Give greater priority to overseas trade and investment policies; in effect putting them on a par with other aspects of U.S. foreign policy. Use its influence to insure that U.S. aerospace products are permitted to compete fairly in foreign markets solely on the basis of cost and quality and that they are not constrained by non-tariff barriers or political considerations. Make a concerted effort to achieve reciprocal elimination of all tariff and non-tariff barriers on aerospace products. Such barriers have a particularly significant impact on high cost units such as aircraft and aerospace equipment. Continually review those domestic policies which affect foreign trade and investment, repealing those laws which hinder the development of world trade and issuing administrative directives which would simplify and encourage world trade. Overall, in short, we are committed to policies which would preserve the competitive position of the United States in the world's marketplaces. The Trade Reform Act appears to be an important step in that direction. AEROSPACE AND TITLE I Insofar as the specific provisions of the bill are concerned, we support Title I, giving the President broad authority to negotiate adjustments in tariff and non-tariff barriers. Executive Branch authority to negotiate with our trading partners in Geneva is an essential prerequisite for achieving the acceptance of our position by the other members of the General Agreement on Tariffs and Trade (GATT). The aerospace industry recommends the total elimination of duties on all aerospace products, both foreign and domestic, on a reciprocal basis with all nations having similar statutes. We also urge the mutual elimination of nontariff barriers restricting free and equitable marketing opportunities. Inasmuch as aerospace is one of the few consistently positive elements of the trade picture, with a total surplus of $17 billion for the 1969-1973 period, it is of such importance to the U.S. trade balance as to warrant consideration of its trade and investment concerns on an industry or sector basis. We would urge strongly that this course be taken with respect to aerospace products. This legislation would enable such a priority to be assigned. One of the principal reasons for requesting sector-type negotiations for aircraft, aircraft parts, aircraft engines and aircraft engine parts during the forthcoming negotiations is to resolve long-standing problems in our trade with the European Community. Ever since the Kennedy Round, the ministers of the European Community have annually waived the Common Market External Tariff of 5 percent on U.S.-manufactured transport aircraft imported into the Community. Conversely, because it is never waived, even the modest-sounding 5 percent U.S. duty on high unit cost aircraft remains a serious irritant to our trading partners. The U.S. tariff provides little real protection. However, its existence provides foreign nations with the psychological justification for countermeasures. We firmly believe its removal would minimize the chances of more foreign barriers being erected. Inasmuch as it appears that the U.S. duty will inevitably be reduced to zero during the forthcoming GATT negotiations, we regard this round as the final aircraft tariff negotiation. We therefore urge the U.S. negotiators to work toward a mutual zero duty on aircraft with the European Community, Japan and other principal trading partners. Another threat to U.S. aircraft exports lies in the erection or formalizing of non-tariff barriers by our trading partners. A practice called "directed procurement" is one example. This often occurs when a foreign government owns or effectively controls both its aerospace industry and its airlines or any other end-user of aerospace products. In such instances, the government can, and often does, direct that the end-user purchase some or all of its equipment from domestic suppliers. Such directives preclude purchase of more appropriate equipment elsewhere. Substantial losses in export sales of commercial transport aircraft have resulted from such practices. Particularly with the trend toward consolidation of the aerospace companies in the European Community, we are concerned that our sales opportunities in this vital market area may be further restricted if this type of non-tariff barrier remains unchallenged. Another example of a foreign trade practice which directly and adversely affects the aerospace industry involves so-called "offset requirements." Foreign governments and foreign government-owned industries are, to an increasing degree, demanding various forms of offset concessions from the United States. These concessions can take the form of sharing production, purchasing or arranging for a third party to purchase goods and services within the foreign country, providing technical and industrial assistance, making equity investments and supporting foreign economic development. Offsets generally result in added product costs to the prime manufacturer which can seldom be passed on to the customer. I might add, furthermore, that there is no similar restraint imposed by the United States Government on commercial sales by foreign aerospace companies. Section 135 of Title I, Chapter 3, provides for industry consultation. The aerospace industry is already mobilizing to provide consultation from both a policy and a technical point of view. We are ready to take as active a role as would be welcome and appropriate. TITLE II With respect to Title II, we have serious reservations about giving the President the power to suspend Tariff Schedules 806.30 and 807.00 as a means of import injury relief (Section 203 (f) (1)). As you know, these Tariff Schedules provide for duty-free entry, except for value added, of products assembled or partially manufactured abroad using components furnished for this purpose by U.S.-based companies. This has been seized upon as an issue by some who feel that import injuries have resulted from the use of so-called "cheap" foreign labor. They claim that jobs performed outside the country would otherwise have gone to American workers. This allegation completely ignores the fact that the decision to process outside our borders was based on the desire and need of the American firm to remain competitive in a frequently marginal profit situation. The effect of any suspension of these Tariff Schedules would be to place an import duty on the U.S.-manufactured components of the end product including the contribution of U.S. labor. This would have to be recovered in the price whether the end product is sold domestically or internationally. In the latter case, it would counteract the very purpose of choosing this production method. which is to maintain competition with foreign nations. We respectfully submit that tampering with these carefully devised provisions would be inequitable and would result in an even more serious deterioration of the employment situation in a number of domestic industries. Title II also contains changes relating to import relief for industries seriously injured by increasing imports and would provide new adjustment assistance for displaced workers. We recognize that support of this type must be forthcoming and feel the proposed legislation is responsive in this respect. TITLE III In Title III, we strongly support the amendments to the countervailing duty law, particularly those provisions which would make non-dutiable goods subject to such regulations under certain conditions. These tools will be essential in dealing with non-tariff barriers and indirect government assistance which benefit our foreign competitors. Such provisions represent an important safety. valve which may never be used but which definitely should be available in the case of zero duty imports. TITLE IV In our view, Title IV, empowering the President to grant nondiscriminatory treatment to imports from countries which receive Column 2 duty rates, should be approached from a strictly practical and pragmatic viewpoint. Under the terms of the GATT, each member must grant every other member trading terms and concessions equal to the most favorable offered any country. In terms of tariffs on aerospace items, for example, the most favorable duty is 5 percent. For non-Most Favored Nation countries, this duty is 30 percent on airframes and 35 percent on engines. Moreover, many European countries, our competitors for these non-MFN markets, grant nondiscriminatory treatment not only to members of the GATT but also to non-members in exchange for guaranteed, planned increases in import levels. New market areas for a broad range of aerospace products are emerging in Eastern Europe and China. Without granting them MFN, we cannot compete effectively for such markets. It is simply good business for our national balance of payments, our balance of trade, our domestic employment picture, and our economy as a whole to grant nondiscriminatory tariff treatment to all East European and Asian non-market economy countries with which we have trade agreements. We would strongly urge that the President be given authority to do so when he feels the time is appropriate. Accordingly, we would support virtually any compromise language which would ease the present impasse on this subject. TITLE V We also concur with Title V on generalized preferences, provided that any resulting inequities could and would be handled through the countervailing duty process under Title III. This concludes our comments on specific portions of the bill. Overall we regard it as an effective piece of legislation which will do much over the years to discourage or alleviate disadvantageous trading situations which penalize U.S. exports. Apropos of changing world conditions, however, I might add that the United States should not permit energy problems to force it to adopt measures involving embargoes and quotas which might jeopardize our ability to penetrate foreign markets. The recent gains in our balance of payments are modest. It would be difficult to find a substitute for the economic support we gain from exports. The aerospace industry has for the past 15 years relied heavily on its export trade for the economic development of new jet transport aircraft. It would be regrettable indeed if stern, long-term measures were taken to counteract what might well be localized or even temporary inequities susceptible to remedy by other means. For your reference, we have prepared an appendix outlining certain actions which could be taken by the United States Government, in addition to those contained in this bill, to insure a continued high level of aerospace exports. The aerospace industry appreciates this opportunity to discuss some of these problems. We support this much needed legislation and urge its timely enactment. APPENDIX. RECOMMENDATIONS FOR UNITED STATES GOVERNMENT ACTION IN ADDITION TO TRADE REFORM ACT TAXES The tax system should neither aid nor hinder one domestic competitor in relation to another. Some U.S. tax regulations penalize exporters; some proposed tax changes would penalize American investors in international ventures. To help remedy this situation, the Aerospace Industries Association of America, Inc., recommends: Retention of provisions for treating foreign taxes as credits to U.S. tax returns, rather than expenses. Retention of the present U.S. tax treatment of undistributed profits on foreign operations. Retention of the Domestic International Sales Corporation (DISC) provisions, since such tax deferrals only partially compensate for the competitive advantage of indirect tax rebates granted to exporters in those countries which rely more heavily on indirect taxes (e.g., value-added taxes). Retention of the current U.S. tax laws allowing accelerated depreciation of foreign assets where permitted by the country involved. EXPORT CONTROL PROCEDURES Careful review of U.S. controls on certain exports should be continued and modified, where necessary, to enable the U.S. aerospace industry to remain competitive with foreign aerospace manufacturers. Detente between the United States and the Sino-Soviet bloc has accentuated the significance of these activities. Specifically, the Aerospace Industries Association recommends: Elimination of controls on a number of items unilaterally restricted by the United States over and above the COCOM list. Control should be exercised only on items critical to our national security. Continued review of the COCOM list by the United States and participating countries (the NATO countries minus Iceland, and Japan). Further decontrol may be expected to result from joint government/industry review of the applicability of certain technology to national security. Revision and simplification of the administrative procedures for obtaining an export license, reducing the time required to obtain licenses. Revision of the strict procedures and controls on aerospace parts and subassemblies which now exist when such items are to be exported to third countries. GOVERNMENT-SUPPORTED FINANCING IN PRODUCT MARKETING The Export-Import Bank has assisted the aerospace industry directly by providing the credit essential for the sale of nearly half the jet transports exported by the United States and, indirectly, by guaranteeing funds for this purpose from private banking institutions. In this connection, the Aerospace Industries Association recommends: Basing of Eximbank loan policies on the long-term capital requirements of foreign customers. Loan applications should not be disallowed because of the short-term dollar position of the customer's central bank. GOVERNMENT-SUPPORTED R. & D. There is a direct correlation between the level of investment in research and development (R&D) and the rate of technological advancement. Public funding of R&D for European civil aircraft has increased substantially. To maintain the competitive advantage of U.S. manufacturers in aerospace products, the Aerospace Industries Association recommends: U.S. Government participation in funding of the development and production of new civil transport aircraft, to be accomplished with minimum interference in the existing competitive structure of the free enterprise system and with minimum adjustment of the existing manufacturer/customer relationship. AIA supports the creation of a national policy pertaining to federal Government support for research and development programs which will, wherever possible, assure that required new technology will be in-hand on a timely basis. When a foreign government subsidy of development and production programs, including the offer for sale of new civil transports at less cost, occurs, the national aviation policy should permit counteractions by the U.S. Government where such actions are deemed to be in the national interest. Development of innovative Government/industry relationships in high cost, high risk technological areas with worthwhile potential for the nation's employment picture and trade balance. Establishment of an independent Government financial organization, such as a "national technology bank," which would provide the private sector with financial aid, either through direct loans or guarantees, for the purpose of stimulating additional private investment in R&D for both public and private programs of national and international importance to the United States. INTERNATIONAL JOINT VENTURES International joint ventures must balance the need to cooperate with foreign countries in order to maintain our share of their markets or promote new product development against the need to preserve competition in the United States, domestic employment opportunities and a viable export industry. Therefore, the Aerospace Industries Association recommends: Clearer interpretation and elaboration of guidelines governing extra-territorial applications of domestic laws such as antitrust and re-export controls, permitting international joint ventures with foreign corporations and foreign government-controlled industries where such cooperation is deemed consistent with the promotion of U.S. trade. Issuance of long-term licenses for technological cooperation and export of products and services. Passing of legislation to empower the U.S. Government to recompense a U.S. corporation for reasonably incurred out-of-pocket expenses in the event an export license or sale is cancelled for reasons of foreign policy. AEROSPACE INDUSTRY SALES AND AEROSPACE INDUSTRY FOREIGN TRADE ACTIVITY Source: AIA Economic Data Services, Apr. 12, 1974. 1, 166, 000 922, 000 948, 000 Mr. BEST. I think we will call Mr. Christopher Phillips, president of the National Council for United States-China Trade. STATEMENT OF CHRISTOPHER H. PHILLIPS, PRESIDENT, THE NATIONAL COUNCIL FOR UNITED STATES-CHINA TRADE Mr. PHILLIPS. I am very happy to have this opportunity, Mr. Chairman, to appear today before you and the committee to address the important matter of U.S. trade with the most populous nation on earth, the People's Republic of China. I appear on behalf of the National Council for the U.S.-China Trade which is a nonprofit membership association of some 200 American firms, large and small, importers and exporters, all interested in doing business with China. I have, as the Chair requested, submitted a detailed statement on this subject for the record. With your permission I should like to focus for the next few minutes primarily on a brief summary of title 30-229-74-pt. 4- 44 |