a group of nine nations, with their own national governments, policies and practices and their own special relationships with third countries. Around and above the nine nations are a common outer tariff wall, a common agricultural policy for farm prices and growing common policies on products standards and internal taxes. The EEC also has a set of special trade arrangements with a growing number of other European and non-European countries-which exclude the United States. The Europeans have not compensated the U.S. for these actions as GATT requires. There is no need for "retaliation." It is a fact of life that foreign barriers are going to continue to rise, according to the U.S. government. A European Community Information Service press release stated on March 26, 1973, "The European Community is not yet, in the strict sense, the common market which its popular name suggests. There are still some technical barriers to trade between the member states." That is a mild comment for a complex maze of barriers. And the Wall Street Journal reports how the EEC reacts as a whole: "We're taking about all the Japanese imports we can," says an official of the European Communities Commission in Brussels." But the report goes on to report that "France and Italy" two of the Common Market countries "have imposed quotas on some Japanese goods." More recently, nation after nation has made specific arrangements or long-range plans with other countries. Still another publication, Common Market Reports, Euromarket News, of April 25, 1973, adds that three other Common Market countries, the Benelux countries— Belgium, the Netherlands and Luxembourg-have ordered controls on imports of Japanese products in the field of home electronics. "In announcing the joint Benelux move, the Dutch economics ministry in the Hague confirmed that protection of domestic industry was the purpose." Now, the story continues, the governments are talking with the Japanese government. Meanwhile, they have acted, quite naturally in their own interest. There was no screaming of retaliation or trade war. The way they have acted is to stop the "indiscriminate issue of import licenses." The U.S. has tariffs and quotas, but licensing of imports-a common practice in many countries of the world-is not even an issue in the U.S. because it is not generally known to the public. Nor did the public know that Chrysler-Mitsubishi was producing the Dodge Colt in Japan in 1970 for the U.S. market, yet most U.S. cars still cannot easily surmount the maze of barriers into Japan. Japanese and U.S. brand cars can move into the U.S. The list could go on indefinitely but in 1973, the issue was still not solved. U.S. company after company met barriers to trade with Japan by finding a Japanese partner, a Japanese licensee or some other Japanese source to produce in Japan-behind the trade barriers. Meanwhile it claimed publicly that U.S. labor costs were too high, forcing the transfer of U.S. production and jobs abroad. The route to Japan is often virtually closed even in 1973. Quotas still exist for many products, including some computers and leather. But the route to the U.S. is still open. Where were the cries in the U.S. for retaliation? In Europe, a business magazine Vision reported in April 1971 that "The major reason for manufacturing in Europe is that European governments prefer to place orders with a local U.S. subsidiary rather than going in for straight imports." Country after country has non-tariff barriers to trade within the Common Market. Yet, U.S. companies which adjusted to the preferences forced upon them by European governments screamed "trade war" in full page newspaper ads when Congress tried to act in the U.S. interest in a 1970 trade bill. Recent reports show that the situation has grown worse in many areas. In the so-called non-industrial countries like Spain, Brazil and Mexico, the law requires production in those countries for local sales and requires exports from these countries by foreign investors who produce there. In December, 1972, the New York Times reported that auto manufacturers were required to have "only 50% of their production with Spanish-made components provided that the original investment is more than $158 million of fixed assets and two-thirds of the production is exported." In April, 1973 the Journal of Commerce reported that Ford, Chrysler and possibly GM will make cars in Spain for the European market. The Ford project in Spain has been characterized as one of the biggest industrial investments ever made in that country. Reports have said the plant will turn out small, economical Ford cars; it will have a capacity of 250,000 cars a year, two-thirds of which will be exported, according to an article in The New York Times. The article said "this high proportion of exports is a condition required by the (Spanish) Government for preferential treatment." There is no mention of whether or not these exports will become imports of small cars to the U.S. Why isn't someone in the U.S. crying for retaliation? The Mexican government announced in October, 1972 that foreign investors would still be required to fit their investments into the Mexican government's national policy. For example, President Echeverria on October 23, 1972, issued an announcement on automobiles making it the "obligation of automobile manufacturers to employ a minimum 60% of Mexican-made components in car production." The Brazilian government recently decreed that foreigners who wish to invest must bring into Brazil their fully-operating plants that have been producing efficiently in a developed country before the Brazilian government will permit investment. Then the production must be exported from Brazil except for the amount the Brazilian government allows to be sold in the Brazilian market under quota. Trade rules are only part of the story of America's changing economic circumstances as foreign countries regulate investment in their country. Foreign nations are sovereign states. They have the right to pass new laws. U.S.-based firms must meet those regulations abroad and so must foreign firms. They create production incentives in those countries and thus affect the U.S. economy and trade. When Mexico announced a 17-point program for foreign investors, the New York Times headlined its story on November 24, 1972, "U.S. Investors Accept Mexico's Policy." The Story began, "The Mexican Government is making it clear that it will want greater Government participation with foreigners who want to invest here. But after a month of major policy statements to that effect, key American business spokesmen say they still believe Mexico remains an attractive investment possibility." There were no full-page ads in U.S. newspapers about the problem, certainly no ads suggesting "retaliation" against Mexico. Likewise, when Canada decided to screen foreign investments last year, no outcry greeted the move. Australia recently announced new curbs on foreign investors. Business Week headlined its story, "Australia: the picnic is over for foreign business. Australia. with $12 billion foreign investment, one third from the U.S., has decided to make sure it owns it own future." Business Week reported that "U.S. multinational companies with interests in Australia profess to be unworried-although they are watching the new government carefully. The concern over local participation is reasonable and we welcome it," says a spokesman for American Metal Climax, Inc. AMAX has a 25% share of the vast Mt. Newman iron ore fields in Western Australia, where development is expected to cost $600 million. Every study by and for multinational firms cites foreign trade barriers as the reason for investing abroad. What they do not show is the fact that Electronic News on Monday, March 12, 1973, pointed out: “Multinational companies supposedly avid free traders-often become protectionists overseas where they have plants flourishing behind foreign trade harriers. State Department negotiators and industry trade sources claim many U.S. firms with overseas operations do not welcome increased trade in foreign markets where they may enjoy some edge today... "Purely domestic American firms-those screaming loudest for greater protection-often are the first to grab a quick buck by selling their technology to for eign competitors. For a cheap investment, overseas firms frequently leap-frog years of costly research and development to come back shortly to this country with price-undercutting imports . . . "Unfortunately, some leading State Department officials say, multinational officials overseas tend to take on the trade prejudices of the countries in which they are located. This becomes especially true with the growing trend of multinationals to hire foreign citizens to head plants in their countries." Look at the behavior of the U.S. companies that signed the full page advertisements in 1970 which raised the threat of a trade war if new trade legislation was passed. Many of the companies which signed the ad were even then operating behind complex trade barriers erected by other nations. In Japan, for example. Caterpillar Mitsubishi was producing in 1970 behind a multiplicity of administra tive controls on imports. . . and a licensing system covering all imports. It produced in Japan for the Japanese market. Now Caterpillar plans to send a small tractor, made by Caterpillar Mitsubishi to the U.S. It is to their corporate advantage to keep Japanese barriers high and ours low. IBM-a signator to the ad-was one of the few firms with 100% ownership in its Japanese subsidiary in 1970. Computer exports from the U.S. met barriers to trade requiring import certificates for quotas from MITI, according to Forbes magazine in May of 1971. IBM was comfortably behind Japan's barriers. American Smelting told an Australian Senate select committee last year that Australian participation in its holding company had grown from 5% to 39% in the past 20 years. "And the company has no U.S. directors," a spokesman adds. (Business Week, January 20, 1973.) Time magazine reported on November 13, 1972, "Country after country is imposing or contemplating restrictions on American investment that it was once pleased to get." In 1974 the Economic Report of the President published a list of only 1973 actions. (attached) Every country in the world, it seems, has a right to have a sovereign government, to change its regulations on investment or imports from abroad or to abroad, but any suggestion that the U.S. change its rules is greeted by howls of dismay by the U.S. multinationals. Multinationals have not emphasized these problems for the U.S. because they oppose new U.S. legislation. But for the U.S. not to act, in the fact of this sweeping change, is to make the American economy a helpless giant, pummeled by adverse changes. Companies abroad have to conform to local rules, of course. Among the more enjoyable rules are investment incentives through taxes. Some nations have tax free holidays to attract investors, others have special programs for areas with high unemployment. The Wall Street Journal on November 19, 1973 stated "Inducements offered by government partners can be seductive, if somewhat unAmerican sounding. In return for conforming to a national five-year plan and accepting export targets, insiders say, a company may well be offered a domestic monopoly, tax holidays, fixed prices and stiff barriers against competing imports. In police states of the far left and right alike, the bonus-repression of wage demands may be tossed in." The U.S. has various investment incentives, too, just as it has regulations. But every proposed restrictive change in U.S. law is opposed by the same companies that have been able to adapt to the massive changes now occurring around the world. Each company has a different problem-and each company represents its individual view to the Congress. But the U.S. economy at home is not treated as an entity in their statements, except as an extension of their multinational corporate interest. The American workingman believes-as do the people of other nations-that we have the right to our own future. Even the basic statistical argument used for years to "prove" that retaliation would cost U.S. jobs has changed completely. The sloganeers used to explain that if foreign countries put up barriers to U.S. exports, the U.S. would lose jobs and retaliation would start a trade war. Inasmuch as the U.S. had more jobs related to exports than to imports, this was a serious threat, they claimed. They did not explain that U.S. companies would merely surmount the barriers abroad and join the foreigners to ship goods into third markets from abroad or back to the U.S. markets as they chose. Now that the U.S. has had recurring deficits in trade and in our balance of payments, the time has come to stop the scare talk about retaliation and ask our friendly trading partners to remember that trade is a two way street. International forums for talks exist. International mechanisms still need to be worked out. But the United States needs to have a framework for mutual negotiations. That framework is in the recommendations for new trade legislation contained in Appendix I. March to early October-prohibition of interest pay- March-restriction on banks' forward exchange transac- April to late October-banks allowed to impose a nega- September-banks prohibited from lending francs to Feb. 4-prior authorization required (and as a rule not Controls on portfolio investment March to early October-nonresident purchases of December-act calling for screening of new foreign di- February-new restrictions on sale of domestic securi- February-authorization requirement for nonresident ties to nonresidents. direct investment valued in excess of DM500,000. July-blocked non-interest-bearing deposit of 50 percent (25 percent for mutual funds) required on portfolio investments abroad. July-similar deposit required on direct investments abroad. eign currency financing of external operations, in- Nov. 21-Government announced that it would make no Oct. 1-National Bank revoked the 2 percent per quar- Jan. 1, increased foreign lending and investment January 1974-Controls on foreign lending by financial January 1974-IET reduced to zero. institutions suspended. Source: International Monetary Fund, and Board of Governors of the Federal Reserve System. January 1974-Controls on foreign investment by U.S. 30-229-74-pt. 4-11 |