ANTI-APARTHEID ACT FAR TOO VAGUE

The Anti-Apartheid Act of 1986 is certain to frustrate U.S. businesses with trading ties to South Africa. This frustration is more likely to result from the act's many ambiguities, however, than from opinion as to the propriety of economic sanctions.

Although no business person would willingly violate the act's provisions and face fines as high as $1 million and jail terms of up to ten years, the inexcusable vagueness of these provisions makes it exceedingly difficult to determine when, whether, and how the act applies.In rushing to create a compromise between the House anti-apartheid bill, which would have required total divestment and imposed a complete trade embargo, and the Senate anti-apartheid bill, which would have imposed relatively limited sanctions on South Africa, Congress wound up with an act that was palatable to both the House and the Senate but that lacked much of the clarity of the earlier bills.

The act raises, but does not resolve, at least three critical issues for U.S. businesses with interests in or trading ties to South Africa. The first of these is the act's pre-emption of state and local anti-apartheid laws.

Many cities and states had passed anti-apartheid legislation prior to the enactment of the act. Much of this legislation imposes stronger sanctions against South Africa than does the federal act.

The state of New York, for example, prohibits the awarding of service contracts to companies providing services to South Africa. San Francisco prohibits deposits, investments, contracts, or purchases involving city funds with any entity maintaining specified business relations in South Africa. The continuing validity of these and other local laws is called into serious question - but not resolved - by the federal act.

The act states that its purpose is to "set forth a comprehensive and complete framework to guide the efforts of the United States in helping to bring an end to apartheid." This statement could be interpreted to mean that the act was intended to pre-empt local laws in order to offer a national response to apartheid.

The Senate record clearly supports such an interpretation. Sen. Lugar, one of the act's sponsors, stated that it was intended to "occupy the field with regard to U.S. law on apartheid." An amendment offered by Senator Alphonse D'Amato, R-N.Y., would have reversed this and permitted state and local anti- apartheid laws to remain in force. That amendment was defeated.

So far so good. When the bill was given to the House, however, the House passed a resolution expressly stating that the bill would not pre-empt state and local laws. If the House and Senate disagree on the pre-emption issue, as they clearly do, where does this leave a business person trying to abide by the act? If the Senate interpretation is correct, businesses complying with the federal law need not be concerned about more stringent local laws. Yet, until a final determination is made on this issue - either by the courts or by congressional amendment - it is likely that local laws will continue to be enforced by local officials.

A second issue raised by the act affects the ability of firms to divest themselves of their South African interests. Obviously, Congress intended for the act to stem the flow of U.S. business to South Africa. The divestment of business interests in South Africa is clearly consonant with this intention. Ironically, an unintended effect of the act may be to diminish the ability of U.S. businesses to sell their South African holdings.

The act bans all new investment by U.S. businesses in South Africa. The term "new investment" is defined to encompass all loans and other extensions of credit.

If a U.S. company wishes to divest itself of a subsidiary in South Africa, barring the highly unlikely event of encountering a cash buyer, it may need to finance the sale. Such an arrangement could run afoul of the prohibition on extensions of credit.

It can only be hoped that the executive agencies interpreting the act will exhibit enough wisdom to recognize the spirit, and not the letter, of the law in enforcing this provision.

A third issue raised by the act but left unresolved concerns a U.S. company's legal authority to import products from South African organizations. According to the act, no articles grown, produced, manufactured, or marketed by a para-statal organization of South Africa may be imported into the United States.

"Para-statal organizations" are defined as corporations and partnerships owned, controlled, or subsidized by the South African government. In practical terms, all companies in which the South African government owns more than 50 percent of the outstanding shares are to be regarded as para-statal organizations.

The act does not, however, indicate when the determination of whether a company is a para-statal organization is to be made. Should this determination occur at the time the act was passed or at the time an export arrangement is under contemplation?

Since the act provides a strong impetus for para-statal organizations in South Africa to become privatized - that is, buy back enough shares from the South African government to insure private ownership of at least 50 percent of the company's stock - there is likely to be a dimin ishing number of para- statal organizations in South Africa in the upcoming year. Whether U.S. companies can freely import from these newly privatized organizations is a question in need of immediate resolution.

The objective of the act is to bring an end to apartheid through economic coercion. Accordingly, if the act is to effectively undermine apartheid its provisions must be made sufficiently clear to enable compliance. The Department of Treasury may clarify some of the act's ambiguities in forthcoming regulations; however, there will be no opportunity for public comment before the regulations go into force. Thus, it is of critical importance that businesses concerned with the application of the act make themselves heard by Congress and the administration.

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