in terms of the stated objectives, the requirements for hearings, the requirements for agreements based on an exchange of equivalent benefits, the maximum range of modification in duties permitted, the requirement of detailed reports to the Congress, and the period of time for which the basic authority is grantedtypically three to five years. The administration of what is generally referred to as trade legislation, but is essentially controls on imports, is divided among STR, State, Treasury, and the International Trade Commission, but the criteria are laid down by the Congress and in substantial part subject to control by the courts.

Export Controls

Export controls have a much briefer history, principally because the prohibition in the Constitution on the taxation of exports from any state (Article I, § 9, Cl. 5) has been construed to apply to the federal government as well. Apart from war-time measures, controls on exports date only from the period of the cold war following World War II.

The export control program also works by delegated authority, but in contrast to import controls, the Export Control Act and its successor statutes contained a very broad statement of policy, and an equally broad mandate to the President "to effectuate the policies set forth in the Act." Since the 1969 sucessive Congresses have inserted somewhat more specific findings into the statute and have attempted to specify some criteria for administration of export controls, including standards for licensing, requirements for reporting and provisions for hardship exemptions. Fundamentally, the export control program, including the specification of items to be licensed, the classification of countries by groups, and the administration of the licensing system, remains a program made in and by the Executive Branch, with little participation by Congress and virtually none by the courts. There is one important check, however: Congress has never adopted the Export Control Act or its successors as permanent legislation. Since 1949 the Act has been adopted for 2, 3, or 4 years, never longer. Last summer, as you will recall, the Export Administration Act expired altogether as the committee of conference was prevented from meeting before adjournment of the 94th Congress. I will return to this later in the context of abuses of the Trading With the Enemy Act. For the moment, I want to stress only that the Congress has always viewed the scope of export controls and the breadth of the delegation as sufficiently out of the ordinary to wish to review it every few years.

Other Controls

The third category of controls-what for shorthand purposes we may call "financial and other"-is quite different. On the whole, as I have mentioned, the United States has not attempted to control international investment, travel, or financial transactions, except in time of war. But the statute designed for war may be applied also "in time of national emergency," and as the Committee is well aware, that term has been an elastic one without any standards or limits of time.

The Trading With the Enemy Act as a regulatory statute is different from the others we have seen in several respects. First, there seems to be no way under existing law to terminate a state of emergency proclaimed by the President except by another presidential proclamation; and no practical constraint limiting actions taken under emergency authority to measures related to the emergency. The Trading With the Enemy Act itself, and particularly section 5(b), is legislation without limit of time. It has been in effect in its present form since 1941 and has had no expiration date or requirement of congressional scrutiny of review. Second, the delegated authority is not only broad: there are no criteria at all. Subject only to the existence of a national emergency, the power of the President, acting "through any agency he may designate" to affect property or transactions is virtually unlimited, provided there is at least some foreign connection in the property or transaction affected.'

I must say that it is a tribute to successive Presidents, and to the Justice and Treasury Departments which have administered the Act, that it has not been

2 The National Emergency Act of 1976, which terminated all states of emergency effective two years after passage, excludes section 5(b) of the TWEA from its operation. How President Roosevelt found the foreign handle for his bank holiday proclamation in 1933 I never understood, but Congress specifically ratified that action before anyone could handle it.

more abused. The exceptions stand out just because they are unusual. But I think everyone who looks at the statute for the first time is struck by the fact that the President can take property, block bank accounts, prohibit transfers, create embargoes, forbid travel, without having to account to anyone, without effective judicial review, and without even a requirement of reporting to the Congress.

B. The Political Uses of Trade Controls

Import Controls

Import controls have, on the whole, been imposed and implemented on a non-political basis-with an important exception that I will come to in a moment. By "political" in this context I do not mean response to internal pressures, such as reservation of textiles from the Kennedy Round in the early 1960's or imposition of oil import quotas from 1959-73. Vis-a-vis the outside world, import controls have been applied on a non-discriminatory basis, balancing— with changing value judgments-the benefits of trade and the demands of protection, but without any effort to achieve goals unrelated to trade.

We give the same duty treatment to imports from England as to imports from South Africa; we give the same treatment to countries such as Mexico, with which we have no trade agreement, as we do to our GATT partners; and we don't distinguish between democracies and dictatorships, allies and opponents.' The focus is on goods, not countries, and I am not aware of any instance in which the United States has used the promise of granting or withholding a trade benefit for extraneous purposes." The one major exception, of course, is that since 1951 the United States has by statute denied MFN duty treatment to products of communist countries (not including Yugoslavia and (since 1960) Poland).

President Johnson wanted to obtain discretionary authority from the Congress to end discriminatory tariff treatment for communist countries that signed a trade agreement with the United States. President Nixon took the opposite approach, and signed an agreement first with the Soviet Union, subject to approval by the Congress. I need not remind this Committee of the long and passionate debate in 1973-74 over the Jackson/Vanik Amendment linking MFN to freedom of emigration, or of Dr. Kissinger's mini-shuttle diplomacy between the Congress and the Soviet Embassy trying to work out appropriate "assurances" with respect to improved opportunity for emigration. In the end, the deal fell apart, and with it the United States-Soviet Trade Agreement, though not, interestingly, the increasing volume of trade.

One could debate this subject endlessly. I mention it only to point out that (1) Congress has very chary with delegation of discretion; and (2) even where the discriminatory treatment has been greatest, trade does not stop completely: Duty-free (or non-dutiable) items from communist countries have come in without restraint; the others must hurdle tariff walls that do not apply to products of countries enjoying MFN, but they can come in.

Export Controls

Export controls, in contrast, have almost all been entirely political. It was always realized that export controls burden our commerce and are bad for business. But a conscious judgment was made that the strategic and political gain outweighed the possible economic loss to the United States. In the past the regulations provided that certain products, deemed strategic, required a specific license to all countries, and that all products required a license to certain countries. Over time, the number of products requiring a specific or so-called "validated" license has been greatly reduced, and many items now can move under general license even to the primary targets of the export controls. Still, even at the height of the cold war, different countries in the Soviet bloc were treated differently (to use one of Secretary Rusk's favorite phrases), and some licenses were always obtainable. One way to show a country that we felt more warmly

To some degree this statement is no longer entirely accurate as the result of the generalized system of preferences authorized by the Trade Act of 1974. In the present context, designed to bring out the characteristics of the Trading With the Enemy Act, the statement in the text is substantially correct.

This statement would not be entirely accurate if one were to include such programs as the Sugar Act of 1948, which was in effect through 1974. The statement in the text refers to the basic trade legislation.

The exceptions consisted of scattered restraints on exports of items in short supply, such as walnut logs, scrap copper, and most recently soybeans.

(or less hostile) to it was to change its "country group"; for instance in 1964 Rumania was transferred from the same category as the Soviet Union to the more favorable category in which Poland was classified, and in 1971 an even more favorable group was created for Rumania in response to our perception of that country's growing independence from the Soviet Union. Leaving aside the re-export problem, export controls were directed exclusively to the Communist states of Europe. The message was wariness, control, but not embargo.

Embargoes

For complete elimination of trade and other economic transactions-the most severe form of disapproval short of war-the United States relied on the Trading With the Enemy Act, specifically section 5 (b). For twenty years no trade, no financial transactions, no travel was permitted with Communist China. The same is still true with respect to North Korea, North Vietnam, Cuba, and recently Cambodia and South Vietnam. In theory licenses could be issued for specific transactions. But the Treasury Department in administering the Foreign Assets and Cuban Assets Controls hardly ever issued licenses (except to individuals for non-commercial transactions). An embargo meant an embargo, an important aspect of the measures taken under section 5(b) was that its targets-the Far Eastern Communist countries plus Cuba-were placed deliberately in a category of opprobrium lower than that of the countries subject to export controls.

For years suggestions that the controls be eased in one way or another were met with the argument that to do so would be to give a misleading "signal" to the target country. It is interesting that the early signals for a possible change in our attitude toward China came in a series of small relaxations in the embargo with that country-first tourist gifts were allowed, then the presumption that certain goods were of Chinese origin was removed, then restraints on foreign subsidiaries of U.S. companies were relaxed, then the prohibition was lifted on the use of dollars in dealings with China and on bunkering of Chinese vessels; finally, a general license was issued for nearly all trade with China, shortly before Dr. Kissinger went on his famous voyage to Peking in the summer of 1971. None of these changes came, so far as I know, in response to individual applications. All were steps in a political game, sometimes subtle and sometimes not. Economics entered into the game in terms of calculating the effects on China (or North Vietnam, Cuba, etc.) of the denial program; there was no balancing, however, as there was in the Export Control Program, of gains to the United States economy against loss to the target country.

II-EXTRATERRITORIAL APPLICATION OF CONTROLS UNDER THE TWEA

Section 5(b) itself provides for exercise of the authority granted with respect to "any person, or... any property, subject to the jurisdiction of the United States", and authorizes the President to define all the relevant terms, including "person," "property," and "jurisdiction." This authority has been exercised in the Foreign Assets Control Regulations to assert jurisdiction over (i) all citizens of the United States, wherever they may reside; (ii) all residents of the United States, whatever their citizenship; (iii) all persons actually within the United States, whatever their residence or citizenship; (iv) all corporations organized under the laws of the United States or any of its subdivisions; and (v) all partnerships, corporations, or other enterprises wherever organized or doing business linked to the United States by ownership or control. The argument for this expansive assertion of jurisdiction is that it prevents evasion of the controls. You don't want a person in the United States to just go across the border to do what he is not allowed to do here. To use a current analogy, the judgment has been that in this area we don't want the kind of shopping for favorable legal climate that one sees in flag of convenience shipping, offshore trusts, tax havens, and the like. The argument the other way, of course, is that controls asserted by the United States over essentially foreign operations impinge on the sovereignty of foreign nations, make it difficult for them to maintain their own foreign economic policies, and often make United States-based investment less welcome than it

On the same day that the Committee's hearings took place the Treasury issued amendments to the Foreign Assets Control Regulations and the Cuban Assets Control Regulations issuing a general license for persons traveling to countries covered by those regulations to pay for normal transportation and maintenance expenditures and to buy small quantities of gifts for personal use. 42 Fed. Reg. 16620, 16621 (March 29, 1977). These amendments to the regulations are consistent with the expiration on March 18, 1977, of restrictions on travel to North Korea, North Vietnam, South Vietnam, Cambodia, and Cuba.

would otherwise be. I don't think we would dream of applying, say, United States labor laws to foreign subsidiaries of United States companies; we do tax foreign earnings of United States corporations, but only as they are repatriated and, in general, with credits for taxes paid abroad. But in the area we are talking about, we purport to prohibit activities of foreign corporations lawful-and even encouraged-in those countries where the activities are to be carried on, by virtue of an ownership or management link to the United States.

The best known case of this kind occurred in the winter of 1964-65 when the United States government attempted to block a sale by Fruehauf France, a French corporation 70 percent owned by Fruehauf of Detroit, of trailers to another French corporation which made tractors, because the tractor-trailers were to be sold to Communist China. The French minority shareholders persuaded a French court to appoint a receiver to carry out the contract, and the government of President de Gaulle protested strongly against what it called a violation of international law and French sovereignty by the United States. Similar cases occurred repeatedly with Canadian subsidiaries of United States corporations with respect to trade with China, when that was encouraged by Canada while it was prohibited by the United States. It seems that every time a CanaIdian Prime Minister came to Washington or an American President went to Ottawa, all the Canadians wanted to talk about was extraterritorial jurisdiction-which galled in several areas (securities regulations, antitrust, etc.) but most of all in the area of trade boycotts. When the United States applied the TWEA to Cuba in the early 1960's, a general license was issued to permit foreign corporations owned by "United States persons" to do most kinds of business with Cuba. The Canadians thought they had made their point; they were chagrined to discover, however, that the license did not apply to individual U.S. citizens who, as was common, had managerial positions in the foreign corporations. Just a couple of years ago for instance, the U.S. Treasury tried to prevent the Worthington Locomotive Works of Montreal from selling locomotives to the Cuban National Railways, because 52 percent of the shares of Worthington were owned by Studebaker of New York and two of Worthingtons directors were U.S. citizens. It took personal intervention by Prime Minister Trudeau and considerable publicity to persuade the U.S. government to give its consent for that transaction to go forward.

One could discuss this point at length, and perhaps the Committee will want to come back to it. For the present, I want only to leave two thoughts with you on this point. First, section 5(b) is foreign policy not only with respect to socalled "designated countries"; it creates foreign policy problems with allies as well, and indeed when the political perceptions differ, the closer the interchange, as with Canada, the greater the frictions. Second, it seems clear that TWEA controls are part actual denial, part symbolism; the more we move toward the symbolic use of these controls-e.g., we are not really trying to bring down the government of Cuba-the less we should be concerned about possible evasion and the more we should resolve doubts in favor of refraining to assert jurisdiction over foreign operations of corporations linked to the United States.

III-MISUSE OF THE TWEA

At the risk of prejudging the issue, what I refer to under the heading of misuse is the reliance on the TWEA as authority for executive action when other authority is lacking or defective. I have referred to section 5(b) as a political weapon-economic warfare if you will-in the context of a cold war of shifting intensity. But at three points that I want to mention (and others detailed by the Committee in its publication of last November), section 5(b) has been used as an economic measure without connotation of "enemy" involvement, and at a fourth point (repeated several times) section 5(b) has been used-I believe improperly as a reserve authority for the export control programs when that program's basic authority expired.

1. President Roosevelt relied on the TWEA when, as his first official act, he issued a Proclamation closing the banks on March 6, 1933. It seems that Roosevelt was prepared to take this step without reference to any law, but was persuaded that the color of statutory authority would lend legitimacy to his action. Looking back on that step, it still seems wrong, and the references to dealing with foreign exchange in the proclamation seem contrived. But as soon

• Proclamation 2039 of March 6, 1933, 48 Stat. 1689.

as the Congress convened, the action was approved and confirmed '-perhaps a recognition of the doubt about the original validity of the Proclamation. I am not prepared to suggest that there was no emergency in those grim first days of the Roosevelt administration, with 13 million Americans out of work and banks running out of money.10 Perhaps this experience suggests the desirability of some sort of stand-by or emergency legislation; relating such legislation or action to the war power or an "enemy" seems to me unfortunate, however, on at least two grounds: (1) it breeds a disrespect for or cynicism about law precisely among the persons who should be most careful about obedience to law-the President and his senior advisers; and (2) our courts have a historyalmost a conditioned reflex-of staying away from challenge of governmental action connected with the foreign affairs or war power.11

13

2. President Johnson used the TWEA to put into effect his balance of payments program of January 1, 1968," placing restraints on direct foreign investments by United States corporations, requiring repatriation of earnings, and setting up what became an elaborate and constantly shifting program of capital controls. Again, the program may have been advisable, though one might argue that it proposed measures to realign the value of the dollar that should have been taken sooner. For present purposes, I want to point out only that the measures were taken without debate or authority from Congress, and they had no rational connection with the purposes of the TWEA. President Johnson's Executive Order recites as authority for his action "the continued existence of the national emergency declared by Proclamation 2914 of December 16, 1950." To the general public, that must have sounded like the usual boiler plate. In fact, the reference was to the proclamation issued by President Truman when the Chinese Communists crossed the Yalu River 17 years earlier to repulse American forces in North Korea"-hardly related to the crisis of the dollar following the devaluation of the pound in November, 1967. Moreover-and this is one of the recurring weaknesses of action under section 5(b) and under other emergency of national security powers -President Johnson's action was not a 60-day or 90-day emergency program pending Congressional action; the program was kept in force for more than 6 years, tinkered with continually, and used for a variety of purposes (such as foreign economic development) that had to do with the consequences of the program but had nothing (or almost nothing) to do with the emergency justifying the original action.

15

3. When President Nixon took his dramatic action of August 15, 1971, closing the United States gold window and ending the convertibility of the dollar, he acted without reference to any international or domestic authority. But he also proclaimed an import duty surcharge of 10 percentage points ad valorem on nearly all dutiable goods entering the United States.10 As we have seen, the delegation of tariff-setting authority by the Congress to the Executive Branch is quite elaborate and precise, and not designed for surprise weekend announcements or across-the-board surcharges. The existence of that legislation, and indeed the Constitutional provision committing the raising of revenue to the Congress (Art. I, § 7, cl. 1) precluded imposition of tariffs just as an exercise of the foreign affairs power. President Nixon did not want to cite the TWEA, not least because a principal target of the surcharge was Japan, and he was scheduled to meet Emperor Hirohito in Alaska a few weeks later on the Emperor's first trip abroad since World War II. Mention of the Trading With the Enemy Act in connection with August 15 would, to say the least, have been

• Emergency Banking Relief Act of March 9, 1933, 48 Stat. 1.

10 For a vivid account of this episode and the mood of the country at the time, A. M. Schlesinger, Jr., The Coming of the New Deal, 1-8 (1959).

11 See, e.g., United States v. Curtiss-Wright Export Corp., 299 U.S. 304 (1936); Chicago & Southern Air Lines v. Waterman S.S. Corp., 333 U.S. 103 (1948); Kleindienst v. Mandel, 408 U.S. 753 (1972); Federal Energy Administration v. Algonquin, SNG. 426 U.S. 548 (1976); Teague v. Regional Commissioner, 404 F. 2d 441 (2d Cir. 1968); Consumers Union of U.S. v. Kissinger, 506 F. 2d 136 (D.C. Cir. 1974); as well as the many cases involving conduct of the war in Southeast Asia. For a convenient citation of these cases, see Dorsen, Bender & Neuborne, Political and Civil Rights in the United States, Vol. I, pp. 1533-34 (4th ed. 1976).

12 Exec. Order 11387 of Jan. 1, 1968, 33 Fed. Reg. 47 (1968).

13 15 C.F.R. Part 1000 (1968-74).

14 Proclamation 2914 of Dec. 16, 1950, 15 Fed. Reg. 9029.

15 See, for instance, the ever changing Mandatory Oil Import Program inaugurated by President Eisenhower in March 1959 and amended 56 times before finally being eliminated in 1973 and then being revived in 1975 by President Ford.

16 Proclamation 4074 of Aug. 15, 1971, 36 Fed. Reg. 15724 (1971).