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Full text of "The Anti-Apartheid Act of 1985 : hearings before the Committee on Banking, Housing, and Urban Affairs, United States Senate and the Subcommittee on International Finance and Monetary Policy, Ninety-ninth Congress, first session on S. 635, to express the opposition of the United States to the system of apartheid in South Africa, and for other purposes, April 16, May 24, and June 13, 1985"

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HEARINGS 

^\l^ «!•* BKTOKE THE 

COMMITTEE ON 
m. HOUSING, AND UEBAN AFFA 
UNITED STATES SENATE 

AWDTHI 

SUBCOMMITTEE ON INTERNATIONAL FmANOE 
AND MONETARY POUOY 

NINETY-NINTH CONGRESS 
FDtST SESSION 



S. 635 



1PKES3 Trre opposirroN of the onitkd states to the system 

[OF APABTHBTO IN SOUTH AFRICA. AND FOR OTHER PURPOSES 



APRIL 10. MAY U. AND JUNE 13. 1BB5 



1 Ibr the uae nt the Committee on Banking, Iloiuing. uiil Urb«a AfTatra 



8. Hio. W-148 

THE ANTI-APARTHEID ACT OF 1985 



HEARINGS 

BCrORITHK 

COMMITTEE ON 

BANKING, HOUSING, AND UEBAN AFFAIRS 

UNITED STATES SENATE 

ANDTHI 

SUBCOMMITTEE ON INTERNATIONAL FINANCE 

AND MONETAET FOUCT 

NINETY-NINTH CONGRESS 

FIRST SESSION 



S. 635 



3 THE OPPOSITION OF THE UNITED STATES TO THE SYSTEM 
OF AFABTHEID IN SOUTH AFRICA, AND FOR OTHER PURPOSES 



APRIL 16, HAY 24, AND JUNE 13, 1986 



Printed for dte use of the Committee on Banking, Housing, and Urban AffairB 



WASKINOTON : 198S 



W-rao 0-86 1 



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COHMITTEE ON BANKING, HOUSING, AND UKBAN AFFAIRS 
JAKE GARN, Utah, Chairman 
JOHN HEINZ. Pennsylvania WILLIAM PROXMIRE, WiaconBm 

WILLIAM L. ARMSTRONG. Colorado ALAN C3RANST0N, California 

ALPONSE M. EfAMATO, New York DONALD W. RIEGLE, Ji., Michigao 

SLADE GORTON, Washington PAUL S. SARBANES. Maryland 

HACK MATTINGLY, Georgia CHRISTOPHER J. DODD, Connecticut 

CHIC HECHT, Nevada ALAN J. DIXON, minoU 

PHIL GRAMM, Texas JIM SASSER, Tennenee 

M. Dahnv Waix, Staff Director 
KlNNBIH A McLean, Minority Staff Director 



SUBCOMMTTTKB ON INTBSNATIONAL FlNANCB AND MONBTARV POUCT 
JOHN HEINZ. Pennsylvania, Chairman 
JAKE GARN, Utah WILLUM PROXMIRE. WisconaiD 

WILLIAM L. ARMSTRONG, Colorado ALAN J. DIXON, QlinoU 

SLADE GORTON, Waafaington JIM SASSER, Tenneasee 

HACK MATTINGLY. Geoi^ DONALD W- RIEGLE, Jr., Michigan 

CmC HECHT, Nevada PAUL S. SARBANES, Maiyland 

Paul FBERnENBBRO, Economist 
Waynk a. Abirnathy, Eamomiat 
Patrick A. Hulloy. Minority General Counael 



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CONTENTS 



TUESDAY, APRIL 16, 19SG 



Senator Hecht 

Senator Cnmsbm.... 



Senator Proxnim-... 



Senate bill S. 635.... 



Edward M. Kennedy, U.S. Senator from the State of Mas8achutetta 

ConditdtHiB in South Africa 

Hostility to the United States increasing ,. ~ 

Whip and laah of apartheid 

Pre[mred st^ement „.„ „._._.,..»._..».—..,.».«- 

Summary of S. 685 _ 

Fact sheet on the impact of the Anti-Apartheid Act <f 19S6 

Remarks of Jamee Mndaweni. prceident of the Council of Unim of 
South Airica.... 



[esponae to written questions of Senator Mattingly ... 
llP.Weicl "" "^ ■ - ■' " 



Lowell F. Weicker, U.S. Senator from the State of Connecticut _ 

bnorance of the history of South Africa ^ ^....^.^ « 

Apartheid is a creature of law „.„....„ ,. „.„.„.„.„........ 

L^al foundations of apartheid similar to ni^zjinn ~.~,...^.-.~ ._...._ 

Impact of economic sanctions ,.„ _... ~. 

Prepared statement „ 

Re^Kinse to written questions of Senator Hattingly 

Panel discussion: 

Sanctions ending apartheid without violence 

Fear of divestiture 

African students being educated in Cuba „ 

"Bring more American investment" ,. 

Block future imports of the krugerrand 

The Sullivan prmdplee — ,. 

Kenneth Dam, Dnnity Secretary of State, Deparbnent of Sttate, accommnied 
by Chester A. Qxiclwr, Assistant Secretary for African AfTairsi and Frank 
Wisner, Deputy Assistant Secretary for African AfTairs, Department of 
State 

Sanctions would be counterproductive 

Prohibition on bank loans would create a dangerous precedent 

New job opportunities denied 

Prepared statement 

"Rededication to the Cause of Human Rights," remarica o( President 

Reagan 

Panel discussion: 

Problems are getting worse, not better — ..~ 

Not operating on a basis of conditionality „ ..... 

Soviet interest In southern Africa increases ~ 

South African blacks oppose economic sEmctions 

S. 635 is not a diunvestment bill 

UJJ. Security Resolution 435 



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Quiet diplomacy mas communicate wrong : 
Preaent policy may nave to be rcaxaminaa. 
TBTgeting bank loans. 



FRIDAY, HAY 24, 1986 



Opening statement of Senator Heinz 

Owning statement of Sonator Proxmire.... 



Sheldon Hackney, president, Univerai^ of Pennsylvania, Philadelphia PA 120 

United in oppceition to apartheid ~ ...~.... 120 

Need for further action „ 121 

Prepared statement „^ „...„...._.„.„.„..._.„.„..„.„..„...„, 128 

Besponse to written questions of SenabnB Heiiu and Pmmire ^ _..„....... S36 

Derek Bok, preeident. Harvard Universi^, Cambridce, HA 127 

Rising tension in South Africa _....„ .„ ^.. 127 

Additional measuree to explore ^.^.^ „»....—...«» _.,..,..»...—. 128 

Prepared statement -.„. ._. ._ „ . . 12S 

Response to written questions of Senator Kennedy 829 

"A Personal Perspective on the Second Came^ Inquiry Into Poverty 

and Development in Southern Africa," report submitted for the record.. 297 

Roy Schotland, Georgetown Law School, Georgetown University 187 

bsue of divestitive is complex 137 

Advocacy is hypocritical 189 

Prepared statement ~ 141 

I. Views on divestment summarized »....» ».. 142 

II. Five comments on spedflc pnndsioiis of S. 68S ^..~...~~ ~~.. 146 

"Disinvestment," an article submitted l^ Jiriin Langbcan, Btqr Sdiot* 

land, and Albert Blaustein 149 

Response to written questions of Senator Hrins 318 

Robert D'Agoetino, National L^al Center tor the Pablk Interest, Washing- 
ton, DC _ „ 270 

Apartheid is a totalitarian system 270 

Change will come slowly 272 

Prepared statement 273 

The United Methodist Church, letter frtnn Abel Huzorewa to Albert 

Blaustein with accompanying article - ~ 288 

Response to written questions ot Senator Prtomire „..„.„ _._ 860 

Panel discussion: 

Results of Swedish ban 290 

Time is running out 292 

Loan portion of S, 635 - 298 

Signal to the black communis „.„._.,„....„.„...._ . 296 

Sullivan principles have been lielpfiil „ ,. ^.^.^ 818 

I^ck of urgency ^,„ „ „ „„..„....„,.. _._.„._._. 816 

Chan^ are occurring ...,. _....-....». 819 

Conditions are terrible for blacki in SouUi Afrtca — .. 821 

Number of destitute ._... _ ».^ «„._. 822 

Could give wrong impression ......_ — _._ _ 824 

Bill would be a strong signal ^. » ».,. _.._..,.._.«._.. 826 

Distinction of involvement ....„ „ 827 

Donald F. McHenry, former Ambassador to the United Nations; Geo r ge to wn 

Univeisity, School of Foreign Service 363 

Divide U.S. policy two ways SM 

Bill is an at^ropriate first step 366 

Some improvements in urban living 367 

Hope to avoid further violence 368 



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Donald F. McHenry, former Ambaasador to the United Nations; Georgetown 
Univeraity, School of Foreign Service — Continued 

Need new Constitution 

Deterioration of respect 

DegnidatioD because (^ racial origin 

Change will come slowly..., 
Reid Weedon, Jr., seni 
Tor Sullivan principles... 

Prepared statement 367 

Sal Mannillo. chairman of the Industry Support Unit for Sullivan principleo, 

Mobil Oil Corp., spokesman for Sullivan Companies 374 

Some erosion through economic growth 3T4 

Prerared statement 378 

George J. Schroll, chairnian, education task group of the Sullivan Signatory 

Companies 382 

Prepared statement 382 

Patrick O'Farrell, executive director, AFL-CIO, African-American I^bor 

Center 385 

American labor movement involvement 886 

Workers resolution 387 

Prenared statement 889 

1 Fdnuary 19, 1985, 

894 

396 

Statement ^^FL<Sidcm South Afiiica. May 7, 1^ ... 



Sullivan principles 409 

Help provide better education 410 

Quick change or revolution... '''" 



Commitment of business to effect change... 



THURSDAY, JUNE 13, 1985 



Opening statement of Senator Heinz... 



Opening remarks of Senator Prozmire..., 



Philip A. Lacovara, member, House of Delegates. American Bar Association 
Prepared -'-■ ' 



statement ... 

Printdplee governing economic sanctions 

" ■ proposals for sanctions 

"\tlining the Byatematic misuse of the law, prepared by Goler 



Printnples 
specific pi 



Rev. Leon H. Sullivan, miniater, Zion Baptist Churdi, Philadelphia, PA, 

author of the Sullivan principles 459 

Effect of multinational companies in South AfHca 460 

American companies should set the example 460 

Moratorium on American economic expansion 462 

Prepared statement 462 

Panel discussion: 

Impact of Sullivan principles by law 465 

Reaction of South African Government to the principles 466 

High risk of black unemployment 468 

Economic sanctions advocated by ABA 469 



Apathy in Europe..., 

Reprehensible apartheid laws 

Window of freedom is open 

Mandate double standard 

Principles adhered to in United States... 
Family of people 



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VI 

Panel discuBsion — Continued 

Oil supply situation 481 

No new investments 483 

Effects of U.S. policy 484 

Additional Matebial Supplied ros the Rbcobd 

G«orge P. Shultz, Secretary of State, paper entitled, "Southern Africa: 

Toward an American Consensus" 486 

tntemational Inveeton Inc., letter in opposition to S. 635 from John van Eck, 

chairman and president 610 

Chamber of Commerce of the United States, statement on United States 

C'.cy toward South Africa by Michael A. Samuels 613 
n, Dunn & Crutcher, statement in opposition to S, 635 from Theodore B. 

Olson, former Assistant U.S. Attorney Ueneral 526 

Philadelphia Lawyers Against Apartheid, petition to the Congress 65S 

Wellesley Collie, letter in support of the Anti-Apartheid Act tnm Nannerl 

O. Keohane, president 578 

The Freedom Foundation, Committee on International Trade, testimony sub- 
mitted for the record by Magnus Krynski, chairman 579 

United Services Advisors, Inc. letter in opposition to S. 635 from Clark Alys- 

worth, president 582 

Open letter from Members of President's Council ^m South Africa 684 

The Washington Post, June 5, 1985, editorial entitled "Hie South African 

Sanctions 686 

The Heritage Foundation: 

Institution Analysis, September 12, 1984, article entitled "For U.S. Firms 
in South Africa, the Ilireat of Coercive Sullivan E>rinciples" by Mark 

Huber 587 

Backgrounder, April 30, 1985, article entitled "An Investment Strata^ to 
Undermine Apartheid in South Africa" by Stuart M. Butler and ludi- 

ardD. Fisher 597 

Control Date, letter and paper in support of legislation S. 635 from William C. 

Norris, chairaian and chief executive ofTicer 60S 

Articles from the magazine "ERA," April 1985: 

"The Americsji National Interest in a Stable South Africa," by Herman 

Nickel, U.S. Ambassador to South Africa 613 

"American Companies in South Africa," by Tony Koenderman 616 

"The Other Face of American Business," by Ian Wakefield 616 

The Voice of Indochina. July 1985, editorial entitled. "Apartheid — Crime 

Against Humanity or Western Anomaly," by Tran Binh Nam 617 

European Community News, August 8, 1985. article entitled. "ESuropean 
Community Condemns South African Apartheid and Summons 12 Am- 
bassadors'' 629 

Urban Foundation: 

"Some Prtaect Highlighta of 1984 and 1985" 686 

Foundation Forum: 

"Crossroads— a Decade In Perspective" _ _ „ _ - 646 

"Protea North: 20,000 WiU Be Accommodated" _ 647 

"CEP Grows With Urban Foundation Boost" 648 

"Management Training for Headmssters" „.„ _ ._. 649 

"Some Major Achievementa of the Past Financial Year" ,. 660 

"Acceptance of Black Building Industry" 661 

"Sullivan Responds to UF Initiatives" 652 

The American Chamber of Commerce in South Africa: 

Aims and objectives 658 

"U.S. Business Involvement in South Africa" 654 

Investor Responsibility Research Center. Inc., April 1985, Update of South 

Africa Review Service, by Dresser Industries, Inc 665 

IRRC article, "Progress in Implementing the Sullivan Principles" 678 

South Africa International: 

"Impressions of Southern Africa," article by Suzanne (rannent 684 

"Managing the Security Power Base in South Africa," by James M. 

Roherty 693 

"The Indian and Coloured Elections: Co-Optation Rejected?" 703 

Articles submitted by Mangosuthu G. Butheled, Chief Minister of Kwazulu: 
Address at the unveiling of the foundation stone at Nanundlela, South 
Africa, July 19, 1986 727 



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Plff. 

Articlee submitted by Mangosuthu G. Buthelezi. Chief Minister of Kwazulu— 
Continued 

Hemorandum presented at Lambeth Palace, England, July 30, 19S6 739 

Memorandum submitted to Sir Geoffrey Howe, Foreign and Conunon- 

wealth Secretary. Great Britain, cm August 2, 1985, at London 746 

"The Real Challengee Black South Africans Pace," article addressed to 

Israeli Government at Tel Aviv, August 1986 763 

Memorandum presented to Shimon Perea, Prime Minister of Israel at Tel 

Aviv, August 1985 760 

Memorandum presented to Yitzhak Shamir. Foreign Minister of Israel at 

Tel Aviv, August 1985 774 

Address at the Symposium entitled, "Natal/Rwazulu — 2000," held on 

August 17, 1985 786 

"BriefingB on the Current South African Situation," article submitted to 

Israel on August 1986 792 

Clarion Call: 

"Disinvestment— As the Numbers of Unemployed Grow, What Do Black 

Workers Want?" volume 1, 1986 800 

"The Buthelezi Commission." volume 2, 1986 812 



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THE ANTI-APARTHEID ACT OF 1985 



TUESDAY, APRIL 16, 1985 

U.S. Senate, 
CoHMirrEE ON Banking, Housing, and Urban Aftairs, 

WashiTigton, DC. 
The committee met at 11 a.m., in room SD-538, Dirksen Senate 
Office Building, Senator John Heinz presiding. 

Present: Senators Heinz, Gorton, Mattingly, Hecht, Proxmire, 
Cranston, Sarbanes, Dodd, and Dixon. 
Also present: Senators Kennedy and Weicker. 

OPENING STATEMENT OF SENATOR HEINZ 

Senator Heinz. Ladies and gentlemen, this hearing of the Senate 
Banking Committee will come to order. 

This hefiring inaugurates the Senate Banking Committee's 
review of the problem of South Africa euid also stands as a reflec- 
tion of our determination that some action by the U.S. Gtovemment 
to bring an end to the policy of apartheid is both necessary and ap- 
propriate. 

Eioth Congress and the executive branch have over several ad- 
ministrations spent considerable time attacking and condemning 
the moral outrage that we call apartheid. For the past 4 years the 
United States has practiced the policy of constructive engagement 
attempting to persuade the South African Government to end its 
racist practices and bring justice to its people. 

The results of our efforts, in my judgment, have been negligible 
at best. The failure of the South Africeui Government to make 
more than token gestures in response to pressure has perpetuated 
an intolerable situation. 

Blacks in South Africa continue to be denied any meaningful 
role in the political life of their country; the forced relocation of 
blacks to artificially defined homelands continues unabated. The 
recent violence and tragic death of 19 black South Africans was 
condemned by the Senate by its overwhel^iing passage of Senate 
Joint Resolution 96 which indicates a deteriorating domestic situa- 
tion. 

■Hie frustration of the black community can only lead to more vi- 
olence which in turn can only elicit more repression from a govern- 
ment struggling to maintain a stranglehold on the vast majority of 
its people. 

South Africa is the only country that has legalized and institu-- 
tionalized racism as an element of public policy and that fact alone I 
imposes a burden upon us to respond in legal terms, not just in rhe-r 
toned terms. 

(1) 



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As a result, it's become clear that the United States can no 
longer accept improvement in the conditions in South Africa on a 
timetable to be proposed by the South African Government. The 
question we must come to terms with is how to proceed beyond con- 
structive engagement without sacrificing our leverage to bring 
about the final outcome we all desire — an end to apartheid. 

Having stated the need to move beyond constructive enge^ement, 
let me be clear about the fact that I have reservations about the 
legislation that is the subject of today's hearings. I have supported 
parts of S. 635 in the past, including immediate sanctions, emd plan 
to do so again in the future. 

I regret, however, that amidst the strong Sullivan principle that 
passed the Senate last year I am concerned that the bill in its 
present form may deny the United States the ability to play a long- 
term meaningful role in bringing an end to apartheid, but I can 
however surest some criteria we ought to keep in mind while re- 
viewing proposals for action. 

First, we should remember that it is the South African Govern- 
ment that is the originator and the sustainer of apartheid. Our ac- 
tions therefore should focus on that Government. 

Second, as a corollary to that, we should avoid actions that have 
; an adverse impact on South Africa's black majority. While our 
long-term objective must be the abolition of apartheid, we must not 
forget that the short-term economic problems of South Africa's 
blacks are reai and we should seek to avoid actions that contribute 
to those problems. 

Third, our objective is to change policy and practice in South 
Africa. Sanctions are an appropriate means to that end but we 
should avoid any punitive approach which, though in the near 
term makes us feel better, in practice leads to a premature abdica- 
tion of U.S. influence and responsibility for ending apartheid. 

Fourth and finally, American business has made a positive 
impact in attempting to undermine the ability of the South African 
Government to deny economic opportunity to its black population. 
To reinforce that, we should insist that Americans doing business 
in South Africa uphold and maintain American standards in their 
own practices and that they make clear their own objection to 
apartheid. We can impose limitations on those that do not cooper- 
ate. It is therefore legitimate to ask Americem businesses to be an 
aggressive agent against apartheid in South Africa. However, it is 
not, in my judgment, legitimate to ask them to bear the full brunt 
of implementing our policy and to pay the full cost of South Africa 
failure to change. 

The purpose of today's hearings and of those which follow is to 
examine various proposals for actions against South Africa, par- 
ticularly those contained in S. 635 which has been referred to this 
committee. My own study and conclusions will be conducted in the 
light of the criteria which I have just listed and the testimony we 
receive. 

At the conclusion of our deliberations I hope we will be in a posi- 
tion to move forward on l^islation that can obtain broad support 
from both parties, from both Houses of Ck>ngre8s, and the Presi- 
dent. 



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As I said last year, we have had more than enoi^h rhetoric on 
the subject of South Africa. Our goal at this point is to change 
South African policy in a timely manner. That is best achieved 
through solid, carefully drafted legislation that the vast mf^ority of 
Americans can support and which the President will sign into law. 
The alternative is emother pointless political exercise that will 
leave volumes of empty words and little else. That's what I hope 
we certainly avoid. 

Senator Hecht 

OPENING STATEMENT OP SENATOR HECHT 

Senator Hecht. Thank you, Mr. Chairman. 

I want to take this opportunity to compliment you on holding 
this hearing today, the first in a series of hearings on proposed leg- 
islation to implement sanctions against the Government and the 
people of South Africa. 

Let me begin by saying that I am opposed to the type of l^sla- 
tion before us today which seeks to impose economic sanctions 
against South Africa. This is not to say that I support the apart- . 
heid policies of the South Africa Government because that is far 
from the truth. These policies are indeed imperfect and as Presi- 
dent Reagan has stated, repugnant. 

Where my position differs with the advocates of such legislation 
is the methods and policies the United States should adopt to foster 
change in this system. 

Mr. Chfurman, it is a beisic fact that the majority of South Afri- 
cans remain without the fundamental human right of citizenship 
in their own country. This fact cannot be denied. However, it is im- 
portant to point out the dramatic prc^ess that has been made over 
the past decade. Positive changes are occurring in black education 
and housing, in labor law and trade unionism, in black urban resi- 
dency rights, the extension of political r^hts to the colored and 
AsiEin community. 

There is also the basic fact that South Africa's wide electorate 
has given solid backing to a government that is committed to 
peaceful evolutionary change. We should not be imposing broad- 
based economic sanctions against South Africa. We should be work- 
ing to encourage the types of positive changes that are occurring 
there. 

Elconomic seuictions do not work. They never have and, in my 
opinion, never will. The types of actions suggested by this legisla- 
tion would only serve to hurt the very people they are designed to 
assist. By condemning South Africa by withdrawing American in- 
vestment, the United States would only spawn an armed conflict. 
We didn't like the Shah of Iran and we ended up with Khomeni. 
We didn't like Diem and we ended up with a war in Vietnam. 
South Africa has been our friend. If we reject them, then we could 
possibly end up with a Communist government. 

Thank you, Mr. Chairman. 

Senator Heinz. Senator Hecht, thank you very much. 

Senator Cranston. 



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OPENING STATEMENT OF SENATOR CRANSTON 

Senator Cranston. Thank you very much, Mr. Chairman. 
It's a pleasure to join in welcoming my friends and colleagues, 
Ted Kennedy and Lowell Weicker, before this committee. I am 

E leased to join with them as cosponsor of S. 635 and I applaud their 
ipartisan leadership on the issue of South Africa's apartheid. 

As we consider the measure before us today I believe it is essen- 
tial for us to remember exactly what has brought us here. We are 
here today because an unspeakable wrong is being committed to 
millions of human beings each day in South Africa. We are here 
today because we have a moral obligation to speak and to use such 
power as we have to act against this wrong. 

We are here today to help translate the deep concern expressed 
by millions of Americans into action and we are here today to ad- 
vance the national interest of our own country which require us to 
distance the U.S. Government from the repugnant apar^eid 
regime of South Africa. 

I feel very strongly that the time has come for us to move beyond 
_ strong words and to enact strong legislation. As one who worked 
* for nearly 2 years in that marathon Export Administration Act 
conference to try to achieve such legislation, I want to express my 
admiration to John Heinz for calling these hearings and bringing 
us to focus on this issue once again. I know he shares my belief 
that it is time to act. 

This need not be a partisan issue and it is not. The Republicans 
and Democrats alike have come to the conclusion that it is time to 
enact legislation. The principal purpose of this legislation must be 
to apply pressure to end apartheid where pressure is most 
needed — on the white minority of South Africa — to monopolize the 
political and economic power to oppress 23 million native South Af- 
rican blacks. 

We have already made some important progress on this issue in 
the Senate Foreign Relations Committee. Acting under bipartisan 
pressures from Senator Mathias, Senator Sarbanes, and myself, the 
Foreign Relations Committee last month became the first Senate 
body to adopt a package of economic sanctions against the apart- 
heid regime. 

We adopted by an overwhelming 16-to-l vote what in essence is 
the Kennedy-Weicker measure before us, except the Foreign Rela- 
tions Committee bill has a 24-month delay in the application of 
those sanctions. This was an historic vote and a good beginning. I 
hope the Banking Committee can try to better this effort with 
stronger legislation to take effect even more swiftly. 

Thank you very much. 

Senator Heinz. Thank you. Senator Cranston. 

Senator Mattingly. 

OPENING STATEMENT OF SENATOR MATTINGLY 

Senator Mattingly. Thank you, Mr. Chairman. 

I appreciate the opportunity that you and the distinguished 
ranking member of the committee have provided to comment on 
one of the truly central issues of human rights and human dignity 
that confront us in today's world. I applaud the initiative of my 



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Senate colleagues in introducing S. 635 and although I have signifi- 
cant reservations about several of the bill's m^or provisions, I 
have no reservation in standing with its sponsors in recognizing 
that the United States is morEdly bound to play a central role in 
the effort to bring peaceful change in South Africa. 

In fact, those of us who have often condemned human rights vio- 
lations by the Soviet Union perpetrated by the Government against 
Soviet Jewry and against those who languish in the Gulag should 
be at the front of the efforts being made to draw attention to the 
plight of South Africa's blacks and should play a key role in struc- 
turing the U.S. response to recent events. 

Indeed, it is my hope that such a united, coordinated effort would 
be applied to the redress of human rights violations no matter 
where they occur whether it be the Soviet Union, Afghanistan, 
South Africa, or any other place where such crimes occur. 

It goes without saying that the involvement of the President is 
central to the success of such an effort. 

Thank you, Mr. Chairman. 

Senator Heinz. Senator Mattingly, thank you very much. 

I'd like to ask our first two witnesses. Senators Kennedy and 
Weicker, to come up to the witness table. Gentlemen, we welcome 
you both. We commend you on your legislative initiative, S. 635. 
We welcome you to this committee. We don't often see you here. I 

ress perhaps we will not only see more but hear more of you and 
635 in the weeks to come. 'This is probably going to be just one of 
several hearings. 

We are somewhat limited today by time constraints. Senator 
Weicker, I think you or Senator Kennedy can go first. 

Senator Weicker. Mr. Chairman, the initiative came from Sena- 
tor Kennedy and I would like him to go ahead and testify first. 
Senator Heinz. All right. Senator Kennedy. 

STATEMENT OF EDWARD M. KENNEDY, U.S. SENATOR FROM THE 
STATE OF MASSACHUSETTS 

Senator Kennedy. Thank you very much, Mr. Chairman. 

I first of all want to express my very deep sense of appreciation 
to you and to the members of this committee for holding these 
hearings and for giving an opportunity to Members of the Senate 
and to others to express themselves on this extremely important 
issue that so many millions of Americans care very deeply about. I 
feel, having heard you, Mr. Chairman, and other members of the 
committee, that it is the sense of this committee that the time for 
talk has passed and that now is the time for action. The proposal 
that Senator Weicker and I have introduced, we believe, is a signif- 
icant but measured legislative proposal to respond to some of the 
actions that have been taken by the South African Government 
and to express the concern and real outrage of the Members of 
Congress and the American people at the continuation of a policy 
which we find so hostile and alien to every value that we believe 
in. 

I would like, Mr. Cheurman, to summarize my statement but in- 
clude it in its entirety in the record. 



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In my statement, I outline in some detail what this particular 
proposal is. First, it prohibits new U.S. hank loans to the Govern- 
ment of South Africa and government entities in that country. 
Second, it restricts the new investment by U.S. firms in South 
Africa, including new bank loans to the private sector of that coun- 
try. Third, it prohibits the importation of the South African gold 
coin, the krugerrand, into the United States; and Anally, it forbids 
the future sales of computers to the Government of South Africa. 

In an addendum, we have outlined in some detail what the eco- 
nomic impact will be on the Government of South AJfrica, and I 
would request that it also be made part of the record. 

CONDITIONS IN SOUTH AFRICA 

Now, Mr. Chairman, I had the opportunity of spending 9 days in 
South Africa, and I'd like to make just a few general observations 
about the conditions that I saw there. 

First, Mr. Chairman, there is an extraordinary increase in polar- 
ization, polarization between the blacks and the whites, polariza- 
tion between the various groups in that society. That's No. 1. 

Two, the active groups in South Africa have become much more 
radicalized. The concept of using traditional tools of nonviolence to 
try and achieve political objectives is rapidly disappearing, and 
there is an increasing reliance on radical solutions in South Africa, 
That is something that I think is extraordinarily important. 

Third, Mr. Chairman, is the increasing hostility toward the 
United States. My brother, Robert Kennedy, visited South Africa in 
1966. At that time the United States was looked on as a model, a 
way in which those that had been oppressed by apartheid in South 
Africa could achieve equal opportunity even in South Africa be- 
cause of the success of the civil rights movement here in the 
United States where we had courageous church leaders, such as 
Martin Luther King and many others, who believed in nonviolence. 
We had courageous business and labor representatives who be- 
lieved in nonviolence and progress. We had courageous fifth circuit 
judges appointed by a Republican President who understood the 
threat to individual rights, and liberties, and were prepared to rule 
to protect individuals when these rights and liberties were threat- 
ened and we had the Constitution of the United States with the 
14th amendment to guarantee those rights. 

When Robert Kennedy visited South Africa, the United States 
was recognized as a role model for millions of whites and blacks 
alike for being able to achieve some of the most basic and funda- 
mental rights. The United States had faced this issue, and we had 
really set an example for the world. 

HOSTILITY TO THE UNITED STATES INCREASING 

That concept and model has been crushed, dashed, and de- 
stroyed, Mr. Chairman. The United States now is thoroughly and 
completely identified with the policy of constructive engagement 
which is, as Bishop Tutu has stated, an unmitigated disaster. 
Winnie Mendela, the wife of Nelson Mendela, said to me, "Go back 
and tell the Americans that the policy of constructive engagement 
is a shoulder to the wheel of apartheid." The hostility to the 



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United States is increasing dramatically. And the United States, I 
fear, Mr. Chairman, is in a dangerous position. We have not only 
lost the rightful position as a moral leader on the questions of 
rights and liberties, but also we endanger our position in South 
Africa for the future. South Africa will be free some day and, make 
no mistake about it, those in that government when it is free are 
going to ask whether the United States was the last country to go 
down with apartheid. And it certainly appears to blacks in South 
Africa today that this is the case. 

During my trip, I saw the faces of apartheid in a number of dif- 
ferent ways, and I'll just describe them very briefly. 

In Soweto, in the single sex barracks, there are individuals who 
have lived in those barracks for 20 years, separated from their fam- 
ilies with the exception of 3 weeks out of every year, by rule of law 
because of the color of his skin. 

In Mathopostad, citizens whose families have lived in that rural 
community for over 140 years go to bed every night fearing that 
the trucks are going to come, and that they are going to be forcibly 
removed and resettled in places like Onverwacht, where over 
250,000 people have been settled, where the unemployment is often 
in excess of 50 percent, and which has the highest infant mortality 
rate not only in Africa but in the world, in the shadow of some of 
the finest medical facilities in the world. 

I met with black students who are denied equality — or even close 
to equality — in terms of education. I met individuals who had been 
forcibly detained with no right to trial. 

The faces of apartheid, Mr. Chairman, are reflected in the pass 
laws and the influx control laws, the Group Areas Act and the 
whole range of different legal mechanisms which operate in every 
aspect of their lives, in social, political, economic ways and in the 
judicial process in South Africa. This face of apartheid, Mr. Chair- 
man, has not been improved in the period of the last 40 years but 
actually gotten uglier. 

I read this morning about the change in the laws permitting 
interracial marriage. It is a step in the right direction but it is too 
little, too late, Mr. Chairman. And for those who talk about con- 
structive engagement as being something which has moved the 
process, I ask them, has South Africa started to dismantle the 
policy of denationalization? They have not. Ask them, have they 
started to dismantle the pass laws? They have not. Have they start- 
ed to dismantle the influx control laws? They have not. And, Mr. 
Chairman, in asking whether there has been progress, I don't be- 
lieve that there is any individual in that country who believes that 
there's been progress until you stop this process of dehumanization. 

The final point I would just like to make, Mr. Chairman, has to 
do with the question about economic progress in South Africa, and 
what we have seen during recent times. 

The fact is that South Africa has had a relative d^ree of pros- 
perity during recent years, and yet there has been no change in the 
essential aspects of apartheid — none — virtually none. 



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WHIP AND LASH OF APARTHEID 

For those that are concerned about what poasible implications 
there would be about this legislation, I found to an extraordinary 
degree that the citizens who are being denied, which is close to 90 
percent of the people in that country, when they hear about the 
fact that potentially they may lose some emplojonent opportunity, 
they say: 

Our children are Buffering today because they are dying before they reach child- 
hood. We are suffering today because we are serarated from our families. We are 
Buffering toda^ because we fear being uprooted. We are aufFering today because we 
have no political rights and we're sent to the homelands. We are suffering today 
because we still have high unetoployment in these various areas. We just hope, Sen- 
ator, that you will tell the Americans that we hope our children will not nave to 
fear the whip and the lash of apartheid. And we would hope that the United States 
will take the steps to try and permit us to resolve our own problems. 

They are going to have to solve their own problems, but there is 
absolutely no reason why the United States ought to have a contin- 
ued policy of helping and assisting apartheid. This legislation is 
aimed at the Government of South Africa, which is the entity that 
defends and administrates the policy of apartheid. It does not deal 
with some of the other issues that are in the public dialog and dis- 
cussion, such as disinvestment. 

In my statement I comment on the Sullivan principles £ind their 
impact on American industry, and I'll be glad to respond to any 
other questions on that. 

I would hope this committee would see an early consideration of 
this legislation and a successful passage of it, Emd I would ask that 
my full statement be included in the record. 

Senator Heinz. Without objection. Senator Kennedy, thank you 
for your statement. 

[The complete prepared statement and copy of proposed bill S. 
635 follow:] 

Statement op Senator Edwakd M. Kennedy 

Mr. Chairman, I want to thank you for the opportunity to appear before you 
today to testify in support of the Anti-ApariJieid Act of 1985, S. 635. I also want to 
compliment you— ana your distinguished ranking member, Senator Proxmire — on 
the speed with which you have turned your attention to this important legislation. I 
know that you share our strong feelings about the system of apartheid, and I hope 
you will agree with me that today it is not enoi^h to have strong feelings or to 
make strong statements. It is time for the United States of America to match our 
words with deeds. 

Your decision to hold these hearings today— and to hold further hearings on this 
legislation at a later date — sends a signal to the Government of South Africa that 
apartheid is not a partisan issue in this country, that the people of the Unit«d 
States are in fact united and determined in their commitment to do what they can 
to assist in the effort to achieve peaceful change and an end to apartheid in South 

The Anti-Apartheid Act of 1985 has four basic provisions: 

First, it prohibits new United Steles bank loans to the Government of South 
Africa and to Government entities in that country: 

Second, it restricts new investment by U.S. firms in South Africa, including new 
bank loans to the private sector of that country; 

Third, it prohibite the importation of South African gold coins, krugerrands, into 
the United Stetes; and 

Finally, it forbids the future sale of computers to the Government of South Africa. 

We have prepared fact sheets on the impact of these measures on American fi- 
nancial institutions as well as their effect on the South African economy, and I 
would like to submit this material for the record for future reference. 



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As you know, I spent 9 days inside South Africa last January at the invitation of 
Bishop Desmond Tutu and Rev. Allan Boesak. The purpose of my trip was to exam- 
ine the conditions of life for black people living under apartheid inside South Africa, 
and to see how the United States can beet use its influence in the effort to achieve 
peaceful change and racial harmony within that country. My experience there, after 
traveling through South Africa and talking to a wide spectrum of black and white 
South Africans, convinces me that this legislation is necessary, and that it is the 
minimum that Congresa should do in moving the United States toward a more 
active and effective policy to end apartheid in South Africa. 

During ray trip, I found that the polarization between the racial groups in South 
Africa has reached dangerous proportions. The fear and insecurity among whites Is 
pervasive; the suspicion and distrust among blacks is deep and now almost impossi- 
ble to overcome. The situation is deteriorating, and the escalating level of violence 
in that society, which in the past year has taken the lives of 250 hlack people, may 
now be reaching the point of no return. The General Secretary of the South African 
Council of Churches, Rev. Beyers Naude, predicted last week that, "This year will 
bring more polarization between the white ruling classes and the mfyority of the 
people, more clashes between the police and striking students and workers, more 
injuries and deaths." 

In addition to this increasing polarization, there is also a much greater willing- 
ness in the black community to embrace radical solutions, to reject nonviolence, to 
reject coalitions with whites, to reject democratic ideals and Western economic 
models — and worst of all for the future of American policy in Africa, to reject the 
United States. 

It is no secret that the United States is now despised by large numbers of blacks 
inside South Africa. Twenty years ago, when Robert Kennedy traveled to South 
Africa, the United States was welcomed as an ally in the struggle for racial justice 
in that country, but we are now perceived to l>e participants in the oppression of the 
black majority. The United States is seen by black South Africans as the South Afri- 
can Government's closest friend in the international community, and the policy of 
"constructive engagement" is seen as providing aid and comfort to the architects of 

aiartheid. As Winnie Mandela said to me during our visit, 'Tell the people of the 
nited States that constructive engagement is just another shoulder to the wheel of 
apartheid." And as Beyere Naude has warned; "Do not be surprised if the anger of 
black South Africans eventually turns to hatred or rejection of an American pres- 
ence in Africa." 

In proposing this l^pslation, we have been guided by a number of judgments. 

First, the policy of "constructive engagement" and quiet diplomacy has been, to 
use Bishop Tutu's words, "an unmitigated disaster." That policy must be ended. As 
the President of Harvard University. Derek Bok, recently wrote: "Our current poli- 
cies are easily mistaken for tacit acquiescence in a status quo that offends our most 
precious ideals and threatens to deteriorate in growing violence and instability." 
This le^lation is designed to provide the United States with an active, not a pas- 
sive, policy against apartheid. 

Second, to implement this policy, the United States should take immediate, con- 
crete steps to demonstrate this country's vigorous opposition to apartheid. Those 
steps must be practical, not just rhetorical, and they must be strong enough to com- 
municate the depth of our Nation's commitment. This legislation contains such 



Third, the United States should direct its energies and actions primarily toward 
changing the policies of the Government of South Africa. While there is much to be 
said for efforts to improve the conduct of American corporations doing business 
inside South Africa and to use those corporations as instruments of change inside 
that country, such efforts are inevitably limited in their scope, indirect in their ef- 
fects and slow in achieving broad results. I admire thq.£x}:raord)nary work that Rev. 
Leon Sullivan and his signatory companies have done over the past 7 years. But 
it is the Government of South Africa that is the primary enforcer of apariheid; 
without fundamental change in that Government's approach, there can be little 
hope for peaceful change. 

Pourth.lwe must recognize that the United States cannot dictate to the people of 
South Africa, and we cannot impose a solution to South Africa's problems from the 
outside. South Africans — black and white — will make the decisions that determine 
that nation's future. If the United States wants to encourage reform there, it must 
b^n to distance itself more clearly from apartheid, and to align itself more closely 
with the initiatives of the black majority. \We should also support the pressures for 

Cceful change coming from the business community and opposition leaders in Par- 
nent. Our Nation's policies should signal our Nation's support for the churches. 



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10 

the independent labor unions, the UDF, and community oi^anizations committed to 
peaceful change. Our legialation is consistent with this approach. 

Fifth, we should pursue policies that do not inflict significant hardships on inno- 
cent persons. We recognize that there are those who oppose any economic sanctions 
because of the potentially adverse effect on the black population of South Africa. 
This legislation has been carefully designed t^i avoid any such impact. This legisla- 
tion does not call for divestment; it will not throw any blacks out of work or impede 
the progress of independent black trade unions. 

Finally, the United States should take steps to reduce the active complicity of 
Americans in the apartheid system. While we can debate whether the presence of 
American corporations inside South Africa has been helpful in the effort to end 
apartheid, the United States should not permit further direct funding of the apart- 
heid system — either through loans to the Government of South Africa, or through 
. the purchase of South African kruggerands in the United States. Every bank loan 
, to the Government, every purchase of a krugerrand, is a symbolic— and economic — 
gesture of American support for apartheid, and the time has come to halt such sup- 
port. 

' Moreover, the history of South Africa refutes the argument that an ever expand- 
ing South African economy is the surest path to peaceful change and political 
reform. As Prof. Stanley Greenberg of Yale nas written: "This easy association be- 
tween economic growth and political reform lacks an historic foundation in South 
Africa; more than a century of industrial development has been accompanied by 
more, not less, racial discrimination." 

Contrary to official pronouncements by the South African Government, the 
United States has substantial leverage inside South Africa. While I was in South 
Africa, I heard a universal refrain from Govemment Ministers, "We do not care 
what the United States does or says. We will decide for ourselves, and we will pro- 
ceed at our own pace." But their extreme interest in and concern about events 
inside the United States, with the demonstrations at the South African Embassy, 
and with the divestment campaign, was evidence that most South Africans care 
very deeply about what Americans think, do and say about apartheid. Sadly, we are 
perceived as the last friend they have, their last chance to hold the line against sub- 
stantial change. 

The United States cannot have it both ways. We cannot remain a friend of apart- 
heid, and also remain true to our founding principles. The Anti-Apartheid Act of 
1985 will send an important message, not only to the 23 million black people of 
South Africa, but to oppressed people tiiroughout the world that America is truly on 
•.the side of human rights, liberty and justice for all. 
' Before concluding, 1 would like to address the arguments of some apolt^ists for 
the South African Government that there has in fact been change inside South 
Africa, and that the white leadership of that country is committed to fundamental 
reform. My experience in South Africa suggests otherwise. The conditions of life for 
most black people in South Africa are appalling and have become worse, not better, 
in recent years, and the system of apartheid has become more pervasive and perni- 
cious than ever before. 

Black people in South Africa are still barred from any significant role in the eco- 
nomic, political, or social life of the country for no reason other than that the^ are 
black. For black South Africans, color is still the single most powerful determinant 
of their lives. Where they live, where and how they travel, what they read or see or 
hear, who they meet, how they are educated, what they do for a living, how much 
money they earn, what property they own. what kind of medical care is available, 
where they worship, what they can hope to achieve for themselves and for the mem- 
bers of their families — all of these fundamental issues in the life of any human 
being are. for black South Africans, still sharply curtailed and carefully controlled 
by the system of apartheid, gajism is the overwhelming fact of life for every black 
person in South Africa today. In this respect, there has been no change, and certain- 
ly there has been no improvement, in the lives of most black people in South Africa 
over the past 40 years. And in recent years, the structures and the strictures of 
apartheid have increased, not declined. The policies and institutions of apartheid 
have become more sophisticated, more effective and more entrenched. Few blacks in 
South Africa today would dispute the notion that apartheid as a political and social 
system of institutionalized racism is now worse than it ever was, and that the mech- 
anisms of control are more comprehensive and more effective than ever before. 

The system of migratory labor now operates with computerized efficiency toguar- 
antee a large pool of poor, unskilled, low-qbst black workers for the large, affluent 
white communities in the major cities. Black families are forced to live in inhospita- 
ble, economically unproductive homelands, while the male workers live for 49 weeks 



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11 

of the year in eingle^ex, barrack-style hoetcls, like the Nancefield hostel that t vis- 
ited in Soweto. These hostels are located in black townships just outside the urtmn 
centers of the nation, and the workers are transported each day into the city to per- 
form menial tasks. This sophisticated and technologically well-ordered system of 
state-run labor divides families, depresses wages and guarantees an ever-ready, trou- 
ble-free supply of plentiful and cheap manual labor to service the needs of the white 
society. Individual records of all roistered black South African workers have been 
Ic^fged into computers, thereby guaranteeing a high degree of political and economic 
reliability for potential employers. 

I visited a man who had lived for 20 years in the Nancefield Hostel, where the 
living conditions are a disgrace. He was able to see his family in the Ciskei once a 
year, and in his 20 years of labor, he had been able to save only $265, Neither the 
policy of "constructive engagement" nor the Government's s(>oalled program of 
reform has changed this system of migratory labor. 

In addition, the resettlement camps continue to grow, with entire areas like the 
Ciskei being transformed into one immense resettlement camp. In these camps, such 
as the one I visited in Onverwacht. unemployment hovers around 50 percent, and 
the conditions of daily life are inhuman. In some camps, the climate is bo haish, the 
people so poor, the shelter so sparse and the basic human services so meager that 
the infant mortality rate for children during their first year of life frequently ex- 
ceeds 40 percent. 

The pass laws still operate and are still enforced with fmes and jail terms, but 
these laws are now applied with an unprecedented efficiency achieved only by com- 
puters. The number of arrests for violations of pass laws doubled from 1980 to more 
than 200,000 annually in 1982 and 1983. Scores of black people are sentenced every 
morning in the courte of Johannesburg to "10 rands or 10 days." 

Until recently, forced relocations of black communities continued to occur, so that 
many families that had lived in their towns for four generations or more — like those 
I met in Mathopostad — face the daily possibility that the soldiers will arrive with 
trucks and bulldozers, and the entire community will be uprooted and moved to a 
strange and distant place. Since 1960, under this policy, 3f^ million blacks have 
been forcibly removed from "white areas." 

The homelands policy and the pernicious practice of "denationalizing" black 
South Africans continues. Since 1976, more than 8 million Africans have been de- 
prived of their South African citizenship because of this policy, and between 1960 
and 1980, the proportion of the African population afTicially residing in the home- 
lands increased from 40 to 53 percent. 

Politically, apartheid is now part of the constitutional structure of the South Afri- 
can state. Before the new constitution was adopted, the exclusion of blacks from 
participation in the political life of the country was a matter of legislation that 
could be modified or repealed by Parliament; but blacks are now excluded constitu- 
tionally from playii^ any role in the national government. For blacks, the new con- 
stitution was a m^or step backward, a further entrenchment of apartheid. 

The South African Government argues that the conditions of life for black South 
Africans are better than for black people in other African nations. Even if this were 
true — and in health care, employment, and poverty levels among rural blacks, it is 
demonstrably untrue — it is irrelevant for black South Africans. They regard them- 
selves as South African citizens entitled to have a fair share in the economic bene- 
dte that accrue to the nation as a whole. They justifiably compare themselves to 
other South African citizens — and in that comparison there is no real dispute. In 
contrast to the comfortable lives of whites in South Africa, blacks live in squalor 
and misery. 

In fact, the economic conditions for most black people have become worse, not 
better in recent years. According to the Carnegie Foundation's Second Inquiry on 
Poverty in South Africa, there has been an increase in poverty among South Afri- 
ca's rural black population since 1960. According to this study the dimensions of 
poverty inside South Africa have been "decisively affected by apartheid," particular- 
ly the land laws, the pass laws, and the housing policies of the Government. For 
example, the number of people made destitute by landlessness and unemployment 
rose from 250,000 in 1960 to 1.43 million in 1980, and the number of people living 
below the poverty line increased from 4,9 million to 8.9 million. The proportion of 
the population receiving no visible income at all rose from 5 to 13 percent between 
1960 and 1980. According to the Director of the Carnegie Inquiry, Prof. Francis 
Wilson of the University of Capetown, "The people who are poor in this country are 
poor because they are on the wrong side of apartheid." 



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Summary or S, 635— The Anti-Apartheid Actt op 1985 

First, it prohibits new United States bank loans to the Government of South 

Africa or to any other governmental entities in South Africa, such as the so<a]led 

homelands or any Government-controlled corporations. This prohibition does not 
apply to loans for educational, housing or health facilities available to all South Af- 
ricans on a nondiscriminatory basis. 

Second, it prohibits new investment by U.S. firms in South Africa. Under this pro- 
vision, the establishment of new enterprises or the expansion of existing enterprises 
in South Africa would be prohibited. New loans from United States banks to pri- 
vate, nongovernmental entities in South Africa would also be prohibited. Reinvest- 
ment of earnings from existing business operations in South Africa would not be 
affected. These provisions are subject to a waiver, as described below, based on 
progress toward ending apartheid. 

Third, it prohibits the importation of South African gold coins, called "kruger- 
rands," into the United States. Krugerrands already in circulation in this country 
would not be affected. This restriction is also subject to a waiver, as described below, 
based on progress toward ending apartheid. 

Fourth, it prohibits United States computer soles ta the Government of South 
Africa or to any governmental entities; the prohibition also covers spare paris and 
services for computers. 

Waiver: The President, with the consent of Congress, may waive the second and 



third prohibitions, relatii^ to new investment and the importation of South African 
krugerrands into the United States, if any one of the following eight steps toward 
ending apartheid is met: 

(1) South Africa ends its discriminatory migratory labor system, and permits the 
families of black employees to live near their place of employment. 

(2) South Africa en(^ its restrictive employment system, and permits blacks to 
seek jobs in any part of South Africa and to live wherever they find jobs, 

(3) South Africa eliminates its denationalization policy, by which blacks are 
denied citizenship in South Africa, and are made involuntary citizens of the "home- 

(4) South Africa ends its forced relocation policy, under which blacks are forcibly 
uprooted from areas designated for whites. 

(5) S^uth Africa eliminates all residence restrictions based on race or ethnic 

(61 South Africa enters negotiations with black leaders to end apartheid and 
achieve full participation of blacks in the social, political, and economic life of that 
country. 

(71 An internationally recognized settlement for Namibia is achieved. 

(S) South Africa frees all political prisoners. 

International Cooperation: Finally, the legislation directs the President to work 
through the United Nations and with other countries to persuade the world commu- 
nity to adopt similar economic sanctions against South Airica. 

House Bill: Identical legislation (H.R. 1460) has been introduced in the House of 
Representatives by Congressman Bill Gray (D., PA). 

Fact- Sheet on the Impact of the Anti-Apaktheto Act of 1985 



. The total value of all United States loans to all South African borrowers for 1984 
is roughly $4.6 billion. The top nine U.S. banks account for $2.9 billion. 

Loans outstanding in 1984 to the South African public sector by all United States 
banks totaled $374 million. United States bank Tmancing for the South African 
public sector has declined by more than 50 percent since 1978. 

United States lending to the South African public sector represents only 5 percent 
of South African public debt to foreign lenders. 

At least two other countries — Japan and Sweden — have adopted policies prohibit- 
ing their financial institutions from extending credit to South African Government 
entities. 

Many U.S. educational institutions, e.g., Harvard, Yale, Columbia and Stanford, 
have divested holdings in banks that extend credit to the South African Govern- 
ment. 

And 26 U.S. banks have independently adopted a policyprohibiting bank loans to 
the South African public sector. Among those banks are: Chase Manhattan, Bank of 
America, Chemical Bank, Bankers Trust, First National Bank of Boston, Mellon, 



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COUPUTER SALES TO THE SOUTH AFRICAN 

The total sales of United States computers to South African entities in 1984 — 
public and private — was S184.6 million. United States companies dominate the 
South African computer market, supplying TO percent of all computers to that coun- 

IBM is the single largest U.S. computer company doing business in South Africa, 
and it has the largest share of the South African computer market IBM has stated 
that, of all their computer sales in South Africa, less than one-sixth of thoee sales 
' are to the South African Government, 

If other companies adhere to the IBM pattern, total United States sales to the 
South African Government would be approximately $30.8 million annually. 

Note. — The United States currently reviews computer sales to South African Gov- 
ernment departments that administer apartheid to determine whether the comput- 
ers in question will be used to enforce apartheid, and the U.S. Government also re- 
'views computer sales to South Africa's military and police to determine whether 
they will contribute to military and police functions. 

But these controls are not sufficient. 

In 1982, the administration terminated all controls on sales of a wide range of 
persona] computers to South African military, police, and other agencies that en- 
force apartheid. And, under these current controls, a number of highly controversial 
computer licenses have been granted. For example, the U.S. licensed sale of two 
computers useful for nuclear weapons development to a South African Government 
controlled research institute and the sale of a sophisticated computer to an arms 
manufacturer. South Africa has also become a channel for illegal computer sales to 
the Soviet Union. A Defense Department official recently commented that a sophis- 
ticated computer transhipped from South Africa to Germany destined for the 
U,S.S.R. should never have been sold to South Africa in the first place. 

This lesislation, if enacted, is only slightly stronger than the provision that exist- 
ed in 19^. 



Krugerrands are named after the "father" of apartheid, Paul Kniger, and are the 
best known coin in the worid. 

Kn^errands were first minted in 196T and were the first gold coin to contain ex- 
actly one ounce of gold. They are the most widely held gold coin in the world. The 
availability of krugerrands makes gold ownership more accessible to more investors 
and thereby increases demand for one of South Africa's major exports. 

The coin is a Joint effort of the South African Chamber of Mines— a consortium of 
mining companies— and the South African Government. They sell at a 3- to 4-per- 
cent premium over the price of an equivalent amount of gold. The Government 
taxes the production and sale of gold, through which it obtains a significant propor- 
tion of its revenue. In 1981, the South African Government received 24 percent of 
its revenue from gold sales, 15 percent in 19S2. The variation is due to the volatile 
nature of gold prices. 

The South African Government earns 40-50 percent of its foreign exchange 
through gold sales. 

The coins are distributed worldwide through 14 "primary" distributors. Three of 
those distributors are in the United States. According to the U.S. Treasury, for the 
5-year period 1978 through 1983, the United States accounted for an average 87 per- 
cent of all South African coin exports with an average value of $558,8 million. 

Many U.S. banks, such as Citibank, have already halted trading in krugerrands. 

In 1983, the sale of krugerrands inside the United States amounted to {450 mil- 
lion. In 1984, the sale of krugerrands inside the United States Jumped to approxi- 
mately $600 million. 

In 1983, direct United States investment in South Africa — measured in the cur- 
rent value of present and past investment in plants and et^uipment — amounted to 
$2.3 billion, second only to direct investment by Great Britam. This was down from 
$2.6 billion in 1982, probably because of the ongoing recession in South Africa and, 
at least in part, due to anti-apartheid activity in the United States. (In 1970, United 
States investment in South Africa was $864 million.) 



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The current level of direct United States investment in South Africa represents 
approximately 1 percent of all American foreign investment. 

There are 284 U.S. compantea operating in South Africa; 57 are among the top 
100 largest tirms in the United States, according to Fortune magazine, 123 are sig- 
natoriee to the Sullivan principles. 

United States firms reportedly control 70 percent of the South African computer 
industry, 45 percent of the oil industry, and 33 percent of the auto industry. 

Last year, American companies took out more money from South Africa than 
they invested. In 1984, there was a net flow of $49 million from South Africa to the 
United States. This was in the form of profits and dividends to U.S. companies doing 
business in South Africa. 

The manufacturing sector accounts for 45 percent of U,S, investment. 

North and South American nations account for approximately 25 percent of all 
foreign investment in South Africa, The EEC accounts for 63 percent. 

The ultimate impact of a freeze on new investment can only be measured on 
company-by-company basis. Many U.S. companies operating inside South Africa- 
such as G.M., Ford, Kodak, Kimberly Clark, and Control Data— have already adopt-j 
ed policies of no new investment in South Africa. V 

Japan, Norway, and Sweden have adopted policies prohibiting new investment in 
South Africa. 



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S.635 



To eipreM the opposition of tix United States to the aystem ol apartheid in South 
Africa, and For other purpoiei. 



IN THE SENATE OF THE UNITED STATES 

Mabch 7 flegialalive day, Febbuaby 18), 19B5 
Hr. Kbhnedv (for himself, Mr. Weickeb, Mr. Pboxhibe, Ur. Sabbakbs, Hr, 
Levin, Mr. Kebbv, Hr. Moynihan, Hr, Habt. and Hr, KtEOLE) intro- 
duced the following bill; which was read twice and referred to the Committee 
on Banking, Housing, and Urban Affairs 



A BILL 

To express the opposition of the United States to the system of 
apartheid in South Africa, and for other purposes. 

1 Be it enacted by the Senate and House of Represenla- 

2 lives of the United States of America in Congress assembled, 

3 SECTION I. SHORT TITLE. 

4 This Act may be cited as the "Anti-Apartheid Act of 

5 1985". 

6 SEC i. POUCY DECLARATIONS. 

7 The Congress makes the following declarations: 

8 (1) It is the policy of the United Stales to encour- 

9 age all nations to adopt political, economic, and social 



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2 

1 policies which guar&ntee broad human rights, civil lib- 

2 ertiea, and individual economic opportunities. 

3 (2) It is the policy of the United States to con- 

4 demn and seek the eradication of the policy of apart- 

5 heid in South Africa, a doctrine of racial separation 

6 under which rights and obligations of individuals are 

7 defined according to their racial or ethnic ori^. 

8 SEC '3. PROHIBITION ON LOANS TO THE SOUTH AFRICAN 

9 GOVERNMENT. 

10 (a) In General. — No United States person may niake 

11 any loan or other extension of credit, directly or through a 

12 foreign affiliate of that United States person, to the Govem- 

13 ment of South Africa or to any corporation, partnership, or 

14 other organization which is owned or controlled by the Gov- 

15 emment of South Africa, as determined under regulations 

16 which the President shall issue. 

17 (b) Exception fob Nondisceiminatory Facili- 

18 TIES. — The prohibition cont^ed in subsection (a) shall not 

19 apply to a loan or extension of credit for any educational, 

20 housing, or health facility which — 

21 (1) is available to all persons on a totally nondis- 

22 criminatory basis, and 

23 (2) is located in a geographic area accessible to all 

24 population groups without any legal or administrative 

25 restriction. 



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17 

3 

1 (c) Exception fob Peiob Agreements. — The prohi- 

2 bition contuned in aubsection (a) shall not apply to any loan 

3 or extension of credit for which an agreement is entered into 

4 before the date of the enactment of this Act. 

5 (d) Issuance of Regulations. — The President shall 

6 issue the regulations referred to in subsection (a) not later 

7 than ninety days after the date of the enactment of this Act. 

8 SBC. 4. RESTRICTIONS ON NEW INVESTMENTS (INCLUDING 

9 BANK LOANS). 

10 (a) President To Issue Regulations. — The Presi- 

11 dent shall, not later than ninety days after the date of the 

12 enactment of this Act, issue regulations prohibiting any 

13 United States person from maJdng, directly or through a for- 

14 eign affiliate of that United States person, any investment 

15 (including bank loans) in South Africa. 

16 (b) Exceptions Fbom Pbohibition. — The prohibi- 

17 tion contained in subsection (a) shall not apply to — 

18 (1) an investment which consists of earnings de- 

19 rived from a business enterprise in South Africa estab- 

20 Ushed before the date of the enactment of this Act and 

21 which is made in that business enterprise; or 

22 (2) the purchase, on a securities exchange regis- 

23 tered as a national securities exchange under section 6 

24 of the Securities Exchange Act of 1934, of securities 

25 in a business enterprise described in paragraph (1). 



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1 SEC. 5. GOLD COINS. 

2 (a) Pbohibition. — No person, including a bank operat- 

3 ing under the laws of the United States, may import into the 

4 United States any South African krugerrand or any other 

5 gold coin minted in South Africa or offered for sale hy the 

6 Government of South Africa. 

7 (b) United States Defined. — For purposes of this 

8 section, the term "United States" includes the States of the 

9 United States, the District of Columbia, the Commonwealth 

10 of Puerto Rico, and any territory or possession of the United 

11 States. 

12 SEC. 6. WAIVERS. 

13 (a) AUTHOEITY OF THE FeESIDBNT. — 

14 (1) Initial waivbe. — The President may waive 

15 the prohibitions contained in sections 4 and 5 for a 

16 period of not more than twelve months if — 

17 (A) the President determines that one or 

18 more of the conditions set forth in subsection (b) 

19 are met, 

20 (B) the President submits that determination 

21 to the Congress, and 

22 (C) a joint resolution is enacted approving 

23 the President's determination. 

24 (2) Additional waivebs, — The President may 

25 w^ve the prohibitions contained in sections 4 and 5 for 



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5 

1 additional aiz^month perioda if, before each such 

2 waiver — 

3 (A) the President determinea that an addi- 

4 tional condition set forth in subsection (b) has 

5 been met smce the preceding waiver under this 

6 subsection became effective, 

7 (B) the President submits that detennination 

8 to the Congreaa, and 

9 (C) a joint resolution is enacted approving 

10 the President's detennination. 

11 (b) Statebient op Conditions. — The conditions re- 

12 ferred to in subsection (a) are the following: 

13 (1) FAMn.Y H0U8INQ NBAB PLACE OF BMPLOT- 

14 HBNT. — The Government of South Africa has elimi- 

15 nated the system which makes it impossible for black 

16 employees and their families to be housed in family ac- 

17 commodations near the place of employment. 

18 (2) BlOHT TO 8BBK EMPLOYMENT. — The Gov- 

19 emment of South Africa \aa eliminated all poUcies that 

20 restrict the rights of black people to seek employment 

21 in South Africa and to live wherever they find employ- 

22 ment in South Africa. 

23 (3) Eliminating denationalization. — The 

24 Government of South Africa has eliminated all policies 



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6 

1 that make distinctions between the South African na- 

2 tionality of blacks and whites. 

3 (4) Eliminating bemovals. — The Government 

4 of South Africa has eUmuiated removals of black popu- 

5 lations from cert^ geographic areas on account of 

6 race or ethnic origin. 

7 (5) Eliminating ebsidbncb ebstbictions. — 

8 The Government of South Africa has eliminated all 

9 residence restrictions based on race or ethnic ori^n. 

10 (6) Negotiations foe new political 

11 system. — The Government of South Africa has en- 

12 tercd into meaningful negotiations with truly represent- 

13 ative leaders of the black population for a new political 

14 system providing for the full national participation of 

15 all the people of South Africa ui the social, poUtical, 

16 and economic life in that country and an end to dis- 

17 crimination based on race or ethnic origin. 

18 (7) Settlement on Namibia. — An intemation- 

19 ally recognized settlement for Namibia has been 

20 achieved. 

21 (8) Febbing political peisonees. — The Gov- 

22 emment of South Africa has freed all political prison- 

23 era. 

24 (c) Pbocbduebs fob Considbbation op Joint Res- 

25 OLUTIONS. — 



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7 

1 (1) Bbfbbbal of joint BBSOLUTIONS.— All 

2 joint resolutions introduced in the House of Represent- 

3 atives and the Senate shall be referred immediately to 

4 the appropriate committees. 

5 (2) CoHUiTTEE DISCHABOB. — If the committee 

6 of either House to which a joint resolution has been 

7 referred has not reported it at the end of thirty days 

8 after ita introduction, the committee shall be discharged 

9 from further consideration of the joint resolution or of 

10 any other joint resolution introduced with respect to 

1 1 the same matter. 

12 (3) CONSIDBBATION OF BBSOLUTIONS. — A joint 

13 resolution under this subsection shall be considered in 

14 the Senate in accordance with the provisions of section 

15 601{bK4) of the International Security Assistance and 

16 Arms Export Control Act of 1976. For the purpose of 

17 expediting the consideration and passa^ of joint reao- 

18 lutions unter this subsection, it shall be in order for the 

19 Committee on Rules of the House of Representatives 

20 (notwithstanding the provisions of clause 4(b) of rule 

21 XI of the Rules of the House of Representatives) to 

22 present for immediate consideration, on the day report- 

23 ed, a resolution of the House of Representatives pro- 

24 viding procedures for the consideration of a joint reso- 

25 lution under this subsection similar to the procedures 



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1 set forth in section 601(bK4) of the International Secu- 

2 rity Assistance and Anns Export Control Act of 1976. 

3 (4) Receipt of besolutions fboh the otheb 

4 HOUSE. — If before the passage by one House of a joint 

5 resolution of that House, Uiat House receives a joint 

6 resolution with respect to the same matter from the 

7 other House, then — 

8 (A) the procedure in that House shall be the 

9 same as if no joint resolution had been received 

10 from the other House; but 

11 (B) the vote on final passage shall be on the 

12 joint resolution of the other House. 

13 (5) Computation op legislative days. — In 

14 the computation of the period of thirty days referred to 

15 in paragraph (2) of this subsection, there shall be ex- 

16 eluded the days on which either House of Congress is 

17 not in session because of an adjournment of more than 

18 three days to a day certm or because of an adjoum- 

19 ment of the Congress sine die. 

20 (6) Joint bbsolution defined. — For purposes 

21 of this subsection, the term "joint resolution" means a 

22 joint resolution the matter after the resolving clause of 

23 which is as follows: "That the Congress, having re- 

24 ceived on a determination of the President 

25 under section 6(a) of the Anti-Apartheid Act of 1986, 



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9 

1 approves the President's detenninAtion.", with the d&te 

2 of the receipt of the detennination inserted in the 

3 hl&nk. 

4 SEC 7. EXPORTS TO SOtlTH AFRICAN GOVEItNHEa4T. 

5 Section 6 of the Export AdnunistratioD Act of 1979 (50 

6 U.S.C. App. 2405) is amended by adding at khe end the 

7 following: 

8 "fl) ExpOBTB TO South Africa. — (1) No computers, 

9 computer software, or goods or technology intended to serv- 

10 ice computers may be exported, directly or indirectly, to or 

11 for use by the Oovenunent of South Africa or any corporar 

12 lion, partnership, or other organization which is owned or 

13 controlled by the Government of Soudi Africa. 

14 "(2) For purposes of paragrq>h (1), the term 'computer' 

15 includes any computer that is the direct product of technolo- 

16 gy of United States origin. 

17 "(3) The prohibition contfuned in paragraph (1) shall not 

18 apply to domitions of computers to primary and secondary 

19 schools. 

20 "(4) The termination provisions contained in section 20 

21 of this Act shall not apply to this section, or to sections 11 
32 and 12 of this Act to the extent such sections apply to viola- 
23 tions (rf, and Uie enforcement of, this subsection.". 



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10 

1 SEC. 8. REGULATORY AUTHORITY. 

2 The President shall issue such regulations, licenses, and 

3 orders as are necessary to cany out this Act. 

4 SEC. 9. ENFORCEMENT AND PENALTIES. 

5 (a) AuTHOEiTY OP THE Pbbbidbkt.— The President 

6 shall take the necessary steps to ensure compliance witfi the 

7 provisions of this Act and any regulations, licenses, and 
6 orders issued to carry out this Act, including establishing 
9 mechanisms to monitor compliance with this Act and such 

10 regulations, licenses, and orders. In ensuring such compH- 

11 fuice, the President may conduct investigations, hold hear- 

12 ings, administer oaths, examine witnesses, receive evidence, 

13 take depositions, and require by subpoena the attendance and 

14 testimony of witnesses and the production of all books, 

15 papers, and documents relating to any matter under invest}- 

16 gation. 

17 (b) Penalties. — 

18 (1) Foe persons other than individualb. — 

19 Any person, other Uian an individual, that violates the 

20 provisions of this Act or any regulation, license, or 

21 order issued to carry out this Act shall be fined not 

22 more than $1,000,000. 

23 (2) Fob individuals. — 

24 (A) In oenbbal. — Any individual who vio- 

25 lates the provisions of this Act or sjiy regulation, 

26 license, or order issued to carry out this Act shall 



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11 

1 be fined not more than $50,000, or imprisoned 

2 not more than five years, or both. 

3 (B) Pbnaltt fob section a. — Any individ- 

4 u&l who violates section 5 of this Act or any reg- 

5 ulation issued to carry out that section shall, in 

6 lieu of the penalty set forth in subpu-agraph (A), 

7 be fined not more than five times the value of the 

8 krugerrands or gold coins involved. 

9 (c) Additional Pbnaltibs fob Cbbtab* Inmvid- 

10 tJALS. — 

11 (1) In general. — Whenever a person commits a 

12 violation under subsection (b) — 

13 (A) any officer, director, or employee of such 

14 person, or any natural person in control of such 

15 person who knowingly and willfully ordered, au- 

16 thorized, acquiesced in, or carried out the act or 

17 practice constituting the violation, and 

18 (B) any agent of such person who knowingly 

19 and willfully carried out such act or practice, shall 

20 be fined not more than $10,000, or imprisoned 

21 not more than five years, or both 

22 (2) Exception foe cebtain violations. — 

23 Paragraph (1) shall not apply m the case of a violation 

24 by an individual of section 5 of this Act or of any regu- 

25 lation issued to carry out that section. 



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1 (3) Restriction on payment of pines. — A 

2 fine imposed under paragraph {1) on an individual for 

3 an act or practice constituting a violation may not be 

4 naid, directly or indirectly, by the person committing 

5 tke violation itself. 

6 SEC ll|. NEGOTIATIONS. 

7 The President shall, by means of both bilateral and mul- 

8 tilateral negotiations, including through the United Nations, 

9 attempt to persuade the governments of other countries to 

10 adopt restrictions on new investment (including bank loans) 

11 in South Africa, on bank loans and computer salea to the 

12 South AMcan Government, and on the importation of kru- 

13 gerranda. The President shall submit annual reports to the 

14 Congress on the status of negotiations under this section. 

15 SEC 11. TERMINATION OF PROVISIONS OF ACT. 

16 (a) Dbtbemination of Abolition of Apabt- 

17 HBID. — If the President determines that the system of apart- 

18 held in South Africa has been abolished, the President may 

19 submit that determination, and the basis for the determina- 

20 tion, to the Congress. 

21 (b) Joint Resolution Apphovino Detbbmina- 

22 TION. — Upon the enactment of a joint resolution approving a 

23 determination of the President submitted to the Congress 

24 under subsection (a), the provisions of this Act, and all regu- 



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13 

1 latiom, licenses, and orders issued to carry out this Act, shall 

2 terminate. 

3 (c) Dbfinition. — For purposes of subsection (a), the 

4 "abolition of apartheid" shall include — 

5 (1) the repeal of all laws and regulations that dis- 

6 criminate on the basis of race; and 

7 (2) the establishment of a body of laws th&t as- 

8 sures the full national participation of all the people of 

9 South Africa in the social, political, and economic life 

10 in that country. 

1 1 SEC. 12. DEFINITIONS 

12 For purposes of this Act — 

13 (I) Investment in south afbica. — The term 

14 "investment in SoutJi Africa" means establishing, or 

15 otherwise investing funds or other asseats in, a busi- 

16 ness enterprise in South Africa, including making a 

17 loan or other extension of credit to such a business 

18 enterprise. 

19 (2) United states pebson. — The term "United 

20 States person" means any United States resident or 

21 national and any domestic concern including any per- 

22 manent domestic establishment of any foreign concern), 

23 and such term includes a bank organized under the 

24 laws of the United States: 



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1 (3) South AFEiCA.^The term "South Africa" 

2 includes — 

3 (A) the Republic of South Africa, 

4 (B) any territory under the administratioD, 

5 legal or illegal, of South Africa, and 

6 (C) the "bantustans" or "homelands", to 

7 which South African blacks are assigned on the 

8 basis of ethnic origin, including the Transkei, Bo- 

9 phuthatswana, Ciskei, and Venda. 

10 (4) FoBBiON AFEUJATB. — A "foreign afGliate" of 

11 a United States person is a business enterprise located 

12 in a foreign country, including a branch, which is con- 

13 trolled by that United States person. 

14 (5) Control. — A United States person shall be 

15 presumed to control a business enterprise if — 

16 (A) the United States person beneficially 

17 owns or controls (whether directly or indirectly) 

18 more than 50 per centum of the outstanding 

19 voting securities of the business enterprise; 

20 (B) the United States person beneBcially 

21 owns or controls (whether directly or indirectly) 

22 25 per centum or more of the voting securities of 
28 the business enterprise, if no other person owns or 
24 controls (whether directly or indirectly) an equal 
20 or larger percentage; 



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1 (C) the business enterprise is operated b; the 

'2 United States person pursuant to the provisions of 

3 an exclusive numagement contract; 

4 (D) a majority of the members of the board 

5 of directors of the business enterprise are also 

6 members of the comparable governing body of the 

7 United States person; 

8 (E) Ae United States person has authority to 

9 appoint a majority of the members of the board of 

10 directors of the business enterprise; or 

11 (F) the United States person has authority to 

12 appoint the chief operating officer of the business 

13 enterprise. 

14 (6) Loan, — The term "loan" includes an exten- 

15 sion of credit as defined in section 201(h) of the Credit 

16 Control Act (12 U.S.C. 1901(h)). 

17 (7) Bank.— The term "bank" means— 

18 (A) any depository institution as defined m 

19 section 19(b)(lKA) of the Federal Reserve Act (12 

20 U.S.C. 461{bKl)(A)), 

21 (6) any corporation organized under section 

22 25(a) of the Federal Reserve Act (12 U.S.C. 611 

23 et seq.), 

24 (C) any corporation having an agreement or 

25 undertaking with the Federal Reserve Board 



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16 

1 under section 25 of the Federal Reserve Act (12 

2 U.S.C. 601 et seq.), and 

3 (D) any bank holding company as defined in 

4 section 2(a) of the Bank Holding Company Act of 
- 5 1956 (12 U.S.C. 1843(a)). 

6 (8) Business bntebpbibb. — The term "business 

7 enterprise" means any organization, association, 

8 branch, or venture which exists for profitmaking pur- 

9 poses or to otherwise secure economic advantage. 

10 (9) Bbanch. — The term "branch" means Uie op- 

11 erations or activities conducted by a person in a differ- 

12 ent location in its own name rather than through an 

13 incorporated entity. 

14 (10) Political peiboneb. — The term "political 

15 prisoner" means any person in South Africa who is in- 

16 carcerated or persecuted on account of race, religion, 

17 nationality, membership in a particular social group, or 

18 political opinion, but the term "political prisoner" does 

19 not include any person who ordered, incited, assisted, 

20 or otherwise participated in the persecution of any 

21 person on account of race, religion, nationality, mem- 

22 bership in a particular social group, or political opinion. 

23 SEC 13. APPLICABILITY TO EVASIONS OP ACT. 

24 This Act and the regulations issued to carry out this Act 

25 shall apply to any person who undertakes or causes to be 



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17 

1 undertaken any transactions or activity with the intent to 

2 evade this Act or such relations. 

3 SEC. 14. CONSTRUCTION OF ACT. 

4 Nothing in this Act shall be construed as constituting 

5 any recognitioD by the United States of the homelands re- 

6 feired to in section 12(3KC) of this Act. 



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Senator Heinz. There will undoubtedly be a lot of questions both 
for you and Senator Weicker but I'd like to call on Senator 
Weicker first for his comments and testimony. 

STATEMENT OF LOWELL P. WEICKER, U.S. SENATOR FROM THE 
STATE OF CONNECnCUT 

Senator Weicker. Mr. Chairman, thank you very much, one, for 
granting the hearing and, two, for your comments and the com- 
ments of the other members of the committee. 

I'd also like to express appreciation to Senator Kennedy not just 
for the legislation before you but, very frankly, for having the cour- 
age to take the trip he did. Some people have said that on more 
than one occasion that trip could not be termed a political success 
for Senator Kennedy. I would point out to you that it made the 
very point that had to be made, that unless we do act that indeed 
moderation will not be the resolution of this problem because the 
difHculties that he encountered were those difHculties engendered 
by people who don't want a moderate solution. 

So the fact that he had his presence there tested out — the cli- 
mate, and believe me, that climate, due in large measure to our in- 
action, has changed drastically in the last several decades. I am 
very admiring of that trip and I think the trip itself teaches us just 
how urgent our mission is. 

I would like to use my brief time this morning to provide an his- 
torical and factual bacl^ound for the committee wluch establishes 
the context in which we should act. 

IGNORANCE OF THE HISTORY OF SOUTH AFRICA 

It is the opinion of this Senator that ignorance of the history of 
South Africa and misconceptions about it have prevented the 
American people from taking a firm and unequivoc£il stand against 
the system of apartheid which relegates 23 million South African 
blacks to subhuman status. There are too many people walking the 
streets of our Nation today that indicate: 



Well, there's a big difference and I'd like to highlight that differ- 
ence today because at least let's act within the context of historical 
fact. 

In a recent opinion editoried piece in the New York Times, Elie 
Wiesel, who has written so powerfully and eloquently of the Nazi 
holocaust, described his reactions after a visit to South Africa: 

What I understood in Soweto is that racial laws are wrong, not only because they 
rcBult in collective and individual oppresBion, but also, and especially because they 
are laws. BaciBm ilaelf is dreadful, but when it pretends to be legal, and therefore 
just, it becomes altogether repugnant. Without comparing apartheid and naziam and 
to its "final solution" — for that defies all comparison— one cannot but assign the 
two systems in their supposed legality to the same camp. 

APARTHEID IS A CREATURE OF LAW 

Apartheid is a creature of law in South Africa. It is a series of 
statutes enacted by the South African Government to impose a 



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racial standard on every aspect of South African society. Where a 
person may work or live, what kind of education or health care 
they are entitled to, where they may travel or with whom they 
may associate — all subject to the arbitrary distinction of color. As a 
nation whose existence depends on the rule of law and which seeks 
to build respect for law worldwide, the United States can ill afford 
to remain silent in the face of a system which attempts to legeilize 
injustice. As Abraham Lincoln said, "What is morally wrong 
cannot be made politically right." 

It is a common misapprehension that in South Africa we are 
dealing with a vestige of the colonial period which has somehow 
survived into the 1980's. While there has been de facto segregation 
of blacks throughout this century, the legal system of apartheid 
has been built up incrementally since the coming to power of the 
National Party in 1948. Most of the major apartheid statutes were 
enacted in the 1950's and early 1960's. For those who argue for loy- 
alty to our World War II ally as a reason for letting South Africa 
be, 1 would point out that the National Party wanted South Africa 
to remain neutral in World War II — that is neutral in favor of the 
Nazis — and had they been in power at the time, they would have 
been. Thanks to the bravery of Jon Christian Smuts, they weren't. 

LEGAL FOUNnATIONS OF APARTHEID SIMILAR TO NAZISM 

The peu-allels between the legal freunework of South African 
apartheid and Nazi antisemitism in the 1930's are inescapable. 
What b^an in both cases as a political appeeil to racist elements in 
the two societies, became the law of the land. 

The Nazis came to power in Germany in 1932 on a platform of 
economic revival and decisive leadership. Soon after coming to 
power, they began an anti-Communist campaign. In 1933, a law 
was passed excluding non-Aryans from the civil service and requir- 
ing clEtssification of citizens by race. Then a "National Press Law" 
excluded Jews from the press. Educational opportunity of Jews was 
then limited. Finally in 1935, Jews were declared noncitizens, for- 
bidden to marry non-Jews, and denied protection of German law, 
under the "Reich Citizenship Law" and the "Law for the Protec- 
tion of German Blood and German Honor." 

The legal foundations of apartheid are strikingly similar. Laws 
entitled "The Prohibition of Mixed Marriages Act," the "Popula- 
tion R^istration Act," and the "Suppression of Communism Act" 
were passed in 1951. Finally, the "B£mtu Authorities Act" attempt- 
ed to force blacks into tribalism and deny them political rights. 
And since that time the legal grip of apartheid has steadily tight- 
ened. 

As it was built brick by brick, law by law, apartheid can be dis- 
mantled in the same way. The United States must do everything it 
can to encourage that process. Change will come in South Africa, 
one way or the other; as a matter of law or through violent con- 
flict. Time is running out for a process of peaceful change. As 
Bishop Tutu, Allan Boesak, Beyers Naude, £md others have 
warned, the cycle of violence may soon become uncontrollable. 
That's why we're here, not as a matter of philosophy or a political 



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34 

statement, but to avoid that final act of violence which invariably 
will draw the United States into it. 

As leader of the black opposition in South Africa for decades, 
Nobel Prize winner Chief Albert Luthuli urged peaceful protest in 
order to win concessions. It did not happen. Leadership passed to 
Nelson Mandela, who advocated violence against inanimate objects, 
such as Government buildings, in order to win concessions. They 
have not been forthcoming and Mandela is in jail. What will be the 
methods advocated by tomorrow's leaders as they seek justice after 
years of increasing repression? We must act to support those who 
seek peaceful change and work to hold back the destruction of a 
race war in South Africa. 

I remember very well, Mr. Chfiirman, people queried before we 
did our full research on the matter of the equivalency of these two 
sets of laws. They'd say, "Well, this really isn't the same compari- 
son between Nazi Germany and South Africa." I would use as one 
of my examples — and I do here again today — I'd say, "Well, do you 
remember the movie 'Judgment at Nureraburg'?" "Sure, That was 
the trial of Nazi war criminals." I said, "Oh, really?" They'd say, 
"Well, sure, Goebbels, Himmler, Goering, and all the rest.' I said, 
"No, it wasn't. It was a trial of the German judiciary which had 
legalized Hitler's policy of national socialism, "rhat's what the trial 
was about." That's what you've got on the books in South Africa 
today. There is no difference insofar as legality. A body count? Of 
course, there's a difference. But as to making racism and repres- 
sion of humanity legal, they are identical. 

This isn't a disinvestment bill, I might add, that we are talking 
about. What we are trying to do is to use our position — it doesn't 
come from a disinterested party. This is the No. 1 trading partner 
of South Africa that is saying: 

If you do or if you continue on the course that you've eet upon, then do so at your 
own peril and your own risk, not with either the moral or the dollar sanction of this 
Nation, the United States of America. 

IMPACT OF ECONOMIC SANCnONS 

One last word about this business of economic sanctions and they 
never work. Let's just review that for 1 second. 

Economic sanctions have been used and they are being used by 
the United States in many situations. We have trade embargoes 
against Cuba, Vietnam, and North Korea. We have outlawed U.S. 
importation of Libyan oil. Through the Jackson-Vanik amendment, 
we have made most-favored-nation status conditional on free emi- 
gration. One of the last times I was before this committee was to 
support an embai^o against Uganda, and you had one of the prime 
movers in that. Senator Cranston. That passed the Senate and 
within months Idi Amin was gone. Again, we were their No. 1 trad- 
ing partner. I believe the South African Government will only 
trust the sincerity of our opposition to apartheid when we back it 
up with economic sanctions. To do less would call into question our 
commitment to the ideals of equality and the rule of law and risk a 
new holocaust in Africa. 

I came to Washington 16 years ago and everybody told me the 
situation would take CEU'e of itself Well, it has. It's taken care of 



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35 

hundreds and thousands of blacks in South Africa who are no 
longer alive. You worry about the few that you saw shot in Uiten- 
hage, you worry about the one out of every two children under 5 
years of age that dies, one out of every two under 5 dies in the 
homelands of South Africa. We don't hear that here. They're too 
small to have their cry heard. No more. 

I don't care, Mr. Chairman, what it is that you pass — obviously I 
do in terms of quality — as much as I care that the Senate of the 
United States, the Government of the United States, has something 
and take this out of the de facto let it resolve itself area and place 
us on record as a matter of law internationally in favor of the 
ideals of the Constitution of the United States, and that is why 
South Africa's problems and our problems are not the same, be- 
cause we have a Constitution. Its ideals are in the stars. These laws 
are in the gutter. 

Thank you. 

[The complete prepared statement follows:] 

Teshmony op Sbnator Lowell Weicker 

Mr. Chairman and raembera of the committee, I appreciate this opportunity to 
appear before you as you consider S. 635, the Anti-Apartheid Act of 1985, which 
Senator Kennedy and I introduced with several of our colleagues last month. This 
hearing today is an important step toward a United States policy with regard to 
South Africa which has us standing up for our ideals and protecting our basic inter- 
ests in that part of the world. 

I would like to use my brief time this morning to provide historical and factual 
background for the committee which establishes the context in which we should act. 
It is the opinion of this Senator that ignorance of the history of South Africa and 
misconceptions about it have prevented the American people from taking a firm 
and unequivocal stand against the system of apartheid, which relegates 23 million 
South African blacks to subhuman status. 

In a recent OpEd piece in the New York Times, Elie Wiesel, who has written so 
powerfully and eloquently of the Nazi holocaust, described his reactions after a visit 
to South Africa. "What I understood in Soweto is that racial laws are wrong, not 
only because they result in collective and individual oppression, but also, and espe- 
cially because they are laws. Racism itself is dreadful, but when it pretends to be 
legal, and therefore just, it becomes alti^ether repugnant. Without comparing 
apartheid and nazism and to its "Final Solution"— for that defies all comparison — 
one cannot but assign the two systems, in their supposed legality, to the same 

Apartheid is a creature of law in South Africa. It is a series of statutes enacted by 
the South African Government to impose a racial standard on every aspect of South 
African society. Where a person may work or live, what kind of education or health 
care they are entitled to, where they may travel or with whom they may associate — 
all subject to the arbitrary distinction of color. As a nation whose existence depends 
on the rule of law and which seeks to build respect for law worldwide, we can ill 
afibrd to remain silent in the face of a system which attempts to "legalize" injus- 
tice. As Abraham Lincoln said, "what is morally wrong cannot be made politically 
right." 

It is a common misapprehension that in South Africa we are dealing with a ves- 
tige of the colonial penod which has somehow survived into the 1980'8, While there 
has been de facto segregation of blacks throughout this century, the legal system of 
apartheid has been built up incrementally since the coming to power c^ the Nation- 
al Party in 1948. Most of the major apartheid statutes were enacted in the fifties 
and the early sixties. For those who argue for loyalty to our World War II ally as a 
reason for letting South Africa be, I would point out that the National Party wanted 
South Africa to remain "neutral" in World War II (i.e. "neutral" in favor of the 
Nazis) and had they been in power at the time, they would have been. 

The parallels between the legal framework of South African apartheid and Nazi 
antiflemitism in the 1930's are inescapable. What began in both cases as a political 
appeal to racist elements in the two societies, eventually became the law of the 



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The Nazifi came to power in Germany in 1932 on a platform of economic revival 
and decisive leadership. Soon aiter coming to power, they began an anti-Communist 
campaiirn- In 1933, a law was passed excluding "non-Aryans ' from the civil service 
and requiring classification of citizens by race. Then a "National Press Law" ex- 
cluded Jews from the press. Educational opportunity of Jews was then limited. Fi- 
nally in 1934, Jews were declared non-citizens, forbidden to marry non-Jews, and 
denied protection of Glerman law, under the Reich Citizenship Law and the Law for 
the Protection of German Blood and German Honor. 

The legal foundations of apartheid are strikingly similar. Laws entitled the Pro- 
hibition of Mixed Marriages Act, the Population Registration Act, and the Suppres- 
sion of Communism Act were passed in 1951. Finally the Bantu Authorities Act at- 
tempted to force blacks into tribalism and deny them political rights. And since that 
time the le^al grip of apartheid has steadily tightened. 

As it was built brick by brick, law by law, apardieid can be dismantled in the 
same way. The United States must do everything it can to encourage that process. 
Change will come in South Africa, one way or the other: as a matter of law or 
through violent conflict. Time is running out for a process of peaceful change. As 
Bishop Tutu, Allan Boesak, Beyers Naude and others have warned, the cycle of vio- 
lence may soon become uncontrollable. 

As leader of the black opposition in South Africa for decades, Nobel Prize winner 
Chief Albert Luthuli urged peaceful protest in order to win concessions. It did not 
happen. Leadership passed to Nelson Mandela, who advocated violence against inan- 
imate objects, such as Government buildings property in order to win concessions. 
Thev have not been forthcoming. Whet will be the methods advocated by tomor- 
rows leaders as they seek justice after years of increasing repression? We must act 
to support those who seek peaceful change and work to hold back the destruction of 
a race war in South Africa. In such a war millions would die and the United States 
would suffer greatly. 

1 believe the measure before this committee provides the tools for encouraging a 
peaceful process. The strength of the bill which Senator Kennedy and I introduced 
is its conditionality: it provides incentives to the South African Government to insti- 
tute reforms. The most damaging sanctions from the Government's point of view, 
the no new investment restriction and the kruggerand import ban, are subject to a 
waiver by the President and the Coneress for 1 year if South Africa undertakes any 
one of the specified reforms in the bill. 

This is not a "disinvestment" bill, in which the United States cuts and runs. It is 
a measure designed to maximize the leverage the United States ei;)oys because of its 
economic involvement in that country. 

Finally a word about economic sanction as a matter of national policy. Economic 
sanctions have been used and are being used by the United States in many situa- 
tions. We have trade embargos against Cuba, Vietnam, and North Korea. We have 
outlawed United States importation of Libyan oil. Through the Jackson-Vanik 
amendment we made most favored nation status conditional on free emigration. The 



last time I was before this committee was to support an embargo BKainst Uganda, 
which passed the Senate and within months Idi Amin was gone. 1 believe the South 
African Government will only trust the sincerity of our opposition to apartheid 
when we back it up with economic sanctions. To do less would call into question our 
commitment to the ideals of equality and the rule of law and risk a new holocaust 

Pastor Martin Niemoller who lived in Germany during World War II wrote: "The 
Nazis came for the Communists and I didn't speak up because 1 was not a Commu- 
nist. Then they came for the Jews and I did not speak up because I was not a Jew. 
Then they came for the trade unionists and I didn't speak up because 1 wasn't a 
trade unionist. Then they came for the Catholics and I was a Protestant, so 1 didn't 
speak up. Then they came for me. By that time there was no one left to speak up 
for anyone." It is time for us to speak up. 

Senator Heinz. Senator Weicker, thank you very much. 

Senator Proxmire, I know you were detained by another engage- 
ment and appointment. Do you have eui opening statement you 
would like to make? 

Senator Proxmire. I have an opening statement, yes, indeed, but 
I'm not going to make it. It would be an anticlimax after these 
most compelling and persuasive presentations by Senators Kenne- 
dy and Weicker, 



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37 

I do want to say something very briefly, however. I think we get 
the impression here because both Senator Kennedy and Senator 
Weicker are so eloquent and feel so passionately about this, that 
we are proposing radical l^islation. We are not. I am a coeponsor 
of this bill and I think we ought to keep that in mind. 

This is a bill, most of the provisions of which are identical to the 
bill that passed the House in October 1983 without objection and 
with a number of conservative Republicans standing up and plead- 
ing for it very eloquently. It does not require American companies 
to withdraw the billions of dollars they have invested in South 
Africa nor does it prohibit our Firms from reinvesting profits they 
make there or cut off trade with South Africa. 

It does prohibit new U.S. investment in and bank loans to South 
Africa. It also bans further importation of the South African gold 
coin, the krugerrand, which is a major source of foreign exchange 
for the white government. 

It also bans further sales of computers to South Africa because 
they are used by that Government to help implement these police- 
state controls needed to enforce its unjust policies. 

These economic sanctions are far less stringent than those our 
Government now has in place against the Soviet Union, against 
Vietnam, against Cuba, against North Korea, against Cambodia, 
against Libya, against Poland, and other human rights violators. 
T^ey are modest. Some people might even say they're soft. 

They will, however, send a strong signal to South Africa's white 
regime that unless Its benighted racial policies are changed the 
country's economic isolation will worsen. 

And I might just ask, Mr. Chairman, if the remainder of my 
statement — it's really a terrific statement — could be put in the 
record. 

Senator Heinz. On that representation, I'm sure there will be 
only modest objection, but we will do it anyway. Without objection, 
so ordered. 

OPENING STATEMENT OF SENATOR PROXMIRE 

Senator Proxmire. We begin today the first of what I hope will 
be a series of hearings on S. 635, the Anti-Apartheid Act of 1985. I 
emi consponsoring that bill because I want our country to make 
very clear to the South African Government that its unjust and im- 
moral policy of apartheid is unacceptable and must be changed if 
American corporations are to continue to play a growing role in 
that country's economy. 

Exactly what is apartheid and why should it concern our coun- 
try? Apartheid is the system in South Africa designed by the white 
community in 1948 to ensure their absolute rule over the black ma- 

{'ority. The 4y2 million whites maintain their rule over 21 million 
dacks by denying blacks the right to vote, denying them education- 
al opportunities, denying them economic and social opportunities, 
and by requiring them to live in separate, segregated areas. In 
many instances black males are permitted to take jobs in urban 
areas but must leave their wives and children behind in rural 
homelands, while the males live in barracks-type all male housing. 
In effect, the whites have adopted a system of dehumanizing the 



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black population in order to maintain their own privileged rule. 
The minority whites enforce their system through reliance on a 
harsh and repressive police rule backed up by the strongest mili- 
tary force on the African Continent. That force very possibly has a 
nuclear capability. 

Why is it any business of the United States to try to change this 
abhorrent system in South Africa? First, our history, values, and 
institutions place Americans in basic sympathy with people seek- 
ing political freedom and civil liberties throughout the world. Such 
a policy is not only right but it helps strengthen our own national 
security by ensuring that our relations with other countries are not 
based solely on accommodating values of repressive regimens but 
rather on the enhancement of democratic values. American partici- 
pation in both World War I and II was to help ensure the survival 
of such values in this world. After World War II our country, in 
framing and urging adoption of the U.N. Charter and the Declara- 
tion of Human Rights, formally committed itself to the advance- 
ment of political freedom and human rights beyond its shores. Sec- 
retary of State Shultz reemphasized this administration's continu- 
ing belief in this policy when he stated in a recent speech that: 

Throughout our own history we have always beheved that freedom is the birth- , 
right of all peoples and that we could not be true to ourselves or our principles ^ 
unless we stand for freedoin and democracy, not only for ourselves but for others. 
And so, time and again in the last 200 years, we have lent our support—moral and 
Otherwise — to those around the world struggling for freedom and independence. 

Second, it is in America's national interest to promote peaceful 
change in South Africa. Presently political rights in that country 
are based solely on race and black people, no matter how accom- 
plished they are they have none. Since blacks have no political 
rights, it makes it dinicult for them to achieve a gradual, peaceful 
change in that country's race policies and Soviet preached violent 
change becomes an attractive alternative. President Kennedy once 
said "those who make peaceful change impossible make violent 
change inevitable." Violence would not benefit white or black 
South Africans or U.S. interests in Africa. 

Over a quarter of a century ago, after the true nature of South 
Africa's ugly apartheid policy became clear, President Eisenhower 
denounced it and his administration voted in the U.N. for a resolu- 
tion condemning that policy. 

All American Presidents since President Eisenhower have 
spoken against South Africa's repugnant racial policies. Our Gov- 
ernment has attempted time after time to encourage dialog be- 
tween the races and changes that will result in government by the 
consent of the governed. Yet that regime has persisted in making 
its immoral system even more impervious to peaceful change de- 
spite cajoling by us and international condemnation by others. 

Neither President Eisenhower nor any subsequent President has 
sought the cooperation of Congress in adopting measures that 
make clear to South Africa our abhorrence of its benighted policies. 
What could we do? We could bring strong economic pressures to 
bear on South Africa. After all, we are South Africa's orgeat trad- 
ing partner. Our exports to South Africa and our imports from 
South Africa exceed that of any other country and they are in- 
creasing. Also, with the exception of the United Kingdom, the 



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United States has the bluest investment in South Africa of einy 
country in the world. That investment, too, is growing rapidly. In 
1950 before President Eisenhower expressed his disapproval of 
South Africa apartheid, America's total investment in South Afri- 
can was only about $140 million. Today it is nearly 20 times as 
high. It is in excess of $2.3 billion. Loans by American banks to 
South Africa have risen rapidly in recent years and reached $4.5 
billion in 1984. And almost $400 million of those loans are to the 
racist promulgators of apartheid itself, the South African Govern- 
ment. These actions, while taken in good faith, have strengthened 
the South African economy and the position of its ruling elite. 

So what have we done about this apartheid system our Presi- 
dents have deplored as an affront to human dignity. We have in- 
creased our investment there by more than twentyftild. Our banks 
have used the deposits of U.S. citizens, to make huge loans to that 
racist Government. We have become South Africa's most important 
trading partner emd our citizens last year imported 600 million dol- 
lare' worth of gold coins minted by that Government to help its for- 
eign exchange earnings. These actions speak louder than any 
words of condemnation our Presidents may utter. Since this admin- 
istration like others before it, will not act; it is time for Congress to 
take the lead and move beyond rhetoric in dealing with the white 
minority. 

That is why I introduced my own bill S. 147 on January 3, the 
first day of this new session of Congress and joined Senators Ken- 
nedy and Weicker in sponsoring S. 635, the legislation before us 
today. 

S. 635 is not a radical bill. It does not require American compa- 
nies to withdraw the billions of dollars they have invested in South 
Africa. Nor does it prohibit our firms from reinvesting profits they 
make there or cut off trade with South Africa. It does prohibit new 
U.S. investment in and bank loans to South Africa and also bans 
further importation of the South African gold coin, the krugerrand, 
which is a major source of foreign exchange for the white Govern- 
ment. It also bans further sales of computers to South Africa be- 
cause they are used by that Government to help implement the 
police-state controls needed to enforce its unjust policies. These eco- 
nomic sanctions are far less stringent than those our Government 
now has in place against the Soviet Union, Viet Nam, Cuba, North 
Korea, Cambodia, Libya, Poland, and other human rights violators. 
They will, however, send a strong signal to South Africa's white 
regime that unless its benighted racial policies are changed, the 
country's economic isolation will worsen. 

Some will argue that such economic pressures will not work and 
it's best to work with the existing regime and persuade it by words 
to change its unjust policies. We heard these same "go slow and try 
and coax the whites to change" arguments prior to our own civil 
rights revolution. That revolution was won, however, only after 
laws were enacted making fair treatment of all our citizens com- 
pulsory. In the same way we, and other Western nations, have 
tried a moderate, coaxing effort with South Africa for over a quar- 
ter of a centuiy. This administration in particular has totally em- 
phasized friendship and winning the confidence of the white elite 
through a policy it calls constructive engagement — with no success. 



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40 

Repression of blacks has gotten worse. S. 635 lets the South African 
Government know that change must begin. It does not require us 
to end all economic or trade relations but there is a clear, implied 
threat that further action can and will be taken if true reform does 
not begin. These moderate measures will strengthen the hand of 
those white South Africans who are arguing for change and there 
are many of them. 

I also want to point out that S. 635 directs the President to un- 
dertake international negotiations to persuade other nations to 
adopt restrictions on new investment in and bank loans to South 
Africa. Sweden and Japan already restrict investment there, and a 
growing number of European legislators favor such restrictions. 

S. 635 also provides that the President may, with Congress' 
assent waive its restrictions for periods of not more than 12 months 
if the South African Government takes certain specified steps to 
ameliorate its repressive rule. All restrictions in the proposed bill 
may be removed altogether if the President determines and Con- 
gress agrees that South Africa has abolished its apartheid system. 

This legislation is the right thit^ to do and will serve our long- 
term national interest. I hope we can move it through the Congress 
this year and that the President will sign it into law. 

Senator Heinz. And also. Senator Dixon has a statement to 
appear in the record and, without objection, it will so appear. 

STATEMENT OF SENATOR DIXON 

Senator Dixon. Mr. Chairman, I doubt there is any issue facing 
the Congress this year more important than the question of apart- 
heid and how America should respond. 

Apartheid is a repugnant concept. There is no justification or 
this institutionalized system of racial discrimination and subjuga- 
tion. It is simply wrong — morally wrong. 

Acknowledging the evil that apartheid represents, however, is 
not enough. What the committee has before it today is the question 
of what is the appropriate policy response from the United States. 
In short, what actions should we take to influence the South Afri- 
can Government to begin the process of dismantling this abhorrent 
system. 

Currently pending before the Banking Committee is the subject 
of today's hearing, S.635. As I understand it, this bill would prohib- 
it: 

One, new U.S. bank loans to the Government of South Africa; 

Two, new investment by American firms in the country; 

Three, importation of the krugerrand; and 

Four, U.S. firms from selling computers to the Government of 
South Africa. 

I generally believe that the United States should minimize the 
use of trade as a foreign policy weapon. I have been particularly 
opposed to the quick-changing, on again off Eigain trade policy that 
has been practiced in the executive branch for some years now. 

South Africa, however, represents a very unique case and there 
has been considerable interest in Congress in legislatively changing 
our trade policy toward that country. There are a number of legis- 
lative options available, ranging from legislating the Sullivein prin- 



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41 

ciples to steps which would have the result of shrinking our trade 
with South Africa to a fraction of its current size. 

This hearing is one of the first steps in determining whether and 
how our trade policies toward South Africa need to be modified. I 
want to congratulate the sponsors of S. 635 for bringing this matter 
before the Bsmking Committee. I look forward to the testimony to 
be presented this morning, and to working with my Senate col- 
leagues in fashioning a bill that expresses our repugnance of apart- 
heid and helps maximize the chances for early and peaceful change 
of that tragic, misguided policy. 

Senator Heinz. Senators Kennedy and Weicker, you have been 
extraordinarily eloquent in your presentations here today and I 
susi>ect what we are really doing is banning a profound national 
debate about how this country changes its policy toward South 
Africa. 

You have both identified from your experiences and your travels 
that which are perceived to be real shortcomings in constructive 
engagement. Indeed, the Senate itself went on record last fait by 
passing one of the provisions, among other provisions, in the l^is- 
lation that you propose. The Senate passed without objection a bill 
containing the cutoff of all bank loans to the South African Gov- 
ernment or any other government entity in South Africa. It's the 
first time to my knowle^e that the Senate has ever so spoken. 

There were other provisions in that l^islation, including 
strengthening of the Sullivan principles, and other measures that 
the Senate adopted unemimously. 

It is my view that action will be taken in this session of Congress 
on this issue. But havii^ said that, because 1 don't want what I am 
about to say to be misinterpreted, we would be missing an opportu- 
nity — indeed, I fear abdicating our responsibility — if we didn't get 
to the heart of the very serious issue. 

SANCTIONS ENDING APARTHEID WFTHOUT VIOLENCE 

I don't know how many of you saw an article that appeared in 
the Washington Post 2 or 3 weeks ago written by Hobart Rowan. 
He commented that both Bill Gray, author of the Gray amend- 
ment, the fortunes of which are part of the bill before us, and Ches- 
ter Crocker really had a great deal in common. They really be- 
lieved that a policy by the United States, whether it was construc- 
tive engagement or it was a more activist policy in terms of sanc- 
tions or sanctions that might be triggered, would indeed have an 
affirmative, positive impact on conditions in South Africa and on, 
therefore, presumably not only diminishing and ultimately ending 
apsirtheid but doing so without violence through peaceful change. 

So my question, I suppose to either of you, but let me start with 
my good friend, Senator Kennedy, is to what extent do we have 
reason to believe that any action we take is going to bring about a 
positive, affirmative, peaceful change? 

Senator Kennedy. Well, first of all, Mr. Chairman, I think it's 
important to consider why we should take any action. One reason 
for taking action is to be consistent with our own value system and 
to have a foreign policy that reflects our own best values. I think 
that it is important that we be able to live with a policy that re- 



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42 

fleets our basic and fundamental values and beliefs. That isn't 
always the case, and all of us look at the past and find examples 
where that has not been the case. But certainly that's a fair objec- 
tive, and that is not what's happening in the policy of constructive 
eng£igement, No. 1. So we should adopt a policy that is consistent 
with our values. 

I very firmly believe, Mr. Chairman, that by taking this action it 
will be a very important signal, not just to the South African Gov- 
ernment which is very important, but it will also be a very impor- 
tant signal to the 23 million blacks in South Africa. That signal 
should be that the United States is serious about its own value 
system and serious about its concern about their conditions. I think 
that's very important. 

Last, let me get back to the point that I made earlier, and that is 
how serious the South African Government is. When I was in 
South Africa I had not intended to speak about divestiture. I went 
there to have an opportunity to talk to businessmen, to workers, to 
leaders in that country, as well as to talk to others. 

Some in this room — Senator Proxmire, Senator Cranston, your- 
self, and others. Senator Weicker — have been involved with this 
issue for a long period of time — and to have the opportunity to ex- 
change views with them. 

Every day that I was in South Africa, on the front page of the 
paper there would be some reference, "We don't really care — the 
South African Government does not really care what the United 
States does on the issue of divestiture." I saw that the first day and 
I wondered why a statement was being made by a Government offi- 
cial the first day since I had made no reference to that and had no 
intention of doing so. 

The second day was the same thing. The third day was the same 
thing. Every single day the papers carried headlines about disin- 
vestment. And you can't come out of South Africa without the con- 
clusion that it's just the opposite — they care very much about what 
we do. They protest too much. 

And I think that many experts would say, "What happens in 
terms of the Congress of the United States, what happens in terms 
of the Executive, what happens in these local communities and uni- 
versities has a very, very important impact on the South African 
Government." 

FEAR OF DIVESTITURE 

Senator Heinz. I have no doubt at all that the South Africem 
Government dislikes the notion of our even sitting here talking 
about any of these sanctions. I'm sure that they have an intense 
fear of being singled out for divestiture. We have never done that, 
to my knowledge, in this country. There may be some where we've 
done it. 

But it seems to me that the fact that they don't like it, that they 
are afraid of it, is not quite the ix>int. 

What I really would like to try and get a sense of — and we are 
fortunate that you have so recently traveled there — is whether we 
should attempt to predict the kind of future our sanctions will 
achieve in South Africa. Will it cause the South African Govem- 



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43 

ment to be more repressive? Will it cause the South African Gov* 
emment to begin to end apartheid or shouldn't we care? 

Senator Weicker. Can I respond to your initial question and also 
to your comment? As much as we are involved with 20 million 
blacks in South Africa, we are involved with an entire continent on 
this issue, indeed a black population throughout the world, and a 
black population that I might add is looking around and making its 
choices and making its decisions as to what roads it philosophicEilly 
and politically wants to follow. 

AFRICAN STUDENTS BEING EDUCATED IN CUBA 

Several years ago on one of my visits to Cuba, I visited what is 
now called the Isle of Youth. It used to be the Isle of Pines. It has 
about 60 senior high school complexes on it; 15 of them are indige- 
nous to the populations of countries other than Cuba. The one I vis- 
ited had 600 students from Namibia getting their education courte- 
sy of the Soviet Union in Cuba. 

Now everybody talks about the Cuban troops in Ethiopia and 
Angola — don't worry about it; Africa will swallow them up as it 
swallowed up every other colonial power. But do you know what 
we ought to worry about — or rather, what our children ought to 
worry about? The 600 Namibians getting their education courtesy 
of the Soviet Union in Cuba, and going back to Namibia, and be- 
coming the leaders of that nation, and setting its course for decades 
to come. 

Now you say to yourself, "We don't have the institutions to teach 
in this Nation," we are the greatest of all in terms of its teaming 
institutions. The final irony, do you know what their native lan- 
guage is? It sure as hell isn't Spanish. It's English. 

So as we don't take advantage of the opportunity to stand up for 
what we believe in as a matter of our law, and our Constitution, 
and our ideals, so believe me, it also acts to our detriment when 
there are those that reach out and slap the hand away and go with 
the status quo for our own convenience, and we set the course of 
history for our children for decades to come. 

So believe me, what we do here, whatever impact it has on that 
nation and those particular people, it has an even more far-reach- 
ing impact on how the United States is viewed among those who 
right now are in the process of choosing. If we take the action 
that's called for here or something akin to it, believe me, all the 
propaganda, and all the Radio Free Europe, and the U.S. Informa- 
tion Agency, and all the propaganda on our side, nothing can hold 
a candle to doing something right here. That's the United States 
manifesting its ideals in this troubled world. That's why it's impor- 
tant. 

Senator Heinz. What do we expect to see in South Africa itself 
or shouldn't we care? 

Senator Weicker. I'm sorry? 

Senator Heinz. My question was directed at South Africa. What 
do either of you anticipate is going to be the result? I don't think 
anybody here w£ints a scenario, certainly one of many possible 
ones, where you have a vastly more repressive South African 
r^ime. Repression is met with more of the radicalization that Sen- 



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44 

ator Kennedy referred to in his statement, and you get a blood- 
bath. 

Senator Weicker. That's exactly why we are here. We don't 
want a bloodbath. 

Senator Kennedy. Mr. Chairman, my statement meikes very 
clear, and I believe very strongly and very deeply, that the future 
of South Africa is going to be decided by the South Africsms. It's 
going to be decided by the South Africans. 

We, as those who support and sponsor this propo8£d, don't sug- 
gest that we impose solutions to the problems in South Africa from 
the outside. We don't do that. Senator Weicker and I have said why 
we believe this is essential in terms of the United States' expres- 
sion of a value system, but we acknowledge in our testimony that 
this problem is going to be decided by the South Africans. We un- 
derstand that. 

But we also believe that our ability to have some influence over 
that process, whatever that process, and whether it is going to be 
nonviolent, will be increased if we have some degree of credibility 
with some of the different forces there. And we do suggest that we 
are losing, if not already lost, credibility with the major player, 
with 90 percent of the population there, the black people of South 
Africa. 

Senator Weicker. There are those that say that this type of 
action can only result in increased unemployment for blacks and 
they use it for saying that's why you've got to go slow because 
you're going to hurt the blacks. I would suspect when the Civil 
War was over and slavery in the South was eliminated there was 
increased unemployment. 

Senator Heinz. I want to ask you. Senator Kennedy, something 
about a specific of your bill and then I will yield to Senator Hecht 
and Senator Proxmire for their questions. 

What is the approach of S. 635 with regard to investment? I 
know it would prohibit new direct investment, but is it the premise 
of the bill that U.S. investment in South Africa is per se bad or are 
there conditions under which U.S. investment can have a positive 
effect toward eliminating apartheid? 

Senator Kennedy. Well, it's self-evident what we are doing in 
terms of the new investment from the United States. It doesn't pro- 
hibit reinvestment by companies in that country of earnings taken 
in in that country. I suspect that those that support this legislation 
may have some differences on the questions of the divestiture 
issue. We stay clear of that in this legislation and try to target the 
Government of South Africa because it is the Government of South 
Africa that is perpetrating the policy of apartheid. 

So we believe that this mechemism we are using — in terms of the 
bank loans to the Government and the krugerrands and the com- 
puters — is targeted on governmental activities. That was the 
premise on which we started this, and we welcome recommenda- 
tions from members of the committee and from other Members of 
the Congress how that can be made most effective. These are not 
new concepts, but they are measured and they are intended to 
change the policies of the South African Government. 



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45 

I'd be glad to give you my own views about the role of the impact 
of the Sullivan principles but that really is a different issue from 
what we are talking about here today. 

Senator Heinz. My time has expired. Senator Hecht. 

Senator Hecht. Senator Kennedy, in December my wife and I 
also went to South Africa. We spent 20 days down there and cer- 
tainly no way in 20 days can one have any expertise, so rather 
than form my own conclusions I talked to a lot of people in South 
Africa. The Jewish issue has been raised by you and by Senator 
Weicker and in the same context as Nazi Germany. I don't buy 
that concept at all. 

I spent a tremendous amoimt of time with Jewish people in 
South Africa. In Capetown I went to the orthodox synagogue be- 
cause I am orthodox. I spent a lot of time with a reformed rabbi in 
South Africa. I met with Jewish business people. 

"bring more AMERICAN INVESTMENT" 

The one story which they said to take back if you want to help 
the blacks in South Africa^ "Bring more American investment, not 
less American investment." It was only when America went down 
to South Africa and started investing that the blacks then began to 
get equal pay for equal work and better economic conditions. There 
was a reformed rabbi who's been in Capetown for 37 years and I 
spent a lot of time with him and no one has been more dedicated to 
social change than he has been. This was the message he sent back. 
He said, '"This is the way you can help the people of South Africa," 
and he said, "I have seen changes in the last 5 years that I never 
expected my grandchildren to see." He SEiid, "Bring more American 
investment down here." 

You know, in South Africa the working conditions are such 
that — they're not the greatest and in no way do I condone the poli- 
cies, but I do believe in evolutionary changes. But one man work- 
ing in South Africa sometimes goes back to his homeland and feeds 
15 to 20 mouths. Senator Kennedy, also my wife and I spent time 
in Zimbabwe, formerly Rhodesia. We have seen what has happened 
when a government has crumbled and only because of the South 
African Government is Zimbabwe somewhat of a friend of South 
Africa and has not gone altogether Communist. 

I don't want to go on and on because time is very short, but I 
asked this rabbi in South Africa, "Why is it that many people of 
the Jewish faith in America and others are getting up in arms on 
this?" He looked at me and he's a great scholar and he will never 
criticize anyone, but he said, "Perhaps they are not as informed as 
they should be." And I say, "Let's listen to the people. Let's not 
have these economic sanctions." I am worried that the Government 
would fall and an unfriendly government would come in. Vietnam 
is still in my memory. The Shah of Iran when we went against him 
is still in my memory. Let's go along with the people of South 
Africa and they are trying to make changes and let's not have eco- 
nomic sanctions. 

Thank you, Mr. Chairman. 

Senator Heinz. Senator Hecht, thank you very much. 

Senator Proxmire. 



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46 

Senator Kennedy. May I just make a brief comment on that? 

Senator Heinz. By all means. 

Senator Kennedy. First of all, I have respect for your view and 
for your opinion. Obviously you spent a good deal of time in South 
Africa and you talked to many of those who have been workii^ 
long and hard to try and relieve a good deal of the injustice which 
exists there. 

I draw the SEime conclusion about apartheid 2is I do about the 
holocaust of nazism, and if I'm wrong. Senator, correct me. When 
you were bom a Jew in Germany you went to the gas chamber. 
When you're bom black in South Africa, you go to the homelands. 
It's the color of your skin that determines your fate from the 
moment you're bom. 

Now I find that to be fm objectionable policy and it is intolerable 
for the United States in any form or shape to compromise with or 
to support that policy. 

Senator Hecht. Well, I think that in South Africa 

Senator Kennedy. That's the comparison I make. Others may 
draw different conclusions, but that to me was the appropriate 
comparison. 

1 would just say finally, that the positions that have been ex- 
pressed here are not just those of Senator Weicker and myself, but 
are edso those of Bishop Tutu, Nobel Laureate, of Rev. Allan 
Boesak, a distinguished leader of the church, and of Rev. Beyers 
Naude who was a member of the Broederband, the ultimate white 
preserve in South Africa. Reverend Naude is also a distinguished 
church leader who had an excellent article in the New York Times 
last week in which he reached these same conclusions. 

So I would hope that our comments and testimony would be con- 
sidered as being more than just a reflection of our own views but 
also as reflecting those who live there and who face this problem 
every day. I don't take anything away from those in South Africa 
who have been trying to work — and to work very effectively — to 
reduce the injustices. They are enormously courageous, and they 
have done an extraordinary job. 

Senator Hecht. Well, I did not meet with heads of stote. I met 
with working people, business people, and blacks who have elevat- 
ed themselves in South Africa and your position and my position is 
absolutely at an opposite end. I think that by going on with Ameri- 
can investment we will do more to help the black people than 
hinder them and to say they are not elevating themselves — I think 
the Government of South Africa will make these chaises that we 
want. They have brought the colored into the Parliament, the Indi- 
ans, and I think it's just a very short time before the black people 
are. Everyone down there I spoke to wants to do that. There's been 
tremendous evolutionary change down there. Let's work with 
them. To say a black man in South Africa has no opportunities, 
that's entirely different, and if you would want to equate the 
Jewish situation here, I wish the Jews inside Soviet Russia would 
have the same religious opportunities that the blacks in South 
Africa have. 

Senator Heinz. Senator, thank you. Senator Proxmire. 

Senator Proxmire. Thsmk you very much, Mr. Chairman. 



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47 

I want to once again commend our two witnesses. I'm very, very 
deeply impressed and moved by what you gentlemen have told us 
and I think the overwhelming fact that we can't get away from is 
that for 27 years, ever since President Eisenhower spoke out on 
this in 1957, our Presidents have been speaking out and deploring 
apartheid and there's been no basic cheinge in that policy in South 
Africa. 

The fact is that the blacks in South Africa stilt cannot vote. They 
cannot live where they want to live. They can't get the job they 
should have. They can't get the education they should have. It's 
not a gas chamber, but it's a living death, and I just cannot under- 
stand how we can simply say, "Well, we'll continue to go along 
with the same thing we have done in the past and somehow we'll 
get an evolution." We haven't got an evolution. We have had that 
response given to us again and again to satisfy our doing nothing. 

I just have two very quick technical questions, one for Senator 
Kennedy and one for Senator Weicker. 

Senator Kennedy, the bill that you have introduced and I'm co- 
sponsoring h£is a provision banning future imports of the South Af- 
ricEUi gold coin, the krugerrand. That provision does not make it 
illegal for Americans to hold their existing krugerrands nor does it 
prevent Americans from acquiring other gold coins such as the Ca- 
nadian maple leaf or the Mexican Aztec or, if Senator Cranston 
has his way, the Cranston bald eagle. [Laughter.] 

Will you comment on why you want to block future imports of 
the krugerrand? 

BLOCK FUTURE IMPORTS OF THE KRUGERRAND 

Senator Kennedy. Senator, this legislation only deals with new 
imports of the krugerrand into the United States. It would have no 
effect on the current ownership or the disposal of kn^errands al- 
ready owned by people here in the United States. Nor would this 
legislation affect the purchase of gold coins from Canada or 
Mexico, or Senator Cranston's proposal for developing a gold me- 
dallion in this country. 

Senator Proxmire. Isn't it true that while there are some im- 
ports from South Africa that are very important to us that have 
military implications — there are minerals that we have to have — 
that the krugerrand is something that has absolutely no import for 
our national security or for any other significant economic pur- 
pose? It's simply a coin that people can hold and, as you say, they 
can hold what they've got now. In fact, krugerrands already in thm 
country will probably go up in value. 

Senator Kennedy. 'The Senator is quite correct. 

Senator Proxmire. Senator Weicker, this bill also bans sales of 
computers to the South African Government. Why do we single out 
computers? 

Senator Weicker. When you're keeping track of 23 million 
blac£&, don't do it manually. Obviously, that particular instrumen- 
tality is key to the entire system. That's the answer. 

If I might, I want to say two things. First of all, everybody ought 
to know that Senator Proxmire has been on the point on this issue 
for the last couple years, not only now when the issue is hot, and 



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48 

as Senator Kennedy pointed out, much of what's in this bill is what 
he's set before us for the last several years. And I think he should 
be given credit for it. 

Senator Hecht, I can only make one point as far as a similarity 
in law between Nazi Germany and South Africa. 

In Nazi Germany, you wore a yellow Star of David. You wore it 
and maybe you had chalked on you, "Juden." In South Africa, you 
carry your papers just as that Jew in Germany carried his papers, 
a noncitizen within his own country, and so is the South African 
black a noncitizen within his own country with his passport and 
his papers. 

Now, yes, you're right, in the 1930's we were making our invest- 
ments in Germany and what a price we paid for it. And we are 
here to make sure that a similar price is not paid in this decade. 

Senator Kennedy. Mr. Chairman, if I could 

Senator Hecht. Senator Weicker, we just do not agree, but I 
want you to know that no one is more mindful of the atrocities in 
Germany than I am. My mother was an emigremt and but for the 
grace of God, she fled and arrived in America. If it wasn't for the 
grace of God I wouldn't be here today. So I am very mindful of 
that. 

Senator Kennedy. Mr. Chairman, if I could just put in the record 
a statement given to me by the president of the Council of Unions 
in South Africa at our meeting in South Africa last January. 

Senator Heinz. Without objection. 

[The following information was subsequently submitted for the 
record:] 



In agreeing to meet with you we experience certain pressures and see clearly cer- 
tain opportunities to advance the cause of liberation in our country, of the working 
class. 

It is our firm belief that in meeting with you today we wish to put the point of 
view of our federation concerning: 1. Our aspirations; and 2. our expectations of 
your visit. 

Our aspiration ia to ensure that all the people in our country have the political 
right to vote and determine their future. We wish to enjoy the franchise in an undi- 
vided nonracial country free from race or ethnic discrimination . We desire that all 
the instruments of apartheid — legislative, racial and otherwise — be destroyed. We 
see the elimination of apartheid. Not the amelioration of apartheid. We therefore 
expect that influx control be eliminated; that the migrant labour system be phased 
out. We want immediate equal education and training and university entrance 
based on merit and not quotas. We seek an end to race classification and the prohi- 
bition of mixed marriages. We seek an end to the Group Areas Act and the end to 
race ghettoes. Nor do we see room in such a society for the undemocratic security 
l^islation which exists presently. We want the withdrawal of the army from our 
townships and an end to the homeland system. 

We desire that this transition be brought about as quickly as possible as painless- 
ly as possible, without violence and loss of life of our brothers and sistere. 

We know as a reality that this transition cannot be achieved unless and until all 
those organizations representing the political aspirations of the people are able to 
communicate their desires and aims, within the country in a free and open way. 
Our expectations of your visit are quite clear as well. We wish you to see and hear 
for yourself the plight of the black m^ority of South Africa. But more than that we 
expect that you will commit yourself to our aspirations and go back to your country 
and work unwaveringly for the cause of a free South Africa. 

We meet with you as both an owner of capital and a legislator in the United 
States Federal C!ovemment. 



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49 

We request therefore that you use your personal capital to djveet from companies 

Do not adhere to just and equitable labour practice. 

Do not endorse that all South Africans should enjoy all the freedoms that United 
States investors enjoy. 

Do not commit tliemaelves to working towards a just and free and undivided 
South Africa. 

We expect also that on ^our return to the United States you will press immediate- 
ly and ut^ntly, and achieve before the end of this year Federal l^ialation which 
will clearly: 

Stop new investment in South Africa, whilst apartheid still exists in South Africa; 

Restrict the sale of krugerrands; 

Withdraw all investment which supports the apartheid syBlem. and 

Terminate U.S. involvement in so called homelands; 

Cease all supplies of whatever nature which assist tiie apartheid machinery. 

We expect also that you will pursue a vigorous campaign of constructive disen- 
gagement and ensure that nuclear, computer and defence technology is not sold, or 
licensed or franchised in South Africa. 



that memory we urge you to press for pc 

amongst the citizens of the United States not onlv fi . .. _ 

sessed in South Africa, but for all humanltind wherever there is suffering and op- 



i for the deprived and the dispoe- 



pression. 

We call for an end to United States imperialism in South America, in .^ia, in the 
Middle East, in Africa. 

We urge that you accept the Third World and its people, whatever their political 
persuasion as equals and work toward world peace. 

Senator Kennedy. I had a meeting with the CUSA leadership at 
that time and this memorandum, which their President gave to 
me, indicates their position on matters which are very closely relat- 
ed to the legislation. 

THE SULLIVAN PRINCIPLES 

Senator Heinz. Senator, I have one last question for you and it 
has to do with the fact that S. 635 omitted a provision that passed 
both the House and the Senate last year, and that was on the so- 
called strengthening of the Sullivan principles. 

Is that omitted because the authors object to that or is it omitted 
for other reasons? 

Senator Kennedy. As I mentioned, Mr. Chairman, it was the de- 
cision of the sponsors, both in the Senate and also in the House, to 
target this legislation on the policies of the South African Govern- 
ment as much as possible. The Sullivan principles relate to the per- 
formance of U.S. corporations that are operating in South Africa 
and only affect Government policies indirectly. I have views on the 
enhanced Sullivan principles, but — I'm just speaking personally on 
this — I think it would be unwise to confuse these two issues. There 
will clearly be opportunities for debate about the effect of the Sulli- 
van principles on apartheid. 

Senator Heinz. I'm a little confused by the application of that 
principle. If I understand you correctly, what you re saying is the 
Sullivan principles aren't here because they deal with American 
companies and you want to focus on the South African Govern- 
ment. Yet we do have a provision of S. 635 that deals with invest- 
ment by American companies in American companies. To me, that 
seems inconsistent with what you said your purpose was, which is 
only to affect the South African Government, but maybe I don't 
understand. Can you explain that? 



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Senator Kennedy. Well, this legislation is also intended to dis- 
tance the United States from the apartheid system, to ceill a halt to 
£iny additional U.S. complicity in that system, to prevent any more 
funding or financing or support of apartheid by U.S. persons in the 
future. This is in addition to our focus, on the Government of 
South Africa and our efforts to influence its policies. 

Senator Heinz. You don't have an objection in principle to 
strengthening the Sullivan principles? 

Senator Kennedy. No, I don't. There have been four different 
changes in the Sullivan principles over the years. The most recent 
one, which was the fourth amplification of the Sullivan principles, 
was put forward by Reverend Sullivan last November. I believe 
that this is the absolute minimum that U.S. companies must do to 
continue in South Africa. That's my view. 

Senator Heinz. Thank you very much, both of you. You have 
been very helpful and I commend you both on your legislation and 
you have initiated a major national debate. 

Senator Dodd. Mr. Chairman. 

Senator Heinz. Excuse me. Senator Dodd. 

Senator Dodd. Not at all, Mr. Chairman. I know you have a hard 
time seeing to your left. [Laughter.] 

Senator Heinz. I'm glad to see you glance right once in a while. 

Senator Dodd. I have no choice but to do that. 

First of all, let me just commend our two collea^es. I've often 
said to my good friend from Connecticut, my Senator, that I'm 
proud of my Senator, he's done so much on several other issues as 
he's done on this one, as well as the historic response of Senator 
Kennedy on this issue and others. 

Let me just raise one point to the two of you that I've been 
thinking about during this discussion. By the way, we've had con- 
sideration of your proposal in the Foreign Relations Committee. 
Senator Cranston proposed something similar, if not identical, to 
what you're suggesting. We're going to have some additional hear- 
ings on that in the Foreign Relations Committee. 

It occurred to me — and Senator Kennedy, maybe you would like 
to respond as well as Senator Weicker — in the civil rights move- 
ment in this country many have suggested that there were many 
whites in the South as well as many blacks who understood what 
should be done during the terrible times leading up to the Supreme 
Court decisions and acts of legislation by this Congress, but that for 
white politicians in the South to propose the things that they knew 
had to be done would have been lethal to them politically. In the 
privacy of discussions they would admit what was wrong and what 
should be done. Many black leaders knew as well that there were 
certain compromises that probably had to be made but for them to 
say it out in public would have been detrimental to their position 
as well. 

Ultimately, the only way we were able to achieve the successes 
we were came about as a result of outside pressures from the Su- 
preme Court of this country and from the Congress of the United 
States. That made it possible then for responsible elements to take 
affirmative action to begin to address some of the problems. 

It occurred to me that in South Africa we are dealing with much 
the same kind of question, that there are responsible white leadp- j 



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51 

in that country who don't take any solace at all in continuing the 
policies that deprive the m^ority of that country from participat- 
ing fuUy in their own Government, and obviously meuiy black lead- 
ers as well understand this is not going to be something that hap- 
pens overnight but we must begin that constructive process. 

The issue of outside interference is one that we are confronted 
with all the time. 

Do you think that comparison is Intimate, the one of our civil 
rights movement in our own country, and the ultimate effect of the 
outside influence in what we have seen at least achieved up to 
now? 

Senator Kennedy. Senator, it is certainly my view, but my view 
is less important than that of those who are experiencing the real 
whip and lash of apartheid in South Africa. Those who are the 
moral leaders, the outstanding church leaders of South Africa, 
whether Tutu, or Boesak, or Beyers Naude, or Hurley, view the 
condition very much the way you expressed it. Senator. The actual 
influence of the United States far exceeds the few hundred million 
dollars that is at issue in this legislation. The U.S. position as a 
moral leader in the world and our willingness to take this kind of 
action will have an extremely important impact — not only in assur- 
ing blacks and whites in that country that we are true to our own 
V£dues and principles, but also that we want to contribute to a 
peaceful and constructive resolution of the difTerences which exist 
in tiiat extraordinary country. I think you have expressed it well, 
and I think outstanding, thoughtful men and women in South 
Africa are very hopeful that with outside pressure, the differences 
that exist in that society can be worked out in a constructive and 
[tositive w^. 

Senator Dodo. Thank you. 

Mr. Chairman, thank you very much and thanks to both of you. 

Senator Heinz. Are there any other questions? 

[No response.] 

Senator Heinz. If not. Senator Mattingly has some questions he 
wants to submit to you for the record. Without objection. 

[Response to written questions of Senator Mattingly follow:] 

Response to Wkitten Questions o 

Question 1. Mr. Mai^MUtho Buthelezi, the heredity leader of South Africa's Zulu 
people has been quoted ae saying that "' * ' If we are to avoid a destructive confla- 
gration in South Africa, the process of change in the country must be speeded up." 
The quote continues, "1 fail to see how those who agree with this statement can poe- 
gibly talk of our effective economic isolation. Isolation will bring stagnation to the 
economy and perhaps even destroy its growth base. Yet it is in the circumstances of 
a rapidly expanding economy, where the interdependence of black and white is 
vasUy increased, that the propensity of the country to change is enhanced. Black 



vertical niobility is a concomitant of economic growth." Do you have any comments 
on this position? 

Answer. The modest sanctions that we have proposed will not result in "effective 
economic isolation" of South Africa nor will they "bring stagnation to the economy" 
or "destroy its growth base," These measures are carefully designed to send a strong 
and visible signal to the people of South Africa that the United States will use 
whatever influence it has at its disposal to assist in the effort to dismantle apart- 
heid. This legislation is intended to make clear the American people's revulsion 
with apartheid and to put pressure on the South African Glovemment to undertake 
meaningful reform. 



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52 

accept the theoiy that South Africa can grow its way out of apartheid, 
Ic expansion will necessarily be accompanied by political reform. The 

substantial Erowth of the South African economy over the past 20 years has been 
accompanied by an increase in the strictures of apartheid, and according to the Car- 



s Second Study on Poverty in South Africa, this economic expan- 
sion has been accompanied by an increase in poverty for most black people. 

We believe that sweeping changes must be made in the. legal structure that sup- 
ports apartheid if a conflagration is to be avoided, and we believe that only a combi- 
nation of external and internal pressure on the South African Government will 
produce meaningful change in that structure. To that end, the United States should 
use its diplomatic and economic influence to encourage such change. 

Question S. Your l^islation essentially proposes capital contrms for the purpose 
of achieving certain, specific political and moral goals. Would you support an exten- 
sion of this concept to those other nations around the globe whose internal policies 
are repugnant to American concepts of individual freedom and democratic institu- 
tions? 

Answer. Economic pressure is a common feature of U.S. policy today. Sanctions 
against Cuba, Uganda, North Korea, Vietnam, Poland, and the Soviet Union have 
been approved by Congress in the past and have been implemented by past adminis- 
trations. Republican and Democratic alike. The goal of these efforts has been to 
tailor economic pressures to the apeciflc situation at hand. This is what we have 
attempted here. 

We believe that economic sanctions should be evaluated on a case-by-case basis, 
that the United States must examine the circumstance of each case before deter- 
mining whether such measures are appropriate. 

Question 3. How would we prevent South Africa from obtaining bank loans and 
investment funds from other countries and how would we prevent third party na- 
tions from increasing their borrowing from the U.S. for the purpose of lending the 
capital to South Africa? 

Answer. Our legislation encourages the President to seek international coopera- 
tion and participation in adapting similar measures against the government of 
South Africa, Only through such international cooperation can "third party" lend- 
ing and borrowing be controlled. We are hopeful that with leadership by the United 
States and with a clear example by our government and as a result of urging from 
our representatives, our friends and allies will follow suit. 

Senator Heinz. We want to thank both of you for your time. It's 
been a very lengthy discussion but I think it's been very worth- 
while and we commend you both. 

Senator Weicker. What time today, Mr. Chairman, is markup? 
[Laughter.] 

Senator Heinz. Our next witness is Deputy Secretary of State, 
Ken Dam, accompemied by Chester Crocker, wno is Assistant Secre- 
tary for African Affairs. 

Gentlemen, welcome. We're glad you're here. Please proceed. 

STATEMENT OF KENNETH DAM, DEPUTY SECRETARY OF STATE. 

DEPARTMENT OF STATE. ACCOMPANIED BY CHESTER A. 

CROCKER, ASSISTANT SECRETARY FOR AFRICAN AFFAIRS; 

AND FRANK WISNER, DEPUTY ASSISTANT SECRETARY FOR AF- 
RICAN AFFAIRS, DEPARTMENT OF STATE 

Mr. Dam. Thank you, Mr. Chairman. 

Mr. Chairman, thank you for the opportunity to speak today on 
U.S, policy toward South Africa. 

I believe that all Americans find repugnant the system of racial 
discrimination called apartheid that is practiced there. We are 
united in our belief that apartheid is morally abhorrent, politicfdly 
unsustainable and economically wasteful. But morEil indignation, 
no matter how natural and justifiable, is not a substitute for an ef- 
fective foreign policy — certainly not for an activist world power 
that seeks change in a manner that will benefit all South Africans. 



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53 

The issue, then, is what we as a nation can do to promote posi- 
tive and nonviolent change toward a more just order— an order 
that recognizes fundamental human rights and political liberties in 
South Africa. 

SANCTIONS WOULD BE COUNTERPRODUCTIVE 

It is the position of this administration that sanctions, such as 
those in the legislation before you today, would be counterpn)duc- 
tive: They are more likely to strengthen resistance to change than 
to strengthen the forces of reform. Moreover, they do not even put 
us, as some say, "on the side of right." If our moreil imperative as 
Americans is to encourage freedom and reform, we must reject 
sanctions: We do not enhance our ability to influence change by 
eliminating ourselves as an actor. 

Mr. Chairman, I should like to briefly review the situation in 
South Africa, the extent of U.S. influence there and the current 
United States-South African relationship, which is based on any- 
thing but business as usual. Then, I should like to briefly analyze 
some of the principal sanctions that have been proposed in S. 635— 
and other legislation as well. 

The policy of this administration has been to foment chemge 
away from apartheid: 

By unambiguous public statements condemning apartheid's evils; 

By reinforcing these views with quiet diplomacy; 

By working with elements within South Africa that share a 
vision of peace and equity; 

By encouraging laudable fair employment practices of U.S. com- 
panies, and 

By involving ourselves as a government in financii^ programs — 
some $30 million in 3 years — to give South African blacks better 
training and educational opportunities. 

In part because of U.S. encouragement, chaise in South Africa 
has begun — barely, but it has begun. More progress toward justice 
in that society has been made in the last few years them in the pre- 
ceding three decades. The concept that South Africa's blacks have 
no citizenship rights outeide the tribal homelands has been aban- 
doned and blacks today have certain urban residency rights in 
areas that were unavailable a few years ago. Black trade unions 
have become a powerful force in industry. The Government has 
suspended the forced removal of settled black communities. It has 
just announced that it will support repeal of two of the more 
odious aspects of apartheid, the Mixed Marriages Act and that por- 
tion of the Immorality Act which proscribes sexual relations be- 
tween the races. Central business districts are being opened to 
black businessmen. Cities throughout South Africa have abolished 
the trappings of petty apartheid such as segregated parks and 
swimming pools. 'The Government has acknowledged the need to 
consult and negotiate with representative blacks outside the tribal 
homelands. 

Tragically, of course, much remains to be done. South Africa still 
cannot be considered a just society whose system derives its author- 
i^ from the consent of the governed. Black leaders continue to be 
detained without trial or charged with treason. Violence has in- 



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54 

i in recent months with tragic results. The Government has 
yet to repeal the hated pass laws or to devise mutually acceptable 
mechanisms for negotiations with black leaders. 

We must use our influence to promote further peaceful change 
but we must not overestimate the degree of our influence. South 
Africa has traditionally pursued a course it believes to be in its 
own best interest and has been open only to those who bear what it 
believes is a constructive message based on an intelligent appraisal 
of the complex realities it faces. In addition, South Africa looks to 
us as perhaps the only non-African nation capable of playing a con- 
structive role with all the nations of southern Africa in the search 
for regional peace. 

We must not overlook this regional aspect in assessing the South 
African issue. The region has seen almost continuous conflict with 
armed clashes taking place in South Africa, Zimbabwe, Mozam- 
bique, Namibia, Lesotho, and Angola. Guerrilla attacks launched 
against South Africa from neighboring black states have provoked 
cross-border retaliation by South Africa. One of the primary goals 
of our policy has been to reduce this violence between neighbors, 
and in this we believe we have had some success. 

It is important to recognize that our influence with South Africa 
does not derive from a client relationship. In fact, our military, po- 
litical, and economic relations with South Africa are by design far 
less intimate than with many other states of similar political and 
economic importance. Indeed, significant restrictions are already in 
place that circumscribe our trade and cooperation in the military 
and nuclear areas, and impose a political stance that results in our 
clearly dissociating ourselves from apEulheid. 

For example, in an effort to eliminate apartheid, U.S. arms sales 
to South Africa have been embargoed since 1963, and in 1977 the 
United States joined the United Nations in imposing a further 
mandatory arms embargo on South Africa. Our regulations are in 
fact more severe than the U.N. embargo and restrict U.S. exports 
to the South African military and police of items not covered in the 
U.N. embargo. In December of last year the United States joined 
with other U.N. Security Council members in voting for em embar- 
go on imports of arms and ammunition produced in South Africa. 

Our commercial relationship is now also restricted. Eximbank is 
essentially prohibited from financing U.S. sales to South Africa 
except under very restrictive circumstances. OPIC does not provide 
guaremtees for South Africa. Our representative at the IMF must 
"actively oppose any facility involving use of fund credit by any 
country which practices apartheid" unless the Secretary of Treas- 
ury makes certain certifications to Congress. U.S. trade fairs do not 
travel to South Africa. We carefully review export license applica- 
tions for the export of, among other things, U.S. crime control 
equipment to prevent the use of such items in the enforcement of 
apartheid. 

This, then, is the reality of our relationship: limitations on a vast 
portion of our military and commercifd transactions. To argue, as 
some do, that our relationship is based on business as usual — or 
that our Government has a normed relationship with South 
Africa— is patent nonsense. 



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Some ai^e that we should go further and ti? to run South 
A&ica out of the community of nations through boycotts, embar- 
goes, and sanctions. The l^islation before you, for example, would 
prohibit bank loans to the South African Government or its para- 
statal corporations. We fail to see how this would hasten the end of 
the apartheid system. Indeed, it would hurt U.S. and allied busi- 
ness more than it would help reform in South Africa. 

A prohibition on bank loans would create a dangerous precedent 
undermining the U.S. policy that international capital markets 
should remain free of government interference and that lending de- 
cisions should be based on market rather them pol tical consider- 
ations. If bank loans to South Africa should be prohibited, then 
South Africa would be the only country with which the United 
States has diplomatic relations that would be subject to a U.S. 
bank loan prohibition; this is an important precedent for the Bank- 
ing Committee to bear in mind. 

The result of such a prohibition on bank loans would be that par- 
astatal agencies far removed from the development of apartheid 
policy, such as the Electricity Supply Commission or South African 
Airways, would be unable to get U.S. financing for the purchase of 
American products. This would penalize U.S. banks and firms 
doing significant business with these entities, without any real 
impact on South Africa. Almost certainly other countries' banks 
would replace U.S. banks as a lending source £ind their factories 
would benefit from the orders that would have gone to U.S. firms. 

In addition, any extension of an effective loan prohibition to 
cover foreign affiliates or branches of U.S. banks would raise seri- 
ous questions about the extraterritorial application of U.S. law. 
The result would be strong objections from our allies who would 
consider their sovereignty violated. 

The administration also opposes the adoption of a prohibition on 
new investment in South Africa. Our opposition is based on three 
points. First, such a prohibition would limit opportunities for ex- 
pansion by precisely those firms that have done the most to pro- 
mote social change in South Africa. It would thus freeze the 
number of black employees benefiting from the Sullivan code emd 
simileu- codes of corporate conduct. Such a freeze would in turn 
slow the process of change inside South Africa in which the more 
progressive U.S. firms have been in the forefront. 

^cond, this measure would discriminate against U.S. firms that 
might desire to invest in South Africa, by offering in effect an oli- 
gopolistic situation for firms already there. To the extent that the 
absence of U.S. investment might create market opportunities in 
Soutii Africa, there is little doubt that some of our economic com- 
petitors around the world would step in to fill such a gap. 

NEW JOB OPPORTUNITIES DENIED 

Third, and most important, as a direct consequence of a prohibi- 
tion on new investment, black South Africans would lose new job 
opportunities or be denied opportunities to be employed by the 
more progressive U.S. firms. An economy that must create 250,000 



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56 

new jobs for young blacks each year, and that will have twice as 
many of them entering the job market by the turn of the century, 
needs more jobs, not less. 

In addition to a prohibition on bank loans, another proposal 
would £dso require that U.S. firms in South Africa be made to 
comply with mandatory labor standards. This proposal would man- 
date the adoption by U.S. firms in South Africa of employment 
standards such as those contained in the Sullivan principles, which 
are voluntary in nature. In our view, it has been precisely the vol- 
untary nature of these principles that has resulted in their success- 
ful application to date by U.S. firms operating in South Africa. 
While less than a majority of the U.S. firms in South Africa have 
actually adopted the Sullivan principles, the largest U.S. firms 
have done so, with the result that more than 70 percent of the non- 
white employees of U.S. firms in South Africa are covered by these 
principles. Through continued persuasion, we believe more firms 
will joint this effort. 

Requiring companies to adopt labor standards and threatening 
prosecution for failure to do so is likely to undercut the positive 
achievements of the U.S. Sullivan signatory firms. The voluntary 
nature of the Sullivan code has served to set an example for Euro- 
pean and South African firms to break with the old, racist ways of 
doing business. The U.S. companies, through Sullivan, proved that 
individual efforts could help move the system in a positive direc- 
tion. These firms have spent over $100 million outside the work- 
place to aid their employees and others in the black community. In 
addition, given the delicate business climate faced by firms tlwt 
invest in South Africa, making labor standards mandatory could 
prove to be the final straw in causing some U.S. firms to reconsider 
their presence in South Africa. Their withdrawal would mean that 
fewer, rather than greater, numbers of black South Africans would 
come to enjoy the benefits of working for firms that adhere to en- 
lightened labor standards. 

These fair labor standards were originally developed to be a vol- 
untary guide for firms, not a legal code. Some of the measures 
under consideration, however, would require the U.S. Government 
to make highly complex legal judgments, bsised on vague and im- 
precise standards, on each U.S. firm and impose severe penalties 
on firms that are not certified as being in compliance. This would 
not only be unfair to the firms involved, but would be unworkable 
as well. 

Finally, other bills before you would impose a blanket prohibi- 
tion on the export of nuclear equipment and technology. Such a 
prohibition would undermine our ability and leverage to broaden 
the application of international safeguards in countries that do not 
presently accept full-scojw sEifeguards. Such a blanket prohibition 
on the export of all duail-use goods and nuclear equipment or tech- 
nology to South Africa, as well as all other nonfull scope safeguard 
stat^, would undercut our nonproliferation efforts and would 
reduce our influence in such countries' nuclear programs. 

All applications for exports of nuclear-related equipment or as- 
sistance are already thoroughly reviewed as to their proliferation 
implications and their effect on foreign policy. In the case of states 
that have not accepted full-scope safeguards, only limited nonsensi- 



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67 

tive assistance is permitted — and then only when it will advance 
our nonprotiferation objectives. In the Cfise of South Africa, our 
dialog with that Government on nonproliferation matters, coupled 
with a wilUngness to allow extremely limited, noneensitive assist- 
ance to facilities in South Africa that are under IAEA safeguards, 
contributed to three important decisions by the South African Gov- 
ernment last year: first, to require lAGA safeguards on al\ its nu- 
clear exports; second, to export only according to the nuclear sup- 
pliers group guidelines; and third, to renew talks with the IAEA 
concerning placement of its semicommercial uranium enrichment 
plant under IAEA safeguards. 

In sum, Mr. Chairman, this administration does not believe that 
any of the punitive measures in the bill before you, or similar ones 
in otlier bills that have been proposed, will hasten the demise of 
apartheid. We do not believe it is wise to withdraw the limited 
tools of influence we do have and simply hope the problem goes 
away. To impose sanctions might express our grief and Euiger over 
the violence that has recently taken the lives of bo many in the 
Eastern Cape and elsewhere in South Africa. Such action would 
not, however, ameliorate the burdens of the victims of apartheid. 
liideed, the likely result would be to increase those burdens and 
squander our influence, thus making the United States essentially 
irrelevant to the process of change in South Africa. 

In short, it is difficult to see how South Africa will be a better 
place without United States influence and presence there, limited 
though they are. If what we seek is to influence positive change 
within South Africa and to encourage regional stability — including 
the establishment of an independent and internationally recogr 
nized Namibia — then sanctions must be rejected. 

[The complete prepared statement follows:] 



50-720 0—86 » 



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SXHhTB OMIITTBK ON BMHCISO, RODBIHS UID URfiUI KTFhlKS 
April 16. 1985 

Hx- Ch>lnwn. th*nk you for th« opportunity to •p*«k to you 
tedky on V,S, policy toMsrds South Africa. 

I baliav* that all Aaaricana find repugnant tha ayataa of 
racial diacriHl nation callad aparthald that ia practiced 
thara. Wa ara unitad in our baliaf that aparthaid ia aotally 
abhorrant, politically unauatainabla and aeonOnlcally 
Naataful. But >oral indignatloni no natter how natural and 
juatifiable> ia not a aubatitute for an effective foreign 
policy — certainly not for an activiat world power that eeeka 
change in a Maanar that will benefit all South Afrlcana. 

The iaaue> than, ia what we aa a nation can do to proMota 
poaitive and non-violent change toward a aota juat order — an 
order that recognlEea fundanental huaan righta and political 
libertiea in South Africa. 



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It i* tlM position eC tU> Adaiitl*t»tion that Mnetloas. 
■neh •■ tboa* in th* l*glal,«tlon bafor* youtoday, would ba 
counter-product iv« I tbay ar* nor* Itkaly to strangtlMB 
r*Bl«tane« to cbanga than to atrangtban tba lorcaa ef rafon. 
Horaovart thay do not avan put urn, an aona aayi 'on.tlia aida of 
right.' If our aoral iBparatlva aa Anarlcana la to anoonraga 
fraadon and eaf on. wa nuat ra jaet aanctiona ■ wa do not 
anhanca our ability to Influanca changa hjf vllalnatlng 
ouraalvaa «a an actor* 

Hr. Chalnan, I abould Ilka to brlafly ravlaw tha altuatlon 
in South Africa, tha axtant of U.S. Inlluanea thara and tha 
currant I). 8. -South African ralationahip> which ia baaad on 
anything but bualnaaa km usual. Then. 1 should. Ilka to brlafly 
analysa aoaa of tha principal aanctiotts that hava baan pzopoaad 
In S.63S ~ and othar laglalation aa wall. 

Tha policy of thla.AdnlnlatratlOQ haa baan to toaant changa 
away fron aparthaldi 

~ by unaabiguoua public atatanaota coodeanlng 

■parthald'a avilst 

by rainforclng thaaa viawa with qulat dlplonacyt 
— by working with alananta within South Africa that 

ahara a vlalon of paaca and agultyi 



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t^ •ncourcglng laudabl* fair •■ployaant practlc«* of 

D.S. coapanlaai and 

ty Involving ouraalvaa a« a govariuiant in financing 

prograaa — bom* l30 ■lllien in thraa yaara •— to glv* 

South African blacks battar training and aducatlonal 

opportunltlea. 

In part bacauaa of U.S. ancouragaaanti changa In South 
Africa has bagnn ~ baraly. but It ha a bagun . Mora progcaaa 
towatda juatlca In that aociaty haa baan aada In tha laat faw 
yaara than in tha pracadlng thcaa dacadaa. Tha concapt that 
South Africa'a black* hava no citlsanahip rlghta outalda tha 
tribal hoMalanda haa baan abandonad and blacka today hava 
cartaln urban raaldancy rights In araaa that wata unavailabla a 
t»w yaara aga> Black trada unlona have bacoae a powarful forca 
In Induatry. Tha govarnaeot haa ■uapended the' forced ranoval 
of aattled black coaaunltlaa. It haa juat announced that It 
will support repeal of two of the aote odious aspsets of 
apartheid, tha Mixed Marriages Act and that portion of tha 
iDDorality Act which proscribes sexual relations between the 
races. Central bualnass districts are being opaned to black 
buainaaa»an. Cltlea throughout South Africa have abolished the 
trappings of pstty apartheid such as segregated parks and 
swlanlng poola. The govarnaent has acknowledged tha liead to 
eonault and negotiate with repreaentatlve blacka outside tha 
tribal hoaelands. 



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Tragically, of coura«> auch raaaiaa to Im dona. South 
Africa atill canoat ba eonaidacad a juat aoelaty wboaa ayataa 
darivaa ita autbOEity froa tha eonaant of tha govarnad. Black 
laadara eoatlnua to b« datalnad without trial or chargad with 
traaaon* Vlolanca haa incraaaad in racant aoatha with tragic 
raaulta. Tha govamaant haa yat to capaal tha hatad paaa lam 
or to daviaa. autually accaptabla aacbanlaaa for nagotiatlona 
with black laadara. 

Ha auat uaa our influanca to proaota (urthar paacaful 
- changa.but wa auat not ovaraati*at« tha dagraa of our 

inflaanca. South Africa haa traditionally pursnad a couraa it 
baliavaa to ba in ita own baat intaraat and haa baan opan only 
to thoae who baar what it baliavaa ia a conatructiva naaaaga 
baaad on an Intalligant appraiaal of tha coaples raalttiaa It 
faces. In addltioni South Africa looka to ua aa parhapa tha 
only non-Afclcan. nation capabla of playing ■ conatructiTa rola 
with all tha nations of southarn Africa in tha aaarch for 
regional paaca. 

Ha Muat not overlook thia regional aapect in asaesslng the 
South African issue. The region has aean alaoat continuoua 
conflict with araed clashaa taking place In South Africa, 
Zlnbabwa, Mosaabique, Manlbia, Leaotho and Angola. Ouerrilla 
attacka launched against South Africa froa neighboring black 



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•tataa hava provoked croaa bordar ratallatlon by South Africa. 
On* of tha prlaary goala of our policy haa bean to raduca thia 
vlolenea batwaan naighbora, and In tMa Ma ballava tfa ha^ had 
Boaa succaaa. 

It la Important to recoqnlsa that our Influanca Mlth South 
Africa doaa not daciva from a client calatlonahlp* In fact, 
our ■llltaryi political and econoale ralationa with South 
Africa ar« by daalgn far leaa intimata than with aany other 
atataa of alnllar political and aconoaic laportanca. Indaad. 
algnldcant reatrlctiona are already in placa that clrcuaacrlba 
our trade and cooperation In the allltary and nuclear areaa. 
and iapoae a political atanee that ceaulta in our clearly 
dlaaoclating ouraalvea froa apartheid. 

for axa^lei In an effort to ellalnate apartheldi D.S. araa 
■alea to South Africa have bean embargoed alnce 1963, and in 
1977 the United States joined the United Nation* In lapoalng a 
further aandatory ama eabargo on South Africa. Our 
regulationa are in fact nore aevere than tha U.N. enbargo and 
reatrict U.S. export* to the South African allltary and police 
of Itaaa not covered in the U.S. enbargo. In December of laet 
year the United Statea joined with other a.N. Security Council 
■enber* in voting for an embargo on Inporta of arms and 
anmunltlon produced in South Africa. 



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Out ooamarclal ralationalilp la .now alao raatrictsd. 
Bxiabank la Asacntlally prOhlbltad fren financing O.I. aalaa to 
South Africa axcapt undar vary raatrlctlva clrcuaatancaa. OPIC 
does not provide guarantaaa for Couth Africa. Our 
representative at the IMF nuat 'actively oppoaa any facility 
Involving nsa of fund credit by any country which practice* 
apartheid* ualeaa'tbe Secretary of Treaanry kakea certain 
cartlf icatlona to Congreaa. U.S. teada falra do not travel to 
South 'Africa.-' Ita cazafully review export lloanaa applicatlena 
for tha export off -aaen?. other thlnga, U.S. crisa control 
equlpaant to prevent the uae of euch Itena In tha enforceaant 
of apartheid. 

Thla. then, la the reality of our relatlonahipt llaltatlona 
on a vaat portion ot-our ailitary and coaaercial tranaactlona. 
To argue, as aone do, that our relatlonahlp la baaad on 
bualnasa aa uaual — or that our governaent has a 'noraal' 
relatlonahlp with South Africa — is patent nonaense. 

Sone argue that we ahould go further and try to run South 
Africa out of the conaunity of nations through boycotta, 
embargoaa, and sancttona. The laglalation before you. for 
example! would prohibit bank loans to the South African 
Government or Ita paraatatal corporations. We fall to see how 
this would hasten the end of the apartheid eystea. Indeed, it 
would hurt U.S. and allied business aore than It would help 
raforB in South Africa. 



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A prohibition on bank lonns ifould ce««t* n dugaroua 
pracAdant undaralnlng th* U.S. policy that Intarnational 
capital aarkata should caaain fra* of govarn>«nt intarfaKanoa 
and that landing daclalona ahould ba baaad on aarkat rathar 
than political conaidarationa. If bank loana to South Africa 
ahould ba prohlbitad, than Bouth Africa would ba tha only 
country with which tha Unitad Stataa haa dlploaatic ralatlona 
that would ba aubjact to a U.S. bank loan prohibition) thia la 
an iBportaQt pracadent for tha Banking Coaaittaa to baar in 
Bind. 

Tha raault of such a prohibition on bank loana would ba 
that paraatatal aganclaa far raaovad troa tha davalopnant of 
Bparthald policy, auch aa tha Blactrletty Supply Coulaalon or 
South African Alrwaysi would ba unabla to get U.S. financing 
for tha purchase of Aaerlcan products. This would penallsa 
U.S. banks and flna doing significant buaiaass with thaaa 
antitias, without any raal inpact on South Afclca. Alnost 
certainly othar countrlaa' banks would replace U.S. banks aa a 
landing source and thalr factories would benefit froa tha 
orders that would have gone to U.S. flraa. 

In addltloni any extension of an effective loan prohibition 
to cover foreign affiliataa or branchaa of U.S. banks would 
raise aarioua queatlona about tha extratarrltorlal application 
of U.S. law. Tha raault would ba strong objections froa our 
alllaa who would conaider their sovereignty violated. 



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Th« Ada ini strati OB al*o oFp«)a«a th* «daptton of a 
prohibition on naw Invaataant In loath Africa. Our opposition 
la baaad on thraa points. First, aueh a prehibttlon wonld 
Halt oivortunltiaa for axpanaion bjr prseiaaly thoaa (tras that 
hava dona tha aoat to pro>ota aoelal Chansa in South Africa. 
It would thna 'fraasa* tha nuabar of black aaployaas 
banaflttlng froa tha Sullivan Cod* and alallar codas of 
corporata conduct. Such a 'fraasa* would in turn slow tha 
proccaas of changa Insld* South Africa In which tha aora 
prograsslva U.S. tiras hava baan In tha forafront. 

Sacondi this naaaura would diaerlalnats against O.S. tlraa 
that alght daslr* to invast In South Africa, by oCfsrlng in 
effact an oligopolistic situation for ftraa alraady thara. To 
tha extant that tha abaenca of D.S. Invaataant aight ccaata 
aarkat opportunitlas In South Africa, thara is llttla doubt 
that BOBS of our aconoaic eonpatltora around tha world would 
Btap in to fill such a gap. 

Third, and aost iaportant, as a diract consaquanca of a 
prohibition on naw invaatasnt, black South Africans would loss 
naw job opportunities or be denied opportunities to ba aaployad 
by tha aora progressiva D.S. firaa. An aconoay that aust 
create 250,000 naw jobs for young blacks each year, and that 
will have twice as aany of thea entering the job aarkat by the 
. turn of tha century, needs aore jobs, not less. 



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In addition to ■ prohibition on bank loanar anottaar 
propoaal would alao raqulra that D.S. ftraa In South Africa b« 
aada to coaply with aandatoiy labor standarda. Thla propoaal 
would aandata tha adoption by D.S. firms in South Afeloa of 
aBployaant atandarda aueb aa tboaa contalnad In tha Sullivan 
Prlnciplea, which ara voluntary in nature. In our view, it haa 
baan praciaaly tha voluntary natura of thaaa prlnclplaa that 
baa raaultad in thaic succcaaaful application to data by U>8. 
fir>B oparatlng In South Africa. Hhlla laaa than a Majority of 
tha D.S. firaa In South Africa have actually adopted tha 
Sullivan Principlesi the largest D.S. flras have dona aoi with 
tha result that aora than 70 peccant of tha non-white eaployaes 
of D.S. firms is South Africa ^i^* covered by these prlnclplaa. 
Through continued perauasion, wa bslieva more firms will join 
thla effort. 

Requiring coapaniea to adopt labor atandarda and 
threatening proaacution for failure to do so la likely to 
undercut tha positive achievements of tha U.S. Sullivan 
signatory firms. The voluntary nature of the Sullivan Coda has 
served to set an example for European and South African firms 
to break with the old> raclat ways of doing bualnasa. Tha D.S. 
coipanlasi through Sulllvaui proved that Individual afforta 
could help move tha ayatam in a positive direction. Theae 
firms have spent over tlOO million outside the workplace to aid 



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er 



tb«lr afvloyaaa and othara In tha black ooaaimlty. In 
addition, glvan tha dallcata bualnaaa ellnata facad by flraa 
that lavaat In South Africa, aaking labor atandarda mandatory 
could prova to ba tha final straw in caualng aona 0.8. flraa to 
raconaldar thalr praaanoa In South Africa. Thalr wlthdraMal 
ifould aaan titat fawart eathar than greatai-. nunbara of black 
South Atrlcana would coaa to anjoy tha banaflta of iracklnf Cor 
flraa that adtaara to anllghtanad labor atandarda. 

Thava fair labor ^atandarda vara originally daval^ad to ba 
a voluntary guida fo> flraa. not a lagal coda. Bona of tha 
■aaauraa undar conaldaration. howavar> would raqulra tlta Dnttad 
Stataa Oovaroaant to aaka highly coBplez lagal Judgnanta, baaad 
on vagua and lapraciaa vtandarda, on aach U.S. firn and l^oaa 
•avara panaltiaa on flraa that ara not cartiflad aa balng In 
covplianca. Thia Mould not only ba unfair to tha flraa 
Involvadi but would be unworkabla aa well- 
Finally, other bllla before you would iBpoaa a blanket 
prohibition on the export of nuclear equlpnant and technology. 
Such a prohibition would undemina our ability and lavaraga to 
broaden tha application of international aafeguarda in 
countrlea that do not presently accept full-acope aafeguarda. 
Such a blanket prohibition on the export of all dual-uaa gooda 
and nuclear equlpnant or technology to South Africa, aa wall aa 



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all other non-full acop* aafaguard'Stateai would undercut our 
non-prolifaratlon afforta and would raduc* our Influance In 
auch countrlaa* nualaar program*. 

All appltcationa for export* of nuclear-ralatad «qul^«nt 
or aaaiatanc* are alraady thoroughly revlawad aa to thair 
pEollfaration iaplicationa and their effect on foreign policy. 
In the caee of atatea that have not accepted full-ecopa 
aafaguarda, only liaited non-senaltlve aaalataaca la pecaitted 
— and than only whan it will advance our non-proliferation 
objectivee. In the caae of South Afrlcat our dialogue with 
that governaent on non-proliferation aatterai coupled with a 
willingnaaa to allow eitraaely lialted, non-aanaltlva 
. aaalatance to facilities In South Africa that are under IAEA 
•afeguardsi Contributed to three inportant decisiona by the 
South African Governnent last yeart flrsti to require IAEA 
safeguards on all Ita nuclear exportai aecond, to export only 
according to the Huciear Suppliars Group Guldellneai and thlrdt 
to renew talks with the lAn concerning plaee>ent of ite 
seni'coaaercial uranium anriahment plant under IAEA aafaguarda. 

In SUB, Mr. Chairaani this Administration does not believe 
that any of the punitive maaaurea in the bill before you, or 
siailac ones in other bills that have bean propoaedi will 
hasten the demise of apartheid. We do not baliave it is wise 



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to wltbdtaM th« li«it«d .tools of InfluttDC* w* do hav* and 
•iaply hop* tbm pEobl«a go«« «H«y. To iapo** Baiictiaiis aight 
•xpcasa our grlaf and angar ovat tha vlolanca that haa racantly 
takan tha livaa of so aany in th Baataca Cap* and alaawhara In 
South Africa. Buch action would not howavaEi aaaliorata tha 
burdana of tha victlna of apacthaid. ladaad. tha likaly raault 
would ba to Incraaaa thoaa burdana and aquandar our influanea, 
thuB aaking the D.S. aaaantially irralavant to tha proeaaa of 
change in South Africa. 

In abort. It ia difficult to aee how South Africa will ba a 
better place without U.S. iafluanc* and prananea there, lialtad 
though thay are> If what we peek is to influence poaltlva 
Chang* within South Africa and to encourage regional atablllty 
(including the eatablishaent of an indepandant and 
internationally recognlead ltaalbia)i than aanctlons auat b* 



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70 

Senator Heinz. Secretary Dam, thank you very much. We are 
glad to have both you and Mr. Crocker here. 

I think the administration's policies in southern Africa as rela- 
tionships between countries are examined have had some very posi- 
tive effects. You have managed somehow to reduce tensions be- 
tween the Union of South Africa and Mozambique. There is, I sup- 
pose, BOme progress, although it's difficult to say in Namibia. 

It is my understanding that South African troops may soon be 
removed from Angola where I gather South Africa has claimed 
that they have never been, but the issue that I think most mem- 
bers of the committee are focusing on is not so much the success of 
the administration's policies between countries as on the lack of 
success in bringing about constructive change in South Africa on 
the policies of apartheid. 

PROBLEMS ARE GETTING WORSE, NOT BETTER 

Indeed, it seems that the problems there are getting worse, not 
better. In the last 6 months there have been all too memy examples 
of denationalization, of increased repression, of the arrest of many 
people for purely political activities, and you are as aware of the 
list as I am. 

So I guess my first question to you is: Does the administration 
have as a goal the elimination of apartheid and, if so, how are you 
going about achieving that goal because simply waiting and seeing 
does not seem to be achieving that result? 

Mr. Dam. Mr. Chairman, I will address those questions and com- 
ments. First of all, I'd like to introduce Mr. Framk Wisner. Mr. 
Crocker had to leave for another engagement. Mr. Wisner, his 
deputy, is here with me. 

May I say at the outset in response to your first comment that 
while it's true that the focus of these hearings is on what is hap- 
pening in South Africa, for those that care about an independent 
Namibia and reducing the prospect of violence and improving situ- 
ations in the southern part of the hemisphere generally, we cannot 
overlook the fact that if we succeed in eliminating our influence 
and presence in South Africa we will not be able to contribute to a 
more peaceful situation. 

So we can't keep it out of the picture, but I will go directly to 
your question about the situation in South Africa. 

I agree with you that there have been some very unfortunate 
things that have happened in South Africa in the last few months 
and let me say also, lest I forget it, that this administration is une- 
quivocably and directly opposed to apeu^heid in all of its mtmifesta- 
tions. There is absolutely no equivocation on that subject. The 
President has spoken to it. The Secretary of State has spoken to it, 
emd there has been no ambiguity on that subject. 

The question is what to do about it, and that is the question — 
what to do about it? Is the thing to do about it to try to limit our 
influence there; to back out of South Africa economically and oth- 
erwise to make declarations which make us feel good but do not, as 
was practically admitted directly by the two witnesses who preced- 
ed me, have any prospect of having any real impact in South 



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71 

Africa? Or is it better to try to proceed with the policy that we 
have had? 

Now as I said, there has been some unfortunate violence in the 
last few months. On the other hand, if you compare the situation 
today with the situation 4 years ago, I think you will see there's 
been a lot of change. We don't take credit for particular changes. 
We do believe, however, that the policy of constructive engagement 
has set in motion a process of change and frankly a process of 
change that would come to a stop or at least substantially slow 
down if we were to completely change that policy toward one of 
sanctions and reprisal. 

Let me give you a few examples. There has been in the past few 
years a major new influence of legitimacy for black trade unions. 
In fact, today, 50 percent of all trade unions are black. There is a 
new constitution and while it doesn't do tmything for blacks it does 
take a step in the direction of sharing power for minority groups 
by giving power to coloreds and Asians. 

It was mentioned this morning by the preceding witnesses that 
there has been the announced repeal of the Mixed Meuriages and 
Immorality Acts as far as they affect mixed marriages and sexuEil 
relations between the races. 

There has been a major increase in South Africa in education, 
mainly for black education. Educational opportunities for blacks in 
South Africa are greater because of that. There has been an £ui- 
nounced opening of some 44 central business districts for black 
businesses. There has been a move to permit blacks to hold land 
through 99-year leaseholds roughly equivalent to the British 
system and moreover, an announcement of intention to move in 
the direction of permitting freehold ownership of land by blacks. 

There has been a suspension of the forced removm of settled 
black communities while the Government is going forward to 
review its urbanization policy. There has been an explicit Govern- 
ment rec(^nition, contrary to what we heard from the preceding 
two witnesses, that the homelands do not provide adequate politicm 
outlets for blacks. There has been a recognition that there has to 
be some better form, higher form of political representation for 
blacks. 

Finally, there has been a Government commitment to address — 
they haven't done it yet, but a commitment to address the issue of 
citizenship for all South Africans, including blacks. 

So I think it's wrong to say, Mr. Chairman, that there hasn't 
been any change and we are just waiting around hoping that some- 
thing will turn up. It's not enough. The question is, will the propos- 
als before you and in other bills before the Congress continue to 
move in that direction or will they have just the opposite effect. 
That's what we are talking about. 

Senator Heinz. That's an important question. I don't wish to 
minimize it by my question, but I really want to come to a conclu- 
sion on my question which is, is there any kind of meaningful 
progress that the U.S. Government, the Reagan administration, ex- 
pects from the South African Government when it comes to the gut 
apartheid issue? 

You mentioned, for example, that there has been a suspension of 
forced removals, one of the most repulsive but by no means the 



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72 

only repulsive acts in apfirtheid. If that suspension should not turn 
into a permanent suspension, what happens. It means that that 
practice will be resumed. That's moving backwards. 

Now does our Government have, does the President have, does 
our Secretary of State have any internal guidelines for progress in 
these areas? 

NOT OPERATING ON A BASIS OF CONDITIGNAUTY 

Mr. Dam. We have been trying to move the South African Gav- 
emment, successfully I think, in the direction of removing the 
manifestations of apartheid and ultimately eliminating the system 
itself. We are doing that — in the last points I made — with some of 
the main pillars of apartheid. Maybe there will be backsliding. 
There heisn't been backsliding in any major degree. We are not op- 
erating on a basis of conditionality or setting up specific things 
that the South African Government has to meet by such and such 
a date. That is not the way in which we have been trying to work 
on this problem. 

It's a different philosophy than the bill before you, which betsiceil- 
ly tries to take U.S. influence out of the area. 

Senator Heinz. What's wrong with conditionality? 

Mr. Dam. We don't think that making demands for specific steps 
by such and such a date will be successful. We have indicated that 
we wanted the manifestations of apartheid and ultimately the 
^stem itself to be removed. So we think that by working with the 
South African Government and in particular also, coming closer to 
the legislation here, by increasing the position in South Africa of 
forward looking American business which has through its adoption 
of the Sullivan principles created not only in the workplace but 
also outside the workplace a fair and more equitable life for black 
South Africans. We can make a greater impact and we have £ilso 
been working in other ways by increasing the amount of money for 
black education and so forth. We're doing a number of things. It's a 
multifaceted policy which we think is going to be more successful- 
than "a hit them over the head" kind of policy. 

Senator Heinz. You have no objection to the principle of condi- 
tioneiliW; you just don't like it here? 

Mr. Dam. No. We don't think it will be effective in a r^d form 
here. There is talk about goals with South Africa, yes, but the 
notion that somehow or other by such and such a date they don't 
do X, Y, or Z that U.S. business investment will be cut off or some- 
thing of that nature, then, no, we don't think that's effective. 

Senator Heinz. My time is just about up. Let me just finish up 
on this point of conditionality. Ten days ago the President proposed 
with respect to Nicaragua a condition that if Nicaragua would 
enter into certain negotiations to achieve certain specific goals he 
would not continue to arm the country. That's conditionality. As I 
recollect the timeframe for it was 60 days. Is that correct? 

Mr. Dam. Yes. 

Senator Heinz. Now I don't like the Sandanista government, but 
to the best of my knowledge they don't practice anything as repul- 
sive as apartheid. They have violated all kinds of rights of democ- 
racy, but as far as I know, they haven't been taking bulldozers and 



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73 

knocking down villages of people who don't agree with the central 
Government. They have infiltrated and limited the activities of 
many organizations — the press — but to my knowledge, they are a 
little more delicate in the way they handle people who diaagree 
than the South Africans are who will prohibit a person who has 
associated with the wrong kind of people from being iissociated 
with. That's the bans for the rest of their life, a legal creation of 
pariahship that is strictly enforced. 

Why do we think conditionality can work in Nicaragua to the ex- 
clusion of working anyplace else, like South Africa? 

Mr. Dam. Well, in both countries we are trying to get the govern- 
ment to talk to the opposition. In that sense, there is a similarity 
in the two situations. Now there are also a lot of differences. We 
think things are moving in the wrong direction in Nicaragua. We 
think things are moving in the right direction, albeit very slowly, 
in South Africa, but nevertheless moving in the right direction. I 
think we also have to recognize that there's one other mtyor differ- 
ence. The situation — and we can debate this if you like— but the 
situation in the view of the administration and strongly the view of 
the President, and the reason he made this peace offer, this peace 
proposal, was that the situation in Nicaragua was a m^or national 
security danger to the United States. 

Now I think that the situation in South Africa is different in 
that respect too. So there are a lot of differences. We are not saying 
that under no circumstances will conditionality ever work. We are 
saying that the present policy is working. The proponents of these 
sanctions don't really even argue that they will work. They say we 
ought to have them and I can understand that argument, but they 
are not saying it will lead to further positive results and I don t 
think it's reasonable to believe that they will. 

Senator Heinz. I want to explore that point with you later but 
my time has expired. Senator Proxmire. 

Senator Proxmire. Mr. Dam, in 1981 a prestigious study commit- 
tee called the Commission on U.S. Policy Toward South ^Jrica pub- 
lished its report entitled "South Africa — Time Running Out." That 
commission was headed by the president of the Ford Foundation. It 
included the chairmim of Xerox Corp.; the president of the AFL- 
CIO, Industrial Union Department; the chancellor of Vanderbilt 
University; th^ chairman of the Executive Committee Cumminga 
Engine, and others. 

'That commission rejected instituting a trade embargo against 
South Africa and disinvestment of American corporations. Neither 
of those measures incidentally are in the bill we are considering 
now. The commission did recommend, however, that U.S. corpora- 
tions and financial institutions operating in South Africa commit 
themselves to a policy of nonexpansion and those businesses not al- 
ready there should not enter the country. That's precisely what we 
put into this S. 635, along with a no new bank loans policy. 

Do you think that the study commission's report on South Africa 
was balanced and, if so, why do you continue to reject one of its 
key recommendations? 

Mr. Dam. I think that the reasons that we do not favor the policy 
proposed by that particular commission is set forward in my testi- 



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74 

mony. I would be glad to review those points with you if you would 
like. 

Senator Proxmihe. Would you agree that the president of the 
Ford Foundation and the head of these other corporations along 
with the AFL-CIO represents a pretty good balance of American 
industry and labor? 

Mr. Dam. I certainly think these are outstanding people, yes, and 
I don't have any problem about the composition. 
. Senator Proxmire. Well, let me ask you a question that you, par- 
ticularly aa Assistant Secretary of State, can give us excellent 
advice on. 

We have a provision in S. 635 directing the President to under- 
take international negotiations to persuade other nations to adopt 
restrictions on new investment in and bank loans to South Africa. 
As you know, Sweden and Japan have already restricted invest- 
ment there and a growing number of European legislators — I've 
talked with some of them recently — they are pushing for the same 
kind of thing and think they can get it through, particularly if we 
set an example. 

If we pass the restrictions in S. 635 and persuaded other Western 
governments to do the same, wouldn't that help those whites in 
South Africa who want change and isolate those who do not and 
wouldn't more and more white South Africans see that present 
policies can only lead their country to economic disaster? 

Mr. Dam. Well, Senator, you are asking a question with a great 
big condition at the beginning which I think we have to examine — 
the notion that all the countries — the Japanese, the Germans, the 
other Europeans, are going to cut off investment to South Africa. I 
just find that totally implausible and certainly everything that I 
have heard from those governments 

Senator Proxmire. I didn't say cut off. I said restricted in the 
way I suggested and I point out that Japan already does it. Japan 
has done it for some time and, of course, Sweden also does it. It's 
not as if none of these countries have done it in the past. But this 
country is so important because we are the principal trading part- 
ner, as you know, the No. 1 trading partner and we're the second 
biggest investor in South Africa. 

Mr. Dam. I'm not familiar with your point about Japan. It seems 
to me Japan's role in South Africa has been growing very rapidly 
and certainly a number of European governments 

Senator F^oxmire. It's possible and I would hope that our role 
would grow in South Africa in a constructive way, but they do re- 
strain investment. That was one of the ways that they were able to 
get the so-called colored, which would include Asiatics as I under- 
stand it, for the first time to begin to get some influence, because 
they began to restrict investment. It seems to me we can follow 
that s£une precedent. 

Mr. Dam. If the world were perfect and everybody would go 
along with us, we would have a different situation. I still ques- 
tion — let me put it this way. There is a question whether this 
would help the blacks in South Africa, which I think is an impor- 
tant issue. 



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SOVIET INTEREST IN SOUTHERN AFRICA INCREASES 

Senator Proxmire. Let me ask you, Mr. Wisner, in March 1982, 
Mr. Crocker— I understand you're his deputy— stated before the 
Sc^te Judiciary Committee: 

In recent yean we have noted a aubetantial increase in Soviet int«reflt in south- 
ern Africa, 

And noted, 

* * * in seeking to encourage South Africans to reeolve their problems through 
peaceful evolutionary change, we stripped the Soviet Union of justification for fan- 
ning tensions within South Africa into a racial war. 

Now it doesn't surprise me to see the Soviet Union trying to 
expand its influence in South Africa and Tm sure inadvertently we 
may be helping them to do so. Let's reflect on that for a moment. 

Blacks in South Africa have condemned apartheid for over 30 
years and during those 30 years we have expanded our economic 
involvement in their country. Blacks have no political rights, so 
how do they change the situation through the system? In December 
1984, Bishop Tutu said. 

Blacks deplore comniunism as being atheistic and materialistic, but would regard 
the Russians as their saviors were they to come to South Africa because anything, 
in their view, would be better than apartheid." 

Now I don't think we can spend smother 30 years cajoling the 
Sou^ African Government to change. Time is running out, and 
that's why I favor the limited economic sanctions in S. 635. 

Why do you think just continuing with constructive engagement 
is the way to combat Soviet influence with the blacks in South 
Africa? Why wouldn't the limited economic pressures in S. 635 help 
move the South African Government and let blacks know that we 
back their struggle for political rights? 

Mr. Wisner. Senator, I don't think there's any doubt in the 
minds of black South Africans about where the United States 
stands. It's a very clear position. It's been spelled out from the 
highest levels of this Government over a number of administra- 
tions. What we have set about to do is to put our influence on the 
side of serious change and, as Secretary Dam said this morning, 
he's articulated a pattern of change inside that society, obviously 
not change that is adequate in its entirety, but change that indi- 
cates, or events that indicate, that serious, thorough undeigoing 
change is taking place inside South Africa. 

Senator Proxmire. Let me just ask at that point, Mr. Wisner, it 
seems to me that blacks might well ask why don't we put our 
money where our mouth is? When Senator Kennedy, who just testi- 
fied before you, was in South Africa, as you know, he got a rocky 
treatment from the blacks in many CEises because they felt he rep- 
resented American policy, the Reagan policy. He was a U.S. Sena- 
tor and that was their position. I think, there is a misunderstand- 
ing. They feel we don't really have a policy backed up with any 
force. It's easy to make speeches, but it's something else to show 
that we mean business. 

Mr. Wisner. Senator, I think you will find that there are a great 
many voices of South African black opinion, not just those who pro- 
tested during Senator Kennedy's stay. You have a wide range of 



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76 

key black leaders. Bishop Tutu, for example, who is not in favor of 
disinvestment; the paramount chief of the Zulu people who is not 
in favor of it; the key leader of the urban blacks who has come out 
against it. You have a -wide range of articulate, thoughtful South 
African black spokesmen who do not call for measures of disinvest- 
ment. And when I speak of disinvestment, I choose my words care- 
fully because there are measures that lead inexorably to disinvest- 
ment. Blocking new investment, for exEunple, is one of those meas- 
ures. 

SOUTH AFRICAN BLACKS OPPOSE ECONOMIC SANCTIONS 

Senator Pboxmire. Well, now let me point out what Bishop 
Tutu's position is on that and put this in the proper context. Many 
opponents of the type of limited economic sanctions in S. 635 say 
that South African blacks oppose economic sanctions and they rely 
on a survey conducted by a white South African professor. Profes- 
sor Schlemmer, paid for by our State Department. 

In regard to this issue, this is what Bishop Tutu said in Decem- 
ber before the House Foreign Affairs Committee: 

You should be aware that if I support economic sanctions against South AMca, 
that is an indictable offense, and until recently, upon' conviction the mandatory 
minimum sentence would be 5 years imprisonment, 

which indicates how the South African Government regards the 
importance of foreign investment. He went tm to say, 

We have a society that is ridden through and through with informants and when 
people are aware of any penalties for expressing unpopular views to authorities, it is 
highly unlikely they will say precisely what they really feel. 

Do you think under those circumstances that Bishop Tutu's posi- 
tion on investment isn't necessarily colored by that? He says it is. 
; He says he has to take that position or go to jail. 

Mr. WisNER. There is no argument,. Senator, that Bishop Tutu 
had to take the stand that he's taken. Let's be careful about what 
he's said. He wants to see change, only peaceful change, inside the 
society. Second, he's calling for that change to eiccelerate over the 
next 2 years and at the end of that 2-year period to see where 
South .^rica stands. 

Now the bishop isn't forced to make that statement. He made 
that statement because, one would have to assume, he means it. 
Other South Africans who speak against disinvestment are under 
no legal obligation to speak against it. When you go to the Schlem- 
mer report, which you mentioned, and look at that report, the over- 
whelming majority of black South Africans did not support disin- 
vestment and other South African polls also come out against dis- 
investment. You will also find they were polled on their views on 
the ANC and they spoke very clearly without intimidation as to 
their support for the ANC. So I think those observations, those 
statements of views of South Africans, either workers or articulate 
leaders, are things they believe in and I take them at face value. 

8. 635 IS NOT A DISINVESTMENT BILL 

Senator Proxmire. Well, my time is up, but let me just say our 
bill is not a disinvestment bill. It's not a disinvestment bill. It's a 



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77 

no new investment bill, which is quite diiferent, plus the fact that 
it permits U£. corporationB to reinvest their profits that they have 
made in South Africa. 

Mr. Dah. Although you would agree that the absence of new in- 
vestment is going to lead to a decline over time of the position of 
American fmns, would you not? Isn't that the point? What's the 
point of no new investment unless that's the resiut? 

Senator Psoxmibe. Well, it's going to mean, I would hope, that 
we could b^in to make some real progress in South Africa and, of 
course, the bill also provides that if the President sees real 
prepress, he can repeal this, and if the House and Senate decide to 
do BO, we can repeal any measure that's here. It's one that gives 
flexibility to the President and a basis for Incentive and encourage- 
ment for the South Africans to change. 

Mr. Dam. My comment would be that I doubt very much that a 
distinction in responses to these polls and public statements by 
South African black leaders would be made between what the bill 
proposes and disinvestment. They both deprive black South Afri- 
cans of opportunities for employment. 

Senator Proxmire. My time is up, Mr. Chairman. 

Senator Heinz. Senator Proxmire, thank you. Senator Sarbanes. 

Senator Sabbanes. Well, thank you, Mr. Chairman. 

Mr. Secretary, you make the point on page 6 of your statement 
that our relationship with South Africa is not normal, or business 
as usual; is that correct? 

Mr. Dau. That's correct. 

Senator Sarbanes. Is it your view that our relationship with 
them, in the present circumstances, should not be normal? 

Mr. Dam. My view is that we have struck approximately the 
right position, tnat is to say, we have shown our distance in a vari- 
ety of ways. 

Senator Sarbanes. You think we should stay such a distance 

B4r. Dam. While still being constructive in our relationship. 

Senator Sabbanes. Do you think we should show some distance 
from South Africa? 

Mr. Dam. Yes; as I said in the statement. 

Senator Sabbanes. Now I'd like to take two or three of the items 
you listed to demonstrate that. One was the instruction to our rep- 
resentative at the IMF. Did the administration support that? 

Mr. Dam. I believe not. 

Senator Sarbanes. That was congressiooally im[>osed, was it not? 

Mr. Dam. I believe you're correct. Senator. 

Senator Sarbanes. Was the restriction on the Eximbank coi^res- 
sionally imposed? 

Mr. Dam. Yes; I believe it is legislatively imposed. 

Senator Sabbanes. I find it interestii^ that the exeunples that 
you offered in steting that you don't think we ought to have a 
normal relationship because it would send the wrong signal about 
apartheid and in demonstrating the absence of a normal relation- 
snip, were instances congressionally imposed. 

Mr. Dam. I believe that this occurred during the Carter adminis- 
tration. 

Senator Sarbanes. The IMF restriction? 

Mr. Dam. The Eximbank. 



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78 

Senator Sarbanes. Do yon support thafEbtimbank restriction? 

Mr. Dam. What I'm saying in this statement is that our present 
position is approximately correct. Whether this particular limita- 
tion is effective and constructive and so forth might be question- 
able. We support it euid carry it out. 

Senator Sarbanes. In other words, you think you were wrong on 
the IMF position? 

Mr. Dam. As I say. Senator, we accept the legislation. We are not 
quarreling with the legislation. We say that the move from these 
kinds of limited steps to something much more far reaching would 
have, on balance, a counterproductive effect. 

Senator Sarbanes. I understand that position, but at an earlier 
time there was a difference in judgment and I'm now trying to find 
out what your judgment is on those matters, since there's a differ- 
ence in judgment at the current time. 

I take it you now support the IMF restriction. 

Mr. Dam. I believe the President signed that bUl. Therefore, 
unless I'm mistaken, he decided' under all the circumstances to sup- 
port it. 

Senator Sarbanes. I think the bill included other things, but you 
do support that restriction? 

Mr. Dam. We accept it as the law of the land, yes. Senator. 

Senator Sarbanes. That's not my question. Do you support it as 
a matter of policy? 

Mr. Dam. If you would like, I will go back and obtain an adminis- 
tration position on that issue. 

Senator Sarbanes. Why don't you let us know the administra- 
tion's position? 

Mr. Dam. I will be glad to. 

[The following information was subsequently submitted for the 
record:] 



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Curreoi PresiSxnl Reagan 

'<•«« Rededication to the 

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MAY 2 1 1985 

Dear Hr . Chaiinani 

' This is in response to your reqjest of kpiil 16, 1985 to 
Deputy Seccetacy of State Dam regarding the views of the 
. Administration on S, ;635, *a bill to express the opposition of 
the United states to the system of apartheid in South Africa, 
and for other purposes.* 

S. 635 contains six principal .measures: first, a 
prohibition on new U.S. bank loans to the South African 
Government or any entity controlled or owned by that government 
(with certain exceptions]; second, a prohibition on new U.S. 
Investment in South Africa (with certain exceptions); third, a 
prohibition on the importation of Krugerrands or other gold 
coins minted in South Africa; fourth, a prohibition on the 
export of computers, software or related computer services to 
the south African Government or entities controlled or owned by 
it; fifth, the establishment of .a procedure for limited waivers 

sixth, a requirement that the President attempt to persuade 
other countries to adopt similar policies. 

Before outlining some of the specific objections which 
the Administration has to the individual measures contained in 
this bill, 1 should like to explain the Administration's 
differences with those who seek to impose additional punitive 
sanctions on South Africa. 

we recognize the strong need of Americans to express 
disapproval of any system which institutionalizes racial 
discrimination. The U.S. Government and the people of this 
country are on record as strongly supporting the policies 
reflected in section 2 of this bill, including the condemnation 
of apartheid and the goal of seeking its eradication. The 
sponsors of s. 635 believe that the United States can best 
realize the latter objective by the punitive measures proposed 
In the bill. We do not share this view, nor does the 
Administration support comparable measures that have been 
proposed in other bills. 



.rman, international Finance e 
Monetary Policy Subcommittee 
united States Senate. 



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in out via«, S. 635 will not advance the goals we ahace 
with resp«ct to South Africa. H* wiah to aee apartheid 
eradicated and the establiahaent of a ]uet governBent baaed on 
the conaent of all th« governed. The Adniniatcatlon beliaves 
that the influence of the Onited States should be used in auch 
a auinnec that these goala can be advanced, recognizing that 
■eaningfjl change will only be brought about by the people of 
South Africa and not by our actions. He should adopt neasures 
and policies which can realistically influence the people of 
South Africa, and not i^easjr^ea which will only serve to 
distance the Onited states fro» the process of change that ts 
taking place in that country. 

m the case of South Africa, punitive aeasurea such as 
those proposed in S. 63S are the wrong signal to send at this 
tlsie. Ttiey are far more likely to harden opposition to change 
in South Africa than to bring about additional refota. The 
south African Government haa In recent years initiated a 
proqra* of refora which has caused a serious split snong the 
Afrikaner people, whil^ the pace of change ts less thsn whst 
we desire, this cojrs-e ot action should be encouraged. Recent 
actions — such as the decision to repeal soae of the offensive 
laws relating to incerraclal aarrlages and the decleon to 
proaote equal education opportunities for all races — are 
steps In the right direction, and they should not be cast aside 
as irrelevant or empty gestures. Punitive measures will only 
strengthen those opposed to fundaaental change in South Africa, 
and could easily lead to retaliatory trade and other measures 
which would ultimately daoage the interests of the vlctlas of 
apartheid and the U.S. business coaaunlty. 

As discussed In further detail below, we believe that 
sanctions will not cause the South African Government to change 
its objectionable policies, nor will they Improve the political 
and economic plight of black South Africans or further the 
economic or national security interests oC the United States. 
in our view, the way to Influence change In South Africa Is to 
use the resources available to the united States In a positive 
rather than negative nanner. we should encourage the positive 
efforts of U.S. firms to pursue enlightened labor practices and 
the efforts of the AFL-CIO to train black trade unionists, we 
should make the most of the extensive scholarship and training 
programs sponsored by the U.S. Government and pursue the use of 
the diplomatic and political leverage of this country. These 
Influences should be maintained and increased to affect the 
rate and direction of the change already underway there. 



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Our evaluation of the apecific provisions of the bill 

1. Prohibition on Loans 

The Department of State opposes the prohibition on O.S. 
bank loana to the south African Governnent and entities owned 
or controlled by that government (with narrow exceptions for 
certain educational, housing, and health loans). This measure 
would create a dangerous precedent in terms of financial 
policy. It would undermine the Administration's position that, 
except in circumstances involving national security or a 
national emergency, international capital markets should remain 
free of government interference and lending decisions should be 
based on laarket rather than political considerations. If bank 
loans to South Africa should be prohibited, then South Africa 
would be the only country with which the U.S. maintains full 
diplomatic relations that would be subject to a U.S. bank loan 
prohibition. 

in addition, any extension of an effective loan 
prohibition to cover foreign affiliates of U.S. banks would 
raise serious questions about the extraterritorial application 
of U.S. law. It can be anticipated that such action will 
result in objections from our allies, as well as the kind of 
■s that we have experienced in past cases involving 
laws in foreign countries. 

One other result of such a prohibition would be that 
pataetatal agencies unconnected with the implementation of 
apartheid policy, such as the Electricity Supply Commission, 
would be unable to obtain U.S. financing for the purchase of 
American products, in this way, we would only penalize U.S. 
banks and firms doing significant business with these entities, 
without making any real impact on the South Africa Government, 
undoubtedly, other foreign banks would replace U.S. banks as a 
lending source, and their factories would benefit from the 
orders that would have gone to U.S. firms. 

2. Prohibition on New investment 

We oppose the adoption of a prohibition on new 
. investment in south Africa (including bank loans to 
non-governmental entities in that country). It would limit 
<^portunitles for expansion by precisely those firms which have 
done the moat to promote social change In South Africa, As a 
direct consequence, black South Africans would lose new job 
opportunities and be denied employment with the more 
ptoqresaive U.S. firms. The U.S. firms which have adopted the 
Sullivan Principles employ about 70 percent of the non-whites 
working for all U.S. firms in South Africa. These firms are in 



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highly vtaible «nd ii^octanc sectors such as au^oMotlv* 
■aou fact lire, pbaraBcmiticala, pcttocbaaleals aad c««pue«cs. 
nt«y serve as a catalyst (oi change thtoagh - - . - - ' 
puesuic of iaftEOveBents for thalt non-vhit* ' . . in 

the workplace ^--t outside the workplace, ?v' ^*'* area 

of bousing education aod health. Punitive legislation nhich 
would restrict the eipanaion of such firas, and thereby Itsit 
the nuBbeis of new ei^loye??. would •freeie* the nusber of 
black Soucr, Af r . ; - ----.-:-i^ fron the Sullivan Code, such a 
'freeze* wc^li in turn slow the process of change Inside South 
Africa — a pr:.;c33 . r. irtiich the Bore progressive D.S. firas 
have been in tbe forefront. 

It is taportant to e^haalte that this section of the 
bill would al3D prstiiDi- new D.S. bank lending to South Africa, 
in effect ei\^'i.r.: ■■ ^ bank loan prohibitions of section 4 to 
cover all ~l.'.5. ing to South Africa (which is mot* than 

^4 billion), me could serious financial 

iaplicatioos foe 1 - ; ^ _ 'Ing and, to the degree the 
ban is not offset . -r^.;-. lending, for the Souh 
African econoay. Such ■ aeasure would have serious 
repercussions for O.s. exports to South hfrica and thus for 
esployaent in the D.S., as well as for blacks eaployed In South 
Africa whose positions would be iaperiled because of the bill's 
econoBlc lapact. 

AS In the case of the prohibition on bank loans, the 
bill's proposed ban on new O.S. investaent in South Africa 
would apply to foreign affiliates of O.S. firas. The resulting 
eitraterritorlal application of D.S. law is certain to give 
rise to frictions with our allies. It is noted in this 
connection that a recent Swedish neasure on inveatnents in 
south Africa which could have a Halted extraterritorial effect 
was sharply criticized by the OECD earlier this year. 

In addition, this aeasure would diacrlalnate against 
O.S. Clrns which night desire to invest In south Africa by 
offering econonic advantages to firns already there. A 
prohibition on new O.S. Investnwnt would deprive us of aarket 
opportunities in South Africa. There Is little doubt that our 
economic competitors around the world would readily step in to 
fill such a gap. 

!S would see this aeasure as a punitive move 
iul<3 foster an unfriendly business climate, 
forcing D.S. firms to reconsider trieir existing investnents In 
south Africa. Its tefmfi Cor example, would block U.S. firns 
from providing capital Izow the u S for local subsidiaries 
caught in the current econoaic downturn, thus effectively 
limiting aanagement 's ability to cope effectively with the 
vagaries of the marketplace. This is unfair and unjust. 
Should these firms withdraw or reduce their operations, black 



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south African employees would be the fleet to suffer since they 
would either lose their jobs or be taken over by less 
enlightened nanagenent. It 1b an indisputable fact that U.S. 
flrns are the leaders in good corporate citizenship and fair 
employment practices in South Africa, and in our view it does 
not make sense to penalize these leading corporate voices for 
change. 

It is very clear from the recent Swedish experience with 
the curtailment of investments that the prohibition on new 
investments leads In practice to disinvestment. By interfering 
with the normal flow of capital, firms are rendered less able 
to compete, it is likely that a number of firms will decide 
that it is no longer in th*ir economic Interest to fight these 
pressures and pull-out. since 1979, when Sweden took rieasures 
to block new investments, the number of Swedish firms in south 
Africa has dropped by almost S0%, from 31 to IT, and local 
employment has dropped by a slnilar percentage — from 5,500 ' 
to 2,800.'. There is no reason to believe that U.S. firms would 
react any differently. 

Black south Africans recognize the implications of such 
threats to their economic livelihood. Three recent polls have 
shown that the majority of black South Africans oppose efforts 
to reduce or eliminate foreign investments in South Africa. A 
survey conducted in 1984 by the widely-respected sociologist 
Lawrence Schlemtner of the University of Natal, which was partly 
funded by the Department of State, concluded that while many 
black south Africans support the goals of the banned African 
National Congress, fully 75 percent of those polled were 
opposed to measures that would result in the reduction of 
Investments and job opportunities in South Africa. This 
conclusion has been validated in two other recent surveys. 

3. Prohibition on Krugerrand Imports 

The symbolic gesture of prohibiting the Import of the 
privately minted south African gold coin, the Krugerrand, is 
-not based on sound economic principles. Since all forms of 
gold bullion or coin ace near-perfect substitutes, prohibiting 
Krugerrand imports into the U.S. would simply change the 
composition of worldwide flows and different regional markets 
without affecting the overall level of south Africa's gold 
exports. Other sources would replace U.S. imports of south 
African gold. Similarly, South Africa would fill the gap in 
other markets created by the diversion of those gold supplies 
to the United States. Even if we accept, for a moment, that 
the legislation may actually succeed in reducing south African 
gold sales, there would be an economic impact on that country. 
But the. proposal would also harm South African blacks, hundreds 
of thousands of whom work in the gold mining Industry, as well 



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aa tens o£ thousands of AfclcAns fitm a half-doien countries as 
faT away aa Kalavi who work in South Africa's gold ainss. Ns 
would be telling the black workeia of South Africa what la beat 
for tbea, and in the ptoceaa we would be punlahlng the very 
vlctias of the apaitheid ayatea. 

nie propoaed prohibition on the iaport of Krugercand* 
alao talaaa serioua iaaues regarding the international legal 
obligationa of the United States. The sane iaaue haa ariaen 
with respect to the propoaed ban on landing rights for South 
Afiican airlines and the denial of tax credits for U.S. flr>a 
doing busineaa in South Africa, both of which are contained in 
billa introduced In the Rouse of Representatives. The latter 
two prohibitions would be clearly Inconsistent with 
international agreenenta currently in force with South Africa. 

The Krugerrand iaaue is far nore complex, nie proposed 
ban would appear to violate the prohlbitlona in the General 
Agreement on Tariffa and Trade relating to quantitative 
restrictions on laporta froii countriea that are partiea to the 
GATT (e.g.. Article XI and XIII). The GATT doea contain a 
general exception in Article XX for neasures 'relating to the 
importation or exportation of gold or silver.* such aeaaures, 
however, are subject to the qualification that they nay not 
'constitute a means of arbitrary or unjustifiable 
discrimination between countriea where the sane conditions 
prevail.* This latter phrase has generally been interpreted to 
■ean trade-related conditions rather than political ones. 
Whether a flat ban on the importation of Krugerrands would be 
in violation of the GATT would ultimately be decided by the 
GATT Council should a challenge be brought by South Africa, and 
it is not clear whether the GATT Council would construe the 
limited qualification In Article XX as permitting any selective 
import ban based on political or moral grounds. 

It is also difficult to predict whether south Africa 
would choose to raise a GATT challenge were we to Impose an 
import ban on Krugerrands. South Africa has filed a GATT 
challenge against Canada with respect to a provincial sales tax 
which discriminates against imparted gold coins, including the 
Krugerrands. if south Africa was to challenge any import ban 
on Krugerrands Imposed by the U.S., the GATT could authorize 
south Africa to take retaliatory measures against o.s. trade 
proportionate to the effects of the ban on South Africa, such 
authorization could be granted even If the ban does not violate 
the GATT, since the GATT provides relief for GATT-consistent 
actions that 'nullify or impair* the benefits of the gatt. 



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A celated GATT lesue Is whether the 'Host Favored 
Nation* rights accorded to South Africa under Article 1 of the 
GATT could be suspended or terminated on human rights grounds. 
The limited general exceptions provided in Article XX of the 
GATT relating to certain products (referred to above) and the 
security exceptions in Article xxt do not provide a basis to 
deny hph rights based on human rights grounds. The denial of 
MPN treatment would accordingly be inconsistent with the GATT. 

4. Ban on Computer BKports 

A ban on the export of almost all computers to or for 
use by the South African Government or its parastatals is 
unnecessarily burdensome and restrictive. The United States 
Government already exercises extensive controls over the export 
of computers to South Africa. Prospective computer exports to 
south Africa are examined on a case-by-case basis to ensure 
that U.S. computers will not be used either to enhance South 
Africa's military or nuclear capability or to enforce 
apartheid, we fail to see how denying U.S. computers to south 
African Government agencies such as the South African Reserve 
Bank or the Electricity Supply commission would lessen the 
ability of the south African Government to enforce apartheid. 

The end result of the enactment of such a bill would be 
that the Qnlted States will be harmed more than South Africa, 
south Africa's public sector owns close to 50 percent of that 
country's gross domestic fixed Investment, A ban on the sale 
of computers and software would eliminate almost one-half o£ 
our yearly $200 million computer, parts, and software sales to 
South Africa. Further, many of the remaining sales to South 
Africa's private sector will probably be lost also, since U.S. 
firms will no longer be viewed as reliable suppliers. This is 
a trend we are already seeing in South Africa. 

One must recognize, however, that the economic impact on 
south Africa would be minimal. South African import statistics 
show that other countries, especially Japan, have the 
capability to step in and exploit any unilateral withdrawal by 
the United states, japan's average yearly growth rate In the 
south African computer market was 206 percent between 1976 and 
1983. Its share of the market has increased from 1.2 percent 
to 6,9 percent, with total computer sales equaling $24.1 
million in 1983. It has been especially aggressive in the sale 
of mainframe computers. The surge in Japanese computer sales 
to South Africa coincides with the imposition of special U.S. 
foceign policy export controls on computer sales to South 
Africa. Britain and west Germany, which together control 27 
percent of the South African computer market, would also 
Increase theit sales to south Africa. Other countries have 
also shown their willingness and capability to exploit any 
withdrawal on the part of the united States. 



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5. waive tablllty oC Soni* Ptovialons 

Two of the prohibitions contained in the bill {i.e., 
those on new investments and the Import of Krugerrande) may be 
waived foi periods of up to 18 months if the President makes 
certain determinations, but only if Joint Resolutions ace 
enacted approving the determinations. The Department of State 
opposes this unrealistic and time conauning procedure tor such 
United waivers. 

6. Hegotiations by the President 

S. 635 would require that the President try to persuade 
the governments of other countries to adopt comparable 
restrictions of the kind contained in the bill (e.g., on new 
investment, bank loans, computer exports, and the Import of 
Krugerrands) . The Department of State strongly opposes this 
provision. Since we do not favor the adoption of these 
punitive measures by the United States, we are obviously unable 
to support a provision which would require negotiations with 
other countries on these matters. 

The Office ot Management and Budget advises that from 
the standpoint of the Administration's program, there is no 
objection to the Bubniasion ot this report. 



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90 

Senator Sarbanes. If you don't support it, I think you ought to 
drop it from examples when you make your point about distancing 
ourselves. 

Mr. Dam. It's intended to be a factual statement as to the fact 
that our commercial relationship is now also restricted. That's 
what the lead sentence in the paragraph says. 

Senator Sarbanes. Is it your view ^at the U.S. policy on South 
Africa is perceived, at least by many in South Africa and elsewhere 
in the world, as indulging the apartheid policy of the South African 
Government? 

Mr. Dam. That our policy is indulging South African apartheid? 

Senator Sarbanes. Is so perceived by many in South Africa smd 
elsewhere in the world? 

Mr. Dam. Oh, I have no doubt that there are many people who 

gerceive it that way. I would hesitate to draw a conclusion as to 
ow the people in South Africa look at it. There is, of course, the 
survey that Senator Proxmire referred to on attitudes toward the 
investment-disinvestment issue. There have been other surveys of 
the same character. In all of those cases blacks have felt that disin- 
vestment would be a mistake. That's also the situation, since you 
asked, in the United States, which the Harris poll reported in Busi- 
ness Week. 

So I would say the majority of people don't look at it that way. 
They think the current policy is the better part of good judgment. 

Senator Sarbanes. As Senator Proxmire pointed out, this bill 
doesn't call for disinvestment. 

Mr. Dam. Well, I don't know exactly how many people would 
follow this position if that distinction was pointed out to them. 
You're, obviously, addressing a large question and you can make 
fine print of great issues, but in general they were opposed to a 
change in policy on investment. I don't think anybody would dis- 
agree with that. 

Senator Sarbanes. How high a price do you think the United 
States is paying elsewhere in the world for our policy in South 
Africa? 

Mr. Dam. I think, on balance, our policy in the southern part of 
Africa, including our policy of constructive engagement with South 
Africa, has won us a lot of support and respect. 

Senator Sarbanes. Where? 

Mr. Dam. In Europe. 

Senator Sarbanes. On what issue? 

Mr. Dam. On our entire policy in the southern part of Africa, in- 
cluding the policy of constructive engagement. I don't think you 
can separate that. 

Senator Sarbanes. Do you think the policy is working on Na- 
mibia? I notice you made the reference at the close of your state- 
ment. Do you think the moves the South Africem Government is 
now making are inconsistent with the position of the contreict 
group in the U.N. framework? 

Mr. Dam. I'm sorry. Would you ask the question again. Senator. I 
didn't grasp all of the aspects of it. 

Senator Sarbanes. You made a speciflc reference to Namibia at 
the close of your statement. 

Mr. Dam. Yes, sir. 



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91 

Senator Sarbanes. Do you view the policies or the steps the 
South African Government has announced as pursuing the track of 
the contract group in the U.N. framework or seeking to circumvent 
it? 

U.N. SECURITY RESOLUTION 435 

Mr. Dam. Well, I think there's been tremendous prepress made 
over the last few years in moving toward the implementation of 
U.N. Security Resolution 435, including steps of withdrawing their 
troops from Nfunibia, including their willingness to talk about se- 
curity conditions. You're probably referring to their latest 

Senator Sarbanes. Do you think the meetings they are currently 
having in Windhoek are an effort to implement U.N. Resolution 
435? 

Mr. Dam. I'd like to ask Mr. Wisner to respond to that. That's a 
a)mplicated question and he's been directly involved in that. 
. Mr. Wisner. Senator, concerning the announcement you referred 
to with respect to changes in the internal administration, we have 
informed the South African Government very clearly that we see 
the outcome in Namibia must continue to be based on an intema- 
tiooal settlement that is negotiated along the lines of the U.N. Se- 
curity Resolution 435. 

The South African Government has made it clear on its part 
that it will honor its commitments to these international settle- 
ments and we intend to hold the South Africans to that position. 

Senator Sarbanes. Now you made that representation to them, 1 
take it, because you were concerned that those moves might in fact 
be an effort to go outside the framework of U.N. Resolution 435? 

Mr. Wisner. There were pro[>osaU from the multiparty confer- 
ence that would have moved beyond the freunework of 435, in our 
judgment, but as I say, at the moment, we continue to insist and 
are pursuing a track that leads toward U.N. Resolution 435 at the 
center of the n^otiation and we are not going to budge from that. 

Senator Sarbanes. Mr. Secretary, on the movement in a positive 
direction that you have cited, what do you make of the arrest of 
the United Democratic Front [UDF] leadership and the possibility 
of them facing very serious charges? 

First of all, what's your view of the UDF as sm organization and 
of its leaders? 

Mr. Dam. We are very opposed to the arrest and proposed trial of 
these leaders and we made that known directly, privately to the 
South Africans, and we made it known publicly. We have con- 
demned these measures. 

Senator Sarbanes. And what's your view of the United Demo- 
cratic Front? 

Mr. Dam. In what sense? It's a political party and we believe in 
political parties. We believe in the democratic process. Are you 
asking me to endorse it? 

Senator Sarbanes. Do you think it should have the freedom to 
operate? 

Mr. Dam. Yes. 

Senator Sarbanes. Therefore, you abhor the arrests? 

Mr. Dam. Yes, indeed. 



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92 

Senator Sarbanes. I'm not clear from your statement whel^er 
you think American policy can or cannot influence what the South 
AfriCEm Government does. You seem to ai^e it both ways in your 
statement. 

Mr. Dam. We think a .wise and patient policy can have construc- 
tive results, yes. 

Senator Sarbanes. So you think it can influence the South Afri- 
can Government? 

Mr. Dam. Yes, sir; I think there are limits to our influence, but I 
think we have some influence by our presence and by our contin- 
ued dialog with them. 

Senator Sarbani^. Do you think that influence, at least to some 
degree, has to be reflected in our distancing ourselves from South 
Africa? Is that correct? In other words, bring pressure to bear? 

Mr. Dam. We think that there has to be a clear statement of our 
position on apartheid £md the distancing to a limited extent has 
been helpful. 

QUIET DIPLOMACY MAY COMMUNICATE THE WRONG MESSAGE 

Senator Sarbanes. We have to make a judgment here as to 
whether the policy of quiet diplomacy is so quiet that it may in fact 
communicate the wrong message both to the South AfricEm Gov- 
ernment emd elements within South African society and elsewhere 
that the United States, despite its rhetoric, in effect tolerates or in- 
dulges this regime. That had to be done earlier with respect, for 
example, to the IMF restrictions, did it not? 

Mr. Dam. I agree with you that it's important to make a ju<^- 
ment about exactly what kind of stance is most productive. 

In other words, this is not a prototypical quiet diplomacy situa- 
tion in which the Government does not say anything at all. We are 
very outspoken on the subject of apartheid. 

Senator Sarbanes. Well, do something as well as say something. 

Mr. Dam. Well, the question is 

Senator Sarbanes. You indicate you support certain instances in 
which restrictive measures were taken; is that correct? 

Mr. Dam. Well, to a very limited extent. Many of the measures 
that have been taken have been taken with regard to a policy. We 
just had this discussion. Senator, about the IMF language and I 
promised to go back and obtain for you on behalf of the administra- 
tion our position on that. I think measures that reduce the pres- 
ence of the American business community in South Africa are 
counterproductive for the black population of South Africa. I think 
anything which eliminates our diplomatic presence or reduces it is 
bad. So you have to look at this measure by measure. I agree that 
it is a diflicult question. 

Senator Sarbanes. Now, Senator Proxmire asked you whether 
we should restrict investment if other nations did restrict theirs, 
should we do it, and you emswered, "If the world were perfect and 
everyone would go along, we would have a different situation." So I 
take it your position is that if other countries would join in the re- 
striction, then you would support it. 

Mr. Dam. I think that's a totally hypothetical situation. Not only 
do other coimtries not go along with the idea; they are very active- 



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\y opposed to the notion of this. This is a universal problem with 
sanctions. Senator. The United States imposes sanctions and other 
people do not go along. As a result, the sanctions are inefTective. 
That is the history of sanctions. 

Senator Sarbanes. Is the only beisis to your opposition to sanc- 
tions that they couldn't be universally applied? If they could be 
universally applied would you be in favor of them? 

Ml. Dam. No; I wouldn't be in favor of them because I think 
tiiere are other reasons why. Many of the ailments I have been 
pt ffking to you would not apply, but the fact of the matter is that I 
also Uunk we should take measures which help the blacks in South 
Africa and I think that the elimination of investment in South 
Airica- would be bad for them. It would cause unemployment. It 
would cause hardship and misery. I think also it would be creating 
a situation in which one could not hope to carry out the demands 
of U.N. Resolution 435. So I think there are a lot of other reasons. 

Senator Sarbanes. How many blacks work for U.S. firms in 
South Africa? 

Mr. Dam. Approximately 120,000, if I remember correctly. 

Senator Sarbanes. And how many blacks are there in South 
AAica. 

Mr. Dam. This is only about 1 percent of the labor force. I think 
it ought to be expanded, not decreased. 

Senator Sarbanes. What's the black population in South Africa? 

Mr. Dam. I don't have that in my head. 

Senator Sarbanes. 22 million? 

Mr. Dam. That sounds right to me. 

Senator Sarbanes. And 120,000 are employed by American firms, 
so 120,000 are impacted by the American firms? 

Mr. Dam. It's approximately 1 percent of the labor force, Sena- 
tor. 

Senator Sarbanes. And irf the 120,000 impacted by Americsm 
firms, how many a]% impacted by firms that have adopted the Sul- 
livan principles? 

Mr. Dam. It's a^jproximately 70 percent. I can provide the latest 
report to you on that subject. 

Senator Sarbanes. You're against requiring American firms to 
adhere to the Sullivan principles. You're even against that kind of 
step, I take it. 

Mr. Dam. Yes, for two basic reasons. Senator. First, we think 
that the genus of the SuUivan principles have been their voluntary 
nature and we think that their example can move other countries 
in the direction of getting to follow the same principles. 

Second, we are very opposed to trying to create an extraterritor- 
ial r^ulatory system in which we here in Washington try to regu- 
late labor practices in another country. I think that is a formula 
for all kinds of problems. 

Senator Sarbanes. I gather my time is up. You may at some 
point have to choose between trying to infiuence or simply ending 
the relationship. Do you favor continuing a relationship indefinite- 
ly with, a regime that practices apartheid? 

Mr. Dam. What we. favor is the policy that I have given. 



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94 

Senator Sarbanes. Well, what's tiie answer to my question? Do 
you favor continuing indefinitely the relationship with a regime 
that practices apartheid? 

Mr. Dam. We are opposed to apartheid. We are in favor of trying 
to have construction relationship with them and I have gone 
through 

Senator Sarbanes. I want to — because my time is up 

Mr. Dam. May I answer, Senator? 

Senator Sarbanes. My time is short. What I'm trying to get at is 
whether your reason for pursuit^ this line — suppose the apartheid 
policy doesn't change. Do you favor maintaining the constructive 
engagement relationship? 

PRESENT POUCV MAY HAVE TO BE REEXAMINED 

Mr. Dam. If there were no change beyond that achieved today, 
then at some point in the future obviously our policy would have to 
be reexamined. But there's been a tot of movement which I have 
outlined to you over just the last year or two, and I think that this 
would be a terrible time — the worst time to chaise course. 

Senator Sarbanes. Is it the administration's view, in your opin- 
ion, that if apartheid is not dismantled the American relationship 
with South Africa would have to come to an end? 

Mr. Dam. Senator, the apartheid system is a despicable system. 
It's also very deeply rooted. And I don't think there's any person 
from any political persuasion that thinks it's going to disappear in 
the next year or 2 years. What we have to do — the executive 
branch and the legislative branch — is to develop policies that will 
bring it to an end as soon as possible. All we are disagreeii^ about, 
if we do disagree, is about what policy is best calculated to achieve 
that result that we both seek. 

Senator Sarbanes. You and I differ on how far we would be pre- 
pared to go. How important to us are the economic benefits of the 
American relationship with South Africa? How heavily should we 
weigh those in the sceile as we consider the despicable apartheid 
regime? Do we create a balance in which we weigh the negatives of 
a despicable apartheid regime with the economic benefits that flow 
to U.S. firms and to the United States from the economic relation- 
ship? 

Mr. Dam. I think the economic benefits are there, but I think 
they are a very small fact in the overall situation of what we are 
trying to achieve. There lire some problems involving strategic ma- 
terials which I think, in considering the policy that you're now ad- 
vocating of turning our back completely on South Africa, would 
have to be we^hed in the balance. But I don't think that's funda* 
mentally what we're talking about. We are talking about what 
kind of policy is best calculated to bring to an end a system of 
apartheid and bring peace to the southern part of the hemisphere. 

Senator Hed^z. Tihe gentleman's time has expired. 

Senator Sarbanes. "Ritrnk you, Mr. Chairman. 

Senator Heinz. Mr. Dam, I've got one last question. You said 
that you oppose anything having to do with investment restric- 
tions. You have also said that you oppose the provision that is in 
this legislation and was in legislation last year that prohibits 



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95 

American banks from loaning to the South AfricEin Government or 
its instnunentalitiea and at the same time you have made much of 
the fact that there are in the law, as Senator Sarbanes enumerated 
at some length with you, a number of provisions that the adminis- 
tration either Bupports or acquiesces in as appropriate policy. 

For example, it s my understanding that the administration does 
support that lengthy list of prohibited items controlled by the 
Export Administration Act, the net result of which is to prohibit 
the export of anything that would enhance the capabilities or con- 
tinue the capabilities of the South African police or the South Afri- 
can military. My understandii^ is that the administration actually 
Bupports that. 

Now what is the difference between the Eidministration opposing 
the sale of arms for the South African police with which to repress 
black South Africans and being on record l^ally, in opposing bank 
loans to the South AfricEm Government since it can use the money 
and go to somebody else and buy those arms, as indeed they are 
doing? Why is it not inconsistent for the administration to sinr we 
are against selling arms, but it's all right for American banks to 
lend money to the South African Government to buy the same 
arms from somebody else? 

. Mr. Dam. I will answer your question, but I would like to suggest 
that perhaps it would be useful, since there are many questions 
like this, to provide a more technical memorandum going throu^ 
the specific provisions, in answer to some of Senator Sarbanes' 
questions along the same lines. 
"Senator Heinz. The committee would love to have that if you 
would furnish that to us. 

.[The following information weis subsequently submitted for the 
record:] 

Chbck List: PoBmn Developuknts in South Africa 

Quettion. What arethe positive developments taking place inside South Africa to 
which the administration refers? 

Answer. Legalization of black trade unions. 

The impact of the Sullivan code: U.S. firms in forefront of improving conditions 
for blacks in the workplace and in black communities. Ripple effect — other foreign 
firms and South African firms implementing similar codes. 

The adoption of the new Constitution by white voters in November 1983. The Con- 
stitution is flawed because it does not address the question of political rights for the 
country's black majority. It does, however, for the first time, share political power 
at the national level, albeit in a limited way, with non-whites. 

State President Botha's speech to the new Parliament last month invited the na- 
tion's blacks to engage in a dialog to discuss changes in the laws governing: (1) 
urban black residency rights; (2) black ownerahip of land; (3) influx control; (4) citi- 
zenship of blacky (5) review the forced removal policy; and (6) discuss some national 
political role for urban blacks. In essence, this implies movement away from apart- 

llie Government's decision to suspend forced removals pending a review of the 
policy. 

A Government action which gives blacks reaidencv rights in the Eastern Cape. 

A Govemmoit decision to permit members of all races to own and operate busi- 
nesses in the central business districts of the nation's cities. 

Moves to rescind the Mixed Marriages and Immorality Acts which are currently 
based on racial separation. 

Chi the r^onal ^nt there has also been progress. The drive to bring peace to 
southern Africa is essential to the achievement of change inside South Africa. 

All parties have agreed to the terms of UNSC Res. ^5, the UN's plan for Namib- 
ian independence. This includes South Africa. 



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Only th« issue of Cuban troop withdrawal from Angola holds up implementation 
of Namibian independence. Angola and South Africa are addreaaing this last re- 
maining issue now with U.S. encouragement and diplomatic help. 

South Africa's disengagement from Angola is almost complete. 

The Nkomati Accord between South Africa and Afozambique is alive and South 
Africa is attempting to negotiate a ceasefire between tlie government in Maputo 
and the anti-government Renamo guerrillaB. 

TARGETING BANK LOANS 

Mr. Dam. I will say, in response to your question, I think the 
problem with the bank loan provision is that it's going to the par- 
astatal of all kinds. It means that loans cannot be made to South 
African Airways. That doesn't help the black population. That 
doesn't protect them. The same way with the various public utili- 
ties. That doesn't help the black population. If anything, it hurts 
them. It's a line-drawing problem and it's a difHcult problem, but 
there is a difference between taking direct measures with regard to 
the police and the militaiy to limit what they can do, and trying to 
harm the South African Government and their economy in gener- 
al. 

Senator Heinz. Just so we're talking about the same bill, as I un- 
derstand S. 635 — and I'm not a cosponsor of it — my understanding 
of the bank loan provision is that no American bank can make a 
loan to Etny government in the South African Government unless 
the loan involves educational, housing, or health facilities that are 
readily available to all persons regardless of race. It is qualified to 
a considerable extent against the concern that you expressed. 

Let's assume that it can be perfected so that it really is targeted. 

Mr. Dam. The teu^eting I'm talking about is different, not only 
targetii^ by allowing loans to certfiin socieU areas like homing and 
so forth. I am saying that the blacks of South Africa benefit by a 
strong economy. Now it happens that something like 50 percent of 
business activity in South Africa is carried out by parastatal oi^- 
nizations. So that would just leave the other half of the economy. 

When I talk about targeting, I'm talking about avoiding assisting 
in activities which would directlv and demonstrably have a nega- 
tive effect on the welfare of the black population. 

Senator Heinz. I understand that, but when we loan $500 million 
to the South African Government I think you have to stretch 
pretty far to say that that is job creating investment which is the 
principal argument you make. 

Mr. Dam. I don't think you have to because these are not, as I 
understand it — if I'm wrong, I'd like to be able to correct myself for 
the record — but it's my understanding that most of these loans go 
to enterprises just like in Britain loans are made to these state en- 
terprises — the coal board and the electricity council and so forth. 
The South Africans have a very analogous system and what we 
would be depriving by the United States limiting loans in the 
public utilities area is the public in South Africa. 

Senator Heinz. I understand that, but you know as well as I do 
that as to the extent the South Africans choose to borrow out of 
one pocket that frees them to borrow for military, police, or other 
purposes from their own. 

Mr. Dam. Money is fungible and it may be a problem of that 
character, but I think with public enterprises it's pretty easy to see 



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97 

what the fund flows are and, again, as I say, these are not absolute- 
ly unambiguous lines, but the problem here is one of statesmanship 
of drawing a line and I think that this bill and other bills that I 
discussed go too far in the direction of turning our back on South 
Africa. 

Senator Heinz. Secretary Dam, I have some additionetl questions, 
nine of them, that I would like to submit for the record. I see no 
further interest in questions from the other members of the com- 
mittee. But I must say, in all Beriousnese, we have reached a point 
here in the Congress where I think legislation is going to pass. 
Indeed, legislation, if we're going to be realistic and truthful about 
it, in fact passed the House and Senate last year. There was almost 
no substantive objection from Members of Congress, House and 
Senate, to those two bills. There was on the part of the House bill a 
major distinction. There was an investment freeze or a no new in- 
vestment limitation in at least one version of the House bills. That 
affected Americem companies only. I suspect that particular provi- 
sion would have a less welcome reception in the Senate than it had 
in the House, but nonetheless, we shouldn't fool ourselves into 
thinking that there is not a substantieil amount of House and 
Senate bipartisan support for doing something more then we are 
doing now and it is in part related to the fact that the perception 
of constructive engagement as an effective force in bringing about 
peaceful change in South Africa is simply not yielding the results 
that you would like it to yield and this perception is premised on 
the fact that we see things slip backward in the last 3 to 6 months. 

It would seem to me that the administration would be well ad- 
vised to do everything it can within its policy framework to get 
better results if it can because it is results— or I should say the 
lack of them — that has the majority of the House and Senate very, 
very concerned. 

If you care to respond you can, but I don't ask you to respond. 

Mr. Dam. Well, thank you, Mr. Chairman. I appreciate the op- 
portunity to explain our policy. We recognize the great interest in 
Congress on this subject and we don't think that the issue is easy, 
but we do think they have to be approached carefully so that a 
wise policy is arrived at. 

Senator Heinz. Very well. Secretary Dam and Secretary Wisner, 
thank you very much for being with us. 

The hearing is adjourned. 

[Whereupon, at 1:30 p.m., the hearing was adjourned.] 

[Response to written questions of Senators Heinz, Hecht, Mat- 
tingly, Proxmire, emd Sarbemes follow:] 



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June 7, 1985 



Dear Senator Heinit 

Thank you for your lettec ot April 18 transaitting 
those questions which arose fron ny recent appearance 
before the Senate Comnittee on Banking, Housing and Urban 
Affairs* I an pleased to enclose responses to those 
questions and to two questions posed by Senator Sarbanea 
during the hearings. 

Sincerely, 



Correspondence returned 
Answers to Questions by 

Connittes Henbers 
Check Llsti Positive Developsenta 

in South Africa 
President Reagan - Rededlcation to 

the Cause of Human Sights 



The Honorable 
John Heinz, 

United States 



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HglHZ QUESTIOMS 



ACMDIISTRATIOH CM VIOLEMCE 



1. 0. Would you please enuaerate the apecific steps the 
Ad>inistrBtion has taken to respond to the recent growing » 
1 South Africa? 



A. The AdBinistration, 
consistently spoken out 
public condeuiations of 



IroB the President on down, has 
igainst apartheid. Including specific 
ilence, killings, forced renovals and 



detentions which have occurred over the past several aonth*. 



( known to the South African Governaent 
[ons and at the highest level* our 
and It* manifestations. Ue have 
1 Governaent that our relationship 
' until there is significant progress 
rtheid toward a systea based on the 
>verned. He have called repeatedly for 
a hAlt to the violence engulfing South Africa and have urged 
that a meaningful dialogue begin between the government on the 
one hanii and the leader* of the black coBBunity on the other. 



, we have Made 



inforned the South Afri 



in Boving away fron apart! 
consent of all of the gov* 



SULLIVAM PRIBCIPLES 

2. Q. What specific steps in the past year has our Oovernnent 
taken to pronote implenentation of the Sullivan principles by 
Anerlcan coapanies operating In South Africa? 

A. On at least two separate occasions, the Secretary of State 

has acted to encourage U.S. fir>8 operating in South Africa to 

adhere to a fair labor code in South Africa. In March, 1964, 

he hosted a luncheon at Blair House for Reverend Sullivan and 

30 executives of najor U.6. firas with investments in South 



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Africa, Sullivan slgnators and non-Blgnatora alike, to 
encourage their adherence to a code, Thia year, the Secretary 
sent personal letters to Chief Executive Officers of soae of 
the largest U.S. flrns located in South Africa which are not 
Sullivan Code adherents, urging then to become subscribers to 
the Code. These efforts have undoubtedly played a role in the 
adherence of over 20 conpanies in the past year. Also, all 
Department officials concerned with South Africa regularly take 
the opportunity of urging U.S. firns to adhere to the Sullivan 
Code or similar policies in their dally business dealings with 

U.S. FIRMS/SOUTH AFBICAB LCOhOMY 

3. 0. What is the ability of South Africa to maintain its 
econony without the participation of American companies? 

A. Clearly the U.S. is iaportant to South Africa, but more for 

political and social than economic reasons. U.S. direct 

investment (book value) at the end of 19B3 (latest nvailable 

figures) stood at S2.3 billion, or approximately 171 of total 

foreign investment in South Africa. This amount, however, 

represented only 3% of all investnent in South Africa. U.S. 

InVGEtment covered a wide scope of activity but little, if any, 

is critical to the continued existence and well-being of the 

South African econony. Were U.S. firms forced to leave South 

Africa, their assets would likely be purchased by other foreign 

investors or by South African investors at "fire sale" prices. 



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In shoct. South Africa would b« raadlly abla to sua 
econoalc activity in the abaanca of U.S. fltB*. 

U.S. BUSINESS EFFECTS OM TRABSITIOM 



A. About half of thB 300-Odd U.S. flra* op«ratin9 In South 
Africa are <ignatorie« to tha Sullivan Code. Theaa Sullivan 
signntorie* employ approxiaately 701 of tha total nuaber of 
eoployaes working for all U.S. firas in South Africa. It !• 
generally acknowledged that U.S. flraa, especially Sullivan 
flEBs. have been trend setter* in iaplenentlng fair labor 
practices which go well beyond the. workplace and which touch 
upon the well-being of the eaployee and his faaily outside the 
workplace in areas of education, health and training. Other 
firas, foreign and South African alike, have used the Sullivan 
Code aa a nodel for their own sat of fair labor practices. 
Clearly, South African black eaployees benefit froa the 
Sullivan Code and siailar codes. Hence, our policy of 
encouraging all U.S. firns in South Africa to inplenent the 
Sullivan principles is. we believe, contributory to those whose 
efforts are alaed at peaceful, positive change away froa 
apartheid toward a systea of governaent based on the consent of 
all the governed. The ultiaate nature of tha transition of 
political power in South Africa fa an issue which goes well 
beyond the participation of the U.S. business conaunlty, 
especially given the fact that all U.S. firms in South Africa 



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account for about only one percent of total enploynent. I 
would, however, suggeet that the real value of the Sullivan 
Code lies In Iti influencB aa a >od*l of what the total 
buainess connunlty can contribute to a nore prosperous and 
•table South Africa. 

PROMOTIBG REFORM 

5. C> There are in South Africa within the Governiient 
refornist groups and those that reelst reforn. What steps can 
we take to strengthen the influence of those promoting reform 
and encourage those who would resist to be more receptive to 
reform? What are the econoBic vulnerabilities of the groups 
that oppose novenent to majority rule? 

A. Our policy toward South Africa la specifically designed to 

•ncourage reform and its proponents. We have rejected punitive 

neasures as a means of aiding the reforn process: they would be 

counterproductive and stiffen the reeistence of those who ore 

not reform minded now. He have lent our political and econo>ic 

and moral support to the proponents of change in South Africa 

and have encouraged then to hasten the process and nake it nore 

meaningful. Through our assistance progran to the black 

community (about tlO million annually), h« have attenpted to 

encourage positive, non-violent change through the provision of 

expanded educational opportunities, labor and entreprenurial 

training and have encouraged the pronotion of human rights. We 

would welcome the cooperation of the Congress both in enlarging ' 

these programs directed at blacks as well ae support for those 

whites who have recognized the need for change away from 

apartheid. 



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Htiat aort of 



DISI1IVES^MEMT AS A SICMU. 

€. C. Miat sort of aignal Mould dlaiovcatacE 
radical and -coBBuniat forces In aouthcrn Aftic 
interpretaticin do you tbink t)w Soviet* would pui 
actions, paiticulaily regarding whcthcr-Ne would 
tbey Hcie to begin aiding the radical foic 

A. DiBiDveBtsent would signal a U.S. unwilliDgDaas to puiau* 

tlie only logical course of action open to us, uhicli is 

atteapting to ptoaot* paScafuL change in South Africa. 

Hittadiawol of U.S. buainaaa intaiaats would raaova 

f*H toola of influeno* available to u* in helping t 

change and would leave a aoral void that would E**i 

leBsening of both regional U.S. . influence and oui i 

help influence Bovaaent away fcon apartheid. Diait 

would clearly eabolden thaa to Increase asaistanca 

forcea to puah for the revolutionary overthrow of the South 

African Governnent. Besides thia psychological and political 

signal, U.S. diainvestaent could contribute to uneaployacnt and 

unrest, with not only 70.000 horkers jobs being .jeopardised but 

the livelihood of the approxlaately 400,000 others who depend 

on then for support. This would increase the great social 

unrest already widespread in that country. Ne do not think 

this is what Anerica ie about. 



on* of the 
to proaota 



1 radical 



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SUCCESS OF COMSTmiCTIVE EHGfcGEMEtiT 

7. Q, As I noted eailier, constructive engageiient has not had 
any notable succasses with respect to the eliminBtion of 
apartheid in South Africa. No aeaningful progreas has been 
>ade — even attenpta to upgrade the social, econonic and 
educational status of the blacks has been spotty at best, and 
the black najority is still aenied civil rights. Can you 
recoADeiid any specific policy changes to help bring about an 
end to apartheid >ore rapidly and that would produce some 
tangible progress? 

A. I would respectfully but strongly disagree with the prenise 

of your question, nasely that 'constructive engagenent has not 

had any notable successes with respect to the elinination of 

apartheid in South Africa." Although we do not and should not 

take credit for the changes which have taken place as a result 

of the reforn effort which has been underway in South Africa 

for the past several years, there is, nevertheless, iiore than a 

happy coincidence between major reforn in that country and the 

advent of the current U.S. Adninistration. I an attaching 

herewith a partial listing of the major changes away fros 

apartheid in South Africa which have occurred over the past 

several years. These reforns are only a beginning but should 

be encouraged and built upon, not miniuized. We accept, based 

on the facts, such as the £-1 vote among whites on the new 

constitution in 19e3, that the white comnunity and the 

GovernBent of South Africa have recognised the need to and have 

shown a willingness to change, to move away from apartheid both 

in spirit and in fact, and have pursued a course of action 

toward that end. This does not mean to imply that all white 



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South Africans are in agraenent with tha rafora procaaa, for 
there ia a conaideEable oppoaltion to the goveinnent'a reforn 
policy. It la thia very opposition, expraaaed politically, 
which contrlbutaa to the caution Boaetlnea exerclaed by the 
goveinaent In announcing and iaplBBentlng further refoTB. Were 
we to posture ouraalvea in an adveraarial Banner via-a-vis the 
govaroBent there. It uould only sexva to attengthen the fotcea 
opposing refors. Clearly, our position ahould be to encourage 
refora whenever possible and to speak out. aa wa regularly do, 
when the refoxM alfort Is negated or in other ways retarded. 

COOPERATIOM OK SMiCTIOhS 

6. Q. Bcononic sanctiona have had a poor succeas rat* uhen 
inposed by only one country. What international cooperation 
could we expect for the type of aanctlons nandated under 
S.6357 Mhfit efforts are being Bade to persuade other countriea 
to participate with the United States In its current policies 
tonard South Africa? 

A. Me seriously doubt that others in the International 

contnunity would be prepared to apply Bcanlngful econonic 

sanctions against the South African Governsent. Sobs are 

prohibited by law fioD such activity. Indeed, soBe would take 

advantage of our "disengagcBent" to further their own econonic 

ana political ends. He regularly conault with out allies chi 

the issue of apartheid and how to help speed Its deslse and 

seek agreenent with the basic thruat of our policy, naiiely that 

pressure should continue to be exerted on the SAG to 

denonetrate that the Nest is appalled by apartheid and seeks a 



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speedy change away fton that bysten towaid a more just 
society. The code of conduct adopted by sone European 
companies ia an example where our policies work in tanden. 

QUIET DIPLOKACY 

9. Q. In >'our testimony you refer, and the Adninistratlon 
fcequently refers as well, to "quiet diplomacy". Mould you 
explain for the Committee what the key elements of this "quiet 
diplomacy" are? Nhat specific action tiy the Adniniatration has 
it involved? 

A. 'Cuiet diplomacy" is not a policy but a tactic for carrying 

out our efforts to help persuade the South African Government 

that it is in its own interest to abolish apartheid and 

establish a aiore just order In that country. He reject the 

approach of using only strident public rhetoric against the 

South African Governnent's actions as being largely symbolic 

and ineffective. What we seek to do is to choose the 

appropriate medium, be it public or private, to enunciate 

clearly our opposition to the policy of apartheid while also 

seeking to encoucage the South African .Government to pursue a 

process of reform that has been underway for. several years. Me 

believe .it is reasonable to use the Bost productive tactics 

available to encourage peaceful changes zather than to simply 

strike out with rhetorical pronouncements which condemn that 

effort and thereby distance us and renove our limited influence 

from the reform effort. I would add only that when the 

situation has called for strong public statements we have not 

failed in our Obligation to make our views known loudly and 

clearly. At other times, however, the situation called for 

"quiet diplomacy" as a means of achieving our objectives In a 

more effective manner than public, strident rhetoric would 

provide . 



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HECHT tWESTIOMS 

BOW U.S. CAM IHPLUEHCE SAG 

1. 0. Since you don't agree with the bill, uhat do you think 
i» the proper way for the United Statea Governnent to >ake its 
influence felt in South Africa? 

A. Ke believe that the path we have embarked upon of 

encouraging poaitive change within South Africa by ataylng 

constructively Involved there ia nore likely to lead to the 

results we all desire, nanely Movement away fron apartheid 

toward a aore just society, than will the enactnent of punitive 

neasuces directed at that Governjoent, the South African people 

and our interests there. We fully support the efforts of 

Congress to provide econoalc assistance to those black South 

Africans disadvantaged by apartheid and would welcome an 

expansion of programs in the fields of hunan rights, education, 

health, training, entrepreneurshlp, etc. Me also welcone the 

expressions of interest and concern by the Congress on Issues 

such as apartheid In general and specific injustices caused by 

apartheid in particular. All auch efforts are of invaluable 

assistance to us In our atteapt to deaonstrate to the SAG that 

its policy of apartheid is unacceptable to the Anerican people 

and that cur bilateral relationship cannot flouiish without 

neanlngful change. This Bsssage is heard and well understood 

by the SAG and contributes to the prassurs Bountlng on it to 

enhance the ongoing refora progra*. 



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U.S. REACTIOM TO SAG IKITIATIVES 

3. 0. Mhat iaportancc do you attach to th« South Afzlcan 
Governnent's piopoBal to aboliah the nixed Barclage and 
.imnoEallty lawB, and Its announceaant of the Hithdcawal of 
tcoopa froB Angola by the end of thi» week? 

A, The SAG'b Intention to support in the parliasent the repeal 

of the Mixed Harciages and Sec. 16 of th« InnocBlity Act are of 

■igniflcant aynboltc value. It represents the dienantling of 

an iopoEtant pillar of apartheid and is further evidence of a 

willingneas on the part of 8outh African whites to continue and 

strengthen th« refora process away froM apartheid and to put 

additional teeth into that effort. Taken alone such an action 

nay not seen terribly significant to sone Anericans but 

conbined with other efforts on the part of the white connunity 

and Governnent, it ahows a clear wlllingnese to break with the 

apartheid past. 



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KATTIMGLY QOESTIOHS 

REIATI0M6HIP OP MWIIBIA TO RgFOIttI 

1. Q. There Is a b*ll«f that a aolutlon in MaBibla la central 
to South Aftlcan internal refom. Do you agte* with thia 
aaaeaBBsnt of the critical nature of that particular issue Id 
nakiiiQ pro^rssa agalnat th* systea of apartheid? 

».. '*.<■-* ia undoubtedly aoae correlation tetwaei ■"-■ iir*.-- 
-he Mds.bian independence Issue and progress on Internal refom 
in South Africa. This is particularly true in the econobtc 
area as the war in Manibla is esttnated to cost the Bouth 
African GovernBent sone il.2 billion annually at the sane time 
that South Africa finds itself in the >idst of a severe 
econoBic recession coupled with growing costs assoclatsd with 
the nalntenance of apartheid. Undoubtedly, the savings that 
would accrue fro* a peaceful settleaent of the Naaibia iasue 
could be applied toward furthering black education, health, 
social welfare, et. al., within South Africa, with a consequent 
lessening of political and eCOnOBtc tensions which such a 
transfer of resources would entail. However, the reforn 
process in South Africa Is driven by its own internal dynaaic, 
and the econoaic reality of 9 villion blacks in the urban area. 
Events in Haalbia will have little sustained lapact on thia 
process, one way or the other. 



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PROXMIRE QUESTIOHS 

FAILHRE OF U.S. POLICT 

1. 0. Do you dlaput« any of the above facta about the 
■ituation in South Africa? If not, how can you maintain your 
policy ia not a failure based on its reaulta? 

A, Mith due respect, I take exception with the Senatoc'e 

preDise that constructive engagement is a failed policy and the 

BBBBEtiona he nakes to support this contention. I attach for 

the Senator's infornation a partial ccupilation of the changes 
which have taken place in South Africa over the past several 
years in furtherance of the reforn process away from 
apartheid. VThile we adnit that apartheid still exists and that 
the pace and nature of the changes are not what we desire, it 
is equally inportant to recall that there have been historic 
decisions taken by the whites of South Africa to change the 
apartheid systen. Certain practices noted by the Senator, I am 
happy to say, are no longer in effect. For exacple, in January 
the South African Oovernnent announced a halt to the forced 
removal of blacks while the policy is reviewed. In his speech 
of January 35, the State President called for consideration of 
national citizenship for urban blacks, the beginning of a 
genuine dialogue between the Government and the black 
connunity's leaders and a higher level national political role 
for certain blacks, thus conceding that the homelands policy 
has failed. Also, despite problens , more labor unions 
flourish. tAiile much remains to be done in furtherance of the 
effort to move away from apartheid, to maintain that there has 
been little or no change is to ignore history and the reality 
of South Africa in 1985 compared to just eight or ten years agc^ . 



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HUMS BIGHTS POLICY 

2. Q. How do you account for th* dlaccapancy In your 
trcataent betwasn huiian rights violations in othar eountciea aa 
opposed to South Africa? 

A. We do not believa that there is a diaciepancy in our 

.reataent o£ husan rlghta violations In South Africa conpared 

•LO other countries; including countries such as Cuba, the VBSf 

Poland, Kicaragua, Libya and Vietnaa. Wa have spoken out 

clearly and often of our abhorrence of such violations. In th^- 

case of South Africa, I would refer the Senator to ths Husan 

Bights Report for 19aS prepared by the Depsrtiiant of State, 

which has been generally viewed as a definitive and accurate 

description of the husan rights situation in that country. Th« 

Adsinistratlon, fron ths President on down, has condesned 

apartheid and South Africa's violation of hu&an rights on a 

regular basis. On DecenlDer 10, 1964 (Husan Bights Day), 

President Beagan spoke out forcefully and eloquently on this 

subject. I as enclosing a copy of the President's resarks for 

reference purposes. The record shows that other adsinistratlon 

officials, Including the Secretary of State, have nade clear 

their opposition to apartheid. The ease record also 

desonetrBtcH that the State Departsent, through its press 

spokcssen and other officials, has regularly enuclated Ita 

opposition to hunan rights violations in South Africa and 



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HAhDATORY SULUVUM CODE 

3. g. If you aie ao concsrnad that blacks In the 140 U.e. 
conpanieB benefit fron the Sullivan Code, why don't you favor 
nandatory extension of that Code to the other 160 coapanieB 
that don't adhere to that Code presently? 

A. He oppose nandatory inpleBentation of the Sullivan Code by 

U.S. firms in South Africa for several reasons. Firstly, we 

believe it ia the very voluntary aspect of the Code which hae 

■uide it so successful. I would submit that these adherents to 

the code have gone well beyond what is strictly called for by 

the Code and have spent over $100 million since 1978 outside 

the workplace for the benefit of their blaclc enployees and 

families. The money was utilized on the furtherance of 

education, training, health and promotion of black 

entrepreneur ship. A mandatory U.S. Government enforced code 

would more than likely have resulted in these same firms doing 

the absolute nininum demanded rather than in having gone a 

considerable distance beyond that which is called for. More 

importantly, implementation of a nandatory code raises serious 

questions regarding the extraterritorial application of U.S. 

law. The U.S.G, could not enforce the implementation of such a 

mandatory code without the agreement of the very Government it 

is designed to influence. Even if the South African Government 

"permitted* such an extraterritorial application of U.S. law, 

implementation would require the establishment of a complex 

regulatory regime and the diversion of personnel from their 

normal diplomatic and consular tasks, while it is true that 

U.S. firms employ only about 1% of the active labor force in 

South Africa, nevertheless, these are among the largest firms 

in the world and what they do is noticed. There can be no 

doubt but that these firms have and are leading the way, 

through adherence to the Sullivan Code and related fair 



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enployaent code*, la •atting a 9ood auuipl* to other 
buslneaaa*. Haoy foreign invaators now adhara to aiallar codai 
such aa the EEC Code or have eatablished their ONn eaployaant 
codes. A algnlficant nuabar of South African flraa have 
establlahed auch coilea and are now practicing enlightened 
eiiploynent atandarda. Thua, the point ia that the Sullivan 
Codaa atanda aa a beacon for other*, a aodal to eaulate in 
furthering the advancaBent of black enployea rights and 
benefits both In and outaide of the Morkplace. 



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SARBAKES QUESTIORS 

EXIM 

1. 0. Does the Administration auppoit the prohibition on EXIM 
guarantees oi loam to the South African Governnent and the 
certification requlrevents relating to fair labor atandatds 
required by the Bvana Anendnent for loans oc guacantees to 
private persons in South Africa? 

A. The Ad>inlsttation opposed the Evans Anendeent on policy 

and legal grounds while It was being considered In the 95th 

Congress. The Departnent of State Indicated that 

iBplementation would be difficult to achieve without the 

cooperation of the South African Government, and this has 

proven to be the case. The SAG perceived the law as being 

extraterritorial in scope. It prevented its nationals from 

providing the kind of Information necessaty for a cettification 

to the U.S. Government. An understanding was ultimately 

reached with the SAG which permitted firms to apply for EXIM 

support, however. It was only in late I4b4 (six years after 

the law was enacted) that the Department of State was able to 

certify two South African firms as being eligible for EXIK 

support, although no transactions have been approved by the 

bank to date. The Administration strictly enforces the law, 

but it continues to have the same doubts regarding its iceritB. 



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2. 0. Does the Adainiattatlon auppoit th« instructions to the 
U.S. Eiacutive Director of the IMF "to actively oppose any 

facility involving the use of Fund credit by any country which 
practices apartheid'? 

A. It is cleec that the AdKinlstcation supports and enforces 

the law of the land. Pcesident Reagan's signing of P.L. 96-181 

in lioveiiLer l'Jb3 indicates his support foE the bill. The 

Adainistration opposed initial efforts to rMqulrc th« UELD of 

the Fund to oppose and vote against drawings by South Africa on 

the grounds that such a step would inject political 

considerations into a speclaliced agency ot an apolitical 

character. The Adalnistratlon did not oppose the provision as 

exbodled in Section 43 of the Bratton Woods Agreeaenta Act 

because econo>ic criteria siailar to those eaployed by the Fund 

would be used to fora and evaluate the U.S. position. Section 

43 requires the USED to 'actively oppose any facility Involving 

the use of Fund credit by any country which practices 

apartheid' unless the Secretary of the Treasury certifies and 

documents and appears. If reciuested, before Co»ittees ot the 

flocse and Senate that the drawing (I) would reduce the severe 

constraints on labor and capital nobility, (2} would reduce 

other inefficient labor and capital supply rigidities, (3) 

would benefit econonicelly the najority of the people, and (4) 

that the country la Buffering fron a balance of payments 

imbalance that cannot be >et by recourse to private capital 

■arkets. On Deceatier 22, 1S&3, three weeks after this 

provision was signed into law, the U.S. Treasury adopted an 

inplenentation neMorandun for this provision speclflying the 

obligations of the Secretary of the Treasury and various 

procedures to be followed. 



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ANTI-APARTHEID ACT OF 1985 



FRIDAY, HAY 24, 1985 

U.S. Senate, Comhtttee on Banking, Housing, and 
Urban Affairs, Subcommittee on International Fi- 
nance AND Monetary Poucy. 

Washington. DC 
The subcommittee met at 9:30 a.m., in room SD-538, Dirksen 
Senate Oflice Building, Senator John Heinz (chairman of the com- 
mittee) presiding. 

Present: Senators Heinz, Gorton, Mattingly, Hecht, Proxmire, 
Sasser, Riegle, Sarbanes, and Cranston. 

OPENING STATEMENT OF SENATOR HEINZ 

Senator Heinz. Ladies and gentlemen, today we will have the 
second of the series of hesirings dealing with the legislative propos- 
als to alter the economic framework for the U.S. Government's re- 
lationship with the Republic of South Alrica. 

At our last hearing we heard from the administration and from 
Senators Kennedy and Weicker who, along with severzil of my com- 
mittee colleagues, have drafted legislation to deal with this issue. 
Next month the subcommittee plans a concluding hearing by re- 
ceiving testimony from Rev. Leon Sullivan and a number of other 
former officials who dealt with this question in order to provide a 
historical context for the committee's deliberations in order to 
obtain their views on the proposals for future action. 

This morning we are going to hear testimony from academic and 
l^al experts on the subject and from those who directly represent 
or audit U.S. companies that currently do business in South Africa. 

As I said at the outset of these hearings, in my own evaluation of 
the proposals dealing with South Africa I have tended to be guided 
by four criteria. 

First, it is the South African Government which is the agent of 
apartheid. The target of our actions therefore should be the Gov- 
ernment, not the people of South Africa. 

Second, as a logical companion to the first criteria, we should 
strive to avoid actions that have an adverse impact on South Afri- 
ca's black m^ority who are the victims of the repugnant system of 
apartheid. 

Third, our key objective should be to develop policies that help 
change peacefully the policies and practices of the South African 
Government. Sanctions are appropriate to that goal, but we must 
avoid, at least in this Senator s ju^ment, sanctions that totally cut 
us off from any ability to play a meaningful role or influence policy 
in the future. 

(117) 



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118 

As I have learned in the course of revising and studying the his- 
tory of the Export Administration Act, economic and political sanc- 
tions are imprecise tools of foreign policy. If they are not used 
adroitly and with deliberate care, they may yield the opposite 
effect from what is intended. 

Fineilly, American business has made a positive contribution to 
the betterment of the economic and social condition of blacks in 
South Africa. 

But the key issue before this committee and indeed before the 
Congress is whether the American economic presence in South 
Africa is helpful in achieving the political goal of a peaceful end to 
apartheid or, in the alternative, whether it is merely an agent in 
perpetuating that hateful system. 

To better understand the role of American business, today's 
hearing will examine how our corporations indeed operate in South 
Africa today and what might be the political and economic conse- 
quences of disinvestment. 

Ambassador McHenry will also be able to comment en the 
premise of the Carter administration policy toward South Africa. 

I must say our witnesses today are eminent and eminently quali- 
fied to comment on such questions and I'd like to turn to them 
now, but before I do I want to yield to my colleagues for any open- 
ing statements they may care to make. 

Senator Proxmire. 

OPENING STATEMENT OF SENATOR PROXMIRE 

Senator Proxmire. Thank you very much, Mr. Chairman. 

Mr. Chairmam, today we have the second in what will be a series 
of three hearings on S. 635, the Anti-Apartheid Act of 1985. Our 
final hearing will be held on June 13 and I hope we can then move 
to mark up this legislation as soon as possible, preferably by June 
17. liie full House has already started floor action on an identical 
bill and I understand will complete their consideration of that 1^- 
islation shortly after the Memorial Day recess. I hope the full 
Senate will act in late June or July and we can get a bill to the 
President before the end of the summer. 

Mr. Chairman, the South African system of apartheid against 
which this legislation is aimed is not simply a system of racial dis- 
crimination such as previously existed in parts of this country. It's 
even more reprehensible. Apartheid is a complete system of politi- 
cal, social, and labor controls adopted in 1948 and maintained by 
South Africa's 4,5 million whites to ensure their absolute and ca- 
pricious rule over 22 million blacks. 

Under that system black workers must live apart from their fam- 
ilies. All blacks are required to live in separate segregated areeis. 
They are denied equal or even minimum education, social, and eco- 
nomic opportunities zmd, most important of fill, they are denied po- 
litical rights. 

Over the past 30 years American Presidents have condemned 
apartJieid, but U.S. companies have invested billions in South 
^rica. We have become the country's largest trading partner. To 
black leaders looking for help in their struggle for freedom, it 
m^ht appear that profits are America's only interest in South 



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119 

Africa. This is not the case and our Government should take action 
to demonstrate that. 

The crucial question is how to apply pressure on South Africa 
without putting at risk the perilous livelihoods of suppressed 
blacks. 

S. 635, 1 believe, Eiccomplishes both purposes. It is not — I repeat — 
it is not a disinvestment bUl. It is not a disinvestment bill. It does 
not require American companies to withdraw the billions they 
have invested in South Africa or even prohibit them from reinvest- 
ing profits made in that country. It does not cut off our $4 billion 
trade with South Africa except for banning future imports of the 
krugerrand. The United States will continue to be South Africa's 
No. 1 trading partner and their second biggest creditor. 

The bill does prohibit new investment — I repea — new invest- 
ment in and bank loans to enterprises in South Africa. It bans 
bank loans to the South African Government, under some circum- 
stances. 

The bill also does ban further sales of computers to the South Af- 
rican Government because it uses them to help implement the 
police state controls needed to enforce its unjust policies. 

These measures, while moderate, will s&engthen the hand of 
those white South Africans who are arguing for a change in the 
apartheid system. 

Furthermore, what the bill provides is that any time the Presi- 
dent of the United States feels that the South Africans are moving 
in the direction of ridding themselves of apartheid, then he can 
propose that the restrainte be lifted and if the House and Senate 
agree they are lifted. So, the incentive is there. 

You must realize that since South African blacks presently have 
no political rights it makes it difficult for them to achieve a gradu- 
al peaceful change in their country's abhorrent system. 

Soviet-preached violence is presented as fm alternative. We know 
that violence would not be beneficial to white or black South Afri- 
cans nor to United States interests in Africa. 

The adoption of S. 635 is not only the right thing to do, but its 
adoption will serve America's interests far better than just continu- 
ing ousiness as usual in South Africa and hoping for the best, and I 
will push for its enactment. Thank you. 

Senator Heinz. Senator Proxmire, thank you very much. 

Senator Hecht. 

Senator Hecht. Thank you, Mr. Chairman. Because of time re- 
straints I will not make opening remarks. I am anxious to hear 
from the panel and perhaps I might lend a different voice to the 
voices you have heard already on uiis podium. Thank you. 

Senator Heinz. Thank you. 

Senator Sarbanes. 

Senator Sarbanes. I have no statement. 

Senator Heinz. Very well. GenUemen, we are pleased to have the 
four of you with us. I'm especially pleased to have Dr. Sheldon 
Hackney from the University of Pennsylveinia. Senator Proxmire 
and I, as Yale men, have been consulting regarding Mr. Derek Bok 
from the Harvard University because we both have graduate de- 
nies from Harvard and we are deeply honored to have him. Mr. 
Roy Schottwid is from the Georgetown University Law School, and 



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120 

Mr. Robert D'Agostino from the National L^al Center for the 
Public Interest. 

Gentlemen, we welcome you all here and we will proceed in the 
order proposed on the witness list in terms of your presentation. 
So, let me at this point call on Dr. Hackney from my home State of 
Pennsylvania. 

STATEMENT OF SHELDON HACKNEY, PRESIDENT, UNIVERSITY 
OF PENNSYLVANIA, PHILADELPHIA, PA 

Mr. Hackney. Thank you very much, Mr. Chairman. 

Mr. ChairmEin and members of the committee, it's a great pleas- 
ure for me to be here and I thank you for the opportunity to testify 
on S. 635, the Anti-Apartheid Act. 

Let me begin by saying that the views that I express here are my 
own. They do not reflect an official position of the University of 
Pennsylvania. As a matter of policy, the university does not take 
positions on Federal legislation that does not directly affect higher 
education or the ability of the university to carry out its purpose, 
which is to serve the public through education and the expansion 
of knowledge. Speaking as a private citizen, I believe very deeply 
that action by the U.S. Government to signal our active opposition 
to apartheid is needed, and so I endorse S. 635. 

UNITED !N OPPOSITION TO APARTHEID 

The views I have developed, of course, do emerge from a long 
time of living and working in academia, from listening to the coun- 
sel of faculty, students, staff, and others in the Penn community on 
the South African regime find about the policy of apartheid. Like 
any great university, there is a diversity of voices at Penn. In fact, 
it is a very vibreuit place for exchanging ideas, but on no interna- 
tional issue is the Penn campus as united as it is in its opposition 
to apartheid. I suspect that's probably true of most American cam- 
puses. Indeed, events of the past few months, both in South Africa 
and on our campuses make it incumbent upon us to think very 
carefully about apartheid and our national policy toward the South 
African regime which has established and sustained apartheid. 

I believe it is instructive to mention the university's experience 
over many years in grappling with the issue of apartheid to illus- 
trate both the university community's deep abhorrence of the per- 
nicious policy of apartheid, and the reasons why it is ultimately the 
responsibility of the U.S. Government to act to combat South Afri- 
ca's official system of racial seCTegation and discrimination. Years 
ago, in reaction to apartheid, Penn's trustees decided that, acting 
as responsible investors, the university should urge companies in 
its portfolio to adopt and vigorously implement the Sullivan princi- 
ples. Our trustees also more recently, in 1982, agreed that the uni- 
versity should urge firms in which the university owns stock to re- 
frain from making new or expanded investments in South Africa. 
That was in response to the Rockefeller Commission report. We 
also have sought every opportunity to encourage black South Afri- 
cans to study at Penn. 

The university developed its policies, including the use of selec- 
tive divestment, based, among other factors, on the requirement 



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121 

that corporations in which we own stock adhere to the Sullivan 
principles in the hope that we could, in conjunction with other 
shareholders, help those companies abide by the very highest 
standard of business ethics and that we might influence those 
firms to improve the lives and conditions of the nonwhite majority 
in South Africa. I believe that the Sullivan principles have helped 
to ameliorate working conditions for blacks employed in the signa- 
tory firms. But it must be remembered that of the virtually 300 
American companies which do business in South Africa, only about 
one-third are Sulliveui signatories, and these employ only a small 
proportion of black South Africiin workers. It is also clear that the 
best efforts of U.S. companies and their shareholders to improve 
economic conditions for black South African workers are not a sub- 
stitute for a governmental response. Apartheid is a policy that 
transcends the economic realm and permeates the entire South Af- 
rican society. It unilaterally abrogates the rights of nonwhite South 
Africans, disenfranchises millions, limits their movement except 
when it suits the Government to transfer them to black homelands, 
restricts employment opportunities, makes nonpersons of the most 
outspoken members of nonwhite groups through the bizarre instru- 
ment known as bfmning. 

NEED FOR FURTHER ACTION 

Recent events in South Africa have made it apparent that the 
pervasive problem of apartheid will not be overcome without fur- 
ther action by the U.S. Government. Official violence against black 
South Africans is all too commonplace, as we read in the papers. 
Secretary Shultz indicates that incidents of violent encounter be- 
tween blacks and policy during the past 9 months have resulted in 
more than 300 deaths among blacks. 

Since apartheid is the official policy of^he South African Gov- 
ernment, it is essential that the United States respond to apartheid 
in the 8£une way, in a governmented manner. The administration's 
passive policy of constructive engagement during the past 4 years 
has apparently not been successful in moving the South African 
Government to reconsider the fundamental underpinnings of apart- 
heid. There have been some superficial actions of the South Afri- 
can Government, purporting to bestow full political participation 
upon Asians and coloreds, and eliminating the state prohibition 
against mixed marriages, but that only underscores the inherent 
venality of apartheid. Assistant Secretary of State Crocker's beliefs 
to the contrary, the South African Government has not yet rec(^- 
nized in practice that denying citizenship to South Africa's blacks 
is as unworkable as it is ludicrous. 

Only Government-sponsored sanctions by the United States and 
other nations are likely to bring the South African Government to 
this realization, and it is for this reason that I support legislation 
to effect such sanctions. The legislation you are considering today, 
S. 635, appears to me to meet two essential standards: It allows 
continued United States economic leverage to be applied because it 
does not call for total disinvestment, and it avoids placing economic 
burdens on the nonwhite South Africans who are victims of apart- 
heid. The bill is directed appropriately at the small minority that 



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122 

governs South Airica. Loans to the South African Government 
could still be made if the loans were to be used for educational or 
health facilities or housing made equally available to nonwhites 
and whites alike. Although new investments by American firms in 
South Africa would be restricted, reinvestment of earnings from ex- 
isting business operations would be excepted from that restriction. 
Finally, the sanctions against new investments in South Africa and 
the importation of krugerrands to the United States could be lifted 
if the President determined — and the Congress approved such a 
finding — that political and social rights of nonwhite South Africans 
have been restored. 

This bill calls for an historic response by the American Govern- 
ment to translate its condemnation of apartheid into workable ac- 
tions. It represents an important first step toward concerted efforts 
by the United States, as a government, to promote the eradication 
of a policy so fundamentally abhorrent to all of us. 

Thank you very much and I would be glad to respond to any 
questions. 

[The complete prepared statement follows:] 



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IhlTcraltr of TaaaaylvaBla 



Mr. Chalnmi and BAibBn of die CoaaltUa, thank 70U for your lAvluUoa 
*^0 teatlfy befnie jou today coacemlng S. 63S, tba Aitcl-Aputhaid Act. 

Itaa Tlaws iliat I orprvaa Id tbla tastlniaj ara ay rnn; the; do not Mflaet 
*«i otflcl«l poaltlon of Uie Dnlversltj of Faonaylvanla, Aa a aattar of 
Pollcj, tha ODiveraltr does not take poaltlona on Padaral laglalatltn that 
4o«a not directly affect bi^imt •dacstton or the ability of tha [hilvarslty to 
caicy out Its purpose, which la to serre the public through aducatloo and tii* 
expansion of knowlsd|S. Speaking aa a private cltlzan, I believe vltfa a 
passion tltat action by the Dnlted Statea lovemaent, to alpial our aetlva 
opposition to apartheid, la needed, and I endorae S. 633, 

Itaa views I have developed, of courae, eserga fioa listening to the 
eounsal of faculty, student*, ataff and othaca In tii» Paim cu^ainlty Mt tha 
South African reglaa and Its policy of apartheid. Like any great onlvsrsltyi 
Pam chdvea on difference* of ^dgpent. On no iDtematlooal issue Is tha 
Penn caapua as united as In Its oppoaltlon to spartheld. Ind«ed, events of 
the past few wmths, loth In Soutl) Africa and on our caapusea, aaka It 
Incuabent upon ua to pay close attention to the subject of apartheid and to 
our national policy toward the Sou^i African reglne that has established and 
sustained apsrtheld. 

I believe It la Instructive to nentlon ^le University's experience over 
■any years In grappling wmi the laaue of apartheid, to llluatrata both the 
Italverslty coanunlty'a deep abhorrence of the pernicious policy of apardield, 
and the reasons why It la ultlnately the responsibility of the Dnlted States 



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124 



GovanBint to act to coabat Soatii African'* official ajataB of racial 
aagragatlao and dlscrlalnatlcn. Teara ago. In raactlon to apartheid, Pann'a 
troataaa decided that, «• a ceaponalhla InTeator, the Dnlvetalt; ahould nege 
coBpanlea In Ita portfolio to adopt and vlgoroiuly lapleaant the Snlllvm 
Principles. Our Truateea also agreed that the OnlTerslty ahould urge fltaa In 
irtildi the DDiTcralty holda atock to refrain fron naklng new or expanded 
InTaatsanta in Soath Africa. He have also sou^t erar^ opportunity to 
aneourage black South Africans to atudy at Penn. 

The Uolvaraltj developed Its polldca. Including the uae of aelacttve 
dlvestaent based, aaong other factora, on the requireneat tliat corporations In 
nhidi we hold atodc adhere to tile Sullivan Principles, In t^ hope lliat Penn, 
in conjunction wltfa other shareholdera, nl^t ensure that our conpsBles abide 
by the highest standard of business etlilcs, and that we night influence these 
fitss to inprove the lives end condltims of the nomriilte najorlty in South 
Africa. 1 ballave that the Sullivso Principlea have helped to aneliorate 
working conditions for blades enployed In the slgMtory flma. But It Mist bn 
renenfaered that of the virtually 300 Aaerlcan coapanles irtilch do bualneaa in 
South Africa, only about one-tblcd arc Sullivan ■Ignatorles, and thesa enploy 
only a sull proportion of black South African workers. It la alao clear that 
the beat efforts of U.S. ctnpanles and their shardMldera to inprove econoalc 
conditions for black Soutli African workers are not a substitute for a 
governmental response. Apartheid is a policy that transcends the econonlc 
realn and perMeatea the entire South African society. It unilaterally 
abrogates the rlghti of nonwfalta South Africans, disenfranchises nllllans. 



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Ca di*lr BOW M at aactpt «haa It atilta l3i* anTTi— iii to transfer th^ to 
[ "h o tlwi da*. restrlcta tmplojmuit o p por t ualtlei , ukaa ncmpaxaou of &% 
outapokan MBBbeEa of luaiililte gioupa tbroMiJi the blaarra Initriwaiit kacwn 



-' Recast avanta la Soath Africa have aada It apparmt that dte parvaalT* 
probleM of apartheid will not be orarcoae wldiout further acttcm bjr tha ttaStad 
Statea gcnenuMBt. Official violence agalnat blade South Afrlcana la all too 
coaaooplace - Seeretarr Sdiulie Indlcatea ibat Inddaata of violent encounter 
between bladca and police during tha paet nlna aontha have reaulted In Mora 
than 300 deatha uong bl^i^B. 

Since apardteld la die official policy of Uie Soath African lowmaent . It 
la eaaentlal that daa Itolted Stataa' reaponae to apartbald'be to*egn»eotal In 
nature. The Adolalscratloa'a paaalve policy of 'constructive eniagaaant' 
daring the paat four jvara haa not been aucceaafnl la ■ovlng the South African 
gorenaent to leeonBlder the fandaaantal under plan inga of apariliald. 
Superficial actions of the South African govamaent - purporting to beatoir 
full political participation upon Aaiana and "colorada" and ellalnatlng die 
atata prohibition againat wind aarrlagea - only undaracora the inhorent 
vonalltT of apartheid, Aaalatant Secretary of State Ctocker'a bellefa to the 
contrary, tha South African govanaent has not yet xacognlted in practlca that 
'denying cltitenshlp to South Afrlca'a blacka la aa unworkable aa it la 
ludicrous.* 



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Ooly aoY«n«Mit- »pOB«or»d •anetlon* by tha Doited States and othmt natlona 
aie likely to bring the South African soreniBeat to thie realisation, and It 
la for tbls reason that I aupport leglalatlon to effect such sanetlona. The 
leglalatlon you are considering today, S. 63S, appeara to aeet two eaaentlal 
standards: It allovs continued U.S. econoalc leverage to be applied (by 
Mdtewlng dlveataent} and It avoids placing econoalc burdens oa the nowAlte 
Sondi Africans lAo ate the vlctlss of apartheid. The bill Is directed, 
appropriately, at the snail aloorlty that govema South Africa. Loana to the 
South African govemaent could still be «ade If the loans were to be used for 
educational or health facilltlea or housing nade equally available to 
noniAlteB and whites alike. Although new InveatBenta by Aaerlcan fine In 
South Africa would be restricted, relnveataent of eaminga froa existing 
business operations would be excepted froa tliat restriction. Finally, the 
sanctions against now inveataenta In South Africa and the laportstlon of 
Kmgerrands to the United States could be lifted if the President determined 
(and the Congress approved such « finding) thst polltleal and social rights of 
nomAlte Souili Africans have been restored. 

this bill calls for an historic response by the Aaerlcan govemaent to 
translate its condeanatlcm of apartheid Into workable actions. It repreeenta 
on laportant first step toward concerted efforts by the United States, aa a 
govemaent, to proaote the eradication of a policy so fundaaen tally abhorroat 
to aU of us. 



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Senator Heinz. Dr. Hackney, thank you very much. 
Mr. Bok. 

STATEMENT OF DEREK BOK, PRESIDENT. HARVARD 
UNIVERSITY. CAMBRIDGE, MA 

Mr. Bok. Thank you. 

Mr. Chairman and members of the committee, I appreciate the 
opportunity to testify on this bill and would like to make it clear, 
as my coUezigue Mr. Hackney did, that the views I express are my 
own. Harvard has no official position on foreign policy, hut I have 
certainly developed a strong personal interest in the subject. It has 
been a lively topic of discussion on our campus for 12 consecutive 
years. I have also had the opportunity to serve for some years eis 
the, chairman of a program in which we try to obtain funds from 
universities, .from foundations, from corporations, and from the 
U.S. Government to bring black studente, nonwhite students, to 
study in this country and we have some 225 of them from South 
Africa today. Of course, we have also been deeply involved in the 
votii^ of stock on various issues involved in shareholder resolu- 
tions concerning South Africa over the last few years. 

RISING TENSION IN SOUTH AFRICA 

As Sheldon pointed out, we are here today against the back- 
ground of a rising tension in South Africa. Over 3,000 arrests, more 
than 300 police killings, and over 1 million nonwhites participating 
in strikes and school boycotts. We have heard warnings by Bishop 
Tutu and other moderate leaders in South Africa of the danger of 
impending violence. We are thus constrained to try to decide what 
is it that we can do to avert greater violence and injustice. 

I join with Sheldon in concluding that constructive engagement 
as a policy is not enough. There are initiatives that have been 
taken which are good. I do not believe they are sufficient to meet 
the gravity of the situation. One can criticize them on two grounds. 
First, the current policy is too easily misinterpreted as a kind of 
tacit acquiescence by this country in the status quo which is intol- 
erable, I believe, to the American people. Second, the actual 
prepress has been slight for the reasons that Sheldon pointed out. 

I do believe, though, in trying to figure out how we can most ef- 
fectively go beyond the present policy, that a policy of totfil disen- 
gagement from that country would also be unwarranted and 
unwise. I am not at all sure that we have enough leverage to influ- 
ence the Government by that method. It would remove whatever 
chance we have of working constructively within the country, in 
particular the opportunities for American firms to improve work- 
ing conditions, to express their opposition to influx control laws 
Euid forced relocation, and to provide educational and social oppor- 
tunities as they have to the tune of many millions of dollars over 
the last few years. In addition the economic impact of such sanc- 
tions could end up harming blacks either by creating unemploy- 
ment or by shifting control of American firms into hands of owners 
who have even less humane concerns than the American entrepre- 
neurs who now control those enterprises. 



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So looking at the alternatives, the general approach taken in the 
Kennedy-Weicker bill seems to me to be the one most likely to cap- 
ture the benefits of a more vigorous response while also minimizing 
the potential costs. 

The bill does provide meaningful sanctions, but the sanctions fall 
directly on the Government — the point, Mr. Chairman, you made 
at the very beginning — and not on black employees. It does not 
remove the opportunities within South Africa for American firms 
to work in positive ways but, above all, it delivers a clear message 
of national concern, a message that, unlike our present policies, 
cannot be readily misinterpreted as tacit acquiescence. 

ADDITIONAL MEASURES TO EXPLORE 

I would not wish to conclude my testimony without making clear 
that I think, consistent with the approach taken in this bill, that 
there are additional measures which might profitably be explored. 
I, for one, would hope that legislation could make clear that bank 
loans are prohibited to all entities in South Africa and not just to 
the South African Government. It is comparatively esisy to evade 
prohibitions on loans to the South African Government by simply 
loaning to South African banks. I think the bill should be clear on 
that point. 

I would hope that one could look at the stockpiling of strat^ic 
metals, such as chrome, since imports of these metals enhance and 
increase our dependence on South Africa. 

I would hope we could examine the possibility of reviewing at 
midterm the IMF loans to see whether that review could be used to 
encourage relaxations of the influx control laws. 

All these added initiatives are consistent with the general ap- 
proach taken in the Kennedy-Weicker bill which I firmly support, 
an approach which in my view seems best calculated to maximize 
the advantages and minimize the costs of all of the alternatives 
that we have before us. 

Thank you very much. 

[The complete prepared statement follows:] 



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STATEKEIIT Of DBIBC lOK 
. PRESIDBn. HUTUD U W7 E 10 I TI 

Hr. CbaliBwii thvdc jou for this opportunity to appear bofor* jou 
on tho Mibjoet of South African aparthald and tha Tozlng quaatlon of 
how tho Unitod Statoa oan boat work to brine about Ita daalao. 

Lot MO Bako oloar at tha outaot that tha folloKlng oplniona aro bj 
om and do not raptoaont tha offlelal vlawa of Harvard Dnlvaralty. 
Llk* othar unlraraitlea. Harvard doaa net taka Inatltutional poaltlona 
on anj fadaral laglalatlon that doaa not diraotly affact hlghar 
•ducatlon. On tha othar hand, ny dutlaa orar a long parlod hava lad 
■a tb paj oleao attantion to evanta In South Africa and to davalop 
porsonal Tlawa on tha affalro of that country. 

ilaoat nlnaty yaara ago, Juatloa Jrim Karshall Harlan urota a 
prophatlo dlaaant to tha Supraoa Court daclalon In Plaaay v. Farauaon 
upholding atata-lMpoBod sagra^tlon In tha United Stataa. Harlan 
ecndennad nandatad oagregation aa 'Inocnslatant not only Hith that 
aquallty of rights which partalna to citizenship, but with tha 
personal llbar^ enjoyed by everyone In the United Stataa. . . .Tha 
deatlnleo of tha raoaa in thla oountry era indiaeclubly linked 
together, and tha cooaon govomamit of all ahall not petnit the seada 
of raea hate to be placed under the sanction of law." 

Apartheid in South Africa io totally inconsistent with the Ideals 
proclalaed by Justloa Harlan. It Is a ayatas of law that aeparatas 
people on the basis of color, strips neabers of one race of their 
basic huaan rights, roba the* of their citizenship, denies thea 
eooncalo opportunity, and imposes these indignities through crlalnal 

-t-Z- 



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law and polio* aatlon. Baoauaa af Ita flagrant injuatloaa, apartbald 
la uniTaraally condewiad In tha ttnltad Stataa. Its oruvlt; and 
rapreaalon provoka Inatablll-^ that threatana Aoarlca' a lon^taca 
Intarsata In tha raglon. Ita parvaalva raolal diaorlainatlon avokea a 
painful raaindar of our om hlatory and apura ua to naka coamon cauaa 
with tha oppraaaad. 

During tha paat twalva jraara. Harvard has sought to play a 
poaltiva rola aa an.lnvaator in U.S. eoapaniaa' doing a aaall aaount of 
bualnaaa in South Afrioa. Ha hava votad against naw. South African 
invaatoants In eoapanlas in which wa hold stock, and »• hava takan 
palna to vota in an tnfotsad, responsibla aannar on othar shareholdar 
raaolutlons. In addition, ua hava gon* bajrond voting to conduct an 
aotlva dialogua with ouch fima to parouade than to Inprova working 
condltioAs for nonwhlta aaplojaas and to ekpreas oppoaition to Influx 
control and othar rapressivs aparthsld laws. Hs hava conslstantly 
oppoaad bank loana to tha South African govacnaant or ita aubaidlary 
organizations. Each yaar, tha Univarsity providaa aoholarahipa to 
•nabla nonwhlta South Atricana to atudy at Harvard. Finally, I hava 
sarvad ainoa ita ineaption aa Chaiman of tha National Council of th« 
South African Educational Frograa, undar which aora than 229 nonwhlta 
South Africans ara eurrantly anrollad in Anarlcan univarsitlas. 



Harvard will not invaat in coapanias doing a najority of thair 
bualnasa In South Africa. 



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R«o*nt vTMita hava lad iaarloaiw to ravlaw our natlooal poller 
toMard S«uth Africa aad Its ajataa of aparthaU. Ovar tha laat nlna 
Bdutlw Bora than 200 ncmAlta South Afrleana iMva baan killad bf tha 
polloa In daaonatratlona and public catharlnsa. Hot* than 3,000 havo 
baan arraotad, aany of whcM raaaln In Jail undar uneartalu ehargas. 
in aatiaatad ona ■tllloa nonithltaB hava takan part In labor atrikas 
and aehool bojrootta. Tha Praaldant of South Africa haa bannsd all 
political Baatlnga and aaaaabllaa by 29 oppoaltlon groupa, Inoludlnf 
tha Dnltad Dokocratlo Front, an orsanliatlcn tiith 1 .3 allllon aanbara. 
Thla Bontb tha goTarnHant will try 16 nOF leadara ,00, ohargas of 



Agalnat thla backdrop, tha currant Dnltad Stataa policy of qulat 
dlploaaoy, or "conatruotlva nngagaaant." vlth South Africa maa 
Inoraaalngly lnadac}uata. Although tha South African goremaant haa 
aada atatsnanta that It Intanda to pursue ohanga In ita ralatlona with 
tha country' a nonwhlt* na jorlty, thar* la llttla avldanc* that auoh 
ohanga la actually taking plac*. Tha linltad* Intasratlen that has 
oocurrad In athlatloo and publio facllltlea — even tha lifting of tha 
ban on racial intaiwarriaga — ara but aaall atapa that do not attack 
tha baaic avila of aparthald. 

Black* continua to hava no political powar. Tha aapaiata South 
African parliaoant oraatad for Indians and "eolorads" haa no 
laglalativa authority. Its vary creation undarseoraa tha 

disonfranchlsaaant of tha oTarwhalalng black aajority of tha South 
African population and dlvidaa tha country further along racial llnaa. 



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182 



Th* "ho — Iwito" r«s*ttl«aaiit policy, t«Bpac«rll7 auapamlMd, has foread 
3.9 ■llllon blacks to ■<>▼• to crowdwd Bantuatuta, iriiaro econoilo and 
llTlnc oondltlona ara foar and th* Infant aortalltr rata la th« 
hl<haat In tha Afrloan eoatlnant. la a corollarj to th* hoNalanda 
pelleyi «ora than 8 nllllon blaeka ha«« baan "danationallzad" and 
■trippad of thalr South African oltlianahip. "Faaa lawa" irtilch sharply 
llalt freadoa of oovanant for nonwhltaa ara anforcad with Inoreaalns 
efflclancyi arraats for pass law vlolatiana doublad froB 19S0 to nor* 
than 200,000 annually in 1903. Finally, tha Influi oontrol laira whleh 
bar noiwhlta urban woricara fma raalding with thalr faailiaa near tha 
mrkplaoa ara atrlotly anforoad. 

In BUB, tha ifrlkanar govemaant shoHS littla avldmca of aoTing 
to dlsttantla tha ayataa of aparthald. Tho fruita of conatructlva 
angagaaent ar« aaager Indaad whlla tha auffaring and rapraasion 
oontlnua undlainlshad. Bsnaath tha aurfaca of offleial 

intmnaigenca, howavar, daapar tranda In tha aooiaty offar gllaaara of 
hopa. In partioular, opinion polla of South African vhltaa Indloat* 
far graatar aupport for ohango than anything proaotad raoantly by tha 
raglaa. A ourray ralaaaad in Dacaabar 19S4 by tha Hunan Sanrleaa 
Raaaarch Council, an acadeaic body oatabliahad and partially fundad by 
tha South Afrloan (covamaant, ravaalad that 45 parcant of whita South 
Afrleana ara now In favor of negotiationa with tha African National 
Congroaa whila 44 parcant ara opposed. 

Such tranda suggaat tha opportunity tor pressing the Afrikaner 
ragiaa to take bolder steps toward rafom. lat tha currant United 



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SbrtM pkUct fails tar ^ t u it tf afeat tba i iw lj oC «ba altaatlM 1m 
S«tk Africa Amm^b. iDna yvt. it la nsilr atattftMi f«r teeit 
» « j g u lji«B ic i IM m atetM VM ttat oTfrnte om- M«t pncloa IdMla an* 
ttr — tf ta dvtorient* lA p^liv tIoImos ■■« lastablUtT. I^«r 
laarieana doiibt llM ••rlnMOBfls of oik' fovan^MBt'a aitposlUoB ta 
■pkrttaaU and ballna tlMt tba Atelalstzatlon 1» Mn oODoairwd ta 
praaarva Uh aliort-nai ailiantataa of alllaBoa attb ■ poaarful i nl— 
tltaa to allavlata tba aofforlns and lajnatlca of apartbald. tt 
<jjuwlj.ii ctlT» a^pigMaat ia not eoavtnelns to aiir«al**a. It can hardly 
aaoa parawl^a ta AfrikaBai*. 

lo vl*M of tha aavara Injuatleos of aparthald and tha rlA of 
gtcmtog Tlolaoc* and lairast, I bslla'ra that qutat dlploaacjr bjr our 
gojarnaaat will not auffle*. Clraaatanoaa r«qulE« « aot* povarfal 
axpraasloa of our national concam. I tliarafara at^port. lastalatl^ 
omctlooa. At tha saa* tina. I racosnica hoa difficult It t* to 
pradlat altb eartalnty tha aconMic and political iapact on SouU) 
Ifrioa of any particular poller ar eouraa of aeticn %r tha Onltad 
Stataa. 

Tbaro ara currantly two acboola of tlMUght about ha« tha Dnltod 
Stataa can aoat effactlTslj oppoaa aparthald. Tha tlrat la basad on 
tha praalaa that 0.3. tnvaataanta In South Africa can provida a 
Bubatantlal aaana of influenclns tha South African raciaa. Dlraat 
D.S. Invaataanta raprasent nearly 20 parcant of all direct foral^t 
InTaataant In South Afrlcat thej total aora than t2 billion In 
■pproxiaatelr 280 tt.S fliaa. Ineluding 57 of tha 100 Urgaat U.S. 



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1S4 

eorporatioiw. HlMn tha v«lu« of 0.3. hald sharaa in South Afrloan 
eMtpanlas la included, th* total anount of n.3> Invaataanta la auoh 
hlshar with soaa aatlMtaa going aa high ■• t14 billion. 

Throusb aotlva participation In tha South African acononr, it is 
said that U.S. coapanlas can halp bring about ohang* through their own 
Induatrlal praetlcas and thalr vigorous oppoaitlon to aparthsid niloa. 
To tha adhai>enta of this poaltion, ths Sullivan prlnciplaa repraaant 
an Isportant aaana .of anliating and focusing tha aotivltiaa of D.S. 
Invastora in South Africa, Expansion of thas* prlnciplaa aaong 0.3. 
ccapanl«a la ragardad aa a way of inprorlng tha wagaa snd working and 
living conditions of nonwhlt« South Afrloana, trsnafarrlng technical 
and Danagaaant skllla to nonwhitas, and creating aconoalc and 
political prassursa for rafom. From Uils point of visw, tha propar 
role of tha O.S. govamaant Is to cooplaaent tha activities of U.S. 
Invastora bjr saaklng to parsuada the South African regime to begin to 
dl^untle tha apartheid ayataa In ordar to foster contlmiad donestlo 
and econoBlo growth and better Intamational relatlona. 

Tha aecond school of thought acknowlsdgea that U.S. investaent can 
Influence South Africa, but reaches a whollr different concluaion, 
calling for total and conplata dlslnvestnent. Proponents of this 
point of view belle** that apartheid la ao entrenched and the South 
African r«gl«a bo intranaigant that only a aajor shook to tha entire 
syatea will have any affaot. According to tha theory, au^ a shock 
can b« adnlnlatared by tha Unltwl StaUs If it withdraws all its 
invaBteants frca South Afrlos. Frca this parspaotlv* currant U.S. 



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186 



iiiv«Bt«Mito ar* M*mn as bolstarlnc aparthald, not mcourasins rmtoim, 
and tha Sullivan prinalplaa ara dl«al»a«d aa • tokan affort to juatlff 
oontlmilng to do bualnaaa. Sophtstloatad advooataa of dlalnvaataaat 
do not r«at thair oaaa on tha aconealo l*paat of wlthdraial, Mhloh 
thar corwad* la difficult to pradlct, but argua that tha Initial ahook 
to tha South African econoaj and tha draaatlo daaonatration of 
political and aoral oondaanatlon by tha (Inltad Stataa would forca tha 
South African raglaa to ehanga. 

Thara ara graat uneartalntlaa In both of thaaa points of via*. 
Supportara of Invaataant can offar only a spaeulatlva hopo that tha 
eaplornent practieas and aoeial uelfara prograaa of coopaniaa 
aaploylns auoh a hhiII fraction of Uia nonwhlta Mork forca In South 
Africa will hvlp bring about tha end of aparthald. Proponenta of 
dlslnvasteant cannot convlnclnsly dlapal tha f«ar that ths departura 
of Aaerlcan flma would oaral; laad althar to black unenplarnient and 
sovamovnt rapreaalcn or to a tranafer of tha abandoned asaata to 
other owner* who might wall be laaa hmane and progreaBlve than thalr 
pradeeaaaor*. 

Hhlle no couraa of action can be free froa uncertainty, aanctlona 
of tha kind propoaad in tha Antl- Apartheid Act aeea to offer a way of 
capturing aoat of tha atrengtha of both opposing polnta of *l«w whila 
MlnLalilng thalr dlaadvantaga*. By lapoaing several si gnif leant 
econooio aanctlona against the South African gcvemaant, the bill goas 
■ell beyond Bsra verbal disapproval of apartheid. Ho on* fsDlliar 
with thia laglslatlon can construe it as tacit support for the 



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IM 



irrlkaiMr e«giBa> Wo ona out intatprat th* lot a« anything athar than 
« atrong aoral condaanatlon of aparthald pronouncvd br tha oboaan 
rapraaantatlvaa of tha Anarlcan paopla. 

At tha amaa tine, unlike total dlvaetnant, tha Antl-Aparthaid Aat 
lapoaaa sanctions dlraotlj on tha South African govemaant. It doaa 
not thraatan to i»em blacks and othsr blansless third partlaa bj 
daprlvlng the* of Joba. Hor doaa the bill dlalnlah ths opportunltj 
for ABarican coapanlea to plaj a conatructlre role bj opposing Influx 
control lawa and providing battar working eonditlona and other 
opportunities for their black enplojees. True, the Isgislation would 
bar new Invaatoant bj Anarlcan coautanlao. Still, it is Inconceivable 
that U.S. flms will avar control anough of tha South African aoonoajr 
to change tha eeonoalo systea bj theasalvaa. Thay can hara a positive 
lapaot only by setting an example for others to follow, and this thay 
can do wall enough without expanding thalr invasteant bayond asiatlng 
levals. 

In sua, unlike the nore eitreaa alternatives, the Anti-Apaethald 
Aet does not rely predominantly on althar tha carrot or tha stick to 
achieve refora. It usas both — and In a way that lapoaes the least 
possible burdan on tba innocent bystander. By providing for the ub« 
of posltiva and negative inoantlves, the approach takan under tha Aot 
offers grsstar hope than any of tha known altamativaa for ancouraglng 
m prooass of constructlva reform that will halp to do away with 
aparthsld. In following this course, we stand the beat chance of 
•dvanelng tha hi«ans Idasls that are central to our national creed and 
sandlnc a aesaaga of support to nonwhlte South African* atruggllng to 



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Senator Heinz. Mr. Bok, thank you very much. 
Mr. Schotland. 

STATEMENT OF ROY SCHOTLAND, GEORGETOWN LAW SCHOOL, 
GEORGETOWN UNIVERSITY 

Mr. Schotland. Thank you, Mr. Chairman. 

It's a special privilege to be back before the Banking Committee. 
Each of you Senators and probably each person in this room has 
thought a great deal about these issues and I bet that many people 
here believe there's a clear and simple right answer. I submit this 
is an example of H.L. Mencken's proposition that for every com- 
plex problem there is a clear, simple, and wrong answer. 

ISSUE OF DIVESTITURE IS COMPLEX 

My key point today is that the issue of divestiture is not as clear 
and simple as many people have been making it sound. In my writ- 
ten statement I offer also five comments on the specific provisions 
of this bill, a bill which is described by its Senate supporters as if it 
were something of a lion or at least a leopard, but it seems to me 
to have about all the force of a plain old pussycat. 

Before I deal briefly with divestment, may I give just two sugges- 
tions about the bill, one echoing a point just made by President 
Bok. The bar on loans to the South African Government and enti- 
ties but nobody else in South Africa is curious. Bank loans from 
American banks to the South African Government were $350 mil- 
lion in September 1984, down from 1982's over $600 million, but 
our American bank loans to nonbank borrowers in South Africa to- 
taled $1.1 billion as of September 1984, up from just under $500 
million in 1981. Our bank loans to banks in South Africa in Sep- 
tember 1984 totaled $3.5 billion, up from $1 billion as of 1981. 
When our banks lend to South African banks it isn't too hard to 
understand to whom the South African banks might lend in turn. 

Contrary to the claims of the bill's supporters, I fear this bill 
sends a signal that we are not serious and we are not willing to 
pay any significant price for our principles. 

Only one other point, if I may, about the bill itself. Why does the 
bill not mandate the Sullivan principles for U.S. companies in 
South Africa as does the Lugar-Mathias-Dole bill? The Rockefeller 
Commission report of 1981 chaired by Franklin Thomas of the Ford 
Foundation, the fullest study ever done on these issues, endorsed 
the principles. The National Association of State Treasurers has 
formally endorsed the principles. You're going to hear a panel 
saying, I believe completely correctly, how constructive the princi- 
ples are. 

Law in Connecticut, Nebraska, New York City, and elsewhere 
has formally recognized their significance. 

Chester Crocker testified before the Foreign Relations Committee 
3 weeks ago that the principles would be difficult to apply and 
monitor. I submit that is a false hurdle. 

Since 1978, Arthur D. Little, as Reid Weedon will testify in a few 
moments, has formally evaluated compliance with the principles 
and I think anybody who looks at the evaluation process will be 
impressed with how substantive and substantieU it is. 



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138 

I don't see how the administration can justify rejection of Li^ar- 
Mathias-Dole, and I believe that step is more effective than S. 635 
as now written, so may I urge consideration of amending S. 635 to 
incorporate that step and perhaps others. 

My key point today, pursuant to requests, is about the issue of 
divestment. Any serious consideration of divestment involves three 
questions. 

First, the facts— three kinds of facts have got to be gotten out. 
What kind of divestment is proposed; is it absolute or is it selective 
in any way? For what kinds of funds is it proposed? It's vastly dif- 
ferent if, as Maryland has done, there is a bar on the cash funds in 
banks involved with South Africa, in contrast with Massachusetts' 
law on any securities in the pension funds. And last, what size 
funds; the larger the fund, the greater the problem. 

The second key question is, whether the kind of divestment pro- 
posed will be effective or is this being done regardless of effective- 
ness? 

The third question is, is the kind of divestment proposed moral? 

By starting with the facts, we see at once that the issue is not 
completely simple and that much of the advocacy of divestment 
misrepresents the facts and so starts out in questionable morality. 

Most advocacy is for absolute divestment. This has been adopted, 
for example, by Massachusetts and the District of Columbia pen- 
sion funds. This is an issue in many States right now — Pennsylva- 
nia, Maryland, and the State of Washington, for exEunple, speciti- 
calj^. 

That is deeply different from the approach adopted by Connecti- 
cut, or Maryland, or Nebraska, or New York City. Although divest- 
ment advocates always list them as examples of what they want, 
Connecticut, Maryland, Nebraska, and New York City have reject- 
ed absolute divestment. 

Absolute divestment, I submit, is immoral, as I will explain in 
one second; ineffective; and for institutional investors such as en- 
dowments or pension funds seriously expensive and injurious. 

Absolute divestment is immoral for two reasons. First, it treats 
every American firm involved in South Africa the same, regardless 
of their conduct there. Kelloggs was the first company, not just the 
first American company, to recognize and bargain with a black 
union. Ford was the first company, not just American company, to 
have black shop stewards. Control Data is conducting a major pro- 
gram of education in modern skills. Are those companies the same 
as Martin-Marietta which refuses (as far as the latest information I 
have) even to sign the Sullivan principles; or Baker International, 
a major oil-drilling company, which will not even respond to major 
shareholders' requests for information on its conduct there? 

To brand different people the same because of one characteristic 
is the very essence of prejudice and is the main reason why abso- 
lute divestment is simply immoral, contrary to representations. 

The speaker of the New Jersey Assembly says that when he 
hears talk about selective divestment along the Sullivan principles 
lines, he thinks of the legend over the entry to the Nazi concentra- 
tion camps. That is, he thinks the Sullivan principles are false. "The 
legend— i don't speak German well enough— was "Work will set 
you free." 



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I can only think of that kind of lumping this way. If he were 
asked were Eichmann and Ike any different, they both were in- 
volved in killing in World War II, I don't know what he would say. 
And I think the Sullivan principles are that different and that con- 
structive. 

ADVOCACY IS HYPOCRITICAL 

A second reason absolute divestment is immoral is that the advo- 
cacy is hypocriticftl. It demands the university endowment or State 
pension fund to be free of all connection with South Africa, but I 
have yet to find any advocate who imposes any similar demsmd on 
himself Al»olute divestment is an understandable tactic in a polite 
ical effort, but it is nothing more. It is understandable to brand im- 
moral the university or the pension fund holding shares in any 
company, but is it moral to go on using American and Japanese 
cars, using IBM products, drinking Ck>ca-Cola, relying on medi- 
cines — well, you can name just about any American drug company. 
And how many individuals who sit demanding purity of institution* 
al investors look down at their gold watch and see whether iite 
time has come for them to move on to something else? 

It's unrealistic to expect people to function without such firms, 
without Otis Elevator, Associated Press. ABC, CBS, New York 
Times, Washington Post. It is no less unrealistic to expect institu- 
tional investors to function to carry out their mission of education 
of providing secure pensions without the opportunity to invest in 
such major natural holdings for such portfolios. 

That is why an Oregon court in December this past winter held 
it imprudent for the $20 million University of Oregon endowment 
to adopt absolute divestment. 

One other immorality is involved in most advocacy of absolute di- 
vestment. This is misrepresentation about how much has been 
adopted. Connecticut has not done what the advocates claim. It re- 
tains and invests more in companies that are Sullivan signatories 
in the top compliance ratings. That prudent course has been ap- 
proved by the National Association of State Treasurers. It makes 
moral decisions. It avoids imposing expensive, useless losses on the 
funds. 

New York City, contrary to the usual advocacy, has not adopted 
absolute divestment, not even at the end of its 5-year phase-in. Ne- 
braska, ditto. Maryland has done nothing about its investment 
funds, barring merely use of banks involved in South Africa. 

As for why divestment is ineffective, what happens if our univer- 
sity, or the University of Pennsylvania, or the State of Massachu- 
setts pension fund sells stock in a company? The company doesn't 
like the publicity, but some other shareholder who by definition 
cares less simply buys the stock. There is less impact on the compa- 
ny than if Harvard, or the University of Pennsylvania, or the Mas- 
sachusetts pension fund is on the back of that company as active 
shareholders. 

When Connecticut passed its selective divestment law, within 2 
weeks the major employer in Connecticut, United Technologies, 
made its largest acquisition in South Africa of a subsidiaiy. Polar- 
oid did pull out of South Africa because their product was unique. 



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140 

Their product was the key to the pass system years back when 
nobody else had that kind of film. Their puUout had absolutely no 
impact. Polaroid film simply came in through Italy. 

If our companies pull out of South Africa, business done by them 
will be picked up by others. Our computer companies have the 
largest part of any South African economic activity, 70 percent. 
Nobody can question what's going to happen if the computer com- 
panies pull out. The other 30 percent simply pick up the vacuum. 

We need to put the multinationeils together along lines proposed, 
for example, by Congressman Solarz. 

Although divestment will be completely ineffective, it is costly. 
In an article in a pamphlet recently published and now out in 
30,000 copies in which I submit my article for your record, I go in 
detail into the impact on institutional investors and into the ac- 
complishments of the Sullivan signatories and if I may 

Senator Heinz. Without objection, that will be made part of the 
record. 

Mr. ScHOTLAND. Thank you very much, Mr. Chairman, and 
thank you for your consideration. 

[The complete prepared statement and a peunphlet on disinvest- 
ment follow:] 



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Swiat* C(M*itt*« on Banking, 
HMwing « Orbm *fUir«: 

liilii i^lll 11 on International 



Tbc Anti-Aparthaid Act of 19BS, S.69S 



wrT anJ Contanta i 

Views on divutMcnt, suB*arisad — why absolut* 
di«Mt*ent is iaMoral, inaftectiva, and for 
institutional investors, injuriously espensive. 



I S. S35's specific provisic 



This state«*nt focuses on S. fi3S, with five brief coevents 
on the divergence between what the bill does and the claias nade 
about it. 

In addition, as requested, I submit views on the vuch 
discussed question of divestaent. Here I only suamarice my 
views; they are set forth at length in a recently published 
paiqihlet CDisinvestaent — Is it legal? Moral? Productive?", 
Kat'l. Legal Center for the Public Interest, Hash. D.C., 1985), 
and I request that a copy of my article be included in your 
Hearing record with this statenent. 

Below is the outline of that article, followed by ny summary 
for your Hearing; 

Tke difbciduet of divoicB iBoettii) 

Hurdle I: Whv lodi? 

Hwdk 2: Wbick pwiuci? 



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I. To suEunarize my vievs on divestment: 
Viaws of divestment must begin with vhat divestment is proposed. 
Most advocacy is for absolute avoidance of the securities of an] 
firm involved in South Africa, as has been adopted for the 
pension funds of Massachusetts and the District of Columbia (anc 
no other state). That is very different from the approach 
adopted by, e.g., Connecticut or Maryland or Nebraska, although 
^nt advocates always list them as examples of what they 



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Absolut* or blundarbuss divcstaent is, contrary to first 
iapressions, inwral, in«f factiva, and for tnstttutionsl 
investors, injuriously •apensivc. 

Absolute divestment is inaoral for two reasons. First, it 
treats all American firas involved in South Africa the sa**, 
regardless of their conduct there. Xellogg's was the first 
coapany — not just the first U.S. coapany — to recognize and 
bargain with a black union. Pord was the first cmpany with 
black shop stewards. Control Data is conducting a major prograa 
of education in modern skills. Are such c«apanies the same as 
Martin Marietta, which refuses to sign the Sullivan Principles, 
or Baker International (oil drilling), which will not even 
respond to major shareholders' requests for information on its 
conduct in South Africa? 

To brand different people the same because of one 
characteristic, is the essence of prejudice, and is the main 
reason that absolute divestnent is immoral. 

A secondary reason that absolute divestment is immoral is 
that its advocacy is hypocritical: it demands that a university 
endowment or state pension fund must be free of ell connection 
with South Africa — but I have yet to learn of any advocate who 
imposes any similar demand on himself. It is understandable 
tactics, but nothing more, to brand 'immoral' the endowment or 
pension fund holding shares in any coo^any involved in South 
Africa, while the advocates themselves go on using American or 
Japanese cars, using IBM and SB products, drinking Coca-Cola — or 
relying on medicine fro* Abbott Labs, Baxter Trsvenol, 



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Bristol-Kyars, Johnson i Johnson, Bli Lilly, Merck, Pfizer, 
RichBrdson-Vicks, Scbaring Plough, SnithKllne BecKnan, Squibb, 
Starling, Upjohn and Harner-Laatbert. (And how many individuals 
who denand 'purity* of institutional investors, are willing to 
giva up their gold watches or jewelry or family diamonds?) 

It is unrealistic to expect people to function without such 
tints, or without Otis Elevator, Associated Press, ABC, CBS, Haw 
York Times and Washington Post. It is just as unrealistic to 
expect institutional investors to function (to carry out their 
aission of education or of providing secure pensions, etc.) 
without the opportunity to invest in such major natural holdings 
for such portfolios. Individual investors can easily restrict 
themselves, but investors are very different. That is why an 
Oregon court in December 1984 held it imprudent for the S20 
million state university endowment to adopt absolute divestment. 

One other immorality is involved in most advocacy of 
absolute divestment. This is the misrepresentation about how 
widely it has been adopted. Connecticut has not done what the 
advocates claini it retains and will invest more in companies 
that are Sullivan signatories and in the top compliance ratings. 
That prudent course, approved by resolution of the National 
Association of State Treasurers, has the advantages of making 
moral distinctions, thereby being more effective and also 
inflicting little if any investment injury on its pension funds. 
Similarly, New York City, contrary to the usual advocacy, has not 
adopted absolute divestment, not even at the end of its five-year 
phase-in of selective divestment. Nebraska has also adopted 
-4- 



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melectiro divcctMent; and Hcrfland hai don* nothing sbout its 
inveitaent funds, mmrtlj barring ua« of banks involved with South 
Africa. 

As for why divestvant is inaffective, and why it will b* so 
injurious to institutional invaatora, full datail ia aat forth in 
the article aufanitted with thia stateaant. 
II. Flva Conaicnta on Spaeif ic Provisions of S^ 63S 

1^/ This bill is dramatically different froai, and lass 
than, what one would expect in light of the sponsors' statet mta 
introducing the bill on March T (see Congressional Record pp. 
S. 2794-7). Sen. Kennedy said the bill 'is intended to aend a 
clear signal' and that 'we cannot continue policies that actually 
encourage Americans to invest in racism.* Sen. Heicker said that 
'Up to this point [ve have] adopted a cost-free approach .... 
[Tlhe proof of our sincerity and our resolve is that we are 
willing to pay a price for the protection of universal ideals 
. . . .' Sen. Proxnire said the bill will 'send a strong 

Indeed, this bill has been characterised as 'probably the 
strongest bill' (Ottaway, Apartheid Opponents Launch Fresh 
Campaign, Washington Post, May 15, 1985, p. A3). 

Only Sen. Levin pointed out natters that must be considered 
in considering this bill; 1) The 1961-3 State Department 
authorization of S2S million worth of military equipment sold to 
South Africa, the highest-level sales on record. 2) Seven 
nuclear-related eaports to South Africa in 1901-2, which made it 



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146 



our third largast nuclaar asport rcclplantj and in 19B3 the 
Dapartoent of Energy licensing of U.S. finu' servicing tha 
Koeberg reactor in South Africa. 3> The 1962 export license 
granted for sale of Z.SOO electric cattle prods or 'shock batons' 
for crowd control by South African police. 

The bill fails to touch any such matters, 

2^/ The bill ignores Imports fron South Africa. America's 
.purchase of South African minerals nay well do more to support 
■the status quo in South Africa than any. other economic 
relationship, and perhaps we need to or should continue such 
purchase. But certainly we must be more realistic about what 
'signal' we are sending to South Africa, and about what price we 
are willing to pay for our principles. 

3./ The bill bars loans to the South African government and 
government entities, but not to others in South Africa. American 
banks loaned only $343 million to Africa's public sector as of 
September 1984, down from S623 million in 1982. But our banks' 
loans to non-bank private borrowers in South Africa totalled $1.1 
billion as of September 1981, up from $495 million in 1961; and 
our banks' loans to banks in South Africa, who of course loan the 
money on to others, totalled S3. 5 billion as of September 1384, 
up from $1.08 billion in 1981. (HY Times, Apr. 29, 1985, p. D-e> 

Here again, doesn't the bill send a signal that we are not 
serious and are not willing to pay any significant price for our 

4. / The bill bars new investments but has an exception for 
"an investment which consists of earnings derived from a business 



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•ntcrprise in South Africa established btfore th« d«t» of th* 
enactaent of this Act snd which is nod* in that businass 
•ntsrpris*,' S «<b>(l). 

Th«t exception allows investment for eipansion, contrary to 
the explicit raccMnmendation of the nost significant work on these 
■atters, the Rockefeller Foundation Study Coaaission on U.S. 
Policy Toward Southern Africa (19S1), chaired by Franklin A. 
Thoaas. And many American finis in South Africa already 90 
beyond this bill, by barring expansion there — e.g.. General 
Motors, Kodak, Burroughs and Gulf ( Western. (See the Study 
Commission's Report, 'South Africa: Tim* Running Out,* at pp. 
427-8.) 

In short, if S.G35 is meant to send a signal not merely to 
Americans who are concerned about apartheid but uninformed about 
relevant facts, but also a signal to South Africa's government; 
and if the bill is meant not only to send signals but also to 
have impacts, then there is need to consider amendments along 
lines suggested by the above and Senator Levin's approach. 

5i/ Why does the bill not mandate the Sullivan principles 
for U.S. companies in South Africa, as does the bill sponsored by 
Sens. Lugar, Mathias and Dole? The Rockefeller Commission (see 
above) endorsed the Principles. The National Association of 
State Treasurers has fomally endorsed them. Law in Connecticut, 
Nebraska, New York City and elsewhere, has formally recognized 
their significance. 

Chaster Crocker, Assistant Secretary of State for Africa, 
reportedly testified before tba Foreign Relations Committee Hay 2 



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tbat tha Principles would be difficult to apply «nd monitor. 
That Is a falsa hurdla. Sine* 1976, Arthur D. Littla has 
fomally evaluated coaplicance with the Principles, steadily 
liq>roving its process. Last year, the questionnaire to each 
conpany (or aven each separate subsidiary) was 55 pages, and the 
closeness, care and reliability of the evaluation process will 
ingress anyone who looks into it. 

Unable to see how the Adninistrat ion can justify its 
rejection of the Lugar-Mathiaa-Pole step, and believing that step 
to be nore effective than S. 635 as now written, I urge anendnent 
to add that step to S. 635, as well as urging consideration of 
the other provisions of the Lu tjar-Mathias-Dole bill. 



Thank you for your ( 



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149 




National 

Legal Center 

for the Public Interest 



DISIlSfVESTMENT 

Is it Legal? 
Is it Moral? 
Is it Productive? 



AN ANALYSIS OF POLITICIZING INVESTMENT DECISIONS 



JOHN H. LANGBEIN, Ph.D.. LL.B. 
ROY A. SCHOTLAND, LL.B. 

and 
ALBERT P. BLAUSTEIN, |.D. 



Special Commentaries 

by 

WILLIAM G. MILLIKEN 

Former Governor of Michigan 

and 

DEREK C. BOK 

President of Harvard Universlfy 



Introduction 

by 

THEODORE B. OLSON 
Fonner Assistant U.S. Attorney General 



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150 

PREFACE 



ERNEST B HUETER 
PRESIDENT 



This study, another in the Judicial Series of monographs published by the 
National Legal Center for the Public Interest, brings focus upon the many 
ramifications of a serious national and international issue: the politicizing of 
investment policy. Currently much attention is centered by the media and 
special interest groups upon South Africa and the social issue of apartheid. 
However, the issue of disinvestment of American corporate securities as a 
means of forcing social or political change is a concept that extends far 
beyond a single country or a single political objective. 

It is well that our policy-makers and their constituents — the American 
citizenry — be keenly aware of the many considerations raised by legislation 
requiring trustees of public pension and endowment funds to divest securi- 
ties of corporations doing business in a particular geographical area or in a 
prescribed field. 

In keeping with its mission, the National Legal Center concentrates its 
interests cm the legal and Constitutional consideraticms of issues of national 
importance. The scholarly evaluations of law professors Langbein, Schot- 
land, and Blaustein address disinvestment from those aspects. This study is 
further enhanced by contributions from former Governor William G. Milli- 
ken of Michigan, President Derek Bok of Harvard, and former Assistant 
U.S. Attorney General, Theodore B. Olson; each addressing disinvestment 
from a different perspective. 

lliis publication is provided by the National Legal Center as a public 
service. It is not intended to advance or inhibit the passage of any legislation 
before any governmental entity. 



NATIONAL LEGAL CENTER 

FOR THE PUBLIC INTEREST 

1 101 -17th Street NW 

Washington, D.C. 20036 

202/296-1683 



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161 

TABLE OF CONTENTS 

PREFACE by Ernest B. Hueler Inside Front Cover 

ABOUT THE AUTHORS P>ge iii 

INTRODUCTION by Tlieodoie B. Olson Page vii 

SOCIAL INVESTING OF PENSION FUNDS 
AND UNIVERSITY ENDOWMENTS: UNPRINCIPLTD. 
FUTILE AND ILLEGAL by John H. Langbein Page 1 

DIVERGENT INVESTING OF PENSION FUNDS 
AND UNIVERSITY ENDOWMENTS: KEY POINTS 
ABOUT THE PRAGMATICS, AND TWO CURRENT 
CASE STUDIES by Roy A. Schotland Page 31 

DISINVESTMENT— THE CONSTITUTIONAL 
QUESTION by Albeit P. Blaustein Page 75 

DIVESTMENT IS NOT THE ANSWER 
by Governor William G. Milliken Page 95 

STATEMENT ON INVESTMENT POUCY 
by President Deiek C. Bok, Haivaid Univeisity Page 99 

CONCLUDING SUMMARY 
by Robert J. D'Agostino Page 107 

UST OF PUBUCATIONS Page IIO 

LIST OF SERVICES Inside Back Cover 



^1985 National Legal Center for die Public Interest 

Libraiy of Congress Catalog Number 85-060208 

ISBN Number 0^9603894-8-2 

Published Febniary 1985 



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ABOUT THE AUTHORS 

I THEODORE B. OLSON, currently a partner in the 
Washington office of the Los Angeles law firm of Gib- 
son. Dunn & Crutcher, is a former Assistant U.S. Attor- 
ney General . He was ^pointed head of the Department of 
Justice's Office of Legal Counsel on April 6, 1981, a post 
he held until re-entering private practice late last year. 
I Olson is a cum laude graduate of the University of the 
1 Pacific, Stockton, California where he majored in speech 
and hisloiy, was editor of the student newspaper and was a member of the 
Vbi Kappa Tau fraternity. He attended the University of California (Berke- 
ley) School of Law (Boalt Hall), receiving his LL.B. Degree in 1%S. He 
was named to the Order of the Coif at law school and was a member of the 
California Law Review. Upon graduation from law school, be became an 
associate in Gibson, Dunn & Crutcher, joining the firm as partner in 1972. 
He is a member of numerous bar associations and is admitted to practice 
before many state and federal courts. 




! 



I JOHN H. LANGBEIN is the Max Pam Professor of 
I American and Foreign Law at the University of Chicago 
Law School where he has taught since 1 97 1 . He is a 1 968 
I magna cum laude graduate of the Harvard Law School 
I where he served as articles editor of the Law Review. 
I Langbcin received a Ph.D. from Cambridge University, 
England, in 1971. He is a member of the Bar in the 
I District of Columbia and Florida and he is a barrister of 
the Inner Temple in London. He is the author of three books, one on the 
subject of his doctoral thesis, criminal process in the Renaissance, and 
numerous law review articles. Professor Langbein's [mncipal areas of legal 
scholarship are pension law, modem German law, legal history and the law 
of trusts, investment and probate. On the last subject he is the author, along 
with Richard Posner, of a definitive article on "Social Investing and the Law 
of Trusts" published in Volume 79 of the Michigan Law Review (1980). 

^^H^H ROY A. SCHOTLAND has been a Professor of Uw at 
^^^T ^H Georgetown University Law School since 1972. Educat- 
^^^^F^^H ed at Columbia College and Wadham College, Oxford, 
■ ^^^HpH England, he is a graduate of Harvard Law School where 
■^b^^bH he received his LL.B. in 1960 and was a member of the 
^^^^^^^^R board of editors of the Law Review. Upon graduation 
'.y^^H^I from Harvard, Schotland served as a research assistant to 
L.^^I^Bk^ the law school's ProfessorPaulFniend (1960-61) andas a 
Law Clerk to Justice William Brennan, Jr. of the U.S. Supreme Court 
(1961-62). Associated in a teaching c^wci^ with law schools for twenty 



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yeare. Professor Scbotland has conducted classes at tfae Univeisity of Vir- 
gjnia and Pennsylvania Law Schools as well as at Georgetown Univenity. 
One of his areas of scholarship and expertise is the management of pension 
fiinds. He has written extensively and has given numerous talks on the 
subject and cuiTcntly conducts a seminar at Georgetown University on 
pension regulation. 

I ALBERT P. BLAUSTEIN is a Constitutional authority 
of tnilv worid-wide renown. A professor of law at 
Rutgers University, be has worked as a consultant in the 
preparation of the constituIi<ms of several foreign oatioas 
including Liberia, Zimbabwe, Peru and Bangladesh. He 
has been designated as Ccmstitutional Advisor to the As- 
sembly of First Nations in preparing autonomy constitu- 
tions for Canada's Indian Nations. A graduate of 
Michigan and Columbia Universities, Blaustein began teaching at Rutgers 
in 19SS. He is the President and Chairman of Human Rights Advocates 
International, Inc., and the Editor-in-Chief of "Tbe Influence of the U.S. 
Constitution Abroad." He is tbe author of numerous articles, ccmtributions 
and reviews and has written several books on Constitutional and human 
rights including: Civil Rights and the Black American ( 1970) and tbe multi- 
volume text. Constitutions of the Countries of the World (1971); 19 wA- 
umes, continuously updated. 




■ 



I WILUAM G. N41LLIKEN retired in 1983 as Michigan's 
I longest serving Governor. First elected GovenKU- in 
1970, MilUken, a Republican, was moved up to that 
I officein 1969afterscrvingasLieutenantGovemor.Heis 
a graduate of Yale University and is a recipient of numer- 
ous honorary degrees including honorary Doctor of Laws 
degrees from the University of Michigan and Yale. Gov- 
I emor Milliken's experience in politics is not limited to 
holding his state's highest office. He was elected to the State Senate in 1960 
and 1962 and was Senate Majority Floor Leader in 1963. Presently he 
serves as a member of the Board of Directors of Chrysler Corporation, 
Burroughs Corporation, Ford Foundation in New York and is Chairman of 
The Center for the Great Lakes in Chic^o. Prior to his political career, he 
was president of J.W. Milliken & Co., a chain of Michigan department 
stores. 



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Hi 



I DEREK C. BOK has been the President of Harvard Uni- 
versity since 1971 . Previously he was Dean of Harvard 
Law School, a post he assumed in 1968. He has also been 
a Professor of Law at Harvard since 1961 . Bok received 
his undergraduate degree from Stanford University in 
1951 and his J.D. from Harvard Law School three years 
later. He was a Fulbrighl Scholar at the University of 
Paris' Institute of Political Science from 1954 to 1955. 
President Bok has had numerous professional affiliations including mem- 
bership on the Federal Advisory Committee on Affirmative Action at Insti- 
tutions of Higher Education and the Board of Advisors of the National 
&idowment for the Humanities. He is the author of a book. Beyond the 
Ivoiy Tower: Social Responsibilities of the Modem University, published 
by Harvard University Press in 1982. 

^^^ ROBERT J. D'AGOSTINO, NLCPPs Ugal Advisor, is 
^^^^^^ a business law practioner who, in 1981-82, served in the 
^^^K^^m VS. Department of Justice as E)eputy Assistant Attorney 
^^■l^^v General for Civil Rights. He had policy authority over the 
^^^^V entire division and frequently spoke for the Department 
^^J^^^P^^ of Justice on civil rights issues. Prior to his govenunent 
I^H^^r ^H service, and immediately thereafter, D'Agostino was a 
^K" ^r ^1 Professor of Law at Delaware Law School where he was 
the founding faculty advisor to the "Delaware Journal of Corporate Law" 
and taught courses in commercial transactions, bankruptcy, and contenqx)- 
rary business law problems. From 1973 to 1975, D'Agostiiu> was a manag- 
ing editor for Matthew Bender and Co. and was the first head of the 
publishing company's in-house bankruptcy division. D'Agostino is the 
author of several articles and books dealing with bankruptcy and civil 
rights. He is a contributing author to the leading bankruptcy treatise. Collier 
on Bankruptcy. 



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INTRODUCTION 

by 

THEODORE B. OLSON* 

Former Assistant U.S. Attorney General 
Office of Legal Counsel 
Department of Justice 



The past decade has seen the rise of a political phenomenon that raises 
questions lying squarely at the crossroads of private and public, domestic 
and international law. Numerous state and local governments have chosen 
to express their political disapfvoval of the domestic policies of foreign 
governments by divesting their holdings in American companies that do 
business with those governments or operate branches or subsidiaries in their 
territories. In the main, these state and local decisions have targeted the 
government of South Africa with its system of apanheid. As of this writing, 
five states, Connecticut, Maryland, Massachusetts. Michigan, and Nebras- 
ka, have passed laws regarding divestment of South African holdings; about 
fifteen municipalities, including Boston, New York, Philadelphia, and 
Washington, D.C., have enacted similar divestment ordinances or adopted 
disinvestment policies, with officials in Chicago, Detroit, Los Angeles, and 
Seattle apparently contemplating comparable moves.' 

Such local government decisions provoke fascinating legal questions that 
arise in ordinarily unrelated fields of private and public law. When trustees 
of state or local government funds divest holdings for avowedly political, 
rather than economic, reasons, do they act consistently with the standards of 
care imposed upon fiduciaries by the law of private and charitable trusts, 
corporate law. and local government law? If state and municipalities divest 
or disinvest in order to send foreign governments a political message, do 
their decisions constitute "speech" protected by the First Amendment of the 
United States Constitution?^ If so , what of the First Amendment rights if the 
individual taxpayers who disagree with their government's "message," but 
must nevertheless help to pay for it?^ 



'See CamfheW.MoreMurucipaliiits Joining Drive loCui South Africa UiAs. N.Y. Times, 
Sept- 25. 1984. alAl. Col. 6 and A25. Col. 1. 

^/. M. Yudor. When Govemmenl Speaks: Politics. Law and Cioveniinenl Expression in 
America (1983); Shiffrin, Government Speech. 27 U-C.L.A, L. Rev 565 <1980); Note, The 
Consliiutionalily of Municipal Advocacy in Slmewide Referendum Campaigns. 93 Harv. L. 
Rev. 535 (1980). 

^See SWiffrin^upra note 2. ar 588-95: Note, supra note 2. at 549-53. 

*Mr. Olson, a ntember of the California and I>istiici of Columbia Bars, is an atlomey in 
private practice in Washington, D.C. From 19S1 to 1984, he served as the Assistant Attorney 
General. Office of Legal Counsel, Department of Justice. TIk views expressed beie are his 



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Even more tantaliziiig questioDS arise when one considers the federalism 
issues raised by such local government decisions. On the one hand, it could 
be argued that such slate and local regulations, on their face or as applied, 
impermissibly burden foreign commerce^ or violate the Supremacy Clause 
of the Constitution.' On the other hand, it cmild be asserted that recent 
Supreme Court precedent suggest that states and localities who choose to 
invest in businesses operating in particular foreign countries do not offend 
the Comerce Clause because in doing so, they act as "market participants," 
not as "market regulators.'* Alternatively, it could be argued thai the 
federal govenmient may not interfere in the manner in which a state or local 
government chooses to invest its own funds, since such choices constitute 
"essential decisions regarding the conduct of integral government func- 
tions" which the Tenth Amendment to the Constitution insulates from 
federal regulation.^ 

Yet another level of legal complexity is introduced when one recognizes 
that customary international law, as reflected in international conventions 
and treaties, advisory opinions of the International Court of Justice, aitd 
writings of infemalional publicists, has come to view systematic racial 
discrimination as a crime of universal concern against all humanity.^ Leav- 
ing aside the unanswered question whether congressional legislation that 
purported "extraterritorially" to punish such conduct would be consistent 
with principles of international law,^ it could be argued that state or local 
legislation that seeks to achieve the same goal would be preempted by 

'The Conunerce Clause grants Congress, not stale oi municipal legislatures, the exclusive 
power "(l]o regulate Commerce with foreign Nations." U.S. Const, an. I, S S. cl. 3. 

'See U.S. Const, art, VI. cl. 2. See also Chettle. The Law and Policy cfDivesimeni of South 
African Slock. 15 L. & Pol'y in Infl Bus. 445. 515-26 (1983) (making this argument). 

''See. e.g.. White v. Mass. Council c^Constr. Employers. 103 S.cl. 1042. 1044 (1983); 
Reeves v. Slake, Inc. 447 U.S. 429. 436-37 (1980);HugAej v, Aleiandria Scrap Corp.. 426 
U.S. 794. 810(1976). 

''National Uague of Cities V. Usery. 426 U.S. 833. 855 (1976). Bui see Garcia v. San 
Antonio Metro. Transit Auth.. 1(M S.O. 3582 (1984) (setting case for reargumeni and direct- 
ing parties to address the question whether the Tenth Amendment principles set fcoth in 
National League t^ Cities should be reconsidered). 

'See, e.g., Internationa] Convention on the Suppression and Punishment of Crime of 
Apartheid, adopted November 30. 1973. entered imo force. July 18. 1976. Annex to O.A. 
Res, 3068 (XXVIIl). 28 U.N. GAOR. Supp, (No. 30). 166 U.N. Doc. A/9030 (1974); 
International Convesntion on the Elimination of All Forms of Racial Discrimination, adopted 
Dec. 21. \965. entered into force, ian. 4. 1969. 660 U.N.T.S, 195: Case Concerning Legal 
Consequences for Stales of the Continued Presence of South Africa in Nambia iSoulh West 
Africa} nonvithsuinding Opinion); Reslatemeni (Revised), Foreign Relations Law of the United 
Stales. 

Tent, Draft, No. 2. S 404. Reporters' Note I at 117 (1982); id. Tent, Draft No, 3, S 702(f) 
(1982) ["Revised Restatement"], 

*Two unsuccessful bills introduced in the 9gth Congress sou^i to exercise Congress' 
legislative powers extraterritorially to require United Slates persons conducting business or 
cmtrolling entei^ses in South Afiica and Northem Ireland to comply with certain fat 
employmenl standards, as well as to prohibit new loans by United Stales financial institution 
to the South African government and its owned or controlled corporations. See H,R. 1693, 
9Stfa Cong,. 1st Sess. (1983) (the "Solan-Gray Amendments" to the Export A' 
Act); H.R. 3465. 98th Con.. 1st Sess. (1983) (Northem Ireland), 



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Article I, S8, cl. lOoftheConstitittioD.whicheinpowersCoagress to enact 
legislation to "deflne and punish Offences against the law of Nations.""* 
Or, one could argue that, regardless whether such state and local legislation 
would interfere with any legislative power specifically enumerated in Afti- 
clc I of the Constitution, such laws inevitably would interfere with eidter the 
President's foreign affairs power or Congress' unenumerated foreign rela- 
tions authority, or both, thereby creating an unconstitutional "intrusion by 
the State into the field of foreign affairs which the Constitution entrusts to 
the President and the Congress."" 

The complexity and rich diversity of the potential legal and political 
issues expands geometrically when extended to other nations and other 
controversial social relationships. For example, what of state and local 
efforts to reach religious discrimination in Northern Ireland, the Middle 
East, India or the Soviet Union? How far may state and local government go 
in refusing to do business with citizens who wish to travel to Cuba, Libya, 
Afganistan or Nicaragua? May a state withhold contracts from persons who 
invest in or send funds to Poland or Iran? The potential list is endless. An 
exhaustive analysis of all of these legal questions could easily fill an entire 
law review symposium. The articles contained in this provocative mono- 
graph begin the task by coming to grips with some of the most difficult of 
these legal questions. Professor John L^angbein of the University of Chicago 
Law School addresses what he calls ttie "Unprincipled. Futile, and Illegal," 
aspects considering whether a state or local government's forced disinvest- 
ment for political reasons — a phenomenon he dubs "social investing" — is 
contrary to established principles of private trust law or its statutory counter- 
parts. Professor Roy Schotland of Georgetown Law School attacks the 
problem from a di^erent perspective, reviewing the legal issues that arise 
when states and localities engage in what he calls "divergent investing". He 
includes a discussion of the "Sullivan Principles."'^ 

Professor Albert Blaustein emphasizes the Constitutional implications of 
a private and state government divestment strategy. President Derek Bok of 
Harvard and former Governor William Milliken of Michigan address trou- 

'°See Revised ResUlement. supra noce 8. Tem, Draft No. 2. S 4M, Reporters' No(c I at 1 17 
(noting thai the question has never been adjudicated, but suggesting thai the stales of the United 
States are probably piecmpled from enacting legislation ID punish offences against the law of 
nations). 

"Zschrnig v. Miller. 389 U.S. 429, 432 (1958|. See also Untied Slales v. Curliis-Wrighl 
Export Co., 299 US. 304, 320 (1936) (describing Piesident's power "in the field of inlema- 
tional relations" as "plenary and exclusive"); Perei v. Brownell. 356 U.S. 44. 57-60 (1958) 
(recognizing that Congress also has implicit constitutional authority to regular matlen affect- 
ing the foreign relations of the United States). 

'^About one-third of the American companies doing business in South A&ica have adhered 
to die "Sullivan Principles." a statement of six principles of coiporaie conduct formulated in 
the mid-1970s by human rights activist Reverend Leon Sullivan in order to guide the employ- 
ee-relations practices of multinational enterprises operating in South A&ica. See generally 
Sullivan, ^;enli/or Change: The Mobilization ofMuliinaiional Companies in South Africa. I S 
L. & Pol'y in Inl'l Business 427 (19S3|. 



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bling issues they themselves have had to face and deal with some of the 
ccmsequenccs of a pressure group mandated divestment policy. 

Together, these articles provide a useful overview of a social [dienom- 
enon that has many legal facets. I commend the National Legal Center for 
the Public Interest for focusing attention and fostering dialogue on the legal 
and constitutional, as opposed to purely political, aspects of this peiplexing 
and fascinating social phenomenon. 



Washington, D.C. 
November, 1984 



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159 

TEXT OUTLINE 

Page 

Understanding the Rise of Private Pension Funds 1 

How Pension Funds Woric 3 

Funding 3 

Taxation 4 

The Protective Policy 4 

The Tiust Form 4 

Contribuloiy or Not 4 

Defined Contribution and Defined Benefit 5 

Multiemployer Plans * 5 

ERISA 6 

Compulsory Trusteeship 6 

Preemption 6 

State and Local Plans 7 

The Hidden Dynamic in Social Investing 7 

Principles or Politics? 9 

The Economics of Social Investing 12 

Substitution 12 

Diversification 14 

The Social-Bargain Fallacy 15 

Why Social Investing is Illegal 16 

The Duty of Loyally 16 

The New York Teachers' Case 18 

The Dwty of Prudent Investing 20 

ERISA's No-Waiver Rule Applied to Social 

Investing 21 

Corporate Social Responsibility 23 

Constitutional Objections 24 

University Endowments 25 

Charter 26 

Nonchariiable Purposes 26 

Costs 27 

Donors 27 

Conclusion 28 



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160 

SOCIAL INVESTING OF PENSION 

FUNDS AND UNIVERSITY 

ENDOWMENTS: UNPRINCIPLED, 

FUTILE, AND ILLEGAL* 

by 
JOHN H. LANGBEIN*' 

Interest groups of vyious sorts have been campaigning in recent years to 
politicize the criteria that govern the investment of pension fiinds and 
university «idowments. These funds should not, say the various campaign- 
ers, be invested in companies that do business in South Africa, or that have 
resisted labor union demands, or that manufacture munitions, or that pol- 
lute. Another strand of the social investing movement is localism; paiticu- 
lariy as regards the pension funds of state and local govemment employees, 
there is pressure to invest for the purpose of stimulating the local 
economies. 

This article is concerned to explain why the traditions of trust law, 
pension law, and the law of charity rightly forbid social investing. I shall 
direct primaiy attention to pension funds, whose enormous size and impw- 
tance has made them the main target of the various social-investing pressure 
groups. In the final section of this paper (Part VII), however, I point to legal 
factors that make social investing objectionable for university and other 
charitable endowments. 

I. UNDERSTANDING THE RISE OF PRIVATE PENSION FUNDS 



At year-end 1983 the one thousand largest nonfederal pension plans in the 
United States had assets of $806 billion. ' Total pension-fund assets exceed 
a trillion dollars.^ These staggering sums reveal that a very large fraction of 
personal savings and of aggregate capital formation in the United States 
occurs through the medium of pension plans. 



'PeoMoos & Invesbnents Age. Jan. 23, 1984, al 3. 
*I<1.. Apf. 18. 1983. at 10. 

'Portions of ihis aitkle, especially Pans VI and VB. aie based upon material previously 
published in John H, LangbeinA Richard A. Posner. Sociallnvestingand the Law of Trusts, 
79 hfichigan Law Review 72 (1980). Posner subsequently became a federal qvpellate judge 
and has taken no part in ibe prepanUion of the pre^t essay. 

"Max Pam nofessor of American and Foreign Law. University of Chicago Law School. 



1 

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Huge demognqthic shifts underlie this phcDomenon. People are living 
Icmger, dianks to many factors , of which the twentieth-century revolution in 
health care (above all, the discoveiy and refinement of antibiotics) is the 
most important. In consequence, the gap between the time we cease to woili 
and the lime wc die is widening. For that interval in our lives, we need a 
source of income other than cuirent employment — we need what has come 
to be called "retirement income." In fonner times the retirement income gap 
tended for most people to be small or nonexistent, and transfers within the 
family tended to cover the gap. The elderly lived with their children and 
they did not live long. To the extent that private savings were insufficient, 
children were expected to help. But family structure has changed under the 
impact of urbanization, population mobility, and longevity. People have 
fewer children. Children leave their parents when they many, and the 
elderly often find themselves living at great remove from their children. 
Furthermore, with increased longevity comes the problem of decrepitude in 
advanced old age. The increasing need for care of the elderly tends ever 
more to be met by specialized providers, both because of their expertise, 
and because the children of the elderly, especially when living in modem 
dual-wage-eamer families, are ever less able to render such care at home. 

As late as the early decades of the twentieth century neither government 
nor private industry seemed much concerned with the retirement income 
problem. Individuals were left to their own devices — private savings and 
intrafamilial arrangements. A few employers began to sponsor pension 
plans as early as the last quarter of the nineteenth century,^ but the great 
movement to organize saving for retirement through employer-sponsored 
plans did not get underway until World War II and thereafter.'* 

The Great Depression struck at a time when many of the demographic 
changes that caused the reliremeni income problem were as yet recent. 
Many elderly people had not fully appreciated the implications of these 
changes; they had not (and perhaps could not have) made adequate provi- 
sion through savings. The Social Security program was devised in the 1930s 
both to provide itnmediate relief to the destitute elderly of the day, and to 
guarantee retirement income to future retirees. 

The defects of Social Security were long concealed, although they are 
now widely understood. Social Security is a transfer program rather than a 
savings plan. Present workers are taxed to pay retirement benefits to present 
retirees. Today's present woricers pay taxes in the expectation that future 
workers will be taxed to pay benefits when the present workers retire. But 
because of changes in birth rates and longevity, the workforce is declining 
in proportion to the number of retirees. Accordingly, the burden of financ- 
ing the transfers has grown enormously. The prospect looms that tomor- 

^See. e.g.. WilliamC. Greenough &. Francis P. King, Pension Plans ind Public Policy (New 
York, 1976) Tiff; William Graebner, A Hislray of RetiiEinem: The Meaning and Function of 
an American Instituticn (New Haven. 1980). 

*Alici H. Munnell, The Economics of Private Pensions (Washington. D.C. I9S2) lOfF. 



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row's smaller cohort of woriters cannot be taxed enough to pay comparable 
letiiement benefits to today's workers. The sense that Social Security can- 
not play as large a part in the retirement income of future retirees as it does 
for those today is one of the most important factors in the explosive growth 
of the private pension system. 

The experience with Social Security has also left us an important lesson 
about the dangers of exposing the retirement income system to the winds of 
electoral politics. Successive Congresses sweetened current benefits and 
eligibility requirements with scant regard to the implications for future 
retirees. Only the most recent financial crises within the Social Security 
system have slowed that process. Further, Social Security has had devastat- 
ing efTects upon the economy . There is strong evidence for the view that , by 
promising substantial future income flows without requiring either individ- 
uals or the state to save enough to fund those obligations, Social Security 
has played the key role in the worrisonK decline in American savings rates 
and capital formation.^ 

Only against this background can we fully appreciate the importance of 
the private pension system. The retirement income problem will become 
ever more acute: there are more retirees and they are living longer. Ever 
larger income flows must be generated to support them. Meanwhile, the 
financial contradictions of Social Security have put it under a cloud ftxtm 
which it will never fully emerge. The long process of lowering popular 
expectations about Social Security is well underway. The future of the 
retirement income system lies, therefore, in the private sector.^ 

U. HOW PENSION FUNDS WORK^ 

Tlie variety of pension plan types and features is large and complex. The 
details can baffle almost anyone, sometimes even the professionals (ac- 
countants, actuaries, lawyers, plan administrators) who specialize in the 
field. FtKtunately, in order to understand the main issues in the social 
investing debate, it will suffice to describe only some basic distinctions and 
characteristics. 

Funding. The great difference between a modem private pension plan 
and a transfer system such as Social Security is that private plans are 
funded. Savings are set aside regularly during the employee's working 
career. This money is invested, and the investment yield (often called the 
"build-up") accumulates along with the savings. When the employee re- 



'See. e.g.,MutiaS. Feldstein, Sociit Security, Induced Retiremeat and Aggregate Cental 
Pormatioii, 82 Journal of Politicil Economy 902 (1974). 

*But (ce Dennis E. Logue. How Social Security May Undeimine the Privite Induuriat 
Ptaskm System, in Fuiancing Social Security <Colio D. Campbell, ed.) (Washington. D.C. 
I»79) 265. 

^See genenlly, Dan M. McGUI, Fundamentals of Private IVniions, Sth ed. , (Homewood, 
m., 1984). 



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tires, the fund is used to suf^rt him (and, under most plans, to suf^mrt his 
spouse as well) until death. 

Taxation. Federal tax policy has encouraged the private pension move- 
ment, especially since the I940's. The employer is allowed to deduct his 
contributions to a qualified pension plan immediately, even though the 
employee does not actually receive the money until he retires." Funher, the 
build-up is exempt from taxation during the period of accumulation;' only 
when the employee begins to receive retirement income from the plan is he 
taxed on what he receives. Taxation is thereby postponed. Since most 
people find themselves in lower tax brackets v/hea they retire (retirement 
income usually being somewhat less than employment income), postpoiK- 
ment has the fiirtber effect of reducing the amount of taxes for most people. 

The Protective Policy. These tax concessions reflect a consensus that has 
been endorsed repeatedly in tax and other federal pension legislation. Hie 
policy is protective. Private pension plans arc encouraged for fear that 
people would not, acting individually, save enough to meet their retirement 
income needs. The tax concessions are meant to induce employers and 
employees to allocate a larger share of compensation away frcnn current 
wages and into retirement savings. 

The protective policy is manifested elsewhere in pension law, apart from 
the tax code. Federal law imposes a "spendthrift" provision on most pension 
funds, {Hcvenling an employee or his creditors from alienating (and thereby 
consuming) pension savings before he retires. '" Likewise, federal law for- 
bids the employee from waiving his right to have his pension fund invested 
prudendy.' ' The protective policy has been, although not the only policy, 
surely the centeipiece of pension taxation and pension regulation. It will be 
seen that the protective policy bears importantly on the question of whether 
an employee has the power to endorse social-investing proposals that may 
impair his retirement income security. 

The Trust Form. Pension funds typically take the form of a trust. The 
trust relationship is one of the most highly developed categories of the 
Anglo-American legal tradition. Thus, although the private pension fund is 
a relatively young phenomenon, it rests upon a familiar juridical basis. 

Trust-investment law, now enforced by special pension legislatiiHi, sup- 
plies the rules that regulate the investment of pension assets; we shall see 
that this body of law takes the harshest view of investment activities that are 
iKrt undertaken for the exclusive purpose of maximizing the economic welt- 
being of trust beneficiaries. 

Contributory or Not. Many plans are funded entirely from employer 
contributions. Because there is do deduction from the employee's pay- 

*Iotenul Revenue Code |beteafter cited as I.R.C] sec. 404. 
I.R.C. sec. 402. 

'I.R.C. sec. 401 (a)(13), 

"En^tloyeeRetircmeDl Income Security Act [hereafter cited as ERISA] sees. 404(iKIHI>). 
409, 29 U.S.C. sees. 1104<aKIXI>). 1109. 



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dieck, such plans are called "nonconCribuloiy" — the employee does not 
contribute. By contrast, "contributoiy" plans are those that require the 
employee to devote some fraction of gross pay — say, five percent — to the 
plan. Typically, the employer matches the employee's contribution accord- 
ing to some formula, for example, one-to-one or two-to-one. 

This distinction between plans to which the employee contributes and 
those to which he docs not would seem to be important, but in economic 
terms it is not. Because even the employer-paid component of a pension 
plan is a cost of employment, it is best understood as a part of the wage 
packet, hence a form of involuntary savings whose true cost is borne by the 
employee. Both the employer-paid and the employee-paid contributions 
derive from what is — in economic tenns — the employee's wages. Translat- 
ing this point into traditional trust-law terms , we may say that the employee 
is in an important sense the "settlor" of his own pension trust. 

Defined Contribution and Defined Benefit. Broadly speaking, there are 
two basic types of pension plans, defined conbibution and defined benefit 
plans. A defined contribution plan is best analogized to a savings account. 
The plan calls for the establishment of a separate account for each employ- 
ee. Contributions are credited to the account at a rate specified in the plan, 
and the account paiticipaies proportionately in the investment gains of the 
plan. When the employee retires, the size of his pension will depend entirely 
upon the size of his account. Ordinarily, the plan calls for the account to be 
annuitized and distributed over the remainder of his life (or, in the event of a 
joint annuity with his spouse, over the remainder of their two lives). The 
college and university teachers' plan, TIAA-CREF, is the best-known de- 
fined contribution plan. IRA and Keogh accounts work on the same 
principle. 

A defined benefit plan, by contrast, is one in which the employer (or 
other plan sponsor) promises to pay a retirement benefit according to a plan 
formula — for example, sixty percent of average salary over the last five 
years of the employee's service. The employer makes regular contributions 
to the plan, in accord with acturarial projections of the sums needed to fund 
the promised pension levels. 

Defined contribution and defined benefit plans allocate investment risk 
(f>positely. Under a defined contribution plan, it is the individual employee 
who bears the burden of disappointing investment results or who enjoys the 
gains from exceptionally good results. Under a defined benefit plan, the 
employer bears the investment risk; since the employer has promised to 
provide benefits of a certain level, the employer remains liable lo pay the 
benefits even if the fund turns up short. 

Multiemployer Plans. Most pension plans arc so-calted "single-employ- 
er" plans — General Motors has a plan for its employees, IBM for its. In 
some industries, however, where employment patterns are episodic (the 
construction trades, entertainment, tnicking, the needle trades, and a vari- 
ety of others) individual con^Kuiies do not sponsor pension plans. Rather, 



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groups of employers sponsor a common plan , mostly in response to collec- 
tive bargaining with a labor union. Although the Taft-Hartley Aci requires 
equal numbers of management and union trustees on the board of such a 
plan,'^ in practice union interests tend to prevail, and these plans are often 
spoken of as union plans. 

ERISA. Like most substantial fields of finance, pension plans have at- 
tracted government regulation. The federal tax concessions have been con- 
ditioned on various regulatory requirements since the 1940's. In 1974 
Congress greatly extended the scope of federal regulation when it passed the 
Employee Retirement Income Security Act (ERISA). ERISA limits forfei- 
ture of benefits under pension plans (through the so<aIled "vesting" rules); 
it imposes minimum eligibility and funding standards; it nanows the range 
of plan discretion in the design of benefit-accrual schemes; and it imposes 
fiduciary rules for the investment of plan assets.'^ Title IV of ERISA 
introduced a federal insurance scheme, ostensibly patterned on FDIC insur- 
ance for bank deposits, that guarantees most benefits under defined benefit 
plans against shortfall or default. "* By making the federal government the 
pension paymaster of last resort, Title IV creates a further public interest in 
the financial soundness of the investment practices of private pension plans. 

Compulsory Trusteeship. ERISA requires that pension plan assets be 
placed in trust,'' and ERISA refines and codifies traditional trust-invest- 
ment law for the pension field." These provisions further the protective 
policy of pension law. Pension trustees are financial intermediaries who 
specialize in investing pension funds. Trusteeship removes investment deci- 
sions into the hands of professionals and prevents plan participants (most of 
whom are inexperienced in matters of high finance) from doing their own 
investing. Thus, while 1 am free to be foolish in investing my personal 
savings, my pension savings will necessarily be invested according to the 
professional standards of the investment industry. 

Preemption. From the standpoint of the social-investing movement, one 
of ERISA's most important provisions is what lawyers call a preemption 
clause: ERISA expressly supersedes state law for most pension plans. " By 
federalizing pension law — including pension-investment law — in this way, 
ERISA has greatly narrowed the scope for social-investing initiatives be- 
neath the level of federal law. If, for example, the Missouri legislature were 
to enact a social-investing measure requiring the pension plans of Missouri 
firms to invest their funds in Missouri mortgages, the courts would quickly 
invalidate the statute for violation of ERISA's preemption rule. 



■^l.abor Managemcnl Relations Acl sec. 302(c)(3). 29 U.S.C. sec. iS6 (cHS). 
"ERISA sees. 201 ei seq.. 301 et seq.. 401 et seq.. 29 U.S-C sees. 1051 tt seq.. lOSl ct 
seq., 1101 el seq. 

"ERISA sees. 4001 et seq.. 29 U.S.C. sees. 1301 et seq. 
"ERISA sec. 403, 29 U.S.C, 1103 
■'ERISA sees. 404 « seq.. 29 U.S.C. sees, 1104 el seq. 
"ERISA sec. 3I4<»), 29 U.S.C. sec. tl44<a). 



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Suue and Local Plans. States, municipalities, school districts, and var- 
ious other public bodies operate pension plans for their employees. These 
governmental plans are exempt from the requirements of ERISA, '^ which is 
a main reason why social-investing proposals have so often been directed at 
them. State and local plans differ from private plans and among themselves 
in matters of structure and governance. Often a state board, sometimes 
attached to the state treasurer, is responsible for those investment and 
administrative functions that would be performed by trustees for most 
private plans." 

Like Social Security, most state and local plans are run by bodies that 
possess taxing powers. As with Social Security, the temptation has been fell 
to leave future taxpayers to pay the retirement benefits for today's public 
woriters , even though the entitlement to those benefits accrues presently and 
should be regarded as a cost of current employment. Thus, whereas Social 
Security is virtually entirely unfunded and is almost a pure transfer scheme, 
the stale and local plans tend to be partially funded. There is some current 
saving and investment, but not enough to meet future obligations. 

UI. THE HIDDEN DYNAMIC IN SOCIAL INVESTING 

The elderly are, as a group, neither affluent nor politically adventurous. 
Why, then, is the social investing movement aimed so resolutely at the 
pension funds that exist to su[q>ort the elderly? Why do the proponents of 
social investing treat pension funds as being especially appropriate to bear 
the costs of an investment strategy that sacrifices financial for political 
interests? 

Social investing could in principle be attempted by any investor, not just 
pension trustees. There are three small mutual funds which proclaim adher- 
ence to various social principles in selecting their investments.^ If an 
individual decides to invest in such a fund, presumably he has balanced the 
possible financial costs of such a policy against the personal satisfaction that 
he derives from suppcHting the social aims implied by the fund's investment 
policy. Few individuals have found these funds attractive. Another indica- 
tion that most investors disagree with most social investing campaigns is 
that shareholder initiatives in support of the main social investing causes are 
invariably defeated by margins of 95 percent or worse. Furthermore, there 
has been little pressure on trustees of individual trusts to adopt social 

'■ERISA sec. 4(b)4l). 29 U.S.C. sec. 1003 (bXl). 

"See Marcia G. Muiphy, Regulating Public Employee Retirement Systems for Poiifolio 
Emciency, 67 Minnesou Uw Review 2t 1 (1982). 

^'*These are Foursquare. Dreyfus Third Century, and Pax World. Foursquare avoids liquof, 
tobacco, and drug company stocks. Accindingto its [ntspectus. Third Century limits itself to 
companies "contributing to the enhancement of the quality of life." whatever that means. Pax 
World excludes any company nK»« than five percent of whose sales are to the Defense 
DepactmenI, See E^cey. Investment Do-Gooders: A Look ai a Dogged Tno of Socially 
Conscious Mutual Funds. BaiToa's, Jul, 21, 1980. U 9. 



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investing. The main purpose of the typical individual tnist is to generate 
income for the immediate suf^xMl of the current beneficiary, who would be 
strongly inclined to protest if the trustee adopted an inconsistent goal. Many 
trust inuuments authorize the beneficiary or the settlor to change trustees, 
and such a provison tends to concentrate a trustee's mind wonderfully on 
profit maximization. 

Social investing proposals arc directed at pension funds not in order to 
further the interest of the pensioners, but in disregard of their interests. It is 
the separation of ownership and control characteristic of pension-fund struc- 
ture that social-investing proponents find so enticing. Vast sums of iiKMiey 
are invested for — but not by — the concerned individuals. That separation, 
we have seen, exists in large measure to protect piesent and future retirees 
against the tendency that some might have to undersave for retirement, or to 
invest unwisely. But by concentrating the pension savings of tens of mil- 
lions of people in the hands of a few thousand pension trustees, our private 
pension system has created a pressure point that would not otherwise have 
existed. Ironically, therefore, the separation of ownership and control that 
was meant to protect pension plan beneficiaries has also exposed them to a 
new danger-^at pressure groups may politicize the process of investing 
their pension savings. 

The hidden dynamic in the social investing movement is this effort to take 
advantage of the separation between ownership and control of pensicm 
savings. The pension trustees who control pension investment work under 
the constraints of trust-investment law. The proponents of social investing 
understand that by reinterpreting trust-investment law to permit politicized 
investment they could capture pension savings for their causes. 

But why should the proponents employ such a surreptitious strategy, 
pressuring pension trustees, when a more forthright path lies open? Why not 
pursue political causes in the political arena? It is vital to understand thai, 
almost by definition, the causes that are grouped uitder the social-investing 
banner are those thai have failed to win assent in the political and legislative 
process. Congress has the power to mandate all the well-known social- 
investing causes: forbid American firms to do business with South Africa; 
require American firms to cease making munitions, or to have unionized 
vfork forces; require pension assets to be invested locally; and so forth. 
Federal legislation could accomplish any of these goals. For example, 
present federal law applies to Cuba exactly the sort of prohibitions on 
commerce and lending that opponents of the South African regime have 
sought without success in recent years from both Democratic and Republi- 
can administrations. The reason, therefore, that the proponents of social 
investing are bullying pension trustees is that they have been unable to get 
their political programs accepted in the political process. 



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IV. PRINCIPLES OR POLITICS? 

Are there principles of social investing that a trustee can follow with 
ease? If not, dien social investing is standardless, a mere label used to clothe 
pressure-group demands. If social investing is intrinsically standardless, 
adherence to it will expose pension tnistees to a perpetual wave of political 
demands. 

Consider, therefore, the question of investing in firms that do business in 
or with South Africa. It is impoitant to understand that there is no controver- 
sy about the racial policies of South Africa. People on all sides of the matter 
have equal disdain for apartheid. But there is broad disdain in the United 
States for many other regimes. The hard question that proponents have not 
answered is this: Why is the campaign for divestiture directed almost entire- 
ly at South Africa, and not at such monstrously objectionable regimes as 
Libya or Soviet Russia? South Africa is a place in which 80 percent of the 
inhabitants are denied political and civil rights that Americans regard as 
basic. But there are many regimes in which 99 percent of the inhabitants are 
in this position. 

In 1978 Yale University's Committee on South Africa Investments tried 
to duck this question in a report that said: "We acknowledge the possibility 
that the policies of other governments throughout the world are equally 
antagonistic to the basic principles of American society and this University; 
if so, then our recommendations concerning South African investments 
should be applied to them."^' It is not a possibility that there are other such 
societies; it is a certainty. (At the time that the Ad Hoc Committee wrote its 
report, the Amin regime was still in power in Uganda and the Pol Pot regime 
in Cambodia.) What the Committee seems to be saying, if one reads be- 
tween the lines, is that it will not consider further applications of the social- 
investing concept until some group raises as great a stink as the opponents of 
the South African regime have raised. This approach makes social investing 
a branch of interest-group politics. 

In truth, there can be no consensus about which social principles to 
pursue and about which investments are consistent or inconsistent with 
those principles. At a time when most of the social activism in investing was 
liberal or radical rather than conservative , diere was some agreement among 
the activists as to the types of companies that should be avoided and the 
types that should be embraced. The ranks of the disapproved included 
companies doing business with South Africa, big defense contracttHS, non- 
union companies, and companies that polluted the environment. With the 

^' Yak University, Ad Hoc Cmruoittee on South Africa Investments, Repot! lo the CoipMi- 
tion4(Apr. 14, I97S). 



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rapid rise of social activism on the political right, we can expect social- 
investing advocates to appear who will urge investment managers not to 
invest in corporations that manufacture contraceptive devices, or public 
textbooks that teach the theory of evolution, or do business with Russia. ^^ 

There is also increasing awareness that the criteria used to identify social- 
ly irresponsible companies are dubious even if the ultimate objective — say, 
[Hessuring South Africa — is accepted. An American corporation that has a 
plant in South Africa where it creates jobs, provides training, and engages in 
collective bargaining with a black union is not obviously contributing more 
to the perpetuation of apartheid than an American corporation that, without 
having an office in South Africa, manufactures goods that find their way to 
South AMca. As the New York Times reported in September of 1984, "(a] 
survey among black South African factory workers" established tbeir"over- 
whelming resistance to disinvestment by American firms."^^ 

The Massachusetts legislature has lately supplied us with a ^lendid 
illustration of the truth that social investing is nothing more than pressure 
politics. In a recent statute the legislature singled out, in addition to South 
Africa, one other country for the disapprobation of the state pensicm fund: 
Great Britain. Not Libya or Russia; not Iran, Cambodia or Syria, whose 
regimes have recently massacred tens of thousands of their dissident citi- 
zens; but Britain, mother of parliaments and closest great-power ally of the 
United States. Why? Oh, nothing serious, just a little gratuitous intermed- 
dling in the difficult Northern Irish situation, for the entertainment of the 
Boston Irish. (The Massachusetts statute is reproduced below in 
footnote.)" 

If we move beyond foreign a^airs and examine other social-investing 
causes, we find a similar lack of principle. In labor union circles it has 
become fashionable to decry pension-fund investment in companies whose 
work forces have rejected labor unions, but that complaint overlooks impor- 
tant distinctions. For example , which unions? Some American labor unions 
are clean and are devoted to their members, but others are dominated by 
organized crime. Is it really "anti-social" to resist a latter-day Jimmy Hoffa? 
And what of the right not to join a labor union? The elaborate election and 
certification procedures for union representation under federal law presup- 
pose that Congress meant to protect both the right to join and the right to 

"See John M. Leger, BusinessLinkswithSovietsunder Attack. Wall Street Journal, Mat. 
26, 1981, al 23, col. 3. 

"Alan Cowell. Blacks in a Poll Dispule Apartheid Foes' Tactic. N.Y. Tunes. Sept. 23. 
I9S4, at 10. Col- 5. 

"Annotated Laws of Ma^sachusetls, Cumulative Supplement. Ch. 32. sec. 23 (IKdKiii): 
(N]o public pension fimds under this subsection shall remain invested in any bank or 
financial instituIitHi which directly or through any subsidiary has ouistanding loans to 
any individual or corporation engaged in the manufacture, distribution or sale of 
fireamts, munitions, including rubber or plastic bullets, tear gas. armored vehicles or 
military air craft for use or development in any activity in Northern Ireland, and no 
assets shall remain invested in (he slocks, securities or other obligations of any such 
company so engaged. 



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abstain from unitMi membership. Equating unionization with social recti- 
tude thus flies in the face of federal law. Nor would compulsory unioniza- 
tion satisfy all proponents of this branch of social investing, since some 
have demanded disinvestment in firms, however fully unionized, that invest 
abroad ("expect jobs").^' 

Every social-investing cause can be subjected to a similar analysis. How 
much pollution is too much? Every time somebody goes to the toilet there is 
increased pollution. The question is not whether there shall be pollution, but 
bow much, of what forms, in what places, subject to what controls, and so 
forth. The world is not divided into evil polluters and saintly nonpoUuters. 
A vast body of regulatory law and private law exists to draw these difficult 
lines, and the blunt instrument of social investing has nothing to contribute 
to it. 

Another form of social investing closely associated with labor union 
pressure is the effort to use pension funds to create jobs — for example, 
making mortgage loans from the carpenters' pension fund in order to stimu- 
late employment in the constructi(Mi trades. If the loans were to be made at 
market rates of interest, there would be no increase in aggregate mortgage 
lending or in employment, on account of routine substitution effects (de- 
scribed in Part V below, treating the economic flaws of social investing). 
Thus, the major effbil has been to get the pension fund to lend at below- 
market rates. This would indeed increase construction and thus stimulate 
some employment in the industry. 

The objection to bargain-rate lending is that it is unprincipled in the sense 
that it violates the primary policies of pension law. By reducing the financial 
return to the pension fund, bargain-rate lending necessarily sacrifices future 
Fetirement income. For present workers it involves just that trade-off of 
retirement-for-preretirement income that pension plans were created to 
guard against. But the objection runs deeper: the benefits and the costs 
affect different people and in different proportions. In particular, pensioners 
who are already retired and who depend upon the pensicm fund for current 
retirement income would derive no benefit from subsidizing employment 
for current workers. We shall see in Part VI that trust-investment law (and 
now ERISA) make it flatly illegal to sacrifice the interests of plan benefici- 
aries in this way. 

The root fallacy behind these proposals, which is repeated incessantly in 
their rhetoric, ^^ is that unions have the right to use their pension plans to 
promote their interests. But, of course, the plans are not theirs. The plans 
exist for the exclusive purpose of providing retirement income for the 
elderiy. For the same reason that pension funds cannot be used to defray 
union organizing expenses or union officers' salaries, they cannot be used to 

"This last suggestion appears in Rullenberg, Friednun. Kilgallon, Gulcbess & Associates, 
[|K.. AFL-CIO Pension Fund InvesDnent Study (Wash.. D.C.. Aug. 20. 1980) 57. 

^.g., Jeremy Rifkin & Randy Baiber, The North Will Rise Again: Pensions. Politics and 
Power in the 1980s (Boston. 1978). 



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subsidize emptoyment for union workers at the expense of retirement in- 
come for present and future retirees. 

The most persistent of the social investing causes is also the most trans- 
parently ignoble — the protectionist cmsade for in-state investing of state 
and local pension funds ("Michigan pension money should not be exported 
to Indiana"). But that phenomenon is better examined from another stand- 
point, in Part V, treating the economic futility of social investing. 

To summarize: There is not and can never be a consensus about what 
causes are socially worthy. Consequently, a pension trustee who sought to 
adhere to the criteria of social investing would have no means of identifying 
the causes to which be had committed the fund. Since there are no princi- 
ples, every cause entangles the fuitd in a political struggle. Social investing 
would impose upon the fund the turmoil and administrative costs of perpet- 
ual politicization of the investment function. But a pension trustee has no 
business making political choices for his beneficiaries; his job is to further 
the retirement-income security of his beneficiaries, and to leave them (o 
participate in die political process on their own, 

V. THE ECONOMICS OF SOCIAL INVESTING 

From the standpoint of economic analysis, two fundamental flaws impair 
virtually all social investing proposals. First, most are futile. Powerful and 
well -understood economic forces would counteract most social investing 
strategies, rendering them hollow gestures. Second, social investing has 
costs — economic disadvantages that harm the interest of pension-plan bene- 
ficiaries. We shall see (below in Part VI) that these economic flaws bear 
vitally upon the legal standards that govern pension-fund investment. 

Substitution. Capital markets (the markets where companies and coun- 
tries seek to obtain a share of the available savings) are intensely competi- 
tive. Capital flows to users who offer the highest returns, adjusted for risk. 
The capital markets arc also increasingly international, as recent experience 
with Middle Eastern petrodollars, Continental eurodollars, and Latin 
American debtors has underlined. 

The competitive nature of the capital markets complicates many social 
investing strategies to the point of impossibility. That point has long been 
made regarding the campaign for divestiture of die shares of companies 
doing business with Soudi Africa. The object of the campaign is to starve 
the South African economy of capital. Although it is unlikely that economic 
stagnation would really help rather than hurt the oppressed peoples of South 
Africa, it is even less likely that social investing would have any material 
effect upon the South African economy. Pension money is by no means the 
only source of investment capital; nor are American firms and lenders the 
only actors. To the extent that social-investing pressures succeed in limiting 
capital flows to South Africa from some American firms, tiiat simply 
creates opportunities for other American firms and for foreign firms. In 

12 

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global financial tenns, the South Aftcian economy is miniscule and its 
external capital requirements coirespondingly small. International enter- 
prises and lenders abound who are free from the pressures of the American 
lobby that concerns itself with this cause. Thus, the campaign to affect the 
South African economy has had and will have no demonstrable effect. 

An incidental indication that the campaign against South Africa is inef- 
fectual is that nobody has bothered to invoke the doctrine of constitutional 
preemption, in order to have the federal courts declare unconstitutional the 
various state statutes and city ordinances that direct the respective state and 
local pension funds to divest South Africa-tinged holdings. These enact- 
ments impinge upon the federal monopoly over foreign relations, reaf- 
firmed by the Supreme Court in 1968 in Zschemig v. Miller. In that case the 
court forbad "an intrusion by [a] state into the field of foreign affairs which 
the Constitution entrusts to the President and the Congress. "^^ 

In a study published recently in the New England Economic Review, the 
distinguished pension economist Alica Munnell (of the Federal Reserve 
Bank of Boston) has pointed to the substitution effects that make economic 
nonsense of the campaign forin-«tale mortgage lending. Some state pension 
plans have been putporting to promote in-state construction activity by 
buying packages of federally insured GNMA mortgages that originate en- 
tirely within the stale (as opposed to conventional packages that contain 
mortgages originating in all parts of the country). Since the federal insur- 
ance eliminates the rislc of default, the regional underdiversification of these 
packages is unimportant. Munnell concludes that the increasing purchase of 
these instruments by stale and local pension plans has "not increased the 
supply of mortgage funds . . . ."^^ Rather, a pair of utterly predictable 
substitution effects are occurring. First, as pension funds increase their 
buying of these mortgage-backed securities, they simply displace other 
institutional purchasers such as insurance companies, who shift their invest- 
ing toward the government and corporate bonds that the pension funds were 
previously buying.^ Second, the attempt to stimulate in-state construction 
by purchasing in-state packages (so-called "targeting") appears to be equal- 
ly futile, and for the same reason. 

Whereas in the absence of the recent targeting rage, a state such as Massachu- 
setts would buy GNMAs backed by moitgages from a number of states, such 
as Alabama, California, Pennsylvania, etc., now Massachusetts insists on 
GNMAs backed by Massachusetts mortgages, Alabama on Alabama mort- 
gages, California on California moitages, Pennsylvania on Pennsylvania 
mortgages, etc. As long as dK stale's demand for mortgages is roughly 
proportional to the size of its pension fund, the developing mend of targeting 

"389U.S. 429, 432(1968). 

^Alicia H. Munnell, The Pitblls of Social Investing: The Cue of Public EVnsions and 
Housing, New Eaglaod Economic Review (Sepc.fOct. 1983) 20. 22. 
*1d. at 27-28. 



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GNMAs sboukt have no impact on the supply of mortgage ctcdii among 
states. 

In summaiy, while social uvesting through the purchase of targeted 
GNMAs produces market returns and tbeieby has no adverse impact on 
public pensions, this approach is also unlikely to increase either the aggregate 
supply of rocNigage fiiods or the supply of mortgage credit within a particular 
sate. This assessment has been generally recognized by financial experts. In 
fact, those who are less than enthusiastic iU>out social investing often push the 
purchase of targeted GNMAs as a means of satisfying the pressure on fund 
managers to pursue socially oriented objectives.^ 

The largest claim for this form of social investing is, therefore, that it may 
deceive people into thinking that it alters investments outcomes, whereas in 
fact it results in no net increase in construction or in employment. We must 
emphasize that the reason these "targeted" portfolios of in-state GNMA 
mortgages arc harmless to the pension funds that buy them is that they 
contain market-rate rather than bclow-market loans; and that the govern- 
ment guarantee against default eliminates what would otherwise be a men- 
acing degree of underdi versification. Murmell has pointed out that other 
vehicles used by state pension plans to invest in in-state mortgages have 
lacked the federal guarantee and in some cases have entailed below-mailcet 
lending. Under a Connecticut scheme, for example, she found that "the 
rates at which the mortgages have been offered has varied substantially to 
slightly below maiicet. As a result, the yield to the pensicm fund has been 
well below the GNMA yield that prevailed at the time the funds were 
cotnmitted."^' In Part VI below I explain that both under the common law 
rules of trust-investment law and under ERISA, it would be flatly illegal for 
a pension trustee to sacrifice the financial well-being of plan beneficiaries in 
this way. (ERISA does not apply to state and local plans.) 

Diversification. Over the last quarter-century a great revolution has oc- 
curred in scientific understanding of the behavior of capital mailcets. This 
revolution in the theory of finance usually goes under the label of modem 
portfolio theory (MPT) or the theory of efficient mailcets.''^ 

Crudely summarized, MPT has established two central pnqwsitioiis. 
First, a massive body of empirical investigation has shown that it is ex- 
tremely difficult (some say impossible) even for investment-industry 
professionals to achieve long-term results better than the broad market 
averages, such as (for equities) the Standard & Poor's 500. It seems that 
capital mailcets discount new information so rapidly and well that there are 
few opportunities to outsman other investors by identifying undervalued 
securities to buy or overvalued ones to sell. 

*Id. at 28. 

"Id. ai 34. 

'^See generally R. Brealey. An InlroducIionloRisk and Renmi from Common Stocks, 2d 
ed. (I9S3); ]ohn H. Langbein & Richard A. Posner, Maifcei Funds md Tmst-lnveunicni Uw, 
1976 American Bar Foundation Research Journal I . 



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SeccMid, the capital-market investigators have shown that there are sub- 
stantial gains to be had from diversifying investments quite extensively. 
The common law of tiusts has long enforced a duty to diversify trust 
investments, and ERISA codifies that rule.^^ MPT research has given new 
meaning to the concept of diversification, by showing that in order to 
eliminate the uncompensated risk of underdiversification, a portfolio must 
be much larger than previously thought. Optimal diversification requires 
equity portfolios with hundreds of stocks. Furthermore, these portfolios 
must be weighted for capitalization, so that large companies such as the oil, 
auto, computer, chemical, and telecommunications giants are difficult to 
eliminate from optimally diversified portfolios. The question arises whether 
social investing, if rigorously pursued, would impair diversification. As 
more and more social causes are added to the list, the number of companies 
that are ranked as offenders will become large enough that an optimally 
diversified portfolio cannot be constructed from the remainder. Social in- 
vesting would then require the pension plan to bear the costs of the uncom- 
pensated risk of inadequate diversification.*^ 

The campaign for in-state or localized investing raises especially serious 
risks of underdiversification. The last thing that workers in declining areas 
need is to have their retirement savings jeopardized for the supposed benefit 
of the regional economy. Or suppose that a school board in the vicinity of 
Mount St. Helens had insisted on investing locally. 

The Social-Bargain Fallacy. The claim is sometimes made that social 
investing is really economically advantageous to pension-plan beneficiar- 
ies. For example, companies that do business in South Africa could suffer 
damage or expropriation from civil war or revolution; companies that resist 
unionization may incur strikes and boycotts; polluters will get entangled in 
environmental liabilities; and so forth. Avoiding investment in these firms 
is, therefore, really a strategy for enhancing the financial well-being of plan 
beneficiaries by avoiding companies headed for trouble. 

This argument is simply another theory of how to beat the market, and 
like all such theories, it mns afoul ofthe empirical studies underlying MPT, 
which strongly imply that consistent market-beating strategies are not to be 
found. The notion must be that the risks associated with the disfavored 
companies have not been fully discounted by the securities maikets, even 
though those risks are widely known. But securities markets exist precisely 
in order to discount such information — that is, to take account of the 
information in securities prices. Accordingly, all that we know about the 
behavior ofthe securities markets suggests that political risk, like any other 
information that affects future profitability, is fully reflected in current 



"Restatemeni of Trusis (Second) [hereafter cited as Restatement) sec. 228 (1957); ERISA . 
sec. 404<a)(lKC). U.S-C, sec, 1104 (aXl)(C). 

''Ttiis point is devek^wd in John H. Langbein A Richard A. Posner. Social Investing and 
Ibe Law of Trusts. 79 Michigan Uw Review 72. SSfT (1980). 



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prices. The indifieient performance of the three small mutual funds that 
have been following social- investing strategies underscores this poinl.^' 
To conclude: From the standpoint of economic analysis, there are two 
types of social-investing outcomes — the futile and the wealth-impairing. 
The futile are diosc, such as the in-state GNMA packages, diat make no real 
attribution to the ostensible social goal. The wealth-impairing outcomes 
lower the return on the fund's savings, or expose it to iitcieased administra- 
tive costs, or impose upon it the uncompensated risk of inadequate diversi6- 
cation. We shall now examine the reasons why wealth-impairing social- 
investing schemes are illegal. 

VI. WHY SOCIAL INVESTING IS ILLEGAL 

A trustee who sacrifices the beneliciaiy's financial well-being for any 
social cause violates both his duty of loyalty to the beneficiary and his duty 
of prudence in investment. 

The Duty of Loyalty. The essence of the trustee's fiduciary relationship is 
his responsibility to deal with the trust property "for the benefit oP'^ the 
trust beneficiaiy. The authoritative Resiaiemem (Second) cf Trusts says: 
"The trustee is under a duty to the beneficiary to administer the tnist solely 
in the interest of the beneficiary."'^ Although most of the case law applying 
this duty of loyalty to the beneficiary's interest has arisen in situations of 
self-dealing or other conflicts of interest in which the courts have acted to 
prevent the trustee from enriching himself at the expense of the trust benefi- 
ciary,^" the same result has been reached with regard to fiduciary invest- 
ments for the benefit of a third party (that is, a party other than the trust 
beneficiary or the trustee). The Restatement says, in its Official Comment 
treating the duty of loyalty: "The trustee is under a duty to the beneficiaiy in 
administering the trust not to be guided by the interest of any third per- 
son. "^^ Because the entire object is to protect the Inist beneficiary, nothing 
of principle turns on the identity of the party who profits at the beneficiary's 
expense. 

In the leading case of Blankenship v. Boyle, ^"^ decided in 1971, the duty 

"Supra Doce 20. 

^estateinenl, supra noU 33, at sec. 2. 
"Id. u sec. 170(1 Kemphasis added). 

^See gCDciBlly 2 Austin W. Scott, The Uw of Trusts sees. 170-170.23 (3d ed. 1967 A 
Si^ 1980). 

"Reslalewcat, supra note 33. at sec. 170, Commeniq (enq>hasisadde<D. See id. at sec. 187, 
Comment g (enqihasis added): 

The court wilt control the trustee in the exercix of the power wbere the acts form an 
improper even though not a dishonest nnfive. That is. where he acts from a motive 
olher than to fUrthtr the piupoiti of the tnisl. Thus, if the liustee in exercising or 
foiling to exercise a power does so because of spile in' prejudice en- to further some 
interest of his own or of a person other than the beneficiary, the court wiL interpose. 
FoTdectsioDal authority see, e.g.. Conway V. Emeny. 139Coim. 612. 96 A.2d 221 (1953). 
•°329F. Supp. I089(D.D.C. 1971). 



16 



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of loyalty was applied to social investing of pension funds. A multi-employ- 
« fund for coal miners that was dominated by the United Mineworkers 
Union bought large blocks of shares in certain electric utilities in order to 
induce their managements to buy union-mined coal. On the complaint of 
some of the pension-fund beneficiaries, the court enjoined "the trustees 
from operating the Fund in a manner designed in whole or in part to afford 
collateral advantages to the Union or the [employers]."^' 

ERISA codified the duty of loyalty for pensitm trusts in its "sole interest" 
and "exclusive purpose" niles.^^ SectiiMi 404(aKl) provides that the "fidu- 
ciary shall discharge his duties with respect to a plan solely in the interest of 
the participants and beneficiaries . . . ."*^ In an essay published in 1980, a 
pair of Washington lawyers, Ronald Ravikoff and Myron Curzan, attempt 
to escape this provision of ERISA.'" 1 shall devote some space in this article 
to refuting their essay, both because the essay is misleading, and because it 
typifies the flimsiness of the legal arguments that are advanced in social- 
investing circles. 

Ravikoff and Curzan correctly observe that ERISA restates the common 
lawduty of loyalty.^ Accordingly, they reason, since "(tjhe purpose of the 
duty of loyalty is to require a fiduciary to avoid" self-dealing, social invest- 
ing is unobjectionable "ia]s long as the fiduciary avoids self-interested 
transactions."^ But the view that the trustee's duty of loyalty governs only 
in situations of self-dealing is simply incorrect. To be sure, most people 
who steal do it for their own gain; that is why most of the case law concerns 
self-dealing. But the trustee's duty of loyalty exists solely for the protection 
of the trust beneficiary, and the duty is equally violated whether the trustee 
breaches for the trustee's enrichment or that of a stranger.^^ 

Regarding ERISA's requirement that the fiduciary invest "for the exclu- 
sive purpose of . . . providing benefits to participants and their beneficiar- 
ies,"^^ Raviko^ and Curzan assert that "[t]he concept of 'benefits' . . . 
iteed not be limited to payments that a participant or beneficiary would 
receive upon retirement, i.e., economic return to an investment. It is argu- 
ably broad enough to include numerous types of positive returns, e.g., job 
security and improved working conditions. "^^ This interpretation of the 
term "benefits" was rejected by the former administrator of the Labor 
Department's ERISA office, James D. Hutchinson, and a co-author, Charles 



*'329F. Supp. al 1113. 

"See H.R. Rep. No. 533. 93d Cong.. Ut Sess. 13. 21, reprinted in [1974] U.S. Code 
CODgiessioiul & AdmimstTaiive News 4639. 4651, 4659. 

"ERISA sec. 404(a)(1), 29 U.S.C. sec. 1 104 (aKI). 

"Roiuld B. Ravikoff & Myron P. Curzan, Social Responsibility in InvesDnenl and (be 
Pnident Man RiUe, 58 California Law Review 518 (19S0). 

"Id. Bl 531. 

*^, 

"See text u note 39 and note 39, 

■"ERISA sec. 404(aHl)(A), 29 U.S.C. sec. 1104(a)(1)(A). 

*^vikofF A (Tufzan, supia note 44. at 532. 



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C. Cole, in an aiticle cited by Ravikoff and Curzan bul ignored on the 
precise question.^ Hutchinson and Cole point out that ERISA uses the term 
"benefits" throughout the statute in die more narrow and natural sense 'te 
refer to those cash benefits that a participant or his family would receive in 
acanxlance with the specifications of the [retirement) plan."^' Hutchinson 
and Cole conclude "that ERISA trusts are to be established and maintained 
kx the limited purpose of providing retirement benefits and not for other, 
socially desirable purposes which provide collateral or speculative 'bene- 
fits' to plan participants or ^ipeal to the philosophical leanings of the plan 
^nsor or oOier parties associated with the plan."'^ 

The New York Teachers' Case. The BUmkenship case insists uncompro- 
misingly that pension trustees must invest for the purpose of maximizing the 
financial well-being of the pension beneficiaries. Proponents of social in- 
vesting seeking to escape the force of that precedent have been templed to 
juxtapose a misreading of die 1978 case. Withers v. Teachers' Re'irement 
System.^^ In the Withers case, retirees who were beneficiaries of the New 
York City schoolteachers' pension fund, Teachers' Retirement System 
(TRS), challenged the decision of die TRS trustees to purchase S860 million 
of New York City bonds as part of the plan that prevented the city from 
going bankrupt in late 1975. Like most public employee pension funds, 
ins had not been fiilly funded. The main asset of TRS was the city's 
contractual liability to pay benefits out of future tax revenues calculated on 
past service. City payments to TRS in the 1974 fiscal year constituted sixty- 
two percent of TKS's total income (as opposed to nine percent derived from 
employee contributions and twenty-nine percent ftom investment income). 
The TRS trustees testified that although the legal situation was far from 
certain, their best guess was thai in the event of city bankruptcy essential 
city services and past city bond debt would have priority over payments to 

"'James D. Hulchinson & Charles G. Cole, Legal Slandards Governing Inveslmenl of 
tension Assets for Social and Potilical Goals. I2S Universily of Pennsylvania Law Review 
1340 (1980). Ravikoff and Curzan cite the Hutchinson and Cole article as it appeared in 
Employee Benelil Research Institute. Should Pension Assets Be Managed for Social/Political 
Puiposes?(D. Salisbury, ed.) (Washington. DC, 1980). See Raviko^A Curran. supra note 
44. at 531 n. 49. I cite the revised version of the Hutchinson and Cole article that appeared 
subsequently in the University of Pennsylvania Law Review, supra. 

^'HulchinstHiA Cole, supra note 50, at 1370 & 1371 n. 151 . The only reason that ERISA is 
less than explicit in defining "benefits" as a strictly economic term is that no other usage even 
occurred to the draftsmen. In the Congressional findings that constitute the preamble to ttie 
statute the term "beneGls" is repeatedly used in the conventional and strictly economic sense. 
"Congress hnds . . . that despite the enormous growth in [pension and other] plans many 
employees with long years of employment are losing anticipated reliremeni benefits owing to 
the lack of vesting provisions in such plans; Ihaiowinglo the inadequacy of current minimum 
slandards, the soundness and stability of plans with respect lo adequate ^nJ!( to pay promised 
benefits may be endangered: that owing to the termination of plans before requisite /u/u^i have 
been accumulated, employees and the beneficiaries have been deprived of anticipated ^nr^i 
. . . ." ERISA sec. 2(a), 29 U.S.C. sec. 1001 (aXemphasis added). 

'^Hutchinson & Cole, supra note 50, at 1371 

"Restatement, supra npte 33, at sec. 164(a). 

18 

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TRS and hence that payments to TRS would cease. In making the loan to the 
city, the TRS trustees acted in concert with four other municipal-employee 
pension funds, which agreed to purchase $2.3 billion in city obligations 
over a two-and-one half-year period. 

The court upheld the trustees' action, even though the bonds bore such a 
high risk of default that they would not have satisfied the nonnal standards 
of prudent investing (die purchase was also excessive in amount and would 
have been in breach of the duty to diversify) . Ravikoff and Curzan interpret 
the court's rationale as follows: 

WiAers may rEiMesem an interpretation of the prudent man rule itiat Is quite different 
' from thatcet forth ni Blankenship. Blankenship espouses the traditional conception of 
the rale: a trustee may not select an investment that fosters nontraditional objectives at 
iIk expense of adequate rale of return and coqwis safety. In contrast. Withers a{^>ears to 

pennil a fiduciary to comprontise these traditianaJ objectives in favor of the other 
goals — at least lo some extent. The couil upheld [he trustees' investment only because 
the investment gave much-needed aid to the fund's principal contributor and helped to 
preserve the jobs of funds participants. That is. the investment was prudent in this case 
because it provided "other benefits."^ 

In truth, what the Withers court did was to point to the host of special 
factors thatmade the TRS purchase justifiable under the traditional wealth- 
maximizing standards of trust-investment law. The court found that the 
trustee's "major concern" was "protecting what was, according to the infor- 
mation available to them, the major and indispensible source of TRS's 
funding — the City of New Yoric," and that the trustees "went to great 
lengths to satisfy themselves of the abi ^ of any reasonable possibility 
that the City would be able to obtaii. " needed money fh>m other 
sources."^^ The trustees used the bond purchase to precipitate federal gov- 
ernment financing for New York City, thereby creating for TRS's benefici- 
aries the prospect of reaching the federal treasury to satisfy the City's 
liability to TRS. They "obtained a provision conditioning the pension 
fund's investment in the City bonds on the enactment of federal legislation" 
providing for interim financing for the City.^ Indeed, since the trustees' 
$860 million investment was about what the City would have had to pay 
TRS over the two-and-a-half year period in question, TRS "could be no 
worse off under the plan than it would be in bankruptcy without City 
funds. "^^ The court in Withers endorsed the Blankenship case, and declared 
that "neither the protection of the jobs of the City's teachers nor the general 
public welfare were factors which motivated the trustees in their investment 
decision. The extension of aid to the City was simply a means — the only 
means, in their assessment — to the legitimate end of preventing the exhaus- 



^Ravikoff A Cuiran. supra note 44, at 523, 

"Withers V. Teachers' Retirement System. 447 F. Supp. 1248. 1232 <S.D.N.Y. 1978). 
■ffd. mem. 595 F. 2d 1210 (2d Cir. 1979). 
"447 F. Supp- at 1253. 
"447 F. Supp. at 1253. 



19 

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tion of the assets of the TRS in the interest of al[ the beneficiaries."^" The 
trustees found favor with the court for their effort to protect their greatest 
asset, which was the liability of the City to pay off its obligations to TRS 
over future decades. 

The Duty of Prudent Investing. Another oMigation tlial trust law imposes 
on fiduciaries is the duty of care known as the [midcnt-nian or prudent- 
investor rule. The case law is now effectively codified for pension law in 
ERISA." The Restatement of Trusts words the ruk thusly: "In making 
investments of trust funds tiie trustee is under a duty to the beneficiary . . . 
to make such investments and only such investments as a prudent man 
would make of his own property having in view the [reservation of the 
estate and the amount and regularity of the income to be derived . . . ."^ 

Fw historical reasons that are widely understood, trust law has placed 
greater emphasis on risk-avoidance than the modem theory of finance 
docs,^' but risk and return, however, weighted, are factors exclusively 
related to the investor's financial well-being. The highly risk-averse inves- 
tor of traditional trust law accepts a lower retum for a lower risk. He docs 
not accept a lower return for some other, nonfinancial purpose. The duty of 
prudent investing therefore reinforces the duty of loyalty in forbidding the 
trustee to invest for any object other than the highest return consistent with 
the preferred level of portfolio risk.^ 

In 1980, die then chief ERISA administrator. Ian D. Lanoff of the 
Department of Labor, rejected the suggestion that social investing was not 
subject to ERISA's rules of prudence and loyalty. He said that ERISA 
requires that the fiduciary's "overall investment strategy . . . be designed to 
protect the retirement income of the plan's participants," and that both the 
duty of loyalty and the prudent investor rule would be violated if a fiduciary 
were to make an "investment decision based on other objectives, such as to 
promote the job security of a class of current or fiiture participants."^^ 
Social factors may be brought in only if it is costless to do so. Similarly, the 
Labor Department approved a 1979 Chrysler/UAW agreement endorsing 
some social investing of pension-fund assets on the understanding that the 
investments in question would be "economically competitive with other 
investment o[^x>rtunities which may not contain similar socially beneficial 
features."^ (As previously explained, the field for costless substitutions is 
largely limited to the economically futile forms of social investing.) 



"447 F. Supp. at I2S6 (emplusis added). 

'*ERISA sec. 404(aXlKB). 29 U.S-C. sec. 1104<aXI)(B). 

'Restatement, supn note 33, at sec. 227. 

"See Langbein & Positet. supn note 32, at 3-6. 

'^A similai ratiofude underlies the trustee's familiar duty to invest promptly, in onler to 
make Iiust funds productive. See Restatemem, supta note 33. at sec, ISl. CtMiunent c. 

^an Lanoff. The Social Investment of Private Pension Plan Assets: May it Be Done 
Lawfully Under ERISA?. 31 Labor Law Journal 3S7, 3S9 (1980). 

**W. at 392. 



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The attorney general of Oregon issued a formal opinion in 1978 applying 
the state's statutory pmdcnt-invcstor nile to the question whether invest- 
ment managers for the state university endowment fiinds could "take politi- 
cal and moral considerations into account in making investment decisions." 
He ruled that "[i]t is inappropriate and irrelevant for the investment manag- 
ers to consider any factors other than the probable safety of, and the prob- 
able income from, the investments required by the statute. "^^ 

The proponents of social investing have never reconciled the sacrifice of - 
beneficiaries' financial advantage with the prudent-investor role. Ravikoff 
and Curzan try to avoid the common-law rule by rewording it to suit their 
purpose. After quoting the Restatemem version,^' they purport to summa- 
rize it in a form which changes it radically, and which they thereafter treat as 
a statement of the law. The objects of the prudent-investor rule, they say, 
are "preservation of the trost corpus and attainment of an adequate re- 
tum.*'^^ The term "adequate" is their own invention, and in thus implying a 
standard less than "optimal" or "maximum" it is wholly without authority. 
The authors later endorse a movement from "adequate" to "moderate or 
even no return,"^ still in the name of prudence. It is a revealing commen- 
tary on the weakness of the legal case for social investing that its proponents 
aie driven to such transparent manipulation of the legal rules that oppose 
them. 

ERISA's No-Waiver Ride Applied to Social Investing. A general rule of 
trust-investment law, known as the authorization doctrine, permits the 
settlor to impose on the trust whatever investment policy he sees fit.^ The 
settlor can waive otherwise applicable rules and authorize the trustee to 
engage in acts of self-dealing or imprudent investment. One of ERISA's 
innovations was the prohibition against "any provision . . . which putporis 
to relieve a fiduciary from responsibility or liability."™ Therefore, as 
Hutchinson and Cole observe, "the [pension] plan documents cannot autho- 
rize a policy of social investment that would otherwise be impermissible 
under the fiduciary standards of the Act."^* This mle against exculpation 
clauses eliminated the authorization doctrine from pension tmsts. 

Consequently, a pension trust cannot be drafted to permit a social invest- 



^S op. Or. Any, Gen. No. 7616. al 2 (May 2. I97S), litigaled in Associated Students of 
the University of Oregon v. Hum, No. 78-7503 (Lane County Cir. Ci., filed Nov 22. 1978). 

^'ResuiemetU, supn oote 33, al sec. 227. quoted in Ravikoff & CurTan, supra note 44, al 
520. 

'^Ravikoff & Cuizan, supra note 44, at 520. 

"Id. at 528. 

'"Restatement, supn note 33, at sec. 164(a). 

'<*ERISA sec. 410(a). 29 U.S.C. sec, 1)10(a). Se« also ERISA sec. 404(aKI)(D), 29 
U.S.C. sec. ll04(a)(lKD). 

"Hutchinson &. Cole, supn note SO. at 1372. 1373-75. 



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ing strategy that would violate the duties of loyalty or prudent investment. 
This result is quite consistent with die economic analysis of pension savings 
(discussed in Pan II, supra, under Ac subheading "Contributory or Not"). 
Because both employer-paid and employee-paid contributions are best un- 
derstood as deferred wages, they derive from die employee's compensation 
packet. Since die employee is in this important sense ttw "settlor^ of his own 
pension-trust account, diere is good reason to prevent plan sponsors (wheth- 
er union or employer) from using the authorization doctrine to impose social 
investing upon him. 

Since, however, the employee rather than the plan sponsor is the settlor- 
equivalent person, the oiqx>site question arises: Might a pension plan be 
tawfiil if it contained a social-investing option that the iitdividual participant 
could elect or decline? For example, die plan might offer two funds, one 
that ignored social-investing causes and another that adhered to some politi- 
cal strategy such as excluding the securities of nonunion firms. The employ- 
ee could elect between the two funds. 

It might be possible to bring a social-investing option of this sort within 
the so-called ratification doctrine of the common law of trusts. Unless a 
beneficiary is deceived or acts under an incapacity, tnist law allows htm to 
ratify investment practices that would otherwise be in breach of the trust 
instrument or of the common law.^^ The idea is that if the beneficiary is 
entitled to receive and waste the trust fund, he is equally entitled to allow the 
fund to be wasted while still in the hands of the trustee. But it is just there 
that pension trusts part company from ordinary trusts, on account of the 
protective policy of pension law. The pension beneficiary is not allowed to 
reach pension assets on whatever terms please him. For example, we have 
seen that ERISA's mandatory spendthrift rule prevents the pension benefi- 
ciary from consuming his pension account before letirement.^^ Further, the 
Internal Revenue Code now conditions the pension tax concessions on the 
requirement that retirement benefits be made available in the form of an 
annuity, ^^ in order to protect the retiree from improvident consumption that 
could exhaust his pension benefits during his lifetime. 

Accordingly, it seems unlikely that a genuinely costly social investing 
scheme could pass muster even as a beneficiary-elected option. For the 
same reason we do not allow a current worker to spend his pension account 
on a sports car, we should not allow him to spend it on contributions to 
political or social campaigns (which is what he is doing when he accepts a 
below-maiket return in bis pensitm savings). On the other hand, this ration- 



'^Resutemenl. supra note 33. at sec. 216(1). 

'^upra texl al note 10 and note 10. 

^'I.R.C, sec. 40I(aXll) (as amended by the Relireroent Equity Act of 1984). 



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ale seems not to extend to social investing schemes of the merely futile sort, 
such as in-state GNMAs. Even fw these investments, however, the plan 
sp(psor should be obliged to disclose to plan participants that the price of 
cosUessness is futility; and the sponsor should be obliged to arrange fw 
confidentiality respecting the portfolio election of each participant, in order 
to [m>tecl participants from union or other pressures. 

This discussion of a social investing option presupposes a defined contri- 
bution plan, with individual accounts whose investment risk is borne by 
each plan participant. In a pure defined benefit plan, where investment risk 
is shifted to the employer as plan sponsor, there is less reason in law to 
prevent die employer from assuming the increased costs of a social-invest- 
ing strategy that entails below-market yields. The employer, however, has 
good reason to resist such efforts to induce him to increase his pension costs 
and liabilities. For just diat reason, most of the social-investing pressures 
have not been directed at single-employer defined benefit plans, but rather 
at union-dominated multi-employer plans, state- and- local plans, and multi- 
employer defined contribution plans such as the college teachers' TIAA- 
CREF. 

Even within the realm of the defined benefit plan, the plan sponsor does 
not bear the whole of the investment risk. Under the federal insurance 
scheme enacted as Tide IV of ERISA, a federal agency called the Pension 
Benefit Guaranty Corporation (PBGC) bears the ultimate responsibility for 
paying most of the pension benefits promised under a defined benefit plan, 
in the event that the plan should default.^^ PBGC thus has an interest in 
preventing plan sponsors &om engaging in improvident investment prac- 
tices that might require PBGC to have to honor the sponsor's defaulted 
promises. Furthermore, PBGC insurance does not protect plan participants 
wholly, because there are statutory ceilings on the amount of the benefits 
covered.^^ Since, therefore, the plan participant would remain at risk for the 
portion of a defaulted plan not insured by PBGC , the protective policies that 
indicate that the participant should not have the power to acquiesce in a 
social-investing option under a defined contribution plan pertain as well in 
an attenuated fashion to a defined benefit plan. 

Corporate Social Responsibility. Proponents of social investing some- 
times think they can find solace in the authorities that allow a corporation to 
engage in charitable giving or other "socially responsible" endeavors at the 
expense of its shareholders. Indeed, this analogy misled the distinguished 



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tnist writer, Austin Scon, who, sbortly before his death endorsed social 
investing of trust funds. ^ 

Tfac legal analysis that has been applied in the (xvporation cases, is, in 
fact, directly contrary to that which would be needed to sustain social 
investing of tiust funds. Tfae rationale that has protected corporate directors 
from liability when shareholders have brou^t suit complaining of seeming 
cmporate altruism is that the directOTs were in fact pursuing the longer- 
range self-interest of die finn and hence that their conduct has been wealdi- 
maximizing.™ 

Constitutional Objections. There are serious doubts about the constitu- 
tioiiality of the two types of social-investing measures that crop up in stale 
legislation directed at state and local pension funds. As regards the legisla- 
tion directed against Soudi Africa (or any other foreign power), I have 
previously mentioned the doctrine of constitutional preemption,^ designed 
to preserve the federal monopoly of audiority in foreign relations, which 
was expansively reaHimied by the Su^me Court in the 1968 case of 
Zschemig v. Miller.*^ 

There is also a long constitutional tradition inimical to protectionist state 
legislation. A main purpose of the c<Mnnieree clause of the federal constitu- 
tion was to create national markets. Fm' example, tiie Supreme Court held in 
a famous case that New York could not by statute prevent price competition 
in New York from che^wr Vermont milk." State legislation attempting to 
create perferences fm m-statc securities should be no more justifiable under 



'nustees in deciding wbelher lo invest in, or Co leUin, Ibe secunties of a coiporadoa 
nuyproperiyconsiderlbc social pcrfonnuicc of the corporation. They may decline to 
invest in, or to retain, the securities of conrantton whose activities ot some of them are 
ccxilTtiy to fuDdamental aod generally acc^Med ethical princi[ries. They may consider 
such matters as pollution, race discrimination, fair enqilayroeni and consumer icspon- 
sibiiity .... Of course they may well believe that a corporation which has a proper 
sense of social obligation is moit likely to be successful in the long run ban those 
which are bentoa obtaining the maximum anwuni of profits, IScott is here reciting tbe 
social-bargain fallacy, refilled above in Pan V of the present essay.] Bui even if ihis 
were not so, the invcstw. though a tnistee of funds for others, is entitled lo consider the 
welfare of Ibccommunity. and refrain from allowing the use of the fiinds in a manner 
detrimental to society. 
3 A. Scod. supra note 3S, at sec. 227.17 (Supp. 1980). Scott nukes no effort to reconcile his 
su|q)on for social investing with the trustee's duties of loyalty and prudence tttai be canvassed 
so extensively in the body of the treatise. 2 id. at sec. 170-170.25 (loyalty); 3 id. seci. 227- 
227. 16 (prudent investing). He ignores tiK ERISA rules, discussed above, that contradict his 
position. Scott cites some of tbe literature on corporate social respcmsibility but does not 
disclose thai the legal analysis that has been applied in tbe corporation cases is the opposite of 
the rule he is supporting for tbe law of trusts. 
"Sec. e.g.. Shlensky V. Wriglcy. 95 III. A|^. 2d 173. 180-81. 237 N.E.2d 776, 780(1968). 
''Supra text at note 27. 
"389 U.S. 429(1968). 
■'Baldwin v. O.A.F. SecUg. 29* U.S. 511 (1935). 



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the commerce clause than legislation prefening in-state enteiprises. The 
privileges-and-immunities clause of the constitution has also been inteipict- 
ed to forbid protectionist legislation aimed at out-of-staters."^ 

VU. UNIVERSITY ENDOWMENTS 

I have thus far considered the social-investing question only in context of 
the pension fund. The analysis changes when we move from pension trusts 
to charitable trusts (or to charitable corporations, which for present pur- 
poses are indistinguishable ^m charitable trusts). ^^ This is an area of 
considerable consequence for university trustees; they are currently being 
pressured to apply social criteria to the investment of their endowment 
funds, and some boards of trustees have succumbed. 

The distinguishing juridical feature of the charitable trust is the absence 
of conventional beneficiaries. A private trust (including the pension trust) 
must identify by name or by class the persons who are to receive the trust 
pn^rty, but a charitable trust is void if it is found to serve individual rather 
than community benefit.^ The charitable trust occupies a legally privileged 
position: it is not subject to the rule against perpetuities; the attorney general 
or other public officer may enforce it; the cy pres doctrine protects it against 
ordinary rules of defeasance; and it enjoys a variety of tax and procedural 
advantages pursuant to statutes that follow the common law criteria for 
defining charitable trusts. ^^ The law conditions the grant of these privileges 
on the requirement of indehnileness of beneficiaries. A charitable trust will 
fail if "the persons who are to benefit are not of a sufficiently large or 
indefinite class so thai the community is interested in the enforcement of the 
trust.'"* 

In place of the definite beneficiaries of private trust law. the law of 
charitable trusts substitutes the standard of community benefit defined by a 
circumscribed set of charitable piuposes: the relief of poverty; the advance- 
ment of religion; the advancement of education and of health (including 
research); and the promotion of govemmental, municipal, and other pur- 
poses beneficial to the community.^^ At the border of each of these catego- 



"See. e.g., Hicklin v. Orbeck, 437 U.S. 518 (1978). 

''See generally 4 A. ScoU, supr* nole 38, ar sec. 348.1. 

**A teceot Pennsylvuiia decision dealing with Ibe claim of be Fratemtl Order of Police to 
be a charilable organization concluded that the group "is essentially a labor organizatioa 
existing solely for the benelit of its own nKmbership." and those that "its benefits are not 
ai^lied for the advantage of an indefinite number of penons as would be the case if the public 
were to benefit." Conunonwcalltiv. Frantz Adveitising, Inc., 23 Pa. Conunw. Q. 536, 533- 
34. 353 A.2d. 492. 496-97 (1976). For a good general background on such cases, see 4. A. 
Scolt, supra note 3S. at sec. 375.2. 

*^See Restaleroeni, supra note 33, at sees. 365 (unlimited duration). 391 (publk enforee- 
roent), 395 (cy pies). 

•*ld. at sec. 375. 

"Id. al sec. 368. 



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ries there can be serious questions about whether paiticuliir schemes 
qualify, but the typical university chailer declares purposes thai fall unam- 
biguously within the category of education and research (and often within 
diat of health as well). 

In analyzing social investing by private and pension trusts, we saw that 
die tnistee's obligation to invest for the maximum financial well-being of 
the trust beneficiaries derives from the tnistee's duties of loyalty and pru- 
dent investing; but since, by definition, die charitable trustee does not owe 
such duties to particular private beiKficiaries, die question arises whedier 
there are any legal impediments to social investing of university endowment 
fiinds. There are several: 

Charter. University charters are often granted by special legislative act, 
both for state schools and private universities. A university may also be 
chartered under the general nonprofit corporation statute of the jurisdiction. 
In principle, an authorizing instniment under the common law of trusts 
would also suffice. Regardless of die form, a university's charter is usually 
restrictive; it dedicates the institution to educational and related purposes. 

A variety of the causes espoused in the name of social investing are not 
within the purposes of such charters — for example, expressing disapproval 
of selected foreign governments , or supporting certain labor union organiz- 
ing campaigns. ¥of university trustees to spend university funds on such 
causes directly would be ultra vires and put the trustees in breach of their 
fidiciary duty to the instimtion.^" Were the tnistees to pursue the same end 
by engaging in social investing of the university's endowment funds, they 
would simply be attempting to do indirecUy what they may not do directly. 

Under conventional charitable trust law, the state attomey general iias 
standing to sue to prevent such misuses of university endowment funds. 
Because he is a political officer, and there will often be more votes to gain 
from supporting than from opposing the groups that advocate social invest- 
ing, his intervention might not always be a serious prospect. But the attor- 
ney general {Hobably does not have a monopoly of standing in such cases; 
other persons who have a signilicani economic interest in the fate of the 
endowment— for example, professors aixl students — probably may sue.^^ 

Noncharitable Purposes. If a particular charter is too restrictive to permit 
a particular scheme of social investing, the proponents of the scheme may 
reply that die institution ought to get its charter amended . When the charter 
originates in special state legislation, the legislature can authorize virtually 
any use of institutional funds (at least as regards the state law of charitable 
purposes, although not the federal tax consequences). When the charter is 



"See id, ai sec. 379. 

■nn Coffee v, William Manb Rice Univ.. 403 S.W. 2d 340 (Tex. 1966), two opposing 
groups of alumni were held lo have standing lo intervene in a lawsuit in which the trustees of 
Rice Univeisity were seeking the application of the cy pics docliine in order to eliminate 
racially restiictive provisions from the trust instrument thu had created the school. 



26 

50-120 O— 85 7 



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DonstalutOfy and subject to the common law of charitable trusts, valid 
charter amendments will be impossible for many social investing schemes. 
The law of charitable trusts denies private autonomy over the definition of 
what purposes qualify as charitable. The standard of community benefit 
does not vary with the tastes of universities or their founders, tiustees, and 
donors. 

Some of the schemes favored by [woponents of social investing are 
incompatible with these legal standards. In England, a trust for the purpose 
of changing existing law is not charitable.*" Although this rule generally has 
not been followed in American law, our law does attempt to distinguish 
between "social" purposes, which are permissible, and "political" pur- 
poses, which are not.'' Trusts to promote socialist political and educational 
activity have been held not charitable;^ a similar fate befell a bequest to 
create an educational and information center for the Republican women of 
Peimsylvania.'^ A Scottish case held that a trust to support resistance to 
strikebreaking and lockouts was political and hence void,^ and a New 
Zealand case ruled similarly against a trust for the League of Nations.'^ 
University trustees faced with pressures to adapt their portfolios to the 
requirements of union organizing campaigns, or some group's foreign- 
policy views, must beware the force of such precedents. The price of 
yielding to social-investing demands may be litigation costs and potential 
liability for breach of fiduciary duty. 

Costs. From a practical standpoint, university trustees are obliged to give 
full weight to the savings in administrative costs that result when the 
institution is spared the needless portfolio reviews and difficult investment 
decisions that are involved in social investing, especially in view of the 
absence of agreement on the social principles to be pursued. 

Donors. Past donors — more likely their heirs or successors — may claim 
that since social investing constitutes a diversion from the educational 
purposes for which the funds were given, it breaches an implied or express 
condition and ought to trigger defeasance of the funds in favor of the donor. 
In Illinois, legislation in force since 1 874 denies to universities the "power 
to divert any gift . . . from the specific purpose designed by the donor."^ 
Donors would have a strong argument against applying the cy pres doctrine 
in order to prevent defeasance , since cy pres applies only when it "becomes 
impossible or impracticable or illegal to carry out the original charitable 



'"Nuioiul Anti-Vivisection Soc'y. v. Inland Revenue Comnus.. [1948] A.C. 91. 
*'4 A. Scott, supra note 38, at sec, 374.6. 



n EsUie. 21 Pa. D. & C.2d 65 (1939). 
**Tnistees for the Roll of Voluntuy Woikers v. Commis. of Inland Revenue, [1942] Sess. 
Cas. 47. 
'nn re Wilkinson. (1941] N.Z.L.R. I06S. 
»*IU Rev. StH. 1971, ch. 144. sec. 1. 



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purpose."" Thus, tnistees who yield lo pressures to divert endowment 
funds from education to other causes are exposing their eiKlowments to the 
restitutionary claims of donors and heirs. 



VUI. CONCLUSION 

In emphasizing the legal risks that pensitMi trustees and university and 
other charitable trustees incur in pursuing social investing, I do not suggest 
that the law requires social grievances to go without remedy. The law of 
trusts has been constructed on the quite intelligent premise that the grand 
social issues of the day should be resolved in those institutions whose 
procedures and powers are appropriate to them. The political and legislative 
process of the modem democratic state is well adapted to dealing with 
pressures for social change. Pension trusts have been designed to provide 
retirement security, and charitable trusts have been designed to serve spe- 
cialized purposes — in education, healing, the arts, research, and so forth. A 
board of trustees is not well suited to be a forum for the resolution of 
complex social issues largely unrelated to its work. There is every reason to 
think that trustees will best serve the cause of social change by remitting the 
advocates of social causes to the political arena, where their proposals can 
be fairly tested and defined, and if found meritorious, effectively 
implemented. 



"Restatemenl. supra noce 33. i 



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TEXT OUTLINE 



I. Context 31 

U. The difficulties of divergent investing 35 

Hurdle 1; What goals? 35 

Hurdle 2; Which priorities? 36 

Hurdle 3: Who decides? 36 

Hurdle 4: How decide? 37 

Hurdle 5: The lack of information on the divergent goals ... 38 

Hurdle 6: Inviting conflicts of interest 40 

Hurdle 7: How hold the fiduciaries accountable? 40 

Hurdle 8: For all those difficulties and costs and risks, is 

anything gained? 41 

III. Two case studies 42 

A. State and local pension funds and recent pressures for 
in-state mortgage investing 42 

B. South Africa-involved investments 45 

1 . Factual context 45 

2. The seven lines of action about South Africa-involved 
investments followed by various States and others. ... 48 

3. What will divestment accomplish? 51 

IV, The investment implications of divestment 53 

A. Key distinctions between small funds and large, and 
between operating funds and investment funds 53 

B. What are the costs and risks for an institution adopting 

absolute divestment? 54 

Cost 1 : Divestment shrinks the investment spectrum .... 54 
Cost 2: Less information is available on the remaining 

stocks 56 

Cost 3: The poitfolio is riskier because it is more 

dependent on smaller stocks 56 

Cost 4: The poitfolio is riskier also because it is much 

less diverse 57 

Cost 5: Smaller stocks have less liquidity 58 

Cost 6: Managing the poitfolio will cost mote 58 

Cost 7: How hold the fiduciaries accountable? 59 

C. The Sullivan Principles 60 

D. The morality of divestment 62 

E. A postscript on the constitutionality of divestment 65 

V. A word on foundations, churches and charities and 

endowments 67 

VI. Conclusion 68 

APPENDIX: Text of the Sullivan Principles 71 



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189 

DIVERGENT INVESTING OF PENSION 

FUNDS AND UNIVERSITY 

ENDOWMENTS: KEY POINTS ABOUT 

THE PRAGMATICS, AND TWO 

CURRENT CASE STUDIES 

by 

ROY A SCHOTLAND 

Gary Tnideau made it clear. That cartoonist and ex officio philosopher 
wrote about a football team's pension fund diverted to meet the needs of 
Lava-Lava Lenny, the "Polynesian Panzer" who was the whole right side of 
the team's line. Lenny had an insatiable need for pineapples, so the pension 
fund was used to buy pineapples. Tnideau asks "But how could you use the 
pension fund for that?" and his answer captures perfectly the approach of 
advocates of the countless forms of "social investing": "But the fund was 
Just sitting there." As of course It must sit and grow if it will serve its own 
major social goal, protecting retirement security. 

I agree with John Langbein's elegantly reasoned approach, although my 
view of Social Security is far more positive than his and my concern about 
the private pension system's limitations is greater than his. Still, one must 
concur with his point that die economic soundness of private pension plans 
is becoming ever more important. Four major points warrant focus. 1 con- 
centrate at the outset on pension funds, involving $1,277 trillion in assets,' 
and later deal with other institutional investors like endowments, which 
involve under $30 billion, and foundations involving about $47 billion.^ 

L CONTEXT 

First, let's not use a label that loads the dice: analysis suffers from the 
outset if the label "social" or "socially responsible" investing is accepted, 
since few minds will be open to any plea for the anti-social or irresponsible, 
and hardly any more will think "let the market decide" a sufficient answer. 
But further, the "social" label is over-broad. Everyone agrees that investing 



'As of September 30, 1984. private pension assets totalled S934.6 billion, and slate and 
local pension assets were S34I.6 billion. Federal Reserve Board. Flow of Funds. Quarterly 
Levels (November 1984), 

^TheendowmentflgureisbasedonNat'l.Ass'n. College and Univ. Business Officers, 1983 
Comparative Perfoimance Study (1984). p. 1; the foundation figure is based on FoundMion 
Center. Nal'l. Data Book, p. xi (1984). TiKise two categonesfojerAeraic only just over 5% of 
pension assets, for all the puUic awareness of, say. the Font Foundation or the Harvard and 
Texas endowments. 



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for retirement security is itself a socially responsible goal. More accuiale 
labels would be "alternative" or "divergent" investing, since the proposal is 
to tap pension assets for goals other than retirement security. 

Whatever the label, surely it sounds attractive to invest both to protect 
retirement security and also to promote such other goals as equal employ- 
ment opportunity or environmental quality, or local jobs or housing — or to 
avoid investments in tirms engaged in social evils. ^ If "Investment XX" has 
as high a return and low a risk as other clearly appropriate investments, but 
XX also promotes common concerns of the pension fund's beneficiaries, 
then the only investment manager who wouldn't buy XX for that fund 
would be a misanthrope, hating both his clients and his own firm's future. 
Obviously, XX has more bang for the buck. 

But we cannot stop with how these proposals sound, and we know how 
artificial is "all other things being equal." The considerable controversy 
over "social" ot divergent investing is more than a fuss over labels or 
ideology. 

Second, the reality behind the rhetoric: The only real issue in divergent 
investing is whether non-financial considerations should be taken so far as 
to justify lower investment returns or uncompensated higher risk or lower 
liquidity. A proposed divergence from the pension funds' traditional exclu- 
sive goal to [H>)tect retirement security may involve a financial sacrifice, a 
hidden subsidy to pursue nonretirement goals. Or, the proposal may be 
merely that financial considerations need not be the only ones, that others 
may be taken into account so long as prudent financial criteria are not 
compromised. That crucial distinction means that a proposal — whether to 
favor one category of investments or to avoid another — must be evaluated 
on the facts, the specific terms of what impact it will have on the fund's 
investment earnings. The critical first step in dealing with any proposed 
divergent investment is Sergeant Friday's: get the facts. The facts may not 
end the matter, but neither rtietoric nor even reasoning are meaningful 
unless first the facts are out in the open. Which facts, is made clear in the 
two examples treated fully below. 

Third, why is it so important to protect the funds' investment earnings? 
For any institution, this question boils down to "why is it important to carry 
out the purpose of the institution?" For pension funds, assuring retirement 
security means being able to honor the pension promise. Gary Tnideau 
understands that the fund is not "just sitting there." In all the advocacy of 
divergent investing, nothing is so loud and clear as the emphasis on how 
huge are the pension assets — indeed, that fact is almost always the very 



'Much cunent anention. and Uiis p^et, focuses on di vestmenl of holdings in firms' involved 
in South Africa. But some instirudonal investors have long avoided such "social eviF' indui- 
tries as alcohol and tobacco, "nie Conunissioners of the Church of England, for example, avoid 
sKKks of breweiies, newspaper! and similar social evils. 



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opening poiot.^ Bui somehow the advocates are Cyclopean, Ibey use one 
eye and see only the assets, utterly ignoring the liabilities those assets and 
their earnings must meet. In fact, the assets are small compared to the legal 
liabilities. State and local funds, with assets now over $340 billion, have 
projected unfunded liabilities of about 135% of assets, according to the 
most reliable and latest study available.^ (An unfunded liability is by no 
means bad in itself, any more than it is bad for a homeowner to owe on a 
mortgage . Just as with a mortgage , the question is whether the amount owed 
is appropriate relative to die ability to pay that debt as it gradually comes 
due. To evaluate whether an unfunded pension liability is at an appropriate 
level or is instead a "ticking time bomb," one examines (putting it simply 
but sufficiently) the level and trend of the annual pension expense as a 
percent of payroll, and the level and trend of die ratio of assets to liabilities.) 
Private funds, with assets over $930 billion, have recently been thought to 
have assets greater than their liabilities; but that is only because of a new, 
misleading accounting treatment forced on the profession and the industry.^ 
For example. General Electric — commendably disclosing more data than 



*"A gieai body of money smrounded by people who know exactly wbai they wani," Dwight 
MacDonald's description in die New Yoricer of the Ford Foundation, a microscopic fund 
compared to the ones described here; see n. 2 supra. 

'Arnold. The Financial Status of Stale and Local Public Employee Pension Funds: Theory 
and Evidence (unpublished Harvard Ph.D. dissertation. 1982. using 1978 data); for its find- 
ings, see KotlikofTand Smith. Pensions in the American Economy (N.B.E.R. I9S3). Sections 
7.7-7.10. 

In the past few years, state and local retirement systems overall have probably strengthened 
Iheir fiinding thanks to a combination of increased oflicial awareness of ttie necessity of doing 
so, and relatively strong securities markets. On the other hand, in the 1981-2 recession several 
major States cut back on their funding, and many States' local systems are an increasingly 
acute problem, as highlighted by recent official studies in Missouri and Pervnsylvania. 

The 135% figure is for stale- administered funds, the great bulk of all stale and local assets; 
coincidentally. their unfunded liabilities arc also about 135% of all outstanding long-term state 
debt. The 20cities with the largest pension fund of their own had unfunded projected liabilities 
of 106 percent of Iheir fijnd assets, orjusihalfagain of their own long-term debt; and a large 
sample of other localities with al least one plan of 500 or more participants, showed their 
unfunded projected liability to be 145 percent of their pension assets oralmosttwo-lhirds again 
of their own long-term debt. Ibid. 

'"'Misleading" is strong language in this ccHitext. but is the word used by AT&T in its annual 
report; (see I9S2 Report at p.3S). The word (its. The Financial Accounting Standards Board, 
over strenuous opposition of seven of the "Big Eight" accounting firms as well as the actuarial 
profession and the corporations themselves, has worsened the disclosure of pension data and 
has pending proposals that will do further harm. There is no question that eventually reality will 
break through, but meanwhile all that we have readily available is materially erroneous 
information — wrong by mandated commission as well as improperly allowed omissions. In 
addition to the ways such data make ii harder to implement actuarially sound funding policy, 
they also confuse or mislead both securities analysis and the formation of public policy. They 
do so generally by conveying a misleadingly sanguine sense of funds' strength to nteel 
liabilities. They also do so specifically with respect to "social investing" in two ways: I) 
Reducing the apparent degree of need to meet liabilities only promotes the illusion that at least 
some of the pension assets are indeed "just silting there." 2) Moving the pension assets to the 
balance sheet only strengthens the argument that these aie not sums dedicated to a special 
purpose but are pan of the corporate (or local govemmeni) assets and so available lo serve 
general purposes. 



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requiied by the unsound cunent standards — reports that its pension liabili- 
ties for 1983 arc $2,575 billion larger than appears from the mandated 
disclosure.^ AsGE reveals, the figures it actually uses in operation reveal an 
unfunded liability of $899,000,000, in contrast to die artificial figure GE is 
required to concoct and disclose — a supposed surplus of $2,233 billion of 
assets over liabilities.^ 

Many people understandably suffer glazed vision and blurred hearing if 
an aspect of "accounting" comes up. but this one is simple: pension fund 
assets are not just sitting there, they and the income they earn are essential to 
pay promised retirement benefits. If earnings are insufficient, more money 
must be put into the fiind or else the promise is dishonored. Even if the 
promise is honored, in inflationary times this promise is diluted, perhaps 
severely, if the promised nominal benefits are not improved during retire- 
ment. In fact, most employers (at least large ones) have made such improve- 
ments , which obviously depend (at least in pan) on the success of the fund's 
investment earnings. Among public funds, post-retirement increases are 
explicitly tied to investment results by 5% of funds.^ 

How much do the investment earnings matter? As Ohio State Teachers 
Retirement System points out, 1% more investment return — say, 9% in- 
stead of 8% — means 10-15% more benefits, or a related improvement in a 
pension fund's actuarial soundness or decrease in taxpayer burden or, of 
course, some of each. 

For the Washington D.C. Retirement Fund's $438,000,000 at end-1983, 
the difference between a 7% and an i% return over the next 20 years comes 
out to $433,000,000; the difference between a 10% and an 1 1% return is 
$747,000,000. 

Five years ago, investment income was 34% of total receipts for state and 
local funds; by 1 98 1 -2 it had risen to 39% and in 1 983-4, it went over 45% . 
In many systems it is over 50% . This is good news ; more investment income 
equals less battle of the budget— both pension participants and taxpayers 
gain. But it is important news: how well the assets are managed matters 
more than ever, not only in absolute dollars — $23 billion in 1983-4 invest- 



The muKlatorily disclosed liability of $8,496 billion is only 76% of the vtriuntwily dis- 
closed liability. SI 1.07! billion. GE Annual Report for 1983, p. 40. 

'Even H^isticated treatments unaccountably accept the misleading figures as irthey icAecl 
reality. Contrast Business Week's Pension Scoreboard: A Conlmversial Glow of Healdi. S^. 
17. I9S4, 153-160 wilb Pension Scoreboaid: Improvement is Illusory. Sept. 14. 1981. 114- 
1 1 B. See also Oppenbeimer & Co. . The SAP 400-^>ension Assets and Liabilities 11 . June 29. 
1984 ("many companies have . . . overfunded pension funds"). 

bankers Trust Co.. Study of Public Employee Retirement Systems (1984), p. 44. 



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ment income compared to $9 billion five years earlier. '" It matters more 
also as a proportion of the total income needed each year to keep the funds 
sound and so protect retirement security. 

Fourth, remember Mencken's maxim: The idea that pension investments 
can be "redirected" and so help solve social problems other than retirement 
security, is a classic example of H.L. Mencken's nile that "For every human 
problem, there's an answer that's clear, simple, and wrong." 

It is challenge enough to manage pension assets to maximize investment 
returns (at pnidenl levels of risk) so as to promote retirement security. But 
contrast that challenge with managing diose assets to promote other goals. ' ' 
Consider the difficulties of implementing the impulse toward divergent 
goals. 

n. THE DIFFICULTIES OF DIVERGENT INVESTING 

Hurdle i: What goals? Everyone involved with a pension fund agrees on 
at least one goal: protect retirement security. But if other goals are added, 
which? Consider goals actually F^oposed. mainly for state and local funds: 

I. In-state investing — 

a] generally; or 

b] mortgages (or other investment in housing) — 

1] generally, and/or 

2] for public employees, and/or 

3] for senior citizens, and/or 

4) for low- and/or medium-income people, and/or 

5) rental housing, and/or 

6) cooperative housing, and/or 

vii] rural housing, and/or 
viii) neighboiliood redevelopment; 



'"The Washington, D.C. projections are from the lestimoay of David Eager, director of 
Meideinger Asset Planning Services, consultant to the D.C. Retirement Board, before House 
CommlneeonD.C, Hearings on South African In vestmeni. 9Sth Cong. 2dSess. (Jan. 31. 
19S4), at 130. 141-2. 

The data on total receipts and investment income for state and local funds are derived from 
\}.S. Dept. of Commerce, Bureau of Census, Finances of Employee-Retirement Systems of 
State and l.ocal Govenunenls, and id., Rnances of Selected Public Employee Retirement 
Systems (various issues). 

""It seems to nie that no one really knows hoiv to make money, but we all know bow to lose 
it. Common sense and hard knocks teach ail of us eventually thai one cannot in expectation of 
sabsfactoiy results or in good conscience serve two masters. It's hard enough to achieve 
satisfactory results when focusing all of one's energies on making money: it's almost impossi- 
ble when aiQie same time one focuses on other c4)jectives — no matter how lautlable they may 
be." 

Bom talk by ERISA Administrator Robert Monks, Dec. 7, 19S4, Miami. Florida, on 
"Social Investing and Social Investing {sic]." 



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c] small business; and/or 

d] venture capital; and/or 
c] industry in rural areas. 

II. Energy conservation — 

a] generally, and/or 

b] solar. 

111. Environmental protection. 
IV. Equal opportunity employment. 
V. Unionization. 

VI. Avoidance of alcohol, tobacco and defense industries (goals 
proposed less often for pension funds than for foundations and 
endowments.) 
VII.Avoidance of firms involved with — 

a] South Africa or Southern Africa; 

b] military activity in Northern Ireland; 

c] Iran; 

d] Ubya; 

e] Muslim countries generally (because of their treatment of 
women's rights); 

f] Communist countries. 

Hurdle 2: Which priorities? The above goals are so many and so varied 
that they bring to mind the child's problem in the candy store: "Which do I 
really want?" It may come as a surprise that 1 2 of those goals were proposed 
by a single group, Governor Jerry Brown's Public Investment Task Force in 
1981. (It's hard to believe that the Task Force deliberately omitted Goals 
III- VII; maybe avoiding investments in defense contractors and alcohol is 
not an ethical imperative for California public funds, given that Slate's 
defense industry and vineyards — swords oru/ plows.) A pending bill in New 
Jersey with important support in the legislature has a similar shopping list. 

In fact, the child's quandary in the candy shop is easy compared to this 
selection or ranking problem, for what is to be done when the goals conflict? 
For example, Morgan Guaranty Bank is involved in South Africa but also is 
the first bank to support black business schools, is a leading lender to 
minority firms and a leading fiinder for redevelopment in New York ghet- 
tos. Avoid or favor buying their stock? Or: Grumman, the largest manufac- 
turer of solar collectors and heaters, was involved in foreign payoff scandals 
and is a major defense contractor. Or: Atlantic Richfield, fined by the EPA 
for using leaded gasoline in company cars designed for unleaded only, has 
been singled out by the Council on Economic Priorities as the leading oil 
company in pollution control. Buy? Avoid? Punt? 

Hurdle 3: Whodecides? Fiduciaries have control of other people's money 
for one reason: they are believed to be citable and trustworthy to further the 
purpose of the fund in question, be diat purpose retirement security ch- 
educational or charitable activity. They may or may not have any expertise 
on divergent goals, their views about such goals may or may not be shared 

36 

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by many or all or even any of the beneficiaries of the tnist, and certainly they 
were not made trustees to fiutiier their own social or political views. This is 
a crucial distinction between such trustees, and legislators or other elected 
public officials. (Many state w local teachers', police and firefighters' 
funds have some elective trustees, but obviously such persons are selected 
with a single goal in mind.) 

It is blatant ^nise of trust for trustees selected to further a specified, 
shared goal , to use their power for perstmal goals. And if personal goals are 
pursued to the financial detrimuit of the trust fund, then the line fades 
between this conduct and plain embezzlement. 

Hurdle 4: How decide? This dichotomy between shared goals and per- 
sonal goals is not meant to suggest thai the only proper goal is the fund's 
financial gain. Most obviously, compliance with law is required and expect- 
ed: if a corporation is in sustained, flagrant violation of law, avoiding its 
stock seems unobjectionable and, I believe, desirable. '^ But slippery slopes 
are avoided by setting up specific signposts. For example, J. P. Stevens a 
few years ago was found guilty not merely of repeated, on-going unfair 
labor practices but even repeated contempts of court, and until its com- 
mendable change of course, was the leading labor relations outlaw in the 
nation. For a collectively bargained pension fund, it would be hard to take 
seriously any objection to avoiding that stock. But for any trust, such a stock 
could be avoided for several reasons. First, in the J. P. Stevens instance 
there was no lack of clarity, or difficulty in determining the degree and 
uniqueness of the corporate illegality, so there were no information costs or 
burdens of arguing about the specific situation. Second, there was no lost 
opportunity or other investment cost, since that particular investment could 
easily be replaced; the case would be very different were the corporate 
culprit IBM or GE, but those firms' being guilty of such sustained illegality 
seems so unlikely that we can leave such a question until, if ever, it arises. 

How different the proposition that, for example, a fund should invest 
only in unionized companies: such a sweeping limit would keep a fund from 
holding almost any high technology stock, likely inflicting serious loss of 
investment earnings. But it would be wrong to rush to a sweeping proposi- 
tion against sweeping propositions. To bar all alcohol and tobacco stocks, 
for example, has littie or no investment implications (because of the modest 
capitalization involved unlike, say, oil stocks); however, such a ban might 
reflect shared views in some beneficiary groups, such as a church endow- 
ment, but not in others, such as a pension fiind with diverse participants. Or, 
even if there is clear consensus on a divergent goal — say, a state pension 
fimd's favoring investment in firms with in-state employees — one must 
always detennine the investment implications. For New Yorit's funds such 
a preference would probably make no discernible di^erence in which secu- 

'^The New Jeisey Investment Council has adopted a oew standard for its $l3-billion-as«eI 
holdings: "good coipoiale citizenship." Annual Report 1984. p. II. 



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rities are held, but for North Dakota, a preference for in-state investing 
would shrivel fund earnings and drive up pension costs, driving up taxes and 
injuring economic development instead of aiding it. 1 remember one small 
State's pension investment officer's saying that the only thing worse than 
not investing in-state, is investing in-state and losing. 

In short, the specific facts of different proposed divergent investments 
make some of them desirable, some acceptable, and some injurious or 
unfair abuse of trust. If there is doubt about whether an investment is 
prudent, it is unquestionably wrong to go forward, since so many clearly 
prudent alternatives are available. Similarly, if there is doubt whether a 
divergent goal (even one which is not injurious financially) commands the 
necessary overwhelming concurrence of the beneficiaries, then it is improp- 
er to pursue such a goal. 

What of polling the beneficiaries about whether they want to pursue X 
divergent goal? Polling has legal limits, certainly has some costs and possi- 
bly large ones, and usually is unfeasible. It would be legal to follow poll 
results if all beneficiaries agree, but it would be illegal to delegate to a mere 
majority the trustees' responsibility to pursue the shared interest of all 
beneficiaries. Polling would be costly if the beneficiaries are numerous. 
And often polling would be unfeasible because the issue is so complex or 
requires just such investment understanding as to exemplify why we have 
trustees in the first place. Further, even if one assumed a clear issue and an 
adequately comprehending group of beneficiaries, the likelihood is that 
polling secures only such low participation as to preclude any confidence 
about the degree of agreement. For example, when South A&ica divestment 
(even if that were clear and understood) for the University of Oregon's 
endowment was put to student vote there in 1977, almost95%of the vofers 
supported divestment. But the total number of voters was under 10% of the 
university's 16,000 students, not even counting the future students for 
whose benefit such funds exist and who would be affected far more by any 
new investment policy than the voting students who would be gone before 
the policy took hold. 

Perhaps the clearest indication of the difficulty and divisiveness sur- 
rounding this question of how to choose any divergent goal, is the fact that 
Gov. Brown's Task Force divided 23-7 on whether to have California 
public funds take even so modest a step as submitting proxy proposals upon 
request of only 10,000 participants (or 10%).'^ 

Hurdle S: The lack of information — corporate responsibility and irre- 
sponsible responses by institutional investors: Investment decisions are 
made on the basis of an enormous flow of audited, comparable, continuing 
data on corporate performance. An entire profession of financial analysts 
brings trained, experienced expertise to bear on such information. A few 

"Finil Repoft (Oct. 1981) M 54. 62-3. 



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nonlinaDcia] goals present no informatioa diHiculty, for example, avoiding 
alcohol or tobacco stocks (although even that is not so easy since the 
devekqnnent of corporate conglomeration) . But if a portfolio manager must 
decide whether a corporation has at least 1 ,000 employees in the stale; or 
worse, whether it is engaged in "doing business in or with South Africa" 
(the restriction in Massachusetts and several others places); or still worse, 
whether it docs more than SX of such business (the threshold in the Oregon 
Board of Higher Education resolution is S500,(XX)) ... in all such in- 
stances, the difficulties are huge. The fact that "there is no systematic 
method for obtaining and evaluating information about the activities and 
practices of companies in which the funds invest" is deemed one of the 
prime reasons "the current decision-making framework [for divergent in- 
vesting] appears inadequate," according to one of the best studies advocat- 
ing divergent investing. '^ A similar study, done by an able organization for 
a California state agency, also emphasized "the incomplete and preliminary 
nature of much of the data available" — "a prerequisite for development of a 
coherent ethical investment policy for just these two issues |EEO and 
involvement with South Africa] requires the gathering of sufficient data 
upon which infonned judgment can be based."'' 

The data gap does not mean pension fund managers cannot find out about 
General Electric's relations with EEOC, or General Motors' relations with 
OSHA. But how decide whether GE or GM is notably good, or notably bad, 
without employing some standard of comparison? Without comparable 
data, investment decisions on non-financial grounds risk being inaccurate 
(and therefore unfair) as well as ineffective; Company A might look good or 
bad on, say, equal employment, only as long as one doesn't know hew 
others in its industry or its geographic area are perfomiing. Producing 
responsible analyses in this area is a considerable task involving substantial 
costs.'* 

The problem of timely data is pointed up by the fact that months before 
release of that able group's report for California, listing Coca-Cola as a 
"bad" investment because of its activity in South Africa without agreeing to 



"Colbnan & Metzenbaum. Investing in Ourselves (Mass. Social & Economic Opportunity 
Council Task Force, June 1979), at 29, 

"Council on Economic Priorities. A Study of Investment Practices and Opportunities 
(1980). at 6S. 144. 159-60. 

'^Tbe Council on Economic Priorities' study of political influence and lobbying by military 
contractors cost $75,000; its study of nuclear power's impact on job creation (in one locale!) 
cost S292.000: its much-praised study of paper companies' pollution practices cost SSO.OOO 
(and that was back in 1969-1970). 

Although responsible "social performance" data are costly, they can be develi^>ed and 
certainly 1 join in believing Ihey should be. Bui this will occur only if groups, instead of 
seeking publicity about being "socially responsible." try to implement that goal by joining witb 
major companies and major institutional investors, to bring us social performance data that 
could be used to supplement financial analysis. We need the economies of scale if such data are 
to be sound and routinely avail^le. the only way such data can be used properiy and maybe 



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the Sullivan Principles, Coca-Cola had switched its position — in response 
to a shareholder proposal — and signed the Principles. Worse, as late as 18 
months after that switch, the group was still handing out a summary with 
Coca-Cola at the top of the list of sinners , without even oral correction in at 
least one large meeting, presumably in many. 

In short, the goals can be pursued only at information costs which them- 
selves injure net investment results; or cannot be pursued; or can be pursued 
only incompletely and episodically, producing efforts to reward corporate 
responsibility or punish corporate inesponsibility on bases that are closer to 
random than to prudence. 

Hurdle 6: Inviting conflicts of interest: To the extent that the divergent 
investments are aimed to benefit — or bring pressure on — firms or ventures 
situated in the same locality or industry as the pension fund, consider what 
kinds of investments are likely to occur: those with political appeal, and 
often those that raise acute conflicts of interest. If a construction union 
invests in mortgages to finance a construction project on which its members 
will have jobs, can we be confident that the projects will be selected by 
neutral criteria? If state and local pension funds are to invest in local 
projects, then (once we abandon the discipline of seeking maricet returns) 
won't there be enormous maneuvering for the pension fund dollars, with 
politics replacing mailcet return as the determinant? Fiduciaries who are 
faithless or unclear about their duty can always find ways to use trust assets 
to their own benefit. 

Politics are the right measure of who gets into of^ce and how public 
policy issues are resolved. Contrast the safeguards surrounding political 
decisions (pork-barrel or not) as against what will happen when the bees 
gather around the pension fund honey pot. Not even the strongest and most 
representative pension board will have as much independence, as much 
political balance of countervailing forces, as a legislature. And rarely if ever 
would a pension fund investment decision have as much public visibility 
, and relative comprehensibility as decisions being forged in the legislature. 

Hurdle 7: How hold the fiduciaries accountable? When the only goal is 
maximizing investment returns at a prudent level of risk, evaluating how 
well the trustees have done (in setting investment policy and selecting and 
overseeing the money managers) is easy. Not as easy as measuring the size 
of a room, but we have recognized methods and expert, independent firms 
to evaluate investment performance. How do we evaluate the portfolio 
managers' performance, if we diverge from traditional prudent investing 
with its sole focus on investment return? How evaluate success or failure in 
fiuthering the divergent goals? In short, the pension fund engaging in 
divergent investing is likely to become captive to whatever interests have 
muscle — whatever form their strength may take — to shape the choice of 
divergent goats and the selection of specific investments. As everyone who 
has ever dealt with money managers knows well, however strong or weak 



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their investment performance, they are always deft at salesmanship. When 
performance is not strong, they will unfailingly explain that i( was not their 
own limitations but the result of . . . whatever scapegoats are available. 

If trustees cannot evaluate their money managers and the beneficiaries 
cannot evaluate their trustees, there is no accountability. Accountability is 
the only effective safeguard against self-serving, negligent or incompetent 
fiduciaries. 

Hurdle 8: For all those difficulties and costs and risks, in anything 
gained? Possibly. But usually not, even when prudent financial standards 
are put aside in favor of hidden subsidies for the divergent goal, as exempli- 
fied by numerous union and public funds' special mongage investing during 
recent periods of scarce mortgage financing (see below, section lU.B). And 
where prudent financial standards are maintained and investments are made 
on market terms, many observers believe that our capital markets operate so 
efficiently that the favored divergent goal ends up with no more support than 
it would have gotten anyway." Since I believe our maricets arc essentially 
efficient but less than wholly so, I am confident that there may be gains even 
if, for example, a state fund makes in-state mortgage investments on maricet 
terms, especially if it does so in periods when very little mortgage money is 
available. 

If greater emphasis is to be placed on local investing or other new criteria, 
two simple steps will assure both protection of retirement security and 
effective pursuit of the collateral goals. First, the public fund should never 
buy privately placed securities (or other investments) in which its stake is 
larger than 50% at maximum, with the balance being purchased on the same 
terms by other tax-exempt institutions. That assures against investments 
resulting from improper influence, and also against inadequate analysis. 
Second, public funds themselves lack adequate staff or expertise to go 
beyond recognized investment criteria. New York's Comptroller Edward 



"See Langbein. 5 5, above. See also Utvak. Pension Funds and Economic Renewal, at 13 
("Development Investing in Name Only") (Council of Slate Planning Agencies. 1981): and sec 
my Should Pension Funds be Used to Achieve "Social" Goals. 1 19 Tmsis & Estates 26. al 26- 
27 (Nov. 1980; last of three pans, Sept.-Nov. 1980). The foolishnessof trying to use pension 
investments as a tool for economic development is pointed up by the calchily-entitled 1978 
book "The North Will Rise Again." aimed at reviving New England and the upper midwest by 
local investing of local tiiads. The book was a good read as fiction; its unreality is analyzed at 
1 19 Trusts & Estates 22. n. 8 (Sept. 1980). New England has nsen again remarkably, but the 
"driving force has been education. We have 260 colleges in New England, 65 in the Boston 
area alone, h's been the wellspriag of our entrepteneUrship." Bank of Boston's chief ecooo- 
mist James Howell explaining New England'sgoinof 222,000 jobs between 1975-80, Wall St. 
Journal, New England's Big Recovery: The 'Most Spectacular' Event |in the history of 
Western capitalism]?. Dec. 18, 1984, p. 37. 

Localizing pension investing also runs the risk of retaliation by local funds elsewhere. San 
Antonio's well known Mayor Heniy Cisneros warned New York City businessmen of this, 
assuring them he did not feel vengeful but that a popular bumper sticker in his region was 
"Forget the 5S-mile-per-hour speed limit — drive 60 and hteze a Yankee." New York Times. 
Sun Beh 'Revenge." January 27. 1982. 



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V. Regan has proposed that inoFe local investing can be done and done well 
if state agencies expert at, e.g., development, will assemble packages of 
appropriate investments and bring them to groups of private and public 
institutional investors. 
Last, the sheer indirectness of many of the efforts to invest to pursue 
, divergent goals, must be faced. For example, there are a few small mutual 
funds (long in business but never significant in asset size) aimed at "socially 
responsible" investing. Pax World Fund, sponsored by officials of the 
United Methodist Church, is always mentioned and is obviously aimed at a 
goal we all share. But how much peace is promoted by a fund averaging S3 
million (never over $13 million in its 13 years)? It has produced results for 
the firm operating it, an annual expense ratio of about 1 .6%, unequaled by 
few if any other mutual funds. It has produced poor investment returns, an 
annual average of 11.9% for five years, compared to 13.2% for the average 
similar fund (Lipper, balanced funds). Wouldn't everyone involved (except 
the firm managing the fund) be better off with direct contributions to 
charities working for peace or, say, feeding and educating children the 
world over? 

HI. TWO CASE STUDIES 

A. Stale and heal pension funds and recent pressures for in-state mort- 
gage investing 

Between 1980 and 1983, when interest rates were alpine and mortgage 
money was abyssmal , there were acute pressures nation-wide to draw retire- 
ment assets into mortgages. In3l states, these pressures were represented as 
"in-state targeting," allegedly to aid local homeowners and the construction 
industry. In only a handful of such States did homeowners get better-than- 
market rates; in only a few States was new construction aided. But in most 
of these States, instead of continuing or expanding holdings of in-state- 
targeted GNMAS or similar established mortgage investments, new kinds 
of packages were assembled. As a full analysis by the South Dakota Invest- 
ment Council'^ found, the new packages were higher risk than alternatives 
like GNMAS; were also less liquid or completely illiquid; and yet yielded 
less than did the established alternatives. Consider one example of these 
special in-stale packages. 

North Carolina's pension fund in 19S1 bought a SS3 million package of 
mortgage-backed bonds issued by a new corporation that was capitalized for 
$1,0CX) and that sold no other securities to anyone. The corporation was 
owned 50% by the savings and loan associations, 50% by the mortgage 
bankers of the State. The yield was 34 basis points (i.e., 0.34%) below 

"Analysis of 23 "lO'Sute" Moflgage Packages Privately Placed wilh Suie and Local 
RetiienKiiI Funds. Ocl. 19S0-March 19S2 (May 1982), icpiinled in Joint Hearing on Public 
Employee Pension BeneHi Plans , House Conunittees on Ways and Means and Education and 
Labor, 98th Cong. 1st Sess.. at 321 (Serial 98-56; Nov. 15, 1983). 



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jrields available at the same time on GNMAs, which are insured by the 
Federal Govemmeal and readily salable in a highly liquid secondary 
matket. 

Why should the "NICM ICs" have yielded less than GNMAs? The lower 
yield translates to about $2 million less return on that size package over its 
expected life; the difference between insurance by the Federal Government 
and the NICMICs' insurance by a subsidiary of Merrill Lynch, has been 
estimated to come to roughly another $2 million; if, as appears to have been 
the case, the state fund was obligated lo buy under a forward commitment 
but the sellers were not obligated to sell (they would not if interest rates had 
shiftedintheirfavor) then that was worth roughly another SO. 5 million; and 
since the NICMICs could not be sold.easily, being an utterly unique securi- 
ty, their lack of liquidity came to roughly another $2 million. All that contes 
to a give-up of about S6.5 million on that package of $53 million. Why 
would a state pension fiind so subsidize an investment? 

Certainly there is agreed-upon social value in promoting home owner- 
ship, especially for low or middle-income housing. But, the facts. First, 
home buyers got market rates, not lower ones. Still, there might be aid 
enough in getting any mortgage money when it is all but unavailable, 
especially for lower-income families. But, the flaw in that justification is 
that only 5% of the funds went to people with under $12,000 annual 
income. Well, one may respond, the mortgages must be secure. That is 
unarguable, but: over 30% of the funds went to people with annual incomes 
over $36,000 and the ceiling on how much a borrower could get — not the 
home price, but the mortgage, for 1981 in North Carolina — was $1S0,000. 
(In another Slate's similar mortgage package the ceiling was $200,000.) 
How does one justify taxpayers' having to subsidize (by contributing more 
to the pension fund to make up for these poor investment returns) getting 
mortgage money to upper-income people? Well, some defenders of these 
packages would say. all this occurred when the housing industry was inert, 
and the State gains importantly from supporting construction jobs. But: half 
of the mortgages were not for new housing, nor even for new purchases of 
existing homes — half were for mortgages "off the shelf." that is, ones 
issued up to five years earlier. Well, one might respond, selling those older 
mortgages makes new funds available to the savings and loans and mort- 
gage bankers, and those new funds can go lo new mortgages. But: while I 
have been unable to pin down whether the NICMICs involved any commit- 
ment as to the use of those new funds, a number of slate funds and small 
multiemployer funds in the construction industry did fail to secure any 
commitments and soon discovered that the thrifts (and/or mortgage bankers) 
used the new funds to buy Treasury securities. 

North Carolina's was not an unusual deal. The South Dakota pension 
fund was under pressure from local firms to buy a similar package, insured 
by the leading private mortage insurer. MGIC. South Dakota's Investment 
Council agreed that market tenns were essential, so analysis was done on 

43 



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the 23 in-state mortgage packages privately placed to state and local pension 
funds between October 1980 and March 1982 (when the data were gath- 
ered). All were MGlC-insured, some rated single A, most AA, some 
unrated. Most had little or no liquidity. How did they compare with the 
completely liquid. Government- guaranteed GNMAs, which could also be 
packaged with mortgages from one state or large locale? The average 
MGIC-insured package was 149 basis points different &om contemporan- 
teous GNMA yields, or around 10% of the interest rates then paid. 

Of course financial experts would differ on Just what is the appropriate 
margin for the MGIC packages' lower quality, lack of liquidity, etc. But 
dispute can be avoided because the average MGIC in-state package was 
yielding not 10% more than GNMAs, but 10% less. Compared to FHLMC 
"Freddie Macs." the average inferiority of the special in-state packages was 
177 basis points. And even those average margins of irtferioriiy would have 
been worse but for the fact that four of the special packages were of second 
mortgages; not even MGIC could sell those, not even to state funds, ai 
yields lower than GNMAs. 

By no means did all state funds crumble before these pressures. Texas 
State Teachers participated but at strong yields. South Dakota, New Jersey, 
New Hampshire and others completely stood off the pressures. But an up- 
date of South Dakota's study found that as of June 1983. 31 States' funds 
had participated in $500,000,000 of special in-state packages insured by 
MGIC, receiving investment returns at least $10,000,000 per year poorer 
than were readily available in GNMAs and similar securities.'^ Nor did 
homeowners benefit: only in Massachusetts, Michigan and Oklahoma were 
preferential rates given. In addition, Connecticut's fund bought $473 mil- 
lion of local mortgages (MGIC was not involved, as it was not in North 
Carolina), at rates badly below GNMAs but also on bclow-market terms for 



"Munnel.TbePitfallsof Social Invesling: The Case ofPublic Pensions and Housing. New 
England Econ. Rev. (Sept/Ocl. 1983). 

While Munnell and the treatment here deal with only state and local funds, that is pailly 
because the infomialion about their investments is available, thanks to South Dakota's Inve&l- 
mcnt Council. There may be similar problems in some mulli -employer pension funds. Accord- 
ing 10 Randall Smith, the leading reporter on pensions, in Febiuary 19S2 the Labor 
Depaitment's Lx)s Angeles ofUce recdnunended chat the Depailmenl sue the trustees of several 
constnjclion- union pension funds in Southern California for brealung Federal pension law by 
investing S268 million in local union-only projects, much of it at below-market rales. Secretary 
Donovan received a unanimous staff recorrunendation (o sue. around April 1983. As of 
Smith's report and as of January 1985. no fiirtbcr decision or action has occurred. Wall Street 
Journal. Constructive Plan? Use of Pension Funds to Create Union Jobs Raises Issue of 
Ugality. Jan.. 17. 1984, p. 1. 

How well any such investing does boost jobs (or lax revenues in the case of public funds) is 
another matter on which claims outrun facts. For example. Gov. Brown's 1981 Task Force 
claimed that new housing investment would produce almost twice as many jobs as even the 
local constnjction industry claimed. Contrast Final Report n. 13 supra at 22-3 with Construc- 
tion Industry Research Board, Summary of Economic Impacts: InvesinKM In New Housing 
Mortgages. (Sept.. 1981), table 2. 



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the homeowner. The flaw diere was that the nxHigages were allocated by 
chance: whoever happened to be buying a house when the money was 
offered, and got into line early enough the night before (hterally) enjoyed a 
subsidized mortgage. Thai contrasts sadly with the long-established and 
regularized program for public employees in Hawaii, or a careful new one 
for active and retired public employees in New Hampshire. 

This 1980-83 experience shows that under such guises as promoting j<^s 
or local home ownership, the taxpayers and pension participants are victim- 
ized by closed-door concurrence in complex deals usually bringing benefits 
neitherinjobs nor for home owners. But always benefitted are the political- 
ly muscular groups that seek aid they cannot secure in the more open and 
representative legislative. There is enough legitimate controversy over 
how, how much and which housing should enjoy public subsidy decided 
upon in prc^r legislative process. Hidden subsidies squeezed out of pen- 
sion funds are a case study in how not to proceed. 

B. South Africa-Involved Investments 

1 . Factual context 

We may take it as a fact that Americans abhor apartheid. I personally am 
certain as a matter of morality, politics and history, that American compa- 
nies cannot "do business as usual" involving South Africa, and that Ameri- 
can investors cannot do investing as usual in South Africa-involved firms. 

The question is not whether any steps shall be t^en, but only what steps 
may help move the situation away from the abhorrent. 

Institutional investors have been involved in more controversy over this 
issue than any other non-tinancial one. Some spontaneous efforts and some 
nationally organized ones have arisen in periodic waves since 196 1 on many 
college campuses and, since about 1980, in several state legislatures and 
city councils. Many foundations, churches and charitable organizations 
have also grappled with this issue. Much more than on the other issues noted 
in this paper, there is here overwhelming rhetoric and unusual impatience to 
consider facts. And no other issue generates such emotion — and, on unfor- 
tunate occasions, such racial divisions — as this one. 

Since 1961, when student drives for divestment began, U.S. firms' fixed 
investment in South Africa has risen about 50 times. Even adjusted for 
inflation, so great a rise indicates to some people that the divestment drive is 
farcically futile, to others that it is needed more than ever. As of 1982, U.S. 
firms' fixed investment there was $2.3 billion, just at cost values;^" that is 
about 17% of all foreign fixed investment, about 3% of all investment 



^"^is was down bDm$2.6billJontwo yean earlier, according 1o the U.S. Commerce Depl. 
Some may attribute the drop to divestment pressures, otbeis may attribute it to the depressed 
state of liw economy in 19S1-2 in both countries, and to straight-forwardedly commercial 
decisions to withdraw, like Chrysler's. 



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tbere.^' In addition, our financial institutions had loaned over S3.6 billion to 
South African borrowers, and U.S. investors were estimated to hold about 
$8billionof shares in South African firms, bringing the total U.S. financial 
stake there to over S14 billion, second to Great Britain's. In contrast, total 
South African assets in the U.S. were estimated to be only S200 million as 
of 1978. Our expons to South Africa totaled S1.4 billion in 1979. $2.45 
billion in 1980, $2.9 billion in 1981, S2.36 billion in 1982 and $2. 1 1 billion 
in 1983. That means about 60,000 jobs in the U.S.; each $1 billion of U.S. 
exports supports about 28,000 Jobs here.^^ We have unilaterally embargoed 
arms sales to South Africa since 1962, and have sold nothing there for 
nuclear power operation . Our imports from South Africa include 82% of our 
platinum, 87% of our vanadium, 48% of our chrome, 45% of our manga- 
nese, 13% of our gold and 67% of our industrial diamonds. We are South 
Africa's third largest trading partner, after Japan and Great Britain. 

As for how many U.S. companies do business in South Africa, not only is 
there constant flux but different sources report substantially different fig- 
ures, wildly different in one major instance. 

• One authoritative source, Arthur D. Little, Inc. in October 1984 named 
281 companies, including at least 31 with 10 or fewer employees; but the 
report noted also that as many as 40 more were believed to belong in the list, 
bringing the total to about 320.^^ 

• The most thorough study of the investment ramifications of divest- 
ment, published in December 1984 by a major investment firm managing a 
"South Africa-free" portfolio for the District of Columbia Retirement Sys- 
tem, listed 229 companies.^^ 

• But a month later, the authoritative Investor Responsibility Research 
Center published a list with over 287 companies." 

• Another investment study (February 1983) by a major investment firm 
managing such a portfolio for Michigan State University, listed about 270 
companies.^* 



"Unless otherwise indicaled, Ihe US-SA daia are from Davis. Ca&on and Hovey. Economic 
Disengagement and Sou^ Africa: The Effeclivcness and Feasibility of Implemenling Sanc- 
tions and Divestment. 13 Law & Pol. Int'l. Bus. 529 (I9S3) (advocating divestment) and 
Chenle. TTie Law and Policy of Divestment of South African Stock, id. at 445 (contra). 

"Export data from U.S. Dept. Commerce, Job figure from U.S. Dept. Commerce, Inl'l. 
Trade Admin., Export Factsheet (Dec. 20, 1982). 

"Eighth Report on IheSignaloiy Companies to the Sullivan Principles, pp. 2, 12 and 42-4 
(1984). 

^Wagner, Emkin and Dixon (of Wilsbiie Associates). South African Divestiture: Tbe 
Investment Issues, Financial Analysis Journal 14 (Nov.. Dec. 1984). 

^IRRC IJirectory of U.S. Companies with Opo^tions in South Africa (1985). 

trinity Investment Management Corp.. Structuring Portfolios from a South Africa Free 
Univetw (Feb. 1983). 



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• Bui one month later, the District of Columbia's study by a major 
pension consulting finn listed 201 companies. ^^ 

• And that same year, three advocates of divestment said "approximately 
6,000 U.S. companies do business in South Africa," relying on the most 
prestigious smdy, "Report of the (Rockefeller Foundation) Study Commis- 
sion on U.S. Policy Toward Southern Africa: Time Running Out."" 

Two points emerge. First, while a core of companies maintain a presence 
in South AMca, many others come and go. acquiring subsidiaries and 
selling them, so that even a fund determined to avoid South Africa-involved 
companies must either compromise significantly in light of information 
difficulties, or risk highly imprudent portfolio turnover and costs — or both. 

Second, does it make sense to treat a company maintaining a presence in 
South Africa, regardless of size or amount of business, as more supportive 
of apartheid than a company with no office or employees there but making 
major imports or exports? For example, Boeing has fewer than 10 employ- 
ees in South Africa; considering its products, does its presence matter less 
than. say. Coca-Cola? If Boeing had no office in South Africa but still sold 
planes there, wouldn't it still matter a great deal? GM and Ford have plants 
in South Africa, but the leading sellers of cars there are the Japanese. Does it 
make any sense to divest GM and Ford stock, but allow unrestrained 
investing in South Africa's leading trading partners, Japan and Great Brit- 
ain? What of the New York Times, Washington Post and American Broad- 
casting company, with offices there but not even Sullivan Signatories? 
(They may be distinguishable, though Time and I doubt it.) How can the 
advocates of blunderbuss divestment attack companies that are in South 
Africa, almost none of them doing even \% of their business there, but at 
the same time allow investing in American companies importing from 
South Africa or using — and so keeping up the price — of South Africa's 
platinum, vanadium, manganese, chrome, and gold? And, after all, how 
allow investing in the securities of the most important American institution 
involved with South Africa, the U.S. Government? 

Clearly, the determined South Africa-free investor ends up either keeping 



^Meidinger Asset Planning Seivkes. D.C. Special Investmenl Study: South Africa Prdpos- 
al (March 31. I9S3). 

While ibere were earlier effoits to analyze divestnteni's investmenl implications, ihey 
(except for Trinity's, supra n. 26, and perhaps unpublished ones) either utterly ignored relative 
riskiness, liquidity, manageability, etc.; or treated such crucial aspects only with a verbal 
acknowledgment, or only in pan; or were simply superficial. For example, one published in 
1979 was "heavily qualified" by its author in testimony later that same year because "imponant 
procedural, legal aitd economic implicatiotis have not been examined." BNA Pension Repoft- 
er, Dec. 17, 1979, p. A-19. reporting on Andrew Rudd's testimony about his Divestment of 
South African Equities: How Risky?, J. Portf. Mgt. (Spring 1979). p. 5. 

^"The Commission was chaired by Ford Foundation IVesidenl Franklin A. Thomas: it was 
published in 1981 by Univ Calif. Press. The 19S3 article using the 6,000 figure Is Davis. 
Cason and Hovey. supra, n. 21. 



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money in the mattress or making major compromises, questionable not 
merely in policy and logic but also in fairness. Dubious compromises 
become indefensible if more sensible alternatives to absolutism arc avail- 
able and being used. 

2. The seven lines of action about South Africa-involved investments: 
There are ftmdamental differeiKes between the divestment statutes 
passed in Massachusetts, Connecticut, Nebraska, Maryland and Michigan, 
wholly apart from the fact that the first three deal with their state pension 
funds, Michigan's with its university endowment, and Maryland's only 
with bank deposits . New York City ' s pension funds and Harvard have taken 
still other courses. Unless we focus on these differences, debate may be 
unnecessarily polarized and unwise action promoted unwittingly. 

(a} Massachusetts has adopted blunderbuss divestment: its pension 
fund can hold no companies doing business in or with South Africa, ^^ which 
is taken to mean the 2S0-or so firms usually listed as having a presence in 
South Africa. Similar blundetbuss restrictions have been imposed on the 
retirement fiinds of the EHstrict of Columbia, Boston (which adds Namibia), 
Hartford and Philadel[4iia. It is important to add that Massachusetts adopted 
similariy sweeping divestment of firms involved in military action in North- 
em Ireland — a newer statute signed into law on March /7, 1983.^" 

(b) Connecticut originally passed a similar statute, but after the Gover- 
nor vetoed it as not having been adequately considered, substantial study 
was done and a very different approach adopted: divestment is not applied to 
firms which have secured the top two ratings of compliance with the Sulli- 
van Principles (see section C and Appendix) unless the company supplies 
strategic products or services to the Government of South Africa.^' The 
State Treasurer has begun reporting on the pension fund's South Africa 
efforts — what has been sold or put on their "avoid" list, what dialogs are 
occurring with specified companies, and, happily, which companies have 
signed the Sullivan Principles since the State's efTon began.^' The differ- 
ence between the Connecticut and Massachusetts statutes matters enor- 
mously in investment implications, treated fully below, and in the morality 
of the distinctions that Connecticut recognizes and Massachusetts ignores. 
The National Association of State Treasurers has formally endorsed the 
Coimeclicut apiRX>ach. 

(c) Nebraska limits permissible holdings for its pension fund to firms 



"Title 32. i 23(1)(dKvi); Stat. 1982, c. 669, 

" Id., i 23(lKdK«); Sttt. 1983, c. 661. 

^'Public Act 82-324, Conn. Gen. Suis. i 3-l3f. Connecticul has also since 1980 a statute 
provoked by the Iran hostage crisis, barring investments in firms dealing with Iran "contrary to 
the foreign policy ot nadooaJ interests of the United States." Public Act 80-431; S 3-l3g. That 
1980 statute has never been implemented. 

"HeniyE. E>ailcer to MembenoflDvestmenl Advisory Council. March 14, 1984 (Grit lemi- 
annual report on their two Ingest pension funds). 



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in the top rating of Sullivan Principles compliance, a difTcicnce with signifi- 
cant investment implications.^^ 

(d) New York City's Retirement System tnistces in 1984 adopted a five- 
phase approach to divesting: 

After IS moalhs; companies doing business with the Souih African military and 
pt^ice, providing financial services to the Govenunenl or refusing to sign the Sullivan 
Principles. 

After two ycin: companies that have signed the principles but do not allow monitor- 
ing of compliance. 

After three years: companies that do not achieve the highest rating in complying with 
the Sullivan Principles. 

After five years: all companies except those whose activities are deemed by the 
trustees to be of substantial issistance to effocts to eliminate ^Mribeid. 

Their City Council is now considering barring investments in companies 
th^ discriminate against Catholics in Northern Ireland. 

(e) Michigan's statute requires divestiture by its state university en- 
dowment; it is now in litigation, the Board of Regents claiming infringe- 
ment of their authority under the state Constitution. On the one hand the 
statute is absolute as in Massachusetts, but its moral absolutism is called 
into question by the provision that the proceeds of divestiture sales should 
be invested in Michigan firms. And while the Regents have denied that they 
arc required to OMT^Iy with the statute, they have chosen to sell some 
holdings but to keep particular holdings in firms that are substantial Michi- 
gan employers and actual or potential donors to the endowment. (Involve- 
ment in South Africa is immoral unless we get direct benefit from the 
inunonil firm?) 

Similar to Michigan is New Jersey, with two pending bills being support- 
ed as a package: one is absolute divestment, the other requires a preference 
for investing in New Jersey and replaces the prudence standard with an 
"acceptable" standard. As of June 1984, New Jersey's Investment Council 
found that of the 103 South Africa-involved firms having the investment 
characteristics allowing that SI0.2-bil)ion pension tiind to invest in them, 
all butj^ve were Jersey employers.-** Of those 98 Jersey employers, 31 had 
more than i .000 employees in the State and another seven had headquarters 
in the State. Moreover, a far larger proportion of the South Africa-involved 
firms' market value was also Jersey-linked, since the firms with headquar- 
ters (H- over 1,000 employees in-state included IBM, Exxon, GM, GE, 
Ford, Mobil, Texaco, Dow, DuPont, Johnson & Johnson, Merck, MMM, 
Raytheon, Revlon, Schering-Plough, Squibb, Union Carbide, United Tech- 
nologies, Warner-Lambert, Westinghouse and Xerox. Such blue-chip in- 
state investments would virtually certainly not be divested, so the 



signed Apr. 10, 1984. 

rrenl holdings are Jersey employers. 



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proponents of the two-bill package are pursuing only the thinnest symbol- 
ism. Even that will be tarnished when Jerseyans leam that behind the 
emotional intensity about avoiding immoral investments, the prudence stan- 
dard was being repealed so that in-state investing could be stretched from 
blue-chip to back-scratch. (Is anything but symbolism as facade for conflict 
of interest, involved in such "divestment" "efforts"?) 

(j) Maryland bars only deposits of state funds in banks lending to the 
South African Government,^' a step far more easy for the State than the 
preceding ones, whatever its effectiveness.^^ Most local governments listed 
as having adopted divestment have taken only this step. 

(g) Harvard, with an endowment of about $2.S billion, has long been 
engaged in intensive grappling with the divestment issue, and as recently as 
October 1984 reiterated its 1978 refusal to adopt absolute divestment. 
Harvard has twice sold debt securities of banks lending to the South AMcan 
Government. (Harvard's 1980 sale of $51 million in Citicorp debt instru- 
ments was one-third of all divestments by all universities since 1976.) But 
the University and President Bok separately have stated with unusual thor- 
oughness the reasons for their believing that shareholder activism is the 
sounder route." 

Hanaid will consider divesting stock of a company wilh operations in South Africa 
when the company has subsUnCially failed to implement reasonable ediical standards 
for its operations in South Africa, when persistent efforts over a substantial period of 
time to persuade the company to change its policies have failed, and where there is 
cleariy no hope for Improvement. . , 

We must distinguish between the failure of a good-faith effort to meet the standards 
of conduct we espouse and conduct which detnonstraies such disregard of (hose stan- 
dards dial Harvard does not wish to associate itself with a company as a 
stockholder. . . . 

Divesting shares in a company is, under our present policy, a last resort diat bespealcs 
the failure of dialogue. 

Harvard has a code that substantially follows the Sullivan Principles, and 
University officials engage in intense dialog with top management of any 
company not a signatory or lacking an acceptable compliance rating; the 
dialogs are reported on in extraordinary detail. ^^ 

The Harvard route of dedicated shareholder activism is the one rccom- 



"Anicle 95, S 21; 1984 Uws. ch. 775. 

'^ven cash holdings, particulaily in the form of commercial paper, are affected by absolute 
divestment. See Wagner, n. 24. at 20. 

"See Statements of Harvard Corp. Committee on Shareholder Responsibility and President 
Bok. Harv. Univ. Gazette, Oct. 5. 1984. pp. 1. 8,9; Corp Committee Annual Report 1983-4. 
Harv. Gazette, September 1984 (supplement); Bok. Beyond the Ivory Tower: Social Responsi- 
bilities of ttie Modem University, chapters 10, 12 and conclusion (1982). 

"See Corporate Committee Annual Report, supra n. 35. at 4-7 ("intensive dialogs" with Joy 
Manufacturing, Dun A Bradstteet. Pepsico [since then has signed Sullivan Piinciplesl, Phibro- 
Sikimon; ~other dialogs" with American International Group. G. [>. Searle, Baker It 
al. Dart &. Kraft. Newmoni Mining and nine other firms. 



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mended by the Rockefeller Commission Report, "Time Running Out."" 
Thai report flatly opposed divestment, advising institutions instead to act as 
active shareholders pressing corporations to { 1 ) make no new investment in 
South Africa; (2) contribute to social development there at twice the rate of 
total charitable giving by the paient company in the U.S.; and (3) sign the 
Sullivan Principles and advance the Sullivan Principle's content and (at 
least as of the date of thai Report. 1981) their monitoring. 

In 1984, New York's State Comptroller Edward V. Regan, as sole trustee 
of the $23 billion Common Retirement Fund, began an approach like 
Harvard's, carefully distinguishing among different companies on the basis 
of their different Sullivan Principle ratings — or non-rating — and communi- 
cating dircctiy with the companies to encourage responsible conduct and 
further progress. 

3. What will divestment accomplish? A moment's analysis reveals why 
blunderbuss divestment will not further antiapartheid goals in South Africa, 
but will at best (a) leave the problem in slMus quo, (b) probably make it 
worse, and (c) certainly hurl jobs here at home. 

Consider what happens if, say, the D.C. pension fund stops buying stock 
or bonds of, say, FordMolororlBMor Johnson & Johnson. The securities 
of such big companies are instantly absorbed by other investors which, by 
definition, care less about the company's activity in South Africa. The stock 
price is unaffected. The company is not wholly unaffected — no company 
likes negative publicity. But even as symbol, divestment produces only a 
one-shot annoutuement of the sale or the blacklisting of that stock, and no 
more. In contrast, if the socially concerned institutional investor were to 
press proxy proposals about the firm's rote in South Africa, there is a 
continuing stream of communication and pressure. 

A particularly telling example: United Technologies is Connecticut's 
largest employer, certainly concerned about its relations at home. Within a 
month after Connecticut passed a statute putting prudent limits (see above) 
on its South Africa-related investing. United did not hesitate to acquire a 
substantial new subsidiary in South Africa. 

But even if any significant U.S. company did respond to divestment of its 
securities by withdrawing from South Africa, what impact would that pro- 
duce in South Africa? 

First, even complete economic sanctions, far more severe than U.S. 
investors' selling their shares of U.S. firms, have a poor record of effective- 
ness. Second, the (British) Economist Intelligence Unit concluded in 1982 
that South Africa's black neighbor nations were likely to be hurt more by 
any sanctions against South Africa than would the target itself.^ Third, to 
come back to the mere withdrawal by U.S. firms, both experience and the 
current scene indicate ineffectiveness. 



>s Prospects Reassessed. 93. 



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A particulariy telling example: In 1977, Polaroid did withdraw, nd 
because of divestment but because of sustained, forceful pressure by share- 
holders who kept their shares to press for change. Polaroid was deemed 
especially important to South Africa, because its then-unique cameras and 
film were used for apartheid's key operating tool, the passes. Impact of 
Polaroid's withdrawal? None. Polaroid supplies went in through Europe, 
with Polaroid unable to do anything about it. 

Should Polaroid have slopped all sales abroad, to stop the flow to South 
Africa? {Could they if they tried?) In answering that, please consider not 
only South Africa or Polaroid stockholders^ — how about their U.S. 
employees? 

As for U.S. companies with competitive products, that is, almost all 
firms: if they withdraw from South Africa, can one believe South Africa 
will be without the goods or services? Can one doubt that the major foreign 
presence in South Africa, the British, or else the Japanese, Germans, 
French, etc., will at once fill the gap, even if local firms could notT*' 

For example, U.S. firms' largest share of the South African market is in 
computers, where we account for 70% of all sales. Can one doubt that the 
firms doing the other 30% — let alone new entrants— would speed into any 
gap? And since our firms would withdraw only l>ecause of concern about 
apartheid, the remaining firms are by definition less socially sensitive, so 
apartheid would be stronger or, at best, unchanged. Leaving, at best, no 
impact on South Africa, but fewer jobs back in America for the withdrawn 
U.S. firms. Does anyone doubt, if U.S. firms reduce employment because 
of reduced exports or reduced profits brought home, whose Jobs will go 
first? 

Divestment might work if, as Congressman Solarz has been trying to 
accomplish, the major industrial nations work together on this. Until we get 
that — and major trade unions could help enormously — divestment's only 
impact will be some Americans feeling morally superior, and other Ameri- 
cans losing jobs. 

But ineffective as divestment will be, it is bound to be costly. 

"a provocalive predicllon of whai wojld happen if the South A&ican economy actually 

were changed by multinationals' withdrawal, was given lecenlly by Rowley Arenslein. the 

peison imprisoned or "bamieij" by the South African Government longer than anyoTK else. 

There is a big movement in the U.S. to break dte economy of South Africa. I think that is 

stupid. Without investments. Africans will be pushed back into the countiyskle and the trade 

union movement would eoWapse. Even if you did get liberation, what kind of liberation 

would that be? You would starve like the people in Ethiopia or Mozambique . " 

(Wall Si. Journal. A 'Banned' South African Speaks Out. and Faults Some Anti-Pretoria 

Tactics, Dec. II. 1984. p. 33. 

AiuHher long-time critic of the Government, (qjposition number of Parliament Helen Suz- 
man. says the determining factor insltk South Aftica has been 

"the steady upward movement into skilled occupations by blacks eventually giving blacks 
the muscle widi which to make demands for shifts in power and privilege, backed up by the 
force of black uibanization." 

(Washington Post, In South Africa. Washington Can Only Play a Bit Part. Dec. 9. 1984. at 
a. C2.) 



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IV. THE INVESTMENT IMPUCATIONS OF DIVESTMENT. 

A . Key distinctions between small fiuids and large, and between operat- 
ing funds and investment funds: 

This is simple. The number of potential securities investments is vast, 
and even if your or my own personal investments were barred from 2/3 of 
those securities, we could still find a dizzying range of appropriate invest- 
ments. But if we arc trying to invest the California state pension funds with 
about $30 billion, or even a fund under $100 million, it is impossibk to 
avoid investing mostly in large companies, whose securities are highly 
liquid, that is, readily bought and sold in large blocks; and even more 
important, companies large enough to withstand adverse events. Moreover, 
many people want massive public pension funds to invest some in small 
companies, and that is happening. But that "some" must remain a small 
proportion of those assets of $340 billion, or government funds would 
quickly own and control most firms. Therefore almost all institutional 
funds, public and private, limit themselves to a maximum of 5% of any 
hnn's outstanding stock. Since 5% of a small firm is microscopic for a large 
fund, research and other transaction costs also limit investing direcdy in 
small firms. In short, big funds must have a broad spectrum of securities, 
which must include the issues of most big firms. 

Unquestionably, for small funds even absolute divestment is easier than 
for large fiinds. However, it is equally unquestionable that for any institu- 
tional-size fund, such divestment means inescapably much higher transac- 
tion costs, major opportunity losses (e.g. IBM), increased risk because of 
the larger number of holdings in smaller stocks and also because of far less 
diversification. Therefore, such divestment means inescapably either im- 
prudent overall risk or, to balance that, types of investments not usually 
used or not used so much because they produce lower overall returns. All of 
this being so, even for smaller funds total divestment is plainly imprudent.'*^ 

'^For several yeais. 1 focus&ed only on large funds because of my dealing with Uie divesl- 
menl issue in the context of stale pension funds. See. e.g.. my leslimony inianuaiy I9S4, U.S. 
House Committee on the District of Columbia. Heinngs on South Africa Divestment. 98th 
Cong. 2d Sess.. US, 121. 126. In addition. I have been in contact directly with a number of 
state pension fund trustees and investment officers, and in July 19S4 lestilied in New Jersey's 
fiist round of legislative lieaiings on this. Therefore I had in mind only die overwhelming 
evidence diat fm'such large funds, absolute divestment was close to impossible or enormously 
risky and/or encHmously cosdy. and I failed to focus on what problem there is for smatln 

In November 1984, 1 testified as an expert witness for the Oregon Sute Investment Council 
in Assockaed Students of the Univ. ef Oregon v. Oregon Investment Council, die suit to compel 
divestitUFe for the endowment's approximately S20 million. Testifying similarly was Wilshire 
Associate's Wayne Wagner, now managing $2S million in a South Africa-free index fund for 
Ibe D.C. Reliicment Fund. He, like tne, had written focussing on large funds only. See 
Wagner, supra n. 24. at p. IS. 

The .Oregon trial court niled on Dec. S. 1984. that the Investment Council was acting 
lawfully in refiising lo invest despite the resolution by the Board of Higher Education, since the 
relevant statute required prudent investing and atoolute divestmeni, the court held, is not 
prudent. The case will be appealed. 



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Oie other distinction: for operating funds, e.g. a city's or a state's cash 
accounts, divestment is not the problem that it is for investment funds, for 
two reasons. First, operating funds are kept in such cash-equivalents as 
U.S. Government securities, bank certificates of deposit and perhaps com- 
mercial paper, for which any adjustment is much less.'*^ There are more 
than enough banks, including large ones, not involved in South Africa. 

B. What are the costs and risks for an institution adopting absolute 
divestment? The picture is clearest if we start with blunderbuss divestment, 
which imposes seven costs and/or risks on a fund. 

Cost 1: Divestment shrinks the spectrum of possible investments to a 
remarkable extent. Of the Standard & Poor's 500 (the largest tirms, consti- 
tuting the vast bulk of the investments all institutional investors tend to use 
and which large institutions must use), the South Africa-free fund is barred 
from holding at least 47% of the market capitalization. Even that rests on 
limiting the blacklist to 229 companies, which now is unreatistically low.^ 
One cannot respond "Well, that leaves 53% available," because the barred 
companies are far from fungible with the ones still available. The leading 
example is IBM, which has a market value of just under $70 billion: the next 
largest computer stock is Digital Equipment, with about $5 billion in market 
value. (When Wilshire constructed for the D.C. Retirement Fund a South 
Africa-free index, they replaced IBM with the next largest computer firm 
not already in the S&P: Commodore.) In one day, albeit a record day, 
IBM's price rise of $5.38 per share added $3.28 billion market value (June 
20. 1984). Even within the 500 largest companies of which IBM is the 
lai^est. the smallest. Eagle-Picher, has a market value of about $220 mil- 
lion. l/320th of IBM. 

The barred stocks tend to be so large — IBM, Exxon. GM. GE. Citicorp, 
etc. — that of all 5,000 stocks in the broadest index (Wilshire's), even the 
limited blacklist of 229 firms accounts for 35% of total market value. If cme 
tried to build a South Africa-free index of 500 stocks, replacing each barred 
stock in the S&P 500 with the next largest similar stock not already in the 
S&P 500, then at least 152 stocks with an aggregate market value of $554 
billion (end-1983). would be replaced by 152 stocks aggregating $107 
billion. The average market value of the barred stocks is $3.64 billion — for 
the alternates, $0.70 billion. The two largest restricted stocks, IBM and 
Exx(Mi, are worth as much as all 844 issues on the American Stock Ex- 
change. The 12 largest restricted stocks are worth as much as all 3,812 
NASDAQ over-the-counter issues. 

The best way to grasp how much investment power is lost by absolute 



''Bui see Wagner, n. 36 supra. 

"See discussion at 111 B. 1, above. The 47% Rgure is Wilshiie Associates' based on values 
a[ end-November, 19M. The data in this Section B are from Wagner, supra a. 24 and frocn 
Trinity Investment Management. lupra n. 26 and infra n, 45. 



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divestment is to use an analogy suggested by Trinity Investment Manage- 
ment/' dte finn managing just under $10 million of Michigan State U.'s 
$4S-million Soudi Aftica-ficc endowment. Think of the universe of avail- 
able stocks like a deck of cards . Rank all stocks into 1 3 categories of market 
value, like the 13 different cards. Every institutional investOT gets S2 cards, 
except the South Africa-free funds which give up at least a third of the 
market value. Such a fund must play with only 30-35 cards against the other 
funds holding 52 cards. Worse yet, the SA-frce fund has given up a dispro- 
portionate number of the big stocks or powerful cards: the S A-free deck of 
30-35 cards lacks at least two aces, two kings, two queens, and two jacks. 
Willing to play that way? 
Consider c(Hicretely what opportunity costs can mean: 
If we lunit our review to the 27 largest stocks barred — all Aces or Kings 
in our poker anology — we see these opportunity costs: 



Calendar 1979 




CalcFidar 19S0 




Standard Oil 


+ 111.2% 


Rockwell 


+ 96. 7» 


Mobil Coip. 


+ 70.4 


Texaco 


+ 74.5 


Phiilips Pet. 


+ 58.6 


StandaidOil 


+ 71.2 


Rodiwell 


+43.4 


Exxon 


+ 58.2 


Dow ClKinical 


+ 37.4 


Eastman 


+ 52.9 



Caltndar 1981 




Calendar 1982 




American Home 


+ 40.8 


Ford Motor 


+ 132.1 


J&Johnson 


+ 14.1 


Hewlett Packard 


+ 85.2 


American Express 


+ 13.6 


IBM 


+ 77.9 


Bristol Myers 


+ 12.6 


General Elec. 


+ 73.3 


Coca Cola 


+ 12.5 


General Motors 


+ 72.1 



Calendar 1983 




1984. through 7131 




Ford Motor 


+ 65.4 


Coca Cola 


+ 41.1 


Rockwell 


+ 60.0 


Bristol Myers 


+ 10.2 


DuPont 


+ 52.8 


Boeing 


+ 9.0 


Exxon 


+ 37.3 


Exxon 


+ 7.0 


Dow Chemical 


+ 36.3 


American Home 


+ 3.3 



''investment lnq>licatiofl$ of South Africa Divestiture (Oci. 1984), "The P(riLer Analogy." at 



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"Clearly, these are important winners — not only because they ouQ>er- 
formed the S&P 500 so much in each of these six time periods, but also 
because they are all in the top 50 stocks in terms of maricet capitaliza- 
tion and/or average daily trading. 

"To argue that the loss of the oppcxtunity to buy and sell such big 
stocks — Aces and Kings in our poker analogy — will not inhibit perfor- 
mance simply doesn't make sense."'^ 

Cost 2: Less iitformation is available on the remaining stocks. Having 
lost so many of the biggest stocks, the portfolio is inescapably fuller of 
smaller stocks, which simply are not researched by as many analysts. The 
152 baned S&P stocks were the subjects of an average 19.9 earnings 
estimates by broker-dealers; the 152 replacements were covered, on aver- 
age, by 10.9 estimates. Having fewer estimates means greater difficulty in 
relying on research &om the brokers normally selected for their good execu- 
tions, since special efforts will have to be made to use firms providing the 
scarcer research. It also means the research is probably less reliable. These 
factors raise only transaction costs, but those too are real. One authority 
estimates that these research costs might triple normal costs. "^ 

Cost 3: The portfolio is riskier because it is more dependent on smaller 
stocks. Generally, the larger the company the lower the risk, in two senses: 
First, a greater proportion of small companies go bankrupt. Second, smaller 
stocks tend to be far more volatile, which means the holder is at risk of the 
price being quite depressed before he can carry out a decision to sell, or 
quite inflated before he can buy enough. Of course there are stable smaller 
stocks and risky larger ones, but the generalization holds. Again, the two 
firms that are running SA-free funds and, being professionals rather than 
advocates, have measured the difference in risk levels, show significantly 
higher risk for the SA-free portfolio compared to the S&P 500. Michigan 
State U.'s South Africa-free investment manager found 16% greater risk in 
that firm's "SAP Universe" compared to the S&P (as of Febiuary 1983, 
looking back over the years 1975-82). But that "SAP Universe" earned only 
a thin margin more than the S&P. 15.4% versus 14.9% (average annual),'** 
The District of Columbia's South Africa-free index manager found 8% 
more risk as of June 1984, plus 3% more diversification risk plus unquanti- 
fiable further strategic risk (see below. Cost 4). 

True, a diverse portfolio of higher risk stocks should produce higher 
fctiims, a "risk premium." Otherwise, no one would ever venture beyond 
the blue chq>s. But will the premium compensate for the risk assumed? And 
is the higher risk level prudent? The D.C. Retirement Fund has been 



"Trinity, jupra a. 45, at 12. 
"Trinity, supra n. 26, u S, 9. 



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advised, its index manager testified, that its ri^ level in SA-free securities 
is such that it may need to consida changing other investments, i.e., to 
lower the total poitfolio's risk level by holding more utility stocks or bonds 
or short-term Treasury securities. Such lower-return holdings wipe out the 
risk premium &om the small stocks and, considering the experienced supe- 
riority of stocks over fixed-income investments and similar superiority of 
growth stocks over utihties, the portfolio will almost surely suHer weaker 
overall returns dian without absolute divestment. 

Remember, 1% more returns means 10-13% more pension benefits or a 
related drop in costs, etc. 

Cost 4: The portfolio is riskier also because it is much less diverse. If you 
have a crystal ball, you don't want to bother with diversification — as Will 
Rogers would say, just buy the stocks that are going up. But if you lack a 
crystal ball, the prudent way to cope with the uncertain future is to diversify. 
Consider the majcv maricet sectors, and how many of them and how much of 
each the SA-free fund cannot buy (using market value of the S&P 500 
slocks in each group as of June 1984)'. 



Industrial equipment 
Banks 

Hiolography 

Chemicals 

Drugs 



99% Conglomerates 

97% Office equipment 

93% Autos 

87% Int'l oils 
87% 



85% 
84% 
85% 
76% 



Again risk rises, sharply. Wilshire Associates found that in addition to 
the 8% rise in market risk because of the dependency on smaller stocks, 
there was 3% more diversificalicm risk, plus — 

strategic risks dut ate more difficult to quantify. For example, during late 1983 and 
eariy 1984. Ibe only sector lo show positive price appieciation was Eneigy. Energy 
stocki, bowever, are heavily affected by divestiture restrictions. Divestiture thus leads 
lo an iiic(Miq)leIe exposuie lo opportunities. The result is a diversification loss beyond 
the manager's conlnil and a risk liai must be bome by Itie fund. 

As a matter of law, recently a British judge held it imprudent for the 
National Coal Mineworkers' Pension Fund to avoid, as the union trustees 
insisted, further investing in oil or overseas:^^ 

[T]be broad econonuc arguments of the [union tnistees] provide no justiScation for the 
restriclkias that Ihey wish lo impose. Any possible benefits &om in^)osing the reslric- 
tions dut would accrue to Ihc benebcjaries under the scheme (as distinct from the 
general public) are far too speculative and remote. Large though the fund is, J cannot 



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see bow ihe adoption of Ok restrictions can nuke any material impact on the national 
economy, orbring any appreciable benefillo the beneficiaiiesundeitbe scheme. ... In 
any case, the question is one of excluding a very targe sector of Ihe market, and 
preventing diveisilicalion into investments in other countries which may do well at a 
lime when the British market is depiessed; and 1 can see no possible benelil In such an 
excluskm, especially in the case of a very large fund with highly skilled investment 

Cost 5: Smaller slocks have less liquidity. This is a negative double- 
whammy. Because smaller stocks are more volatile, investors want to be 
able to move quickly, certainly if events call for selling but also when trying 
to accumulate a position. However, precisely because these stocks are 
smaller and draw much less institutional interest, their normal trading vol- 
ume is even smaller compared to the big stocks than their relative market 
capitalization. Recall, for example, that IBM is worth about 320 times as 
much as the 500th largest company, Eagle-Picher. But IBM's average daily 
trading volume is $155,000,000 and Eagle-Picher's is $100,000: IBM 
trades over / ,550 times as much. Even if one structured a South Africa-free 
portfolio with as big stocks as possible, as was done hypothetically for New 
Jersey's pension fund, the median number of days needed to sell out a 
holding rose from ITforthecuirent portfolio to 5 1 or 3 1 , depending on the 
hypothetical chosen. Comparing the most illiquid holding that fund has to 
what it hypothetically would have, the maximum days needed to buy a 
position rose from 172 to 3,160.**^ 

The rise in trading costs — not merely the minor matter of commissions, 
but the major matter of market impacts — according to an analysis of actual 
trades by a Wells Fargo officer,^' would rise by one-quarter for a small fund 
{$3.8miIlion— from 0.8% of price, to 1.0%), by one-half for a middle-size 
fund ($38 million — from 1.0% of price to 1.5%), and over three-fifths for a 
large fund ($380 million: from 2.3% of price, to 3.7%). Those trading cost 
rises are believed to be understated for an active manager operating a SA- 
firee fund, since the thin markets in those stocks are likely to react especially 
sharply to orders from a firm with a good performance record and with a 
reputation accordingly. 

Cosl 6. Managing the portfolio will cost more. The portfolio will have to 
be managed separately. This may mean merely an extra management fee 
(because of the information costs and unique attention required), but it may 
mean finding a new manager. For example, when the University of Wiscon- 
sin endowment adopted total divestment, the major firm managing that fund 
refused to continue. Even if a fund doesn't have to go through the delay and 
cost of finding a willing manager (and though a survey for the D.C. Retire- 



'"Ttinity. supra n. 45, at 20. 

^'Loeb, Trading Costs: The Critical Link Between Investment Infonnalion and Results. 
Fin'l. Anal. J. (May-June l983):reliedupon. adjusted tothe figures in text above for buys or 
sells instead of "round-trips." by Wagner, supra n. 24, at 17-18, 

S8 

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ment Board found half of the manageis surveyed saying they would not 
accept such an assignment, of course many willing managers are bound to 
emerge), a great many managers use investment approaches that could rtot 
be employed for a portfolio barring so many major investment of^xjrtuni- 
ties. Inability to use a significant proportion of good management firms and 
standard investment styles — Wil shire estimates 31%of management styles 
or managers — may itself prove costly in lost opportunity, even if this is not 
readily quantified.^^ 

Last, Cost 7: How hold the fiduciaries accountable? All the above costs 
and risks and uncertainties, are certain. If after divestment the fund does 
poorly or. to use the more pertinent measure, does less well than funds of 
similar size and nature, how would one decide whether that is the fault of the 
divestment or poor management? Given the high trading costs . it is artificial 
to measure an actively managed South Afnca-free portfolio against a South 
Africa-hree index. Then use only passively managed, i.e., indexed invest- 
ing? In some markets, active management will be vastly superior, in some 
not. Over the long run, we have no data on how a divested index would do. 
Isn't thai in itself a preclusive degree of uncertainty for any prudent 
fiduciary? 

Given such evidence, blunderbuss divesting seems good only for mas- 
ochists and soap-box simplifiers. What of divesting only non-signatories of 
the Sullivan Principles, or signatories with lower-tier compliance ratings? 
If, like Connecticut, the barred companies are those below the top two 
compliance ratings, flien only 15% of the S&P 500 is lost, compared to the 
47% that absolute divestment bars.^' However. Nebraska's barring all but 
top-compliance firms makes a striking difference. Nebraska loses almost all 
drug firms as well as, this year. Ford and GE et at. ^ In short. Nebraska's 



'^Wagner, supra n, 24, at 19. 

Emergence of willing managers is in process. Pensions & InvesUnenl Age. Social resiric- 
tions make new maikets for adviseis. Dec. 10. 19S4. p. 24. 

Note that the investment implications analyzed bere focus almiKt exclusively on equities. 
Impact on cash equivalents was noted. Wagner, supra n. 36; and Ibe severe impact on bonds is 
also treated in Wagner, supra n. 24. at 19. The New leisey Investment Council has calculated 
that because so much of the corporate bond mariut would be baited, U.S. Government 
securities would have lobe used much moie. leading to a loss of about S2.5 million annually 
ioi each $1 billion in a bond portfolio. 

'^Valtucion by Wilshire Associates using data as of end- November, I9S4. 

*'As stressed by Arthur D, Little Inc.. compliance monitor for the Sullivan Principles, it is 
vtTOOg and possibly unfair to judge a company on a single year's rating as distinct From its 
pattern over several years. Economic circumstances external to a firm may cause changes 
relative to other firms in other industries. For example, both Ford and GM were top-category 
compliers before the October I9S4 Report. Tlte lop two categories aic both "passing." For 
fairness and also in light of concern for a fund's manageability and investment implications, 
not only is Nebraska's narrowness imprudent, but any fimd that makes deieiminalive distinc- 
Ikms between the different categories of compliance should be less rigidty mechanical than 
Nebnska and Connecticut, and should allow some evaluation case by case. 



50-TZO O— 85— 



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line is more prudent dian total divestment, but Nebraska public employees 
and taxpayeis will bear a substantial burden for going as far as their statute 
does, and given the ine^ectiveness of their step, here again is plain 
imprudence. 

The prudent fiduciary will adopt an ap[»oach like Harvard's or perhaps 
Connecticut's. 

C. The Sullivan Principles 

Four times since their beginning in 1977, the Principles have been ampli- 
fied from six brief statements to 36 more specific goals concretizing the 
Principles, and two additional commitments. The Principles are: 



hinciple 2 — Equal and Fair Eniployment Practices for All Employees; 

Piinciple 3 — Equal Pay for All Employees Doing Equal or Comparable Work for the 
Same Period of Time; 

Principle 4 — Initiation and Development of Training ftogrems that Will Prepare 
Blacks, Coloureds, and Asians in Substantial Numbers f(« Supervisory, Administra- 
tive. Clerical, and Technical Jobs; 

Principles — IncieasingtheNumberof Blacks, Coloureds, and Asians in Management 

and Supervisray Positions: 

ftinciple frr-In^roving the Quality of Employees' Lives Outside the Work Envinin- 
meni in Such Areas as Housing, Transportation. Schooling. Recreation, and Health 

(The full current PritKiples, working objectives and additional commit- 
ments appear in an Appendix to this paper.) 

U.S. corporate signatories total 1 28 as of October 1984, down from 148 
two years earlier because 29 were dropped in 1983, but the total number of 
companies reporting has not droiq)ed. Six of the 29 dropped have been 
reinstated and a few new. ones added. 

The program began with 12 majtu' firms including Control Data, Ford, 
GM, IBM and Union Carbide. Reverend Leon Sullivan, pastor of Philadel- 
phia's Zion Baptist Church since 19S0 and a leader in the civil rights 
movement, in 1971 becamediefirstblackonGM'sBoard. There, from the 
outset he argued that GM should widxlraw from South Africa. But in 1975 
in South Africa, he was urged — particularly by black union leaders — lo 
advocate not withdrawal but rather marshalling dte resoiut:es of U.S. and 
other multinationals "into true forces for change 

Ii had been talked about, but ttever genuiiKly tried. After deep reflectioD and nuidt 
prayer, I decided to make nich an efioR, deqnte the overwhelming oddt againu in 



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success Penuadiiigkaikn of UScompuiieiU} accept tbcqifnachwu^frofn 

easy . I embuked on a lobbying cniMde which requited two yean of exiensive travel 
and numcims meetings. On Match I, l971.de5pi(ettK tefiual of many companies lo 
become involved, the initial StatemeniofhiDciples. signed by llnMJorU.S. conqw- 
nies. was annouDced." 

Today, the signatories employ 65,000. about 74% of the workforce of 
U.S. companies in South Africa. In addition, the consortium of 10 South 
African-owned firms woricing toward the same goals since 1979, employ 
far greater numbers such as Barlow Rand's over 750.000. There are also 
Eiut^iean and Canadian codes but the European firms, mostly British, lag 
behind the Sullivan signatories and their "progress is miserably slow. Japa- 
nese companies are doing even less than the Europeans."'^ 

What the Sullivan signatories have accomplished, and how much they 
have stepped up their efforts, is detailed in the next section. Reverend 
Sullivan is neither patient nor willing to settle for yesterday's goals. In the 
beginning in 1977, there were merely the six Principles and an effort to 
expand the number of signatories — no reporting, no compliance rating. 
Annual reporting was begun despite the failure of Sullivan's effort to secure 
aid from foundations: the signatories were assessed (SI.OOO to S7.000 a 
year, depending on amount of worldwide sales). Since 1978, Arthur D. 
Little, Inc. annually evaluates the signatories' progress, based on question- 
naires which since 1982 are verified in designated parts by each firm's 
certified outside accountants. The latest questionnaire was SS pages; many 
signatories must submit separate questionnaires for separate subsidiaries. 
The original lack of compliance ratings was replaced first by three catego- 
ries, then more; now there are 10. The annual evaluations involve both 
quantitative and qualitative points; the maximum possible is 60 — I984's top 
compiler received 52. 

Each year, new requirements have been added. In 1983, for the first time 
a number of signatories — 29 of the then-total 148 — were dropped , partly for 
failure to repmt (nine never had), partly for failure to pay the assessments, 



''Sulliviin. Agents for Change: The Mobilization of Muliinational Companies in South 
Africa. 15 Law. & Pol. Int'l. Bus. 427, 428 9 (1983). This section tests on that source: on 
Communicuioas Task Gtoup of the Sullivan Signatmy Companies, Meeting flie Mandate for 
Change ( 19S4); on Eighth Report, supra n. 23; and on the testimony of Sullivan Principles 
Administrator Daniel Pumcll 'm Associated Siudenu itfihe Univ. i^Orrgonv. Oregon Invest- 
ment Council. Lane County Circuit Court. Nov. 30. 1984. 

'*Sullivan, id. at 435. 

In Janiiary 1985, six South African employer groups Issued a statement challenging the 
Goveniment's racial segregation policies. The groups said that the private sector is committed 
to pushing tor six major political and economic changes, including "meaningfiil political 
participation for Blacks." These employers, representing about 80% of the country's workcn, 
include the Afiikaanse Handelsinslltut made up of Afrikaner business executives and relied on 
heavily by the governing National Party. Wall Street Journal. Employers Assail Racial Separa- 
tion in South Africa, Ian. 9, I9B5. p. 31. 



61 

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partly for unsatisfactory progress. None of the 29 had been in the top two 
categories in the preceding two years. 

In 1984, for the firet time the signatories are called upon to deal more 
directly with laws and customs impeding social and political justice: 

Increased Dimensions of Activities Outside the Workplace 

• Use influence and support the unrestricted rights of Black businesses to locate in the 
urban areas of the nation. 

■ Influence otlter companies in South Africa to follow the standards of equal rights 
principles. 

• Support the freedom of mobility of Black workers to seek employment opportunities 
wherever they exist, and make possible provisions for adequate housing for families 
of employees within the proximity of woriKis' employment. 

• Support the ending of all apartheid laws. 

In 1983, the Ninth Report on compliance will decrease attention on goals 
that have been accomplished in order to focus on new objectives, concen- 
trating especially on areas of greatest need, "particularly those on which the 
companies can have a considerable impact in the stimulation of social 
change."*' 

SuUivan wTites:>^ 

Critics admonish that the Principles are not the solution to the South African contro- 
versy, artd ] wholeheartedly agree. Many thnists are needed if a solution is ever to 
come. The Mnciplesareontyone . . . 1 plead for a hall to bank loans and new corporate 
investment, until political equality for blacks is realized. It must nevertheless be argued 
that the Principles have bad some influence favoring political change, and that they will 
continue to do so. Help a person gain economic rights and you will foster gains in his 
political rights. Equality at the workplace and massive education programs for black 
and non-white workers ultimately will affect every aspect of their lives, public and 
private. . . . Simply put. theevidencereveals that the Principles are aconduit from the 
workplace through which the workers learn to address broader societal issues. Includ- 
ing political rights. . . . 

The Pnnciples are not an academic response designed to advance the views of those 
who are proponents of cither investment or divestment. To the contrary, the Principles 
are a pragmatic policy, based upon the most judicious engagement of available re- 
sources, and are intended to improve the quality of lite, to help bring justice to 
unliberated people, and to help build a peaceful, fxe South Africa for everyone. The 
ultimate purpose of the EhiiKiples is to contribute toward the elimination of apartheid. 
The enormous resoim:es artd influence of U.S. companies present a ciitica) mass whkh 
can have a profound catalytic effect favoring fundamental change In South Afiica. With 
the help of Almighty God. I still believe attainment of these goals is possible. 

D. The morality of divestment 

Even if the costs and risks are high, and even if there is also almost no 
likelihood of blunderbuss divestment's accomplishing anything, still it is 



^'Eighth EUpoit, supra a. 23, at 4. 
"Supra n. 55. at 44l>443. 



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defended on the ground dut it is the only moral position. It is neither the 
tmly moral one nor even moral. 

First, there is the deepest difficulty in predicting which route is more 
likely tobring the changes we all seek — cither responsible presence in 
South Africa, specifically including educating, training and promoting 
blacks, or the other route, simple withdrawal. Very few of us have the 
competence to judge that, and even persons with great knowledge of South 
Africa and of history can only speculate more knowledgeably. Remember 
that when Hitler took power in 1933. the German Communists rejoiced 
because soon the situation would come apart and they would lake power. 
Soon they were dead. 

Given the difficulty of predicting which route is more likely to produce 
constructive change, certainly it is high error and high arrogance to label 
"immoral" responsible involvement with South Africa. In such uncertainty, 
neither route toward change can be called immoral. 

Second, there is no evidence that divestment has had any impact at all. 
Consider in contrast what the Sullivan signatories have already 
accomphshcd:'' 

1. End ofalldiscriminaikin in all faciodesand on all company property, by 
all signaiories. 

2. Equal pay for equal woik. by all signalories. 

3. Minimum wages "well above the appropdale local mialmum economic 
living level" paid by all but three signaiories. 

4. Instead of only hourly wages for blacks, all signatories have common 
medical, pension and insurance plans. 

5. Substantially higher pay increases for black employees than for white, 
every year from 1979 to 1983. 

6. Blacks in signatories' supervisory and management categories: 21. 2% in 
19S3. upfrom 16.7% in 1979 although down ftompre-recession 19SI's 
figure of 2S.2%. 

7. In 19S3. 6.942 blacks in signatories' training programs, upfrom 19S2's 
5,544. Anodier 14,585 in their job advancement training, up from 
1979's 4.221. Another 35,523 in scholarship and tuition refimd pro- 
grams, up from 1979's 5.077. And spent on education and training for 
black non-employees in 1983, $2,805,468 for 22,154 people, up from 
19S2's $2,194,146 for 21.841 people. 

8. Total contributions by signatories to educational and training programs 
for blacks. $13,278,000 in 1983, up from 1978-9's $2,740,000. 

9. Total contributions outside the busioess to inqxove health care and 
living conditions, $4,098,600. 

10. Total contributions — education/tiaining, health/ welfare, and black en- 
trepteneuiship, $22,418,000 in 1983, up from $3,632,000 in 1978. 

1 1 . "Adoption" by signatories of 200 schools, up fntm 96 in 1980 although 
down in dollars. 

12. Similar Eun^an and Canadian codes adopted and three South African 
company codes. In 1979, Kl South African companies, led by Barlow 



'^SuUivan signatories' results are drawn from sources in n. 55. supra. 



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lUocI (over 750,000 employMS) and including anoiher mijor conglom- 
eiBte. fonnedaconsoitium for similar action. A number of Iheir member 
companies, all South African-owned, are recognizing "uniegisteied" 
tabor unions as well as registered (mks. an unprecedented step among 
such companies. 
13. Efforts in Weston Europe and South Afijca 10 enlist more companies in 
dK codes. 

Given such results, it is even more certainly wrong to call responsible 
involvement immoral, and even more [»t>bable that this route is the more 
moral because more effective and demonstrably life-enhancing. 

Third, since it is wrong to discriminate on bases that ignore irKrit, ab- 
solute divestment is inmxnal. Kellogg was die first fonign — not just U.S. — 
company to recognize and bargain with a black union. ^ Ford was the first 
foreign company to promote blacks to be shop stewards. Control Data is a 
way-out-front leader in education, including the most modem skills.^' 
Another U.S. firm was the first to bring about desegregated housing. Sulli- 
van signatories have ended discrimination on company property and some 
have gotten desegrated housing into use. (Sometimes imaginative manage- 
ment is amazing. One factory supervisor, ordered to end segregated dining 
rooms, tore down the wall between them but immediately replaced it with a 
complete trellis and planted thick ivy covering the trellis. Soon he thinned 
the ivy, soon after let it wither, and soon after that he removed the trellis.) 

Are such companies the same as Boeing, which will not sign the Sullivan 
Principles, or Baker Intemational, which was dropped as a signatory and is 
on record that its only obligations are to its stockholders and customers? Is it 
moral to ignore the difference between those who care and try, and those 
who do not? New Jersey's Assembly Speaker Alan Karcher dismisses the 



'"Lane Kiildand declared "aiding South A&ican unions the most elective means of promot- 
ing equality." And the head of South A&ica's largest black labor federation, Pbirosaw Camay, 
said the most effective way to piessuie South Africa to end apaitheid is a can^iaign of 
"selective divestment." He "noted that unions within his country are divided on stnlegy. with 
some advocating total disinvestment, some opposing it. and others saying it should be aimed 
only at linns abusing worfceis." Both speakers addressed a strategy conference on labw in 
South Africa sponsored by AFL-CIO African-American Labor Center and the A. Philip 
Randcdpb Educational Fund. Washington Post, Ljibor Urged to Pressure South Africa, Jan. II, 
I9S5, p. A13. 

"ConiiDl Data's Chainnan William C. Nonis sent most state pension investment ofhceis in 
December 1983 his p^jer on "South Africa: A Case fyc Selective Investment," detailing 
CtMiIrot Data's efforts. They also ran full-page ads in South Africa, e.g.: 

"Elia* Mudau should have been an engineer. He had talent. ... At the age of 10, Elias 

designed a bicycle. Now he rides one. 

"Elias represents a tragedy— not just for himself, but for South Africa. . . . 

"Omtrot Data is meeting the need for training and education with PLATO. This is a 

con^wler-based training system, developed by an intemalioDal team of educationalists, and 

used in more than 20 countries atound the world. . , 

"Call Ron Mukdge ... or write to CtMitrol Data HQ . . . Sandtoo ..." 



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difference, saying tfie Sullivan Principles remind him of the sign over dw 
entry to Nazi concentration camps: "Woik Will Set You Free." Would such 
a viewer also see no difference between Eichman and Ike, since both 
ivesided over killing? 

Fourth, is it immcKal or only hypocritical to divest but. as a Michigan 
university did, then assure a divested company (Dow Chemical, a Michigan 
firm which raised the question after being divested) diat its annual contribu- 
dons were still entirely welcome? 

Is it moral to treat South Africa as the only serious problem? Anyone who 
has discussed divestment knows the ritual arguments about Libya, USSR, 
Amin's Uganda, Ethiopia, etc. But, it is said. South Africa is unique 
because it enshrines racism in law. Regrettably, many countries do. Liber- 
ia, for example , a country with special ties to the U. S . . allows only blacks to 
be citizens, only citizens to own land, etc. 

Last, absolute divestment is immoral because it certainly risks, and 
almost certainly inflicts, injury on people who may depend on a pension 
fund's doing well, or who are students relying significantly on an endow- 
ment — people whose interest is enshrined in trust obligation. Advocating 
the diversion of funds in trust for the advancement of education or retire- 
ment security is wrong. Inflicliiig financial loss on the people for whose 
benefit the funds were established in reliance on fiduciary faidifulness is 
abuse of trust. 

What is right? The most careful exploration we have, by the Rockefeller 
Commission, made three recommendations: First, no new investtiKnt. Sec- 
ond, major giving for social development by companies involved in South 
Africa. Third, the Sullivan Principles. That is, we must "keep saying to the 
companies, we must do more, more, more ... we must move faster, faster, 
faster. . . ."^^ If ultimately dialog fails because of corporate disregard for 
this terrible problem, then divest. We should join efforts like the one (led by 
President Bok) that now has 300 nonwhite South Africans in U.S. universi- 
ties. We should join efforts to make sure our own Government is not 
passive. 

All that is harder work than blunderbuss divestment. The moral prudent 
person will meet the challenge. 

E. A postscript on the conslilutionalily of absolute divestment: Are stale 
and local funds adopting it violating the Commerce Clause and exclu- 
sively Federal responsibility for foreign affairs? 

A Congressional Research Service analysis in January 1984^ presents 
die constitutional questions raised by absolute divestment. I am confident 



"Rev. Sullivan to the signatories, Nov, 9, 1983. 

"Eig. Analysis of Whether the DC, South Africa Investment Act Violates the Conunerce 
Clause and the Exclusive Federal Power Id Conduct Foreign Relations (Am, Law Div, , Ian. 
31. 1984). 



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that a statute like Massachusetts' would be held invalid if subjected to a 
properly framed lawsuit. 

States can regulate interstate commerce to promote such local interests as 
health and safety, and sometimes even local economic interests, so long as 
no federal interest stands in the way. The question is whether the state 
statute, on balance, promotes legitimate local concerns without interfering 
(or interfering unduly) with national concerns. Absolute divestment does 
not promote local economic concerns, since it does not reflect concern for 
the stability of the investments: it singles out one nation's possible instabil- 
ity, ignores all other potentially unstable nations and all other types of 
investment risk, and ignores the extent to which a company wouM be 
a^ected even if its South African investment were lost. Absolute divest- 
ment statutes or practices are not as defensible as nondiscriminatory laws 
barring state agencies and funds from supporting racial discrimination, 
because it applies to corporate involvement in a specified nation regardless 
of discrimination elsewhere and regardless of the corporation's actual 
conduct. 

When it is foreign commerce that a slate's action affects, there is a greater 
burden on the state in the balancing between local and national interests. 

Absolute divestment statutes or practices are vulnerable first because 
their purpose involves the affairs of another nation and our foreign relations 
with that nation and with other interested nations. Purpose is a recognized 
factor given weight in the balancing.^ Second, if many or even several 
jurisdictions passed such statutes, there would be a significant impact on 
interstate commerce at least because of securities transactions; and if the 
divestment had its intended effect even on one corporation, clearly there 
would be an impact on foreign commerce. Third, the diversity of ap- 
proaches to divestment (see section 111. B. 2. above) is inconsistent with the 
national interest' in uniform regulation of commerce. Fourth, the prolifera- 
tion of targets of divestment — South Africa of course, but also Namibia 
(Boston and the Oregon endowment), Zimbabwe (the Oregon endowment), 
Iran (Connecticut) and Northern Ireland (Massachusetts on military in- 
volvement there and New Yoric City's pending ban against firms discrimin- 
. ating against Catholics there) — is both inconsistent with national 
uniformity, and highlights the extent to which these efforts reflect not local 
concerns but varying viewsof what our foreign policy should be. FifUi and 
last, various Federal statutes — the 1976 Act curbing arms sales; action that 
has been taken under the 1979 Export Administration Act; and special 
treatment of Expon-Import Bank aid for some South Africa-involved trade 
and investment — indicate Federal regulation of the subject probably pre- 
empting the field even if no other factors were present. 

The exclusive Federal power to conduct foreign relations has been held to 

''See eg.. ZstAemig v. UaUr. 389 U.S. 429, 437-8. 442 (1968). 



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bar even state statutes reflecting greater local interests and less impact cm 
fweign nations (or on our relations with them) than absolute divestment. 
The leading case, Zsckemig v. hSilUr of 1968,** struck down an Oreg<m 
statute requiring its probate courts, before allowing inheritance by someone 
abroad — essentially, in Russia and its satellites — to find that U.S. citiz^is 
would be able to inherit from an estate in that legatee's country, and that that 
country would not confiscate the inheritance going to the legatee there. 
While the Court's tests raise the usual questions of just where lies the line, 
absolute divestment falls on the wrong side. The state interest in probate is 
traditionally recognized, but the state interest in changing a foreign nation's 
practices is nil. The impact (mi a foreign nation if an occasional individual 
there may be denied a legacy,^ is tiny or less. The impact on a foreign 
nation from an effcHt to sever American economic involvement widi it is 
potentially massive. And the impact on the Federal Government's ability to 
conduct foreign relations if state governments are also trying to affect them 
is clear. Further, the interest in not allowing a state to provoke retaliation 
firom abroad — e.g., cutting off our platinum, chrome, etc. — is obviously a 
national interest thattnust be controlled at the federal level. 

Note that absolute divestment focuses on South Africa itself, while C(hi- 
necticut's more prudent course focuses on the conduct of the particular 
corporations. Here, then, in the constitutional vulnerability of absolute 
divestment, is yet another indication of its inferiority to steps like 
Connecticut's. 

V. A WORD ON FOUNDATIONS, CHURCHES AND CHARITIES. 
AND ENDOWMENTS 

In the context of divergent investing, few words need be added about 
these funds. 

Foundations, whose total assets are about S47 billion, are hard to general- 
ize about. Many have purposes sufficiently defined that the label "diver- 
gent" remains applicable. Some repose a broader authority in their trustees 
so that it is wrong to say that the pursuit of any new goals via investing 
would be "divergence." To the extent that a foundation has a defined goal or 
range of goals, e.g., promotion of education or the environment, then the 
considerations pertinent to divergent investments by pension funds are 
essentially applicable. To the extent that a foundation's goals are more 
loose-knit, the only caution concerns the efficiency and effectiveness of 
pursuing non-financial goals by choice of investments. Pax World's mutual 



''The Coun in Zschtrnig expressly noted how minor and incidental was the impact on 
foreign nations, but still beld the statute invalid. And this was in the face of an amicus brief 
from ttw Depanment of Justice defending the state statute. 



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fund (above, section 11) is an example of well-intentioned inventing that 
advances one advisory finn more than anything else — if anything else. 
More significantly, the Ford Foundation built up substantial experience 
showing that the most effective route is investing to maximize the funds 
available to pursue desired goals, and then pursuing those goals by direct 
support. Need more be said? 

Churches and other charitable organizations are, for these purposes, 
substantially similar to foundations, witii one important difference . Founda- 
tions' board membership tends to be more stable than those other organiza- 
tions' boards. The more new trustees, the more need to re-educate about 
investing, prudent or otherwise — and the more likelihood of year-in, year- 
out discussions of which non-financial goals to pursue and how to pursue 
them. That in itself seems an argument for investing for strictly financial 
goals and pursuing non-financial goals with the enhanced means made 
available by prudent investing (subject of course to the non-injurious over- 
lay of considerations like no alcohol-tobacco or no blatant law-breakers). 

University endowments, with about $30 billion, are unique. No one has 
treated this matter as fully as Harvard's President Bok.^^ An informal and 
incomplete statement of his position is that "A university should in a way 
compatible with its mission try to make a constructive effort to solve the 
problems of the world" instead of relying on "negative ineffective ways like 
fiddling around in stock. "^ Under a program Bok began and now chairs, 
160 non-white South Africans were in American universities in 1983-84, up 
from six in the year the program began , 1 979-80 (a similar number is here in 
a companion program). Those 160 are here for four-year undergraduate 
degrees, some for master's degrees. They are selected by a bi-racia) com- 
mittee in South AMca, headed by Bishop Tutu. 

A fuller statement of Bok's view that universities arc different in crucial 
ways is to be found in his article reprinted in this monograph; see especially 
pages 100-102. 



VI. CONCLUSION 

Institutional investors' assets are huge, with pension funds making the 
others seem tiny. But these assets are not, as Gary Trudeau put it, "just 
sitting there." Pension liabilities dwarf the assets, and the protection of 
retirement security — or the endowments' goal of advancing education and 
the foundations' varied goals — are all not only socially responsible but truly 



*'Supra, n. 37. 

**Htfvard Crimson, Tht Bok AlienuUive, p. F-S. 



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noble endeavOTS. How well those objectives are met depends in large 
measure on the investment pcrfonnance of their funds. ^ 

The varied efforts to divert these funds from their crucially impwtant 
goals, whether to [MDmote local investing or avoid investing abroad, or to 
promote a special clearly desirable social goal like environmental improve- 
ment or small business or low-income housing, or to discourage cleaily 
undersirable conduct like sustained and substantial violation of law or 
uncaring aad irresponsible involvement in South Africa, come from a vari- 
ety of motivations. Some advocates of divergent investing arc as well- 
intentioned as people can be, although almost none of those advocates even 
think ^XMit the goals they may be interfering with, and even fewer have the 
patience to consider the investment implications of their effort. Other advo- 
c^es may or may not be so well-intentioned, but knowingly put their own 
goals ahead of the social and legal trust obligation to use other people's 
ntoney only for the noble purposes for which the fiind was created. Such 
struggle among competing noble goals is natural in a pluralist society. But 
there are also some advocates who (sad to say) are usually the most power- 
ful of the divergent pressures on these funds — particularly on public pen- 
sion funds — who use the facade of helping housing or in-state development 
to enrich their own firms or their power in politics or in a union, and perhaps 
their campaign coffers as well. 

Confusion, let alone deception, about precisely what is really being 
advocated usually can be averted only by following Sergeant Friday's 
practice of getting the facts. If a particular divergent investment or policy 
will not injure the fund and does not reflect merely the personal view of the 
trustees, then objection to going forward is either foolishly narrow-minded 
(asif decisions must be exclusively financial) or else plain foolish. But that 
"if is a crucial one. Too often the only investment aspect considered is the 
likely returns, sometimes measuring them relative to inappropriate com- 
parisons, more often ignoring the other essential aspects of returns: relative 
risk, relative liquidity, and implementati<Mi costs. 

Without the persistence to bring out the facts and the patience for full 
analysis, the legal and moral obligation to abide by the trust power over 
other people's money and interests will not be hcmored. Hcmoring that 



^o improve the inveslmenl performance of such funds, which do not all do as well as they 
should and are not as accountable as Ihey should be, involves several problems that stilt need 
vioA. See, e.g., my efforts (as task force chairman, editor and pan author) in Twentieth 
Centuiy Fund. Abuse on Wall Stieei: Conflicts of Interest in the Securities Mailtets(19S0): and 
my Should Pension Funds be Used lo Achieve "Social" Goals. I l9Trusts & Estates IO(Sept .), 
27 (Oct.) and 26 (Nov.) (1980); Why Mutual Funds are Top Performers (Client as Culprit). 
E>ensions & Investment Age, July 20, 1981 . at 13 and editorial at 10: Why Have Pension Funds 
Perftnmed So Poorly? (unpubli^ed talk. May 1982); Picking Inveslmenl Managers, Pensions 
& Investments. Apr. 24, 1978, at 61 and editorials at S; Govenunenl Finance Officers Ass'n, 
Resources in Eteview; New Directions in Investment and Control of Pension Funds, July 1984. 
p. 20 and id., New Data on Pension Funds. Sept. 1984. p. 22 Oiook reviews). 



69 

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obligation takes some knowledge and some woik. When the challenge is 
increased by having to fend off soap-box simplifiers, well-intentioned or 
not, it also takes savvy, durability and even courage. Generations of experi- 
ence of countless faithfiil and prudent fiduciaries doing their best to meet 
their obligations make clear dial the challenge will be met. 



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The Sullivan Principles 

Statement of Principles 

of U.S. Finns with Affiliates 

In the 

Republic of South Africa 

PRINCIPLE I: Non-Segregation of the races in all eating . comfort and work 

facilities 

Each signalor of the Sutement of Principles will proceed immediately to: 

• Eliminate all vestiges of racial discrimination. 

• Remove all race designation signs. 

• Desegregate all eating, comfort and work facilities. 

PRINCIPLE II: Equal and fair employment practices for all employees 
Each signator of the Statement of Principles will proceed immediately to: 

• Implement equal and fair tenns and conditions of employment. 

• Provide non-discriminatory eligibility for benefit plans. 

• Establish an appropriate and comprehensive procedure for handling 
and resolving individual employee complaints. 

• Support the elimination of all industrial racial discriminatory laws 
which impede the implementation of equal and fair tenns and condi- 
tions of employment, such as abolition of job reservations, job frag- 
mentation, and apprenticeship restrictions for Blacks and other non- 
whites. 

• Suppod the elimination of discrimination against the rights of Blacks 
to form or belong to government registered and unregistered unions 
and acknowledge generally the rights of Blacks to fonn their own 
unions or be represented by trade unions which already exist. 

• Secure rights of Black workers to the freedom of association and assure 
protection against victimization while pursuing and after attaining 
these rights. 

• Involve Black workers or their representatives in the development of 
programs that address their educational and other needs and those of 
their independents and the local community. 



PRINCIPLE III: Equal pay for all employees doing equal or comparable 

work for the same period of lime 

Each signator of the Statement of Principles will proceed inunediately to: 
• Design and implement and wage and salary administration plan which 
is applied equally to all employees, regaixUess of race, who are per- 
forming equal or comparable work. 



71 
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• Ensure an equitable system of job classifications, including a review of 
the distinction between hourly and salaried classifications. 

• Determine the extent upgrading of personnel and/or jobs in the upper 
echelons is needed, and accordingly implement programs to acc(»n- 
plish this objective in representative numbers, insuring the employ- 
ment of Blacks and other non-whites at all levels of company 
operations. 

• Assign equitable wage and salary ranges, the minimum of these to be 
well above the appropriate local minimum economic living level. 

PRINCIPLE IV: Iniiiaiion of and development of training programs thai 
will prepare, in substantial numbers. Blacks and other non-whites for 
supervisory, administrative clerical and technical jobs. 
Each signator of the Statement of Principles will proceed immediately to: 

• Determine employee training needs and capabilities, and identify em- 
ployees with potential for further advancement. 

• Take advantage of existing outside training resources and activities, 
such as exchange programs, technical colleges, and similar institutions 
or programs. 

• Support the development of outside training facilities, individually or 
collectively — including technical centers, professional training expo- 
sure, c(»Tespondence and extension courses, as appropriate, for exten- 
sive training outreach. 

• Initiate and expand inside training programs and facilities. 

PRINCIPLE V: Increasing the number of Blacks and other non-whites in 

management and supervisory positions. 

Each signator of the Statement of Principles will proceed immediately to: 

• Identify, actively recruit, train and develop a sufficient and significant 
number of Blacks and other non-whites to assure thai as quickly as 
possible there will be appropriate representation of Blacks and other 
non-whites in the management group of each company at all levels of 
operations. 

• Establish management development programs for Blacks and odier 
non-whites, as needed, and improve existing programs and facilities 
for developing management skills of Blacks and other non-whiles. 

• Identify and channel high management potential Blacks and other non- 
white employees into management development programs. 

PRINCIPLE VI: Improving the quality cf employees' lives outside the work 
environment in such areas as housing, transportation, schooling, recrea- 
tion and health facilities 
Each signator of the Statement of Principles will proceed immediately to: 

• Evaluate existing and/or develop programs, as appropriate, to address 

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the specific needs of Black and other non-white employees in the areas 
of housing, health care, transportation and recreation. 

• Evaluate methods for utilizing existing, expanded or newly established 
in-house medical facilities or other medical jxxigrams to improve medi- 
cal care for all non-whites and their dependents. 

• Participate in the development of programs that address the educational 
needs of employees, their dependents, and the local community. Both 
individual and collective programs should be considered, in addition to 
technical education, including such activities as literacy education, 
business training, direct assistance to local schools, contributions and 
scholarships. 

• Support changes in influx control laws to provide for the right of Black 
migrant workers to normal family life. 

• Increase utilization of and assist in the development of Black and other 
DOD- white owned and operated business enterprises including distribu- 
tors, suppliers of goods and services and manufacturers. 

Increased Dimensions of Activities Outside the Workplace 

• Use influence and support the unrestricted rights of Black businesses to 
locate in the Urban areas of the nation. 

• Influence other companies in South Africa to follow the standards of 
equal rights principles. 

• Support the freedom of mobility of Black workers to seek employment 
opportunities wherever they exist, and make possible provisions for 
adequate housing for families of employees within the proximity of 
workers employment. 

• Support the recension of all apartheid laws. 

With all the foregoing in mind, it is the objective of the companies to 
involve and assist in the education and training of large and telling numbers 
of Blacks and other non-whites as quickly as possible. The ultimate impact 
of this effort is intended to be of massive proportion, reaching and helping 
millions. 

Periodic Reporting 

The Signatory Companies of the Statement of Principles will proceed im- 
mediately to: 

• Report progress on an annual basis to Reverend Sullivan through the 
independent administrative unit he has established, 

• Have all areas specified by Reverend Sullivan audited by a certified 
public accounting finn. 

• Inform all employees of the company's annual periodic, report rating 
and invite their input on ways to improve the rating. 

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TEXT OUTLINE 



1. Intitxliiction 

n. Conclusion 

in. Hw Constitutional Anay . 

IV. Paiticipant or Regulator . . 

V. Intcmtue CcHnmcFce 

VI. Foreign Commerce 

VII. Foreign Relations 

Vm. Final Word 



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DISINVESTMENT— THE 

CONSTITUTIONAL 

QUESTION 

by Albert P. Blaustein* 

I. INTRODUCTION 

In justifiabte outrage against patterns of human rights violations through- 
out the world, American states, cities, universities and both public and 
private funds are now engaged in the process of disinvestment' from hims 
doing business in the offending nations. 

At year's end 1984, at least half of the states of the United States (plus the 
EHstrict of Columbia) had introduced legislation compelling South African 
disinvestment^ — and such laws had been enacted in Connecticut, Mary- 
land, Massachusetts. Michigan and Nebraska. In addition. New York City, 
Boston, Philadelphia and possibly another dozen or so major municipalities 
had passed ordinances to that effect — "with officials in Chicago, Detroit, 
Los Angeles and Seattle apparently contemplating comparable moves. "^ 

Nor is South Africa the only target. Disinvestment laws and ordinances 
have been enacted with regard to the Soviet Union (Michigan), Iran (Con- 
necticut), Northern Ireland (Massachusetts), Namibia (Boston and Oregon 
endowments) and Zimbabwe (Oregon endowment). Poland is a secondary 
target in proposed legislation in Kansas, and Massachusetts is considering 
the addition of Sri Lanka to its prohibitions. 

Whether disinvestment will achieve its human rights objectives — or, 
indeed, be counterproductive — is discussed elsewhere in this volume. Ditto 

'In this contexl, the word "disinvestmenl" is used interchangeably with the tenns -divest- 
ment" and "divestiture." Technically speaking, however, "'disinvestment' moiE correctly 
ai^lies to Che act of withdrawing money that has jnrviously been invested [while] 'dlvestmenl' 
applies to the more active procedure of ridding oneself of something, including certain stoclu 
in a portfolio." Chettle. Tlie Law itkI Polky of Divestment of South African Stock, 15 Law 
and Policy in Int'l Bus. 445 (19S3). n. I. 

^The April. I9S4, Lcgutoive [/pjarr of the American L«^slative Exchange Council ^port- 
ed on more Chan 66 South African disinvestment bills pending in 22 states. Legislative action in 
26 states and the DistiicC of Columbia is compiled in Appendix 11 of the New Jersey Public 
Hearings before the Assembly State Government. CivLI Service, Elections, Pensions, and 
Veteran's Affairs Committee on Assembly Bills 1308 and 1309. held in Trenton, N.J.. 
September 24, 1984. (Slate Actions on Legislation Conceming Divestment of State Funds in 
the Republic of South Africa, i^. 72s-77x.) 

'Olson, Introduciion to this volume, p. vii and n. 1. 

•Chaitman and President. Human Rights Advocates International; Professor of Law, 
Rutgers University School of Law — Camden . The research contribution of Rutgers law student 
Patricia E. Larkin is gratefrilly acknowledged. 



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the inevitable cost and potential hann to affected beneficiaries. The conflict 
between disinvestment legislation and laws prescribing the obligations and 
duties of trustees is likewise analyzed elsewhere. Nor will this chapter 
review the validity of disinvestment statutes, (»dinances and activities un- 
der the state constitutions. 

The broad question under consideration here is the constitutionality of 
disinvestment laws, in general,^ under the Constitution of the United States. 

II. CONCLUSION 

Disinvestment laws are of such doubtful constitutionality that legal coun- 
sel shotild presently advise against their passage and, where enacted, cau- 
tion against their enforcement. 

Such conclusion is not predicated upon professional theory or law review 
commentary, although neither can be excised from the thinking on the 
subject. The unconstitutionality argument is real. It has been raised. And as 
long as it remains unresolved, disinvestment activities are better consigned 
to the proverbial back burner. 

Here is a compendium (with comments) on the uncertain status of the 
constitutionality of disinvestment taws: 

I . The unconstitutionality arguments have been publicly advanced — and 
well publicized. 

a. Undoubtedly the most scholarly statement is that of Prof. Gordon 
B. Baldwin of the University of Wisconsin Law School, based on his 
analysis of the Wisconsin disinvestment statute.' This is incorporated in a 
student note in the Wisconsin Law Review.^ 

b. The most comprehensive study is that of Larry M. Eig, which was 
prepared for the Congressional Research Service (CRS) of the Library of 
Congress.^ This is predicated upon the District of Columbia Act and is 
included in the 19S4 Congressional hearings on resolutions to "reject" 
that act." 

'Likewise not under consideniion are possible consiituiional disabiliiies based on the 
differences between the various disinvestmenl statutes. The Conneclicul, Massachusetts and 
Netnaska statutes, for example, deal with state pension funds, Che Maryland statute is con- 
cerned with bank deposits and the Michigan statute with university endowments. See. Scbot- 
land. p. 4g. 

'Wis. Slat. 1136.29(1) (1975). 

^ote. Constitutionality of the No Discrimination Clause Regulating University of Wiscon- 
sin Investments, 197S Wis. L. Rev. 1059. authored by Kevin Wade Guynn. 

'Analysis of Whether the District of Columbia South Africa Investment Act (D.C. Act S-76) 
Violates the Commerce Clause of the Constitution and the Exclusive Federal Power to Conduct 
Foreign Relations. Congressional Research Service , The Library of Congress, Jan, 31. 1984. 
Prepared by Larry M. Eig. Legislative Attoiney. American L.aw Division. 

'South Alrica Divestment. Hearings and Markups before the Subcommitiee on Fiscal 
Affairs and Health of the Committee on the District of Columbia. House of Representatives. 
98tbCong.. 2d Sess. onH. Con. Res. 216 and H. Res. 372. Ser. No. 9S-14, Jan. 31 and Feb. 
7, 1984, pp. 72-107. These resolutions were, ■To reject the District of Columbia Act 5-76 to 
Prohibit the Investment ofD.C. Funds in Financial Institutions and Companies Making Loans 
to or Doing Business with the Republic of South Africa or Namibia." 

76 

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c. Ceitainly the most publicized is the article by John H. Chettle on 

"The Law and Policy of Divestment of South African Stock."^ Mr. 

Chettle is the Director, North and South America, of the South Africa 

Foundation. 

None of these three studies is conclusive. As aptly pointed out in a 
memorandum by the Washington Council of Lawyers on the District of 
Columbia Act "... the CRS Memorandum never actually concludes that the 
South African Investment Act is unconstitutional — it only states that such 
argument could be made.""* (Whether a CRS memorandum could or should 
resound more coaclusively is another type of question; this one did not.) 

The Chettle statement is overly brief. It does present the major arguments 
and does list the major precedents, but it wants of adequate analysis. And 
the memorandum of the distinguished Professor Baldwin has three infirmi- 
ties: (a) its public presentation has been filtered through the law review 
editing process on its way to publication; (b) its arguments could be distin- 
guished as being solely applicable to the Wisconsin statute and the Wiscon- 
sin facts; and (c) it was written back in 1977, prior to some important 
Supreme Couri decisions which some think controlling and at least essential 
to analyzing the issue. These are discussed below under the heading, "Par- 
ticipmt or Regulator,"" 

2. Opinions of attorneys general and other government counsel are in 
shon supply. Letters requesting their views — officially or unofficially — 
were sent by this author to all fifty of the state attorneys general on January 
!1, I98S, but no responses of any significance were received.'^ 

On the public record are the following — either noncommital, inconclu- 
sive or sketchy, but recognizing and acknowledging constitutional 
problems: 

a. Now being widely circuited is a U.S. Department of Justice letter 

of January 4, 1984,'^ containing (and sustaining) this sentence: "The 

question you pose is a novel one for which no direct precedent seems to 

be available." While the letter states and restates the point that the 



"15 Law ind Policy in Im'l Bus. 445 ( 1983). Pages 51S lo 525 are devoted loXomlJlulional 

"^Tbe Washington Council of Lawyers Memorandum, also referred 10 as the memoranduni 
from the Lawyers Committee on Civil Riglits. was submitted "in concert" with tlie prestigious 
Washington law hnn of Arnold and Porter. Supra, Note 8. at 239-42 

"See in/ra, pp. 80-84 and accompanying notes. 

'^From Wisconsin came the 1978 Depanmeni of Justice opinion letter directed to the 
president of the University of Wisconsin system, supra n. 14; and from Iowa came the 1984 
govemtn's veto message, infra n. 89. Nebraska reported that it had done some research but 
"have not at this time issued any formal opinion of the subject." One attorney general said thai 
it was against the policy of his office to respond to such inquiries. The other half-dozen 
re^xMises said that the question had not aiisen. 

"Letter from U.S. Depaitment of Justice, Office of Legal Counsel. Office of die Deputy 
Assistant Attorney General, signed Etobeit B. Shanks, to Ms. Kathleen Teague, Executive 
Director, American Legislative Exclunge Council, 418 C Sueet, N.E., Washington. D.C. 
20002, January 4. 1984. 



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Department is not authorized to provide legal opinions or legal advice 
save to the president and heads of executive departments, it does provide 
(in its own phrase) "a few general observations." And such observations 
suggest a number of constitutional "arguments." 

b. Two opinions were rendered by the Wisconsin attorney general in 
1977 and 1978, but these are likewise inconclusive and of little value as 
precedent. And they have a cloudy history.'^ While they sustain the 
constitutionality of the Wisconsin disinvestment law, they rest largely on 
the proposition that "the statute will not place an unlawful burden on 
interstate commerce since the percentage of total dollars in interstate 
commerce that is controlled by the Board of Regents is so small. "'^ 

c. The bestreasoned governmental (or quasi-governmental) statement 
is the one submitted as the position of the District of Columbia at the 
January 1984 Congressional Hearings on the District's disinvestment 
act.'^ This was the memorandum of the Washington Council of Law- 
yers. '^ And while it is a thoughtful summary, it must be classiHed a brief 
(four-page) adversary document, responding to the Congressional Re- 
search Service analysis.'^ It is not and is not meant to be an opinion 
sustainingconstitutionality. 

d. T^e "opinion" of Michigan's attomey general is in a document of 
advocacy (a brief) in current litigation. See point 3. 

3. The matter is before the courts, and a precedent on point is expected. 
Cross motions for summary judgment on the constitutionality issues sur- 
rounding disinvestment have been submitted to the Michigan Circuit 
Court'^ and it is wise for legal counsel to await their resolution. 
As explained in the University of Michigan brief: 

"By enacting 1982 PA 512, the Michigan Legislature, amended the 
[State] Civil Rights Act. . .to prohibit public educational institutions 
from making or maintaining after April 1 , 1 984, equity or stock invest- 
ments in organizations operating in the Republic of South Afri- 
ca. . . [or] in the Union of Soviet Socialist Repubics. . . . The Regents 
seek a declaratory judgment that Act 5 1 2 violates both the Michigan 
and United States Constitutions. "^° 



'*T}k Wisconsin atlomey general construed the statute twice. The tirsl lime was in an 
informal opinion submitted to the secretary of the Board of Regents on May 19, 1977. The 
attonteygeneral was subsequently requested to "reconsider his opinion in light of the constitu- 
tional questions raised by Professor Baldwin's memorandum." The second construction was in 
the formal opinion submitted to the President of the University of Wisconsin System oa 
Januaiy 31. 1978. 67 Wis. Op. Atty Gen. (1978) Supra, note 6. at 1061-62 

"Id. at 1062. 

"Supra, note 8. 

"Supra, note 10, 

"Supra, note 7, 

"TheRcgentsoftheUDlversity of Michigan V. The State of Michigan. In the Circuit Court 
for the County of Ingham, Michigan. File No. 83-50309-C2. 

^ricf of the Regents of Ibe Univerwly of Michigan, pp. 1-2. (Footnotes omitted.) 

78 

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287 



There is also current lidgadon in Oregon^' but the court decided in a 
rtiling on December 4, 1984, diat it "did not find it necessary to reach. . .the 
constitutional issue." However, the court pointed out that such issue was 
"preserved for the record . . . (and) it can be urged on the Appellate Court 
and they [sic] may find it dispositive."^^ As of this writing findings of fact 
and conclusions of law were still awaited. 

Resolution of the constitutional uncertainties is a laudable goal — for 
everyone included on all sides of the disinvestment question. It cannot be 
done via any opinion of an attorney general— hio matter how well reas(Hied 
and how divorced from the inevitable charges that it is "political." And there 
is no point in the preparation of fifty such opinions, plus the opinions of 
municipal counsel. The wheel needs not reinvention. 

Iliere is also ample reason for the nation as a whole to await the outcome 
in one or a few jurisdictions. In the oft-quoted words of Justice Brandeis: 
"It is one of the happy incidents of the federal system that a single 

courageous State may, if its citizens choose, serve as a laboratory; and 

try novel social and econmnic experiments without risk to the rest of 

the country."^' 

Admittedly, this approach gives small solace to those who see in disin- 
vestment a means to combat human rights violations in South Africa, the 
Soviet Union, Iran, Zimbabwe, e(c. How long will it take (for example) for 
the Michigan trial court to reach a decision? How long it will take for the 
completion of the inevitable appeals! 

But the disinvestment supporters would seem to have no alternative. 
Laws on disinvestment are probably unconstitutional and are at the very 
least of questionable constitutionality. 

Ill THE CONSTITUTIONAL ARRAY 

Involved here is the tension between the Tenth Amendment on one hand 
and the Commerce Clause and the conduct of foreign relations on the other. 
Involved here is the Supremacy Clause and the doctrine of federal 
preemption. 

On its face, a divestment statute is constitutional since it involves "fiscal 
management of state funds, a function which is not specifically delegated to 
the federal government by the United States Constitution."^'* This conforms 
to the dictate of the Tenth Amendment: "The powers not delegated to the 



^'Associated Students of the University of Oregon el al. v . Oregon Investment Council el al . 
In the Circuit Court of ttie State of Oregon for the County ot Lane. Case No. 7S-7S02. 

^%u1ing of the Hon. George J. Woodrich. Tuesday. December 4. I9S4. Transcript of 
proceedings by the Official Court Reporter, p. 5. 

'^Dissenting in New State Ice Co. v. Liebmann. 285 U.S. 262. 311 (I932>. Justice Holmes 
expressed similar views, referring to "social experiments ... in the insulated cttambers 
afforded by the several stales. Dissenting in Truax V. Ccnrigan. 257 U.S. 312. 344. 

"Supra, note 6. at 1060. 



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United States by die Constitutioa, Dor prohibited by it to the States, are 
reserved to the States respectively, or to the people." 

But this power is not unlimited. Suite discretion and state conduct, 
pursuant to the Supremacy Clause,^' is unconstitutional when it conflicts 
with the Commerce Clause. It is Congress which has been given the power 
'To regulate Commerce with foreign Nations, and amtmg the several 
States, and with the Indian Tribcs."^^ 

Disinvestment laws may also run afoul of the Privileges and Immunities 
Clause: "The Citizens of each State shall be entitled to all Privileges and 
Immunities of Citizens in the several States."^' 

Nor may the state interfere with the federal foreign relations power. All 
agree that there are inherent limitations upon the power of states in matters 
of foreign affairs that go beyond the Commerce Clause. 

IV. PARTICIPANT OR REGULATOR 

Whether the enactment of a disinvestment law is an exercise of state 
sovereignty protected by the Tenth Amendment is not easy to answer. But 
whatever the ultimate conclusion, the threshold determinant is whether the 
state is acting as a participant (in a proprietary capacity) or as a regulator 
{in a governmental capacity).^* 

The black letter law is that state and local govemments are not restrained 
by the Commerce Clause when they engage in commercial transactions as 
mailiet participants rather than as regulators. Regardless of the burden on 
interstate commerce (so the theory runs) the market participant is immune 
from the Commerce Clause. Indeed, the Commerce Clause is not even 
implicated. The participant is investing its own market funds: it is spending 
its own money. This is not the business of the federal government. 

This is all very new law. It sounds strange to ears (and years) attuned to 
Gibbons v. Ogden^^ and its myriad progeny, interpreting the Commerce 
Clause broadly and expansively. The new cases give credence and credibil- 
ity to the Tenth Amendment; they give new recognition to dual federalism. 
But do they cover the issue at hand? Are disinvestment laws proprietary, 
representing only the acts of panicipants? Is there immunity from interstate 



"An. vi, cl. 2. "This Coiuiitution. and the Laws of the United States which shall be nude in 
Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the 
United Stales, shall tie the supreme Law of the Land; and the Judges in eveiy State shall be 
bound theteby, any Thing in the Constitution or l^ws of any Slate lo the Contiaiy 
ttotwitbstanding." 

"An. I. W. cl. 3. 

"An. IV. 12, 

"Sec Wells and Helletstein, the Governmental -Piopnetaiy Distinction in Constitutional 
Law, 66Va. L. Rev. 1073(1980). "The small body of case law under the commerce clause 
CODsislently hoMs that a state's action in its pFcqnktaiy capacity gives rise lo no constitutional 
objection." At p. 1122. 

*»22 U.S, (9 Wheat.) 1 (1824) See especially 22 U.S. at 34, 



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commerce strictures? Does immunity from the reach of interstate commerce 
apply equally to foreign commerce? Will immunity from the Commerce 
Clause extend to immunity under the Privileges and Immunities Cause? 
And even if the panicipant-regulator distinction is made and disinvestment 
laws arc held to be in the participant-proprietary category for the Commerce 
Clause, may such laws still conflict with the federal government's suprem- 
acy in foreign relations?" 

TIkfc are no cases directly on point. On this all will agree. Likewise, all 
will agree as to the five cases to be parsed in arguing the applicability of 
precedent and judicial thought on this aspect of the constitutionality issue. 
The cases are: (I) Hughes v. Alexandria Scrap Corp., 1976;" (2) National 
League of Cities v. l/sery. 1976;" (3) Reeves. Inc. v. Stake. 1980;" (4) 
White V. Massachusetts Council of Const. Employers, 1983;^'' and (5) 
United Building and Construction Trades Council of Camden County and 
Vicinity v. Mayor and Council of the City of Camden. 1984.^^ 

The seminal case is Hughes v. Alexandria Scrap Corp.^ Its facts, hold- 
ing and essential language are well-stated in the Congressional Research 
Service report:'' 

"There the Supreme Court upheld a Maryluid statute that clearly 
favored in-state businesses in the payment of State bounties to scrap 
processors for each vehicle abandoned in Maryland that they de- 
stroyed. There appeared to be no question diat favoring State Busi- 
nesses in the expenditure of Sutc funds for the bounties had the effect 
of reducing the flow of abandoned car hulks in interstate commerce to 
out-of-state businesses, who could not pay as high a price for the hulks 
because of diRicultics in obtaining Maryland bounties. Nevertheless, 
the Court held that the Commerce Clause did not apply. According to 
the Court. Maryland did not interfcr[e] with the national functioning of 
the interstate market either through prohibition or burdensome regula- 
tion. 426 U.S. at 806. Rather it had entered into the maricel itself as a 
purchaser, in effect, of a potential article of interstate commerce. Id. at 
806, 808. The court concluded that [olothing in the purposes animat- 
ing the Commerce Clause prohibits a State . . . from participating in 
the market and exercising dte right to favor its own citizens over 
others. Wat 810."'* 



'"See F. Fiankfurter. The Commerce Clause Under Marahall, Taney and Waile, at 40 
<I964— tirsi published 1937). 

^'426 U.S. 794(1976), 

"426 U.S. 833(1976), 

"447 U.S. 429 (1980). 

"460 U.S. 204(1983). 

" U.S . 104 S. Cl. 1020 (1984). 

'*426U.S. 794(1976). 

"Supra, n. 7. 

'*Supra, n. 7al 19-20. It is also leprinled in Ihe HouseofRqsreseniatives hearings, supra, 
note 8. U 92-93. 



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National League of Cities v. Usery^^ dealt with amendments to the 
federal Fair Labor Standards Act extending wage and hour provisions to 
almost all employees of Sutes and their political subdivisions. Striking 
down these amendments, the Court held that Congress may not, pursuant to 
die Commerce Clause, "directly displace the State's freedom to structure 
integral operations in areas of traditional governmental functions."^ 

In Reeves v. Stake,'** the Supreme Court (in a 5-4 vote) upheld South 
Dakota's refusal to sell cement produced by a state-operated plant to non- 
South Dakotans. Such preferential treatment of its own citizens was sus- 
tained on the ground that the state was acting in a proprietary capacity. Here 
was the crucial language: 

"(T]be Commerce Clause responds principally lo state taxes and 
regulatory measures impeding free private trade in the marketplace. 
There is no indication of a constitutional plan to limit the ability of the 
states themselves to operate freely in the free market. "^^ 
These cases arc followed in White v . Massachusetts Council (^Construc- 
tion Employers.'*^ There the Court considered the validity of an executive 
order of the Mayor of Boston requiring thai at least 50 percent of all jobs on 
construction projects (funded in whole or in part by city funds) be tilled by 
bona fide city residents. The executive order was held to be "immune from 
scrutiny under the Commerce Clause because Boston was acting as a market 
participant rather than as a market regulator.'"" 

United Bldg. & Const, v. Mayor & Council of Camden*^ dealt with a 
municipal ordinance which required that at least 40 percent of the employ- 
ees of contractors and subcontractors working on city construction projects 
be Camden residents. On the basis of the White'^ case, the Commerce 
Clause challenge to the Camden ordinance was abandoned, but not so the 
contention that the ordinance was a violation of the Privileges and Immuni- 
ties Clause.'*^ Remanding the case for necessary findings of fact, the Court 
came to this conclusion: 

"In sum, Camden may, without fear of violating the Commerce 
Clause, pressure private employers engaged in public works projects 
funded in whole or in part by the city to hire city residents. But that 
same exercise of power to bias the employment decisions of [»ivate 
contractors and subcontractors against out-of-state residents may be 



"426 U.S. 833(1976). 
*'426 U.S. al 852. 
*'447 U.S. 429(1980). 
"447 U.S. ai437, 
"460 U.S. 204(1983). 

''Quoted in United BkJg. & Coiui. v. Mayor & Council of Ci 
Q. al 1025. 

" — U.S . 104 S. a. 1020 (19M). 

*^\tpn, n. 43. 460 U.S. 204 (1983). 
•'U.S. Coiutitutioii. Art. IV, 12. 



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called to account under the Privileges and Immunities Clause."*" 
The Court's reasoning was as follows: 

"Our decision in While turned on a distiiKticm between the city 
acting as a market participant and the city acting as a maiket regulator. 
The question whether employees of contractors and subcontractors on 
public works projects were or were not , in some sense , working for the 
city was crucial to that analysis. The question had to be answered in 
order to chart the boundaries of the distinction. But the distinction 
between market participant md market regulator relied upon in While 
to dispose of the Commerce Clause challenge is not dispositive in this 
context. The two Clauses have different aims and set different stan- 
dards for state conduct. 

"The Commerce Clause acts as an implied restraint upon state regu- 
latory powers. Such powers must give way before the superior author- 
ity of Congress to legislate on (or leave unregulated) matters involving 
interstate commerce. When the State acts solely as a market partici- 
pant, no conflict between state regulation and federal regulatory au- 
thority can arise. . . . The Privileges and Immunities Clause, on the 
other hand, imposes a direct restraint on state action in the interests of 
interstate harmony. . . . This concern with comity cuts across the mar- 
ket regulator-market participant distinction that is crucial under the 
Commerce Clause . It is discrimination against out-of-state residents on 
matters of fundamental concem which triggers the Clause, not regula- 
tion affecting interstate commerce. Thus, the fact that Camden is 
merely setting conditions on its expenditures for goods and services in 
the marketplace does not preclude the possibility that those conditions 
violate the Privileges and Immunities Clause. . . . 

"The fact that Camden is expending its own funds or funds it admin- 
isters in accordance with the terms of a grant is certainly a factor — 
periiaps the crucial factor— to be considered in evaluating whether the 
state's discrimination violates the Privileges and Immunities Clause. 
But it does not remove the Camden ordinance completely from the 
purview of the Clause."*' 

The Privileges and Immunities argument played no part in the Memoran- 
dum of the Washington Council of Lawyers^ or the brief of the State of 
Michigan.' ' Reason; United Bldg. & Cemsi. is of later vintage. But it was 
upon the first four cases that both the memorandum and brief largely based 
their position: that the Commerce Clause simply does not apply because 
disinvestment statutes are proprietary rather than regulatory. Certainly. 



" U.S 104 S. Cl. ai 1029. 

" — U.S 104 S. Ct. ai 1028-1029. 

"Supra, nole 10. 
"Surpa, note 19. 



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whether the promulgation is a tolerable burden on interstate commerce or 
whether the state's interest can be promoted as well with lesser impact on 
interstate activities.^ In other words, only then can the balancing test be 
used. 

The actual words of Pike v. Bruce Church. Inc. bear repetition: "Where 
the statute regulates evenhandedly to effectuate a legitimate local public 
interest, and its effects on interstate commerce are only incidental, it will be 
upheld unless the burden imposed on such commerce is clearly excessive in 
. relation to the putative local benefits . ... If a legitimate local purpose is 
found, then the question becomes one of degree. And the extent of the 
burden that will be tolerated will of course depend on the nature of the local 
interest involved, and on whether it could be promoted as well with a lesser 
impact on interstate actvities. Occasionally the Court has candidly under- 
taken a balancing approach in resolving these issues, . . . but more frequent- 
ly it has spoken in terms of "direct" and "indirect" effects and burdens.^' 
(Citations omitted.) 

Based on these rules/tests/crileria, the disinvestment statutes run afoul of 
the Commerce Clause. Of course, human rights can be deemed a legitimate 
concem of commerce. But are discriminatory practices in South Africa, the 
Soviet Union, Iran, etc., a matter of "local public interest"?^^ 

Nor could it be concluded that the state disinvestment laws have only an 
incidental effect on interstate commerce. Too much money is at stake; 
investment portfolios of state pension funds, universities, etc., are not 
inconsequential. 

Yes, there are cases which can be parsed to extract enough factual 
snippets and sufficient dicta to formulate legal argument. But there is no 
holding which sustains any state action remotely resembling disinvestment. 
And the weight of authority and judicial analogy is on the side of 
unconstitutionality. 

VI. FOREIGN COMMERCE 

What has been said relative to interstate commerce can be said even more 
forcefully in regard to foreign commerce. This was not always so (or may 
not have been always so) — at least up to 1979, and at least by way of dicta. 

For example, the words of Chief Justice Taney: "The power to regulate 
commerce among the several States is granted to Congress in the same 



'This analysis is used in Ibe Univeisily of Michigan brier, supra, noie 20, al 37. See also 
McCarroll. "Socially Responsible Investment of Public Pension Funds: The South Africa Issue 
and Siaie Uw." 10 N.Y.U. Rev. of Uw and Social Change 407. 42S (1980-Sl). 

"'397 U.S. al 142. 

"See Huron Cement Co. v. [)etniit, 362 U.S. 440. 443 (1960) and Soo^Kni Pacific Co. v. 
Arizona. 32S U.S. 761 (I94S) cited with approval in Pike v Brace Church. Inc.. 397 U.S. at 
142. Sec also City of PhilKlelphia V. New Jersey. 437 U.S. 617.623(1978). 



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But South Africa, ff a/, aie (1) not adjuncts of American states or cities; 
(2) disinvestment laws are not in conformity with the laws of the nations 
where disinvestment is being sought; (3) state and city disinvestment laws 
and ordinances do not only affect their own citizens — they affect foreign 
citizens; and (4) since the human rights objectives of American states and 
cities are so different from those of South Africa, the Soviet Union, Iran, 
etc. , our national relations with those nations would necessarily be affected 
by disinvestment laws. 

This is why the 1979 Court in Japan Line. Ltd. took such pains to argue 
that "appellee's reliance" on Bob-Lo is "misplaced" and to conclude that 
Bob-Lo "is consistent with both the analysis and the result" of the latter 
case.''' 

The controversy in Japan Line, Ltd. involved an ad valorem tax that 
California had imposed on the shipping containers of a foreign corporation. 
The State argued that the tax was constitutional since it met the four-fold 
requirements of Complete Auto Transit, Inc. v. Brady." (I) the Containers 
had a "substantial nexus" with California because some of them are |»«sent 
in that stale at all times; (2) the tax was "fairly apportioned" since it was 
levied only on the containers' "average presence" in California; (3) the tax 
did not "discriminate" since it fell "evenhandedly" on all personal property 
in the State; and (4) it was "fairly related to the services provided by" 
California.'*^ 

The Court agreed: "We may assume that, if the containers at issue here 
were inslmmentalities of purely interstate commerce. Complete Auto would 
apply and be satisfied, and our Commerce Clause inquiry would be at an 
end."'' However, "[wjhen construing Congress' power to 'regulate Com- 
merce with foreign Nations,' a more extensive constitutional inquiry is 
required."'^ Again: "Foreign commerce is preeminently a matter of national 
concern. . . . Although the Constitution . . . grants Congress power to 
regulate commerce 'with foreign Nations' and 'among the several States' in 
parallel phrases, there is evidence that the Founders intended the scope of 
the foreign commerce power to be the greater."" 

Then, applying the "additional tests that a tax on foreign commerce must 
satisfy,"^ the Court struck down the California statute. The Court conclud- 
ed that the tax had resulted in "multiple taxation of the instrumentalities of 
foreign commerce" and prevented the "Nation from speaking with one 
voice' in regulating foreign trade."*' 



"441 U,S- at 456. 

"430 US, 274 (1977). 

■^441 U.S. al 445. 

"Ibid. (Emphasis supplied.) 

'•441 U.S. at 446. 

"441 U.S. at 448 (cited cases and fooOioles omilted). 

"441 U.S. at 451. 

"441 U.S. at 431-52. 



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That foreign commerce requires "a more extensive constitutional inqui- 
ry" is (as noted earlier)*^ reaffimied in the important participant-regulator 
case of Reeves v. Stake: "We have no occasion to explore the limits imposed 
on state proprietary actions by the foreign commerce Clause. . . . We note, 
however, that Commerce Clause scrutiny may well be more rigorous when 
a restraint on foreign commerce is alleged. "^^ 

It could be and has been argued that Japan Line, Ltd. "is inopposite 
because it involved a state taxation scheme which is clearly regulatory, not 
proprietary, in nature."** Some court in the future, ruling on the constitu- 
tionality of disinvestment laws might distinguish Japan Line, Lid. and so 
conclude. But it is certainly not clear! On the contrary, it is extremely 
doubtful. 

In support of the proprietary nature of disinvestment laws is the conten- 
tion that such statutes are facially valid since they do not deal directly with 
foreign commerce. The State is only determining the criteria for the securi- 
ties which it purchases with its own funds. In doing so, it is not intruding 
upon the federal government in the area or breaching federal statutes or 
treaties, or influencing trade with any foreign country. 

There is, however, a narrow reading of the word "regulate," and the 
Supreme Court has never had it so. it was more that 1 SO years ago that Court 
decided Brown v. Maryland,^^ holding that a state license fee on importers 
was an unconstitutional regulation of foreign commerce. The lesson of that 
case and its progeny is aptly summed up in the Congressional Research 
Service Report in this language: "The Supreme Court also has made clear 
thai the power to regulate foreign commerce includes not only the control of 
the terms and conditions of passage of items of commerce (e.g.. capital, 
securities, financial obligations, services, and goods) between the United 
States and foreign countries, but also the control of the terms and conditions 
of the domestic markets for foreign items of commerce that Congress has 
allowed into this country."** 

Disinvestment laws inevitably work to the detriment of American hrms 
having investments in the proscribed countries; and disinvestment laws 
inevitably work to the detriment of commerce with those countries. It is not 
stretching analysis to conclude that such laws are regulating commerce; artd 
it does not require an expansive reading of Brown v. Maryland (or the 
myriad other cases on the subject) to reach the conclusion that such laws are 
unconstitutional. 

State and municipal disinvestment enactments can also prevent "this 
Nation from 'speaking with one voice' in regulating foreign trade."'^ At 

''Supra, p. 84. 

•»447 U.S. 429. 438 n. 9 (1980). 

**Supn, note 10: supra, note 8 at 241. (Emphasis supi^ied.) 

•"12 Wheal. (25 U.S.) 419 (1827). 

*^upn. note 7 at IS; see supra, note 8 al 88. 

"Japan Line. Ltd. v. County of Los Angeles. 441 U.S. 434. 4S2 (1979). 



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least five states and more than a dozen cities have such laws;^^ the vast 
majority do not. Iowa's governor vetoed such legislation in May, 1984.^^ 

In addition there exists a conflict or possible conflict with federal legisla- 
tion restricting trade with these proscribed nations. And to the extent that 
such conflict may exist, it involves federal preemption pursuant to the 
Supremacy Clause as well as the Commerce Clause. This is discussed 
beginning at page 30 under Foreign Relations. 

Military expons to South Africa, for example, have been prohibited by 
the federal government since 1964, in compliance with a voluntary arms 
embargoestablishedbythe United Nations. Such ban was made mandatory 
in 1977 and in 1978 the U.S. E)epartment of Commerce prohibited all 
exports to that country "that the exporter knows or has reason to know are 
destined for use by the South African military or police."^ 

Such restrictions, according to a commentary in the American Journal of 
Intemalion Law, "are not simply a response by the U.S. Government to an 
international mandate. They also serve the recognized foreign policy pur- 
pose of firmly disassociating the United States from the apartheid policies of 
the South African regime. ... At the same time, however, the fact that the 
U.S. Government has not gone so far as to adopt more expensive trade 
restrictions is recognition of the importance of U.S. commercial interests in 
South Africa."" 

An America where the federal government has one set of laws on trade 
exports and its states and cities have a variety of other laws on the subject is 
not "speaking with one voice" in regulating foreign commerce. 

VII. FOREIGN RELATIONS 

Even if some court at some time might impose the participant-regulator 
role as a ban to unconstitutionality in the foreign commerce context, disin- 
vestment enactments would still have to pass the hurdle of federal govern- 
ment supremacy in the conduct of foreign relations. 

Here is some of the Supreme Court language on this point: "That the 
supremacy of the national power in the general field of foreign affairs ... is 
made clear by the Constitution, was pointed out by the authors of The 



Supra, notes 3 and 4. 

"Message of Iowa Governor Teny E, Branstad lo the Secreury of Stale. May 19, 1984. 
disapproving disinvcsUnenI provisions in House File 252 1 . The vela was nol based on consiini- 
lioful considerations bul ralher the Governor's position thai disinvestmenl would be counler- 
productivc. "Instead of Ihe negative approach reflected in House File 2S21. 1 believe we would 
benetil blacks in South Africa far moie with a positive effoit lo achieve racial equality. This 
can best be accomplished, not by divesting our ability toexercise influence, but by capitalizing 
on it." (At p. 4.) 

''Mehinian, Milch and Toumanoff. "United Stales Restrictions on Exports to South Afri- 
ca." 73 Am. J. Infl. L. 581 (1979). 

"Ibid. 



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Federalist in 1787, and has since been given continuous recognition by this 
Court."" 

Also oft-qu(Ked is this statement of Justice Frankfurter "Although there 
is in the Constitution no specific grant to Congress of power to enact 
legislation for the effective regulation of foreign affairs, there can be no 
doubt of the existence of this power in the law-making organ of the Nation. 
. . . The States that joined together to forni a single Nation and to create, 
through the Constitution, a Federal Government to conduct the affairs of 
diat Nation must be held to have granted that Government the powers 
indispensable to its functioning effectively in the company of soveriegn 
nations."*' 

The oft-ciled opinion of Hints v. Davidowin** involved a conflict be- 
' tween a-slate alien registration law and a federal statute covering the sante 
subject. The oft-ciied opinion of {/mV«(/5AJ(«s v. PinJfc^ involved a conflict 
between a New York judicial decree refiising to honor a Soviet claim to 
assets of a nationalized Russian company and an Executive Agreement 
which had recognized die right of the Soviet Union to nationalized property. 

But while these and similar cases have been cited as authority for the 
unconstitutionality of disinvestment laws, they are readily distinguishable. 
As the Congressional Research Service report concclly points out, "because 
of the conflicts between explicit federal and State authorities in these cases, 
the results in them perhaps may be explained as much by the Supremacy 
Clause as by any inherent inability of the States to act in any maimer 
affecting foreign affairs."^ 

But what of the situation where — as can be argued in the disinvestment 
controversy — there is no conflicting exercise of federal power. The answer 
turns on interpretations of the 1968 decision in Zschemig v . Miller,^ which 
has emerged as the single most important case on the constitutionality issue. 

As Professor Louis Henkin has pointed out, the Supreme Court had long 
found limitations on state regulation or taxation of foreign commerce im- 
plied in the Commerce Clause. "The Court never asked whether such state 
actions might run afoul also of some larger principle limiting the States in 
matters that relate to foreign affairs."^ "tl]t was never suggested that [state 
actions] might run afoul of an implicit constitutional limitation barring state 
impingement on the federal domain of foreign relations even when the 



*^Hines v. Davidowitz, 312 U.S. 52. 62 (1941). (FooOwte references amilted.) 

"^Perez v. Brownell. 356 U.S. 44. 56 (195S). While this esse wu later overruled by 
Afroyim v. Rusk. 387 U.S. 2S3 (1967). neilher the disscnl in Pcicz nor the overruling ina}ority 
in Aftoyim questioned the validity of the Frankfurter formulatioii. 

"Supra, note 92. 

"313 U.S. 203 (1M2). 

''Supra, note 7 at 28; see supra, note 8 at 101. 

"389 0.5.429(1968). 

''L. Henkin. Foreign A^its aod the Constitution (1972), at 238. (Emphasis supplied.) 



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federal government had not acted."^ However, ProfesstM-Henkin explains, 
this was before 1968 and the Zschernig case. He continued: "Such a larger 
principle — how large is yet to be determined — has now become part of the 
Constitution.""" 

In Zschernig, the Supreme Court was interpreting a so-called "Iron Cur- 
tain Act." The Court invalidated an Oregon statute which provided for 
escheat in cases where a non-resident alien heir or legatee claimed property 
in Oregon unless such beneficiary could (1) establish that his country would 
permit United States citizens to receive monies from an estate in his country 
on a reciprocal basis and (2) that his country would permit him to receive 
proceeds "without confiscation." Admittedly, there was an absence of any 
"relevant exercise of federal power" and "no basis for deriving any prohibi- 
tion by 'interpretation' of the silence of Congress and the President. The 
Court tells us that the Constitution itself excludes such state intrusions even 
when the federal branches have not acted. ""^' 

On its face, Zschernig covers disinvestment enactments. Certainly it 
provides precedent for arguing and sustaining unconstitutionality. And this 
is further supported by Justice E)ouglas' language: "As one reads the Oregon 
decisions, it seems that foreign policy attitudes, the freezing or thawing of 
the cold war, and the like are the real desiderata. Yet they of course are 
matters for the Federal Government, not for local probate court.""*^ 

The statute was found to represent the "kind of state involvement in 
foreign affairs and international relations" which involve "matters which the 
Constitution entrusts solely to the Federal Government.""*^ Again: "The 
statute as construed seems to make unavoidable judicial criticism of nations 
established on a more authoritarian basis than our own.""*^ Finally: "The 
Oregon law does, indeed, illustrate the dangers which are involved if each 
State ... is permitted to establish its own foreign policy. ""** 

Certainly disinvestment laws manifest "criticism of nations established 
on a more authoritarian basis than our own." Certainly, they are expressions 
of foreign policy. Examine, for example, some of the language of the 
Connecticut enactment, "Sec. 3-13g. Investments in corporations doing 
business in Iran. The state treasurer shall review the major investment 
policies of the state for purposes of ensuring that state funds are not invested 
in any corporation engaged in any form of business in Iran which could be 
considered to be contrary to the foreign policy or national interests of the 



""387 U.S. U 437-38. 
'"'387 U.S. U 436. 
">*387 U.S. •! 440. 
'"»387U.S. «I44I. 



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United Stales, particulariy in respect to the release of all American hostages 
held in Iran.""* 

But does Zschermg go so far as to hold that statutes critica] of the policies 
of a foreign nation are unconstitutional per sel Is the per se argument 
strengthened in light of a finding of unconstitudonatity despite the Justice 
Depaftment brief as amicus curiae stating that it "does not . . . contend that 
the af^licatitm of the Oregon escheat statute in the circumstances of this 
case unduly interferes with the United States' conduct of foreign 
affairs"?"" 

Answers will not be found innstudying opinion"'" which at this writing 
is more than sixteen years old, nor by second-guessing the case commen- 
taries. '"^ The Zschemig analysis does not etid with Zschermg. 

Of course there are numerous decisions which have applied tlOsZschermg 
rationale, particularly in New York. But, whether the facts of such cases are 
dispositive of the constitutionality of disinvestment laws is questionable. In 
one case, the New York Court of Appeals held unconstitutional the triplica- 
tion of an anti-discriminative ordinance which would have haired the New 
York Times from publishing advertisements for employment in South Afri- 
ca. ' '" While none of these advertisements referred to race or racial discrimi- 
nation, the New York City Commission on Human Rights coiKluded that 
because South Africa mandated apartheid that the advertisements were 
autoniiUically violative of the ordinance. 

Another New Yoric case saw an attempt by a state agency to apply its slate 
civil rights laws to the South African Airways (owned by the Republic of 
South Africa) and to the South African consulate in respect to its visa 
granting practices . The Supreme Court in New York County issued a writ of 
prohibition, asserting that "[fjoreign policy is a federal concern, not amena- 
ble to state action."'" 

The most important post-Zschernig case, however, was the 1977 New 
Jersey Supreme Court decision"^ upholding the state's "Buy American" 
Act. In sustaining a law requiring use in government purchase contracts of 
materials produced in the United States, reliance was placed on the propri- 



"*Coiin. ch. 32. 1l3-13g, P.A. 80431, S. 3. 4 (1980). 

■"'387 U.S. u 460. 

'"'Opinion of the Court by Justice Douglas, concurring opinion of Justice Stewan. joined by 
Justice Brennan, concurring opinicMi by Justice Hanlan and dissenting opinion by Justice 
White. 

'""Sec. for example, Note, the Supreme Coun. 1967 Term, which contended that Zschemig 
might eventually result in the application of a balancing test as in the Conunerce Clause cases, 
82 Harv. L. Rev. 244, 245 0968). 

' "*Nev^ York Times Co, v. City of New York Commission on Human Rights, 41 N.Y.2d 
343, N.E, 393 N,E,S,2d 312 (1977), 

' ' 'South Aftican Airways v. New York State Division of Human Rights. 64 Misc. 2d 707, 
711 (Sup. Ct.. N.Y. Cty., 1970). 

'"K.S.B. Tech. Sales V. No. Jersey Disi. Water Supply. 73 N.1. 272, 381 A.2d 774 (1977). 
appeal dismissed, 435 U.S. 982 (1978). 



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etary distinction made in Hughes v. Alexandria Scrap Corp.'^ "Under the 
principle of Alexandria Scrap, the state agency's limitations with respect to 
purchases of materials and equipment for that plant, to be owned and 
operated as a government institution, do not offend the Commerce Clause. 
The New Jersey Buy American provisions are not measures regulating 
private business."' '* And the New Jersey Court also concluded, "[tjhat this 
case involves foreign commerce, and not interstate commerce, does not 
disturb our analysis.""^ 

On the other hand, the decision contained these dicta: "The Buy Ameri- 
can provisions apply without any discrimination based on the ideology of 
the seller's county. Nor is there any evidence to suggest that the political 
climate in a potential foreign bidder's nation has ever motivated the inclu- 
sion of the Buy American condition in an invitation for bids or that its 
inclusion is predicated on an assessment of the internal policies of any 
foreign country. If refined inquiries into foreign ideologies entered the 
decision to apply or not to apply the condition, there would, of course, be 
little difficulty in finding a constitutional infirmity of the type condemned in 
Zschernig ." ^^'' 

And where is the disinvestment statute not based on the ideology of the 
country affected? Where is the disinvestment statute that does not involve 
the internal policies of the foreign sovereignty in which disinvestment is 
sought? Do such dicta negate the reliance on Alexandria Scrap and the 
holding that statutes involving foreign relations can still sometimes be 
sustained as pro[Hietary? 

VIII. FINAL WORD 

The answer to the question whether disinvestment laws are constitutional 
is that there is no one certain answer. Perhaps there are too many answers to 
permit certainty. The Tenth Amendment makes such laws facially constitu- 
tional unless they are held to be in conflict with the interstate commerce 
provision of the Commerce Clause, the foreign commerce provision of the 
Commerce Clause, or the federal government's supremacy in foreign 
relations. 

The participant-regulator (or proprietary -govern mental) distinction, if 
held valid in this context, may make disinvestment statutes immune from 
the interstate commerce proscription. But the ultimate issue is whether this 
distinction will be extended to foreign commerce. Of course there is argu- 
ment that can be made, and it is being made in litigation now before the 
courts — contending both for and against constitutionality. 



"'426 U.S. 794 (1976). See text, p. 81. accompuying n 
'"75 N.J. at 300, 381 A.2d U 788. 
'"75 N.J. at 299. 381 A.2d al 788. 
"*75 N.J. at 291-92, 381 A. 2d at 783-84. 



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DIVESTMENT IS NOT THE ANSWER* 



WILLIAM G. MILLIKEN 
Fbnner Governor of Michigan 



The United States is under increasing domestic pohtical pressure to help 
effectuate changes in the internal policies of other nations. South Africa 
comes immediately to mind and the strategy of divestment of securities in 
corporations doing business there is the proffered tool 

Cunent U.S. policy towards South Africa is the widely misunderstood 
"constructive engagement." President Reagan defined that policy in con- 
gratulating Bishop Tutu on receiving the 1984 Nobel Peace Prize, saying; 
"The United States has beard the i^>peal for justice voiced by South AMcans 
who suffer under apartheid rule. We continue to urge the South African 
government to engage in a meaningful dialogue with all its citizens aimed at 
accomplishing a peaceful transition away from apartheid." 

Despite this, the United States is now seen as adopting a position of 
neutrality regarding South African whites and blacks. However, U.S. poli- 
cy officially rejects as morally wrong apartheid and its consequences — the 
attempts to denationalize the black majority and relegate blacks to citizen- 
ship in tribal "homelands." and the repression of individuals and organiza- 
tions through such practices as detention and banning. Nevertheless, there 
is the growing feeling among those seeking change that the United States is 
more interested in retaining the good will of the South African government 
than it is in using its political and economic influence against apartheid. 

In my visit to South Africa earlier this year, I learned that present U.S. 
policy, with its perceived emphasis on accommodation and its seeming 
willingness to embrace any govenmient, however Feptessive, which de- 
clares itself opposed to communism, is playing into the hands of a regime 
that has no intention of abandoning its apartheid policies. Indeed, the harsh 
security laws — ostensibly to control communism— have served their real 
purpose , which is to control and destroy any kind of opposition to apartheid. 

What can the United States do to help effect change? We should, at the 
very least, leave no doubt whatever that we are unalterably opposed to 
apartheid. That signal should come through clearly and be constantly 
sounded. There must be no misunderstanding of the U.S. position on this 
point. There is now. 



'Governor Milliken has writttn morefully on Soulh Alnca in Iwo Op-Ed ailicles in the 
Detroit Free Press, April 19 aad 20, 1984. 



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More can be done . The Rockefeller Foundation-financed Study Commis- 
sion on U.S. Policy toward Southern AMca has recommended promoting 
political power-sharing by exciting influence on the South African govern- 
ment by diplomatic moves; hairing export of certain U.S. goods, technol- 
ogy (particularly oil-drilling technology) and services; broadening the arms 
and nuclear embargos; withholding diplomatic recognition and economic 
aid from the independent homelands, and supporting organizations inside 
South Africa working for peaceful change such as multiracial labor unions, 
educational pn^rams, public-interest, self-help and other organizations. 

Some of these objectives were contained in bills passed by Congress 
recently. Others will be considered during 1985. What is significant is that 
there is a growing interest in South Africa and a recognition that the United 
States has a moral obligation to exert what pressure it can to bring about 
leform. 

Divestment is continuously being urged with divestment advocates 
claiming increasing momentum. Eleven cities and five states have passed 
stMne form of divestment law. Some 20 states are expected to consider such 
laws in the next year. 

I did not talk with a single individual in South Africa — white or black — 
who supports this aj^nxMich. The fact is, most U.S. companies are operating 
in an enlightened, responsible way. Since 1977, with the announcement of 
the Sullivan principles (a code of business conduct relating to desegregating 
facilities, equal pay for equal work, equalization of benefits for all races and 
a number of other goals), more than 120 companies have become signator- 
ies. Were commercial ties cut and U.S. companies to pull out, the United 
Stales would lose part of what leverage it has to exert pressure on the South 
Airican government for change and wid) the loss of jobs the first to su^er 
would be blacks, not whites. 

Although I oppose an outright ban on all South African investment, an 
action 1 took in my last year as governor of Michigan may a^^ar inconsis- 
tent with this position. At that time 1 signed a bill into law requiring 
Michigan public colleges and universities to divest themselves of any hold- 
ings in companies doing business in South Africa. It was a difficult deci- 
sion. At the time I was fully aware of the arguments on both sides but 
believed there was symbolic importance to the act and that a statement 
neededtobemadethrough our public institutions. Istilldo. A total puUout 
of U.S. investments would serve no one's puipose. The action itself had 
little impact. It did, however, send a signal — and 1 think American public 
officials must constantly signal their abhorrence of apartheid. 

It is in America's own interests to give such signals. II is in America's 
own interests to signal its adherence to principles of justice and to a higher 
moral order whether dealing with South Africa or the U.S.S.R., Poland or 
Iran. Divestment will leave the U.S. with less, not more, influence and with 
less ability to assist in die struggle few justice. Just by meeting the goals of 
the Sullivan [ninciples, U.S. companies are in the fofefroni of change. 

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Late in 1983, and again (his year, the leptesentatives of the signatoiy 
companies met in New Yoric to wfxk out a strategy to improve the quality of 
employees' lives in such areas as education, bousing, health facilities, 
recreation and transportation. Even as he increasingly relics on the skills 
and services of black labor, the Afrikaner has relentlessly continued to deny 
opportunity to blacks. To the extent U.S. companies achieve equal pay for 
equal work, advance blacks into management positionst end all segregation 
on the job and seek to improve conditions behond the wmkplace , they will 
give the Afrikaner reason to woiiy that what he has created cannot last 
forever. 

Divestment is not the answer, although the U.S. should do more because 
hopes for genuine reform of the South African government are fading 
among blacks and others. Desmond Tutu said: "Our people are rapidly 
despairing of a peaceful resolution in South Africa. Those of us who still 
speak of 'peace' and 'reconciliation' belong to a rapidly diminishing minor- 
ity." The central issue of South African life, that of political rights for the 
more than 21 milUon blacks, is simply not on the govenmient's agenda. 

There is not much time left. 

And as Alan Paton reminds us in his "Cry, the Beloved Country": '"I 
have one great fear in my heart, ' a black minister says, 'That one day wbm 
they (the whites) turn to loving, they will find we are turned to hating.'" 



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STATEMENT OF DEREK BOK ON 
INVESTMENT POLICY* 



PRESIDENT DEREK BOK 

Harvard University 

On May 9, 19S4, the Advisoiy Committee on Shareholder Responsibility 
(ACSR) submitted a report on the subject of Harvard's investments in 
American corporations doing business in South Africa. The Harvard Corpo- 
ration's Committee on Shareholder Responsibility has today issued a de- 
tailed reply to the ACSR repon, agreeing with some of its proposals and 
disagreeing with others. 1 will not repeat all that is said in that reply. But I 
will exfHcss some thou^ts of my own on the subject of divestment, since it 
represents the point of greatest disagreement in this community coiKeming 
the response of the University to the injustices of apartheid. 

Let me begin by making clear that this is not a dispute about apartheid or 
the record of the South African government. All of us on every side of the 
divestment issue agree that apartheid is a cruel and shameful fonn of racial 
exploitation that has no conceivable justification. Nor does this debate 
simply reflect a difference of opinitm over tactics or money — though 1 do 
believe that the tactics of divestment will not succeed and that they would 
cost the university money. At bottom, this is also a dispute about the nature 
of the university itself and the ways in which it should and should not 
respond to evil in the outside world. 

Harvard has taken a number of steps in response to apartheid. We have 
cast our ballot with care in shareholder resolutions concerning South Africa, 
often voting to urge corporations to subscribe to the Sullivan Principles, 
sometimes voting to have a company withdraw entirely from South Africa. 
We have engaged in intensive dialogue with corporations to persuade them 
to improve wage and employment practices for black South African em- 
ployees and to improve the quality of life outside the workplace for these 
employees, their families, and nonwhites in general. A number of compa- 
nies have taken such steps. We have also initiated a program to bring 
nonwhite students from South Africa to study each year at Harvard. Finally, 
I have helped to organize a nationwide effort of universities, corporations, 
and foundations which has brought over 300 black South African students to 
study in colleges and professional schools across the country. 

Many members of this community would like Harvard to take a different 



*lt«])riiued with penniKioa. Fk^ appearing in the Hward Gazette irf Oct. 5, 1984. 



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course and divest all of its stock in American companies doing business in 
South Africa. I have disagreed with this view, and I continue to do so. Much 
as I oppose ^Kutbeid, I strongly believe that univosities should not attempt 
to use their power to ptess their political and ectMKMnic views <»t other 
ofganizations and individuals beyond the campus. This is essentially what 
Harvard would be doing by divesting — boycotting the stock of American 
companies to bring the {vessure of this institution to bear against them to 
have them cease doing business in South Africa. 

My views on this matter are not casual; they involve the essential pur- 
poses of the university and tlw terms on which it exists and does its wofk in 
our society. Universities have the distinctive mission of promoting discov- 
ery, new ideas, understanding, and education. These activities depend on 
experimenttfion, self-exinession, and the widest opportunity for debate and 
dissent. They require insulation ftom outside piessures that would impose 
an orthodoxy of "safe" ideas or use the university for ends otiier than 
learning aitd Ilie pursuit of truth. In tiiis respect, the univosity is quite 
unlike other institutions, such as governmental bodies, which are designed 
to exert power over others and to be subject in turn to outside pressures from 
groups seeking to influence tlie uses of power in a democracy. 

In order to proiea the process of learning and discovery, universities 
must maintain a leason^le autonomy in the conduct of their internal affairs. 
They must persuade die outside world to refrain frcHn exerting pressure that 
would limit the freedom of their members to speak and publish as they 
choose. They must also preserve the freedom (o select the best teachers and 
scholars for the faculty regardless of their opinions or political activities and 
to set their own pohcies without external control save by the government in 
behalf of established public ends. 

Today, these freedoms are generally respected in the society. But this 
was not always the case . The autonomy of academic institutions was resist- 
ed for many decades by those who thought it too dangerous to allow 
imivcrsities to exist without some control over what was written or taught 
within their walls. Even now, our freedom exists within limits. Like all 
freedoms it has reciinocal obligations. We cannot expect individuals and 
organizations to respect our right to speak and write and choose our mem- 
bers as we think best if we insist on using institutional sanctions to try to 
impose on them those policies and opinions tliat we consider important. 

The obligation I perceive in no way inhibits individual members of this 
commimity from expressing themselves on issues such as apartheid (V from 
engaging in political efforts to promote their views. Indeed the right to act in 
diis way is an essential part of academic freedom. There is lilccwise no 
reason why die university should not perform the ftmction entnistedloit as a 
shareholderunderour laws by votmg on issues of social responsibility. The 
university may even communicate its views through discussions with the 
officials of companies whose stock it holds. But the line is crossed when a 
university goes beyond expressing opinions and tries to exert economic 

100 

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ivessure by diverting Slodc (w engaging in a boycott in order lo press its 
views on outside organizations.' 

The more the university acts in this way the more it risks disturbing the 
implicit airangemenis under which institutions of learning can continue to 
function with the freedom they need to cany out their essential mission. If 
Harvard insists on exerting leverage on issues we care deeply about, indi- 
viduals, corporations, and other organizations are likely lo exert economic 
pressure against us on matters they feel strongly about, such as the radical 
(pinions of particular professors, or Harvard's position toward ROTC, or 
die University's policies concerning involvement in covert CIA activities. 

Every year, shareholder resolutions are introduced to bar coiporate sup- 
port to universities on grounds such as those just mentioned. These resolu- 
tions are regularly defeated because most shareholders are persuaded that 
corporations should not use economic leverage to influence the internal 
policies of universities . It would be unreasonable to expect such altitudes to 
continue if we begin boycotting [voducts w selling shares to press particular 
policies on corporations and other organizations. 

Some of the strongest proponents of divestment are not deterred by this 
prospect. Indeed, they have organized a fimd to be given to Harvard only if 
it agrees to sell its stock in companies doing business in South Africa. I 
could not disagree more with this approach. Once we enter a world in which 
those with money and power feel fiee to exert leverage to influence univer- 
sity policies, we should not be surprised to find that universities have lost 
much of their vatu^le independence. Nor should we complain when we 
discover that those who wield the most power are not necessarily those 
whose policies are congenial to our own. 

Critics may reply that I am putting the i»ivale interest of the University 
ahead of the plight of the black majority that suffers under the heel of 
apartheid. In response, I would begin by resisting the charge that the 
interests just described are merely self-serving. In carrying out its tasks of 
education and research, a university is performing public functions of great 
importaiKe to society. The freedoms universities seek, like their buildings 
and endowments, are not private assets but resources essuitial to the accom- 
plishments of a vital public mission. 

In addition, I reject the suggestions that a policy against divestment will 
peipetuatc injustice, since 1 see no realistic possibility that having universi- 
ties sell their stock in American companies will make a noticeable contribu- 
tion to ending apaitbeid or improving the lot of black South Africans. 



'The Univenity may occtsionaUy tell ttte stock of a corpontioa becuue of ■ diugieeineM 
wilb its policies. Such aciioii, however, is not taken to pcessute ibe company into confbnning 
with Harvard's views but occun became Ifae UniveniQ' does not wish to continue an atsoci- 

aiioD with a fiim that fails to live up to n' ' ~ 

proqiect of doing so in the fiuure. 



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Divestment can mike a significanLcootributioD to overcoming apnitbeid 
only if all of the following questimis can be answered iffinnalively: 

1 . Will selling slock offer a significant chance of persuading Amoi- 
can finns to leave South Africa? 

There is no indication that sales of stock will put sitfficient economic 
pressure on the management of American conqMnies to induce them to 
withdraw, since such stock will be purchased by others with no peimanent 
eccHwmic consequences to the firm. Nor is there any evidence that die 
publicity engendered by sales of stock will lead companies to incur the 
losses entailed by abandoning their South African operations. In fact, no 
American company has left the countiy because of divestment actions taken 
by various states and municipatities over die past few years. 

2. Is divestment a more effective way of inducing ctHi^Mnies to 
withdraw than voting in favor of corporate resolutions to withdraw? 

There is no evidence to indicate that this is so. NeidicT divestment nor 
shareholder resolutions have caused any American con^iany to withdraw, 
and neither tactic holds much promise of doing so in the foture. Shareholder 
resolutions and dialogue with company executives have at least led to some 
tangiUe corporate actions to improve the lives of black South Africans. 
Divestment has not had even diis effect. 

3 . Even if divestment could somehow help persuade American com- 
panies to leave South Africa, would their withdrawal materially help 
in overcoming apartheid? 

In fact, if American companies left South Africa, it is vuiually ceitain 
that their operations would be taken over either by local interests or by 
foreign concerns. Since die business would continue operating, it is not 
clear just how withdrawal would pressure the government into refcvming 
the ^lartheid system. 

4. Would corporate withdrawal, assuming it somehow occurred, con- 
tribute more to the defeat of apartheid than efforts by American 
companies to improve wages, employment oppormnities, and social 
conditions of nonwhite w<»kera? 

At bottom, this question raises the difficult issue of how major social 
change can come about in a country like South Africa. Those who support 
corporate activity on South Africa argue that ectmomic development will 
eventually undennine apartheid as the needs of the eoMKimy fuce the 
Nationalist regime to give more education, economic opportunity, and 

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ultimately power to nonwhites. Pn^Kwients of divestiture believe that real 
change will never occur by evoluttonaiy means, whereas the withdrawal of 
American companies could produce widespread unemployment and eco- 
nomic distress Aat would either force the govermnent to institute reforms or 
lead to a successful revolution. 

Both these theories leave many questions unanswered, and it would be 
difficult to choose between them or to assert that either will prove to be 
correct. In response to propoiKnts of divestment, it seems most unlikely thai 
corporate withdrawal would cause an economic collapse, since other com- 
panies would presumably take over the operations abandoned by American 
firms. Even assuming that withdrawal did hurt the economy substantially, 
the question still remains whether this result would bring about the end of 
i^>artfaeid or simply cause more suffering, black unemployment, and repres- 
sion. This question seems all but impossible to answer. Proponents of 
divestment argue that blacks and their leaders favor withdrawal of Ameri- 
can companies. In fact, some do, but others don't. In the words of the 
American columnist William Rasfrt^eny, writing from Capetown, "If the 
Harvard students find the questions easy, black South Africans are by no 
means unanimously agreed." 

In summary, divestment can have a constructive effect on South Africa 
only if we ciui answer all four of the preceding questions affirmatively. In 
reality, it is far fnmi clear that one can give a positive answer to any of these 
questions. The likelihood that all four can be answered affirmatively is 
vanishingly small. Hence, I find no basis for concluding that universities 
will help defeat apartheid in South Africa by agreeing to divest. As a matter 
of principle, therefoFC, I see no reason for departing from the basic norms 
th^ define the ro\c of the university in society. Even apart from the special 
constraints on universities, 1 do not believe that we can know enough about 
the future of a distant country to insist to the point of public boycott that 
American cmnpanies will do more for black South Africans by leaving the 
country than by remaining and instimting better employment and social 
conditions. And f find it difficult to su[^x>n in good conscience a decision 
that would jeopardize resources given to us for education purposes to pursue 
a strategy that neither furthers the academic erjds of the institution nw offers 
a realistic chance of achieving its objectives. 

E)espite these conditions, some critics contend that Harvard should divest 
rather than continue its practice of voting on shareholder resolutions and 
communicating with corporate managements because the present practice 
has failed to overcome apartheid <»' to close the gap in wages and working 
ciMtditions between black and white workers. This argument misconceives 
the current policy. The University did not adopt this policy because it felt 
that its actions — or any actions that universities could take — would have 
substantial effect on apartheid. Harvard decided on this course of action in 
the conviction that it should vote shares as conscientiously as possible, even 
if the ejects are only limited, and because of a strong belief in the principle 



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thai voting and conununicating views aie ^qtropiiate fonns of behavior for 
a university while efforts to exert (Hcssure ttvough boycotts and divestment 
are not. 

Others who advocate divestment have suggested that the University's 
nomial policies as a shareholder need not ipp\y because South Africa is 
such a special case — the only nation that institutionalizes racial discrimioa- 
tioD and practices it on a massive scale. Recognizing the enormities of 
^KUlheid, Harvard has gone beyond its normal |»BCtices by communicating 
directly with corporate officials to persuade them to alter their employment 
practices and by creating special scholarship programs for black South 
Africans. Bui it is one thing to make etfmts of this kiixl and quite another to 
disregard one of die University's basic i^iKiples, especially when such 
action is urged in pursuit of a strategy that has no significanl chance of 
affecting the course of events in South Africa. 

Those who seek a more effective way of putting pressure on the Afrikaner 
government need not look far. Last year, for example, bills were introduced 
in Congress, and passed the House of Representatives, to maitdate fair latxH' 
practices, limit bank loans, impose export controls, and forbid all new 
American investment in South Africa. Whatever one may think of these 
bills, those who favoc divestment must concede that such legislation would 
be a vastly more effective means of achieving their objective. Nevertheless, 
I have not observed substantia) numbers of persons on this campus working 
actively for die passage of these measures. 

Other critics take a very different tack and argue that we should divest, 
whether or not it will have any practical effect, because it is simply inunoral 
to hold stock in any firm that does business in South Africa. This argument 
would have more force if Harvard owned stock in companies doing all or 
most of their business in South Africa. But that is not the case. The compa- 
nies from which we are asked to divest typically do less Ihiui one percent of 
their business in South Africa. We do not invest in these concerns because 
of their South Africa operations; it would be more nearly correct to say that 
we invest despite those operations. 

The point, therefore, must be that Harvard should sell »ock <mi [mnciple 
if it is tainted, however slightly, by the stain of doing business in South 
Africa. This is a troublesome argument. It suggests that morality lies in 
trying to avoid all contact with the wrongs of the world and that it is better to 
sell one's stock and simply turn away from the injustices of South Africa 
than continue working as a shareholder to persuade companies to improve 
the wages and conditions of their black employees. 

We should also recognize that far more than divestment would be needed 
to sever all our links to South Africa. If it is wrong to bold stock in an 
American company doing a tiny share of its business in South Africa, one 
would suppose that it is also immoral to hold shares in the many companies 
Aat buy goods from South Africa or sell goods to it, since they too benefit 
ftoffl the South African economy and presumably help to sustain it. One 

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would also suppose that Harvard should not accept gifts of money derived in 
some demonstrable pait from South African operations, since they would 
also be tainted. Accepting tuitions from South African students would 
likewise seem suspect; even tuitions from American students paid for in pait 
by dividends from companies doing business in South Africa could be 
questioned. In short, the ramifications of such a rigorous policy are far- 
reaching indeed. 

Before we insist on such a drastic moral standard, we should ask our- 
selves not only whether it is practical but whether we are willing to apply it 
to our own lives. How many of us have examined the purchases we make to 
see whether they come from companies that do business in or with South 
Africa? How many students have inquired whether their tuitions are paid in 
pait from the dividends of companies with a South A&ican subsidiary? For 
that matter, how many of us have stopped buying goods or using funds that 
can be traced to Guatemala, Salvador, Iran, Uganda, or other countries 
where fliousands of iniHxent people have been killed with no justification? 
The tiulh is that virtually no one follows such a policy or regards it as a 
feasible standard to follow. 

Finally, sonte have argued diat Harvard should divest because divestment 
is a particularly dramatic, affirmative way of expressing die University's 
opposition to apaitiieid as a system at war widi our ideals of freedom and 
justice. Such people often stress the pervasive influence of Harvard on the 
society and argue that the effects of our divestment on worid opinion could . 
be substantial. My experience leads me to doubt this view. Harvard may 
command great respect for what it has accomplished in pursuit of its central 
mission of research smd education; it does not have much influence, even 
with its own alumni, when it makes institutional statements on political 
questions such as corporate involvement in South Africa. Like it or not, the 
public knows diat the University cannot claim any special wisdom in ex- 
pressing itself collectively on issues of this kiitd. 

It is also important to note that Harvard has already stated its clear and 
complete opposition to apartheid on various occasions. In what respect, 
then, is divestment a more elective, more forceful expression of disapprov- 
al? Because it will continue in some significant way to ending apartheid? 
We have seen that this is most unlikely. Because the slock of American 
companies in South Africa is peculiarly tainted?. That rationale is also 
unrealistic. The argument that divestment will be a peculiarly effective 
gesture must presumably rest on the belief that divestment will cost Harvard 
m(Hiey and thus represent a sacrifice which will reveal the depth of our 
convictions. 

This too is a hi^y questionable argument. Presumably, Harvard could 
also demonstrate its convictions by giving funds to the African National 
Congress or some other opposition group. Such a grant would certainly be a 
dramatic gesture and might well do more than divestment to further the 
struggle against the Nationalist regime. And yet, despite our revulsioa 

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toward ^>aitheid, the fact remains that Harvard's resources were entrusted 
to us ftx- academic purposes and not as a means of demonstrating our 
opposititMt to apartheid or lo other manifest injustices and evils around die 
world. This is one reason why we have suppmicd the expenditure of Univer- 
sity funds to educate mnwhites irom South Africa at Harvard but have 
opposed a policy of divestment. 

ki making these arguments, 1 am acutely aware of die contrary views 
expressed by those who strmgly favor divestment. I respect dieir convic- 
tions. I hope that they will respect mine. It is never a pleasant task lo 
disagree with odiers who care deeply about injustice. In the case of South 
Africa jlheiiiiusticA is so monstrous that die heart aches for some opportuni- 
ty to resist affectively. Nevertheless, such feelings cannot bring me (o 
support a^course of action that would force.this University to deviate fmta 
its [Hoper role, jeopardize its independoice, and ride its resources in behalf 
of a dubious strategy that has do realistic prospect of success. As a result, 
having thought about die issues as carefully as I could, I continue to believe, 
^ 1 did in 1978,. that die arguments for divestment are not convincing and 
thai-flarvaTd «bould not adopt such a policy. 



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CONCLUDING SUMMARY 

by 
ROBERT J. D'AGOSTINO 



"But the pension fund was just sitting there." (See, Schotland, p. 31). 

Once again, groups pursuing their own political goals, having failed to 
win assent through the a^^iropriate political or legislative processes, aRempt 
to claim public jurisdiction over yet another facet of private choice — that of 
economic investments (See Langbein, p. 8). What's actually at stake in 
accepting a policy of divestment, or social investing (Langbein) or diver- 
gent investing (Schotland), is obfuscated by the hysterical level of attacks 
on both South Africa and United States policy towards South Aftica. As 
leprdieosible as apartheid is (See Milliken, p. 95), it is neither the most 
repressive of the totalitarian systems nor is it unique. The Soviet Union, 
Cuba, Iran, Ethiopia all have systems less respectful of humiui rights or 
more brutal in their lack of concern for human life . All could or should be, if 
we are to follow the logic of the divestment advocates, subject to divest- 
ment, boycotts and the like, it would be foreign policy by pressure group. 

In addition, pressure is being increasingly brought to bear on state and 
local government and union pension fund managers to invest "locally" for 
the stated rationale of job creation or stimulating the local economy in some 
way. Again and like the pressure for divestment of shares in companies 
following someone's definition of social irresponsibility the rationale is 
based on factors other than what is a prudent investment decision. 

In all of this whether dealing with countries whose internal policies are 
thought unacceptable, or localism, or allegedly socially irresponsible com- 
panies, fiduciary responsibility to those who have entrusted their savings or 
retirement income to others is ignored in favor of political criteria. 

Is Divestment Moral? 

The answer to this question involves two issues. The first is a consider- 
ation of whether withdrawal from countries whose internal policies we 
disapprove is more or less likely to bring about the change desired. Is 
responsible involvement really immoran (See, Schotland, p. 63). 

For example, U.S. companies were the first to bargain with black labor 
unions in South Africa, generally are signatories to the Sullivan Principles 
(See, Schotland, p. 60), and are leaders in offering educational opportuni- 
ties to blacks. Withdrawal from South Africa will most assuredly harm the 
very persons advocates of divestment claim they wish to help. 



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Giveo such ficts, it is most cotainly wrong to call re^tonstble investment 
immtval, and more logiciUy to call it moral because it is a more effective 
way to influence policy and because it demonslrably enhances life. (See, 
Schotland, p. 62). 

Hie secfHid issue is a consideration of just who is setting the social 
investment agenda compared with who is paying the price. Many divest- 
ment proposals are directed at pension funds, not in order to further the 
interest of pensioners, but in disregard of their interests. By taking advan- 
tage of the separation of ownership and control , pressure groups attempt to 
politicize the investment process. The adoption of a political investment 
strategy cairies with it the risks of lower returns on investment and a higher 
investment risk. (See, Langbein, p. 20). Is it moral to ask the elderly to 
surrender retirement inctxne? When people are directly confronted with 
adopting social or divergent investing voluntarily, they generally refuse. 
Stockholders routinely vote no on motions to withdraw investments in 
South Afiica; the mutual funds which limit investments to "socially respon- 
sible" companies are small. (See Langbein, p. 16 Schotland, p. 42). 

In responding to pressure for Harvard to divest stock. President Dtnk 
Bok discussed dte proper role of a university and the importance of its 
remaining as free ftom outside political pressure as possible. Is the threat to 
academic integrity posed by the advocates of divestment moral? 

Is Divestment Legal? 

The Constitution leaves the ccmduct of foreign policy exclusively in &» 
hands of the federal government. The impact on fcnvign natims for an effort 
to sever American economic involvement with them has potentially signifi- 
cant impact on relations with die target countries. However, laws which 
focus on- c(Hporate behavior are mtxe insulated from Constitutional chal- 
lenge (See, Schotland, p. 65, Blaustein, p. 79). 

In addition, state and local divestment or investment acts likely violate 
the Commerce Clause. The test is whether a stale statute, on balance, 
promotes legitimate local concerns without interfering or interfering unduly 
with national concerns. Divestment does not promote local ecoiximic con- 
cerr^ since it does not reflect ctmcem for the stability of the investments, 
rather it purposely interferes with foreign and interstate commerce. (See, 
Schotland, p. 66). 

Aside from Constitutional challenge, a trustee who sacrifices the benefl- 
ciary's flnancial well-being for any social cause violates both his duty of 
loyalty to that beneficiary and ttie prudent investment standard. A trost must 
be administered solely in the interest of the beneficiary. The Employee 
Retirement Income Security Act (ERISA) codified these duties of loyalty 
and prudent investing in its sole interest and exclusive purpose rules. 
(ERISA does not apply to state and local pension plans, hence they and not 



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private plans are the targets of the divestment lobby.) (See, Langbein, 
p. 6). 

Is Divestment Productive? 

Whether dealing with divestment as a foreign policy strategy, a social 
strategy, or a way to keep investments local, the futility of most such private 
eflbits are clearly manifest. Simple substitution effects demonstrate that 
someone else is there to fill the gap. U.S. laws foibidding the exportation of 
military or police equipment to South Africa have resulted in European and 
Japanese equipment being substituted, costing U.S. jobs. Localism laws 
have resulted in retaliatory localism laws or shifts of other investors to the 
forgone investment opportunities. In those instances- where local investing 
has increased the sum total of such investing, it has done so at the cost of 
accepting lower rates of return for the invested fiinds, harming the 
beneficiaries. 

Unless the U.S.. has a substantia] position in a.markct (as in the intema- 
tional grain market) withdrawal of investments from a country merely 
reduces our influence and harms those we try to help since U.S. companies 
have shown the- most sensitivity for issues of fairness and justice. (See, 
Schotland, p. 61). 

Conclusion 

The fcMinulation of foreign policy should be left where the Constitution 
placed it. An individual, voluntarily,- has a rig^t md^hould press his views, 
cmtrol his own investments, and make whatever gestures for which he 
mi^t be willing to take the consequences. Asking beneticiaries or investors 
to pay the costs of pressuic-group-induccd decisions is unjust and 
hypocritical. 

Similarly, localism threatens to interfere with both interstate coirnneice 
and prudent investment decisions. 

The advocates of divestment or any other policy have access to govern- 
ment. To pressure universities, pension foods, wid foundations to politicize 
their decisions , leaving them open to never endii^ political demands while 
potentially jeopardizing their missions is in itself imnKval. Social investing 
is a matter of individual choice. One man's defiiution of social justice may 
well be another man's definition of tyranny. Although, the result desired 
from divestment in, for exanqile, a South Africa or Nicaragua, may seem 
desirable, advocates of divestment are ignoring die full consequences of 
what they propose. 



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National Legal Center for the Public Interest 
Publications List 

Venue at Uie Crossroads, by Senator Paul Laxalt, Linden H. Kettlewell, 
Nidiolas C. Yost and David P. Currie with an Introduction by Senator 
Dnmis DeCoocini (1982 - $3.50}* 

Exfi>rciitg Ae Fourth Amendment by Alternatives to the Exclusionary Ruie , 
by Judge Malcolm R. Wilkey with an Introduction by Senator Onin G. 
HUch (1982 - $3 50)* 

Antitrust Contribution and Claim Reduction: An Objective Assessment, by 
Griffio B. Bell wttfa an Introduction by Senator Paul Laxalt and a Preface by 
Congressman Jack Brooks (1982 - $3.50)* 

Fourteen Years or Ufe: The Bankruptcy Court Dilemma, by Judge Robert 
E. DeMascio, Judge William L. Norton and Richard Lieb, Esq. with an 
Introduction by Senator Strom Tliurmond and a Preface by Congressman 
Peter W. Rodino, Jr. (1983 - $3.50)* 

Abolition t^ Diversity Jurisdiction: An Idea Whose Time Has Come?, by M. 
Caldwell Butler and John P. Frank with Observations by Chief Justice 
Vincent L. McKusick, Maine Supreme Judicial Court (1983 - $3.50) 

Aaivism by the Branch of Last Resort: Of the Seizure cf Abandoned Swords 
omfPurjM.byJudgeMalcolmR. Willu^ and a Foreword by the Hcnxvable 
Sam J. Ervin, fomwr U.S. Senauir (1984 - $3.50) 

Judicitd Wage Determination. . . A Volatile Spectre, paspectives on com- 
parable worth, by Frank C. Morris, Esq. et al with a Ftxeword by Linda 
Chavez of die U.S. Commission on Civil Rights (1984 - $3.50) 

Edited noceedings of the 1981 NsHooalCoafenoceoa Workers' Compen- 
sation and Workplace Liability, (cunendy unavailable) 

Edited Proceedings of be 1982 National Conference on Product Liability 
Tort Law Rtform. (currently unavailable) 

Edited Proceedings of the 1983 National Clonference on Health Related 
Claims: Can the Tort and Compensation Systems Cope? (1984 - $35.00 
Law Libraries: $50.00 all else) 

Judicial/Legislative Watch Report - an update report service of NLCPI on 
legislation and activities affecting the judiciary and the judicial system, 
(published v/tdie Congress is in session, $25.00 per year) 



I oly of the CMiginal printings. However, 

Xerox copiei 1 



^y Google 




National 
Legal Center 
fc^rthe Public Interest 



An Educational and Public Service Organization 



The National Legal Center for the Public Interest provides the public and 
private sectors with timely information on key issues which concern the 
judicial branch of government and the development of public policy. In its 
capacity as an educational organization the Center serves the public interest 
by: 

• Identifying m^or governmental initiatives which affect the 
judiciary; 

• Serving as a "lightning rod" for new and emerging ideas about 
the role of the judiciary in our society; 

• Publishing the "J udiciall Legislative Watch Report"; 

• Commissioning legal scholars and experts to make timely con- 
tributions to the public debate of important issues; 

• Publishing and disseminating to policy makers analyses and 
opinions on issues under consideration; 

• Organizing conferences on national issues concerning the 
judiciary; 

• Identifying well-qualilied candidates for the federal bench; 

• Working with law students, scholars and lawyers to improve 
respect for the law and confidence in the judicial branch; 

• Serving as an information, resource and communications cen- 
ter for other organizations that share a similar perspective; 

• Serving as a national resource center to aid high school forensic 
students to more effectively research. 



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The fad remains that Harvard'i 

to us for academic purposes arrd not as a means of denu 
strafing our opposition to apartheid or other manifest in- 
justices and evils around the world. 

President Derek C. Bok 
' Harvard University 



The formulat 

Constitution placed it. An i 

right and should press his views, control bis o 

merits, and make whatever gestures for which he might be 

willing to take the c 



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270 

Senator Heinz. Mr. Schotland, I note for the record also your 
prepared statement includes five comments on specific provisions 
of S. 635. They will be a part of the record, too. 

Mr. Schotland. Thank you, Mr. Chairman. 

Senator Heinz. Mr. D'Agostino. 

STATEMENT OF ROBERT D'AGOSTINO, NATIONAL LEGAL CENTER 
FOR THE PUBLIC INTEREST, WASHINGTON, DC 

Mr. D'Agostino. I want to thank this committee for inviting me. 
I am presently in private practice and legal adviser for the Nation- 
al Legal Center for the Public Interest. 

The National Legal Center recently published a mont^aph of 
which Professor Schotlfmd was a major author and President Bok a 
contributor, on the issues of divestment or disinvestment. It is not 
about apartheid and the opinions I express now on S. 635 are my 
own and not the opinions of the National Legal Center which takes 
no position on legislation. 

The basic question I think we must address is that — well, to start 
with is that we are not only talking about the Government of 
South Africa. The Government of South Africa is supported by the 
majority of the white citizens, so what we are asking is how can 
the United States help the South African ruling classes open their 
eyes to the world in which they live? That's the basic question. And 
does S. 635 do this? 

I say it does not and I oppose it as counterproductive. 

The United States does not have an unblemished history about 
influencing matters or the internal siffairs of a country for the 
better. We have often influenced those affairs for the worse and I 
think that we are in danger of doing that with this bill. 

In making South African internal policies a matter of continuing 
debate in the U.S. Congress, we are inviting the South African 
Government and a m^ority of whites to dig in their heels. I realize 
the high level of debate that goes on in the Congress all the time 
but I'm not sure the white people of South Africa do. 

It seems to me that we ought to ask ourselves what we are trying 
to achieve and from whence comes the improvement? There is an 
old saying about how the wise have to undo the damage done by 
the good. We certainly are risking an awful lot of damage if we 
proceed with a bill of this sort. 

APARTHEID 18 A TOTALITARIAN SYSTEM 

Now I won't go over my testimony or read it in detail, but Sena- 
tor Proxmire defined apartheid and I think he defined it well, 
liiere is no question under the definition used by the Senator that 
apartheid is a totalitarian system. 

Now the question is, what has happened to that system since it 
was imposed in 1948, and I submit to you that it has changed and 
changed in many, many ways. There has been vast improvement in 
certain areas and very little improvement in other areas. 

There has been vast improvement in the economic well-being of 
black citizens of South Africa. In 1970, the typical South African 
black miner, for instance, got one-twentieth of what a white got. By 



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271 

1979, it was one-seventh, and by 1984, I don't have the exact fig- 
ures but it was around one-third or one-fourth. 

Now how did this occur? How did these other advances occur? 

During this entire time of the improvement American companies 
following the Sullivan principles took the lead. Second, there was a 
boom in South Africa, an economic boom, which led to a severe 
shortage of white skilled workers. So out of economic necessity 
blacks were allowed into previously all-white job cleissifications. 

Now that should tell us something. What it should tell us is that 
the key to continuing the breakdown of apartheid lies in the eco- 
nomic advancement of blacks and the economy itself of South 
Africa. Insofar as this bill would hurt that, we are hurting the very 
people we wish to help. 

I understand and I think it's a truism to say that change breeds 
desire for more and more rapid change. I think we have seen that 
all over the world. It's also a truism to say that those who hold 
power resist change. I suppose that's a rather pessimistic point. 

What can we do to improve the situation in South Africa? 

I think we can mandate the Sullivan principles for U.S. compa- 
nies. That's a law that we can apply to U.S. companies and we can 
do it here. 

Despite the fact that bannii^ loans to the Government of South 
Africa might not be effective, we should ban direct loans to the 
South African Government as a gesture of disapproval. We should 
not make South African internal policies a matter of continuii^ 
debate in this country's Congress. We are asking for a reaction that 
will not suit our goals very well. 

Substitution effects will render the banning of product exports 
ineffective. If we don't sell South Africa computers we'll lose Amer- 
ican jobs. The Japanese certainly will. Product bemning is an 
empty gesture in my view. 

1 go back to my question of what can be done. One of the basic 
mistakes that the South African Government is making is saying, 
"Look what we're doing; look at the advemces we are making; let 
us alone." Well, they are making some advances. The Government 
is slow, perhaps too slow for the blacks and the Asians and coloreds 
of South Africa. But it is also fundamentally wrong to do things 
that way. 

One oif the reasons for the success of our constitutional system is 
that there was public involvement. The Federalist Papers were ar- 
ticles written for the people of the United States so they could 
debate the Constitution. The United States must encourage the in- 
volvement of all the segments of leadership in South Africa in de- 
signing a system that will guarantee the security and rights of all 
the citizens, a system perhaps based on our Federal system. It's im- 
portant to involve people like Chief Buthelezi, chief of the Zulu 
Tribe, who has more followers than any black leader of South 
Africa. These people understand the dangers in violent change. 

As Aaron Wildavsky pointed out in a recent article in The Public 
Interest, we don't know any way to change a system rapidly except 
by force and violence and we know of no way to deal with the con- 
sequences of such change. 



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CHANGE WILL COME SLOWLY 

The answer is, the change will come. It will of necessity come 
slowly, but to avoid the violence we must encourage the South Afri- 
can Government — and I think Ambassador Nichols is doing this by 
the way — to involve the leadership of the blacks, the Asians, the 
coloreds — and all the coloreds. It's not a simple issue. There are 
Malay coloreds, mixed race coloreds, Indian coloreds — all the co- 
loreds in the process of designing a system that will guarantee the 
rights and security of all and hence guarantee the interests of the 
West in maintainii^ a strong defense against the encroachment of 
our enemies. 

Thank you very much for hearing us and I submit my written 
testimony for the record. 

[The complete prepared statement follows:] 



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TBSTIMONy OF ROBERT J. D'AGOSTIHO 

CGMUTTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 
SDBCOmiTTSX OH INTBRHATIOHAI. FIHANCE AND NONETARV POLICY 

I BB Robert J. D'Agoatino, currently In private practice and 
legal advisor to the National Legal Center for the Public 
Intereati a nonpartisan, nonprofit educational organization. I 
fomerly served as Deputy Assistant Attorney General for Civil 
Rights . 

The National Legal Center recently published a monograph on 
'Disinvestment,* vhich primarily addressed the legal, constit Jtional, 
and moral issues raised by disinvestment required by state or local 
law or through pressure on pension and endowioent fund managers. 
That monograph was not about South Africa or apartheid, although 
any discussion of divestment inevitably involves some discussion 
of South Africa and the United States response to its internal 
policies. The following statement is my own and is not the statement 
of the NlXPIwhich does not endorse or approve legislation. 

The httaring is concerned with S.635, a bill to express the 
opposition of the United States to the system of apartheid in 
South Africa. 

In the Christian Century of May 16,1984, South African theologian 
John de Gruchy stated, "Americans don't like to feel impotent, but 
it is something you will have to live with. The responsibility for 
change is ours. Nobody can do it for us.* 

I do not think even for a minute that Mr.deGruchy is correct 
insofar as he implies that the United States cannot influence 
internal events. However, he is saying something to us that is 
very important. The South African government and the 



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majority of whites who hold the key to power in South Africa are 
not going to leepond to the kind of public coercion and 
humiliation that Senate 635 pcopoees. It is a most blatant 
example of explicit interference in the internal affaire of 
another country, a country which is no threat to the United 
States, Those who analogize this to the Nlcaiaguan situation are 
either ignorant of the dangers Involved In Central America to 
United States security or refuse or are Incapable of making 
proper dlBtinctlans. Certainlyi and it must be obvious that the 
United States can^inf luence the internal affairs of other 
countries for better or for worse. The United States often and 
inadvertently influences the affairs of nations for the worst. 
One only has to'look at what the past administration did in Iran 
and compare the Shah's regime to Komeini'e regime. Contrary to 
some popular opinloni the United States was supportive of the 
Sandanista takeover of Nicaragua, and although some would still 
argue, that the' Sonoza regime was worsei I think those are 
becoming an Increasingly small minority. Regardless of whether 
you agree with what I just said or not, the point I an making is 
that if the United States is not careful , it may Influence 
matters for the worse, not the better. There is an old saying 
. about how the wise, must undue the damage done by the good. 
Stated. another way, the road to bell is Indeed paved with good 
intentions. Hay I point out the Zimbabwe situation as an 
example, I -have in fact attached as an appendix to this 
testiotony a letter from Bishop Abel T. Huzorewa and a transcript 
of a press conference held by the Bishop in regard to the 



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Eipbabve Bituation to Albert T. Blauit*in, Profaaaot oC Law at 
Rutgece Law School In Caadan, who la an interna t tonally known 
butaan lights advocatei 

Bafoce we as a country go Bucking around in the internal 
affairs of South Africa, we should first ask oursalvaa. wbat is 
the proper end of governiient and what is it that we wiab to see 
achieved in South Africa. We nigtat ask as Mtlcles asked, 'what 
was the road by wblcb we reached our positiORi what the for* of 
governnent under which our greatness grew, wbat tb« national 
habitB out of which it sprang?' In answering bis own question, 
he said, 'If we look to tbe laws, tbey afford equal justice to 
all in tbeir private differences) . . . the freedoa which we 
enjoy in our government exists also in our ordinary life.'' He 
might eiprees tbts today tbusly, 'the object of Boat Western 
thinkers has been to establish a society in which every 
individual, with a alnliBum dependence on discretionary authority 
of his rulers, would enjoy the privileges and responsibility of 
determining hie own conduct within a previously defined fraswworh 
of rights and duties.'^ 

It is quite apparent that the system of apartheid in South 
Africa violates those very principles tbat tbe Heat has been 
founded upon. It Is a totalitarian system, not the most brutal 
nor the nost coiaplete existing in tbe world, but nevertheless a 
totalltarlBn system. It Is certainly not a unique system, 
although based upon race. Hany of the governments, pactlcularly 
SOBS of tbe neighboring governments to South Africa, have 
political systems based upon tbe authority of one tribe over 



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anotherf wblcb is no less raclen noi athnocentclc repieeeion than 
the South African syeteni. 

It Is a truism that what brings unrest is change. Things 
ar* getting better for tlie black population of South Africa and 
all the statistics show that is so. I'll leave the details to 
others, but a few facts will illustrate my point. Between 1970 
and 1979 the wage gap between white and black narrowed in al 1 
economic sectors, including mining, industry, construction, 
retail trade, banks, insurance, and the government. In the 
mining Industry whites earned twenty times the salary of the 
blacks in 1970, but by 1979, whites earned less than seven tines 
as much. Heal wages for blacks tripled between 1970 and 1979. 
In some of the professions the advancement of blacks and other 
nonwhltes in South Africa has even been more dramatic. In 1979 
blacks in the medical profession were earning around 75% of the 
white salaries. It is no coincidence that In the same time that 
the blacks have made great gains, two things have been occurring. 
One, American con^anies, the signatories of the Sullivan 
principles, have been equalizing work conditions and 
demonstrating in a graphic way that blacks can accept the 
responsibility and do the work that whites can do. Secondly, up 
until recently, the South African economy was a boom economy 
which resulted in a severe shortage of white skilled workers. 
Previously restricted professions and job classifications were 
suddenly open to blacks because of the economic necessity or 
because of the growth of black employee unions. Hay I remind 



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277 



this Coanitt«e tlut black «^loya« unions 9i*v up Citst in tb« 
Anerican companiCB. 

I undecstand that S, 635 do«B not prohibit tha InvolvaBant 
of Anarlcan firna in South Africa, but it does prohibit n«w 
invaataant and tba importation of South African gold coins. Both 
of these would be counterproductive. It is Aaeiican inTest>ent 
that has bad the influence on South Africa, not dlBinvestnent. 
It is the fact that Aiwrica is a significant trading partner of 
South Africa that has Influenced that country, not any attenpt to 
bludgeon tha South African govarnaent into doing exactly what we 
tell than to do. After all, Dnltad States policy, as well 
intentioned as it has been, has not always led to desirable 

In a most intarastlng analysis Richard B. Sincere, Jr., 
discussed the econonic facts and political realities of the 
■ituatlon In South Africa.* Ha pointed out tha economic 
dependence upon South Africa of neighboring black ruled countries 
like Botswana, Lesotho, Zimbabwe, and Malawi. Any weakening of 
the South African economy, and the action proposed in S. 635 or 
by the dielnvestment advocates generally would be marginal, would 
fall most heavily on black South Africans and probably 
neighboring African states.^ Certainly forbidding the sale of 
computers to South Africa will only result in the lose of 
American jobs. The Japanese would be very happy to sell those 
same computers to the South African government. 

As Aaron Hildavsky pointed out In a very interesting article 
in the recent issue of THB FDBLIC IBTBBBST^i 'Experience showed 
that our intellectual ability to measure failure was far greater 



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than oar eollmeti.n capacity to cwm* ■wtc*— bj sltacing tiHaa 
babaTioc.*^ Mgmia. and is coa—aEimj abooc ttaa laaaona Laaznad 
fioa public policy r«aTarrli. Itran Wilbviky atatad, "Steady «■ 
aba 90a«' aay not b* aa glSBicoaa as 'fall apccd ahead*, bat tt 
la piotectlva af aankind's ■uliiT capacity foe Tirto* diacipltnad 
by intalll^aoca.*' Boat cartalolr azpactcnca haa tao^ht aa and 
tbe i*s«accb baaia oat tbat 'tbata ia iittl* knoNledge about ho* 
to tranafora inatitutiona OTcniight cxcapt by focce, and oodc of 
bov to c<^e Mltb tbe conaaguencaa.'^ 

Saoat* €35 ia a bad bill. It wilt be coiuitacpcodactive. Hic 
Onlted Stataa Jost doas not have as aach ccoooaic cloat as tlia 
bill illicitly aaaoaes. Sobatitation effects will aake ap for 
any product boycotts, whether foe coapcters or anytbing alse* 
The South Afclcan ccono^ has substantially slowed so redaction 
in Aaeiican investaent is Beaninglcsaj there already has been a 
significant reduction in Aaerican inTestaent. In fact, if tbe 
past ia a guide to tbe future, increased Aaarican invcstaant will 
have aore effect on ending tbe systea of apartheid than decreasad 
Invaataent. 8. 635 would »ake South African Internal policies a 
question of debate in tbe United States Congress, This is a 
aonuaental insult to an ally or to any country, whether allied or 
not. We are inviting the South African governsent to dig in 
its heels with such a bill. Insofar as these restrictions 
would hurt tbe South African econoay, it would put the very 
people out of work that we are intending to help. I don't 
believe in putting a nan out of work and allowing that aan's 
family to go hungry so that soae abstract and high noral 



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principle can b« uptwld, especially since those who are saking 
the gesture will not have to take tbe conssquencas. The very 
tact that blacks now have jobs with high status in South Africa 
is accelerating the pace of change ana has led the black 
connunlty to desire nore and »ore rapid change. 

At this point in tiae the followingi based on all evidence 
before ne including current news storieSf seens true: 

1 . There has been significant change in South Africa. 

2 • The change has been primarily in the economic sphere 

where blacks are far better off today than they were In the 
past. 
3> The change In the political and social spheres has been slow 

4. The South African ruling elites will resist pressure or 

obvious pressure to make changes. 
S- The pace of change is unacceptable to the blacks and 

probably coloreds and Asians in South Africa. 
(. What we would like to achieve ie a change in the system that 

respects people as individuals rather than judges them by 

immutable characteristics. 

This brings me to what Is rather a peeeinistic point. This 
bill won't work) the black community understandably would like to 
see change acceleratedi and the ruling white community is not 
prepared to see any change except gradual change. This is not a 
unique situation. People do not take the long view as a rule. 
What then can be done? 



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Frankly, I don't believe we can do macb Doce than what we 
are doing. The Reagan adnlnistiat ion's policy of constcuctive . 
engagement 1b essentially correct. Tbe crucial element in change 
is economic. He should actually encourage more InveBtment and 
Kore involvement by American companies that support the Sullivan 
principles rather than less. We should also encourage 
representative black leaders to come up with a plan that would 
guarantee the liberty of the people of South Africa. The 
Hational Black Alliance led by Chief Gatsha Buthelezi, who is the 
leader of the Zulu tribe and chief mlnieter of the KwaSulu 
homeland, is one of many who is both against dlslnvestnent 
initiatives and against apartheid and for a system of government 
that will guarantee the rights of all the people of South Africa. 

Perhaps through the Endowment for Democracy a group of 
constitutional scholars will meet with a group of South Africane 
opposed to the apartheid policies of the government and draw up a 
proposed political system that will be based on the United States 
■odel of federalism — a system by which no group could achieve 
domination over any other group and all groups and all 
individuals would be allowed to develop to their fullest 
potential without fear of repression or oppression based upon 
their race or their ethnic or tribal origin. There are many 
white and black South Africans, as well as colored and Asian 
South Africans, who would join in such an effort. These people 
understand the dangers of sudden and violent change and the 
necessity of reaesurlng all the people of South Africa that their 
rights will be protected and their futures will be secure. 



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Pi«sld«nt Reagan is rlgbt. The Dnlted States should be a 
staining beacon to the world. He can look back into ouc own 
history and know ttaat part of our greatness lies In ouc 
plurallsDr our cespect for the rights of all, and a system ttaat 
does not allow transient majorities or the passions of a majority 
to trample the rights of others. Nor eitbar Is the tyranny of a 
minority permitted. Keeping these principles In mind and 
keeping In mind the Inadvlsabllity of direct Interference In the 
internal affairs of nations that are no threat and In fact a 
defensive help to the United States, we can still act as the 
example ttaat President Reagan mentioned. He must do bo 
~ quietly, gently, with the cooperation of those leaders in South 
Africa who share our vision of Individual rights and liberty and 
a strong and secure Hest, 

This Congress would better serve the interests of the Dnited 
States and human rights by a positive, cooperative gesture than 
by passing a punitive and Insulting law that will only lead to 
»ore hardships and i 



BO-THI O— »5— 



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FOOTNOTES 

'Hou Oppose Apartheid?*, Xbe ctip-lytlap CsutlU^r Hay 16, 
1984, p. 514. 

Tbucydiaee, Xhe Peloponneaian {[u., 11. 37-39, trans. R. 

Crawley (Hodein Library ed,, p, 104). 

Fcedeclck Hatkins, Ibft Political Tradition ai. the West 

(saivard University Press, 194B). 

Sincere, IHe Politica oL Sentiment (Ethics and Public Policy 

C*nter, Hashlngton, DC, 1964} . 

Id. pp. 95-98. 

Aaron Hildavsky, The Once and Future School of Public 

Policy, Public intereat f p. 25, ed. eeq. (Spring 1985). 

Id., p. 28. 

Id., p. 31. 



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THE UNITED METHODIST CHURCH 

ZIMBABWE ANNUAL CONFERENCE HEADQUARTERS. 



ABEL T. MUZOKEWA M.t. s.b.b.«.u b.i- CABLE iDDRtU 



HARABt MHBABWI 



Dr Albert P BInus'.ein 
irofosaor of Ltt 



nil Btnaae-l s 
o.i -.ho ell-rln^ 



ol ciy top orgsnl««rB -oro rauniepoi by 2A."il{??) 
triin. r;.e Z;. "U[prl hsd tpl«a tlia r' ol« d«." to try ani diEr-.i?t our 
In Hranpe, bul nftar Xh»y h»i f»lloi, V..iiy -oTiai to i-.lll t!i«r: 
r»ll-ay Etstion baforo th«.v retumiJ to Su1^-b;-q. 



I-t h-.E liaen eonflr^.O''. b;-- nolica 
r]p,->ton'. to brinr th^- tr. court 
cjo rlo all sor-.E of owil thingfi 
■t the insti-joiion of sooebo3:.- 


i »s;.- 


BOine-ero Zi.U (PF) an." 
Doopla, CBu.:^-t by polios, 


t\ey 

^in;- peopl 
but freed 


I have ericlDsed theea Btsteiicn* 
international P-eei: attended in 
ProBE Conferen'^e --^Bre I tolJ 


a Just f 
Great r> 


i,r your inlc-Tation. The 
UTbare and at abort notio 


e the 


tP9ac:iei7- raohiner;- v'.iah nike 


Kltler 
the aos 


ini I'li f.-lr. extrenolr-' ev 
. terrible noo'-^en- anrt do 


IJ anl 

■ocrso;-. 


Tish you ths heat of •vei^-thin 








i'o'jrs sinierely 









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IMITED iFBICiH MTIOMAL COUHOIL ■ 

PRESS COH^RmCE JL'i — 02_ — SS" 

Kr Chslmaiii Ladles ?nd Centlanen. Reo«ntlf local and inteniatioaal 
joumalistB havs Bought ittiervlewB on olroumstanoea aiuToundlng 
tho run up to tho fortboonlng gsneral aleotiona. 

iooordlnglj, and In ordar to save ne time fron giving individual 
lntaivi««a wbilst at tt» sane tine aannering oany sueh queationa, I 
have ctooidod to oalX thle presB oonferenco. Proa th« outset 
Itr Chairnaiit lat ■« point out that tho f resdon and fairness of the 
noxt olectlon la not eupposed to start and end on the polling de; 
Itaelf. But the nhola proceBs leading to llie election must be eeen 
to be fr«e and fair. 

Ihe fundaaentsl Tig^te end fresdams nbloh oust prevail and be 
u^eld Vefare and during the proceae leading up to free and 
fair general election are univereally aoicnovledgsd and eaehrined 
1b oup conBtltution es folloval- 

1. Tbe Ireedon of e^preselon. That is to a«y, freedoB to hold 
opinlona and to reoelve and Inpart ideae and infomation 
without Interference and freedom from Interference nlth one'e 
eovrespondence. * 

2> The freedon of assembly and aaaooiation. That is to aay, one's 
right to asaemhle freely and aesooiate nlth other perBone and) 
in partloulaff to foim or belong to political parties or other 
BSBoelationa for the proteetlon of oaa'B Inteieata . 

3* The freedom af DOvsMent. That Is to gajr, the ri^t to move 
freely throughout Zimbalnie, the right to i«alde In any part 
of Zimbabae, the right ta enter Zlobafaaa, the right to leave 
Zimbabwe and inaunity from oxpulaioa from Ziabafano. 

i. Sefturlty of the parson. 

5a Froteetion by tha Ian. 

6. Pretaotion tor the prlvaoy of one'e hone and other property. 



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Mr CbaimaR) althou^ all the abovo rightB and freedoms are enshrined 
in our Constitution! I regret to lofonn you tbat sll thesst altbout 
exception, have been and nre being eonatsntly violitad by both tha 
ruling party and its govomnont either acting individually or in unison. 

Tha folloning ezanples and explanations serve to illustrate tha degree 
and e:£tent of violation of thaco rights and freedoma which I have 
ali^ady cited. 

Some examples of the violation of freedon of assembly are 

B3 follonei 

1. On July 4) 1982, ingllcans in Vutare ssre driven away from tba 

Holy Comnunion table during aaaa and then driven out of church , and 
foreod to go to attond the ruling party's political rally. On 
the sans dats Hilltop United Xethodist Church congregation In 
ilutaro was prevented by a wild and nad 2ANU (ET) mob froa attending 
a church servioe, end they destroyed tha paator'o houao. 

2* On July 31, ^9&3i the ruling party aocoapanled by 3 unlfomed 
pelleemen nent to savagely attack innocent norohippera .at nigbt 
at the St Maik United Hethodlst QiueiA Id high danslty 
suburb of Rlghfleld. Other obupeh danavlnations have been 
prevented troa holding ohuroh services at various intervale and 
at different plsoaa throughout ths oountry between 198I and 1965. 

Sranples of tha vtolatlons of tha freedoms of expression) and of 

association sr^ aa follons: 

If Sines the day Zimbsbne gained independence from Britain at 
md-night, iprll 18, 1980, until thia vary day and hour as na 
are horS) praotloally eveiy U A H C rally and those of other 
political parties other than ZABU (FP) have been disrupted Igr 
ZjUIU (FP). These violentp destructive, murderous, unprovoked 
attars on other political parties' rallies have been 
orsaniEed and financed fcen high abova, even at Central 
Committee level. One of the beat axamples of this in the most 
reeent attempted assaslnitlon of Br Joshua Nkomo in Uasvlngo. 
2. Tha ruling party has not confined themselves since iDdspbndanoe 

to going to attack other politlonl parties whenever such parties 
are holding legalised rallios and oeetlngs but have baen attaoklng 
ersn Innooant mourners at funerals using their usual lethal 
nsapons of 



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- 3 - 

giuiB) knives, knobkeriias, enocde, catapults, axes, spears, picks and 
enss slashoro. This in despite the fact that the ZANU (PF) knows 
that African fun. :-\1b are attended by Rwat numbers of people and 
that many testimonial apeeohaa are made at each funeral to console 
the bc:rocived. 

!!= -.IV. highly distressed and concerned that whilst the nation and the 
■orli! 1I-JV3 been repeatedly hearing the hypocritical and double- 
stnrid:ird outcry about "dissidents" and their "atrocities", nhat ths 
nation ^ind the norld have not been simultonously told are savage 
murdcra by the ruling psrty. not in tho bush, but at legalized rallies, 
meetings, churches, religious, social, and cultural gatherings! in 
their homes, at noddinge and funorgls, in broad day light, and at 
night in the interior and urban centres of our counti^ including In 
cities such as Harare, Bulanayo, Mutarc, Gneru and Knokne. So, Vr 
Chair^aan, political violence has boon the order of the day frcn 
Independence day to date and .ilnoya iiithout exception these violent 
activities have been initiated by the ruling pnrty. Tho U A H C 
has docunented end catalogued these atrocities ^nd on several 
occasoions presented these facte to the government but our plaaa 
net nith oontenpt, were Ignored or were suppressed. If anyone 
doubts this sad conni^ntsry of violent activities and rule of terror 
h7 the ruling party they should go to Hlghfleld blgti density suburb 
and see the nunbpr of houses of other political parties which have 
been stonad by the ruling party this week. 

This all Eoas on to illustrate that in Ziabahi* than is definitely 
and oetegorloally" BO security of one's persoa, no protection of 
tha law and no protootlon for the privacy of ono's hotne and other 
property. 

In ZlcbaWe there Is no freedom of movomonti So have bean reliably 
informed thatt the ruling party has instruction from highest 
authority to the effect that the ruling party should actually 
disrupt the leaders and offloiils of other political partiss. 
Becent demonstrations in Uaavingo, Chinhoyi ^nd other places igalnBt 
Ifr Nkomo ore cases in point. In effect HO 00 areaa for othor 
major parties have been created. For axample, Br Eddison Zvobgo 
speaking in Hasvingo on February 9, I^j^ said that no representative 
of any other party should set foot In llnsvinGOi nnd If nqy do, 
4/.... 



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- 4 - 

that should bo oonoidarcrd q provooatlan to tho Kar^ng? poople. T?ura 
IB one of tti8 ZAMI) (PF) parllainontarlanB, nho la Hupponod to uphold 
tbo fundaoontal bunar. rights ami froedoms "^a enshrined in our 
Constitution, Vila is, in thla lnatnno« -.nd In other o.isasi violitlng tha 
fraodom of novement and of BBsooiation in ZimbaoBc of various etbnlo 
groups. Ife can read hare that ho is dividing the poopls of this oountiy 
Into 'Yanngas" and other othnlo crouP'- 

Kr Chalmanf up to this paint I have dononstrsted beyond reasonafala 
doubt tha sad and twglo fact that Zinbnb»ii io ao IiroEPEHDEMT CaUMTIiy 
vriTHOtJr FREEDOM , ind tha world DUBt not mialoid thamaolvas into 
bollovlng that JUBt beoauaa Ztababaa Ib an Indepandont nntloni that 
»a its eitisana an tharafora frao, because ve ire not. But ite are 
like th« IsgandsiT Kunta Kints. 

Ur CbatmBn, the violations of human rlghti: ^nd froedons nhich I have 

pointed out abova, combined with the additional points nhicti I an 

a'bovt to tell you, aia not conduotlva to holiini; free and fair oloctions. 

ta Wa eurrantly havo rallsbla Information ,ind irrefutable evidence to 
tha foots 'haf ovor 40 000 nsmberc of the ruling party controlled 
loath Brigada have been deployed nntlontlly, fully equipped, 
Inatraetad, aupported and financed by tho govamBont, ind have 
started eold and calculated politicilj;/- motlvatad intiiaidatory and 
tarxorlst oanpaisn In rural areas. 

2a Am Speoial Coostabulaiy which in fict is ZAtfU (FF}'a 

valStioal police force, using govomncnt uniform and facilities 
luva slao already been deployed for intlnidntion purposao, ind 
an alrsady oanylng out undenocratlc , binaed nnd supproBsive 
aetjvitiaa. 

}« tbe Hfth Brigades which is ZANU (PF) political -trmy 

whloh also uses govenuwnt uniform ind ficllitics, is also 
daployad for Intimidation of all oth^^r political parties 
exaapt ZiVU (FP).''The Fifth Brigido, in Shana, is cillod 
'Qnfcursbundl" vhicb ueano "chaff-cleaner". 



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niiP 'a^i^ they ere siippooed to regard people ea chzff and can, ictiiddate, 

h.ir.-'i;^ nd trost pooplo ?s ae do lith chaff. 

4> ■&« V i B C ba« Ji-d --^.••nl applle^tlor-^ f':r l'_.jliliae political r^lliae 
tuf.-,^* down rhilst lUtfU (FF) are being cerLiLttad to hold as anny rallios 
ae tUtv niab to. 

5> Su:' pijtilic statescn'a are aupproasod ini M\» only tlae tba looal nms 
nedii (l.a. radio, telsvisioni and aoQt of t'ai novepapare) cublish 
an/th'.ng sbout ue i« nhen Jt io either soacthla;! vaiy diatorted or 
tl^t.-int 1L«B or obaraetar aseasinctioriG. A caeo in point istbe article 
vbisii a^pABred on tba flnt page of th« Herald of Februiiy J, 1985 
•h^n It aia ntsted that I «9s In Bulansjro and foiled to address a 
D?o^inii becauae of tosonstratlooe vbilst Inf lot I aHo in Harare that 
nbo1« Keeker^. 

Hr OiairMR) «ltb suob ovenhelaing evideno* of irrenularities the 
IsioqcsTelile oonoluelon ntst therofore be psaaed, that tho torthoomlng 
eonts^l election la tr9afiii «ltb look of fnMdon and falmeBc. Ho««vaT( 

not Trltbctaiklina tiii,B oonolualoni the 'J i K C is atlll determined and 
rasolvad to oonteat all tbe 90 seats. 

Tinall/ %r dMlniBn, I Bhell brlaflj addrafls ^^nlE to the iBSuae in 
thie !orthoo«ilne (tdner^l election. Ttf real Imubb Id this campaign 
ara in ear vlev «c tollosa:- 

a) Vbti ruling party's Intention to IntTodUM the even more opproasiva, 
nipraMlve dUd opportvmlBtla one party ^lotatomAlip. but ve the 
U i K C ai« pTOfiaslng and adveaatlng <i ■alti^vrty daaMomer' 

y>) TlM iBporeitahlrut eoononiaBjlr aulaldsl » o«lL>d sdentitic 

■oolaUnt «blob !a nana otbsr tbati n vpict io poverty aad ooonomlo 
ruiitt tbe U A tf C vsnts to introduoe tbt mileblngt «iid renarding 
■clued Qoonoqr nhieh can lead our cnuntiy to procperlty. 

0) Zut^ltllahnant af pnaca «nd uiltj for our nation ^a advooitod 
V th'j U A If verstia oontinuetlon under a Prirao tUnleter nho 
h;i3 totnlly failed to ereate and Inpleacnt peace 3 nd unity for 
the nation. Ha ba> diaasllx failed t«oau»e ha la often bi(jhly 
diviaivo hinsalf In speoafa, s^tro^itoty nod vltidietivo In 



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- 6 - 

d) The U A H C nanto to nake Zlmbib-^iia rii irwependflnt country «ith 
TBEEDCU. Zunf (PF) has so fnr natia Zitiliotnra an indapaiidont 
oountiy vlthout TBIXSKill. One of thn uaddcat things about the 
proaent govamcnnt la that they thin!: thnt Juct iMiMuao *e sre an 
iDdepandent nation ro are autoEiati^ally "fraa", not raalitine the 
taot that 1b Bote ■•ye than ono, In terse of fraodon, iie ■ira no* 
«van «oraa than «• *ai« under eolonlil resln>> Bort)* aorea than 
raoiet South ifzloa, ^nd oorao than Anln'a Uganda. Zlnbabire hca 
l>Mt) totally deprived o; the freedon cba von by self denial 
vid aupmDB eBorifloa, And U A N C «a»to to natora that fraadon. 

a) Today in ZlBbabse, people beta each otbar. In e Banner and dagraa 
unnreoadanted. In a culture of axtandad fsittUeE ahlch derive 
e lot of Joy, oohealoa and unity, our people era boCn^ trainod to 
hat* anyone «bo le not a ZUI\} {TT) oard osrvlar vegardleae of 
whether the peinen aay be a brother, aleter, notber, fatheri friend 
or vhaterar ralatlonablp one nay hev*. ne U A IT aanta to usher 
a new aa« of love, unity, nutual rsapaet and peaoa aaong all our 
people. 

TEU IS ID'JR LAST GEAKCX TO 3iVi; ZnOUVBl 
ntank you Ur Chslraan, Ladlea and Qentleaea. 



31ahop A T l!UBOT«">a 

I B 4 B C 



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Senator Heinz. Thank you very much, Mr. D'Agostino. 

I note that during the course of the statements of the peinel a 
number of our other colleagues have arrived — Senators Gorton, 
Mattingly, and Cranston. Do you have any opening statements that 
you would Hke to make at this time? 

If not, let me thank all the witnesses for their testimony. I have 
a couple questions for Mr. Hackney and Mr. Bok. 

Your position as individuals — not representing your universities 
I understand — seem fairly much identical to me. Let me be clear, 
though, for the record. 

You are saying that while you support S. 635, if S. 635 actually 
legislated disinvestment, would you support it or not? 

Mr. Bok. No. I think if the legislation either required the imme- 
diate disinvestment by universities in all stock in American compa- 
nies doing any portion of their business in South Africa or if it re- 
quired all such companies to leave South Africa, I do not believe 
that I could conscientiously support that bill. 

Senator Heinz. Dr. Hackney. 

Mr. Hackney. I agree with that, yes. 

Senator Heinz. If you became convinced — contrary to the views 
that you may hold today — that the result of the prohibitions on in- 
vestment by American firms and their subsidiaries in South Africa 
would nonetheless bring about disinvestment of those firms, wheth- 
er it was intended or not, would you still support that approach, 
the one in S. 635? 

Mr. Bok. If this legislation brought about disinvestment? 

Senator Heinz. The sponsors of the bill — Senators Kennedy and 
Weicker and others — say their legislation is not aimed at bringing 
about disinvestment and I'm certain they are sincere in that posi- 
tion, but if the effect within 2 or 3 years of enactment was to, be- 
cause of the way things worked, whatever that may be — were in 
fact to bring about disinvestment by those firms so affected by the 
legislation, pulling out in effect of South Africa, then would you 
think we would be wise to enact S. 635 in its present form? 

Mr. Bok. I'd like to help, but I find that so unlikely that it's very 
difficult for me to respond to a hypothetical question that seems to 
me on its face by my calculations very unlikely to come about. I 
just caui't make my mind work that way. 

Senator Heinz. You don't want to answer a hypothetical ques- 
tion? 

Mr. Bok. Well, not a hypothetical question that seems to be 
really so disconnected with the likely course of events flowing from 
this l^islation as I see it. 

RESULTS OF SWEDISH BAN 

Senator Heinz. Well, let's deal with the history then. Sweden im- 
posed a ban similar to that proposed in S. 635 in 1979. If I were to 
tell you that at the time there were 31 Swedish compianies in South 
Africa who then employed 5,500 individuals and that by 1984, 5 
years later that policy had resulted in the disinvestment by half of 
the companies bringing the total number of Swedish companies in 
South Africa down to 17 employing 2,800 South Africems, would 



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291 

you continue to believe that the result that I described a minute 
ago was unlikely? 

Mr. BOK. Well, I guess the only answer 1 could give is that I 
think Sweden is a very different counti^ from the United States. I 
have some familiarity with Sweden. Both of my parents-in-law 
served in Swedish Cabinets. And knowing what I do about Sweden, 
I would want to investigate very carefully to see whether there ia 
indeed a causal connection between that legislation and the depar- 
ture of those firms or whether there weren t various other circum- 
stances involved that might have led to the decision to withdraw. 

Senator Heinz. Dr. Hackney. 

Mr. Hackney. I generally agree with what Derek said. If I were 
to become convinced, however, through your persuasive arguments 
and evidence that indeed the immediate result of this legislation 
were to cause disinvestment, I would think that that is not a wise 
step at the moment for the American Government to take. 

I do not believe, however, that such is the case. At some future 
time it might be a wise step to take. 

Senator Heinz. Let me ask both of you this. Since U.S. compa- 
nies in South Africa employ well over 100,000 workers in South 
Africa and since jobs for the 65,000 blacks working for U.S. compa- 
nies in South Africa are among the best paying and most likely to 
provide additional education and job skills, and since a no-new-in- 
vestment or bank loan policy for U.S. corporations operating in 
South Africa is likely to lead to a relative decline in U.S. economic 
presence there, even if for the sake of a hypothetical argument it 
doesn't lead to disinvestment, other evidence to the contrary, isn't 
it true that blacks and other blameless third parties are likely to 
be harmed by the policy which is promulgated in S. 635? 

Mr. BoK. Let me try to respond. Since American investment has 
not been rising in recent years, it's a little hard to know whether 
even this bill is going to materially reduce the amount of that in- 
vestment. Nonetheless, I think the overriding question is: What 
can the United Stetes do that will maximize whatever possibilities 
exist for peaceful and constructive change in South Africa? 

I think that American corporations may have a role to play, but 
because the number of employees that they have is so small rela- 
tive to the total population, I think the constructive role that the^ 
can play is as an example. I do not believe that under any plausi- 
ble estimate of future events American firms are going to expand 
in South Africa to the point where they are going to have more 
than a tiny portion of black employees and I believe the advan- 
tages that can result from the example that American firms play 
can be fully achieved with the amount of investment that we al- 
ready have in South Africa. 

Therefore, increasing that amount is not likely to make any ma- 
terial difference to the future course of politiceil events in that 
country. 

I also fear that one other matter may occur if American invest- 
ment increases in South Africa which seems to be very much on 
the negative side, and that is, the more American investment that 
you have there, the greater financial and economic stake we have 
in conditions in that country and the more likely we are to put 
ourselves in a position where there may be a conflict of interest be- 



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292 

tween our economic interests in this country and what we really 
feel we should do on principle as a country whose ideals are deeply 
opposed to apartheid. So I think there's some risk in allowing the 
level of American investment to reach a point where we have 
really very strong potential conflicts between economic interests 
and those ideals which seem to me central to the American creed. 

Senator Heinz. I don't want to debate that particular premise 
with you. It seems to me that it, however, proceeds from the notion 
that a large U.S. presence in a country will always side with the 
forces of darkness which may bring about a cataclysm ultimately 
and the American presence somehow will never be wise enough or 
enlightened enough to see what is in its long-term best interest. 

I think everybody who studies the South African question wor- 
ries about one thing, and that is, left to its own devices, will the 
South African Government, in addition to pursuing policies that we 
find morally repugnant, bring about its own bloody destruction. It 
seems to me that a lot of people do believe that. I think it's a very 
big risk, and that it wouldn't be unique for American business 
people to believe that it is a risk also and, therefore, they would 
have an interest in peaceful change. There is a limit to the time 
period in which a white minority can suppress a large and growing 
black majority. 

So I don't know that I would like to grant your premise. I don't 
want to get into an argument. 

TIME IS RUNNING OUT 

Mr. Hackney. Briefly, I think you put your Unger on the right 
element here, which is time. You are suggesting a model of change 
that might indeed take place with increased American investment 
and development in the economy perhaps over a long period of 
time, but I think the events of the last 9 months or so make it 
clear that we really probably don't have that time. So one should 
be looking for what modest steps might be made that don't immedi- 
ately harm the victims in South Africa and will induce or encour- 
age change from the South African Government. That's how I 
come to support S. 635. 

Senator Heinz. Thank you. One last question for Mr. D'Agostino. 
Mr. D'Agostino, in your testimony you made the statement that it 
was basically wrong to debate the internal repressive antihuman 
right, antiwhatever we want to call them policies of another gov- 
ernment. You said it was destructive of us to do so in the case of 
South Africa because, as I remember what you said, it caused them 
to dig in their heels. 

If I applied that principle generally, I guess I would never criti- 
cize the Government of Nicaragua for what it is doing. Why isn't 
your admonition a selective admonition and invalid? 

Mr. D'Agostino. Well, let me answer that in two ways. One, the 
case of Nicaragua involves a threat or a long-term threat to the se- 
curity of the United States because of what they are doing in Cen- 
tral America. The second thing is, of course. South Africa is an 
ally. What I said is that under this bill South African internal af- 
fairs is a matter of continuing debate in the U.S. Congress. It's not 
so much that we debate the problem. I think it's good that it's de- 



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bated and we say we don't approve of apartheid. But the bill says 
the President can come back to Congress and say, "Guess what. 
South Africa is behaving better now." It then goes back for a 
debate in the Congress. It's like the U.S. Congress is an oversight 
agency for the South African Government and the policies of the 
Government. It's not a question of merely debating its policies, 
which is fine and I think appropriate. It's a question of being in a 
position, because of this law, of being able to approve or disapprove 
step by step what the South Africans are doing and almost saying 
we are going to supervise your improvement. It s much more a psy- 
chological point here than anything else. 

Yes, we should debate these policies and say they're wrong. No, 
we shouldn't put ourselves in the position I think we are, supervis- 
ing and telling them how to do step by step what they ought to be 
doing. We haven't had a lot of success in other countries — Iran, for 
instance, and Cuba. 

Senator Heinz. Thank you. Senator Proxmire. 

Senator Proxmire. Thank you very much, Mr. Chairman. 

Mr. Schotland and Mr. Bok, I hestitate to even try to correct the 
president of Harvard University on anything and you may be abso- 
lutely correct and I may be wrong and Mr. Schotland may be cor- 
rect and I may be wrong. You gentlemen agree on this point but I 
think you are both wrong. 

You say, speaking of S. 635, "The bill bans loeuis to the South 
African Government and GovemmeDt entities but not to others in 
South Africa." 

LOAN PORTION OF S. 635 

Now let me read you from the text of the bill, section 4(a): 

The President shall no later than 90 days after date of enactment of this Act issue 

r^ulations prohibiting any United States person from making directly or through a 

foreign afTiliate of that United States person any investment including bank loans 

in South Africa. 

Then there's a further statement. 

The term investment in South Africa means establishing or otherwise investing 
funds or other assets in a business enterprise in South Africa including making a 
loan or other extension of credit to such a business enterprise, the private sector as 
well as the Government. 

There is one exception and the exception is that loans can be made 
to the Government provided they are loans for housing, health, or 
education and on a nondiscriminatory basis. 

Now if I misstate that, you show me in the bill where I'm wrong. 

Mr. Bok. Well, I think the statement that I made was that I 
hoped that the bill would be clarified to make that clear. All I can 
say is you may be right, but in reading the bill last night in prepa- 
ration for this testimony, it wasn't as clear to me as I would have 
liked. I have also seen the bill described in other publications as 
simply prohibiting loans to banks. And so I didn't mean to say that 
the bill was other than you stated. It did seem from my reading, 
which may have been wrong — but it did seem from my reading not 
to be entirely clear and thus my statement was that I hoped it 
could be clarified so you could extend that prohibition more broad- 



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294 

Senator Proxhire. Mr. Schotland. 

Mr. Schotland. Senator, this is turning into a pretty good law 
class. I don't know how many of you were struck when a former 
law professor revealed disquiet about handling hypotheticals. 
[Laughter.] 

I agree with what President Bok has just said. We're at the stage 
where the question isn't eitactly how one reads the bill but how we 
ought to make it read to say what is intended. If the intention is to 
bar more than loans to the South African Government and affili- 
ates, then I submit that section 3, *hich was not in the portion you 
attended to, ought to be expanded to expressly authorize the Presi- 
dent to bar further loans if he so finds necessary. 

At present, the specific of section 3 on loans might override the 
much looser, broader general of the section you pointed to and I 
think, therefore, I agree completely with your intent and with 
President Bok's and my own wish that if there is to be a bar on 
loans it ought to be across the board, not as now where the only 
s^al we're sending is that we're showboating. 

Senator Proxmire. I thought we were making that as express 
and as explicit £is possible. I can see why the chairmem of this sub- 
committee and I both went to the Harvard Business School and not 
the Harvard Law School. 

Mr. Bok. There's always time to rectify that. 

Senator Proxmire. I'm sure I couldn t get in now. I could have 
gotten in in those days. 

Senator Heinz. I hope they have a good work-study program. 
[Laughter.] 

Senator Proxmire. May I say, Mr. Schotland, you referred also 
to the Lugar bill which you said contains the Sullivan principles 
and that S. 635 didn't. S. 147 the bill that Senator Sarbanes and I 
are also cosponsoring does contain Sullivan principles. 

Mr. Schotland. I applaud that, Senator. 

Senator Proxmire. Very good. Thank you. 

President Bok, an argument made by opponents of limited eco- 
nomic sanctions proposed in S. 635 is that moving beyond the 
Reagan administration's [K)licy of constructive engagement or quiet 
diplomacy will make the white regime even more intransigent and 
reduce the chances for peaceful reform. You say however on page 5 
of your testimony. 

Opinion polls of South African whites indicate far greater support for change 
than anything promoted recently by the r^me. Such trends suggest the opportuni- 
ty for pressing the regime U> take bolder steps toward reform. 

Do you think that enactment of S. 635 would make the whites in 
South Africa more cognizant of the urgent need for reform in 
South Africa and have a positive effect? 

Mr. Bok. Well, I want to be as candid as I can and recognize that 
the problem of how one country can increeise the possibilities of 
constructive reform in another is an extremely difHcult enterprise. 
I can't claim to be certain. I think all one can do is meike the best 
estimate that one can. 

In my opinion, it is too easy to interpret our present policies as a 
kind of tacit acquiescence wiui the status quo or at leeist not caring 
very much about the status quo. 



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295 

I think the sanctiotifi of the kind proposed in the Kennedy- 
Weicker bill simply cannot be interpreted as tacit acquiescence of 
the status quo. They make a much stronger statement. 

To the extent that that is communicated, as I'm sure it will be, 
because all official emanations from the United States involving 
apartheid are communicated widely in South Africa, I think that 
this message will necessarily get across to large numbers of white 
South Africans; yes. 

SIGNAL TO THE BLACK COMMUNITY 

Senator Proxmire. President Bok, do you think that even if the 
legislation did not have a positive impact on the white community 
in South Africa, do you think it is worth enacting to give a s^al 
to the black community in South Africa of where America stands 
on apartheid? 

Mr. Bok. I think that certainly would be a positive result of the 
legislation as well and it would be an independent benefit even if 
the first message did not get across. 

Senator Proxmire. Now opponents of the limited economic sanc- 
tions proposed in S. 635 often note that blacks in South Africa are 
better off than blacks elsewhere in Africa. Indeed, Mr. D'Agostino 
has made that implication. 

You note, however, on page 5 of your testimony that South Afri- 
ca's homeland resettlement policy has forced 3.5 million blacks to 
move to crowded Bantustans where the economic and living condi- 
tions are poor and the infant mortality is the highest in the Afri- 
can Continent. 

Can you tell us how many of the 22 million South African blacks 
are forced to live in these so-called homelands and what conditions 
are like for blacks in those areas? 

Mr. Bok. I believe that there are some 11 million blacks now 
living in the homelands. I would point out that a Government com- 
mission in South Africa in the 1950's estimated that the total 
number of people that could be supported in the homeland territo- 
ries was 2 million. So you have over five times the maximum 
number now residing there. 

We do have reports from the Carnegie Foundation with respect 
to the proportion of nonwhite families below the poverty line. I 
can't testify as to exactly what measure of poverty they use in 
South Africa, but I think it's instructive to note that by their 
standard the number of families below the poverty lines stands at 7 
percent in the cities, 13 to 14 percent in the countryside, and 80 
percent in the homelands, thus indicating the relative deprivation 
that exists. 

The proportions of nonwhite children suffering from malnutri- 
tion and stunted growth is high for nonwhites throughout South 
Africa and much higher in the homelands. 

A lot of those statistics as well as impressions by qualified people 
are captured in a report submitted by David Hamberg who is a 
doctor and now president of the Carnegie Corp. in New York, enti- 
tled "A Personal Perspective on the Second Carnegie Inquiry Into 
Poverty and Development in Southern Africa." 



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Senator Proxmire. Will you make that report available to us so 
we can have that printed in the record? 
Mr. BoK. I will submit that for the record. 
[The following report was subsequently submitted for the record:] 



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A PERSOHM. PgRSPECTIVE OH THE SECOMD CARMEGIE 
IWOTIRY IKTO POVERTY AHO PEVELOPHENT IH SOUTHEBM AFRICA 



David A, flanburg, H.D. 

Presldant 

Carnegie Corporation of New York 

Hay 13, 19B5 



In ^ril of 1984, I led a Carnegie Corporation 
delegation of seven people to participate In a conference 
reporting the main findings of the Second Carnegie Inquiry 
into Poverty and Development in Southern Africa. He also 
visited several parts of South Africa, especially to see 
at first hand the manifestations of poverty which the 
Inquiry had examined. The visit proved to be highly 
informative, surprising in some ways, and deeply moving 
for all of us. 

The Second inquiry into Poverty and Development in 
Southern Africa was initiated by the Carnegie Corporation 
of Hew York in April of 1982. Based in South Africa at the 
University of Cape Town, it Is directed by Dr. Francis 
Hilaon, a labor economist and head of the Southern Africa 
Labour and Development Research Unit. (SALDRU) at the 
School of Economics. 



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- 2 - 

nie Inquiry has three main objectives: 

1. To collect and collate up-to-date facts about poverty and 
the process of Inpoverishment in South Afcica; 

2. To generate public debate on the causes, nature, and 
•xtent of poverty In Southern Africai 

3. To stimulate thinking and action on strategies against 
poverty and on ways of facilitating equitable development in the 
lagton in both the short run and the long run. 

The aim ultimately is to contribute toward shaping a more 
just and peaceful society In Southern Africa. 

The Inquiry is drawing upon the knowledge and research of a 
network of scholars and professional persons in law, medicine, 
economics, religion, and other fields throughout the country, ai 
well as community leaders, teachers, and social workers who have 
first-hand knowledge of poverty and the process of impoverishment 
at the local level. The intention is to ensure the widest 
possible participation in the study from all segments and races in 
southern African lite. More than twenty universities in the 
region have participated in the study. 

nie Inquiry is viewed in South Africa as the most exhaustive 
survey of the causes and consequences of poverty In southern 
Africa since the Corporation-sponsored study of poverty among 
whites carried out fifty years ago. Popularly known as the 
Carnegie Poor White Study, the earlier study succeeded in 
stimulating actions that helped the Afrikaner poor overcome their 
conditions and bacome part of mainstream South African society. 



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- 3 - 

«ie current study. Is not confined to the study of the people 
ot any on* race classification In touthern Africa, although 
poverty in the 19S0s la endured almost entirely by black 
people— African, Coloured, and Asian. Poverty is balng studied In 
relationship to land use, law, food and nutrition, health car*, 
education and training, transport, housing, social welfare, and 
other qu«lity-of-life Indicators, it is also iMlng studied for 
its effects upon families, migrant workers, women, children, and 
the elderly. Overshadowing all Is the role and Impact of the 
official policy of drastic racial separation known as apartheid. 

Interim findings of the Inquiry were presented at a 
ConCerenca on Poverty and Development held in Cape To«n April 
13-19, 1984, to which nore than 300 papers were presented by 
participants. 'Oie conference also exhibited a collection of 
photographs pf the southern African poor, entitled "The Cordoned 
Heart." A film festival taking as its thene "Signs of Hope- 
brought together a great deal oif Information about daveiopmont 
lessons fron other countries. 

The proportion of families i*io live below the poverty line la 
about 7 percent In the cities, 13-H percent In the plattaland, 
and BO percent In the reserves or homelands. There Is poverty all 
over South Africa, but It Is the rural areas, where sost black 
peopl« live, that it Is most acute. Poverty In South Africa, 
according to the conference papers, is "decisively affected by 
apartheid." Its dimensions are particularly affected by land 
laws, pass laws, and the housing policy of the Nationalist 



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government and earlior govecnmanCs. OnEoceaeen circumstances lUe 
drought play their part, but severe poverty in South Africa has a 
deeper origin in the economic and political structure of the 
society. 

The Inquiry reports that there has been a great increase In 
poverty in South Africa over the past 20 years, largely as a 
result oE the accelerated Iniplementatlon of "Grand Apartheid,' 
Hherein blacks are deprived of their South African citlienship at»d- 
deported to the reserves set aside for their particular ethnic 
alflllation. These reserves, or homelands, have become "dumping 
grounds" for "economically redundant" people. (One paper referred 
to these people as "the discarded and dispatched.") Recording to 
the Inquiry reports, the number oE people made destitute by 
landlessness and unemployment has risen from 250,000 In 195 to 
1.43 million in 1980. The number living below the poverty line 
but having some income has reportedly increased from 4.9 million 
to 8.9 million—about one-half the population of blacks In South 
Africa. Eleven million blacks comprising 37 percent of South 
Africa's population are being crowded into the ten officially 
autonomous homelands that make up only 13 percent of South 
Africa's land area. There is Insufficient arable land or 
infrastrucutre to yield an adequate Income for the families living 
there. Traditional subsistence agriculture is collapsing with the 
overcrowding. 

Inquiry studies of the migrant labor system reveal Its 
devastating impact on families. One-quarter of black women In 



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- s - 

South Africa arc sepacatsd (torn their husbands bacauae of influx 
contcol tegulatlona and tha pass law* that ragulata th« movanents 

workecs. Many chiLdren of homeland acaas aca growing up baraly 
knowing thair migrant laborec fathoca trtio vlalt home only onca a 
yeac. Advaise child davelopment and high ccima caCes ara a part 
of thla picture. Quito apart from tha mantal health conaaquence 
for families of auch family fragmentation, it la more costly to 
maintain apllt famillea than a united family, 
' Mhltaa in South Africa enjoy approximataly the same longevity 

as Americana, and the same health standards, and commensurate 
access to Increasingly technological health caca. Most blacka, 
by contrast, especially In the rural areas, suffer from a very 
heavy burden of illneaa. Communicable and other aerlous diseases 
take the Uvea of a great many South African infants and handicap 
for life those who survive . One-third of African, Colou red, and 
maia n chliaten unier the age ot 14 in South Afric a are 
undecweight and stunted Cor thelt age because th ey do not get 
enough to eat ^ The infant mortality rate in Sowato Is three tines 



higher than that of irtiitas. Forty-five percent ot Sowetan 
children who reach the age of ten suffer from malnutrition, 59 
percent from stunted growth, and 24 percent from -wasting." 
Oocto^who examined children at three large schools in tha 



Gaaankulu homelan 


d of 


the Northern Transvaal found that four out 


of ten had notn in 


g 1^° 


eat before coming to school that day, and 



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- s - 

In my vi«w, povacty is partly a matter of income ana partly a 
nattar ot human dignity, it is one thing to have a very low 
Incoma, but to be treatad with respect by your compatriots; It la ' 



quite another matter to t 



' low Income and to be harshly 



depreciated by more powerful compatriots. Let us speak th«n oE 
human impoverishment! low income plus harsh disrespect. This 
condition jeopardizes survival in the most tundamenCal 
tarms~e.g.. It drastically increases Infant mortality, increases 
tha burden ot Illness in many ways, and shortens life expectancy. 
But it does even more. It gravely jeopardizes the most 
fundamental hutaan attachments to family, friends, home and 
community] it undermines self-respect and a sense of belonging; it 
■akea life profoundly unpredictable and insecure; It erodes hope 
tor future Improvament and the sense o£ worth as a human being. 

Thus, to spaah ot impoverishment In this sense is to speak ot 
human degradation so profound as to undermine any reasonable and 
decent standard of human life— measured by whatever religious, 
aclentlElc, or humanitarian standard. Any outlook of human 
decency In any part of the world Is inconsistent with the 
persistence of such impovetlshnient In the twenty-tlrst century. 
Tragically, it is widespread in contemporary South Africa despite 
the many advantages ot that nation—a.g., Its abundant natural 
resources and beauty, its democratic heritage from Britain, and 
its easy access to modern technology. 

South Africa's problems, though distinctive, ate not unique. 
Therefore, the Inquiry is an enterprise which should not only be 



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useful in South Attica, but throughout the wocld. The ptobleaa 
Bddcesaad ao effectively In the Inquiry are of great significance 
In aany countries. Including our own. 

I invited a rather large delegation of Carnegie colleagues to 
accompany me to the Inquiry. That they accepted with alacrity 
reflects the Importance we attach to this subject and the respect 
wa hold for those conducting this Inquiry. All of us were deeply 
affected by our visit. He were on a rapid learning curve. He 
were informed, stimulated, sometimes shocked, and brought to a 
renewed dedication (o tackle the horrendous problems of human 
impoverishment in the constructive spirit of this Inquiry. 

Beyond the conference, we made a two-day journey through the 
Ciskel—a Journey which transformed the dry language of the 
statutes and the abstract findings of the Inquiry Into a drama of 
profound human Impoverishment, especially in isolated and desolate 
resettlement can^s. My colleague, Relene Kaplan, chairperson of 
our board of trustees, gave an insightful presentation of this 
visit at our board-staff retreat In May and I quote some of her 
remarks here. "Throughout our tour of the Clskel, I kept 
remembering Desmond Tutu's words, **«n we net with him and other 
Black leaders In Johannesburg on our first day in South Africa. 
Be said that our visit to South Africa would be a course in Human 
Ecology—a lesson about the sad wastefulness of human resources. 
Repeatedly, those words haunted me as we saw evidence of the 
findings i* ich were presented at the Carnegie Poverty Inquiry: 



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Mlnucrltlon, family dlsocganlzatlon, destruction of people's 
poaseasions and buildings, squalor of the reaettlenent cainpa Mhich 
deaectdte the natural beauty of handsome counttyaide, and the sad 
Idleneaa of human belnga t*io literally have been "dumpBd IIK* 
[•fuse," as one Black leader we met expr«sed it, «e witnessed a 
countryside of hutaan beings *o had been placed "out of 
sight*— and ware therefore "out of aind" for most white South 
Africans. The Ciskel nust be viewed in the context of a w«b of 
laws, customs and policies concerning Black Africans which have 
had as their fundamental goal the relocation of as many Black 
Africans as possible into tiie "homelands" and prevention of those 
who w«r« there from coming to the cities.* 

"During our two-day trip, w« visited seven resettlement 
campa — Potsdam, Ndevarra, Pakamiaa, Tswela Tswills, Dimbaza, 
Whittlesaa, Oxton— some as old as LO years or so, before ciskel 
became Independent, others aore recently sstabllshad; but all 
housing those relocated from other rural areas, often quite far 
away. And many continuing to receive new arrivals. As we novad 
from place to place, I anticipated that aurely the next location 
could not be worse— but Inevitably it was, either because of 
greater numbers o£ people In the area, or less fertile land; or a 
greater sense of Isolation and impoverishment. In each auch 
settlement, we visited nursery creches, soup lines, health 
clinics, pitifully meager sewing or garden or handicraft 
projects— each sponsorsd by one or another church or charity 
organization— Lutheran, Svangelical, Anglican, Catholic— and all 



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- 9 - 

teylng, against virtually Inpoaslble odds, to Ea«d nalnouriahad 
childran, to treat illneasas assoclatad with sev«ce poverty and to 
lend Boae dignity and Manlng to paople'a Uvea." 

■Each Buch location waa attuated In arid. Infertile land— In 
aoae cases aluoat desert type condttlans. The housing was 
basically ttia sane — either shacks nads from wooden pactctng cases 
with Metal roofs, or corrugated Metal shacks. He ware told that 
all had been designated as "tenporary" — but in some cases that 
referred to settlements going back to as early aa 19701 So these 
so-called te^ocary quarters have become permanent dwellings— -hot 
In sunner and f reeling cold In winter. In each such area, there 
were four to six such shacks nftiich shared a pit l«trlne~each such 
shack often housing as many aa ten or more persons.* 

'Although the details of each place may have varied, the 
underlying theme remained constant— the callous disregard for the 
physical and spiritual needs of these people— and the devastation 
and human suffering which has resulted from the conscious and 
unrelenting dislocation of an entire culture." 

It is not possible to say precisely how many people have baan 
forced to move into such camps since 1970, though serious efforts 
have been aade despite official obfuscation. Suffice It to say 
the appropriate metric Is In millions, not thousands. Few South 
Africans, let alone Americana, have visited these caiupa. The 
sights and sounds and smells of the camps will be with us for a 
long time. Perhaps It Is excessive to characterize them as 
'concentration caaipa," but that Is the term that reverberated 



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- 10 - 
through our group as we aaw the repressive squalor an^ the grossly 
Malnourished chlldran all around ua. 

On June 1?, 197S , the "children's uprLaintg" In Soweto matkad 
the beginning oC a new period of black protest and violent 
government response which continues to this day. Not since the 
'Sharpeville Massacre' In 196 had there been such a large 
outpouring of comniunity anger and fierce government retaliation. 
In the immediate aftermath of Soweto over SOO t>laclt South Africans 
were killed, most of them children. The vehemence of this 
reprisal had a sobering effect on all South Africans, cautioning 
blacks and disturbing the complacency of twites. 

The tenor of debate changed in South Africa after Soweto, and 
even the government was forced to acknowledge the need for 
"raforn' — though without conceding any of the fundamental changes 
sought by the black community. But the government's old adherence 
to Uie purity of Afrikaner racial ideology had begun to falter, 
and Soweto was followed by a change of Afrikaner government and by 
other deep splits In Afrikaner hegemony. 

This is not meant to suggest that the South African 
government has embarked on a cleat program of social arid political 
reform, in fact, the continuation oE the 'honelands' policy is 
designed to 'partition out' the vast majority of black South 
Africans, both by physically removing them to rural wastelands and 
by stripping them of their South African citizenship. This 
process has continued unabated until the present day, with vast 
and harsh human consequences. Nor do the recent 'constitutional 



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- n - 

teforaa- signal a government wllltngneas to accept tesponiiblllty 
tor black social and political participation. The new 
constitution Is a continuation of racially divisive pollclas 
designed to aalntaln irtilte dotalnatlon. 

Inpoverlshed people are at high risk of suffering from a wide 
variety of diseases, prominent among i*ich ace Infectious 
diseases. This latter point la tragically Ironic In view of the 
tact that infectious diseases have been drastically diminished In 
technically advanced societies— and South Africa is after all a 
technically advanced society, at least in part. In Europe, North 
Anerlca, and Japan, Infectious diseases have yielded to a 
constructive combination of adequate nutrition, clean water, 
efficient aanitatlon, immunizations, antibiotics, and decrease of 
ovec-crowdlng. Altogether, this decline In infectious diseases 
represents the greatest health progress made in human history. 

South Africa could catch up In health with other technically 
advanced countries In a relatively ahort time--to the great 
benefit of Its own people and ita future as a nation. There are 
aany useful Interventions tor this purpose that are not expensive. 
Indeed, their efficacy has been demonstrated scientifically and in 
large-scale practice In many countries all over the world, some of 
which are less technically advanced and less affluent than South 
Africa. The conference was replete with the data necessary for 
such interventions, and illuniinatlng steps toward a coherent 
strategy. 



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The Inquiry showed that a great many South Africans still 
: take for granted their ability to meet basic adaptive 
ne«ds; food, water, aheltsr, and other factors essential toe 
aucvival and human dignity. Why are there still widely prevalent 
thceats to survival lAen modern science and technology have made 
such powerful contributions to South African society? And lAat 
can be done to diminish the kind of vulnerability that leads to 
desperation? The Inquiry provides some answers to these questions 
in the structure and function of Sooth African society. 

The plight of the poor whites in the Twenties and lliirties 
bad to be contended for in a hostile political atmosphere, in many 
cespects as divisive and contentious as politics today. Indeed, 
the slioilaribies between the telnCorcing nechanisins of poverty 
fifty years ago, falling largely on the cural Afrikaner, and those 
of today, falling largely on the black community, are striking. 
But consider these basic differences of social and political 
condition: whites could own land in 1934, Africans cannot, by and 
lacge, in 1984; whites could move to the cities, with their 
families, at will, .while today black South Africans are restricted 
by law frora free movement or the opportunity to maintain an Intact 
family lltet and, not least of all, considering the successful 
rise of Afrikaner nationalism, whites had the right to express 
themselves politically, to vote. And, whites were not physically 
moved from place to place. In Implementation of rigid segregation. 
Tliese are painful facts, and they cannot be avoided in any serious 
effort to address human impoverishment in South Africa. 



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- 13 - 

Let m* make It clear that the Cacne?!* Corpoiatlon Is not 
■picking on" South Africa, not selecting it for unique prejudicial 
■ccutiny. We ace auppottlng work in our own country and alseHtiere 
that alms to illuMinate and overcome human inpoverlstiaent. 
Through the Inquiry we are (undamentally trying to be helpful to 
all^ South Africans, just as our predecessors tried to be helpful 
to the poor lAiltes a half-century ago. to do so, we must support 
honest and penetrating inquiry, letting It go uherever the 
evidence takes It. We must be true to out heritage, placing great 
value upon democratic institutions, universal education, equal 
opportunity, health foe all the people, and compassion for huean 
suffering. He recognize that these values ace very hard to 
implement — anyiAere. But they are no less applicable to South 
Africa than to any other nation. 

South Africa is Important for several reasons. One Is its 
worldwide symbolism of prejudice and othnocentcism, end 
emotionally-charged efforts at democratic reforsi and conflict 
resolution. South Africa carries to the Nth power a set of Issues 
that resonate with similar issues elseiAere. south Africa Is 
intrinsically interesting for additional reasons. It la a kind of 
twilight zone, full of complicated mixtures and paradoxesi pact 
ancient and part modecm pact democratic and part totalltaclan) 
pact black and part tAiitei natural beauty and rich resources 
contrasting sharply with human degradation. Emotions of survival 
and desperation are at play on all sides of the aulti-fBceted 
conflict. But so too is a great deal of ingenuity, goodwill. 



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grace under pressure, and dedication Eo humane values. It is 
Just barely passible that the world will learn a lot from South 
Africa in the next few decades about ways of dealing with the 
noBt intense human predicaments. 

The most drastic change in the long history of our speciea 
occurred only about two centuries ago with the onset of the 
Industrial revolution: essentially the acceleration of 
technical advance and Its application to human problems of 
adaptation. As it happened, tiiia revolution occurred in the 
northern hemisphere — a fact which was to have prof ound reper- 
cussions over the ensuing two centuries, some of which are 
pa infully visible in South Africa today. 

In short, light-skinned people in Europe developed powerful 
tools before dack-skinned people elsewhere. These tools permitted 
an explosive increase tn the production of worldly goods during 
the past two centuries. For the fiest tine in our long and 
arduous history as a species, we could achieve considerable 
control over our envitonnent, far-reaching protection against old 
vulnecablllties, and many opportunities Chat never existed before. 

What a change a century can make! Indeed, human initiative 
has transformed the world in the twentieth century. An ordinary 
citizen of noet technically advanced countries has opportunities 
and protections not available to kings in earlier centuries. In 
recent decades, largely (n tlie second half of the twentieth 
century, science has been institutionalized on a vast scale for 
the first tine, and the pace of advance In deep knowledge has 



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aocaletat«d prBcIpltoualy— knowlega of thn sttuctuce o£ nattac and 
of lift, of the natuE* of tho univers* and ot th« human 
•nvlconmant, nv«n knowladge of oursAlvsa. Thase scientific 
advances pcovlde an unprecedented basis for technological 
innovation, and the pace of such innovation la now the nost rapid 
In all of history — e.g., in computers, telecoiwunlcatlons, 
biotechnology— and also weapons. The potential benefits of Modern 
technology for human well-being ace profound in every sphecei In 
food, water, health, eonmunication, transportation, energy and 
human undaratandlng In oil Its variegated splendor. THis could 
mean the virtual elimination of human inpoverlshment in the next 
several decades. 

But technology can be used In oany ways. It can increase 
human suffering as well as relieve it. So far, technical advances 
have been both for batter and for wocs«. Everyirtiare, those who 
have technical skills and advanced technology are powerful. They 
can. If thay wiah, turn their power against fellow humans who aca 
weak, vulnerable, powerlaaa or parcelved as Mnaclng to them. The 
temptation to use power in this way has been alBoat Irresistible. 
Such behavior could be readily observed alnrast anywhere in 
centuries past — and right nowi 

Please bear in mind that the power of modern technology 
evolved first in Europe among llght-sklnned people. Prom that 
time to the present Moment, there baa been a tendency for 
light-skinned people not only to bvcone wore technically advanced 
and affluent, but also to depreciate, exploit, and even subjugate 



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their dark-skinned brethren. This In my view Is one of th« moat 
serious problems in Che modern world, a root cause of human 
Impovet tshment , and a dilemma that has reached crisis proportions 
In South Africa. 

The human species is rapidly reaching a phase of its 
evolution in trtiich its prodigious capacities for technical skill 
and social organization can eliminate human impoverishment. But 
to do so, it will have to take account of its ovn 
nature — including ubiquitous tendencies toward prejudice, 
•thnocentrism, and violent conflict. 

■Bie world is now, as It has been for a long time, awash in a 
sea of ethnocenttism, prejudice ana violent conflict. Hhat is new 
Is the destructive power of our weaponry: nuclear, enhanced 
conventional, chemical and biological. Horeovet, the worldwide 
spread of technical capability, the miniaturization of weapons, 
and the upsurge of fanatical behavior are occuting In ways that 
can readily provide the stuff of very deadly conflicts In every 
nook and cranny of the eacth'. To be blunt, we have as a species a 
rapidly gcowing capacity to make life everywhere absolutely 
miserable and disastrous. As If that were not enough, *two nations 
already have the capacity to totally destroy the species, to make 
human life extinct. 

I do not think we have the luxury any longer to indulge our 
prejudices and ethnocentrlsms. They are anachronisms of our 
ancient past. The worldwide historical record is full of hateful 
and destructive indulgences based on religious, racial, and other 



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distinctions— holy wars of on* aoet or another. I know th*t« at* 
■touqh-i»Ind*d" people «ho b«ltave that this is the human condition 
and w* nust natce the Bost of it. But technology has passed the> 
by, >ad« th«it: position unraalistic— If not today, then to»ottow. 

If wa cannot Isatn to accomodate aach other 
respectfully— within nations and across nations— wa will destroy 
each other at auch a rata that humanity will soon have little to 
chariah — if Indeed there is any humanity left on earth. 

In such a world. South Africa has special significance. It 
the accomodation of diversity can occur there, it can occur 
anyiAere. If entrenched hostilities can be reconciled there, the 
world will notice. If the structures of Impoverishment can be 
changed there now as they were a half-century ago, this time to 
foster development for a^l people. It would Indeed be cause for 
rejoicing everywhere. Let ua fervently iiope that the Second 
Carnegie Inquiry will provide a landmark on'this path. 

Senator Proxmire. I might incidentally say that there's a roll 
call on the floor of the Senate and that's why some of the Senators 
have left and they will return as soon £is they can. We will stay as 
long as we can but we must not miss the roll call. 

SUIXIVAN PRINCIPLES HAVE BEEN HELPFUL 

Dr. Hackney, you note on page 2 of your testimony that the Sul- 
livan principles have helped to ameliorate working conditions for 
blacks employed in signatory firms, but it must oe remembered 
that of the virtually 300 American companies which do business in 
South Africa only about one-third are Sullivan signatories etnd 
these employ only a small fraction of South African workers. I be- 
lieve Sullivan signatories employ about 70,000 of South Africa's 22 
million blacks. 

Now, you endorse the provisions of S. 635 that does not make the 
Sullivan code mandatory. Do you believe it would strengthen or 
weaken the thrust of S. 635 by including provisions making the 
Sullivan code mandatory on United States corporations operating 
in South Africa? 

Mr. Hackney. I, personally, think that would be a good step. 

SenatorPROXMiRE, Even though it would affect only a relatively 
tiny proportion of the blacks? 

Mr. Hackney. Yes; I don't think that it would lead to a rapid 
social change immediately. In fact, one of the reasons I think other 
sorts of governmental action are necessary is that the process of 
change through the slow upgrading of black jobs in American com- 



oO-T2a O— 85— 



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314 

panics is going to take longer than the South African black popula- 
tion will tolerate. So, other things are needed. 

But I think making the Sullivan principles mandatory for Ameri- 
can corporations doing business abroad would be a moral step indi- 
cating that those are principles of the ethical treatment of employ- 
ees and the improvement of conditions to employees that reedly 
accord with our own standards of justice and I believe it would be 
appropriate from that point of view. It would also make some 
modest contribution to the improvement of conditions for blacks in 
South Africa. 

Senator Proxmire. Senator Hecht. 

Senator Hecht. Thank you very much. I'm very happy to have 
the distinguished people here today from top American universi- 
ties. Of course, that is Eastern universities. I am not comparing 
them to Western universities, you understand. 

You say you only speak for yourselves, the three of you, but actu- 
ally when a president of a university Qr top leader of a university 
speaks out, it's printed in the school newspapers and college news- 
papers, so it does have some impact. 

I want to remind you of a little bit of history. When the universi- 
ties started rebelling in Cuba in the 1950's against Batista, we 
ended up with Castro, In Vietnam they went against Diem, the 
universities first, and we ended up with a war in Vietnam with 
over 50,000 deaths. The university people spoke agfiinst the Shah of 
Iran and how terrible it was and we ended up with Khomeini. 

We're advocating economic sanctions. Governments fall on eco- 
nomic sanctions. Lyndon said there are two types of war, economic 
or shooting. Let's just say that history continues in this scenario 
£md we end up in a war. What would you think about that — advo- 
cating economic sanctions and then having some of your students 
killed — have you thought about that, Mr. Hackney? 

Mr. Hackney. Yes. 

Senator Hecht. Say in case the Government would fall we would 
end up with a hostile Government and we might have to send 
American boys down there. Have you thought about that? 

Mr. Hackney. I think all war is a terrible thing, sometimes nec- 
essary in the exercise of foreign policy. I don't think you're posing 
the choices very correctly though, because the change is going to 
come to South Africa. The question is under what conditions and 
what will be the result and what will be the attitude of that Gov- 
ernment toward the United States. 1 think inducing, through 
modest measures, social change that will lead to a Government 
with which we can have a mutually good relationship is a far pref- 
erable course than to do nothing and to watch a revolution occur, 
and the Government will inevitably end up in the hands of hostile 
forces. 

Senator Hecht. Well, when governments fall how can we know 
in advance what we're going to end up with? 

Mr. Hackney. Senator, I think if nothing is done in South Africa 
we are likely to see a violent change and the result will be a coun- 
try in the hands of people who will be hostile to the United States 
because we have sat back and watched it happen. 

Senator Hecht. Mr. Bok, have you thought about the eventuality 
of a conflict if the Government would fall? 



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Mr. BoK. Yes; first of all, I would like to say, with all humility, 
that the fact that some people at universities may have taken some 
positions in the past I hope does not necessarily implicate us. We 
didn't necessarily take those positions and we are speaking in our 
private capacity on this question. 

With respect to the point that you have posed, I think we find 
ourselves in the difficult position that anything that we do with re- 
spect to South Africa may contribute in some way to bringing 
about violence and therefore we must try to select that course of 
action, however difficult that may be, that is most likely to avoid 
violence. 

In my view, if one looks at the kind of sanctions we are propos- 
ing here, it seems to me most unlikely that the denial of bank 
loans or the prohibition on the sale of krugerrands is going to bring 
about violence. 

What seems to be much more likely is that the continued unwill- 
ingness of the South African Government to make significant 
changes in the regime is going to produce a pent-up frustration 
that will erupt in the form of violence. Therefore, by trying to do 
something which will add the moral pressure of this country to 
bring about those constructive changes is one that has the greatest 
prasibility of avoiding violence and the least possibility of contrib- 
uting to it. 

Senator Proxmire. Senator Hecht, we have about 4 minutes 
before the end of the vote. We'd better run. The committee will 
stand in recess until Chairman Heinz returns. 

[ReceBS.] 

Senator Heinz. Ladies and gentlemen, the hearing will recon- 
vene. 

I want to thank Senator Proxmire for continuing in my absence. 
Immediately before the recess Senator Hecht was engaged in ques- 
tioning. He will be back in about 4 or 5 minutes. In order to make 
the most effective use of time what I'd like to do, with the concur- 
rence of Senator Riegle, is to aak Senator Ri^le if he would mind 
proceeding with his questions but on the understanding that Sena- 
tor Hecht might interrupt him and resume his questioning and 
then we would return to Senator Riegle. Would that be amenable? 

Senator Riegle. That would be fine. 

Senator Heinz. Would you then proceed? 

Senator Riegle. First of all, I appreciate the appearance of all 
four witnesses today and I especially appreciate your statement 
and testimony, President Bok, because I think it frames the issue 
just the way it needs to be framed. I also appreciate hearing the 
views Dr. Hackney, as well as those expressed by other members of 
the panel. 

I am a cosponsor of this legislation, as you may know, and feel 
very strongly that we've got to take a step. I'm troubled, though, by 
the contradiction with respect to the enormous emphasis our Gov- 
ernment is giving to Nicaragua and Central America. It is an im- 
portant place, but there is a tremendous preoccupation with that 
part of the world, and vast sums of money are being spent on all 
kinds of military initiatives, some known and some unknown. It 
seems to me, that in the case of South Africa, we face a question of 



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different form but of equal weight and we are not doing much 
about it. 

LACK OF URGENCY 

The President doesn't seem to have much of a sense of urgency 
about it, I don't sense within the State Department and the admin- 
istrative machinery right down through the Ambassador in that 
country much of a keen sense of urgency about trying to move 
things at a more rapid rate. And I just think it's wrong and I think 
we are very late as a nation in responding. 

It is difficult to determine what is precisely the best l^islative 
vehicle or vehicles to use here, but it seems to me our choice is to 
do nothing or to do very little, and I don't think that is an accepta- 
ble alternative. I think that lives are being taken and otherwise 
ruined by the policies there and I think we have a real obligation 
to find some more effective way to try to change things for the 
better. This package of legislative initiatives comes as close as I see 
us able to come at this particular time. I believe it is a proposal 
which tries to balance a lot of different things in a sensible way. 

But I feel that the time has come for the Congress to provide 
some leadership that's missing from our Government. Congress 
must help focus the administration's attention on this issue, to see 
if we can t start to substantially have a bearing on developments in 
South Africa, and to try to move them in a more constructive way. 

Even this morning's news concerning violations of pledges and 
understandings with respect to the use of South African militaiy 
forces in areas where they ought not to be, I think shows that it s 
very difficult to deal even in an open and direct way with that Gov- 
ernment, particularly if it fails to honor the limited understand- 
ings and agreements which they are willing to be part of. 

So, it seems to me that the time has come for us to squeeze and 
to squeeze hard, and not just in a few isolated spots around the 
globe where the geopolitics may be a little different, but especially 
in South Africa, where one of the worst outrages on the face of the 
Earth that we know about is taking place— it's taking place literal- 
ly this hour, last hour, next hour, tomorrow, and next week — and 
lives and opportunities are being just twisted hopelessly out of 
shape while we, in a sense, conduct business as usual with respect 
to the overall thrust of American Government policy. Something 
more has to be done. 

I think S. 635 is the right approach for us to take at this time 
and I hope that we will be able to pass it. I just want to end by 
commending the chairman for conducting these hearings, for allow- 
ing this kind of a debate to go forward, and for building a hearing 
record and a record of testimony from which the Senate as a whole 
can draw its Judgments as to the decisions that it wants to make. 

That's all I have to say, Mr. Chairman, at this particular point. 
I'd like, at some point, to get on to our other witnesses because I'm 
concerned that we're going to be interrupted by subsequent votes. I 
IHurticularly want to hear from Ambassador McHenry. 

Senator Heinz. Very well. I know Senator Hecht will be return- 
ing in a moment or two. I do have one other question I would like 
to pose to our panel. 



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Mr. Schotland, you spoke very articulately. I guess I can reserve 
my question and I will submit it to you in writing. 
[Response to written question of Senator Heinz follows:] 



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OUBSTIOH FOR MR. 
SENATOR HEINZ 
Page 1 


SCHOTLANO 




1. You 


have 


endo 


rsed 1 


:he S 


lulli- 


you 
has 


have 
been 


also 

argu 


endoi 
ed th; 


rsed 
.t S. 


635, 


Afllca to cut 
capital. HOW 
Sullivan Prin. 


woulc 
ciplef 


■ Id 1 

! thi 
i? I 


■ ead ( 
n yox 


contradiction 
welEace aspec 
between no nei 


between n 
ts of the 


Sulli 



/an Principles. At the same time, 
!w investment in South Africa. H 
, with its provision prohibiting 
:oinpanies operating in South 

;ect efforts to comply with the 
jr opinion, is there an inherent 
1 investment and the social 
iwan Principles, or, indeed, 
and the ability o£ U.S. companies 

to remain in South Africa and stay competitive as their plant 

and equipment become obsolete? 



The Rockefeller Commission report ("Time Running Out," 1981) 
also endorsed both the Sullivan Principles and no new investment. 
Indeed, their definition of new investment is more restrictive 
than the pussy-cat provision of S. 635. 

I believe these positions not only are consistent, but are 
Che most responsible, effective and moral positions. Firms 
already in South Africa should do all they reasonably can to 
improve the situation there. No firms should make significant 
new investment there--as S, 635 allows--lest South Africans inter 
that we are not serious. This is not a situation in which 
boycott is constructive, nor one in which we can expand business 
as we might usually. 



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319 

Senator Heinz. Senator Hecht, we have been careFuUy guarding 
your every right and prer{^ative so that you may continue. 

Senator Hecht. I thank the distinguished chairman. 

Mr. Bok, I kept your thoughts in mind as I was going over to 
vote. You said, basically, these are not particulary harsh sanctions, 
just sanctions, but you understand the business community. Busi- 
ness does not go where it's not a good economic climate. Business 
does not like uncertainty. So, only minimal sanctions create eco- 
nomic unrest. Do you agree with that? 

Mr. Bok. Do I agree with the statement that even minimal sanc- 
tions cause economic unrest? 

Senator Hecht. They send out a signal to the business communi- 
ty and why would business go basically where they are not wanted 
and do not know what's going to happen tomorrow? They want a 
good business climate. 

Mr.. Bok. Well, I think from that standpoint, anything produced 
by this bill is dwarfed by the enormous uncertainties anout the 
future of South Africa that are inherent in the political situation 
in that country itself. Certainly, the events of the last 6 months 
create all kinds of uncertainties for American business and I think 
they dwarf any uncertainties that are imposed by the limited sanc- 
tions in this legislation. 

CHANGES ARE OCCURRING 

Senator Hecht. But changes are occurring in South Africa. 
When I was down there in December I met with a distinguished 
rabbi who's been there 37 years. He said: 

I've seen more changes in the last 5 years than I ever thought my grandchildren 

He said, 

If you want to help the black people of South Africa, send down more American 
investment; don't limit it; because only when Americans started coming down they 
started getting equal pay for equal work, and equal job opportunities. 

So, the people of South Africa, not all of them, share your view, 

Mr. BoK. Well, there certainly have been changes in the last 5 
years in South Africa and some of them I think have moved in the 
right direction. But I think changes like removing the ban on 
mixed marriage or integration in sport — some of those were 
brought about because of pressure. In fact, the white South Afri- 
cans with whom I talked are quite unanimous in indicating that 
without some pressure even those changes wouldn't have occurred. 

There are other things that are changing in South Africa that we 
also have to take into consideration I believe in making an overall 
appraisal of what is going on there. 

We have more pEiss law violations in the last few years by a 
factor of two than we had before for blacks who are not obeying 
the influx control laws that keep them from residing with their 
families. We have more people dying of violence. We have more 
people in South Africa arrested or banned because of their political 
views than we have had in past years. We have a substantial in- 
crease in the proportion of families that live below the poverty 
line. We have many more people forcefully displaced from their 
homes and sent to the homelands than we did 5 years ago. 



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320 

So I think the picture is mixed and I don't see fundamental steps 
taken by the Government yet that have really made large dents on 
the basic system of apartheid that takes away political power from 
blacks and reduces them to a position far inferior to that of the mi- 
nority of whites. 

Senator Hecht. Well, the facts are not exactly that way because 
the blacks still have the best standard of living in South Africa 
compared to any other nation in Africa. I adso want to state to all 
of you, in no way do I support the apartheid policy absolutely, but I 
wonder why are we honing in — what about Afghanistan and as 
somebody else said, Nicaragua? Why are all these sanctions going 
against South Africa right now? 

Mr. BoK. Well, to say that we can't do anything in South Africa 
without examining the nature of our policy in all other countries, I 
suppose inevitably forces us to do nothing because we will probably 
never achieve perfect consistency in our behavior toward all coun- 
tries. 

I do think the situation in South Africa is a particularly flagrant 
case in which people are being exploited in ways directly contrary 
to our national ideals, and we have certainly not hesitated in a 
number of other such instances to use economic sanctions and 
other means to express the policy interests of this country. 

Senator Hecht. Name a few. 

Mr. BoK. Well, we have just exerted an economic boycott against 
Nicaragua. That's far more sweeping than anything 

Senator Hecht. Nicaragua's leader though, is a man who is sit- 
ting in Russia with the Communist leaders, a devout Communist. 
Give me another country. 

Mr. BoK. Weil, we have imposed economic sanctions with respect 
to Russia in the past. 

Senator Hecht. We're still trading with Russia. 

Mr, BoK. Well, I can't — if you're asking me to defend the consist- 
ency of American foreign policy in its treatment of all other coun- 
tries, I must humbly disqualify myself. That's not why I was asked 
to come and I'm really not qualified to do that. But I don't feel the 
fact that we may not be taking measures in other countries that 
you think are wise ought to prevent us from adopting policies with 
respect to South Africa that we feel are warranted. 

Senator Hecht. Let Mr. Schotland respond. 

Mr. Schotland. Thank you, Senator, I think perhaps at least as 
I see it the best answer to what you're driving at comes from put- 
ting together something you said and something that Senator 
Riegle said. You said not everybody in South Africa seems to have 
the same views and Senator Riegle emphasized how important it is 
that we make clear where America is vis-a-vis the direction that's 
going to be occurring in South Africa. I think it's important that 
we take carefully tailored steps to strengthen the forces for peace- 
ful change in South Africa. 

Certainly South Africa is an enormously important country and 
I'm not sure it isn't much more important over the long haul than 
let's say Nicaragua. I think we have to make very clear that we 
don't believe in business as usual with respect to South Africa. 
We've also got to be very careful, as Secretary Shultz said, about 
not throwing matches on the fire. And that's why I think carefully 



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321 

tailored steps like knigerrands, like military and police equipment, 
limitations like new bank loans, like strengthening the educational 
efforts that many universities are conducting to bring black South 
Africans here — I think these kind of steps hopefully will make 
clear to whoever is going to be in charge in South Africa what it is 
that America stands for. 

Senator Hecht. Can you see the other side of the coin of an eco- 
nomic collapse though? 

Mr, ScHOTLAND. I don't know what will happen down there what- 
ever we do. I do know that we ought to make clear what it is we 
hope will happen. 

Mr. D'Agostino. Let me just make a quick comment on the Sulli- 
van principles. It was mentioned before. The Sullivan principles 
have influence far beyond the numbers of American companies 
that signed them. In fact, the European Common Market has 
passed a code of conduct for companies doing business in South 
Africa modeled partially after the Sullivan principles. So they have 
tremendous spillover effect both in the indigenous country and in 
the way other governments have treated South African investment. 

Senator Hecht. Thank you, Mr. Chairman. 

Senator Riegi^. Mr. Chairman, when I questioned Senator Hecht 
earlier I did not use all my time. I wonder if I might take 1 minute 
to pose a question to Senator Hecht on something that he just said. 

Senator Heinz. I don't have any problem with that, if Senator 
Sarbanes doesn't. He's next. 

Senator Riegle. Paul, would you be willing to yield for a 
moment? 

Senator Sarbanes. Sure. I'm looking forward to the question. 

Senator Riegle. I appreciate that. I want to say to my colleague 
from Nevada that I was struck by his question when he referred to 
the standard of living of black people — the reference I think was to 
the standard of living of black citizens of South Africa as being 
higher than that of other citizens in other areas of Africa outside 
of South Africa. 

Senator Hecht. That is correct. 

Senator Riegle. I'm wondering how we evaluate standard of 
living without taking into specific account civil rights and human 
rights within the society. It seems to me that standard of living is 
not just dollars per hour, or wfiges per week, or what kind of shel- 
ter you're living in, but it goes much deeper than that. The reason 
our country exists is that we find very precious the issues of free- 
dom and how a person stands within society. 

CONOrnONS are terrible for blacks in south AFRICA 

I was struck by the Senator's comment, because my immediate 
reaction was that the standard of living in the human rights sense 
and the civil rights sense for black people in South Africa is really 
quite terrible. I was having a hard time reaching a value judgment 
on some other definition of standard of living which leads one to 
conclude that the blacks in South Africa are better off than other 
blacks elsewhere in Africa. That's what I'm really wondering 
about. 



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Senator Hecht. Thank you for asking the question. You made 
my day. Let's talk about Ethiopia. Let's talk about Angola with 
their 30,000 Russian or Cuban troops down there. Let's talk about 
Mozambique with the full Communist form of government. Let's 
talk about Zimbabwe which is hanging on by its fingertips only be- 
cause of South Africa where one person in Zimbabwe will probably 
feed 25 mouths because we have American companies in Zimbabwe 
that are still staying there and without them the country economi- 
cally would go the other way. 

I know of no country where the blacks are better "off in Africa 
than in South Africa. 

Senator Heinz. Senator Sarbanes. 

Senator Sarbanes. It's an absolute misnomer to refer to South 
African blacks as citizens. One of the essential wrongs perpetrated 
by grand apartheid is that it denies citizenship to the blacks of 
South Africa. They are not citizens. That's one of the things that's 
so abhorrent about the apartheid system. 

So I really take issue with those of my colleagues, or others, who 
call South African blacks South African citizens. One of the great 
indignities of apartheid is it denies to them citizenship status. 

Second, I gather while I was out that the Carnegie inquiry study 
by David Hamberg was put in the record, is that correct? 

Mr. BoK. That's correct, Senator. 

Senator Sarbanes. In view of the discussion that's just been held 
I would simply like to quote from that very quickly. 

The inquiry reports that there has been a great increase in pov- 
erty in South Africa over the past 20 years, largely as a result of 
the accelerated implementation of grand apartheid wherein blacks 
are deprived of their South African citizenship and deported to the 
reserves set aside for their particular ethnic affiliation. These re- 
serves or homelands have become dumping grounds for economical- 
ly redundant people. One paper referred to these people as the dis- 
carded and dispatched. 

NUMBER OF DESTITUTE 

According to the inquiry report, the number of people made des- 
titute by landlessness and unemployment has risen from 250,000 in 
1960 to 1,430,000 in 1980. The number living below the poverty line 
but having some income has reportedly increased from 4.9 to 8.9 
million, about one-half of the population of blacks in South Africa. 
Now, 11 million blacks comprising 37 percent of South Africa's pop- 
ulation are being crowded into the 10 officially autonomous home- 
lands that make up only 13 percent of South Africa's land area. 
There is insufiicient arable land or infrastructure to yield an ade- 
quate income for the families living there. Traditional subsistence 
agriculture is collapsing with the overcrowding. 

The inquiry study of the migrant labor system reveals its devas- 
tating impact on families. One-quarter of black women in South 
Africa are separated from their husbands because of influx control 
regulations and the pass laws that regulate the movements of 
workers. Many children are growing up in homeland areas barely 
knowing their migrant laborer fathers who visit home only once a 



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year. Adverse child development and high crime rates are part of 

this picture. 
If we are going to talk a bit about the morality or immorality of 

disinvestment, we ought to talk at greater length it seems to me 

about the mopEility or the immorality of the apartheid system. 
Mr. D'Agostino, I'd like to go back to your statement on page 6: 
S. 635 would make South African internal policies a question of debate in the 

United States Congress. This is a monumental insult to an ally or to any country 

whether allied or not. 

Am I to draw from that that the internal policies of any other 
country are not a legitimate subject for debate in the U.S. Con- 
gress? 

Mr. D'Agostino. No; I think I answered that earlier. The import 
of all of what I've said is the problem is not debating the internal 
policies and saying that they are wrong. This bill's problem is that 
it implicitly gives the U.S. Congress supervisory authority over the 
internal policy of South Africa. Every time the President says that 
things are getting a little better and they've done something right, 
it goes for debate in the U.S. Congress. 

Senator Sarbanes. What about the emigration of Jews from 
Communist countries? Is that a legitimate subject of debate in the 
U.S. Congress? 

Mr. D Agostino. I think apartheid is a legitimate subject of 
debate in the U.S. Congress, t(X). That's not what I said. I said this 
bill makes it seem that the U.S. Congress is having continuing su- 
pervisory authority over the internal affairs of the South African 
Government and we're inviting them to dig in their heels. 

Senator Sarbanes. That's not what your statement says. That's 
why I read your statement before I put the question. 

Mr. D'Agostino. I think I've addressed it in several places. I'm 
sorry it weisn't clear in just that one place but that was the import 
of what I wanted to say. 

Senator Sarbanes. Do you think the immorality of the internal 
policies of some other government can be sufficiently abhorrent 
that it would require us to take meeisures to distance ourselves 
from that government — to seek to bring about a change in it; or if 
we couldn't achieve that, to break the relationship? 

Mr. D'Agostino. I think for the first part of your question, the 
answer is yes. In terms of breaking the relationship, I think then it 
goes to the lesser of evils. For instance, we allied ourselves to the 
Soviet Union during World War II to fight a more immediate evil. 
And the answer is that sometimes overall U.S. policy and interests 
must prevail over something we don't like and that s a question of 
judgment. The answer is, we should distance ourselves from apart- 
heid. I haven't suggested anything different in my paper. I suggest 
a different way of approaching it perhaps, and I'm more supportive 
of the Reagan administration's constructive engagement. 

Senator Sarbanes. Let me put to the panel a couple of questions 
which 1 think could be answered very quickly. 

First of all, do you agree that American policy toward South 
Africa is being perceived as indulging the apartheid regime? 

Mr. Hackney. I do, yes. 

Mr. BoK. That's my impression. 



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324 

Mr. ScHOTLAND. I would like to see this bill amended to make it 
more clear that that is not the situation. 

Senator Sarbanes. But currently do you think there's a percep- 
tion that our policy toward South Africa— current policy toward 
South Africa— is indulging the apartheid regime? 

Mr, ScHOTLAND. I think whether there is or isn't, there's too 
much possibility of such perception. 

Mr. D'Agostino. Yes; I think there is that perception. 

Senator Sarbanes. Now, if there is such a perception, would you 
see that as being harmful to American interests? 

Mr. ScHOTLAND. Clearly. 

Mr. BoK. I do. 

Mr. Hackney. Yes. 

Mr. D'Agostino. Long-term interests. 

Senator Sarbanes. Now, we're agreed on that. There is a percep- 
tion of indulging the regime and such perception is harmful to 
American interests. 

Now, what do we do to change the perception? Mr. D'Agostino, I 
take you in say effect, well, don't do 2uiything, the policy is sort of 
all right as it is; just leave it. Mr. Hackney and Mr. Bok say S. 635 
would send an important message in changing that perception and 
making it clearer where we are. I'm not quite sure, but I think Mr. 
Schotland is saying he wants to make S. 635 even stronger: it's a 
pussycat and he wants to make it into if not a lion at least a leop- 
ard. Is that correct; or am I missing something? I'm not quite sure 
whether you're coming at this bill saying that it ought to be tough- 
er and then you would be for it, or whether you're coming at it and 
saying, well, it's really not so tough and therefore I'm not really for 
the bill. 

COULD GIVE WRONG IMPRESSION 

Mr. Schotland. I think you're right, I think there's damage if it 
is perceived by those who are in charge in South Africa as being 
showboating at home and not really meaning business about what 
we do in South Africa. I think that would do more harm than good. 

I think the krugerrand provision, bank loans provisions are real 
provisions and would be constructive. I think there are other provi- 
sions such as selective divestment, such as military policy, nuclear- 
related sales, such as strengthening our participation in education 
which have got to come along. I think we have a real danger be- 
tween their seeing us as just showboating and our doing something 
that helps the people down there who want to take a forward 
move. 

Senator Sarbanes. Which of the provisions of S. 635 are, in your 
view, showboating? 

Mr. Schotland. As President Bok and I indicated earlier, we're 
troubled about the bill's unclarity — I now understand, thanks to 
Senator Proxmire — as to whether all American bank loans are 
barred or only American bank loans as to the South African Gov- 
ernment. 

Senator Sarbanes. Well, I got my training at President Bok's in- 
stitution, not like Senator Proxmire in the business school but in 
the law school, and I thought Senator Proxmire as a graduate of 



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325 

the business school did a pretty good job in asking two fairly good 
lawyers at the witness table. 

Mr. BoK. He does have a graduate of the Harvard Law School on 
his staff. [Laughter.] 

Mr. D'Agostino. Senator, I just want to correct the record. I 
have not proposed doing nothing. 

Senator Sarbanes. Well, you propose the Sullivan principles. 

Mr. D'Agostino. Sullivan principles among other things. I also 
propose that a gesture such as a ban on direct loans to the Govern- 
ment would make it plain that we're serious, but anything that 
would reduce American involvement in the South African economy 
I believe would be counterproductive. 

Senator Sarbanes. Well, we may reach the point where a judg- 
ment has to be made whether we are involving ourselves in an im- 
moral system whose immorality is so sweeping that we simply 
can't continue to do that in good conscience, or whether we contin- 
ue to be involved in an efTort to bring about constructive change. I 
think S. 635 is clearly in the latter category and I am struck in my 
discussions with people from South Africa, including South African 
blacks, by their continued willingness to try to go down the path of 
peaceful change even when the South African Government is 
thwarting and stymying every reeisonable approach along that line. 
Mandela is in jail. The UPF people now have been arrested and 
charged with treason. Where is a South African black going to 
turn, under the current arrangement to bring about peaceful 
change in his country — where he is the overwhelming majority? 

Senator Heinz. The Senator's time expired some time ago. Are 
there any further questions for this panel? We have Ambassador 
McHenry. We have another panel after Ambassador McHenry. 

Senator Sasscr, I see you have joined us. Do you have any ques- 
tions or would you care to submit them in writing to expedite our 
hearing? 

Senator Sasser. Well, I'm going to delay the hearing, with the 
Chairman's permission, and ask a couple of questions. 

Senator Heinz. By all means. The Senator has every right to pro- 
ceed. You will not delay the hearing. It will simply encourage the 
fullsome involvement of the entire committee in the question of 
public policy before us. 

Senator Sasser. Thank you, Mr. Chairman. 

Mr. Schotland, you pointed out that this bill does not touch cer- 
tain matters such as the sale of $28 million in military equipment 
to South Africa during 1981 through 1983, does not touch the ques- 
tion of seven nuclear-related exports to South Africa in 1981 and 
1982, the licensing of U.S. firms to service the nuclear reactor, the 
licensing for sale of 2,500 electric cattle prods for crowd control. 

Would you support legislation that imposed comprehensive bans 
on such sales and transfers? 

Mr. Schotland. Yes, sir. 

Senator Sasser. You think such measures should be added? 

Mr. ScHOTiAND. Yes, sir. 

Senator Sasser. You criticize the l^islation for not being serious 
enough. What is your reaction to the idea that this may be the first 
step, a shot across the bow so to speak, a warning, a signal that if 



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change does not go forward with greater speed that Congress will 
take even stronger action? 

BILL WOULD BE A STRONG SIGNAL 

Mr. ScHOTLAND. I think that would be an excellent step if that's 
the way we represent the bill. If we represent the bill as a strong 
signal which is making clear that we will pay any price and so 
forth, I think we are letting ourselves in for it being said that we're 
showboating and hyping. If we say this is a shot across the bow, it's 
a step, we will take further steps, we've got to get constructive 
peaceful change and we mean it, I think that would be a very fine 
move. 

We ought to admit and own up to what we're doing when we're 
saying we're trying to be moral. 

Senator Sasser. President Bok, you're a lawyer and in fact you 
quote Justice Harlan's dissent in Plessy v. Ferguson in your testi- 
mony if I'm not mistaken, and you certainly are familiar with the 
role the courts played along with the Federal Government in the 
civil rights movement in this country. 

Is it not the case that the Federal courts, particularly the fifth 
circuit courts, played an important role as an outside force in the 
South pressuring the States here in our country, some of the 
Southern States, to change their practices with respect to racial 
segregation? 

Mr. Bok. That is my understanding, sir. 

Senator Sasser. And can you draw any £inal<^ between what oc- 
curred with the outside pressures of the fifth circuit court and the 
importance of outside pressure on South Africa? In other words, do 
you think that such outside pressure as is contemplated in S. 635 
would strengthen the forces for moderation and change inside 
South Africa, or would they be counterproductive as I think Mr. 
Crocker claims? 

Mr. Bok. No; I certainly do not agree with that. I come here in 
support of the kind of sanctions that are included in this legisla- 
tion. I would, however, like to underscore a point that I made in 
my opening statement which is very much in line with your char- 
acterization of the bill and very much in line with Mr. Schotland's 
testimony. 

I support this bill as far as it goes. I think there are other inter- 
mediate sanctions, however, some of which Mr. Schotland has al- 
luded to, some of which I alluded to in my own testimony, which 
ought to be pursued v^orously which would make our effort even 
more effective. 

Whether the kind of pressure that would result is on all fours an 
analogy with fifth circuit lies beyond my ability to say, but certain- 
ly I believe that a combination of constructive action by American 
firms and pressure from the United States is the most likely means 
through which we can maximize whatever chances for constructive 
change and, therefore, I think we need to add that element of pres- 
sure through sanctions similar to those in this bill, plus the addi- 
tional ones that Mr. Schotland and I have identified. 



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327 

Senator Sasser. And you would see this as strengthening the 
forces of moderation and a move in the direction of change in a 
moderate fashion? 

Mr. BoK. Strengthen whatever chances exist of producing con- 
structive change rapidly enough to avoid what seems to me to be 
the growing danger of real and treigic violence. 

Senator Sasser. Finally, Mr. Chairman, one last question for Mr. 
D'Agostino. 

I note, Mr. D'Agostino, that you criticize S. 635 for involving Con- 
gress in the debate on the internal etifairs of South Africa and you 
say in your testimony, and I quote: 

S. 635 would make South African internal policies a question of debate in the 
United States Congress. This is a monumental insult to an ally or to any country 
whether allied or not. 

Now, I assume you object, or would you object to Congress taking 
an interest in the internal affairs of Nicaragua, for example? That 
seems to have preoccupied us, some think unduly now for a great 
number of months. Don't you believe the issue of human rights is a 
legitimate consideration for the U.S. Congress? 

Mr. D'Agostino. I'd like to start with again apoli^izing for being 
unclear in that section, particularly since Senator Sarbeuies also 
pointed that out to me. What I was objecting to was in conjunction 
with this bill. The debate of the internal affairs of South Africa is 
proper for the Congress. There's no question. It's a moral problem 
and it should be stated. 

What I meant is that the bill makes, in a sense, the U.S. Con- 
gress a continuing supervisory authority over the advances that 
South Africa may or may not be making. If it weren't for the bill's 
provision of having the President go down to Congress and prove 
they've been good boys today and they have done a little better and 
then having another debate. It's the continuing debate and implicit 
supervisory type of debate that is the problem, not the debate 
itself. 

I think the debate sends a messeige to South Africa that's very 
important to the ruling class in South Africa. I'm sorry I was un- 
clear on that. 

DISTINCTION OF INVOLVEMENT 

Senator Sasser. Well, can you make a distinction between our 
Government's effort as you say to supervise the internal affairs of 
South Africa and our obvious efforts to supervise the internal af- 
fairs of the Government of Nicaragua? 

Mr. D'Agostino. Yes; I think the end of our policy in Nicaragua 
is to bring down the Sandanista regime. It's not the end of our 
policy in South Africa. The South African Government is friendly 
to the United States and is no threat to the United States in its 
present form. The Nicaraguan regime is. If the other Central 
Americsui countries fall, I wonder how we're going to prevent in- 
volvement in the future problems of Mexico. We have enough trou- 
ble defending our borders now. 

Senator Sasser. The question is not whether or not we involve 
ourselves in the internal affairs of another government. The ques- 



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tion is whether or not the government is friendly to us or whether 
or not it poses perhaps a danger to the United States? 

Mr. D'Agostino. No; the question is how far we involve ourselves 
depends on that last. The answer is that whenever we involve our- 
selves in the internal affairs of any country we must do it very, 
very carefully. It happens all the time. I think Senator Fulbright 
overstated when he said "don't involve yourself unless it threatens 
your country directly." We do influence the internal affairs of 
other countries. 

The question is what is the end which we wish to achieve? Is the 
end of using our influence to overturn a regime? Is the end of what 
we're trying to achieve the upholding of certain human rights prin- 
ciples? It's the end of our involvement that's important. How to 
achieve that end is the issue. 

What I disagree with is not the end that this hill states. The first 
two paragraphs of the hill are perfect. A colorblind legal society is 
what it calls for. I certainly agree with that. The question is, will it 
achieve the end which we want to achieve? 

Senator Sasser. Thank you. Mr. Chairman. 

Senator Heinz. Very well. 

Senator Froxmire. Mr. Chairman, I have additional questions I'd 
like to ask for the record of Dr. Hackney and Mr. D'^ostino and I 
have one other point. 

Senator Kennedy has asked me to put into the record his ex- 
change of correspondence on S. 635 with Derek Bok, president of 
Harvard; Michael Severn, president of Columbia University; and 
David Hamburg, president of the Carnegie Corp.; and also a letter 
of endorsement from the UAW. 

Just one other item. I want to put into the record a statement of 
support for S. 635 from Donald Kennedy, the president of Stanford 
University. 

Senator Heinz. Without objection, they will all be included in 
the record. 

[The following information was subsequently submitted for the 
record:] 



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"Titmitib .SAtda* Amtdt 



lUrch 2S, 1985 



Derek fiok 

President 

Harvard Onlvorslty 

Caabrldge, Massachus 



As you know, on Harch 7, 1985, Senator Weicker 
and I introduced The Anti-Apartheid Act of 1985 (S. 63S). 
I an enclosing a copy of that bill for your inforaation. 

The purpose of this letter is to ask for your 
views on this proposed legislation. I know that you have 
given a good deal of thought to the situation in South 
Africa and about ways that Aafricans can work aost 
effecitvely to assist in the effort to ellMlnate apartheid. 
T would be grateful for your thoughts on the approach that 
wo have proposed in this legislation. 

Thanks for your willingness i 



Edward M. Kennedy 



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April 2, 1985 



Dear Senator Kennedy: 

Thank you for your letter of March 2B, 19Q5> In Tesponee to your 
requeat, I an pleased to state my vieHS eoneetnlng S. 635, the Anti- 
Apartheid Act of 1965- 

Let me make clear at the outset that the followinE opinions are my 
oun and do not repreaent the official position of Harvard University. 
Like other universities. Harvard doea not take institutional poeltions 
on any federal loglolatlon that doee not directly affect higher educa- 
tion. On the other hand, ny duties over a long period have led me to 
pay close attention to events In South Africa and to develop personal 
vleHS on the affaire of that country. 

During the past twelve yearn. Harvard has sought to play a poal- 
tlve role as an Inveator j^n U. S. companiea doing a small amount of 
business in South Africa. He have taken great pains to vote In an 
infocaad, responsible manner on shareholder reaolutlona. In addition, 
we have gone beyond voting by conducting an active dialogue to per- 
suade such fime to Improve working conditions for nonwhite employees 
and to express opposition to Influx control and other repreeslve 
apartheid laHS. The University has also funded educational programs 
for nonHhite South Africans. Finally, I have aerved since Its incep- 
tion as Chairman of the Hatlonal Council of the South African Educa- 
tional Progran, under which more than 225 nonwhite South Africans are 
currently studying in American universities- 
Apartheid la at war with human freedom and dignity. It la a 
system of government that separates people on the basis of color, 
strips menbera of one race of their baalc human rights, robs them of 
their citizenship, denies them economic opportunity, and Imposes these 
indignltlea through criminal law and police action. Because of its 
flagrant Injustices, apartheid Is universally condemned In the United 
States. 



t Invest in companies doing a majority of their buai- 



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April 2, 1989 



Recent events should lead ub to revlSH our national polior tomrd 
South Africa. In the peBt ysar, we have heard atatenente by the Soutti 
African government aimed at persuedlng the world thet it Ib puraulng 
change in ita relations with the country's nonxhite majority And 
yet, the concrete steps taken thus far toiranl refora have been v»ty 
■sager. Jalllngs and killings by police dranatlxe the continuing 
repreaslon practiced by the Afrikaner reglne. At the saae time, ttw 
fruatratlon and militance among blacka are mounting fast enough tfl 
suggest that the time for peaceful aolutions is running out. 

Against this backdrop, the current United Stataa policy of "ceai- 
etnictlve engagement" with South Africa seems increasingly tnadequata. 
Despite our government's stated opposition to apartheid the responses 
of the Afrikaner regime fall far ahort of what i;he urgency of the aib- 
uation denando. Worse yet, our current policies ere easily mistaken 
for tacit acquiescence In a status quo that offends our moat preoloua 
ideals and threatens to deteriorate In growing vlolenoe and Inatabillty- 

Observing events in South Africa, aany shareholders and other In- 
dividuals and organizations In this country have been trying to show 
their concern by pressing American corporetlons doing business in that 
country to respond more vigorously to apartheid. Some have urged 
these coopaniea to improve Hagos and oonditlone of aoployaant for non- 
white Korfcers. Others have gone further and asked such flras to ex- 
press opposition publicly to influx control laws and other repressive 
legislation. Still others have sought to persuade companies to leave 
South Africa entirely. 

In view of the severe injuoticoa of apartheid and the risk of 
growing violence and unrest, I believe that efforts 'by shareholders 
and other interested private IndivlduBlH ulll not suffice Instead, 
circumatancea require a more powerful expreeaion of our national COT^ 
cem. I therefore support legislative sanctions. At the sane time I 
believe that w-e should avoid, at least for the present sanctions thet 
threaten to inflict eignif leant hardshipa on Innocent third parties 
especially nonwhltes It ifl simply too difficult to know whether more 
drastic measures nould bring benefits that corapenaate for the burdens 
they impose or whether they would prove Ineffective or, uorae yet, 
provoke a backlash that will further reduce Uie prospects for meaning- 
ful refoim. 

In my opinion, S. 6,33 aatlaflea these criteria. The sanctions it 
containo seem real enough to conununicate the sincerity of our convic- 
tions to South Afrioe, The effaet of the til will not be to throw 
nonwhltes out of work or impede the progpees of black trade uniona 
The penalties fall directly on the government and affect those respon- 
sible for apartheid on whom we most wish to impress our concern. 
Finally, S. 635 would curb added investments that could substantially 
increaae our financial atake in South Africa and thus augment the risk 



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April Z, 1985 



of comprooising our Independenco as a nation to act on principle 
rather than econcmic self- Interest. 

I should add that much of S. S}3 parallals the policies Harvard 
baa developed as a shareholder in finiB doing "bualneBS in South Africa. 
Aa does four bill, we have consistently opposed bank loans to the South 
African gowemnent. or its subsidiary organizationa . He have voted 
against new Investnents by companies In which ve hold stock. And we 
ar« cuTPontlj soliciting information from corporations in our portfolio 
to ascertain the exlstance of sales of critical naterlals to the South 
African goverment. 

Proponenta of our preaent national policy toward South Africa 
argus that we can only effect change in that country If wa reoain 

. fully and constructively engaged in its econcmic and political af- 
fairs They assert that we cannot hope to achieve an Influence over 
the policy choices of the Afrikaner regime if ue take steps to dis- 
tance ourselves from South Africa I balteve that we need a different 
kind of engagement, since our current policy of quiet diplomacy has 
tailed tc achieve any significant refom. In recent months scores of 
■blacks have been killed many more hove been detained, and millions 
are denationalized and restricted to "homelands " In the face of 
those brutal facts, our engagsment with South Africa should be inten- 
sified to leave no doubt about out condemnation of apartheid and our 
determination not to do business as usual with the Afrikaner rsglma. 

Almost ninety years ago. Justice John Harshall Harlan wrote a 
prophetic dlasent to the Supreme Court declolon in Pleesy v. Ferguson 
upholding state-imposed segregation In the United Stetes. Harlan 
condemned mandated segregation *s "inconsistent not only with that 
equality of rights which pertains to citizenship but with the per- 
sonal liberty enjoyed by everyone In the United States .The desti- 
nies Of the tficea In this country are Indlssolubly linked together, 
and the common government of all shall not permit the seeds of race 
hate to be placed under the sanction of law. These sentiments re- 
flect ideals central to our national creed. They should inspire our 
government to communicate Our opposition to apartheid more convinc- 
ingly to the South African people eapecislly now that the situation 
In that country seems to be moving toward greater violence and repres- 
sion. The legislation you propose would help to achieve this objec- 
tive. 1. am pleased to endorse it. 

Sincerely, 



( /Derek Bok 



The Honorable Edward H. Kennedy 
113 Senate Russell Office Building 
Washington, D. C. 20^10 



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HARVARD UNIVERSITY 



SlVplaHnt to Naj 2A Taatlaonr on S.63; 



Qmstlon ; Tou have endorsad tha Sullivan Prlnolplaa. At tha aasa 
tliu, jrou hava alao andoraad no new investment In South Afrloa. It 
has baan arguad ttnt S 6;3 with Ita pnvlelon prohibiting nea In- 
veatnent, would laad coopanlae operating in South tfrlcs to out eoata 
to -the bone Ir order U gen«t*ta il*l> capital. Hon Boula thia affaot 
efforts ■.. . .^, 1-. wl'i the Sullivan PrinoipleH? In your opinion, la 
■there " - "r-. Jlrtloo between no new InveatiOBOt and tha 

aeelsl welfare aspects of me Sullivan Frinaiples or, Indoed, batMan 
no neH inveBtment and the abllit; of 0.B coapanlea to rsialp In South 
Africa and ■taj' coopatltiva aa thalr plant snil equlpaant baooaa 
obaotataT 

laar that I aM not sufflclsntlr ac- 

pcDvidB yaii with a definitive ansver. Hevertheleas, I en skeptical 
about the eilatanca sf an intrinala conflict or contradiction twtifeen 
S.655. particularly its oa for sn and to nsv Investment in South 
Africa, and tha goala and dnonatratad banafita of the Sullivan 
Princlplaa. 

Uhlle the legialatlon Knild prohibit naN InvaatBent, It would 
allow the contlnuad ralnyeataent of eamlnga froa eilstlng buelneaa 

H large majority of tha aora than JZ billion in direct Inyestaeot In 
South Africa by United States cotpanlsH. For Bxaaple, The Econoalst 
BBgazlne .in B lengthy discussion of the Bsnetlons debate estimated 
that new capital inflowa at* leaa than tVX Billion of the total 
dlraot Invastaent, or about four percent. This suggests that the ban 
on naw invaalaent would not ' '.-■■:- ■ .-rT^r.'.^'i ' o cit i:^'3tB on eilatlng 
operationa so rtr., ■ ■ ability to comply with tha Sulli- 

van Principles would If further asBurancea saea 

Inportant, ori* could provids In th» legialatlon an eiaaptlon for 
inveatlng fundEi specifically designed to inplement the Sullivan 
Principles or to provide better housing, nedloal care, or Job training 

I have seen no evidence thst eoapllanee with the Prlndplea iapoaas 
burdenaoata coata on the algnatory conpanlea. Of the six Prlnolplaa, 
only three are directed prlnarily at progran support and devalopaent. 
(They call for Job training, incraaalng the nubar of nonwhitea in 
aanageaent and supervisory roles, and iaprovlng tha quality of e>- 
ployeea' livee outside the workplace.) Hhlte auch efforts can be 
costly If they aBphaslie the funding of new prograas or Institutions, 



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th* l*a> ooBtljF altamatlva of flnanctal and other support for exist- 
ing activities la alao an Inportant elenent of conpllance. The amount 
of monef spent b; United States ccopanies on such prograna In 198? has 
baan eatlaatad at t1? nllllan—not a great deal of Doner for soae ZBO 
ooapanies. The other three Principles nandate equitable trea-taent of 
oBplorees of all nces and Involve little cost, I suspect. 

Ab for the ability of Unltad Stataa coapanles to reaaln coapetltlve 
In South Africa, this concern should also be alleviated by i«calllng 
the relatively atall proportion of new capital infloiis in the eilatlng 
direct inveataent. 

I feel it la Inportant to point out that while the banning of naN 
inveataenta need not. In ny vieNi Interfere aubetantlallr itlth tha 
Sullivan code aoapllance or the conpeUtlve ability of United States 
coBpanles, this does not nean that Banctlone Hould be Ineffective in 
other respects. The ban on new loans to banka would affect a aource 
of approxiMitaly t3 billion for South Africa. Tha prohibition on 
iBportlng kruggerands Hould cost South Africa $600 million per year. 
In short, S.635 is legislation vhleh can achieve the Inportant purpoae 
of exerolBlng econoilc leverage againat apartheid Hithout undermining 
the constructive effects of the Sullivan coda. 



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=: — HnittJ gftita Saiatt ju« 5^ 



■W031385 






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Qtestioti: Tou have endorsed the Sullivan Principles, ht the saine tine, 
you hove als6 endorsea no new investment in South Africa. It 
has been argued that E. 635, with ite piovieion prohibiting 
new investment, would lead companies operating in South 
Africa to cut costs to the bone in order to generate new 
capital. HOW would this effect efforts to comply with the 
Sullivan Principles? In your opinion, is there an inherent 
contradiction between no new investment and the social 
welfare aspects of the Sullivan Principles, or, indeed, 
between no new investment and the ability of U.S. companies 
to remain in South Africa and stay competitive as their plant 
and eguipnent become obsolete? 



Aosv^r: As I HuggeBted In ay teatlmoay, the Sullivan Prlaciples have lielped to 
Isprove working conilltlons for bladca In those Aaerlcan flras riilch hava 
endorsed thea, and Aaerlcan buatneas In South Africa ha* been at the cutting 
edge of progressive labor policies there. I believe that U.S. flrva have 
subscribed to the Sullivan Prlnclplea because first, they have s strong 
Interest: In being, and In being seen as, good corporate eltlEens, and aecond, 
they recogolie that proaotlng equal eaployment opportunltlea foe nonnhlte 
vorkers Is both econonlcally and socially constructive and thus ptowites 
stability, at least In the short run. In South Africa. Therefore, I do not 
believe that, even if Aaerlcan coapanlea were to initiate aubstantlal 
coat-cutting neaaures In South Africa to generate new capital, their 
.C0Bdt>eQt to the Sullivan principles Mould Buffer. 



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Thart la, ■> job Miasaat, an apparast cmtradlccloa batvaaa tha aorat-caaa 
aceaarlo of raatclcclooa oo laTaataeac laaillns to vltbdzaaal of D,S. fin* awl 
Che bcnaf Ita to bladi wockara darlvad troa dia cooclnuad praaanca of 
pTograaalT* Aaarlcan flraa. Withdrawal of Aaarlcan fltaa froa South Africa 
could potaotlallj raault in tba dlaplae— tBt of bladt voTkers afao hare 
benefited fro« the SulllTan Principles. Kerettheleaa , buaineaaes aetk not 
aol7 ■ profitable econaalc envltonaent but alao • stable political 
envlrcsiBent . To the extent that apartheid coatlsues to deprive Che wjorlty 
of South Africaoa of both political righta and ccOoObIc oppor tun 1 tics, the 
Sontli African political envliooMnC In likely to rasaln hl^7 volatile and 
inhoapitable to bualneaa. Political Inatablllty and aoclal upheaval la anch 
■ore likely to drive out 

Aasrlcan bualneaa than la a raatrlctlon on n*« laveatasnt uhidh, accoEdlng to 
a recent report is The Eeononlat . repreaenta about SX of total U.S. direct 
InveBtBent In South Africa. 

Pinally, as rou know, under S. 635 the reattlccion on oe« investment aa; 
be waived by th« Fresidenc and Coogreas If chey find that si^Btantlal progteas 
has been aide toward eliainating even one of the coodltlona of apartheid 
specified In the bill. Such a conditional waiver provldea an inpetus for the 
South African govemaent. If It Hiahea to aalntaln and increaae Aaerlcao 
Investaent, to take aeanlngful action on apartheid, and for Anerlcan 
busineHSes, If they wish Co ptoaote ■ stable eavironaent, to encourage the 
South African govemaent Co take such action. 



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: 1 understand that prior to becoming a 
you were a historian of conaideiable i 
familiar with how change takes place in iocieties, do you 
believe enactment of S. 635 would accelerate the process of 
positive change in South Africa oi would it polarize thtt 
situation there? I ask this question because in your 
statement you say you endorse S, 63S 'to signal our 
opposition to apartheid," but do not give us the benefit of 
your views as to the impact it will or will not have on the 
process of change in South Africa. I would very much like 
your views on that subject. 



r: As ay acadSMlc mrk baa focuaaed oo the social hlatory of the soutfaen 
Dnlted States rather than aouthen Africa, I hesitate to draa broad historical 
conduBloQS about the proccBs of change In an area of the world lo which 
econofllc and social conditions are ho diaaatlcallj different fron those of the 
Doited States. 

There aca, of coaisa, certsin pozellels Mlilch sight be drsva between the 
situation In SouQi Africa and the condition of blacks In the United States 
prior to the dvtl tights aoveBent - de jure segregation, gcasBl; unequal 
economic opportunities, offlclall; condoned violence - to naae a fev. The 
differences, however, outweigh the slMllarltles, Principally, these 
differences are that first. In South Africa, these offensive policies are 
Initiated by a nlnorlty govemaent, and second, that there is no effective 
Jurldlcol counterbalance to state-Initiated dlacrlslnatlon, aa In the United 
States . 

One hopes, of course, that the relatively peaceful change idilch our nation 
experienced In moving toward equal rights and opportunities would be 
parallelled In South Africa, but we have already seen there substantially 
greater violence than that experienced In the U.S. Nevertheless, Che United 
States, I believe, still has an opportunity, through S. 635 and alntlar 
■eaaures, to help effect peaceful change In South Africa. 



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Thl* l«glsl«tIoit i« ■ Modeat step. It do«« not call for dlTaataant. It 
la not llfcel; to proaote reTolutlonar; ebange. It doe* not ellMlnat* or 
ntbatautlall; narrow the taaricaa acoooalc preaence In South Africa. 
ObTloualy, we would prefer to be certain aa to the outcoae of our fotel^i 
policy Inltlatlvea. I bellev* that the Adalnlatratlon'a current policy of 
conatructlTe ensaseaeat haa not been auceeaaful in aedclng ■eanlDgfol cbansa, 
■nd that the altuatlon la South Africa haa becoae Increaalngly polarlied. 
Kodeat preaaute on the part of our gorenuMot toward the South African reglaa 
can, I belleTe, accelerate the proceaa of peaceful change. To take no action 
voold alfflal that the Qnlted Statea endoraea a atatua quo which la 
fimdaacntally abhorrcmt and riilch. In th« long run, cannot be auataltwd by a 
■Inorlty gorernaaoc. to adopt aubatantlaUy aore atrlogent aanctlona than 
tiioae eahodled In S> 635 would limit ouz future ability to foater paacaful 
change. Econonlc and political leverage auch aa that advocated througb 
leglalatloD auch aa S. OS rapreaents the beat opportunity for prowotlng the 
future paaca and atablllty of South Africa, an outcoaa irtilch la dearly In our 
national Inter eat. 



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EDWARD U. KENKEDY 



^tiiteb fttatm ftniate 

WASHINGTON, DC 20610 

March 28, 1985 



Htchael Sovern 
president 

Columbia University 
Rew York, Haw York 

Dear Hichasli 

As you know, on March 7, 1985, Senator Weicker 
and I introduced The Ant 1 -Apartheid Act of 1985 (S. 
635) • I am enclosing a copy of that bill for your 
infornatlon. 

The purpos* of this letter is to ask for your 
views on this proposed Isgislatlon. I know that you 
have given a good deal of thought to the situation in 
South Africa and about ways that Americans can work 
most effectively to assist in the effort to eliminate 
apartheid, I would be grateful for your thoughts on 
the approach that we have proposed in this legislation. 

Thanks for your willingness to help out on this. 

Sincerely, 



Edward M. Kennedy 



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ggtontrM Bufl mg i t p 



Aptll IS, 19BS 



Dear Senator K«nnadyt 

Fleasa forglva ny delay In replying to your letter of 
March 28, 1985, but It did not reach Me until April 10. I 
am happy to have the opportunity to counent on S.635, the 
proposed Ant i -Apartheid Act of 1985. 

I share your concern that quiet dlplonacy on the part 
of the United States has not had any posltlva Impact on 
the Invidious racist policies of the South African 
Government. It is, as you say, time for more afffectiva 
action by the United states, and I bellava that the 
legislation you have Introduced Is a desirable atap In 
that direction. 

I know that President Bok took the same position In 
his letter to you of April 2, and I concur wholeheartedly 
In the views expresaed In that latter. 

At Columbia, we have already taken the two actions 
S.635 would require of American companies and institutions 
and have actually gone beyond them. In 1978, the Columbia 
University Trustees decided to divest our securities and 
deposits in financial institutions which provide new or 
continuing access to capital markets for the Government of 
South Africa. The University has divested Itself of 
approximately S2.9 million of securities In such 
institutions and does not maintain deposits with such 
institutions. As you know, section 3 of S.635 similarly 
prohibits loans to the South African Government. 

Section 4 of S.635 provides for prohibitions against 
new Investments in business In South Africa. A year ago, 
our Trustees, In response to a request from the Columbia 
University Senate, imposed a moratorium on increased 
investment in securities in companies doing business in 
South Africa, pending review of a Columbia University 
Senate report on divestment. 



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In addition, the Unlvvrsity will not lnv«st In stocks 
o£ coupanlee doing business In South Africa unless they 
have enploymont programs and practices that ban 
segregation, afford equal pay to blacks and whites, and 
otherwise advance the Interests oC block South Africa. 

I aa pleased to support S.63S. 

Sincerely 



Sincerely, v^ 



Michael I. Sovorn 



The Honorable Edward H. Kennedy 
United States Senate 
Washington, D. C. 20510 



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tHntteli AtatM fteiute 

WASMMOTDN, DC MSIO 

J^rll 3, 198S 



Carn«9l« Corporation 

437 Hadiaon Avanu* 

Naw York, Nav York 10022 

Daar Davai 

I am ancloalng a copy of tha Anti-^arthaid Act of 
1985 which Sanator Waickar and I introducad on Harch 7, 
1985. I am alao anclosing a briaf amamary of tha bill'a 
proviaion. 

I would ba aztremaly grataful if it might ba 
poaaibla for you to gtv« ma your viawa on thii 
legialation. Tha Sanata Banking Cotmittaa and tha Sanate 
Foreign Ralationa Coaaittaa will ba taking up tha aubjact 
of South Africa later this nontht and I know that any 
cooimanta you might have on this piece of laglalation would 
ba daaply appraciated. 



Thanka for your help- 



Edward M. Kennedy 



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fc 1 



Carnegie Corporation of New York 



- -*■'.' t nvid A. Hamburg, M,D. 

hU:i':..:.'-^i-y Hay 15^ 1585 

Sanator Edward H. Kennedy 
Onited states Senate 
113 Senate Russell Office Building 
Mashington, D.C. 20510 

Dear Tedt 

I an very grateful foe your Inquiry about pending 
anti-apartheid leglalatlon and foe the invitation to 
testify. I deeply regret that I simply could not work out 
a way to testify because of the extraordinary pressures on 
■e this month, Hy presidency of the American Association 
Cor the Advancement of Science reaches Its peak 
responsibilities this month, culminating in the big annual 
meeting at the end of Hay In Los Angeles. Since the AAAS 
is the umbrella organization for all of American science, 
this really has been a demanding as well as a fascinating 
enterprise. Tn addition, Hay happens to be the peak rnonth 
for Carnegie responsibilities! including a three-day 
retreat in San Antonio on the Hex lean-American community 
(see enclosed article by Fred itechlnger from the tiew York 
Times), and also on U.S.-Mexican relations. 
Incidentally, it turned out to be a superb retreat, and I 
would welcome a chance to discuss these subjects with you 
the next time we meet. 

In any event, the best I can do under the 
circumstances is to send you a statement on South Africa 
that I recently prepared foi another purpose. It Is my own 
perspective on the Carnegie Inquiry including a few 
conjectures on Its larger significance, I hope it will be 
of some use to you. 

We have had recent visits from Prancls Wilson, the 
Inquiry's director — and I an very grateful for your 
seeing him — as well as Allan Boesak who played a major 
part in It re: church and poverty. 



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Lettet to Senator Kennedy 
Hay 15, 1985 
Page Two 



The work of synthesis is going Cocwacd afCectively. 
Tbet* will be a pulling together of majoc findinga, aa well 
as strategies for change that build on tba findings. In 
additionr thece will be a book of pbotographa and several 
fllns Illustrating key aspects of the Inquiry. I an 
hopeful that all this will contribute to public 
anderstandlng and to constructive action. 



With very best personal regards. 

As always. 



(5,- 



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VJf^ 




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VIEWS ON 5-635 

DONALD RBHNBDY, PRESIDENT 

STANFORD UNIVERSITY 

HAY 23, 1985 



It Is a privilege to be able to conment on Senate Bill 63S, 
th« Anti-Apactheid Act oE 1985. I welcone the opportunity to supply 
these views, which are nine, and do not represent the otClclal 
position of Stanford University. 

There are, I believe, sone objectives that nearly all 
Americans share. South Africa today represents an especially 
repugnant form of Institutional Iced Injustice — special t 
the intense degree to which one racial group restraini 
and violates the basic human tights of other racial groups. He havi 
a responsibility to help end apartheid and* to help guarantee 
individual treedon. As a shorter-term objective, we should try to 
help ameliorate oppreesion by the South African governnent, and to 
eliminate as many of the restrlctionB as possible that are now 
placed on the eights of black South Africans. 

In my judgment, the present policies of out governnent have 
not supplied significant Incentives for the attainment of those 
objectives. It is thus not surprising that students, at Stanford 
and elsewhere, ace focusing upon total divestment as a strategy 
for supplying that incentive. I personally feel that 
disinvestment by non-profit shareholders will not be an effective 
approach; and even if that approach were to bring about 
significant withdrawal of foreign investment fron South Africa, I 
am not at all certain that the results would be beneficial to 
those we ace trying to help. 



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Accordingly, I favor th« pclnciples unbodied In Senate 
Bill 63Sr which applies Both positive and negative incentives 
toward changing the laws that nake the apartheid eyetem possible. 
The essential provisions of the bill apply econonic pressures on 
the South African government now, rather than adopting the "wait 
and see* approach that characteriies some of the other currently 
proposed legislation. 

I continue to be concerned lest U.S. action involuntarily 
Inflicts hardship on innocent third parties, especially the 
non-whites we intend to help. Hy reading of 8-635 is that It Is 
carefully shaped not to reduce enploynent opportunities for 
non-whites, and that it will not Impede such progress as is now 
being made by the black trade unions. Rather, the result should 
be a retardation of growth by the limitation of credit and of new 
investment. With these provisions, I am in full agreement. 

I do have two specific suggestions. The first would, I 
think, make the application of economic sanctions significantly 
mote effective. As the Study Commission on U.S. Policy Toward 
South Africa, chaired by Franklin Thomas, reported In 1981, 
current export control regulations cannot be effectively applied 
to products manufactured by wholly-owned subsidiaries of U.S. 
firms in South Africa. Currently, the Export Administration Act 
and its derivative regulations impose few if any effective 
testclctions on the activities of U.S. eubsidiaties, as long as 
they produce products with non-U. S. components and do not employ 
manufacturing controls oc data sent from the United States. The 
application of export controls to such operations would represent 
an important extension of the sanctions envisioned in S-635. 



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Secondr I believe that certain of the aanctions now 
proposed could be made both More fair and More effective. S-63S 
currently proposes to prohibit conputer sales to the South 
Urlcan goveinKent, including spare parts and servicing Cor 
eoBputera already sold. It aeens to ae unfair to aingle out a 
particular product category tor use in such sanctions, especially 
one that has such a broad range of benign and huaanltarisn uses. 
It see«s to Be that this provision could both be broadened and 
■laed Bore directly at those particular uses that support the 
maintenance of the apartheid regise in South Africa. Thus. I 
vould prefer a general provision restricting exports of supplies 
and equipaent destined for use by the South African siilltary or 
police, with exception for huManltarian (e.g., nedical) uses. 
This could be acconplished by aaendnents to the Export 
Administration Act, so that no goods or technology (except 
technical data generally available to the public) could be 
exported for use by siilltary and police entitles In South Africa. 
It would then be posaible to list specific humanitarian 
objections, as is now done in regulations written under the 
Export Adninlstration Act. 

I welcosis the opportunity to provide these comments, 
and I hope they are helpful. I am, in general, quite cautious 
about applying economic sanctions to another nation with the 
intent of changing conditions there. But apartheid Is a form of 
xiandsted segregation that no civilited nation should continue to 
tolerate. Accordingly, I support this legislative effort to 
apply our national influence on behalf of freedom and dignity tor 
all of South Africa's cltltena. 



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ANSWER TO QUESTION PROPOUNDED BY SENATOR WILLIAM PROXKIRE 
FfCU 
KEECr D'AOOSTDO, National legal 
Center for tbe Public Interest, Washington. D,C. 
Q. In your career as a law professor and at the Department of 

Justice, you are not noted for being shy about fighting for 

what you believe in. Don't you think that if you were a 

black living in a totalitarian state such as South Africa, 

you would be tenpted to use violence to win your rights? I 

ask this because Bishop Tutu claina that the present policy 

of apartheid is driving blacks into the arms of the 

communists. 

A. Before I answer your question, I would like to make plain 

that I do not believe that South Africa is a totalitarian 

state. I do believe that tthe system of apartheid is a 

totalitarian system impoBed upon the black segment of the 

South African population. I also believe that that system 

has changed greatly since its inposltlon and is, in fact, 

breaking down. 

In answer to your question, I do not know that I would 

use violence, although I would be sorely tempted to disobey 

some of the laws, at a niniirum. Being forceably separated 

from my family or forceably removed from where t live would 

certainly engender a tremendous resentment in me that very 

well could lead to violence. Tbe short answer is that I 

understand very well how many could be led to violence. 

Unfortunately, in piesent-day South Africa the violence of 

certain blacks is as much directed against other blacks or 

coloreds as it is against the government. The situation 

there is highly complex and fraught with much difficulty. 

Answer to Question Propounded by Sen. Proxmlre - 1 - 



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One- point that I mmd* in my pap«r wa* catbvr p«*aiaiBtic in 
that Chang* Is racely rapid enough for thoa* d^Mnding it 
and aiwaya too capid foi thoa* fighting it. T«s, I balicve 
the pace of change nut quicken. Ho, I do not believe that 
the bill will have that efCact. 

It is crucial that tefoiM not cob* only fro* the top 
down. These recent gestures fro« the South Afcican 
govecn>ent, though helpful and buBane> will not quell the 
[ising iSBentaent. Blacks bave axpaiienced in tbeic ]ob 
areas a certain feeling of equality. At least in the 
Aaerican coMpanies they are close to equality of pay for 
equal work. Tbey have been able to for* their own unions 
and choose tbeic own leadership. Pcesuaably 80*e would 
cbooae to live in a black hoaeland. In fact, of the four 
honelands given independence, two ate doing latbec well and 
two rathec poocly. But of course the key to the sentence 
that I juat wcote is 'choose.* 

The end of cue atteMpt to Influenca the internal 
affairs of South Africa are twoi (1) to nalntain a 
governnent friendly to the Dnlted States and the Hestern 
alliance) (2) to have a government built upon the principles 
that made the West great, that Is, respect for tb* 
individual and liberty. How best night we achieve these two 
ends? Certainly not by being punitive or withdrawing 
involveoent in South Africa. It is our very involvement 
that has helped lead to a breakdown of apartheid Insofar as 
it has broken down. South Africa is a country divided 

swer to Question Propounded by Sen. Prozmir* - 2 - 



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against Itself. Economic liberty and a totalitarian systen 
cannot co-exist. Tbe increasing economic pover of blacks 
along with leEorns largely pioneeced in American companies 
must inevitably lead to the end of apartheid. What will 
come after Is the real Issue. To repeat It Is the economic 
involvement of the United States and the growing economic 
strength of the blacks that has led to their increased power 
and led to the concessions by the South African government. 

What must we do? We must encourage the government of 
south Africa to bring together the leaders (I did not use 
the word responsible before the word leaders) of all the 
peoples of South Africai that is> blacke> colored) Asian, 
and white. The leadership should be drawn from both major 
white ethnic groups as well as the various colored groups 
and the various black tribal groups. People must feel that 
they are participating In the change. The great federalist 
debate in this country not only gave the people the feeling 
of participation, but also served an educational purpose. 
Only through an on-going discussion can the people focus on 
what they real ly want, and I am sure that what the people, 
black and white, want is liberty, security, and fairness. 
with all groups participating, a solution can be worked out 
that will Insure those things. He must maintain our 
involvement, particularly our economic involvement, so that 
change will continue while urging the South African 
governnent to accelerate change through listening to and 
being guided by an on-going public process involving leaders 
of all of the groups. This Is tbe only way to avoid 

' Answer to Question Propounded by Sen. Proxmlre - 3 - 



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Tlolenc* because this i« tba only way to Hke a population 
accept [«lativ*ly gradual change fcoa tha black persp*ctlv« 
and woce rapid change than would b« wished lor f ton tha 
white perspective. 

There are no shortcuts. Blstory is replete with tba 
consaquences of rapidi read violent, change. It is cepleta 
with the resistance of ruling elltiat change. History also 
has instances of ruling elites giving way, being flexible, 
being accoanodatlng, and being tolerant. I will say again 
the words with which I opened my oral testisKinyi that we 
nuBt help the South African government and the ruling white 
elite of that country open their ayes to the world we are 
living in today. 



RJD/ckB 
June 7, 19B5 

Senator Heinz. The Chair thanks all of you for your participa- 
tion. I. appreciate it and I will be submitting a question or two for 
the record as well. 

Our next witness is Donfild F. McHenry. He was our Ambassador 
to the United Nations in the late 1970's. He's now with the George- 
town University School of Foreign Service. Don, it's nice to see you. 
Welcome. I understand you don t have a written statement but you 
have some things you would like to say. I understand also that the 
reason you don t have a written statement is you have been on the 
road and you just got back late leist night, which is a tough time to 
get anything but a plumber in Washington, DC. Please proceed. 

STATEMENT OF DONALD F. McHENRY, FORMER AMBASSADOR TO 
THE UNITED NATIONS; GEORGETOWN UNIVERSITY, SCHOOL OF 
FOREIGN SERVICE 

Ambassador McHenry. Thank you very much, Mr. Chairman. I 
have, in fact, been on the road and out of the country and I was 
out of the country at the time your letter arrived inviting me to 
appear here. I do have some preliminary remarks to make. 

I should inform the committee that I appeared before a similar 
committee in the early 1970's when I was on leave from the De- 
partment of State and at the Brookings Institution and their coun- 
sel on foreign relations. I did an extensive study of American in- 
vestment in South Africa and in 1973 I published my conclusions 
with regard to that situation. 



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Senator Heinz. But isn't most of that just window dressing? 

SOME IMPROVEMENTS IN URBAN UVING 

Ambassador McHenrv. No; it's not window dressing. I think it's 
important that one acknowledge that there have been substantial 
improvements in some aspects of urban living. 

What I'm saying, however, is that none of these changes which 
we have seen — and we have seen many — none of them address the 
structure of apartheid. None of them provide an opportunity for 
the citizens of that society to participate in their Government and 
to themselves decide whether there is going to be a repeal of a 
Mixed Marriages Act or whether there's going to be a new consti- 
tution or whether they are going to have a continuation of some of 
the laws like the Terrorism Act. 

In that regard, in regard to the structure, there has been no 
change. 

Senator Heinz. Why during the Carter administration wasn't 
there a more aggressive attack on apartheid which as you say hfis 
remained virtually the same for the iMt 8 years? It was no less re- 
pugnant then I hope than today. I really have some difficulty un- 
derstanding what the difference of the passage of 4 or 5 years 
makes when we're talking about an egregious wrong. 

Ambassador McHenry. Senator, I think most South Africans 
would — certainly the South African Government would say that 
the Carter administration was much tougher on them than the cur- 
rent administration. I don't think that there is 

Senator Heinz, I'm not talking about rhetoric. 

Ambassador McHenry. I am not talking about rhetoric either. It 
was in the Carter administration that the arms embargo was made 
mandatory. It was in the Carter administration that the restric- 
tions on sales to the South African military and police were en- 
forced. It was in the Carter administration that restrictions were 
placed on sales and where some computers went. It was in the 
Carter administration that negotiated Resolution 435 on Namibia. 
The Carter administration tried to set forth a series of steps with 
regard to Southern Africa. 

Senator Heinz. As I understand what you've said so far — and I'm 
not dis^reeing that you didn't do those things — what you've said I 
think you would agree is that they didn't accomplish anything in 
terms of apartheid. 

Ambfissador McHenry. No, I wouldn't say they didn't accom- 
plish anything. 

Senator Heinz. I said in apartheid. 

Ambassador McHenry. I would remind the Senator that the Sul- 
livan principles were brought into effect under the auspices of the 
Carter administration. I was present in the room when we finally 
persuaded the last of the companies to sign that measure. So that 
too was a contribution. 

The President set forth a policy with regard to all of Southern 
Africa and this was communicated to the South African Govern- 
ment. We had a complex of measures. We had Zimbabwe on our 
hands. We had Neunibia on our hands. We had apartheid on our 



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356 

the surrounding countries and into such an unstable situation are 
likely to move those very political groups and developments which 
I think the Senator earlier v/as referring to when he talked about 
the changes which took place in Iran and various other countries. 
In other words, we are creating a situation, a climate for radicali- 
zation, unless we and others, and the South Africans, do what we 
can to make changes now when there remains a possibility for a 
settlement with less violence. 

There is more than this. Here one gets into, I think, largely a 
demonstrated faction. I would like to see the United States fully 
enforce the arms embargo. I would like to see the United States 
once again develop the kind of communication with citizens of 
South Africa, of all citizens of South Africa, that I think we once 
had and that I regret that we have lost. And there may be in the 
future and the time remains in doubt — there may be an opportuni- 
ty and a necessity, if you will, for the Congress to enact more 
sweeping legislation with regard to this area. 

But I will repeat again, it seems to me that this is an appropriate 
first step. Thank you. 

Senator Heinz. Ambassador McHenry, thank you very much. 
You were not only our Ambassador to the United Nations but to- 
gether with Andrew Young when he was Ambassador were among 
the most influential voices in the Carter administration with re- 
spect to policy in Southern Africa. 

What elements of S. 635 did the Carter administration advocate 
with regard to South Africa? 

Ambassador McHenry. S. 635 contains four elements and none 
of those were advocated at the time and I don't believe that we 
were at a point at that time that we are now. We have seen, I 
think, the steady deterioration over the last year, I would say 
steady deterioration over the last 4 or 5 years, with regard to South 
Africa. 

That is why I put my comment in terms of appropriate first step. 
It seems to me that this is a step which is consistent with condi- 
tions which we find now. 

There were other measures, however, which were enforced 
during the Carter administration which are not enforced now and 
which I regret are not being enforced. 

One of those is the arms embargo. An earlier witness has given 
you an indication of how many changes have taken place with 
regard to that. Another of that was the very positive and I think 
constructive role which we played — and I played personally with 
regard to negotiations on Namibia. Those have gotten nowhere and 
in fact 1 think they have been set considerably back. 

But none of those steps was at the time advocated, but I don't 
believe that we had reached the point where we have now. 

Senator Heinz. Now, you say the situation is worse today than it 
was during the Carter administration. Objectively, now, is the situ- 
ation for the black majority in South Africa worse today than it 
yvaa then? 

Ambassador McHenry. Senator, that depends on what aspect of 
it you are talking about. There is no question in my mind that 
there have been improvements in some of the eispects of urbeui 
living in South Africa. 



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358 

hands. I think we went a long ways toward resolving the firBt two. 
We had to set priorities. 

With regard to apartheid, there was clear indication of policy. 
The South Africans were clearly told that if there was no progress 
toward full political participation there would be a deterioration of 
relations between the United States and the South African Govern- 
ment. There was no progress. There was the deterioration. 

Now we have not changed the structure. I am not arguing here 
that these measures are going to change the structure. I don't 
think they will. Will they, however, add additional pressure? Will 
they change the perception, the misperception which is present? 
WiU they contribute to change? I hope so. 

Senator Heinz. Let me ask you this. Did you and Ambassador 
Young at any point at which the Carter administration was con- 
templating increasing the pressure, some of which you just de- 
scribed, consider the application of a ban on new investment and 
did you reject it? If so, why? 

Ambeissador McHenry. Well, I was in New York and not in the 
State Department in Washington. I don't think that a ban on in- 
vestment was considered but I don't believe that it at the time was 
appropriate. I would say this. We cannot overlook the direction of 
events over the last year or over the last several years. 

Senator Heinz. I don't think anybody is. That's why we are 
having these hearings. 

Ambassador McHenry. And that, it seems to me, has provided 
more fuel for these proposals than anything else. The fuel for these 
proposals comes not from the United States Government, not from 
the students, not from the churches, but from actions on the part 
of the South African Government. 

Senator Heinz. I don't think anyone would contest that, Don. 
You mentioned the Sullivan principles. This is my last question. 
I'm going to run out of time shortly. 

In the next panel, Reid Weedon, of A.D. Little, will argue that it 
is important to remember that, "the evil of apartheid will end only 
by vote of the white South Africans or by revolution." 

Is it possible to achieve our goals while avoiding revolution in 
South Africa, and what policies would you recommend for the 
present administration to pursue in order to maximize United 
States influence and leverage with the Government of South 
Africa, particularly if our goal is to induce the South Africans to 
move toward full political participation for all its people? 

HOPE TO AVOID FURTHER VIOLENCE 

Ambassador McHenry. Senator, I would hope that it would be 
possible to avoid further violence and bloodshed in South Africa. I 
am reminded, however, of the lines in Allen Payton's book, "Cry of 
the Beloved Country," where he said or he has one of his charac- 
ters say that he's afraid that by the time whites learn to love, 
blacks will have learned to hate, I think we are seeing that in 
South Africa. It's taken a long time. In fact, almost any visitor that 
goes there even today marvels at the fact that there is still so 
much moderation among the African population. 



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We can*t change South Africa. It is not for the United States to 
do so. South Africans themselves will have to get together and 
come up with that political consensus which allows them all to 
govern themselves, and there will be a series of compromises £ilong 
the way just as there have been compromises within this society, 
and there are compromises in every society that I know of. 

The point is that everyone has to participate in reaching those 
compromises. What we can do is make clear what our own policies 
and attitudes are. We c£in try to reduce the extent that anything 
that we have control over contributes to the continuation or the 
strengthening of apartheid. That is all these measures are aimed at 
doing. It does not seem to me that they aim at anything else. 

We would be fooling ourselves if we pretend that they will bring 
down apartheid. They won't. But they will correct the perception 
and they will ensure that the United States does nothing to contin- 
ue it and strengthen it. 

Senator Heinz. My time has expired. Thank you very much. Sen- 
ator Proxmire. 

Senator Proxmire. Thank you, Mr. Chairman. 

Ambassador McHenry, I am extremely impressed. I think your 
statement and responses to the chairman have been very, very per- 
suasive and I want to thank you for them. 

There are those who say that South Africa is really a bulwark 
against communism and we need to help South Africa in our ef- 
forts to stem the tide of communism in an extremely important 
area of the world. 

Others, such as Bishop Tutu, claim that the greatest inducement 
to the growth of communism in South Africa is the apartheid 
policy of the present Government and we must help eliminate 
apartheid if we want to stop the growth of communism there. 
What are your views on this? 

-Ambassador McHenry. Senator, I think we have seen the 
answer to that question throughout Southern Africa. To the extent 
that there has not been an opportunity for growth or change, those 
who have sought the redress of their grievances have become in- 
creasingly radicalized. Those who have sought the redress of their 
grievances have increasingly turned to the Soviet Union and other 
forces which we may not like for support. And along the way many 
of them have become advocates of the policies of communism. 

I think any time that you have such instability, any time that 
you have such longstanding legitimate grievances without recourse, 
you provide the most fertile soil that I know of for communism. I 
have long said that South Africa, far from being a bulwark against 
communism, is one of its most positive elements in Southern 
Africa. 

NEED NEW CONSTTTUnON 

Senator Proxmire. As you know, the Progressive Federal Party, 
the PFP, has long been regarded as the white conscience of racial 
justice in South Africa and it is the official opposition party in the 
South African Parliament. Progressives talk about a need for a 
new constitution in which everyone in South Africa is given full 



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rights as a citizen and in which there is genuine power sharing 
among racial groups. 

Under this system the homelands policy would be scrapped and 
blacks would be allowed to vote and be represented in a new broad- 
based national Government. However, blacks would not be allowed 
to dominate the Government. Whites would be permanently pro- 
tected by a minority veto under a special coDstitutional arrange- 
ment. 

Do you think such a plan has any merit or do you think we 
should press South Africa to go forward on a one-man-one-vote 
system. 

Ambassador McHenry. Senator. I indirectly answered that earli- 
er when I said that all South Africans ought to get together and 
try and work out that political consensus which enables them to 
govern themselves and I suggested that whatever consensus that 
they may get today may not be adequate for tomorrow. It may be 
that what the Progessive Federal Party has outlined is a first, or 
second, or third step along the way. In my judgment, I doubt if it's 
going to, in the final analysis, be satisfactory. 

That does not say that it is not something which ought not to be 
done as a step along the way. But the process of government is the 
process of constantly trying to find a political consensus. South Af- 
rica's problem today is because it has no political consensus. 

Senator Proxmire. Thank you, sir. 

Thank you, Mr. Chairman. 

Senator Heinz. Senator Sarbanes. 

Senator Sarbanes. Thank you, Mr. Chairman. 

Mr. Ambassador, I'm struck by the fact that the focus tends to be 
on the policy as it impacts within South Africa, but I want to shift 
from that focus for a moment and ask you how high a price you 
think we are paying for an American policy that is perceived as 
indulging the apartheid regime and all it stands for? How high a 
price are we paying elsewhere in Africa with respect to American 
interests and indeed elsewhere in the world? 

Ambassador McHenry. Senator, that is hard to gauge. It is hard 
to gauge for a number of reasons. If you are a poor African country 
dealing with the United States and you don't like the policy of the 
United States, under the current policy you had better keep quiet 
because aid is likely to be affected and other programs are likely to 



deterioration of respect 

It is my judgment, however, that there has been a steady deterio- 
ration in the level of respect for the United States among other Af- 
rican countries as a result of this policy. The policies have been 
criticized by African countries. More than that, the United States 
finds that it has little or no support with regard to its South Afri- 
cem policies among some of its allies, particularly with regard to 
the actions which have taken place in Mozambique, Angola, and 
Namibia. The once united front presented by the compact group ie 
no longer. 

We have been sharply criticized by our colleagues and our closest 
allies with regard to that worldwide, it seems to me. 



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In the long term, when we find ourselves sticking with a govern- 
ment to the bitter end long after we know that we should have 
taken stei» to change our policy and long after we know that gov- 
ernment should have taken steps to change its policy, we are likely 
to see the kind of thing that we have seen in Iran, or Cuba, or 
Nicaragua, or the Dominicein Republic. The list is very long of 
countries where the United States has found itaelf supnorting poli- 
cies which were rejected by their inhabitants, found the situation 
radicalized, and then we worry — we get concerned when a radical 
government takes place. But all the time when change could have 
been taken under more moderate circumstances we didn't speak 
out strongly enough. 

That is the situation in South Africa today. 

Senator Sarbanes. Just over 5 weeks ago Deputy Secretary Dam, 
testifying before this committee, pointed to progress on Namibia as 
an instance of the successful working of the constructive engage- 
ment policy. Within 3 days, the South African Government moved 
unilatereillv and — at least in the perception of many, shortcircuited 
U.N. Resolution 435 and the work of the Contact Group, so that 
our Ambassador in South Africa was in to lodge an American pro- 
test with the South African Government. 

This morning's paper carries a major story pointing out that the 
Lusaka accord, which again was pointed to by Secretary Crocker as 
an effective instance of constructive engagement, has been totally 
violated by the South Africans in Angola. In fact they have their 
military in the very north of Angola and were apparently intend- 
ing to commit sabotage against American economic interests there, 
as I understand it. 

I wonder if you would comment on the administration's assertion 
about the success of its constructive engagement policy with re- 
spect to Namibia and Angola. 

Ambassador McHenry. Senator, eis you know, I was very much 
involved in the negotiation of U.N. Resolution 435. I don't believe, 
frankly, that any progress has been made with regard to solving 
the problem of Namibia. On the contrary, I think we have taken 
some steps backward. 

I am not suggesting to you that the administration could have 
resolved it. I left it unresolved. But I think we have marched back- 
WEirds. 

We introduced the question of the Cubans and we allowed the 
South Africans to follow a policy of destabilization which far from 
obtaining our objective of getting the Cubans out of Angola result^ 
ed in making the Angolan Government more dependent today on 
the Cubans than they were before. And certainly the action which 
was reported today in the newspaper of South African saboteurs in 
the far north of the country is likely to make the Angolans even 
more justified in keeping the Cuban presence and not trusting the 
South Africans when they say they want peace in the area. 

There hsB been also an effort to take a great deal of credit for 
what went on in Mozambique, the Empinadi accords. I hope the 
Empinadi accords are successful. But quite frankly, I would not 
take very much credit for them. The Empinadi accords came as a 
result of the destabilization policy of the South African Govern- 
ment, military actions by South Africa's military, strong support 



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for the MNR and its destruction of infrastructure in the area, and 
they also came about as a result of the drought which came along 
at the same time and the ineffective policies of the Mozambique 
Government. 

What I am suggesting to you is that constructive engagement 
was not the major factor. The major factors were those other 
things that I referred to. 

Senator Sarbanes. Thank you. 

Senator Heinz. Senator Ri^le. 

Senator Riegle. Thank you, Mr. Chairman. 

Let me thank you very much for coming today. I know it's not 
easy when you're moving around to come to a hearing of this kind, 
but I thought your statement was certainly eloquent, and also very, 
very important — very important to the country to hear and for the 
Senate to hear, and I think an excellent guide to us in terms of 
where we are and how we try to sensibly work our way forward. 
So, I am very appreciative of the effort and the thoughts that you 
shared with us today. 

Elarlier in the discussion that we had here at the table among 
Senators, the assertion was made that the living standard of black 
people in South Africa was better than in any other country in 
Africa. I found that to be a breathtaking proposition, and I would 
be interested in your view on that proposition? 

Ambassador McHenry. Senator, it's one of those true but irrele- 
vant statements. I wouldn't doubt that the living standard among 
blacks in South Africa is higher than most or all other areas in 
sub-Saharan Africa. But so is the gross national product. So, is the 
level at which other citizens in the society live. The standard by 
which South African blacks ought to be measured is not the stfuid- 
ard of Chad or Mali but the standard of South Africa. How do 
South African blacks compare with South African whites? 

It's when you use that as a mesisurement which makes it very 
important. And again I say the observation I've heard and it's part 
of the sort of fill and propaganda type material, but it's totally ir- 
relevant. 

Senator Riegle. I think the phrase "living standard" tends to 
connote dollars and cents and material well-being. I was attempt- 
ing to broaden it out more to the notion of what your whole condi- 
tion is — how you are treated as a human being, what kind of soci- 
etal situations you find yourself in that defines all aspects of your 
life, the quality of your life, the quality of your being, what your 
standing is in society. 

It seems to me that, if that broader definition of living standard 
is used in terms of any measure of civil rights, or human rights, or 
legal rights within the governmental system, there is an enormous 
factor there that — I'm not sure anyone can understand that's not 
inside that experience. 

Ambassador McHenhy. Right. 

Senator Riegle. Since one cannot place themself inside a black 
person's body in South Africa, I'm not sure any other person can 
begin to comprehend what that type of existence really means. 

Yet, a picture should be drawn, should it not? Could we find 
some way to bring this pertinent point into even a superficial dis- 
cussion of living standard? 



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DEGRADATION BECAUSE OP BACIAL ORIGIN 

Ambassador McHenry. Well, I would agree with the Senator. 

That's one of the reasons why I said the observation is irrelevant. 
It doesn't cover the whole picture. It's irrelevant in economic terms 
in which it is presented, but it is even more irrelevant if one is 
'talking about apartheid. In no other society do you have govern- 
ment-imposed racial discrimination or do you have determination 
of birth to grave on the basis of the one thing that an individual 
cannot do anything about; namely, his racial origin. 

I think the most poignant way of looking at ^uth African socie- 
ty and one which I continue to say and tell people tells you a great 
story about the society is to go into a pass port and see people 
move through at the rate in which they are moving through as the 
Government tries to enforce its influx control laws. It is to go 
through even an urban area like Soweto and see in a day the 
number of children around with little or no supervision because 
their families have been split because both mother and father have 
to find some kind of way to eke out a meager living. It is to see the 
trains moving back and forth in the evening taking the people 
I from the city to the rural areas. It is to see the desertion of a city 
I in the evening. It is to tolk with an educated South African and 
find the limits which he finds imposed upon him. It is to hear 
Bishop Tutu, as he did on Ted Couples' Show several weeks ago, 
ask why it was that he, a citizen, didn't have the same rights as 
the person that he was talking to. 

That gives you a picture of South Africa. 

Senator Riegle. Thank you. 

Senator Sarbanes, Would the Senator yield? 

Senator Riegle. Yes. 

Senator Sarbanes. I simply want to commend my colleague from 
Mich^an for I think bringing the hearing back to a very interest- 
ii^ focus. We get into the practicalities of how this will work, 
which way it will impact, and I think we tend to lose sight on occa- 
sion of the fundamental overwhelming moral issue that's present- 
ed. 

There were those who asserted when the slaves were set free 
that their economic circumstances would worsen and in fact it did 
in some instances worsen, but that, of course, it seems to me is no 
basis to ai^ue for slavery. And, I think. Senator Riegle's focus 
again on the fundamental issues of human dignity, of the individ- 
ual's right to participate in his society and to shape his course and 
his own destiny and the destiny of the society is in the end why 
this is such a pressing issue and why I think the focus in this coun- 
try which has now come upon it in recent times is not going to 
recede. I think that it's going to deepen and broaden and that it 
will continue to be a prime issue on the national eigenda, and that's 
why we need to come to grips with it in a constructive way in the 
Congress in the form of l^slation. 

Senator Heinz. Senator Sasser. 

Senator Sasser. Thank you, Mr. Chairman. 

Mr. Ambassador, good to see you ageun here today. 

Ambassador McHenry, in your opinion, what can the U.S. Gov- 
ernment do now today that would so fundamentally challenge the 



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364 

continued existence of apartheid that the effect would cause an 
erosion in that policy perhaps leading to a change in that policy? 
What could wG do today about it? 

Ambassador McHenry. Senator, I don't look upon social change 
in such a short term nor do I believe that the United States is that 
all powerful in difficult situations. 

Change is going to come about in time in South Africa. It's going 
to take time. The question and the whole debate is not over the 
manner in which change takes place. If this debate was over when 
and how, it would be much less heated. Unfortunately, the debate 
is still over whether. 

Once South Africa answers the question of whether, then we can 
all engage in a rather respectable debate in which there is a great 
deal of compEtssion and understanding of the very difficult situa- 
tion in that country with regard to when and how things are goii^ 
to be accomplished. But they haven't moved that far. They haven't 
' made the commitment to structural change. 

Once that commitment is made, there will be a great reservoir 
even among the Africans with regard to how to work out the proc- 
ess. 

Senator Sasser. I quite ^ree with you that change is not going 
to come quickly and it's not going to be rapid. At least if it comes 
quickly and very rapidly, my judgment is that it might not be the 
sort of change that we in the United States would particularly 
want. It might be a very radical change that would move South 
Africa in a direction that we would consider not in the national in- 
terest of the United States. 

But what I'm trying to put my finger on is what could we do as a 
government that would bring the greatest pressure on South Africa 
to change the policy of apartheid, to move them in the direction of 
making the decision, "Yes, we are going to change it." What do we 
do that might be contagious, not just as between ourselves and 
South Africa, but between ourselves and other countries to cause 
this to happen? 

Ambassador McHenry. Senator, I should say many of us on the 
panel before me and I have in my own remarks sought to try and 
put these actions proposed in the bill in perspective and to suggest 
that they were limited measures. 

Senator Sasser. Well, you do consider this serious legislation? 

Ambassador McHenry. It is serious legislation in that it is an ap- 
propriate first step and it is a significant first step. But more than 
that, I don't believe that Americans appreciate how much South 
Africans focus on what the United States does and says. These 
hearings are going to be followed very closely in South Africa. 
"They won't get as much coverage in this country as they will get in 
South Africa. 

CHANGE WILL COME SLOWLY 

So, I think the fact that there is movement will help to counter 
the impression which is there now with r^ard to the constructive 
engagement and I think it will be a very significant morale booster 
and shot in the arm for the African population of that society. But 
it is not — and I don't think we should fool ourselves — change 



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doesn't come overnight. We shouldn't delay things and I'm not sug- 
gesting that. One ought to move and move ahead, but it's going to 
take some time to work out that situation in South Africa emd the 
pity is that they haven't started making the significant change 
down the road toward it. 

Senator Sasser. Thank you, Mr. Ambassador. 

Senator Heinz. Senator Riegle. 

Senator Riegle. If I may, I will add one other comment. First, I 
want to thank Senator ^rbanes for his very generous personal 
comment. 

I want to touch once again on the standard of living question in 
broad economic terms. 

The Carnegie report tells us — and Senator Sarbanes quoted from 
this earlier — that there are some 11 million black people in South 
Africa that live in the so-called homelands. The living condition in 
the homelands, as separate from the urban areas cited earlier as 
showing improvement, is starkly different. We might see in some 
narrow segment a somewhat gradually improving economic condi- 
tion. In other areas, we are seeing, a very large number of people, 
a profoundly depressed kind of living situation. This stanaard is 
probably far fjelow that in other societies even in tfiat region of 
Africa. 

Isn't that correct? 

Amtmssador McHenry. Senator, the homelands situation is very 
bleak. It is bleak because people have in many instances, particu- 
larly those who have been removed from so-called white spots have 
been moved into areas which they were unfamiliar with, though 
there may have been some distont ancestral relationship. They 
have been moved into areas where it is very hard to make a living 
and they have l>een moved into areas where social and other facili- 
ties are very thin. 

One shouldn't generalize about the situation there. One ought to 
talk about the rural areas and the urban areas and so forth. But 
with regard to the question which was raised earlier — that is com- 
paring it with the situation in other parts of Africa — it is still irrel- 
evant with regard to the situation in South Africa. The economic 
conditions of the living stondards of all black South Africans are 
far below those of whites in the society, far below even the lowest 
rung of whites in the society as a whole. 

Senator Sarbanes. Would the Senator yield? 

Senator Riegle. Yes; of course. 

Senator Sarbanes. It's really as irrelevant as saying to American 
blacks who may complain about their particular economic stetus in 
this country that they live better than blacks in African countries. 
It seems to me to have the same degree of irrelevancy with respect 
to material standard — let alone the other dimension that Senator 
Riegle added to his question, which I happen to think is fundamen- 
tal. 

Senator Riegle. Well, the propaganda — and I use that word — the 
sort of propaganda that is very carefully constructed to put a 
veneer of decency and positiveness on the Grovernment of South 
Africa has to be stripped away. You have to teke every one of these 
phony arguments when it's put up there. These arguments have to 
be taken apart right in the front window. If this is not done, there 



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are a certain number of people who will buy these phony argu- 
ments. They will turn off that issue and they won't think about it 
any more. 

Ambassador McHenry. I fully agree with you. Senator, and 
anyone who's seen some of the literature supporting or justifying 
or rationalizing current j>olicy would agree with you. 

Senator Riegle. Well, thank you again very much for coming 
today. 

Senator Heinz. Ambassador McHenry, we thank you. You have 
been very eloquent and we appreciate your testimony. Thank you 
very much. 

Ambassador McHenry. Thank you very much. 

Senator Heinz. Our last panel consists of Mr. Reid Weedon, Mr, 
Sa! MarzuUo, Mr. George Schroll and Mr. Patrick O'Farrell. Gen- 
tlemen, would you please come forward, assuming you have not 
died of starvation yet. 

Gentlemen, thank you for being here. Mr. Weedon, would you 
please begin, 

STATEMENT OF D. REID WEEDON, JR., SENIOR VICE PRESIDENT, 
ARTHUR D. LITTLE, INC.. EVALUATOR FOR SULLIVAN PRINCI- 
PLE8 

Mr. Weedon. Thank you, Mr. Chairman, It's a privilege to be 
here. 
[The complete prepared statement follows:] 



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TBtttlBony of D. Held H*«don, Jr. to the S«nate Banking 
Currency CosBltta*. Nay 2«. 1985. 

I ■■ 0. Raid Haadan, Jr. of Winchaatar, HA, Sr. VP of Arthur 
D. Llttla, Inc. 

In Hsrch of 1977, Dr. Laon H. Sullivan propoundad what hava 
coma to be Icnown aa tha Sullivan Prlnclplaa for South 
Africa. In aeetina with the chief axacutlvaa of tha twalva 
coMpanlaa that bacaae the original Slgnatorlaa, Dr. Sullivan 
stated that it Mould be necessary that each coBpany report 
to hia annually on Its activities In South Africa with 
respect to the Prlnclplaa. 

Tha nuMber of Signatories graw rapidly to approxlnataly 100 
by mld-1978 when half of them aubmlttad reports to Or. 
Sullivan. At that time, ha engaged Arthur D. Little to 
undertake the analysis of thaaa progress raporta on his 
behalf . 

The whole process has developed substantially and an 
elaborate quaatlonnaire tiea evolved for collecting annually 
Information about the operatlona of the Signatory companies 
In South Africa. 



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Th* first thr** of tha Sullivan Principles deal prlnarlly 
Mlth conditions in tha wortcplace such as desegregation, 
agual [lay for equal worlc and mlnlaun tfage. They are 
evaluated on a pass/fail basis so that It Is possible for 
tha eaployees themselves In South Africa to verify, on the 
basis of the grade we give to a company, the appropriateness 
of Its responses. 

For the last three Principles the companies' efforts and 
performance are evaluated with respect to support of 
training and advancement of employees, education generally, 
and community development, such as housing and assistance to 
Black businesses. A portion of these efforts are 
appropriately measured by financial contributions. These 
and certain other quantitative measures are subject to audit 
each year by the company's regular certified public 
accounting firm. Our own analysis and subsequent grading of 
each company are based upon this quantitative Information as 
well as written descriptions of the company's activities and 
accomplishments related to the last three Principles. This 
analysis is, to a substantial extent, judgmental, making It 
very difficult to embody In law. Indeed I would not wish to 
undertake this evaluation in a legal rather than the present 
voluntary environment . 



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SAvcral other coda* for South Africa bav* b»«n promlgatad. 
Of these, only the Burop««a Beonoalc Coaaunlty cod* requires 
annuaa repartlng. Hhlle the Sullivan Coda h«a four tlaea 
Increased in ecotie and level of requlreaents, the EKC coda 
has reaelned etatjc. rurtheraore. the reporting re^lreaent 
Is quite unlapreeslve coapared to that of tha Sullivan 

One of the frequently raised leeues la the accoapllshaenta. 
it any, at the Sullivan Principles. In considering both the 
compliments end the brlckbete alaed at the Principle*. 1st 
us not forget that very likely, euch of our eense of urgency 
here In the Onlted States for change In South Africa steas 
froB our own guilt coeplex end fruetratlon In atteaptlng to 
deel effectively with the alnorlty situation In our own 
country. HoMeveri South Africa Is a sovereign country, with 
Its OMn Constitution, and Me need to reflect on our own 
likely reactlone if people of another country Mere to tell 
us the change* Me ehould >ake In our Constitution. I do not 
eean to laply that no should Ignore the situation in South 
Africa, but, rether, the absolute neceselty for moving 
thoughtfully and constructively, reaeaberlng that the evil 
of epertheld Mill end only by vote of the White South 
Africens or by a revolution. I think It Is laportant that 
all of us keep this thought In alnd because Mhlla no aey not 



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like th*lr daflRltion of who Is a citizen of their country, 
It is their country, not ours, and that fact Units what we 
can do and have been able to do. 

The Sullivan Principles have acconpllshed many things in 
South Africa. Non-American companies In South Africa have 
told me that It has been necessary for them to change their 
own amployment and social practices In order to leeep 
Anerican coBpanies froa hiring away their best employees. 
In their various industries. Signatory companies have been 
in the vanguard with respect to Increasing minimum wages, 
recognition of non-white unions, training, and housing 
assistance. Although the Signatory companlas employed lass 
than one percent of Black workers In 1983, these employees 
held ISK of the 99-year land leases outstanding. This 
record was made possible as a result of financial aid and 
education about the value of home ownership. Since the 
start of the program. Signatories have contributed over 32 
million dollars to improved health care and living 
conditions outside the workplace excluding education. Last 
year, they contributed toward the education of non-white, 
non-employees over $10 million. They also contributed the 
services of their employees to the extent of more than 
110,000 man days. 



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Tha SlgnatorlBB have also tmllt « vary tiam aecondary achool 
In Smmta. It la not only the beet echool In South ACriem, 
pnbllc or private, but very likely one of the beat schools 
In the Morld. 

So«B people say that the Sullivan Principles do not go far 
enough, and a nuaber of Investors press the coapanlea in 
which they are Invested to go farther. But going further 
nay be contrary to Mhat Black South Africans Mant. Lots of 
people In this country say that coapanles should divest - or 
dls-lnvest. I have great difficulty with this because I 
think the najority of the Black people in South Africa don't 
really Hsnt It. Indeed, Professor LsMrencs Schleaaer, idio 
is a profeesor of Sociology at the University of Metal, has 
Just completed a survey and has found that the sajorlty of 
the Black people In his sanpltt are happy to have foreign 
Inveetnent In South Africa and reellzs that it produces aany 
Jobs and, therefore, helps a lot of people to eat. Over 
half reconnend that foreign coMpanlee expand rather than 
wlthdraM: and 7Sk were against withdratfal according to that 
survey . 

Our Dost recent annual report was published in October of 
1984. In sons instances It Includes Multiple grades for a 
Signatory conpany where the cospany reports on sore than one 



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operation In South Afric*. Thlrty-tNO raceivBd. tha highaat 
grade, fifty-one others also received passing grades, and 
thirty-two received Calling grades. 

In order to be a Signatory, a company Is required to make a 
nominal contribution to support the Sullivan admlnistratlva 
operation. Including tha raporilng process, and to report 
each yaar . 

Since last October, tHenty-six new Signatories have 
enrolled, bringing ttia total Auerlca Signatories to ona 
hundred and fifty at the approximately three hundred 
American companies Icnovm to have operations in South Africa. 
The median signatory company size In South Africa is two 
hundred employees, the range being from 1 to about 5000 
employees. 

Last year the Signatories reported upon 65,000 employees or 
about one percent of the total aconomlcally active labor 
force in South Africa. The Influence of the Signatory 
companies goes Car beyond this one percent, however. 



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I sincerely bellevo that the Sullivan progran is dynamic 
bacauaa it la a voluntary code and Dr. Sullivan ia a tough 
taskmaster. The Signatory coapanlas do have a strong 
positive effect In South Africa by setting tha standards for 
business. But they alone Mill not be rasponslbla for the 
ellslnatlon of apartheid. More participating cospanlas Mill 
both improve conditions and bring mors prsssure on the 
government. My recoamendatlon is that ms should concantrata 
on urging the remaining American coapanlas in South Africa 
to bscoma Signatories as Mali as encouraging South African 
and other foreign coapanlas In South Africa to join. 

In ay observation, economic boycotta and other foreign 
pressures short of Mar are not effective in bringing changa 
within a country. Our two bast levers to motivate change In 
South Africa are working within the internal economy through 
our companies there and supporting aoaantous Improveaent in 
ths education of Blacks. 

The ultimate objective of ending apartheid without 
disintegration of tha country will come with equality of 
education. The Sullivan Signatories are making a large 
contribution to this objective but the need raqulres tha 
support of many others. If wa in the United Statea want to 
cause peaceful, naanlngful change, we will offer to support 
aassive educational aid to Blacks In South Africa. Our only 
condition should be that there Is a single educational 
system for all tha people of that country. He will need the 
help of many others such ae Japan and Sweden who are 
outspoken against apartheid. 



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Senator Heinz. Mr. Weedon, thank you. 
Mr. Marzullo. 

STATEMENT OF SAL MARZULLO, CHAIRMAN OF THE INDUSTRY 

SUPPORT UNIT FOR SULLIVAN PRINCIPLES, SPOKESMAN FOR 

SULLIVAN COS. 

Mr. Marzullo. Senator Heinz, Senator Proxmire, I appreciate 
the opportunity, along with some of my colleagues, to appear 
before you today, however briefly, to explain why we remain in 
South Africa and why we believe we are making a genuine contri- 
bution toward the change process developing in that country. 

I think you will agree that it is doubtful whether there are many 
more emotional, contentious, and complex issues facing us today in 
the foreign policy area than those posed by the existence of apart- 
heid in South Africa. Yet that very fact, it seems to me, requires us 
to look at all of the realities, both pleasant and unpleasant, that 
one must deal with in looking for rational solutions to achieve 
peaceful, effective, and genuine change in that society. 

We are aware, of course, that there are many strategies for deal- 
ing with this issue and we do not question either the motivation or 
the goodwill of those who disagree with us. Yet we would like to 
suggest that our position is one that is not only equally moral and 
tenable, but a practical one as well. We seek to help change a socie- 
ty through our active involvement and presence, not to distance 
ourselves from the injustices that exist. 

The utilization of our human, technical, and financial resources 
in South Africa is Eill aimed at bringing about peaceful change and 
racial equality in that country. We seek to work with all those in 
South Africa who strive for that equality: Government, business, 
academe, church, and other institutions. Our way to change is not 
easy and it is often frustrating, but it has produced measurable re- 
sults. What we are doing is not the total answer to that country's 
problems and never will be. But it is an important part of the ulti- 
mate solution and those efforts have stimulated initiatives from 
other companies, European and South African, and have galva- 
nized thinking on the need for change among other institutions in 
the country. Ido not wish to overexeiggerate what has been accom- 
plished, hut equally it would be wrong to underestimate or ignore 
both the practical results and the symbolic importance of the 
change process that has been set forth by the implementation of 
the Sullivan principles. 

SOME EROSION THROUGH ECONOMIC GROWTH 

Apartheid has been eroded by economic growth. The process of 
urbanization and industrialization hEts done more to doom tradi- 
tional apartheid and separate development than any other single 
influence. If South Africa is to survive and prosper, we must build 
on that momentum and help to bring white and black South Africa 
together as one people, one nation. American companies have 
helped to accelerate reform and the Sullivan principles, far from 
being cosmetic, have been a useful vehicle for helping to build a 
climate for change — first in the workplace and later in the larger 
outside community. It has not been easy— it will not be easy in the 



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376 

future; but the changes are real and if apartheid has not yet been 
dismantled, its pillars have been hammered away and chipped at. 
It will ultimately ffdl. The growth of black trade unionism, for ex- 
ample, aided by U.S. companies, has provided one of the most fun- 
damental changes to have taken place in South Africa so far. We 
should be seeking not to stop or impede the flow of this force for 
change, but to encourage it and provide incentives for it. Harry Op- 
penheimer, one of South Africa s leading industrialists and liberal 
spokesman — as a matter of fact, Senator Proxmire, he is one of the 
founders and bankers of the PFP, the leading opposition party — 
has written that punitive acts, however well intentioned, may com- 
promise the successes of the past and he counterproductive. 

The Sullivan principles are not perfect. We keep revising them 
and Dr. Sullivan, a deeply committed man who has given so much 
of his total energies to this task, prods and pushes us and proposes 
still more challenges, and I suspect he will continue to do so. South 
Africa is not the same country it was just 5 years ago, and never 
will be again. Whatever its problems, the Sullivan principles have 
helped to shape major changes in South African legislation and 
labor policy. Changes have come both from internal forces now op- 
erative in the South African ambience — primarily the economic 
forces of South Africa's economic development — and from moral 
pressure from American shareholders, churches, and others here in 
our own country. The responsible, concerned, caring pressure is 
welcome and has been productive. The simplistic sloganizing 
doesn't help vpry much. 

We know, as you do, that the Sullivan principles alone are not a 
guaranteed method of providii^ quick and simple resolution of the 
injustices that exist in South African society. Only South Africans, 
all of them, will evolve the final solutions to their problems. But 
we must help them. In short, we strongly beheve that our collective 
commitment to the Sullivan principles, properly coordinated and 
properly implemented, offers the possibility of making a greater 
contribution to change than does withdrawal. Again, I emphasize 
the vital importance not only of the changes but of their symbolic 
value. Our efforts are multiplied by those of leading South African 
businessmen euid by South Africa's major employer groups who in 
January publicly committed themselves to a full and equal role for 
blacks in both the economic and political life of South Africa. 
These groups represent more than 80 percent of the employment 
strength of the country. 

I might add here that since 1977, when 12 American signatory 
companies signed the original principles, we now total 152 compa- 
nies. We have spent well over $100 million in health, education, 
community development, training, housing since 1978. More impor- 
tantly, programs initially developed on a locfil level have now been 
developed for longer term results at both the regional and national 
levels in the fields of heedth, education, housing, and black entre- 
preneurship. We are making progress. 

U.S. firms in South Africa are an antiapartheid force, a force for 
chaise, for bridge building and racial reconciliation. Our severest 
critic in the United States, Reverend Sullivan himself, has said 
while calling for a complete end to apartheid the following: 



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376 

The principles ere not an academic response designed to advance the views of 
those who are proponents of either investment or divestment. To the contrary, the 
principles are a pragmatic policy based upon the most judicious engagement of 
availwle resources, and are intended to improve the quality of life, to help bring 
justice to unliberated people, and to help build a peaceful, free South Africa for ev- 
eryone. 

We are at a critical juncture in South African history. Many 
white South Africans now understand that meaningful adveuice for 
the nonwhite population and their own long-term survival are not 
possible without fundamental structural reform of that society. We 
must work with these people to hasten the pace and to make those 
changes South Africans of all races desire. It would be ironic if at 
this critical point in South Africa's political history, when a gov- 
ernment is beginning the process of fundamental change that we 
have all been calling for, that we who detest apartheid and all that 
it represents should make it impossible for those changes to take 
place peacefully. 

The apartheid policies of South Africa are repugnant to all 
Americans. The debate, however, is not about defending apartheid, 
for it is indefensible. It destroys whites just as surely as it destroys 
blacks. The argument is about how best effectively to change South 
Africa's racial policies and on that strategy good and honest men 
may and do disagree. 

In conclusion, Mr. Chairman, I would like to make the following 
points: 

One, our only leverage to accomplish change in South Africa is 
in our presence. Withdrawal from South Africa would neither 
bring down the South African Government nor affect the policies 
of that Government. 

Two, American Arms, through adherence to voluntary standards 
of social responsibility, have been a leading force for evolutionary 
change away from apartheid. Mandatory, confrontational legisla- 
tion would jeopardize that effort. 

Three, divestment or curbing American investment would be 
against the wishes of a large number of South African blacks who 
see the role of U.S. business in their country as constructive and 



Four, economic power is vital to the nonwhite community in 
South Africa. Investment, through jobs and training, provides that 
power. A well-educated and well-trained work force is the ultimate 
force causing the system to change. 

Five, U.S. businesses should be encouraged to increaise their role 
in the economy and their voluntary efforts to influence social 
change. 

Six, to the extent that sanctions seek to govern the actions of 
South African affiliates of U.S. companies, they place these compa- 
nies in an impossible situation between two authorities. 

Seven, enactment of economic sanctions also would set a sense- 
less precedent for subsequent legislation restricting U.S. business 
operations in any countries whose social policies might be objec- 
tionable. Not that this is the intent of the Senate, but all I'm 
saying is ihat I think we need to be very careful about how we put 
American business in a position where it is faced with competing 
authorities on an issue that's as delicate as this is. Certainly, we 



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377 

have every right as a country to protest infringements of human 
rights anywhere they exist. 

I thank you again for your invitation. 

[The complete prepared statement follows:] 



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STATE KENT OF 

SAL G. HAKZULLO, CHAIRMAN, INDUSTRY SUPPORT UNIT 

OM BEHALF OF THE SULLIVAN SICTATOBY COMPAHIES 



I appreciate Che opporci 

believe ue are making a 
developing in South Afri 

It ia doubtful whether c 

poaed by the e 



r before you today 
Frica and why ue 
ie change pro 



> look at all the realitie 
t deal with in looking for ratio 
ire and genuine change in chat so 



e many ecrategie 



lally moral and tenable, but a 
lelp change a society through o 
: to distance ourselves from (h 



• for that equality: gave 

rating, but it has produce 
: the total answer to that 
: is an inportint part of 

in, and have galvanized th 

iccoivplished, but equally 
;nore both the practical resul 
lange process that has been se 
illivan Principles. 

irtheid has been eroded by 



illivan Frincipli 



growth. The process of 
LndustrialiEation haa done more to doon traditional 
irate development than any other single influence. 1 

:e and black South Africa together as one people, onl 
companiea have helped to accelerate reform and the 
!■, Ear from being cosmetic, have been a useful vehie 



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r helping Co boild 
ter in the larger i 
the fucu; 
iauntlcd 
t will ultinati 
exaaple, aided by U 
daaental change* 
Should ba ••eking, d: 
flou of thi 

Lt. Harry Oppenhi 

itioned, B 



■ace for change' 

= co_i.ic;. II 

the changi 

ilUcs h.v 

.y fall. The gt. 

coapaniea, ha 

hove taken pli 

change, but to encourjlg« 

■er, one of Sout 

has writtan thai 
Mile the < 



<Ti ha^Dared away i 



for 



to atop or iapeda the 
C and provide incentive* 
leading icidustrialiata 



:(Mn*itted aien uho ha* given 
ik, proda and pushes us and 



lep reviaing thaa, and Dr. 



Principles have helped 
legislation and 



™, will evolve t 
them. In short , 
e Sullivan Princi 
ncnCed, offer Chi 



do, that Che Sull 



van Principles alone arc 
linpl* resolution of the 
Only South Africsns, all 
r probleas. But He auat 

I and properly 



T might sdd here thst since 1977, vhen 12 
signed the original Principles, ue now tot 
spent well over one hundred million dollar 
community development, trsining, housing ■ 
programs initially developed c 



longel-teia r 



aultt 



c both Che regional and natio 



ignacory eoapaniea 
ipaniea. We have 
n health, education, 

1978, Hare importantly, 

! loped for 



cl hi 



al lt\ 



Bla in Che 



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fi«l<]> of hea 


1th. educ 


ation, housi 


ng an<i 


1 black entrepre 


neurship. 


Baking prog re 


at. 










D.S. finii in 


South Af 


riea are an 


anti-< 


ipartheid force. 


a force ft 


change , for b 


ridge bui 


Iding and ra 


cial T 


econc illation. 


Our severe 


critic in the 


Onited S 


tatea. Rev. 


SulUv 


'an hinaelf, has 


said uhilt 


calling for a 


compleEe 


end to apar 


the id. 




"The Prir 




adenic re 


sponae designed tc 


1 advance the vi 


evs of thoE 


■re proponent 


■ of eith 


er inve3t=.en 




livestTTient to 




Principles er 


e a pragn 


atic policy 


ba ed 


up^in the most j 


udieious 


engageunt of 


availabl 




and i 




ioprove th. 


quality of li 


fe, Co he 


Ip bring ju. 






build a peace 


ful, free 


South Afric 


a tor 


everyone." 




Wa are at a c 


ritical j 


uneture in S 


outh f 


.frican history. 


Many whi( 


AfricflnB now 




d that Deani 


ngful 


advance for the 


non-white 


populBtioP ar 




wn long-tern, 


survi 


val is not poas 


ible vithoi 






refonii. He 




work with cheae 


people to 


the pace and 


to make C 


hose changes 


South Africans of a 


1 races de< 


It would be i 


ronic f 


at this crit 


ieal p 


.oint in South Africa' s pol 


history, uhen 




ment i. begi 


nning 


the proccaa of 




that ue have 


all been 


calling for. 




we who detest a 


parcheid ar 


that it repre 


aente. ah 


ould nake it 


impo- 


isible for those 




place peacefully. 











The apartheid policies of South Africa are repugnant to al 
The debate however ia not about defending apartheid, for i 
indefenaible. It ia about how best effectively to change 
racial policies and on that strategy good and honest men n 

In concluaion, Mr. Chalman, gentlemen, I would like to ma 



Our only leverage Co exetciae change in South Africa is in our 
pcaaance—withdrawal from South Africa would neither bring down 
the South African Governnent nor affecC Che policies of that 
Govemoant. 

Anerican fiima, through adherence to voluntary standards of 
aocial reaponaibilicy , have been a leading force for 
evolutionary change away froa apartheid. Mandatory, 
confrontational, lagislacion would jeopardiie that effort. 



DivtstaenC or curbing Anerican invescment « 
wiahea of a large number of South African h 
role of U.S. businaaa in Chair countiy aa c 
progtaaaive. 



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Bconoatc power is vital to cha non-fhita caiauciitjr in South 
Africa. Inveacmant, through joba and training, providea that 
power. A uell-educitcd and wall-trained work fore* is th« 
ultinate force cauaing the ayatea to change. 

U.S. buainesae* should be encouraged to incraaae their role in 
the econony and their voluntary efforta to influence aocial 

To the extend that sanction* aeek to govern the action* of 
South African affiliates of U.S. coaipanies, they place theae 
coapaniea in an impoaaible situation between two authoritiea. 

Enactment of economic sanctioni alao would aet a aanselaas 
precedent for lubaaquent legislation raatcicting U.S. busine** 
operations in any countriaa whoae social policisa aight be 
objectionable. 

e again, thank you for your invitation to appear before thi* 



Senator Proxmire. Thank you very much, Mr. Marzullo. The 
chairman had to leave. He had to go to the White House for a 
meeting and he apologizes, but I would be delighted to listen to you 
gentlemen and then question you. 

Mr. Schroll, you have a 2V^-page statement. If you gentlemen can 
abbreviate in any way we would be very grateful. The hour is get- 
ting late. Go right ahead, sir. 



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STATEMENT OF GEORGE J. SCHROLL. CHAIRMAN, EDUCATION 
TASK GROUP OF THE SULLIVAN SIGNATORY COS. 



ttj naas is George Scbioll and since 1977 I have been a atmher of the 
Industry Support Colt ofthe Sullivan Principles and for the past three 
years have served as Chairman of the Education Task Group for the 
Piinclplea. 

I want Co thank you for the opportunity of appearing before you today. Llka 
others, I am heie today to present InfomatioD in support of the vslue of 
the continued preaence of American Corporations in South Africa to bring 
about the end of jipartheld. At the outset I believe it Is Inportent to 
correct SOtae trrofieoUB ImptesEiDus which have been given fairly vide 
circulation. The first of these Is that the pre^eUce of American baaed 
corporations In South Africa In SOne manner BuppoTtB the system of 
apartheid. Nothing could be further from the truth Each company tfblcb 
endorsed tbe Sullivan Prlnclplea has made a commitment to work toward the 
ellalnatlon of that system Signatorlea recognize that the whole concept 
of racial separation and discrimination which forms the basis of apartheid 
is not only Borally wrong but economically bankrupt. 

Tbe notion that apartheid makes the conduct of business easier or aore 
profitable la also Incorrect Elements of the apartheid system such as 
Influx control, reduce the mobility of non-vhlte employees. Kany hours of 
aanagement time are devoted to aecuring residential rights in urban areaa 
for employees Begulationa controlling tbe iViAS where employees may 
reside neceasltate the adjustment of shifts to match the availability of 
Halted tranaportaclon to the townships where black workers are forced to 
reside. The separate and Inferior eduction system provided for blacks 
vakas it iteceasary for companies to supply supplemental education at tha 
work place fdr in excess of the needs In other aread of the world, 
negotiations with unions are mote complex due to the Interalngllog of 
political and work related matters resulting from the fact that union 
Benbersblp currently provides the only area where the black man haa a 
voice In determining those things which impact on his life. Responding to 
enquiries from church groups, universities and share holders on the 
corporate preaence in South Africa imposes a work load far greater than 
that resulting froB a presence in any other country in the world. All of 
this is unique to South African operatloos. 

For tbe vast aajority of the Signatory Companies to the Sullivan 

Principles, dlaioveatnent of their South African operations would be 

disruptive but would not have a crippling impact on the organizations* 
continuing existence. 



It it is true that doing bualneea In South Africa today Is more cosplmc 
than in >any other countries, and If the voluaa of business and tbe 
profitability are auch that dlslnvestaent would not have a crlpplini 



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Intact, «h; then do «•, the Signmtory CoBpanlsa, appo«a Icilslstlon 
dcBlgaed CO apply pieBuurc for dlalnveHtnencT Thar* all n nmbar of 
KMons foT Chls but fiTenost urongBt tbu 1« ChaC It la our ballef that 

our pi-esenee pernlta us to conilnually tdke aetlom which erode aparthald 
and cceelcrate evolutionary change. Ve do not liellcve that the acElvltla* 
of the American Coicpanles of. and by thCBselvts Can caua* Che dovnCsU of 
apartheid but ve can and do. continnally vaar away the foundaclnna of 
thle sytaa, and as Dr. Sullivan haa often aaid, "Va aarva aa a catalyst 
for change". Please understand I am not trying to palnC the ■ultlnaClonal 
oiganlzatlooa uhli.h comprlEe the Signatory Coapanli'B aa aolcly 
altruistic T)ie frea South Africa which will Inevitably evolue. with all 
racial groups partlclpaCiiig In the political aod ecoaonlcal ayates. Will 
be a atfiblc wealthy nation with the Boat developad Inlrastmcturc la all 
of Africa well into the foreseeable futvre For all of thaea Icaaooa. wa 

accelerating the ecoDonic, social and political chungea which will put an 
end tu apartheid and bring about a aore equitable society for all the 
people of South Africa. 

If asked whether the efforts of the Signatory Coapanlea have been 

Teaponslblc for any changes which have taken place In South Africa over 
the past seven years thi? answer would have to be a definite yea The 
Wlehan Conmlttee studies which led to laglslstinn enabling the tocsatlon 
of black uitlotiB were due In a very large part to the adoption of the 
Sullivan Principles by Ametlcan Companlce. The granting of 99 year 
lesseholdB to blacks whlcli gave defacto recognition of their right to 
reside permanently In the urban areas was aJao due In a large MCature to 
efforts of the Sullivan CoiiipanieE and this of course wtta a aarloua aroalon 
of one of the basic tenets of apattheid Beyond this the Sullivan 
FrinclpleH led lo the developnent of similar codes and initiatives by 
European and South African coBpanlea adding to the growing preaanrea for 
Meaningful change. 

It Hiat be re-caphaslied that apartheid la equally repugnant to the 
Signatory Companies aa It is to those critical of the preaenca of Aaarican 
business In South Africa. Where we differ with these crltica 1* In the 
Beans by which it is to be ended. We believe that by increasing the 
efforts which have been applied over the pest eight yeara Hich wire can be 
achieved. 

By contrast, the advocates of dlslnveatnent believe that withdrawal by tba 
American Conpanles would bring about an economic crlaia which in turn 
would lead Che govemaent to a rapid dlsBsatllng of apartheid. While thia 
sounds like an attractive result there is little reason to believe that 
It would take place The economic dislocation caused by Aaarican 
withdrawal would not lie large and the alack thiia created would be taken up 
by local and foreign investors Icbb committed Co racial equality than the 
Aaerican companies they would be replacing One sura effect of d Aaarican 
withdrawal would be the threat lo the enployment of 20.000 blacks who 
have been trained and developed by Aaerican cocpanles, aa they 
daaagregated the workplace over the paat decade. 



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Supporting this concentlon is th« opposition to disinvoatnent espicssad b; 
both the NatloDal African Ch««bi:r of Co^Mrce and InduatTj ss well as the 
Federation of South African Trsde Uniona which currently bas an e«tl>atcd 
■cnberahlp of 130,000 and la the aoat active organizer of black labor in 
that country. In attacking the policy of dialnvestsent , tbe national 
Aftlcan Cbasbex of Comncrce acd induetry equated economic growth es being 
"a powerful catalyst in the proceaa of peaceful, aocial and political 
' icfolB in the country". 

Economic growth has also been one of the icajor factors in eliminating 
apartheid In the workplace. Aa Industry expanded more and more positions 
were opened to blacks and econonlc pressures Joined with political change 
CO bring about the end of Job lenervation for whiten. These sane 
pressures led to greater urbanization and ae mentioned earlier blacke 
living In Che urban areas are now recognized aa permanent residenta rather 
than Bojoumera who would eventually return to their rural homelands. 



meaningful reform. Tbe announced abolition of the Hlxed Harriagea and 
Immorality Acts signified the elimination of one of the pillars of the 
concept of aeparate development. The national party has announced the 
intention of opening of urban centera to black enterprise and mention has 
been made of retention of South African citlienship by those blacks 
residing in the honielands. Much remains to be done but the stirrings of 
change are to be seen everywhere. 

In •ummacy this is not the time to advocate the withdrmal of American 
Investments In South Africa. Rather It is the time to accelerate the 
voluntary efforta of tbe signatory companies. Recognizing this the 
signatory companlea overwhelmingly endorsed Dr. Sullivan'a 4th 
AKpllfication of the principles and have promised to actively pursue 
legialatlve change to end all aspects of apartheid. Let the Signatory 
Co^anlcs continue with renewed efforts, tbe work we began eight years 



a appear before this sub 



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Senator Proxmire. Thank you very much, Mr. Schro!!. 

Mr. OTarrell, I would be delighted to put in the record the state- 
ment by the AFL-CIO Executive Council on South Africa made at 
Bal Harbour, FL, the statement of the ICFTU on apartheid in 
South Africa of April 13, 1985; the statement of the AFL-CIO Exec- 
utive Council on South Africa of May 7, and I think that's about it. 
Gto right ahead and, again, I would appreciate it if you could abbre- 
viate your statement. It's an excellent statement, but the hour is 
getting late. 

STATEMENT OF PATRICK O'FARRELL, EXECUTIVE DIRECTOR, 
AFL-CIO. AFRICANAMERICAN LABOR CENTER 

Mr. O'Farrell. Senator, I thank you very much and I will try to 
abide by your admonition, but I supix>se I feel a little bit like the 
anchorman at the graduation ceremony at Annapolis yesterday, 
and I think I would be remiss in my purpose for being here this 
morning if after looking at some of the other testimony, particular- 
ly being the odd man out on this panel, if I didn't take just a little 
bit of your time and 1 hope you will indulge me for a few minutes. 

Senator Proxmire. Fine. 1 hope you will. 

Mr. O'Farrell. Thank you. 

Mr. Chairman, 1 welcome this opportunity to present the views 
of the AFL-CIO on the legislation that has been proposed to ex- 
press the opposition of the American people to the odious system of 
apartheid in South Africa and to hasten its dismantlement. 

AMERICAN LABOR MOVEMENT INVOLVEMENT 

The Americem labor movement has a long history of involvement 
in the struggle for freedom in Africa. Among the free trade union 
movements of the world, we took the lead in opposing colonialism 
and demanding independence for the African nations. 

We cite this history not to blow our own horn but to establish 
the roots of our commitment to the struggle ageiinst racism and ex- 
ploitation on the African Continent. Our efforts against apartheid 
are but an extension of that historic commitment. 

Those efforts have not been merely rhetorical. If rhetoric were 
sufHcient to undermine apartheid, it would long ago have collapsed 
under the weight of denunciatory resolutions, statements, and 
speeches emanating from countless international forums. The 
AFL-CIO has undertaken active programs of assistance to those 
who seek trade union and human rights in South Africa and the 
abolition of the apartheid system. 

The mored isolation of Pretoria from the world community could 
hardly be more complete. Yet, the system of apartheid has survived 
essentially unchanged. 

What has changed in South Africa and what we believe holds the 
greatest promise for the ultimate elimination of apartheid through 
peaceful means is the emergence of the black trade union move- 
ment. 

In South Africa, as elsewhere, the ability of people to organize 
and control their own institutions — that is, to effectively exercise 
freedom of association — is the best alternative to the bloody resolu- 



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tion of conflict, and if violent revolution comes to South Africa, 
there will be no winners, only unimaginable suffering. 

It is for this reason that the AFL-CIO several years ago adopted 
a program of action in support of black trade unions in South 
Africa, aimed at providing direct assistance for trade union educa- 
tion, leadership training, and exchange programs. These programs 
are designed to meet the needs of black trade unions inside South 
Africa as they define those needs. 

To better ascertain those needs, the AFL-CIO, last January, in 
conjunction with its African- American Labor Center and the A. 
Philip Randolph Education Fund, sponsored a conference that 
brought together 10 black trade union leaders from South Africa, 
including Cusa and Fosatu, and more than 300 American trade 
union leaders. At this conference there was a wide-ranging discus- 
sion of the views of our South African brothers and sisters with 
regard to the current situation in their country and the efficacy of 
various proposals to bring about the end of apartheid. 

This discussion laid the basis for the comprehensive statement 
issued by the AFL-CIO Executive Council at its February meeting, 
which you ha ve already entered in the record. 

The ICFTU represents 141 national trade union organizations in 
98 countries around the free world, with a combined membership 
of more than 82 million workers. The AFL-CIO has worked closely 
with the ICFTU in its campaign against apartheid, recognizing 
that the black trade union movement of South Africa requires the 
coordinated support of all of the world's free trade unions. 

We were pleased that the ICfTU set aside a special session at its 
meeting of the executive board in Washington, DC, in April for a 
discussion of the South African crisis. This session produced a 
statement which is appended to this testimony in the belief that 
the Congress would attach considerable importance to the views of 
this prestigious worldwide orgeuiization. 

The statement, in which the AFL-CIO wholly concurred and 
which was approved by the leadership of South Africa's independ- 
ent black trade union movement which was represented at the 
meeting, and included representatives of Cusa and Fusatu, urges a 
tough sanctions policy toward South Africa. These proposed sanc- 
tions are detailed in very specific, concrete terms and you have al- 
ready agreed to enter the statement of the ICFTU into the record. 

Since some of the other witnesses would say that they talked 
only for themselves, I would like to say that in this context we are 
speaking for not only the members of the trade union movement, 
the 15 million members of the AFL-CIO, but we are also bringing 
to you the statements smd the record of concern of the 82 miflion 
members of the International Federation of Free Trade Unions and 
we have been asked to do that by the leadership of that organiza- 
tion. 

The statement of the ICFTU and the meeisures that they call for 
are very much in keeping with the intent, the spirit, and the ac- 
tions spelled out in S. 635. In this connection, Mr. Chairman, I 
would like to bring to your attention a resolution on disinvestment 
adopted by the Council of Unions of South Africa and conveyed to 
us by the general secretary of that organization, Mr. Phiroehaw 
Camay. A copy of that statement is attached to my testimony but I 



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would like to indulge the members of the committee for a few extra 
minutes by reading it. It's very brief and I would like to read it to 
you at this time since it reflects the viewpoint of the largest black 
trade union organization in South Africa which also contains the 
larsest black union, the National Union of Mine Workers, and we 
think reflects the msyority opinion of the black workers of South 
Africa. 

WORKERS RESOLUTION 
The resolution reads as follows. Senator: 



. ion, thifl National Executive Committee 

therefore concludes that: 

Any investinent in South Arrica is therefore investment in apartheid. 

There should be no new investment in South Africa whilst apartheid still exists. 

The sale of krugerrands in other countries should be prevented by trade unions in 
thoee countries. 

Tliere should be no defense, computer or nuclear technology sold to the South Af- 
rican white government. 

There should be no new investment in homeland areas which exploit the racial 

I submit, Senator, that this statement by the largest black trade 
union organization of South Africa is consonant with the intent 
and the position outlined in S. 635. 

Senator Proxmire. It's an excellent summary. It's precisely what 
S. 635 provides. 

Mr. O'Farrell. And I would say. Senator, that was adopted 
before S. 635 was even known to them. The date on the statement 
is August 12, 1984. 

We in the AFL-CIO are concerned about the failure of those bills 
which we have examined to address the urgency of pressing for the 
abolition of the so-called preventive detention laws that are used to 
harass, intimidate, and imprison labor leaders and others without 
trial. These laws, as the AFL-CIO Executive Council has pointed 
out, "in effect, nullify much of whatever benefit accrued from pre- 
vious l^pslation recognizing the trade union rights of black work- 
ers." 

The most recent example of the use of the law by South African 
authorities is the death of black labor leader Andries Raditsela 
while in police custody. A copy of a telegram from AFL-CIO Presi- 
dent Lane Kirkland to South African President P.W. Botha ex- 
pressing the AFL-CIO Executive Council's outrage at this tragedy 
IS attached to this testimony. 

It is not enough to bring external pressure to bear on the South 
African Government. We recognize that change must come from 
within. But such change will not come unless the democratic forces 
within South Africa — preeminently the black trade union move- 
ment — are able to organize and effectively represent the will of the 
majority. 

It is therefore imperative that we do all that we can to remove 
the coercive impediments to their exercise of freedom of associa- 
tion. Measures by the Congress aimed at eliminating the preven- 
tive detention laws would be a powerful encouragement to those 



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who are fighting on the front lines of freedom in South Africa, and 
we urge the Clongress to include such measures in the antiapart- 
heid legislation pending before it. 

In a larger sense, we are troubled by the fact that the modest 
sanctions proposed in S. 635 could be avoided for several years 
while some of the most objectionable and inhumane features of the 
apartheid system are maintained in place. 

The South African Government must not be led to believe that it 
can escape the full effect of sanctions by piecemeal measures that 
stretch out for years the complete elimination of the apartheid 
system. 

The International Confederation of Free Trade Unions will meet 
again in June of this year in Geneva with our delegates from the 
South African trade union movement in order to begin the selec- 
tion of companies to be boycotted or sanctioned by the internation- 
al trade union movement on a selective basis. The companies to be 
chosen for that will be presented to us by the trade unionists from 
inside South Africa and they will be those companies that are not 
moving toward the abolition of apartheid. These will not only be 
American companies. This is a worldwide operation to include com- 
panies from other countries, and to be participated in to the extent 
possible by all of the trade unions of the free world. 

Mr. Chairman, we urge the immediate passage of legislation that 
includes the sanctions proposed by the AFL-CIO and their mainte- 
neuice until the apartheid system is dismantled. 

Therefore, we recommend to this committee the urgent passage 
of S. 635. 

Thank you very much. 

[The complete prepared statement follows:] 



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ffTATBHEirT OP PATRICK J. OTARRELL, EZBCnTTVB NRBCTOR 

APUCAH-AHBRICAH LABOB CSinSR iAFL-CtO) 

BEPORB THE SKMATB BAMKINa, HOUSDia AMD DBBAM AFP AIRS COMMriTEE 

OM 8B35 AHO OTHER PEHDnO SOUTH AFRICA I^OBLATIOH 



Mr. Owlrmatii 1 walcome thU oppcrtunity to pnwnt tha vl«wa of tte APL-CIO 
on Ox legifllatlon that hu b«en propoMd to eipran the c^^poaitlan of the Amarlean 
people to the odious syitem of aparthaid in South Africa and to hutm ita 
dismantle ment. 

The American labor movement hai a long history of involvement in the atrunlB 
for freedom in Africa. Among the free trade union movements of the Mtrld, we took 
the lead in opposing colonialism and demanding independence for the African nations. 

We cite this history not to toot our own horn but to establish the roots of our 
eommltmait to the struggle against racism and exploitation on the Afrloan 
continoit. Our efforts against apartheid ai« but an extenrion of that historle 
commitment. 

Those effwts have not b«en merely rhetorical. If rhetoric were sufficient to 
undermine apartheid, it would long ago have collapsed under the weight of 
denunciatory resolutions, statements, and ^leeches emanating from countless 
international forums. The AFL-CIO lias undertalcen active programs of assistance to 
those who seek trade union and human rights tn South Africa and the abolition of the 
Apartheid system. 

The moral isolation of Pretoria from the world communis could hard^ be mora 
complete. Yet the system of spartiteid has survived fundamental^ unolianged. 

Wiiat has changed in South Africa— and what we believe holds the greatest 
promise for the ultimate elimination of apartheid through peaceful means— is the 
emergence of the black trade union movement. 

In South Africa, as elsewhere, the al>iUty of people to organize and cmitrol 
their own institutions— that is, to effectively exercise freedim of associaticn— is tiM 
l>est alternative to the bloody resolution of conflict, and if violent revolution comes to 
South Africa, there will be no winners, on^ imiroaginaUe suffering. 



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It is for this reason that the AFL-CIO several years ago adopted a ProgTam of 
Action in Support of Black Trade Unions in South Africa, afmed at providing direct 
osslatance for trade union educstitxi, leadership training, and exchange programs. 
These programs are designed to meet the needs of black trade unions as they deflne 
those n«eds. 

To better ascertain those needs, the APL-CIO, last January, in conjunction with 
its African-American Labor Center and tlw A. Philip Randolph Education Fund, 
sponsored a conference that brought together black trade union leaders from South 
Africa and more than 300 American trade union leaders. At thb conference, there 
was a wide-ranging discussion of the views of our South African brothers and sisters 
with regard to the current situation in their country and the efficacy of various 
proposals to bring atxHit the end of apartheid. 

This discussiM laid the basis tor the comprehensive statement issued by the 
APIX^IO Executive Council at its February meeting. A copy of this statement Is 
attached to this testimony. I would particularly draw your attention to the Council's 
concluaion thati 

"The Reagan Administration's policy of 'craistructive engagement' has not 
produced significant results. Indeed, Pretoria apparently views its good 
relations with the Administration as a license to delay indefinitely the 
dismantling of the odious apartheid system." 

To which I would add, Mr. Chairman, that Pretoria can only be encouraged In 
this view by the insensitive statements made by the President of the United States 
about the killing of innocent people In Uitenhage by the South African police. These 
statements were deplored by the Executive Board of the International Confederatian 
of Free Trade Unions at its meeting in Washington last month, and we Join the ICFTU 
In calling on the President to withdraw his harmful remarks. 

The ICFTU represents 141 unions In S8 countries with a combined membvshlp 
of more than BZ million workers. The APL-CIO has wwked closely with the ICFTD in 
its campaign against apartheid, recognizing that the black trade union movement of 
South Africa requires the cocM^nated support of all of the world's free trade iMiions. 



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We were pleased Uwt the ICFTU wt saide a veclal s«srion at tta Waahii^ton 
meeting for a discussion of the South African crisis. His Msrion produced a 
statement which is appended to this testimony in the belief that the Confrev would 
attach considerable importance to tlw views of this prastlfious arKsnleation. 

The statement, in whid) tiie AFL-CIO wtwlly concurred and which was 
approved by the leadersiitp of South Africa^ independent blade trade union movement 
which was represented at the meeting, urges a tough sanctions policy toward South 
Africa. Ttiese proposed sanctions are detailed in very ^eelfic, concrete terms and in 
our view would, if implemented, bring sUtwtantial pressure to bear on the South 
African government to change its racist policies. Time does not pvmit m« to list the 
meesures called for by the ICFTU, but 1 hope that they will be studied by the 
Congress. 

They are very much in keeping with ttw intent, the ^ilrlt and the aetlont 
qielied out in Sfi3S, In this connection, Mr. CItalrman, I would lUce to bring to your 
attention, a resolution on disinvestment adopted by the Council of Unions of South 
Africa and conveyed to us on Hay 6 by the General Secretary of that organlzationt Mr. 
Phiroshaw Camay. Tlte resolution, a copy of which is attached to my testimony, 
asserts that "any Investment in South Africa is .... Investment In apartheid"| that 
there should be no new investm«it in South Africa"; and that "tltere ritould be no 
Investment in homeland areas wlilch exploit the racial laws." 

Mr. Chairman, the AFL-CIO commends the Bithors and sponsors of Uils 
legislation and win si^port enactment of those proposals that are consonant with tiM 
statements of the AFL-CIO Executive Council and the ICFTU. 

In this regard, 1 call to your attention the statement of the AFL-CIO Executive 
Council ot May T, 19BS, a copy of which is attached to this testimony. Tlw statement 
caQa for our government and the other industrial democracies to take the following 

* ban new investment in South Africa; 

* end aU investment guarantees, export credits and trade promotion with 
South Africa; 

* stop new IMP loans as weD as other bank loans to the South African state 
and piblic^-owned companies 

* halt tlte soles of Kruggersnds and tlw purohase of South African coal,- 



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* punUh violators of the U.N. oU embargo against South Africa; 

* embargo the sale of arms to South Africa, especial^ those used by its 
military, security and police forces; 

* compel disin vestment t>y ■nultinattonal companies in the energy and high- 
technology sectors; 

* force ifisinvestment by all multinational companies ttiat have been 
identified by the Independent black trade union movement as being in 
violation of interna tlonaUy accepted labor standards. 

We are concerned about the failure of those bins which we have examined to 
address the urgency of pres^ng for the abolition of the so-caHed Preventive Detention 
laws that are used to harass, intimidate and imprison labor leaders and others witliout 
trial. .These laws, as the AFL-CIO Executive Couneil has pointed out. In effect, 
nullify much of whatever beneflt accrued from previous leglslaUm recognizing the 
trade union rights of black vrorkers." 

The most recent example of the use of tlie "law" by South African authorities is 
the death of blade labor leada Amfries Raditsela while tn police custody. A copy of a 
telegram from APL-CIO Pre^dent Lane Kirkland to South African President P.H. 
Botha expressing the AFL-CIO Executive Council's outrage at this tragedy Is attached 
to this testimony. 

It is not enough to bring external pressure to bear on the South African 
government. Change must come from within. But such change win not come unless 
the democratic forces within South Africa— preeminently the black trade unlcn 
movement— are able to organize and effective^ represent the win of the majority. 

It is therefore imperative that we do all that vre can to remove the coercive 
Impediments to their exercise of freedom of association. Measures by the Congrow 
aimed at dimlnating the Preventive Detention laws would be a powerful 
eneouragement to those who are fighting on the front Unes of freedom In South 
Africa, and we urge the C^igresa to include such measures in the antl-apartlieid 
legialatlan pending before it. 

There are currently 21 black trade unionbts In Jail who have been held under 
the Preventive Detention laws, witiiout oharges or trial, some for man than 6 mootht, 
and we are attaching a list of these trade mlon prisoners to this testimony with the 
request, Hr. Chairman, that at a minimum, this Comnittee urge the Adininistratian to 
demand their release. 



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In a larger mhm, m are troubtod by the faet that the roodest Mnetiona 
proposed in S63S could be avoiitod for Mveral yean while aome of the most 
objectionable and inhumane features of the apanheld aystem are maintained in place. 

The government of South Africa must not t>e led to believe that It can aaoafte 
the fun effect of sanctions by piecemeal measures that stretch out for years the 
complete elimination of the apartheid qntem. 

Ur. Chairman, we urge the passage of legislati«i that includes tlte sanetiona 
proposed by the AFL-CIO and their maintenance untS the apartheid aystem It 
dismantled. 

Mr. Chairman) on a related matter, the AFL-CIO has alao propoaed thet the 
IntematlMial Labor Organisation consider estabUshlng doeumentatltn and research 
machino? to monitor ttie conduct of all corporations operating In South Africa, trith 
regard to their recognition of black trade union rights, the training and upgrading of 
black workers, and their observance of universal labor atandards. Some Indication or 
instructlM) from the Committee to the 0.8. government representatives to the ILO to 
urge the ILO to use Its machinery In the fight against apartheid would be a positive 
step. 

lliankyou. 



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894 

StaMflMfit by th* AFL^IO Extcutlve Ca«ndl 



Aparthald !i a moral af Irotit to dvUlzad humanity. But daplta th* 
CondamnatioM el an outrt(ed world opinion, tht South African government continues to 
rettlt the damandi of It* black citizen* for an and to InttitutlenaUzed racUm and lor full 
and equal participation In the political 1U> of the nation. 

The AFL-CIO !• committed to cooperation with tftoae lorcei In Soudt Africa dtat 
tack an and to iparthald through peaceful, democratic meant. The aitamatlwa it a violent 
revolutionary upheaval Out would bring Immeaturabie wfferlng to all elementi of South 
African todaty. 

We appreciate the contribution* of the many indlviduaii who, bacaute of their 
outspoken oppotidon to apartheid, have been driven Into exile or prison. But it b to theae 
intlde South Africa, (Ishtbig en the front llna*^ that we look for Icaderthip In the 
eradication of apartheid, which cannot be *u*talned if peace and stability are to be 
actdevad In Southam Africa. 

We have been as pctdaliy encouraged by the amergencc In recent year* of the 
black trade isdon movement in South Africa.' Freedom of anoclation It the lowidatlon of 
democratic Inttitutlon-bidldlng and offer* the mott promltlng hope for peaceful locial 
change. 

The AFL-OO will, therefore, continue to respond to requett* for atdttance 
through It* Program of Action In Support of Black Trade Union* In South Africa and 
through the ongoing pregramt of the Afrlcan.American Labor Cenur. 

Our attittance will be guided by the tame principle that hat governed ew aid to 
the wofker* of Poland, El Salvador and every other cowitry where ew help hat been 
requested — namely, that wa will respond to the expretted neadi and wUhe* ot ew 



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Th« An.-aO c«Ui upon ttw othar tn% labor mevtriMntt <t th* world — ond 
•^•ctally iheot in tte UidunrUUs*d natlecw that trada with Sewth Alrtea ~ to urga thalr 
gewMnntMl* t> proM South Urica for an and to tha Pravantlva Datantien lawt that ara 
UMd to haraMi Intimldata aint Imprlton labor laadara and othar* without triaL Thaaa la«>i 
bi af fac^ nullify mud* of wtiatavar banaflt acowad Irom pravloua lagtiUtlon racofnUli^ 
the trada union rigta «( blade worfcara. 

Tha AFL-QK will continua to eontrlbuta to tha multUaiaral profram oi 
uaistanca to btaelt trada tailona dlracMd by the tntamatlonal C«nf adaration of Praa Trada 
Union* and to partldpata bi the unlon-te-tnlon protrami et tha bitarnatlonal Trada 
Secratarlatfc 

bi addition, wa call Upon the Intnnatlonal Labor Orxanlzatian to bmatifata tha 
appailb^ condltlem o^ blad< labor bi South Africa bidwllni tta forcad removal «( blade 
wortcan to Bantuttank Toward thU and, tha 0.0 ihould comldar wttlnc up a eommlnkn 
«f btquiry eemporabia to tha conunlatien* It aatabUAad bi tha catei of Poland, Chile and 
ether cointrles. 

The 0.0 riwuSd alM contldar creatinf dooanantatlon and f M aarch nwdrinwy to 
monitor tha conduct of all cocpontiona oporadnf bt Sauth Africa, wMi retard to thalr 
recognition of black trado unlon.Jllhti, the trabdng and upgradnf et blade worher^ and 
their obiarranea of unlvanW WMt ttandaitfu 

Companiet that fallJn<hri» wdal raiponalUUtlai riwuld be targatad for 
dltiiwaatmant, boy c ot ti , advadk^ubUdty campaigna and other appropriate tnoaaura^ In 
eanaldarbig whether and whan to apply «och maawrei, «ia APL-CtO wUl be guided by tha 
iriahat of the blade trade taiiOfCnnremant of South Africa. 

The Reagan Admbilstratlsn'i policy of "con itn i cU va angagemanl^ hai not 
produced ilpilflcant retultt. IndMd, Pretoria apparently view* Itt good ralatism irith tha 
Admlnlatratlon a* a Ucenae to delay indefinitely the ditmantting of tiM edloua apartheid 
lyttam. But apartheid cannot be ntalntalnod indeflnitdy. TTm real inue it whether It will 
be Bbolbtwd paacefuUy^r violently. The longer South Africa redcta peaceful chai^a, tha 
more It Inrftea the bloody alternative 



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ninin'iYii vmn 



Hm IOIV EtcacutlTC Board at its B7th vMting. held in Mrtiingten ai ll-U 
J^Kil 19BS: 

COOMC all ooUitacvtiai with the South African rogiiDa acrvlng 

in rnif MV to st r m * j tt mi or ^dntaln aiarthaid; 

g H I PfiM tlat all Mxallad cxxi>tructl'v« anBagw p t polici— and 

peOitioal «n±Bnaes,such «a visits to Head* of Onwnivnt 
ty South Africa's Pnsldant.censtituta such coUsbcmticn 
provldlm ^naldaxabls M«Krt to the raginBr 

n BU J HiR tl« iMMsiUva ststoiwits ty the ftvsldHit of the Uhitad 

Stataa In la^id to the kiUiog of Innoaaat people in 
Ultar^Mga ty the South African police, and cells ai the 
nrMidatit to withdraw his rotMrics; 

rWBHOERCKiS on the US GaveameRt and all other 99wetnMntB ta antaik 

en a vlgarous policy of constxxKtl^n dls mge g ii ^it, on ths 
llnee nci«aed by the stat«imt »flci*ed ty the 87th aeetlnq 
of the jam BMCutive Board. 



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D in South UrLtm i* t crUla poiitt. 9a pollUal mi wcnaHe 
fotBdatloM c£ tte qwthtld ngiaa an indv attack ■■ naw bafiwa. "ti— r-rl-n 
of blade laailM* la loUnaitylBg, tha hMad inCltB ooitiod iMMuria aca balag 
Utfitsnd, and cJatfaa b»b« «i ttaa bladt miiiI^ and aacurl^ foR^ oocv Ailr< 
Ha lagins la dcBparately tryljig to dMnga tha l^qa, alchou^ not tha taall^, ol 
varttald botii In South Africa nd aknad. Iliatiwaa laadna In ooidtrlw with 
axtanalve aeaianlc llnha to South Afrioa ara i^^™«->j to raaaaaaa Ualr tl^ wmi 
Biartheid. Sila la Oa to Mm pnaataa cC piiiUc ofUnlen in ttalr am oouttrlaa, 
to (proMlng doubCa dsoA tla Cutuca ca«axn en thair Invatmaita aid In iimIujIj 
■tfiactlve cwoaltlfn to acartlald In South Jl£n<B. yat Oiaamtiwa politinl 
lanTira ham yat to raact to thaaa raalitl— . IKm iM tha tlaa to at^ ly Ota 
I nt aw M t l CTtal ireaaura a^liat apart h ald by gwamDaital and ftsthar tnda adoi 
•ctloi. 

2. 9a icno iDd its aftiliataa ara proud to ba In tha gj.aenj<t of Iha iM^.alji 
agaltwt opartteid. Ha walccaa ^±m racant i4jbui.v» in iMamttlonal ■miaiiaa oi 
tt» avU nabxa of ^wtt h aid tiildi la in put doa to tha ta^wlgiing inzk oC tha 
&aa trada ixiioca ohbt mv yaara. In tha titfit agaiiMt ^sEtheld, tha tOTU'w 
diatinctiva cxxiUlbutien la tha T taala tn aailating tha dmalcfRKA e£ a atxoq 
In^H—Wi t hlTii tT^dn mlm aciwaiil to aontti afrtea. Iha hqr l^VOCtMOB Ctf 

iTm Ill tiada mlai or^nintiaa In tha baedm atiuggla la nor miait to 

all. Aa MB atatad in tha iwant^ vdatad ICFTO P imim a ef Actlcn, the ^tMtb 
wd atiangthailng of Iha l inVpanrt M rt. blade trada mien awagait, ia tha alngla acst 
tfSMUve maaua Bar the i^* iw« J njcdty in South AfrKa to ^In baadoa ad 
Jiatica and to afcolirii ^artheld. nua ecnvlctiai hUI ecntliwa to be at tha 
OBitra of tha icmj fawial^ agalnat vuthald. Aparthaid la an wAr andwd ayat^ 
of radal dlacTlndnatlcn and aem oD ie «d«ilaltatlOD t^ilch ia baaad en a niAar of kqr 
jdaoaa of leglalatlen. badcad v by tha idolnlatratlw pohbeb of Om ijinaii—il 
aaUt^ apartheid meena oajorltr cuie in an ladlvidad aodaty. 

3- 9a odatam of tha South Afri^ raglaa d^^iJ i en apattlald. It will not ad 
it. UpLcnaqr baa failed to gat acroee tha athecra Ka fait ty people all o«^ tha 
warld avlnat the i^raealcn of Ua blade aaJodlT. Iha U7ID la th ace fta a oemlncad 



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that gnnmmnta nuat f Inoly caoolt tharaalvia to wcalctlng Eolltiol rrsBsura en 
and applyinj Bsnctlcns ^alnat South Africa. M ■ mttar of urgency all 
goMiTraenta and aapaclally thsa* of the mlu trading end Inn — li ia iiL partiwis cf 
South Africa should IncrsBoa and InplaMfit 0» rang* of ii—iiiim to Icng 
tlmatnad by the Uhited ttaticra. 



4. Si«Ect fcr a tou^ BntcUcna policy la growing «i public rwi whb of tla ctn- 
tlsuBd rcfKBsalcii end inji«tice niffered by ttv blade iBjcdty In South Africa hM 

Increased. Hie Oiraat of eccncnic laolatlai la « najcr ccnoecn fcr the qartheld 
raglne, but nust be node mre ovdlMe ty specific coinitiBaDts to affective action 
by tht laige IxduBtrlalisad countries. 

5. Dw icm; pccpoBoa sanctloia vhldi should bagin with the tl^^itonlng of the (It 
mam aitargo and froeetid fuitiiar. In cociaiatloD with tlw IK, all governnsnts 
should develcp Inniedlate aff active oachlnBry for the lnploicntatiai aid nEtiltodng 
oC ■! IntcmatioDal SBnctlore policy. 

6. Oammnta should tv aOninlatEsti^ and logislatlva ^tiaa build 19 tim 

i. The CDCtoslcn of the ams oifceego to Inrlirie solaa tif Soutli Afrlc«i n^- 
sldlariae of traiBnatlcnal cocpccatioxi, a tltfttcnlsg cf the daflnltlczi of 
aniB saloa to incluan all type* of eisiXst^nt l a t a oiBd fcr uae by South Africa's 
mllltnry, a«curlty aod police aervloeB, salaa of imrtilnery to ScuOi A&lc«i 
HI lie until liij coiiiBilaa, Oib purdiaae of South UrlcBi tsoduoed anoB and the 
stcangthenlsg of IntecnaCiaiBl nonltorlng to oosure ctiiiiliBnn by all njcr 
lodWrlal cointiiaa. 

11. Ite ending of InveatnaDt guanntaea, expert txadlts and all tnda jcaootlai 
neaauTBa, and st^a, proAict by pmAict, to awltch both I j^ o rt and 
aapcrt trade fron South Africa. 

iii. Pisnitlen of new iBwee tment In South Africa by tmsiatlciiala. 

iv. Ihe Kidlna of all oaftracta Ear the enrerwifn of the South Afrlcm nuclear 

V. The ceding of all i .i.in» [ i"lw ] cvacatienB by trananaticnaU In tl* so-called 



A atcp CD bank Icace to the South Uricm Stat* md pdblicly-otnad ccqsnlas, 
and nsw DT loona. 



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vil. Pinltlva actlcn agtinat th* ommti of anr •hip* iMdi cvtt oU to 
south AfclcB and agUiiBt oil ooipaniaa or oil tiadan lAilch facvak cr 
ara lar^ to Oa bEMfdng of Uk W oU m±arga. •ttOa mil ntall IntaaUlad 
nscleoal nd Intamatloial ntnitcring by gowm^Dta of ahiifdiiB traffic to 
South Africa. 

vlll. h ban on Mia ef Krugar<vi -'• ■ 

ix. A ban <n purc faai aa of Soutb A&lcan coal. 

a In South MricB. am li 
lug all tlioas '•'t— <— iriildi hava bom iilaitlflad by the ladi f .i aot black 
tcada inlcn mo w w m C m baliq In vlolatlai ot IntamatloiaUr rn x ms Hai ttmt^i^ 
of lAxMT pcactioe. 
Iheaerauuraa shcxild cu l li ta to Um adc|Ucn of RMOatocy U 
laol at lM of South Afrl^. 



ODts cf tha cowitrlan of origlji of i4ilts wd^anta to South Jtfrl^. ateuld tate 
linadiAta ttfa to wn ttwlr dtlava of tha raallty of icarUald. Q»iman^±M 
BtKuld also tale at^a toi 

I. Clcaa all rffldal and <w^nff^r^m^ south ACrie«i raccultnsit crfflces — < 
tourlat ptoBPtlcp oCflcaa; 

II. DiBure ti»t no piiiUc aiiiloyBHit ajunriaa hndia Jcb vacandaa In South 
Afrlos; aid 

lU. Jtctlvsly dlacomat^ the aAnctlaing of South AfilcKi ]d> vKtislM; 
iv. VigcEoualy dlacounga mgart* and cultural cmtarta with South Africa. 

9. Vhm ICFni and ita afflllaWa will alao mdartake a oocrtlnatad lnfcsmtloi 
nrTlr'y In atfpxt of mwumuu to dUacouraga white •nlviatloD tlvou(ti tcada aaiat 
acticn tacgated on Indlvldwl contilaa In tun tix, IBA, Wwt Ottmmv. tte 
llatlaclan3a, Portu^, Oraece, Juatialla an3 Belqlui) and at aultlnMlttals or 
SouUi Afrlon canantae whldi cecxult lAiite labour foe South Afd^. 
sowpmipt ^ni^nrwH.^ Yirh ttlt gwttl ttlimt mUM 

10. glacial note should ba tdcan cd tha collaboKBtloa battiam Ox South African 
gomcmant «id other gc^mniaRta. Hie ICTTO bellevaa that Uk fr ea uit ladat 
jawaLimiiiL of South Afirlos ahuU be iaolatad aid tlst vialta bf ovcncta of 
^art^Mld diould n 



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•flOTimJ^ traiMMtlmal conectlcfiB 

11. At the •■» tin* aa Kicking for gmeimiental acticn agUiwt apartheid, tha 
ICmi, tbe ns and their aftillatas will aleo Incxease pressure en transnatloial 
CQipocatlcn* cperatlng ia SouUi Africa and en South AfrlcMi mltlnatlcnals with c^en- 
tlons outalde that country. Sudi trsisnatiaials are plvatal to eccnemlc ralatlcns 
with South Africa. Itiey an litlrectly affected ty ctonges In SaaOi Africa Md ty 
•ffoct* outaide the ccuitry to incxaase ;cessure en tha ngliw. BotSt IndivlABlly 
and collectively trmsnatlcnal cecpccstlcns have a rbJce' InfluBnoe en the future of 
•partJiald aid ttnlr vulnenbllity to Intematlaiel trade mioi icessuie should be 



12. The ICTTV fiiraly beliem that Raaaures nuot be taken to reduce links Mlth 
South Africa, na ICPni cells on all -OKb operatii^ in South Africa to cc- 
OfacBte fully with the IntemBticnBl effort to step 191 eci iniiil c pressure on the 
aCATtheld ragine. In additicn, and vithln the fran e wcc l i of Uk icmt's policy 
en Mnctlms end dlaiivnstnait, the ICFIU, the US nd national affillataa will 
wck In omsultatlcn with the I n d epen dgit black tiade mien uuvtuaiiL to furttMT 
tlalr <lwi>nff* via-a-vls [articular ctninnies. These t^j^" will be targeted 
K inUvidal oaifaniee. including South African UKk vith cpentlcns outside that 
oouitry, and will Involva. anng others, Uk following activities: 
i, AnEoadas to i i wiag pi ei it ty vnlcns In a oaifBa/'a hone country in nnxxt 

of 'Vr^r'V for full collective bazgalnlng rlf^its by Indecendoit blade trade 

miens in South A&ics) siisidlBrieB : 
11. tlwil liiji lull in Mil I rccceeentativee traa the South A&lcai <nlcn ccncemed and 

their 'oomteriarts fraa the paroit ccocxny of ttw South Afrlcm >ii»ldlary 

involvad In a di«puta. In order to put direct pressure oi na najt m e nt ; 
ill. MDeklng contacts batiieen mien mxeeentatlves In a larnit uaiyacy and in 

ita various aufcaldlarlas Inside and outside SouQi Africa in ocdm' to pave 

the NBjr foe effective coUectlve bar^ining by the InSqandEnt blade trade 

mlCD nov m e nt in SouUi Afrlce; 
Iv. In cosaa of cmtlmed cfcatructicii by nanasiBEent, Intarostlcnal c 

the THCs CCTioemad Involving a agqpclate soliArlt? ai 

natlaal canpaigM will be initiated In response b 

cf ttn ini^ipmfltr * blscJc trade mien imwiaiL. by the lOTU, in 

en egara t lm with naticnal onbve and ITS: 
V. niiwiai 1 11 Into the activitiee and structure of target cananlee with a vlaw 

to IdKiti^tng the scale «d nature of e gmercla l lldcs id,th Soutli Mrica; 



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vl. ma awwlopiit oC inCoc^tlcn frial od tb* altaatlai of aouch AfrtcM 
Moctaca In da covUm «d thalr vniena, wiUi particular neuwwt to tlalr 
vla« en th* fltfit agalcat ■parthald nd tha ojganlaa mlldaa, br dla- 
trllKitlcii to tnloD MB^acs In the targat eatmiiMmi 

vli. SMpanalon oC <j o ntx t «a ^dla for baa* en obh InwabiBit and illiliiiiaaiwii 
i4m co^ilaa raft wa to nock vlth Ilia < -*t— *— * blade trate unlaw In 
SowhAfncB. 

Tn£lu» awtml arf lowit. inlm 

13. Iha unu raltarat— Ita aUncnnoa oC tl« apaeth^d ayat^ and cartlail^lf 
alnglaa out tha pa n >lcloaa IntltH ocntiol ayat« idildi dMilaa aotth Atrlon wcfcKS 
tla rl^ to aailc mcA hImw thqr wlah, to Uwa with their *— <11tt Md to Uw 
noosl f«aUy llvaa. Iha flgM. of Ob lad^ndnt trade mlcna af^OMt thla 
efanadoui qrat^B>i°>iU ba atwcrtad ty the l atar n aU cpal trade mloi wiiwiaiii tif 
fcovldlflg aaaUtnoe aliad st idtlgBtliv the looedlata proU4B«, rinjiwii^ at 
tamiMMtem to attpant wztcKa audi aa thoaa alr«e4' asmntixg In nnlai^a aid 
Laaottto ahoiUbe g rtrn dad Into South UeIcb In tzdw to stracgthB ttM ti^ 
lailoi KWiMMnt la the Soudan A&lcsi raglco aa a utola. 

SttMBttw^"" ""**• *-^n'r rr"**""i 

14. Iha tcnv ballovaa that aiarthald la at tha icot d tbt hegoov swand by 
SouUi Africa In the reglcn begligdng wldi l>adbia fee tahidi the Icmi calla fn- 
tt'*"'™ vith Kaeolutlati 435 od NBalbla HtUdi dad^d to Baure Om early 
i.i*^pi.4» n. of ifciillila thi«u^ £ra> wd fair elactlcna mdv tha aufarvlalai and 
oontTDl «C the IM. "Ota ICTTO vlgoroualy ixu d aai a Q« ccotinuad dastaUliaatliii 
cC die raglen dxough polltlal, nUltaiy nd aocnnnlc Intarfocnca. Tha icnu 
•ticagly faallavaa dnt at fi QIiB i l a g of d» accncnlc baea a< Che fraitllna etatae 
aduld alao ocntrlbuta to d» dla«tling of ^actheU. It thecafcn calla en 

t ^fectlvely rwaeHrae ni4i.aud nd being mderta)^ by ttm 
a A&lea DmnlcpaDt Coapantiai Ctnfamee (SWCC) comtrlBe to le^xx 
e en Scudi Afrl^. In nnporting tht SWCC ccuntiles, trade mlena In 
■ ahcuJil alao cmtctbute to tha atzamdanlng of trade 

o pliy a mjor rol« In the StDCC pcooa aa 
Ihe mfavourAls cocdltlma Imi.niil by Intamatlaial agmdaa ttA 
banka in caapact of aid. !□«■ tnd I n w taiL fmb nagatlwly affect Oa a 
(pnMh of thaaa oomtrlea. Da IVIU calla en tha IfttaKnatlcnal eaaatai,^ b 
thMe polldaa In order to atraiiithaa da u-rr^w,ir- poeitlen of the oouitrleB . 



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15. Ob hay to civqa In South Africa Ilea within ttm ecutry Md idll la 
dvtBQKiiad by th* bladi najorlty. [tai«mr, IntamaUaal naoluClott llum 
latod into sctloi can help aocaleiate pn jui 'e M tmaiA dnocracv and Juatice. 
EScalatliq acantndc sanctlcna, dlocaucavU^ iihlta Inmlgratlan, anUng govam- 
nnt coUabccatlcn Hitii ths South A&lcBi laglne and targeting aaifml^ 
actlvltlaa on specific tranenatlcnals offar four specific and practical H^a 
of fOccing ths ineasage tnce to the South African gOTOEmaRt that varttaid 

B will ba nQcctad ty a wlft apectxm of opinlcn In 
, including neat iHVOttantly the Independent blade trade mlcm 
in South A£rice. The intematlcnal free tcada iztlcn mvBMDt stroigly urges 
all g o va nnaii tg, and eapecially thooe of South Africa's min aootonLc poitiurs, 
to adopt these f*T"°»i» and thus dearly infacn the apartheid regline ef the 
omseqianoaa of cmtinulng Its iBdst polidee. nie ICPIU rsltarates its "in 
tea Hm limedlate release e£ lnfrlaoiad blade trade mien and political latfura, 
the ceeMtlai of rtfaxeaiiB measuree against the blade eomsiity, the irtanning of all 
political orgEulsBtlcns and of pcdltlol activity In ocdm' to Jmiwlop a sccl«^ 
baaed on tnlveisal suffrege, full respect fee the Oiivecaal Dedacatlai en 
Bum Rl^tits am an mdlvlded South Africa. 



joogle 



"*-*-■ • 111! Mil lit fnllfw TWi IB tr fit nr"" **- '^-~^i "-mtinf 
mirlr tr-*' ■"'"' ""* 

11. iwi^rwh. — <,rf««^i>». «— 1«. with »h. m^t^M.^^ H.«wT»1 >» 

^'■'Tir" liirw ■IfiriTHii ir Baitti tfilar 

tv. Tiiltliti ■ Tlr"- '-"'" "■ '— -""TiTi rtr «i m"*'~' ^^tt,,^!^ 

¥ltt> ttt flawti hfrlfTr finvini~nt' 
V. >w*<„ *fc. .— <^ r^ >h. i— ^.^^ niMii rf in <tot«^««a trwat 

^„i.*. 4„ o^**. tfrta (iiat tttdadli 
vl. t*4i«».«-Tr»mr»,,..w,-*«~.fw»«t:ta« ta«»*«P~ <«*.yn*<m rTflm. 

«nim Id —It ■wmt-i «f.itiM -T* nn rrifT •^ '— ■ — ^ 



tf AAh - 13 l«rtl 1965 



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StaMmanl by the AFL-CtO Evecutiv* Council 



Deipiic tha outcry' of world public opinloo, the iltMtlon In South Alrlca contliHWt 
to deteriorate *i violence mount* and the regime Intcnijfiei its rcprmion ol black 
leader*. The Reagan Admlnlttration'i policy of 'coiutructive engagement* li falling. A 
new couric ii needed to force Pretoria to diintantlc the *ystem of aparthdd. 

The AFL-CIO cndonei the itatement by the Exacutlve Board of tiie International 
C«nlederation of Free Trade Uniom adopted in Washington on April 1 1, and approved by 
the leaderahip of the Independent black trade laiion movement of South Africa, which was 
represented at the meeting. In keeping with that statement we cell upon our government 
and the other industrial demooradet to take the following stept: 

* ban new investment In South Africa) 

■ end all Investment guarantees, export credit* and trade promotion with 
South Africa) 

* stop new IMF loans as well a* other bank loans to the South African state and 
publicly-owned companlest 

* halt the sales of Kruggetand and the purchase of South African coali 

■ punish violators ol the U.N. oil embargo against South Africa; 

* embargo the sale of arms to South Africa, especially those used by Its military, 
security and police forces; 

* compel disinvestment by multinational companies In the energy and high- 
technology sectors) 

* force disinvestment by all multinational companies ttut have been Identified by 
the independent black trade wiion movement a* being In vlolatlori of Internationally 
acc^ted labor standards. 



Digilizedb, Google 



405 

At th* APL-CtO prepOMd lut PcbnMry. tha Intcfnattonal Labor OrsMUatlon- 



conduct o( all corporttloni oparMinf In South Africa, with ragard to thalr racofnitien of. 
black tr»de ivdon rifhtt, the tralnlnf and upgradlni of blade wortitri, and their obwrvanc* 
of unlwcrul labor itandardi. 

bi conultation with the black South African trad* imlon movaiMnt and th« 
ICFTU, the APL-OO vlll continue to review ad<fitlonal mcaiwei which might be affac- 
tlve in brlnfinf about damocratic ehanfC In South Africa. 

The AFL-CtO again calli upon the South African govemmant to repeal tha *» 
called Preventive Detention Lawi that arc wed to harata. Intimidate, and im^lMn hladi 
labor leader*. The powlnt black trade lyilen movement of South Africa remabit tha beat 
hope for democratic peaceful change in that tragic country, and it desarvei the full 
tupport of free trade wiloni everywhere. 

Meanwhile, not content to contlrw it* repreuion within itt own bordan, Praetoria 
hai annouiced It* intention ol etiabUthing an international adminlitration In Nambla, in 
contraventkM of U.N. Security Council Rawhition *33. The APL^IO conor* with the 
ICFTU in condemning thii action ai a provocative move aimed at perpetuating 
South Alrica't Illegal control ever Namibia. 



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South *fr<ein tr>dt unionlitj fcnowo to b« In dgtgntion d*t«nt 1 on 

1 etvuaUt VUak«zi UTP EdUMtor 1Z.1Z.W 

2 XoUnl Wunt Chcaical Uorkers Induitritt Union 

3 lanenvuU lUchd* Paotr, Wood and Allied Workers Union 

t Ntiiktldo a«ku African Food and Canning workers Union 24.09.8* 

i Boy Nkttc South African Allitd Uorktri Union 

6 Andic* Xintolo South African AlMtd Uorktri Union 3.10.S4 

7 Jerry Kau N«tionil AutoaobHe and Allied IMrkcri Union 3.10.BA 
S Thcna Mbtndluni NuniciDal and General Workers Union 

9 Zola Sekel United Hetal, lining and Allied Workers Union 

10 Edward Hanilut United Hetal. lining and Allied uorkers Union 

11 Gilbert Binda United Hetal, Hining and Allied Uorken Union 3.10.B4 

12 U»»e Lekoio United Hetal, Mining and Allied workers Union 3.10.84 

13 Glen noUso United Hetal, Mining and Allied Uorkers Union 3.10.84 

14 J. Hlubl Orange Va«l General Workers Union 30.10.84 

15 E. Hoeketsl General and Allied Workers Union 27.11.84 

16 n. ndze <froa Ciikil, union unknown) 10.12.84 

17 Sis« Hjikelana South African Allied Uorkers Union 18.02.8S 

18 Bonile TuIum South African Allied Uorken Union 18.02.85 

19 Saa Kiklne trade unionist 18.02.8S 

20 Isaac Hgcob* trade unionist 18.02.8S 

21 Thoianlle Gqweti South African Allied Workers Union 20.02.85 



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THURSDAY. MAY 9. IWS 



Tht AFL>CIO Executive Council, meetlns tn Vaihinrton, hu uk«d 
me W convey to you it> outrage over the death ol Anklet RadtMla while 
In police oartody. 

Thit tragedy flu a pattern that hai become all too famllUr — the 
death, under mysterious drcumitancei, of black South African leaden 
held w>d«r your Preventive Detention Uwt, 

It wat under the aame detention lawt that NeU Aggett, who 
received the George Heany Award for Human Rlghu In 1912, and other 
opponent* of dte apartheid lystem died while in police ontedy. 

In a statement Issued yesterday, eur Executive Council called upon 
vnment to repeal these laws, which 
d imprison Itladc trade union leaders. 

South Africa standt aconed of deliberate and consistent disregard 
of internationally accepted standards of conduct and of perpetually 
violating the Ituman and trade wUon rights of biadt wortcert and others. 

The AFL-CIO is ou traged at this needless loss of 1U« and In 
conjwictian with the ICFTU calls on the South African gov«nment to 
repeal the Preventive Detention laws forthwith and ensure that human 
and trade mlon rights are observed. Unless these basic freedo ms are 
observed, all tailc at reform b irrelevant. 



(Contact! Rex Hardesty, APL-OO Department of b^formatlon, 202/«37-M10) 



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COUNCIL OF UNIONS OF SOUTH AFRICA 

P.O.BOX 1[B2(lJOH»NNESaUBG.SOUTHAFfllCA,ID00TeL: (Oil) I9-B031, 



gsomiicw cw DisiwEsngMi 



RMfrirming the reaolutions at ttw Joint EKBCutive Council 



Knowing that caeial oppraasion through tha apart hsid ayatan 
haa been declared by the UN as s crlfie against huaanity 



Concluding that inveetiicnt in South Africa therefore aupporta 
and perpetuates racial diicrlnination 



This MaLlonal EiecutlvB Coanittee tharefDrs concludes t 



Any inveatnent in South Africa la therefore inveatBont i 
q>srtheid 



there ihould 
apartheid st. 



1 investaent In South It 



the sale o 

prevented b 



d be no defence, computer 
5.A. Mhite governaant 



nuclear technology 



exploit the 



a inveatnent in hoaetand areaa i^ 



Digilizedb, Google 



409 

Senator Proxmirb. Thank you, Mr. O'Farrell. We thank all of 
you gentlemen. I apologize again that it's bo late. We started at 
9:30 as you know because you have been sitting here very patient- 
ly- 

Now let me point out first to make it clear because in some of 
the testimony here there was an attack on disinvestment proposals. 
There are no disinvestment provisions in S. 635. I don't know of 
any member of Congress who's proposed disinvestment. Maybe 
later on that might be a necessary strategy but that is not before 
the Congress at the present time. 

SUIXIVAN PRINCIPLES 

Second, Mr. Weedon, Mr. Marzullo, Mr. Schroll, you all men- 
tioned Leon Sullivan and the Sullivan principles, how important 
they are, and you cited Sullivan over and over again. Let me quote 
from a letter to the committee dated April 12, 1985 — as a matter of 
fact, a letter to me — from Leon Sullivan. 

Here's what he said, and I quote: 

For the last 6 years I have advocated: (1) No new investment by U.S. companies in 
South Africa; (2) no new bank loans to the South African Government; (3) the ban- 
ning of the gale of the krugerrand; 14) economic sanctions that will influence the 
South African Government to abolish all apartheid laws. I continue to support theoe 
positions and urge l^islation that will make them law. 

So here you have the Reverend Sullivan taking a clear, un- 
equivocal position in favor of S. 635. 

Now, Mr. Weedon, on page 4 or 5 — the pages aren't numbered — 
on ps^ 4 or 5 of your statement, you say: "Some people say the 
Sullivan principles do not go far enough." You then go on and cite 
a report by a Prof. Lawrence Schlemmer, who is a professor of soci- 
ology at the University of Natal. He has completed a survey and 
has concluded that the majority of the black oeople in his sample 
are happy to have foreign investment in Soutn Africa and realize 
that it produces many jobs and, therefore, helps a lot of people to 
eat. 

Now, Mr. Weedon, Bishop Tutu appeared before the House For- 
eign Relations Committee on December 4, 1984, and he said this: 

I have tried to Bay to people you should be aware that if I sat here and said before 
this committee that I support economic sanctions against South Africa that that is 
an indictable offense and until recently on conviction the mandatory minimum sen- 
tence would be 5 years imprisonment, which indicates how the South African Gov- 
1b the ■ - - . . 



ernment regards the importance of foreign ii 

Then he goes on to say a little later. 

The point is that in South Africa we have a society that is riddled through and 
through with informers and people arc aware of the very heavy penalties for ex- 

firessing what you might call unpopular views with the authorities. It's highly un- 
ikely that if they were told their views were going to be treated confidentially that 
tiiey would accept that. 

Now in view of that, what value is a survey in which the black 
people in South Africa are asked how they feel about investment? 
If they say that they think investment should be curtailed or re- 
strained in emy way, it's the slammer. Isn't that right? 

Mr. Weedon. I think you have a good point, but I would com- 
ment that Professor Schlemmer has been undertaking to de^ with 
these problems for many years. I have talked directly with him on 



oO-Tai O— go 14 



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410 

the point that you raised. He says that he beUeves that he has 
worked out techniques which will assure the respondents that their 
views will not be conveyed to other people and he thinks it's a 
valid survey. 

I can only say that he's a very much respected professional in 
the field. 

Senator Proxmire. On the other hand, Mr. O'Farrell has given 
us what the black trade union position is and they are clearly In 
favor of every major provision in S. 635, 

Mr. Weedon. Yes, sir; and I think that, just as in this country, 
there are many people with many different points of view. I have 
talked with the gentlemen that Mr. O'Farrell refers to. I know that 
that's his view. I have talked to others who have different views. 

I am not trying to say that I know what the majority view is. I 
was merely reporting what a respected surveyor found in going out 
and talking to a number of people. 

Senator Proxmire. You know that the Schlemmer report was 
paid for by the State Department, the authors of constructive en- 
gjigement? 

Mr. Weedon. Yes, sir. 

Senator iSioxmire. They paid for it and they got what they 
wanted. 

Mr. Weedon, in your testimony you talk about the importance of 
education for the black community and I could not agree with you 
more. Of course, that's vital. One reason we want to put pressure 
on the South African Government to abolish apartheid is precisely 
because that Government uses education as a political instrument 
to keep South Africans in a semipermanent state of ignorance and 
economic deprivation. 

The 1980 House report of a study mission to South Africa noted, 
and I quote: 

Since the South African Government passed the 1953 Bantu Education Act, re- 
stricting severely the types of subjects taught in African public schools, the quality 
of black education has declined sharply. 

Don't you think that after well over 30 years of condemning such 
policies without effect it's time we should begin to use limited sanc- 
tions? 

Mr. Weedon. I was suggesting there was another alternative, 
Senator, than using sanctions. And the suggestion which I was 
making was that we might think of going to the South African 
Government and saying that we are prepared to help them to im- 
prove and broaden their education2d system and make it into one 
educational system for everybody regardless of race in South 
Africa, because I sincerely believe that until the caliber and quality 
of education in that country is uniform for everybody and is mark- 
edly rsiised for the nonwhites in that country that we are going to 
have great problems with social and political improvements that 
we all want to see in that countiy. 

HELP PROVIDE BETTER EDUCATION 

Senator Proxmire. Well, that's an ingenuous notion. If we were 
talking about the State of Wisconsin, that might make sense. But 
^ould we go to the sovereign country of South Africa, which has 



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411 

been pointed out has a relatively fine economy, high GNP, euid tell 
them that we want to help them provide better education? What do 
we do, have an aid program for their education? 

Mr. Weedon. Yes, sir. 

Senator Proxmire. You don't think that's really very practical, 
do you? 

Mr. Weedon. I really do. If we mean business instead of just 
complaining, we can expand on our present ' US AID education pro- 
gram in South Africa and use it as a bai^aining tool with the Gov- 
ernment. 

Senator Sarbanes. Would the Senator yield? 

Senator Proxmire. I'd be happy to yield to my good friend from 
Maryland. 

Senator Sarbanes. Do you believe the Government of South 
Africa would join with you in an effort to institute a wholly nondis- 
criminatory educational system in South Africa? 

Mr. Weedon. Mr. Senator, obviously I don't know. But by way of 
example, when the American companies got together and built 
Pace school in Soweto, they took on the South Africtm Government 
and said. 

We're not going to contribute tc a new school in Soweto unless you let us change 
the standards of education so that we don't obey the standards which have been set 
and are enforced for black education. 

And after a period of about 2 years they won that battle and they 
won it not with clubs and sticks but with the offer of a new school 
which was badly needed. 

Senator Proxmire. A school in Soweto is one thing. How many 
students go to that school? 

Mr. Weedon. It's about 1,000 I think at the moment. 

Senator Sarbanes. Mr. Weedon, I think you used the phrase 
"black education" in describing that. Now I understood your earli- 
er answer to Senator Proxmire to be about a system of nondiscrim- 
inatory education and I was asking whether you saw any chance 
that the Government of South Africa would agree to that. They 
m^ht well agree to you coming in to support a separate education- 
al system. In fact, some of that is being done today and some think 
it merely strengthens apartheid rather than weakens it. 

Mr. Weedon. Mr. Senator, I said in my statement that it should 
be a uniform system of education, not multiple separate systems of 
education, and I sincerely believe that's necessary and I think 
that's what you're implying. 

Senator Proxmire. Mr. MarzuUo, I agree with you that the 
American companies adhering to the Sullivan principles have been 
a positive force in South Africa, but since they employ only 70,000 
South Africans of the 22 million, it's a tiny percentage — that's a 
small fraction of 1 percent — we need to go beyond that to help 
achieve change. 

What I don't understand is why industry opposes making the 
Sullivan principles mandatory. Mr. Schotland testified earlier that 
the Department of State opposition to that is not valid. 

Mr. Marzullo. Senator, I think when you talk about opposing a 
mimdatory Sullivan provision, part of our dilemma rests in what 
does one mean by a mandatory Sullivan provision. 



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412 

Senator Proxmire. What we mean is that every American com- 
pany there would have to comply. We would require it, and we 
could have sanctions gainst them of course. We could provide that 
they would have to disinvest or something like that if they failed to 
comply. 

Mr. Marzullo. That part doesn't bother me at all, since I'm 
chairman of the support unit. I have long stated that I thought 
every American company ought to be a member of the Sullivan 
effort. 

The problem again with mandatory — what we are worried about 
is that in effect we are on the battle line of South Africa, trying to 
change the society and confronting authority in that society. We 
want to be in a position to maintain creative initiatives and to de- 
velop programs which are well on their way to being regional and 
national in scope rather than local without having to be put into a 
situation where we are: One, going to force the South African Gov- 
ernment to tell our affiliates that they cannot provide information 
to us or work with us, or two, we are in a situation where we have 
got extraterritorial provisions and the South African Government 
doesn't allow us to continue to do what we have done. 

I think it's significant, Senator Proxmire, that 

Senator Proxmire. Let me just interrupt. You say that you 
would not oppose mandatory Sullivan principles for American com- 
panies located in South Africa; is that correct? 

Mr. Marzullo. I said it depends on how you define mandatory. If 
you mean that every American company should be a member of 
the Sullivan team, yes. If you mean enactment of laws putting in 
monitoring mechanisms there and here which get us in trouble 
there and here, obviously it's going to be almost impossible for us 
to do what we have been doing or to expand the efforts that we 
have embarked on. 

Senator Proxmire. Why would it be impossible? You expand it 
automatically if you require all American companies to abide by 
those principles. 

Mr. Marzullo. The South African Government has laws about 
business practices which they have never enforced, I understand, 
which would make it impossible for us, for example, to get informa- 
tion from our companies if it involved extraterritorial legislation. 
In short, if they thought American domestic law was impinging on 
their domestic law. 

Senator Proxmire. Well, then the South African Government 
would have a choice. In other words, if they wanted to enforce a 
law that would make it impossible for us to impose such a require- 
ment for American companies, they would just lose the companies. 
We would say that our companies would have to comply. 

Mr, Marzullo. Well, one would hope that they would say that 
one would not have to comply. We're not sure, and we lire not bo 
sure that you want to penetlize one of the few real change f^nts in 
that society. 

Senator Proxmire. Mr. SchroU, you say on page 3 of your state- 
ment that, and I quote, "The free South Africa which will inevita- 
bly evolve, with all racial groups participating in the political and 
economical system, will be a stable, worthy nation." 



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QUICK CHANGE OR RKVOLUTION 

My concern, heightened by the testimony of other witnesses here 
today, is that unless South Africa makes changes quickly, a free 
South Africa will not evolve. Instead, a violent revolution will 
become inevitable. So our premise of what will happen there unless 
change comes quickly is different from yours. 

How do you combat that notion that we've heard so much and 
we hear from people like Bishop Tutu and others that if we don't 
find some way through economic sanctions to overcome this apart- 
heid system that with the overwhelming majority of people treated 
this way that we're going to get a bloody revolution? 

Mr. SCHROLL. The danger, of course, is there on that, but as I 
have said, the American corporate presence there has been very ef- 
fective in lobbyii^ with the Government in securing some 
chaises — not enoi^h, not fast enough, I'll grant you, and we are 
renewing our efforts. We have em application of the Sullivan prin- 
ciples which involves our going to the Government and mfddng 
representations. In April, I went and visited two members of Par- 
liament in Capetown and with what Mr. Weedon said there, one of 
the things I emphasized was the necessity for a unitary education 
system is there and their Government has to move in that direc- 
tion. And while I was not thrown out on my ear, I was listened to, 
and there was general agreement for the need of improving black 
education and for eventually coming to a unitary educational 
system. 

Senator Proxmire. Senator Sarbanes. 

Senator Sarbanes. Thank you, Mr. Chairman. I know we have a 
vote and I will try to move very quickly. Gentlemen, if you could 
hold down the length of your answers I would appreciate it. 

I have a sense of ships passing in the night and I want to get 
right to that point. You have all come in and argued against disin- 
vestment. S. 635, as Senator Proxmire j)ointed out, does not involve 
disinvestment. Therefore, I would like to put to you very directly 
the question, what is it in S. 635 to which you would object? Why 
can you not support S. 635? 

Mr. Weedon. Senator, I mentioned in my testimony I am the 
person here who is directly involved in trying to evaluate the per- 
formance of the American companies in South Africa in terms of 
what happens in the workplace and in terms of their social activi- 
ties. 

To the best of my knowledge, nobody else is undertaking to do 
that sort of thing anywhere in the world and rating the companies 
concerned. I would hate to be involved — in fact, I will not be in- 
volved in trying to carry out that process if it's done as a mandato- 
ry legal structure. 

We already have Sullivan signatories who have dropped out of 
the program because they didn't like the grade we gave them. I 
have been getting threats from general counsels of companies be- 
cause they don't like the grades we give and my answer today is, 
"If you don't like it, you can drop out. ' 

Senator Sarbanes. Well, Mr. Weedon, let me interrupt you and 
put my question again. S. 635 does not require meuidatory signa- 
ture. 



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414 

Mr. Weedon. Fair enough. If it doesn't, that's fine. 

Senator Sarbanes. Some of the arguments you make eire not 
without some thrust to them. I recognize that. But none of the ar- 
guments has gone as to the provisions of S. 636. What is there in 
S. 635 you object to? Why can't you come in gentlemen, give exactly 
the statement you've given on other considerations — on disinvest- 
ment, mandatory application of Sullivan — and then say, having 
said all that and wanting to be sure that you have that in mind, we 
support S. 635? 

Mr. Marzullo. Is S. 635, Senator Sarbanes, the one dealing with 
new investment? 

Senator Sarbanes. Yes, it deals with new investment and new 
loans. 

Mr. Marzullo. I'm speaking eis chairman, not as trying to repre- 
sent some company's position. I understand from some companies 
that part of the problem with the new investment is, depending on 
the industry — and they mention specifically manufacturing compa- 
nies — that they cannot really survive economically and competi- 
tively in their business, not only in South Africa but anywhere 
else, without new infusions of capital and that for them this infu- 
sion of capital is not available out of retained earnings in South 
Africa. This is what I was told by two companies who are manufEic- 
turing companies, who registered their concern about the bill. 

COMMrrMENT OP BUSINESS TO EFFECT CHANGE 

Senator Sarbanes. You say in your statement that U.S. business- 
es should be encouraged to increase their role in that economy, and 
voluntary efforts to influence social change. 

If those two things are not linked, should companies still be en- 
couraged to increase their role in the U.S. economy? Or put more 
bluntly, would you encourage U.S. business to increase their role in 
the economy if they were not committed at least at a minimum to 
the Sullivan principles? 

Mr. Marzullo. Absolutely not. 

Senator Sarbanes. What should be done about those companies 
that will not commit themselves to the Sullivan principles, which 
may in fact be working directly contrary to the very principles and 
rationale of the case you presented to the committee today? 

Mr. Marzullo. Well, I think they will have to face the full op- 
probrium of various critical constituencies in this country. 

Senator Sarbanes. That answer leads me right to my next ques- 
tion and I'm moving quickly because the bell is going to ring in 1 
minute and we're going to have to go vote. But we had testimony 
before the Foreign Relations Committee from the Chamber of Com- 
merce and the Committee for Trade in South Africa saying that we 
shouldn't do anything in terms of public policy. By the same token, 
they recognize ^at private action is a shielded and protected activ- 
ity in our society. I can't understand why the business community 
would not prefer to have l^islative action by the Congress to set 
the parameters imd establish the framework for the process of 
brii^(ing about change in South Africa, rather than leavii^ it, in 
effect to be fought out in the streets. 



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415 

Mr. MAKZULLO.We don't want it fought out in the streets. Some- 
oae is opposing parts of it. One is opposii^ certain parts of it, not 
opposing other parts. 

senator ^ARBANEs. Well, you're doing a better job than the wit- 
nesses did the other day. 'They were nowhere near as perceptive 
.and thoughtful about- it. They said, well, that's protected under our 
system and we'll leave it to be fought out in the private sector. 

It's my view that no one should really want that. 

Mr. Marzullo. Senator, we are not in disagreement on what we 
are trying fundamentally to do. We are earnestly searching, as you 
are -in Congress, to find a way of sending a message loud and clear 
to that troubled society that all.of.us want change in that country 
.and we want it as quickly as it can be obtained. 

Senator Sarbanes. Would you. agree with me that our current 
_ policy, whether intentionally or not — perhaps unwittingly — a mes- 
«£ige .i.hat'8 being perceived as indulging the apartheid regime? Is 
that not how. it a perceived by many people in South Africa, by 
people elsewhere in Africa and elsewhere in the world, and by 
people in our own country? 

Mr. Marzullo. Some people certainly have that perception. 

Senator Sarbanes. A significant number so that it creates a diffi- 
cult problem for protecting or furthering American interests? 

Mr.. Marzullo. Personally, I wouldn't think so. Senator, because 
I iiave' to differentiate between the statements that some of my 
' fiiends make publicly and what they tell a lot of us privately. 

Senator Sarbanes. Would you then conclude that there's no need 
to make a change in policy to send a sharper, stronger, clearer 



Mr. Marzullo. I am all for sending sharp, clear messages be- 
cause I think that helps. 

Senator Sarbanes. Do you think we have failed to do that at this 
point? 

Mr. Marzullo. I don't think you have failed to do it. Senator. 

•Senator Sarbanes. Then why do we need to do it? Either we 
need to do it or we don't. If we need to do it, it's because the mes- 
aage that's been sent is not efficiently clear and sharp. 

Mr. Marzullo. It's not really that simple, Senator Sarbanes. 
There's a dichotomy here. One, there is real change we are con- 
vinced is going on in South Africa. It's not going on fast enough. 
The message helps to convey a universal, nonpartisan sense that 
we want that change to be accelerated. 

All I'm saying is we don't want to become so punitive that we 
turn off a process which in terms of South African history is really 
unique in that it's really started something which has never been 
started before. That's all I'm saying. 

Senator Sarbanes. I'm a sponsor of S. 635 Euid I'm fairly sensi- 
tive to that, because there's no disinvestment as yet. Who knows 
what will come? That depends in part on what kind of change 
occurs. I assume you don't hold the position that American compa- 
nies should stay in a society no matter how abhorrent the practices 
of that society might be, as a hypothetical? 

Mr. Marzullo. I most certainly do not. 

Senator Sarbanes. OK. I didn't think you ^uld. 



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416 

Senator Proxmire. Unfortunately, the vote is in the last 5 min- 
utes. Senator Sarbanes. 

Senator Sarbanes. Let me just make two points to Mr. Weedon 
and I'll leave them as comments. 

Senator Proxmire. You take over the Chair. I have some ques- 
tions to be asked to Mr. O'Farrell and others for the record. 

Senator Sarbanes. First of all, reading your statement that 
apartheid will be ended only by vote of white South Africans or by 
revolution, I'm not sure how you would have counseled the Ameri- 
can colonists at the time of the American revolution. 

Obviously, black South Africans face a very difHcult problem be- 
cause they are blocked out of any peaceful way of bringing about 
change in their society. 

If we don't somehow try to contribute to developing a process for 
achieving peaceful change, it seems to me they are going to be 
forced back to a violent approach, simply because the peaceful ap- 
proaches are all denied them. Mandela is in jail. The UDF people 
now face trial, and potentially long jail sentences. 

The final point I want to make, and then I'm goii^ to adjourn 
the meeting, is that it's an unfair putdown to many people in this 
country who are very genuinely concerned with the South African 
situation and its potential for violence there to attribute their con- 
cern to a guilt complex and to frustration with trying to deal with 
a minority situation in our own country. 

Many of the people who are very much involved in this effort 
have expended an enormous amount of time and energy on it over 
the years, and I do not regard them as functioning out of a guilt 
complex. They are simply being consistent in carrying forward 
some very strongly held ideas. 

Gentlemen, thank you very much. I'm sorry we had to bring this 
to a close. 

[Whereupon, at 1:25 p.m., the hearing was adjourned.] 

[Response to written questions of Senator Proxmire to Patrick 
O'Farrell follows:] 



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African-American Labor Center 

Centre Afro-AmeriMJii du Travail ■ dj^JSt^/Mt^^]^ 

1400 K STREET. N.W. • SVTTE TOO • WASHINGTON. DC 3000S 



Mr. Paul Freedtnbcrg 
Staff Director 

Subcommittee on tnternatlonal 
Finance and Monetary Policy 
Committee on Banking, Houdng 
and Urtun Affairs 
United sutes Senate 

Washii«ton, D.C. 20510 

Dear Mr. Freedenberg: 

In reply to Senator Proxmlre's question, triileh you trananiitted in your letter of 
May SI, 19SS, 1 would make the followii^ atatement: 
QUESTION FOR HR, O'FURELL 
SENATOR FROXNIRB 
Page 1 

1. I pcesune that you are familiar with the viewe of black iBboc 
leaders and theii union members in South Afclca. Vftiat li 
youi Impress ion ti-ltb respect to how South African blacks feel 
about the tjueation of American Investment in South Africa? 
Do they favot mote investment? Do they favor cestcictiona on 
new investment? Do they favor disinvestment? What is your 
sense of how thev feel on these questions? 

It ii understandable that there may be some reservations and hesitations amcng 
black leaders as to the beat way to go In the fight against apartheid. There la, 
however, a commitment In the black labor movement to flgtit apartheid without 
compromise to the bitter end. "niere Is also a growing demand on the 
international community to put mere preswre on Pretoria and to undertake 
more effective action to end the system of apartheid. While for 35 years the 
victims of apartheid have heard condemnetioiu against the system from public 
podiums, at the market place it has been "builnees as usual". While they hear 
Secretary of State George P. Schultz describe apartheid as "morally 
indefenaible ...... unjust, anachronistic end untenable," they live with the reality 

of "constructive engagement" and the perception tliat it is a compromise with 
apartheid and a gesture to white South Africa. 

On the basis of extensive consultations with black South African trade 
unionists, both leaders and rank-and-file membeis, it is clear to us that a large 
majcrity fully airports the kind of actions called tor in S63S. 

The Federation of South African Trade Unlcns (FOSATU), one of the two major 
black federations, went on record in April 1M4 thati "FWATU as a trade unlm 
organisation concerned with the Jobs and livelihood of its members has to give 
full consideration to the question of disinvestment. However, It is FOSATU^ 
considered view that the preasure for disinvestment has had a positive effect 
and rtiould therefore not be lessened." 



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418 

- 2 - 



Joe Foster, General Seeretsr; of FOSATU, declared recent^ Out Ms 
organization would whol^esrtedly suEport total disinvestment if it could be 
assured ttwt such a move vrould bring about the changes de^red by the workers. 
Joe Poster did, however, indicate that he d[d not favor the withdrawal of 
foreign companies at present because FOSATU has a sizeable membership at 
such Arms as Ford, General Motors and VoUcswagen. He pointed out that as of 
now the vganizaticn had no mandate from the workers In these Grma to 
advocate withdrawal. 



Such reservations are not uncommon among labor leaders taking a pragmatic 
view of their situation and concerned with tite deepening recessioi in South 
Africa. One such labw leader warned that in prescribing a remedy we "should 
not klU both the disease and the patient at the same time." 



The Council of Unions of South Africa, the second majw black trade union 
federation, passed a resolution on didnvestment on December 8, 1984 which 
clearly states its opposition to new investments in South Africa (A co^ of the 
full text of the resolution is enclosed.) 

In summary, 1 would conclude that the vast majority of Black South Africans 
would welcome strong legislation in the United States which would ccHivey the 
moral outrage of Americans and a commitment to help aid apartheid. The 
reservatioiis which have been voiced are merely a safeguard against a pyrrtilc 
victory whitdi they cannot afford and - after all the suffering that has gone on 
in South Africa - which they do not deserve. 

'e can si^iply to your committee, we would be 
Sincerely yours, 

Patrick ^TarreU 
Executive Director 



Enclosure: a/a 



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ANTI-APARTHEID ACT OF 1985 



THURSDAY. JUNE 13. 1985 

U.S. Senate, Committee on Banking, Housing, and 
Urban Affairs, Subcommittee on International Fi- 
nance AND Monetary Poucy, 

Washington, DC. 
The subcommittee met at 11:50 a.m., in room SD-538, Dlrksen 
Senate Office Building, Senator John Heinz (chairman of the sub- 
committee) presiding. 

Present: Senators Heinz, Gorton, Mattingly, Hecht, Proxmire, 
Dixon, Riegle, and Sarbanes. 

OPENING STATEMENT OF SENATOR HEINZ 

Senator Heinz. Today we are going to have the third in a series 
of hearings dealing with the legislative proposals to alter the eco- 
nomic framework of the U.S. Government's relationship with the 
Republic of South Africa. During the past two hearings we have 
heard from the administration, from Senators Kennedy and 
Weicker who drafted S. 635, from academic and legal experts on 
the subject, and from those who directly represent or audit United 
States companies that currently do business in South Africa. 

I think these hearings to date have built a strong record for deal- 
ing with the issue. My colleagues and I have learned a great deal 
about the realities of United States banking and investment and 
United States commerce with South Africa and about the details of 
current proposals to alter the relationship we have with South 
Africa. Today, if I may say so, we are particularly lucky to have 
with us a man who's done more, in my judgment, than any other 
single individual in the United States to effect peaceful change in 
South Africa and to better the lives of the nonwhite population in 
that country. 

South Africa, aa we all know, has become one of the dominant 
issues on the political agenda for 1985 and it is clear that Congress 
will be taking action on that issue this year. The Rev. Leon Sulli- 
van, who I am so pleased to have as a constituent, of the Zion Bap- 
tist Church in Philadelphia, is an individual who is famous not 
only in Philadelphia and our State but throughout the country, 
and in particular we in this country, I think, owe him a deep debt 
for bringing the issue of South Africa to our attention and to our 
moral consciousness many, many years ago. 

Since the founding of the Republic of South Africa in 1948, 
Americans have been concerned about United States corporate in- 
vestment and involvement in that troubled land. Most have de- 
spaired that anything could ever be done peacefully to better the 
(419) 



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420 

lot of the noDwhite population in South Africa. Reverend Sullivan 
has shared that concern, but apparently not that despair, and he 
has gone beyond rhetoric to promulgate a voluntary code of con- 
duct for United States companies operating in South Africa. Today, 
the mtyority of black workers employed by U.S. companies are cov- 
ered by Sullivan principles. As a result, they are guaranteed deseg- 
regated facilities, equal pay for equal work with their white coun- 
terparts, and other principles of fair play and decency which we 
take for granted here in this country. From 1977 until today, no 
one familiar with South Africa has difficulty understanding what 
is meant by the term "Sullivan principles," Reverend Sullivan's 
importance is reflected in the fact that his name has become a 
term of art and a symbol of fair play. I can't think of a more fitting 
introduction than to cite that fact and I can think of no one who is 
more knowledgeable on the subject of United States corporate in- 
volvement in South Africa than the Rev. Leon Sullivan from whom 
we will be hearing in a moment. 

I would also like to note the presence in our audience of Mr. 
Norman Holmes. Mr. Holmes, would you please stand up. Mr. 
Holmes h£is come to Weishington from Philadelphia to present a pe- 
tition with more than 500 signatures on behalf of "Philadelphia 
Lawyers Against Apartheid." Mr. Holmes, I would be happy to re- 
ceive your petition at this point and we will make it a part of the 
record without objection. Thank you very much. 

I would also like to note the presence of Philip Lacovara, repre- 
senting the American Bar Association. Because of the shortness of 
time caused by the rescheduUng of Treasury Secretary Baker to 
today's date, this hearing will necessarily have to be truncated. 
Therefore, we are unable to receive the oral testimony of Mr. Laco- 
¥{0*8 and instead will make his written testimony a part of the 
hearing record without objection. Mr. Lacovara, however, you are 
here and you are available I know to answer any questions should 
any of my colleagues wish to direct any questions to you. 

[The complete prepared statement of Mr. Lacovara and report of 
the ABA follow:] 



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STATEMENT OF PHILIP A. LACOVARA, MEMBER, HOUSE OP 
DELEGATES, AMERICAN BAR ASSOCIATION 



ind SubcOBiiittee fieaber 


81 


ine iB Philip C. Lacova 


ra and I practice law in 


.C. 1 appreciate your 


courteay in peraittinq a« to 


1 theae haaringa. I an 


a aenber of the Anerican Bar 


policy-naking House of 


Delegates and also serve aa i 



participate i 

aeober of the Council of the ABA's Section of Individual Rights and 
Responsibilities. It was that Section which proposed the policy 
upon which I appear today. I ac particularly honored to be 
representing the President of the ABA, John C. Shepherd, in the 
eipression of the ABA's views. 

The American Bar Association supports inaediate legislative 
action, including inposition of carefully tailored econonic 
sanctions, designed to induce the Governnent of Bouth Africa to 
dismantle Its official policy of apartheid. 

Apartheid is of special concern to the lawyers of Aaerica. 
South Africa ia by no means alone In the world in repressing the 
natural human rights of its citizens, but it is alone in the world 
in seeking to shunt its black citiiens into aake-believe "countries" 
unrecognized by any other nation. South Africa's systea is unique 
because it enshrines in its constitution this odious eysten of 
diacriminetion and repression and because it perverts the 
instruments of the law — statutes and courts — in iapleaenting 
this official policy. Quite siaply, apartheid is a violation of 
international law and is contrary to what we believe are the 
purposes of the law. 



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In February of this year, the pollcy-aaking body of the 
ABA, the House of Delegates, adopted this lesolutioni 

Be it_ReBolved. That the Ancrican Bat Association oppoaes 
the South African policy of apartheid and Its various 
iianifestations and urges the United States Government to take 
appropriate action to oppose apartheid and Its various 
pan ifestat ions. 

Be It Further Resolved^ That the American Bar Association 
opposes the palicies of any governnent which discrininates 
against its inhabitants on the basis of their race. 
This resolution reflects the strong sentlnent of the A>erican Bar 
not only that the South African systen of apartheid is unacceptable 
but also that it is now tine for our Qovernnent to take positive and 

that policy. 

The House of Delegates had before It a detailed and 
exhaustive report outlining the systenatic Disuse of the law and of 
the forces of the law to inpleoent the south African Government's 
policy. As one of the members of the House of Delegates who 
supported the resolution, I know that the House found the case for 
action by our Government clear and compelling. I request that the 
report, that was before the House of Delegates, which had been 
prepared by Professor Goler Butcher, chair of the Subcommittee on 
South Africa of the Section of Individual Bights and Kesponsibi- 
litles, be included in the forma) record of these hearings. 



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One of the ABA'a eight goals coBBit* the Aasoclation to 
advance the rule of law in th« world. Our cOMitKsnt to thim goal 
reflects our view that the united States, through its aajor public 
and private institutions, has both the right and the responsibility 
to speak out when we see other nations syatesatically violating 
fundanental, internationally-recogniEed huaan rights. Our Nation 
also has both the right and the responsibility to take prudent but 
effective action to try to relieve these abuses. To fear that a 
particular initiative Bay not be fully effective is no excuse to do 
nothing. Noble rhetoric and furrowed broMs do not Bsrk the liBit of 
a great Nation's capacity to proBOte the International rule of law. 

As lawyers, we know that carefully crafted sanctions can 
deter persons froB continuing on an offensive or injurious course. 
The practical lesson of the law is that precisely tailored sanctions 
are effective in influencing private behavior. He are satisfied 
that the sanctions of the law also can be effective in inducing 
nations to conform their conduct to basic international legal noras. 
Principles^ Governing Econoni^c Sanctions 

It is the ftBA's position that sanctions at this tiae are 
appropriate and necessary. Although the AfiA does not clain any 
special expertise in selecting particular sanctions that will be 
both prudent and effective, we can suggest several Bajor principles 
that should guide Congress in selecting specific sanctions to be 
applied in the struggle to end apartheid. 



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Firati aanctlons ahould be directed pEiBarily at the 
Qovernaent of south Africa Itaelf. It i* tt>* South African 
Governaent that ha* adopted the policy of apartheid. It i* that 
govern>ent that has the political power and, in our view, the legal 
and >oral responaibility to end apartheid. Thoae aras of the 
government vested with the responsibility of enforcing apartheid — 
the police and the military, aaong others — should be the 
particular object of such sanctions. That focus would be consistent 
with the current embargo against the sale of ailitary material to 
South Africa. 

Second I Just as with the coercive sanctions that American 
courts apply in order to compel coapllanc* with the dictates of the 
law, sanctions directed at South Africa ahould be conditional and 
prospective. That is. the Government of South Africa should be able 
to relieve Itself of continuing sanctions aa soon as it has taken 
measurable and substantial steps toward ending the various 
manifestations of apartheid. Just as with the recalcitrant witness 
who is committed to custody until he Is willing to testify, the 
Government of South Africa would have in its own pocket the key to 
unlock sanctions. All it would need would be the political will to 
bring its conduct Into conformity with basic legal standards 
recognised by the world community. 

Third, the sanctions adopted should recognise that, as a 
practical matter, a system that ha* evolved over generations cannot 
be purged peacefully overnight. Therefore, sanctions should be 
designed to stimulate a pattern of reform over a period that, while 
it must be brief, may take aeveral year*. 



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Th* lapoaltion of aanctlona for a Btatad p«rlod would hava 
tha added banafit of alarting tha South Atclcan govainaant that U.S- 
attantion to diasolutlon of aparthald will ba cloaaly ■onltoced. 
Convazaalyt tha impoaltion of Incraaslngly BOia rlgoEOua aanctlona 
within a aat pariod will act to focua tha •nargiaa of tha South 
African govarnaant on continuad, aubatantial progtaaa, 

Tha prospvctlva afipllcatlon of aanctlona will ap^haaisa the 
iaportanca of conatcucttv* action, Inataad of dwalling on paat 
■iaconduct. Such application alao would poae no Interfaranca with 
existing contractual obllgationa. 

Fourth, recocfnizing the Pteaidant's apaclal reaponalbili- 
tlaa for conducting foreign relations within tha contours of 
national policy deacrlbed by law, legislation ahould give tha 
Freaident prlaary responsibility for iapleaantlng the sanction* and 
for deterainlng thair ef fectivenesa. Thua, the Prealdent should 
have priaary rasponslbllity for datarninlng whether the South 
African Govcrnnent haa achieved auatained and significant progresa 
in dianantling the syatan of apartheid and thus In qualifying for 
raalaalon or auapension of the aanctlona. The President also is In 
the strongest position to raquaat the laposition of c^iparable 
aanctlona by other nations. Such an expanded aultllateral effort Is 
to be strongly encouraged. In this regard the actions by Japan and 
Sweden should be good exanples. 

The President alao can assure that our policy la consonant 
with that of our allies. A, repeat of the Soviet pipeline Incident 
would be counter-productive. Siailarly, the President can beet 
dateraine inatancea, if any, where acces* to critical aatarial* 
■hould be a factor in foreign policy decisions. 



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Spgclf ic_ Propp»al» for_Sanctlona 

The ABA is not Buppocting any particular bill. 



latent with the 
tucea of the bill 



prohibit 



though, that aany of the features of G.635 are 
basic principles that are outlined above. Sa>e fe( 
tfould have to be nodified to reflect what we reco>i 
appropriate principles to infon congreasioi 
Specifically, the ABA would support 
the United States Governnent and Anetican f: 
xither private concerns froB extending further loam 
the GoveEnoent Of South Africa. As provided in pending legislation 
such loans would be pernitted if they were to be used by the 
government, for Instance, to finance non-dlscrininHtory housing or 
schools or to provide other public services without dlscri>ination. 
Si>ilarly, in light of evidence that Anerlcan computers nay be used 
to nonitor and enforce various apartheid laws and regulations, we 
support restrictions on the sale of conputers to the governnent of 
South Africa, Sanctions of this sort seen to us to be narrowly and 
precisely targeted. 

It ha» been said that, if American banks do not make loans 
to the South African Governnent, banks and governments elsewhere 
Mill. It has been said that, if American companies do not sell 
computers to the South African Government, companies elsewhere 
will. Perhaps that is true, although I doubt that these objections 
adequately measure our economic and technical leadership and 



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But thoae protaatB bIsb the point. A* a nation, h« can 
only do what we can do. Each nation Buat ansMBi to ita own 
contcienc*. As SBcrctaiy of Stat* G«org« P. Shulti notad in 
defending tbs iapoaition of awesping trade and other aconoalc 
aanctlons againat Nicaragua, "...there'a a certain aanae of feeling 
that regardleaa of the effect, certain klnda of relatlonshipa with 
countriea we think are doing a lot of daaage are undeairabie." 
Aa Senator Cranaton noted in the recently iasued report of the 
Foreign Relattona Coaaittee approving S.998, aoae 26 U.S. banks have 
voluntarily decided to aake no new loans to the South African public 

The ABvrican Bar Aaaociation believes that our governaent 
and our inatltutlona ahould not help to finance the South African 
Governaent , whoae legal syatea is a perversion of unlveraally 
recognieea atandarda. In the atruggle for International huaan 
righta, the United Statea ahould continue to ba a proud and 
aelf -confidant aoral leader. 

In aua, without Indulging in the rhetoric of racrlaination, 
the Anerican governnent, through congressional action, ahould take 
iMBadiate and concrete atepa to denonatrate to the Govarnaent of 
South Africa that, at least in Its relations with the United Statea, 
It cannot with Inpunlty preserve a systaa that uses the law to 
repress, divide, and deprive on the basis of the color of a person's 
akin. 



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TABLE OF COITEtlTS 

Page 

I . Background 2 

II. Diacussion ••• 6 

A. Aparthaia 8 

1. The PsBB I.awB 11 

2. The Denial of Political Participation . . 14 

3. The Ilonalands Policy 14 

a. Dsnationalizationa and Daprivationa 

of Citizenship 15 

b. Relocatiana and Itsnovala 16 

B. The Socurit/ Legialation 18 

1. Banninga 20 

2. Disappearances 21 

3. Detentions without Charges or Trial ... 21 

4. Detentions Kitliout Access to Counsel or 
Ilabeaa Corpus 22 

5. Torture and Deaths in Dotentiou 22 

6. The Dae of the Judicial Proceaa to 

Enforce Apartheid 23 

C. :iaDibia 26 

D. The llarraasDont and Intinidation of Attorneys . 28 



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aSPORT 

*?ron our boctlnniiig r«garil for huaan ri^ta and 
the stoady o^panaiou □! hunan treaJoa bav« dofinad tlio 
Ancrlcan «xporioncQ. And tliay rsoaln toda/ the r«al> 
aoral cora of our foreign policy. Tha Unltod Status has 
said, on nany occasions, that ^e vieu racisn k/ith 
repugnance. Mo fool a noral reaponalbillty to spaak out 
on this oattor, to aaphaalzv our concacns and our griaf 
ovor tho huna.i and spiritual cost of apacthaid in Soutli 
Africa. 

7o call upon tlia govarnnant of South Africa, to 
reach out to Its black Bajority by ending the forced 
renoval of blacks fron theii cosaunlties and the 
detention, uithout trial and lengthy iBpriaonnant, of 
black leaders.' 



"The political systen in South Africa is Borally 
ifrong. Wc stand against injustice, and, therefore, ua 
aust reject tlio legal and political prealses and 
consequences of apartlteiJ. . .Wo reject unequivocally 
attenpts to denationaliie the Black South African 
najority and relegate then to cltisanslilp In the 
separate tribal honclands. We Jo not and will not 
recog;)i=o these areas. All Anoricans are rapallad by 
the sight of long-sottlad otatle black connunitioa 
being uprooted and their inha'jitatitB forcibly ronovad to 
barren sites in far aifay ''honelands' thoy "have never 
secii before, neither can we countenance repression of 
organisations and individuals by neans of adninistrativa 
noasures like banning and detention without duo process 



T7 aonarka of the PresiJent In cereaony cooaeBorating 
Tnternational Hunan Rights Day (Oecoabor 10, 19S4} . Tho 
President noted that "there are occaaiona irtien quiet diploaacy 
is not enough lAion ire nuat renind the laadars of nations who 
are friendly to the United States, that such friendship also 
carries rospousibilltles for than, and for ua.* 

2/ Bureau of Public Affairs, U.S. Dop't of State. Currant 
Policy ilo. 497, Southern Africai Anerica's Responsibility for 
Peace and Change (June 23, 1983) [hereinafter eitad aa 
Eagleburger Stataoent]. 



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1. BacKqiound 

It ia of paranount iBportanc* that the Amecican Bar 
Aksociation, with ita long tradition of aupport for the Rule of 
Law inter nationally I adopt thle reconnendation to sake clear 
Ita concern cegacdlng South Africa's utter disregard of the 
Rule of Law and gross abuse of fundamental hunan rights and 
fceedons. 2 A/ 

As the above-cited atatenetita of Preaident Reagan and the 
then Undersecretary of State Lawrence Eagleburger demonatratei 
this recoDEiendatlon for an ABA resolution declaring ita 
oppoGltion to apartheid and Ita various nanlf estations la In 
fact consistent with the long-standing position of the United 
States Covernoent. 3/ 

2A/ This resolution is consistent with at leaat five (5) 
previous policies adopted by the ABA House of Delegatesi 1) The 
Rule of Law ceaolutlon (2/75); 2) favoring econonic sanctiona 
against Rhodesia [8/72] j 3) support for the International 
Covenant on Civil and Political Rights (2/79)i support for the 
International Convention on the EliDinatlon of All foras of 
Racial Discrininatlon (6/78]; and 5) support for the Interna- 
tional Covenant on Econonic, Social and Cultural Rights (2/79). 

3/ In August 1963 ths U.S.i because of its concern over the 
dangers of apartheid to International peace and security, 
supported the Security Council's non-mandatory ama aabargo 
against South Africa. The U.S. Ambasaador to the United Nations 
conuented "It ia only calling things by their right name to 
aay that we are confronted for the nonent with a deadlock 
between the overwhelming majority of nankind and the Republic 
of South Africa. There has been no forward motion; indeed. 
there has been retrograasion — calculated retrogreaalon. Press 
Releaee Ho. 4332, July 31, 1963. 

Again, in the Deoember 1963 Security Council action 
strengthening the non-mandatory arms embargo. Ambassador 
Stevenson remarked, "We all have an obligation under the 
Charter ... to act individually to use our own Influence to 
bring about a change in South Africa. Preas Release Ho. 432S, 
December 4, 1963. 

On February 1970 President Hixon set forth the U.S. 
position on southern Afxicai "Claarly there la no question of 
the U.S. condoning or ac^uleaclng in, the racial policies of 
the white-riil«d regimes. For moral as well as historical 
reasons, the U S stands flrnly for the principles of racial 
equality and ae If -de termination. See, Hearings, Gubc. on 
Africa, Comm. on For. Aff., House of Rep 93rd Cong., lat 
Seaa, 1973, p. 159. The Assistant Secretary of Etata, David 
Newsome, affirmed that "we have reiterated our abhorrence of 
apartheid and have reaffirmed our Intention to Maintain our 
arms embargo to South Africa. Id. 

In November 1977, U.S. Ambassador Young In joining in the 
unanimous vote of the Sacurity Council in favor of E.C. Res. 



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The inportanco e>£ support for tha cotmitnant to th« 
staiidarJ of equal rights ancj digiiit/ for all wl fiiout 
dJBtlnc^lon on thg baaia of race or color naads no 
elaboration. Ilenbcrs of tho legal pcofeaalon hava a apacial 
obligation to apeal: out ogainat a conatitutlonally and legally 
nandateJ policy o£ cacial discrlaination and of other flagrant 
Violations of huraan righta and fundaaental freedoaa 4/ 
South Africa is unique in that it ifl tho only country in the 
world with racial dtscrininatioa enshrinaJ into ita 

3/(cont.")/ 418, ii' U.Il.SCOH (2046th litg.) at 5, U.H.DOC 
&P.V.2046 11377], stated, 'In the intaraat of encouraging South 
Africa's leaders to enbark on a new couraei Preaidont Carter 
has now authorized oe to state that the United States is 
praparod to join with other BaHbora of this Council in iaposing 
a nandatory aros enbargo (under Chapter VII of the Charter) on 
Soutli Africa " 

Ij-i ilarch of 197S Patricia 11. Darlan, Assistant Secretary 
of Ststa far Hunan Rights and Uuaanitarian Affairs, in a speech 
before the Lawyucs' Connitteo for Civil Itights Undor Law and 
Division V of the D.C. Bar Association, stated that as regards 
South Africa "it is the positlou of tho United States that tho 
provisions of Articles 1, S5, and 56 of tha United Dations 
Chartor anboJy nutual recognition by all parties that every 
person without distinction ia entitled under the charter to 
rospact for his or her hunan righta and fundaaental froodooa.* 
n. 3 cont. 

4/ Indeed, Anericau laifyera have been actively involved 
atjainst apartheid. In 19S8 tha Aasociation of the Bar of the 
City of ae:t York, in connection with the trial of the 37 
iJaoibians in South Africa - a trial which was the first 
application of tho Terrorisn Act - "rasolvad to record 'its 
deep concern and Ita protest over the actions of the Republic 
of South Africa, In applying its own Isk/ and judicial process 
axtra-territorially, to South West Africans and by prosecuting 
37 of then under the Terrorisn Act of 1967-. This Act offetids 
basic concopta of justice, due process and the rule of law 
accepted by civilized nations and violataa the Declaration of 
Iluoan Sights." (Cited in Joel Carlson. Mo Heutral Ground 208. 
1973). 

Uote should also be aado of the work of tha Lawyers' 
CooDittee for Civil Rights Under Law. The Cocuiittee has 
enjoyed the support of eoinent xisisbers of tho lagal profession. 
Including past preaidenta of tha Anerlcan Bar Aasociation, 
fornor Attorneys General and law school deans. In 1967 tha 
Lawyers' Connittee established the Sout>iern Africa Project 
ifhich seeks (1) to enauro that defendants in political trials 
in South Africa and Manibia receive the naCaasary raaourcea for 
their defenso and a conpetent attorney of their choice <2 to 
initiate or intervene in legal proceedings in this country to 
deter actions that are supportive of South Africa's policy of 
apartheid, when such actiona aay be found to violate U.S. lawt 
and(3) to serve as a resource for those concerned with tha 



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Constitution. 5/ Ita cntira govarnnantalt political, econonict 
•oclal and l«gal stiuctura ia pradicatad on dlatlnctiona baaad 
on race and color. G/ 

Thla aituatlon of abnegation of the Rulo of I>au in South 
Africa calls for the reiteration of tha dadication of the 
Aaerican Bar Association co the Rule of Law and specifically 

for the declaration U/ the Aaaociation of its Opposition to the 
governnentall/ established and enforced policy of the South 
African Governoont of apartheid for the condonnation by the 
Aasociatioii of the nost egregious violations of tha Rule of 
Lawi for the authorizing of the President of the Association to 
take further actiona, as appropriate, in inplenentation of this 
policy, and finally for the encouragement of aanbars of the 
Association to act in support of this policy. 

Tha inparativa for lauyers and for the' Association to speak 
out on this isaue aay be illustrated by the proainance uhich 
the situation of escalating violence in South Africa has 
attained 7/ On Deceober 10, 1984, President Reagan in a speech 

4/(cont.)/ erosion of the rule of law In South Africa and that 
governnent's denial o£ basic hunan rights. 

The International CooDission of Jurists coapllad a report 
Sooth Africa and tha Rule of Law," Geneva, 1960 {hereinafter 
cited as ICJ Report) "in the hope that world legal opinion will 
thereby be inforned of the profoundly diatraasing conditiona of 
Ufa in the Union of South Africa and the perilous state of the 
rule of law in terns of both classic freadoDS and social 
justice. - 

5/ See Oep't of State Country Reports on Iluaan Rights 
PractTcaa for 1983, p. 322. [hereinafter citad as Human Itights 

S/ See connents in the House foreign Affairs Subconnittee on 
Africa Report of Special Study Missions to Africa, The ?aces of 
Africai Diversity and Progress; Repression and Struggle" (1971) , 
p. 141. The Special Study llisalon noted that "With the advent 
of the United Nations and the dedication of the Charter of the 
United Jationa to the principle of equal righto and 
aelf-dotaruination o£ peoples, a new era of international law 
dawned. This has been marked by progress in many countries 
toward the eradication of legal -distinctions based on race and 
color. South Africa is an ignominious exception While the 
rest of the uorld embarked on a course of rocognizing the 
equality and dignity of each man. South Africa has enshrined 
apartheid into its systea of law..." 

The Human Rights Report coimsnts that the "83.3 percent of 
South Africa's population which is not part of the white 
minority suffers from pervasive discrimination which severely 
linita political, econonic, and social lifs." Uunan Sights 
Oeport, supra note 5 at 324. 

7/ See the sobering Report of the South African Bishops 
Conference, "Report on Police Conduct During Township Protests 
{August-1964)". 



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atlng International Uunui Sight* Da/ apolc* out on tho 

Issue of aparthold by noting that tho Unitad Statas vioua 
'xacien \iit1i topugnance" and urging: that south ACiica "nova 
toviarJ a note juat aociaty." Tiva Prosidont aaid that tho 
adalnlatration uanted 'the govornoont of South Africa to raach 
out to ics black najoritj- by ending the forced ronoval of 
blacks fcoa thair cooaunitiaa and the detontlon, without trial, 
and lengthy inpriaonnent of black laadera." 8/ 

The cacantly reportad poaition of Sanator Lugaci th« 
incooing chairoan of the Sanato Foreign Relationa Coaaltta*. In 
calling for tho release of 16 black political priBOnsrs in 
South Africa ia of aignal inportance in Indicating that now la 
tha tiae for peraona and aasaclatlona dedicated to the Rule of 
Lau to speak out. 9/ Rafcrence should also be made to tha 
Deconbar 4, 1984 letter of 35 consecvative Republican 
congEoaa^o:i to the Aobaasador of South Africa to tho Uulti d 
States. Tne letter road in partlnant parti 

">4o are, for tha Bost parti politically consorvatlvo 
and as conaecvativaa Eocognisa all too wall tha 
inportance and strategic value of South Africa, ufa 
understand tha nead for atability both within the 
internal affairs of /our country and your astarnal 
relationship witli the United States But precisaly 
because i/e do feel atrongly about our sutual intoceBtB. 
no cannot condone policies of apartheid uTilch wa ballava 
iieakeii your long-tern Interests and certainly our ability 
to deal witli you in a constructive nanner 

Wa are looking for an Inaediate end to the vlolanca 
in South Africa accoapaniad by a denonstrated aana* of 
urgency about ending apartheid. '10/ 



'If conservatives look to freeiloB «a tha doainant 
guiding pcincipl* in doaeatic policiee, should wa 
not look for tha satie in the international area? 
Therein liaa tha great challenge inherent in tha 
question of South Africa. . . • The aoral 
inplicationa of supporting an avowadl/ raolat 



8/ Supra note 1, at 2. 

9/ ~B.V.' Tines. Oecenber 9, 19S4, at 30. ool. a. 
10/ The letter was signed by the follouing congresspersonst 
Tin Weber, Dan Coats, Bill Ooodllng, John Uiler, Richard Araay. 
Bob Walker, Robert Dornan. Benjanin Giloan, George Gekas, 
Barbara Vucanovich, .Robert Lagonaxsino, Connie Hack, Hewt 
Gingrich, Too Bliley, Bill Dannemeyar, Bob Livingston. Duncan 
Hunter, Jin Courter, Bill llcColluia, Hike Decline, ilancy Johnson. 
Frank Wolf, Ilicke/ i:dwarda, Lynn llartin. Ton Lewis, Bobbi 
Fiedler. Steve Gunderaon, Chalners M/lie. Hark Siljander, Ed 
Zachau, Too Aldge, Bill Thooas. Bill Clingcr. lod Chandler, and 
John Rowland. 

- 5 - 



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govarnaenk w«r« -EatlenAlissd away. If not blatantly 
Ignorail. But if consarvatlvas ar» to lead the fr«a 
krarld into the 21at centacy, w> niiat do ao on tho 
baala of a policy that haa a ficn and conslatent 
. DOral foundation. Me-aust atand fiealy for fraedoo 
and deiiocEacy, and that does not porsit ua to blind 
our eyea to a govetrnoent that denies both to the 
vaat najorlty of ita citlaena aiaply because of tlia 
color of their akin.* 11/ 

II. DiaguBBion 

Conaonant with ita undertaking in the 1975 Rule of Law 
' Baaolution 12 / affirning 1-ta support of the Rule of Law in tha 
intornational connuuity the Aneeican Bar Association ahould 
adopt the proposed reconnendation. This reconaendation la sado 
pursuant to the roa£ficaatiOn in 1983 of the conoitaont of the 
Asaociation in Goal VIII 1^/ to advance the rule of lau 
in the iiorld and to pronoto peace and huaan rights throuijli law. 

The recoanendation -ia consistent with the positions of 
the Anorican Bar Associ-ation in aupport of the ratification by 
the United States of the significant huaan righta conventions: 
the International Covenant on Civil and Political Rights, 14/ 
the International Covenant on Econoalc, Social and Cultural 
Rights, 1^5/ and tho International Convention on tho Elinlnation 
of All- Poms of .Racial Diacr inination. 16/ 

The raconaeudation is also in line iwith the 1972 ABA 
eeaolutlon urging the Congraaa to repeal the Syrd Artendnent 
'.ihich perni-ttod the United ^tatea to iaport Hhodesian ehrono 
notwithstanding the Chapter VII Security Council decision to 



^^7 VJas'.iington Post, Decenber 11, 1904, at A19, col. 2-3. 

12/ See Anecican Bar Aasociatlon, Report on the History and 

laplono.itation of the Rule of Lau Resolution 

13 / See Aaerican Bar Association, International Law and 

Relations (Advancing the Rule of . Law Aoong nations: The 

Association's Goal VIII). 

14/ In February 1979 the ABA (in' Report to tho llouae of 

Selegates, Section of International Law) adopted a position in 

support of the International Covenant on Civil, and Political 

Rights, Annex to Q.A. Res. 2200, 21 GAOR, Supp. 16, U.U. Doc. 

A/e316, at 52 (1966). 

15/ In Fobruary 1979 tha ABA (in Report. to the House of 

Celegatea, Section of International Lau] adopted a position in 

support of the International Covenant on Ccononic, Social and 

Cultural Righta, Annex to Q.A. Rea. 2200, 21 QAOR, Supp. 16, 

U.d. Doc. A/6316, at 49 1966). 

16/ In August 1978 the ABA in Report to the House of 

Delegates, Section of International Law) adopted a poeition in 

support of the International Convention on tha Xliaination o£ 

All Focus of Racial Discrinination, C.A. Ras. 2106, 20 OAOR, 

Supp. 14, U.H. Doc. A/6014, at 47 (1966). 



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icipoBS aandatocy «coiiotiic aanctiona against lOiodaaia. 17/ ^« 
pieanbulatory paragraphs of this rasolution noted the treaty 
obllgatiori to anforce Jaclalons of Gho Sscurlty Council 18/ and 
corononted inter alia , that tha Unitod Stataa conaldara the 
rule of law to be the only alternative to the rule of force and 
that the good faith fulfillnant of treaty obligations la 
central to the rule of law. 

This report is coneenant with the 'Seporta oo the Trip 
to South Africa and Zlnbabwe" written by sone partlclpanta of 
the trip iiliicn was eponadred by the International Legal 
Exchange Progran of the Section of International Law and 
Practice {19B2). 19/ 

T77 In August 1972 the ABK (loportation froa Rhodaaia, 
Standing CotiaittOG on Morld iJrdar undor Law) adopted a 
recoanonJatio.i favoring oconoalc sanctiona agalnat IQiodeaia. 
This folloireJ the adoption by Congreas in 1971 of the Byrd 
AnendBont to the Strategic and Critical Materials StocXPiliiig 
Act. 50 U.e.C. Sec. 98-98h uhich provided that the President 
could not prohibit the Inportatlon of any oaterial that uaa 
nllltarily strategic and critical and that originated in a 
non-Comiunist country ao long as its inportatlon was not banned 
frOQ connunist countries. This Act conflicted with the Chapter 
VII ueasure passed by the Security Council of the United 
Satlons that pro^ilblted all trade with Bhodeala. 
IB/ It reads in portinont parti 'MU&IIEAS, Artlcla 25 of the 

Charter of tho United Nation* provides that 'The Benbors of the 
Unitod nations agree to accept and carr/ out the decisions of 
the Security Council in accordance with the present Charter'.*, 
loportation froo Rhodesia, supra note 17. 
19/ See eapecially Ssc. VI, Findings of ths TUp 

Participants iji Reports on ths Trip to South Africa and 
tfinbabuc. International Legal Exchange Progran of the Section 
of In tor national Law and Practice October 39 to UoveDber 6, 
1982, [hereinafter cited as ILCi Trip Report], at 51-SS. Kote 
also the obaorvatlon that "South Africa la a terribly divided, 
racially segregated country in lAiich the legal aystaa has been 
•nployod to further the political objectives of apartheid or 
racial dlscrlnination " The penultiaate paragraph of the 
findings conciudos that "to the extent that the laus of South 
Africa operate to deprive the great aajority of Ita citieens of 
their fundancntal hunan rights, it becones a Batter not aerely 
at donestlc concern within South Africar it juatifiably becoaas 
a concern of the International legal conaunity and of the 
organised bar In the United States and elaewhere That concern 
for hunan rights under law waa «xpresaed aa recently as August 
1983 When the Uouso of Delegates of the ABA adopted Association 
Goal Ho. VIII — to advance the Rule of Law in the World. The 
first sunoary objective in iaplenenting that goal was stated to 
bat 'ProBota the developnent of International law and practice 
by foataring research, education and legal- Initiatives for 
peace and hunan rights through law . '" 



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A. Aparthaid 

ApartiiaiJ is the polio/ wltlch th» 16 pttrcont white 
ainozity inposas on the 73 percent African najority to tiaintain 
whito Buprenacy. 20/ Aparthaid haa been found by the 
International Couct of Juatica to be a governasntall/ 
eatablishod and enfarceO syatsn of pxaf arancea, diatinctiona, 
oxcluslona, linitations and restcictiona baaed exclualvaly on 
race, color, national and ethnic origin. 21/ It ia a 
fundaoantal prenlae that the Rule of I>au requires a 
governDcntal syst«n that treata all peraona aa equal before the 
law. 22/ Apartheid ia dianetrically oppoaed to thia porenptory 
nora o7 non-diacrinination. 22A/ 

20/ Hunan Rights Roporti aupra nota 5 at 322. 

TT/ 5ae paragraph 131 at the International Court of Juatice'a 

Ailviaory Opinion of 21 Juno 1971 on the Legal Consequences for 

States of the Continued Presence o£ South Africa in Uaaibia 

(South West Africa) Notwithstanding Security Council Resolution 

276 (1970), [hereinafter cited as ICJ Advisory (pinion on 

Uanibia3- 

22/ Sea I the Univoraal Declaration of Iluoan Itlglita, G.A. 
Res. 2T77 3 OAOIt, U.U. Doc. 1/777 (1948), which reads in 
part, 'Art. 7. All are equal before the lau and are entitled 
without any discr inination to equal protection of the law..."; 
Charter of the United Nations, Art. 55 and 56, 59 Stat. 1031, 
T.S. 993, 3 Bevans 1153 (1945), which reads in part,'... the 
United nations aiiall pronotei... universal respect for, and 
observance of, hunan rights and fundanental fraedoDS for all 
without distinction as to race, aex, language or religion."; 
South Weat Africa Casea [Second Phase}, [1966] I.C.J. 4,284 
(Tanalta, J., diaaenting) in which Judge Tanaka concludes, 
drawing upon every source of international law authorized in 
the Statute of the International Court of Juatice, that "the 
norn of non-diacrinination or non -separation on the basis of 
race has becono a rule of custonary international law.... The 
principle of equality before the law .is stipulated in the 
list of hunan rights recogniced by the aunicipal systen of 
virtually every State no aatter whether the fora of governnent 
be republican oi nonarchical and in spite of any differences in 
the degree of precision of the relevant provisions. This 
principle haa becona an integral part of the constitutions of 
noat of the civilieed countries in the world." 

22A/ The philosophy of apartheid was e:tplainod in the 1953 
Sa^rt on the U.U.- Coonission "The Racial Situation in South 
Africa," ECOSCX: Oocunent E/CS. 4.9*9, Uoveaber 22, 1967, which 
stated that, "It. is the aisaion of the white race living in 
South Africa to protect that civilisation, 'against attacka 
froD outside and subversion froB within.' In other worda, 
though repreaenting a nunerical Binozity, it auat at any coat 



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Tills reconnttndation Is proposttd alndful of th« eoBBltaant of 
tita Auarican Bar Assoclstion to sncourags rsspsct for wiiI 
obsorvance and pronottou of human rights and dignity of all nan 
ifitiiout distinction on tho basis of racs. color or athnic 
origin. 

Also apposite hare ara th« words of tha Univarsal 
Declaration of ilunan Rights that 'roCO^nltlon of tha inhsrant 
dignity and of tha «qual and inalienable rights of all Baabars 
of the hunan faall/ is the foundation of fraadoa. justice and 
peace in the world' and that, 'whereas it is asssntial, if nan 
is not to be coopellad to have recoursst as • last rasort> to 
rabellion against t/ranny and opprsssion> that hUBan rights 
should be protected by the rule of law.* 33/ 

2'2A(coiit. ) / safeguard its position of dootnation over the 
colourcJ races.. .71)0 best Borvice, thareforsi that the whites 
can render to the nonwhitaa is to separata than fcon the wliita 
population, to consider theo as distinct social and acononic 
groups, and to see that as far as possible, they live in 
territories, zones, or 'locations' assigned to then as thalr 
own." Jn surveying the official toxts of th« South African 
governnent to ascertain what the policy of apartheid is, Judga 
Announ i.i his separate opinion of tho ICJ Advisory Opinion, 
aupra note 20, at 82 cited stateoents of various South African 
prioe ninisters. ilote eapocially his reference to D-r 
Verwoerd's statonsnt to Parliaoent in 1958 in which he raeallod 
the positions of two other prine ainistarsi 'Or. Halan said 
it, and ilr. Strijdoo said it, and I have said it rap«atedly and 
I want to say it againi Tne policy of apartheid novas 
consistently in the direction of nore and core sapacata 
developoent with the ideal of total separation in all spheres. " 

As its various aanifestations denonstrata, tho apartheid 
syston represents a deliberate, conprehensivo systenatic 
deprivation of tho fundaoental freedons inherent in the nora 
against racial discrinlnation by ita dlstlnotions, exclusions. 
restrictions and preferences. Tho International Convention e>a 
the Elioination of All Pocos of Racial Discrinlnation, supra 
note 16, at Art. 1 (1), defines racial discriuinatlon as 
"...any distinction, exclusion, rsatrlction or preference based 
on race, colour, doscent, or national or ethnic origin i^iich 
has the purpose or effect of nullifying or iapairing the 
recognition, enjoynent or axsrcise, on an equal footing of 
hunan rights and fundanantal freodons in the political, 
eoononic, social, cultural or any othar field of public llfa." 

23 / Universal Declaration of Uuaan Bights, supra note 21. 



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lloreovvc, tUa International conaunity haa conalstantly 
condcnnoi] apartli«lil aa a "criaB agalnat husanity' . 24 / Indood, 
tho International Convantion on tha-Suppr«aaion anU Puniahnsnt 
of ciic Crine oi Aparthaid haa b«an ratlflad by 67 atatea, 
although it ^laa not baan algnsd or ratlfiad by tha UnitaO 
States . 24A/ 

By adopting thla raconnanJatlont the Aoarican Bar 
Aaaociatlon would add Its preatlgloua voice to thoaa of other 
respected inatitutionai such as tha International Conaisaion of 
Jurists. 25/ in daclaring tha repugnancy of apartheid to tha 
Rule of Law. 



|77 G.A. R«e. i6?4 l'A)t). Saa alao G.A. Res. 2202 (XXI) of 
. SaceObar 16, 19GG. 

TliQ Special Rapporteur for the Uuiaan Rights Connission in 
his raport, "Study a£ Apartheid anJ Racial Discriiaination in 
Soutliern Africa" (E/CII. 4/949, Hov. 22. 1967 found the laws of 
South Africa violative o£ the follouing fundanental frcoUooa 
and huoan rights The rule of non-discrlBinationi the right to 
take part in Governnent, freedoQ of peaceable asaenbly anJ 
aaaoclationi frcodoo of opinion and exprcsaion, the right to a 
nationality, the right to aoel; and enjoy another country's 
aaylua froii persecution, fceedoii of religion, the right to 
marry anJ to protection of fanily life, tha right to property, 
freedoa of novenant and roaidsnce, tho right to leave one's 
country and return, tha right to privacy, tha xight to personal 
freedon and security, freedoa fron slavery and servitude, 
freedoa from inliuaana and degrading traatnant aiid punlshnent, 
tha right to a fair trial, tha right to an adequate standard of 
living, tha right to r«st and leisure, the right to social 
aecurity, the right to education, tha right to participation in 
cultural life, access to public facilities and acconaodatlona, 
and tha right to a just social order. 

a 4 A/ Opened for signature Hovenber 30, 1973, entered Into 
Torce July 18, 1976 (See S.A. Rea. 306a (XXVIIl) Ann. UUOA Off. 
Rao. 2ech Seas., Vol. 1, Supp. Ho. 30 (a/i930) (1973), p. 75i 
13 Int 1 Legal tlateriala 51 (1974). Article III provides that 
international crininal responsibility is to aj^ly to 
individuals, uedbars of organizations and officials uho cooait 
tha crine of apartheid as defined in Article ii of the 
Convention. For the United States position tbat this extension 
of international crininal jurisdiction requires, inter al ia, 
nore aoticulous olaboration, see the stataaant of Aab. Ferguson 
before the Qenaral Asseably Uovenber 30, 1973, 1973 Digest of 
U.S. Practice in Intl. Law 130-132; U.iJ.DOC A/PV.2ie5, Uov. 30, 
1973, pp. 12-18. 
25/ ICJ Report, sugra note 4. 



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*(x)a9«r(llasB o£ lAictliar at not th« a«w Constitution 
rspresantB rcforu of apartheid or only Ita 
ratlonalieatlon and oodBrnltation. the practlca of 
apacthslil xanalna tha basis for the organization of South 
African society. Apartheid Institutionalizes political 
and oconoaic; control b/ the White alnorlt/. 
Discrlninatory laua and practices are woven throughout 
the fabric oZ South African society." 26/ 

^le fundaaental thesis of apartheidi racial 
discriaination, is not only antithetical to basic notions of 
lau and justice but Is perilous to International peace and 
security. Tne Unitad ilatlons Charter predicates inteiiiationel 
peace and oecurit/ and conditicns of stability Jnt-ar alia on 
"universal respect fori and observance ofi huoan iTghta and 
fundanental froedons for all without distinction as to race, 
color, sex or religion." 27/ 

The right against racial discriaination has been 
characterized by the International Court of Justice as one of 
the 'basic rights of the liuaaii person", and therefore of such 
laportance that "all states oan be held to have an Interest In 
their protection; they are obligations erga OMnae .* 28/ 

The gravity of the situation in Soutli Africa to 
international peace and security is indicated by the iaposltion 
by the Security Couucili with the support of the United States. 
of nandatory sanctions in 1977. 29/ In that resolution 42, the 
Security Council, Inter alla i 

call(ed) upon the Oovernnent of South Africa to abandon 
the policies of apartheid and discriaination,.... and to 
liberate all persons laprlsoned, interned ex subjected to 
otlier restrictions for having opposed the policy of 

aparthald. 30/ 

1. Tae Pass Laws 

7no South African constitution codifies apartheid 31/ and 

25; lluoan Sights Seport, supra note 5, at 323. 

TT/ Charter of the United Nations, supra note 21, at Art.l 

TT). 

28/ Tlie Barcelona Traction, Light, and Power Coopany (Balgiun 

V. Spain), paragraph 33, I.C.J. 3, 31 (1970). 

23/ S.C. Res. 416, 32 U.H. 8COR (2046th Btg.) at 5, U.H. Doc. 

Wp.V. 2046 (1977). 

30/ S.C. Res. 181, IB U.:i. SCOR (1056th Btg.) at 7, U.H. Doc. 

675366 (1963). 

31 / 'South Africa Is a aultlracial country wboae present 

constitution codifies the s/sten of apartheid under Which the 

white ninority holds a aonopoly of power in the country's 

national political institutions.", UUBan Sights Report, su pra 

note 5, at 322. 



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unJer thia policy Africana are pMrcBivoJ aolcly as units of labor 
and tiieir peesoi^ce Ln tlio urban aroas ii peraittsJ onlyto tha 
lovcla to iiMch labor is naaileil and' is ragulatad by tlie influx 
control and pass laiifs as wall aa by tha Oroup Areas Act. 32/ 

737 "Blacks' 
"Tnflux contro 

of blacks entitled to atay in a given urba:i area for Bore than 72 
hours at a tine. Periodically the police conduct raids or suoops 
o£ the restricted areas during which all paasea are chcclcod. All 
parsons illegally reaidont are arrested and/or transported to 
their aaaociated honeland.' Huaan Rights Report, supra note 5. at 
329." 

idote here should be Bade of tha infaooua section 10 of the 
Black (Urban Arcaa Consolidation Act, Act So, 25 of 1945. 

"Section 10 of Sout'.i Africa a Urban Aroas Act linita tiia nuni:ior of 
Blacks uho can live pemaoently in tho citlea. It atatos that 
Blacks not born in a uhito' ar-aa nay qualify for paruancnt living 
rights only if the/ have worked Continuously for one aoployar for 
ten yoara or for 15 years Uitli sdVeral enployera. A 1968 law 
rcBtrlctcd the eserclse of thia rig'nt by requiring nigrant 
laborers to return to the honelanJs for a least oiia aonth per year 
to renew thair iJor)t contracts Regulations interpreted this 
obligatory return as disrupting continuous residence aiid 
anployaent within tha 'white' area." South Africa 1983: 
Keorganising Apartheid, Southern Africa Project o£ the Lauyers' 
Connittee for Civil Rights Under Law, 1983 Annual Report. 

In Llay 1983, in a landaark case, the appeals court uphold a 
Supraoe Court decision in the Bikhoto case that nigranta who nave 
worked 10 years or aoce for the saoe onployer or 15 years Cor 
different enplo/srs are entitled to peroanent city residency. In 
June the Govornnent agreed to Inpleiicnt the decision, but 
parliament aceiidcd the Urban Consolidation Act with the effect of 
tying tho i.iflu^t of fanllles of resident workers to the 
availability of housing. In practice, this lioita the iapact of 
the decision.", Hunan Rights Report, supra note 5, at 329. 

The Ad lloc Conoittee on Forced Labour of the International 
Labour Or^anieatlon has nade the following finding with respect to 
the qviostio!! of forced labor in South Afrlcai That there exists 
in South Africa 'a legislative eysteo applied only to the 
Indigenous population and designed to maintain an insuperable 
barrier betwsan these people and the inhabitants of European 
origin," that "the indirect effect of this legislation is to 
channel the bulk of the indigenous inhabitants into agricultural 
and naiiual \jorX and thus to create a peraanant, abundant and cheap 
labour force" and that in this sense "a systso of forced labour of 
significance to the national aconony appears to exist in the Union 
of South Africa". ("Declaration Concerning the Policy of 
'Apartheid' of the Republic of South Africa", July 8, 1964, Oanava 
ILO.)