The Fractured Power
How to Overcome Tribalism
For 30 years, members of the League of Arab States (Arab League) have engaged in a boycott of Israel, a country with which they have been at war and remain in a state of hostility. As an instrument of this state of war, the boycott is intended to prevent Arab states and discourage non-Arabs from directly or indirectly contributing to Israel's economic and military strength.
For most of its existence, the boycott has been a practically dormant dimension of Israeli-Arab politics and almost unknown and irrelevant to the United States. During its first 20 years there was no U.S. legislation concerning it and for the next decade, until last year, it was the subject of but one amendment to a U.S. law.
The recrudescence of the boycott as a national and international issue results most directly from the increased importance of the Arab nations and consequently of the Arab-Israeli conflict in world affairs. The intensified Western recognition of the importance of Middle East oil reserves, the extraordinary new financial power of the Arabs and the emergence of the area as a growth market have altered the positions of all parties with an interest in the boycott and in the Arab-Israeli conflict of which the boycott is an integral part.
The Arab boycott is a controversial issue chiefly in the United States. It is not an issue among the Arabs who created it or even among the Europeans and Japanese who also labor under it. It is only beginning to become a real issue in Israel, which is the object of it. In fact, as little as two years ago the Israeli Minister of Commerce, Chaim Bar-Lev, said during a Washington visit: "The Arab boycott means nothing to us. It has no effect on Israel."
As in many other aspects of the Middle East conflict, the United States finds itself in the middle. The Arab states, previously of significant economic interest only to oil companies and to exporters of a relatively narrow selection of consumer goods, have become a growth market for a wide range of services and capital and consumer goods. With the much broader U.S. economic interest in the Arab world, more American companies than ever before have been brought in contact with boycott operations. The boycott's visibility has been increased by the publicity activities of interest groups committed to Israel which are energetic in behalf of Israel's economic security interests, and also, very likely, not unaware of the boycott's adverse effect on U.S. perceptions of the Arab world.
Now that it has surfaced, the boycott has been misinterpreted, misunderstood and intertwined with legally and practically unrelated matters as have few other public issues. In 1975 and 1976 the boycott was caught up in an emotional and political tug of war between the Congress and the Ford Administration, while business - the group most affected by boycott operations - watched from the sidelines. Arguments over the body of anti-boycott legislation proposed in the 94th Congress assumed the heated, emotional atmosphere of a showdown between the Arabs and Israel or between the Arab petrodollar and American morality.
Today, at a time when most observers and parties to the Arab-Israeli conflict agree conditions seem right for new negotiations for a Middle East peace, the 95th Congress is contemplating attaching strong anti-boycott provisions to the Export Administration Act. Because the United States is likely to play a major role in Middle East negotiations, it is essential to examine the boycott and to try to gauge the effects of anti-boycott legislation on those negotiations, on trade (including the price and supply of oil) and on overall U.S. relations with the Arabs as well as with Israel.
The Arab boycott of Israel assumes three basic forms: primary, secondary and tertiary (sometimes called "extended secondary"). The distinctions were not created by the Arab League but by non-Arabs, particularly Americans, trying to understand and deal with the boycott.1
The primary boycott is the refusal by Arab states and their nationals to trade with Israel or its nationals. Originally the Arab boycott was only a primary one, having its origins, like its parent organization the Arab League, in the inter-Arab politics of the period immediately prior to the creation of Israel in 1948 and the first Arab-Israeli war. In October 1945, the newly formed Arab League declared that Arabs in British-mandated Palestine should boycott the goods and services of their Zionist Jewish neighbors.2 Within six months the League extended the boycott to direct trade between all Arab countries and Zionist entities in Palestine. Thus, Arab states forbid their own nationals and any resident foreign companies from exporting to Israel products manufactured in an Arab state; transshipping products to Israel via an Arab state is likewise forbidden.
The primary boycott is most commonly enforced by certification procedures. A participating Arab country, importer or bank requires, as a precondition to payment or to the contract, that a foreign exporter or contractor importing goods destined for an Arab port certify that the goods are neither made in Israel nor contain Israeli-made components. Such a certificate, most often requested as part of a bid, purchase order or letter of credit, is called a "negative certificate of origin." Some Arab countries accept "positive certificates of origin," i.e., statements that the product is "made in USA" or "made in England" without reference to Israel. Certificates are written by Arab government agencies, banks, importers and even law firms; as a result, applications of boycott regulations and language in the certificates vary widely.
It was not until April 1950, two years after Israel became independent, that the Arab League first extended the boycott beyond this primary aspect to include parties who are not participants in the Arab-Israeli conflict. The extension created a secondary boycott, which involves the refusal by Arab states to trade with third parties, i.e., non-Israeli nationals or companies, which in the opinion of the boycott committee of the Arab League significantly contribute to Israel's economic and military strength.
To coordinate this new aspect of the boycott the Arab League created a Central Boycott Office (CBO) in Damascus in 1951. The CBO serves as a secretariat for the local boycott offices established in most Arab countries and for the semiannual regional conference which deliberates and passes on CBO recommendations to member governments. The CBO also investigates foreign firms' relationships with Israel and recommends boycott procedures.3
The "blacklist" is the principal instrument for enforcing the secondary boycott. Arab countries participating in the secondary boycott are not to deal with or use goods of blacklisted firms. Foreign firms and individuals are blacklisted if they are deemed to be in violation of the secondary boycott. This judgment is in some measure determined by the application of the following criteria, which were codified by the Arab League in December 1954, and remain the standards by which the performance of third parties in relation to Israel is judged. A firm (and usually its subsidiaries) is blacklisted if it is found to do any of the following:
(1) have a branch or main plant in Israel;
(2) have an assembly plant in Israel (the ban includes foreign companies or institutions whose agents assemble their products in Israel);
(3) have general agencies or main offices in Israel for Middle East operations;
(4) have granted Israeli companies manufacturing licenses or the right to use their name;
(5) be partners in Israeli companies or manufacturing plants;
(6) supply advice and technical expertise to Israeli manufacturing plants;
(7) be agents of Israeli firms or principal importers of Israeli products;
(8) be prospecting for natural resources in Israel;
(9) refuse (after a period of warning) to reply to questions from the Central Boycott Office to clarify the company's position and determine its relationship with Israel.
In practice, American firms have been blacklisted for a variety of reasons. Coca-Cola was blacklisted in 1966, six months after licensing a bottling plant near Tel Aviv; Ford Motor Company, which licenses a truck and tractor assembly plant in Israel, was blacklisted in the same year. Operations in Israel resulted in blacklisting for Belco Petroleum, Miles Laboratories and Topps Chewing Gum. Xerox Corporation was blacklisted allegedly because it sponsored a series of documentaries, one of which concerned Israel. A few companies have been blacklisted simply because years ago, when they had no thought of investing in the Arab countries, a company employee discarded a routine CBO questionnaire about the company's relationship (whether or not one existed) with Israel; failure to respond after a warning automatically results in blacklisting.
Maintenance of blacklists has been uneven, capricious and confusing. The CBO can only investigate and suggest that a company be blacklisted; its recommendation is not binding on any Arab League member unless adopted by the member-country's government. There is, therefore, no universal blacklist; each country maintains its own list and official gazettes regularly publish names of companies added to or deleted from the list. Furthermore, six Arab League states which adhere to the primary boycott - Algeria, Mauritania, Morocco, Somalia, Sudan and Tunisia - do not practice the secondary boycott or blacklisting. Therefore, although Coca-Cola is banned in Kuwait, it is sold in North Africa.
Contrary to public opinion, the blacklists do not include only American companies, although the majority of firms appear to be American. (There are, for example, 1,400 U.S. firms and subsidiaries on a published 1971 Lebanese list and 1,200 on a recent Saudi list.)
It is possible to have one's name removed from the blacklists, and the process of delisting is applied in a similarly irregular fashion. Delisting is not initiated by the CBO; the company or its Arab sponsor, governmental or private, must request it. The CBO reviews documents supplied by the firm about its current activities. The company may have to prove it no longer has objectionable interests in Israel and promise to refrain from such activities in the future. Alternatively, it may have to make investments in Arab countries comparable to those it previously made in Israel.4 If the original reason for blacklisting was based on a misunderstanding or minor objection, delisting is less difficult. The process can, however, be long and costly. Again, after the CBO recommends delisting it must be approved in each country separately for it to be effective there. Firms, including Burlington Industries, Kaiser, General Tire & Rubber and British Leyland, have been delisted but few advertise the fact for fear of adverse publicity.
In practice, companies wishing to do business in the Middle East may have to provide documentation related to their blacklisting status. If a hypothetical Widget Company, for example, were to do business for the first time in Kuwait or Saudi Arabia, the company would either have to certify in writing it was not blacklisted or have to obtain a similarly worded certificate from the local boycott office. In Kuwait, the certificate from the local office (located in the Customs Department) usually reads: "Widget is not a company boycotted by the Ministry of Customs and Ports, State of Kuwait, and is not in any way affiliated to any such company." The local office issues the certificate after checking its own blacklist.
Before Widget can be paid by letter of credit or its shipment unloaded in Kuwait, certificates may be required that the carrier, and less frequently that the insurer, are not blacklisted. These certificates are both common applications of the secondary boycott.5 In addition to certification, local customs services also police the boycott by inspecting, refusing entry or even confiscating imports from blacklisted firms.
A secondary boycott can also impose restrictions on future business dealings. Suppose Sweflour, a Swedish grain producer, negotiates to build a flour mill in Syria. The Syrian contract may include a secondary boycott condition that Sweflour not build a mill in Israel.
To discourage indirect Arab contributions to the Israeli economy, the Arab League has imposed a third prohibition - dubbed the tertiary boycott in the United States.6 Pursuant to the tertiary boycott, which developed from the boycott regulations codified in 1954, the Arabs forbid utilization of materials, equipment or services of a blacklisted firm by a non-blacklisted firm in its exports to or projects in an Arab country. For example, in one application of the tertiary boycott, an American manufacturer almost had its contract to manufacture buses for Saudi Arabia cancelled when it was learned the bus seats were manufactured by a blacklisted firm. (The company substituted other seats and fulfilled the contract.)
Contrary to what is commonly believed, however, the prohibition does not apply to a foreign company's relationships across the board. Widget Company may be prohibited from using Ford trucks on its Arab construction site, but Widget in no way is penalized by the Arabs for using Ford trucks at sites anywhere else in the world.
The tertiary boycott is the least frequently invoked and the most indirectly applied form of the boycott. Tertiary boycott requests are found in tenders and major project contracts rather than in normal import documents, and major project contracts presently constitute only a small proportion of U.S.-Mideast business, which is largely exports. The tertiary boycott may also be enforced through oral agreements or understandings among the parties. While the Arabs intend to enforce the tertiary boycott to the extent they can, the incidence of tertiary boycott requests imposed as a formal condition of contractual obligation are few compared to the total number of boycott-related requests reported to the Commerce Department. It seems likely, though, that foreign companies often voluntarily refrain from utilizing blacklisted goods or services on a project site in the Arab world.
The boycott committee over the years has added rules and created exceptions to the basic principles. These exceptions, it would appear, are made so as not to harm Arab economies in the name of the boycott. The boycott, for example, does not affect government-to-government sales, a factor which enables Arab countries to purchase military equipment from the same companies that supply Israel.7 Hotel chains, public service companies and tourist ships are exempt from the boycott. Arabs may purchase pharmaceutical products and certain spare parts from blacklisted companies when no alternative is available.8 Indeed, Saudi Arabia still imports RCA spare parts for a television network that company constructed in Saudi Arabia before it was blacklisted in 1966.
The irregular application of the boycott, the variety of policing procedures and the secrecy surrounding the blacklists and semiannual meetings have resulted in widespread exaggeration of its extent. Although ill-informed U.S. companies may, for example, engage in a voluntary boycott because they think they must avoid doing business with Israel in order to win Arab contracts, the boycott has never applied to firms which conduct only import and export trade with Israel. Foreign firms can and do sell fully finished goods of their own production to Israel as well as to Arab countries, as long as the company has no economic relationship with Israel which would otherwise cause blacklisting under the basic principles.9 James Beam Distillers, John Deere & Company, Olivetti, and Burlington Industries are among companies selling to both markets.
A few companies even have investments in both markets. Hertz Rent-a-Car, a blacklisted RCA subsidiary, operates in Israel and Egypt, presumably under the tourist exception, while RCA Global Communications operates in Jordan and Israel.
Significantly, the Director General of the Israeli Ministry of Finance made this point recently: "There are many examples where actual investments in Israel do not harm the companies, which continue to do business with the Arabs. The boycott does cause some problems, but that is due to the American companies' lack of knowledge about it. They would find if they study the matter carefully that they can do business with all the countries of the Middle East."10
Identification of the Arab boycott of Israel with discrimination against Jews has greatly contributed to recent misunderstanding about the boycott and the nature of legislation needed to deal with it. Various legal prohibitions against alleged discrimination have been enacted in the course of anti-boycott action in the past several years.
While it is true that for political reasons the Arabs seek to deny trade opportunities which might aid Israel, to assert that the boycott now prevents Jews from doing business in the Arab world because of their religion is a distortion of the boycott's purpose and contravenes the overwhelming evidence of current practice.
Public association of the boycott with religious discrimination results in large measure from the practice of some Arab countries of asking about religious affiliation on visa applications and denying visas to some Jews.11 Critics of Arab visa policies most frequently single out Saudi Arabia, which has rarely admitted Jews to the kingdom, claiming that Jews, of whatever nationality, might be agents of Israel. Historically, entry and exit from Saudi Arabia have been restricted for almost everyone; until the late 1960s the country even required its own nationals to obtain entry and exit visas. Tourist visas are still not issued.
Last June, however, Saudi Arabia dropped the requirement for a certificate of religion with visa applications. (Even before the requirement was dropped, at least one Saudi consular office had agreed to accept Bar Mitzvah certificates as qualifying documents of religious affiliation!) In the past several years, the Saudi government has also been more open to issuing visas to Jewish businessmen who have valid reasons for visiting the kingdom. Jewish-controlled U.S. companies operate there.
There is no doubt that foreign private companies, directly or indirectly, have been told not to hire Jews to work on given projects in an Arab country. And because some Arab countries traditionally have restricted entry of Jews, some foreign companies hire personnel for jobs in the area on condition the employee be able to obtain a visa. Requiring an employee to obtain his own visa is not illegal under U.S. law, however; the United States recognizes a nation's sovereign right to control entry of foreigners - and of course exercises its own visa controls. However, in November 1975 President Ford, by executive order, did forbid all federal agencies, their contractors and subcontractors from making overseas assignments based on a host country's exclusionary policies; since that time only one Arab visa rejection of a U.S. government contract employee has been reported to the State Department.
Various Arab officials, in public statements and government communiqués, have asserted that the boycott is not directed toward any form of discrimination based on race or religion. The General Principles for Boycott of Israel, a compendium of boycott regulations published by the CBO, contains no boycotting criteria based on religion or ethnic origin and goes to considerable lengths to define a Zionist in the context of economic and political support for Israel.
The administration of the boycott, however, has been less than perfectly faithful to the principles of nondiscrimination. This is partly a result of poor administration and partly of the difficulty of keeping clear the distinction between "Zionist" and "Jewish." Often, though, U.S. protests have resulted in the deletion of discriminatory provisions.
The most blatant examples of discriminatory procedures have been requests in Arab commercial documents for information about the religious affiliation of an American company's personnel. Since 1965, however, when U.S. law first required reporting of boycott-related requests, discrimination has been found in less than one-tenth of one percent of all transactions reported to the Commerce Department. Further, the incidence of these requests on boycott-related forms has greatly dissipated in the last year as a result of publicity and of increasing Arab sophistication regarding distinctions between Zionists and Jews.
A significant example of administrative ineptness is in letter of credit forms, usually written in both Arabic and English. Some time ago, a form used in Iraq translated the Arabic word for "Israeli" or "Zionist" into English as "Jewish." Most of the incorrectly translated forms were printed in large quantities a decade or more ago. When U.S. government officials asked for clarification, the Iraqi law firm involved issued new, corrected forms.
In another instance in late 1975, many U.S. companies reported to the Commerce Department the receipt of requests in Saudi letters of credit that the company declare the goods and their containers not bear a Star of David or hexagonal star. The requirement, which has religious connotations, is considered discriminatory under Export Administration Act regulations. The language, which had been written by a low-level bank employee acting on his own, was subsequently altered to "symbol signifying Israeli origin" through U.S. diplomatic efforts.
Instances can also be cited where a firm has allegedly been blacklisted because of Zionist connections of its executives. In early 1975 the Kuwait Investment Company and the Kuwait Foreign, Trading, Contracting and Investment Company opposed the participation of Lazard Frères, N. M. Rothschild and S. G. Warburg & Sons in two syndicated bond issues. It was alleged that the financial houses were excluded because some of their leading officers contributed heavily to Zionist causes.12 Subsequently, however, Kuwaiti and other Arab financial institutions dropped all restrictions on participation in bond issues, including those which had been applied to Lazard Frères, Rothschild and Warburg.
In considering the legal aspects of the Arab boycott and the existing and proposed U.S. legislation to deal with it, U.S. and international precedents in the use of boycotts are instructive. "Boycott" is a term applied in the United States to consumer affairs and in labor or antitrust law: it is an individual or collective "refusal to deal" in various ways. The term has no special meaning or understanding internationally; "embargo" is much more commonly used to describe a nation's refusal to export to or import from another country or countries. Indeed, in Arabic the word for both boycott and embargo is the same.
The Arab League asserts that a restrictive trade practice such as is embodied in the Arab boycott, or embargo, of Israel is intended to defend sovereignty or national interests and as such is "legal" and accepted international practice. In fact, since there is no customary, multilateral or treaty law outlawing boycotts or embargos, they are "legal" in the sense of not being unlawful under international law (as most economic actions of nations are not). Since treaties involving many countries often permit an action which might otherwise be prohibited - such as trade restrictions - to be taken by a country in the interests of its national security, it can be said that generally such actions have not been outlawed.
"Primary" boycotts or embargos are not uncommon. Over 100 countries, including the United States, have engaged in such boycotts. While Rhodesia, Cuba, South Africa and Israel are currently the most commonly boycotted countries, Communist China and Portugal were until very recently also in that category. Secondary boycotts are less frequent, though still not rare.
The United States itself has been characterized by a former State Department Deputy Legal Advisor as an "Olympic champion of political trade controls;"13 it has employed both primary and secondary boycotts or embargos extensively. In partial compliance with U.N. resolutions, a limited embargo of non-strategic or critical imports from Rhodesia has been maintained. And under the Trading With the Enemy Act, the United States has in recent years prohibited imports from and exports to North Korea, Vietnam (North and South), Cambodia, Cuba and (until 1972) China. In these respects, the Trading With the Enemy Act imposes a "primary" boycott. But the regulations under the Act have also forbidden U.S.-owned or -controlled firms, wherever they may be located, from exporting goods, even those not of U.S. origin, to the above countries without Treasury Department approval, which was almost uniformly withheld.
Thus, until 1972, many Canadian firms were prevented from exporting Canadian grain and oil to China because they were U.S.-controlled entities. And in a celebrated case the U.S. government in 1965 ordered the Fruehauf Corporation to cancel a contract between its French subsidiary and an independent French truck distributor for the sale of truck trailers to China. Fruehauf's subsidiary being 30 percent French-controlled and actually managed by French nationals, a French court refused to enforce the U.S. regulation.
The U.S. Export Administration Act also prohibits firms in third countries, including non-U.S. firms, from transshipping or reexporting without approval to certain "Communist" countries certain U.S. goods or technology or goods manufactured abroad with U.S. materials. Firms buying such goods must sign certificates as to their end use and foreign firms found in violation of the U.S. law are "blacklisted" by the Commerce Department and denied all export-related privileges.
In the area of secondary-type sanctions, the U.S. Foreign Assistance Act prohibits the furnishing of assistance to countries which trade with Cuba or permit vessels to transport goods to Vietnam. The Battle Act (Mutual Defense Assistance Control Act of 1951) forbids economic, military or financial assistance to any nation shipping "strategic" goods (as defined by the United States) to the Soviet bloc, including Cuba. And Public Law 480 forbids the President from selling surplus agricultural commodities for local currency to any country which sells or permits its vessels to transport non-humanitarian goods to or from Cuba or Vietnam.
Similarly, the Maritime Administration has maintained a blacklist of foreign ships trading with Cuba, Vietnam and North Korea. Listed ships can never carry U.S. government cargo or call at U.S. ports unless the ships' owners pledge to refrain from sending any vessels to those countries again. The effect has been felt by third-country commercial traders; because no British shipowner was willing to be blacklisted by the United States, a British company in 1960 had to send cargo to Cuba on an East German ship.14
Like the Arabs, the United States uses blacklists and certification documents to police its boycotts. Indeed, when Congress first introduced legislation against the Arab boycott in 1965, Under Secretary of State George Ball opposed it in part because the State Department feared other countries would enact legislation in reprisal restricting the flow of information from foreign firms and governments which the United States received and depended on to enforce its own trade controls.15
Thus Arab spokesmen have some justification in pointing out that by enforcing their own boycott they are merely doing what the United States itself has done for years. By its own use of primary and secondary embargos, the United States has accepted the practice of employing such embargos for political ends. Although the Arab tertiary boycott does introduce a new aspect which goes beyond usual international practice, U.S. precedents serve to undermine the contention that trade embargos, however practiced, are "unlawful" under international law.
The Arab boycott existed 20 years before the U.S. Congress considered legislation against it and almost 30 years before legislation with significant impact was introduced. If the boycott raises issues of morality, discrimination and foreign intervention in U.S. business to the degree now contended, why did Congress or the executive not act sooner? As noted, one reason is that the United States itself engages in trade restrictions. More important was the fact that the boycott had negligible impact on the United States. Except for oil companies, there was relatively little U.S. trade with the Middle East before 1973; American exports to the area totaled a mere $200 million in 1964. Consequently, few U.S. companies were even in a position to receive boycott-related requests accompanying purchase orders or letters of credit.
The first anti-boycott legislation was passed in 1965 when Congress, in an amendment to the Export Administration Act, required that all U.S. exporters report to the Commerce Department the receipt and nature of any request having the effect of furthering or supporting the Arab boycott. This procedure was designed to monitor the boycott's impact on U.S. business. At that time Congress also passed Section 3(5) of the Export Administration Act, a hortatory measure without significant sanctions which to this day remains the officially defined U.S. policy on the boycott. That section reads:
It is the policy of the United States to oppose restrictive trade practices or boycotts fostered or imposed by foreign countries against other countries friendly to the United States and to encourage and request domestic concerns engaged in the export of articles, materials, supplies or information, to refuse to take any action, including the furnishing of information or the signing of agreements, which has the effect of furthering or supporting restrictive trade practices or boycotts fostered or imposed by any foreign countries against another country friendly to the United States.
Since 1965, however, two more Middle East wars, the 1973 oil embargo and subsequent price increases have drastically altered the situation. Friendly relations with the Arab countries have become as important to the Administration as maintenance of continued support for Israel. The boycott, on the other hand, has become an increasingly sensitive issue, as exports to the 18 Arab countries totaled $1 billion in 1971, jumped to $5.4 billion in 1975 and amounted to $6.9 billion in 1976. The Commerce Department projects that U.S. exports to the area will reach $10 billion before 1980, exclusive of consulting services and mammoth construction projects. As business with the Middle East has grown, so consequently, has the number of boycott-related requests.16
Proposed anti-boycott legislation has proliferated in like measure. No less than ten anti-boycott amendments to the Export Administration Act were introduced in the 94th Congress in 1975-76. A dozen more anti-boycott bills were introduced as amendments to other pieces of legislation.
Generally the proposed amendments to the Export Administration Act would have required that all boycott-related requests reported to the Commerce Department be made available to the public except where disclosure places a firm at a competitive disadvantage; heretofore, reports on boycott-related requests had been guaranteed confidentiality. The anti-boycott bills included prohibitions against participation in the tertiary and some aspects of the secondary boycott. Several stipulated that no company would be allowed to furnish any information, either about the religion of its employees or about the company's business associations with Israel, pursuant to a boycott-related request. At least one bill proposed that the restrictions pertain to all U.S. foreign subsidiaries as well as to U.S.-based subsidiaries and affiliates of foreign corporations.
In response to pressure and in order to forestall legislation, President Ford on November 20, 1975 took the first unilateral executive action on the boycott on the basis of a study ordered in March 1975. This action strengthened Commerce's rather loosely administered reporting requirements, improved monitoring of reports filed by U.S. business and prohibited compliance with boycott-related requests which would cause discrimination against Americans due to race, religion, national origin, sex or color.
Also as a result of the November 1975 executive order and subsequent Ford Administration directives:
- Original regulations which required only exporters to report receipt of boycott-related requests, such as those for certificates of origin, were broadened to include all service organizations such as banks, freight forwarders and insurers.
- Whereas U.S. concerns previously had to simply report receipt of boycott-related requests, they now must indicate whether or not they complied with the request for information.
- The Commerce Department ceased disseminating notices of trade opportunities based on documents known to contain boycott provisions.
- All reports filed with the Commerce Department after October 7, 1976 and relating to the boycott are open for public inspection.
These executive actions did not halt congressional attempts to legislate. The Export Administration Act, according to one Congressman, needed "teeth" in it. Election-year politics and enactment of anti-boycott legislation in a half-dozen states also contributed to pressure for federal legislation.
Thus, in late August and early September 1976 the House and Senate passed anti-boycott amendments to the Export Administration Act, but last-minute parliamentary tactics by Senator John Tower stalled conference committee action on a compromise amendment and the Act actually expired September 30, 1976. (Its provisions, however, continue by executive order under authority of the Trading With the Enemy Act.)
The 94th Congress did pass other significant anti-boycott legislation. An amendment to the 1976 Tax Reform Act denies to U.S. corporations found to be participating (according to U.S. Treasury Department standards) in the secondary and tertiary boycott (1) foreign tax credits, (2) tax benefits to domestic international sales corporations (DISCs) and (3) deferral of taxation on foreign income derived by corporations from business in countries requiring boycott participation. It does not penalize participation in the primary boycott. This measure could have extremely important consequences, both in terms of its use of the tax code as a foreign policy instrument and with regard to future economic interests.
While the 94th Congress debated legislation, the Executive used the Bechtel case to test the legality of a tertiary boycott under U.S. antitrust laws. In early 1976, the Justice Department charged Bechtel Corporation, one of the world's largest private construction companies, which has several multimillion-dollar contracts in Saudi Arabia, with implementing an agreement to refuse to deal with U.S. subcontractors blacklisted by certain Arab countries and to require all its U.S. subcontractors to refuse to deal with blacklisted firms. The consent accord signed by Bechtel and the Justice Department in January 1977, although binding only on the parties, offers guidelines for the application of antitrust law to tertiary boycotts. Basically, the accord prohibits a U.S. company contracting to work on an Arab project from refusing to deal with blacklisted American companies in connection with that project; and from requiring other parties to refuse to deal with U.S. blacklisted firms in connection with the project; and from discriminating against American blacklisted firms in the course of assisting an Arab client to solicit, evaluate and select bids for the project.
The Bechtel accord affects relations among U.S. firms and within the United States; it does not affect the situation of U.S. companies when the Arab client unilaterally selects a subcontractor or procures goods and services. It may open up at least the bidding process for major projects to blacklisted companies but will probably not gain them direct entry into the Arab market.
Within the first week of the current 1977 session of Congress, members again introduced anti-boycott amendments to the Export Administration Act. The amendments would make it illegal (1) to refrain from doing business with Israel or Israelis pursuant to a boycott-related request or requirement, (2) to refrain from doing business with blacklisted companies and (3) to refrain from employing or to otherwise discriminate against persons on the basis of race, religion or national origin. It would also proscribe the furnishing of any information on a person's race, religion or national origin (although this is already illegal as a result of the November 1975 executive order) or the furnishing of information on a party's past, current or proposed business relationships with Israel or blacklisted firms.
All the bills proposed would permit a U.S. company to comply with an Arab country's prohibition against importing Israeli goods or transshipping goods to Israel - that is with the primary boycott. Bills introduced by Representative Jonathan Bingham and Senator Harrison Williams, however, would make it illegal for a company to supply a negative certificate of origin and therefore would in effect legislate against the primary boycott by prohibiting compliance with means necessary to enforce it.
A bill introduced by Senator Adlai Stevenson does permit U.S. firms to supply certificates of origin of goods, whether in positive or negative form. The Senator, apparently recognizing the futility of legislation against a primary boycott, remarked that his bill
bows to the reality that an end to the primary boycott rests upon resolution of the underlying issues in the Middle East conflict and an attempt by the Congress to legislate an end to the boycott would be futile and contrary to the best interests of both Israel and the United States. . . . The boycott is grounded in long standing and deep seated antagonisms. It is part of a continuing Arab struggle against Israel and it will be ended only when there is a permanent peace in the Middle East.17
The positions of those favoring and those opposing legislation against the boycott have remained basically unaltered since legislation was first introduced in Congress in 1965; only the level and extent of confrontation has changed.
The belief that the boycott entails religious discrimination does not appear to be as prominent a congressional motivation today as two years ago, perhaps because reports of such discrimination have been few since the Ford Administration's 1975 directives. Frequently heard, however, is the charge that by requiring a company to certify it is not blacklisted or requiring it not to deal with a blacklisted firm, the boycott forces American companies, which are not parties to the Middle East conflict, not only to observe the boycott but police it for the Arabs. Representative Benjamin Rosenthal stated last October: "We have no problem with the Arabs having a primary boycott of Israel. Our problem is with the secondary and tertiary elements which force one company to discriminate against another American company because the Arabs say so."18 The American-Israel Public Affairs Committee has asserted the boycott meant U.S. firms had to give up Israeli business for fear of losing Arab business.19 Without legislation, proponents allege, the United States is in fact abetting a policy hostile to its traditional ally, Israel.
On the other hand, successive Administrations have opposed anti-boycott legislation on the grounds that U.S. law would not end the boycott and in fact might lead to more stringent application.20 Because the boycott is a direct result of the Middle East conflict, successive Administrations have claimed that the boycott can best be handled through diplomatic efforts and the promotion of a Middle East settlement. Administration witnesses have also testified that legislation prohibiting compliance with boycott procedures could hamper Mideast peace prospects, foreclose U.S. access to Arab markets and adversely affect the U.S. balance of trade.
There have been no published reports on the economic consequences of federal or state anti-boycott legislation and it is difficult to estimate accurately their effect. According to the Bureau of Labor Statistics, every one billion dollars in exports provides 40-70,000 jobs; opponents of boycott legislation thus extrapolate that legislation could, at current export rates, deprive 300-500,000 Americans of jobs. This probably overstates the case - legislation will very likely result in fewer exports to the Middle East, at least initially, but it is unlikely to cut off all trade with the area. Nor would it (presumably) affect military sales.
New York State has had an anti-boycott law in effect since January 1, 1976. Shippers and insurers contend that, as a result, many letters of credit and marine insurance policies once processed in New York are now being processed in states without restrictions and that substantial cargo is being diverted from New York to Norfolk, Houston and other ports.21
Predicting the future economic effect of the present anti-boycott measures is also difficult, but it seems unlikely that they will increase the access of blacklisted companies in the Arab world. It is probable that many companies which are either minimally involved in the Middle East or are merely contemplating trade there will simply avoid the market. The combined pressures of paperwork to report activities to the U.S. government, proposed congressional legislation to prohibit certain corporate activities in relation to the boycott, threat of loss of tax benefits and threat of antitrust litigation by the government or private parties will serve as deterrents. Medium- and small-sized U.S. companies, unlike multinationals, cannot absorb the initial legal, consultant and administrative costs incurred in understanding and coping with the boycott.
The business community also fears that legislation will cause U.S. companies to lose business in the Middle East to other countries which do not prohibit observation of the boycott.22 However, until recently very few companies or business groups have actively lobbied against it or participated in congressional hearings.23 Some of the companies which might otherwise have been most likely to speak out were the same ones which have been the target of congressional criticism for foreign payoffs, oil price increases and big profits. These companies apparently believed, because of their already tarnished images, that overt, active lobbying efforts would be futile and further damage their reputations. Other companies may have feared domestic counterboycotts if they opposed it.
Business is also sensitive to accusations that it "participates" in and supports the boycott by simply responding to informational requests imposed by nations enforcing the boycott. Businessmen argue that this sort of compliance, i.e., certifying as to origin of goods or absence of business involvement with Israel, can and should be distinguished from supporting or participating in a boycott by altering business practices in response to such a request. A company may have no more reason to build a plant in Israel than in Honolulu; thus failure to do business in Israel in and of itself is not to be considered accommodation or support of the boycott - even if a company has responded to an informational request.
If currently pending legislation is passed in its more stringent forms, it may slow the momentum toward Middle East negotiations. Certainly the passage of legislation affecting the primary boycott would be seen by many Arabs as an infringement of their sovereign rights to monitor the origin of imports. And the passage of any stiff legislation at this time will be taken by some, if not all, Arabs as a sign of U.S. bias toward Israel, thereby discouraging the Arab overtures for renewed negotiations for an overall settlement which have been particularly numerous since last December.
Nor is the legislation likely to break the boycott. Various Arab officials, such as Crown Prince Fahd of Saudi Arabia, have reiterated that the boycott will not end until a settlement is reached. Even if the Arabs were to gradually ease some of the secondary and tertiary requirements of the boycott as a gesture of goodwill, they will not end the boycott totally without a peaceful settlement.
Arab ministers have also stated that, in the event of prohibitive legislation, they would turn to other suppliers - such as Europe or Japan - who have no restrictions. Proponents of legislation voice skepticism about these declarations, contending that the Arabs prefer U.S. goods and that, while a few major projects may be cancelled in initial retaliation, Arab states in the long run will not reduce trade with the United States. A definitive prediction here is impossible. Certainly Arab states are known to prefer certain types of U.S. goods and services, particularly those embodying high technology. One can only speculate whether the Arabs would continue to exercise this preference in the face of U.S. pressure on an issue which the Arabs view as one of national sovereignty. There are many substitutable non-U.S. sources for the bulk of U.S. exports to the Middle East. Even now, U.S. exports account for less than 15 percent of total Middle East commercial imports.
Because it is at least equally likely that the Arabs would respond to legislation by tightening boycott enforcement, it is important to recognize that this would represent a significant setback for U.S. trade and diplomacy, for the Arabs have quietly been easing boycott implementation in recent months.
The boycott was conceived on paper as an emotional and economic reaction to a political conflict. It was probably drawn up without thought that 25 years hence it would, as a result of increased U.S.-Arab trade, be subjected to microscopic examination by Western businessmen, lawyers and politicians. During the same period of time, as a result of increased economic and political contact with Western countries and Western education of the younger generation, the Arabs have developed more sophisticated views of the West and its values.
Some Arab countries have hired Western lawyers to advise them about the foreign legal impact of the boycott. Governments are more aware of erroneous or poor administration of the boycott at middle or low levels. These changes have not occurred for any single reason. It is noteworthy that onerous requirements, such as the Star of David or incorrect translations as discussed earlier, were corrected when raised through diplomatic channels, but on the whole the efforts of businessmen probably have most to do with the changes which have emerged. Whether out of their own self-interest in the face of U.S. legislation or out of a sense of moral responsibility, businessmen have significantly contributed to the education of Arabs on the boycott, its ramifications abroad, and U.S. views, terminology and laws on the subject.
A prime example is the gradual change to positive certificates of origin, rather than negative ones, by many Arab countries, including Kuwait, traditionally regarded as one of the strongest enforcers of the boycott. Application is not uniform, of course, among the countries or even among institutions within one country. The Arab boycott committee, at its semiannual meetings last May and November, recommended that countries adopt a positive certificate of origin. Government advisory statements have been promulgated to this effect to consulates, including those of Saudi Arabia, Libya and Iraq. The Bahrain Chamber of Commerce, obviously acting on a government directive, issued an open letter this past January stating that positive certificates were not only acceptable but encouraged. Should a product not be wholly of one country, the Bahrainis require that the nationality and proportion of the foreign components in the product be stated on the certificate.24 The U.S.-Arab Chamber of Commerce is advising members, reportedly with permission of Arab governments, that the practice outlined by Bahrain is acceptable for all Arab countries.
Not all Arab consulates abroad are routinely implementing these new procedures. Individual consular officers have expressed the view that by accepting positive certificates the Arab governments are "yielding" on the boycott; these diplomats find that repugnant as long as there is no peaceful settlement of the political conflict. Practically speaking, even though a consulate's regulations may not specify a positive certificate of origin, companies are known to be regularly submitting positive certificates, which are accepted.
In general, companies have been able more frequently to negotiate restrictive boycott clauses out of contracts. Not long ago, a U.S. dairy producer notified its Bahraini agent it did not wish to comply with any boycott conditions in a sales agreement; the agent requested 48 hours for investigation. Within 24 hours, he notified the firm it would receive a new set of shipping documents without restrictive language. A $240 million contract awarded last month to a British and American firm by Saudi Arabia contained no boycott clauses. A U.S. consulting engineering company working in six Arab countries informed Senator Harrison Williams last month that it had just signed a contract with no boycott-related requirements. An analysis of reports to the Commerce Department in the last year reveal that only 13 percent of the boycott-related requests could be considered secondary or tertiary in nature; the remainder were primary boycott requests.
In sum, the combination of limited legislation and the representations of governments and business has clearly modified the application of the boycott itself and particularly reduced sharply the incidence of discriminatory practices.
Stringent legislation, however, would inject an entirely different element. Past history on nations' reactions to legislation affecting what they see as their vital interests bodes ill for the continuation of present positive trends in the face of tough anti-boycott legislation. The failure of the Jackson-Vanik amendment to secure the emigration of Jews from the Soviet Union by threatening to withhold most-favored-nation status is a prime example of the counterproductive effects of this sort of pressure.
In the last analysis, there could be little question that the United States - committed as it is to the support of Israel's continued existence as a viable state - would have every reason for governmental intervention if the boycott, as applied, were in fact having, or were in prospect of having, a significant adverse effect on the economy of Israel. However, there is little if any evidence that this is the case. Rather the argument for stringent anti-boycott legislation rests on moral repugnance, plus (on the part of some) a desire to limit American economic ties to the Arab states.
As to the moral factor, the record of the United States itself makes this a weak argument for further governmental action directed against the boycott itself (as opposed to discriminatory practices of a religious or ethnic nature); moreover, existing publicity requirements surely put private interests sufficiently in the open as to the individual choices they make, whether on moral grounds or otherwise. And, finally, American economic ties to the Arab world are not simply a matter of adequate oil supplies or other direct benefits - crucial as these are - but of the whole relationship. With American influence among the Arab states a vital element in the search for a Middle East peace, it is open to grave doubt (including a moral element) whether the United States would be acting in the interests of lasting peace and constructive relationships in the area if it now took governmental action that could not fail sharply to reduce those ties.
1 A year ago, when asked about the secondary boycott, two Saudi cabinet ministers confessed they were confused by the term. A reference to the secondary boycott brought a blank stare from an official in the Central Boycott Office in Damascus only last May. To most Arabs, the boycott is simply one boycott. Arab confusion about U.S. legislation on the boycott, at least until recently, has resulted in part from not understanding U.S. terminology.
2 There were but seven members of the Arab League when the boycott was formally declared in 1945; Egypt, Iraq, Transjordan (now Jordan), Lebanon, Saudi Arabia, Syria and Yemen.
3 The process and depth of investigation of a firm's relationship with Israel are unclear. The CBO follows a firm's activities through newspapers and word of mouth. If it believes a firm may be in violation of the secondary boycott, the CBO will send the firm a questionnaire based on the nine guidelines below. Follow-up questionnaires may also be sent. It has been alleged that competitors often supply information on firms, as do Arab embassies abroad, although neither allegation has been proven. The CBO claims companies are officially notified of their blacklisting, but many claim they have not been.
4 According to Decree No. 482, issued by the Syrian Ministry of Economy and Foreign Trade on July 19, 1975, a boycotted company can be delisted if it "establishes an industry in the Arab countries for its own account or by participation with Arab capital provided it does not have any other relations violating the boycott principles" (emphasis added). No company has taken advantage yet of the Syrian decree. Egypt does not have a law but has indicated willingness to apply the same guideline to permit Ford Motor to establish an assembly plant in Alexandria.
5 Certificates or published guidelines on the wording of such certificates are obtained from Arab consular offices. The certificates are notarized either by the consular offices or by designated Chambers of Commerce such as the U.S.-Arab Chamber (New York and San Francisco), the Mid-America Chamber (Chicago), Mid-Atlantic Chamber (Baltimore) and American-Arab Society (Houston).
6 Some argue that it more properly should be termed an "extended secondary" boycott because in practice it is really another mechanism to discourage the use of products banned under the secondary boycott.
7 The Arab League decided not to establish a general principle with respect to foreign arms manufacturers supplying Israel; individual examination of each manufacturer is recommended. General Principles for Boycott of Israel, League of Arab Countries General Secretariat, Head Office for the Boycott of Israel, Damascus, June 1972, Part XV, p. 9.
8 Ibid., Section 34, p. 53ff.
9 Ibid., Section 15, i, 3.
10 Industry Week, October 4, 1976. p. 58. As an example of the scale and level of ignorance, the general counsel of a company listed in the top 500 by Fortune telephoned the firm's Jordanian distributor last May to complain that his company could not legally sign the required commercial documents certifying the goods were non-Israeli and that the ship would not stop in Israel en route to Aqaba. However, it is not illegal to sign such certificates under current U.S. law. The American company must inform the U.S. government it signed the certificate of origin of goods, but need not report at all that it certified the ship's route, since such certification is considered a security precaution to avoid confiscation of goods in hostile territory rather than a boycott-related request.
11 Only about half the Arab League countries request a visa applicant to name religious affiliation. The other half, including Egypt and more recently Kuwait, do not. Some consular officers admit they really don't care what an applicant fills in.
12 Felix Rohatyn of Lazard Frères testified to the Senate Subcommittee on Multinational Corporations on February 20, 1975, that Lazard Frères did not know why it was blacklisted but he presumed from news reports that it was due to Zionist contributions of some members of the firm. Lazard Frères' New York office is named on a 1971 Lebanese blacklist and a 1970 Saudi list but is not found in a 1973 Lebanese version or in a current Kuwaiti blacklist. Lazard Frères' London and Paris branches are not listed at all.
13 Andreas F. Lowenfeld, "Sauce for Gander . . . the Arab Boycott and United States Political Trade Controls," Texas International Law Journal Vol. 12, No. 1, 1977.
15 Continuation of Authority for Regulation of Exports and Amending the Export Control Act, Hearings before the Subcommittee on International Trade, House Committee on Banking and Currency, May 5, 13, 20 and 21, 1965, p. 61.
16 For example, between October 1, 1975 and October 1, 1976, 3,477 exporters, banks, freight forwarders, insurers and carriers reported the receipt of 169,710 boycott-related requests in connection with 97,491 transactions with a total value of $7.7 billion. Of the 169,000 requests, 15 were classified as discriminatory on the basis of race, religion or national origin. Forty-one percent of the requests were for a certificate that exports were of non-Israeli origin and did not contain material of Israeli origin. Just over one-third asked for certification that the carrier or airline was not blacklisted. Thirteen percent requested certification that the manufacturer, supplier or vendor was not blacklisted.
17 Congressional Record, January 10, 1977, p. S252.
18 Hearings of the Subcommittee on Commerce, Consumer and Monetary Affairs, House Government Operations Committee, October 20, 1976.
19 Hearings cited supra note 15, p. 204.
20 Before their increased wealth and before the advent of U.S. legislation against the boycott, the Arabs administered the boycott poorly. There is some evidence to suggest that publicity has caused the Arabs to beef up use of certification and other enforcement procedures.
21 Extension of the Export Administration Act of 1969, Hearings before the House International Relations Committee, Part I, June 8-11, 15, 16 and August 10 and 24, 1976, p. 232.
22 The United States is the only country with legislation against the Arab boycott. The Chambers of Commerce of some countries, such as Italy and Germany, refuse to certify negative certificates of origin. Canada is considering legislation against the boycott but none has yet passed.
23 Business began to lobby against legislation in some measure in late 1976 when Senator Ribicoff introduced legislation to deny tax benefits to companies participating in the boycott. There is some evidence business may more actively oppose passage of legislation by the 95th Congress.
24 The Bahraini letter actually implements boycott principles enacted many years ago. The General Principles for Boycott of Israel, op. cit., section 2, A-C specifies that a certificate of origin "affirming the goods exported originated solely in the exporting country and the name of the factory or company producing the goods" accompany all imports. If the goods contain material or workmanship originating in a foreign state other than the state producing the goods, the fact, according to the Principles, must be stated in the certificate of origin. Negative certificates of origin resulted from individual country practice rather than adherence to specific provisions of the General Principles.