the Canadian Government pressured the American directors of MLWWorthington, Ltd., a Montreal-based U.S. subsidiary, to resign

so that the company would no longer be subject to American jurisdiction and could complete a shipment of locomotives to Cuba.

In these early jurisdictional conflicts the U.S. did not press its assertion of extraterritorial jurisdiction; however, these controversies foreshadowed the recent dispute with our European allies over the Siberian gas pipeline sanctions.

In June, 1982, the Commerce Department issued regulations under the Export Administration Act prohibiting the sale of certain oil and gas-related equipment to the Soviet Union by foreign firms owned or controlled by U.S. companies regardless of any connection with U.S.-origin products or technology. The order also applied to licensees of U.S. technology although some of these licensees were neither owned nor controlled by U.S. firms.

Foreign allies regarded this action as an unprecedented and unjustified extension of extraterritorial jurisdiction by the United States. The European Communities' memorandum, referred to earlier, characterized the regulations as "an unacceptable interference in the affairs of the European community" and a violation of international law. Several governments invoked measures to compel U.S. foreign subsidiaries to honor existing agreements. The District Court of the Hague held that, under international law, the United States could not regulate such contracts. We believe that the attempted extension of United States laws through the exercise of

extraterritorial jurisdiction to the conduct of foreign persons, including subsidiaries and affiliates owned or controlled by

United States persons, is both self-defeating and raises serious questions under international law.

We view the extension as self-defeating because of the reaction of our allies to such unilateral action. In the case of the pipeline sanctions, for example, instead of influencing the Soviet Union with respect to its action in Poland, application of the controls proved counterproductive by dividing the United States from its allies.

It is clear that the United States would not accept any attempt by a foreign government to control the exports of American entities, including subsidiaries that are foreign owned; we should not expect our allies to agree to any such extension of U.S. controls. Moreover, the United States has advocated, and has entered into many treaties and agreements which provide that foreign subsidiaries of U.S. companies are entitled to "national treatment" in host countries that is, are entitled to equality under host country law. But the extraterritorial extension of U.S. foreign policy controls erodes that principle by placing U.S. subsidiaries above host country law.

-

The attempted exercise of jurisdiction directly over the foreign conduct of foreign companies, subsidiaries or licensees is an action to which international law is applicable. A "corporation or other private legal entity has the nationality of the state which creates it," according to Section 27 of the Restatement, Foreign Relations Law (Second) of the United States. Where the conduct of a foreign entity takes place entirely in a foreign country and is consistent with the law and policy of that country, the unilateral exercise of extraterritorial jurisdiction by the United States to prohibit directly such conduct for foreign policy reasons raises serious questions under international law. The mere fact of U.S. ownership of such foreign organized companies is not sufficient to permit the direct exercise by the United States of jurisdiction over the foreign conduct.

In the application of sanctions by the United States to foreign persons, including subsidiaries and affiliates owned and controlled by U.S. persons, which do not involve the direct exercise of jurisdiction over such persons by the United States (for example, if the United States bars a U.S. company from transmitting technology to a foreign subsidiary in furtherance of foreign policy controls), international law and principles of comity also require that consideration should be given to the law and policy of the state of nationality or incorporation of such foreign persons. The generally accepted rule is that "where two states have jurisdiction to prescribe and enforce rules of law and the rules they may prescribe re

quire inconsistent conduct upon the part of a person, each state is required by international law to consider, in good faith, moderating the exercise of its enforcement jurisdiction..."*

Among

the factors that should be considered are "the extent and the nature of the hardship that inconsistent enforcement actions would impose upon the person, the extent to which the required conduct is to take place in the territory of the other state, (and) the nationality of the person..."

Clearly, the application of sanctions under the Export Administration Act against foreign firms for actions taken in foreign countries and approved by the governments of such countries involves a potential violation of principles both of international law and comity.

Accordingly, we recommend that, as respects the utilization of export controls for foreign policy purposes, the Act be amended to provide:

(1) that no order shall be directly imposed on companies incorporated under the laws of a foreign country, nor to foreign licensees of U.S. technology;

(2) when applying sanctions which have an effect on persons or companies located outside the United States (such as an order prohibiting a U.S. company from transmitting technology to a foreign subsidiary), consideration must be given to the law and policy of the foreign state involved;

Section 40 of the Restatement, Foreign Relations Law

(3) whenever a conflict of law or policy appears between the state of nationality or incorporation of a foreign person and that of the United States arising out of the application of foreign policy export controls, consultations should be carried out between the United States and such state prior to the imposition of sanctions. The consultations should give due weight to the various factors listed above. A proper balancing of interests is required. Thus both international law and the effective implementation of our nation's foreign policy require close consultation with our allies prior to the imposition of foreign policy controls.

We also recommend that all enforcement orders issued by the Commerce Department for violations of foreign policy controls, including temporary denials of export privileges, be immediately reviewable by a Federal District Court so that the Commerce Department cannot impose sanctions without the persons affected being given an opportunity to seek a Court decision on issues such as whether the sanctions exceed the President's authority under the Act, or violate international law.

In conclusion, we believe that changes in the Export Administration Act which produce an improved system of consultation, more exhaustive studies of economic impact, and greater emphasis on respect for the principles of international law and the foreign policy objectives of our allies will lead to a wiser and more strained use of foreign policy controls.

re

Thank you.