However, we emphatically voice our objection to having to report to a foreign government the amount of the fee or commission to be received by the local agent. It is common business ethic for the seller or his agent not to divulge his profit to the buyer. Such a requirement would place the American exporter at a significant disadvantage when competing against other countries which do not have such idealistic requirements. Very truly yours, CHARLES A. ROGLER. TECHNICAL COMMUNICATIONS CORP., Subject: Contingency fee amendment ITAR. OFFICE OF MUNITIONS CONTROL, GENTLEMEN: This letter is in response to the notice of proposed amendment to the ITAR dealing with the submission of contingent fee statements. Kindly consider this a strong objection to the proposed change for the reasons outlined below. 1. It is doubtful that undisclosed contingent fees can damage or have damaged the foreign policy interests of the U.S. Rather it is the naive attempts at policing the world's morals and ethics that seem to make this country the laughing stock of many foreigners. 2. While TCC, as company policy, does not enter into "contingent fee" agreements, we consider it inadvisable to try and force our policy on others. 3. This attempt to regulate business practices is outside the purview of the Office of Munitions Control, State Department, or U.S. Government, and as a matter of policy it is suggested that this type of intervention be avoided. As a practical matter there is little to be gained by the extra paper work for all parties. 4. It is bad enough to pay for the "privilege" (registration fee) of being regulated and constrained in business without having to provide the type of affidavit described in the proposed amendment. May I strongly suggest the amendment not be implemented. ARNOLD M. McCALMONT, President. NATIONAL SECURITY INDUSTRIAL ASSOCIATION, OFFICE OF MUNITIONS CONTROL, BUREAU OF POLITICAL-MILITARY AFFAIRS, GENTLEMEN: NSIA is a non-profit Association of approximately two hundred fifty American industrial and research companies of various types and sizes, from large to small, representing all segments of an industry which provides products and services to the United States Government. The Association's essential purpose is to foster an effective working relationship and good two-way communications between the Government and the industry in the interest of the national security. We noted with interest the State Department's invitation for comments on proposed amendments to the International Traffic in Arms Regulation contained in the Federal Register, Vol. 40, No. 165 dated August 25, 1975. NSIA would like to request an extension of at least 60 days for comments on the proposed changes due to the fact the subject is complicated in spite of its apparent simplicity. In the short time available we have had insufficient time to adequately study the proposed changes and inform our member companies. We feel that the proposed amendments have not been publicized sufficiently and might impede export transactions and embarrass legitimate international dealers and representatives. Sincerely, For the foregoing reasons, NSIA feels that an extension of time is necessary. J. M. LYLE, President. TELEDYNE RYAN AERONAUTICAL, San Diego, Calif., September 8, 1975. Re Proposed Amendments to Parts 123, 124, 125 and 127, Title 22, C.F.R. OFFICE OF MUNITIONS CONTROL, BUREAU OF POLITICO-MILITARY AFFAIRS, GENTLEMEN: Herewith our comments regarding your proposed amendments to International Traffic in Arms Regulations establishing a disclosure requirement regarding agents for direct commercial sales to foreign countries. 66 We note that a disclosure is required for an export license for technical data as well as hardware. This is put into the context of being in connection with a contract having a value of $100,000.00 or greater [etc.]". As a practical matter, on many occasions we apply for technical data export licenses without a contract. These are, indeed, pre-contractual necessities in aid of marketing efforts or in support of technical proposals. Our question is whether it is intended that the disclosure requirement applies in these situations where there is no contract or even a letter of intent in being? A second question concerns the requirement of the application certifying that in those cases where a commission is involved the Government of the foreign country has been advised. Is the applicant entitled to rely on the representations of his sales agent that such disclosure has been made in the foreign country or must the applicant himself make such disclosure directly? Very truly yours, Mr. WILLIAM B. ROBINSON, Director, Office of Munitions Control, ROBERT M. POVONDRA. OLIN WINCHESTER GROUP, Washington, D.C. September 11, 1975. DEAR MR. ROBINSON: The Winchester Group of Olin Corporation would like to make comments to the Department of State concerning the proposed rule set forth in the Federal Register of August 25, 1975. Because of necessary communication with various Winchester and foreign personnel in different parts of the world, we need additional time to assemble the most meaningful comments. Please extend the time for comment another 60 days. Sincerely yours, HARRY E. FRECH, JR. ELECTRONIC INDUSTRIES ASSOCIATION, Re Proposed Changes to ITAR (22 CFR Parts 123, 124, 125, 127) Docket No. Mr. WILLIAM B. ROBINSON, Director, Office of Munitions Control, Department of State, Washington, D.C. DEAR MR. ROBINSON: The changes as proposed in the August 25, 1975 issue of the Federal Register relating to ITAR, Parts 123, 124, 125, and 127, have been reviewed by the Export Committees of Aerospace Industries Association and Electronic Industries Association. The combined membership of our two trade Associations includes most of the companies which manufacture high technology aerospace and electronic defense products for export. By combining our comments on the proposed rule changes in a single responsive presentation, it is believed that repetition will be avoided and more meaningful and useful comments will be made available to the Department for its consideration. This matter is of such importance that our two national Associations have combined their efforts. However, in order to produce an effective paper for the Department, as extension of time for the comments is requested for sixty days, or until November 24, 1975. Among the reasons for this request is that the combined membership of our two Associations consists of over 250 interested companies. These companies, widely scattered throughout the United States, must be contacted. Meetings must be arranged for the respective committees if a careful, in-depth evaluation is to be made. Studies are expected to be required on the effect of the proposed changes on the sale of defense products and any concomitant negative impact on such items as employment and the balance of payments. The combining of respective Associations in this effort should, despite the requested extension, save time and work of the Department and permit it to achieve a more studied and equitable result. It is therefore firmly believed that the national interest will be served if our request is granted. Respectfully, KARL S. HARR, JR., President. JEAN A. COPPIAUX, SQUIRE, SANDERS & DEMPSEY, COUNSELLORS AT LAW, Cleveland, Ohio, September 19, 1975. Re Proposed Amendments to the International Traffic in Arms Regulations regarding Contingent Fees. OFFICE OF MUNITION'S CONTROL, BUREAU OF POLITICO-MILITARY AFFAIRS, GENTLEMEN: This Firm has a number of clients which are or may be subject to the above regulations and which are quite concerned as to the effect on their foreign business if the proposed amendments are adopted. As you are undoubtedly aware, many of the foreign markets for sales of products on the United States Munitions List are highly competitive with aggressive and capable manufacturers in a number of industrial countries, including Germany, France, England and Japan. Manufacturers in these countries generally employ local agents to handle their foreign sales. That these agents are essential for successful sales efforts in the Middle East, Far East and Latin America, is widely recognized. Department of Defense recognition of this fact is amply confirmed in the attached communication from the Defense Security Assistance Agency as to the necessity of local agents in the Middle East. We are confident that if agents in the Middle East and elsewhere realize that United States manufacturers are required to report their compensation to their governments, they will refuse to do business with United States manufacturers and represent only the foreign competition from the other principal industrial countries. We are also confident that such a decision by the agents will substantially foreclose these markets to United States manufacturers. The resulting loss of business could mean the loss of many thousands of jobs in this country and would adversely affect our balance of trade as well. We do not condone bribery of foreign officials. On the other hand, we do not believe that the employment of bona fide sales agents in foreign countries should effectively be precluded-the necessary result, in our judgment, of the proposed amendments. We understand that both the Securities and Exchange Commission and the Congress are actively considering various solutions to this complex problem in a broad context not limited to foreign sales of articles on the Munitions List. We would respectfully urge the Department of State to defer action on the proposed amendments until the results of these broader studies are known. If it is concluded that action must be taken now, we would suggest a modification which we believe would accomplish the intended purpose without destroying legitimate business. We call your attention to the fact that the Federal Procurement Regulations have for many years required a covenant against contingent fees. This covenant contained in 41 C.F.R. ¶ 1-1.503, reads as follows: "The Contractor warrants that no person or selling agency has been employed or retained to solicit or secure this contract upon an agreement or understanding for a commission, percentage, brokerage, or contingent fee, excepting bona fide employees or bona fide established commercial or selling agencies maintained by the Contractor for the purpose of securing busi ness. This representation is applicable to procurement of arms by the Department of Defense and is good precedent for requiring such a covenant in connection with foreign arms sales. We also believe it would permit United States manufacturers to employ the legitimate agents which are clearly required for successful sales efforts in many parts of the world. It would, indeed, be anomalous for a United States manufacturer to be required to make greater disclosures in its sales to foreign countries than it is required to make in sales of similar products to the United States government. In summary, we urge you to take no action on the proposed amendments until after the current studies by the SEC and the Congress of the broader problems have been concluded. If action is to be taken now, we respectfully suggest that the proposals be modified to conform with the "Covenant Against Contingent Fees" currently contained in the Federal Procurement Regulations. Very truly yours, H. JAMES SHEEDY. DEFENSE SECURITY ASSISTANCE AGENCY, AEROSPACE INDUSTRIES ASSOCIATION, Washington, D.C. (Attention Mr. M. J. Garrett.) ELECTRONIC INDUSTRY ASSOCIATION, Washington, D.C. (Attention M. Jean Coffiaux.) NSIA, Washington, D.C. (Attention Mr. Gene Lambert.) GENTLEMEN: Enclosed is a copy of an article on "Agent's Fees in the Middle East." This article has now been cleared for open publication by the Directorate for Security Review, Department of Defense. If you think your members may be interested in the contents, please feel free to use it as you see fit. Sincerely, JOSEF K. HOENIG, Assistant Director. NESA/AFR Division Sales Negotiations. AGENT'S FEE IN THE MIDDLE EAST The Middle East, Far East and Latin America are areas of the world where an agent is generally required for the successful completion of a commercial sale. In some areas of the Middle East it is a legal requirement to have a local agent before a proposal is considered. For the most part the Request for Quotations will request among other things, who the local agent is and without this information little or no serious consideration will be given to the contractor's response. HISTORY While agents or concessionaries existed since pre-biblical times, it was during the industrial revolution that the prominence of agents became a factor to be considered in manufacturing/commerce as we know it. At that time a local agent was engaged by the purchaser who required a given product or commodity and did not have the talent, facility, or faculty to locate the equipment or product in a complex international market place. The local agent who was well versed in national and international commerce was rewarded for his time and effort in the form of a fee paid by the purchaser. Hence, the term "finders fee" evolved and was based on a negitiated amount, depending entirely upon the supply and demand of the commodity. Since then, the term finders fee has taken on a somewhat different connotation. As manufacturers or users of equipment became more sophisticated, they began employing their own purchasing agents at a fixed salary to fill the role formerly accomplished by an outside agency on a percentage basis. This was done primarily to eliminate the excessive fees required for alleged scarce material. With this transition, the more aggressive agents turned their efforts from a purchasing function, on behalf of the buyer-to one of selling-on behalf of the supplier, in many cases dealing with the same principals. WHY USE AN AGENT The use of sales agents in some foreign countries by U.S. companies has developed over the years on the basis that locals must deal with locals because of an inherent mistrust of foreigners. Foreign marketeers generally have a reputation for aggressiveness (not appreciated in some areas of the world), have little or no local language competence, insist on doing business in their language and on their terms, and are unfamiliar with customs, procedures and regulations of the purchasing country. Generally, the local purchaser is much more at ease in dealing with a local representative or agent because of long standing friendships or business arrangements. In addition, the local agent relieves the purchaser of the arduous task of communicating with the foreign supplier in a strange language. In essence, the agent again becomes a middleman between buyer and seller, serving a useful purpose to both parties. The question as to whether agents are necessary, has arisen many times. There is the classic example of a new Vice President of a U.S. firm who, after reviewing company agent's fees, decided that a local Middle East agent's contract could be cancelled. All that the company had in the country at that time was a continuous but lucrative servicing contract that had been negotiated many years ago. Within 48 hours after the agent had been cancelled, all local work permits of the company's employees were withdrawn. Needless to say, the agent was reinstated immediately. Another case involved competition by two U.S. firms in a North African country. As the competition became keener, one of the contractors found it almost impossible to obtain a visa for its sales personnel, which would have enabled their marketing people to make a sales presentation. This action was attributable to influence of one of the competitive agents. THE PROBLEM In the past, the volume of sales to the Middle East have been rather limited with the result that the agent's commission has been nominal and, in general, in proportion to the effort expanded by the agent. Recently, however, the countries in the Middle East have embarked on huge defense modernization programs involving hundreds of millions of dollars. Obviously the agent's fee, since it is based on a percentage of sales, is inordinately large and in no way can be equated directly with the amount of effort expended by the agent or representative. With the increasing expenditures in the Middle East for defense modernization, the Gulf countries are becoming increasingly aware of additional cost for which there is little in the way of value received. More importantly, they are concerned with the influence on the equipment selection process which is being applied by local agents. This influence, if not countered, can result in the acquisition of equipment unsuited or marginal to the defensive posture of the procuring country. A classic example of influence by a local agent on procurement resulted in the purchase by one country of used aircraft. These aircraft have been plagued with maintenance problems since arrival in country with the resulting capability of having not more than three aircraft fully operational at any one time. This same agent was influential in promoting European wheeled vehicles with complete disregard of local desert conditions and temperatures. The result-complete immobility due to engine overheating during the hot summer months. INFLUENCE The term "influence" is used here rather loosely. To be more specific, it can range from normal friendships or family ties between local agent and procuring officer to the payment of substantial sums of money to individuals in high government positions with somewhat lesser amounts paid to lower echelon government officials. One local agent had admitted to the writer that he has three members of the National Assembly (Parliament) of the country on retainer fees for the purpose of obtaining inner circle intelligence and to promote the sale potential of his principal's product. Since most major defense contractors (both U.S. and foreign) have local agents for the express purpose of influencing a sale, it is no wonder that the decision-making process is complicated by conflicting points of view as to the proper equipment to acquire. Obviously the agent with the greatest margin of profit or percentage has a distinct advantage over those with a lesser fee in |