As a result, in 1970, U.S. corporate profits from foreign operations totalled $17.5 billion, yet the Treasury received ony $900 million in tax revenue an effective tax rate of 5 percent.

Tax deferral is an interest-free loan from the Government which in practice can result in the equivalent of an outright tax exemption. But the tax advantage of the deferral aspect goes beyond the interest-free loan aspect because substantial amounts of corporate profits are continually invested and reinvested abroad and do not come home at all. To that extent, deferral amounts to total tax immunity for the individual corporation and continuing tax losses to the U.S. Treasury.

The foreign tax credit permits corporations with foreign subsidiaries to subtract, dollar for dollar, taxes paid to foreign governments from the parent corporation's tax liability-when the corporation decides to send a portion of its profits back to the United States. In contrast, a firm operating domestically and paying taxes to State and local governiments cannot defer its Federal income taxes. And taxes levied by State and local governments are treated as costs of doing business and can only be listed as a deduction-a considerable difference from a credit.

This is grossly unfair tax treatment for the rest of the American taxpayers. The closing of these loopholes would not only bring in some $3 billion a year in badly-needed revenue, but would remove an unfair advantage now afforded U.S. corporations with foreign subsidiaries.

The multinationals and the administration seem to be among the few Americans now who do not have some reservations about détente in view of the Soviet Union's recent behavior in the Middle East.

It appears more and more that détente is, as we charged, a one-way street.

Unfortunately, the American businessman so eager to turn a quick profit seems woefully unaware that the Soviet Union is interested in one thing only: it does not want America's products; it wants America's technology. Once the Soviet Union has that technology, the seeming advantage of the U.S. businessman quickly can be closed off.

Harry Schwartz, the veteran observer of the Soviet Union for the New York Times, noted recently that, as costly as the American wheat deal was to the United States, "there could be even higher costs in the long run from today's lemming-like anxiety of some American businessmen to make massive transfers of U.S. technology and capital to the Soviet Union."

One reason for disquiet, he notes, "is the technical virtuosity" of some of the Soviet weapons which were used against the Israelis in the Mideast war. He pointed out that the Soviet Union has been able to develop weapons which the United States has no means to offset.

"The impression is inevitable," Mr. Schwartz says, "that the Soviet Union has concentrated its substantial resources of scientific and technological talent overwhelmingly on military needs-including the military-related space program-while neglecting civilian technology. What Moscow seems to be asking now is that the United States play a major role in repairing the backwardness caused by this concentration."

Too many American businessmen and bankers are shortsighted when they forget that commercial relations with the Soviet Union are not

ordinary and normal trade deals between buyers and sellers in the free world. The Soviet Government has a total monopoly on the buying and selling of all goods and access to all raw material resources in the U.S.S.R. American technological know-how turned over to the Russians stays there and helps develop its resources. The Soviet rulers can shut off their markets or natural resources at any time they see fit. The benefits of U.S. technological help to the Russians are permanent, and will sooner or later reduce Russia's need for buying from the United States.

We think both U.S. businessmen and the Government ought to be taking a hard look at how much and what kind of technology America is apparently ready to hand to the Soviet Union.

Does it make any sense, taking a look at the gigantic Siberian natural gas deals that Moscow seems ready to conclude with some American companies, to put the same sort of weapon in the hands of the Soviet Union as was in the hands of the Arab nations? Does it make any sense to pay billions of dollars in capital investments for the privilege of doing so?

This administration seems all to eager to assist American businessmen in transferring huge chunks of American technology to the Soviet Union.

Senator Case not long ago called attention to the fact that there apparently were parts of the October 1972, agreement between the United States and the Soviet Union which had not been submitted to the Congress as required by law-and that the administration was implementing the agreement through the extension of substantial credits by the Export-Import Bank to the Soviet Union.

This was followed by a finding by the General Accounting Office that the Bank was not obeying the law in the way it was extending commercial loans to the Soviet Union.

The GAO checked the legislative history of the law setting up the Export-Import Bank as the result of a request from Senator Richard Schweiker. The GAO found that the President must determine that each project individually was in "the national interest," and submit to Congress the reasons why. The Bank had been considering loans and other extensions of credit to the Soviet Union under a blanket ruling by the President in October of 1972 that such activities were in the national interest.

The Presidential order of October 1972, reads, "I hereby determine that it is in the national interest for the Export-Import Bank of the United States to guarantee, insure, extend credit, and participate in the extension of credit in connection with the purchase or lease of any product or service buying for, in, or for sale or for lease to the Union of Socialist Soviet Republics in accordance with section 2 (B) (2) of the Ex-Im Bank Act of 1945 as amended."

In view of the legislative history outlined in the Comptroller General's opinion, the order of the President, to me, is incredible.

As a result of Senator Schweiker's request that the GAO check the law, the Export-Import Bank temporarily halted further loans or projects to the Soviet Union.

But then the President's newest Attorney General found a convenient loophole: No matter what the statute said or what was the clear intent of the Congress, the President could get away with it because he had

been getting away with it. In other words, since the Congress had not challenged him in the past, it couldn't challenge him now.

So the Export-Import Bank has resumed its program of loans to the Soviet Union-loans made on terms and at interest rates that no American homeowner, worker, or businessman can get. And that, we submit, is unacceptable to the American people.

Senator Schweiker has now introduced legislation to specifically forbid all U.S. Government-supported investment in Russian energy development programs during our own energy crisis. In the words of the Senator, "if our taxpayers are going to subsidize energy development, the investment should be made here, not in Siberia."

We would go further. We believe the Congress should plug the loophole the Attorney General has just discovered and sustained.

We believe the administration is clearly attempting to circumvent the will of the Congress. The administration seems willing to do anything possible to give the Soviet Union most-favored-nation status. The House, by a vote of 319 to 80, also voted against the unrestricted extensions of credit to the Soviet Union, and in the Senate, I believe, there are 78 cosponsors to the amendment by Senator Jackson which would apply this same restriction to any trade bill it passes.

The AFL-CIO unreservedly supports this concept. We think it is about time this administration put the interest of the American people ahead of the interests of the Soviet Union.

Every other nation on this Earth puts the self-interest of its own people first. We think that is sound policy for the United States of America.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you for a very fine and thoughtful statement, Mr. Meany. I am going to yield my place to Senator Ribicoff, who is chairman of our Trade Subcommittee, for a quick interrogation. Senator RIBICOFF. Thank you very much, Mr. Chairman.

I followed your testimony with great interest, Mr. Meany. You make many pertinent points. You make the point that although we have had an overall trade surplus, we still had a billion-dollar trade deficit in manufactured goods. If this deficit in manufactured goods continues, what labor-intensive American industries do you see in danger?

Mr. MEANY. Well, there are any number. The electronics industry is one that comes to mind, but we have any number of labor intensive industries that are going to be affected. It seems to be a tendency to toy with the idea of making this a service nation, and I do not think we could maintain our standard of life, let alone elevate it to any extent, as a service nation.

Senator RIBICOFF. Do you think that any nation can continue to be a great power if it does not have a great degree of self-sufficiency, in let us say, automobiles, chemicals, electronics, and steel, the basic industries that provide the sinew and muscle of a nation?

Do you think a great nation could exist without them?

Mr. MEANY. Well, the history of our economy has been that we always had industries which were basic and key, for instance, steel, autos, construction. If we are going to lose our basic industries such as airplane construction, automobile and things like that. farm implements, I do not think we are any longer going to be the leading nation of the world.

Basically, you see, up to this minute we have the consumer purchasing power, and everybody, no matter where they manufacture, is looking to sell here. Now, if we lose our consumer purchasing power, we are certainly not going to be a great nation. So what is the basis of our consumer purchasing power? The basis of our consumer purchasing power is the consuming power of the great mass of the American people. The best customers of American industry are still the American people. No matter how much we put abroad, over 90 percent of the things we make must be sold here, and the basis for the whole economy over the years has been the mass purchasing power of the great mass of the American people, right down to the lower levels.

Senator RIBICOFF. So the problem is not just a trade balance, but a trade balance in what? The necessity to preserve the economic health of American workers becomes very important to the entire future of our Nation.

Is that not correct?

Mr. MEANY. Yes, I think so.

Senator RIBICOFF. Let me give you an example of what happened in Hartford, Conn., and I would like to get your reaction. For 60 years we had the Royal Typewriter Co. there. A few years ago the Royal Typewriter Co. was taken over by Litton Industries, a conglomerate, multinational corporation. The average hourly wage of Royal in Hartford was $3.60 an hour. Litton acquired a typewriter company in Hull, England, where the average hourly wage was $1.20 an hour. 55 percent of what goes into making up a typewriter is labor cost. So, Litton moved Royal Typewriter to Hull, England, and about 2,000 people were out of jobs.

What do you consider to be the responsibility of a company to its employees and the community when they move an industry to a foreign country? What is their responsibility to the community and their employees?

Mr. MEANY. Well, I think their responsibility certainly would be to the country of employment, but the point is, what does the Government do about this? What would another government do about this? What would other governments of the world do? They would develop a policy to protect their own people, and I think that the answer to this is in the tax structure and in the tariff structure. I think you have got to do something to make it a little less profitable to these people.

You know, in the final analysis, if you carry this whole theory down to the idea that you go where the cheapest labor is, well, then, forget your American standard of life because the only way we are going to get down to these people is to reduce our standard of life.

We had an academic expert over in the White House a few years ago. Thank God he is gone. But he had a very simple theory. He was discussing with a group of businessmen and labor people from New England the closing down of a shoe factory which put a town out of business, and he said very simply, well, if Yugoslavia and the Italians can make shoes cheaper than we can make them, we should stop making shoes, and we should turn around and make something that the Yugoslavs and Italians cannot make as cheap as we can make.

Now, you follow that sort of a philosophy to its natural conclusion, you forget your American standard of life. And you forget your American consumer purchasing power that made it possible to have

these gigantic corporations. General Motors did not become a great corporation, Henry Ford did not develop a great corporation selling to those in the upper 20 percent. They became great corporations because they sold something that the people way down at the bottom of the economic ladder could buy.

Senator RIBICOFF. Let me ask you another question that the energy crisis highlights. Europe and Japan's oil bills are going to skyrocket because of the much higher cost of oil. Japan's increased costs this year will be some $8 billion. In order to get that kind of additional revenue, do you not see Japan and the European countries making a strong drive to increase their exports to the United States to earn dollars? What impact will that increased export drive have upon American industry and American jobs?

Mr. MEANY. The drive is already there. You say a strong driveSenator RIBICOFF. A stronger drive.

Mr. MEANY. They were making a strong drive before they had this problem. This may make them try a little harder. I do not know.

Senator RIBICOFF. I have many more questions, Mr. Chairman, but my time is up.

The CHAIRMAN. Senator Dole?

Senator DOLE. Thank you, Mr. Chairman.

I think I find myself in agreement, Mr. Meany, with your comments on the foreign tax credit. I think it is an area we have to address ourselves to, but I was concerned. I just left a meeting early this morning of the National Wheat Growers Association where they were calculating the increased exports as income to the farmer, which in turn, of course, creates jobs and does a lot of other things.

Do I understand your statement correctly that we have had too much in the way of farm exports, we have gone too far?

Mr. MEANY. Yes, that is our position, and it has caused shortages, and what do shortages mean? Higher prices.

I am concerned with the farmer, too, but we are concerned with the consumer. I mean, if our only concern is with the people who grow the stuff, then we are really in trouble. I think we have got to have a balanced approach. I think the action of the President yesterday to push up beef prices is deplorable, but he is doing it to give temporary aid, taking $45 million of Government money to give temporary aid to the beef producers, and as a result, and the purpose of it is quite deliberate, to push the price up.

Senator DOLE. Well, I might say there, I do not think the purpose is to push up the retail price. The problem is, a great lag between the farm price and the retail price. Farm prices have been depressed for a number of weeks, and retail prices have never gone down, and I think the stimulus, $45 million, is not going to mean a great boost to the livestock industry. But it might have some psychological impact, and it might eventually get the farm price up where they are not losing a couple of hundred dollars per head on their cattle.

Mr. MEANY. Well, do you think that they are going to push up the wholesale price without it being reflected at the market counter, the supermarket counter?

Senator DOLE. I think the aim of the purchase was to sort of clean out the glut in the marketplace and eventually raise farm prices. But I think the keyt to stabilizing prices is to increase production. We are