B-229212, Jan 12, 1988

B-229212: Jan 12, 1988

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The Japanese Friendship Commerce and Navigation Treaty are valid and unaffected by the Supreme Court's decision in Sumitomo Shoji v. Kanter is seeking to change the Department's visa policy to put pressure on the Japanese government to allow more American attorneys to practice in Japan. A U.S. consular officer may issue a nonimmigrant visa to foreign nationals who are entitled to enter the United States under. The E visa will be issued to a nonimmigrant solely . To carry on substantial trade that is principally between the United States and the foreign state of which he/she is a national (treaty trader). To develop and direct the operations of an enterprise in which he/she has invested or is actively in the process of investing a substantial amount of capital (treaty investor).

B-229212, Jan 12, 1988

MISCELLANEOUS TOPICS - Commerce - Corporate Entities - Citizenship - Determination DIGEST: The State Department's regulations for determining the nationality of a corporation under the Immigration and Nationality Act, 8 U.S.C. Sec. 1101 et. seq. (1982), and the Japanese Friendship Commerce and Navigation Treaty are valid and unaffected by the Supreme Court's decision in Sumitomo Shoji v. Avagliano, 457 U.S. 176 (1982).

Effect of Sumitomo Shoji America Case on Issuance of E Visas to Japanese Nationals (B-229212, Code 462554):

This memorandum responds to a question raised during your review of the alleged misuse of visas by foreign nationals to gain employment in foreign -owned firms in the United States. You requested our views whether in light of the Supreme Court's decision in Sumitomo Shoji America v. Avagliano, 457 U.S. 176 (1982), treaty trader visas can still be issued to Japanese owned U.S. companies.

A high level official in the commercial section of the U.S. Embassy in Japan first brought this matter to GAO's attention. /l/ He had obtained copies of materials written by Richard S. Kanter, an American lawyer seeking to open a law office in Japan. Mr. Kanter argues that as a result of Sumitomo, E visas should no longer be issued to Japanese employees unless they work for Japanese companies in the United States.

We understand Mr. Kanter is seeking to change the Department's visa policy to put pressure on the Japanese government to allow more American attorneys to practice in Japan.

I. BACKGROUND

A. Immigration and Nationality Act

The Immigration and Nationality Act (INA) provides that subject to limitations contained in the INA or regulations issued thereunder, a U.S. consular officer may issue a nonimmigrant visa to foreign nationals who are entitled to enter the United States under, and in pursuance of the provisions, of a treaty of commerce and navigation between the United States and a foreign state (E visa). 8 U.S.C. Secs. 1201(a) and llOl(a)(l5)(E).

The E visa will be issued to a nonimmigrant solely

-- to carry on substantial trade that is principally between the United States and the foreign state of which he/she is a national (treaty trader), or

-- to develop and direct the operations of an enterprise in which he/she has invested or is actively in the process of investing a substantial amount of capital (treaty investor).

Under State Department regulations, an alien is classified as a nonimmigrant treaty trader if he is employed as an executive or supervisor or as a person possessing essential skills by (1) an individual who if a treaty trader or (2) an organization having the nationality of the treaty country which is engaged in substantial trade. A U.S. organization at least 50 percent owned by persons having the nationality of the treaty country is considered to be a foreign corporation. 22 C.F.R. Sec. 41.40 (a) (1987).

B. U.S. Treaty

A Treaty of Friendship, Commerce, and Navigation (FCN) between the United States and Japan was signed in Tokyo on April 2, 1953. Article I of the FCN reads, in pertinent part, as follows:

"Nationals of either party shall be permitted to enter the territories of the other party and to remain therein: (a) for the purpose of carrying on trade between the territories of the two parties and engaging in related commercial activities (b) for the purpose of developing and directing the operations of an enterprise in which they are actively in the process of investing a substantial amount of capital. ..."

C. Sumitomo Case

In the Sumitomo case, former and present female secretarial employees of Sumitomo Shoji America, Inc., a New York corporation and a wholly owned subsidiary of a Japanese trading company, brought a class action suit against the company alleging that its practice of hiring only male Japanese citizens to fill executive, managerial, and sales positions violated Title VII of the Civil Rights Act of 1964.

Sumitomo moved to dismiss the suit arguing that its practices were protected under Articles VIII(l) of the FCN which exempted Sumitomo from compliance with Title VII laws. /2/ Article VIII(l) provides in relevant part:

"Nationals and companies of either Party shall be permitted to engage, within the territories of the other Party, accountants and other technical experts, executive personnel, attorneys, agents and other specialists of their choice. ..." /3/

Although Article VIII does not define "company," Article XXII(3) of the FCN specifies:

"As used in the present Treaty, the term "companies means corporations, partnerships, companies and other associations, whether or not with limited liability and whether or not for pecuniary profit. Companies constituted under the applicable laws and regulations within the territories of either party shall be deemed companies thereof and shall have their juridical status recognized within the territories of the other Party."

The Supreme Court, in a unanimous decision, decided in June 1982 that Sumitomo was a U.S. corporation, and therefore, not a Japanese company under the FCN. Accordingly, the company was not exempt from Title VII of the Civil Rights Act of 1964. In reaching this decision, the Supreme Court concluded that Sumitomo:

"As a company of the United States operating in the United States, under the literal language of Article XXII(3) of the Treaty, Sumitomo cannot invoke the rights provided in Article VIII(l), which are available only to companies of Japan operating in the United States and to companies of the United States operating in Japan." 457 U.S. 182 183.

In addition, the Supreme Court noted that:

"Both the Ministry of Foreign Affairs of Japan ana the United States Department of State agree that a United Stated corporation, even when wholly owned by a Japanese company, is not a company of Japan under the treaty and is therefore not covered by Article VIII(l) " /4/ 457 U.S. 183.

II. Mr. Kanter and State Department Views

A. Mr. Kanter's Position

Mr. Kanter's position appears to be that as a result of the Sumitomo decision, there is no statutory basis for granting E visas to employees of Japanese subsidiaries incorporated under United States law. The essence of his argument is that an employee of a corporation is neither a treaty trader nor a treaty investor, but only an employee, since not the employee, but the corporation is the party carrying on the trade or making the investment. Consequently, the argument goes, an employee is not entitled to a visa under Article I(l) of the FCN unless the employee qualifies under Article VIII(l) as an employee of a foreign incorporated company. /5/ Since the Supreme Court in Sumitomo decided that "company" under Article VIII(l) of the treaty does not include subsidiaries incorporated under the laws of the United States, Mr. Kanter concludes that employees of such corporations are excluded from Article VIII(l), and thus ineligible for treaty trader status. They will have to obtain other visas which may be harder to get or less permanent, e.g., L (intra-company transfer), H (temporary worker), or B (temporary business).

Mr. Kanter also argues that the State Department is without power to issue regulations determining the nationality of subsidiaries incorporated under United States law, since 8 U.S.C. Sec. 1104 (a)(3) only gives the Secretary of State authority to determine the nationality of a person not in the United States. /6/

B. State Department's Position

The State Department's position is that entitlement to E visas is provided exclusively through Article I(l) of the FCN. Article I(l) and Article VIII(l) are not in any way linked, although the persons entitled to an E visa may be some of the same kinds of persons hired by Japanese nationals or companies pursuant to Article VIII(l), e.g., company executives.

The State Department has authority under 8 U.S.C. Sec. 1104 to issue regulations establishing reasonable and necessary interpretations of the criteria for the issuance of E visas under the INA. Pursuant to this authority, the State Department promulgated 22 C.F.R. Sec. 41.40(a) which establishes an organization ownership standard for the purpose of determining the entitlement of individuals to an E visa. This standard applies to all FCN treaties and is used for all business entities incorporated in the United States or abroad in order to obtain uniform application of the visa laws to all E visa applicants.

The standard was in use long before the FCN and the parties who negotiated it were aware of this test. The Sumitomo case is a narrow decision focusing exclusively upon the definition of company under Article VIII(l). The definition of "national" for visa purposes under the INA or for the purpose of Article I(l) of the FCN was not addressed at all in the Court's opinion. /7/

Legal Discussion

In our view, the Supreme Court's decision in the Sumitomo case does not bar the State Department from considering Japanese employees of U.S. corporations owned by Japanese nationals as eligible for treaty trader visas pursuant to the organization ownership test set out in 22 C.F.R. Sec. 41.40(a). Thus, we agree with the State Department's position and disagree with Mr. Kanter's views. In reaching this conclusion, we have accorded considerable weight to the views of the State Department as the agency responsible for negotiating and interpreting the FCN's provisions and the provisions of the INA which provide for treaty trader visas. The reasons which support our conclusion are as follows:

1. The Sumitomo case only concerned the interpretation of Article VIII(l) of the FCN and did not discuss the treaty trader provisions of Article I(l). The Supreme Court concluded that U.S. corporations owned by Japanese nationals are not companies under Article VIII(l) of the FCN.

2. Article VIII(l) and Article I(l) have different purposes and are unrelated. Article VIII(l) and similar provisions were included in FCN treaties after World War II to avoid the effect of strict percentage limitations on the employment of Americans abroad and to prevent the establishment of nationalistic policies with respect to the hiring of essential executive and technical personnel. It affords freedom of choice among persons present in the foreign country and qualified under local law. /8/

In contrast, Article I is similar to treaty trader provisions included in other FCN treaties prior to the signing of the Japanese treaty in 1953. The aim of such provisions is to entitle nationals of a foreign country to enter the United States for the purpose of carrying on trade between the U.S. and the foreign nation. Thus, the Immigration Act of 1924 allowed into the United States "any alien entitled to enter the United States solely to carry on trade under and in pursuance of the provisions of a present treaty of commerce and navigation." 43 Stat. 153, 155, 162. The INA, enacted a year before the FCN was signed, continued this visa entitlement for treaty traders and added an additional category for treaty investors, i.e., persons who are entitled under an FCN to enter the United States to manage their investments. H. Rep. No. 1365, February 14, 1952, as reported in 1952 U.S. Code and Administration News at p. 1697.

Also, neither the Sumitomo case nor the materials obtained from Mr. Kanter and the State Department provide any evidence that the parties negotiating the FCN intended to link Article I(l) and Article VIII(l) in the manner suggested by Mr. Kanter.

3. The State Department has authority to prescribe criteria for determining which Japanese alien entitled to treaty trader visas pursuant to the FCN. The FCN does not define "national" or "trade" or set out the kinds of positions which concern the carrying on of trade between the United and Japan under Article I. Thus, one needs to look to domestic legislation and implementing regulations to identify the specific circumstances for the issuance of visas and the aliens entitled to receive them.

The INA provides some of these specifics. Visas can be issued to an alien and his spouse or child solely "to carry on substantial trade, principally between the United States and the foreign state of which he is a national." 8 U.S.C. Sec. 11O1(a)(15)(E). In addition, under 8 U.S.C. Sec. 1104 the Secretary of State is responsible for administering and issuing regulations relating to the provisions of the INA which concern the powers, duties, and functions of U.S. diplomatic and consular officers. This provision authorizes the Secretary of State to establish "by regulation reasonable and necessary interpretations of the criteria in 8 U.S.C. Sec. 11O1(a)(15)(E). /9/ These criteria are set out in C.F.R. Sec. 41.40, paragraph (a) of which establishes an organization ownership standard, which is applied by consular officers for the purpose of determining the entitlement of individual aliens to enter the U.S. in furtherance of FCN provisions. The ownership test is applied to all business entities sponsoring applicants for E visas, including entities incorporated in the U.S. or abroad. The State Department considers it to provide for uniform application of the visa laws to all treaty trader applicants. Under Section 41.40 (a), Japanese nationals in certain positions will be classifiable as treaty traders if they are employed by organizations at least 50 percent owned by Japanese nationals. /lO/ Since long before the FCN was signed in 1953, the State Department has utilized an organization test for nationality in implementing the treaty trader provisions of U.S. immigration laws. The parties negotiating the FCN were aware of this test and have never questioned the State Department's utilization of the test, even in the face of the definition of "company" in Article XXII(3) of the FCN.

5. Mr. Kanter's position is a forced interpretation of the provisions of the FCN. By linking Article VIII and Article I, he establishes two categories of treaty trade visas for Japanese nationals under Article I(l): (1) Japanese nationals as individuals and (2) Japanese nationals, who are employees of Japanese companies or nationals, and who also must qualify under Article VIII(1). In our view, if the parties to the FCN had intended to have two categories of Article I treaty trader visas, it would have been reflected in Article I itself. We believe that the lack of reference to Article VIII(1) employees in Article I(1) strongly suggests that the Treaty parties had no such linkage in mind.

/1/ See Memorandum, dated May 1, 1987, from Robert M. Gilroy, Director Far East Office, to Joan M. McCabe, Associate Director, NSIAD/SIR. (Attachment I)

/2/ The U.S. District Court in New York denied Sumitomo's motion. The U.S. Court of Appeals for the Second Circuit reversed the District Court finding that the Article VIII was intended to cover local subsidiaries of foreign companies. However, the Court of Appeals held that Article VIII(l) of the Treaty did not protect Sumitomo from scrutiny under Title VII of the Civil Rights Act of 1964.

/3/ Article VIII(1) continues: "Moreover, such nationals and companies shall be permitted to engage accountants and other technical experts regardless of the extent to which they may have qualified for the practice of a profession within the territories of such other Party, for the particular purpose of making examinations, audits and technical investigations exclusively for, and rendering reports to, such nationals and companies in connection with the planning and operation of their enterprises, and enterprises in which they have a financial interest, within such territories.'

/4/ The Court declined to express an opinion whether Sumitomo may assert the Article VIII(1) rights of its parent, 457 U.S. 176, 190 (1981).

/5/ Mr. Kanter's position is set out in a letter, dated January 7, 1986, to Stephen K. Fischel, Chief, Legislation and Regulations Division, Visa Services, Department of State, opposing proposed amendments to 22 C.F.R. Secs. 41.40 and 41.41. In two other documents, he appears to make a different argument. He asserts that Article VIII(1), rather than Article I(1), is the provision of the FCN which authorizes treaty trader visas for Japanese employees of Japanese companies operating in the United States. These documents, which are also included in Attachment II, are: (1) "A Proposal for Sanctions Against Japan for Refusing to Allow American Lawyers to Open Offices in Japan" 1O(pp), and (2) an undated memorandum entitled, "Japanese Treaty Trader E-1 and Treaty Investor E-2 Visas."

/6/ See also letter to Stephen Fischel, dated January 7, 1986.

/7/ The State Department position is more fully set forth in a letter, dated June 29, 1987, from Joan M. Clark, Assistant Secretary of State for Consular Affairs to Joan McCabe, Associate Director, NSIAD. This letter was in response to questions contained in a GAO letter, dated June 29, 1987. Both letters are included in Attachment III.

/8/ Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 181 fn. 6.

/9/ Assistant Secretary Clark's June 29, 1987, letter at p. 1.

/10/ Prior to its amendment in 1986, this provision provided that the organization had to be principally owned by foreign nationals.