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The question of the eligibility of U.S. incorporated subsidiaries of foreign firms to participate in procurements which are confined to U.S. source is a legal matter which is beyond AID's jurisdiction. As pointed out by Mr. Heden almost all (if not all) government agencies consider such companies as eligible under the "Buy America Act.”

Under AID policies, a product must have been "mined, grown, or through manufacturing, processing, or assembly produced," in the United States to qualify as U.S. source. Further, the cost of any components from non-U.S. sources used in the completed product, may not exceed 10% of the selling price of the completed product. AID currently has a requirement that the cost of engineering performed overseas for hydraulic turbines must be computed as part of this componentry limitation. We are prepared to consider the extension of that requirement to engineering costs for other custom designed equipment.

In the absence of a specific identification of any AID financed transaction on which substantial engineering may have been performed overseas, we are unable to comment on the accuracy of Mr. Heden's allegations as they may apply to AID. We have been able to locate no correspondence with Mr. Heden's company during the past year, but we would be glad to look into any case if he would like to give us specific and full particulars.



In his testimony, Mr. Rudis referred to Invitations to Bid and/or contracts issued in recent years by Pakistan Eastern Railway and Pakistan Western Railway for railway equipment to be financed under AID loans. Mr. Rudis cited Pakistan Western Railway Contract No. PIL/176/1-62 with Rockwell Engineering Company for remanufacture of special railway back and wrapper plates and other items. AID/Washington has no record of this particular contract and is unable to ascertain if the transaction was AID/Washington financed. Mr. Rudis also cited PWR Contract No. PRV 66/WAG/1, dated September 17, 1966, for 55 railway tank cars. The value of this contract was $1,278,200. The tank cars were to be delivered to Karachi, West Pakistan, by May 1967. Our records indicate that in April 1967 Mr. Rudis advised AID/Washington that final shipment under the contract could not be completed prior to the contract terminal date of May 31, 1967. Mr. Rudis explained that 10% of the order, valued at approximately $100,000, would require an extension of the delivery date to September 30, 1967 for the following reasons: (a) PWR's slowness in clarification of dimensions of blueprints; (b) extreme winter weather conditions in the Chicago area necessitating plant shut down and causing other delays; (c) protracted trucking strike in Chicago area; (d) wave of absenteeism as a result of a series of catastrophic tornadoes in the area adjacent to Rockwell Engineering factory site; and (e) dimensional variations in bearings produced, sole source, by the Timken Bearing Corporation which necessitated PWR acceptance. In view of the difficulties experienced by Rockwell Engineering and problems encountered by other U.S. suppliers, AID/Washington agreed to extension of the terminal date of the pertinent Letter of Commitment under loan 391-H-070 to December 31, 1967.

During the fall of 1967, PWR and Rockwell Engineering engaged in a lengthy dispute concerning specifications. Rockwell Engineering requested AID to investigate the matter because they were of the opinion PWR's questioning of specifications was probably a tactic to hold up final payment. Our Mission in Lahore investigated the matter and replied directly to Mr. Rudis in November 1967. In their reply, the Mission explained that difficulties relating to standards and specifications had been a continuing problem for many U.S. suppliers in transactions with the Pakistan Western Railway over a period of years. The Mission explained to Mr. Rudis that PWR had a long tradition of following British railroad practices which often led to confusion in communications with U.S. suppliers. However, the Mission expressed their opinion that this problem was being resolved and that in recent years the management of PWR had reoriented their procurement practices to American standards.

Concerning the problems experienced by Rockwell, the Mission explained to Mr. Rudis that they had reviewed the problems in detail with the PWR and had been assured that the matter was being satisfactorily resolved. On January 25, 1968. AID/Washington contacted Mr. Rudis to ascertain the status of the procurement. At that time, Mr. Rudis stated that he had received payment in full under the contract.

Mr. Rudis also referred to tender No. PR-1/63/TR/2/TDR issued by the Pakistan Eastern Railway (PER) for the procurement of Bogie Wagons and track materials. Mr. Rudis stated that Rockwell Engineering was the low bidder on this subject tender but that an award was not made to Rockwell. Mr. Rudis stated that no clear reason was ever given to him by PER for their failure to make award to Rockwell.

According to AID records, tender No. PR-1/63/TR/2/TDR was issued by the Pakistan Western Railroad in November 1963 for certain track materials under Schedule 1 for rail points and crossings and Schedule 2 for steel sleepers. Rockwell Engineering was, in fact, the highest bidder under that particular tender. The lowest responsive bidder for Schedule 1 was Erba Corporation, New York; the lowest responsive bidder under Schedule 2 was the U.S. Steel International, New York.

It is possible that Mr. Rudis intended to refer to tender No. PRI-63/WAG/1, issued October 17, 1963 by PER for 73 Bogie Wagons. The bid closing date for this tender was January 6, 1964. According to AID/Washington records, the PER reported that only one quotation was received but was considered to be unsatisfactory. Our records do not indicate who submitted the unsatisfactory offer. The tender was reissued on March 24, 1964 as Tender No. PRI-64/WAG/3/TDR with a bid closing date of May 21, 1964. There is no indication in AID/Washington records that Rockwell bid under this particular tender. The lowest responsive bidder was Whitehead and Kales who were awarded a C&F contract valued at $1,537,751 for manufacture and delivery of 77 Bogie Wagons.

Also, tended No. P&D/WAG-1000/CTG was issued in June 1963 by the Pakistan Eastern Railway for supply of 1,000 wagon underframes and other wagon materials. This tender was advertised in Small Business Circular 63-213 dated June 10, 1963 with a bid deadline of July 20, 1963. Subsequently, in January 1964. Mr. Rudis wrote to AID/Washington concerning the status of the aforementioned procurement. AID/Washington advised Mr. Rudis that no award had been made and that none would be made until funds became available. Later, in response to Congressional inquiries, AID/Washington advised Senators Douglas and Humphrey (on February 28, 1964), in further detail on this particular procurement. AID/Washington records further indicate that on March 20, 1964, the Government of Pakistan advised AID that the aforementioned procurement would be retendered at some future date if and when AID funds were made available. At that time AID advised the Government of Pakistan that in the future no tenders would be published by AID unless AID financing had been allocated for the specific procurement. It was explained to the Government of Pakistan that premature advertising was misleading to U.S. suppliers and had to be discontinued.

In June 1964, Pakistan Eastern Railway issued tender No. P&D/WAG-783/ S/CTG for 180 underframes for railway cars. The contract was issued to Whitehead and Kales for 189 underframes. At that time Mr. Rudis wrote to Congressman William Murphy and Senator Paul Douglas complaining that Whitehead and Kales violated the 100% American material rule. In the responses to the Congressman, AID advised that Whitehead and Kales had utilized approximately 6.9% foreign equipment which was within the 10% limitation on foreign components imposed by AID Regulation 1.

Further in his testimony, Mr. Rudis referred to submission of a proposal in 1968 by Rockwell Engineering to the Turkish Ministry of Harbors at Ankara for rail accessories for the Tatvan Kotur Rail Link to be financed under AID Loan 290-K-002 (CENTO Railroad Project). AID/Washington records indicate that the Railroads and Harbors Construction Department (RCHD), Turkish Ministry of Public Works, issued an invitation to bid for rail accessories which was published in SBC 68-257 with a bid deadline of September 18, 1968. However, RCHD considered prices quoted by U.S. suppliers for the rail accessories to be excessively high (Rockwell Engineering was one of the bidders) and cancelled the tender. AID determined that the high bids were in part due to the lack of U.S. standards in the specifications for many of the items tendered. RCHD was advised that if the items were to be retendered for AID financed procurement, the specifications had to be rewritten to meet U.S. standards.

Mr. Rudis further testified that his company's experience had not been too good in receiving replies to requests for specifications and tender documents necessary for bid preparation and that over a period of three years, 75 requests had been written to prospective purchasers in India, Pakistan, Turkey, and Viet Nam in response to Small Business publications but no replies had been received.

AID financed procurement by governmental agencies is in most cases under formal competitive bid procedures which require advertisement in AID's Small Business publications, submission of sealed bids, a public bid opening and an award to the lowest responsive bidder. If for some reason, the U.S. supplier is unable to obtain copies of IFB's and/or specifications, he can request AID assistance.

U.S. suppliers are encouraged to bring to the attention of AID as soon as possible any questionable AID financed transaction or questionable procurement practices on the part of the importer involved.


Admittedly, AID documentation and other special requirements exceed those which are normally required in domestic trade and, to a lesser extent, those which are required under normal export practices. They are, however, the minimum which we believe are necessary to satisfy the requirements of the Foreign Assistance Act; to discharge our responsibilities for the proper disbursement of appropriated funds; and to control the abuses which have come to light in the past under more lenient requirements.

Nevertheless, AID continues, as it has over the past several years, to work with industry groups (including that headed by Mr. Baylis) concerning AID documentation and other special requirements. On June 12, 1969, for example, AID representatives met in a virtually all day session with representatives of the National Foreign Trade Council, during which all of the points contained in Mr. Baylis' statement were presented and discussed. At that meeting, we were able to announce that the requirement for submission of Form 285, referred to by Mr. Baylis, was being removed. We also agreed that other proposals which were presented would be given full and objective consideration. A modification of Form 11 to meet some of the objections raised by Mr. Baylis is now nearing completion.

We have always been prepared to give full and sympathetic consideration to industry's proposals for simplification of our requirements. It is also our normal practice to consult with industry groups prior to any major change in our regulations.

Prior to the last full revision of AID Regulation 1, for example, which incorporated most of the requirements which are the subject of Mr. Baylis' complaints, we met with several industry groups over a period of months to discuss both the old and new requirements. We were not able to do this prior to the introduction of Form 11 because of Congressional pressure to put the prior commodity eligibility review into effect immediately.

We, as well as industry, are interested in seeing that our documentation and other special requirements are no more demanding and burdensome than necessary. In the last analysis, however, we must be the final judge on the extent to which we can accept proposed modifications and still discharge our responsibilities as administrators of the Foreign Assistance Program. Unfortunately, many proposals for simplification which appear to be entirely reasonable to the outsider, are found to be impractical, or would impair our ability to exercised controls which we believe to be necessary. (246)




AGRIC MACHINERY CORP., New York, N.Y., May 22, 1969.

(Our reference P. 3269)


Chairman, House Small Business Committee,

Rayburn House Office Building,

Washington, D.C.

DEAR SIR: I have received your circular letter of May 1st regarding AID financed purchases/Hearings.

On February 28th we wrote the Director U.S. AID in Saigon as per copy attached and are sorry to say that we have had no reply. We have written to that Office last year, likewise without getting a reply.

Our supplier is a small electric weld tube mill with plants in New York and New Jersey and very well suitable for the supply of such material; competitors are Republic Steel, Jones & Laughlin and U.S. Steel.

We do not know at present whether orders have been placed or whether the whole OSB range is still pending and thus do not know where we stand. It seems to me that some sort of an answer from AID, Saigon, would have been in order even though I realize that there must be a great burden of paperwork in such Offices.

Respectfully yours,

I. P. SPRUYT, AGRIC Machinery Corp.



Our Mission in Saigon has advised us that they considered Mr. Spruyt's letter of February 28 to be merely confirming a phone conversation which he had with AID/Washington and that no response was necessary. We regret that, in the absence of more detailed information to identify the Transaction (s) referred to, we are unable to comment more fully on Mr. Spruyt's complaint.


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