2. ECA said that they had no statutory authority to assure a fair proportion of contracts went to small business and even if they did have the authority, they saw no way of accomplishing it within the private channels of trade. 3. Not one regulation, policy or directive of ECA tends to assure small business a fair share of participation in ECA. 4. ECA was asked what statutory authority was needed. Their reply was that "a statutory provision guaranteeing small business specific participation in the ECA program would be administratively unmanageable, would tend to discourage the use of private channels of trade, and would inevitably retard the progress of European recovery." Mr. Patman spoke of the need for a Congressional mandate which if followed by ECA would substitute intelligent effort to effect its purposes for the negative attitude, heretofore exhibited. . . He then proposed the following amendment: "The Administrator shall prescribe such regulations with respect to, and impose such conditions on, procurement in the United States under this title as will secure to 'small business' in the United States, especially the producers, a fair and substantial share of the production and business resulting from any such procurement. For the purpose of this paragraph, 'small business' shall include any small business enterprise, and only such, if (1) its position in the trade or industry of which it is a part is not dominant, (2) the number of employees does not exceed 500, except where the Administrator shall, where appropriate, specify a smaller number for any particular trade or industry, or subdivision thereof, and (3) it is independently owned and operated." A "Words and Phrases" section, following the amendment, specifically defined "fair and substantial share" as follows: Fifth. Fair and Substantial Share: "Fair share" would be the same relative proportion of business, in a given field or industry, that small business enjoys in that particular field or industry in this country. The relative proportion in any given industry can be supplied by the Department of Commerce. "Fair share" and "fair proportion" are the terms used in the Armed Services Procurement Act and the Selective Service Act, applying to armed services procurement. The armed services have claimed an inability to determine what "fair share" is. In order to preclude a similar inability by ECA, the word "substantial" was added, which, according to Webster's, means "large" or "considerable". He then outlined for the members of the House, the legislative precedents for special provisions in favor of small business. He concluded by saying that "It will be of no avail for us to bring about an economic reconstruction in Europe. . ., if we should find in the end that, although we have saved Europe, we shall have lost our own American system of small business and free independent enterprise." H.R. 3748 including the Patman amendment passed the House on April 12, 1949; passage was vacated, substituting S. 1209, amended by striking out all provisions after the enacting clause and inserting the provisions of H.R. 3748. III. HOUSE-SENATE CONFERENCE REPORT ON PUBLIC LAW 47 A conference committee of the House and Senate sought a compromise which resulted in Section 112 (i) of Public Law 81-47. The committee received a letter from Administrator Hoffman, which voiced his opposition to the Patman Amendment. Hoffman feared that ECA would become a procurement agency, need more personnel and would have to utilize other than private channels of trade, if the amendment were passed. The committee indicated that ECA was to take “a positive and forceful approach in affording small business the information necessary to give it the opportunity to participate in this program on the broadest practicable scale." The language of the amendment finally adopted by the joint committee is as follows: "Section 112(i) (1) Insofar as practicable and to the maximum extent consistent with the accomplishment of the purposes of this title, the Administrator shall assist American small business to participate equitably in the furnishing of commodities and services financed with funds authorized under this title by making available or causing to be made available to suppliers in the United States, and particularly to small independent enterprises, information, as far in advance as possible, with respect to purchases proposed to be financed with funds authorized under this title, and by making available or causing to be made available to prospective purchasers in the participating countries, information as to commodities and services, produced by small independent enterprise in the United States, and by otherwise helping to give small business an opportunity to participate in the furnishing of commodities and services financed with funds authorized under this title. "(2) The Administrator shall appoint a Special Assistant to advise and assist him in carrying out the foregoing paragraph (1). Each report transmitted to the Congress under section 123 shall include a report of all activities under this subsection." This section was repealed on August 26, 1954. The language used in this section remained substantially the same in the act creating the the International Cooperation Administration and then the Agency for International Development in 1961. The only significant difference between the original section and the one enacted in 1961 is the absence of a reporting requirement on the Special Assistant for Small Business Mr. HENRY A. ROBINSON, DEPARTMENT OF STATE, AGENCY FOR INTERNATIONAL DEVELOPMENT, Counsel, Procurement Subcommittee, Select Committee on Small Business, House of Representatives, Washington D.C. DEAR MR. ROBINSON: On pages 92-93 of the transcript of our May 15 hearings, Mr. O'Leary agreed to furnish for the record a statement covering the objections raised by U.S. business firms to AID imposed requirements, restrictions and controls. Enclosed for inclusion in the record is copy of a letter from the National Foreign Trade Council, Inc., dated April 19, 1969, with enclosure, which is representative of individual and group complaints which have been received. Sincerely yours, Enclosure. DR. JOHN A. HANNAH, EDWARD E. KUNZE, Special Assistant for Small Business. Administrator, Agency for International Development, DEAR DR. HANNAH: The membership of the National Foreign Trade Council consists of a broad cross-section of U.S. companies engaged in all major fields of international trade and investment, including manfacturers, exporters and importers, commercial carriers, bankers and insurance underwriters. A large number of Council members participate in the Commodity Import Program administered by the Agency for International Development under the Foreign Assistance Act of 1961, as amended. The Council, therefore, has been and continues of be vitally interested in all matters relating to the Commodity Import Program. The Council desires to bring to your attention certain problems affecting U.S. companies which have arisen under AID Regulation 1 and the need to simplify materially the existing documentary and procedural requirements of the Regulation. We believe that a new, broader look should be taken at the relevance of AID's complicated controls over the Commodity Importan Program to what has become largely a loan regime as contrasted with the grants which characterized the earlier years of the Program. The problems arising under AID Regulation 1 have been fully documented by the Council and are summarized, together with the Council's recommendations, in the attached memorandum. Accordingly, we urge that you schedule a meeting at the earliest possible date, at which representatives of the Council's AID Committee can meet with you to discuss the problems referred to above and the Council's recommendations. We believe such a meeting is especially important since the new Administration is presently receiving suggestions from a number of advisory and study groups with regard to significant changes in the overall Foreign Assistance Program. Sincerely, ROBERT M. NORRIS, President. PROBLEMS AFFECTING U.S. COMPANIES UNDER AID REGULATION 1 INTRODUCTION Commodity transactions financed by the Agency for International Development are subject to AID Regulation 1, promulgated by AID to administer the Com 33-611-70- -16 modity Import Program. Over the years, the restrictions and documentary requirements of AID Regulation 1 have steadily increased. U.S. companies participating in the Commodity Import Program desire to reduce these complicated and costly burdens. This memorandum describes, in general, the problems affecting U.S. companies under AID Regulation 1 and the recommendations of the National Foreign Trade Council with regard thereto. Before describing specific problems, however, the Council notes that AID has often imposed new or revised regulations without consulting industry as to the existence of problems necessitating such action or as to the effect of such action on industry. The Council, therefore, urges AID to adopt a firm policy that, before amending AID Regulation 1 or revised AID procedures, AID will notify industry of problems requiring such action and consult with industry with regard to their solution. The Council emphasizes that the all-pervasive surveillance currently employed by AID is counter-productive and should be substantially reduced. The Council, however, cautions against expedient, simple solutions. Foreign Assistance legislation has always underscored the need for AID-financed transactions to be conducted through normal trade channels. Without this safeguard, AID could become a government procurement agency and, because of the scope of its activity in underdeveloped countries seeking a place in international trade, could become a disruptive force. Such action would only discourage private investment and serve to encourage governments, already so inclined, toward public sector solutions. In brief, the Council recommends two basic changes in the Commodity Import Program. The first would treat commodity transactions financed under loan agreements differently from those financed by grants. The second would eliminate or modify certain procedural and documentary requirements of AID Regulation 1. I-TREATMENT OF LOAN-FINANCED TRANSACTIONS The provisions of AID Regulation 1 were formulated at an early point in the history of our Foreign Assistance Program when the majority of commodity imports were financed on a grant, rather than loan basis. These provisions were intended to protect taxpayer dollars under grant financing, where there was no momentary return to the U.S. Government. Now, however, the Commodity Import Program is primarily financed on a loan, rather than grant basis, resulting in the eventual return of principal plus a moderate rate of interest. While the precise cost to the U.S. Government of an AID loan can be said to vary with the fundamental priorities assigned the loan, it is nevertheless clear that loans are considerably less costly than grants and, as the interest rates for such loans have been trending upwards, we feel there is less reason for the U.S. Government to treat loan financed transactions as restrictively as those financed by grants. The Council recommends, therefore, that transactions financed by loans be (a) subjected only to statutory requirements, i.e., price (Section 604 (a) and (b) of the Foreign Assistance Act of 1961, as amended) and 50 percent U.S. flag requirements, and a simple source test, and (b) financed under Direct Reimbursement. This should be accomplished by appropriate revision of AID Regulation 1 to conform the Regulations to the change in emphasis from grants to loans. With respect to grants, there are also opportunities to lessen materially the burden on business without impairing AID's vigilance over taxpayer's dollars. II-ELIMINATION OF CERTAIN AID REGULATION 1 REQUIREMENTS Commodity prevalidation AID Regulation 1 was recently amended to require the determination of commodity eligibility for AID financing in advance of payment to the supplier. The new procedure requires the submission by the supplier of Form AID-11, AID approval of the Form, and the submission of the approved Form to the bank as a condition for payment. Form AID-11, which requires extensive information concerning the transaction not readily at hand prior to shipment, adds to the already overcomplicated paperwork affecting AID financed commodity sales. Use of the Form imposes a heavy burden upon the supplier because of the increased difficulty and cost of obtaining the detailed information required thereon, and because of the resulting delay in commodity transactions. While a prevalidation requirement has since been incorporated in the Foreign Assistance Act of 1961, as amended, the Council suggests that Form AID-11 can be eliminated by operating the Commodity Import Program on the basis of Direct Reimbursement financing. Such financing would be administered by providing in AID loan agreements for the prefinancing of commodity imports by the assisted country, with AID reimbursement upon completion and review of the transaction. Commission payments In certain countries, AID has restricted commission payments so as virtually to exclude the eligibility of third country nationals or organizations for dollar payments with respect to AID-financed commodity transactions, even where such individuals or organizations are affiliated with U.S. companies. In such countries, AID will not finance with dollars commissions to local sales agents or commission employees. However, AID allows the U.S. supplier to make commission payments in the local currency of the assisted country using an AIDimposed payment procedure which involves participation in the transaction by the banking authorities of the assisted country. AID's objectives in refusing to finance dollar payments and in imposing its own procedure for effecting local currency commissions are to conserve AID funds, assist the U.S. balance of payments, and enable assisted countries to monitor compliance with their exchange regulations. Requiring the payment of commissions in local, restricted currencies discourages the use of third country commission employees or sales agents, including those which are U.S. owned or controlled, who rely upon payment in free currencies, particularly when such persons operate multinationally. While the Council is not opposed to the purposes for which the local currency requirement was promulgated, we recommend that the Regulation be amended to enable AID-financed dollar payments to legitimate, U.S. owned or controlled third country commission employees and sales agents. Service payments U.S. suppliers are required under AID Regulation 1, to report to AID all service payments, whether or not eligible for AID financing, made by the supplier in connection with AID-financed commodity sales. Many U.S. suppliers, however, maintain service organizations either in assisted countries, or in third countries under regional organizations, which perform services for the parent company or its affiliates. Such services are often unrelated to current sales or to specific sales, and may be performed without regard to whether or not any AID-financed sales by the U.S. supplier occur. Such services companies, as indicated above, often operate in more than one country. Since their services are often compensated on a cost-plus basis, an annual fee, or other form of standard compensation, it is impossible to allocate service payments between services rendered with respect to AID-financed transactions and non AID-financed transactions, and between services rendered in the assisted country and other countries. Although the Council has sought the assistance of AID in clarifying industry's obligations in this area and has offered AID assistance in establishing guidelines if AID desires allocations, the problem remains unresolved. Marketing requirements Under AID Regulation 1, commodities financed by AID and the containers in which they are shipped, must bear the AID emblem affixed by metal plate, decal or label. Additionally, AID-financed commodities shipped to Latin America must display the Alliance for Progress emblem. While this requirement may seem innocuous, it is time consuming and adds to the cost of compliance with AID Regulation 1. In some instances commodities may be shipped without prior knowledge that the transaction is to be AID-financed, resulting in the added expense and delay of labeling at dock or destination. The Council is aware that the marking requirement stems from the statutory requirement that "programs under this Act shall be identified appropriately overseas as American AID." The Council believes, however, that the statute can be interpreted so as to eliminate the marking requirements by substituting therefor more effective local publicity programs concerning the nature and extent of the commodities financed by AID in a given country. |