Date: 1982-10-01
Speaker: RICHARD ISADORE (republican)
Chamber: S

Director. Operations Division. Office of Export Administration. U.S. Department of Commerce. Washington. D.C. DEAR MR. ISADORE: The National Foreign Trade Council. a private. nonprofit organization of more than 600 U.S. companies engaged in foreign trade and investment. appreciates the opportunity to submit comments on the interim rule. "Amendment of Oil and Gas Controls to the U.S.S.R.." promulgated on June 22. 1982 by the Department. of Commerce at the direction of the President. under Section 6 of the Export Administration Act and published in the Federal Register (Vol. 47. No. 122. Thursday. June 24. 1982. page 27250). The rule as published has a substantial effect both on the current operations of U.S.-based multinational corporations and their longerterm trading prospects. It has already resulted in deteriorating relationships with the European Community. We. therefore. recommend that the interim rule be significantly revised before any final regulations are Issued. These regulations virtually without precedent. seek to control trade engaged in by U.S. owned or controlled foreign subsidiarles. even where nonU.S. origin goods or technical data are involved. Under this rule. a U.S. foreign subsidiary may not export to the U.S.S.R. certain products (and related technology) designed for oil and gas exploration. production. transmission and refinement without prior written authorization from the U.S. Department of Commerce. even though (a) such products and technology are of nonU.S. origin and (b) the exports are made by legal entities operating abroad and subject to the laws of other sovereign governments. It seems selfevident under international law that. if the United States claims jurisdiction over foreign companies controlled by U.S. persons. it has a reciprocal obligation to recognize the jurisdiction of foreign countries over U.S. corporations controlled by foreignersyet we doubt that the United States would yield jurisdiction in the latter instance. And in fact the U.S. Supreme Court. in a recent case. Avagliano v. Sumitomo Shoji America. held that the American subsidiary of a Japanese company is subject to U.S. law. It should be further noted that the antiboycott provisions of Section 8 of the Export Administration Act are intended to prevent U.S. companies from being used as instruments of the foreign policy of other nations. Against this background. the preSent rule under Section 6 of the Act would require companies incorporated in the European Community to carry out U.S. trade policy toward the Soviet Union. Such unilateral measures cannot be helpful in our efforts to seek modification of proposed EC directives which would have an adverse extraterritorial effect on U.S. companies operating in Europe. Another provision restricts the exports of foreignproduced products directly derived from U.S. technical data where. among other things. the right to the use of data is subject to a licensing agreement whereby the recipient of the technical data has agreed to abide by U.S. export control regulations. We understand that most U.S. licensing agreements contain such a clause. However. this clause will operate with retroactive effect so as to change U.S. law and regulations regarding at least some of the contracts intended to be covered. Thus the regulation will necessitate a change adverse to the foreign company of contracts concluded in good faith in reliance on existing regulations. between a foreign company. not U.S. owned or controlled. and its foreign customers. This attempted extension of the application of U.S. laws and regulations will. of course. be strongly resisted by the host governments of the affected companies. Its legal basis is tenuous at best. and its potential for worsening the overall position of U.S. companies in foreign trade is great. Trade in technology is growing rapidly and is for many American companies an Increasingly important source of revenue. By retroactively limiting technology licenses. the U.S. Government is telling the international business community that it is safe to purchase its technology from nonU.S. sources. Echoing this thought. the Delegation of the Commission of the European Communities. in a communication to the United States Government on August 12. 1982. stated that European suppliers which have long since committed resources to the Soviet gas pipeline project. will suffer severe loss of business if the European contribution to the pipeline is blocked. The EC said. in part: "One inevitable consequence would be to call in question the usefulness of technologIcal links between European and American firms. if contracts could be nullified at any time by decision of the U.S. Administration." The EC memorandum also speaks of "the grave doubts that are bound to arise in future pbout the U.S. as a reliable supplier of equipment under contract. or as a reliable partner in technologylicensing arrangements." The Council is sympathetic with these arguments. and they are clearly the sentiments of many of our substantial trading partners. We are troubled by the growing tendency of the United States to extend the reach of its laws into matters and as to persons under the jurisdiction of foreign countries. Certain aspects of the rule constitute. we believe. an undesirable extension of existing regulations and a further exerclse of jurisdiction extraterritorially. The longterm economic costs of the rule should be weighed against its intended foreign policy benefits before final regulations are issued. Sincerely.