12 answers-questions on arab boycott

7/27/2019 12 Answers-Questions on Arab Boycott

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How long has the Arab boycottbeen going on?

The Arab League began its boycott of Jew-ish-owned companies and Jewish-made goodseven before 1948 when the State of Israel wasestablished. Its initial purpose was to preventthe establishment of the Jewish state; later, its

goal was to undermine the Israeli economy.Before 1973, the Arab boycott was largelyignored by businesses in the West, since Israel,with its sophisticated industrial plant and exten-sive import and export capacity, was a far moreattractive market than most of the Arab world.

After the Arab oil embargo in 1973, however,and the quadrupling of oil prices that followed,several Arab states began accumulating hugepetrodollar surpluses which could be translatedinto investment and purchasing power.

With this new economic strength, the Arab

states are seeking to convince businesses inthe U.S. and other Western countries that com -pliance w ith the boycott is a condition for doingbusiness in the Arab world.

What forms does the boycott take?

A primary, or direct, boycott covers allIsraeli-made goods and services, and bans alltrade arrangements with Israel by Arab states.

A secondary boycott is directed againstcompanies that invest in Israel or do businessthere—a ban that is honored or ignored depend-ing on the whims and business preferences ofthe individual Arab states.

Most recently (and less openly) there are

signs of a tertiary boycott aimed at companiesthat do business with companies that do busi-ness with Israel, and even at companies with



"Zionists" (read Jews) on their boards or in

executive posts.Beyond these, there is a "shadow boycott"—

the self-imposed discrimination practiced bysome businesses against American Jews andAmerican Jewish companies in an effort tocurry favor with potential Arab customers.

How does the boycott work?

Boycott demands on American business

take several forms.American exporters have been asked by

Arab customers to state they do not sell toIsrael. Shipping companies have been asked tocertify that vessels carrying goods to Arabcountries do not put in at Israeli ports. Manufac-

turers may be asked to declare that they haveno operations in Israel, or that their productscontain no Israeli-made components; banksmay be asked to honor letters of credit validonly for those recipients who do no businesswith or in Israel.

In general, companies that want Arab busi-ness may be given to understand their chancesare better if they do not deal with Jew ish-ownedor managed companies. And Saudi Arabia andsome other Middle East states usually will notgrant entry visas to Jews assigned to workteams of American companies.

Is it legal for American companies

to comply with the boycott?The Export Administration Act of 1969 de-

clared it U.S. policy to oppose boycotts im-posed by foreign countries against countriesfriendly to the U.S., and empowered the Presi-

dent in certain cases to prohibit or curtail ex-ports by firms that participate in them.

That law expired on Sept. 30,1976—despite

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overwhelming votes in both houses of Con-gress to extend the act with amendments

strengthening its anti-boycott provisions —because of Administration opposition andlast-minute parliamentary roadblocks by a fewCongressional opponents. On Oct. 1, 1976,however, President Ford issued an ExecutiveOrder reinstituting many of the original provi-

sions of the expired statute.In addition, particular aspects of the boycott

— especially those that result in discriminationagainst American citizens or companies—arebarred by Federal civil-rights law and a numberof other Federal laws and regulations.

The Export Administration Act required com-panies to report to the Commerce Departmentall requests for boycott compliance. In De-cember 1975, the Commerce Department an-nounced it had fined four companies andwarned 212 others for failing to report boycott

requests properly. And on Oct. 6, 1976, Presi-dent Ford directed the Commerce Departmentto make public the names of companies thatreport compliance with the boycott.

Tightened Commerce Department regula-

tions now extend these requirements to banks,insurers, freight forwarders, shipping com-panies and other businesses that serve export-ers, and also oblige them to state whether theyplan to comply with boycott requests.

What are some American laws thatapply to Arab boycott pressures?

The Sherman Anti-Trust Act bans contracts,combinations or conspiracies in restraint of in-

terstate or foreign trade. Violations of this actcan bring heavy civil and criminal penalties. InJanuary 1976, the Justice Department broughtsuit against the Bechtel Corporation, a SanFrancisco company, for allegedly refusing todeal with a boycotted subcontractor on prod-

ucts intended for Arab markets. If the suit issustained, Bechtel — and other companies li-



able to similar Federal suits — may also findthemselves facing triple-damage lawsuits bythe excluded companies.

Boycotts have also been ruled to come underthe Federal Trade Commission Act, which pro-vides that an importer or a third party who en-ters into an agreement to boycott goods or arti-cles of another person (such as an Israeli pro-

ducer or manufacturer or an American Jewishproducer or manufacturer) may be required topay three times the normal duty on his imports.The Act also empowers the Federal TradeCommission to declare a practice unfair if itconflicts with the basic policies of Federal anti-

trust acts—even if that practice does not actu-ally violate those laws.

The Tax Reform Act, signed into law in Oct.1976, requires com panies do ing business withcountries that impose boycotts to file reportswith the Treasury Department. Firms which

agree to comply with boycott demands will bedeprived of important tax benefits stemmingfrom their foreign operations.

Companies failing to divulge certain actionsabetting the boycott may also be violating theSecurities Exchange Act, which requires dis-closure of various dealings to the Securitiesand Exchange Commission.

In addition, there are numerous Federal,state and local laws barring religious discrimi-nation in business and employment, and sev-

eral states have enacted or are consideringnew laws expressly barring compliance withboycotts against American companies doingbusiness with nations friendly to the U.S.

What are some Federal regulationsgoverning boycott activity?

Businesses must report to the CommerceDepartment any boycott requests they receiveand indicate whether they intend to comply.

A U.S. State Department regulation requiresits Authenticating Officer to refuse to certify



documents related to international trade if thereis "good reason to believe that the certificationis required for an unlawful or improper pur-pose"; and the Department has ruled thatdocuments "furthering or supporting the restric-tive trade practices or boycotts fostered or im-posed by foreign countries against countriesfriendly to the U.S. shall be considered contraryto public policy...."

Private contractors or subcontractors ongovernment projects overseas must report tothe State Department any attempts by foreigncountries to exclude employees or job appli-cants on religious grounds. Federal agenciesmay not take the discriminatory policies of hostgovernments into account in assigning person-nel overseas and must report discriminatoryvisa rejections or other exclusionary acts to theState Department.

Banks have been warned by the Comptroller

of the Currency not to accept deposits, invest-ments or loans conditioned on a stipulation thatnone of their board members or controllingstockholders be Jewish.

President Ford has asked the Federal De-

posit Insurance Corporation, the Federal Re-serve Board and the Federal Home Loan BankBoard to make it clear to member institutionsthat discriminatory practices directed againstcustomers, stockholders, employees, officersor directors will not be tolerated.

The U.S. Equal Opportunity Com mission hasinstructed its staff to guard against discrimina-tory employment practices generated by theboycott. Such practices are also banned bymany state laws and monitored by appropriate

state agencies.

What new anti-boycott provisionsdid Congress propose, and whyare they needed?

The Stevenson-Williams Bill, approved bythe Senate by a vote of 65-13, and the compan-



ion Bingham-Rosenthal Bill, passed by theHouse of Representatives, 318-63, generallywould have expanded the provisions of theEAA by requiring full disclosure of companiescomplying with the boycott, imposing newpenalties for violation of anti-boycott statutes,and barring American companies from refusingto deal with countries friendly to the U.S.,or withother American companies,in compliance with

foreign boycotts.The sponsors of these measures have

pledged to reintroduce such bills as soon asCongress reconvenes, and several other legis-lators are considering additional anti-boycottmeasures, because they are convinced thatonly such Federal legislation can effectivelysafeguard the rights and integrity of the Ameri-can business community, protect Americanbusinessmen against unethical pressures, andprevent the Arab states from playing individual

American states and businesses against oneanother in a competition for petrodollars.

Will Americans lose business ifthey don 't comply w ith the boycott?

"Despite anti-American sentiment in some ofthe Near and M iddle East countries through thepast decade, and sharp Japanese and Euro-pean competition, there is marked preferencefor American products. U.S. products are oftenthe standard by which all other industrial ma-chinery, transport equipment and consumerdurable goods are evaluated," M itchell, Hutch-ins, Inc., a respected investment banking andmanagement company, reported in late 1975.

The Arab states are large customers for onlya small cluster of products, which they buy froma few firms in a few countries. By far the largestArab purchases in the U.S. involve militaryweapons, hardware and parts. Only American

companies can provide the technology for thissophisticated equipment, and the personnel toteach the Arabs how to use and maintain it.



Shifting this business to other countries wouldmean not only scrapping expensive equipmentbut retraining pilots, artillerymen and essentialcivilian workers.

The Arab members of OPEC are also not thelargest purchasers of Am erican goods and ser-vices: Iran, Venezuela, Indonesia and Nigeriaaccount for almost 50 per cent of the oil states'imports from this country, and if arms pur-

chases are omitted from the calculation, theirshare of the total is even larger.

And, while the purchases of goods and ser-vices by OPEC nations have risen sharplysince 1973, Mitchell, Hutchins points out that"exports to the oil-producing countries still oc-

cupy only a small place in the trading activity ofthe developed world." If the U.S. maintains itscurrent share of this market, these exports"could represent about 0.7 of 1 per cent ofGNP in 1976."

How rigidly is the Arab boycottenforced?

Enforcement is often pragmatic, erratic orcapricious. The Arab League and the various

Arab governments all maintain separate black-lists. A company may be on one list but not onanother, and may be added to or removed fromsuch lists for no apparent reason. What's m ore,Arab interests, both government and private,often ignore their own boycott restrictions whena particular business deal is important to them.Thus, exports to the Middle East from the U.S.and the Netherlands, both primary targets ofthe 1973 oil embargo because of their pro-Israel policies, increased considerably in 1974

and 1975, whereas exports from France, acountry whose policies are expressly pro-Arab,have lagged.

Ford, Bacon & Davis, a large engineeringfirm on Algeria's blacklist, was awarded a$4 million contract by Saudi Arabia; and Air

Products & Chemicals, blacklisted by Saudi



Arabia, is supplying the technology for a siz-able plant in Algeria.

Egypt, for example, which has for some time

been negotiating with the blacklisted FordMotor Company for a $150 million joint ventureto build diesel engines and assemble trucksand tractors, has made it clear to potential in-vestors that she will not blacklist foreign com-panies whose stake in Egypt equals their in-

vestments in Israel. Other Arab countries haverecently been hinting the same thina.

Many American companies—including IBM,TRW, General Electric, Textron, General Tele-phone and Electronics, Raytheon, McDonnellDouglas, United Aircraft, TW A, Boeing, Hilton,

Hertz, Avis—do business with both Israel andthe Arab world.

Does the boycott cover all

business in the Middle East?

Several Middle East states—Turkey andIran, for example—do not boycott Israel. And,of course, Israel, too, is a M iddle East country,with a sizable market for goods and services.

Business International (May 7,1976) reportsthat more than 30 U.S. firms located or ex-panded their plants in Israel in 1975, with tenmore new projects under way in early 1976.

Israel's per capita income tops Great

Britain's and Italy's; its skilled and educatedlabor force requires little or no training to handlethe most sophisticated machinery. The countryalso offers generous tax, trade and other incen-tives to com panies that produce there for exportand sets no limits on foreign equity ownership in

a business.Because Israel is an associate member of

the European Economic Community, Israeli-based firms selling to the Common Marketenjoy an initial 60 per cent reducfon in EECcustoms duties. And because she is one of the

developing nations of the Middle East, U.S.

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firms investing there enjoy higher credits for thetaxes they pay there than those they pay to anyWestern state.

What are the ethical issuesinvolved in the boycott?

The direct—or primary—boycott is an issue

between the Arab states and Israel. But, thesecondary and tertiary boycotts are tantamountto b lackmail and of concern to every Am ericancompany doing, or planning to do, business inthe Arab world.

The United States has always been commit-

ted to the protection of businesses, large andsmall, against unfair practices. The Arabboycott is a direct assault on this tradition,harmful not only to American Jewish busines-ses facing direct d iscrimination, but to all Amer-ican businesses dedicated to ethical standards

and practices."The Committee strongly believes," wrote

the Senate Committee on Banking, Housingand Urban Affairs, in reporting favorably on abill to strengthen the anti-boycott provisions of

the Export Administration Act, "that the UnitedStates should not acquiesce in attempts byforeign governments through secondary andtertiary boycotts to embroil Am erican citizens intheir battles against others by forcing them toparticipate in actions which are repugnant to

American values and traditions."And The Wall Street Journal has warned:

"The blacklisting of [Jewish] firms appears lessto be an attempt to undermine Israel than . . . tointerject anti-Semitism into Western businesspractice. In terms of both morality and self-

interest, it is incumbent on Western businessesto resist such pressures. . . .

"For businesses to follow the Arab biddingand introduce ethnic discrimination into theirdealings would be morally repugnant. In any-

thing but the shortest v iew it would also be verybad for business."

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What can you do aboutthe Arab boycott?

As a business executive, you can make itclear that your company will not participate inrestrictive boycotts against nations friendly tothe U.S. or comply with any demands that entaildiscrimination against American businesses,employees or subcontractors. And you canhelp to rally the business community againstefforts by Arab contractors to dictate unfair andunethical terms for doing business.

As a shareholder in a corporation, you caninsist that your corporation reject all requests

for compliance with Arab b lacklisting and reportsuch requests to the appropriate Federal andlocal authorities.

As a banker, you can refuse to process inter-national letters of credit that discriminateagainst American citizens and businesses on

the basis of religion.As a legislator, you can initiate or support

laws that bar American companies from com-plying with boycott demands and strengthenthe penalties against violators.

As a regulatory official, you can guardagainst infringements of law and national policyinvolved in boycott transactions and enforcethe letter and spirit of protective legislation.

As a citizen, you can report discriminatorybusiness practices to appropriate authorities,

refuse to engage in such practices yourself andurge your representatives in Congress to out-law practices complying with boycotts againstfriendly nations.

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for additional copies, write toTHE AMERICAN JEWISH COMMITTEE

Institute of Human Relations165 East 56 Street, New York, N.Y. 10022

12 answers-questions on arab boycott

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