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, ist 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.

30-229-74-pt. 4- 43

Finally, in summary, we support the bill and we urge its passage. We stand ready to consult with the negotiators. We are already tooled up to meet the preliminary requests that have been made for consultant advice, and we are prepared to be as active as would be welcome and appropriate in providing industry input.

We have also submitted, at the end of our statement, some suggestions for Government action, in addition to the trade bill, to expand aerospace exports.

Mr. BEST. Thank you very much.

Let me just ask a few questions on behalf of the Senators who could not be here.

Could you give us for the record some data on employment in the aerospace industry over some period of time as well as on your trade balance situation?

Mr. HARR. We have them all. I can rattle quite a few off now.

Mr. BEST. Has employment increased significantly in the aerospace

industry?

Mr. HARR. It has gone down since the peak of 1968.

Mr. BEST. Has your trade balance improved?

Mr. HARR. The trade balance has gone up.

To explain that, roughly what happened is that the industry grew very rapidly in the decade from 1958 to 1968. There was the parallel expansion of missiles and aircraft for defense, the mushrooming of the space program and the coming of the jet engine for commercial aircraft, all three of which led to industry expansion at a very rapid rate from the late 1950s until 1968-69. At that point there was a simultaneous downturn in all three factors that had sparked the growth. We had a cutback in defense, a cutback in space, and a softness in our general economy that had a great impact. All of a sudden, a downward turn.

Our peak employment figure in 1968 was about 1,450,000 people. The gross sales of the aerospace industry were on the order of $30 billion, perhaps a little less. They went down, I believe, in 1973. Our sales were about $23.8 billion and our employment hovers around the 900,000 mark at present.

Mr. BEST. The point is that there is no clear relationship between your export surplus and the employment situation in the industry.

Mr. HARR. Well, there is in terms of the kind of jobs that are supported by our exports, yes. I do not know whether it could be documented or whether anybody would want to do it, but it is inconceivable that we could have produced the kind of transport aircraft that we now produce at the price that we now produce them, which price and which quality makes them attractive to foreign airlines as well, had we not had the foreign market. We could just not have done it. Therefore, we would lose all the jobs entailed if we were not able to sell those aircraft.

Mr. BEST. Could you give us just a little more detail in the kinds of tariff and nontariff barriers within Europe and Japan that affect the exports to Canada?

Mr. HARR. There is quite a range of them affecting U.S. exports. I would say I identified the two most obvious ones which are used in a variety of forms and sometimes in what does not seem to be a very

important way, but they do throw the pricing mechanism off. Directed procurement is one. There are many others.

Mr. BEST. Perhaps you could supply it for the record.

[The following was subsequently supplied for the record:]

Although directed procurement and offset requirements are, by far, the most troublesome of the nontariff barriers affecting the export of U.S. transport aircraft, such sales may also be restricted by foreign import license requirements, discriminatory international standards, foreign government subsidies, bilaterial air transport agreements, and state trading enterprises (Japan).

Mr. BEST. Were there any benefits from the Kennedy Round as far as reduction in these barriers were concerned, or was that viewed by your industry as not a very successful negotiation?

Mr. HARR. I think that we had some concerns about the Kennedy Round, but on the other hand I think it also led us onto some proper paths. We got some subjects out on the table.

We got involved in the much discussed issue of the sectoral or nonsectoral treatment of the industry. We got reductions in some tariffs. We paved the way for a successful round this time in that nontariff barriers are now included in the discussion. To go beyond that would exceed my knowledge.

Mr. BEST. One or two other questions.

You support, as I understand your statement, a very vigorous enforcement of the dumping and countervailing laws.

Mr. HARR. Yes.

Mr. BEST. Does that mean you do not favor the 4 year moratorium or discretionary authority in the House passed bill?

Mr. HARR. I do not think we have a position on that at all. I am not aware of it.

Mr. BEST. Do you know that the House passed bill will give the President the authority in the national interest not to apply countervailing duties in any situation which might obstruct negotiations? It seemed to go in the opposite direction of your testimony.

Mr. HARR. I would prefer to confess ignorance with respect to that rather than answer it incorrectly. I pass it by.

Mr. BEST. You do support the sector approach?

Mr. HARR. Yes.

Mr. BEST. That is as much as I have at the moment. We might submit more questions for the record. I apologize for the fact that I am the only person here.

[The prepared statement of Mr. Harr and material requested follows. Hearing continues on p. 1715.]

PREPARED TESTIMONY BY KARL G. HARR, JR., PRESIDENT. AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA, INC.

General remarks

SUMMARY

Contributions of aerospace exports to U.S. economy. Sold abroad more than $14 billion worth of civil aerospace products and services from 1969 through 1973, providing full-time employment for 125,000 aerospace employees and an additional 210,000 employees in other industries. In 1973, civil aerospace exports totaled $3.8 billion and military exports added $1.4 billion more to the trade account. Aerospace exports (both military and civil) constitute one of the few consistently positive elements of the trade picture, with a total surplus of $17 billion in the 1969-1973 period.

Recommended Government actions. (1) Give overseas trade and investment policies equal status with other elements of foreign policy, (2) Insure that U.S. aerospace products are able to compete fairly in foreign markets on the basis of cost and quality, (3) Achieve reciprocal elimination of all tariff and nontariff barriers on aerospace products, and (4) Continually review and, where necessary, change domestic policies which affect trade and investment.

Aerospace and the Trade Reform Act

Title I. Support broad negotiating authority for the President and urge elimination of all duties on aerospace products on a sector basis. Inasmuch as non-tariff barriers penalize aerospace exports as much or more than tariff barriers, NTBS should be negotiated, also. AIA is mobilizing on a policy and technical level to assist in any way appropriate during the negotiations.

Title II. Do not support giving the President the power to suspend Tariff Items 806.30 and 807.00 as a means of import injury relief. However, adjustment assistance provisions seem reasonable and desirable.

Title III. Support amendments to countervailing duty law, particularly those which would make non-dutiable items subject to such regulations under some circumstances. This constitutes an important safety-valve.

Title IV. Support virtually any language which would ease the present impasse on giving the President authority to grant nondiscriminatory tariff treatment to East European and Asian non-market economy countries with which the U.S. has trade agreements.

Title V. Support generalized preferences to developing countries as long as any resulting inequities can and will be handled through the countervailing duty process.

CONCLUSION

Urge prompt passage of this comprehensive and urgently needed legislation.

STATEMENT

Mr. Chairman and members of the committee, I am Karl G. Harr, Jr., President of the Aerospace Industries Association of America, Inc. On behalf of 49 of the nation's leading manufacturers of aircraft, spacecraft, missiles and their components, we appreciate this opportunity to comment on H.R. 10710 from the unique viewpoint of the aerospace industry.

Aerospace products have long been one of the nation's largest commercial exports. Over the past five years, from 1969 through 1973, this industry sold more than $23 billion worth of civil aerospace products and services, of which $14 billion worth, or 61 percent, were exported. Expressed in terms of impact on the national economy as a whole, these civil export sales provided, on an average annual basis, full-time employment for approximately 125,000 aerospace employees, and supported an additional 210,000 employees in other manufacturing and service industries, for a total of more than 335,000 American jobs. Last year, U.S. exports of civil aerospace products and services totaled $3.8 billion and represented 5.4 percent of all U.S. exports. In 1973, also, an additional $1.4 billion worth of military aerospace products and services were exported, with proportionate contributions to the economy.

There have been several reasons for the success of the United States in exporting aerospace items. The industry has enjoyed a large and relatively steady domestic market for both commercial and military products, which our foreign competitors have not always had. Furthermore, there has been brisk competition between domestic suppliers, which has resulted in superior prodncts. The support of the Export-Import Bank in providing essential credits and guaranteeing loans from private banks for our foreign customers has also been an invaluable aid.

Fierce competition within the U.S. aerospace industry constantly works to enhance the appeal of U.S. products to foreign customers. This strong competition between aerospace companies includes devoting a substantial share of their resources to advancing the state of the art in future transportation systems in order to maintain the competitive advantage they now enjoy.

Nevertheless our success in maximizing exports would have been much less impressive had we not enjoyed a relatively free and open trading environment. The members of our Association recommend that the U.S. Government work along the following lines to promote freer and fairer world trade: