plied only as long as necessary, it seems reasonable to me that Congress consider temporarily resorting to the U.S. equivalents of what the Europeans and Japanese are doing. That is, Congress, as part of the legislation, shall implement these trade agreements and, until we obtain opening up of the counterpart foreign markets, should prohibit the sales of heavy electrical goods made in noncooperating countries to U.S. agencies that are the principal purchasers of such goods.

Further, in recognition of the non-Federal part of the domestic markets in these product areas, Congress should prohibit the use of Federal funds or credits to facilitate the domestic purchase outside of the Federal procurement system of such goods made in noncooperating countries.

Thank you, Mr. Chairman.

Senator CHILES. Thank you, sir.

[The prepared statement of Mr. Falk follows:]

STATEMENT OF BERNARD H. FALK, PRESIDENT, NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION ON THE MTN GOVERNMENT PROCUREMENT CODE

I am Bernard H. Falk, President of the National Electrical Manufacturers Association. I am also Chairman of Industry Sector Advisory Committee 18, Electrical Machinery, Power Boilers, Nuclear Reactors, and Engines and Turbines. I appreciate this opportunity to appear before the Senate Governmental Affairs Committee for the purpose of presenting the views of American manufacturers of heavy electrical equipment with regard to the MTN Government Procurement Code.

Attached to my statement is an excerpt from testimony which I presented before the Senate Finance Committee on April 1, 1974, when my Association had the opportunity to bring its views in support of what eventually became the Trade Reform Act of 1974. This attachment has been included to explain how foreign "Buy National" procurement policies have effectively foreclosed U.S. producers of heavy electrical equipment from competing in the markets of other producer nations while the suppliers of similar equipment from those nations have enjoyed relatively open access to the large U.S. market place.

Within this in mind, we were strongly supportive of the Trade Act and particularly Section 104 which directed that a principal U.S. negotiating objective would be to obtain, to the maximum extent feasible, equivalent competitive market access in developed countries for U.S. product sectors. Obviously, one of the means to accomplish this objective was to be a comprehensive Code on non-discriminatory government procurement. This matter of the need for such a Code was not new at that time; as a matter of fact, in 1968, U.S. trade authorities became convinced that restrictive nationalistic procurement in heavy electrical equipment had created clear conditions of unfairness in international trade. Seeking correction, U.S. officials initiated discussions within the Organization of Economic Cooperation and Development which eventually was essentially transferred to the MTN negotiation for a Government Procurement Code. What has happened in the trade negotiations, however, is that while an adequate procurement code has been negotiated, the European Community has refused to have the code apply to its national government entities that buy heavy electrical equipment. What other countries will finally agree to do relative to the procurement code is still unclear but is not promising. It is, therefore, already apparent that the U.S. is coming out of the trade negotiations with a failure to obtain significant increased foreign access in the main potential markets for U.S. exports for these products.

There is an important aspect in this situation that has to be understood. The extent to which each country's home market purchases in these product areas are made by national-level government entities that could be put under the procurement code varies from practically 100 percent of the total home market in France and England to practically none in Japan. In other words, the Japanese market for heavy electrical goods is practically 100 percent "private". But the foreign governments effectively block U.S. access to practically all of their home markets, whether the would-be purchasers are national-level government agencies, below-national-level government agencies, or "private". The premise of sec

tion 104 of the Trade Act and of the U.S. push for a government procurement code was that a country that put under the procurement code its national-level government agencies that purchase this equipment would also urge other purchasers of such equipment within its borders to stop discriminating against U.S. suppliers. The failure to put their national-level purchasers under the code obviously means that their "across-the-board" nation-wide discriminatory import controls will be maintained.

In fact, unless appropriate steps are taken by Congress to compensate for this negative outcome in the trade negotiations, the U.S., after the negotiations, may be even worse off than before. For example, tariffs in these product areas will be reduced. Such reductions will have a favorable impact on imports into the U.S. but will mean nothing for U.S. exports in the face of the pervasive foreign government discrimination.

The case of the world-wide heavy electrical goods market (power generating equipment, including steam-turbine generators, gas turbines, hydro-turbines and generators, power switchgear and large power transformers) illustrates the disadvantage to the U.S. of the one-sided relationship in these product areas that our trading partners are trying to continue. Over the last five years, on an average annual basis, the European heavy electrical goods market is worth about $2 billion; the Japanese market about $500 million; and the U.S. market about $5 billion. And whereas Europe and Japan have been getting about 8-9 percent of the U.S. heavy electrical goods market, the U.S. has been practically totally excluded from theirs. The consequences to the U.S. economy in terms of jobs, sales by raw material and component suppliers (steel, for example), etc. are obviously serious.

No doubt the foreign assumption is that the status quo will continue; foreign home markets will continue protected; the U.S. market will stay relatively open. If this assumption proves correct, any U.S. hopes for liberalization in the future will obviously remain futile.

We accordingly must devise a legislative response to this one-sided situation that will forcefully tell our major trading partners that their continued protectionism in these areas was and is a mistake and that greater trade liberalization in the future will be a better alternative.

How best to respond is, of course, the question. I understand the Administration proposal is merely to maintain the present "Buy American" price differential with respect to those U.S. agencies that are the principal purchasers of the products in question. Present "Buy American" application provides for a 6 percent price differential, increased to 12 percent where the U.S. supplier is in a high unemployment area. Continuation of these differentials at existing levels will not, in our judgment, serve to alter the positions of our major trading partners nor will it serve as an inducement to them. The very minimum response that would be likely to have some effect would be to increase the various sets of "Buy American" price differentials for the listed U.S. agencies to a level where they would have a real competitive impact. We also have to keep in mind that, by far, the larger part of the domestic market in these product areas is outside federal procurement. The non-federal parts of the U.S. heavy electrical market are about 85 percent.

Bearing in mind that the objective is to induce foreign governments to open up their markets and that U.S. countermeasures would be applied only so long as necessary, it seems reasonable that Congress resort temporarily to U.S. equivalents of what the Europeans and Japanese are doing; that is, Congress as a part of the legislation to implement the trade agreements—and until we obtain opening up of the counterpart foreign markets-should prohibit sales of heavy electrical goods made in non-cooperating countries to U.S. agencies that are the principal purchasers of such goods and, further, in recognition of the non-federal parts of the domestic markets in these product areas, Congress should prohibit the use of federal funds or credits to facilitate the domestic purchase outside of the federal procurement system (for example, purchases by state or regional cooperatives, state highway systems, municipalities, etc.) of such goods made in non-cooperating countries.

Congress would empower the President to relax the countermeasures as our trading partners become more cooperative and would, of course, provide adequate safeguards against various possible contingencies such as unavailability, as it now does in the "Buy American" laws.

The Congress and the Administration are now in the final stages of determining the overall implementation aspects of the MTN trade agreements. In that connection, I respectfully recommend your support for the position set forth above.

EXCERPT FROM STATEMENT OF NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION ON H.R. 10710, THE TRADE REFORM ACT OF 1973, BEFORE THE COMMITTEE ON FINANCE, U.S. SENATE, APRIL 1, 1974

Every nation of the world regards its electrical manufacturing capability as an essential national resource which underpins its economic strength and measures its potential for growth. Consequently, every industrialized nation, to one degree or another, and with the U.S. as a notable exception, has historically adopted policies to protect and encourage its electrical equipment capability, in terms of research and development assistance, strict buy-national procurement policies, discriminatory standards regulations and export aids and incentives.

The buy-national procurement policies of electrical utilities owned or controlled by the governments of Western Europe, for example, have effectively foreclosed U.S. producers of heavy electrical equipment from competing in those foreign markets. At the same time, however, electrical machinery producers in those foreign countries, often supported by government export aids and incentives, have enjoyed relatively open access to the large U.S. market, subject only to a low tariff, and the Buy-American differential in the case of Federal procurement. As a result of this one-way flow of trade, U.S. electrical manufacturers have sold very little equipment in the other producer countries of the world, while hundreds of millions of dollars of foreign-made equipment are now in place throughout most major U.S. electric systems-investor owned utilities as well as Federal and municipal power authorities.

We regard this one-way flow as anti-competitive per se. Moreover, it is based on a pervasive discrimination which makes a mockery of the principle of nondiscriminatory trade laid down in the General Agreement on Tariffs and Trade (GATT).

NEMA is gratified that the U.S. government has tried to do something about the anti-competitive behavior of foreign governments and their governmentowned or controlled electric utilities. In 1968, approximately one year after the Kennedy Round negotiations were concluded, U.S. trade authorities became convinced that restrictive nationalistic procurement in heavy electrical equipment had created clear conditions of unfairness in international trade. NEMA had made this point in many statements over the years, to the Congress and the Executive Branch. Seeking correction, U.S. officials initiated working party discussions within the Organization for Economic Cooperation and Development (OECD) to try to develop an international code on government procurement. At the request of the Treasury Department and the Office of the Special Representative for Trade Negotiations, NEMA submitted a draft of a proposed international code for electrical equipment procurement, modeled on applicable U.S. federal procurement regulations. We believe that since 1968 U.S. officials have worked diligently toward adoption of an international procurement code based, at least in part, on the NEMA draft. But now, in 1974, little tangible progress has been made, and we must conclude that there is scant interest among the other OECD members in facilitating broadened access for U.S. manufacturers to these members' own home markets.

NEMA is also gratified that the Committee on Finance has recognized the inhibiting and discriminatory effects of certain government procurement practices. Appendix B to the Committee Print, "Summary and Analysis of H.R. 10710-the Trade Reform Act of 1973," dated February 26, 1974, identified such practices as a significant non-tariff barrier.1 Of particular interest to U.S. electrical manufacturers are the following paragraphs:

"The principal practices that inhibit foreign participation in government procurement are insufficient publicity in the solicitation of bids and in the disclosure of the criteria on the basis of which contracts are awarded. Most trading partners

1 It should be added that Appendix B also identifies two other types of non-tariff barriers of concern to NEMA members: (1) subsidies and export aids, and (2) discriminatory standards regulations.

of the United States, such as Japan, the United Kingdom and most European Community countries use predominantly the selective and single tender bid procedures. It is generally recognized that these lend themselves much better to discriminatory practices against foreign suppliers than public tendering.

"Foreign suppliers can also be suppressed through specific conditions of bidding which put them at a disadvantage, such as certain administrative requirements or inadequate time allowed for submission of bids. Moreover, purchasing authorities may specify technical requirements in advance collaboration with domestic suppliers limiting thereby the competitiveness of the foreign bidder. In some countries only resident firms may undertake government contracts of certain types." (p. 91, emphasis added.)

In sum, it would appear that both the term "competitiveness," and the Most Favored Nation principle, are viewed differently in most foreign industrial countries than in the U.S. To us they mean individual firms, regardless of national origin, competing among themselves on the same non-discriminatory terms and with equal competitive opportunity. To foreign governments, their power authorities and their electrical equipment manufacturers, they mean domestic and foreign economic policies which accord special treatment and discrimination in world trade to their own producers. Under these conditions, the contest between U.S. and foreign manufacturers can hardly be equal-and it has not been.

Senator CHILES. Mr. Davis?

Mr. DAVIS. Mr. Chairman, I think the testimony that we have submitted in behalf of the American Iron and Steel Institute can be reduced to five points. First, we know that the United States will honor both the letter and the spirit of the procurement code. Second, we see significant opportunities for circumvention of the code by our trading partners. Third, our past experience suggests that our trading partners will in fact try to find ways and means to circumvent the code unless they clearly understand that there has been an alliance in this country between Congress, the administration, labor, and industry to insure that the code will in fact be honored by all the signing nations. Our testimony reflects our willingness to join in that alliance. Finally, we wish to endorse the formal statement that will be submitted later this afternoon by Dr. Oswald in behalf of AFL-CIO.

Our position can be reduced to one sentence, Mr. Chairman, and that would be a sentence on page 2 of your opening remarks, "This international procurement code is an important first step." However, unless the code is properly enforced, honored, and supervised by Congress, the administration, labor, and industry, the code will truly in fact "be a meaningless undertaking."

Thank you very much.

Senator CHILES. Thank you.

Excuse me a minute.

[Brief recess.]

Senator CHILES. I appreciate your patience. I am sorry we had this interruption. We are running awfully late to try to finish up with our other witnesses. I have several questions I would like to submit to you and ask you if you would try to give me written answers, because I am sure some of your answers are going to be different on some questions. So rather than have each of you go through the panel, I think that might be helpful to us.

One question I would like to ask maybe as a panel, and maybe we could get a quick answer, is what has your experience been in working with our Special Trade Representative? I would just like to quickly hear what you think about that, if a couple of you want to answer that. Mr. LASLEY. I would say the relationship has been excellent. Our

input has been noticed. In some cases, to your surprise, action has been taken. You might have noticed I said we take credit for maintenance of the threshold figure. In that case, we sent an emissary and a cable and got action. That was a reversal. We found them very cooperative. And in the case of the Government Procurement Code, Mort Pomeranz, sitting in this room, did most of the work and he had to put up with a lot of flak on our part, and all kinds of things. He did a great job.

Mr. SMOOт. Our experience has also been excellent. I guess, like most industries, we feel that people think we are a very esoteric group and hard to understand. STR has a man who understands what our problems are, and in fact about 1 year ago, began to anticipate some of the things he thought we would be interested in. I thought that was a very good example of the way they were organized.

Second, having been to Geneva three times during the course of the last year to the delegation and given the conditions under which we were operating in Geneva, I believe everybody in STR, the Commerce Department, and other departments who were over there really deserve a vote of thanks because they did a very good job under very trying physical conditions.

Mr. BERKELEY. I, too, as a member of the advisory committee, would agree with all of those comments. I think that Ambassador Strauss and, before him, Ambassador Dent, both sought a very open, two-way communication between the private sector and public sector. They were very flexible and were very receptive to any and all counsel that was directed toward them. And my own personal experience has been the tremendously high quality and ability throughout the entire staff, not just the negotiating Ambassadors and Ambassador Strauss himself, but right through the whole organization. They have been very receptive, very open, very flexible, and very firm, really, in working for the objectives of the original legislation.

Mr. FALK. I had the unhappy experience of being the heavy electrical good advisor in the Kennedy round as well as this round, so I not only second the comments of my other members of the panel, but also wish to point out in comparison, we are talking about a grade of A versus D-minus in terms of relationships. I think a lot of that is not only due to the efforts of STR, but Congress deserves credit by requiring this kind of consultation in the legislation, and I would hope you give some consideration to extending that mechanism beyond the legislation, beyond the act we intend to implement.

Mr. DAVIS. With Mr. Pomeranz handling the technical aspects, and Ambassador Strauss handling the negotiations, we have some reason for concluding that our trading partners would adhere to the code. However, we are troubled by the fact Ambassador Strauss has just been given a very enormous assignment, starting Labor Day, which might remove him from the proceedings for months, at a very critical time when the message needs to be conveyed to our trading partners that we will in fact accept nothing less than the same kind of commitment to the code as the United States is going to give to it.

Senator CHILES. Thank you very much, and I am sorry I don't have a little more time to ask you some more questions. I would like to submit some questions to you.

Thank you.

[The prepared statement of Mr. Davis follows:]