APPENDIX 8 CORPORATE REACTIONS TO PROPOSED DEPARTMENT OF STATE CHANGES IN INTERNATIONAL TRAFFIC IN ARMS REGULATIONS Re 22 CFR Parts 123, 124, 125, 127. Docket No. SD-114 Contingent Fees under ITAR OFFICE OF MUNITIONS CONTROL, BUREAU OF POLITICO-MILITARY AFFAIRS, GENTLEMEN: In response to your notice of a proposed rule change, we wholeheartedly disagree and must protest the action of our Government attempting the destruction of an already exceedingly complicated and restricted business. is Free Enterprise to be snuffed entirely as the controls by our Government mount? How could payment of contingent fees damage our foreign policy, when we create a favorable relationship with a government who will have to rely on our country for support? It may not be an ethical transaction in the strictest sense of the word; however, when it is the accepted way of life and has been for many, many years, you must set aside the high principles which we Americans claim so dearly. It is not true that American businessmen "buy" domestic sales with lavish entertainment, gifts, and assorted other hidden devices that are designed to lure men? Surely, this is hypocrisy within our very own system! We are in a business which is highly competitive from non-American manufacturers and sellers of this type equipment. In many cases, our similar products are more expensive, thus making them even harder to sell. If we are to stay in business and make our country stronger by helping alliances already created, we must be allowed to operate as before. We can not report the details of a contingent fee on a form for many to see. We can not allow our clients to be subjected to any form of "blackmail" by any outside party, including any of the multi-levels of our Government. We can not subscribe to this death-blow to international business. This rule change MUST NOT be made or imposed under any condition. American exporters will suffer the brunt of answering for this display of American Government self-righteousness. Very truly yours, MITCHELL L. WERBELL IV, FEDERAL LABORATORIES, INC., OFFICE OF MUNITIONS CONTROL, BUREAU OF POLITICO-MILITARY AFFAIRS, GENTLEMEN: Federal Laboratories, Inc. has been involved in the export of law enforcement equipment for use by police forces both in the United States and throughout the world for many, many years. We understand that Parts 123 and 124 of 22 CFR pertains to our operation. We export via two avenues; one through exporters located in the U.S. These are U.S. owned and operated firms, well established and well known in the law enforcement equipment supply business as exporters. We invoice our products to these people, at a net figure. They make application to Munitions Control and all other export regulation entities. The second method of delivering law enforcement goods for export is via exclusive manufacturer's representatives. These manufacturer's representatives are citizens of the country in which their exclusive arrangement with us is involved. The method of compensation to them is one of standard commissions which are published and printed for their information even though they are classified as "confidential" by our company policy. You can appreciate our reasoning for maintaining confidentiality regarding commissions inasmuch as their general circulation could substantially hurt or alter the competitive nature of this business. Naturally, Federal Laboratories, Inc. will comply fully to the extent of the regulation cited above, however, this office in particular would appreciate as much information as is possible for the Department of State to render to assist us in being absolutely sure that we are in fact in full compliance. We can see no problem in any and all disclosures as required by the regulation with your understanding, of course, that commissions remain highly classified so as not to interrupt the fair competitive spirit of our industry. We would feel that such commission disclosures receive the same amount of treatment such as information classified "Top Secret" in the normal understanding of the classification. Very truly yours, DONALD D. PEACE, Vice President, Marketing. PYROTECHNIC SPECIALTIES, INC., Byron, Ga., September 1, 1975. Subject: Proposed Amendments to ITAR 22 CFR Parts 123, 124, 125 and 127. OFFICE OF MUNITIONS CONTROL, BUREAU OF POLITICO-MILITARY, Department of State, Washington, D.C. GENTLEMEN: This letter is in reference to Munitions Control Newsletter No. 13 advising of proposed amendments to International Traffic in Arms Regulations and inviting comments from interested parties. Our Company is strongly opposed to the proposed amendments requiring disclosure to foreign governments of contingent fees. Foreign governments enjoy the privilege of competitive purchasing power (or direct assistance through the Military Assistance Act) as does our own government and under such procedures, are not entitled to cost breakdowns of any nature. Negotiations and official paperwork are complicated and time consuming enough in their current state without having further costly delays because of misconceptions about payment of commissions or fees. Commissions or fees, in our business, are in return for real services rendered; i.e., obtaining information regarding technical requirements so that material furnished will meet the desires and specific needs of the buyer, assistance in applying for a license, marketing potential, etc. A small company, such as ours, could not possibly keep abreast of foreign interest in our products and maintain personal contacts with various governments without considerable expense. Therefore, these services are provided by knowledgeable concerns for a small fee and we are able to participate in foreign commerce. We can foresee, however, the possibility of unnecessary disagreements regarding amounts paid, individuals involved and a multitude of others should the proposed amendments be adopted. We personally are unaware of public concern to the extent of damaging our foreign policy interests except those that recently became public. These, of course, were fees paid to foreign governments by U.S. concerns for the privilege of doing business in various countries. We do believe that the United States is entitled to this information for its guidance in negotiating treaties and other agreements. However, the subject amendments do not appear to provide a mandatory requirement that foreign countries disclose this data to the United States. We trust you will give these comments your serious consideration and urge your opposition to the adoption of these amendments. Very truly yours, E. L. DEANE, Vice President, General Manager. However, we emphatically voice our objection to having to report to a foreigu 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. SMITH & WESSON, Springfield, Mass., September 12, 1975. Re Docket No. SD-114 Proposed Amendments to Parts 123, 124, 125 and 127 of Title 22, Code of Federal Regulations. OFFICE OF MUNITIONS CONTROL, BUREAU OF POLITICO-MILITARY AFFAIRS, GENTLEMEN: The purpose of this letter is to submit our comments on the above-referenced amendments proposed with respect to the International Traffic in Arms Regulations. Smith & Wesson and certain of its affiliated companies are manufacturers of various sporting and law enforcement products on the U.S. munitions list. A number of these products, including handguns and ammunition, are exported by Smith & Wesson to foreign governmental agencies in connection with sales effected through a network of representatives abroad. These representatives promote such sales of our products (as well as those of other companies) and, except where they purchase from us for resale, are compensated by us contingent upon completion of a sale and receipt of payment by us. These representatives consider the amount of their remuneration on any given sale (some of which are procured on the basis of public bids) confidential business information, just as domestic enterprises do with respect to similar commercial transactions in any number of industries. As we understand the proposed amendment to 22 C.F.R. Part 123, approval of an export license for such sales (where the value thereof is $100,000 or more and a commission of $10,000 or more is involved) would require disclosure to the foreign governments of the amount of our foreign representatives' commissions. In our opinion, the reaction of our representatives to any such requirement would be a vigorous protest and a reluctance to promote sales of our products where products of non-United States manufacture may be acceptable. Sales of our products to foreign governmental agencies would unavoidably suffer and non-United States manufacturers would correspondingly benefit, both materially. Though we recognize the foreign policy concern underlying the subject proposal, we submit that the question of disclosure of the amount of commissions received by representatives of United States manufacturers should more properly be left to the foreign government directly concerned. It would usually have jurisdiction over the representative and in any event could, if it chose, require disclosure by the manufacturer as a condition to a sale. Under the circumstances, it would appear that United States regulations should in no event require more than a disclosure by the United States manufacturer, where a material commission or fee is involved, of who its representative is. Any question as to the appropriateness of such a commission or fee or any commission or fee paid by the representative could then be pursued by the government concerned. To go further would appear to gratuitously prejudice United States vendors with no assurance that benefits will flow to anyone other than our foreign competitors. The substance of these comments applies similarly to the proposed amendments to 22 C.F.R. Parts 124, 125 and 127. Yours very truly, Subject: Contingent Fee Statements. OFFICE OF MUNITIONS CONTROL, BUREAU OF POLITICO-MILITARY AFFAIRS, RICHARD H. MOMAHON, HAMILTON ASSOCIATES, Canton, Ohio, September 12, 1975. GENTLEMEN: Reference is made to Munitions Control Newsletter #13 9/75 regarding subject matter. We believe that by advising a foreign government the identity of the recipient of fees or commissions would accomplish the purpose desired, i.e. to preclude the possibility of potential embarrassment to U.S. foreign policy interests. This would permit the foreign government to investigate, if it so desire, such payments within its own means as the identity of the foreign agent is clearly and openly established. |