a t e r i a l
furnished by companies, both l i s t e d and u n l i s t e d ?
E 465.30
Does member o r g a n i z a t i o n use a form of b i l l s i m i l a r to the
f o l l o w i n g for expenses incurred i n f u r n i s h i n g b c n e f i c i a l
owners w i t h proxy s o l i c i t i n g m a t e r i a l , amual r e p o r t s ,
i n t e r i m reports c t c .
396
Page 7.
•30
F o r m o£ bill to be used by member organizations.DATE:
TO:
Espens-s ir.curr-d in connection v.-ith mailing ox
followir.j cstcrial:
No. Sets
Mailed
Scrvrice
Fee
PostageExpense
Total
Charges
A N N U A L REPORT
P R O X Y SOLICITING
MATERIAL
I N T E R I M REPORT
POST MEETING REPORT
STOCKHOLDER LETTER
OTHER:
.
FOR CORPORATION
RECORDS
DATE PAID
CHECK NO.
* Notes to Examiner:
.1) A s a t e s t c h e c k t o d e t e r m i n e w h e t h e r member o r g a n i z a t i o n
p r o p e r l y s o l i c i t s p r o x i e s and p r o p e r l y m a i n t a i n s r e c o r d s ,
r e f e r t o a p a s t a n d r e c e n t c o p y o f t h e New Y o r k S t o c k
Exchange, I n c . Weekly B u l l e t i n .
Pick three (3) s e c u r i t i e s
w h e r e t h e m e e t i n g has been r e c e n t l y h e l d and t h r e e ( 3 )
s e c u r i t i e s where the meeting date i s scheduled s h o r t l y .
I n each o f the groups o f t h r e e , the f o l l o w i n g c a t e g o r i e s
should be represented f o r the check:
A.
B.
C.
2)
W h e r e member o r g a n i z a t i o n c a n v o t e e n t i r e p r o x y
w i t h o u t i n s t r u c t i o n s under the " 1 0 day r u l e " .
W h e r e member o r g a n i z a t i o n c a n v o t e p o r t i o n s o f .
t h e p r o x y o n l y upon r e c e i p t o f i n s t r u c t i o n s .
W h e r e member o r g a n i z a t i o n c a n n o t v o t e a n y p o r t i o n .
of t h e p r o x y w i t h o u t
instructions.
D e t e r m i n e w h e t h e r member o r g a n i z a t i o n i s f o r w a r d i n g
proper voting instructions to Central C e r t i f i c a t e Service
on t h e s h a r e s h e l d b y CCS o n r e c o r d d a t e .
N.Y.S.E.
INC.
- Nov.
7 1 (Rev
2/72)
397
A d Hoc Committee to Improve Proxy Solicitations
Kichard Drew (Chairman)
New Y o r k Stock Exchange, Inc.
Robert Carlson
M e r r i l l Lynch, P i e r c e , Fenner
& Smith Incorporated
M a r i e Kellam
A m e r i c a n Telephone & Telegraph Company
F r a n k Kroha
New Y o r k Stock Exchange, Inc.
Charles L a y e r
Chase Manhattan Bank
Edward M c N a m a r a
Bethlehem Steel Corporation
P a m e l a Mannes
Manufacturers Hanover T r u s t Company
James Osborn
General Motors Corporation
David Pitou
.international Business Machines Corporatic
Frank Reilly
New Y o r k Stock Exchange, Inc.
Jack Ruiz
Depository T r u s t Company, Inc.
Charles Stevens
A m e r i c a n Stock Exchange Inc.
Raymond Thorpe
E . F . Hutton & Company Inc.
Gary Tuttle (Secretary)
New Y o r k Stock Exchange, Inc.
Richard Welch
Bache & Co. Inc.
James Y o r e
National Association of Securities
Dealers, Inc.
398
MANUAL FOR
PROXY SOLICITATION OF STOCK
IN BROKERS' NAMES
A M E R I C A N SOCIETY O F CORPORATE SECRETARIES, INC.
ONE ROCKEFELLER PLAZA, NEW YORK, N. Y. 10020
399
P R E P A R E D AS A J O I N T R E P O R T
OF
THE FOLLOWING ORGANIZATIONS
A m e r i c a n S o c i e t y of C o r p o r a t e S e c r e t a r i e s ,
The A m e r i c a n Stock Exchange,
Inc.
The N a t i o n a l A s s o c i a t i o n of S e c u r i t i e s D e a l e r s ,
The N e w Y o r k Stock Exchange,
Inc.
Inc.
Inc.
Securities Industry Association
J a n u a r y 1974
E x t r a c o p i e s m a y be o r d e r e d f r o m t h e o f f i c e s o f a n y
of the above o r g a n i z a t i o n s . P r i c e $ 1 . 0 0 p e r copy.
See page e l e v e n f o r a d d r e s s e s .
400
INTRODUCTION
The purpose of this Manual is to promote the use of standard f o r m s and
practices in order to facilitate solution of the problems a r i s i n g in the handling of
proxy solicitations, create better financial public relations, and r e a l i z e a m a x i m u m representation of shares in b r o k e r s ' names at meetings of stockholders.
This Manual has been prepared as a joint report by the A m e r i c a n Society
of Corporate Secretaries, I n c . , The A m e r i c a n Stock Exchange, The National
Association of Securities D e a l e r s , I n c . , The New Y o r k Stock Exchange, I n c . ,
and the Securities Industry Association.
PUBLICITY
Immediate newspaper publicity should be given to the calling of a meeting
of stockholders for the purpose of acting upon any matter affecting in any way the
rights or privileges of stockholders or any other m a t t e r not of routine n a t u r e .
Such publicity should, of course, describe the m a t t e r to be acted upon. It is
recommended that a m i n i m u m of thirty days be allowed between the r e c o r d date
and the meeting date so as to give ample time for the solicitation of p r o x i e s .
II
N O T I C E T O E X C H A N G E S OR NASD
The Exchanges or the NASD should be given prompt notice, i n w r i t i n g , of
the calling of any meeting of stockholders. Such notice should be received by
the Exchanges or the NASD not later than the tenth calendar day p r i o r to the date
of r e c o r d (or the closing of the transfer books) for determination of stockholders
entitled to vote at the meeting. Such notice should indicate the date of the m e e t ing, the date of r e c o r d for determination of stockholders entitled to vote, and
describe the m a t t e r s to be voted upon at the meeting.
If the transfer books a r e to be closed i n l i e u of the taking of a r e c o r d of
stockholders, the notice shall state the date of reopening of the books as w e l l as
the date of their closing.
HI
N O T I F I C A T I O N T O BROKERS
The standard forms recommended i n this Manual have been designed to - A.
Be readily recognized as proxy soliciting m a t e r i a l
B.
Be easily understood by proxy departments of brokerage
firms
" R E C O G N I T I O N " of m a t e r i a l relating to proxy solicitation is i m p o r t a n t .
Thus, it is urged that the color B L U E be used for a l l suggested f o r m s . The
use of standard forms w i l l insure that proxy m a t e r i a l w i l l be processed m o r e
expeditiously.
401
IV
RECORD DATE
B r o k e r s should be n o t i f i e d of m e e t i n g s as f a r i n advance of the r e c o r d date
as p o s s i b l e . T e n days should be d e e m e d a n absolute m i n i m u m , although l o n g e r
notice is d e s i r a b l e . ( N o t i f y i n g the b r o k e r s of a r e c o r d date does not r e l i e v e
the c o r p o r a t i o n s of any r e s p o n s i b i l i t y they m a y have f o r a l s o n o t i f y i n g the r e s p e c tive E x c h a n g e s or the N A S D . )
B r o k e r s should be n o t i f i e d of this r e c o r d date by the use of a s e a r c h f o r m
w h i c h a l s o s e r v e s to p r o v i d e a m e t h o d for b r o k e r a g e f i r m s to o r d e r p r o x y
m a t e r i a l and annual r e p o r t s . (See E x h i b i t A & B)
DESCRIPTION OF SEARCH F O R M
I t is r e c o m m e n d e d that c o r p o r a t i o n s use a blue double p o s t a l c a r d a p p r o x i m a t e l y 6 1 / 2 " x 8 1 / 2 " f o r e a c h h a l f . T h e o v e r s i z e d c a r d lends i t s e l f to i n stant i d e n t i f i c a t i o n as p r o x y m a t e r i a l . T h e double c a r d should m e e t the needs of
m o s t c o r p o r a t i o n s and b r o k e r s i n connection w i t h o r d e r i n g p r o x y m a t e r i a l and i n
a d v i s i n g b r o k e r s about the t i m e t a b l e . T h e i n f o r m a t i o n thus r e c e i v e d w i l l enable
d e l i v e r y of p r o x y s o l i c i t i n g m a t e r i a l to b r o k e r s i n adequate t i m e . Of c o u r s e , the
w o r d i n g of the suggested f o r m s w i l l not f i t a l l s i t u a t i o n s . F o r e x a m p l e , some
c o r p o r a t i o n s m a y h a v e nonvoting stock, w h e r e a s o t h e r s w i l l have a l l classes of
stock e n t i t l e d to v o t e . S i m i l a r l y , i n some cases, a bank or p r o x y s o l i c i t i n g f i r m
w i l l f u r n i s h the p r o x y m a t e r i a l , w h e r e a s i n o t h e r s , the S e c r e t a r y ' s o f f i c e or the
p r i n t e r m a y do so. T h e w o r d i n g has b e e n d r a f t e d to c o v e r m o s t cases but obv i o u s l y m a y need r e v i s i o n i n o r d e r to m e e t a s p e c i f i c s i t u a t i o n , e . g . , i f a c o r p o r a t i o n plans a second m a i l i n g , i t should be so stated, t o g e t h e r w i t h the proposed
date of m a i l i n g .
U n d e r " D e l i v e r y of M a t e r i a l to B r o k e r s " , p l e a s e show under "Scheduled
D a t e " y o u r best e s t i m a t e of the dates y o u expect to d e l i v e r the m a t e r i a l . I n o r d e r
to c o m p l y w i t h S e c u r i t i e s and Exchange C o m m i s s i o n and the E x c h a n g e s ' r u l e s , i t
is n e c e s s a r y f o r the c o r p o r a t i o n to f u r n i s h to the b r o k e r , f o r d i s t r i b u t i o n to
clients who a r e b e n e f i c i a l o w n e r s , a l l of the p r o x y m a t e r i a l that the c o r p o r a t i o n
is sending to s t o c k h o l d e r s , i n c l u d i n g the p r o x y and a n n u a l r e p o r t . T h e columns
headed " D a t e R e c e i v e d " and " D a t e M a i l e d " a r e for the use of the b r o k e r s .
T h e i n f o r m a t i o n to be shown under "Shares E n t i t l e d to V o t e " is to be
f u r n i s h e d by the c o r p o r a t i o n , f o l l o w i n g the r e c o r d d a t e .
M a i l i n g i n s t r u c t i o n s m u s t be c o m p l e t e . B r o k e r s m u s t know w h e t h e r the
annual r e p o r t i s to be m a i l e d w i t h the p r o x y m a t e r i a l or w h e t h e r i t is to be
m a i l e d s e p a r a t e l y ; a l s o how the annual r e p o r t and the p r o x y m a t e r i a l a r e to be
m a i l e d ( F i r s t C l a s s o r T h i r d C l a s s ) . A l s o , f u r n i s h as m u c h advance i n f o r m a t i o n
as p o s s i b l e about " f o l l o w - u p m a i l i n g s " .
T H E N A M E A N D P H O N E N U M B E R O F A N I N D I V I D U A L D E S I G N A T E D BY
T H E CORPORATION MUST BE L I S T E D FOR INQUIRIES CONCERNING REQUESTS
FOR ADDITIONAL PROXY M A T E R I A L , ANNUAL REPORTS, E T C . THIS I N F O R M A T I O N IS E S S E N T I A L . W H E R E A C O R P O R A T I O N USES T H E F A C I L I T I E S O F
A BANK FOR SOLICITING PROXY M A T E R I A L , T H E CORPORATION MUST
FURNISH ON T H E "SEARCH CARD" T H E N A M E AND T E L E P H O N E N U M B E R O F
T H E I N D I V I D U A L AT T H E BANK IN CHARGE OF T H E S O L I C I T A T I O N OF
PROXIES.
58-527 O - 75 - 27
402
(EXHIBIT A)
(Name of Company)
Shares Entitled to Vote
Kecoraaate
Location .
*
~ FOR BROKER'S USE ~
Class of In Name of In Name of
Stock
Broker
Cede & Co.
Delivery of Material to Brokers
FOR BROKER'S USE
Scheduled
Date
Date
Date
Received
Mailed
Envelopes (9x12)
Annual reports ....
Proxy material
Mailing Instructions
Initial Mailing
Follow-up Mailing
Domestic
owners
Foreign
owners
Addresses:
For return of signed proxies
For telegraphic proxies
For information about your order, call
at
(Name)
(Phone No.)
Please mail all material upon receipt in accordance with the above instructions. You will be
reimbursed at the rate of
<t per set, plus postage, with a minimum of $3.00, including
postage, in accordance with the rules of the New York Stock Exchange.
Number of sets required
Date requested
PLEASE COMPLETE THE ATTACHED CARD AND MAIL IT WITHOUT DELAY
403
(EXHIBIT A)
(Date)
(Name and address of Company)
Attention:
Please furnish the following material for use in connection with your company's
next meeting of stockholders:
1
Annual reports
2
Notice of Meeting and Proxy Statement
3
Proxies
Class of Stock
4
9 x 12 plain envelopes;
5
Postage paid envelopes for return of signed proxies to company.
(Please cross out material not needed.)
Please send the above material to the following:
(Firm Name)
(Firm Membership - i.e., AMEX, NYSE or NASD)
Attention:
Room No
(Name of Jroxy Dept. Mgr.)
(Phone No.)
NOTE: Broker-client solicitation letter is to be furnished by broker.
The reverse of this card is to be pre-addressed to the corporation, transfer agent, or its proxy solicitor.
404
Some corporations do not accept telegraphic p r o x i e s . I f so, please indicate.
However, i f they a r e acceptable, l i s t the proper address for their r e c e i p t .
F u r t h e r , i f the voting of foreign holdings may be of importance to a c o r p o r a tion, the corporation should give consideration to making a statement to brokers
as to how the m a t e r i a l should be sent to foreign holders, such as by a i r m a i l or
regular m a i l .
The other p a r t of the double card would be for the use of the broker to i n dicate its soliciting r e q u i r e m e n t s . (Brokers have expressed concern that during
a busy proxy season c l e r i c a l omissions may occur. T h e r e f o r e , p a r t i c u l a r l y
when important blocks of stock a r e involved, it may be advisable to maintain a
procedure whereby a telephone call is made at or about the r e c o r d date to any
broker f r o m whom a response has not then been received, to make absolutely sure
of his r e q u i r e m e n t s . )
V
N O T I F Y I N G BROKERS O F SHARES O F R E C O R D
As soon as the record has been taken and stockholder accounts are posted,
it is important to send each broker a notice (Exhibit C) of the number of shares
registered i n its name at the close of business on the record date. This assists
the broker in checking its records because stock may be out on loan or assigned
to another f i r m . By knowing how many shares of stock a r e registered in its
name, the b r o k e r can make a more accurate tally and give a m a x i m u m vote.
VI
D E L I V E R Y O F M A T E R I A L T O BROKERS
Packages of annual reports, proxy statements, proxies, etc. should be
plainly labeled to indicate they contain proxy m a t e r i a l and a r e for inside d e l i v e r y .
I n addition, the label should show the name of the corporation and the meeting date.
This w i l l assist the broker i n locating m a t e r i a l and a l e r t the broker to the t i m e
available for soliciting.
Proxy m a t e r i a l should not be assembled p r i o r to distribution to the b r o k e r .
Envelopes should be the right size to hold the proxy soliciting m a t e r i a l to be sent
the b r o k e r s ' clients.
It is v e r y important, to facilitate prompt handling by brokers, that d e l i v e r y
of annual reports and proxy soliciting m a t e r i a l to brokers occur on the same day,
and the supplementary or additional m a t e r i a l and follow-up m a t e r i a l should be
identified as such.
blue.
The suggested f o r m of label is set forth as Exhibit D.
The p r e f e r r e d m i n i m u m size is 5 - 3 / 8 " x 6 - 3 / 8 " .
Soliciting m a t e r i a l should be
ensure its m a i l i n g to clients at the
m a i l i n g to stockholders. It cannot
l i v e r y of proxy soliciting m a t e r i a l
The color should be
delivered to brokers as e a r l y as possible to
same time the corporation makes its d i r e c t
be too strongly stressed that the t i m e l y deto brokers is of p r i m e importance.*"
405
(EXHIBIT A)
(Name of C o m p a n y )
( N a m e and Address of Broker)
A t t e n t i o n : ..
T h e following information is as of the record date for the next meeting of stockholders of this Company:
Shares Entitled to V o t e
I n Name of
Broker
Class of
Stock
I n Name of
Cede & Co.
Please record this information on the card heretofore furnished y o u b y this Com-
(EXHIBIT D)
[Name of Soliciting Corporation].
Street
FROM:
NOTE TO
ADDRESSEE:
City
State.
Zip Code .
RETURN P 0 8 T A G C GUARANTEED
TO:
CONTENTS
PROXY
MATERIAL
NOTE TO
TRUCKER:
INSIDE
DELIVERY
DATES
RELATING
TO
[Name of Soliciting Corporation] A N N U A L
RECORD DATE
ANNUAL MEETING DATE
PROXY MATERIAL MAILING COMMENCING
[Month, Date]
[Month, Date]
[Month, Date]
MEETING
406
VII
B I L L I N G PROCEDURES
Invoices f r o m brokers must set f o r t h individually the number of sets of
proxy soliciting m a t e r i a l forwarded by the b r o k e r to its clients, the s e r v i c e fee
incident thereto, the postage expense, and total charge. Also, the name of the
brokerage f i r m and its membership, i . e . , A M E X , NYSE, NASD, etc. must be
set forth on the b i l l i t s e l f (See Exhibit E ) . I t is recommended that b i l l s f r o m
brokers not be paid until these items of information a r e specifically furnished.
The following a r e the rates of reimbursement of m e m b e r organizations for
a l l out-of-pocket expenses, including reasonable c l e r i c a l expenses, i n c u r r e d in
connection with proxy solicitations pursuant to Rule 451 of the New Y o r k Stock
Exchange and in m a i l i n g i n t e r i m reports or other m a t e r i a l pursuant to Rule 465:
40£ for each set of proxy m a t e r i a l , plus postage,
with a m i n i m u m of $ 3 . 0 0 for a l l sets mailed;
10£ for each copy, plus postage, for i n t e r i m r e ports or other m a t e r i a l , with no m i n i m u m .
The Board of D i r e c t o r s of the New Y o r k Stock Exchange approved on
December 6, 1973, am increase i n the rates for reimbursement of m e m b e r
organizations as follows:
50 £ for each set of proxy m a t e r i a l for those
meetings that do not include a proposal which
requires beneficial owner instructions, plus
postage, with a m i n i m u m of $ 3 . 0 0 for a l l sets
mailed;
60 £ for each set of proxy m a t e r i a l for those m e e t ings which include proposal requiring beneficial
owner instructions, plus postage, with a m i n i m u m of $ 3 . 0 0 for a l l sets mailed;
10£ for each copy, plus postage, for i n t e r i m r e ports or other m a t e r i a l with no m i n i m u m .
The A m e r i c a n Stock Exchange and the National Association of Security
D e a l e r s , Inc. have s i m i l a r l y adopted the revised rates of r e i m b u r s e m e n t .
T H E A B O V E I N C R E A S E IS P E N D I N G B E F O R E T H E COST O F L I V I N G
C O U N C I L AND Y O U S H A L L BE A D V I S E D W H E N A N E F F E C T I V E D A T E IS
ANNOUNCED.
407
(EXHIBIT A)
BILL FORM
TO:
FROM:
(Brokerage (Corporation) Firm)
MEMBERSHIP: (i.e., A M E X , N Y S E , N A S D , etc.)
Expenses incurred in connection
w i t h m a i l i n g of f o l l o w i n g
material:
No. Sets
Mailed
Service
Fee
DATE:
Postage
Expense
Total
Charges
A N N U A L REPORT
PROXY SOLICITING
MATERIAL
I N T E R I M REPORT
POST M E E T I N G REPORT
STOCKHOLDER L E T T E R
OTHER:
FOR C O R P O R A T I O N
RECORDS
DATE PAID
CHECK NO.
VIII
D E P O S I T O R Y T R U S T C O M P A N Y (Cede & C o . )
I n o r d e r for D e p o s i t o r y T r u s t Company to provide m a x i m u m s e r v i c e s as
r e g i s t e r e d owner without u n n e c e s s a r i l y destroying the communication l i n k
between the i s s u e r and the b e n e f i c i a l owner, Depository T r u s t Company w i l l
v e r y s h o r t l y a l t e r its p r e s e n t p r o c e d u r e s .
These p r o c e d u r e s w i l l provide that as D T C becomes a w a r e of a r e c o r d date
for a stockholder's m e e t i n g , they w i l l send to the c o r p o r a t i o n an o r d e r f o r m
through which D T C w i l l request a number of p r o x y voting f o r m s and a s m a l l n u m ber of proxy statements and annual r e p o r t s .
On the day following tfre r e c o r d date D T C w i l l t r a n s m i t to the c o r p o r a t i o n
a l i s t i n g of m e m b e r organizations and t h e i r position i n that p a r t i c u l a r stock.
T h e y w i l l also request the c o r p o r a t i o n to contact these m e m b e r organizations
d i r e c t l y w i t h r e s p e c t to the voting of these s h a r e s .
Upon r e c e i p t of the p r o x y f o r m s f r o m the c o r p o r a t i o n , D T C w i l l sign the
p r o x y f o r m "Cede & C o . " (nominee for D T C ) and t r a n s m i t an amount, depending
on the l e v e l of the r e c o r d date position m a i n t a i n e d , to the m e m b e r o r g a n i z a t i o n .
The m e m b e r w i l l solicit votes f r o m the b e n e f i c i a l o w n e r , t a l l y t h e m and complete
the signed p r o x y i n s t r u c t i o n s . As the instructions a r e completed, the m e m b e r
d i g i t i z a t i o n w i l l f o r w a r d these to the c o r p o r a t i o n or the corporation's agent for
inclusion in the g e n e r a l v o t e .
408
MISCELLANEOUS
1.
To assist brokers and their clients i n analyzing proposals and voting, the
numbering of the proposals in the notice of meeting, proxy statement, and on the
proxy must be coordinated by number or other designation. For example, i f a
proposal is numbered "1" in the notice of meeting and proxy statement, then it is
important that the same proposal be numbered "1" on the proxy form; and s i m i l a r l y
where a proposal is designated as " A " , " B " , etc.
2.
The Exchanges require four complete sets of definitive proxy m a t e r i a l as
soon as possible after m a t e r i a l has been cleared by the Securities and Exchange
Commission. Proxy m a t e r i a l for O T C issues should be sent to the NASD i n the
same m a n n e r .
3.
As a p a r t of n o r m a l brokerage transactions, stock is often delivered back and
f o r t h between stock exchange f i r m s without having the change of ownership recorded
on stock transfer books. A request by the Exchanges that members transfer such
shares into their own names p r i o r to the r e c o r d date m a y make proxy solicitation
m o r e effective. (For further information consult with the respective Exchanges.)
4.
On request, the Exchanges w i l l advise the corporation whether a p a r t i c u l a r
matter appears to be "controversial" within the meaning of their rules concerning
voting of stock by m e m b e r s . (For a detailed explanation of the procedure, consult
the appropriate section of the "Company Guide" of The A m e r i c a n Stock Exchange
and the "Company Manual" for The New Y o r k Stock Exchange.) To obtain e a r l y
consideration, it is suggested that a copy of the proxy m a t e r i a l in p r e l i m i n a r y
f o r m be submitted to the Exchanges for r e v i e w . Any proxy statement with a p r o p o s a l ^ ) oLher than the election of directors and selection of auditors should be
sent to the Exchanges in p r e l i m i n a r y f o r m .
5.
When a b r o k e r may vote without instructions under the Exchanges' r u l e s , it
m a y give a proxy at its discretion no e a r l i e r than ten days before the meeting
provided the proxy soliciting m a t e r i a l is m a i l e d to beneficial owners at least 15
days before the meeting. Corporations should keep these instructions i n mind to
f o r e s t a l l needlessly contacting brokers before they legally can execute the f i r m ' s
proxy.
6»
Upon receipt of definitive proxy m a t e r i a l , the Exchanges show an appropriate
symbol in their "Meetings Section" of their Weekly Bulletin to guide m e m b e r s in
the voting of proxies. Prompt d e l i v e r y to the Exchanges of the definitive proxy
m a t e r i a l w i l l p e r m i t publication of this information in time to be of most benefit
to Exchange m e m b e r s .
7.
Payment of bills f r o m brokers should be made as promptly as possible and
should be accomplished within 90 days following r e c e i p t .
409
I n Conclusion
T h o s e r e s p o n s i b l e for d r a f t i n g this M a n u a l have leaned h e a v i l y on the e x p e r i ence and p r a c t i c e of those b r o k e r s and c o r p o r a t i o n s whose p r o c e d u r e s have a p p e a r e d to w o r k s a t i s f a c t o r i l y . I n some cases, adoption of c e r t a i n of the suggested
p r o c e d u r e s m a y r e q u i r e changes i n what has b e c o m e e s t a b l i s h e d p r a c t i c e . It is
the hope of those r e s p o n s i b l e f o r d e v e l o p i n g this M a n u a l that a l l c o r p o r a t i o n s w i l l
c o n f o r m t h e i r s o l i c i t i n g p r a c t i c e to that suggested. Ideas for i m p r o v e d p r o c e d u r e s
w i l l be w e l c o m e and m a y be f o r w a r d e d to any of the sponsoring o r g a n i z a t i o n s .
A m e r i c a n Society of C o r p o r a t e S e c r e t a r i e s , I n c .
One R o c k e f e l l e r P l a z a - New Y o r k , N . Y . 10020
The A m e r i c a n Stock E x c h a n g e , I n c .
86 T r i n i t y P l a c e - N e w Y o r k , N . Y . 10006
T h e N a t i o n a l A s s o c i a t i o n of S e c u r i t i e s D e a l e r s ,
T w o B r o a d w a y - New Y o r k , N . Y . 10004
T h e N e w Y o r k Stock E x c h a n g e , I n c .
11 W a l l S t r e e t - N e w Y o r k , N . Y . 10005
Securities Industry Association
20 B r o a d St. - N e w Y o r k , N . Y . 10005
Inc.
410
A D D E N D U M
MANUAL. FOR PROXY
SOLICITATION
OF STOCK IN BROKERS'
NAMES
P r e p a r e d as a j o i n t r e p o r t of
A m e r i c a n S o c i e t y of C o r p o r a t e S e c r e t a r i e s ,
A m e r i c a n Stock E x c h a n g e
N a t i o n a l A s s o c i a t i o n of S e c u r i t y D e a l e r s ,
N e w Y o r k Stock E x c h a n g e , I n c .
Securities Industry Association
Inc.
Inc.
T h i s is a n a d d e n d u m t o the b o o k l e t t i t l e d " M a n u a l f o r P r o x y S o l i c i t a t i o n of
S t o c k i n B r o k e r s ' N a m e s " w h i c h w a s p r e p a r e d as a j o i n t r e p o r t b y t h e a b o v e
g r o u p s a n d r e l e a s e d i n J a n u a r y 1 9 7 4 . A s t h e p r o c e d u r e s of D e p o s i t o r y
T r u s t C o m p a n y h a v e b e e n a l t e r e d s i n c e this b o o k l e t w a s p u b l i s h e d , t h e r e
f o l l o w s a n update of t h e p r e s e n t p r o c e d u r e s of D e p o s i t o r y T r u s t C o m p a n y
( P a g e 9 - S e c t i o n V I I I of B o o k l e t ) .
D E P O S I T O R Y T R U S T C O M P A N Y (Cede & C o . )
In a continuing e f f o r t to i m p r o v e p r o x y solicitation, D e p o s i t o r y T r u s t C o m p a n y
has d e v i s e d a n e w O m n i b u s P r o x y p r o c e d u r e . T h i s p r o c e d u r e w i l l r e m o v e
the D e p o s i t o r y c o m p l e t e l y f r o m the communication link between i s s u e r and
D e p o s i t o r y P a r t i c i p a n t . I n e s s e n c e , the new p r o c e d u r e e n t a i l s t h e r e a s s i g n m e n t of C e d e v o t i n g r i g h t s to its P a r t i c i p a n t s t h r o u g h t h e e x e c u t i o n of a n
" O m n i b u s P r o x y " w h i c h is m a i l e d t o the i s s u i n g c o m p a n y .
B r i e f l y s t a t e d , a s of t h e r e c o r d date f o r a s t o c k h o l d e r s 1 m e e t i n g D T C w i l l
produce a D i v i d e n d / P r o x y T a k e - O f f listing which identifies the Participants
t o t h e a c c o u n t s of w h i c h s h a r e s a r e c r e d i t e d a n d d e s i g n a t e s t h e n u m b e r
of s h a r e s c r e d i t e d t o e a c h a c c o u n t . T h e l i s t i n g is m a c h i n e - p r i n t e d a n d
a t t a c h e d t o a n O m n i b u s P r o x y w h i c h a s s i g n s £he v o t i n g r i g h t s t o t h e
P a r t i c i p a n t ' s n a m e t h e r e o n f o r the a m o u n t s shown, and a u t h o r i z e s t h e s e
P a r t i c i p a n t s t o v o t e the i s s u e s in t h e i r f i r m o r c o r p o r a t e n a m e .
In
a d d i t i o n , e a c h P a r t i c i p a n t h a v i n g s h a r e s of the r e l e v a n t s e c u r i t y c r e d i t e d
to i t s a c c o u n t r e c e i v e s a P r o x y R e c o r d D a t e N o t i c e a d v i s i n g it of t h e
d e l i v e r y of t h e O m n i b u s P r o x y a n d l i s t i n g t o the i s s u e r a n d the n u m b e r
of s h a r e s i t is e n t i t l e d t o v o t e . T h u s , the P a r t i c i p a n t s n a m e d on the
l i s t i n g m a y obtain p r o x y c a r d s , a p p r o p r i a t e l y c o m p l e t e a n d e x e c u t e t h e m
a n d r e t u r n t h e m d i r e c t l y to the i s s u e r .
I n t h e e v e n t t h a t subsequent a d j u s t m e n t s a r e n e c e s s a r y i n o r d e r t o
a c c u r a t e l y r e f l e c t a P a r t i c i p a n t ' s position a c o r r e c t e d Omnibus P r o x y
a n d l i s t i n g w i l l b e p r o d u c e d and f o r w a r d e d to the i s s u e r .
Each
P a r t i c i p a n t w h o s e a c c o u n t is a f f e c t e d by such a d j u s t m e n t is a d v i s e d of its
n e w r e c o r d date p o s i t i o n b y m e a n s of a c o r r e c t e d P r o x y R e c o r d D a t e
N o t i c e . I d e n t i c a l p r o c e d u r e s w i l l be f o l l o w e d in the e v e n t of a d j o u r n m e n t s
which result in a new r e c o r d date.
T h e c o m p l e t e O m n i b u s P r o x y p r o c e d u r e is d e s c r i b e d i n d e t a i l i n a r e l e a s e
sent t o a l l c o r p o r a t i o n s b y D T C l a s t O c t o b e r 14.
411
ADDENDUM
MANUAL FOR PROXY SOLICITATION
OF STOCK IN BROKERS' NAMES
Prepared as a j o i n t r e p o r t o f
American S o c i e t y o f Corporate S e c r e t a r i e s ,
American Stock Exchange
National Association of Security Dealers,
New York Stock Exchange, I n c .
Securities Industry Association
Inc.
Inc.
This i s an addendum t o the b o o k l e t t i t l e d "Manual f o r Proxy S o l i c i t a t i o n o f Stock
i n B r o k e r s ' Names" which was prepared as a j o i n t r e p o r t by the above groups and
released i n January 197^.
I n t h i s b o o k l e t , under the t i t l e "BILLING PROCEDURES" (Page 8 - S e c t i o n V I I )
t h e r e i s l i s t e d a s e t o f r a t e s o f reimbursement which the Board o f D i r e c t o r s o f
the New York Stock Exchange approved on December 6, 1973 * s u b j e c t t o Cost o f
L i v i n g Council exemption. A r e c e n t l y announced exemption by the Cost o f L i v i n g
Council now p e r m i t s u t i l i z a t i o n o f these new r a t e s . They w i l l be e f f e c t i v e w i t h
respect t o proxy s o l i c i t i n g s e r v i c e s performed a f t e r March 31, 197^»
SOt f o r each s e t o f proxy m a t e r i a l f o r those meetings
t h a t do n o t i n c l u d e a proposal which r e q u i r e s
b e n e f i c i a l owner i n s t r u c t i o n s , p l u s postage, w i t h
a minimum o f $3*00 f o r a l l sets m a i l e d ;
60<t f o r each s e t o f proxy m a t e r i a l f o r those meetings
which i n c l u d e a proposal r e q u i r i n g b e n e f i c i a l owner
i n s t r u c t i o n s , p l u s postage, w i t h a minimum o f
$3.00 f o r a l l s e t s mailed?
100 f o r each copy, p l u s postage, f o r i n t e r i m r e p o r t s
o r o t h e r m a t e r i a l , w i t h no minimum
The American Stock Exchange and the N a t i o n a l A s s o c i a t i o n o f S e c u r i t y Dealers,
have s i m i l a r l y adopted the r e v i s e d r a t e s o f reimbursement.
Inc.
Member o r g a n i z a t i o n s are r e q u i r e d t o m a i l out such m a t e r i a l as p r o v i d e d by the
Rules when s a t i s f a c t o r y assurance i s r e c e i v e d o f reimbursement o f expenses a t such
rates? p r o v i d e d , however, t h a t a member o r g a n i z a t i o n may request reimbursement o f
expenses a t lower r a t e s than those mentioned above o r , i f agreed t o by the person
s o l i c i t i n g p r o x i e s o r the company a t h i g h e r r a t e s . F o l l o w up m a i l i n g s s h a l l be a t
the r a t e o f 10^ per s e t . A charge f o r envelopes may be made o n l y i f envelopes are
not f u r n i s h e d by the person s o l i c i t i n g p r o x i e s o r d i s t r i b u t i n g m a t e r i a l . The 600
r a t e w i l l apply f o r proxy m a t e r i a l c o v e r i n g those meetings which i n c l u d e one or
more proposals r e q u i r i n g b e n e f i c i a l owner i n s t r u c t i o n s .
412
(EXHIBIT A)
SECURITIES AND EXCHANGE COMMISSION
Washington, D . C . 20549
SECURITIES EXCHANGE ACT OF 1934
Release No. 11243/February 13, 1975
T I M E L Y DISSEMINATION OF PROXY MATERIAL AND OTHER ISSUER COMMUNICATIONS
TO BENEFICIAL OWNERS
The Securities and Exchange Commission ayinounced today that, in view of the
fact that the 1975 proxy solicitation season is rapidly approaching, the Commission wishes
to re-emphasize its concern that proxy materials and other issuer communications reach
beneficial owners in a timely manner.
This matter was one of the subjects of the recent Public Fact-Finding Investigation
in the Matter of Beneficial Ownership, Takeovers and Acquisitions by Foreign and Domestic
Persons held by the Commission. The Commission's staff is continuing its consideration of
the views and opinions received during that hearing.
The process of communication between issuers and beneficial owners is one which
requires close cooperation among issuers, transfer agents, soliciting agents, and brokers,
banks and other securities recordholders such as securities depositories.
The Commission notes that certain of the self-regulatory organizations have recently
increased their efforts to improve this cooperation and, thereby, the communications between
issuers and beneficial owners.
Self-regulatory organizations ( i . e . , securities exchanges and the National Association
of Securities Dealers, Inc.) have rules requiring their members to forward proxy materials,
annual reports, and other materials to beneficial owners for whom such members hold securities
i n a name other than the beneficial owner such as in "street" or "nominee" name.
The Commission wishes to remind broker-dealers of their obligations to comply with
such applicable self-regulatory requirements in order to facilitate the timely flow of communications between issuers and beneficial shareholders. The Commission has recently
adopted rules placing greater responsibilities upon issuers to forward certain materials to
recordholders for transmission to beneficial owners. See Securities Exchange Act Release
No. 11079 (October 31, 1974).
The Commission believes it would be helpful for issuers, brokers, banks, proxy
soliciting agents and the public to report to the Commission or to the appropriate securities
exchange or to the National Association of Securities Dealers, Inc. (with a copy to the Commission) and specific problems which are encountered in the issuer-shareowner communications
process, including specific instances where participants in the process appear to impede the
timely flow of such material, and any complaint which an issuer or broker received from a
beneficial owner.
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Such reports should contain all available relevant information, including the
identity of the beneficial owner, broker and issuer, and all the known dates upon which
these and any other persons requested, sent or received material.
Communications sent to the Commission on this subject may be addressed to
M r . Lee A . Pickard, Director, Division of Market Regulation, Securities and Exchange
Commission, 500 North Capitol Street, Washington, D . C . 20549. All communications
forwarding such material should bear the File No. S7-552 and will be available for public
inspection.
By the Commission.
George A. Fitzsimmons
Secretary
@FedFRASER