ment is not legally obliged to obtain prior U.S. consent in order to deploy such defense articles outside of its territory, so long as those articles remain in the actual custody and physical control of its armed forces and continue to be used for the purposes authorized by section 4 FMSA.

Consequently, Iran was not obliged to seek United States approval for the operation of its forces in Oman, even though their forces were largely equipped with materiel purchased from the United States. With respect to the hypothetical cases raised in your final questions, it is clear that the U.S. Government retains the right to express its views regarding the policies of other states, including those which purchase arms through Foreign Military Sales. The form which such views might take is a policy decision which must be made on a case-by-case basis, and speculation about what action might be taken in various hypothetical contingencies would be pointless and possibly misleading.

Dept. of Defense File No. I-3998/74CT. Section 4 of the Foreign Military Sales Act, as amended (P.L. 90-629; 82 Stat. 1320), provides:

Purposes for Which Military Sales by the United States Are Authorized.— Defense articles and defense services shall be sold by the United States Government under this Act to friendly countries solely for internal security, for legitimate self-defense, to permit the recipient country to participate in regional or collective arrangements or measures consistent with the Charter of the United Nations, or otherwise to permit the recipient country to participate in collective measures requested by the United Nations for the purpose of maintaining or restoring international peace and security, or for the purpose of enabling foreign military forces in less developed friendly countries to construct public works and to engage in other activities helpful to the economic and social development of such friendly countries. It is the sense of the Congress that such foreign military forces should not be maintained or established solely for civic action activities and that such civic action activities not significantly detract from the capability of the military forces to perform their military missions and be coordinated with and form part of the total economic and social development effort: Provided, That none of the funds contained in this authorization shall be used to guarantee, or extend credit, or participate in an extension of credit in connection with any sale of sophisticated weapons systems, such as missile systems and jet aircraft for military purposes, to any underdeveloped country other than Greece, Turkey, Iran, Israel, the Republic of China, the Philippines and Korea unless the President determines that such financing is important to the national security of the United States and reports within thirty days each such determination to the Congress. Section 3a of the Foreign Military Sales Act provides:

(a) No defense article or defense service shall be sold by the United States Government under this Act to any country or international organization unless

(1) the President finds that the furnishing of defense articles and defense services to such country or international organization will strengthen the security of the United States and promote world peace;

(2) the country or international organization shall have agreed not to transfer title to, or possession of, any defense article so furnished to it to anyone not an officer, employee, or agent of that country or international organization and not to use or permit the use of such article for purposes other than those for which furnished unless the consent of the President has first been obtained;

(3) the country or international organization shall have agreed that it will maintain the security of such article and will provide substantially the same 569-769-75- -49

degree of security protection afforded to such article by the United States Government; and

(4) the country or international organization is otherwise eligible to purchase defense articles or defense services. In considering a request for approval of any transfer of any weapon, weapons system, munitions, aircraft, military boat, military vessel, or other implement of war to another country, the President shall not give his consent under paragraph (2) to the transfer unless the United States itself would transfer the defense article under consideration to that country, and prior to the date he intends to give his consent to the transfer, the President notifies the Speaker of the House of Representatives and the Committee on Foreign Relations of the Senate in writing of each such intended consent, the justification for giving such consent, the defense article for which he intends to give his consent to be so transferred, and the foreign country to which that defense article is to be transferred. In addition, the President shall not give his consent under paragraph (2) to the transfer of any significant defense articles of the United States Munitions List unless the foreign country requesting consent to transfer agrees to demilitarize such defense articles prior to transfer, or the proposed recipient foreign country provides a commitment in writing to the United States Government that it will not transfer such defense articles, if not demilitarized, to any other foreign country or person without first obtaining the consent of the President. The President shall promptly submit a report to the Speaker of the House of Repre sentatives and to the Committee on Foreign Relations of the Senate on the implementation of each agreement entered into pursuant to clause (2) of this subsection.

Military Bases

On October 22, 1974, the United States and Iceland signed an agreement concerning the continuation of military facilities and their utilization by the Iceland Defense Force (TIAS 7969; 25 UST 3179; entered into force October 22, 1974). The understandings reached were incorporated in an exchange of notes, a Memorandum of Understanding, and a related Agreed Minute. The documents were initialed at Washington on September 26, 1974, and signed at Reykjavik on October 22, 1974.

The exchange of notes concluded the review of the 1951 U.S.-Iceland Defense Agreement (TIAS 2266; 2 UST 1195; entered into force May 5, 1951), requested by Iceland and carried out under Article VII thereof, by stating that the present situation in world affairs, as well as the security of Iceland and of the North Atlantic Community, calls for the continuation of the Defense Agreement.

The Memorandum of Understanding and the Agreed Minute provide:

1. The United States will reduce its military personnel in the Iceland Defense Force by 420 and replace them with qualified Icelandic personnel as such personnel become available. The personnel to be replaced occupy technical and administrative positions not requiring access to classified information. The Iceland Defense Force will train Icelanders for these positions as required. The United States is free, however, to change the size and composition of the Force within the framework of the continuing 1951 Defense Agreement.

2. The United States will seek appropriations from the Congress in fiscal years 1975, 1976, and 1977 to construct housing units sufficient to accommodate on the base all U.S. military personnel stationed in Iceland.

3. The United States will seek appropriated funds from the Congress in order to assist in the separation of civil and military activities at Keflavik Airfield. The United States will cooperate with Iceland in the construction of a new terminal complex, not including a new terminal building, by financing several facilities therein.

4. Subject to the availability of appropriated funds, the United States will also seek to provide lighting and certain other equipment to improve the Keflavik Airfield over a ten-year period to meet ICAO standards for Category II flight operations and assist in upgrading the field.

5. The United States will study the feasibility of the use of geothermal heat by the base in the event such service should become available.

6. The two governments will also study ways to further cooperation between the Iceland Defense Force and the Icelandic Coast Guard, civil defense and civil aviation authorities.

569--769-75-50

Chapter 15

PRIVATE INTERNATIONAL LAW

International Commercial Arbitration

Securities Regulation

On June 17, 1974, the United States Supreme Court held by a vote of 5-4, in the case of Scherk v. Alberto-Culver Company, 42 LW 4911, that an agreement of contracting parties to arbitrate any dispute arising out of their international commercial transaction is to be respected and enforced by the Federal courts in accordance with the explicit provisions of the Arbitration Act of 1925, 9 U.S.C. § 1. That Act provides that an arbitration agreement, such as the one involved in this case, "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (Id., §2.)

In 1969 the parties signed a contract in Vienna, Austria, providing for the transfer of the ownership of Scherk's toiletries enterprises to Alberto-Culver, an American company. Scherk was a German citizen, residing in Switzerland, and his enterprises were organized under the laws of Germany and Liechtenstein. The contract included a number of express warranties whereby Scherk guaranteed the sole and unencumbered ownership of trademarks in cosmetic goods held by the enterprises. The contract also contained an arbitration clause providing that "any controversy or claim [that] shall arise out of this agreement or the breach thereof" would be referred to arbitration before the International Chamber of Commerce in Paris, France, and that "The laws of the State of Illinois, U.S.A. shall apply to and govern this agreement, its interpretation and performance."

In 1970 Alberto-Culver commenced an action for damages and other relief in a Federal district court in Illinois, contending that Scherk had made fraudulent representations concerning the status of the trademark rights, that such rights were not unencumbered but were subject to substantial encumbrances that threatened to give others superior rights to the trademarks and to restrict or preclude AlbertoCulver's use of them. Alberto-Culver contended that the alleged fraudulent representations constituted violations of § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j, and Rule 10b-5 thereunder, 17 CFR 240.10b-5.