in the code and not to State and local governments. Many State and local governments have their own Buy American laws.

Senator CHILES. So they would still be able to have their own Buy American laws?

Mr. OSWALD. Yes; and we believe they can only have it if you make that explicit provision in the implementing legislation.

Senator CHILES. I see. Section 301 of the Trade Act allows interested parties to file complaints of violations with any of the codes with STR. Do you view that term "interested parties" as covering labor unions?

Mr. OSWALD. There has been a serious question of whether it has or has not up to this point. We would be hopeful that there would be a specific provision that a labor union would be considered an interested party. We are very much concerned with section 301. We believe that the intent by Congress to strengthen that provision in the 1974 amendment was clearly to provide better redress against injury. We have been very disappointed at the lack of administration consciousness of the import harm that has occurred in a number of industries.

Senator CHILES. A number of us in the Congress have been very disappointed with that, too. I have great concern about it. It seems to me the key to getting anything out of these codes is to make sure that free trade does mean the same thing to our trading partners as it means to us.

Do you think that STR has the staff to make sure that these agreements are enforced?

Mr. OSWALD. Senator, at the current level, we have found there is insufficient staff both in STR to know enough about the details of many industries and in Treasury to carry out the requirements of the antidumping law or counterveiling duty law, or even in Commerce to help promote U.S. exports.

So in general, American firms get short shrift in each of these departments as they affect trade.

Senator CHILES. Then the other question, of course, is the one we have just touched on, whether we have the will even with the staff.

Doctor, you expressed deep concern over the way in which the rule of origin provision could be manipulated. And you urged that that rule be clarified. Do you all have any suggestions as to how that should be clarified? And if you don't now, if you have an opportunity to submit that to the committee, I think it might be helpful how you think we might go about it.

Mr. OSWALD. We have some general suggestions now. We would be glad to give you more specific language, because we think that clearly the majority of the product needs to be produced in the country that is bidding, that there are other safeguards that the product actually come from where it is, and we would be glad to submit additional language in terms of a proposal for the implementing language. Senator CHILES. Thank you very much, and I appreciate your testimony and your appearance here today.

[The prepared statement, with attachment, of Mr. Oswald follows:]

STATEMENT OF DR. RUDOLPH OSWALD, DIRECTOR, RESEARCH DEPARTMENT, AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

The AFL-CIO appreciates this opportunity to provide to your committee our assessment of the Government Procurement Code within the MTN. As the rep

resentative of 131⁄2 million workers in 105 unions the specifics of this code and its impact on all Americans-not just union members-are of deep concern to us.

Unlike other codes negotiated in Geneva over the past four years, this code goes far beyond normal market transactions and involves the operations of governments themselves in terms of national defense, national security, internal economic policies and their role as massive consumers. As purchasers of billions of dollars in goods yearly government procurement policies can determine whether industries live or die, expand or shrink and can shape the kind of country we have. This involves the livelihoods and standard of living of millions of Americans, and the expenditure of their tax dollars. Because of the uniqueness of government procurement, the GATT has always excluded it from all trade agreements. Further, the 1974 Trade Act was silent on the matter of negotiating a code in this area.

The AFL-CIO is deeply concerned that under the new code the unique role of government procurement in the U.S. will suffer a major change that may well result in heavy losses in procurement contracts for firms in the U.S. and may well cost heavily in jobs-while realizing little if any widening of foreign government procurement for firms in the U.S. and American jobs.

Under the code, new international rules will be established to make discrimination in federal government purchasing a violation of international agreement. As a result, the U.S. will give up its Buy American laws and practices for certain federal government entities that have provided some advantage to U.S. producers and jobs to Americans. By adoption of the code into our laws, the U.S. will give up any opportunity to improve these laws in the future.

Under the present U.S. system-the most open in the world-government procurement enables our nation to spend internally $154 billion in tax dollars to equip our armed forces, supply our agencies, replenish our government needs in goods and services and direct a portion of that purchasing to specific industrie and areas for the wellbeing of the nation. The set-asides and the Buy American provisions have been mainstays to many U.S. industries in obtaining and retaining government contracts despite heavy competition from abroad. Now that differential will be surrendered. Difficult to assess is the loss that may come from plant closing due to loss of counter-cyclical use of procurement contracts and the research and development that may also be lost as firms fall by the wayside. In return U.S. companies will have the opportunity to bid on the purchases of those government agencies on the entity list of each signatory country. We will not have the opportunity to bid on all their non-strategic goods, only on those items on their lists.

In our examination of the code and the lists, we see several problems: 1. Despite the procedure for tendering under the code, past practices of most countries are designed to carefully obscure and defend their internal buying practices and will be difficult to overcome. The widespread presence of stateowned corporations, for example, and their inter-relationships with non-stateowned corporations make a network of political and economic self-interest that is virtually impossible to penetrate.

2. The lack of a specific rule of origin provision makes it impossible to insure that a bidder will deliver products that originate in a signatory country; this allows "farming out" of manufacturing non-signatory countries.

3. Special provisions are made in the code to "facilitate increased imports" from developing countries, which already now have special non-tariff benefits for exports to the U.S.

4. The code commits the U.S. to give special treatment to supplies from least developed countries, even if they don't sign the code. The mechanism also provides for "developed country parties," which could include multinational corporations, to go to a less developed country, choose the products, develop them and help tender them to the U.S. for purchase. Here is a clear invitation to multinational corporations to set up export platforms in other countries to assault the U.S. government procurement market.

5. Under the code, the U.S. will establish centers where developing countries will be given full information on U.S. laws, regulations, procedures and practices, notices of proposed purchases, nature and volume of products, etc. They, in turn, can exclude the U.S. from their markets by signing bilateral agreements with other countries or by establishing "common industrial development programs" with other countries.

6. The code bars technical specifications that "have the effect of creating unnecessary obstacles to international trade." The United States does not have the metric system, which could be construed as a barrier, forcing the U.S. to change its system to receive imports; contra wise, the present system could be used as an excuse for refusing U.S.-made products abroad.

7. While the code states that state and local Buy American laws and practices are excluded, there is danger that these laws, which have already been struck down by some courts, could be in further jeopardy as a result of the code, since some courts might hold that such laws conflict with federal policy as manifested in the code. Assurances of this exclusion have been given by the Special Trade Representative, but no language has been presented as yet.

8. The list of entities that each country has exposed for procurement bidding, once settled, is subject to modification only by going before the committee charged with operation of the code. So, if the U.S. wants to remove any entity from the list it must make a case and then make compensation in some other area in order to "maintain the level of mutually agreed coverage."

For example, when small businesses and minority businesses recently received a set-aside from the code, the U.S. entity list was changed to make available to foreign bidding the previously exempt NASA procurement needs.

9. There is little incentive for a country to leave its developing status, regardless of how industrialized it becomes, because under the code, developing countries are allowed to require domestic content, offsets and the transfer of technology as criteria for the award of contracts. Again a clear invitation to relocation by multinational corporations.

Apart from these concerns, we ask the committee to consider the realities of government in most nations today. All of the industrialized nations signatory to the code have widespread state participation in industry. Many of these industries were nationalized as rescue operations to insure preservation of an industry and to escape massive loss of jobs in steel, aluminum, aerospace, pulp and paper, heavy engineering and others. These nations are now going into high risk ventures where private capital is hesistant. For example, during 1977 stateowned British Steel lost $165 million. Now Britain is making heavy investment in a state-owned company to manufacture integrated circuits to compete with the U.S. and Japan.

With these state-owned firms there is no need to earn profits; no fear of bankruptcy; no dividends to pay. They enjoy the benefits of low-cost state loans and the serenity of monopoly power. These state-owned firms help other domestic industries by selling goods and services at lower than cost. All of these transactions defy the basic rules of capitalism as practiced in this country. With the government as the sole stockholder whose only goal is to keep an industry in operation and to keep workers employed, how it is possible to outbid such an entity in the marketplace?

Not only will these state-owned entities be able to insure that their bids are lower for their own government's business, they will now be better able to bid on contracts for the U.S. government procurement.

An example of the complex problems involved in government procurement in a world where state-owned and centrally controlled corporations are becoming the rule is described in the March-April, 1979, Harvard Business Review, an article entitled "State-owned Business Abroad: New competitive threat" states:

"Public opinion runs strongly against having governments purchase from foreign companies. Employees in domestic companies feel that government purchases from a foreign competitor are almost acts of treason-and to pass over a stateowned producer in favor of a foreign producer is to compound the offense. Government ownership of a company virtually ensures that government will be a customer.

"When the French and British governments became major owners of computer companies in their respective countries, they assured these businesses of a healthy number of orders from state bodies. Government campaigns to encourage the public to purchase domestic products (such as the British government's current Buy British campaign) require a government to buy domestic products itself and the pressure is doubly compelling when a state-owned enterprise makes the product."

(Attached to this testimony-from the March-April 1979 Harvard Business Review is a list of industrial nations and the degree to which they have stateowned firms in eleven key industries.)

With the tariff reductions in the MTN, with the elimination of the Buy American provisions and with the change in the subsidy-countervailing duty code an overwhelming advantage will be given to other countries seeking greater penetration of our procurement markets. We also understand that in the drafting of the entity lists by the various nations, great care was taken to insure that exclusions were made for certain manufacturers that they felt might suffer import penetration. For example, some European countries will not apply the code to their government entities that purchase heavy electrical equipment, transportation and telecommunications equipment. In France and England, the national and state agencies are about 100% of the market for heavy electrical equipment, so virtually the entire market for heavy electrical equipment is effectively excluded from U.S. or other bidders.

One further concern: There is no assurance that even if foreign procurement were to be fully open that there would be a net benefit to the U.S. economy. The proliferation of U.S. multinational corporations throughout the world could mean the successful bidding of a contract by a U.S.-named firm but the manufacture and the jobs could go to the successful firm's subsidiary within that county or to that firm's export platform in a less developed country in some far-flung part of the world. In other words, a U.S.-based bidder could lose to a U.S. name, but the U.S. economy would not have the game.

Apart from the problems we have cited in terms of the overall impact of the code, there are specific questions that should be answered before implementing legislation is put to the Congress. For example:

1. What is included in the code's reservation for national defense and national security? It is obvious what arms and ammunition are, but defense and security mean much more. It is our understanding that all motor vehicles except buses are exposed in the code. A heavy duty truck is a much-needed defense unit for the transporting of troops and supplies. What is our defense capability if our trucks and tens of thousands of other items, are manufactured in Hungary and elsewhere? Where are our industrial supply lines and where are our spare parts in the event of an emergency? And where are the truck plants for developing new prototypes for tomorrow's defense needs?

The code refers to the inclusion of services incidental to the purchase of goods, but not in excess of the price of the goods. What does this mean? Does it mean that foreign nationals are permitted to install, operate and service large scale purchases by our government? In view of the British and French government activity in computer manufacture, will their computers be installed in our government offices and their nationals handle all service work incidental? Further, are feasibility studies and engineering also incidental to a contract?

If construction contracts are exempt, does this mean the material involved, which in many cases involve work that is often done on-site, are exempt too? An example of our concern would be an entire dry dock prefabricated in a foreign country and floated to the United States.

How, if the code goes into effect, can the U.S. Government use government procurement as a counter-cyclical tool-as other signatory countries have reserved for themselves, in times of economic distress or where persistent labor surpluses exist?

As a result of our study of this code-and the others as well-the AFL-CIO makes the following recommendations:

1. In view of the fact that the United States had a $29 billion trade deficit in 1978 and is far from a balanced trade position, inclusion of this government procurement code in the MTN package is unlikely to improve our balance of trade and is most likely to cause even further erosion. The code could also affect the government's latitude for product and technology development, for helping maintain the health of U.S. procurement-related industries and for preserving tens of thousands of U.S. jobs in thousands of private-sector industries.

We strongly urge that your committee recommend that the code be returned for negotiation in tandem with the safeguard and counterfeit codes now being negotiated-and submitted to Congress at a later date when the multitude of problems have been solved and procurement is put on a more equitable basis.

It is inconceivable to the AFL-CIO that there can be a net benefit to the U.S. from this code as it now stands. State-owned industries and political realities abroad will virtually close out most opportunities for successful bids. Further. state-owned industries because of their direct and indirect subsidies can underbid U.S. companies in their markets and successfully challenge us here at home.

Further, U.S. companies, in many instances, because of special provisions in the code, will be predisposed to export technology, develop their product lines and bid on U.S. contracts from developing or least developed countries. The likelihood of firms in the U.S. developing major export opportunities in the face of entrenched opposition to encroachment on this most-strongly defended area of purchasing, is remote. As in the past, foreign purchases will be predominantly of those U.S.-made products that are either non-existent domestically, in short supply or of a nature that have not been highly developed in those countries to date.

If it is not possible to renegotiate the entire code, then specific safeguards should be insisted upon to minimize the damage that will likely occur.

Therefore, we recommend that the Committee insist on the following provisions in the implementing legislation:

1. The legislation should provide for full equality of government procurement between nations that sign the code. That is, all signatory countries would have full rights to bid on the listed entities of all other signatory countries. Only those listed entities that are exposed to bidding would be available to foreign bidders. All other government procurement would not be available to foreign bidders unless the product is unavailable domestically. Such a procedure would be fairer than the present international practices where foreign government procurement is rarely available to U.S. bidding, but U.S. government contracts are open to foreign bidders. Thus, under this provision, only the items on the entity lists would be open to bidding by all signators, all other items would be closed off. Countries that remain outside the code would get none of the benefits.

2. A clear rule-of-origin language should be incorporated into the legislation so that only countries that sign the code can be the source of supplies for the U.S. market. A bidder in a signatory country should not have the opportunity to shop around for a lowest priced country for his source of the product he is contracted to deliver.

3. STR should provide specific language that makes good its assurance that state and local Buy American laws are not affected by the code. STR has assured that these laws will not be affected; the specific language should be forthcoming. If the code were to result in weakening state and local Buy American practices, the U.S. would have made a major concession without receiving anything in exchange.

4. Under the code, all procurement listings for U.S. purchases will be listed in "Commerce Business Daily." This same publication should gather and publish on a regular basis all the procurement bidding opportunities that are expected to be offered by the other signatory countries.

5. The implementing legislation should be for a two-year provisional basis and should provide that it does not go into effect before January 1, 1981, the date indicated in the code.

6. The implementing legislation should spell out the machinery for U.S. withdrawal, which is provided for in the code upon 60 days notice. The legislation should provide the President with authority to make a finding of detrimental effect to the U.S. anr allow for withdrawal from the code by presidential order. 7. A special overall legal caveat should assure that the implementing legislation amends existing law only where specific amendments occur and it should clearly state that no other domestic legislation is affected until Congress specifically amends such domestic legislation.

8. Provision should be made that there will be no authorization for the reduction of U.S. product standards nor any retarding of prospective improvement of U.S. standards by this legislation. Only those legislatures that adopted the standards have the authority to repeal or change them.

9. Upon complaint, all participating countries should be required to make available the records and transactions of their state-owned companies. Any that are ruled to be secret should be considered as subsidized and thus excluded from any of the bidding processes. Similarly any state-owned companies that are not making the same level of return on investment as their private counterparts are in fact being subsidized and are also excluded from any bidding.

In conclusion, inasmuch as an international panel is established for administering this code and for deciding disputes, it is most important that U.S. law be clear and specific. This legislation, does not provide U.S. exports any rights to foreign government procurement. The Congress is only legislating how the U.S. laws will respond to foreign bidders; therefore, this is not export-guaranteeing