If we do not move forward in entering a new round of trade negotiations, we lave much to lose besides the opportunity to eliminate or reduce existing barriers to U. S. exports. In the world economy, not to move forward is to drift backward toward the kind of economic stagnation, resurgent nationalism and isolationism which we knew in the 1930s, and even toward war itself. The sudden emergence of food and fuel shortfalls. rampant inflation, and high-cost oil has made this "drift backward" a potential headlong rush toward trade restrictionism and isolationism.

We saw what happened in the '30s, when we imposed the Smoot-Hawley tariffs in an attempt to reduce our depression-level unemployment. We found too late that the only result was trade retaliation by the other countries of the world, a worsening world-wide depression and economic conditions which helped lead up to World War II.

It's perhaps not too far-fetched to say that the economic conditions we face today present the same kind of challenge to a peaceful and continually functioning world economy as those of the 1930s.

The four-fold increase in world crude oil prices in the past year is likely to lead to balance of payments deficits for all of the developed countries. Already we are seeing our $1.7 billion trade surplus of last year pared down by the greatly increased prices we must pay for imported oil-and we are one of the countries of the world least affected by this phenomenon!

Already there are signs that some countries will try to pass their billions of dollars in balance of trade and payments deficits resulting from higher oil prices to other developed countries by import restrictions, unreasonable export subsidies, or competitive devaluations. This simply is not possible. There literally is no place to which these deficits can be passed. They share a common cause and they are shared by all developed countries.

This is to say nothing of the less developed countries. The food, energy and fertilizer shortages and the high prices they face today subject them to the real danger of not only even lower rates of economic growth, but, for some, even famine.

The severity of this problem cannot be overemphasized, for, as we've learned all too vividly in the past, world economic problems which are neglected spread like wildfire. This is more true every day, as countries become ever more interdependent.

We must and of course are making all kinds of different efforts on the international scene to resolve the economic conflicts relating to fuel and food shortages and rampant inflation. Nonetheless, if we do not pass a trade bill and embark on bold international trade negotiations, we will be losing quite an opportunity to resolve what have become urgent and sticky economic issues among nations. Since World War II, we have had a great deal of success in managing trade issues in the institutional framework and under the agreed upon rules of the GATT. The nature of these issues has changed dramatically in recent years. For instance, while import restrictions remain a problem, the management of resource shortages has emerged as a problem of similar importance.

This has not changed the fact that we must look to cooperative undertakings to find real and lasting solutions to these problems. The need for revision of the GATT rules to handle these problems-and for our countries to show the national will to look for multilateral solutions in an institutional framework such as the GATT-is urgent, for the danger of economic warfare and a real confrontation between rich and poor nations is great.

Also, it's clear that near-universal cooperation among nations is the only way for us to break the stranglehold of a supply cartel like OPEC.

In many ways, our economic relations with other nations are at the base of our political relations with them. If we do not negotiate to find solutions to these "pocketbook" issues which divide us, we cannot hope to settle our political differences.

Because of our differences over such things as how to react to the Arab oil embargo, how to treat the Soviet Union, and how to view the Atlantic alliance, we seem to be on a collision course with the Europeans in our political relations. Some wonder if the Europeans care whether they have any relations at all with us any more. However, I've just returned from talking with members of the European Parliament in Eurone, and I know that the Europeans still look to us for leadership in settling difficult international economic issues.

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They are watching us to see whether we have the political will to do any real negotiating on tough trade issues-whether we are willing to raise our sights from the economic irritations which rub against us day after day to a bold new attempt to not only try to resolve these day-to-day issues but also foster a new climate of cooperation in settling troublesome international economic problems-indeed, they watch to see whether we are even going to pass a trade bill.

It's also my observation from meeting with the European Parliamentarians from time to time over the past three years that the European Community is stronger, more unified, less concerned about internal matters and better prepared to make the decisions necessary for trade negotiations than they have ever been. I also know that the Europeans have finally abandoned their search for additional reverse preferences.

It's my firm personal belief that the continued expansion of mutually beneficial world trade and the increased contacts among nations which it brings not only redound to our economic welfare, but also help to build peace and understanding in the world. Certainly we've seen that the opposite of this is truetrade retaliation and economic warfare can lead to world-wide depression and actual warfare.

It's unfortunate that so much of the attention given to the trade bill has focused on Title IV. All of us are concerned over the conditions under which nondiscriminatory tariff treatment and Export-Import Bank credits should be granted to the Soviet Union. However, the thrust of the Trade Reform Act is to provide an opportunity for the free nations of the world to get together to work out their trade differences. What is most important is that we continue to expand this trade among the free world countries in order to strengthen the U.S. economy and other free world economies.

We should not lose sight of this fact, and the fate of the Trade Reform Act should definitely not rest with the fate of Title IV. Our trade with the communist countries is minimal and unlikely to amount to very much in the foreseeable future. While I believe that trade with these countries in nonmilitary items is desirable as an instrument of ending the isolation of these nonmarket economies and bringing these countries into the community of nations, our economic and political relations with our traditional allies must not be eclipsed by our concerns about East-West trade.

One of the most serious problems we are going to face for years to come is that of severe, world-wide inflation. Trade helps to allocate world resources better and can have a significant effect in keeping consumer prices down and also keeping producer costs down.

Already, nations have begun suspending some of their import restrictions for the stated purpose of combatting domestic inflation. We ourselves have done this, as in the case of our meat import quotas, and Title I of the House-passed trade bill provides a great deal more flexibility for this kind of action.

World-wide inflation makes it even more important that consumers he allowed the chance to purchase less expensive goods from abroad. especially when this does no harm to U.S. workers or industries. We have found that the resources of this world can be quite limited in some ways, and trade helps us to make the best possible use of these resources.

We are a rich country. Our standard of living is half again as great as that of the next richest country. We do indeed have our problems, but even in difficult times we should not forget our responsibilities toward the rest of the world, especially toward the poorest of countries.

Our trade with the less developed countries (LDCs) is of benefit to both them and us. This trade accounts for one-third of total U.S. trade. Last year alone, our trade surplus with these countries rose by a billion dollars, and much of the LDC foreign exchange earnings from this trade is used to buy goods in the United States. The development of the LDCs is of special interest to us, since it not only promotes peace and world stability but also provides expanded markets for U.S. exports.

The LDCs have been especially hard-hit by the greatly increased cost of petroleum products. It thus has become even more important that their products have access to the markets of developed countries, so that they can earn the foreign exchange they need to pay for their energy needs and also the goods they need to develop their economies.

With the great needs of the LDCs, it only makes sense that the developed countries should try to give the LDCs some kind of break in this trade. In fact, a commitment was made several years ago to do just this, and Europe and Japan have already taken steps to grant tariff preferences to the exports of the LDCs.

Title V of the House-passed trade bill would grant tariff preferences to the LDCs with quite strong safeguards designed to insure that this action does not adversely affect American workers and industries.

The Trade Reform Act is a good bill

Some have criticized the House-passed trade bill as "worse than no bill at all." I think you will find this charge to be baseless. Although I'm somewhat at a loss to understand why the charge is made, I suspect it may be because the bill does not deal with all aspects of our international economic policy. Frankly, the bill was never intended to do this. While a few other subjects might be included in the bill, it would not seem wise to try to do in one bill everything that should be done in this area. The field of trade itself is complex enough.

The House-passed bill does not address the issue of U.S. taxation of foreign [по орвол в рǝsns səsso рив рәилвә әшоэи 01 рәвәл дәү ѕe SMBI ment abroad and I have sponsored legislation designed to eliminate this. The Ways and Means Committee's windfall profits bill would tighten up our tax source income. I believe that our tax laws do provide some incentive for investcompanies. Further, the Committee will undoubtedly take further action in this area as we take up general tax reform, which is our next order of business, along with national health insurance.

It is my own view that the over-valuation of the dollar for so many years before the President's action of August 15, 1971, provided a far greater stimulus to investment abroad by U.S. businesses than any provisions of our tax laws have. The current floating of national currencies and the more realistic exchange rate of the U.S. dollar will do much to reduce, if not eliminate, excessive investment abroad by U.S. firms.

The House-passed trade bill does not touch on the very important subject of regulating the activities of the multinational corporation (MNC). A great deal of work needs to be done before we can establish a sound institutional framework and set of rules to guard countries from the excesses of MNC operations across national borders. However, work on this is already under way in the OECD, the United Nations and other agencies.

I've been involved in consultations on this subject with members of the European Parliament and the North Atlantic Assembly. It's clear to all of us that the need for timely multilateral action in this area is great.

Foreign investment and the operations of the MNC have perhaps displaced trade as the most important elements in the world economy. These cannot be neglected by governments, just as the problem of undue resort to export controls cannot be neglected.

The House-passed trade bill does not address the reform of the international monetary system, which is perhpas as important to the health of the world economy as anything else we do. Progress is being made on this front, although the frictions resulting from the actions of the Arab oil countries have impeded this.

Perhaps the most relevant new element which might be included in the Trade Reform Act is some kind of amendment relating to international agreements on the problem of short supplies and export controls. This is a most important area for your consideration. I know several of you have already proposed amendments of this sort.

Let us begin to move forward

These are some of the points I wanted to make to you because of my strong feelings about the importance of trade to us, economically and politically, and to the prospects for peace and prosperity on this fragile planet.

Besides enacting a good trade bill as soon as possible, I believe that it is also important that we take a more active role in exercising our Constitutional mandate to "regulate commerce with foreign nations."

Our trade and economic relations, as they grow ever more important, are also growing more complex. During the Ways and Means Committee delibera

tions on trade, it became clear that many of our past trade decisions and policies were not well monitored by either the Executive Branch or by the Congress and some in fact were ill-considered to being with. More attention to this area, more oversight and more analysis of the facts surrounding specific types of trade are needed.

The Ways and Means Committee worked hard to try to make the Housepassed trade bill one which would meet the legitimate grievances of those who might be adversely affected by trade. This was done by specific procedures whereby the facts and all appropriate views on a particular case could be presented in the open and a decision could be made by a set, orderly process. In my view, it is only by this kind of decision-making process that we can (1) restore eroding confidence in government, and (2) convince all affected parties. and the public, that our trade policies are made on the basis of the facts, not rhetoric or political pull, and that they are prudent ones which benefit rather than harm our workers, consumers, industries and farms.

It is my sincere hope that the trade bill which is finally approved will require us to pay more attention to our trade and other economic policies and to make better decisions in these areas. If we are to do a good job on this, we're also going to have to make sure that we have top-flight people staffing the important agencies which deal with trade, including the Tariff Commission.

The timely passage of a good trade bill will, I feel sure, go a long way toward minimizing our economic conflicts with other nations. The economic and political benefits which will flow from this will be enormous.

Thank you for your time.

Senator TALMADGE. Has Senator Hartke arrived yet?

The Chair is delighted to recognize one of our own distinguished members of this panel, the Senator from Indiana, the Honorable Vance Hartke.

Senator HARTKE. Good morning, Mr. Chairman.

Senator TALMADGE. We are delighted to have you with us on the other side of the table for a change.

Senator HARTKE. I just wanted to say the other side of the table, but maybe this is a better side of the table.

STATEMENT OF HON. VANCE HARTKE. A U.S. SENATOR FROM THE STATE OF INDIANA

Senator HARTKE. It is 3 years ago that I stood before Congress and I warned at that time of the international trade and investment crisis which was then beginning to engulf us. At that time, I said that disorders in our foreign trade "would threaten the livelihood of most Americans and the status of this country as a world industrial leader." Today, after two devaluations, the loss of thousands of domestic jobs, and blackmail in the international marketplace, we are in the very throes of that crisis. Its destructive effects continue unabated. because we have failed to adopt a comprehensive course of assertive self-interest in world trade.

Unlike the Trade Reform Act, H.R. 10710, the Foreign Trade and Investment Act, S. 151, directly addresses the major irregularities

and problems of international finance and their effect upon the American economy. Specific mechanisms are provided for plugging tax loopholes which provides an incentive at the present time to invest abroad, correcting our balance-of-payments deficits, and assuring American jobs and preserving our industrial base.

The administration's bill contains no provisions to remove tax breaks on overseas investment, to regulate the wholesale exodus of America's newest technology and production units, nor does it combat the rising prices in the United States caused by our present trade and investment problems. In short, the President's bill is obsolete and dysfunctional. Unless we address ourselves to the real trade problems with a comprehensive trade bill, crises like the one we are experiencing in energy will continue and worsen. The Foreign Trade and Investment Act, which I first introduced in 1971 and then again in January of 1973, can avert future crises.

Let us look at one that is before us right now, and that is tax loopholes, the international oil monopoly, and the U.S. dependence on Arab oil.

The United States is now dependent upon the Arab world for its supplies of oil and gas because our present tax structure provided the economic incentive for gigantic U.S.-based multinational petroleum companies to go abroad rather than to produce more oil at home.

The single most direct tax loophole available to corporations which move abroad is the foreign tax credit. Our tax laws provide that foreign subsidiaries of the U.S. corporations may credit their foreign taxes paid against the foreign source income tax liability of the parent corporation.

The multinational oil companies earned $1,085 million on mining and oil operations abroad in 1970, $1,085 million, but because of their use of the foreign tax credit loophole, these firms paid not one penny in U.S. taxes on that income.

The Arabian American Oil Co., Aramco, a huge oil producing consortium consisting of Exxon, Texaco, Mobil, Standard of California, and the Saudi Arabian Government, is the world's largest petroleum producer and the world's largest money raiser. But they are very skimpy U.S. taxpayers.

In 1973, the company had gross revenues of $8.7 billion and a net income of profits after taxes of $3.25 billion. How much did they pay to Uncle Sam, the U.S. Government? No income tax whatsoever and a meager $2.7 million in payroll taxes.

Mr. Chairman, I would like to submit an Aramco tax statement for the record.

Senator TALMADGE. Without objection, the entire statement will be inserted in the record, Senator Hartke.

[The material referred to follows. Testimony continues on p. 1430.]