Even as I am worried about the export of computer technology to the Soviet war machine, I am worried about export of precision grinding machines for manufacture of precision miniature ball bearings.

Ball bearings are an integral part of many weapons systems; there is no substitute. The entire Soviet ball bearing production capability is of Western origin. All Soviet tanks, all Soviet military vehicles, run on ball bearings manufactured on Western equipment-or on copies of Western equipment.

All Soviet missles, all Soviet related systems-including guidance systemshave bearings manufactured on Western equipment-or on Soviet duplicates of Western equipment.

Bryant Chucking Grinding Company, Springfield, Vermont, has been a major supplier of ball bearings processing equipment to the Soviet Union.

In the 1930s, when the U.S. Government and corporations were providing massive infusions of industrial technology into the Soviet Union, Bryant shipped 32.2% of its output to the U.S.S.R. In 1934, Bryant shipped 55.3% of its output to the U.S.S.R.

In 1959, under the then slightly relaxed restrictions commensurate with Khrushchev-decreed "peaceful coexistence," Bryant was able to sell 46 Centalign B machines to the U.S.S.R. In 1960, the U.S.S.R. placed an order for 45 similar Bryant machines. The U.S. Department of Commerce indicated willingness to grant Bryant an export license. Bryant accepted the order. It was not filled, however, because of Defense Department objections that the machines would be used for production of bearings utilized in strategic components for Soviet military end items.

The Bryant-Commerce Department effort to export the Bryant machinery resulted in an investigation by the U.S. Senate Subcommittee on Internal Security. The Subcommittee's report stated:

"We are now concerned . . . the decision to grant the license was a grave error."

Yet, in 1972, the Commerce and State Departments approved Bryant's export to the Soviet Union of 164 precision grinding machines of a new-generation so sophisticated as to be able to manufacture miniature ball bearings to tolerances of 25th millionth of an inch.

If this, in itself, is not a bit chilling to those who recognize the importance of such precision equipment in the hands of the Soviet Union permit me to add the information that while, in that manner, the Soviet's war machine gained 164 of these machines; while the United States, reportedly has never owned more than 77 of them.

Recent reports about agreements signed by General Dynamics Corporation with the Soviet State Committee for Science and Technology are also disturbing. The five-year agreement for scientific and technological cooperation covers such defense-related fields as ships and shipbuilding, telecommunications equipment, asbestos mining and processing, commercial and special purpose aircraft, computer-operated microfilm equipment, and navigations and water buoys.

Also upsetting is Fairchild Corporation's agreement with Communist Poland for sale of U.S. integrated circuit technology used extensively in modern weapons systems and in third-generation computers.

The February, 1974 issue of Armed Forces Journal International reports this: The Soviets are asking major U.S. aerospace firms (Boeing, Lockheed, McDonald-Douglas) to sell them, on a major scale, the manufacturing technology and managerial expertise to build wide-bodied commercial jet liners. Development of the Kama River truck factory will undoubtedly contribute further to Soviet military capability. Quite obviously any truck ean haul troops and ammunition to the front as easily as it can transport corn from the field.

In the Soviet view, the competition between Communism and U.S.-based non-Communism for scientific and technological superiority relates especially to direct military power. For there, as Soviet leaders have always seen it, rests the key to their ultimate goal of world domination. It follows, therefore, that strengthening the Soviet armed forces must forever have first call on all scientific-technological resources and capabilities.

Because. again and again, Soviet scientific-technological resource capabilities have ranged from inadequate to dismal failure. U.S.-based superior resources have been tapped. As they have been, so shall they continue to be

unless the Congress of the United States shuts off the supply of this which, like the U.S. scrap metal of the 1930s, must one-day find its end result in a Soviet-inflicted nuclear Pearl Harbor.

I respectfully commend this problem to the attention of this Committee. I do so with great concern. I do so in the hope that serious consideration be given to badly-needed legislation to bring an end to what should never have been started: Provision to the Soviet Union and other Communist countries of anything which, by any stretch of the imagination, could possibly be used for military purposes against us.

Mr. Chairman, again, I thank you for this opportunity. I thank the Committee for its attention. I request, most sincerely, serious consideration to the facts which I have set forth, and to my plea for sanity in the name of U.S. freedom.

Congress of the United States, House of Representatives,

HON. BOB PACKWOOD,
Senate Office Building, Washington, D.C.

Washington, D.C., April 3, 1974.

DEAR SENATOR PACKWOOD: During my April 1st appearance before the Senate Finance Committee, a question arose regarding the financing of our trade with the USSR.

In responding to the question, I stressed that credits being extended to the Soviet Union by the U.S. Export-Import Bank are not granted on terms and conditions equally applicable to all countries.

Export-Import Bank President William J. Casey had testified that the Soviets had not been required to submit financial data that would be required of a normal borrower.

It should also be pointed out that the United States is allowing far more generous terms in its credits to the Soviets than are any of the European countries. The Export-Import Bank interest rate charged to the Soviet Union is 6%. Analogous European financial institutions have been charging at least two to three percent more.

In my response to the question regarding absolute Soviet secrecy and refusal to disclose basic financial data I mentioned the June 30th Business Week interview with Soviet Deputy Trade Minister Vladimir S. Alkhimov in which he expressed Soviet policy regarding disclosure of Soviet reserves and other financial information.

I have enclosed a copy of this revealing interview for your consideration. Sincerely yours,

BEN B. BLACKBURN,
Member of Congress,
Fourth District-Georgia.

Enclosure.

From Business Week, June 30, 1973

RUSSIA'S ALKHIMOV ANSWERS SOME MONEY QUESTIONS

Before the summit, Soviet Deputy Trade Minister Vladimir S. Alkhimov spent more than a month in the U.S. talking with businessmen and officials. In the following interview with BUSINESS WEEK, he discussed Soviet industrial projects and financing of U.S.-Soviet trade.

Question. What will the agreement with Occidental Petroleum to build a fertilizer complex mean for American business?

Alkhimov. There will be contracts for many American companies. This is a very big project. There will be pipelines from the Volga River to bring ammonia to the Baltic Sea, and another pipeline to Odessa on the Black Sea to receive Occidental's superphosphoric acid. We can produce ammonia and urea competitively, but we need superphosphates. [Occidental Chairman Armand] Hammer has the superphosphates, of course, which is a key part of the project. But we will need a great deal of equipment.

What is the status of the proposed liquefied natural gas joint ventures? As you know, Hammer and [Chairman Howard] Boyd of El Paso Natural Gas Co. have signed a letter of intent with us, and we will go ahead and investigate the feasibility of the Yakutsk project. Nothing has been signed yet for

North Star. Price is a problem. Only the prices of gold and natural gas remained unchanged since the thirties. Now both have increased. You will have to resolve the price problem. There is no problem on our side.

Is the Soviet Union still insisting on fixed interest rates on credits from American private banks?

So far, yes. Our planners like to know in advance what things are going to cost. All the loans for the Kama River truck project carry fixed rates. But the financing terms for the fertilizer project have not been decided.

Don't fixed rates mean that you probably have to pay more than you would with fluctuating rates?

Well, of course, we would prefer very low fixed rates. But for some reason, your banks don't see it that way.

Reportedly, the Ex-Im Bank wants more information on the Soviet balance of payments, monetary reserves, and foreign debt before granting large additional credits. Will this be a problem?

This is a misunderstanding. We publish good trade statistics. For the last 20 years our balance of trade was positive, except in 1964, when we had a deficit of about $50-million, and last year, when the deficit was $800-million or so. We had to sell gold to cover it. We produce gold, but we manage our balance of payments very carefully to minimize the use of gold. The problem of our reserves is not of great importance. What criteria should one apply, anyway? Your gold reserves have dropped from 25,000 tons to 10,000 tons. If we published our reserves you might say we don't need credit, or if our reserves decreased you might say we are not reliable.

Of course, when it comes to these very big projects, we will need special assurances, both ways, that commitments will be honored. But this is not a bookkeeping problem. It is up to our government to decide what information it can properly give to the Ex-Im. But it won't act under threats.

Vneshtorgbank, the foreign trade bank, does all the Soviet Union's borrowing abroad, but U.S. banks are limited in the amount they may lend to one client. Could that put a ceiling on trade?

In the debt agreement between us and the Ex-Im, the two governments designated the Vneshtorgbank, or other bodies, as Soviet borrowers. We have our trading companies, too. This can be settled easily.

What of the periodic reports that the Soviet Union may apply to join the International Monetary Fund?

It is up to our treasury. I know they don't like some of the IMF's proce dures, such as its system of voting. We have our own system of international banks, the Comecon Investment Bank and Settlements Bank, which wouldn't be easy to mesh with the IMF. But I wouldn't rule it out forever.

Senator TALMADGE. The next witness is Mr. Ralph Cross, the chairman of the Government Relations Committee, National Machine Tool Builders' Association, accompanied by Mr. James A. Gray, executive vice president.

The full statement will be inserted in the record, Mr. Cross, and you will summarize it for 10 minutes.

STATEMENT OF RALPH CROSS, CHAIRMAN, GOVERNMENT RELATIONS COMMITTEE, NATIONAL MACHINE TOOL BUILDERS' ASSOCIATION ACCOMPANIED BY JOHN KOCH, COUNSEL

Mr. CROSS. Mr. Chairman, Mr. Gray is not here this morning. In his place, we have Mr. John Koch, who is legal counsel for the Machine Tool Builders' Association.

We have prepared a written statement, which I assume will be made a part of the record.

Senator TALMADGE. It will be inserted in full, sir.

Mr. CROSS. In the interest of saving time, I would like to limit my remarks, therefore, to the highlights of this statement.

We testify today in basic support of the Trade Reform Act, other than title IV. The world military, political, and economic situation has changed considerably since the cold war days, in which some of our present trade laws were developed, including the prohibition against the grant of nondiscriminatory tariff treatment to Communist countries.

The administration has slowly and cautiously encouraged the expansion of trade with both the Soviet Union and the Peoples Republic of China, but the ability of Communist countries to purchase from the West depends to a considerable degree on their ability to sell here. We strongly oppose, therefore, title IV of the bill passed by the House, which would constitute a significant backward step in our efforts to normalize and expand international trade.

As businessmen, we look upon the Soviet Union and other Eastern bloc countries as important markets, markets that will enable us to expand our exports and thereby, besides increasing domestic employment and contributing positively to the balance of trade, strengthen our industrial base. But the benefits of expanded trade with the East are not solely economic. Both as businessmen and as citizens, we strongly share the administration's conviction that expanded world trade and resulting economic interdependence are perhaps the most promising assurance of continued world peace.

Accordingly, in the interest of both liberal trade policy and detente, we urge the committee to report a trade bill that does not attempt to tie the questions of nondiscriminatory tariff treatment and ExportImport Bank financing to the unrelated issue of Soviet emigration policies.

At this point, I would like to say a few words about the individuals and organizations we have traded with in the U.S.S.R. Personally, I have been trading with the U.S.S.R. for over 40 years, going back to 1934. And in all of this time, we have never had an order cancelled; we have never had an official of the Soviet organizations that we deal with go back on their word. They have always paid their bills on time. They have dealt with us openly and honestly. They have told us in advance what things we could expect when we came into the negotiation, what things were not negotiable, and our trade has been of the highest order.

There are two other matters that are appropriate subjects for comments at these hearings. One is the issue of taxation of foreign source income. The other is the U.S. tax treatment of capital investment here at home.

We are gratified that the trade bill passed by the House and pending before this committee does not include provisions that disturb existing U.S. tax policy applicable to foreign investment. As the Secretary of the Treasury testified before the House, and as various private and Government studies have shown, foreign investment by U.S. firms has been beneficial to the American economy and has, in fact, improved the U.S. balance of trade and added jobs to the U.S.

economy.

As an example, I would like to tell you about what has occurred in our own company. We decided to build a plant in Germany in 1960.

30-229 74 pt. 4- 30

Prior to that time, our export business was less than $1 million a year. Since we have built that plant, our export business has expanded, over a 14- or 15-year period, by 600 percent and has provided jobs for 250 people in our company for 15 years. We look, therefore, very highly on this type of business.

With respect to taxes, first we do not believe that U.S. corporations should be taxed on earnings of foreign subsidiaries operating in countries offering inducements to new investment.

Second, we do not believe there is any justification for taxing the foreign earnings of a controlled corporation which operates in a country with significantly lower income tax rates than the United States and whose exports to the United States exceed 25 percent of its total production, as the administration has proposed.

Third, we are opposed to any new restrictions or limitations on the availability of foreign tax credit, at least as applied to manufacturing industries generally.

It is provisions such as these that would operate to disadvantage U.S. corporations in relation to their foreign competitors. If the tax laws of country X operate to give companies located there an undue advantage with respect to the U.S. market, the problem, if there is one, calls for a tariff solution which would apply equally to all companies operating in country X, not solely to the subsidiaries of U.S. corporations.

With respect to U.S. tax treatment of laws applicable to capital investment, we do not believe that our tax laws should be used as a club to inhibit foreign investment. On the other hand, it is our firm conviction that the United States remain the industrial leader of the world, a Nation with an industrial plant sufficient to supply its basic peace and wartime needs and a provider of ample and rewarding industrial job opportunities.

To achieve these goals, we must be able to compete in world markets on an equal basis. As an example of how not to achieve these goals, let me tell you what has happened to the machine tool industry.

Up until a few years ago the American machine tool industry dominated the world machine tool business. We had the largest machine tool industry in the world. That no longer exists. We are now in third place, behind West Germany and the Soviet Union. And, in my judgment, this was brought about largely because of our export control laws which kept us from being able to participate in the markets in the Eastern countries.

Without minimizing in any way the importance of new and enlightened international trade legislation, I wish to emphasize our conviction that in the long run, America's success in world markets, its ability to attain its economic goals at home, and its future as an industrial nation, depend most importantly on one thing: its productivity. Winning the productivity war means lower unit cost, lower prices, and more industrial job opportunities.

So how are we doing in this productivity war?
Let me cite a few facts.