B-73072, FEBRUARY 25, 1948, 27 COMP. GEN. 474

B-73072: Feb 25, 1948

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THE COST OF FREIGHT FROM THE UNITED STATES OF A SHIPMENT PROCURED IN THIS COUNTRY IS TO BE INCLUDED AS A PART OF THE CONSTRUCTIVE DELIVERED COST FOR THE PURPOSE OF MAKING A COMPARISON WITH THE DELIVERED COST OF A PURCHASE ABROAD. WHETHER OR NOT FREIGHT CHARGES WOULD HAVE BEEN BORNE FROM APPROPRIATED FUNDS. ARE REQUIRED TO BE PROCURED. 1948: I HAVE YOUR LETTER OF JANUARY 21. STATING THAT CERTAIN PROBLEMS OF INTERPRETATION HAVE ARISEN WITH RESPECT TO SUBDIVISIONS (1). WHICH READ AS FOLLOWS: (1) THAT PROCUREMENT MAY BE FROM FOREIGN SOURCES WHENEVER THE COST DELIVERED TO THE RECIPIENT COUNTRY WILL BE LESS THAN THE COST DELIVERED FROM THE UNITED STATES. PROVIDED THAT THE PRESIDENT SHALL FIND THAT SUCH COMMODITIES ARE IN SHORT SUPPLY OR NOT READILY AVAILABLE IN THE UNITED STATES.

B-73072, FEBRUARY 25, 1948, 27 COMP. GEN. 474

FOREIGN AID - PERCENTAGE LIMITATION ON COMMODITIES PROCURED ABROAD AT EXCESS COST IN DETERMINING COMPLIANCE WITH THE LIMITATION IN SECTION 4 (2) OF THE FOREIGN AID ACT OF 1947 THAT NOT MORE THAN 10 PERCENT OF THE FUNDS MADE AVAILABLE FOR AID TO CERTAIN RECIPIENT COUNTRIES SHALL BE USED TO PROCURE VARIOUS COMMODITIES FROM ABROAD AT A "DELIVERED COST" HIGHER THAN FROM THE UNITED STATES, THE COST OF FREIGHT FROM THE UNITED STATES OF A SHIPMENT PROCURED IN THIS COUNTRY IS TO BE INCLUDED AS A PART OF THE CONSTRUCTIVE DELIVERED COST FOR THE PURPOSE OF MAKING A COMPARISON WITH THE DELIVERED COST OF A PURCHASE ABROAD, WHETHER OR NOT FREIGHT CHARGES WOULD HAVE BEEN BORNE FROM APPROPRIATED FUNDS. THE LIMITATION IN SECTION 4 (2) OF THE FOREIGN AID ACT OF 1947 THAT NOT MORE THAN 10 PERCENT OF THE FUNDS MADE AVAILABLE FOR AID TO CERTAIN RECIPIENT COUNTRIES SHALL BE USED TO PROCURE VARIOUS COMMODITIES FROM ABROAD AT A DELIVERED COST HIGHER THAN FROM THE UNITED STATES, APPLIES TO PROCUREMENTS ABROAD OF PETROLEUM AND PETROLEUM PRODUCTS, WHICH, UNDER SECTION 4 (4) OF THE ACT, ARE REQUIRED TO BE PROCURED, TO THE MAXIMUM EXTENT PRACTICABLE, FROM PETROLEUM SOURCES OUTSIDE THE UNITED STATES AND ITS TERRITORIES.

ACTING COMPTROLLER GENERAL YATES TO THE SECRETARY OF STATE, FEBRUARY 25, 1948:

I HAVE YOUR LETTER OF JANUARY 21, 1948, LE, STATING THAT CERTAIN PROBLEMS OF INTERPRETATION HAVE ARISEN WITH RESPECT TO SUBDIVISIONS (1), (2) AND (4) OF SECTION 4, FOREIGN AID ACT OF 1947, PUBLIC LAW 389, APPROVED DECEMBER 17, 1947, 61 STAT. 935, WHICH READ AS FOLLOWS:

(1) THAT PROCUREMENT MAY BE FROM FOREIGN SOURCES WHENEVER THE COST DELIVERED TO THE RECIPIENT COUNTRY WILL BE LESS THAN THE COST DELIVERED FROM THE UNITED STATES;

(2) THAT, EXCEPT IN THE CASE OF COMMODITIES NOT PRODUCED IN COMMERCIAL QUANTITIES IN THE UNITED STATES, NOT MORE THAN 10 PERCENTUM OF THE FUNDS MADE AVAILABLE UNDER THE AUTHORITY OF THIS ACT MAY BE USED TO PROCURE COMMODITIES ABROAD AT DELIVERED COST HIGHER THAN FROM THE UNITED STATES, ITS TERRITORIES AND POSSESSIONS, PROVIDED THAT THE PRESIDENT SHALL FIND THAT SUCH COMMODITIES ARE IN SHORT SUPPLY OR NOT READILY AVAILABLE IN THE UNITED STATES; PROVIDED FURTHER, THAT NO FUNDS MADE AVAILABLE UNDER THE AUTHORITY OF THIS ACT SHALL BE USED BY ANY PROCUREMENT AGENCY OF THE UNITED STATES GOVERNMENT FOR THE PURCHASE, WITHIN THE UNITED STATES AND ITS TERRITORIES AND POSSESSIONS, OF ANY COMMODITIES (OTHER THAN COMMODITIES PROCURED BY OR IN THE POSSESSION OF THE COMMODITY CREDIT CORPORATION PURSUANT TO ACT OF JULY 1, 1941 (55 STAT. 498, AS AMENDED) AT PRICES HIGHER THAN THE MARKET PRICE PREVAILING AT THE TIME OF THE PURCHASE IN THE AREA WHEREIN THE PURCHASE IS MADE;

(4) THAT THE PROCUREMENT OF PETROLEUM AND PETROLEUM PRODUCTS SHALL, TO THE MAXIMUM EXTENT PRACTICABLE, BE MADE FROM PETROLEUM SOURCES OUTSIDE OF THE UNITED STATES AND ITS TERRITORIES AND POSSESSIONS; AND WHEREVER PRACTICABLE SUCH PETROLEUM AND PETROLEUM PRODUCTS SHALL BE DELIVERED TO THE RECIPIENT COUNTRY BY THE MOST ECONOMICAL ROUTE FROM THE SOURCE OF SUPPLY.

WITH PARTICULAR REGARD TO SUBDIVISIONS (1) AND (2) OF SAID SECTION 4, YOU STATE THAT IN SOME INSTANCES THE UNITED STATES GOVERNMENT WILL PAY THE FREIGHT ON COMMODITIES MADE AVAILABLE UNDER THE ACT, WHILE IN OTHER INSTANCES THE COMMODITIES WILL BE CARRIED ON VESSELS BELONGING TO THE RECIPIENT COUNTRY; AND, IN THE LATTER CASE, THE RECIPIENT COUNTRY WILL BEAR THE COST OF COMMODITIES MADE AVAILABLE UNDER THE ACT, AS TO WHICH OF THE FREIGHT CHARGES, IF ANY, ARE TO BE INCLUDED FOR PURPOSES OF DETERMINING WHETHER COMMODITIES SHOULD BE INCLUDED AMONG THE ITEMS MAKING UP THE 10 PERCENT LIMITATION ESTABLISHED IN SUBDIVISION (2), SUPRA. YOU REQUEST A DECISION ON TWO QUESTIONS AS FOLLOWS:

(1) SHOULD FREIGHT CHARGES BE INCLUDED WHETHER OR NOT THEY ARE PAID OUT OF UNITED STATES GOVERNMENT APPROPRIATED FUNDS?

(2) WHEN COMPUTATION HAS BEEN MADE OF THE ACTUAL DELIVERED COST OF A SHIPMENT OF A COMMODITY PROCURED OFFSHORE, IT BECOMES NECESSARY, BECAUSE OF 10 PERCENT LIMITATION, TO DETERMINE WHETHER SUCH COST IS GREATER OR LESS THAN THE DELIVERED COST OF A HYPOTHETICAL SHIPMENT OF SIMILAR NATURE PROCURED IN THE UNITED STATES. IT IS IMPOSSIBLE TO KNOW IN ANY PARTICULAR CASE WHETHER SUCH A SHIPMENT WOULD HAVE BEEN MADE IN A UNITED STATES OR A FOREIGN VESSEL. THE QUESTION PRESENTED, THEREFORE, IS WHETHER OR NOT THE COST OF FREIGHT FROM THE UNITED STATES SHOULD BE INCLUDED AS PART OF THE "DELIVERED COST" FOR THE PURPOSE OF MAKING THIS COMPARISON WITH THE OFFSHORE "DELIVERED COST.'

IN RESPECT TO SUBDIVISION (4) OF SECTION 4, YOUR LETTER STATES THAT WHILE IT IS CLEAR THAT THIS PROVISION REQUIRES OFFSHORE PROCUREMENT OF PETROLEUM TO THE MAXIMUM EXTENT POSSIBLE, IT IS NOT CLEAR WHETHER THE COST OF PETROLEUM PROCURED OFFSHORE AT DELIVERED COST HIGHER THAN WOULD BE MET FROM SOURCES WITHIN THE UNITED STATES SHOULD BE INCLUDED IN THOSE ITEMS MAKING UP THE 10 PERCENT LIMITATION SPECIFIED IN SUBDIVISION (2), OR WHETHER, BECAUSE OF THE PROVISIONS OF SUBDIVISION (4), PETROLEUM IS NOT TO BE INCLUDED EVEN IF ITS OFFSHORE COST IS HIGHER THAN IN THE UNITED STATES. A DECISION IS REQUESTED AS TO WHETHER SUCH ITEMS SHOULD OR SHOULD NOT BE SO INCLUDED.

I THINK IT HARDLY OPEN TO QUESTION THAT THE TERM "DELIVERED COST" AS USED IN THE ACT HERE INVOLVED CONNOTES THE COST OF THE COMMODITIES PLUS THE COST OF FREIGHT OF A PARTICULAR SHIPMENT, AND THAT SAID TERM WAS EMPLOYED BY THE CONGRESS WITH THE VIEW OF HAVING FREIGHT CHARGES TAKEN INTO CONSIDERATION IN DETERMINING COMPLIANCE WITH THE 10 PERCENT LIMITATION PRESCRIBED BY SUBDIVISION (2). MOREOVER, NEITHER THE TERMS OF THE ACT NOR ITS LEGISLATIVE HISTORY DISCLOSES ANY INDICATION OF AN INTENTION THAT THE INCLUSION OF FREIGHT SHOULD DEPEND UPON WHETHER OR NOT THE COST THEREOF IS BORNE OUT OF UNITED STATES GOVERNMENT APPROPRIATED FUNDS. ACCORDINGLY, YOUR FIRST QUESTION IS ANSWERED IN THE AFFIRMATIVE.

IN VIEW OF THE THE FOREGOING IT NECESSARILY FOLLOWS THAT, FOR THE PURPOSE OF MAKING A COMPARISON WITH THE DELIVERED COST OF AN OFFSHORE SHIPMENT, THE COST OF FREIGHT FROM THE UNITED STATES IS TO BE INCLUDED AS A PART OF THE CONSTRUCTIVE DELIVERED COST OF A SHIPMENT PROCURED IN THIS COUNTRY. YOUR SECOND QUESTION IS ANSWERED ACCORDINGLY.

WITH REGARD TO THE MATTER OF PETROLEUM AND PETROLEUM PRODUCTS REFERRED TO IN YOUR LETTER, I FIND NOTHING SPECIFIC AND DEFINITE IN THE PROCEEDINGS ATTENDANT UPON THE QUESTION AS TO WHETHER OFFSHORE PROCUREMENT OF PETROLEUM AT DELIVERED COST HIGHER THAN PROCUREMENT FROM THE UNITED STATES SHOULD BE INCLUDED WITHIN THE 10 PERCENT LIMITATION. THE QUESTION SEEMS NOT TO HAVE ARISEN DURING CONGRESSIONAL DISCUSSIONS OF THE MATTER BUT I THINK THAT IS BECAUSE IT WAS READILY ASSUMED THAT THE 10 PERCENT LIMITATION APPLIED TO PETROLEUM PRODUCTS. SEE THE STATEMENT OF SENATOR VANDENBURG ON PAGES 10822, 10827, AND 10828 OF THE CONGRESSIONAL RECORD FOR NOVEMBER 24, 1947, AND THE STATEMENTS OF SENATOR SALTONSTALL ON PAGES 67 AND 68 OF THE HEARINGS BEFORE THE SENATE COMMITTEE ON APPROPRIATIONS, 80TH CONGRESS, ST SESSION, ON EUROPEAN INTERIM AID AND GOVERNMENT AND RELIEF IN OCCUPIED AREAS. THE ENTIRE PROCEEDINGS SO INDICATE AND, BASED ON THE AMOUNT OF PETROLEUM PRODUCTS TO BE FURNISHED UNDER THE STATUTE--- NOW ESTIMATED AT APPROXIMATELY $37,000,000--- IT MAY NOT BE SAID THAT SUBDIVISION (4) OF SECTION 4 IS INCONSISTENT WITH SUBDIVISION (2) THEREOF. BOTH PROVISIONS MAY BE GIVEN EFFECT.

UNDER THE CIRCUMSTANCES OFFSHORE PROCUREMENTS OF PETROLEUM AND PETROLEUM PRODUCTS AT DELIVERED COST HIGHER THAN WOULD BE MET FROM SOURCES WITHIN THE UNITED STATES MUST BE INCLUDED WITHIN THE 10 PERCENT LIMITATION OF SUBDIVISION (2) OF SECTION 4.