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Every U.S. company that does business with the Arab world--and just about every significant corporation does --faces a dilemma. It must comply with Arab laws. But one of those laws is that a business must refuse to deal with companies that in any way aid Israel's economic development. This Arab boycott adds up to a type of discrimination that President Ford has condemned. So what is a company to do?

Last week Bechtel Corp., a huge San Francisco-based engineering and construction firm (1975 contracts: $3 billion), came up with a startling answer. It insists that a company has to observe the boycott to the same degree as the U.S. Government does--and it argues that the Government is in fact complying with the boycott.

Violation Charged. Bechtel has profitably worked in the Middle East for 32 years and now has several multimillion-dollar projects under way there. In January the Department of Justice sued Bechtel in a test case, asking that it be enjoined from obeying the boycott. The charge: by refusing to give work to blacklisted U.S. firms, the engineering company was restricting competition and thus violating the Sherman Act, the basic U.S. antitrust law.

In response, Bechtel admitted it is indeed complying with the boycott but denied it is restraining competition because the goods or services of blacklisted firms would not be allowed into Arab countries anyway. In addition, Bechtel contends that the Justice Department is seeking to broaden illegally the Sherman Act to include foreign or political boycotts, as well as domestic restraints of trade. Most compellingly, the company argues that the Government itself is complying with the boycott. Specifically, Bechtel said several U.S. agencies, most notably the Army Corps of Engineers and the U.S. Geological Survey, when working in Arab countries, have "engaged in the same activities as those charged against the defendants" --that is, refusing to deal with companies the Arabs blacklist.

The charge drew an embarrassed "no comment" from the agencies involved. But, says Bechtel Corp. President George P. Shultz--who until 1974 was Secretary of the Treasury--the fact that the Government agencies work in the Middle East indicates that "they must be complying with the Arab boycott." In its court papers, Bechtel asserts that the acts of these agencies "are as much a declaration of law and policy" as the Justice Department suit. The next step is hearings in a federal district court in San Francisco, which every U.S. company--not to mention Government agencies and Jewish organizations--will watch with interest.

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