APPENDIX IX

ANSWERING THE ARGUMENT THAT MULTINATIONAL FIRMS' OPERATIONS

ABROAD SPUR JOB GROWTH HERE

One of the most widely utilized arguments by multinational corporations is that their foreign investments over the past years have not resulted in the export of jobs but, in fact, are responsible for America's job growth. The extension of this argument, directed specifically against the Burke-Hartke bill, is that if the overseas activities of multinationals are curbed, a shrinkage of jobs in the U.S. will result.

Because this argument is so crucial to the problems of U.S. multinationals, it is worth closer examination.

The claim of job creation in relation to foreign investment made by multinational corporations stems partly from a set of statistics compiled by the Department of Commerce. These hold that the firms most active in direct foreign investment in the years 1966 to 1972 showed a greater gain in employment in their U.S. facilities than did other U.S. corporations. The multinationals and their organizations also have studies of their own, which not surprisingly reach the same conclusion.

It can be completely true that those corporations which invested most heavily in foreign investment showed the greater gain in U.S. employment, but that does not make it true, as the multinationals would have everyone believe, that foreign investment is thus responsible for the faster job growth at home. To maintain that is so is the most dangerous sort of nonsense.

The multinationals examined by the Commerce Department are not just corporations which invest overseas. They include America's largest concerns, which are the largest employers, the largest defense contractors, the largest recipients of government contracts at all levels and those most heavily involved in mergers and acquisitions.

These firms are not a cross-section-a slice-of America. They are the commanding heights of our industrial structure. This was pointed out in a Tariff Commission report to Congress in early 1973. "The multinational firms are neither minor employers nor a special case which can be analyzed independently of the national economy. They are the backbone of the demand side of the labor market, the firms which ... have the biggest quantitative punch in terms of the numbers of people they hire."

Rather than foreign investment creating jobs in the U.S., a closer look at the broad evidence available from government statistics is that employment growth from domestic influences is masking job losses resulting from direct overseas investment and from imports. Unfortunately, the evidence in some cases is presented in such a way that it is subject to selective interpretation. The President's report to Congress on international economic policy, for example, cites the Tariff Commission report as providing "a realistic set of assumptions that U.S. multinational corporations created a net gain in U.S. employment of about one-half million jobs."-while ignoring two other sets of assumptions in the Tariff Commission report that led to the conclusion that between 400,000 and 1.3 million job opportunities were lost to Americans because of investment and trade changes in which the firms' activities were a factor.

In addition, claims of net job creation by the multinationals from overseas investments are highly vulnerable. As well as being active in direct foreign inrestment, multinational concerns during the 1960s were heavily engaged in domestic mergers and acquisitions. Subtract the employment additions to these concerns as a result of these activities from the claimed job growth statistics. and a different picture emerges. Furthermore, foreign investment activities of large U.S. corporations have the impact of wiping out the jobs and businesses of American firms. For example, the vendor firms, the service firms and the spinoff firms all lose heavily when a firm abandons a U.S. community or fails to locate its expansion here.

The Emergency Committee for American Trade claims, from its own studies. an employment growth among multinationals in the decade from 1960 to 1970 of 36.5 percent compared with an employment growth of 30.3 percent for all industries to prove its point that foreign investment creates U.S. jobs. But without the job additions to these concerns as a result of mergers and acquisitions, the multinationals' growth is 21.6 percent-considerably less than the all industries figure.

APPENDIX X

ANSWERING THE ARGUMENT THAT IF THE U.S. ACTS IN ITS OWN BEHALF IMPORTS AND EXPORTS WILL BE REDUCED AND TRADE DIMINISHED

The argument is made that if the U.S. acts to limit imports, both imports and U.S. exports will suffer, thus causing a shrinking of world trade. If this argument were valid, Japan would have become a poor bankrupt nation instead of a world leader. It was only after Japan began to liberalize trade that her troubles began. Japan, as with most nations, still strongly limits access to its markets. Americans are naive if they believe that other nations do not move to protect themselves when they feel threatened in world trade. Throughout the world it is government policy to act at once without the rhetoric of "free trade" or the straw man of "retaliation" where problems arise. The Arab embargo should have taught the United States a lesson.

Regardless of what comes out of trade legislation this year, every nation in the world will continue to act in its own self-interest. They intend to keep their industries, their productive capabilities and will continue to expand them. They will not shut them down nor will they give them to us. They will not negotiate away any favorable trade stance, nor will they open their markets to a torrent of goods from this or any other nation that would threaten to overwhelm their productive capacity. They can agree to new international rules because they already have national rules. The proposed trade law asks the Congress to remove U.S. laws when negotiations require it.

In the world of today, tariffs are only the tip of the trade iceberg. It is the above-water area of gentlemanly negotiations where long standing trade exchanges are "fine tuned." But when a nation is threatened it will move immediately to other, more protective, means of guaranteeing their international positions.

Everyone now knows that other nations are increasing, not lessening, the barriers to their markets. The need for energy will cause them to seek to maximize exports wherever they can penetrate markets.

Tariffs, non-tariff barriers, licensing restrictions, quotas, protective government purchasing policies and other restraints are increasing daily throughout the world. This was occurring before the oil crisis. For example, reports show that the situation had grown worse in many areas in the 1970s. In the so-called nonindustrial countries, like Spain, Brazil and Mexico, the law requires production in those countries for local sales and requires exports from those 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."

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 manufac turers 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. Even the most industrial countries have similar arrangements.

The list could be longer, but much of the information needed is available only to companies and governments-not to labor unions. But the facts are clear. U.S. firms, producing in other countries, for reasons that seem pressing in their own interest, expand in those countries behind foreign trade barriers and follow

those countries' rules requiring exports to the U.S. Thus they operate as both a sword and a shield against expansion of U.S. trade.

These walls to genuine trade will not bend to "negotiations" or the so-called authority in the Administration's trade bill. The U.S. enters negotiations with the least barriers to bargain away.

The U.S. can expand its exports in non-agricultural products only if it has a manufacturing capacity with which to produce the goods. If the U.S. market is inundated and smothered and its raw materials exported, it is unlikely to produce the goods necessary for export. For example, how is the U.S. going to export typewriters, bicycles, black and white TV sets, home radios or cameras? We are virtually out of the business of producing these products other products like aircraft and machinery have begun to follow. At the moment, the U.S. policy is to allow this nation to give up producing industries and service industries. So what will we produce for export? We are ready to give up computer hardware and computer software; we are prepared to give up aircraft manufacture and aircraft operations; we are prepared to give up electronics manufacturing; we are prepared to give up service printing; we are prepared to give up all but those few industries where we have made voluntary trade agreements or where we have statutory quotas a slender list of goods and products. This course can only cause fewer exports—and fewer imports.

APPENDIX XI

ANSWERING THE CLAIM THAT PROVIDING THE PRESIDENT WITH OPTIONS WILL MEET THE U.S. TRADE PROBLEMS

Existing legislation contains many provisions, seldom used, to enable the United States to keep imports from destroying domestic industry. Legislation exists to regulate exports and to strengthen bargaining power with other nations. This legislation has seldom been used although the President has the authority to use it. Now the Administration claims that the President needs new authority for "bargaining" weapons to bring foreign tariff and non-tariff barriers down. What he actually proposes is only to reduce United States non-tariff barriers. The record shows he has not often used the power he has.

RETALIATION

Section 252 (a) of the Trade Expansion Act of 1962 allows the President to "retaliate" whenever any foreign country maintains "unjustifiable" restrictions against U. S. agricultural products. He can put barriers on manufactured imports as well as farm products. This has not been put into force in response to the many barriers which have been mounting abroad. The Administration has claimed that section 252 applies only to illegal barriers under the GATT and asks new authority in the bill. Thus they concede that the U. S. now can act under 252 (a) on barriers abroad. But the U.S. has not acted except on rare occasions, such as chickens and more recently some kinds of citrus. So we have had the U.S. claiming (a) that it has no authority to act and (b) foreign barriers are its major problem in expanding exports.

252 (b) and (c) give the President authority to withdraw tariff reductions whenever he believes foreign trade barriers unjustifiably affect U. S. exports. Thus, in addition to agricultural products, the law applies to manufactured products and to so-called "third country" competition (that is, where a country makes an arrangement for special preferential trade with another country and cuts out U. S. exports to the third country.) The Arab embargo was obviously both illegal and unjustifiable. No "withdrawal of concessions" occurred.

The President's bill would widen all of this authority and make it more difficult to apply. But the President has not even used the authority he has. Why give him more authority not to act?

ESCAPE CLAUSE

The Trade Expansion Act of 1962 contains an "escape clause," which, in effect, says that whenever imports are increasing in major part as a result of a tariff concessions at such a rate as to be the major cause of import injury, the President may put on tariffs, negotiate orderly marketing agreements and take other steps. How has this been used? The U. S. shoe industry has been asking for help for over a decade. The U. S. shoe industry went to the Tariff Commission. The Commission found in January, 1971 by a 2-2 vote that the shoe industry had been injured. The President therefore has the tie-breaking authority-absolute right to redress the injury by using the authority of the escape clause to aid the workers and businessmen in the U. S. shoe industry. No overall action has been taken as of March 1974. Some efforts to negotiate "orderly marketing agreements" with a few countries were ineffective. Now the President is saying he needs authority to act when U. S. industry is injured. Can anyone question that the shoe industry has been injured? Shoe imports now account for one out of every two years sold here. Joblessness has mounted in the past decade. Towns in New England and many other parts of the country have been adversely affected. But no action has been taken by the Administration. Why give more authority? The ball bearing industry shows a similar history. For an industrial nation, the decline of the ball bearing industry should be grim evidence of the danger of merely giving the President discretion to act. The ball bearing industry has shown erosion for years. In 1973, the Tariff Commission finally found injury to

the domestic industry. The Tariff Commission report on July 30, 1973, received no Presidential action. On September 28, the President merely asked for a new set of figures about the industry because 1973 data had not been made available. There had been no action as of March, 1974.

The Tariff Commission reported in January that imports increased 23 percent in quantity and 39 percent in value-a higher penetration in the new figuresin the period of 1973 where figures had been requested by the President. Thus delay worsens problems. Since 1973 showed some production rises in the huge U. S. output gain, little action is contemplated.

Nowhere has there been an analysis of the urgent need to promote an industry for the well-being of the United States. There has been a series of delays and a series of considerations of what will please domestic producers. There has been no measure of the details of production of some major multinational firms here and abroad. Instead, the United States ball bearing industry continues to be in jeopardy, as some companies import from their foreign subsidiaries. There is no analysis potential impact to the United States in the 1970s and 1980s as it needs to import ball bearings, while other nations have been helped to produce them. Dependency on ball bearing imports could be even more serious than dependency on oil.

The fact that U.S. producers have profits is used as a reason for importing more by analysis. The fact that foreign producers have profits is ignored. Thé President does not act.

COUNTERVAILING DUTIES

The Tariff Act of 1930, Section 303 requires (mandatory) the U.S. to apply a countervailing duty (tariff) whenever a foreign country subsidizes exports to the U.S. with a "bounty or grant." This is automatic and mandatory in the law, It has not been invoked, except on rare occasions. Now the President is asking for new discretionary authority as well as the right to delay action if negotiations would be affected. The shoe industry applied for relief under this proposal. Nothing happened.

Both the Export Administration Act and the DISC legislation (a special tax break for exports) give the President the authority to take action to restrain exports of products in short supply. In fact, as lumber exports zoomed until the prices zoomed, as demand pressed on already short domestic supply, the President failed to take effective action either to restrain the export of logs or to remove the DISC provision which gives a special tax break to log exporters who have DISCS. (PL 92-178 Sec. 993 (c) (3).) Here consumers have had to pay the price for the President's failure to use the discretionary legislation already on the books.

These are just a few examples. The Administration should be asked to supply a list of the many existing statutes which enable the Administration to take action in the interest of the American producer and consumer by assuring a large enough domestic supply of all kinds of goods. Further, the Administration should explain why, since it has not used this authority, it now needs new authority.

Credibility is important in the United States today. No businessman, industry worker or housewife will believe that the purpose of new legislation is to help people in the United States unless it is proved that existing authority under prior laws is used effectively to protect America.