Often, in assessing production abroad, we tend to overlook the full range of essential materials. We think only of raw materials or natural products. Sometimes these are cheaper overseas. But when it comes to processed materials and component parts such as plastics, artificial fibers, and paper products, we have a distinct advantage.

These materials are less expensive and more readily available here because of the greater size and diversity of our economy. Furthermore, the quality of such materials available abroad is often inferior. As a result, the foreign producer must use larger quantities of some materials to meet specifications. Mr Frequently, also, the lower production volume abroad adds to materials costs. In the milling industry, for example, there is a tremendous waste of metals in the production process. If you produce in large enough volume, it may pay you to sweep up the metal scrapings for reuse. But if your volume is low-as it is abroad-you cannot afford this saving.

Probably the value of our materials-costs advantage can best be seen in the Common Market. There, where labor and overhead are substantially lower, this single factor offsets, in large measure, the Common Market's advantages in all other areas of cost.

Actually, the wage differential is not such an advantage as is often imagined. Ta

= Fringe benefits, for instance, are a cost factor often overlooked. In many for=eign labor markets they have increased more rapidly than wages. One study showed they constituted 74 percent of hourly cash wages in Italy, 52 percent US in France and 44 percent in West Germany. At the same time, they represented only 21 percent in the United States.

All the fringe benefits familiar to us are covered in these programs abroad. In addition, some European laws call for special payments for length of service, or family allowances based on the number of workers' children.

On the whole, these fringe payments tend to be fixed costs. In periods of economic stress, they prove costly to foreign management.

Furthermore, there is every indication that the wage differential itself is narrowing all the time.

From January 1960 to the end of 1961, our rise in gross hourly earnings was 5 percent, while in Germany and Holland it was 12 percent and in France it was 11 percent. Foreign wages, of course, start at a lower base, but these figures indicate the trend. Certainly, we can expect European labor to insist ever more vigorously, on its share of Europe's new abundance. And it has strong trade unions to back up its demands.

Consider the trend in Japan, also. A survey of more than 250 big industrial firms there revealed that wages rose almost 10 percent from July 1959 to July 1960. They went up 13 percent in Japan's light electronics firms. Productivity, materials, a lessening wage disparity-all these things are important. But production costs and manpower are not the only determinants of our ability to compete. Competition does not end at the final stop on an assembly line. Distribution methods, credit terms, and sales promotion are all essential, too. In all these fields our ability to compete abroad is impressive.

The second point we must consider is our ability to compete with foreign imports here at home.

For too long we have looked upon imports as job destroyers. Actually, only about one-fourth of the total value of our imports is in lines of economic activity which directly compete with U.S. production. Since these imports represent only a small proportion of our total domestic output, less than one-half of 1 percent of American workers would be damaged by increased imports through tariff reductions.

Contrast this with the fact that the jobs of more than 3 million of our workers depend on our exports. For example, the United States-Japan Trade Council estimates that in 1960 our exports to Japan alone were responsible for about 190,000 American jobs. Nearly 34,000 Texans, more than 20,000 Californians, almost 12,000 Mississippi residents and about 7,000 New Yorkers, among others, directly owed their jobs to our exports to Japan. We stand to lose more jobs through retaliatory tariffs against our exports than we would lose by admitting imports.

We fail to consider that many of our imports are job creating.

Foreign ears,

for example, provide jobs in transportation, distribution, retail sales, maintenance, and repair.

Yet the myth about the dire effects of import competition persists. It remains with us even though three of our major industries have disproved it: the watch industry, the photographic industry and the automobile industry.

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Immediately after World War II, Swiss watches dominated our domestic market. By 1954 imports were so high that the Tariff Commission increased the watch tariff by 50 percent. Domestic sales still declined.

The watch industry saw that it must act to survive. New products and new ways of making watches were developed. New subsidiaries were acquired to broaden the economic bases of the companies. More attractive pricing, better promotion, and many other changes were effected.

One firm simplified the design of its new low-priced line of watches so that it contained only 150 parts instead of the 205 in an earlier model. Another company used a new automatic drilling and cutting machine that performed 150 precision operations on the plate of a watch-a technological accomplishment by a domestic industry that hitherto had relied chiefly on Swiss designed machinery.

From this all-out push came the biggest technological development in watch design of the postwar years-the electric watch. It was completely a product of American research and initiative.

Today, the domestic jeweled-lever watch industry is healthier than it has been in years. And the major advances made along almost all lines promise added dividends for the future.

The photographic industry has always faced stiff foreign competition. In recent years the need for action became evident. Bell & Howell, for example, faced a decision: should it seek tariff protection, or should it attempt to compete more vigorously?

Charles H. Percy, Bell & Howell's president, explained the company's decision in these words: "Foreign competition and high wage rates forced Bell & Howell to find new and better ways of doing things, which in turn broadened Bell & Howell's markets."

Part of the outcome is reflected by some figures on U.S. camera exports. Purchases in the Common Market countries of American-made 8-millimeter movie cameras rose from 5,000 units in 1948 to 140,000 units in 1958, and are expected to jump to 430,000 a year by 1970.

Competition?-Japanese workers, above, earn less per hour than their American counterparts, but their productivity is far lower.

Finally, take the auto industry. The foreign-car influx came in an area of production that had been ignored by American auto producers. When they began to produce compact cars, foreign sales went down. The fact that Volkswagen

sales remain high points up the lesson. One reason is that no American car competes with it directly in size and price.

These examples show that an American industry can compete successfully when it sets out to do so. If it ignores areas of its consumer market, of course it can expect foreign producers to move in. What is necessary is ingenuity, skill, inventiveness. Industries characterized by technological lag or unimaginative leadership will increasingly find themselves in trouble. Higher tariffs will not make them better able to compete. Nor will tariffs help them to survive. Their salvation rests in their own hands.

We have demonstrated our ability to compete at home and abroad under existing conditions. But profound changes are on the way in international trade patterns. Do they threaten our economy? Shall we still be able to compete? The answer is clear. The Common Market provides us with a unique opportunity: a chance to penetrate a mass market similar to our own.

EEC GNP 1 faster than ouis

The collective gross national product of the Common Market nations is rising about 5 percent a year-about double the rate in the United States and Britain. If it continues to grow at that rate, it will reach the level of our economy in 15 to 20 years. Even by 1970, per capita spending in Western Europe is expected to jump 35 percent, for housing and furniture, almost 50 percent for appliances, and about 59 percent for automobiles.

This means that great untapped markets will be opened. A congressional committee studying Europe's market potential recently heard these figures: In the United States the automobile market is already more or less 100-percent saturated, while in the Common Market it is only 19 percent saturated. The market for television sets here is 89-percent saturated; there, 10-percent saturated. The radio market here is 96-percent saturated; there 20 percent. The refrigerator market here is 98-percent saturated; and 12 percent there. washing machines, the figures are 91 percent here and 12 percent in the Common Market countries.

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The compelling question is how best to seize the opportunity to trade in this world supermarket.

The first step is the administration's new trade program. The President must be given broader tariff-cutting authority if we are to gain access to the thriving European market. The alternative is to be shut out by the common external tariff wall that the Common Market expects to have established by 1966. We have no choice but action now, no matter how painful or inconvenient. And we must look to adjustment assistance coupled with independent initiativeto repair the initial, temporary damage that occurs.

The second step is up to American business. Only a small percentage of our industries engage in export activities, and many of these have come to take our export surplus for granted. As change comes, they will find a surplus is no longer automatic.

U.S. business will have to launch a concerted, well-planned effort to sell in foreign markets. It will have to toss out old ideas and come up with fresh skills. It will have to start designing for foreign markets right on the drawing board and follow through effectively in every area of merchandising. The export field is not a place to dump left-overs from the domestic market. As an illustration, the Japanese consumer buys a washing machine that is a small tub with a simple agitator. He buys a refrigerator with a volume of only 2 cubic feet. American manufacturers cannot expect to sell him our automatic washers and our 12-cubic-foot refrigerators.

In short, American business will have to emulate Europe by taking "a brisk shower of competition." In my opinion, we will benefit immeasurably from it. The only thing that can block us is fear of competition from the world outside. And I repeat: it is a myth that U.S. business cannot compete with foreign business. We are competing successfully abroad. We are competing successfully at home. And we know how to compete in both areas in the future. Secretary GOLDBERG. For example, he shows that the average Japanese worker earns 22 cents an hour-this was a few years ago, however. His American counterpart was receiving $1.95 an hour. But the Japanese worker produced 30 cents' worth of merchandise an hour, while the American produced $3.19 worth an hour.

Mr. Johnston has many illustrations of this, not only in Japan but throughout Western Europe where similar developments prevail.

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One of the important aspects of this wage matter, as is apparent from my discussion of Japan, is the whole question of fringe benefits. It is no longer possible, either in the United States or in Europe, to compare wages alone. In both countries, now we have to recognize that social changes and fringe benefits constitute an important part of the total compensation that workers receive.

I would like to give you a few pertinent statistics.

In the United States it has been estimated that the supplementary benefits that a worker has amount to about 16 percent of his earnings.

In Italy it amounts to 74 percent of his earnings. So when you take the low Italian wage scale, you must consider the fact that this Italian worker enjoys 74 percent fringe benefits.

I might say to you, if I may, that one of the very interesting Italian fringe benefits, which I commend to this country, and to employers through collective bargaining, is what the Italian calls family allowances. Among the family allowances is one that I think all men ought to support.

In Italy a new father is given compassionate leave when a child is born. He gets 3 days off with pay to weather the shock. This is a benefit unknown in our country, but which is included in the 74 percent in Italy.

This, of course, enters into wage costs, obviously.

I might read you the figure of supplementary benefits as a percentage of earnings to show that they must be considered in these wage scales.

Belgium, 31 percent; France, 50 percent; Italy, 74 percent; Netherlands, 30 percent; West Germany, 44 percent.

Only in the United Kingdom is there a lesser percentage than in the United States. It is 14 percent.

Mr. CURTIS. In putting that into the record, would you also put the absolute figures? The wage in Italy was 40 cents an hour and 74 percent would be about 30 cents. And if ours was $2 an hour, 16 percent would be 32 cents.

Senator GOLDBERG. Yes; I will be glad to do that.

Implicit in my remarks, Congressman Curtis, is that the wage scales in all of these instances are substantially lower than they are in the United States.

Mr. CURTIS. But the absolute amount might be greater even though ours is 16 percent, as these figures would show it to be.

(The following material was received by the committee:)

TRADE EXPANSION ACT OF 1962

713

Average hourly earnings and cost of supplementary benefits in the United States and 9 countries, in U.S. dollars

The national currencies are converted into U.S. dollars at the official rates of exchange. However direct conversion into dollars of wages paid in foreign currencies is liable to gross misinterpretation Because prices of goods and expecially of services vary greatly among countries, it is not easy to tell wha level of living a particular wage income will provide. This difficulty is all the greater since workers in different countries have very different preferences for many goods and services.

Semiskilled and skilled men.

Does not include supplementary benefits provided by government programs which are financed through general taxation. Total cash payments, including overtime, incentive pay, special premiums and bonuses, and family allowances.

Includes pay for time not worked, legally required payments, and private welfare plans. Sources: Statistical Supplement, International Labour Review, December 1961, International Labour Office, Geneva; Bulletin de Statistique, July-August 1961, Institut National de Statistique, Brussels; Monthly Labor Statistics and Research Bulletin, December 1961, Ministerial Secretariate of Labor Ministry, Japan; Sociale Maandstatistiek, October 1961, Central Bureau of Statistics, The Hague; Employer Expenditures for Selected Supplementary Remuneration Practices for Production Workers in Manufacturing Industries, 1959, Bulletin No. 1308, Bureau of Labor Statistics, U.S. Department of Labor; "Les Couts de Main-d'oeuvre dans L'Industrie Manufacturiere des Pays Europeens et des Etats-Unis," Etudes et Conjoncture, March 1960, Institut National de la Statistique et des Études Economiques, Paris.

Secretary GOLDBERG. That is correct. However, that is not the only factor in this equation. There is another factor.

That is the access to raw materials. Let us go back to our friends in Japan again as a prime illustration of this and we can then go to Western Europe, with which we are very intimately concerned.

We are endowed by providence with a great continent, with great raw materials. Our great steel industry, outside of the chemicals and limited amount of alloying metals it must import, has access to great coking coal, great iron ore deposits, and great internal scrap, which is an important element in steelmaking.

All of those we have within the confines of our own borders. In a country like Japan they have none of these. Japan imports scrap from us, imports coal from us, and imports iron ore from many parts of the world.

This access to raw materials is an important part of the trade picture in our favor. In addition, there are other aspects which tend to equalize and sometimes overcome any wage disadvantage.