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Milwaukee, Wis., May 20, 1969.

Rayburn House Office Building,

Washington, D.C.

(Attention: Hon. James C. Corman, House of Representatives.)

DEAR SIR: A few days ago we were informed that you are chairing a committee on Government Procurement designed to broaden American small business participation in the procurement of goods with AID funds.

This called to mind some correspondence I have had in the past few years with various people at AID in Washington on the 000 classification (United States Source Only) which had been broadened to include some other Far Eastern Countries for Vietnam. I am attaching copies of my letters dated November 21, 1967 and February 2, 1968, as well as Mr. Mapes' reply of March 5 which will provide you with some background material concerning this subject.

This same classification still exists as evidenced by continuing bid requests issued in the Small Business Circulars which we receive here at our Milwaukee office. I am not too sure whether or not this particular matter falls within the scope of this particular investigation you are conducting at the moment, but I still feel that this expansion of the 000 classification to include these other countries should be removed.

Looking forward to receiving your reply on this subject with a great deal of interest, we remain.

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DEAR MR. ENGLISH: In your letter of February 1, 1968, you inquire as to when AID regulations were changed to permit AID-financed procurement in the eight Selected Less-Developed (SLD) countries: Republic of Korea, Republic of China, the Philippines, Singapore, India, Pakistan, Morocco, and Tunisia.

These countries have always been negligible sources for AID-financed procurement for commodity program assistance on a grant basis. I am sorry if my letter of January 17, 1968 did not make this clear. AID limited the geographic source of such procurement to SLD's effective March 15, 1966. I am enclosing for your information the current Manual Order 1414.1 setting forth geographic source requirements.

You also express your feeling that AID-financed procurement of electrical products for Vietnam in the Republic of China is not consistent with the general policy stated in AID Manual Order 1411.1. In support, you cite that part of the Manual Order which states, quoting from the Act for International Development of 1961: "Funds made available under this Act may be used for procurement outside the United States only if the President determines that such procurement will not result in adverse effects upon the economy of the United States or on the industrial mobilization base . . .".

I would point out that the above language refers to adverse effects upon the economy of the United States or on the industrial mobilization base, rather than upon any individual firm; and that the paragraph you quote goes on to provide that the adverse effects do not preclude offshore procurement if such effects are outweighed by "economic or other advantages to the United States."

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A country may be designated an SLD country only if this will serve a major United States assistance purpose and only if the country agrees that for commodities supplied under the aid program it will accept payment through special letters of credit usable only to finance imports from the United States.

AID-financed procurement in the Republic of China and the other SLD countries would not be undertaken if it did not meet the above tests and were not consistent with foreign assistance legislation. We are, nevertheless, anxious to provide for as much AID-financed procurement in the United States as possible. Toward that end among others, we keep offshore procurement policy, procedures, and trends under continuing review, and welcome whatever information and views United States firms may provide.

In the case of electrical apparatus and parts (AID code 720), total import licensing under the AID-financed commodity import program for Vietnam came to $6,001,000 in Calendar Year 1966. The United States share was 41 percent ($2,445,000), as against the Republic of China share of 59 percent ($3,556,000). We do not yet have the full data for Calendar Year 1967. In Fiscal Year 1967, however, the total CIP import licensing for the same commodity code came to $5,125,000, and the United States share rose to 68 percent ($3,471,000), as against the Republic of China share of 29 percent ($1,505,000). We are pleased to have had this opportunity to explain our program further. Very truly yours,


Deputy Director, Office of Commodity Import Programs,
Bureau for Vietnam.

FEBRUARY 2, 1968.


Agency for International Development,
Washington, D.C.

(Attention: Mr. M. C. Mapes, Jr., Office of Commodity Import Programs VN/CM). DEAR MR. MAPES: Thank you very much for your letter and attachments of January 17 pertaining to my recent letters to your department on the expansion of AID's Code (000) to include the Republic of China and seven other countries. I appreciate the thoroughness of your letter, Mr. Mapes, but this still doesn't answer my original question; but instead, merely reiterates what I am already very aware of.

Code 000 states "United States and Areas of United States-Associated Sovereignty" and my question was specifically when was this broadened to include China, India, Korea, etc. I would appreciate the date of that change. It seems, to me, that these eight less-developed countries would more aptly fall under one of the other classifications as 901-Limited Free World or 935—Special Free World.

The comments in my letter of November 30 still stand; inasmuch as we are losing business in Vietnam to Republic of China producers of electrical products that compete with our own. These products are priced well below any range of possible United States competition and the AID dollars that they get as a result of winning the bid is probably spent by them in purchasing additional electrical production machinery to further strengthen their competitive bids not only or Vietnam but other available markets for this type of product.

I'd like to refer you to the Xeroxed order Number 1411.1 that you sent, as it states as a general policy "Funds made available under this Act may be used for procurement outside the United States only if the President determines that such procurement will not result in adverse effects upon the economy of the United States or on the industrial mobilization base, . etc." It certainly has some displacing effects in our own business potential in Vietnam to the extent of between $200,000 to $500,000 last year. The long-range possibilities of losing business to Republic of China producers, as a result of their being able to compete with us in world markets-at prices well below United States producers-is quite substantial! Particularly so, if we continue this (000) expansion that permits them to secure aid to further strengthen their own electrical manufacturing capabilities.

I would certainly appreciate your comments.




Marketing Director.

NOVEMBER 21, 1967.

Subject: SBC No. 67-872 Item 5 Reference No. OSB 542–149.

Mr. P. M. O'LEARY,

Director, Office of Procurement,

Agency for International Development,
Washington, D.C.

DEAR MR. O'LEARY: This morning I had the opportunity to talk with Mr. Dreany of your office on several matters. The first concerned the above subject, and I am attaching a xerox copy of the item in question. The description and specifications of the voltage regulator with voltmeter is not detailed enough to determine exactly what they require. Further, our representatives in Saigon have not been able to get this additional specification information from the listed buyers.

We have quoted on several very similar items in the past only to lose the business to firms in Taiwan, and we frankly feel that what the customer is buying is a tap changing transformer rather than a voltage regulator. It so happens that one of our other divisions manufacturer tap changing transformers and if this in fact is what the customer is interested in, we would appreciate having the correct information to begin with.

The second matter discussed was the expansion of AID's triple zero code classification to include a number of Far Eastern countries such as Korea, Republic of China, Singapore, etc. In the past year our people here in International have been involved in preparing a number of detailed quotations for voltage items such as voltage regulators, transformers, ballasts, etc., at the request of our representatives, for Vietnam. In many instances we find that we have been the lowest U.S. bidder and then wind up losing the business to a firm in one of these countries, who comes in with prices sometimes less than half. Consequently, our company has wasted a good deal of time and money without any hope of securing the business.

I would like to know just why this code triple zero classification was expanded in this manner at the expense of certain segments of the electrical industry here in the United States. If we must help support the economy of these Far Eastern countries, I think it should be in areas other than those that permit them to build industrial strengths to disrupt U.S. manufactured products in world markets.

I look forward to your comments.


Marketing Director.


To complete the exchange of correspondence submitted to the Committee by Mr. English, a copy of Mr. Mapes' letter of January 17, 1968 (referred to in Mr. English's letter of February 2, 1968) is attached for inclusion in the record. In addition to the explanations contained in Mr. Mapes' letters, the following comments are offered in support of the limited off-shore procurement which is permitted by AID. Such procurement is limited to eight less developed countries and is permitted only when financing is provided under grant assistance. The eight countries are:

India, Morocco, Pakistan, Philippines, Republic of China, Republic of Korea, Singapore, Tunisia.

Of these countries, all but the Republic of China and Singapore are currently receiving U.S. dollar loan assistance to help overcome the balance of payments restraint on their development progress. The opportunity to earn dollars through off-shore purchases financed by AID for third country aid recipients contributes to this same objective and reduces commensurately their need for AID loans. In the case of the Republic of China, the opportunity to earn dollar exchange from sales to Vietnam has facilitated the transition from a country once dependent on sizeable U.S. assistance, to a country no longer in neeed of direct assistance. In the case of Singapore, the amount of procurement from that source is so small-$270,000 in fiscal year 1968-as to be inconsequential. We thus believe that such limited off-shore procurement furthers attainment of the objectives of the Foreign Assistance Program and, through the requirement

that payment for sales must be taken in the form of imports from the United States, does not produce an adverse effect on our balance of payments.

The total value of AID-financed procurement from these eight countries during fiscal year 1968 amounted to $28,639,000. This represents less than 2% of our total commodity import program during fiscal year 1968 and is $40,955,000 less than AID-financed procurement from the same countries during fiscal year 1967. It is anticipated that there will be further reductions in the value of procurement from these countries in future years.

Washington, D.C., January 17, 1968.


Solar Basic International,
Milwaukee, Wisc.

DEAR MR. ENGLISH: First, I want to confirm the information Mr. MacMillan gave you by telephone on January 4. Our Vietnam Mission has advised us that they agree with you that "tap changing transformers" is the proper description of the equipment advertised in SBC Nos. 67–372, 67–396, and 67–398 as “voltage regulators", accordingly, the Mission has requested the importers concerned to readvertise the proposed procurement in the Small Business Circulars with the correct specifications; meanwhile, import license applications will not be approved for any procurement based on the previous announcements.

Your letters of November 21 and November 30, 1967, also express your concern about the expansion of eligible source countries for the AID-financed procurement of electrical equipment (AID Commodity Code 720), which you state was formerly confined to United States source.

Eligible off-shore sources for AID-financed commodities have been progressively narrowed. I thought you might like to have the following chronology of the main events in the development of AID's source-of-procurement policy in recent years.

In 1961, a Presidential Determination prohibited procurement for non-military assistance programs from 19 industrialized countries (Australia, Austria, Belgium, Canada, Denmark, France, Germany, Hong Kong, Italy, Japan, Luxembourgm Monaco, Netherlands, New Zealand, Norway, South Africa, Sweden. Switzerland, and United Kingdom). Later, Hong Kong was deleted and Spain added to this list. The countries remaining eligible for AID-financed procurement were designated Limited Free World countries by AID's predecessor agency.

In 1963, A.I.D. further restricted off-shore procurement by ruling (Policy Determination #21) that commodities identified as U.S. net-import items would be ineligible for AID financing. This ruling was later modified as described below.

In 1964, AID adopted the 90/10 componentry rule, (formerly 70/30) which provides that AID-financed commodities supplied from eligible Limited Free World countries may contain not more than 10 percent (in value) of components or raw materials imported by the producer country from the 19 industrialized countries. Because of particular situations relating to certain commodities, the componentry propositions were later modified from the requirements of the general rule.

In 1965, AID adopted a barter system, in conjunction with the Department of Agriculture. This system permits procurement of U.S. net-import items from off-shore sources when the commodities are paid for through the sale of agricultural commodities in surplus in the United States. Principal barter commodities are cement, sugar, POL, and fertilizer; when barter procedures are used, these commodities can be procured in any Free World Country.

In 1966, AID further narrowed the list of off-shore countries by ruling (Policy Determination #31) that only eight Selected Less Developed countries (China, India, Korea, Morocco, Pakistan, the Philippines, Singapore, and Tunisia) were eligible for AID-financed off-shore procurement under the Commodity Assistance Program on a grant basis. The central banks of these eight countries agreed to accept payment in credits specifically tied to the financing of U.S. exports. The geographic source of all other commodity procurement is confined to the United States unless an appropriate Waiver is approved.

Also in 1966, the Bayh Amendment to the Foreign Assistance Act was adopted. The Bayh Amendment made AID's 90/10 componentry rule a matter of law with respect to iron and steel mill products for Vietnam. Because of difficulties in policing the 90/10 componentry rule, AID ruled that procurement of iron and steel mill products would be restricted to the U.S. as of January 1, 1967. An exception was permitted for galvanized steel sheet supplied by Korea; in recognition of Korea's contribution to the Vietnam war effort and the importance of G.I. sheet exports to Korea, Korean galvanizers were permitted to bid in competition with U.S. suppliers of this product, provided the corresponding Black Plate (for galvanizing in Korea) came from the U.S. This was terminated in August 1967.

In your letter of November 30 you expressed particular concern that the Republic of China (ROC) is "now" eligible for AID-financed procurement. You will note from the above chronology that the ROC has never been an ineligible source under the Commodity Assistance Program for Vietnam. Regarding your comments on the intent of the Foreign Assistance Act, please see the attached AID Manual Order 1411.1. which sets forth the general legislative and administrative policy applicable to off-shore procurement.

We are glad you called our attention to the incorrectness of the specifications in the noted Small Business Circular, and also that you have given us this opportunity to explain the background of the Agency's off-shore procurement policy. Please call on us whenever you feel we can be of assistance.

Sincerely yours,


Acting Director, Office of Commodity Import Programs, Bureau for Vietnam.

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