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[Whereupon, at 11:40 a.m., the hearing recessed until 10 a.m., Friday, April 29.]

TRADE REFORM ACT OF 1973

FRIDAY, MARCH 29, 1974

U.S. SENATE,
COMMITTEE ON FINANCE,

Washington, D.C. The committee met, pursuant to recess, at 10 a.m. in room 2221, Dirksen Senate Office Building, the Honorable Vance Hartke presiding

Present: Senators Long (chairman), Hartke, Ribicoff, Packwood, and Roth.

Senator HARTKE. Good morning. Today, we are going to resume hearings on H.R. 10710, the Trade Reform Act.

Our first witness will be I. W. Abel, President of the United Steelworkers of America. Mr. Abel is appearing as head of his union and also on behalf of the Industrial Union Department of the AFL-CIO.

Mr. Abel, the 5-minute rule will be in effect here in the first round of interrogation. Let me say to you that I have a conflict this morning, as I have told you personally. I am chairman of the Veterans Affairs Committee and I have hearings scheduled to begin immediately upstairs. We have a whole room full of people up there and I have mixed emotions. On the one hand, I want to be here listening to your testimony because you have been such a staunch supporter of trade principles which I think are very important and I support myself. On the other hand, I think that it is vital that my Veterans Affairs Committee prod this administration into giving something other than rhetoric to the veterans of the Vietnam war. So, Mr. Abel, if you will proceed, we will be glad to hear from you.

STATEMENT OF I. W. ABEL, PRESIDENT, UNITED STEELWORKERS OF AMERICA, AFL-CIO, ACCOMPANIED BY JACOB CLAYMAN, SECRETARY-TREASURER, INDUSTRIAL UNION DEPARTMENTAFL-CIO

Mr. ABEL. Thank you, Mr. Chairman. I want to point out that accompanying me this morning is Mr. Jacob Clayman, secretarytreasurer of the industrial union department. I want you to know that we appreciate this opportunity to appear before this committee and express our views on this trade bill.

Mr. Chairman, the development of an effective and constructive foreign trade policy is one of the most important and most difficult issues facing the Nation and the Congress today. I am grateful to this committee for the opportunity to testify today on this important sub

ject on behalf of the United Steelworkers of America, AFL-CIO, and the industrial union department of the AFL-CIO.

I am particularly pleased because I think that in recent months the position of the labor movement in regard to foreign trade policy has often been misunderstood, or misinterpreted. We are not isolationists. We are certainly not against foreign trade, nor are we against international cooperation in the economic sphere as well as in the political arena. In the IUD, however, our first concern is to advance the interest of working men and women—and particularly to advance the interests of working men and women in the United States. For us, this means a primary emphasis on jobs and job security, but it also means that we are concerned with overall economic and social objectives in the United States.

Our concern with foreign trade policy is directly related to our concern with the economic and social health of the United States. Therefore, we cannot support policies which seem to us to be detrimental to the economic and social well-being of this country even though they are wrapped in red, white, and blue bunting, or are tagged with the outworn labels and code words of another era. To a large extent, this is what has happened.

For the past 3 years or more we have consistently argued that our present foreign trade policy is not helping us to build a strong and healthy domestic economy, but in fact has had the opposite effect. Jobs are being lost to imports. U.S. industry is being encouraged to invest overseas rather than in the United States because of tax incentives or other nation's discriminator trade practices, or both. The erosion of the U.S. industrial base continues. And our jobs, income, and even the quality of our life seems to be more and more dependent on the profit-motivated decisions of increasingly powerful multinational corporations whose activities are not subject to any kind of control. Under these circumstances, we believe our concern is justified.

But I would like to speak to the legislation which you have before you. The Trade Reform Act is claimed by its supporters to provide the answers to the chief trade problems facing the United States. It is supposed to deal with the issues involving the elimination of barriers to the free movement of U.S. products in world trade, and the trade related disruptions that have severely affected some industries and workers. But that claim is a delusion. The Trade Reform Act does not provide the answers because it fails to attack the basic causes. In addition, since the time when the legislation was drafted and developed, the world of international trade and finance has been hit by a tidal wave of change-change which the present legislative proposal scarcely recognizes. As a result, the legislation, which was already inadequate, is now obsolete. We are left with a situation where the basic factors which lie behind our trade problems remain untouched—the problems remain unresolved.

U.S. products are still subject to discriminatory trade practices by other nations.

These include such practices as the imposition of nontariff barriers, special tax levies, export subsidies, and preferential trading blocs. As a result, U.S. exports have been hampered, and U.S. companies acting in

completely logical self-interest have been encouraged to export technology and capital instead of products.

The tax incentives to overseas investment are still in force. Accordingly, it is still more profitable for U.S. based multinational companies to increase investment overseas than it is to increase investment in the United States. That these companies take advantage of these incentives should certainly not come as a surprise to anyone.

We still cling to the myth that the free market principle of comparative advantage will work. The fact is that the development of managed economies and of monopolistic industries, such as the oil industry, have long since relegated such theories to the scrap heap.

As a result of this sort of head-in-the-sand attitude and our lack of attention to the basic causes of our international trade problems, we have a situation which is unchanged from that of 3 years ago.

The CHAIRMAN (presiding]. Mr. Abel, if I might interrupt you, you could not be more right. I agree that the principle of comparative advantage must be carefully reexamined in this time of managed economies and export controls. With regard to the oil industry-and I say this coming from a State which produces more oil for its size than any State in the entire Nation—we were led to believe that we could get all that foreign oil much cheaper than we can nowadays. Those who fought to let that foreign oil in are today complaining about the price of it. Foreign oil now costs twice as much as what we have in this country. Just because they can produce it at 15 cents a barrel does not mean that they will sell it to you at that price. The OPEC nations are organized, and are selling it for $10 or $15 a barrel, when it costs 15 cents to produce it. So it turns out that the cheap oil is the expensive oil to produce, the oil here.

Senator RIBICOFF. Mr. Chairman.
The CHAIRMAN. Senator Ribicoff.

Senator RIBICOFF. How do you do, Mr. Abel? As long as the chairman has gotten philosophical, may I interrupt?

The CHAIRMAN. Yes.

Senator RIBICOFF. One of the great myths we still have is the phrase, "comparative advantage.” As a practical matter there is no such thing any more, just as you can't really talk about free trade or protectionism. The theory of comparative advantage certainly goes out of window, not only from the chairman's comment, but when you consider how capital, technology, management, can be shifted at will from nation to nation. Workers without skills can be trained. When you combine them with the latest machines, and computerized programs you can produce goods with very little manpower. You do have completely different economic trade problems in the world today. If a nation does not have a comparative advantage they substitute a quota system or other methods to make sure that whatever disadvantage they have is offset with the protection that they need. What we are going to have to make sure is that it is not a one-way street, with jobs and technology going out of the United States and little coming in in return.

Mr. ABEL. Right.

Mr. RIBICOFF. I am glad you brought that up, because this is a very important factor as we delve into this entire problem.

Mr. ABEL. Well, Mr. Chairman, continuing, U.S. imports of manufactured goods are still rising.

U.S. tax incentives still encourage overseas private investment. U.S. export of capital and technology is still increasing. The U.S. industrial base is still subject to erosion, and U.S. jobs are increasingly vulnerable to the hard-nosed decisions of evermore powerful, and less controllable, multinational corporations.

If we are ever to achieve a balanced trade policy, we must begin to correct some of the conditions which led to this imbalance. The trade policies proposed by the administration and encompassed in the trade reform legislation you have under consideration will not accomplish this purpose.

U.S. IMPORTS OF MANUFACTURED GOODS STILL RISING

The improved performance in the 1973 U.S. trade balance, although a welcome development, does not by any means signal the end of the problem, nor the end of the IUD concern. The significance of the 1973 trade surplus is tempered by the fact that although exports rose, so did imports. Not only was there an import increase, but it occurred at an accelerated rate. Last year imports rose by more than 24 percent compared to a 22-percent increase the previous year and a 14-percent increase the year before that. In addition, manufactured goods are taking up an ever-increasing share of total imports, approximately 66 percent of the total last year compared to only 52 percent in 1965. In other words, the time has long gone when we could lull ourselves into complacency with the thought that the United States is primarily an importer of raw materials and an exporter of manufactured products. It just isn't so today. Agricultural products have become our fastest growing export, and, except for oil, manufactured goods have become our fastest growing import.

A close look at the 1973 surplus makes this clear. This surplus in effect represents an $8 million shift, from a deficit of $6.4 billion in 1972 to a surplus of $1.7 billion in 1973. The biggest contributors to this shift are food products, including grains, which account for approximately $5 billion of the shift, and other raw materials (excluding fuels) which make up another $2 billion. On the other hand, there was virtually no change in the trade balance in manufactured goods classified by materials such as steel products, and a worsening deficit in the balance of miscellaneous manufactured goods which includes such items as scientific goods, sound and photographic equipment as well as footwear, apparel, and sporting goods. Although the trade balance for machinery and equipment improved by $2.7 billion, half of this improvement was accounted for by the aircraft industrywhich, of course, is in a special situation. The hard fact is that if it had not been for the Russian grain deal, and the crop shortages through, out the world which led to the tremendous increase in U.S. agricultural exports, our trade balance would have remained in the red. With the rising cost of oil imports, we can expect that last year's gains will be quickly wiped out.

This rise in imports of manufactured goods is a serious concern to the Steelworkers and to the IUD for three reasons:

First there is a direct loss of jobs by American workers. When plants are closed down and the domestic market supplied with prod

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