GENERAL COUNSEL OF THE UNITED STATES DEPARTMENT OP COMMERCE Washington, D.C November 5, 1976 MEMORANDUM. Addressees

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20230 November 5, 1976 MEMORANDUM TO: SUBJECT: Addressees The Arab Boycott The Department has begun to make available for public inspection and copying, reports of boycottrelated requests received by

1 GENERAL COUNSEL OF THE UNITED STATES DEPARTMENT OP COMMERCE Washington, D.C November 5, 1976 MEMORANDUM TO: SUBJECT: Addressees The Arab Boycott The Department has begun to make available for public inspection and copying, reports of boycottrelated requests received by American firms on or after October 7, Considerable confusion and controversy have resulted from the disclosure of these reports. In the midst of this confusion, it has become apparent that current law regarding boycotts is poorly understood by some American businessmen and possibly by spokesmen of the Department of Commerce. Especially confusing to some is the meaning of the phrase "compliance with the Arab boycott." The purpose of this memorandum is to illuminate the purpose and requirements of current law. U.S. Policy Against Boycotts It is. and has been since 1965, United States 1 policy (l) to oppose foreign boycotts against friendly countries and (2) to encourage and request American companies to refuse to take any action in support of such boycotts. "Any action" expressly includes furnishing information (i^e., responding to a boycottrelated request). This policy was established by Congress and is law. Specifically, the Export

2/ Administration Act, - 2 - enacted in 1965, states: "It is the policy of the United States (A) to oppose restrictive trade practices or boycotts fostered or imposed by foreign countries against

including the furnishing of information or signing of agreements, -which has the effect of furthering or supporting the restrictive trade practices or boycotts fostered or imposed by any foreign

2 2/ Administration Act, enacted in 1965, states: "It is the policy of the United States (A) to oppose restrictive trade practices or boycotts fostered or imposed by foreign countries against other countries friendly to the United States, and (B) to encourage and request domestic concerns in the export of articles, materials, supplies, or information, to refuse to take any action including the furnishing of information or signing of agreements, -which has the effect of furthering or supporting the restrictive trade practices or boycotts fostered or imposed by any foreign country against another country friendly to the United States." 50 U.S.C. App (5) (emphasis supplied.) Congress 1 rationale for enacting the provisions discussed above is obvious. The Arab boycott of Israel depends for its operation on information. A firm which supplies information in response to a boycott request aids the boycott. The fact that many firms in supplying such information are not in any way changing their course of business conduct with regard to Israel is not relevant. The purpose of the statute is to oppose the boycott by encouraging American firms to withhold the information needed for the operation of the boycott. ;*/ The most recent extension of the authorities of this Act, as a technical matter, expired on September 30, The President, however, as he has done on three previous occasions, issued an Executive Order continuing in force the Department's Export Administration Regulations including the regulations which require reporting of Arab boycott requests. 15 C.F.R These regulations reflect the requirements of the Export Administration Act. Thus, from a policy standpoint, the requirements of the Export Administration Act with regard to boycott reporting remain in effect through the Executive Order and the Department's regulations.

- 3 - It should be clear, therefore, that it has been the policy of the United States for 11 years to encourage and request American firms to refuse to take any action, including the furnishing of

3 - 3 - It should be clear, therefore, that it has been the policy of the United States for 11 years to encourage and request American firms to refuse to take any action, including the furnishing of simple certificates of origin, which could have the effect of furthering or supporting the Arab boycott of Israel. If they do, they are acting against the stated policy of the United States, policy that is embodied both in statute and implementing regulations issued by the Department of Commerce. As discussed below, however, firms that violate this national policy are not breaking a law that carries with it any civil or criminal penalty. It is this distinction which may be the root of some of the current confusion. Reporting Boycott Requests In addition to establishing this national policy against boycotts, Congress required that whenever a boycott-related request is received, it must be reported. Congress directed the Department of Commerce to promulgate rules and regulations that: "shall require that all domestic concerns receiving requests for the furnishing of information or the signing of agreements as specified in (Section 2^02 (5)) must report this fact to the Secretary of Commerce for such action as he may deem appropriate to carry out the purposes of that section." 50 U.S.C. App. 2*+03 (b). Pursuant to this Congressional mandate, the Department of Commerce has since I965 been requiring reporting by American businessmen of the receipt of boycott-related requests. The legislative history of this statute makes it clear beyond argument that in adopting the above provisions Congress clearly contemplated reporting of relatively simple requests such as requirements for a negative certificate of origin stating that goods do not have their point of origin in Israel or that they will not be shipped on blacklisted ships. Furnishing of such information furthers and

4 - k - supports the Arab boycott of Israel for the reasons outlined above. Thus it contravenes the "policy" of the United States. "Compliance" with Boycott Requests Under the Department's export control program, firms are required to indicate whether they intend to "comply" with boycott requests they receive.f/ What constitutes "compliance," however, has been the subject of some confusion, even though the meaning of that term is spelled out in the Department's regulations. The meaning of "compliance" is apparent when considered in the context of the Export Administration Act. Congress 1 policy in that Act is to discourage "any action" in support of boycotts, and the underlying rationale for the Act is that the boycott is dependent on information from businesses. Accordingly, the furnishing of any_ information in response^to boycottrelated reauests constitutes "compliance," as this Department's regulations indicate. This includes such things as a simple "negative" certificate of origin, even where such responses are statements of fact and reflect no change in a firm's business practices. This legal requirement has, however, evoked some strong objections. Many of the firms whose names have appeared in newspaper articles during the past three weeks as having "complied with the Arab boycott of Israel," have expressed outrage stating (in some cases) that they did more business with Israel than with Arab countries, that in providing a simple negative certificate of origin that they in no way altered their business conduct, and so forth. As a factual matter, */ Until October 1, 1975, this question was optional and in most cases American businessmen chose not to answer it. Since October 1, 1975, the answering of this question has been mandatory.

- 5 - there is a qualitative distinction between, on the one hand, a firm that takes some active step to boycott Israel or to avoid doing business with blacklisted firms and, on the other hand, a

5 - 5 - there is a qualitative distinction between, on the one hand, a firm that takes some active step to boycott Israel or to avoid doing business with blacklisted firms and, on the other hand, a firm which does business both with Israel and the other Arab nations and simply provides certain commercial certifications. This fact is recognized in the report prepared by the Moss Subcommittee regarding the Department's execution of its Arab boycott responsibilities under the Export Administration Act. This report states: "It was difficult to determine from most reports whether the fact that a firm said it had complied with a given request actually meant that it was boycotting Israel or otherwise altering its business practices in order to gain Arab trade. For example, some companies voluntarily stated in their reports that although they had provided the requested documentation, they were doing business with Israel. Some of the reporting firms are in fact exporting to both Israel and to Arab States. Actions of this type would appear to be qualitatively different from a company which incorporates boycott clauses in purchase orders to its American suppliers or which changes suppliers in order to retain Arab business. The crucial point, however, is that qualitative distinctions of this type are of no legal significance under the Export Administration Act provisions currently administered by this Department^/ Spokesmen for the Department must keep in mind that the provisions of^the Export Administration Act do not make such qualitative distinctions, for the reasons already stated in this memorandum. We are obligated to encourage and request American business concerns to refuse to take any action */ This distinction has been recognized by Congress in the boycott-related provisions of the Tax Reform Act of 1976 and in the selection of prohibited actions in proposed Export Administration extension legislation.

- 6 - that would further or support the boycott. Firms which supply information regarding origin of goods, nature of business relationships with Israel, etc.

If spokesmen of the Department place too much emphasis on "qualitative distinctions," we will open ( ourselves up to a charge that we are once again "subverting national policy.

6 - 6 - that would further or support the boycott. Firms which supply information regarding origin of goods, nature of business relationships with Israel, etc., do help the Arab nations to operate their boycott system. This system fundamentally depends upon the availability of such information. If spokesmen of the Department place too much emphasis on "qualitative distinctions," we will open ( ourselves up to a charge that we are once again "subverting national policy. While it is regrettable that some American firms feel that they are being treated unfairly when they read their names in the press reports saying that they are complying with the Arab boycott of Israel, it should be noted that such firms, prior to their names appearing in the paper, have certified to the United States Government in a document of public record that they have been willing to ignore a longstanding national policy of seeking to deny the Arabs the information needed to carry out the boycott. The Congress of the United States recently gave an extensive review to this policy and determined to expand and strengthen it. While the end of the session prevented action, it is highly likely that such action will be taken early In the next Congress and that this action will require continued public disclosure of the reports filed by firms stating that they have decided to supply certifications or take actions which contravene the policy of the United States. Discriminatory Requests One category of requests that the Department's regula- ^ tions treat separately consists of "discriminatory requests. These are requests that could have the effect of discriminating against American citizens on the basis of race, color, religion, sex, or national origin. Hot only must such requests be reported, but it is a punishable violation of law to answer such requests. Discriminatory requests, which have taken the form of questionnaires regarding the race or ethnic background of a company's management, are a relatively rare manifestation of the Arab boycott. Sanctions To answer or comply with any boycott request constitutes a violation of national policy of opposing the boycott.

- 7 - Although firms are not subject to criminal or civil sanctions for violating this national policy, Department spokesmen must encourage firms to refuse to respond in any way to boycott requests.

7 - 7 - Although firms are not subject to criminal or civil sanctions for violating this national policy, Department spokesmen must encourage firms to refuse to respond in any way to boycott requests.*/ As noted above, however, any person who responds to a discriminatory boycott request is subject to substantial legal penalties. Likewise, sanctions apply to any firm that fails to report receipt of a boycott request, without regard to how, or whether, the firm intends to respond. Finally, compliance with a request that an American firm refuse to deal "With other American firms may constitute a violation of U.S. antitrust laws. It is important that the Department speak with one voice regarding the requirements of law regarding the boycott. The General Counsel's Office will gladly answer any questions which may arise in this regard. / / General Counsel f/ In the past the Department, consistent with its responsibilities to promote exports, has advised American businessmen that compliance with nondiscriminatory boycott requests was not against the law. This statement, in fact, used to appear on our reporting forms. This and other statements by the Department led to considerable criticism by members of Congress, who argued that such "gratuitous" advice regarding the scope of the law, had the effect of subverting statutorily declared policy of opposing the boycott. The Department's form was accordingly modified. ADDRESSEES: Secy., U/Secy., A/S Policy, A/S DIBA, Counsellor to the Secretary, Deputy General Counsel, Joseph Blatchford, Horace Webb, All Secretarial Representatives, All DIM Field Offices

Compliance with United States Antiboycott Laws

C O R P O R A T E P O L I C Y M A N U A L Section 6 Compliance with United States Antiboycott Laws A. SUMMARY B. APPLICABILITY C. POLICY Exhibit 1 UTC Internal Transmitted Form for Boycott Request D. PROCEDURES