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Can long arm of US law reach overseas? Tests arise on many fronts

For decades, whatever the administration, the United States government has sought to extend the tentacles of US law to countries and companies overseas -- causing anger and bitterness whenever it has succeeded.

Last week, the European Community (EC) succeeded in bringing the issue to the boil again.

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In a 14-page legal paper released Aug. 12, it called US Commerce Department measures prohibiting companies in Western Europe from supplying equipment for the Soviet gas pipeline an infringement of international law ''because of their extraterritorial aspects.'' It warned, rightly, that the claim of US jurisdiction accompanying any US investment ''will create a resistance abroad to the flow of US investment.''

Diplomats here point out that the attack could not have come at a worse time, with transatlantic tension peaking over steel, agriculture, high US interest rates, renewed US grain sales to the Soviet Union, and other prickly matters.

By seeking to apply US law beyond national borders, the United States is unique among nations, except for West Germany, which has also made extraterritorial noises.

''No other country,'' Washington lawyer Charles Maechling Jr., writing in the EC publication, Europe, said, ''has so successfully exerted the right to enforce its legal process outside its own territory.''

Causing the greatest conflict with foreign governments so far have been US government decisions (often backed by US courts) in the fields of antitrust, tax collection, securities, antibribery, and antiboycott enforcement.

The issue came to a head during the Carter administration when, during one 12 -month period, the West German government protested the extension of US commodities regulation to German soil; nine countries filed complaints over US attempts to extract records from several European shipping firms, and the then British trade secretary, John Nott, introduced ''blocking legislation'' aimed at protecting Britain against US ''economic imperialism'' when it tried to apply US antitrust legislation to British companies.

President Reagan's pipeline decision, its roots in a 1945 Supreme Court ruling, was based in part on Section 6 of the US Export Administration Act of 1979, which allows the President to halt or limit for foreign policy reasons the export ''of any goods, technology, or other information subject to the jurisdiction of the United States. . . .''

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The key question, of course, is what constitutes ''the jurisdiction of the United States?''

In arguing that international law is on its side, the EC is right -- in theory. In practice, however, the issue has been muddled, and it is anyone's guess how the pipeline case will be resolved in the court -- if it ever gets that far.

US court rulings have ranged from several allowing that US subsidiaries of foreign companies can be tried for acts which are legal outside the US but in violation of US law, to one decision two months ago by the US Supreme Court stating that US subsidiaries of Japanese companies are American companies, not Japanese.

Also muddled in practice is whether or not one government -- in this case the US -- can compel companies outside its territories to infringe orders issued by the government in the countries in which the companies operate.

This so-called ''foreign compulsion doctrine'' led the British government to pass ''blocking legislation'' in 1980 making it illegal for British companies to obey orders from foreign governments.

British companies, therefore, will argue that they have been caught between a rock -- the US embargo -- and a hard place - its own government's edict to ignore the embargo issued under the 1980 Protection of Trading Interests Act earlier this month. And this is where the US case could falter.

Says Washington lawyer Maechling: ''Judicial systems are traditionally wary of encroaching on the prerogatives of other sovereign states, and since the turn of the century US courts have drawn the line at enforcing US law on foreign business activities whose actions have been dictated or compelled by their government.''

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