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system. As long as the U.S. has a policy of freedom of investment abroad and other countries have policies to seek their own rapid industrialization, the shortages of raw materials here will be used as an excuse to help industry to move abroad and further undermine production facilities within the U.S.
Interwoven into this problem is the recent change in the value of each nation's money. The value of the yen, the franc and other currencies have become lower. Many countries are competing to export as much as possible to improve their balance of trade and balance of payments. Imports from any part of the globe into the U.S. can shoot up very rapidly and the U.S. has no system to prepare for the rapid influx of any product from any part of the world.
2. Modernize trade provisions and other U.S. laws to regulate the operations of multinational corporations. Regulation of multinational firms, including banks, is necessary because these concerns are the major exporters and importers of U.S. farm products, crude materials and manufactured products. They use U.S. tax, trade and other laws in combination for their worldwide advantage. They export production facilities, money and jobs and juggle prices and credit to maximize their own worldwide company advantage. They license the newest technology for use abroad and combine in joint ventures with foreign companies and governments regardless of the impact on the U.S. need for jobs, production or supplies.
3. Eliminate U.S. tax subsidies and other advantages for corporations investing abroad. Specifically, the tax laws should eliminate tax deferral of income earned abroad and foreign tax credits. These provisions allow U.S. corporations to pay no income on the profits of their foreign subsidiaries until these profits are brought home-if ever—and the foreign tax credit permits corporations to credit taxes paid foreign governments, dollar for dollar, against their U.S. tax liability. These provisions contribute to the export of jobs, the erosion of the U.S. industrial base, the denial of needed raw materials and components for U.S. production and job needs, and encourage foreign governments to change their rules to the disadvantage of the U.S. The present provision in the tax laws allowing the establishment of Domestic International Sales and Corporations (DISCs) should also be repealed. This provision now gives the largest multinational firms and banks windfall tax breaks on their exports.
The annual cost to the U.S. Treasury of these tax loopholes amounts to at least $3 billion in needed revenue.
4. Repeal flagrant incentives and subsidies to encourage U.S. firms to move or expand abroad. These are Items 806.30 and 807 of the Tariff Code, which encourage the foreign production and foreign assembly of goods for sale in the U.S. These provisions are used to shift production to cheap labor markets for the profits of the multinational corporations. Imports under these provisions have risen from $1 billion in 1967 to $3.4 billion in 1972; in the first ten months of 1973, imports under these provisions were 55 percent higher than in the like period of 1972.
5. Re-examine and limit the operations of the Export-Import Bank which provides loans at interest rates much lower than those paid by American businesses, consumers and home buyers. These loans help U.S.-based multinationals expand foreign branches and assist foreign governments, including the Soviet Union and other Communist countries, in getting America's newest production facilities. Particular emphasis should be given to the impact on U.S. jobs, and potential cost to the U.S. taxpayer.
6. Clear provisions should be written into new legislation to regulate exports of capital and new technology. Other nations are demanding only the newest kind of U.S. technological facilities and U.S. firms are licensing or producing America's newest inventions abroad with the help of U.S. and foreign governments.
7. Multilateral trade agreements with other nations, such as the textile multifiber agreements, should be administered in keeping with the flexible machinery devised to regulate imports and exports. This flexible machinery would be a safeguard against a misunderstanding of America's intent and assure continued U.S, sovereignty over its trade and other domestic laws.
8. Since almost any federal, state or local law can be considered a non-tariff barrier to trade, 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. U.S. tax laws, consumer protection laws and other social legislation, including occupational health and safety standards, should be barred from such negotiations.
9. New provisions are needed to speed and assure action against foreign dumping of products on the U.S. market—the sale of these goods at a price artificially lower than in home countries or other subsidized imports into the U.S. These provisions should emphasize U.S. producer and worker needs and rights to participate in proceedings.
10. Clear labelling on imports of products and components to mark the country of origin of the product and the components within it is needed. Advertisers also should be required to designate the country of origin of products they handle. All consumer protection legislation should be strictly enforced on imports.
11. Trade with Communist countries should not be viewed as ordinary commercial exchange. The U.S. should end the extension of low-interest loans and insurance of private loans by U.S. government agencies to Communist countries. Senate legislation must contain the restrictions on Soviet trade written into the House bill over the opposition of the Administration.
12. The need for improved U.S. statistics on imports, exports and production has become urgent. Neither the U.S. government nor interested U.S. producers and workers can obtain adequate statistics in sufficient detail on the impact of imports or exports of industrial commodities. A comprehensive system of reporting on investment abroad, licensing of production and other technology flows is needed. Firms which operate within the U.S. should be required to segment their U.S. and foreign production in reporting to government agencies.
The energy crisis has demonstrated that over-dependency on foreign sources of any material can be costly and perhaps fatal. It also has demonstrated that nations, when faced with a choice, are quick to act in their own self-interest. And it has graphically demonstrated that multinational corporations hold corporate allegiance above national allegiance. New trade legislation must recognize these factors.
By every test, the House-passed trade bill fails to relate to the realities of the Seventies. The Senate now has an opportunity and an obligation to fully reexamine U.S. trade and investment policies and write legislation that meets America's needs.
Senator FANNIN. The next witness will be Mr. Karl G. Harr, Jr., president, Aerospace Industries Association of America, Inc.
Mr. Harr, we welcome you this afternoon; we are very pleased to have you with us. You have furnished us with a summary of your testimony and also your testimony, and you may proceed as you desire. You know that the limitation is 10 minutes.
STATEMENT OF MR. KARL G. HARR, JR., PRESIDENT, AEROSPACE
INDUSTRIES ASSOCIATION OF AMERICA, INC. Mr. HARR. I thing in view of the fact that we have presented you with a statement and a summary of it, it might be more useful if I summarize our main points and perhaps address myself to the aerospace point of view on some of the issues that have been talked about this morning.
We of course support the bill in general, and we urge its prompt passage. I might say the aerospace industry, as has been testified to by several people this morning, is a large exporter. Over the five year period from 1969 to 1973, 61 percent of our civil aerospace production was exported. It came to a total of $14 billion. The total of military and civilian exports during that period was $19 billion, with a net aerospace trade surplus of about $17 billion.
Senator FANNIN. That was $17 billion in what period ?
Mr. Harr. $17 billion net surplus in the 1969 to 1973 period.
Senator FANNIN. 1969 to 1973. Do you have figures as to whether it has dropped off from 1969 to 1973?
Mr. Harr. It went up, it actually went up. The total sales of the industry went down because of domestic retrenchment, but the exports went up, and last year we exported in excess of $5 billion. About $3.8 billion was civil, and about $1.4 billion was military and military relatel.
Mr. Harr. No, sold abroad, exported. This $1.4 billion over that same period, which was the amount of civil aircraft material exported, accounted for 125,000 full time direct jobs and about 210,000 jobs in supporting industries and services, just to give you a rough yardstick. Our overall industry now has about 900,000 employees in the total work force, and I would say if you took military and civilian exports, it would come to about 200,000 direct jobs.
We have been successful in the past decade in dominating the free world civil aircraft market. The U.S. aerospace industry probably accounts for, as far as figures can be accurate, on the order of 80 percent of the free world aircraft, has done so, does so today, and will do so for the foreseeable future, notwithstanding the rising foreign capability and the rising foreign competition. The reasons for that, in oversimplified terms, are several. One, we get a great bonus from our intense domestic competition. The big market has always been the United States. The big producers of transport aircraft in this country have been furiously competitive, and the result has been products which have been very attractive, not only here, but also abroad. That is one clear element of our success.
Another has been the large domestic base. By this I mean not only the existence of a market here that is broadly based, but also the fact that because of the history of the post World War II period, there has been an injection into our high technology development of money, effort, attention, resources of all kinds that most other countries have not been able to match. We have had invaluable help in our export achievements from the Export-Import Bank. But having said all of these things, we also have to attribute a lot of our success to a relatively free and open trading environment abroad.
We have been able, with some pain and some effort and some frustration, to penetrate the world's aircraft market fairly comprehensively outside the Bloc countries.
Now, our basic position, again in oversimplified form, is that we believe that our Government should upgrade the status of trade and investment policies relative to other international policies. We think that the United States, for a lot of reasons, has been notoriously diffident about, and relatively laggardly in, giving its international trade and investment policies the kind of status they ought to have if we are to compete with the rest of the world and adequately protect our economic position.
We think that one of the objectives in the immediate future, certainly within the framework of the upcoming GATT negotiations, should be that U.S. products be able to compete fairly abroad, on the basis of cost and quality. To that end, we would have as a major policy, reciprocal elimination of all tariff and nontariff barriers on aerospace products.
Our fourth general recommendation is that we think that it should be incumbent upon the Government to continuously review domestic policies which affect foreign trade and adjust these as necessary to simplify and encourage world trade.
So, having made these general recommendations, we think that the authority conveyed to the President in title I is good and is essential to the kind of negotiations that we are entering into. We think he should get rid of all aerospace tariffs, including those now imposed by this country, as well as nontariff barriers, and we think that this is best done by sector type negotiations.
We are on the threshhold of zero duty in the aircraft business, in terms of practical effect. At least as far as the nations that receive nondiscriminatory treatment go, the duty is 5 percent, which the European Community almost always waives. Our 5 percent duty, which is not waived, does not really have much of an impact of a competitive nature on international trade and transport aircraft.
So, we think zero duty should be and probably will be achieved during the course of this round of negotiations. We hope that elimination of nontariff barriers among our trading partners will also be negotiated. Certainly if zero duty is achieved, particularly with the European countries and Japan, this will be the last round of aircraft tariff negotiations. We therefore think it is particularly important that everything be tidied up and cleaned up and that the President and the negotiators have the proper authority to do the best job.
As has been noted by several witnesses this morning, and will be said again, two principal nontariff barriers are directed procurement and offset requirements. Now, directed procurement, which you can easily visualize, is particularly onerous with respect to high unit cost, high prestige items such as transport aircraft.
Senator FANNIN. If I may interrupt, I must go vote. Mr. Best will continue with the hearings until one of the Senators returns.
Mr. Best. Please continue. Mr. Harr. I was just pointing out the degree to which the nature of the product that we are talking about here, transport aircraft, is susceptible to and attracts the use of directed procurement by foreign governments which in many cases, in most cases, have a large degree of control over, if not ownership of, the airlines. It is awfully hard to document the degree to which the existence of this directed procurement has cost American aerospace manufacturers sales that they otherwise would have made. We think, conservatively, that it has cost us a couple of billion dollars or more already, and it certainly could get worse with the projected consolidation of European aerospace companies.
Every country wants to fly its own airplanes, and prefers to do so from an economic point of view because they are expensive items
They like it from a prestige point of view, and they like it from the point of view of developing and supporting their own industrial base.
Secondly, with respect to offset requirements, we again run into this as the world marketplace for aerospace products becomes increasingly contested. That is to say, a western European country, let's say, one that is laying out a lot of money for American aerospace equipment, whether it is military or civilian, is increasingly inclined to avoid or mitigate any adverse economic impact on that country by requiring some sort of offsetting purchase as part of the deal. It could be a joint venture, an investment, technical assistance, the manufacture and purchase of equipment in that country, or some other arrangement. They do not want to continue to keep giving the United States all of the advantages of its predominant position in the production of transport aircraft, and to the degree which we live in the real world, and to the degree to which these offset requirements are conditions of the sale, they have to be fulfilled in whatever form they ultimately are negotiated.
These are very, very troublesome, expensive nontariff barriers to the development of freer and fairer world trade. They almost always result in added cost to the manufacturer that cannot be passed on to the consumer.
Continuing with the summary of our position, we also agree with the electronics industry that the one aspect of this proposed legislation we do not support is giving the President the power to suspend Tariff Schedules 806.30, and 807.00. We think these carefully devised schedules have considerable utility and in reality enhance the economy of this country from every aspect, certainly including the health of the job market. To the degree they are designed to make us competitive, they make us competitive at home and abroad; to the degree they fulfill that objective, they maintain jobs. To the degree their absence would make us noncompetitive, their suspension would threaten jobs.
The remedy for import injuries spelled out in title II which we would support is the use of adjustment assistance.
In title III, we support the countervailing duty amendments. We think they are essential in dealing with certain nontariff barriers and direct government assistance by foreign governments.
We think, with respect to title IV, that the President should have the power to extend nondiscriminatory tariff treatment to countries not so favored at present. We think that such decisions should be made on a pragmatic basis, weighing a considerable number of factors, and we certainly feel that the potential markets available in some of the Bloc and Asian countries to which we have not thus far been making sales are important and useful. However, we feel that a careful analysis would probably be available only to the President and the Congress in making the judgment as to whether favorable treatment should be extended in a given case.
With respect to title V, we support generalized preferences, provided potential inequities that arise can be handled through the countervailing duty process.