workers declined absolutely by more than forty thousand (40,000) between 1956 and 1971. In electronics, there was a loss of one hundred and nine thousand (109,000) jobs between 1966 and 1972, according to Labor Department figures. In shoe manufacture, jobs declined from two hundred thirty-three thousand to about two hundred thousand in the past five years.

THE HARTKE SOLUTION

To meet these problems of future deficits in the balance of payments and job loss due to imports, I propose a system of quantitative import restrictions in which imports would continue to grow in concert with domestic production, preserving the 1965 to 1969 base period relationship.

Other countries make sure that their own markets are secure and protected. It is time we provided the same security for America. You have before you only a partial list of the quantitative restrictions perpetuated on foreign products by our trading partners. Take, for example, the case of Japan on page 3. They have an international tax of 150 to 220 percent on imported whiskey. Compare this with the fact that the United States, in 1972, suffered a seven hundred twenty-three point 4 (723.4) million dollar trade deficit in distilled alcohol alone. That amounts to 10.6 percent of the entire 6.8 billion U.S. trade deficit in 1972. In that year we exported a mere four million gallons of bourbon. What happens when a fifth reaches Japan. First, they put on the 35 percent GATT duty, then they add their landed costs (stevedoring, freight, insurance, etc.). If this total exceeds 16 dollars per bottle, they introduce another 220 percent duty. Below 16 dollars they add a 150 percent tax. This brings the price of a fifth of American bourbon to 20 dollars. What has happened, in effect, is that the Japanese nontariff barriers have done to American spirits what Carry Nation with an ax and Bible could never have accomplished. This is not just an isolated example, but as you can see from this list, it is one of hundreds of non-tariff barriers which discriminates against American products.

RUNAWAY MULTINATIONAL FIRMS

In industry after industry, plants have folded up in the United States as multinational corporations simultaneously opened plants in other countries. In the electronic trade, for instance, the Standard Kolman Company closed its plant in Oshkosh, Wisconsin, with one thousand one hundred (1,100) employees, and shifted the jobs to Mexico in 1970.

Emerson closed a plant of several thousand employees and set up shop in Taiwan. Bendix deserted 600 employees in York, Pennsylvania and Long Island, New York, to open a plant in Mexico. Warwick Electronics transferred sixteen hundred jobs from Zion, Illinois, to Mexico and Japan. General Instrument recently closed down two plants in New England although it employs twelve thousand Taiwanese to make television parts. RCA transferred an operation from Cincinnati to Belgium and Taiwan displacing two thousand workers. Two thousand machinists lost their jobs in the General Electric plant at Utica, New York, between 1966 and 1972 as the company phased this operation out of the United States and into its subsidiary in Singapore where labor works for eighteen cents an hour.

In 1971, International Silver exported more than one thousand steelworkers' jobs from their plant in Meriden-Wallingford, Connecticut to Taiwan. The stainless steel flatware formerly made in Connecticut is now imported from International Silver's affiliate in Nationalist China.

THE HARTKE SOLUTION

As long as America's tax policy makes it more profitable to invest abroad than at home, plants will continue to move overseas and the foreign export market will be increasingly supplied from foreign based plants instead of from domestic-based industry. The Hartke trade proposals provide dramatic new tools for meeting this challenge. Tax advantages for investing abroad would be removed so that domestic investment would be on an equal economic footing.

THE EXPORT OF AMERICAN TECHNOLOGY

Although most countries strictly regulate and protect their own technology, America has left this matter largely to the discretion of private business.

According to the U.S. Tariff Commission's study of multinational firms, these super-companies dominate the development of new domestic technology. The exports of this technology from multinational corporations outweight imports by a factor of more than ten to one. These industries have been prominent generators of high technology exports from the United States.

One example of this practice is McDonnell Douglas' sale of the Thor-Delta Launch system to the Japanese. The sophisticated technology which went into the construction of this system cost the American taxpayers millions of dollars in research and development funds.

THE HARTKE SOLUTION

Under present law, U.S. corporations are relieved of paying taxes on any income arising from the firm's transfer of a patent or similar right to foreign companies. This encourages U.S. firms to export their technology. The Hartke approach would repeal the tax-free treatment for U.S. companies' incomes from licensing and transferring patents to foreign companies.

CONCLUSION

We cannot ignore nor fail to correct the growing power of these giant multinational concerns. They feel no allegiance to any national entity. They support no government on ideological grounds. They have no qualms about investing in Democratic or totalitarian, capitalistic or socialistic, civilian or military governments, as long as their profit goals can be realized.

Let me conclude with a reference to public opinion. Sentiment against multinationals runs so high, that the public-by a margin of almost two to onecurrently thinks that the Federal Government should discourage, rather than encourage the international expansion of U.S. companies. Many more simply do not buy the idea that corporate growth abroad has increased employment at home. Seven Americans out of ten are convinced that the main reason U.S. firms go abroad is "to take advantage of cheap foreign labor and that costs jobs here."

Here are the results of a nationwide public opinion survey conducted by the Opinion Research Corporation for businessmen. Forty-two percent of total public opinion is strongly opposed to expansion of U.S. companies abroad. Even a majority of the managers are opposed to expansion (37 percent opposed, against only 30 percent in favor of expansion). Perhaps most surprising are the results when broken down by party preference. Even the majority of Republican voters are on my side in this controversy. Republicans strongly oppose expansion (40 percent opposed to 30 percent in favor of expansion).

The Foreign Trade and Investment Act of 1973 is designed to put our industry on an even footing with foreign competition and make domestic investment just as attractive as investment abroad. By controlling predatory trade practices and regulating the American based transnational firm, the Hartke approach to trade policy will put America back on the path to a world of free and fair trade.

PREPARED TESTIMONY OF VANCE HARTKE, A U.S. SENATOR FROM THE
STATE OF INDIANA

Mr. Chairman, three years ago, I stood before Congress and warned of the international trade and investment crisis which was then beginning to engulf us. At that time, I stated that disorders in our foreign trade, and I quote from my 1971 remarks, "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 provide an incentive to invest

abroad, correcting our balance of payments deficits, 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, and to combat the rising prices in the United States caused by trade and investment problems. In short, the President's bill is obsolete. 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.

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 United States' corporations may credit their foreign taxes paid against the foreign source income tax liability of the parent corporation.

The multinational oil companies earned $1,085,000,000 (one billion and eightyfive million dollars) on mining and oil operations abroad in 1970, but because of their use of the foreign tax credit loophole these firms paid not one penny in U.S. taxes on that income.

It has been estimated that for fiscal year 1975, the taxes that the oil companies would pay to the United States, were it not for the tax credit, could be as high as $1.75 billion. Yet, in all likelihood, the companies will pay not one cent of taxes because of the foreign tax credit. Foreign credits from profitable overseas operations have, in fact, exceeded U.S. tax liabilities every year since 1962, and, therefore, these companies will have a large carryover in foreign tax credits for the next five years.

The U.S. oil companies account for more than 45 percent of all the foreign tax credits claimed by all U.S. industry. And the size of the loophole has increased tremendously since 1971. In Saudi Arabia alone, the so-called taxes paid the government on a barrel of oil have increased over 8 times since February, 1971.

The Arabian American Oil Company (Aramco), a huge oil producing consortium consisting of Exxon, Texaco, Mobil, Standard of California and the Saudi Arabian government, is the world's biggest petroleum producer and the world's largest money maker. But, they are very skimpy U.S. taxpayers. In 1973, the company had gross revenues of $8.7 billion and a net income or profits after taxes of $3.25 billion. How much did the United States government get from them in taxes? No income taxes and a meager $2.7 million in payroll taxes.

Is Aramco an exception? By no means! One glance at this chart dispels that illusion.

Source: Senate Subcommittee on Multinational Corporations, Committee on Foreign Relations, U.S. Senate.

How has the foreign tax credit aided profit-making? Here is an example of how three major international oil firms in 1970 significantly reduced its tax burden via the increasingly important mechanism of the foreign tax credit.

NET TAX BEFORE AND AFTER FOREIGN TAX CREDIT IN 3 MAJOR OIL COMPANIES IN 1970

The operation of the foreign tax credit aids a privileged few multinational firms. For the solely domestic segment of the petroleum industry, this provision is a dead letter.

The operation of the foreign tax credit, like the depletion allowance, created perverse incentives for the oil industry. In the years after W.W.II, domestic involvement in foreign production increased considerably. With this increasing involvement, foreign governments placed growing pressure on the oil companies to increase their royalty payments.

To the oil companies, the advantage of claiming these increased payments as taxes rather than royalties was clear. A tax payment can be credited against a U.S. tax liability, whereas a royalty payment must be treated as a deductible business expense when computing U.S. taxes. It was in the interest of the U.S. oil companies to persuade their host governments to enact income tax statutes to replace their royalty claims. In 1954, King Saud changed the royalty payments into a tax, as requested by the industry, so that the companies could benefit from the foreign tax credit.

The impact of the ruling has been to create an artificial incentive for investment abroad. Whereas the domestic producer must pay for mineral rights to land through royalty payments, which are treated as a business expense, the same payments by a foreign producer qualify as a tax credit.

THE HARTKE SOLUTION

The termination of the foreign tax credit would put domestic production in a more competitive position with foreign development. And this is exactly what the Hartke trade package, if enacted in 1971, would have done-and if enacted in 1974, will do. The U.S. Geological Survey states that there are still 440 billion barrels of producible and undiscovered oil in the United States. This is enough to meet America's need well into the next century. The shift of the foreign tax credit to a deduction as proposed in my measure might well have provided the impetus to domestic production which, by this time, would have made us dependent on no one for oil.

The use of foreign tax credit and deferral loopholes is not at all limited to oil producers overseas. They are readily available to large international manufac turing companies as well. Direct U.S. foreign investments have a book value of over $90 billion. Profits thereon are $20 billion or some 20 percent of total profits of domestic corporations.

However, U.S. taxes paid on these foreign profits were only 5 percent or less than $1 billion. The output produced by U.S. affiliates abroad is about $200 billion with sales by manufacturing affiliates several times the level of U.S. manufactured exports.

Ownership of foreign affiliates, finally, is concentrated heavily in a small numher of large corporations, the degree of concentration being higher even than for domestic production.

At present, our tax laws make an overseas investment more attractive than one in Indiana. For example, profits earned by a foreign subsidiary of an American firm are not taxed until they are repatriated. To the extent that the firm does pay taxes to a foreign government, these taxes count as a dollar-for-dollar credit against their federal tax liability. Profits made in Indiana are taxed when earned. Taxes paid to the State of Indiana can only be taken as deduction against gross income rather than as a Federal tax credit.

My bill will plug both of these gaping loopholes. For example: taxes on overseas profits of foreign subsidiaries would be taxed as soon as these profits are earned. There would be no tax deferral. As for tax credits, the Hartke approach would shift them to a deduction.

Under my measure, the depreciation allowances for companies owning business property in foreign lands would also be tightened. The allowance would be computed on the basis of actual useful life of property to the corporations and on the basis of the straight line accounting method rather than an accelerated method. The Hartke approach will control the worst practices of multinational corporations. My proposals are designed to put our domestic industry on an even footing with foreign competition, make domestic investment just as attractive as investment abroad and assure America of full employment with a diversified production base.

THE BALANCE OF PAYMENTS, IMPORTS AND AMERICAN JOBS

Between 1960 and 1971, the total volume of United States imports increased by 200 percent, while over the same period, the total volume of United States exports increased by only 120 percent. In 1971, the United States suffered a trade deficit of $2.2 billion-the first trade deficit since 1893. In 1972, the trade deficit increased to over $6 billion. The first eight months of 1973 showed a trade deficit of $1.5 billion, however, the United States did show a small trade surplus for the total year of $1.7 billion.

But, much of this surplus in the trade account was due to the heavy exports of agricultural products and critical raw materials which caused severe shortages at home and brought on the rapid acceleration of inflation. The domestic price rise last year averaged 8.8 percent. It should also be pointed out that our trade surplus of $1.7 billion in 1973 quickly becomes a trade deficit of $3.8 billion if C.I.F. figures, which include insurance and freight, are used rather than F.O.B. calculations.

Huge agricultural exports have meant hardship for the American consumer because of soaring prices and very little job creation as farming is a very low-labor content industry. Our trading policy and problems seem very similar to the developing nations.

Our trade surplus is a mere aberation which will soon be wiped out by the increased price of oil imports. Walter Levy compares rising oil import costs with trade balances and monetary holdings in his recent study, "Implications of Exploding World Oil Costs," For the United States, he says, "total exports are estimated at about $70 billion in 1973; total imports about $69 billion, for a net trade surplus of $1 billion. United States oil import costs (F.O.B.) in 1973 are estimated at some $7 billion. U.S. oil import costs could amount to $21 billion in 1974."

"The indicated 1974 level of U.S. oil import costs represents a $14 billion increase over 1973. This would be equal to 20 percent of total imports last year. An expansion in imports of this magnitude would be enough to swing the U.S. trade balance from a surplus of $1 billion to a deficit of $13 billion. Such a deficit would exceed U.S. gold and foreign exchange holdings of $12 billion as of October, 1973"-hardly a very sanguine forecast!

The United States faces another grave problem-the rising tide of imports. During the decade of the Nineteen-sixties, more than half a million jobs were lost to imports, many in industries where parent firms invested overseas and then imported their products to supply the domestic market.

In 1973, manufactured imports amounted to $44.8 billion. This was an increase of 18.5 percent over the previous year. In 1972, imports were 16.6 percent of steel sales in the United States, 22.8 percent of auto sales, 25 percent of women's apparel, 35 percent of shoes, 81 percent of phonographs, 60 percent of sewing machines, and 90 percent of calculators, radios and tape recorders.

In the postware years, the United States has been the only major country in the world whose share of world exports has decreased while its share of world imports has increased. In the space of a mere half dozen years (1964 to 1970), the U.S. share of world exports fell by more than 11 percent while its share of imports rose by more than 17 percent.

This unfavorable trade balance is especially marked in manufacture-the economic sector of most immediate and intimate concern to American labor. The U.S. share of world exports of manufactured products has fallen from 27 percent in 1958, to 21 percent in 1970, to 19 percent in 1971; a decline of almost 30 percent in a dozen years.

Few American-made items can withstand the pressure. In the 1950's, only about 30 percent to 40 percent of the imports were comparable with U.S. products. Now, about three-quarters of the imports compete with U.S. items, according to the U.S. Department of Labor.