§ 126.01 Prohibited shipments to or from certain countries. The policy of the United States is to deny licenses and other approvals for U.S. Munitions List articles destined for or originating in Albania, Bulgaria, Communist China, Cuba, Czechoslovakia, East Germany, Estonia, Hungary, Latvia, Lithuania, North Korea, Outer Mongolia, Union Poland, Rumania, of Soviet Socialist Republics, any of the area of Viet-Nam which is under de facto communist control, and to or from any other area where the shipment of Munitions List articles would not be in furtherance of world peace and the security and foreign policy of the United States. The exemptions provided in the regulations in this subchapter, except § 125.11(a) (1) and (2) of this subchapter, do not apply to shipments destined for or originating in any of these proscribed countries or areas. § 126.02 Temporary suspension or modification of regulations of the subchapter. The Director, Office of Munitions Control, Department of State, is authorized to order the temporary suspension or modification of any or all of the regulations of this subchapter in the interest of furthering the objectives of world peace and the security and foreign policy of the United States. § 126.03 Waiver or exception in hardship cases. In bona fide cases showing exceptional and undue hardship, the Director, Office of Munitions Control, Department of State, is authorized to make an exception to the regulations of this subchapter after full review. § 126.04 Shipments by U.S. Government agencies. (a) The export of articles on the U.S. Munitions List by any department or agency of the U.S. Government is not subject to the provisions of section 414 of the Mutual Security Act of 1954, as amended. A license to export such articles, therefore, is not required when (1) all aspects of a transaction (export, carriage, and delivery abroad) are effected by a U.S. Government agency, or (2) actual transfer of possession of U.S. Government-owned articles is effected in the United States by an agency of the U.S. Government to a foreign government or its carrier and no private person or forwarding agent is involved in the export transaction. (b) A license shall be required when a private person or forwarding agent is involved in any aspect of an export transaction unless the regulations in this subchapter contain a specific exemption from the need for a license under the particular circumstances of the transaction, or the consignor, consignee, and intermediate consignee (if any) are agencies of the U.S. Government and the export is covered by a U.S. Government Bill of Lading. (c) This section does not authorize any Government department or agency to export any items listed in § 121.01 of this subchapter which are subject to restrictions by virtue of other statutory provisions. 127.06 customs. Seizure and forfeiture in attempts at illegal exports. AUTHORITY: The provisions of this Part 127 issued under sec. 414, as amended, 68 Stat. 848; 22 U.S.C. 1934; 18 U.S.C. 1001; 22 U.S.C. 401; secs. 101 and 105, E.O. 10973, 26 F.R. 10469; sec 6, Departmental Delegation of Authority No. 104, 26 F.R. 1068, as amended, 27 F.R. 9925, 28 F.R. 7231; and Redelegation of Authority No. 104-3-A, 28 F.R. 7231. The provisions of Part 127 regarding exports to Southern Rhodesia, issued under E.O. 11322, 32 F.R. 119; 59 Stat. 620, 22 U.S.C. 287c. § 127.01 Violations in general. It shall be unlawful for any person to export or attempt to export from the United States any of those articles on the U.S. Munitions List without first having obtained a license therefor, unless written approval was obtained from the Department of State or an exemption from this requirement is authorized by this subchapter. (a) It shall be unlawful willfully to use, or attempt to use, for the purpose of exportation of U.S. Munitions List articles, any export or intransit control document which contains a false statement or misrepresents or conceals a material fact. Any such false statement, misrepresentation or concealment of material fact in such a document shall be considered, as made in a matter within the jurisdiction of a department or agency of the United States, in violation of section 1001 of title 18, United States Code and section 414 of the Mutual Security Act of 1954, as amended (22 U.S.C. 1934). (b) For the purpose of this section, the term export control document includes the following when used for the purpose of exportation, or attempted exportation of U.S. Munitions List articles: (1) Applications for export or intransit license and supporting documents. (2) Shippers export declarations. (4) Declarations of destination. (5) Delivery verifications. (6) Applications for temporary export license. (7) Applications for registration. (8) Purchase orders. (9) Foreign import certificates. (10) Bills-of-lading. (11) Air way bills. (12) Consignee-purchaser transaction statements. (13) Nth country control statements. § 127.03 Penalties for violations. Any person who willfully violates any provision of section 414 of the Mutual Security Act of 1954, as amended (22 U.S.C. 1934), or any rule or regulation issued under that section, or who willfully, in a registration or license application, makes any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, shall, upon conviction, be fined not more than $25,000, or imprisoned not more than 2 years, or both. § 127.04 Penalties for violations relating to Southern Rhodesia. Any person subject to the jurisdiction of the United States who, with regard to exports from the United States to Southern Rhodesia, willfully violates any provision of section 1(d), of Executive Order 11322 or any rule or regulation contained in this part, or who willfully in a registration or license application makes any untrue statement of a material fact, or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, shall, upon conviction, be fined not more than $10,000, or imprisoned not more than 10 years, or both. § 127.05 Authority of district directors of customs. (a) District directors of customs are authorized to take appropriate action to insure observance of this subchapter as to the exportation, or the attempted exportation, of arms, ammunition, and implements of war, and technical data relating thereto, whether authorized by licenses or written approval issued under this subchapter, including, but not limited to, inspection of loading or unloading of carriers. (b) Upon the presentation of a license or written approval to a customs officer, authorizing the exportation of arms, ammunition, and implements of war, and technical data relating thereto, the customs officer may require, in addition to such documents as may be required by customs regulations, the production of other relevant documents and information relating to the proposed exportation, including, but not limited to, invoices, orders, packing lists, shipping documents, correspondence, and instructions. § 127.06 Seizure and forfeiture in attempts at illegal exports. (a) Any attempt to export or ship from or take out of the United States any articles on the U.S. Munitions List in violation of the provisions of this subchapter shall constitute an offense punishable under section 401 of title 22 of the United States Code. Whenever it is known or there shall be probable cause to believe that any articles on the U.S. Munitions List are intended to be or are being or have been exported or removed from the United States in violation of law, such articles and any vessel, vehicle or aircraft involved in such attempt shall be subject to seizure, forfeiture and disposition as provided in section 401 of title 22 of the United States Code. (b) Similarly, any attempt to violate any of the conditions under which a Temporary Export or Intransit License was issued pursuant to this subchapter shall also constitute an offense punishable under section 401 of title 22 of the United States Code, and such articles, together with any vessel, vehicle or aircraft involved in such attempt shall be subject to seizure, forfeiture, and disposition as provided in section 401 of title 22 of the United States Code. PART 128-ADMINISTRATIVE PROCEDURES § 128.01 Exclusion of functions under section 414 of the Mutual Security Act of 1954, as amended. The functions conferred by section 414 of the Mutual Security Act of 1954, as amended, are excluded from the following sections of the Administrative Procedure Act: 5 U.S.C. §§ 553, 554. (Sec. 414, as amended, 68 Stat. 848; 22 U.S.C. 1934; secs. 101 and 105, E.O. 10973, 26 F.R. 10469; sec. 6, Departmental Delegation of Authority No. 104, 26 F.R. 10608, as amended, 27 F.R. 9925, 28 F.R. 7231; and Redelegation of Authority No. 104-3-A, 28 F.R. 7231) [Dept. Reg. 108.605, 34 F.R. 12040, July 17, 1969] NOTE: The recordkeeping and reporting requirements contained herein have been approved by the Bureau of the Budget in accordance with the Federal Reports Act of 1942. APPENDIX 19 STATEMENT OF J. M. DUNN, ACTING EXECUTIVE DIRECTOR OF THE COUNCIL ON INTERNATIONAL ECONOMIC POLICY, SEPTEMBER 25, 1975 Mr. Chairman and members of the subcommittee, I am pleased to respond to the Subcommittee's requests for information regarding arms sales to Arab oilproducing countries as compared to U.S. payments for their oil, and for our comments on regulation of the use of foreign sales agents. Middle East oil producing countries are defined to include Organization of Arab Petroleum Exporting Countries (OAPEC) plus Iran. OAPEC is made up of ten countries: Saudi Arabia, Algeria, Iraq, Kuwait, Libya, Qatar, United Arab Emirates, Egypt, Bahrain and Syria. All but Syria export oil to the United States. There are two types of security assistance programs that pertain in this situation, the grant military assistance program and the foreign military sales program. The grant program is a military aid program and is of limited significance in the Middle East. Only Saudi Arabia was a recipient of this type of assistance in FY-1973 and FY-1974, and none of the OAPEC nations received any assistance under this program in FY-1975. Aid to Saudi Arabia each year amounted to only $200,000, out of worldwide totals of $593,400,000 in FY-1973 and $788,600,000 in FY-1974. Thus, for all practical purposes we are concerned only with foreign military sales. Table 1 indicates the amount of orders taken under the foreign military sales program worldwide and for the four recipient countries among OAPEC for FY1973 to 1975. Iran, Saudi Arabia, Kuwait and Libya placed orders under this program and, of these, only Saudi Arabia and Iran have been major purchasers. In FY-1973 the four countries accounted for a little more than 80 percent of total orders placed under this program-which declined to about 45 percent in FY1975. The data on foreign military sales were provided by the Defense Security Assistance Agency (DSAA) and the Comptroller's Office of the Department of Defense. These data show when orders were placed for military equipment, not when they were delivered. There normally is a considerable time lag between the ordering date and the delivery date. Hence, these data are not directly comparable with the trade statistics provided by the Department of Commerce on U.S. imports and exports which cover the actual movements of goods in and out of U.S. customs areas. In that series, military sales by country are lumped under "special category goods” and although they are largely military supplies, they are not exclusively so. Furthermore, the Census statistics refer to the movement of goods only from the U.S. to a foreign purchaser. The foreign military sales statistics include services as well as goods (approximately 25 percent of the total). Furthermore, the goods themselves are not necessarily classified as U.S. exports. That is, the military can provide a purchaser with equipment already held abroad in foreign stocks. Hence, they would not be included as an export of the United States. Therefore, considerable caution should be exercised in making direct comparisons for particular periods of time from the two data series. However, trends can be discerned. Orders placed under the foreign military sales program by Iran and Saudi Arabia peaked in FY-1974. In the case of Iran, FY 1975 orders declined about one-third, and Saudi Arabian orders declined by more than 40 percent. The Defense Department is presently working on forecasts of purchases under this program for FY-1976 and hopes to have some estimates available within a few weeks. (Classified material and table deleted.) Table 3 and Table 4 show total US imports and exports to the ten countries under review for calendar years 1973, 1974, and the first six months of 1975. In calendar year 1973, the U.S. enjoyed a favorable trade balance of more than $550 million. This balance was sharply reversed in 1974, as a consequence of the increased costs of oil imports from these countries. The U.S. deficit was about $1.2 billion, however, through the first six months of 1975 the U.S. has returned to a net trade surplus position, mainly as a result of sharply higher exports to these areas, particularly Iran. U.S. exports of "special category goods" as reported by the Department of Commerce, are also shown on Table 4A. As previously noted, neither the content nor the timing of these "special category goods" exports conforms directly with the information reported by the Department of Defense on foreign military sales. However, it is apparent that the trend of sales to the recipient countries is consistent with the foreign military sales data. The rise in the value of US imports of oil and petroleum products from the Middle East area reflects the dramatically higher oil prices since 1973. Tables 5, 6 and 7 show the dominant position of Iran and Saudi Arabia in terms of exports to the US. The value of US oil and petroleum product imports in the first half of 1975 from Iran was $685 million, as compared with $170 million in the last half of 1973. Imports of these products from Saudi Arabia have grown from $64 million in the first half of 1973 to $1,161 million in the first half of 1975. As noted, US imports of petroleum and petroleum products from the Middle East come mainly from Saudia Arabia and Iran. Similarly, military arms sales for the region are made primarily to those two countries. For FY-1974, oil imports from Iran amounted to $1.1 billion while those from Saudi Arabia were valued at around $450 million, as compared to orders of military equipment of $3.9 billion and $2.5 billion respectively. For FY-1975, oil imports from Iran amounted to $1.8 billion, about $800 million less than the value of military orders placed, whereas US imports of oil from Saudi Arabia were valued at $2.4 billion, some $1 billion higher than military orders placed by Saudi Arabia in that year. You have also asked me to comment on the new regulatory approaches suggested by federal officials regarding foreign sales agents fees. We recognize the difficult problem the Committee and the Executive Branch has been concerned with, which has resulted primarily from recent highly publicized cases involving clear abuses in the use of foreign sales agents. I commend you and your Subcommittee for undertaking to discover the facts and develop a solution to the problem. I am aware that the Subcommittee has already heard from the Departments of State and Defense, the Securities and Exchange Commission, the Internal Revenue Service and the Justice Department, regarding various aspects of this problem. I will not attempt to deal with the technical problems previously discussed, but rather to focus on the economic aspects to the changes in law and regulations which have been proposed. First, while recognizing the seriousness of the problem, I think it is important not to overreact to what are apparently a small number of abuses. Clearly, it is undesirable to unduly burden US corporations who are competing for export sales with foreign companies not subject to our laws and regulations. Additionally, actions taken concerning defense-related sales will probably set precedents for new laws and regulations in the non-defense area. So, the results of this effort will very likely have a significant impact beyond defense-related sales to foreign governments. In my view, the object must be to discourage excesses and abuses while preserving the competitiveness of US companies in the international market place. As you know, the Department of Defense has issued a directive to procurement officers requiring the disclosure of agents names, and fees or commissions proposed to be paid to such agents, to foreign government purchasers. Furthermore, foreign government approval of the proposed arrangement is required. Similarly, the State Department has proposed a regulation which has been published in the Federal Register. The State Department proposal requires disclosure of agency arrangements to the foreign government, but approval of the foreign government is not required. Comments on both actions are being provided to the respective agencies now. (The DOD directive is in effect, while State's regulation is proposed.) We understand that exporting companies are concerned that the requirement of disclosure to and approval of the foreign government would put them at a serious competitive disadvantage. |