Case 76-3 (formerly 65-4)

US v. Arab League (1979–: Antiboycott Measures)
May 1, 2008

Chronology of Key Events

1965

US Under Secretary of State George Ball: “In our judgment [S. 948, an antiboycott amendment to the Export Control Act] could interfere seriously with the programs of economic denial that we are now conducting against several communist countries.” (Lowenfeld 1977, 34)
30 June 1965 Amendment to Export Control Act of 1949 calls for US firms to report boycott requests to Secretary of Commerce “for such action as he may deem appropriate.” (Lowenfeld 1977, 34)
30 December 1969 Congress approves Export Administration Act of 1969 that extends inter alia antiboycott provisions of Export Control Act. (US Department of Commerce 1977, 15)
1975 US Secretary of Commerce Rogers C. B. Morton, in response to congressional pressure, modifies regulations to require reporting as to whether the exporter had complied with boycott request. Previously, exporter merely reported request. (Lowenfeld 1977, 36)
1975 President Gerald R. Ford, quoting President Washington, says the Ford administration would give “to bigotry no sanction.” Subsequently, Secretary Morton issues new regulations prohibiting discrimination, as among US citizens, on basis of race, color, religion, sex, or national origin. (Lowenfeld 1977, 36–37; Federal Register 54770)
January 1976 US v. Bechtel Corp. Civ. No. C-76-99 (N.D. Calif.), case filed by US Justice Department, alleges antitrust violation by Bechtel on account of discrimination; case is settled by consent decree 10 January 1977. (New York Times, 17 January 1976, A5)
October 1976 Tax Reform Act of 1976 is enacted with antiboycott provision (amendment by Sen. Abraham Ribicoff [D-CT]) providing that foreign tax credits, tax deferral on earnings of foreign subsidies, and domestic international sales corporation (DISC) benefits be denied to firms that comply with foreign boycott not sanctioned by US government (Sec. 999, Internal Revenue Code). Some companies complain that the legislation, which targets the Arab League boycott of Israel, will cause them to lose business in the Arab world. (New York Times, 17 September 1976, A1; 30 September 1976, 41; 5 October 1976, A24)
22 June 1977 Amendments to Export Administration Act of 1969 (PL 95-52) prohibit compliance with most foreign boycott requirements—including those involving handling of letters of credit by US banks—and provide substantial penalties for violations. These amendments “constitute the most extensive set of antiboycott provisions enacted in any jurisdiction in the world.” (US Department of Commerce 1977, 16; Stanislawski 1985, 234–5)
1979 Export Administration Act of 1979 is enacted with antiboycott provision. (US Department of Commerce 1980, 1)
11 October 1991 The Commerce Department releases an internal report that concludes that it may have been lax in its enforcement of the anti-boycott laws, stating “The [anti-boycott] office’s record of no successful criminal prosecutions in its 12-year history may be a record that is difficult to defend.” The office receives 80 cases of violations per year. (New York Times, 11 October 1991, D5)
November 1991 A defense appropriations bill proposes a provision that would deny Pentagon contracts to foreign companies complying with the Arab Boycott of Israel. (Financial Times, 28 November 1991, 8)
25 March 1993 Baxter International Inc., the world’s largest medical supplies company, agrees to pay civil and criminal fines of $6.5 million for having tried to evade the US anti-boycott law. Baxter admits to the Commerce Department that it violated US law by providing information to the Arab League regarding its business involvement in Israel and by trying to get off the Arab blacklist. The company will also accept a two-year ban on exports to Syria and Saudi Arabia. (New York Times, 11 May 1993, A11, New York Times, 26 March 1993, D1)
15 November 1994 The US Treasury Department removes Jordan from the list of countries sanctioned under anti-secondary sanctions provisions of the Internal Revenue Code after it signs a peace agreement with Israel. (International Trade Reporter, 22 November 1995, 1945)
30 April 1995 Pursuant to the 1994–95 Foreign Relations Authorization Act, the sale or lease of military equipment to any country that enforces the non-primary levels of the boycott of Israel may be denied unless the president determines that the country does not maintain such a policy or issues a waiver in the interest of national security. (USITC, Effects of The Arab League Boycott of Israel on US Businesses, 1994)
30 August 1995 The cosmetics company L’Oreal, SA agrees to pay $1.4 million in penalties to settle allegations by the US Commerce Department that it cooperated with the Arab League’s economic boycott of Israel. The firm denies the charges, but says would prefer to pay the fine and avoid a costly legal defense. After the Arab League placed L’Oreal on its blacklist, the company’s headquarters asked a US affiliate to send information to Paris about its previous activities in Israel. The US Commerce Department alleges that the subsidiary violated US law by providing information about operations in Israel and by failing to report the request for information to the federal government. This will be one of the largest penalties ever assessed by the Office of Antiboycott Compliance. (Washington Post, 30 August 1995, F1)
22 November 1995 Commerce Department removes Jordan from the list of countries cooperating with international boycotts, because of its recent accords with Israel. The countries remaining on the list are Bahrain, Iraq, Kuwait, Lebanon, Libya, Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates, and the Republic of Yemen. (International Trade Reporter, 22 November 1995, 1945)
29 November 1995 The Commerce Department levies a $550,000 fine on the Sundstrand Corp. and its French subsidiary for more than 275 violations of anti-boycott measures for exports of aerospace components to the UAE, Bahrain, and Yemen. (International Trade Reporter, 20 December 1995, 1214)
29 November 1996 The Clinton Administration threatens to block Saudi Arabia’s admission to the World Trade Organization until the country abandons its participation in the Arab boycott of Israel. (Washington Post, 29 November 1996, A34)
March 1997 The Commerce Department announces that the Justice Department and the US Air Force violated US antiboycott laws by suggesting that no Jewish Americans be part of a team to microfilm documents in Saudi Arabia. An independent contractor, CACI Inc, is fined $15,000 for its participation in the project. (Washington Trade Daily, 7 March 1997, 3)
1997 “Antiboycott enforcement by the Commerce Department reached its lowest point since 1980. During 1997, 15 different parties entered into consent agreements and a total of $190,000 in fines was imposed for 83 separate violations. Of the 83 violations, 45 were failures to file required reports and 21 were routine documentary-type violations; $91,000 of the total $190,000 in fines was suspended.” (Middle East Executive Reports, 1 February 1998, 8)
November 2002 Arab League's Boycott Office pledges to revive its program against Israel. Commerce Department's Bureau of Industry & Security, formerly known as Bureau of Export Administration, issues a reminder to US companies that the department “will use all of its resources to vigorously enforce U.S. antiboycott regulations.” (Communications Daily, 6 November 2002)

Goals of Sender Country

Rep. Charles E. Schumer (D-NY)
“American companies have no business aiding the Arabs in their economic warfare against Israel.” (Washington Post, 26 March 1993, D1)

US Department of Commerce
“The antiboycott laws were adopted to require US firms to refuse to participate in foreign boycotts that the United States does not sanction. They have the effect of preventing US firms from being used to implement foreign policies of other nations which run counter to US policy.” (Bureau of Export Administration, Antiboycott Compliance Requirements, www.bxa.doc.gov)

Response of Target Country

Howard Stanislawski
“The American Arab relationship has grown dramatically since 1973, notwithstanding the enactment and implementation in 1976 and 1977 of rigorous antiboycott legislation by the Congress... Substantial alterations in boycott clause terminology have been provided by Arab boycotting states so as to make compliance with the American law simpler and much less problematic.” (Stanislawski 1985, 238)

Attitude of Other Countries

Canada
Donald Jamieson, minister of industry, trade and commerce, during debate on 21 October 1976, in House of Commons: “The government has clarified its position in relation to international boycotts and has strongly affirmed its opposition to discrimination and boycotts based on race, national or ethnic origin, or religion. Accordingly, the government will take measures to deny its support of facilities for various kinds of trade transactions in order to combat any discriminatory effects which such boycotts may have on Canadian firms and individuals.” (Turck 1978, 714–15)

France
French pass antiboycott law in 1977, but its application is hamstrung by ministerial decree issued shortly thereafter that excludes government guaranteed contracts in Middle East. “Practically, because of the ambiguity of the law and because of the Prime Minister's [Raymond Barre] decree, the law appears to have had little if any effect on French Mideast trade.” (Turck 1978, 726)

United Kingdom
“In Britain, the House of Lords conducted an extensive investigation of the Arab boycott but thereafter the British government did little or nothing, while professing its opposition to the boycott.” (US Department of the Treasury 6:1)

From letter from British Foreign Secretary Lord Carrington to British Arab Boycott Coordination Committee: “We firmly believe that it would be wrong to interfere with the commercial judgment of firms, and we leave it to individual firms to decide whether or not to comply with the boycott. We believe that the introduction of legislation on this matter could seriously damage British commercial and political interests. We see it as our first priority to help resolve the Arab Israel conflict which gives rise to the boycott.” (US Department of the Treasury 6:9)

Germany, France and the Netherlands have enacted laws making cooperation with unsanctioned boycotts unlawful. None of the laws is as detailed as or contains reporting requirements similar to those in US law, and none of these countries is believed to have prosecuted any person violating them. (USITC, Effects of The Arab League Boycott of Israel on US Businesses, 1994)

Legal Notes

Export Administration Act of 1979, as amended
Section 8. (a) …The President shall issue regulations prohibiting any US person, with respect to his activities in the interstate or foreign commerce of the United States, from taking or knowingly agreeing to take…actions with intent to comply with, further, or support any boycott fostered or imposed by a foreign country against a country which is friendly to the United States and which is not itself the object of any form of boycott pursuant to the United States law or regulation.

Tax Reform Act of 1976
According to this Act, taxpayers participating in or cooperating with an international boycott will be denied certain tax credits and deferrals. (Carter 1988, 179)

Foreign Relations Authorization Act for 1994 and 1995
“This Act prohibits the sale of defense articles or services by the US government to any country or organization “known to” have a policy or practice of requesting compliance with, or information in furtherance of, the Arab League Secondary boycott of Israel.”
(President’s Export Council, Survey of US Unilateral Economic Sanctions, June 1997, 39)

Economic Impact

Observed Economic Statistics

Baxter International Inc’s fine of $6.5 million in March 1993 was the toughest settlement imposed on an American company to that point. Before Baxter, Safeway Stores, Inc. had been the largest case with a fine just under $1 million. A total of 30 cases were settled in 1992 for a total of about $2.1 million. (New York Times, 26 March 1993, D1)

“The September 1994 decision of the GCC countries to cease implementation of the secondary and tertiary aspects of their boycott of Israel appears to have been substantially implemented, There are no remaining boycott-related obstacles to any US business person’s doing business in those countries, although the number of prohibited boycott-related requests continues at a low level… During FY 1996, 536 individuals and firms filed reports with the Report Processing Unit of the Compliance Policy Division. The reports confirmed the receipt of 3,290 boycott-related requests, involving 2,857 transactions. The corresponding figures for FY 1995 were 784 persons and firms filing reports, 6,391 boycott-related requests, and 5,538 transactions.” (US Department of Commerce, Bureau of Export Administration Annual Report-1997, II-125)

“The Office of Anti-boycott Compliance completed 25 enforcement actions in FY 1996. Of the total, two cases involving minor reporting violations were closed with warning letters; twenty cases were settled through consent agreements with $887,600 of civil penalties; and three cases resulted in the Under Secretary for Export Administration issuing final orders imposing civil penalties and denial of export privileges.” (US Department of Commerce, Bureau of Export Administration Annual Report-1997, II-116)

“Lost sales and business opportunities for U.S. businesses in Arab League countries and/or Israel arising from being blacklisted or from seeking to avoid such blacklisting exceeded $400 million in 1993. The ITC estimates the actual cost of the boycott to be even higher because many of the effects of the boycott were difficult to quantify.” (USTR 1995)

The USITC estimated the 1993 cost of compliance with U.S. antiboycott laws to be $160 million. (USTR 1995)

Settlement agreements for alleged antiboycott violations
Fiscal year Number of settlements Total civil penalties  
1997 15   $226,000    
1998
10
 
$380,000
   
1999
9
 
$79,000
   
2000
10
 
$164,000
   
2001
2
 
$117,250
   
2002
6
 
$68,000
   
2003
7
 
$93,700
   
2004
n.a.
 
n.a.
   
2005
5
 
$57,000
   
Source: BXA/BIS Annual Reports, various editions.
n.a. = data not disclosed in report.

 

Tax benefits denied to US companies complying with Arab boycott, 1976–79 (thousands of dollars)
 
Foreign tax credit
DISC benefits
Deferral
Total
1976
57
25
200
282
1977
734
627
1,254
2,645
1978
5,298
472
5,559
11,329
1979
3,898
688
5,376
9,962

Source: US Department of the Treasury.

 

Calculated Economic Impact (annual cost to target country)
Increased import costs estimated at 1977–79 average of forgone tax benefits of reporting companies under US antiboycott regulations.
$8 million
Relative Magnitudes
Gross indicators of Arab League economies
  Arab League GNP (1976)
$210.5 billion
  Arab League population (1976)
142.7 million
Annual effect of sanctions related to gross indicators  
  Percentage of GNP
negl.
  Per capita
$0.06
Arab League trade with US as percentage of total trade  
  Exports (1976)
10
  Imports (1976)
9
Ratio of US GNP (1976: $1,823 billion) to Arab League GNP
8.7

Assessment

US Commerce Department official (anonymous)
Commenting on Export Administration Act: “Business on the whole has complied with the boycott. The law allows the boycott to go forward.” (New York Times, 22 October 1981, D1)

US Treasury Department lawyer (anonymous)
Commenting on Tax Reform Act of 1976: “There are probably many people out there in flagrant violation of the law, and they never get caught. A lot of people are simply ignorant of the law. I suspect there are people falling through the cracks. And a lot of people are just not filing.” (New York Times, 22 October 1981, D1)

William V. Skidmore, director of the Commerce Department’s office of anti-boycott compliance
Skidmore said it would be difficult to estimate whether the law is reducing compliance with the Arab boycott, but said it has had an effect. “The law has been effective in bringing the whole subject to the attention of American business people.” (Washington Post, 26 May 1986, F3)

Will Laslow, American Jewish Congress’ General Counsel
The law has succeeded in achieving its limited goal without hurting US businesses. By restraining US businesses from complying with the boycott, the law has reduced Arab pressures on US companies to cooperate. (Washington Post, 26 May 1986, F3)

US Embassy in Israel
“The fact that the ‘de-jure’ status of the boycott and US law remain unchanged make the boycott a continuing problem for firms that may not have to report boycott related requests.” (US Embassy in Israel, www.usaemb.pl)

Author's Summary

Overall assessment
Policy result, scaled from 1 (failed) to 4 (success)
3
Sanctions contribution, scaled from 1 (negative) to 4 (significant)
2
Success score (policy result times sanctions contribution) scaled from 1 (outright failure) to 16 (significant success)
6
Political and economic variables  
Companion policies: J (covert), Q (quasi-military), R (regular military)
International cooperation with sender, scaled from 1 (none) to 4 (significant)
2
International assistance to target A (if present)
Cooperating international organizations
Sanction period (years)
30+
Economic health and political stability of target, scaled from 1 (distressed) to 3 (strong)
3
Presanction relations between sender and target, scaled from 1 (antagonistic) to 3 (cordial)
2
Regime type of target, scaled from 1 (authoritarian) to 3 (democratic)
2
Type of sanction: X (export), M (import), F (financial)
X, F
Cost to sender, scaled from 1 (net gain) to 4 (major loss)
2

Authors’ Comment

While the Arab League boycott of US firms doing business in Israel has progressively weakened over the years, broader forces than the narrow antiboycott legislation are principally responsible. In particular, limited rapprochement between Israel and Egypt, Israel and Jordan, and Israel and the Gulf states—in each case abetted by US diplomacy—have helped erode the secondary boycott of US firms.

Bibliography

Carter, E. Barry. 1988. International Economic Sanctions. Cambridge: Cambridge University Press.

Federal Register. 1975. V. 40, 54770. Washington.

Hines, James R. 1997. Taxed Avoidance: American Participation in Unsanctioned International Boycotts. NBER Working Paper 6116. Cambridge, MA: National Bureau of Economic Research.

Lowenfeld, Andreas F. 1977. “. . . ‘Sauce for the Gander’: The Arab Boycott and United States Political Trade Controls.” Texas International Law Journal 12: 25–39.

Stanislawski, Howard. 1985. The Impact of the Arab Economic Boycott of Israel on the United States and Canada. In The Utility of International Economic Sanctions, ed. David Leyton–Brown. London: Croom Helm.

Turck, Nancy. 1978. “A Comparative Study of Non United States Responses to the Arab Boycott.” Georgia Journal of International and Comparative Law 8, no. 3: 711–39.

US Department of Commerce. 1977. Export Administration Report. 116th Report on US Export Controls to the President and the Congress, April–September. Washington.

US Department of Commerce. 1980. Export Administration, Annual Report FY 1980. Washington.

US Department of the Treasury. 1982. The Operation and Effect of the International Boycott Provisions of the Internal Revenue Code, 3rd report, May. Washington.

USTR (United States Trade Representative). 1995. 1995 National Trade Estimate Report—Arab League (Boycott of Israel). Washington.