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1976/09/17 - Frank Zarb and Mobil Oil Officials
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1976/09/17 - Frank Zarb and Mobil Oil Officials
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The original documents are located in Box 62, folder "1976/09/17 - Frank Zarb and Mobil
Oil Officials" of the James M. Cannon Files at the Gerald R. Ford Presidential Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 62 of the James M. Cannon Files at the Gerald R. Ford Presidential Library
VP P HAS GENATE
REFURD is LIBRARY
ASKED you +
M EE
Jan
8ml
Montery Missery fin
MEMORANDUM
OFFICE OF THE VICE PRESIDENT
WASHINGTON
8Am
September 14, 1976
MEMORANDUM FOR: Jim Cannon
FROM:
Susan Herter
For the reasons discussed on the phone,
the Vice President feels it would be better if you
and Frank saw them.
The request came to me through
Ed Hennelly, Mobil, whose telephone number is
212/883-3828 or 3827.
Attachment
FORD is LIBRARY 938870
09/506
MEMORANDUM
OFFICE OF THE VICE PRESIDENT
WASHINGTON
September 13, 1976
The Vice President
Re: Mobil Oil
The Chairman of the Board of Mobil
Oil (Rawleigh Warner) and the President of Mobil
(William P. Tavoulareas) are extremely anxious to
see you in connection with their recent conversations
with Arab leaders and their concern about the impact
of a boycott on the U. S economy.
They called me because of Chris's
former association with Mobil. I checked with
Captain Howe who thinks it is a domestic matter.
I checked with Jim Cannon who thinks you should
see them if they feel they have something important
to say to the Vice President.
If you do see them, Jim feels that
he and Zarb should sit in on the meeting.
Jan vp Okay to set up
Go Foulet Not interested Cound Susan R. FORD
GERALD LIBRARY
RIBICOFF AMENDMENT
Sections 1061-1067 of the Tax Reform Act of 1976, as passed
by the House and the Senate (the "Ribicoff amendment"),
would deny foreign tax credits and impose other tax penalties
on any American company which "participates in" or "cooperates
with" an international boycott.
1. Purpose of Provisions Seems to be to Stop U.S.
Companies from Doing Business with Arab Countries -
not to Protect U.S. Persons from Religious
Discrimination
Although drafted in general terms, it is clear that the
Ribicoff amendment's intended effect is to penalize and
harass U.S. companies trading with Arab countries.
Some supporters of this legislation claim that their aim
is to protect U.S. persons and companies from religious
discrimination that prevents them from participating in
international business. The amendment goes much further
than this, however, and may severely penalize American
companies doing business in the Arab world, and will be
seen by the Arab countries and their friends as a U.S.
embargo of the Arab world.
2. Prohibited Conduct Broadly Stated
The Ribicoff amendment defines what constitutes "participa-
tion in" or "cooperation" with a boycott in extremely
- 2 -
broad terms. A person is subject to the tax penalties
if he agrees:*
(A) To refrain from doing business with a boycotted
country, its companies or nationals;
(B) To refrain from doing business with a U.S. person
which does business with a boycotted country, its
companies or nationals;
(c) To refrain from doing business with any company
(whether U.S. or foreign) whose ownership or
management includes persons of a particular nation-
ality, race or religion;
(D) To refrain from employing persons of a particular
nationality, race, or religion; or
(E) To refrain from shipping goods on carriers owned,
or leased, or operated by persons who do not
participate in or cooperate with the boycott.
3. Ribicoff Provisions - Even as Amended by the Conference -
Will Hurt U.S. Companies Doing Business in the Arab
Countries
The Conference Committee appears to have intended to revise
the original Ribicoff proposal to permit U.S. taxpayers to
continue to carry on business with Arab countries in a
manner required by the laws and administrative practices
*Statutory language in summary form.
- 3 -
of those countries. Unfortunately, the Conference
added a Catch 22. It seems that taxpayers may freely
obey the sovereign laws of an Arab country so long as
they do not "agree" to obey those laws. Unfortunately,
the Conference report states that a taxpayer does not
have to "agree" knowingly to be in trouble. The tax-
payer may be held to have "agreed" to participate in a
boycott if he adopts a course of action from which an
"agreement" can be inferred. Obeying local law in a
manner sanctioned in one sentence of the Conference
report can (incredible as it may seem) be treated as
evidence of a prohibited agreement under another sentence
of the report. Thus, it is not clear under the statute
whether a taxpayer will be penalized if he consistently
fails to ship goods into an Arab country on vessels that
are legally prohibited from entering the waters of that
Arab country. It is not clear whether a taxpayer will be
penalized for consistently failing to import goods pur-
chased from a company whose goods cannot be legally im-
ported into a country. It is not clear whether a taxpayer
will be penalized if he consistently fails to use the
services of a company in an Arab country where the company
cannot legally perform services.
Unless the taxpayer is confident that he can sustain the
proposition that his lawful course of action does not
- 4 -
constitute an unwritten implied agreement to obey the
law, he will find it difficult, if not impossible, to
undertake operations in Arab countries because he will
not know what tax penalties he may incur.
Examples
A taxpayer could be penalized for importing into Arab
countries goods purchased from non-blacklisted U.S.
companies because the taxpayer failed to purchase goods
from blacklisted U.S. companies or certified that the
goods he imported were not manufactured by blacklisted
firms.
A taxpayer could be penalized for importing goods into
Arab countries on U.S. vessels that were not blacklisted
because he failed to import goods into Arab countries on
vessels that were blacklisted.
A taxpayer could be penalized for providing services in
an Arab country with personnel who could get visas to work
in the Arab country because he failed to employ personnel
in the Arab country who could not get visas to work in
that country.
Some people believe that the Ribicoff amendment as reported
out by the Conference Committee reflects the Committee's
efforts to permit American companies to continue to do
- 5 -
business in boycotting countries without prejudice to
their tax position so long as they did not become active
supporters of the boycott. However, the language of
the amendment, particularly when taken together with the
Committee report, leaves American companies in a position
where even if they do not affirmatively support the
boycott by agreeing to collaborate with it, they must
operate at their peril because of the risk that they
will be held to have made an agreement simply by obeying
the local law in conducting their operations.
4. Penalties are Inequitable Because They Operate Unevenly.
The very nature of the approach taken in the Ribicoff
amendment will inevitably mean that different taxpayers
will pay vastly different penalties ranging from zero to
millions of dollars for the same act. For example, an
American exporter/importer that willingly agrees to comply
with the secondary and tertiary aspects of an Arab boycott,
but who sells material on a delivered basis and pays no
tax in Saudi Arabia, manufactures no goods that qualify
for DISC benefits and has no foreign subsidiaries (and
therefore no deferral) will incur no penalty from seeking
out and actively participating in a boycott, whereas another
American company that has profitable foreign operations or
- 6 -
manufactures American goods for export and sincerely
seeks to comply with this ambiguous legislation could
lose millions. Foreign companies, of course, will lose
nothing; only American companies.
The penalties imposed by the Ribicoff amendment are
capricious and can have no relation to the offense in-
volved. A single act in a single Arab country that is
held to be a boycott participation can result in tax
penalties on all the business of a taxpayer in all Arab
countries unless the taxpayer can "clearly separate and
identify" the different operations of his business both
within and without the boycotting country and clearly
demonstrate non-participation in the boycott. This
burden of proof may be impossible to meet regardless of
the taxpayer's innocence.
5. Reporting Requirements are Excessive
The reporting requirements of the Ribicoff amendment
place a tremendous burden, both legal and administrative,
on the taxpayer. Under the amendment, a taxpayer is
required to file a report if it or an affiliate (domestic
or foreign) has operations (profitable or unprofitable)
in or with any country (or its nationals) which appears
on the Treasury's boycott countries list OR in any country
not on the list (or with its nationals) which the taxpayer
- 7 -
has reason to know imposes a boycott. Thus, a company
with worldwide operations may well have to file reports
detailing its operations throughout the Arab world. The
statute might even be interpreted as requiring reports
on the dealings of a company or any of its affiliates
with individual nationals of a boycotting country who
were located inside or outside that country. The tax-
payer may be required to conduct an annual worldwide
review of, and report on, the business transactions of
its affiliates, including transactions that were carried
out for business reasons that could not possibly be
related to any boycott.
6. Amendment is Retroactive in that Tax Penalties Apply to
Business Done Before its Effective Date.
The penalties contained in the Amendment go far beyond
anything which has previously been contained in U.S. law.
It is possible that taxpayers will lose millions of dollars
related to past activities which were legal and required
by the laws of the foreign country in which the activity
occurred and also legal under U.S. law simply because the
taxpayer is determined to have "agreed" to engage in certain
prohibited activities after enactment of the law. An
"agreement" in November 1976 can generate penalties in
respect of operations conducted in January 1976.
Sept. 17, 1976
September 16, 1976
PENDING BOYCOTT LEGISLATION
Amendments to Export Administration Act
The Export Administration Act expires September 30, 1976.
It covers many U.S. export matters other than the boycott
subject.
The Senate Bill (S.3084) to extend that Act contains the
Stevenson boycott amendment, and has been passed by the Senate.
The House Bill (H.R.15377) to extend the Act contains the
Bingham-Rosenthal boycott amendment, and was granted a rule
September 15 by the Rules Committee, sending it to the House
floor.
The correct action is to preserve the existing law. Regu-
lations of the Commerce Department under the Export Administra-
tion Act already provide that U.S. exporters cannot take "any
action" that supports a boycott if it "discriminates" against
U.S. citizens or firms on the basis of race, religion or na-
tional origin.
The public's impression is that the pending Bills are
similarly addressed to preventing discrimination. But they
are in fact written to accomplish many other surprising re-
sults. If enacted, the Bills could accomplish a fundamental
change in this nation's foreign relations and economic policies
- 2 -
-- a potential result little noticed to date but one which
would be dramatic indeed if it should occur. That development
would be destructive of basic interests of the United States
for several reasons.
For example:
-
The sponsors would have us believe their purpose is to
prevent exclusion of any U.S. company from the rapidly
developing opportunities for export trade with Arab
nations. The Bills, however, could very well end all
such trade -- so that not only the U.S. firms sought to
be protected but all others as well would be pre-empted
by foreign competitors.
-
The sponsors claim the U.S. has no jurisdiction over ac-
tions by other sovereign nations to boycott a foreign
country -- "a legitimate type of economic warfare under
international law and practice" (in the words of the House
Committee report). Yet the Bills plainly take sides on
that issue, disabling U.S. companies from doing business
in Arab countries because of the boycott.
-
The sponsors claim the U.S. has no jurisdiction over ac-
tions by other nations to boycott foreign companies. Yet
the House Bill would make it illegal for U.S. companies
not to do busines with any foreign company by reason of
- 3 -
the boycott -- even though religious or other discrimination
was not involved and even though the U.S. company could
not in any case have used the productsof such foreign com-
pany.
-
The Bills are a radical departure from a fundamental U.S.
business/legal principle -- that any company is free to
select those with whom it does business (except for anti-
competitive agreements not to deal or refusals based on
religious or other discrimination). Under the Bills, a
company involved in Arab-nation business would have a
public-utility type obligation not to refuse any business
offer if that offer cannot be accepted by reason of the
Arab countries' boycott requirements (and even though such
an acceptance would be a futile gesture).
-
The Bills thus would make it a crime under U.S. law not
to do what certain Arab countries make it impossible to
do -- e.g., import prohibited goods into those countries,
use prohibited vessels for imports to and exports from
those countries, and send crude oil from those countries
to restricted destinations. The only alternative would
be for U.S. companies to cease doing business with the
Arab countries.
-
For these reasons, the Bills could cast doubt on the
- 4 -
ability of U.S. manufacturers to fulfill U.S. Government
commitments for the sale of arms and spare parts to Arab
nations.
-
The Bills represent, in the final analysis, a clear effort
to impair the developing economic interdependence and
other ties between the U.S. and the Arab nations. If this
step were ever to be taken, it should be consciously de-
cided after thorough and open debate on that issue -- not
accomplished overnight by bills featured as "anti-discri-
mination" legislation.
-
The Bills assume retaliation by Arab nations is unlikely
-- but to enable U.S. companies legally to deliver tech-
nology and goods, they would drop the boycott. In view of
the substantial U.S. dependence on Arab oil, this would be
an enormous gamble where the stakes include the continued
functioning of the U.S. economy and the well-being of its
people. In fact, the Arab nations could easily utilize
the technology and goods of non-U.S. firms in lieu of eli-
minating the boycott restrictions.
-
Even the ability of foreign subsidiaries of U.S. companies
to continue in business would be jeopardized. The House
Bill (and perhaps regulations under the Senate Bill) would
cover such affiliates, so that U.S. criminal penalties
would attach to actions taken by U.S. affiliated foreign
- 5 -
companies even though those actions are required by the
laws of the sovereign nations where they do business.
Under those circumstances, it follows that the Arab
nations would require local affiliates of U.S. companies
to obtain necessary equipment and supplies from local
national companies or from foreign competitors -- and in
complying with that requirement the foreign affiliate
might well be claimed under the Bills to have violated
U.S. criminal law.
- All the foregoing comments pertain to the Bills without
regard to any act of discrimination whether on the basis
of race, religion or national origin. Indeed, the true
nature of the legislation is highlighted by the fact that
the Senate Bill does not even prohibit such discriminatory
actions as such.
These and other consequences of the legislation are shown more
clearly on the attached summary, which cites the precise lan-
guage of the Bills.
1.
Prohibited Actions
Remarks
Senate Bill
House Bill
"any action with intent to comply
- Any action to comply with boycott restrictions is pro-
with or to further or support" a
hibited by the Bill (even without regulations). For
boycott
example, compliance with Arab restrictions on import
of goods or use of vessels.
- Compliance with Arab crude destination restrictions
could be said to be prohibited. Hence, if American com-
panies import Arab crude solely to the U.S., they could
be said to be in violation.
- Commerce Dept. must issue regulations defining prohibited
actions "including" (but not necessarily limited to) those
specified in the House Bill (listed below). (House Com-
mittee Report says specific prohibitions are only "illus-
trative".)
"refusing to do busi-
"boycotting or refraining from
- On imports to Arab countries, it could be a violation not
ness with any other
doing business with any U.S.
to purchase goods from blacklisted U.S. companies or to
domestic concern" pur-
person" with intent to comply
certify that goods were not manufactured by blacklisted
suant to boycott re-
with boycott
firms -- even though failure to purchase from them is not
quest or requirement
based on religious discrimination and even though such
goods if purchased could not be imported into the Arab
country. (Therefore, it could be illegal to import goods
purchased from non-blacklisted companies.)
- Could not use non-blacklisted vessels on Arab imports or
exports since this involves not using blacklisted U.S.
vessels. Thus, there might be no way to ship crude to
the U.S. or goods to Arab countries.
- Could apply to crude destination restrictions, since oil
company must say "no" to U.S. company who seeks crude for
direct shipment to Israel.
2.
Prohibited Actions
Remarks
Senate Bill
House Bill
- Expands far beyond sponsors' expressed intent to pro-
-
"refraining from doing business
tect U.S. companies,
with the boycotted country" with
intent to comply with the boycott
- Crude destination restrictions could be violation since
compliance is action related to boycott limitations
(including limits on crude to South Africa or, during
embargo, to U.S.). Crude exports to U.S. would involve
compliance with destination restrictions, hence such
exports could be illegal.
- On Arab imports, certification of non-Israel origin or
failure to purchase Israeli goods (which can't be im-
ported) would be violation. Thus, no goods could be
imported into Arab countries by U.S. firms.
"refraining from doing business"
- Possible violation if Israeli firm requests crude pur-
with "any business concern" of
chase for direct shipment to Israel and is denied.
boycotted country with intent to.
comply with the boycott
- Possible violation on Arab imports if Israeli vendor is
turned down, and maybe from mere certification of non-
Israeli origin or that goods not manufactured by black-
listed vendor.
- Again, goes beyond protection for U.S. companies.
3.
Prohibited Actions
Remarks
Senate Bill
House Bill
"refraining from doing business"
- Goes beyond trying to protect U.S. companies. Apparently
with any person who does business
an effort to protect companies all over the world who
with boycotted country or with
might be blacklisted because of Israeli business involve-
nationals of that country, with
ment.
intent to comply with boycott
requirements
"Discriminating" against U.S.
- "Religious" discrimination not a major problem; "nationality"
persons on basis of religion,
could be. How can U.S. company refuse to comply with legal
nationality or national origin
requirements that employment preference be given to local nationals,
or that nationals of certain other countries be excluded?
"furnishing information"
Similar, but only if information
- Potentially troublesome, especially if Arab country dis-
on any persons' race,
relates to employees, etc., of
allows Israeli citizens ("nationality").
religion or national
a U.S. company; includes infor-
origin if requested for
mation on 'nationality"
- Would an individual visa applicant commit an illegal act
boycott purpose
by submitting information requested by the Government as
to religion or nationality?
Furnishing information on any
- Would prevent a blacklisted company from furnishing infor-
business relations with boy-
mation on itself necessary to get off the blacklist.
cotted country or firms
Remarks
Prohibited Actions
Senate Bill
House Bill
Persons subject to prohibi-
Persons subject are any "U.S.
- Inclusion of foreign subs, especially in Arab countries,
tions are "domestic con-
person" which includes for-
could be very difficult since they must comply with laws
cerns."
eign subsidiaries.
of sovereign nation where they operate.
How can U.S. criminal penalties pertain to actions of a
foreign-incorporated affiliate governed by local law?
- Regulations under Senate Bill might also finally define
"domestic concerns" to include foreign subs.
Does not apply to shipping
Prohibitions noted above
- U.S. companies might be unable to import to Arab nations
restrictions if "purpose"
against refusing to do busi-
at all since to do so requires non-use of Israeli and
is not to implement boy-
ness bring in shipping re-
blacklisted vessels and shipping companies, and refrain-
cott.
strictions.
ing from using those vessels could be illegal.
Criminal penalties.
Criminal penalties.
- Already in the law (for taking boycott action which dis-
criminates against U.S. persons on basis of religion. or
national origin).
Treble damages can be re-
- The wrong way to enforce foreign policy. A field day for
covered by any U.S. person
plaintiff's trial bar.
"aggrieved" by a prohibited
action.
5.
Prohibited Actions
Remarks
Senate Bill
House Bill
Reports of requests for boy-
Same
- Presents difficulty since "how" requests are publicized
cott compliance, to Commerce
cannot be controlled. Mere request for formalistic
Dept., must be public.
certification of non-Israli origin on Arab imports would
be characterized in media as "cooperation" with boycott.
Would unnecessarily aggravate U.S./Arab relations.
MEET WITH FRANK ZARB
Friday, September 17, 1976
Re: Mobile Oil
Mr. Tavoulareas
James Riordan
J. E. Fowler
3PM