Dresser Industries' vice president for finance tells what the American-French skirmish over sanctions against the Soviet pipeline has done to his company, and Sen. Quayle looks at what the sanctions are doing to American credibility.
Damned if you do and damned if you don't -- a no-win situation. That is the position of Dresser and its wholly-owned subsidiary, Dresser (France) S.A., at Le Havre, France.
The Reagan administration's decision to bar the export of U.S. equipment, material and technology to Dresser France is not only unfair to our employees, customers and shareholders; it also places Dresser as an innocent pawn on the Byzantine chessboard of international politics.
This issue involves centrifugal compressors intended for use on a pipeline being built to transport natural gas from Siberian gas fields to users in Western European countries. The compressor order received by Dresser France in September 1981 was in complete accord with all government trade regulations in both France and the United States. It was for 21 of 120 mainline compressors, about $20 million.
Dresser France immediately placed purchase orders for materials and supplies necessary to produce these compressors within the specified delivery time. No materials have been supplied from the United States.
Effective Dec. 30, 1981, the U.S. government expanded export controls in this country so that no gas pipeline equipment or technology could be exported from the United States for use in the pipeline project. These sanctions applied only to future shipments. Since Dresser France had received its order prior to this date and was not dependent on U.S. suppliers for materials, it continued to manufacture the compressors under its contract.
On June 18, 1982, the U.S. government expanded export controls still further to prohibit any users of U.S. technology abroad, whether subsidiaries of U.S. companies or licensees from shipping pipeline equipment regardless of when the technology was received by the foreign manufacturer. Accordingly, Dresser management immediately informed Dresser France that it was to discontinue all production on this contract and not to ship any finished products. Dresser France complied with these instructions and developed plans to lay off approximately 250 people at Le Havre as a direct result.
By then, Dresser France had completed three of the 21 compressors. Following Dresser instructions, they placed the completed machines in storage with orders that in no event were they to be released for shipment. The French government attempted to persuade Dresser France to voluntarily ship the equipment, but Dresser France refused, advising the ministry that shipment could create serious problems for its U.S. parent and result in a stoppage of the flow of U.S. technology essential to Dresser France's continued business operations.
On Aug. 23, 1982, the French government issued a "Requisition Order" pursuant to French statutes authorizing transfer to the French government of the legal right to make decisions regarding equipment supply contracts. The order showed that the French government had determined shipment was to be made and ordered the equipment released and production of the unfinished equipment resumed under threat of civil and criminal penalties (1- to 12-month jail sentences and fines of 60,000 francs). The order was examined by French legal counsel, who advised Dresser France management that the French government did, indeed, have the authority to effect shipment.
The French government then posted police around the stored equipment to ensure that no one interfered with the storage or loading of the equipment, including Dresser, which does not have its own Marine Corps to throw into action under such circumstances!
The managers of Dresser Industries and Dresser France were fervently hoping for a quick and diplomatic solution to a serious and snowballing international relations problem. Obviously, we were "caught between a rock and a hard place."
The U.S. government remained convinced that its June 1982 regulations barred the compressor shipment. The French government stood on its decision that the shipments would be made. Thus, Dresser, in an attempt to extract itself from the middle of an imminent clash of sovereign nations, asked the U.S. District Court in Washington on Aug. 24 to issue a temporary restraining order to keep the United States from imposing any penalties as a result of the shipment ordered by the French government. The restraining order was denied. The ruling that followed neither clarified nor resolved the conflict.
So, despite our best efforts, Dresser was unable to find a solution to this international dilemma. And when the three compressors were shipped Aug. 26 pursuant to the French order, the U.S. Department of Commerce issued a temporary denial order prohibiting the transfer of technology, equipment or material from any U.S. company to Dresser France. We then quickly moved to petition the Commerce Department for administrative relief pending a full hearing on the subject.
As to the Dresser France compressor order, the Commerce Department's action will have no effect. Dresser France has the capacity to fulfill the compressor contract. Over the long haul though, the ban will lead to a loss of business by Dresser France. It will be unable to compete with other compressor manufacturers around the world without technical and material aid from our U.S. operations. The employees of Dresser France and their families will be the first to suffer. Eventually, there will be a marginal sales and profit loss to Dresser Industries.
Can Dresser's commitment to obey the laws of this country and those of the more than 100 nations in which Dresser has operations be firm and absolute just as it was before this incident? Dresser employees had been instructed to rigorously adhere to the Commerce Department's prohibitions until some reasonable solution to this clash of governments is found. We are absolutely convinced that no member of the Dresser family has taken any improper action, and the blacklisting of Dresser France is an unwarranted punitive measure imposed, not because of any voluntary action by Dresser France, but because of our government's frustration as it seeks European acquiescence in its foreign policy objectives.
Several times I have asked myself what the situation would be if the shoe were on the other foot, if another country attempted to impose its unwelcomed regulations on a subsidiary organization located in the United States, notwithstanding American law. This is not a fictional role reversal. The U.S. Supreme Court ruled in Avaglino v. Sumitomo Shoji America that the American subsidiary of a Japanese company was, indeed, subject to U.S. law. My point is clear, I believe.
Until the U.S. government is willing to deal realistically with the fundamental issues involved, issues of international trade and the sovereignty of nations, an equitable resolution of Dresser's dilemma seems unlikely. We ask: why does the Commerce Department feel its order should have greater weight in France than an order of the French government? And what does Commerce think Dresser France should have done under the circumstances to avoid the wrath of the U.S. government? Dresser U.S. and Dresser France feel victimized by a conflict of principle between two sovereign governments, each of which has jurisdiction over a part of our global business.
Dresser feels it has been subjected to this "public flogging" not because of anything it or its affiliate did, but because Dresser France was the first project supplier with equipment ready to ship.
How does Dresser feel about leading this unpleasant parade? President Lincoln once had an appropriate answer when asked whether he did not find the ceremonies of the presidency irksome. "Yes, sometimes," said Lincoln. "In fact, I feel sometimes like a man who, when being ridden out of town on a rail, said, 'If it wasn't for the honor of the thing, I'd rather walk.'"