EXPORTS: TIME FOR A NATIONAL POLICY HEARINGS BEFORE THE SUBCOMMITTEE ON INTERNATIONAL ECONOMICS OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETY-FIFTH CONGRESS SECOND SESSION

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-00003R000100040010-2
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 140
• Document Creation Date: December 21, 2016
• Document Release Date: October 23, 2008
• Sequence Number: 10
• Publication Date: August 30, 1978
• Content Type: OPEN SOURCE

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EXPORTS: TIME FOR A NAT NAL POLICY
HEARINGS
SUBCOMMITTEE ON INTERNATIONAL ECONOMICS
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
U.S. GOVERNMENT PRINTING OFFICE
38-412 0 WASHINGTON : 1979
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402
Stock Number 052-070-04563-S
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MW
JOINT ECONOMIC COMMITTEE
(Created pursuant to sec. 5(a) of Public Law 304, 70th Cong.)
RICHARD BOLLING, Missouri, Chairman
LLOYD BENTSEN, Texas, Vice Chairman
HOUSE OF REPRESENTATIVES SENATE
HENRY S. REUSS, Wisconsin JOHN SPARKMAN, Alabama
WILLIAM S. MOORHEAD, Pennsylvania WILLIAM PROXMIRE, Wisconsin
LEE H. HAMILTON, Indiana ABRAHAM RIBICOFF, Connecticut
GILLIS W. LONG, Louisiana EDWARD H. KENNEDY, Massachusetts
PARREN J. MITCHELL, Maryland GEORGE McGOVERN, South Dakota
CLARENCE J. BROWN, Ohio JACOB K. JAVITS, New York
GARRY BROWN, Michigan WILLIAM V. ROTH, JR., Delaware
MARGARET M. HECKLER, Massachusetts JAMES A. McCLURE, Idaho
JOHN H. ROUSSELOT, California ORRIN G. I-IATCH, Utah
JOHN R. STARK, Executive Director
SUBCOMMITTEE ON INTERNATIONAL ECONOMICS
HENRY S. REUSS, Wisconsin, Cochairman
GILLIS W. LONG, Louisiana, Cochairman
HOUSE OF REPRESENTATIVES SENATE
WILLIAM S. MOORHEAD, Pennsylvania ABRAHAM RIBICOFF, Connecticut
LEE I-L HAMILTON, Indiana JOHN SPARKMAN, Alabama
MARGARET M. HECKLER, Massachusetts GEORGE McGOVERN, South Dakota
WILLIAM V. ROTH, JR., Delaware
JACOB K. JAVITS; New York
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CONTENTS
WITNESSES AND STATEMENTS
WEDNESDAY, AUGUST 30, 1978
Page
Long, Hon. Gillis W., cochairman of the Subcommittee on International
Economics: Opening statement-------------------------------------- 1
Morial, Hon. Ernest, mayor, New Orleans, La--------------------------- -1
Arellano, Hon. Richard, Deputy Assistant Secretary of State for Latin
American Economic Affairs----------------------------------------- 7
Rusovich, Basil J., Jr., president, Transoceanic Shipping Co., and presi-
dent, International Trade Mart, New Orleans, La-------------------- 37
Parrott, Quay W., Jr., vice president and manager, International Divi-
sion, Hibernia National Bank. New Orleans, La---------------------- 40
Guerra, Modesto A., president, Commerce International Corp ------------ 42
Flammang, Robert A., professor of economics, Louisiana State University_ 44
FRIDAY, SEPTEMBER 29, 1,978
Long, Hon. Gillis W., cochairman of the Subcommittee on International
Economics: Opening statement-------------------------------------- G,,
Weil, Flon. Frank A., Assistant Secretary of Commerce for Industry and
Trade 07
--------------------------------------------------------- - - -
Bergsten, Hon. C. Fred. Assistant Secretary of the Treasury for Interna-
tional Affairs------------------------------------------------------ 72
Katz, Hon. Julius L.. Assistant Secretary of State for Economic and
Business Affairs--------------------------------------------------- 8-4
Moore. Hon. John L., Jr., president and chairman, Export-Import Bank
of the United States----------------------------------- ----- 88
Schuh, Flon. G. Edward, Denuty Assistant Secretary of Agriculture for
Tnternational Affairs and Commodity Programs---------------------- 92
Arellano, IIon. Richard:
Prepared statement----------------------------------------------- 8
Brochure entitled "Government and Business : A Joint Venture in
International Trade"------------------------------------------- 11
Response to additional written questions posed by Representative
Long ---------------------------------------------------------- 01
Rusovich. Basil J.. Jr.: Prepared statement--_-- --------------------------- .38
FRIDAY, SEPTE-M BER, 29, 1978
Bergsten, I-Ion. C. Fred :
Prepared statement----------------------------------------------- 70
Response to additional written questions posed by Representative
Long --------------------------------------------------------- 1.12
Katz. Hon. Julius L.:
Prepared statement----------------------------------------------- S5
Response to additional written questions posed by Representative
Long --------------------------------------------------------- 115
Moore, IIon. John L., Jr.:
Prepared statement-------------------------------- ----------------------------------------------- 89
Response to additional written questions posed by Representative
Long --------------------------------------------------------- 117
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IV
Schuh, Hon. G. Edward : . Page
Prepared statement----------------------------------------------- 93
Response to additional written questions posed by Representative
`Veil, Hon. Frank A.:
Prepared statement-----------------------------------------------
69
Response to additional written questions posed by Representative
Long --------------------------------------------- ----
110
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EXPORTS: TIME FOR A NATIONAL POLICY
CONGRESS OF THE UNITED STATES,
SUBCOMMITTEE ON INTERNATIONAL ECONOMICS
OF THE JOINT ECONOMIC COMMITTEE,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10 a.m., in the Interna-
tional Trade Mart Building, New Orleans, La., Hon. Gillis W. Long
(cochairman of the subcommittee) presiding.
Present : Representative Long.
Also present : Kent H. Hughes, Katie MacArthur, and William D.
Morgan, professional staff members; and Mark Borchelt,
administrative assistant.
OPENING STATEMENT OF REPRESENTATIVE LONG, COCHAIRMAN
Representative LONG. This hearing will come to order. I think most
of you know that this is a field hearing of the Subcommittee on Inter-
national Economics of the Joint Economic Committee of the United
States Congress. The current chairman of the full committee is Con-
gressman Richard Bolling of Missouri.
This is the first in a series of field hearings to discuss United States
export policy and problems of American businesses in attempting to do
business overseas. We will begin this hearing with a short opening
statement that I think expresses our concern over this entire matter.
The year-long decline of the dollar has focused national attention
on America's changing place in the world economy. In the past 12
months, the dollar has declined about 71/2 percent relative to the cur-
rencies of our principal trading partners. Against other key interna-
tional currencies, however, the fall has been nothing short of precipi-
tous. For much of the world the declining dollar has meant uncertain
foreign exchange markets. For Germany and .Japan, the dollar has
dropped so sharply in value that they may lose a portion of the
Americn market. The Organization of Petroleum Exporting Countries
has become increasingly concerned as their dollar earnings and dollar
denominated assets fall in value.
What stands behind the unsteady decline of the no longer "good as
gold" dollars? There are several factors involved. With the advent of
flexible exchange rates, international corporations as well as national
governments found it desirable to diversify their holdings of foreign
exchange. In practice, that meant moving away from strict reliance
on the dollar to the use of a wider range of key currencies.
Domestic inflation and lagging productivity in our industrial sector
have also played a part. In the recent past, both Germany and Japan
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have done a much better job at controlling inflationary pressures than
has the United States.
Just as important is the U.S. trade deficit-burgeoning imports and
slowly growing, sometimes stagnant exports resulted in a record U.S.
trade deficit of $31 billion in 1977. Recent figures had suggested that
the deterioration of our trade account must have peaked. The $3 bil-
lion deficit for July told a different story. In any case, the record of the
first half of 1978 was so bleak that the deficit for the entire year is
likely to exceed the 1977 total. The striking feature of the July deficit
is that oil imports fell.
Nor is there any indication that the level of imports will recede. A
national energy policy and the depreciation of the dollar may reduce
the growth in imports but for the foreseeable future the United States
is going to become more dependent on imports than at any other time
during the post-World War II era.
Although the first U.S. trade deficit was recorded in 1971, the trend
toward a deficit had been apparent throughout the 1960's. For years,
oversea profits from U.S. investment and the sale abroad of U.S.
technology and services brought the United States a substantial sur-
plus on current transactions with the rect of the world. Profit remit-
tances and the sale of technology and services are still strong cards in
the international hand of the United States. They offset about half
the 1977 trade deficit and kept the U.S. current account deficit at the
$15 billion level. Two recent developments, however, suggest that the
services side of U.S. current transactions may also begin to weaken.
First, foreign governments now control substantial holdings of U.S.
Treasury securities. Interest paid on those bonds will be a further drain
on the U.S. current account. Second, more and more foreign-based
companies are establishing operations in the United States. When
dividends from those investments start to flow home, they will offset
American earnings on her overseas holdings.
Imports now account for a much higher percentage of U.S. gross
national product. By all indications, the United States will be generat-
ing smaller surpluses on the services side of the current account. The
spotlight is squarely on U.S. export performance.
In recent years that performance has not been good. Part of the
problem lies in slow growth rates overseas. About 40 percent of our
manufactured exports consist of machine tools and other capital equip-
ment. Slow growth economies do not provide good markets for capital
equipment.
There is also considerable evidence that we have simply been priced
out of some markets. High rates of domestic inflation, low productivity
growth and Japanese intervention keeping the value of the yen down,
have all played a part.
In the Congress and the country there is growing suspicion that there
is yet another answer. We have simply not been emphasizing exports
enough. The President now has on his desk a mix of tax, financing and
other proposals that are calculated to boost the U.S. export
performance.
For many years, the United States has been a. "better mousetrap"
country-relying on superior technology to draw the world to her ex-
port door. That policy is no longer enough.
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Export promotion is not a substitute for controlling inflation or a
national energy policy. Nor is it any reason to stop pursuing either
superior mousetraps or less expensive ways to make them. But for
America, an improved program of export promotion appears to be a
necessary fact of economic life.
The question remains-export promotion of what kind? Do we need
more Government financing? Is it small business that has been ne-
glected? Do we put our best commercial foot forward in our oversea
missions? In today's hearing we are drawing on the expertise of busi-
nessmen, bankers, the academic world and the halls of government to
detail the export problems and potentials of the Mississippi Valley
region.
I would like to welcome you here today for the first in a series of
? regional hearings being conducted by the Joint Economic Committee's
Subcommittee on International Economics.
We have a most interesting panel of witnesses with us this morning.
and I think we can expect a most productive session.
? We have invited New Orleans' new mayor, the Honorable Ernest
Morial, to be our leadoff witness. We are particuarly pleased to have
the mayor with us this morning. He has had a distinguished career in
Louisiana, having served in all. three branches of Government. As a
state legislator, as a respected jurist, and now as the chief executive of
Louisiana's largest city. Mayor Morial, of course, has testified before
our committee in the past, and we look forward to his comments today.
Another of our distinguished witnesses is Richard Arellano, cur-
rently deputy assistant secretary of State for Latin American Eco-
nomic Affairs and formerly Professor of International Business and
director of the International Marketing Institute at the University of
New Orleans.
Mr. Robert Flammang is professor of economics at Louisiana State
University, and the author of several scholarly articles. His area of
particular interest is Latin America.
Mr. Modesto Guerra is the president of Commerce International
Corp., a relatively small international trading company based in New
Orleans. He is also the president of the Latin American Chamber of
Commerce, and served for 4 years with the Agency for International
Development as Acting Program Director in Washington and
Honduras.
Our fifth witness is a distinguished banker from here in New
Orleans. He is Quay IV. Parrott, Jr. He holds a master's degree in busi-
ness administration from Georgia State University, and is currently
vice president and manager of the International Division of Hibernia
National Bank.
Basil J. Rusovich, president of the International Trade Mart, whose
facilities we are using this morning, is also president and founder of
Transoceanic Shipping Co., Inc. A world traveler who has visited more
than 60 nations, he is a graduate of Tulane University and studied at
Texas Christian University and the University of San Carlos in
Guatamala. Mr. Rusovich is a member of the District Export Council
of the U.S. Department of Commerce, and cochairman of the Mayor's
Committee on International Economics.
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Gentlemen, if you please, we ask that you limit your prepared re-
marks to 10 minutes.
Mr. Mayor, if you will begin please. I believe your busy schedule
will not allow you to participate in the panel, but you are welcome to
stay as long as you like.
STATEMENT OF HON. ERNEST MORIAL, MAYOR, NEW ORLEANS, LA.
Mayor MORIAL. Thank you.very much, Congresman Long. I will
attempt to make my remarks rather brief because of the other experts
who are on this panel, I would prefer to defer to them.
At the outset, I would like to say that it is indeed a privilege to have
this opportunity to welcome you to the city of New Orleans. It is of
vital importance that legislators, city officials, businessmen, and per-
sons in the financial sector have the opportunity to discuss export pro-
motion policies through these regional hearings which are being con-
ducted. A continuous dialog between municipal, State, and Federal
entities as well as businessmen involved in international trade is ex-
tremely important in coordinating our efforts toward an integrated and
cohesive goal.
I began voicing some of my concerns for the international business
community long before my election, because I recognized the vital im-
portance of the development of international trade to the city of New
Orleans. It is in the spirit of that well-acknowledged need for dialog
and action that I welcome you.
I have been asked by Congressman Long to speak on the State and
municipal goal in encouraging international trade, particularly ex-
port trade. And, I will defer in that particular area to some of the
other experts who are here this morning.
With reference to the intent and purpose of this hearing, I would
also like those present to become aware of some of the particular ob-
stacles that our businessmen are encountering in their export practices.
Many of these obstacles are those which can be removed with Federal
help and support. And I am sure that the other panelists will go into
detail in some of those areas.
I would like to point out that the city's commitment to international
trade and economic development will be fostered by a small representa-
tive group of individuals which we will be appointing to form the
mayor's advisory council for international trade and economic develop-
ment. To my knowledge, and to our research, this will be the first at-
tempt to coordinate the efforts of several individual trade oriented
associations and organizations in New Orleans.
In addition to that, we have undertaken an effort between municipal
government, Federal Government, and Todd Shipyards, a private sec-
tor business; the city has submitted, in cooperation with the board of
cnmmissinners of the Port of New Orleans (dock board), and Todd
Shipyards, an urban development action grant (UDAG) project, to
indicate what it takes to produce results for our. port and to promote
international trade.
As mayor of New Orleans. this type of effort excites me. It gives me
confidence to pursue similar projects and makes me realize how com-
plex the issue of economic development is in our country. However.
it cannot be achieved across the board by any individual effort, it takes
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all of us and more Federal programs used in upgrading port facilities
are necessary. Improving our facilities, encouraging our banks to par-
ticipate in lending to export entities, and coordinating our individual
efforts, are all areas of concern that the city can participate in.
We also need to improve our attitude, however. The history of New
Orleans trade with Latin America illustrates that we have taken a
carefree approach. Because of the obvious advantageous location of
New Orleans, a similar style of living, climate, and politics, New
Orleans has assumed that trade communications would naturally flow.
We thought that we were the only game in town when it came to Latin
America. However, time has proved us to be wrong in the early 1960's
when half a million Cuban exiles landed in Miami. We were faced with
new competitors. Houston also became involved in trading with Latin
America, but New Orleans did nothing to compensate for this competi-
tion. As a result, South America, New Orleans natural trading partner,
ranks fourth among the continents doing business with the Port of
New Orleans, behind Africa, Europe, and Asia. Only 6 percent of U.S.
exports to South America were handled via the New Orleans Port.
We have got to get serious with our trade with South America and
realize that 250 million to 300 million people wanting to do
business just to the south of us. Not only do we need to recapture
our trade position with South America, but we also need to start look-
ing for some new blood. Aggressive pursuit of new business relation-
ships with the oil exporting nations of the Middle East and Africa
offers perhaps the greatest opportunity of all for port expansion and
industrial development in this area.
Looking at the influx of tourists, we see that some of the best spend-
ers now come from Japan and Europe. Naturally, they get nearly
twice as much in dollars for their currency as they did a few years ago.
Here is a very important area of growth. These tourists not only spend
money on expensive hotel rooms and dinners; but also find investment
opportunities. We must convince them to do business here on their
next visit. A concentrated effort is needed by all of us. And, in the
final analysis, we have got to provide incentives for industrial develop-
ment in the port vicinity.
At present, New Orleans is basically a port serving the midcontinent
rather than the immediate industrial area. The best insurance for
growth and stability of the New Orleans area is development of port-
related industrial activities in the region.
In terms of industrial incentives, the port has the natural transporta-
tion cost-saving advantage in the processing of raw materials, access
to relatively cheap energy, abundant water, and so on. Therefore, we
need to attract industries which utilize these advantages.
In addition, we need to look to our tools and expertise in industrial
complex analysis to learn what kind of synergism may exist between
different types of resources that will make the New Orleans location
advantageous to the industries.
But. just as the businessman can't do it alone, neither can the city.
And, the business community cannot gather strength with interna-
tional trade capacities without the support of the Federal Govern-
ment. And, this is what today's hearing is all about. How can U.S.
export practices help New Orleans businessmen to expand their export
potential?
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There are a few specific export obstacles that cripple our New
Orleans international trade community and I hope will be discussed
at some length during today's hearing.
'On these topics, I have a few comments. First, tax policies concern-
ing the taxation of nonsalary income or fringe benefits make it diffi-
cult for New Orleans firms to compete with other countries. If one of
our firms offers an overseas position to a local employee and provides
housing, personal transportation, and a series of other personal fringe
benefits in order to secure employment for a hardship post. And, these
benefits are taxed and severely taxed.
Our firm must compensate for that taxation via high salary. Due
to taxation of fringe benefits, many U.S. and New Orleans employees
are finding that working overseas does not provide the financial in-
centive that it once did. As a result, the United States, and for our
concern, New Orleans are losing ground in this respect with other
countries that do not burden their workers with fringe benefit
taxation.
Second, there is now a trend toward larger ships. These ships neces-
sitate deeper channels and more entryways. The Mississippi River-
gulf outlet allows shipping that is 60 miles shorter than traveling
through the mouth of the Mississippi. Since the Mississippi water is
colder than the gulf waters, fog is experienced on the Mississippi mak-
ing navigation difficult. The water temperature of the Mississippi
River-gulf outlet is the same as that of the gulf; therefore, navigation
is much easier. The Mississippi River-gulf outlet needs to be made
wider and deeper to accommodate Todd ships. The existing locks from
the Industrial Canal to the Mississippi River-gulf outlet need to be
enlarged. Furthermore, the passes at the mouth of the river must be
maintained at passable depths for the ships that must use them.
Federal funding is it. must for these improvements to occur and to
promote exports from the Port of New Orleans.
Third, after several years in the red, the Public Belt Railroad may
be in the black this year if all goes well. The Public Belt is an in-
tegral facet of the port's success, but has both capital and operating
funding difficulties. Federal assistance is a major hope for its con-
tinued operation and modernization.
And, last, if we are to expect our firms to export, Federal policies,
licensing, and boycott regulations are going to have to be written in
a format that is comprehensive, comprehendable, and can be satis-
fied with a minimum effort and expense. Paperwork and confusion
concerning what is the law and how to abide by it is probably the
No. 1 obstacle to businessmen. These guidelines and . restrictions can
and must be complied with in a shorter time frame with an adminis-
trative cost savings to our exporting firms. Before any incentives to
exportation from New Orleans-from the New Orleans Port can be
assured, these steps must be taken.
Through the efforts of this hearing, our local trade associations. our
business export firms, the city of New Orleans, and the Federal Gov-
ernment, we can effectuate the coordination for better international
trade for our city. our country, and particularly for this region.
Representative LONG. Thank you very much, Mr. Mayor. We appre-
ciate your coming.
We know your busy schedule, and we thank you.
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Mayor MORTAL. Thank you kindly, sir.
Repres-ntative LoNG. Mr. Arellano, would you come forward,
please? We are glad to see you again.
STATEMENT OF HON. RICHARD ARELLANO, DEPUTY ASSISTANT
SECRETARY OF STATE FOR LATIN AMERICAN ECONOMIC
AFFAIRS
Air. ARELL ANO. Thank you, Mr. Chairman. Mr. Chairman, I am
going to ask, in the interest of time, that you allow me to insert my
prepared statement into the record.
To be very honest with you and candid, it is a very bland statement,
it had many clearances before it was finally allowed to proceed on its
way. I think that it merits insertion into the record, but I would rather
just talk extemporaneously, if you would allow me to.
Representative LoNG. So ordered, it will be made a part of the
record. I appreciate your candor in speaking so openly and frankly
of the difficulty in getting something cleared within the bureaucracy.
I have had some experience in that regard, myself. Please proceed in
your own manner.
Mr. ARELL.\NO. I would like to speak, not as a U.S. Government
official, not as a Deputy Assistant Secretary of State, but as a resident
of New Orleans, and :v resident of Louisiana.
I was very pleased, indeed, I think overjoyed to hear Mayor Morial
and his comments, because I think that some of you in this room will
recognize that these are things that have been said before by a group
of people that are sitting in this room. It is very pleasing to me to
know that the city has able leadership that is willing to admit to some
of the problems and face some of the problems that we have all seen
for quite some time time in this region.
Concurrent with the problems of this type, of course, are opportu-
nities, and Mayor Morial spoke in particular of Latin America. I
would like to add one point to that, because I think that we all need
to focus our view a little bit on the country that is just south of us.
I have often phoned my friends in Washington and asked them, "If
you had one or two of the richest Middle Eastern oil countries on your
border, would you be happy?"
And, the answer, of course, is We would be delighted. Overjoyed."
We do have that, as a matter of fact. We have on our Southern
border a country that is destined to be one of the world's richest as
time goes on. We also have a country on our Southern border that,
over a long period of time, we have had good relationships with,
Strained at times, but on the whole. I would say they have been excel-
lent; and, in particular, I think that New Orleans, if you will look
at its history, has a very special place in the heart of Mexican history
because we have. been host here, in different points in time, to exiled
Mexican political leaders who were really architects of Mexico's cur-
rent destiny.
So, Mexico retains, I would say, a very fond place in its heart for
this community. I would hope that we in New Orleans, as time goes
on, are able to recapture the position that we had prior to the Second
World War in relationship to Latin American trade in general. I con-
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cur wholeheartedly with the mayor on this, and I think men of vision
in this community will be moving very rapidly to fill this void.
I know, also, that people like Mr. Rusovich are very interested in
the Middle East. I commend you, Mr. Rusovich, for your farsighted-
ness. I think this is another area that we had been lagging somewhat
in, but obviously we are moving toward it in terms of developing and
strengthening our trade position.
I think there is one point that could be stressed as a Government
person, as somebody who has been in and seen the difficulty of getting
things done within the confines of the bureaucracy. This point should
be that our export posture doesn't depend on what the U.S. Govern-
ment does; it depends on what the United States enterprise sector does.
We have been characterized as a reluctant exporter.
This is very true. Over the years, we have given ourselves the
luxury of believing that export trade was something that we did just
as lagniappe, the extra 5 percent, 6 percent, and currently 7 percent of
our trade. Recent events, particularly since the oil shock, have shown
us very clearly that we no longer have this luxury. The United States
must incorporate itself into the world order as a trading Nation and,
again, I believe that we are doing this; but, this can only be done
by the enterprise sector. It can't be done by the governments, by the
State, Federal, or any other. It's done by men of vision and women
of vision, I should say, who are willing to work with the greatest
strength that this country has, and that is the strength that is given
to us by our desire to work within a capitalist system, to work within
an enterprise system.
So, to close on that note, I would like to say that as time goes on,
I hope that I will have the pleasure of working with my fellow citi-
zens of this area and bringing about some of the changes that, frankly
we deserve, and we are going to earn.
[The prepared statement of Mr. Arellano, together with a brochure
entitled "Government and Business: A Joint Venture in International
Trade," follows:]
PREPARED STATEMENT OF HON. RICHARD ARELLANO
Dir. Chairman, it is a pleasure for me to appear before this subcommittee to
discuss United States export promotion policy, especially in a hearing in New
Orleans, where I have lived and worked for twelve years.
You asked me, Mr. Chairman, to address my remarks in particular to the
problems of medium-size and small businesses attempting to enter the export
field and the efforts of the U.S. Government to encourage and assist them, and
to U.S. Government programs and services for minority businessmen engaged
in export trade.
In responding to these questions. it is necessary first to describe what the
U.S. Government is doing generally in export promotion. Our program for
medium and small businesses and minority businessmen are additional features
added on to the general program.
Promotion of exports is currently being given even greater importance in the
U.S. Government than in the past. Our trade deficit of $27 billion in 1977, was
due in part to a slowdown in the rate of growth of our exports, and, this of
course has affected our international economic situation.
Additionally exports are of great importance because they are important
sources of income and jobs.
On April 12, President Carter announced the creation of a cabinet level task
force headed by the Secretary of Commerce to develop additional measures to
promote exports. The task.force, an inter-agency group, was instructed to report
the results of its deliberations to the President within 60 days.
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The task force has completed its work and submitted its recommendations to
the President. Among the areas considered by the task force are export incen-
tives, reduction of export disincentives, and possible direct government assistance
programs.
Pending the President's decisions, which should be announced shortly, we have
endeavored to strengthen the existing export trade and to inform firms new and
old to the trade of market situations and opportunities. Such a government pro-
gram is particularly necessary in the United States because most of our com-
merce is still not directly involved in foreign trade. Our exports of merchandise
in 1977, for example, were still only 7 percent of our gross national product, a
far lower percentage than in other major developed countries. Although a great
many American businesses are experienced and sophisticated competitors in the
international market, there are a great many others who could profitably enter
foreign trade.
The services provided to US firms by 200 of our embassies and consulates and
43 district offices of the Department of Commerce are numerous, but are focused
to the best of our ability on helping to meet the problems of American business-
men. The Department of State has just published a brief brochure early this
month listing the services provided : Government and Business : A Joint Venture
in International Trade, Department of State publication 8936. Since the brochure
has not yet been fully distributed, I ask that it be placed in the record of the
subcommittee's hearing.
Of principal interest to businessmen in the United States are the 2nd, 3rd and
4th sections of the brochure : Assistance in the United States, Information Serv-
ices to U.S. Business, and Marketing Services. The opening section, on Assist-
ance Overseas, describes the inputs of our embassies and consulates to the serv-
ices provided within the U.S., and assistance given American businessmen
abroad.
Services within the U.S. of particular interest include information on trade
opportunities, major export projects, trade exhibitions and fairs abroad, catalog
exhibitions, trade lists, visits of foreign buyers, and export mailing lists. The
recommended point of contact for these services is the nearest Department of
Commerce District Office. In Louisan, the District Office is located here in New
Orleans at 432 International Trade Mart, 2 Canal Street.
As for small businesses and minority businessmen, every service I have men-
tioned as part of our export promotion is fully available to them. A large pro-
portion of our exports is by medium-size and small businesses. The need for
U.S. Government services depends not so much upon the size of the firm as upon
whether the firm has already entered and established itself in the export of par-
ticular merchandise and has established representatives or agents abroad.
The focus of attention on medium and small businesses is illustrated by the
following statistics for the year 1977: of the Department of Commerce's inter-
national marketing services, 61 percent were provided to medium-size businesses
($1-50 million in annual sales), and 19 percent to small businesses (under $1
million in annual sales). Of the inquiries for domestic export stimulation serv-
ices, 61 percent came from small firms.
The Small Business Administration has published a booklet entitled "Export
Marketing for Smaller Firms" written specifically for small or minority busi-
ness owner-managers, which can be purchased from the Government Printing
Office. SBA's financial assistance loans and guarantees can be used to help a
firm engage in export activity, although they cannot be used to establish facili-
ties overseas. Members of the Service Corps of Retired Executives and the Active
Corps of Executives are aaailable to help small business entrepreneurs assess
their export potentials, as are also students in the Small Business Institute pro-
gram and consultants in the Call Contract Program. Export Workshops are
conducted periodically in cities across the country by SBA in collaboration with
the Department of Commerce.
The Export-Import Bank, whose activities are designed primarily to facilitate
exports not readily coverable by private banks because of length of payment
period, large size of loan, or risks, is making particular efforts to make small
businesses aware of the facilities available to them. As of September 30, 1977,
the Bank was supporting over 4.600 transactions by 1,260 small businesses, with
a total authorization of $2.1 billion. The Bank has opened a small business ad-
visory service to advise of the EXIM programs particularly useful to small and
minority businesses.
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OPIC programs should also be noted, because investment abroad is often tied
with export activities. Of benefit to the small businessman is the fact that there
is no minimum U.S. equity participation requirement for OPIC insurance pro-
tection. In feasibility studies, OPIC is prepared to reimburse 50 percent of the
costs, up to $50,000, if no investment is made.
The Department of Commerce, the Small Business Administration, the Export-
Import Bank, and the Overseas Private Investment Corporation formed early
this year an interagency group to coordinate efforts to improve the services
provided small and minority exporters. They have already sponsored a number
of conferences: in Atlanta, Boston, Dallas and Los Angeles on March 29; in
Cleveland on March 30; in Charleston, West Virginia on May 22; in Chicago on
May 23 ; in Philadelphia; and here in New Orleans on June 22. This last, I
understand, was initiated by private banks. A vice president of the Export-
Import Bank attended, and the Commerce Office of Minority Business Enter-
prises took part.
Conferences already scheduled this fall are: Lincoln, Nebraska, September 8;
South Bend, Indiana, September 19; Orlando, Florida, September 20; Portland,
Oreg., September 21; Newark, N.J., September 27, New Haven, Conn., Septem-
ber 28; Tipton, Ga., September 29; Detroit, Maine, October 4; Houston, Texas,
October 11; San Antonio, Texas, October 12; Winston-Salem, N.C., October 17;
Milwaukee, Wis., October 17; Cincinnati, Ohio, November 1; Pittsburgh, Pa. and
Rochester, N.Y., November 8; Erie, Pa. and Denver, Colorado, November 9; and
others are scheduled in the fall.
For minority businessmen, the Department of Commerce's Office of Minority
Business Enterprises is a good point of contact, also the District Offices and the
Bureau of Export Development will also respond directly to minority groups, as
they have for conferences with the (Hispanic) National Economic Development
Association in Miami, and the (black) National Business League in Norfolk
and, in the future, in Nashville.
In closing, I call attention to the fact that our programs for assistance to
small and minority businesses and our export promotion policies are in the proc-
ess of development and improvement. High officials who are scheduled to testify
before this committee in Washington next month will be in a position to speak
more fully and definitely about future policies and plans.
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INTERNATIONAL
TRADE
A JOINT
VENTURE IN
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Introduction .:.......
Assistance tz~reas
Trade Opportunities
Credit and Other Information on
Foreign Firms
Business Agents and Distributors. ,:.
Market Research
On-the-Spot Assistance to American
Business.
Trade Disputes ....
Commercial Libraries .
Commercial Newsletters
Overseas Exhibitions
~~ Cwt
Document Authentication.
'Assistance, Within the United States............
10
Exchanging 4nformation with the
American B?sinese Community
11
State Department Publicatidns.
Commerce Department Publications."., , ..
12
Information Services to U.S, Business . . ,
14,
Marketing Services to U.S. Department of CommerceDistrict Officer
Directory .. ~. ....
t
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Trade Fairs
Trade Misalons.
Foreign Business Visits to the United.
States
Tourism la` the United States..,.-: Export Controls
Foreign Boycotts. . *,
Liaison with Overseas Resident
American Community. .
Travel Assistance
Visa Information
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Introduction
The Office of Commercial Affairs, Department of
State, has prepared this booklet to introduce the
American business community and potential ex-
porters to services offered by the U.S. Govern-
ment in promoting U.S. exports.
A primary and traditional function of the
Department of State has been to enhance inter-
national trade by concluding treaties of friend-
ship, commerce, and navigation, as well as
bilateral and multilateral agreements on
economic and commercial subjects of interest to
the U.S. business community. The Department of
State also works closely with the Department of
Commerce in informing Americans about foreign
markets and assisting them abroad in achieving
their marketing goals. Foreign Service economic
and commercial officers assigned to American
Embassies and consulates abroad regularly
report on economic developments and market
conditions in their countries of assignment. The
Department of Commerce makes this information
available to the American business community
and also uses it in preparing reports on overseas
market conditions and economic developments.
In addition, Foreign Service officers abroad
directly assist Americans in contacting potential
agents, distributors, and other purchasers of their
products.
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Assistance
Overseas
The overseas action arm of the U.S. Government
is the Foreign Service. Foreign Service economic
and commercial officers, reinforced by other
components of Foreign Service posts, provide a
continuing flow of economic and commercial in-
formation on their countries of assignment and
furnish on-the-spot assistance to visiting mem-
bers of the U.S. business community.
The Department of State currently operates
138 Embassies, 66 consulates general, 48 consul-
ates, 1 liaison office (in Peking), and 10
specialized diplomatic missions throughout the
world. U.S. business representatives who visit
these foreign posts may obtain information on
local economic and commercial conditions as
well as guidance from Foreign Service officers on
other questions of local significance.
Trade Opportunities. Commercial officers
assigned abroad regularly signal business
opportunities as they occur. The primary
reporting mechanism is the Trade Oppor-
tunities Program (TOP), which identifies
trade opportunities by Standard Industrial
Classification (SIC) product codes. Oppor-
tunities are cabled to the Department of
Commerce in Washington and quickly dis-
seminated by computer to American
subscribers to this service.
Credit and Other Information on
Foreign Firms. Embassy commercial
officers undertake surveys of foreign firms
on request from U.S. companies. Information
describing and evaluating the credit-worthi-
ness and commercial reputation of foreign
firms is transmitted to the Department of
Commerce and is made available to
American subscribers under the World Trad-
ers Data Report (WTDR) program. (Note:
Because of differing foreign trade systems,
WTDR's are not prepared on firms in non-
market-economy countries.)
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Business Agents and Distributors.
American firms interested in obtaining
the services of overseas agents or business
contacts may do so through the Agent Dis-
tributor Service (ADS). Upon payment of a
fee by the U.S. firm, the Department of Com-
merce requests appropriate overseas posts
to submit the names of at least three
qualified potential local agents. When in a
foreign country, an American may contact
the commercial officer directly for help in
finding potential local business agents.
While the ADS is not prepared on firms in
most Eastern European countries, it can be
used to locate overseas agents in such cities
as Vienna, Frankfurt, or Geneva who can
serve as representatives in those countries.
Market Research. Market research is done
primarily in overseas markets offering the greatest
potential for increased U.S. sales. Some Foreign
Service posts undertake their own research,
while others, at the request of the Department of
Commerce, contract market research with local
firms. In addition, each Embassy and major con-
sulate forecasts annually the leading growth in-
dustries in its region in an effort to channel ex-
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port expansion efforts in the most promising
directions. The results of overseas market
research activities appear in the Department of
Commerce's Global Market Survey publication
series, which describes the most promising
overseas markets for U.S. exports. Additional
studies on the potential and characteristics
of selected foreign travel markets are availa-
ble from the U.S. Travel Service, Department
of Commerce.
On-the-Spot Assistance to American Busi-
ness. For the American visiting or residing in a
foreign country, Foreign Service personnel pro-
vide briefings and guidance on the economy,
political climate, trade opportunities, investment,
competitive factors, local trade restrictions, ex-
change controls, and many other subjects.
Foreign Service personnel also may make ap-
pointments for Americans with local business
representatives and government officials.
Trade Disputes. Commercial officers
assigned abroad are ideally situated to learn the
facts of a trade dispute from local authorities or
firms. Foreign Service personnel are not
authorized to act as legal representatives.
However, working in close cooperation with the
Department of Commerce in Washington, which
has domestic jurisdiction over trade disputes,
Foreign Service personnel may make appropriate
representations on behalf of U.S. firms in trade
disputes involving $500 or more.
Commercial Libraries. Designed to assist
both visiting and resident business representa-
tives, commercial library facilities in overseas
posts contain current and varied source material
including American trade and industry journals,
Iists of American manufacturers, product
catalogs, and other pertinent reference and pro-
motional materials. These often are provided to
posts by U.S. firms wishing to expand in the local
market. Many libraries operated by the Inter-
national Communication Agency supplement
post commercial libraries with a special sec-
tion of the ICA library which is aimed at
stimulating local interest in U.S. goods and
services.
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17
Commercial Newsletters. Carrying trade
promotional material tailored to the host country,
commercial newsletters are prepared by major
overseas posts and distributed to local media, in-
dustry, commerce, banks, chambers of com-
merce, government offices, and trade associa-
tions. These newsletters feature information on
new American products and U.S. commercial ex-
hibitions. Information contained in commercial
newsletters is taken from the Commerce Depart-
ment's monthly magazine Commercial News for
the Foreign Service as wel I as from other
sources. Commercial officers abroad also
reinforce Voice of America "New Products
USA" broadcasts in 26 languages by res-
ponding to commercial inquiries from local
listeners on American products described
over the radio.
Overseas Exhibitions. There are 17 perma-
nent U.S. Trade Centers and International
Marketing Centers around the world which
mount product exhibitions and provide service
and assistance to American exporters. The
Department of Commerce operates most of these
centers, determines the program of events, and
recruits most of the exhibitors in the United
States. The centers work closely with local
Foreign Service posts in providing this important
service.
Trade Fairs. This program assists U.S. firms
wishing to participate in commercial and in-
dustrial product displays not held in U.S. Trade
Centers overseas. Foreign Service posts and In-
ternational Marketing Centers abroad screen the
local market to determine trade opportunities,
assist in selecting and preparing the trade fair
site, and serve U.S. participants. Foreign Service
posts also work closely with the Department of
Commerce in organizing catalog shows and pro-
viding support for technical sales seminars.
Catalog shows are exhibits of catalogs and
brochures from U.S. manufacturers in a particular
industrial or service sector. Technical sales semi-
nars are 2-day sessions in which experts from the
American business community travel abroad
under the auspices of the Department of Com-
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18
merce to make technical presentations to a cross
section of host country representatives interested
in a particular industry or service sector.
Foreign Service posts also negotiate and
promote special displays and "sales weeks"
which feature U.S. consumer goods in foreign
department stores. These in-store promotional
activities are sponsored by the Department of
Commerce. In-store promotions are not held in
non-market-economy countries.
Trade Missions. Select groups of American
business representatives sponsored by the U.S.
Government, a State or local government in the
United States, or a private organization in the
United States often travel abroad to promote
trade and investment or tourism. Foreign Service
officers assist such groups to the extent that post
resources permit.
Foreign Business Visits to the United
States. Under the Foreign Buyer's Program,
the Department of Commerce and Foreign Serv-
ice posts work closely with local travel agencies
and trade associations to encourage the most
promising potential foreign buyers to visit
specific trade or industry shows in the United
States. Foreign Service posts provide information
on foreign participants and relay it to the Depart-
ment of Commerce for dissemination to
American exhibitors. Foreign Service posts and
Department of Commerce District Offices also
assist individual foreign business representatives
in developing itineraries and arranging meetings
in connection with business trips to the United
States. Potential foreign clients are put in touch
with appropriate U.S. suppliers by the Depart-
ment of Commerce in Washington or by Depart-
ment of Commerce District Offices.
Tourism in the United States. The commer-
cial officer at Foreign Service posts is in charge
of the local tourism program operated by the U.S.
Travel Service, Department of Commerce, and
often draws upon other Foreign Service person-
nel at post in support of this program. (Note: In
Canada, Mexico, Japan, West Germany, France
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and the United Kingdom, U.S. Travel Service per-
sonnel conduct this program.) For example, the
International Communication Agency presents
travel films to selected audiences, and the
consular staff facilitates the granting of business
or visitor visas. Also, U.S. airlines frequently
cooperate with overseas posts in jointly
sponsoring "Discover America-Visit USA"
booths at important trade fairs and major
airports.
Export Controls. The Department of Com-
merce exercises control over certain exports and
reexports of U.S. origin commodities and techni-
cal data for policy reasons related primarily to na-
tional security and supply considerations. While
national security and supply controls affect only
a relatively small portion of the nation's goods
and services, other policy-related controls range
from a virtually complete embargo on exports to
certain countries to a selective embargo on cer-
tain types of commodities to other countries.
American business representatives must be
aware of export control regulations in their deal-
ings with foreign purchasers. Embassy commer-
cial officers can assist in determining whether
prior U.S. Government approval is required for
the export or reexport of a particular product or
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technology and can also tell business represen-
tatives what documentation is required in support
of an export license application.
Foreign Boycotts. Foreign subsidiaries and
affiliates that are controlled by U.S. firms are sub-
ject to the antiboycott regulations of the Depart-
ment of Commerce. Receipt by these subsidiaries
and affiliates of certain types of boycott requests
must be reported to the Department of Com-
merce, and compliance with certain types of re-
quests is prohibited. The activities of these firms
may also be affected by the Treasury Depart-
ment's boycott regulations. Embassy commercial
officers have copies of both Commerce and
Treasury regulations and can assist business
representatives in complying with them.
Liaison with Overseas Resident American
Community. Foreign Service posts maintain
close rapport with the overseas resident
American community. One way of doing this is to
schedule regular meetings between the Am-
bassador and other post personnel and local U.S.
business representatives. However, services to
the resident American community go beyond
commercial matters. Posts provide information
on local schools which teach in English and
maintain lists of competent English-speaking
physicians, dentists, and lawyers. Posts also sup-
port resident or visiting Americans by providing
consular services-notarizing or authenticating
documents, looking into the welfare and
whereabouts of Americans overseas, notifying
next of kin in the United States in case of death or
serious illness, protecting property and other
overseas interests of Americans, and protecting
and repatriating U.S. citizens under exceptional
circumstances.
Travel Assistance. A U.S. citizen must have a
valid U.S. passport to leave or enter the United
States, except for travel to and from certain coun-
tries in the Western Hemisphere. You may apply
for a passport at the Passport Office, Department
of State, Washington, D.C., at most Federal and
State courthouses, at some 900 class 1 post
offices, or at passport agencies in Boston,
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Chicago, Detroit, Honolulu, Houston, Los
Angeles, Miami, New Orleans, New York,
Philadelphia, San Francisco, Seattle, and Stam-
ford, Connecticut. Passports issued within the
past 8 years may be replaced by applying by mail
to the Passport Office in Washington, D.C., or to
one of the passport agencies indicated.
Entering or residing in certain foreign coun-
tries requires a visa. Your transportation com-
pany can tell you if one is required, and the
nearest embassy or consulate of the country in
question will issue the visa.
Visa Information. The Visa Office, Department
of State, Washington, D.C. can furnish informa-
tion on the requirements for foreign nationals
who wish to visit the United States in connection
with training or other business activities.
Document Authentication. Foreign govern-
ments occasionally require Americans conduct-
ing business abroad to obtain certification from
the U.S. Government that they represent business
entities operating legally within the United
States. Such certification may be required before
you can register for visa purposes, obtain a work
permit, or license a vehicle. If certification is re-
quired, you should first obtain a notarized certifi-
cate of incorporation from your State of resi-
dence. The Foreign Affairs Document and
Reference Center, Department of State, can
authenticate such documents for presentation to
a foreign government.
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Assistance Within
The United States
Americans seeking information on foreign
markets should first contact an International
Trade Specialist at one of the 43 Department of
Commerce District Offices located throughout
the United States. (See Table of Contents for a
listing of District Offices.) Also, country market-
ing managers and country specialists in the
Department of Commerce in Washington are
responsible for trade promotion activities in
Europe, Africa, the Far East, and Latin America.
In addition, two special offices deal with particu-
lar marketing situations:
-The Commerce Action Group on the Near
East (CAGNE)-North Africa and the Near East;
--Bureau of East-West Trade-Eastern
Europe, the Soviet Union, the People's
Republic of China, Cuba, and certain countries in
Southeast Asia.
The State Department's Office of Commer-
cial Affairs also responds to commercial inquiries
by providing information or by referring specific
inquiries to appropriate offices within the Depart-
ment. The Department has five geographic
bureaus with specific country and regional
responsibilities for: Europe, Africa, Latin
America, East Asia and Pacific, and the Near East
and South Asia. In addition, the Bureau of
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Economic and Business Affairs can furnish infor-
mation on subjects of interest to the American
business community.
Exchanging Information with the American
Business Community. Several times a year
the Department of State sponsors 2-day Execu-
tive-Diplomat Seminars in Washington for
officials of international corporations, business
planners, and other corporate executives on a
variety of economic and political subjects. In ad-
dition, officials of the Department with ex-
perience in international economic and commer-
cial matters are available, on a reimbursable
basis, to speak before meetings, seminars, or
workshops throughout the country. The Depart-
ment, along with local organizations in major U.S.
cities, also cosponsors Regional Foreign Policy
Conferences on economic and business issues.
State Department Publications. The follow-
ing State Department publications are of interest
to the American business community. They may
be purchased from the Superintendent of Docu-
ments, U.S. Government Printing Office, Wash-
ington, D.C. 20402:
Background Notes-Summary information
on the economy, history, government, etc., of
foreign countries and territories.
Key Officers of Foreign Service Posts-A
handbook listing the names of ambassadors,
economic and commercial officers, and other key
personnel at U.S. Embassies and consulates
abroad. Local addresses and telephone numbers
are also listed.
Diplomatic List and List of Foreign Consular
Offices in the United States--Published
periodically, these lists contain information on
foreign diplomatic missions and consulates in
the United States.
Department of State Bulletin The official
monthly record of U.S. foreign policy, containing
important statements, speeches, news con-
ferences, and other material.
Treaties in Force-An annual publication
listing by name, date, and date of entry into force,
all treaties and other international agreements of
the United States as of the beginning of each
year.
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To place your name on the Department of
State mailing list to receive publications on
specific foreign policy topics-Special
Reports, News Releases, and Other Pamphlets-
contact the Office of Plans and Management,
Bureau of Public Affairs, Department
of State, Washington, D.C. 20520.
Commerce Department Publica-
tions. Foreign Service commercial officers
abroad prepare annually or semiannually a
Foreign Economic Trends Report on the coun-
tries to which they are assigned. This report,
prepared in cooperation with the Department
of Commerce, describes the current
economic situation in the country and pro-
vides a concise outlook for U.S. exports.
Trends Reports may be obtained from the Na-
tional Technical Information Service (NTIS),
P.O. Box 1553, Springfield, Virginia 22161;
subscriptions are available from the Superin-
tendent of Documents, U.S.*Government
Printing Office, Washington, D.C. 20402.
The Trends Report is one of a series of
publications prepared and made available by
the Department of Commerce in cooperation
with the Foreign Service. As part of its
marketing information program, the Com-
merce Department also makes available to
American exporters the following publica-
tions and reports:
*Global Market Surveys-Reports cover-
ing 20-30 of the best foreign markets for a
single U.S. industry or a group of related in-
dustries.
Country Market Sectoral Surveys-
Reports on the most promising U.S. export
opportunities in a single foreign country,
covering some 15 leading industrial sectors.
Producer Goods Research-Reports on
the best foreign sales opportunities for a
single U.S. producer-goods industry or
group of industries.
Consumer Goods Research-Reports on
the best-foreign sales opportunities for a
single U.S. consumer-goods industry or
group of industries. Special market reports
on an industrial sector in one or several
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countries are prepared by the Bureau of
East-West Trade.
International Marketing Newsmemo-Infor-
mation bulletins received directly from the
U.S. Foreign Service; also contains reports
prepared by U.S. business representatives or
Department of Commerce officers; the
reports usually are distributed unedited and
cover a variety of industries, products, and
countries.
*Overseas Business Reports-Contain cur-
rent and detailed business and marketing in-
formation on all the leading trading partners
of the United States.
International Marketing Events-Brief
market summaries in support of trade promo-
tion events organized by the Department of
Commerce. Includes calendars of scheduled
events.
Special Publications-The Bureau of
East-West Trade prepares special reports on
subjects such as financing, joint ventures,
counter trade, market indicators, and
periodic statistical reports on non-market-
economy countries.
For specific ordering information on the
above Department of Commerce publica-
tions, contact the nearest Department of
Commerce District Office.
Index to Foreign Market Reports-A
monthly index of all economic-commercial
reports prepared by Foreign Service posts.
Each monthly index includes hundreds of ti-
tles listed by subject, country, and Standard
Industrial Classification (SIC) product num-
ber. Subscriptions to the Index may be or-
dered from the National Technical Informa-
tion Service, Department of Commerce, P.O.
Box 1553, Springfield, Virginia 22161.
*Available from the Superintendent of Documents,
U.S. Government Printing Office. Also from the Superin-
tendent of Documents, the recently published Consumer
Guide to Federal Publications. Customers outside the
continental U.S. should ask for the International Buying
Guide to U.S. Government Publications. Order the free
guides by writing: C. A. LaBarre, Assistant Public Printer,
Superintendent of Documents, U.S. Government Printing
Office, Washington, D.C. 20401.
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Information
Services to
U.S. Business
The Department of State, Foreign Service posts,
and the Department of Commerce cooperate in
providing avariety of information services to
American business, as follows:
Trade Opportunities Program
Provides computerized mail service to U.S. firms
regarding trade opportunity information gathered
by Foreign Service posts. U.S. firm specifies
product and country. For additional information
regarding fees and services, contact the nearest
Commerce Department District Office.
Strategic Industrial Products Sales
Provides assistance to firms with high export
capability in bidding for strategic commercial
export sales of military equipment, defense-
related industrial and advanced technological
products, and energy-related equipment. For
additional information contact the Office of
Export Development, Department of Commerce,
Washington, D.C. 20230.
East-West Business
Provides assistance to firms in general market
development efforts and on specific transactions
in non-market-economy countries. Contact the
Office of East-West Trade Development,
Department of Commerce, Washington, D.C.
20230.
World Traders Data Report (WTDR)
Provides detailed commercial information
prepared by Foreign Service posts on individual
foreign firms. Information and charges for this
service may be obtained from the nearest
Commerce Department District Office. Not
prepared for non-market-economy countries.
Business Counseling
Offers guidance and schedules appointments
with Commerce Department and other
government officials. Identifies foreign markets;
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suggests possible agents; provides information
on credit, financing, insurance, and other special
export services. Contact Commerce Department
District Office.
Trade Complaints and Inquiries
Helps U.S. and foreign traders settle trade
disputes. Assistance is provided at the request of
either party to an international business contract
and is intended to settle disputes involving over
$500. The Commerce Department's role is not
binding on either party. Contact Commerce
Department District Office.
U.S.-Japan Trade Facilitation
Assists U.S. exporters in overcoming specific
market access problems encountered in the
Japanese market. U.S. firms experiencing-or
anticipating-difficulties in selling to Japan
should contact the Office of Country Affairs,
Department of Commerce, Washington, D.C.
20230.
Product Marketing Service
Provides U.S. business with an "office away from
the office;" the services of U.S. Trade Centers are
available upon request. For additional
information regarding fees and services contact
Commerce Department District Office.
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New Product Information
Publicizes new U.S. products abroad. Photos and
descriptions of new products appear in the
Department of Commerce publication
"Commercial News," which is distributed to
Foreign Service posts. Posts extract relevant
data, translate, and publish the data in post
commercial newsletters. Contact Commerce
Department District Office for information.
American International Traders Register
Identifies U.S. firms engaged in or interested in
exporting for possible participation in U.S.
overseas projects. Register contains more than
30,000 firms interested in exporting. Information
and charges for this service may be obtained
from Department of Commerce District Offices.
Domestic Seminars
Informs U.S. business of exporting "how-to's" in
particular market areas. Commerce Department
District Offices also sponsor general exporting
seminars. Contact Commerce District Office.
Export Information Reference Room
Provides early information on projects funded by
the World Bank, Asian Development Bank, Inter-
American Development Bank, and the United
Nations. Contact Office of Export Development,
Department of Commerce, Washington, D.C.
20230.
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29
Marketing
Services to
U.S. Business
In addition to the information services cited
above, the State Department, Foreign
Service posts, and the Department of
Commerce and its District Offices cooperate
in providing a variety of marketing services,
as follows:
U.S Trade Center/International Marketing
Center Exhibitions and Trade Fairs Abroad
Provides selected U.S. firms with opportunities to
demonstrate their products to qualified key
buyers in major markets abroad. Exhibitions
feature specific product categories. Contact
Commerce Department District Office for further
information.
Marketing Information
Offers detailed marketing and economic
information on all markets abroad for U.S. goods
and services. Contact Commerce Department
District Office for further information.
Between-Show Promotions
Assists U.S. firms to display, market, and sell
goods or to hold seminars between trade shows
scheduled at Trade Centers. Market counseling
and target audience identification are also
provided. Contact District Office for further
information.
Joint Export Establishment Promotion
Helps U.S. firms penetrate new markets. Involves
specially tailored promotion. Held in U.S. Trade
Centers abroad. Contact District Office for
additional information.
Catalog Exhibitions
Displays product catalogs of U.S. firms for the
purpose of testing product interest in foreign
markets; develops sales leads and locates
suitable agents and distributors. Coordinated
with Foreign Service posts and held mostly in
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30
developing markets where opportunities for
participation in product exhibitions are limited.
Contact District Office for additional information.
Trade Missions
Involves visits to two or three overseas markets in
a formal program coordinated with Foreign
Service posts for the presentation of technical
know-how and state-of-the-art information. A
trade mission comprises a selected group (10-12)
of business representatives and can take the
form of a specialized trade mission or an
industry-organized and government-approved
(IOGA) mission. Contact local District Office for
additional information.
Technical Sales Seminars
For each seminar, from four to six technically
qualified U.S. business representatives visit
foreign markets. Visits are coordinated with
Foreign Service posts. Program features sales
and direct business negotiations. Contact local
District Office for additional information.
Consumer Goods Market In-Store
Promotions
Provides U.S. suppliers with opportunities to
display their products through commercial
events in select foreign retail stores. Events are
coordinated with Foreign Service posts. The
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31
Commerce Department defrays part of the
promotional expenses for foreign outlets
purchasing U.S. consumer goods for resale in
foreign countries. Not available in non-market-
economy countries. Contact local District Office
for additional information.
Foreign Buyer Program
Assists U.S. business in contacting foreign
buyers visiting the United States by scheduling
appointments and plant visits. Contact District
Office for additional information.
Foreign Market Reports
Indicates the availability of Foreign Service
reports, market research reports, and other
publications of interest in the U.S. business
community. Information is contained in the Index
to Foreign Market Reports. For information
contact the National Technical Information
Service, P.O. Box 1553, Springfield, Virginia,
22161.
Trade Lists
Provides trade contact information on certain
countries. An index of these lists will be provided
upon request. Information and charges for this
service may be obtained from a local District
Office.
Data Tape Service
Makes available to U.S. business magnetic tapes
containing all available trade contact information
on one or more countries for use in firm's own
computer. Information and charges for this
service may be obtained from local District
Office.
Market Data Package
An automated service providing tailor-made data
on trade of the U.S. and Western industrial
countries in specific products with each of the
non-market-economy countries, plus names and
addresses of country organizations that handle
imports and exports of the products in question.
Contact the Office of East-West Trade
Development, Department of Commerce,
Washington, D.C. 20230.
Export Mailing List Service
Provides a list of potential foreign importers of
U.S. products selected according to country,
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products, and activities. Each list is prepared
according to the specifications of the requester.
Information and charges for this service may be
obtained from local District Office.
Agent/Distributor Service
Assists U.S. firms in finding agents or distributors
in most countries. Information and charges for
this service may be obtained from local District
Office.
Market Research
Disseminates timely, practical marketing
information on the most promising overseas
markets for U.S. goods and services. Market
research is coordinated with Foreign Service
posts. Information and charges for this service
may be obtained from local District Office.
Procurement Services, Overseas Products
and Investment Opportunities
Assists U.S. firms in investigating, evaluating,
and acting on overseas investment, licensing,
joint venture, and selected product opportunities.
Contact District Office for further information.
Major Export Projects
Helps qualified U.S. firms compete for contracts
on major projects. Early warning on major
contracts is provided by Foreign Service posts.
Enables U.S. firms to obtain larger share of major
construction, engineering, and development
projects around the world. Contact District Office
for further information.
The Office of Commercial Affairs,
Department of State, has indicated in this
publication those services and sources of
information which it believes would be of most
interest to the members of the American business
community. Now in its second edition, this
publication has benefited greatly from comments,
questions, and suggestions made by American
business representatives who have used it.
For further information, call the Department
of State, Office of Commercial Affairs, (202)
632-0669, or the Department of Commerce
District Office nearest you (see opposite).
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U.S. DEPARTMENT OF
COMMERCE DISTRICT OFFICE
DIRECTORY
WnAr, gharn-Director, Suite 200-201,908 South 20th
Street, 35205, Area Code 205 Tel [phone].
ALASKA
Anchorage-Director, 412 Hill Building, 632 Sixth Avenue
99501, Area Code 907 Tel [phone]
ARIZONA
PhaeNx-Director, Suite 2950 Valley Bank Center, 201
North Central Avenue 85073, Area Code 602 Tel
261-3285.
ARKANSAS
? Little Flock (Dallas, Texas District}-1100 North
University, Suite 109, 72207, Area Code 501 Tel
378-5157.
CALIFORNIA
LosA, sari-Director, Room 800,11777 San Vicente
Boulevard 90049, Area Code 213 Tel [phone].
? Son Diego-233 A Street, Suite 310, 92101, Area
Code 714 Tel [phone].
San Francisco--Director,' Federal Building, Box 36013,
450 Golden Gate Avenue 94102, Area Code 415 Tel
556-5860.
COLORADO
Denver=. Director, Room 165, New Customhouse, 19th &
.Stout Street 80202, Area Code 303 Tel [phone].
CONNECTICUT
Hanford-Di rector, Room 610-B, Federal Office Building,
450 Main Street 06103, Area Code 203 Tel [phone].
FL OI DA
Mama-Director, Room 821; City NationalBank
Building, 25 West'Flagier Street 33130, Area Code 305
Tel [phone].',,-
9 Clearwater .128 North Osceola Avenue 33515, Area
Code 813 Tel [phone]
? J' 6d onvIlIe-804 North Hogan Street 32202, Area
Code 904 Tel [phone].
? Td1 -Collins Bld'g., Rm. G-20 32304, Area
Code 904 Tel [phone].
M1 11a-Director Suite 600 1365 Peachtree Street, N -E.
30309 Area Code 404 l81
7000
Savannah= Director 222'U S Courthouse & 'P ;Q' Box 'T.
9746 125-29 Bull Street 31402 Area Code 912 Tel,
%
232-432
1 Ext 204
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HAWAII
Honolulu-Director, 4106 Federal Building, P.O. Box
50026, 300 Ala Moana Boulevard 96850, Area Code 808
Tel [phone].
ILLINOIS
CNcago -Director,1406 Mid Continental Plaza Building,
55 East Monroe Street 60603, Area Code 312 Tel
353-4450.
INDIANA
trrdIanapoiis-Director, 357 U.S. Courthouse & Federal
Office Building, 46 East Ohio Street 46204, Area Code
317 Tel[phone].
IOWA
DesMoinee-Director, 817 Federal Building, 210 Walnut
Street 50309, Area Code 515 Tel [phone].
KENTUCKY
? Fra cfct(Merrphie,Temeseeeoistrict} Capitol Plaza,
Office Tower,` Room 2425, 40601, Area. Code 502 Tel
875-4421.
LOUISIANA
NewOtleans-Director, 432 International Trade Mart, No.
2"Canal Streets 70130, Area Code 504 Tel [phone].
MAINE
? Po~tiand(Bodm MassadumettsDistrict)-Maine State
Pier, 40 Commercial Street 04111, Area Code 207 Tel
775-3131.
MARYLAND
Baltimore--Director, 415 U.S. Customhouse, Gay and
Lombard Streets 21202, Area Code 301 Tel [phone].
Boston--Director 10th' Floor, 441 Stuart Street 02116,
Area Code617Tei;2232312. MCHGiANt
Detroit-Di rector, 445 Federal Building, 231, West
Lafayette 48226,"~AreaCode 313 Tel [phone]
?GrandRepid--350Ott awaStreet NW 49503 Area
61 3
Code 611,456-'2444,1/3
*INNESOTA
Mmeattolis-Director 218 Federal Building 110'South
Fourth Street 65401, Area Code 612 Tiet 725 2133 R
r MISSISSIPPir {
? Jacla~on (Mn In w ; Nabame Distrkk ttj- P.O Box 849,,
1202 Walter Siilers Bwiding 39205 Area Code 601 Tel
969-43$5~~.k a a~~.4
x MS90liiil~~~ '
St L isp -Director 120 South Central Avenue 63105
Area Code 314 Tel [phone]
~??? Karaas City - Roomi1840 601 East 12th Street 4 ,
AreaCode~816 Tel [phone]
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MONTANA
? Butte(CNeyarme, Wyoming Dis ict)-210 Miners Bank
Building, Park Street 59701, Area Code 406 Tel
723-6561, Ext. 2317.
NEBRASKA
Oneha--Director, Capitol Plaza, Suite 703A, 1815
Capitol Avenue 68102, Area Code 402 Tel [phone].
NEVADA
Rena-Director, 2028 Federal Building, 300 Booth Street
89509, Area Code 702 Tel [phone].
NEW JERSEY
Nawatk-Director, 4th Floor, Gateway Building, Market
Street & Penn Plaza 07102, Area Code 201 Tel [phone].
NEW MEXICO
Allixquarque-Di 505 Marquette Ave., NW., Suite
1015,87102, Area Code 505 Tel [phone].
NEW YORK
Buffalo-Director, 1312 Federal Building, 111 West
Huron Street 14202, Area Code 716 Tel [phone].
New York-Director, Room 3718, Federal Office
Building, 26 Federal Plaza, Foley Square 10007, Area
Code 212 Tel [phone].
NORTH CAROtJNA
Greeruboro-Director, 203 Federal Building, West
Market Street, P.O. Box 1950, 27402, Area Code 919 Tel
378-5345.'
? AAhe+rille-151 Haywood Street 28802, Area Code
704 Tel [phone]-
ONO
ClndmE-Director, 10504 Federal Office Building, 550
Main Street 45262, Area Code 513 Tel [phone].
Cleveland-Director, Room 600,666 Euclid Avenue
44114, Area Code216 Tel [phone].
OKLAHOMA
? Oldahomm City (Oeliae, Tom bMn' d 4020 Lincoln
Boulevard 73105, Area Code 405 Tel [phone].., a .F
OREGON.
Pbrtlaid-Director. Room 618,1220 S.W.3rd:Avenue
97204, Area Code 503 Tel [phone].
PENNSYLVANIA
Pl ladelpNa-Director 9448 Fedegral al'-'B 600 Arch
2.1-1 N,
Street 19106, Area Code 2T5 Tel 97 2850
Pittsburgh-Trade Specialist 71, +n ,Charge 2002 Federaln
Building, 1000 Liberty Avenue 15222 Area'Gode 412 Tel
644-2850:
PUERTO RICO
SenJuan,(HatoRsy}-Director, Room 659-Federal
Building 00918, Area Code 809 Tel.[phone] ext.555,.
0400E ISfLMD
? Providence(Baatan, M isadttraetts Olstd - Weybossett
Hill 02903, Area Code 401.Tef 277-2605 ext 22
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SO Th CAROLINA
1Cdunbia--Director, 2611 Forest Drive, Forest Center
129204, Area Code 803 Tel [phone].
? Charieeton-Suite 631, Federal Building:384 Meeting'
Street 29403, Area Code 803 Tel [phone].
TENNESSEE,
ftnVhfs-Director, Room 710, 147 Jefferson Avenue
38103, Area Code 901 Tel [phone]. ?
s Nashville-Room 1004, Andrew Jackson.Office
Building 37219, AreaCode;615?Tel [phone].
TEAS
DallasLDirector, Room 7A5,1100 Commerce Street
75242, Area Code 21?4 Tel [phone].
Houston-Director, 2625 Federal Bldg., Courthouse, 515
Rusk Street 77002, Area Code 713 Tel [phone].
? SenNitonb-University of Texas at San Antonio,
Div. of Continuing Education 78285, Area Code 512
Tel [phone].
UTAH
Saf LaMtky-Director, 1203 Federal Building, 125
South State Street 84138, Area Code 801 Tel [phone]
VIRGINIA
Rk*w* d--Director, 8010 Federal Building, 400 North
8th Street 23240, Area Code 804 Tel [phone].
? Fairfax-8550 Arlington Blvd., 22031, Area bode 703,
Tel[phone].
WASFMNGTON
Seattle-Director, Room 706, Lake Union Building, 1700
Westlake Avenue North 98109, Area Code 206 Tel
442-5615.
WESTVIRGINA
Charfestcn-Trade Specialist-in-Charge, 3000 New
Federal Office Building, 500 Quarrier Street 25301- Area
Code-304 Tel [phone] ext. 375:.
WISCONSIN
IMMreukee-Director, Federal Bldg/U.S. Courthouse, 517
East Wisconsin Avenue 53202, Area Cade 414 Tel.
(291-3473.
WYOMNG
Qieyenne`-Director 6022 0 ,Maloney, Federal Center,
2120 Capitol Avenue 82801, Area Code 307 Tel ?778-2220,
ext. 2151.
DEPARTMENT OF STATE PUBLICATION 8936
Economic Foreign Policy Series 13
Released July 1978
Office of Public Communication
Bureau of Public Affairs
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Representative LONG. Mr. Arellano, we have some specific questions
we'd like to discuss with you, but I think we will proceed by allowing
all participants to make their statements and come back to a general,
panel type of discussion.
Mr. Rusovich, again, our thanks to you. Would you proceed as you
see fit, sir.
STATEMENT OF BASIL J. RUSOVICH, JR., PRESIDENT, TRANS-
OCEANIC SHIPPING CO., AND PRESIDENT, INTERNATIONAL
TRADE MART, NEW ORLEANS, LA.
Mr. Rusovicii. Mr. Chairman, may I ask the authority to deviate
just slightly from my prepared statement as submitted with some
statistics and some side comments?
Representative LONG. Proceed in your own way, sir.
Mr. Rusovicii.'Thank you. Reading, in the beginning, Mr. Chair-
man, and reiterating, recapping the identity.
It should be noted and noted well that our competitive nations, in
free trade, not only subsidize their industrial friends doing work
abroad but are given a tax-exempt status and do not charge 1 cent of
tax to those employees working abroad. Now, today, more than ever,
with the United States faced with a dollar situation, as it is, being
faced with heavier and heavier competition in world construction and
oil exploration and offshore exploration and every facet of American
busincSs you can think of, here we have the U.S. Government fighting
our efforts by taxing out of existence, or taxing out of the competitive
structure, the American companies who are the frontiersmen of our
Nation today trying to secure our country.
Mr. Congressman, I say this is a deplorable situation, and this is
something that we definitely must be aware of in every segment of our
Government, today. It's impossib'e for the American firms working
abroad to operate competitively.
Today, billions of dollars of business are being given out in the
Middle East. There are added billions in African areas. Now, if the
American contractor, who has generated so many hundreds of millions
of dollars of business for the American economy, is removed from our
export statistic today, the dollar would almost collapse. The deficit
will be disastrous.
These people need assistance, and this not only helps the American
economy, it helps the balance in trade that is, in the sense of the Gov-
ernment and the dollar, it helps all of our ports in this country. It.
generates business. It builds labor forces. It builds all of the good
things we need.
But, if our men, our firms on the world market are noncompetitive.
the Koreans will walk off with it as they are doing today, the Japanese,
and the Germans, and the French, and the Belgians, so forth and so
on. We are on the losing side right now, because Washington is tying
our hands. And. this is what they must know.
And. this leads me, Mr. Chairman, to the human rights policy. As
a consideration in foreign trade and commerce, I am profoundly dis-
turbed and concerned at the direction apparently being taken by the
U.S. Government in utilizing American foreign trade as a lever of
I .S. foreign policy.
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38
For example, beginning on September 30 of this year, a substantial
restriction on export licensing to Argentina will be imposed because
of that nation's alleged violation of human rights. This will result in
the loss of millions of U.S. man-hours and approximately $1 billion
in export sales. This is repeated over and over again.
Let me cite the SASOL project of South Africa where $1 billion
worth of U.S. orders were canceled because of various human rights
and various minority pressures brought to play upon U.S. banking in-
stitutions. But, I do not want discrimination against rightwing gov-
ernments in favor of leftwing governments, and I can cite specific
cases of Romania, Bulgaria, Hungary, Yugoslavia, Czechoslovakia,
Poland, every one of these countries, even more recent congressional
recommendation-I forgot the committee, Mr. Chairman-that was
just in Vietnam. And, I forget how it was constituted, but there they
were recommending that we start trading with Vietnam.
We see that we are starting to trade with China, as evidenced by
cargoes moving through the U.S. gulf. I don't hear mention of human
rights when trading with these countries. Human rights are violated
in every country in this world. Perhaps we have the finest record, and
our European association might have the same record, but every other
area of the world, Africa, Asia, South America, Central America, there
is no such thing as total human rights extended to all men. This is a
myth. This is a utopia. This is some of the excess idealism that takes
place in Washington to say at the expense of the American economy
and the American businessman. It is a tragic episode in American his-
tory when we allow such utopian dreams to control what our policy is
today in world trade. We should take care of the homefront first, cer-
tainly, as we take care of our families first. This is what is involved
here today.
I have an interesting quotation, here, that was issued in the Wash-
ington Star of August 24, reflecting a French position in the matter of
human rights relationships. It was quoted by an official of France, and
I quote,
In a general manner, the French practice is not to subordinate the sale of
civilian industrial materials to political consideration.
This, then, brings my question forward : What is really-what is
really, Mr. Chairman, the U.S. position?
[The prepared statement of Mr. Rusovich follows:]
PREPARED STATEMENT OF BASIL J. RUSOVICH, JR.
I am Basil J. Rusovich, Jr. of New Orleans, President of Transoceanic Shipping
Company, international freight forwarders, freight contractors and ship char-
terers with offices in major port cities of the world. I also serve as President of
the International Trade Mart of New Orleans and am in my second year in this
capacity, having served on the ITM Board of Directors for many years.
As a non-profit foreign trade organization, the ITM acts as a standard-bearer
in the promotion of world trade and commerce, bringing together buyers and
sellers of goods and services designed to encourage and promote and further
international trade, understanding and-commerce. The ITM has always endorsed
government policies suporting free trade and commerce as a means of establishing
peaceful relations with other trading nations.
Two issues are of major interest and increasing concern to the international
business community as they restrict the free flow of trade.
These are the U.S. Taxation Policies and Human Rights Policy.
As president of my company and as president of the ITM, we are active inter-
national traders and promoters of foreign trade and commerce. Our record-
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breaking trade deficit makes it imperative that we develop an atmosphere that
will make the U.S. more competitive in the search for new international markets.
I am particularly concerned about Section 1011 of the Tax Reform Act of 1976,
which retroactively amended Section 911 of the Internal Revenue Code. This sec-
tion pertaining to Foreign Earned Income Exclusion, has increased the cost of U.S.
companies operating in foreign markets and has placed them at an unfair dis-
advantage with their foreign competitors.
The United States is one of the few countries that taxes its citizens on their
worldwide income. A United States citizen working abroad is subject to double
taxation by the U.S. and the country where he is residing.
Section 911, I.R.C. was enacted to encourage businessmen to do business abroad
and give them advantages similar to their counterparts in other countries. The
1976 Tax Reform Act amendments to Section 911 have gutted its effectiveness
and made the section meaningless for all practical purposes. The folly of this
change in Section 911 was recognized in the Tax Reduction and Simplification
Act of 1977, which contained a provision postponing the effective date of the
changes to taxable years commencing after December 31, 1977.
In order to induce U.S. businessmen to live and conduct business in foreign
countries, their U.S. employer is generaly required to pay additional compensa-
tion and certain foreign cost of living adjustments. These additional amounts are
translated into increased tax obligations for the individual. Many U.S. employers
have a tax equilization arrangement with their employees where the additional
taxes incurred as a result of working abroad are borne by the employer.
The 1976 amendments to Section 911 have drastically reduced its benefits,
thereby increasing taxes for U.S. citizens working overseas. The effect will be
to increase the cost of U.S. exports, bids on foreign projects and further erode
the competitiveness of U.S. companies' foreign operations. For this reason, I
strongly urge the re-enactment of Section 911 as it existed prior to the Tax
Reform Act of 1976, as a means of strengthening U.S. export position, creating
more jobs for Americans and a stronger U.S. economy.
Mr. Chairman, with respect to Human Rights Policy as a consideration in
foreign trade and commerce, I am deeply disturbed by the direction apparently
being taken by the U.S. Government in utilizing American Foreign Trade as a
lever of U.S. foreign policy. For example : Beginning on September 30, a substan-
tial restriction on export licensing to Argentina will be imposed because of that
nation's alleged violations of Human Rights. This will result in the loss of mil-
lions of U.S. manhours of labor and approximately 1 billion dollars in export
sales.
Gentlemen, can we afford to pay this price? And, indeed, is there any reason
why we should, especially since we do sell goods and services, which include mili-
tary hardware to communist bloc countries.
As a practical matter and as a private citizen engaged in the promotion of
business abroad, I ask you, what right does the U.S. government have to tell a
businessman that he cannot conduct business in those countries with which the
U.S. has diplomatic relations? As a citizen, I have the right to sell my goods or
services, in accordance with established good business practice procedures, to
those nations with whom the U.S. maintains diplomatic relations. If I am wrong,
I would like someone to tell me why.
In concluding, gentlemen, as an example of a more enlightened and realistic
approach to foreign trade. I would like to quote from the Washington Star of
August 24 the French position when U.S. asked them to join in the boycott of a
computer sale to the Soviet Union and I quote : "In a general manner, the
French practice is not to subordinate the sale of civilian industrial materials to
political consideration." What is the U.S. position?
On behalf of the Board of Directors of the International Trade Mart, I wish
to thank you for affording me the opportunity to present my views dealing
with the problems of an international economy that I face every day.
Thank you.
Representative LONG. Thank you, Mr. Rusovich. You very force-
fully set forth your views on the matter, and let me say, I am very
appreciative.
Mr. Parrott, I know that you have had 10, 12 years experience in
international trade. I know that in the relatively short period that you
have been in New Orleans, you have really made some great strides
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40
in it. I was in the investment banking business and practiced law here
in the city of New Orleans for a number of years, and consequently,
I am familiar with the field from a personal point of view as well as a
professional point of view as a member of the Joint Economic Com-
mittee. I congratulate you upon the international wave that you have
begun to start a little bit here in the New Orleans business field. We
are pleased to have you with us here today, Pete.
STATEMENT OF QUAY W. PARROTT, JR., VICE PRESIDENT AND
MANAGER, INTERNATIONAL DIVISION, HIBERNIA NATIONAL
BANK, NEW ORLEANS, LA.
Mr. PARROTT. Thank you, sir. The first part of my discussion deals
with the study undertaken by the International Trade Mart to contact
approximately 130 companies in Louisiana, principally in New
Orleans, Baton Rouge, and Shreveport. The company names were
obtained from the "Louisiana Directory of Manufacturers" and the
firms contacted were those that stated they dealt in either the na-
tional (N) or international (I) markets. The size of the firms varied
from five employees to several hundred. Ms. Janice Brewster con-
tacted each firm by telephone.
The summary of findings highlights several pertinent factors which
discourage the average U.S. firm from selling abroad. The most sig-
nificant of these is the U.S. domestic market, which is large enough
to absorb the total production of most firms. The reason for export-
ing-necessity-is, therefore, removed for many firms.
Secondly, emphasis is placed on foreign competition as being a major
detriment to exporting. This apparently also includes the freight rates
and regulation points, since by implication much of what we contribute
to foreign competition is in reality our cover for not understanding
how to deal or operate in these markets. Much is made of the im-
portance of exporting; however, no real efforts will be made to con-
rider these markets until the necessity of selling exists.
We also refer to the promotional efforts of the U.S. Department of
Commerce and others, noting that generally their efforts and available
literature is of assistance. Many firms, however, are looking for export
managers who can actually make the sale rather than commerce officers,
bankers, or other entities who are available to assist.
In this light, the U.S. Embassies and the commercial officers overseas
came under considerable criticism for their inconsistencies. One local
exporter called yesterday to state that since he couldn't be here-he
was going on a sales trip to Central America-would I please register
his complaint on foreign commercial officers. He states that the normal
response is a form letter, and he has received no assistance at all.
To generalize, the effort from an embassy is directly dependent on
the quality of the individual commercial officer, a few who are excel-
lent; however, the majority are indifferent or feel that they are to
assist U.S. trade in general, but can't assist the individual firm in
closing a sale as this would be preferential treatment.
I personally strongly disagree with the recommendation that im-
ports be limited. Because of the size of our market and its importance
to the world economy, this is not a viable alternative.
A second area that I would like to address is that of export finance,
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which in itself has two parts. The first pertains to the general attitude
of banks in this area toward export finance. Until recently, local banks
were not actively interested in export financing; however, this is
changing, with more emphasis being placed on this business especially
t hrough the Exim and FCIA programs.
These latter references bring us to the second point-Eximbank.
This organization has long been a major promoter of U.S. exports by
providing financing, which often is the key to whether a U.S. or foreign
sale is made. Although some of its activities have been justifiably
changed, the import of Exim backing has been a major factor in
Hibernia's export financing as well as that of the bank I was previ-
ously associated with. The medium term bank guaranty program and
FCIA's short-term policy are two programs that have been of substan-
tial assistance to banks and firms in this market.
Like our trade in general, these organizations must be kept as flexible
and responsive as possible. Various political issues are being thrown
in to complicate both Exim/FCIA's activities, as well as our export
activities as a whole, at a time when we desperately need an aggressive
selling effort. These include :
(a) Environmental impact statements, which would be required to
be taken into consideration by Exim. This move would substantially
increase the approval time while reducing Exim responsiveness, es-
pecially since foreign competition is not so impeded.
(b) Human rights, which is a commendable policy; however, the
inconsistency in our application is creating havoc. Additionally, we're
refusing to allow sales to alleged "violators"-for example, $240 mil-
lion to Argentina-without consideration to the impact on balance of
payments or the "human rights" of the U.S. labor force whose jobs
are dependent on these sales.
(c) The antiboycott legislation has a tremendous negative impact
on the flows of trade into this rich and purchase-oriented area. Again
the argument is not with the underlying principle but with implemen-
tation. In general, we are fortunate that most of these countries have
allowed sufficient modification in their regulations that the current
regulations can be complied with when the Middle Eastern country
desires.
Other issues also need to be addressed including Exim and agricul-
ture exports; antitrust, including DISC; country eligibility list;
specific country exclusions; and many others. In a nutshell, however,
the question of export promotion rests on a single question-what is
the justification for millions of dollars and man-hours being spent in
promotion of exports when one arbitrary human rights decision-one
boycott clause-or one environmental impact study-delays or pre-
cludes a hundred-million or billion-dollar sale?
I spend a great deal of time helping companies get into the export
market; however, even if the efforts were 100-percent effective, they
would not offset an Argentina or other sale. Yes; we need to increase
our export promotion efforts, but let's not nurture the seedling on one
hand simply to chop it down for some noneconomic reason as it starts
to grow.
Thank you.
Representative LONG. Thank you, Mr. Parrott.
Mr. Guerra, proceed.in your own way, sir.
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STATEMENT OF MODESTO A. GUERRA, PRESIDENT, COMMERCE
INTERNATIONAL CORP.
Mr. Gururt&. Mr. Chairman, I am pleased and honored to testify at
this hearing focusing on export promotion and the U.S. trade deficit.
I would like to deviate for two comments off of my prepared statement.
No. 1, I would like to congratulate you, Mr. Congressman, on the
fine assistance you've had from Mr. Morgan and Mr. Hughes, who
have done a very good job in organizing this session. Second, I would
also like to comment, for the record, that I am very pleased and hon-
ored, and feel very proud as the president of the Latin American
Chamber of Commerce; and, here at this table, I have two people from
our board : Mr. Arellano, who is the founder of our Latin American
Chamber of Commerce; and Mr. Parrott, who joined our board only
in the last few months.
The Latin American Chamber of Commerce is acutely aware of the
fact that we have lost our trade position with Latin America, and we
are trying to do something about it.
The other area of focus is that we are aware of the fact that there
are about 150,000 Latin Americans or Spanish in this city, and we are
hopeful that through the chamber we will be able to bring them more
effectively into the economy of New Orleans. And, I will continue with
my prepared statement.
Our firm, 'Commerce International Corp., established in 1972, can
be classified as a general trading company, and our sales are distrib-
uted as follows: 50 percent imports, steel from Mexico; 45 percent do-
mestic, treated wood products; and 5 percent exports, U.S.-treated
wood products.
Exports are our most expensive sales as they require roughly four
times more of promotion and communication expenses than the do-
mestic or import sale.
The observations which I citebelow are on the basis of my personal
experience as a small, relatively young, import/export house.
The matter pertaining to the U.S. trade deficit and the general ex-
port prospects for the United Sates depends entirely on our attitude
and our definition of our national priorities.
titre in the United States have recently reacted to our trade deficit
by looking at the negative side of the equation, or by giving impetus
to the notion that import barriers will resolve our trade balances. Our
trade deficit will not be resolved by import barriers; they will, how-
ever, substantially contribute to increasing our rate of inflation. I give
you an example:
Despite what appears to me an enormous. lipservice paid to our
"war on inflation" we have permitted the U.S. Treasury to become
a tool of a select U.S. industry, in this case the steel industry. Since
the imposition by the current administration of the trigger price
mechanism as a barrier to steel imports last December, the price of
steel charged by U.S. steel mills his gone up some 33 percent and not
the 13 percent officially sanctioned. The 13 percent is the official in-
crease in the list price, the rein aining 20 percent has been accomplished
by canceling previously established discounts.
The impact on inflation of this increase has been variously estimated
from $1.2 billion by an official of the Council on Wage and Price
Stability to $3 billion by Prof. Walter Adams, past president of Mich-
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igan State University., We at CIC, for example, have sold more steel
at the end of 9 months than in the previous year. This increased ton-
nage from Mexico is costing our U.S. customers substantially more
than necessary.
We are forced to charge prices much above the world market price
because of the U.S. Treasury regulations designed to protect an ineffi-
cient American industry. Please note gentlemen, Mexican steel has
not been dumped in the United States. However, the U.S. import
restriction policies aimed at Japan and the European Economic Com-
munity are punishing the growth and development of the less devel-
oped countries who have achieved their current position partly
because of U.S. Aid dollars.
I refer again to the notion that our trade deficit relates to our atti-
tude and our priorities. The question in my mind is do we develop and
support an aggressive export attitude or do we protect specific U.S.
industries? This question is exemplified by the following:
U.S. export financing as provided by the Eximbank leaves much
to be desired, yet what advantages obtained by such financing is often
negated by the fact that merchandise purchased by such financing is
,required to be transported by U.S.-flag carriers. The U.S. bottoms
requirement defeats the advantage of U.S. financing because of the
20- to 30-percent freight premium paid to the U.S.-flag carrier over
foreign flag carriers. I know this because I struggled with the U.S.
Maritime Administration for no less than 4 months on one specific
export transaction to the Middle East with a value of half a million
dollars. .00"
If we conclude that an aggressive export policy is of higher national.
priority than protecting certain domestic industries, it might be useful.
to study the ways and means employed by the successful exporting
programs from such countries as Japan, .Korea, Brazil, and others.
These highly successful export programs have been channeled through
their so-called trading companies. Examine, for instance, some of the
things provided to a Brazilian or Mexican exporter which will not be
provided to me, a U.S. exporter :
1. If I were a Brazilian exporter and I had an important foreign
buyer, the Government of Brazil would assist me in offering my buyer
a creative and imaginative financing package which would involve
low interest long-term financing of 10 to 20 years as compared with
Eximbank financing at a high interest rate with a 5-year payback. I
personally experienced this situation when trying to sell the Govern-
men.t.of Peru some timber railroad crossties.
2. If I were a Brazilian exporter, and I needed to set up a lumber
mill to process a long-term contract from one of my clients, the Gov-
ernment of Brazil would not only assist my client by financing his in-
ventory in the United States but would also assist me as a Brazilian
exporter to finance at 8 percent, on a long-term basis, the cost of es-
tablishing a lumber mill.
3. If I were it Mexican manufacturer, the Mexican trading company
promoting the export of my product obtains a tax rebate of 6 perecent
to 11 percent for having assisted me in exporting my product.
1 (1) Figure cited by Dr. Adams at a hearing of the Small Business Committee of the
U.S. House of Representatives in Washington, D.C., on May, 18, 1978. (2) This $3' billion
estimate does not take into consideration the multiplier effect of the $3 billion as it ripples
throughout the economy.
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Again the bulk of our U.S. export financing has been focusing
strictly on the financing of foreign buyers. It has done nothing to as-
sist us, the U.S. exporter, particularly the small, hustling U.S. ex-
porter, in financing the export transaction itself. Financing the foreign
buyer only satisfies half of the trade transaction. The other half
has to be withheld by the U.S. shipper which in my case involves the
financing of the product to be sold abroad. An aggresive export policy
and program must look at the entire trade transaction and not only
part of it.
When talking about trading companies, the United States also has
trading companies. Regrettably, however, a great portion of these trad-
ing companies are import oriented and not export oriented. Some of
the U.S. trading companies I am familiar with have a tremendous
overseas know-how but are primarily import oriented. Below I cite
some of the estimated annual sales of some U.S. Import-Oriented
trading companies : Kurt Orban, New Jersey, steel, $200 million : J.
Gerdau, New York, wood, $45 million; and U.S. furniture industries,
North Carolina furniture, $125 million.
An aggressive export development program should seek to provide
specific incentives designed to utilize the know-how and expertise of
some of these U.S. trading companies as well as mine to balance out
our orientation from nearly exclusive imports to an aggressive em-
phasis on exports.
An aggressive export orientation should increase the agility of com-
munication between the prospective U.S. exporter and the U.S. com-
mercial attache. For example, our firm has to wait some 3 months to
get a report on a prospective client in Venezuela by channeling our
inquiry on a specific would-be client through the bureaucracy of the
Department of Commerce. We need the information in 1 week, not 3
months.
The above are some of my random thoughts on some of the spe-
cific components an aggressive export policy might look for. Some of
these components would indeed be helpful to our company in our
export efforts.
But first, we as consumers and we as businessmen, and you as public
officials must realize that there are no short-term solutions to our prob-
lems, that we are working in a highly interdependent economic system,
and we cannot afford to continue subsidizing either inefficient labor or
inefficient industry. Lastly, we cannot afford solutions which satisfy
isolated political needs at a cost to an integrated, well-balanced na-
tional policy. Thank you.
Representative LoNG. Thank you, Mr. Guerra. We are very
appreciative.
Professor Flammang, we are pleased to have you, as I said before,
and you can proceed as you wish, sir, in your own manner.
STATEMENT OF ROBERT A. FLAMMANG, PROFESSOR OF ECONOMICS,
LOUISIANA STATE UNIVERSITY
Mr. FLAMMANG. Thank you, Mr. Chairman. I would like to thank
you for inviting me to appear here today. And I hope you will not
mind if I stick with my prepared statement.
Representative LONG. Fine, sir.
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Mr. Fr AMMANG. Much of what I have to say here has already been
alluded to by earlier testimony, but I believe my message will be clearer
and have more continuity if I go ahead and bear the risk of repeating
certain points.
I would just like to put the export problems the United States faces
in some sort of perspective. As an economist, and not a businessman, I
tend to look at the broad picture, and that is what I hope to focus on
here today.
It is becoming almost commonplace to point out the growing inter-
dependence of countries in the world today. This is primarily due to
growing world population on one hand and rapidly depleting supplies
of resources on the other. Even the United States, historically a country
which has depended relatively little on the rest of the world for mar-
kets or for sources of supply, has seen its dependence upon foreign
trade double in the last 20 years. Unfortunately, our awareness of this
interdependence has not kept pace with reality. We still tend to think
in national, rather than international, terms.
We see evidence of this at every turn. This country has no coherent
national export policy. It is reported that many-perhaps most-
Americans still do not believe that there is really an energy problem,
and therefore show little concern about mushrooming oil imports or
the absence of a national energy policy. The decline of the dollar, until
about 2 weeks ago, was met with polite yawns in Washington and with
shoulder shrugs by the general public. Firms which might be profiting
nicely from exports "don't want to get involved" because their man-
agers believe that exporting is complicated business and they are get-
tin'; along fine without it, thank you. On university campuses, courses
in international economics may enroll no more than 0.2 of 1 percent of
the student body in a given semester, even in a State like Louisiana.
which contains the second- and fourth-ranked ports in the country..
But should we be yawning and shrugging our shoulders when our
balance of payments moves from an $11 billion surplus in 1975 to a
$30 billion deficit 2 years later? When the dollar continues to decline
even when informed observers agree that it is already undervalued?
When oil imports now constitute 30 percent of our total imports?
When a Japanese expert remarks that a cheaper dollar is not likely
to expand U.S. exports to his country materially because their demand
for our goods is relatively insensitive to price changes? When in some
years from one-fourth to one-half of our inflation rate can be attributed
to rising import prices? When this country's share of world manufac-
tured exports is showing a steady decline? When our farm, exports bob
up and down in value, depending upon growing conditions in customer
countries?
Economists have argued for years that most problems like these are
transient if exchange rates are left free to be determined by supply
and demand on an open market. A deficit is supposed to cheapen a
country's currency and make its products more competitive in world
markets, thus leading to an expansion of its exports, a reduction in its
imports, and a reduction or elimination of its deficit. This sounds good,
but it actually oversimplifies reality too much. Price is not the only
factor purchasers take into account, and sometimes it is not even the
major factor. Quality, design, credit terms, delivery times, and service
after the sale often outweigh price as a consideration. Or a producer
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may have tried exporting once-say, when the dollar was overvalued
in the late 1960's-and failed to profit from it, and thus be reluctant to
try again. Some producers already have producing operations abroad,
and even a cheaper dollar may not be enough to make them change
their world production plans. Ford Motor Co. is a good example-its
European operations are so extensive and successful that it has little
interest in pushing exports from the United States.
A cheaper dollar also does not help if customer countries limit U.S.
sales by means of import quotas, variable levies, "buy domestic"
legislation and the like, and these are major trade restrictions which
are becoming relatively more important. They are also very difficult
to relax or eliminate, because they normally protect powerful local
interest groups in those countries. Furthermore, U.S. exports are
hampered by the actions of our own Government; examples include
trade embargoes with some countries, controls on certain types of ex-
ports, anti-Arab boycott rules, legislation forbidding overseas payoffs
or joint bidding by U.S. companies for foreign projects, proposals
to end tax deferral on the profits of U.S. subsidiaries abroad, and. so
forth. Some of these measures may be fully justified for political or
military reasons, but they serve to create the impression that the U.S.
Government has no special commitment to export promotion and no
real interest in balancing its balance of payments.
Contrast this official posture, with that of the Japanese Government.
Its Ministry for International Trade and Industry not only promotes
trade, but even performs quality-control services for its exporters.
It supports' large trading companies, like Mitsui, with little worry
about their "anticompetitive" behavior abroad. The entire country-
Government, business, and labor-has a common commitment to ex-
portinn, even though its dependence upon foreign trade-14 percent
of its GNP in 1976-is really not that much greater than our own-9
to 10 percent in recent years. The populace thinks in terms of inter-
national trade, and we, in general., do not. Many of our most success-
ful exporters are large firms which would just as soon invest in plants
abroad as export.
Frank Weil, Assistant Secretary of Commerce for Domestic and
International Business, thinks that about 20,00.0 American firms are
engaging in export activity and that another 20,000-mainly smaller
firms-could do so successfully if they were made aware of the profit
potential in it. These firms would probably have a greater long-term
commitment to exporting than some of those presently doing so
simply because most of them are too small to consider setting up
plants abroad. What these firms lack most is information about where
markets are and how to go about getting into them. This "informa-
tion" function is one which governmental units such as the Depart-
ment of Commerce could certainly perform more extensively than
they do at present.
The U.S. Government can also take other steps to promote this
country's exports. Some of them are already in process : The push to
reduce tariffs and nontariff restrictions at the Tokyo Round of trade
negotiations, easing the adjustment assistance procedures, and the
proposal to increase the lending capacity of the Export-Import Bank,
for example. But more can be done. Eximbank could be mandated to
pay more attention to the financial needs of smaller would-be ex-
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porters. It would be useful to have legislation permitting U.S. firms
to bid jointly on foreign projects, and it would help if the anti-Arab
boycott legislation could be repealed. The tax deferral-DISC-
legislation should be retained. Legislation encouraging the establish-
ment of Japanese-type trading companies should be on the books.
Government policies which stifle innovation must be modified, because
high-technology goods have been our most dynamic exports. Better
means of countering Government-subsidized foreign goods and serv-
ices-like Soviet shipping-must be devised. Monetary reform aimed
at reducing currency uncertainties could relieve a key business head-
ache and encourage exports. It might even be wise to tax export
profits at somewhat reduced rates. Overall, export activity needs to
be given a higher profile and dignified with reasonably coherent
policy across the board.
The U.S. balance of payments could also be improved by means of
a common code regarding foreign investment in this country. After
all, the inflow of foreign investment will to some extent produce moods
which will substitute for imports, and the funds inflow itself will
give direct support to the balance of payments. As things stand, the
various States are passing a wide variety of laws, some of them en-
conraging to foreign investment and some discouraging. A common
code could reduce some of the uncertainty involved and allow outside
firms to locate on the basis of fundamental economic merits rather
than transient tax or site-cost advantages.
American firms can themselves do a great deal to take advantage of
the, export opportunities which are currently opening up. For in-
stance, most of the people in the world are still poor and cannot afford
many of the expensive and elaborate products which are common in
the richer countries. American business seems to think that the thing
to do is wait until. incomes rise in poor countries; I suggest that we
would be wiser to begin developing products which they can afford
to buy now-simple, relatively inexpensive products which are de-
signed with the poor in mind. Then, when incomes do rise in these
areas, American firms will already be well established and in a posi-
tion to take advantage of this growing purchasing power. If we as-
sume that we can design products for rich country' markets (like our
own) and still find large numbers of buyers eventually. I predict that
we will find these market territories already preeminted by producers
from Japan, South Korea, Taiwan, Brazil.- and Mexico who were
humble enough to try to meet the needs of the poor while they were
poor.
American firms can also do more to market their services abroad.
Management conventionally seems to think that goods are the only
things foreigners buy. But there is a world of profit waiting in such
areas as tourism, insurance, business services, management consulting,
and so on. Moreover, as incomes around the world rise, there will be
an increasing shift of purchases away from goods and towards serv-
ices. lVhv shouldn't we be in a position to benefit from this easily
predictable trend? Another advantage of a renewed focus on services
is that they are generally nonpolluting in nature and, on the whole,
nonuolitical-and they are thus that much less likely to encounter
restrictions.
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Some economists predict that U.S. firms may well find themselves
increasingly able to compete in labor-intensive products in the future.
The reason for this is the relative decline in American labor costs
vis-a-vis labor costs in Europe and Japan. Managers in this country
need to stop assuming that we cannot compete in many areas because
of our wage levels; this may have been true during the 1950's and
1960's, but it is much less true today. Again, our attitudes are tending
to lag behind reality.
I would be remiss if I did not reflect on Louisiana's place in the
Nation's export picture. In this State's favor are its strategic location
on waterways, its ice-free ports, and its trading history. Louisiana is
also an important source of food and fuel, both strategic items in
trade today. It is, furthermore, a State which perhaps understands
more than most what labor-intensive production is like, given the
historic importance of sugar, cotton, and textiles, and it may thus be
in better position to develop the relatively simple and inexpensive
products which are most needed by the majority of the world's people.
Exporters from Louisiana do have some special problems, however.
One of these is the relative lack of banking services for would-be ex-
porters. There are only five banks in Louisiana with active inter-
national departments, and all of them are in New Orleans. By contrast,
Miami has 12 such banks. Some businessmen complain about the lack
of air service, while others cite the general lack of awareness of the
importance of international trade to the State and the region. As
evidence of this last point, it is only this year that the State govern-
ment decided to fund an overseas office to promote Louisiana trade
and encourage outside investment; by contrast, South Carolina and
Arkansas have had such representation for years and it has really
paid off.
The lack of awareness in Louisiana is especially evident to anyone
who has visited areas like Dallas, Houston, Atlanta, or Miami. Earlier
this summer I had the opportunity to visit Dallas and listen to busi-
ness, government, and university people in that area concerned with
international trade and investment. I was struck by the notion that
here is a city with no waterways, with no particular geographic ad-
vantages, and yet it has an international merchandising center which
attracts business people from all over the world, it has active trade
associations promoting international contacts, and it even has a
branch of the University of Texas with a high-powered graduate pro-
gram in international management studies. The relationship between
the business people and the local Department of Commerce repre-
sentative was superb-in fact, this representative had the attitude
that "I work for them," meaning the business community. Even with
the locational disadvantage, Dallas has become an important decision-
making center for international trade; the only reason I can see for
this is the people themselves, the level of their' awareness of the im-
portance of international dealings, and their willingness to act on the
basis of this awareness. I left Dallas asking myself, "Why can't we in
Louisiana do that?" In my opinion., this State has just as much talent
and even more natural advantages. But we seem to be asleep in this
one very vital and promising area.
Let me close by summarizing my message here today. The world is
becoming increasingly interdependent, with U.S. dependence upon
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others perhaps growing more than most. Our thinking has not
progressed with this reality, and we have left trade and balance of
payments matters to shift for themselves or, in some cases, have
actually discouraged the solution of some such problems with official
actions. Both government and business can take steps to encourage
exports, and if these steps are reasonably coordinated and coherent
the trade picture should brighten considerably and the dollar be
strengthened in the process. The State of Louisiana can be a major
part of this brighter. picture if people here can be made more aware of
trade's importance and the very great advantages that nature has
given us to profit from it.
Thank you very much.
Representative LONG. Thank you, Professor Flammang.
Let's move on to some of these very controversial questions, both
economic and political, that have been so' amply presented by you
gentlemen ; they are, of course, as Professor Flammang pointed out, in
most instances interrelated and very complicated.
Let's take, first, this question of human rights.
Mr. Arellano, you have been on the Government scene; and
Mr. Rusovich, I think, pointed out very succinctly the real difficulties
here. Mr. Parrott also added to that point of view, particularly with
respect to the decision with respect to Argentina.
Now, do you have any comment on this? What do you see as a
possible way out of this? That is, of maintaining some sort of moral
standard, and yet not allowing ' this standard to dictate in favor of
one group of nations over another, or of one political spectrum over
another, and at the same time preventing this standard from serving
as an undue restriction upon the development of export policy and
export markets by the U.S. Government?
Mr. ARELLANO. I would like to point out thatmost of us tend to
reflect the values of the area that we come from. I think I sense fairly
well just what the values of this part of the world are, and I would be
less than candid if I did not tell you that in the Department of State
there are differences of opinions as to how our human rights policy
should be implemented. My view inside the Department is a minority
view. In fact, I am under instructions to duck this question if I can.
But, since you are Members of the U.S. Congress, I could be held in
contempt, I suspect, if I did as I was directed to do on this question.
Representative LONG. We are not in any way threatening you, but
we would like to have your views on this matter.
Mr. ARELLANO. I am obliged to do so. My feeling, Mr. Congress-
man, is that the human rights policy of the United States as enunciated
in the broadest sense is something that few of us here in this room
would quarrel with. What we are talking about is fundamental values
of the American people; that is, we are not going to allow for the
so-called first basket of the rights of the person to be violated. We don't
condone torture; we don't condone arbitrary abuse of our citizens and
so on ; and, I think that from a moral standpoint, it puts us properly
where we should be-back on the world scene.
The second and third baskets of the so-called human rights policy,
the economic and political baskets, these are much more troublesome
to us. I might point out that the human rights policy, as the executive
branch is currently attempting to enforce it, albeit with anomalies, is,
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in large part, a product of the Congress of the United States. What we
are doing is reasonably, faithfully attempting to enforce laws that
stand on the books of this country.
I would say to this group, to you, that there are some severe con-
tradictions in the implementation. It is obvious to anyone who has eyes,
that these exist. I would suggest that what needs to be done by the
politicians of the United.States is that the businessmen have to make
their.concerns known,- articulate them in a coherent fashion, and ask
some very hard and difficult questions and some very fundamental
philosophical questions as to who's supposed to be asked about this.
If the French do not subordinate commercial policy to political ends,
then how can this country, with active and free enterprise, do so?
That's the kind of question I would ask if I were not where I am now.
Representative LoNG. I think that's very well put. The problem, as
you say, is not only an inconsistency in application, but also-and apart.
from the actions of the Congress-an inconsistent administrative
policy. Insofar as Congress is concerned, almost every time that a
measure involving international trade arises, somebody jumps up with
a human rights amendment. It is surprising, to me, how many of
these measures have been adopted, and the extent to which the De-
partment of State and the Department of Commerce have gone in
writing regulations, and in some instances, enforcing them.
It's really been very disturbing to me. I'm not sure that it has caused
the lack of interest Professor Flammanm spoke of, but it is definitely
a hindrance, a very distinct and definite hindrance. I think everybody
here agrees with this assessment.
Now, Professor Flammang estimated a few minutes ago, as It gne,s,
that the total percentage of the Japanese gross national product de-
pendent upon the export market would be perhaps somewhere around
40 or 50 percent. I was discussing the same matter yesterday, and I
asked Mr. Hughes, as an economist, to determine for me the approxi-
mate percentage of the Japanese GNP that relied upon exports.
I had used the same figure that Mr. Flammang guessed. I was
frankly very surprised by Mr. Hughes' reply. It is not as high as 40,
or even 30 percent. In fact it's around 13 to 14 percent. I was surprised
that the percentage was not very much higher than that. But, at the
same time, if we look at the percentage in the United States, we dis-
cover that, it is something rieht around R percent I think most of von.
know that the Chairman of the Federal Reserve, Mr. William Miller,
has recommended that we set as our goal. a figure of 10 percent in the
relatively near future.
Mr. Parrott, what do you have to recommend as possible solutions
to the various problems that have been raised?
Mr. PAxuozr. I think that the basic question really is that there has
been a draft, and the human rights issue should basically not be an
issue of a trade sale. If there is a country or an area that we do have
an embargo on or a boycott on, then that is Government policy. But,
I think that the inconsistency, now, of, for example, Chile, where we
have taken steps, either announced, agreed, or unagreed, to change the
prior government and now have a new government that we are just
as unsatisfied with and are trying to, through, let's say, "Using the
human rights to preclude financing or trade with that area," that you
are applying exactly the same type of political interference with an-
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other country's activities as you would be if we were using the CIA
or another organization like that or in an underground manner.
Representative LONG. You are suggesting, then, that it might be
better to draw a hard line, and either have an embargo if that was to
the best interest, or not have an embargo? This would mean, I take it,
that once the decision had been made-one way or another on a coun-
try-by-country basis-we would not deviate from it in specific in-
stances: is that correct?
Mr. PARROTT. I would say that would be better than the situation we
are in.
Representative LONG. I am inclined to agree with you.
Mr. Rusovich, I know you have given a great deal of thought to this,
ravel that you
and you're being-your background and the world travel"
have done and the fact that many of the countries-I guess your native
country is under Soviet domination
Mr. Rusovicx. Mr. Chairman, I am a native of the United States.
It's my mother and father who are of Yugoslav birth.
Representative LONG. Are they Yugoslavian?
Mr. Rusovrcx. They were born in Yugoslavia, yes. And, as you re-
call, my father was the Royal Consul General of Yugoslavia in this
city.
Representative LONG. Right.
Mr. Rusovichr. And, I just wanted to have this fact recorded
accordingly.
Representative LONG. Fine. I appreciate you clearing the record.
I do know you are very familiar with the problems of that part of the
world, which are very real problems. We would appreciate any further
comments you have, Mr. Rusovich.
Mr. Rusovrcx. May I say there are human rights violations existing
in Yugoslavia today that exists in all the other Iron Curtain countries"
It no different from the others. But, for some unknown reason, we
choose to ignore certain conditions that prevail in countries where we
have decided that we are going to trade. For one reason or another, the
basis of this decision is never made known publicly.
This, as I said earlier in testimony, Mr. Chairman, this human
rights violation exists in every country, and I think that to respond to
what I interpret your general question to be, the whole policy was
ridiculous from the beginning. The concept is wonderful. We should
certainly state over and over again categorically and unequivocally
that we do support human rights and freedom and liberty all over the
world as a nation. Let that be known. But, to use this as a weapon in
economics or politics, actually, in my opinion, has no place in these days
and times.
Representative LONG. How do you support human rights, then, if
you do not support them this way? That's the essence of the problem.
Mr. Rusovicn. We cannot impose our will and our philosophy and
our concepts upon all nations. This has never been our prerogative.
Perhaps we have assumed this prerogative incorrectly many times,
and certainly the record will show militarily in the past. But, I say
categorically that we have no right to attempt to be the world's guard-
ian and to tell others what to do.
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And, one important closing point that I want to make here, that
as a result of this human rights policy, I can cite for the record about
$5 billion lost in recent weeks and months, not only the recent Argen-
tinean situation where there were 18 million man-hours of labor lost
to the U.S. labor-I think Mr. Meany should be well aware of these
facts, let him know. The AFL-CIO, how much labor they are losing
through such human relations or human rights policies. But, this goes
on and on. The SASOL project cancellation represented $1 billion lost
to America in business. We are canceling orders now in Central
America, even though they are our allies. But, the outcome of that is
clear right now. We are not meeting here for political reasons, but let
me state that with the fall of any present Central American govern-
ment, the left-wing government will come in. We've cut off arms sales
to two Central American governments in the last year. They are going
other places to buy it, but the real point is that as we cancel, as we lose
all of this business, our friendly economic allies, to wit : Germany,
France, Belgium, Japan, they love to see this happening. They sup-
port this vigorously, because every time we do this, and an order is
canceled, they grab up on that order.
Representative LONG. The difficulty is in finding a way to do any-
thing about it. Saying that we support human rights is one thing,
and doing anything about them is another. That is the question that
really faces us. I don't think any of us have really come up with any
solutions; I know that I have not been able to. We need to find a way
to support human rights without being hypocritical about it.
I am not suggesting that we ought to follow the policy that we've
been following. I think I am more inclined toward Mr. Arellano's
view, that we have been discriminatory in the way the policy has been
applied.
Mr. ARELLANO. I didn't say that.
Representative LONG. I meant that
Mr. RusovrcFH. I said that, Mr. Chairman. I said it more than once.
Representative LONG. I'll say it, too, Mr. Rusovich. If I interpreted
Mr. Arellano's remarks in that way, I don't think I am far wrong in
my interpretation.
Mr. ARELLANO. I suggested that they were anomalous in the way of
implementation.
Representative LONG. Dick, you'd better watch out; you're staying
in Washington too long.
Does anyone have any further comment on this question before I
move on to another controversial question?
Mr. Guerra, maybe you can give us a different prospective with
respect to this policy.
Mr. GuERRA. Not speaking for the Government, but while working
for the Government, I saw it every day. The fact that we approach
our relations to a great extent with Latin America with a deluded
sense of grandeur. We approach our relations on a basis of a paternal
relationship. We still have the mythanic notion that we are imposing
political beachheads, democracy, and other things. Basically, people
will pay lipservice, whatever we want to hear, to get what they want
from us. If we don't want to supply it, they will get it elsewhere. We
have the notion that somehow we have leverage.
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In Honduras, we have a program of assistance of $15 million which
is somewhat significant on an annual basis compared to all the other
moneys coming in from Inter-American Building Bank and other
sources. And, on this $50 million, we were going to reform the political
structure of Honduras, and we were never going to succeed, and they
were going to say yes to whatever we wanted; and, then, we have the
problem that we have a loan that had been authorized, but no dis-
bursements, because they weren't living up to the commitment. So,
we extend waiver after waiver after waiver, and they got the loan
without our conditions.
But, the point of the matter is that we approach our relations with
the attitude as if we were dealing universally with Honduras and
Latin America. And, the point is that we, bring people into Washington
that have that same notion, that somehow we picked it up from Teddy
Roosevelt, we can still revolutionize the world, and we can't. We are
very, very important to handle all these changes.
Representative LONG. In Vietnam, for example, we tried to do the
same thing for a long period of time militarily; Vietnam is a good
example of the fact that we cannot do it militarily. Perhaps the
failure to develop an adequate export market for the United States
is evidence of the fact that we cannot impose our will and our form
of government upon other parts of the world economically either.
We learned the hard way with respect to Vietnam, and it concerns
me that we are perhaps learning the hard way with respect to eco-
nomic policy as well.
Mr. Arellano.
Mr. ARELLANO. Mr. Congressman, I would like to respectfully sug-
gest that what we need to do in the United States is to clarify our
own sense of direction of where we are going and what it is we need
to do in the future. Some time ago I had the question asked of me:
How did I make decisions in the Department of State? The answer I
gave, it seems to me is fairly obvious : If you are not going to be
accused of malfeasance or certain misfeasance, the first question that
you have to ask is, "Is this good for the United States and for its
citizens?" If the answer is equivocal or marginal, then, let's rethink
and relook at the policy.
It seems to me that many of the policies that have been criticized
here today are policies that indeed need rethinking. This country has
to ask itself, "What is America all about?"
We do not have a cohereant national export policy. I will submit to
you that the only people that really could implement or give us a co-
herent national export policy is the Congress of the United States. The
executive branch will carry this through. We have good servants of the
? public will, but it is on the shoulders of yourselves and your peers to
design with other people
Representative Lovc. One of the things we are hoping to accomplish
by these hearings is to point out to the Con.~ress-to the legislative
committees-the necessity of developing a coherent export policy for
the United States. And one of the reasons that we are holding hearings
in the field, as well as in Washington, is to get points of view that differ
from the narrow. limited point of view that tends to develop in one
particular area. We also hope to stimulate some action in this regard:
Mr. Parrott, you wanted to make a comment?
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54
Mr. PARROTT. It was referring to something we had said earlier.
And, basically, I think as long as we can-there is not a major po-
litical or a military reason for saying we are going to write off an area,
that as long as you have a flow of trade between two areas, you have
an opportunity to resolve the differences and work out the problems
between those two areas. When you have to finally go to the boycott or
embargo or something of this nature, then you have totally destroyed
any lines of communication, be it to Red China or be it Chile or any
other area of the world, that once that is done, you have reduced your
flow or your exchange of ideas to strictly the diplomats, and at that
stage, that's when I get scared.
Representative LONG. I agree. I think that's correct. It needs to be
developed on as broad as possible base.
Let me move into another really very, very tough problem. As Mr.
Guerra pointed out, we all want to boost exports, which is one of the
reasons we are here today ; at the same time, we have a somewhat
conflicting policy with respect to the maintenance of a domestic ship-
ping industry through policies of cargo preference or equity. Let's
dray that one up the hill and back down again. How can both of these
policies be accomplished without damage to either? Can we skin both,
of these cats? Who's got a point of view on this? Mr. Rusovich, you've
been in the shipping business for a long time. How do you see our
ability to resolve this problem?
Mr. Rusovici4. Well, I don't think I fully understand the question
or the point that was suggested. I'm not too clear in my mind exactly
what that point was. If you can restate that, Mr. Chairman, I think
I could better respond to it.
Representative LONG. As I understood Mr. Guerra's remarks, the
preferential treatment that is given to American carriers under some
programs is causing some difficulty to American exporters because of
the increase in prices that result from the preference. Is that a correct
statement of this, Mr. Guerra?
Mr. Rusovicn. I understood. I was relating that also to the Russian
bottoms today, which is also a very serious problem.
On the support of the U.S.-flag carriers, this relates to the Exim
loans, U.S.-funded projects. Now, right now, for example, through the
Port of New Orleans-and I can make this by way of specific refer-
ence-there will be a very large grain silo project going to Alexandria,
Egypt..In this instance, three European shipping companies proposed;
on this project of an American company, their rates were so appreci-
ably lower than the American carriers that the American carriers
couldn't approach within 30 percent the rates as quoted.
Now, that would be fine were it not U.S. Government funds. But,
here is a case where the U.S. Government would be pouring further
dollars into foreign coffers, had they dispensed with this requirement
of U.S. bottoms.
I think that under free enterprise practice, totally free, without
Government financing, relationship or interrelationship, then, as we
all know, and it happens every day, the shipping market is highly
competitive, you are breaking fractions sometimes to secure cargoes.
But, where the U.S. Government is involved, I don't think we have
any alternative, and, frankly, this is exactly what the Japanese do
and the Germans do and the Belgians do, whichever projects they
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would finance, they would insist on the utilization of their vessels.
But, certainly I oppose any such action when it relates to private
capital. The U.S. Government, fortunately, as of this time, has not
taken such action.
Representative LONG. Mr. Guerra, how do you see, this ?
Mr. GUERRA. I think the problem lies in the fact that when we view
an export transaction, we have to view the entire transaction. The fact
that we are subsidizing the U.S. bottom by requiring that 50 percent
of the cargo, 100 percent of the cargo, has to go out if it has been
financed by the Eximbank.
Mr. PARROTT. [Unintelligible.]
Mr. GuERRA. I can't speak for the entire gamut of programs by the
Eximbank, financially, but the one I encountered, it was specifically-
I. specifically encountered a situation where we were going to lose the
transaction because of the fact that we would have to pay 30 percent
higher freight because of the U.S.-flag carrier requirement. My posi-
tion is that if we want to subsidize the maritime industry, fine. But,
don't do it at the expense of the export. Let's find another way of
looking at the entire transaction. There has to be a way found not to
sacrifice exports in order to reward or to keep our maritime industry
alive. It's somehow out of balance, and I don't have a solution. But,
somewhere, something doesn't match up.
Representative LONG. Mr. Fla.mmang, give us an academic approach
to this problem.
Mr. FLAMMANG. Well, I think one solution would simply be to sepa-
rate the merchant marine problem from the export promotion problem.
If we want an effective merchant marine, let's subsidize it to the
extent necessary to meet the competition on shipping rates. Then let
the shipper himself decide whether he wants to ship in American
bottoms, Liberian bottoms, or whatever. As it now stands, we are
really asking U.S. export shippers to directly subsidize another in-
dustry-the merchant marine-that couldn't survive without this
subsidy. But there are other ways to subsidize, ways which would not
place so much burden on just this one group, the U.S. export shippers.
Mr. GUERRA. We have a three-quarters-of-a-million-dollar ship-
ment coming out of Mississippi of wood that would involve some 50
people including truckers and others, and Ave were up against a
situation where these 50 workers involved in the production of that
order out of Mississippi were, in effect, going to subsidize this ship-
ment of wood. And, they couldn't make it go.
Representative LONG. As a Member of Congress, I sometimes have a
difficult time sorting out the equities involved. in some of these cases.
It becomes very, very difficult to develop some alternative method.
On the one hand, I believe that it's absolutely essential that we main-
tain a strong maritime industry in the United States; and, yet, no one
has come up with an alternative way of subsidizing-if that's the
proper word, and maybe it is-or of keeping a maritime industry,
unless we have some kind of protective economic mechanism.
Give us some practical knowledge here, Mr. Rusovich.
Air. Rusovichu. I don't mean to simply be controversial with my dis-
tinguished colleague here, but every instance, every instance where
you have forced patronage of U.S.-flag carriers relates directly to U.S.
funding, and everyone is in the same competitive position from the
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United States. If Mr. Guerra and 10 others of his competitors are
bidding a project, let's say in Indonesia, where the funds originate
with the Eximbank, each will then pay the same rate.
Now, in the specific instance I was speaking of, going through the
Port of New Orleans, every American competitor bids the identical
price, and the foreign competitors were not allowed. This was, for one
time, I could say something very complimentary about certain rules
and procedures in Washington, because the West German Government,
through their subsidiaries here, tried to get this same business. It was
ruled that these subsidiaries were not American and thus could not
qualify for a project financed 100 percent by U.S. dollars. Now, we
are talking about freight that could be maybe $20 or $30 million.
That's $20 or $30 million of U.S. funds that would be funneled out-
side of the United States. Whereas, I believe we have to have a selfish
motive, if Exim is financing, well, then, we, in-America, want the
.benefits of that funding and that financing.
In the case of just getting the money for the product, yes, it helps
us to that extent. We are paying for it. It's our money. We are lending
money at a very low interest rate. But, why siphon off? Why allow
millions to go the trade route? We are talking about one project here.
Maybe the trade was $100,000 or a few hundred thousand, but actu-
ally, under the finance programs of Exim, we are talking millions and
.millions of dollars worth of freight as can be attested to by Lykes
Bros. And, this is all Washington money.
So, all I'm saying, it will siphon off further dollars away from our
already ailing dollar. And, yet, all our Americans are competitive in
the same project when Eximbank finances.
Representative LONG. But it's only among Americans that we are
competitive. I mean, because of the fact that others are able to
Mr. Rusovrcx. No, sir, Mr. Chairman, that is not so. Because, if the
Eximbank funds a project
Representative LONG. I'm speaking of world trade in general. I am
not just referring to American competition, but of export projects such
as the one Mr. Guerra was talking about.
Mr. RusovrcH .. Mr. Chairman, the only instance where this applies
is where you are forced to use a U.S.-flag carrier or 50-percent bot-
toms is where the U.S. Government is involved.
Representative Lorro. I realize that. And, as I said, I supported
that legislation. And, I think it's absolutely essential that we maintain
a domestic maritime industry. I am a strong supporter of that
proposition.
""That we are doing here is exploring the possibility of finding some
other way of maintaining that industry, of keeping that industry
healthy, which is absolutely essential, if for nothing else than for the
military security of this country. In my opinion, if you want to bring
it down to the bottom line
Mr. RusovicI3. Yes ; no question.
Representative LONG. It is absolutely essential that we maintain the
industry. What I am trying to explore is how we could do that and
allow Mr. Guerra and the small companies that are similar to his to
move into this .market, to be able to meet the competition.
Mr. GuFRRA. If we were competing only against other American ex-
porters shipping with U.S. bottoms with the same U.S. bottoms re-
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quirement, we don't have a problem, there. But, in this case, I am in-
volved in identical negotiations with the one I previously cited where
if we lose the business, we lose it, not to an American, but to a French-
man. That's the situation we are up against.
Representative LONG. Mr. Flammang, do you have any comments?
Mr. FLAMMANG. I don't see any reason why the subsidizing of the
American shipping industry should have to come to the expense of the
American shipper. I mean, a subsidy, itself, could be borne by the
general public out of
Mr. GuEJutA. Taxes.
Mr. FLAMMANG [continuing]. Taxes. And, Exim could still have the
requirement that you have to ship in American bottoms, but the Amer-
ican bottoms could presumably price in competition with foreign ship-
pers. If there were a general subsidy program adequate for it, that
is.
Representative LONG. I, for one, am very reluctant to depart to a
subsidy program. I assume that Mr. Rusovich would be very reluctant
to pursue such a policy. No one has come up with one in the Congress,
and I know there has been no exploration of this that has been accepta-
ble to me, and that's consequently the reason I have supported the
measures that I have. I appreciate your point of view on it.
Mr. Parrott.
Mr. PARROTT. In all fairness to Exim, let's remember that this re-
quirement only pertains to those portions of the program where they
are directly funded. A large substantial portion of our financial guar-
antee, our institutions, our commercial banks and other entities, do not
require funding and do not require compliance.
Representative LONG. Well, of course, I think all of us know we have
other cargo preference problems that do relate to other things other
than those directly financed by Exim. As I said, I have supported our
current bottoms requirements. I am not completely happy in having
done so, but I do it because of the fact that it's one against the other.
And, I think the importance of it is the maintenance of a domestic
shipping industry.
Mr. Flammang, I was very much interested in your proposal that
maybe we should take a leaf out of the Japanese book and design some
of our products for the foreign market including simple, low-cost, low-
technology types of things for the developing world or for the world
poor. Have you given any detailed thought to that, as to what might
be some specific types of items that might be appropriate?
Mr. FLAMMANG. Well, I can cite 'a number of cases of simple prod-
ucts that have gone over well, although none that, we have designed, to
my knowledge, in the United States. There is a hand-powered wheat
thresher that is used in some countries. It doesn't require local elec-
tricity or internal combustion engines. There are hand-powered wash-
ing machines, I understand, that are used in rural areas of Mexico.
There is a bullock, or water-buffalo-powered generator in use in India.
There's a bamboo irrigation pump in use in the Philippines. Now, these
are not necessarily the kinds of things I would expect that we would
have great initial success with, because we would literally have to start
our production and marketing efforts from scratch by visiting the
countries in question and seeing what the local environment looks like
and what the really crying needs of the people are.
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58
One of my students got all enthused last spring when I told him
about the lack of suitable containers for carrying water in some
countries. Some people even use old Jerry cans, gas cans, and stuff
like that for hauling water around. He decided he was going to make
a fortune by selling buckets in Africa, Asia, and so forth. It is a rela-
tively simple item.
Of course, not all such products have to be low-technology in nature.
You will find little hand-held calculators in use throughout the rural
areas of almost any poor countries. They are relatively cheap, but they
substitute for the need to string an electrical line to run a cash register.
So people may use a cigar box and the hand-held calculator together
as a cash-register substitute.
It's going to take a combination of inventive skill and innovative
skill to find these items, but I am not saying that we don't already
produce many of them. In fact, we produce a lot of them. My objec-
tion, however, is with the type of thinking we have in this country.
We don't really try to simplify things. It seems like our whole thrust
in the area of technology is to be bigger and faster and more expen-
sive, and that approach just about squeezes us out of every market
except other rich country markets that are much like our own.
I once read a statement that said that the real genius is the one who
can simplify things. I think maybe we have some real geniuses in
this country, if we can point our thinking in the direction of making
things simpler, smaller, and less expensive.
Representative LONG. 'Certainly that's been true in a number of
fields. In the military field-as for airplanes or carriers. or whatever-
as the technology has advanced and become more complicated and
more diversified, the cost of particular items has increased geo-
metrically. I think that is also true of our general economy, and the
general industrial development as a whole. And, I certainly agree with
you.
The one thing that Professor Flammang mentioned, if I recall cor-
rectly, that we are going to be in a position to cast a vote on in the
relatively near future is a proposal similar to what the Japanese have
with their Ministry of International Trade.
Mr. FLAMMANG. Uh-huh [indicating an affirmative response].
Representative LONG. Currently before the Congress, we have a pro-
vision, or at least a proposal, to establish 'a U.S. Department of For-
eign Trade. Who has a view on this from the various perspectives
represented here today?
Mr. FLAMDIANG. I am all for it. I think that if you are talking about
making export policy more coherent and raising the level of awareness
of the American people of the importance of international dealings in
general, then we shouldn't hesitate to create a Department of.Foreign
Trade. After all, when energy became of prime importance to us, we
didn't hesitate in creating a Department of Energy.
Generally, I am reluctant to speak in favor of adding. something to
what's already large in the way of bureaucracy, but I wonder if there
wouldn't be some merit in this idea. I don't know. The various coordi-
nating committees concerned with international economic policy don't
seem to be able to do the job.
Representative LONG. Mr. Arellano.
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Mr. ARELLANO. I would have to disagree respectfully with Mr. Flam-
mang. Unfortunately, any time you create a bureaucracy they've got
to do things in order to be self-fulfilled and to feel that they are earn-
ing a paycheck. And, the "doing of things" is precisely what I think
is wrong with an awful lot of what we are trying to accomplish right
now. We have too many people doing things in Washington
'Representative LONG. That don't need being done.
Mr. ARELLANO. That don't need being done. I would hope that we
would move in a different direction, Mr. Chairman, and that is to
loosen the fetters that tie down and make it difficult to do business
abroad. I am very skeptical that another bureaucracy wouldn't just
add more.
Representative LONG. Well, I think it was perhaps Mr. Parrott who
mentioned the problems that companies trading abroad have when
they deal with our diplomatic missions and the commercial attaches
of those diplomatic missions in foreign countries. I know that I have
received numerous complaints about the missions. Some constituents
complain that commercial-that they felt officers seem to feel if they
are particularly helpful that this might be interpreted as favoring one
company over another company. Consequently, according to the com-
plaints, they take the easy, bureaucratic way out and end up handing
yon a, pamphlet and showing you to the door.
In my opinion, I think the other thing that needs to be
Mr. PARROTT. Well, the point I made the last time, and the question
that you just raised on the Department of Foreign Trade, though, I
don't think really resolves that issue. You have gone back and forth
on whether the commercial attache is State or Commerce. When he's
Commerce, he's an outsider. When he's State, he's back into the situa-
tion. And, you really, by putting a third entity in there, I don't think
it necessarily simplifies
Representative LONG. You might be complicating it
Mr. PARROTT. You might be complicating it even more.
Representative LONG. It's a real danger, and this often happens. If
we could be sure that we were going to get a complete new approach
and a new attitude toward the problem then I think perhaps all of us
might be more favorably inclined toward a new Department.
11 fr. GUERRA. I think the priority is to find the same staff, the same
organizations that now exist and can handle it, and I ive you a case
in point. We didn't have a human rights bureaucracy in- the State De-
partment the way it is now established, taking over one whole floor of
the State Department. Something like that. And, the priority was
established on human rights, and look at all the poor people that
focused on that. We can do the same thing with export promotion.
Mr. PARROTT. Commerce has had these on numerous occasions in the
past, the apparatus and field offices, and in all due respect, at this
time
Representative LONG. I have been in some of the commercial offices.
But, again, it's basically an attitude problem, I'm afraid. At least,
from my very limited experience in this field of just going into them
when I have had an opportunity to go abroad, and from the experi-
ence I have had with constituents who have attempted to deal with
them.
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Mr. Rusovica. Mr. Chairman, if that subject is concluded, may I
go back into another subject?
Representative LoxG. Surely.
Mr. Rusovicx. I understand the need to talk about these things, and;
I certainly agree that there are things that should be done, and they
are in order. But, I am a realist, and I like to deal with immediate
problems. I am a, businessman. I see the situation, I see the way the-
situation is going nationally and internationally with the dollar.
I see the U.S. exports falling off. I see the imperative necessity of'
rebuilding drastically, immediately our export trade, and I really
would urge again the reenactment of section 911 and officially state'
that the facts and statistics that I suggested earlier, that is that the
American foreign contractors are so instrumental in giving strength
to our dollar today, unbeknownst to many in Washington, but I have
discovered that they don't realize that there is $30 billion worth of
back orders in the United States today with major American con-
tractors. And, this is as of the moment, $30 billion. We lost about $20?
billion to our competitive nations over the last year because of various
Washington policies.
So, certainly from the point of the trade mart and the city of New
Orleans as a world trader, I would urge the reenactment of section 911,.
giving the American corporations that are doing work overseas, the.
necessary tax advantages to be internationally competitive. This in-eludes the major U.S. contractors and oil companies who are generat-
ing fantastic business for the United States. I just don't carry those.
statistics with me at the moment-I do have them in my office-
reflecting just how much they do contribute to dollar return, to a
recycling of the petrol dollar, and these contractors are beleaguered'
at this moment.
Right here in Alabama, they are struggling with a $3,500 million'
contract. They don't know what they can do with it at this moment,
because they don't know how to structure the tax situation for their-
people. And, California-Bechtel Corp., as you know, they have been-
having a lot of problems, a $7 billion backlog. Flour Corp., a $4
million backlog. These are all of our front people. And, the major
oil companies putting up petro-chemical plants all over the world.
Why doesn't Washington understand that? I don't understand..
Every Congressman and Senator I meet, for the most part, are charm-
ing, intelligent gentlemen, including your 'good self, Mr. Chairman..
And, I know that you are on our side, and you understand what we
are saying here, and you are trying to promote world trade. But, what
I really don't understand is how these gentlemen can sit up there
ignoring; all the facts of the dollar.
You take the U.S. Army Corps of Engineers, when the boycott
legislation was going on, Washington apparently was not aware that
the U.S. Army Corps of Engineers were the consultants for the Saudi
Arabian Government to the extent of $15 billion right now. They are
placing orders as consultants. They are writing the contracts. And,
here was the U.S. Government taking a position against U.S. private'
enterprise and business when a branch of the U.S. Government was'
deeply involved in Saudi Arabia. But, that wasn't even mentioned..
I'm glad it wasn't, because that would have done even more damage...
I just want to reiterate that point, Mr. Chairman.
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Representative LONG. What we are attempting to do, as I have
.stated twice before, is to get more discussion started on the problem
-of exports, more education on the subject, and more recognition of
,the problem. I find that many Members of Congress who are edu-
-cated, intelligent, well-intentioned, and hard-working people simply
-do not have a full understanding of this problem, primarily because
,of the press of so much other legislative business.
I happen to be from an area that is faced with a particular prob-
lem, and that consequently understands it. We're hoping we can do a
-little bit of an educational program in this respect, because we have
had very little success so far in moving in this direction. We must
,evaluate export policy in a comprehensive fashion, including a recon-
.sideration, as you point out, of the Internal Revenue Code and its
-application to the people doing business abroad. And it's got to be
done soon. We really can't afford much more time to investigate.
l agree with you completely in that regard.
I would like, if I may, to impose upon you gentlemen a bit further
by asking if we may submit additional questions to you. We are
attempting a comprehensive study, and it's impossible to cover all of
the questions today. I think we have had a stimulating discussion.
I know that I have profited by it, and I hope that you have. I think
-our audience has.
On behalf of the Joint Economic Committee, I would like to
express our appreciation to you for taking the time to prepare your
testimony here today, and for taking the time to be with us. Thank
you very much.
[Whereupon, at 12:45 p.m.. the subcommittee recessed, to recon-
vene at 10 a.m., Friday, September 29, 1978.1
[The following written questions and answers were subsequently
supplied for the record:]
RESPONSE OF HON. RICHARD ARELLANO To ADDITIONAL WRITTEN QUESTIONS POSED
BY REPRESENTATIVE LONG
Human Rights and Export Promotion
Question. When and in what manner should we restrict trade in the pursuit of
-human rights in foreign countries? How much export trade has been foregone in
pursuit of the Administration's human rights program?
Answer. When we pursue our human rights policy objectives in a country, the
State Department uses the full range of policy instruments at its disposal. At
the same time we remain sensitive to our other legitimate foreign policy objec-
tives. In this regard we are guided by the President's objectives of promoting
U.S. exports as recently announced in the National Export Policy. We pursue our
-human rights policies through demarches, public speeches, foreign assistance.
policies, multilateral initiatives, etc. When considering which combination of the
-various policy instruments at our disposal to utilize, we consider how effective
our actions are likely to be, given the differing nature of our various bilateral
relations.
As a general rule we do not interfere with the commercial transactions in
pursuit of our human rights objectives, because in most instances we do not be-
lieve that it is likely to effect change in a country's human rights situation. This
is particularly true if other supplier countries stand prepared to supply goods or
financial services that we fail to provide.
During the past year we have complied with the spirit and letter of PI.-95-143,
which required the "taking into account" of human rights concerns by the Ex-
Im Bank. In the cases of only a few countries has the Department advised the
Ex-Im Bank not to proceed with a transaction at a particular time because of
Duman rights concerns. These occurred in countries with continued and serious
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violations and only in conjunction with the use of the full range of political and
diplomatic tools available to us.
The President's National Export Policy states that it is important that both
the private sector and federal government place a higher priority on exports.
It directs the Departments of Commerce, State, Defense and agriculture to take
fully into account the consequences for U.S. exports when considering the use of
export controls for foreign policy purposes, and to give weight to whether the
goods in question are also available from countries other than the United States.
The amended Ex-Im Bank Act (H.R. 14279) contemplates that human rights
will still be a factor in Ex-Im Bank activities. It states, "Only in cases where the
President determines that such action would be in the national interest where
such action would clearly and importantly advance United States policy in such
areas as international terrorism, nuclear proliferation, environmental protection
and human rights, should the Ex-Im Bank deny applications for credit for non-
financial or noncommercial considerations." We believe that our policy actions in
this area are consistent with this legislation.
In a very few countries the State Department has advised Ex-Im not to go
forward with a particular transaction at a particular time. In some cases the
State Department subsequently advised Ex-Im that the situation had changed
and that we no longer had any objection to Ex-Im considering a particular. re-
quest. Ex-Im Bank's ultimate disposal of any of these cases is difficult to attrib-
ute to any one factor. Sometimes Ex-Tin might not have gone forward with a
given proposal for other reasons, primarily financial.
With regard to military sales and commercial sales of Munitions List items, a
wide Variety of factors is studied before any given sale is approved or denied.
Regional considerations such as potential for conflict, impact upon the region,
ability of the recipient to absorb the equipment, ability to pay, as well as human
rights are given full consideration in each instance.
Concern for human rights has always been a vital factor in our decisions. Be-
ginning in 1976, legislation has further defined this aspect of arms transfers.
We have not, as a matter of policy. approved transfers to police forces and sim-
ilar organizations that have been involved in abuse of human rights. In certain
instances transfers to military forces so involved have also been proscribed. As
you know, the recently enacted International Security Assistance Act of 1978
amends Section 502B (a) (2) of the Foreign Assistance Act of 1961 by adding
that "Security Assistance may not be provided to the police, domestic intelligence
or similar law enforcement forces of a country, and licenses may not be issued
tinder the Export Administration Act of 1969 for the export of crime control and
detection instruments and equipment to a country, the government of which en-
gages in a consistent pattern of gross violations of internationally recognized
human rights unless the President certifies in writing to the Speaker of the
House of Representatives and the Chairman of the Committee on Foreign Rela-
tions of the Senate that extraordinary circumstances exist warranting provision
of such assistance and issuance of such licenses." On the other hand, sale of
weaponry for commercial resale in the civilian markets generally has not been so
constrained since has little or no impact on human rights.
Exports of agricultural goods under Commodity Credit Corporation loans have.
been less affected by human rights considerations. since these loans are made on
a commercial basis and are primarily to support U.S. farm sales. CCC credits
have been denied on human rights grounds in two cases in the hemisphere (on
wheat to Chile-$10 million in November 1977, $25 million in June 1978). In
two other instances involving Chile and Uruguay credits were approved ($48
million. Chile, wheat, April 1977: $4 million, Uruguay, potatoes, June 1978).
The PI.-480 program, in contrast, while also aimed at assisting American
agricultural exports, is primarily concessional and accordingly subject to social
criteria such as recipient country per capita income and human rights. The hu-
man rights criterion was explicity stated by Congress in PL 95-88, an August
3, 1.977 amendment to the Agricultural Trade and Assistance Act. There are,
however, no export losses under PL-480 attributable to human rights considera-
tions. Since there is only a finite and limited amount of PL--480 funds appropri-
ated. any decision not to loan PL-480 to a country with serious human rights
problems would leave the same funds available for later loans to countries. with
better human rights observance.
We cannot estimate how much trade has actually been foregone) in the pur-
suit of human rights objectives. There may have been potential applications for-
U.S. government financial assistance which were not filed because of a supplier's
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knowledge that Ex-Im Bank or other support was not available to a specific
country.
We hope that a general improvement in specific human rights cases will allow
us to arrive at determinations favoring financing in situations which have been
difficult in the past. Our review process is a dynamic one which will consider
changing circumstances with regard to individual cases.
The Department of State shares Congress' interest in encouraging U.S. ex-
ports. It has been a rarity for exports, other than military or police goods, to, be
affected by human rights restrictions. This will continue to be the case.
Department of State and Trade Promotion
Question. Should State retain the responsibility for U.S. commercial officers
overseas? Has the State Department increased its commercial emphasis in the
last few years? Have the promotion prospects for State Department commercial
officers improved? Have they begun to rival those of the political officers?
Answer. The Department of State in its overseas support of the commercial
program attempts to respond to the needs of all American firms seeking assist-
ance. As a practical matter, however, it has been our experience that small
firms-especially those new to a foreign market-are more likely to seek the
assistance of our posts abroad than are larger, more experienced firms.
While the Department of Commerce has the primary responsibility in the U.S.
for maintaining the grass roots contact with American industry, our industry
utilizes the Embassies and Consulates for assistance with their foreign trade
promotion efforts. Foreign Service commercial personnel regularly visit Depart-
ment of Commerce District Offices and, through these offices arrange to meet
with American firms, many of which may be small and new to exporting.
Since the 1972 decision by Under Secretary of State Irwin laid down guide-
lilies giving high priority to the export promotion programs of the Department,
we have consistently provided a high level of support for U.S. exporters and busi-
nessmen abroad. More recently, in response to the National Export Policy Task
Force recommendations we have already budgeted for 20 additional commer-
cial positions targeted on high priority markets in the Mid-East. Taken at a
itme when the State Department was forced to make severe cuts in many pro-
grams, this step illustrates our continued attention to our trade promotion
PERSONNEL POLICY
In the past five years the Department of State has made major efforts to im-
prove its economic and commercial capabilities to servei the American business
community more effectively.
A comprehensive program to improve the quality of Economic-Commercial Offi-
cers has been initiated.
We have stepped up recruitment in business #chools, have set much higher
targets for the intake of Economic-Commercial Officers than for other major
groups and have examined more carefully for professional competence in these
areas. An adequate number of well qualified Economic-Commercial Officers is
now being recruited and selected into the service.
We have expanded our exchange program with the Department of Commerce
and our interchange with private industry.
Our training programs have been improved and enlarged. Since 1.972 more
than 300 officers have attended our special six-month intensive economic-com-
mercial course (which was expanded by four weeks to include more commercial
material). We now send approximately ten officers each year for advanced uni-
versity training in economic-commercial specialties. Market research seminars
and general economic training for non-economic officers are being held abroad to
upgrade economic and commercial capabilities. Foreign Service Institute train-
ing for the commercial function adequately prepares FSOs to carry out effec-
tively their commercial responsibilities.
Our staffing and assignment policies have been revised to focus on an inte-
grated approach to economic-commercial work to assure that a broader spectrum
of officers gain experience in all related fields and to make these officers more
competitive for senior positions in the Foreign Service. The results of this con-
centrated effort are by now apparent. Real progress has been made in filling
a number of senior positions with officers experienced in economic-commercial
work.
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Promotion data for the years 1972 to 1976 indicate that Economic-Commercial
Officers overall had generally faster promotion rates than other Foreign Service
functional groups. The average age and average time in class of economic-
commercial promotees in 1976 was lower than that of other Foreign Service
specializations. Career integration is widespread. Two out of three Economic-
Commercial Officers have experience in both economic and commercial work.
FSOs with an integrated economic-commercial career pattern have fared better
in terms of promotions than either "economic" or "commercial" specialists.
We continue to work closely with the Commerce Department, which plays an
integral role in all major aspects of personnel management through membership
on the policy level of the Board of the Foreign Service and the Board of Exami-
ners and through active, direct involvement in our entry programs, in our assign-
ments process, in our promotion boards and in the Foreign Service inspection
process.
The success of the major efforts made in this area has been recognized by the
January 1977 Joint State/Commerce Evaluation Report which documented the
Department's recent actions and the many concrete accomplishments achieved
since 1972.
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. EXPORTS: TIME FOR A NATIONAL POLICY
FRIDAY, SEPTEMBER 29, 1978
CONGRESS OF THE UNITED STATES,
SUBCOMMITTEE ON INTERNATIONAL ECONOMICS
OF THE JOINT ECONOMIC COMMITTEE,
Washington, D.C.
The subcommittee met, pursuant to recess, at 10 a.m., in room S-
207, the Capitol, Hon. Gillis W. Long (cochairman of the subcom-
mittee) presiding.
Present : Representatives Long and Daniel, and Senators Spark-
man and Javits.
Also present : Louis C. Krauthoff II, assistant director; Kent H.
Hughes, Katie MacArthur, William D. Morgan, and Pella Pompier,
professional staff members; and Robert H. Aten, Charles H. Brad-
ford, and Stephen J. Entin, minority professional staff members.
OPENING STATEMENT OF REPRESENTATIVE LONG, COCHAIRMAN
Representative LONG. The hearing will come to order.
Since everyone is operating under a limited time schedule, we will
proceed a little bit out of order. I have a short opening statement. I
don't think it will take more than 5 or 6 minutes, and then, since Mr.
Weil has been head of the task force, we will ask him to give 2 or 3
minutes of an overview. Then since Mr. Bergsten has an appointment
that he changed specifically to be able to be here with us today, we
will move immediately into his testimony. Finally, we will go into a
panel discussion with our other witnesses, if that meets everyone's
approval.
First, as I think all of us know, the national attention has begun to
focus on the need for a strong U.S. export policy. The very size of
our trade deficit has been cause for concern. In part, the weakness of
the dollar in international currency markets can be traced to the trade
deficit. And in turn, the yearlong decline of the dollar has added to our
inflation problems and created the kind of uncertainty that slows world
growth. For Germany and Japan, two of our leading trading part-
ners, the dollar has dropped so rapidly in value that they face painful
adjustments in their export industries.
The magnitude of our trade deficit has also put pressure on fiscal
policy and contributed to the large Federal deficit. A strong export
policy could help reduce the trade deficit, and make a substantial con-
tribution toward bringing the budget deficit under control.
Greater emphasis on exports becomes even more vital in light of the
apparent increase in the importance of imports in the American econ-
omy. A national energy policy and the depreciation of the dollar may
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reduce the growth of imports, but for the foreseeable future the
United States is going to become more dependent on imports than at
any other time during the post-World War II era.
Although the first U.S. trade deficit was recorded in 1971, the trend
toward a deficit had been apparent since the early 1960's. For years,
overseas profits from U.S. investments and the sale abroad of U.S.
technology and services brought the United States a substantial sur-
plus on current transactions with the rest of the world. Profit remit-
tances and the sale of technology and services are still strong cards in
the international hand of the United States. They offset about half the
1977 trade deficit and kept the U.S. current account deficit at the $15
billion level. Two recent developments, however, suggest that the serv-
ices side of U.S. current transactions may also begin to weaken. First,
foreign governments now control substantial holdings of U.S. Treas-
ury securities. Interest being paid on those bonds will be a further
drain on the U.S. current account. Second, more and more foreign-
based companies are establishing operations in the United States.
When dividends from the investments start to flow home, they will
offset American earnings on her oversea holdings.
Imports now account for a much higher percentage of U.S. gross
national product. By all indications, the United States will be gen-
erating smaller surpluses on the services side of the current account.
The spotlight is squarely on U.S. export performance.
I think we all have to conclude that in-recent years that performance
has not been good. Part of the problem lies in slow growth rates over-
seas. About 40 percent of our manufactured exports consist of ma-
chine tools and other capital equipment. Slow growth economies do
not provide good markets for capital equipment.
There is also considerable evidence that we have simply been priced
out of some markets. High rates of domestic inflation, low produc-
tivity growth and Japanese intervention keeping the value of the yen
down, have all played it part.
In the Congress and the country, there is a growing suspicion that
there is yet another answer, and that is the one we are addressing here
today : We simply have not been emphasizing exports enough:
For many years, the United States has been a "better mousetrap"
country, relying on superior technology to draw the world to her
export door. That policy is obviously no longer enough.
Export promotion is not a substitute for controlling inflation, or for
a national energy policy. Nor is it any reason to stop pushing either
better mousetraps or less expensive ways to make them. But for
America, an improved program of export promotion appears to be a
necessary fact of economic life.
Tuesday, the President announced the first phase of the administra-
tion's new export policy. To my mind, the single most important fea-
ture of the new policy is the clear commitment to give exports a much
higher national priority.
There is also much to be praised in the specifics of the President's
plan. With my home State of Louisiana heavily involved in agricul-
tural trade, I was pleased to see that the President had not neglected
the potential for boosting our agriculture exports. There are several
other attractive aspects of the President's program-a sharp increase
in funding for the Export-Import Bank, a targeting of $100 million in
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SBA loans for small business exporters, and streamlined export pro-
cedures throughout the Government.
However, several potential features of an effective export policy-
among them tax incentives, amended antitrust laws and clarified anti-
boycott provisions-were not included in the first phase of the Presi-
dent's proposal. I am particularly concerned about the lack of specific
tax initiatives. The administration did propose some changes in the
taxation of the foreign earned income of overseas Americans, but has
not been active in seeking an agreement with the Congress. Largely
in the absence of administration participation, first the Senate, and
more recently the House, have. passed their own measures.
This morning we have an opportunity to discuss the details of the
President's plan with the principal architects of the new export policy.
We are very pleased to have with us this ,morning Frank Neil, Assist-
ant Secretary of Commerce for Industry and Trade and the head of the
Executive Committee of the Task Force on Export Policy; C. Fred
Bergsten, Assistant Secretary of the Treasury for International Af-
fairs; Julius Katz, Assistant Secretary of State for Economic and
Business Affairs; G. Edward Schuh, Deputy Assistant Secretary of
Agriculture for International Affairs and Commodity Programs; and
John Moore, President and Chairman of the Export-Import Bank of
the United States. Mr. Moore has an appointment and is due here
shortly.
We have with us Congressman Dan Daniel of Danville, Va. He is
chairman of a Special Subcommittee on NATO of the ITouse Armed
Services Committee, and is particularly interested in this new export
policy and how it is going to affect our NATO allies.
Dan, we are happy to have you with us.
Representative DAN DANIELS. Thank you, Mr. Chairman. I am glad
to be here.
Representative LONG. Senator Sparkman, do you have anything you
want to add?
Senator SPARKMAN. I don't see how I can add anything to that fine
opening statement.
Representative LONG. I want to thank all of you gentlemen for push-
ing our hearing into your hectic schedules. I know Mr. Weil had an-
other congressional appearance this morning and is off to Japan
tomorrow. Mr. Bergsten is in the midst of some international negotia-
tions. John Moore has been caught with another appointment and will
be joining us in a few moments. Thank you all again.
Mr. Weil, if you would, give us an overview for 2 or 3 minutes,
recognizing Mr. Bergsten's time limitations.
STATEMENT OF HON. FRANK A. WEIL, ASSISTANT SECRETARY OF
COMMERCE FOR INDUSTRY AND TRADE
Mr. VEIL. I am happy to be here. I am not sure I can add to your
overview.
We welcome the opportunity to be here and discuss the policy the
President announced on Tuesday. I would like to keep my remarks
brief, because I know Mr. Bergsten has an appointment elsewhere.
To make two or three general comments : As you observed, one of
the premises on which this export policy was based is that there has
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been increasing evidence in recent years that price alone is a less
important part of the selling equation in the world at large. Not that
it is unimportant, but it is less important.
For that reason, we began with the premise that we could not rely
entirely-as we have in recent years-on the price adjustments that
take place under the floating exchange rate system.
Putting it another way around, as we used to say on Wall Street,.
"You don't get the order at any price if you don't ask for it." The-
United States has been a country not inclined, fora variety of his-
torical reasons, to ask for the order. We were not an importing nation,.
and did not feel the need to be an exporting nation.
Interestingly enough underneath the cover of the significance of
our oil imports, which in fact is a major part of our problem, we have
had a serious deterioration in our nonagricultural, nonenergy trade
balance in the last 3 years. We have gone from a surplus in that trade'
balance 3 years ago of $13 billion to a surplus last year of $3 billion.
This year, so far, we are running at an annual deficit in that balance
of about $9.3 billion. Thus, even during a period when we are getting
price advantages, we are losing our share of world markets.
Another way to put it is that if we had had the same share of world
markets in 1977 as in 1974, our exports would have been $14 billion
higher. In viewing the new program, some of the people that see the,
problem feel that we haven't addressed adequately their concerns..
It is like the three blind men and the elephant-big companies, medium
companies, minority companies and the like-all view the problems
differently. In the policy we try to address as many of their concerns:
as we can.
We also try to do this in a way that doesn't cost a lot of money. The,
historical approach of throwing money at a problem to solve it is'
simply not going to work today. We have tried to find ways to address
the problem, without great cost.
This current effort began on April 11, when the President formed
this task force with ,Secretary Kreps. We were a little late in forward-
ing our recommendations and the summer holiday slowed us down-a
little more. But we found that what we had worked. on was not that
different from what had been worked out four times previous to this
effort. Hopefully, this program will have a more sustained push behind
it, because, unhappily, the problem is more likely to be a lasting one'
than it has been in the past. Very quickly, in the program we will
increase Government support in the various ways the chairman
mentioned.
We will also attempt to get better balance in those governmental
activities which have been a drag on exports in terms of our domestic
regulatory processes, as well as the application of foreign policy
concerns.
This does not mean we will be any less concerned with safety, human
rights and the like. But we want the decisionmaking process to reflect
the new concerns for our trade balance, the dollar, and inflation.
So the overall program is an effort to bring better balance into the
Governmental process. We have been asked a number of times which,
of the various measures in the program, are the most important. I have
said on numerous occasions that it is a little like asking parents which
of their seven children they love the most. It is a question you can't
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give an answer to. I have never seen a table with four legs stand with
give
on less than four legs. Yet, I think the most important part
is what the chairman mentioned-raising the priority of exporting.
In the Ways and Means Committee, it was reported over the year that
trade was priority No. 999. Some of the members thought that was
too strong a statement, and it was revised, to 997. [Laughter.]
Representative LoNG. We would like to put your prepared statement
in the record and have a roundtable discussion a little later.
[The prepared statement of Mr. Well follows:]
PREPARED STATEMENT OF HON. FRANK A. WErL
The Problem
In 1977, the United States suffered a record $31 billion trade deficit. Recent
monthly figures suggest improvement but large deficits may persist. Although
it will take some time to correct this situation, the message from the exchange
markets is clear : we must act now in a forceful and decisive fashion to reduce
these imbalances. We are moving to restore the value of the dollar on several
fronts. At the same time, we must address the basic causes of the deficit.
Oil imports are, of course, a major factor contributing to this deficit. A com-
prehensive energy program is needed to deal with this situation. At the same
time, we must remedy another fundamental trade problem-one that is often
overlooked when we evaluate our overall trade position-slow export growth and
it deteriorating U.S. position in world trade.
Adjusted for inflation, real U.S. exports have shown virtually no growth in
,more than three years. Our competitors, by contrast, have managed a real export
growth rate of nearly 4 percent a year despite slow worldwide economic growth.
Consequently, the United States has been losing its share of world markets. Had
we maintained the same share of industrialized country exports that we had in
1974, our 1977 export level would have been $13 billion larger.
The problem is particularly severe for manufacturers, which constitute two-
thirds of our exports. Last year, the volume of agricultural exports was up 16
percent from 1974. At the same time, the volume of U.S. manufactured goods
exports has fallen since 1974. In 1976, we had a $12 billion surplus in manu-
factures trade. That fell to a $3 billion surplus in 1977.. So far in 1978, manu-
factures trade is in deficit at an annual rate of $9.3 billion, although the deficit
may be somewhat lower as a result of the recent improvements.
Of course, the present depreciation of the dollar will increase the competitive-
ness of our exports and thus, over time, help to increase our export sales. The
upturn in the economies of our major trading partners will also increase our
opportunities for sales. Nevertheless, export growth is unlikely to be fast enough
in the future unless we address the fundamental problem-an indifference in
this country toward exporting.
Historically, exports have been accorded a low priority by business and gov-
ernment. This must be changed. We must make exporting a national priority.
On April 11, President Carter directed Secretary Kreps to chair an inter-
agency task force to develop recommendations on measures to increase U.S.
exports. The initiatives which President Carter announced on September 26 can
lead to greater export growth and, in so doing, enable us to fulfill the interna-
tional commitment the President made in Bonn to improve our export per-
formance. These initiatives are the first step in a long term process. We do not
claim instant solutions. It will take time to change old habits.
Increased Government Support
The first set of measures which the President has Initiated provides more and
improved government support both for existing exporters and to encourage new
exporters, particularly small and medium sized firms. By helping to overcome
market impediments-lack of information, specialized financing needs, etc.-
we hope to encourage companies to take advantage of our recently enhanced
'export price competitiveness. Our aim is not to thwart the free market, but to
make it work more effectively.
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Export Financing.-Financing can be a critical factor in making export
sales. The Export-Import Bank will be directed to take steps to become more
competitive, consistent with our international obligations, through increased
flexibility in a number of areas, including interest rates, length of loans and
the amount of a transaction financed. To provide muscle for this move,
the President will recommend to the Congress that the Bank's lending level
in FY 1980 be raised an additional $500 million to $4.1 billion, up from $3.6
billion in FY 1979, and only $2.9 billion in FY 1978. The FY 1977 lending
level was on $700 million. In addition to controlling the problem of excessive
competition in export financing terms, the President has directed the Secre-
tary of the Treasury to undertake consultations with our trading partners
to expand the scope and tighten the terms of the existing International
Arrangement of Export Credits.
Small Business Loans.-To meet the special problem of small exporters,.
the Administrator of the Small Business Administration will be directed to
channel to small business exporters up to $100 million of its current authori-
zation for guaranteed loans. Small exporting firms meeting SBA's quali-
fications will be eligible for loan guarantees totaling up to $500,000 to meet
needs for expanded production capacity and to ease cash flow problems in
volving overseas sales or initial marketing expenses.
Export Assistance.-Commerce and State export development programs.
will be allocated an additional $20 million.
These additional resources will permit the development of new and ex-
panded efforts to help and assist exporters, particularly small and medium,
sized firms lacking in experience in overseas marketing.
New and enhanced efforts will include :
an up-to-date computerized information system linking Foreign Service-
posts, Washington, and U.S. District Offices to provide American exporters.
prompt access to market opportunities abroad as well as make the vast range
of information currently collected instantly accessible and usable to Ameri-
can firms and potential customers overseas ;
programs to help small and medium sized firms individually and associa-
tions to overcome initial marketing costs and risks through government
sharing of initial marketing costs with repayment tied to export sales ;
intensified limited duration campaigns targeted to expand U.S. exports in
high potential markets ;
targeted assistance to help and facilitate new exporters focusing on high
potential firms and industries with emphasis on the utilization of coopera-
tive efforts with state and local export development organizations ;
expanded staffing in the field and overseas to provide better service to
U.S. firms at home and abroad.
Agricultural Exports.-Agricultural export assistance programs including
the opening of trade offices in key importing nations and support of legisla-
tion to provide intermediate export credit for specific agricultural exports.
These programs supplement multifaceted policies which include funding
increases for the successful cooperator program, sharp increases in the level
of short-term export credits, and aggressive pursuit of an international
wheat agreement.
Reducing the Disincentives
There is a second set of initiatives. Over the past several decades we have, in
pursuit of, many vital domestic concerns, created laws and institutions which
have become, in some respects, a burden to the international competitive position
of some American industries. While we do not want to turn our hacks on those
domestic problems, we can no longer fail to take into account the international
competitive consequences of their remedies. We must reassess these regulations
in light of our record trade deficit and, if possible, reduce these government-
imposed restraints.
The President will direct the heads of all Executive Branch departments
and agencies to review their major programs and procedures, as well as
their major proposed administrative and regulatory actions, for negative
export consequences. The agencies will be expected to report back in three
months on their progress. He will make a similar request of all independent
regulatory agencies. The Council of. Economic Advisors will also consider
export consequences as part of the Administration's Regulatory Analysis
Program. This measure will inject better balance into government decisions
with potentially adverse export consequences.
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The government can help U.S. exporters by not restricting exports un-
necessarily. The President will direct the Department of Commerce, State,
Defense, and Agriculture to take into account export consequences when
considering the use of export controls for foreign policy purposes. Weight
will be given to whether the U.S. goods in question are available from
countries other than the United States.
The Attorney General will be directed to provide guidance to the business
community regarding the application of the Foreign Corrupt Practices Act.
There are a number of grey areas under that important law which must be
clarified if the business community is to conduct legitimate business without
having to be so fearful of prosecution that export opportunities are allowed
to languish.
The Attorney General will also be directed to expedite the Business
Review Procedures already available under our antitrust laws so as to re-
lieve the persistent belief among businessmen that the antitrust laws are a
serious impediment to doing business abroad. The Departments of Justice
and Commerce will work together to clarify and explain the scope of U.S.
antitrust laws in the international area-with special emphasis on the kinds
of joint ventures which are unlikely to raise antitrust problems. Effective
enforcement of the antitrust law is vital to the interests of the United
States. Such enforcement should not be a bar to our competitiveness abroad.
Further, the President will appoint a business advisory panel to work with
the National Commission for the Review of Antitrust Law, which is study-
ing the desirability of expanding the scope of the Webb-Pomerene Act.
The President will sign shorty an Executive Order clarifying the uncer-
tainties surrounding the application of the National Environmental Protec-
tion Act to federal export licenses, permits and approvals. The Order will
exempt from environmental reviews all export licenses and permits other
than those for nuclear facilities. Abbreviated environmental reviews will be
required for exports of hazardous products and facilities and in cases where
federal actions significantly and adversely affect the environment of third
countries or designated global resources.
Followup Activities
While both sets of initiatives will assist private business in increasing exports,
we cannot expect dramatic improvement overnight. Increasing our exports will
take time and require a sustained effort.
To ensure that this problem continues to receive high priority attention, the
President has asked that Secretary Kreps, to direct, in coordination with other
concerned government agencies, the continuation of efforts to improve our export
potential and performance. She will be working closely with a revitalized and
expanded Presidential export advisory body, the President's Export Council,
to insure a continuous flow of fresh ideas into our government policymakin?
process. The President will sign shortly an Executive Order reconstituting the
group as a broader-based organization.
There are a number of hard issues which we must still address, among them,
that of export tax incentives. As the President has said, the current DISC is
an ineffective and costly instrument to promote exports. The DISC should he
phased out or, at a minimum, streamlined to make it simpler, less costly and more
effective. Any export tax incentive must be cost-effective and in full accord with
our international trade obligations and objectives.
We stand ready to work with,the Congress toward that goal. The initiatives
I have enumerated complement other on-going efforts. We have moved on several
fronts already to increase U.S. exports. Our determined efforts in the Dlulti-
lateral Trade Negotiations: our efforts to explore the capital formation and tech-
nological innovation questions which are fundamental to future productivity
growth and export competitiveness: our anti-inflation program and the renewed
efforts at the Bonn Summit to obtain faster economic growth abroad this work
will have an additional, .substantial positive effect on U.S. exports.
Increasing our exports is a major challenge. Better export performance by the
United, States would spur growth in the economy and create jobs. Stronger
exports would help strengthen the dollar and fi -ht, inflation.
Our export problem has been building for many years. These actions are only
the beginning-a foundation-for a new national export policy. They refle^t our
determination to give the U.S. trade deficit the high-level, sustained attention
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72
it neededs. They are only a first step in a longer-term effort toward greater U.S.
export growth.
Representative LONG. Mr. Bergsten.
STATEMENT OF HON. C. FRED BERGSTEN, ASSISTANT SECRETARY
OF THE TREASURY FOR INTERNATIONAL AFFAIRS
Mr. BERGSTEN. Thank you, Mr. Chairman.
What I would like to do is put this particular program into its over-
all context, which will explain why the President personally has taken
such an interest and announced this policy himself, and why it is of
such vast importance to the country in a short run and longer run
sense.
There are two fundamental reasons that the President announced
this policy on Tuesday of this week. The first, of course, is that im-
proved export performance is an integral component of our compre-
hensive effort to strengthen and stabilize the dollar in the foreign ex-
change markets now. The President personally and repeatedly has ex-
pressed his concern about the dollar, most recently before the annual
meetings of the World Bank and the International Monetary Fund
earlier this week.
It is quite clear that a major cause of weakness in the dollar has been
a growing deficit in our current account. We have, of course, looked
at the whole range of options for dealing with the problem of the
dollar. It is clear that each has significant costs, but the most con-
structive on any count is to expand U.S. exports. That is why we have
given it such high priority and the President has addressed himself
to it.
In perspective, it is important to note that recent trends in our trade
balance and the outlook for our trade balance are encouraging. In each
of the last two 3-month periods, the average monthly trade deficit de-
clined by $0.5 billion from the previous 3-month period, which I use
to avoid .monthly aberrations. The average monthly trade deficit has
been declining by $0.5 billion from the previous 3-month period. Back
.in the 3 months ending in February of this year, the average monthly
deficit was at an alltime record high of about $3.1 billion. Then, from
March through May, it dropped to about $2.6 billion a month, and in
the June-August period, it dropped to $2.1 billion.
So it is important to note that there is substantial and steady
progress over the last 9 months to reduce our trade deficit.
For the next year. the current account deficit should continue to
decline as a result of faster growth abroad, somewhat slower growth
in the United States, and the increased price competitiveness of U.S.
goods, reflecting the exchange-rate changes that have already taken
place.
We believe, as Secretary Blumenthal said in his statement to the
IMF meeting, that the current deficit should decline by 30 to 40
percent in 1979 from the 1978 level.
Other observers, such as the IMF. OECD. and Morgan Guaranty,
have all predicted a greater decrease in our deficit, from one-half to
two-thirds next, year. So there is real progress, and that is important
to keep in mind.
tives, for a variety of reasons, despite the recent progress and the out-
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look for more progress. We have to be sure that the present trends are
continued. We need progress beyond what even the most optimistic
numbers. are forecasting for 1979. That is not good enough. We need
to do better.
We have to realize that whatever the outcome in the short run, U.S.
export performance simply must improve over the longer run. That is
the second basic underlying reason for this program.
The external economic position of the United States is undergoing
an important long-run structural change. The sharp increase in our,
dependence on imported oil and, to a lesser extent, other products,
means that the share of imports in our gross national product has
risen sharply. There must therefore be a concomitant rise in the share
of exports in our GNP-where each single percentage point now means
over $20 billion, more than enough to completely eliminate our current,
account deficit even at this year's record level.
The trade deficit, Mr. Chairman, was a long time in the making.
Correction of the deficit will take a long time on a structural and sus-
tained basis. But the clear message, both in the exchange markets and
from our trading partners, is that we must act in a forceful and deci-
sive fashion to do so. The new export policy is an important part of
the administration's response.
The new export policy is an important part of the administration's
response to that problem. As Frank Weil said quite rightly, the United
States has never had.to emphasize exports as other countries have.
Most U.S. manufacturers have been content with supplying the large
U.S. market and have never really focused on exports. Our growing
economic dependence on the rest of the world now dictates that we be=
come more attuned to exports, just as we must learn to use energy
more efficiently and just as some of our major trading partners, notably
Japan, must become more attuned to imports. The measures announced
by the President on Tuesday do not offer a quick fix, for the simple
reason that they address a long-term structural problem and must try
to change attitudes as well as policies for the longer haul.
Over the past two decades, the exports of the United States have
grown at about half the rate of other industrial nations. Our share of
world exports, at a low point in 1972, bounced back some in the next
3 years, but has again fallen back to the lowest level since mid-1972.
There are several reasons for these developments. One is that our
major markets, such as Canada and Latin America, have grown more
slowly than the major markets of some of our competitors, Indeed,
Mr. Chairman, these differential growth rates between the U.S. and
its major foreign markets have cost our trade balance about $10 to $15
billion over the last 3 years. It remains true that only the United
States has reduced its unemployment rate very much from the reces-
sion of 3 years ago. In Europe, Japan, and ?many developing countries
the unemployment rates are higher than they were 3 years ago.
So our market has been growing more ratnidly, whereas our foreign
customers have been growing more slowly. That alone is a major factor
exnlaining our trade deficits in recent years.
Therefore, the increased growth we will get from Germany and
Japan and other countries in the next 18 months is a major corrective
factor. But, of course, it goes beyond that. The dollar exchange rate
strengthened in the exchange markets in 1975 and early 1976, even at a
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74
time when our inflation rate was higher than other countries. That un-
dermined our price competitiveness in the recent past. Given the fact
that those kinds of effects come through the trade balance with a 2-year
by a loss of competitive position in the past. That has been made up,
and a little more, by the depreciation in the recent past.
A third reason we have lost market share is that a number of the
advanced developing countries, the ADC's, primarily in East Asia
have seized a significant share of exports from all the industrialized
countries, including ourselves, and the trade changes in the recent past
are distorting short-run trade shares in terms expressed in dollars be-
cause of the difference in dollars and value calculation.
Having said all that, however, our deep-seated national indifference
to exports, both in the private sector and here in Washington, has
clearly, played a big role. Such an indifference is simply now to costly,
and we can't permit it to proceed.
Mr. Chairman, my second series of comments concerns what it takes
to improve U.S. export performance. We know it requires attention
to many factors, including productivity, price competitiveness, indus-
trial innovation and initiative, and Government policies.
A key determinant of U.S. competitiveness abroad is the productivity
of our domestic economy. Productivity largely depends on new invest-
ment, but in the last 5 years productive capital has been virtually stag-
nant in this country.
The administration's tax recommendations sent to the Congress this
year are designed to stimulate capital formation and national pro-
ductivity.
Another determinant of U.S. competitiveness abroad is the rate of
inflation. Excessive inflation here, particularly by comparison with
Germany and Japan, has eroded our international competitiveness.
The President's anti-inflation program will consist of a broad set of
measures designed to bring down the U.S. inflation rate. As those
measures take effect, our trade position will improve.
The United States has traditionally enjoyed a comparative advan-
tage in high technology exports. To assure that this advantage is main-
tained, we have established a task force to examine both public and
private research and development efforts., The .task force will concen-
trate, inter alia, on regulatory policies that stifle-U.S. inventiveness..
Its proposals will further strengthen our economy at home,and our abil-
ity to meet competition from abroad.
We are also taking important international ,initiatives to improve
U.S. export performance. Trade restrictions -imposed by, other coup=
tries inhibit our ability to export. Tariff, and especially`nontariff, bar-
riers restrict our ability to develop new foreign markets and expand,
existing ones. We have been aggressively attacking these barriers
through the multilateral trade negotiations' in Geneva. We are encour-
aged by the progress to date, and foresee more intense negotiations be-.
tween now and the December 15 deadline.
Foreign governments have increased the financial credits and subsi-.
dies offered to their own exporters, sometimes to the disadvantage of.
U.S. exporters. We have addressed this problem in three ways.. First.
We have negotiated an international arrangement governing. the use
of Government financing of exports. Second, in the multilateral trade
negotiations we are negotiating an international code to. restrict the
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use of Government subsidies for exports, to assure that U.S. exporters
do not face unfair competition. Third, if foreign government competi-
tion in the area of export financing cannot be restrained, we will match
it as needed. Secretary Blumenthal met with the foreign ministers of
each of the other major industrial countries during Monday of this
week, and carried to them specifically the message that the international
credit arrangements have to be tightened and improved in an effort to
avoid excessive competition in this area. We will be pursuing that vig-
orously in the context of the program I have mentioned.
Finally, a point that Frank Weil mentioned : U.S. Government reg-
ulations have also had a negative impact on U.S. export performance.
In order to achieve a varied range of foreign policy objectives, the U.S.
Government has restricted the sales of certain items to particular coun-
tries. These policies have not only reduced. sales directly, they have also
had a chilling effect on other potential sales of unrestricted items.
The United States is training an image of being an unreliable sup-
plier. Foreign purchasers, even though not currently restricted, may
decide to buy elsewhere for fear that they may be cut off in the future.
The new export policy seeks to confine the negative export impact of
other policies to those few cases where vital national interests are at
stake.
In conclusion, Mr. Chairman, let me note that these elements are im-
portant in our efforts to increase exports. They are not sufficient in
themselves because we are dealing with. a structural and to some extent
additudinal problem. America's export priorities must be changed.
In the course of Government policymaking export consequences
are frequently outweighed by other national objectives. Business, as
well, too often places insufficient priority on exporting. Too many com-
panics do not believe that exporting is worth the effort. Both T'.S.
businessmen and the Government need to take a new look at these
changed conditions.
First, changes in the value of the dollar in relation to the currencies
of some of our major trading partners have dramatically enhanced the
price competitiveness of U.S. goods. U.S. manufacturers who may not
have been competitive a year ago may now find they can compete quite
successfully. We are confident the United States is competitive.
Second, it is also true that the wage gap between U.S. workers
and workers in other countries has been closing. No longer is it
cheaper to manufacture many products abroad and import them into
the United States. In Japan, wage rates have jumped from 53 percent
of the United States wage in 1977 to 72 percent in August of 1978.
Wages in Germany are.now equal to or higher than in the United
States for several industries. This is a significant factor that both
United States and foreign firms take into account when they consider
whether to locate a new plant in the United States or abroad.
Third, we are doing something right. A hundred or so U.S. firms
have made major inroads in world markets. The share of exports in
our GNP has increased significantly in recent years-rising from 4.1
percent in 1971 to 6.4 percent in 1977. In fact, it was even larger a
year or so ago. But this share needs to rise even further. Every per-
centare point will add over $20 billion of export sales, enough to'
eliminate our current account deficit even at the peak levels of
1977 and early 1978.
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It is clear that the U.S. current account deficit is too large:
Recent exchange rate adjustments have helped, but additional public
and private measures are needed. Those measures should be targeted
directly to our trade problems-be they oil imports, excessive inflation
in the United States, or inadequate export growth. The new export
policy is a critical element in this overall strategy.
Thank you, Mr. Chairman. I appreciate your scheduling matters so
that I could appear at this time. I would be delighted to answer it
couple of questions.
[The prepared statement of Mr. Bergsten follows:]
The Need for a New Export Policy
President Carter announced a new export policy for the United States on
September 26 for two basic reasons.
First, improved export performance is an integral component of our overall
effort to strengthen and stabilize the dollar in the foreign markets. The President
has personally and repeatedly expressed his concern about the dollar, most
recently before the Annual Meeting of the International Monetary Fund and
World Bank on September 25. A major cause of weakness in the dollar has been
the large and growing deficit in our trade balance and current account. The most
constructive way to deal with those deficits is to expand U.S. exports.
It is important to note that recent trends in the trade balance, and the outlook,
are encouraging. In each of. the last two three-month periods, the average
monthly trade deficit declined by half a billion dollars from the previous three-
month period : from $3.1 billion in December 1977-February 1978 to $2.6 billion
in March-May 1978 to $2.1 billion in June-August 1978.
For next year, the current account deficit should continue to decline as a re-
sult of faster growth abroad, somewhat slower growth in the United States, and
the increased price competitiveness of U.S. goods. We believe the deficit could
decline by 30-40 percent in 1979. Other observers-such as the IMP, OECD and
Morgan Guaranty-foresee an even greater reduction in the deficit, ranging be-
tween 50-67 percent.
Nevertheless, the United States needs to take new export initiatives. We need
to assure that recent trends are continued. We need progress beyond even the
most optimistic numbers envisiged for 1979. And we must realize that, whatever
the outcome in the short run, U.S. export performance must improve signifi-
cantly for long-run reasons.
This is the second basic reason for our new export policy. The external eco-
nomic position of the United States is undergoing an important long-run, struc-
tural change. The sharp increase in our dependence on imported oil and, to a
lesser extent, other products, means that the share of imports in our GNP has
risen sharply. There must therefore be a concomitant rise in the share of exports
in our GNP-where each single percentage point now means over $20 billion,
enough to completely eliminate our current account deficit even at this year's
record level.
The trade deficit was a long time in the making. Correction of the deficit will
take time. But the clear message, both from the exchange markets and from our
trading partners, is that we must act in a forceful and decisive fashion to do so.
The new export policy is an important part of the Administration's response.
The United States has simply never had to emphasize exports as much as other
countries. Most U.S. manufacturers have been content with supplying the large
U.S. market and have never really focused on exports. Our growing economic
dependence on the rest of the world now dictates that we become more attuned
to exports-just as we must learn to use energy more efficiently and just as
some of our major trading partners, notably Japan, must become more attuned
to imports. The measures announced by the President on Tuesday do not offer a
quick fix, for the simple reason that they address a long-term structural problem.
Over the past two decades, U.S. exports have grown at only half the rate of
other industrial nations. The U.S. hit a low point of 19.2 percent in 1972, and
then rose to 21.1 percent in 1975. Since then, our export share fell again to 18.9
percent the lowest since mid-1972.
Our competitors, by contrast, have managed a real export growth rate (even
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excluding their exports to the United States) of nearly 4 percent per year since
1974 despite slow worldwide economic growth.
There are several reasons for these developments. Our major markets, such
as Canada and Latin America, have grown more slowly than the major markets
of some of our competitors, differential growth rates have cost our trade balance
about $10-15 billion. The substantial appreciation of the dollar in 1975, at a time
when our inflation rate was higher than that of other countries, hampered our
price competitiveness in the recent past; it probably cost the trade balance about
$5-10 billion. A number of advanced developing countries (ADCs), primarily in
East Asia, have seized a significant market share from all industralized countries.
And the exchange rate changes of late 1977-early 1978 are distorting short-run
trade shares which are calculated in value terms expressed in dollars. But our
deep-seated national indifference to exports-both in the private sector and in the
U.S. Government-has clearly played a role. Such indifference is now simply too
costly.
INCREASING U.S. EXPORTS
A better export performance by the United States would spur growth in our
economy and create jobs. Stronger exports would help stem the decline in the
value of the dollar and thus fight inflation. But increasing our exports presents
a major challenge to business, to labor and to the U.S. Government. It requires
attention to many factors-including productivity, price competitiveness, indus-
trial innovation and initiative, and Government policies.
A key determinant of U.S. competiveness abroad is the productivity of our
domestic economy. Productivity largely depends on new investment. In the last
five years, productive capital per worker has been virtually stagnant-resulting
in a sharp reduction in productivity growth. The Administration's tax recom-
mendations sent to the Congress this year are designed to stimulate capital
formation and national productivity.
Another determinant of U.S. competitiveness abroad is the rate of inflation.
Excessive inflation here, particularly by comparison with Germany and Japan,
has eroded our international competitiveness. The President's anti-inflation pro-
gram will consist of a broad set of measures designed to bring down the U.S.
inflation rate. As those measures take effect, our trade position will improve.
The United States has traditionally enjoyed a comparative advantage in high
technology exports. To assure that this advantage is maintained, we have estab-
lished a task force to examine both public and private research and development
efforts. The task force will concentrate inter alia on regulatory policies that
stifle U.S. inventiveness. Its proposals will further strengthen our economy at
home, and our ability to meet competition from abroad.
We are also taking important international initiatives to improve U.S. export
performance. Trade restrictions imposed by other countries inhibit our ability
to export. Tariff, and especially non-tariff, barriers restrict our ability to develop
new foreign markets and expand existing ones. We have been aggressively
attacking these barriers through the Multilateral Trade Negotiations in Geneva.
We are encouraged by the progress to date; the intensity of the negotiations
will increase as we approach the December 15 deadline.
Foreign governments have increased the financial credits and subsidies offered
to their own exporters, sometimes to the disadvantage of U.S. exporters. We
have addressed this problem in three ways. First, we have negotiated an Inter-
national Arrangement governing the use of government financing of exports.
Second, in the Multilateral Trade Negotiations, we are negotiating an interna-
tional code to restrict the use of government subsidies for exports-to assure
that U.S. exporters do not face unfair competition. Third, if foreign government
competition in the area of export financing cannot be restrained, we will match
it as needed.
U.S. Government regulations have also had a negative impact on U.S. export
performance. In order to achieve a varied range of foreign policy objectives, the
U.S. Government has restricted the sales of certain items to particular countries.
These policies have not only reduced sales directly. They have also had a chilling
effect.on other potential sales of unrestricted items.
The United States is gaining an image of being an unreliable supplier. Foreign
purchasers, even though not currently restricted, may decide 'to buy elsewhere
for fear that they may be cut off in the future. The new' export policy seeks to
confine the negative export impact of other policies to those few cases.where vital
national interests are at stake.
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All these efforts are important elements in our attempt to increase U.S. exports.
But they are not sufficient in themselves. America's export priorities must be
changed.
In the course of Government policy-making, export consequences are frequently
outweighed by other national objectives. Business, as well, too often places
insufficient priority on exporting. Too many companies do not believe that
exporting is worth the effort.
International economic changes over the past year have altered the funda-
mental conditions. U.S. businessmen need to take a new look at these changed
conditions.
First, changes in the value of the dollar in relation to the currencies of some
of our major trading partners have dramatically enhanced the price competitive-
ness of U.S. goods. U.S. manufacturers who may not have been competitive a
year ago may now find they can compete quite successfully. A U.S. manufactured
item selling for $100 in June 1977 cost 235 German marks or 27,200 Japanese yen.
That same $100 manufactured item today costs only 196 German marks or
18,800 Japanese yen, declines of 16.6 percent and 30.9 percent respectively. Thus
U.S. products are significantly more competitive in Germany and Japan as well
as against products of those countries in third markets.
Second, the wage gap between U.S. workers and workers in other countries
has been closing. No longer is it cheaper to manufacture many products abroad
and import them into the United States. In Japan wage rates have jumped from
53 percent of the U.S. wage in 1977 to 72 percent in August 1978. Wages in
Germany are now equal to or higher than in the United States for several
industries. This a significant factor that both U.S. and foreign firms take into
account when they consider whether to locate a new plant in the United States
or abroad.
Third, we are doing something right. A hundred or so U.S. firms have made
major inroads in world markets. The share of exports in our GNP has increased
significantly in recent years-rising from 4.1 percent in 1.971 to 6.4 percent in
1977. But this share needs to rise even further; every percentage point will add
over $20 billion of export sales, enough to completely eliminate our current
account deficit even at the peak levels of 1977 and early 1978.
It is clear that the U.S. current account deficit is too large. Recent exchange
rate adjustments have helped, but additional public and private measures are
needed. Those measures should be targeted directly at our trade problems-he
they oil imports, excessive inflation in the United States, or inadequate export
growth. The new export policy is a critical element in this overall strategy.
Representative LoNe. Thank you, Mr. Bergsten. I did have a couple
of questions relating to your particular area of expertise, if we may
again depart from what we had originally scheduled as a forum.
At the Commerce Department's briefing on Tuesday. the briefing
outline indicated that the Administration will undertake to explore
appropriate export tax incentives. Frankly, I was a little disappointed
that the tax incentives mentioned by the President in this faint phase
weren't particularly exciting, nor particularly new.
Can you give us any idea of what your position will be to recom-
mend, or the direction you will be going, or what you might study in
that regard?
Mr. BFRGSTFN. Mr. Chairman. we do not have firm recommenda-
tions at this time, although we did spend a great deal of time during
the development of the program trying to devise a more cost-effective
tax mechanism to support U.S. exports.
The direction in which we are going is simply that, to see if we
can find out whether there are tax measures that would be cost-effec-
tive, to provide a sie'nificant payoff in terms of U.S. exports, in com-
parison with the budgetary tax expenditures that would be involved.
We have tried a number of avenues: Changing some of the pro-
visions, thinking about making DISC benefits, or some tax benefits,
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more directly linked to incremental exports of American firms, per-
haps focusing them more directly on small and medium-sized firms
to help them enter the export market.
Representative LONG. I have been a sometimes reluctant supporter
of DISC myself, because it didn't seem to be cost-effective, in the
absence of any other program, however, I have supported it.
I think Members of both the House and the Senate have gone along
with DISC with similar reservations.
Mr. BERGSTEN. As the President said, the administration is ready
to work with the Congress 'toward a tax incentive device. We have
not yet come up with one. We do want to work with you on it, and
under the criteria I have mentioned, we certainly are pledged to do so.
Representative LONG. Relating to tax policy, the President indi-
cated on Tuesday that he is willing to work with Congress to resolve
the tax problems that I mentioned in my opening statement relative
to IRS Code, section 911.
In view of the fact that both of the Houses of Congress have
expanded the Treasury's recommendations with respect to 911, the
taxation of overseas income, and have passed specific legislation, have
you all determined what you are proposing specifically in that regard
now? And, have you analyzed what the House has done and what
the Senate has done? And, finally, where do you think this will end
up?
Mr. BERGSTEN. Mr. Chairman, I, of course, cannot give you a defini-
tive answer to that. We are studying carefully the outcome in both
Houses of Congress, comparing them to our original proposal, and,
again, trying to look at the tradeoff between the different factors
involved.
We fully agree with you that the oversew presence of Americans,
particularly in the corporate sector, is essential in helping support
the American economic as well. as cultural, et cetera. presence abroad,
and, therefore, in many cases is crucial to enable the United States
to take advantage of market opportunities in major countries and
for major projects.
That, of course, is one side of the issue. We do have to consider on
the other side of the question of tax expenditures, the nuestion of tax
equity, which, of course, is of great, concern to all Members of the
Congress as well, and try to reconcile those different considerations
to come to an optimum outcome on that issue.
Again, we have indicated, and we are working closely with Con-
gress, the members of both committees here on the Hill and the con-
ference committee that will be meeting on that shortly, in an effort
to come to a position that will balance these considerations effectively.
Representative LONG. Last week we were handling the matter on
the floor of the House. I handled the rule on the floor for the Foreign-
Earned Income Act, and the House passed the measure.
I don't recall the vote, but it passed by an overwhelming vote, and
we immediately appointed the conferees. This seems to me to be one
of those points where we are going to be down to cases within the next
few days, or the next couple of weeks.
I hope there is no possibility that the President is going to veto this
measure. This concerns me, because it is a substantial departure from
what Treasury had originally recommended.
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Do you have any views on this matter?
Mr. ,BERGSTEN. We are very conscious of the fact that both bills
were a bit more generous in their treatment than the administration
proposed, or. had supported during the hearings and the work on
these bills.
We would very much share your hope that the legislation that
emerges from the Congress would not run the" risk of difficulty later
down the line. I certainly cannot predict what the President will do,
but I am sure he will consider carefully the three factors that I men-
tioned, the benefit that it has, but, on the other hand, the tax expendi-
tures involved and the other considerations.
It is our strong hope that as the conference committee puts the
package together, it, too, will have those various considerations in
mind and, therefore, will come up with a final piece of legislation that
would not raise any problems for the President as he confronts it
when it comes to his desk.
Representative LONG. When he was speaking of compromise on
Tuesday, he was speaking of something that is now at a boiling point.
The time is late for compromise, because it is going to be set in con-
crete here in the next few days.
So, I would throw out for your consideration the suggestion that
someone from Treasury carefully monitor the situation so that we do
not let this opportunity escape us for working out a compromise that
is acceptable to everyone.
I think it is immensely important.
Mr. BERGSTEN. I assure you, Mr. Chairman, that we will, do every-
thing toward that end.
Representative LONG. Thank you.
Senator Sparkman.
Senator SPARKMAN. I will pass at this time.
Representative LONG. Senator Javits, Mr. Bergsten has to leave and
we have departed somewhat from our format. We are asking Mr.
Bergsten questions at this stage.
Senator JAVITS. Thank you, very much.
First, I am told by my staff that the prepared statements were
very good, and I will go over them very carefully.
I have this question of you, Mr. Bergsten, about the relationship
of U.S. productivity to the fact that we have fallen in our merchan-
dise exports, nonagricultural, and now we have a serious imbalance
in nonoil imports, precisely because we are falling down on the things
in which we seem to be the strongest.
Nothing that I see in the President's program asks for a national
productivity drive, or for a major increase in research and develop-
ment expenditure, to recapture the technological initiative which
made American business great and strong.
Could you tell us about that, what the administration's thinking
is on those subjects?
Mr. BERGSTEN. We start from the precise same point that you do,
Senator Javits, a deep concern about the lag in productivity growth in
this economy.
You are quite right. It does clearly relate very directly along with
inflation and a number of other issues in determining our underlying
competitive position.
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That is one reason why the President in his tax proposal at the
outset of this year made a number of suggestions to try to promote
capital investment and expand the capital base from which produc-
tivity growth would come, cutting the corporate tax rate, liberalize
in the investment tax rate, et cetera.
We are continuing to work on those, of course, in the present tax
bill and, as we look to the future in the standing Treasury study group
on productivity growth, as to what more can be done. The reason it
wasn't mentioned and highlighted here, perhaps, is that we had already
taken steps in that area. It is under continuing review and we are
deeply concerned about additional steps on it.
On the topic of R. & D. expenditures, we have also had in place for
many months an interagency working group chaired by Frank Press,
science adviser in the White House, with a number of facets, looking
at what we can do both in the Government, and helping the private
sector to boost the R. & D. expenditures and R. & D. output of U.S.
industry and, therefore, contribute from that angle to the produc-
tivity situation.
These are topics which I did stress in my prepared statement pre-
cisely because they are underpinnings of any successful export policy,
and on that we share your view completely.
Senator JAVITS. Don't you think it might have been wiser, Mr.
Bergsten, therefore, to attack the root question first and foremost
instead of a number of these cosmetic ornaments which now go by the
way of an export policy, or an export promotion drive?
The guts of this thing is that American business is not stepping up
to the plate and hitting home runs, and don't you think that we ought
to lead with that?
Isn't that the reason why so many critics and students say that it is
not the oil, because as a traditional example, Germany and Japan
import all of their oil. We only import 40 percent, or 40-percent-plus
and they are way out in front.
Isn't the real, basic danger and problem the lag in U.S. productivity
and the fact that our business concerns are no longer as innovative as
they were, and as competitive as they were?
Mr. BERGSTEN. I think the German and Japanese analogies are a
bit misleading for two reasons.
One, they have always imported all of their oil, and, therefore, from
a structural standpoint were used to having to export enough to pay
for the imports. The oil increase hit them badly, but they were in a
structural position to respond to it quickly.
The United States has always been a major producer of energy, and
still is, so we not only got caught by the rise in price but the decline
in domestic products. We had a double gap to fill which put us.in a
worse situation at the margin than the other countries were to face
the increased oil bill.
That, in turn, leads to the structural problem that I stressed in my
prepared statement, that we had never been in a position of having to
focus on exports, and, therefore, have. been. slower to respond.
All that being said, I agree with your basic point, that our attack
on the export program and the international competitiveness prob-
lem, has to encompass every facet of our domestic economy.
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What we did in the program we are talking about today was only
one aspect of that; namely, the kind of things the Government does
to focus directly on the export problem, the Export-Import Bank, the
CCC, and a number of things that go directly to exports.
Admittedly, that is a little artificial, because the various elements
in the overall framework, meaning our productivity, our ability to
check inflation, and maintain the competitive position of the dollar
within the exchange market, are crucial to the framework in which
any of these things can work.
I don't think it is a valid criticism of this program to say that it
didn't address everything, because it aimed at addressing those meas-
ures directly influencing export growth.
We are with you on the issue you mentioned. The success of all
the overarching efforts will be critical, you are quite right, to what
we can come out with with respect to the net bottom line.
Senator JnvITS. You agreeing with me, Mr. Bergsten, doesn't dis-
suade me from my main point that the President should have led with
productivity, research, and development, and lack of initiative in the
American business system.
That is the real guts of what is our trouble, rather than the
cosmetics of SBA, et cetera, and it makes me worry about whether
you really mean business and whether the administration-you under-
stand it.
I know you understand it, and so do I. When you get it all fuzzed
up without making it the main thrust, which it is, I am worried that
you are not doing what needs to be done to ram it home to America.
We are very complacent about this, you know. This declining dollar
can do us in. It is no joke, as every man and woman is going to feel
in his pocketbook very soon.
In addition, what about our pride in this country and the fact that
the United States was top dog in business and industry, and that is
why we won wars, and reformed continents, and now we seem to be
losing our marbles.
Now, that is what I hope the President will rouse the country to.
It is very serious. We are half the production of the world, and its
biggest capital market. If we don't go, nothing will go. Even the
Communist countries will have depressions. We are that important.
So I urge you in the public forum, and I urge the President, to give
Americans the straight of it. We are fall ing very short in our country.
Now, that leads me to the next question.
To what extent does the private sector tie into what you and Frank
Weil want to do about exports?
Have they really been lined up so that they are going to go to it
with a massive export promotion drive with vigor, initiative, and
capital?
Have they been lined up so that they are going to be put in a posi-
tion to render services to the small businessman who doesn't know
beans about export, but can be interested, if he is given the facilities?
What about all those questions?
Mr. BERGSTEN. I think Mr. Well is probably the best person to
answer that. We will turn to him with your permission.
Senator JAVITS. We will turn to him.
Mr. VEIL. Before I respond to that question, I would like to make
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one comment on your prior question on productivity and research and
development.
You are dead right. Those are the root problems. But as Mr.
Bergsten said, that doesn't mean the other problem of export orienta-
tion is not a problem, too. I am a bit disappointed to hear you de-
scribe it as cosmetics.
We attempted to deal with some of those problems, and the Presi-
dent's statement recognizes these issues.
Unfortunately, we are living with a reality in this country that
our research and development as a share of the world research and
development was bound to decline.
We did half of it in 1960. Today we do less than a quarter. The
reason for the change is due to the fact that Germany and Japan and
other parts of the world were rebuilding their economies and cities
and did not at the time have the resources to deploy. Our decline has
more to do with their increase.
We have been putting our resources in concerns for the environ-
ment, which doesn't necessarily add to productivity.
We had a productivity growth rate of 3 percent in the 1960's, and
it is down in the last few years to 2.2. This is a result of a change in
the world. I think we have to address those problems.
In addition, as Fred Bergsten said, we have to address the fact that
we don't have the export orientation that we spoke of today.
Now, to go to your point; what is the business community going
to do?
I think, as many of us have said, this problem has been long in the
making and it is not going to be short in. the solving. The preliminary
response to the program-and by the way we had the private sector
very much involved in the formulation of the policy-is that although
we have not satisfied all concerns, the response has been positive. The
glass is more than half full.
I think we can expect that over time export orientation in the
private sector will grow.
Senator JnvITS. Thank you, Mr. Weil. I have one more question to
the both of you.
What is the administration now planning to do about DISC
specifically, with all the conversation about the fact that it was out
the window in the reform; and, also, what do they intend to do about
the necessary formation of section 911 respecting individual earnings
by Americans abroad?
Do we have a policy, and, if so, can it be stated?
Mr. BEROSTLN. We do continue to oppose the existing DISC be-
cause it is not a cost-effective way to encourage exports through the
tax system.
We strove mightily during the work of this task force to develop an
alternative that we thought would do the job of promoting exports
in a more cost-effective way, so that we could propose an alternative.
We have not yet been able to come up with such an idea, but the
President said in the message on Tuesday that he wants to work with
the Congress, obviously work within the administration, to try to
find a device that would achieve that purpose.
I feel badly that we haven't come up with one yet. We will continue
to work on it, and we want to work with you toward that end.
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84:
On section 911, we had a little discussion before. The brows that are
voted out of each House, now, of course, are more in this
area than the administration has proposed.
Again, we will be working with the conferees in an effort to reach
an outcome that balances our very real. concerns for maintaining the
American presence abroad in order to meet our economic objectives,
and also balance equity and tax expenditures that have to be a part
of this.
We will be working with the conferees about that.
Senator JAVITS. May I say that I am not quite so mild about it as
you gentlemen seem to be. I cannot see your pulling this out unless
you have something to substitute in its place that is better.
We need all the exports we can get and we cannot allow them to
suffer, even though the cost/benefit is not as well as we would like.
On 911, I can tell you from personal experience that American
executives are losing out, and that means directly that American ex-
ports are losing out in these countries.
If Americans ? are not in charge, even American subsidiaries, the
nationals in charge who are working for less money are going to 'buy
the products of their countries, and I have seen that in country after
country, and I hope that the administration reads those lessons very
hard. You cannot beat something with nothing, and you cannot have
a vacuum unless you have something better to substitute.
Thank you, very much, Mr. Chairman.
Representative LONG. Thank you. ,
Thank you, very much, Mr. Bergsten. We understand your time
restraints.
Mr. Katz, as I said, we are pleased to have you with us. Gentlemen,
if we can try to go back, now, to what we were originally intending
to do with the forum, we will go ahead with the prepared statements
and then we will have time for questioning.
Mr. Katz.
STATEMENT OF HON. JULIUS L. KATZ, ASSISTANT SECRETARY OF
STATE FOR ECONOMIC AND BUSINESS AFFAIRS
Mr. KATZ. Mr. Chairman, it is a pleasure for me to be here today.
I very much welcome these hearings and the hearings that you are
having around the country. I think that that performs a very necessary
and valuable effort in focusing attention on this problem.
In the interests of time, and to avoid duplication, I would ask to
have my prepared- statement placed in the, record, and if I could just
make a very few comments.
Representative LONG. Without objection,, your prepared statement
will be made a part of the record.
Mr. KATZ. The Department of State strongly supports the need for
a national export policy and the efforts to develop. one.
We view a national export policy as a vital element, but only one
element of our overall foreign economic policy. A strong U.S. economy
and a sound dollar are critical ingredients in a national economy. We
cannot have a deteriorating dollar position and expect that the world
economy will function smoothly.
At the same time, we have a critical stake in the health of the world
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economy, and for that reason, we seek to pursue global policies which
affect the stability and growth of the world, such as efforts we are
making in the current trade negotiations to expand trade and to
strengthen trading rules.
We need solutions to the problems related to price stability and the
security of supply of food and other important raw materials.
We need programs to conserve energy and develop new energy
sources at home and abroad. We need facilities to insure the avail-
ability of balance-of-payments financing to those countries in need and
increase flows of financial assistance and resources for development.
Now, the success of these global policies we are pursuing will open
new export opportunities to us, but the opportunities will not translate
themselves into U.S. exports unless U.S. business is prepared to re-
spond to those opportunities, and we have an important role to perform
in the Government, primarily by changing the attitude in this country
to exports.
You stated very well, Mr. Chairman, in your opening statement
what the nature of the problem is and the fact that there are no quick
fixes to this problem, and it is for that reason that the national export
policy announced by the President approaches the problem primarily
from the point of view of changing the attitude in the country.
It is a problem which affects the business community, it affects the
Congress, and I might say it has affected the executive branch itself.
In recent years, I think we have done more to legislate against ex-
ports than to promote exports, and we are not going to turn that
around immediately by providing new Government programs either to
finance or to facilitate exports unless we really address the attitudinal
problem in the country.
I think we are embarked on this process now. I think we are in the
position of turning it around, and what we need to do now is to build
momentum. I think these hearings are very important in that regard,
and I am glad to be here to participate in them. Thank you.
[The prepared statement of Mr. Katz follows:]
PREPARED STATEMENT OF HON. JULIUS L. KATZ
Mr. Chairman, I am pleased to have the opportunity to discuss with this Sub-
committee the role of the Department of State and Foreign Service in the newly
announced National Export Policy.
The Department of State participated actively in the work of the interagency
task force established by the President to recommend measures to increase U.S.
exports. We welcome the comprehensive package of recommendations developed
by the Task Force and approved by the President, including incentives for exports
and reducing disincentives, which constitute the beginning of a national export
policy. We are especially gratified that the Task Force looked to a policy of in-
creased exports as an important element in improving the current trade account.
The President's commitment to export growth as an important national objec-
tive will provide the direction needed in the Executive Branch and the Congress
and should give the business community the confidence to pursue export op-
portunities more aggressively.
The Department of State views the steps now being taken to develop a national
export policy as only one element, but an essential element, of our overall foreign
economic policy.
A strong U.S. economy and a sound dollar are critical ingredients of a stable
international economy. At the same time, the U.S. has a critical stake in the
health of the world economy. It is for this reason that we seek to pursue policies
which favorably affect global stability and growth-such as efforts in the current
multilateral trade negotiations to expand trade and strengthen trading rules ;
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solutions to the problems related to price stability and security of supply of
food and other commodities ; programs to conserve energy and develop new energy
sources at home and abroad ; facilities to ensure the availability of balance-of-
payments financing to those in need ; and increased flows of financial assistance
and resources for development. The success of these policies will open new export
opportunities. These opportunities will not translate into increased U.S. exports
unless U.S. business is prepared to respond to those opportunities. Government
policy can affect that response-positively or negatively.
Recent events have underscored the need for a clearly articulated national
export policy. The U.S. had a $31 billion trade deficit in 1977. Through the first
seven months of 1978, the deficit is running at an 'even higher annual rate.
There are a number of explanations : the strength of the U.S. recovery combined
with the sluggish growth of domestic demand in Japan, West Germany and many
of our other trading partners; the high level of oil imports which now provides
40 percent of domestic consumption and a relatively high inflation rate in the
country compared to those of West Germany and Japan.
While all of these developments have played a role in our deficit, they may
have masked another fundamental trade problem : slow export growth and a
deteriorating U.S. share in world trade, particularly in manufactured goods.
Over the past twenty years, U.S. exports have grown at only half the rate of
other industrial countries, with the divergence increasing in the last several
years. When we take inflation into account, real U.S. exports have virtually
stood still for more than three years; in sharp contrast to our competitors who
have managed real export growth (even if we exclude their exports to the United
States) of nearly 4 percent per year during the same period. While agricultural
exports have held up well, and have in fact even grown, the volume of exports
of American manufactured goods have fallen since 1974. In 1976, we still enjoyed
a $12 billion surplus in trade in manufactured goods. That surplus fell to
$3 billion in 1977. So far this year, trade in this category is in deficit at an
,annual rate of $12 billion.
As a result of the depreciation of the dollar and the appreciation of the cur-
rencies of our major trading partners we should expect to see an improvement
in our competitive position affecting both exports and imports. Again, the in-
creased competitiveness of our exports which dollar depreciation produces will
only expand opportunities. It will not ensure that U.S. exporters take advantage
of those opportunities.
The Department of Commerce and the State Department jointly operate pro-
grams for export promotion and marketing and it is planned to expand these
activities to assist in meeting the goal of maximizing exports. The Department
of State performs the following broad categories of functions in carrying out
its export promotion activities:
We provide Foreign Service Officers qualified in economic and commercial
affairs to conduct export promotion programs. The State Department has roughly
900 Economic-Commercial officers, 300 of whoa are fully or principally engaged
in commercial work. These officers work in the Department and in our Embassies,
Consulates and Trade Centers abroad.
We provide our overseas posts with guidance and assistance in managing
their individual export promotion programs. Thirty-seven Embassies in major
commercial markets abroad operate under a State-Commerce annual plan called
a Country Commercial Program. This management-by-objective document estab-
lishes plans and programs for efficiently utilizing our commercial resources to
achieve specific goals. Additional Embassies in smaller markets target their ac-
tivities and manage their resources under a simplified type of annual plan called
a Commercial Action Program.
We coordinate with other U.S. Government agencies to ensure effective export
promotion assistance for the American business community. For example, infor-
mation collected at Foreign Service posts is distributed in the U.S. by the Depart-
ment of Commerce.
At our posts overseas we assist visiting American businessmen to establish
appropriate trade contacts and to resolve any commercial problems they
encounter.
We assure that all activities undertaken under commercial programs are con-
sistent with overall U.S. foreign policy objectives. This is achieved through fre-
quent interagency meetings among senior officials.
The commercial activities performed by the U.S. Foreign Service are aimed
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primarily at assisting firms to enter and expand their markets abroad, giving
special attention to the needs of small- and medium-sized companies. Foreign
Service posts provide these firms, through the department of commerce, with a
continuing flow of reports on economic trends and market developments, market
research, trade opportunities, major economic development projects, and back-
ground financial and commercial information on prospective agents, distributors
and purchasers of American products. In addition, the posts actively help orga-
nize and promote U.S. trade and industrial exhibitions abroad. They also arrange
for foreign buyers to cone to the U.S. to visit American trade shows and visit
American firms.
Our posts abroad also operate commercial libraries and publish and distribute
commercial newsletters to provide the most important business and government
buyers, agents and end-users with current information on American products,
services and technology. These activities are, of course, in addition to the posts'
ongoing assistance to visiting American businessmen and the resident American
business community.
With the need to service a larger. clientele in mind, the Export Policy Task
Force indicated that the expanded domestic staffing necessary to carry out the
enhanced level in commercial personnel in our foreign service posts abroad. The
President has directed the Office of Management and Budget to allocate an addi-
tional $20 million in annual resources for export development programs of the
Departments of Commerce and State.
With these new export promotion guidelines, we have begun exploring the
following programs in order to be prepared to accommodate this projected
expansion :
(1) We have reviewed post commercial activities and business assistance
patterns in order to determine in which geographic regions and at which
embassies and consulates well might expect the heaviest initial commercial
workload iucre:ise to develop;
(2) We are identifying those Foreign Service posts which can be expected
to cope with the increased work requirements without increasing their
resources ; then,
(3) We will target selected key posts for additional personnel where this
appears necessary ; and,
(4) We will explore means of increasing the flexibility of our personnel
resource allocation process to speed our response in cases where the need
for enhanced commercial services to U.S. export-motivated industries devel-
ops rapidly and/or exceeds present projections.
In our preparations to expand the world-wide capabilities within the com-
nmercial function, we are seeking to absorb as much as possible of the cost of
that expansion from existing resources within the department.
A key determinant of a nation's success in exporting is the existence of a sub-
stantial number of highly motivated and competitive domestic industries which
are vigorously engaged in seeking out and exploiting sales opportunities in over-
seas markets. Government export promotion programs can help assure that in-
formation on foreign markets and firms is available to present and potential
exporters; that opportunities are available to exporters to display their prod-
ucts abroad, and that exports are not discriminated against by foreign govern-
ments. But export promotion programs of this or any other country cannot be
'effective in the absence of a strong commitment by the private sector itself to
Seek overseas markets.
The positive government policies included in the new export policy are essential
to provide the climate and framework for an expanded export effort. The Depart-
ment of State is committed to giving its fullest support to this effort.
representative LoNTG. Thank you, Mr. Katz.
I think all of us have additional questions we would like to pursue
regarding momentum, because we have all seen efforts start out affirma-
tively in the past and not progress. We will pursue that with you if we
may.
Mr. Moore is the Chairman and President of the Export-Import
Bank. We are pleased to have you with us, Mr. Moore, and you may
proceed in your own manner.
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STATEMENT OF HON. JOHN L. MOORE, JR., PRESIDENT AND CHAIR-
MAN, EXPORT-IMPORT BANK OF THE UNITED STATES
Mr. MoORE. Mr. Chairman, thank you.
In the interests of time, I will submit the prepared statement to the
committee.
Representative LONG. Without objection, your prepared statement
will be made part of the record.
Mr. MOORE. I live in a very practical day-to-day world in cooperation
with exporters and financing sources in the United States, and I would
just like to make a couple of observations.
First, world conditions haven great deal to do with the export busi-
ness of the United States. We see after and during the time of recession
in the world that we have had in the last 3 years, nations have to pull
back from imports of technology and high research, and the tech-
nology which we have best in this country.
Brazil has to impose severe restrictions'. on imports and delay big
projects and insist on the maximization of the Brazilian component
of each project, even though that may cost more in local currency.
The same condition is repeated all over the world. I do at this point
feel some optimism that conditions around the world are improving as
compared to a year ago, and I think our companies, while the research
and development component has disappointed all of us, especially dur-
ing times of recession, I think the United States does have a strong
technology and has the capability to compete. We must, however, do
more.
As a part of the world condition, it is important to emphasize an-
other point, and any time you meet, for example, with representatives
of Yugoslavia, they talk at exactly the same moment you are talking
about a project you would like to export to Yugoslavia, they always
discuss, as they must, "What can we sell to the United States?"
We also discuss joint ventures of our companies with their com-
panies in other markets. Any nation must generate more of its own
exports to pay for the imports from other countries. So we are depend-
ent on others.
The other point I would like to make is that in times of world reces-
sion, all of the exporting industrialized nations get in an extremely
competitive posture because of grave concern about the things that
worry us in this country-namely, employment, sales, and exports-
and in terms of export credits, the world, as you know, is extremely
competitive, and we have sought in the last 11/2 years to give' com-
petitive support to our exporters.
That is not easy in the framework in which the Export-Import Bank
of the United States is established, because we are meant to be a self -
sustaining institution. But we are getting as close as we can to the
interest rate offers of other exporting nations.
We are increasing the amount of cover we offer in these loans so
that we can afford fixed rate financing on a competitive basis.
At the same time, as Mr. Bergsten stated, the U.S. Government is
taking as strong a stand as it can diplomatically to try to negotiate
uniformity in the offers and really a more reasonable set of conditions
in which we should compete.
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Finally, I would emphasize the tremendous need for the United
States as a private sector and as a public sector working together in
exports to present a consistent picture abroad, that we are a reliable
supplier, as I think we are, and that we keep our objectives altogether,
and emphasize as this export policy does, the importance of exports.
Thank you, Mr. Chairman, and I will be glad to answer questions.
[The prepared statement of Mr. Moore follows:]
PREPARED STATEMENT OF HON. JOHN L. MOORE, JR.
1. RECENT DEVELOPMENTS IN U.B. EXPORT POLICY
President Carter's statement on Tuesday, September 26, setting out the Ad-
ministration's new initiatives on export policy was a key step forward in solving
both our domestic and international economic problems. In the past five years, it
has become increasingly obvious to the American public that the U.S. economy
is integrally linked with the world economy. These links are, in many cases, of
great benefit to us ; but there are also areas where fundamental and severe prob-
lems have arisen. The basic question is: How can the United States play a con-
structive, international leadership role and, yet, simultaneously meet the needs
of our own citizens?
It is fair to say that international economic policy management in the 1970's
has proven much more difficult technically than our economists anticipated. The
fluctuating exchange rate system alone has not solved our balance-of-payments
difficulties, and we are now finding more and more evidence inside the United
States of problems associated with the declining price of the dollar. It was with
these vexing trends in mind that the "President's Export Policy Task Force"
operated.
Given the complexity and interrelationship of the issues, we and the President
concluded that no single action would make an adequate and acceptable change
in our trade picture. The President, thus, announced that the Administration
would take a three-fold approach toward export policy :
(A) providing increased direct assistance to U.S. exporters;
(B) reducing our own internal barriers to exports ; and,
(C) reducing foreign barriers to our exports and designing a fair inter-
national trading system in which all countries could participate.
Although Eximbank will be a key actor in the program to increase direct sup-
port to U.S. exporters, we will not succeed in our efforts unless the other two
parts of this integrated program are carried forward and achieve their objec-
tives as well.
Before analyzing the present and potential future policy decisions for Exim-
bank, it is worth mentioning briefly that Eximbank has served a broad variety
of functions since its formation. In 1934, the Bank was set up with a prime intent
of financing trade with the Soviet Union. In 1945, the Bank's charter and orienta-
tion were changed. During the post-war period of the "dollar shortage," Exim-
bank financed exports predominantly to our war-time allies. During the 1950's
and 1960's, the Bank financed to a broader range of countries ; but its focus was
still predominantly on exports to the wealthier countries. By the early 1970's,
exports to the less developed countries had become an increasing part of the
Bank's business.
However, there have been very fundamental differences in orientation between
the Bank's successive managements. In the euphoria over the initiation of the
fluctuating exchange rate system, there was even discussion in some circles that
government export finance was no longer essential. In the period between 1975 and
1977, for example, Eximbank reduced its annual financing level for direct credits
from over $3 billion a year to approximately $700 million in 1977. Along with
these fluctuations in expenditure levels, since the late 1950's, there has been a
tendency for some to view Eximbank as a partial solution for U.S. short-term
balance-of-payments problems.
This historical bankground affects our current policy because: (A) the sharp
differences between successive Eximbank managements meant such changes in
direction that many U.S. exporters and purchasing countries who wanted to use
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Eximbank finance were not sure of our stance; and (B) the focus on short-term
concerns led to unfortunate ups and downs in Eximbank support when the Bank
is really more suited for solving long-term project needs where private financing
is not adequate.
III. PRESENT EXIMBANK POLICIES
Given the large variation in past Eximbank policy, it has been a central con-
cern to me that we define a clear strategy for Eximbank and provide a predict-
able package of financial services. Private financing for U.S. exports is often not
adequate when:
(1) Foreign government export credit agencies provide very low interest
rates ;
(2) The repayment terms for the project are longer than five to seven
years ; or
(3) The project itself is so large that the banks reach their own exposure
limits for new commitments in a given country.
It is in these circumstances where Eximbank support could be critical to pro-
viding the necessary finance for U.S. exports.
We, thus, devote considerable attention to monitoring the terms being offered
by foreign government export credit agencies. Under the new International
Agreement on Officially-Supported Export Credits, there is a set of procedures
to exchange information on the interest rate, term, and percent of government
credit in a given transaction. Given this information, we can tailor our financial
support to meet that foreign competition. Similarly, we are in close touch with
the banks and know how much new credit they are willing to take on and can,
therefore, make sure we are not crowding out private finance.
As the U.S. balance-of-payments problems have worsened, we have become sig-
nificantly more expansive, but with a focus on financing bigger and longer-term
projects that the private sector is not able to cover. I can now say with cer-
tainty that we have established an unambiguous and consistent strategy. Exim-
l:ank will be aggressive in meeting foreign competition, and we have the
President's strong support for our continued expansion through FY 1980. We have
already taken steps that will make Eximbank financing both less costly and avail-
able in substantially greater volume.
The three best indicators of this are : our overall budget size ; the percentage of
a project's financing which we are willing to support ; and the competitiveness of
the interest rates and fees which we charge.
On the budget side, in the past 12 months, we have increased our direct credits
from an annual rate of $700 million to $2.9 billion. We anticipate further sub-
stantial increases in our lending to a rate of at least $3.6 billion during FY 1979.
The President has now gone further and approved an expenditure level of $4.1
billion in 1980.
We have also significantly increased the percentage of a project which we will
finance. During the first six months of 1977, Eximbank offered to finance 39 per-
cent of the typical project : whereas this fiscal year, we have financed, on average,
over 65 percent of the projects which we were involved with. This increase in
"cover" is particularly important because it means we will go into ventures where
the private sector is not willing to provide sufficient financing and where U.S.
exporters face aggressive competition from other nations' export financing
agencies.
Our interest rates have also been trimmed to the barest minimums that we
think are financially sound for an institution that must be self-sustaining. Thus,
even during a period of rapidly rising interest rates, we have kept the cost of our
loans at an average interest rate of 8.26 percent during this fiscal year. To do
this, we have had to go below our normal interest rate scale in over 60 percent of
our cases; and, in some circumstances, we have even chosen to lend below our
marginal cost of funds. We have done this only because we consider it critical to
make American goods available to foreign purchasers at competitive rates.
We have also substantially increased the flexibility of our program:
On June 27th. Eximbank's Board announced a major reduction in the fees for
our financial guarantee program.
When necessary. we have used our existing resources together to match a
mixed credit of another nation where that country was providing a. combination
of aid and commercial terms for what would otherwise have been a commercial
project.
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We have established lines of credit for more than $271 million to purchasers in
Mexico and Brazil who outlined for us an ongoing set of financing needs which
would require our involvement over a period of years.
In addition, we have made a number of administrative changes and reduced the
costs of our insurance and guarantee programs to make dealing with Eximbank
both less expensive and more expeditious.
Through these actions, we have made commitments to finance over $7 billion
in potential projects ; and we are now certain of funding about $3 billion of
those commitments with actual authorizations.
The basic directions of our activity are now firmly established. The President's
commitment to raise our direct credit authorization level by $500 million, from
$3.t billion to $4.1 billion, will allow us to fund both a broader range of projects
and will have important balance-of-payments and employment effects.
With these additional resources available and the President's decision to re-
duce various internal barriers to our exports, the key determinants of our success
will be in the responses of other nations.
Macro economic factors.-At both the London and Bonn Summit Conferences,
our major trading partners made clear commitments to increasing their economic
growth rates. This is critical to us not only because it will increase our exports
to the wealthy countries, but because the developing countries (which are Exim-
bank's major markets) grow more slowly when the wealthy countries are not
expanding rapidly.
These growth linkages are especially significant because other wealthy countries
like Britain and France have their own balance-of-payments problems and often
find the need to aggressively support their own exports-usually in direct coin-
petition with us. To the extent that the entire developed world grew more quickly,
we might, thus, see some easing of the intense export financing competition we
now face.
Special factors.-There are, as well, several other factors which will have a
key effect on the demand for Eximbank financing and the success of our efforts
to play a part in closing the balance-of-payments gap. The Multilateral Trade
Negotiations (MTN) could have an extremely positive effect if there are major
reductions in barriers to our exports and if other governments agree to substantial
reductions in their present subsidies to their export industries.
The future Organization of Petroleum Exporting Countries (OPEC) decision on
oil prices will also he of great importance, as a sharp rise in oil prices is likely to
further aggravate world inflationary pressures and reduce the willingness of
Germany and Japan to expand their growth rates.
In addition, we will need to be extremely careful in monitoring how our major
trading competitors proceed with their export financing programs. As we have
shown in our recent Report to the U.S. Congress on Export Credit Competition
and the Export-Import Bank of the United States,' both the Japanese and French
still have considerably more flexibility in the programs that they offer on'export
credit. and we will need to be persistent in making sure that they do not further
expand the already intense competition in this area.
The President's recent decision has set the framework for a comprehensive U.S.
export policy. By decreasing the domestic regulations which limit exports and
by increasing the Eximbank authorization limit by an additional $500 million in
FY 1980, the President has demonstrated to the world that we are taking our
balance-of-payments problems seriously. In the last year at Eximbank. not only
have we increased the size of our programs, but we have established a new set
of policies that will make it cheaper and less cumbersome for U.S. exporters to
use our services.
The basis has, thus, been laid for dealing with a critical part of the U.S. bal-
ance-of-payments problem. The response of our major trading partners and
our general success of handling our macro-economic policy will, however, shape
the final results.
' Eximbank's latest Competitiveness Report of July 1978 was made available to all
offices in the Capitol, but additional copies are available here today and on request in
the future.
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Representative LONG. Thank you, Mr. Moore.
We will get back to questions for you in a minute.
Mr. Schuh, we are pleased to have you with us.
Senator JAVITS. Do you have copies of your prepared statement?
Mr. Scziux. I will have copies. They were not distributed.
Mr. Chairman, I appreciate the opportunity to be here. I do have a
prepared statement which we will submit. I would like to make a few
comments orally, now, and one of the things I would like to stress is
Representative LONG. Mr. Schuh, we will make your prepared state-
ment a part of the record. When will you have copies of it available for
us?
Mr. Scriun. By 1 o'clock this afternoon, I hope.
Representative LONG. We will see that they are distributed, then..
Please proceed in your own manner.
STATEMENT OF HON. G. EDWARD SCHUH, DEPUTY ASSISTANT
SECRETARY OF AGRICULTURE FOR INTERNATIONAL AFFAIRS
AND COMMODITY PROGRAMS
Mr. ScxuH. Agriculture is rather unique in this whole picture, be-
cause it is a sector where exports are very important. It is a sector
where we have not been indifferent to the development of exports, and
it is also a sector where we have been unusually successful. It seems
to me we might be able to learn some things from the agricultural
experience.
Just to cite a few of the data, and I have more of these in my pre-
pared statement, agricultural exports in the fiscal year just now ending
will reach about $27 billion. That is $3 billion more than last year, and
is a record total for the eighth year in a row. To give you a point
of comparison, as recently as 1970, our agricultural exports amounted
to only $6.7 billion.
Now, in terms of the importance of agriculture, to our domestic agri-
culture, it is difficult to underestimate the importance of this. One out
of every four dollars of farm income comes from our exports. We ex-
port the output of 1 out of every 3 acres.
In the case. of. wheat, we exported about 60 percent of our wheat
production in the last 5 years. In the case of soybeans, it is 50 percent;
in cotton, I believe, about 30 percent; and tobacco, about 30 percent.
Rice production is about 50 percent, and I could go on.
A point I would like to emphasize is that, contrary to what has hap-
pened in our trade on nonagricultural products, in the case of agricul-
tural products, we shifted from a deficit in the late 1950's to a rather
substantial surplus. In each of the last 4 years, we have had a surplus
on agriculture trade accounts of approximately $10 billion.
This year, it is expected to be $13 billion. If one looks at individual
years such as 1968, 1973 and 1975, the surplus on our agricultural trade
was more than enough to offset the deficit in our trade in nonagricul-
tural products.
I believe these results both indicate the importance of agricultural
exports to the domestic agricultural sector and their contribution to
the total economy.
Now, what I do in my prepared statement, in the second part, is to
try to identify some of the factors that are back of this. I will just
very briefly call your attention to these.
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One, I think I would give a lot of importance to the vitality of the
private sector, both in terms of producing agricultural output and in
terms of the trade sector of getting it abroad.
Second, I personally put a lot of emphasis on a point that Senator
?Javits made, and that is the importance of our R. & D. on agriculture.
Agriculture has-been a case where there has been an important commit-
ment, both on the part of the Government and on the part of the
private sector, and I think that commitment has paid off in terms, of
improved productivity.
A third thing is the appropriate legislation. One of the important
pieces of legislation, as I am sure you all know, was the 1954 Agricul-
tural Trade and Development Act which, among other things man-
dated that some portion of the concessional sales for local currency
be used for market development activity.
Finally, I would call attention to the market development activities
of the Department of Agriculture that have been evolved out of those
resources.
Now, the important element of those activities has been what we
refer to as our cooperator programs. The cooperator programs are a
unique combination of the private sector getting together with the
Government sector to develop our overseas markets. I think that is an
important element.
The Department today works with about 60 of these cooperator
groups, 40 of them the year round, on products ranging from avocadoes
to wheat in more than 70 different countries. Let me leave that now
and come back to answer any questions, as you like.
The final part of the prepared statement just gives you some
examples of success stories, and I will quickly mention a few cases. In
1956, Japan was a rice-eating country. Last year, Japan imported 350
million tons of wheat. Soybeans in the European Community is an-
other example. In 1961, there were virtually no soybeans consumed in
the European Community. This last year, they imported about 10 mil-
lion tons of soybeans and soybean products.
These cooperative programs which have had educational programs
in the countries, and have taken an aggressive view to expanding those
markets-I could mention another one, the Korean market, which is
importing something like $1 billion a year.
In terms of my final comment, I have only one final'point. Although
I think, the performance of the agricultural sector has been unusually
good, I don't view that as any reason to be complacent. The point I
would like to emphasize is that our domestic commodity programs are
very much dependent upon having strong export performance, and if
it weren't for this strong export performance, we would have lower
farm incomes and greater Government cost in the farm programs, and
a failure to have. agriculture, contributing to the overall development
of the country.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Schuh follows:]
PREPARED STATEMENT OF HON. G. EDWARD SC HUH
Mr. Chairman and members of the committee, I appreciate the opportunity to
appear before you to' discuss agricultural trade. Exports of agricultural products
are important both to farm people and to the health of the national economy.
Expanding overseas markets are an important pillar of: our farm policies, and
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the exchange earnings from our foreign sales provide the means whereby the
U.S. purchases petroleum, critical raw materials, and consumer goods and serv-
ices from other countries.
In the brief time I have I would like to do three things: (1) provide some
background on the importance of agricultural exports; (2) discuss some of the
factors that have contributed to the growth in U.S. agricultural exports: and
(3) cite some of the unusual success the U.S. has had in penetrating foreign
agricultural markets.
BACKGROUND
U.S. agricultural exports in the fiscal year just ending will reach about $27
billion. This is $3 billion more than last year, and is a record total for the eighth
straight year. As recently as 1970, our agricultural exports amounted to only
$6.7 billion..
These exports are important to U.S. farmers, who receive more than 20 percent
of their agricultural income from foreign markets. Exports also account for the
output from almost one of every three acres that U.S. farmers harvest.
For some groups of farmers, this dependence on export markets is even greater.
Wheat producers, for example, marketed 60 percent of their production over-
seas during the five years to 1977. One half of our soybeans and rice production,
and more than one-third of our production of cotton and tobacco were exported
during the same period, along with one-fifth of our corn.
These same exports are also important to the nation as a whole. They now pro-
vide more than one million full-time jobs. on and off the farm, related to the
production, processing, assembling. and distribution of the relevant output.
Equally, and perhaps even more important in light of this nation's rising import
bill, is the contribution agriculture makes to the U.S. position in total Interna-
tional trade.
Agriculture accounts for just over one-fifth of all U.S. exports. More im-
portantly, agriculture consistently contributes a surplus to the U.S. trade ac-
count. In contrast to the trade balance in non-agricultural products, which
switched from a surplus of $4.4 billion in 1960 to a deficit last calendar year of
more than $40 billion, the trade balance in agriculture products has grown from
a surplus of $1 billion in 1.960 to a surplus of $10.2 billion last year.
Agriculture has contributed a surplus to the U.S. trade account every single
year since 1960. Three times during that period-1968, 1973, and 1975-the sur-
plus on our agricultural trade accounts was more than enough to offset a deficit
in non-agricultural trade to give the U.S. a positive balance in its total trade
account. The surplus in agricultural trade has been over $10 billion in each of
the last four years. when we have needed it most and in the current fiscal year
it will be a record $13 billion to be applied against the quite large deficit in non-
agricultural trade.
FACTORS CONTRIBUTING TO THE GROWTH OF U.S. AGRICULTURAL TRADE
Many factors have contributed to the growth of U.S. agricultural exports over
the years. I would like to single out four factors for brief review today.
The first is a very vital private sector, including the producers and the trade
sectors. Our private enterprise system has given us one of the most productive and
dynamic agricultural sectors in the world. But efficient production alone will not
win foreign markets. The output has to be marketed. And in this case the private
sector has been aggressive and creative, and has helped the U.S. to play a pre-
dominant role in international commodity markets.
A second factor basic to our growth in agricultural exports has been the strong
research and development programs carried out for U.S. agriculture by both the
public and private sectors. Strong research and development programs have stim-
ulated rapid technological change in production, processing, and marketing, and
these changes in turn have helped to give the U.S. a competitive advantage in
international markets. The leveling out in recent years of our strong commitment
to agricultural research is cause for concern in light of the unquestioned im-
portance of technological progress as a factor, in maintaining, strong export
markets, and in light of the obvious. need for ever-growing exports.
A third factor that has facilitated the growth in agricultural exports is the
provision by Congress of legislation that for the most part has facilitated and
stimulated agricultural exports. The Agricultural,Trade and Development Act of
1954 (P.L. 480) was an important contribution in this regard. The Food and
Agriculture Act of 1977 is also important,: since it provided domestic commodity
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programs for crops with export potential that are consistent with a strong trade
posture. The Agricultural Trade Act now pending before one of your conference
Committees is another example of legislation that can be helpful. And of course,
President Carter's initiatives to stimulate U.S. exports, both agricultural and
industrial, will also help to provide a setting from which exports can grow.
A fourth and final factor I want to address is the market development activi-
ties of the Department of Agriculture. The Department has been involved in
export promoting activities for a long time. The real thrust, however, dates to the
passage of the 1954 Trade and Development Act which directed, among other
things, that a share of the proceeds from concessional sales abroad be used to
expand agricultural exports. Building on that foundation, the Department has
developed a broad range of market development activities.
The cornerstone of our export expansion work has been what we call the
cooperator program. This program is just what its name implies-ft program in
which private commodity organizations, funded by producers and the trade,
work together with the Department's Foreign Agricultural Service (FAS) on
market development projects involving their particular commodity, sharing the
financing.
Today, the Department works with about 60 of these organizations--40 of
them year around-promoting products from avocados to wheat in more than 70
countries. Projects range from educating foreign farmers, consumers, and their
governments on the use and value of products exported by the United States. to
technical servicing in their use, to outright consumer promotions.
In more recent years, state departments of agriculture have joined this export
effort, working with FAS as individual departments and through three regional
export promotion organizations representing departments in 37 states.
Within the Department itself, FAS has been reorganized to focus the commod-
ity analysis work more directly on foreign marketing, and the P.L. 480 and Com-
modity Credit Corporation (CCC) credit functions of the Office of the General
Sales Manager have been closely cordinated with FAS, cooperator and state
endeavors to expand exports. These combined efforts have solved trade problems,
opened new markets and contributed to the dramatic growth in U.S. agricultural
exports during this decade-from $6.7 billion fiscal year 1970 to the $27 billion
we expect in FY 1978.
The expreience of the last twenty years provides a number of important suc-
cess stories. When Western Wheat Associates, for example, began work in Japan
in 1.956, our exports of wheat to that rice-eating nation were negligible, and they
were shipped tinder concessional terms, paid for in local currency.
A program that included consumer education on wheat foods, technical help
in milling and baking, and sales promotion campaigns turned the Japanese
toward wheat. Today Japan is a leading market for U.S. wheat, taking 3.4 mil-
lion tons last fiscal year, valued at $399 million.
Some of you may recall when the United States negotiated a zero duty binding
on soybean imports by the European Community during the Dillon Round
of trade negotiations in 1961 That zero duty binding caused little concern
on the part of the EC, largely because soybeans were not a particularly important
element in the livestock operations of European farmers. Our exports of soybeans
and products to what are now the nine members of the EC were running less
than 2 million tons yearly.
A program of education and technical help on the economic benefits of scien-
tific livestock feeding, using soybeans as a source of high protein meal, was
launched by the U.S. soybean industry and its FAS cooperator, the American
Soybean Association. Today, we are exporting close to 10 million tons of soy-
beans and products to the EC-9, and the Community would like nothing better
than to do away with the duty-free binding.
There are many other examples-Korea, for one, which the FAS cotton co-
operator has helped to turn into our No. 1 cotton export market, and where U.S.
farm exports have doubled in four years, thanks in part to the work of our
feed grain. soybean and wheat cooperators.
Today, of course, Europe and Japan are well-established as leading market.- for
U.S. agricultural products. The Department's emphasis is on maintaining our
position against the competition while at the same time looking for new opportu-
nities to increase shipments to these markets.
For example. after seven veers of negotiations and research involving U.S.M.
the cherry industries in Washington and Oregon, and the Government of
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96
Japan, the Japanese market has been opened to cherries, an important crop in
those Northwest states. The Japanese had banned the import of cherries from the
United States because of the presence of the codling moth. The joint U.S. effort
finally produced a method of fumigation and packaging that was acceptable to
the Japanese, and this year the U.S. industry for the first time sold cherries to
Japan. Shipments total 136,000 cartons with an estimated value of $2 million. This
is comparatively small in light of our total agricultural exports, but the demand
is there and this market will grow now that we have access.
There are other projects-for soybean oil, citrus juices and many other prod-
ucts-in the developed countries. However, the greatest opportunity for export
expansion today lies in the emerging markets of the centrally-managed economies
and the developing countries. We are giving increasing attention to them.
The U.S. Feed Grains Council has established a livestock feeding trial in the
Soviet Union, and the Council and the American Soybean Association have pro-
grams in Eastern Europe. These include an unusual feeding trial in Poland,
in which the U.S. Feed Grains Council has demonstrated that the fish yields from
Poland's carp ponds can be almost doubled if the carp are fed high energy and
protein pellets containing corn and sorghum instead of whole grain barley.
The same type of work-basic education and demonstration-is being stepped
up in the Middle East, Southeast Asia and Latin America, where the under-
developed state of the markets for agricultural products might be termed some-
what similar to that of Europe and Japan 20 years ago.
As just one example, cooperator work has put the United States into the
Malaysian wheat market, which has been a virtual monopoly of the Australians.
Under the sponsorship of FAS and Western Wheat Associates, Inc., the first
wheat team ever from Malaysia toured the U.S. last October, visiting all facets
of the wheat industry, from producer fields to export terminals. Before returning
to Malaysia one of the flour mill officials on the team bought the first full ship-
load of U.S. wheat ever sold to Malaysia. By last month, Malaysia had bought a
total of 55.000 tons of U.S. wheat since the team arrived in this country.
The Malaysian market is not large-averaging about 400,000 tons yearly-
bnt it is growing at the rate of about 7 percent a year, and we expect our market
share will continue to rise.
We in the Department also look upon the pending Agricultural Trade Act as
the most imaginative contribution to the agricultural market development effort
since the Trade and Development Act of 1954. With that legislation we will
have added tools to do the export job. Three examples will illustrate that
potential :
South Korea plans to buy 75,000 head of dairy and beef breeding cattle next
year. With the intermediate credit proposed in the Trade Act, we expect the
United States to obtain a substantial share of that business, which in the past
has gone mostly to Australia and Canada.
In the Middle East today, we have less than 10 percent of a processed food
market that is worth over a billion dollars. With a trade office in the Arabian
Peninsula," we think we can boost the U.S. share of that total to at least 25
percent.
The U.S. Feed Grains Council is convinced that with expanded resources it can
put programs into those emerging markets of which I spoke that will increase
total U.S. corn exports by one-third-from under 2 billion bushels per year to 3
billion bushels a year.
CONCLUDING COMMENTS
The U.S. agricultural export record has been good by almost any standards
that we mie-bt choose. But it can he better. Various proposals included in the
President's initiatives can help to make it better. The increase in the level of
CCC credit cited by the President is a direct stimulus to export growth.
The increased cooperator program funding and the Administration's determina-
tion to get, something for agriculture from the Geneva negotiations, if success-
ful, will also increase our ability"to expand exports.
Mr. Chairman. I have tried in these few minutes to indicate the importance
of agricultural trade to this country's total trade and to its economy, and to
indicate some of the things we have done and can do to increase U.S. agricul-
tural exports.
I would like to leave the Committee with " one final. thought. Our domestic com-
modity programs are predicated on strong export markets. Without these mar-
kets the adjustment problem for the agricultural sector would be quite severe.
Agricultural incomes"would be quite low, we would have a problem of surplus
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production; and budget costs would soar. It is for these reasons that a healthy
export position is so important to U.S. agriculture.
Representative LONG. Thank you, Mr. Schuh, and thank you all for
your comments.
I am convinced, as I think Senator Javits so eloquently stated, that
all of us have to exercise diligence to insure that this particular export
initiative is not allowed to degenerate into another cosmetic program.
I know that is not your intention, and I know that it is not the Presi-
dent's, but I do think that it is something that all of us have a great
deal of concern about, and I certainly know it is not the intention of
the Congress.
I will start off with an individual question that is a little bit of a
loaded question to Mr. Katz.
The President on Tuesday directed the Department of State and the
Departments of Commerce, Defense, and Agriculture to take export
consequences into account in considering export controls for foreign
policy purposes.
This gets into your thicket, and it is a thicket, as I well understand
and recognize it to be.
Does this mean that the export licenses and approvals are not going
to be held up indefinitely by nonexport-related considerations?
Let me be very specific. I read in Wednesday's Wall Street Journal,
as I am sure you did, that the decision to block the Allis-Chalmers sale
of turbines to Argentina had been reversed by the State Department,
and yet, my staff has not, nor have I been able to find any official
notification to that effect, and I wonder if the story in the Wall Street
Journal is an accurate story or not.
Mr. KATZ. Mr. Chairman, let me say, first, that your question is not a
loaded question. It is a very appropriate question. But you are right, it
is a thicket, and the reason for that is that we have a number of policies
in this country which conflict with one another, and this is one of the
serious problems that we have had to address.
Now, the fact of the matter is that export policy and the objective
of export performance have been down at the bottom of the priority
ladder.
Frank Weil put it at below a thousand. That is probably not very far
off, and the intention of the point in the President's program is to raise
the priority of export performance on a par with other policies.
We are not going to be able to say in the future, and we hope that the
country and the Congress will not say, "Oh, that only affects exports,
but there is this higher policy objective."
We are going to have to look at conflicting objectives in terms of the
effectiveness of the action.
I hope that we are going to be less concerned and interested with
withholding exports for symbolic reasons.
Now, that does not mean that the problem disappears. We are still
faced with the problem of looking at other policy interests, whether
they be strategic interests, or political problems, human rights, anti-
boycott legislation, legislation on terrorism, corrupt practices, all of
these policies that act as disincentives with respect to exports are not
going to disappear.
I don't think the Congress intends to clean the slate and reverse legis-
lative action taken over the last several years.
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But what the President's statement is intended to convey is that we
are going to give greater weight to export policy and we are going to
look at the effectiveness of export actions and not merely symbolic
actions.
Now, with respect to Allis-Chalmers, Mr. Moore can comment, but
the thrust of that story was correct.
Mr. MOORE. Yes. The reason you haven't seen anything more than
was in the Wall Street Journal is that the clearance was received from
the State Department early in the week, and the first board meeting
when we could take, the matter up was yesterday, and at that- board
meeting, there was an approval of two letters of interest on which
clearance had been received from the State Department.
Under our procedure, since the original communication to Allis-
Chalmers, the public utility in Argentina and in Paraguay had applied
to us directly, and under our procedures, the letter of interest will be
issued to them with copies to all companies in the United States who
are on the present qualified list.
Representative LONG. This is a tradeoff of priorities, then, insofar
as our policy considerations are concerned, and, perhaps, the first con-
crete example of a shift in those considerations that perhaps resulted
from this new concentrated study.
Is that a fair statement, Mr. Moore?
Mr. Moors. It would be hard to prove that, Mr. Chairman. I think it
is more a question in analyzing the situation in Argentina, the State
Department was happy to find some slight improvement and believes
there will be substantial improvements in the human right conditions
in Argentina.
It happened to come at the same time, and I don't know if Mr. Katz
could comment. I think it is more of what I just said than the other,
but, certainly, in all of these determinations in the future under the
President's directive, the desirability and need for exports is going to
be put higher in priorities, and I hope Congress will do the same thing.
Representative LONG. What improvement has there been in the
human rights situation in Argentina which justifies a radical depar-
ture from pr?established policies, Mr. Katz?
Mr. KATZ. Mr. Chairman, there have been continuing discussions at
a diplomatic level, and there are discussions also with the Human
Rights Commission, and Argentina, and we are confident that there
will be some development very soon which we think are steps in the
ri