MANY IMPORTANT PROBLEMS IGNORED

There are many areas of concern which the Administration's trade bill leaves completely untouched. These include:

1. It provides no specific machinery to regulate imports or to curb the export of materials in short supply at home.

2. It does not deal with the export of U.S. technology and capital to other parts of the world where corporations, which frequently are U.S. based multinationals, can maximize profits and minimize costs at the expense of U.S. jobs and production.

3. It does nothing to close the lucrative tax loopholes for multinationals or to remove, or at least neutralize, the tax and other incentives which make it more profitable for U.S. companies to invest abroad and produce abroad rather than in the United States. Nor does it do anything to regulate accounting practices so that smart multinational managements cannot juggle their books to take advantage of favorable treatment in one country compared to another-without regard to social or economic obligations, either to host or parent country.

4. It does nothing to repeal Items 806.30 and 807 of the Tariff Code, which encourage U.S. firms to locate abroad and take advantage of low wage foreign production and a special low tariff rate on goods exported to the United States. 5. It fails to assure action against the unfair trade practices of other nations. 6. It ignores the fact that this country's industrial base and productive strength have been weakened by current foreign trade and investment policies and makes no provision for restoring the nation's critically needed industrial health. The continuing headlong shift of the U.S. economy from the goods producing to a service economy is a serious matter and cannot be taken lightly.

A NEW BILL IS NEEDED

For all of these reasons Congress should reject the bill now before it and write a new trade bill which will contain provisions which will help to solve today's problems rather than yesterday's charades. Such legislation must be comprehensive, flexible and realistic.

The new legislation should:

1. Regulate U.S. imports and exports. Specific flexible legislative machinery is necessary to control imports. A flexible mechanism can also be applied to excessive exports that are in short supply and are vital to the U.S. economy. Exports, imports and U.S. production should be linked in relation to needs for supplies, production and job opportunities within the U.S.

2. Modernize trade provisions and other U.S. laws to regulate the operations of the multinational firms, including banks and the oil companies. Without such regulation these companies can continue to use U.S. tax, trade and other laws in combination for their worldwide advantage. They will continue to export production facilities, money and jobs and to juggle prices to the company advantage and regardless of the impact of their activities on the U.S. economy.

3. Eliminate U.S. tax subsidies and other advantages for corporations investing abroad. Specifically the tax laws should eliminate the tax deferral of income earned abroad and the foreign tax credits. In addition the legislation should curb the ability of the multinationals to apply excess tax credits to any of their overseas operations, and/or to carry credit forward or backward in a way which allows them to minimize U.S. tax payments. These tax provisions not only contribute to the export of jobs, and to the erosion of the U.S. industrial base but they also encourage contrived shortages of raw materials and components for U.S. production and job needs.

4. Items 806.30 and 807 of the Tariff Code should be repealed because they encourage the foreign production and foreign assembly of goods for sale in the U.S. Imports under these provisions which are used to shift production to cheap labor markets and away from the U.S.-have risen from $1 billion in 1967 to $3.4 billion in 1972.

5. Clear provisions should be included in the new legislation to regulate exports of capital and new technology.

6. Multilateral trade agreements with other nations should be administered in a manner which is consistent with the flexible machinery devised to regulate imports and exports.

7. Any legislative provision to authorize negotiation on non-tariff barriers should be limited and should require specific Congressional approval for the

removal of any barrier, with full information about the products affected. It is not enough to have an after-the-fact veto authority. U.S. tax laws, consumer protection laws and other social legislation, including occupational health and safety laws, should be barred from such negotiations.

8. New provisions are needed to assure speedy and effective action against foreign dumping of products on the U.S. market.

9. Clear labeling on imports of products and components to mark the country of origin is needed. All consumer protection legislation should be strictly enforced on imports.

10. The need for improved statistics on imports, exports and production has become urgent. Since important policy decisions are made on the basis of statistical evidence, that evidence must be as comprehensive and accurate as possible. This is not now the case.

THE MULTINATIONALS ATTACK

PROPAGANDA CAMPAIGN HIDES THE TRUTH

A decade ago the word "multinational" was unfamiliar to most people. It was used for the most part only in academic classrooms or by theoretical economists. The 1964 edition of Webster's dictionary does not carry it. But today the word is commonplace, familiar not just to readers of the financial pages of the newspaper, but to all of us. Whether standing in a gas line or an unemployment line, most Americans now are aware of the connection between the giant multinational corporations and those lines.

Oil companies, manufacturing companies, agribusiness, banks-all are engaged in worldwide operations. The rise of the multinationals is perhaps the most significant economic development of recent years. Their shift from relative obscurity to the front pages is, of course, the result of both the tremendous growth and the growing concern over the impact of these huge companies on economic and social development, not just within the United States, but on a global basis. By the beginning of the 1970's, it was hard to find a manufacturing company worth its salt which had not either already gone multinational or was busy making plans to do so.

The concern of the labor movement over the uncontrolled activities of the multinationals was voiced early and loud-loud enough apparently to strike a nerve among the multinationals themselves and to cause them to launch, through their various spokesmen, a concerted counterattack. Adopting a posture that the best defense is offense, this counterattack is designed to smother both labor's concern and the issues with a blanket-really a patchwork quilt-of spurious statistics and fictitious "facts."

As the labor movement has worked to persuade the public, the government, and Congress that regulation and control of the multinationals is essential to the conduct of effective and wise public policy, the multinationals have fought back. They are trying to convince an increasingly skeptical public that regulation is not only unnecessary but would be detrimental to the ceonomic and social wellbeing of the country and the world. In this effort, the multinationals have been aided by powerful spokesmen, starting with the President of the United States, and including the U.S. Department of Commerce, the Council on International Economic Policy, the U.S. Chamber of Commerce, and their own organization created especially for the struggle, the Emergency Committee for American Trade or ECAT.

The multinational counterattack has focused on three points:

The multinationals contend that their operations are good for U.S. employment, creating more than their share of jobs-and that they do not contribute to the loss of U.S. job opportunities.

They contend that their activities are good for U.S. trade, increasing exports and not affecting imports.

They contend that they do not take advantage of the low-wage economiesthat wage is not an important factor in the decision to establish plants abroad rather than in the United States.

In this article, the fallacies behind each of these contentions are examined. It may well be that there are no absolute truths to be found in the continuing debate on the impact of multinationals, although certainly there has been no lack of searchers for the truth, including several Congressional committees. However, there have been clear distortions of the truth and these can and should be set straight.

THE EMPLOYMENT ISSUE

So many figures have been used and misused on the impact of increased overseas investment by the multinationals on U.S. domestic employment, it is no wonder that the only result of the charges and countercharges of the statistical battle is complete confusion or disinterest. Take one example: perhaps you have seen or heard the ad used by ITT-a multinational if ever there was one-to defend multinationals in general and its own overseas operations in particular. The ad starts with a picture of a newborn infant and asks the question-will there be a job for this infant when it grows up? The ad goes on to say that there must be millions of new jobs by 1990 and that one way to get these jobs is by further expansion abroad. It then advances several sets of statistics to prove the point, stating that "in the 1960's, U.S. multinational companies increased domestic employment at a higher rate (31.3%) than the national average (12.3%)," and that foreign trade (and inferentially, multinational trade) generated from 600,000 to 900,000 "new" jobs for Americans during the 1960's. Sounds very good. But it represents a gross misuse of questionable data.

The first set of figures concerning the growth of domestic employment is taken from a survey conducted by the U.S. Chamber of Commerce in 1972. The Chamber-not exactly a disinterested observer-sent out a questionnaire to 644 companies in an effort to show a favorable relationship between foreign investment by U.S. companies overseas and employment in those companies here at home. Only 121 of the 644 companies responded; presumably those with the best record. These companies did indeed show an increase in domestic employment between 1960 and 1970 of 31.1 percent.

However, a substantial part of that increase was due to mergers and acquisitions or was merely a paper increase. According to the Chamber's own figures "just over one third of the total domestic employment gains in 1960-1970 were due to acquisitions." This means that instead of a 31.1 percent increase in domestic employment, the real gain for the 121 companies was only 20 percent. Just how ITT got its figure of 12.5 percent for the national employment growth in the decade of the 60's is impossible to discover. It must be for some other country, not the U.S., because according to the data published by the Council of Economic Advisors and the U.S. Department of Labor's Bureau of Labor Statistics (which certainly should be definitive), the increase in total nonagricultural payroll employment for the decade was 30.2 percent, or more than ten percentage points in excess of the job growth in the multinational companies surveyed by the Chamber-and then reiterated as fact by ITT in a national advertising campaign.

WHERE THE FIGURES ORIGINATE

The second set of statistics used in the ITT ad is equally fuzzy and, unfortunately, equally unreliable. As far as can be ascertained, the 600,000 figurepresumably a minimum number of new jobs generated by the activities of the multinationals-is taken from an estimate made by Professor Robert Stobaugh of the Harvard Business School in the closing paragraphs of a study he made on commission from the U.S. Department of Commerce in September, 1971. The study examined the case histories of only nine U.S. companies with foreign direct investments, to determine the effect of the investment on U.S. employment and the balance of payments.

His analysis of these nine cases led Professor Stobaugh to the conclusion that after initial periods of development and transition, the number of new domestic jobs in those nine companies would settle at 3,802-a long way from 600,000 to be sure. Notwithstanding the limitations of the nine sample cases, the Harvard group then took a heroic dive into the statistical pool and estimated the total impact of foreign direct investment on all U.S. employment. On the basis of some broad and fairly iffy assumptions, they came up with a figure of 250,000 produc tion jobs in some undefined period. To this they added another 250,000 office jobs in the headquarters of the multinationals and then for good measure tossed in an additional 100,000 jobs for undefined "supporting workers." All of this adds up to the guesstimate of 600,000 used as fact by ITT, and unfortunately by many others.

Now, how about the 900,000 maximum job figure? This apparently comes from still another multinational-supported study; this one done by ECAT. This study, also undertaken in 1971, is based on information supplied by only 74 multinational corporations on their activities between 1960 and 1970. These companies reported that they had increased employment by "nearly 900,000" from 2,432,000 to 3,348,000 or a growth rate of 36.5 percent. The ECAT tabulations, however, clearly identified that part of the increase that was due to merger and acquisition, and therefore not representative of real gain. Eliminating this paper growth, the gain drops from "nearly 900,000" to only 528,000, representing in percentage terms an increase of only 21.6 percent-a very poor showing compared to the national average growth of 30.2 percent.

A NOT-SO-GOOD RECORD

Altogether, what ITT and its friends have done is to take data from several sources, mix it up with some good advertising copy, and come up with a selfserving recipe for the continuation of the present tax and trade policy favoring the multinationals, under which profits come first and the public interest last. In actual fact, no one can be certain what will be the long run impact of the multinationals on employment. We do have some factual information to help us in this regard. Last year, the Department of Commerce collected comprehensive data on 298 multinationals, representing the major portion of the U.S. multinational universe. This survey showed that their domestic employment increased between 1966 and 1970 by 11.1 percent, compared to a total U.S. employment growth for that period of 10.4 percent. The Department of Commerce admitted that "it does appear that some part, probably not more than 4 of our sample, of the growth in domestic activities of the 298 enterprises is due to mergers." That being the case, it is clear that the domestic employment growth for the multinationals is not better than for the economy as a whole. If anything their record is worse.

There is one other frequently used statistic that needs to be laid to rest in this connection. ECAT has publicly stated that "the domestic employment of the 298 companies covered in the (Department of Commerce) survey rose far faster than other domestic employment. The increase in their payrolls between 1966 and 1970 by an average of 2.7 percent a year compared to the ntaional average of 1.8 percent." The Council on International Economic Policy-the top White House group in this field-presumably using the same data, makes a similar claim, stating that "a recent survey of 298 multinational firms carried out by the Department of Commerce suggests that multinationals have helped rather than hindered the growth of domestic empolyment." The Council's report goes on to say, "the study showed for example, that while overall U.S. private sector employment grew by 1.8 percent a year, between 1966 and 1970, domestic employment attributable to multinational corporations grew by 2.7 percent a year." Both sets of figures are in error.

The total growth rate of employment in the 298 companies is correctly reported at 2.7 percent a year-but if you take into account the one-fourth increase attributable to mergers and acquisitions-which the Commerce Department itself says is a reasonable estimate the growth rate would be only 2.1 percent a year. Now about the second figure-1.8 percent that is supposed to represent national average employment growth. Here one can only assume that the government-and ECAT made an error in arithmetic, because the growth in private sector employment between 1966 and 1970-as reported by the Bureau of Labor Statistics-is not 1.8 percent a year, but 2.3 percent a year. So even without taking into account the problem of mergers and acquisitions, the performance of the multinationals is not 50 percent better than the rest of the economy as a whole as claimed by ECAT, but only 17 percent better. And if the merger problem is taken into account, the performance of the multinationals is almost 10 percent worse than the national average.

All of this might be considered much ado about nothing. But it is not. It is about people and jobs, and about the development of a foreign trade policy that affects the lives of all of us. None of us can afford to let multinational propagandists cloud the real issues with false and fancy figures. However the same kind of misrepresentation has occurred in regard to multinational influence on imports and exports.

THE EXPORT-IMPORT ISSUE

The contention of the multinationals that their activities have contributed heavily to the expansion of U.S. exports, and have not been instrumental in bringing about the sharp increase in imports, is simply less than the whole truth. Although it is true that between 1966 and 1970 exports of the multinationals increased faster than total U.S. exports, that is not saying much, since they are naturally the biggest companies which would be expected to account for a major portion of U.S. trade.

The significant comparison is between the rate of growth of the multinationals' exports and their imports. Here we find that in the period under discussion imports of manufactured goods generated by the multinationals (the import of raw materials is not in question), as measured by the increase in exports to the U.S. by the overseas affiliates of the 298 companies surveyed by the Department of Commerce, increased by 129.4 percent. In the same period, the increase in total U.S. imports of manufactured goods was only 82.3 percent. In addition, imports of manufactured goods produced by U.S. based-multinational corporations grew twice as fast as their exports-129.4 percent compared to 58.6 percent.

In several specific industries, the performance of the multinational corporations has been decidedly inferior in comparison with total U.S. trade performance. A Tariff Commission study, using the data provided by the Department of Commerce, shows that the multinationals were inferior to all-manufacturing firm export performance in 18 industries. By inferior, the Commission means that multinational exports grew more slowly than all-firms export growth. These 18 industries accounted for almost 80 percent of the total U.S. export trade in manufactured goods. They include such industries as primary metals, industrial machinery, fabricated metals, transportation equipment, paper and allied products, instruments, industrial chemicals, electronic components, radio and television, and stone, clay and glass products. The same study shows the multinational inferior to all-firm import performance (that is their imports rose faster than all-firm imports of manufacturer goods) in 13 industries. These industries include industrial machinery and equipment, electronic computing equipment, fabricated metals, drugs, textiles and apparel, electrical equipment and apparatus and farm machinery and equipment. Not only is the quantity large of industrial production in which multinational performance is inferior to the general economy, but the types of goods are broad-based, including capital as well as consumer goods.

Serious questions can also be raised concerning the impact of the sales of foreign affiliates on U.S. exports. Quite naturally the inevitable result of the increased investment in overseas affiliates has been a substantial increase in sales by those affiliates, both within the countries where they are located and in thirdcountry markets. The question that remains unanswered is how these sales affect the U.S. export market-would U.S. plants have been able to supply those markets without help from their foreign affiliates? The multinationals' answer is no. But there is plenty of room for doubt.

The Tariff Commission agreed that it was unrealistic to expect that U.S. industry could absorb the entire burden, but in hypothesizing that U.S. exports could absorb only half the difference between 1966-70, the increase in foreign sales would be about $4.9 billion. This, of course, would have gone a long way toward relieving unemployment in the United States, as well as toward offsetting the U.S. balance of payments deficit.

THE REAL EXPORT-IMPORT STORY

Between 1966 and1970 imports into the United States from their affiliates rose substantially in many industries, competing sharply with domestically produced goods. In the electronics subsector, for example, rapidly rising imports from manufacturing affiliates in Taiwan, South Korean, Mexico and similiar locations clearly had a strong impact on domestic production. Shipments to U.S. parent companies rose by almost 240%. In the industrial machinery subsector, total parent imports from affiliates was double. Other substantial increases in imports from foreign affiliates which exceeded the national average increase were: chemical and allied products-up 93%, with drugs up 221 percent rubber products-up 589 percent