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February
12,
1979
THE
UNITED
STATES TRADE I MBALANCE
THE
EXPORT
SIDE
INTRODUCTION
The U.S. merchandise t r ade d e f i c i t has det er i or at ed r api dl y
from a
$9
b i l l i o n s ur pl us i n 1975 t o a d e f i c i t of $34.19 b i l l i o n
i n 1978.
W i t h
t he concl usi on
of
t he Mul t i l at er al Trade Negotia-
t i ons ant i ci pat ed t h i s s pr i ng and t he submission of
i t s
t r ade l i b-
e r a l i z a t i on package
t o
t he
U.S.
Congress f or r a t i f i c a t i on,
it
seems
appr opr i at e
t o
examine
t he adequacy of cur r ent
American
t r ade
pol i -
cies wi t h r es pect t o t h e i r impact on t he t r ade bal ance. Thi s paper
focuses on t he expor t s i de
of
t he t r ade account, reviewing l egi s -
l a t i o n and pol i cy act i ons which appear
t o
hamper achievement of
t he goal s
set
f or t h
i n
Pr esi dent
Carter's
September
26,
1978
announcement
of
a
new
expor t pol i cy. The neces s i t y of formul at i ng
a
concise
and cons i s t ent expor t pol i cy becomes
clear
whi l e t he di f -
f i c ul t y i n performing such
a
t a s k,
which of t en r equi r es deci si ons
based on unpopular, monet ari l y i nt angi bl e gai ns,
remains.
AN
OVERVIEW
Discussion of t he
U.S.
bal ance of t r ade d e f i c i t has i ncreased
s i nce t he o i l boycot t and
OPEC
pr i ce
increases
of
1973-1974.
Y e t,
des pi t e t he a t t e nt i on which has been given t o
t he
matter,
t he
U.S.
t r ade bal ance pos i t i on cont i nues t o,de t e r i or a t e. Using t he Depart-
ment of Commerce f i gur es f or t he merchandise t r ade bal ance, s.imply
t he di f f er ence i n val ue between commodity expor t s
and
imports
(ex-
cl udi ng f or ei gn a i d and mi l i t ar y
sal es),
an alarming s h i f t occurred
from
a
$9
b i l l i o n s ur pl us i n
1975 t o
a
$31
b i l l i o n ne t expor t def i -
c i t
i n
1977.
The
l at es t
f i gur es r el eas ed f or 1978 r eveal a $28.45
2
b i l l i o n t r a d e d e f i c i t.
is agai n of s t a gge r i ng
Thus, t h e
U.S.
year-end 1978 t r a d e i mbal ance
pr opor t i ons.
The
U.S.
t r a d e d e f i c i t i n 1971, amount i ng
t o
$2.7 b i l l i o n,
marked t h e f i r s t
t i m e
s i n c e 1888 t h a t t h e n a t i o n's i mpor t s exceeded
i t s
e xpor t s.1 I n t h e af t er mat h o f World
War
11,
wi t h t h e U.S'.
f o s t e r i n g Mar shal l
Pl an
a i d and o t h e r r e c ons t r uc t i ve measures;
a
U.S.
t r a d e d e f i c i t coul d have been l ooked upon
as
anot her means
t o
assist
American
al l i es
i n f u r t h e r i n g t h e i r economic r ecover y.
Today, however, wl t h t h e growth o f worldwide economic i nt er depen-
dency, t h e t enuous p o s i t i o n of t h e d o l l a r i n t h e i n t e r n a t i o n a l money
mar ket s, t h e que s t i ona bl e t e c hnol ogi c a l s u p e r i o r i t y of t h e
U.S.,
t h e a n t i c i p a t e d
U.S.
c o n s t r a i n t s aimed
a t
cur bi ng domest i c i n f l a -
t i o n and no f or e s e e a bl e improvement i n t h e t r a d e bal ance, t h e
d e f i c i t
i s
i nc r e a s i ngl y accept ed
as an
economic t r e nd di s advant a-
geous f o r t h e Uni t ed St a t e s. At t e nt i on of t h e Pr e s i de nt and t h e
Congress
'
toward
addr es s i ng t h i s "problem"
seems
war r ant ed.
The i n i t i a l r esponse
t o
t h e que s t i on of why t h e
U.S.
is
r unni ng such
a
l a r g e t r a d e d e f i c i t i nva r i a bl y
stresses
t h e growing
expense of f or e i gn
o i l
i mpor t s, t h e l a r g e s t s i n g l e component
of
America's
i mpor t s. The
cost
of
o i l
purchased by t h e Uni t ed
St at es
rose
from
$7.6 b i l l i o n i n 1974
t o
$41.5 b i l l i o n i n 1977, account i ng
f o r t h i r t y pe r c e nt of
a l l
i mpor t s, and decr eas ed onl y s l i g h t l y
t o
$39.5 b i l l i o n i n -1978.2 Assuming t h a t
o i l
p r i c e s remai n c ons t a nt
i n
real
d o l l a r
t e r m s,
t h a t
OPEC
o i l
s uppl i e s cont i nue
t o meet
de-
mands, and al l owi ng f o r cons er vat i on measures and i nc r e a s e d expl or a-
t i o n, t h e Exxon company estimates t h a t from t h e e a r l y 1980's
o i l
and gas i mpor t s by t h e
U.S.
w i l l
be s uppl yi ng appr oxi mat el y one-
q u a r t e r o f
U.S.
ener gy r equi r ement s.3 Accordi ng
t o
a
CI A
r e p o r t,
i n 1978 t h e
U.S.
i mport ed
4 7
per cent of
i t s
ener gy needs. The
Exxon Company s t udy p r o j e c t s
a
s l i g h t i nc r e a s e i n t h e i mpor t per -
cent age i n t o 1980 wi t h t h e l e v e l remai ni ng hi gh t hrough t h e 1980's.
Comparisons
are
o f t e n made wi t h t h e ener gy r equi r ement s of
Japan and Germany,. c i t i n g t h a t whi l e t hey,
t oo, are
dependent on
f or e i gn
o i l
i mpor t s, t hey mai nt ai n
a
bal ance of t r a d e s ur pl us.
J apan, f o r i ns t a nc e, had an o v e r a l l t r a d e s ur pl us o f $17.3 b i l l i o n
1.
Congressional Quarterly, Congress and t he Nation,
Vol.
I V
(1973-19761,
p.
128.
2.. U.S. Congress, Senate,
Committee
on
Banking, Housing and Urban Af f ai rs,
Subcommittee on Int ernat i onal Finance, Hearings
on
Export Pol i cy,
Part
2, 95th
Congress, 2nd s e s s i on, February 23, 1978,
p.
70.
.3.
Exxon Background Servi ce, World Energy Outlook, April 1978,
p. 42.
. . -.
.. .
- -
. .... . . . .
3
i n 1977, wi t h
a
$8.1 b i l l i o n t r a d e s u r p l u s
vis-a-vis
t h e
U.S.
Japan has v i r t u a l l y no domes t i c
o i l
s u p p l i e s and i mpor t ed
o i l
which
account ed f o r
74
pe r c e nt of
i t s
ener gy s uppl y i n 1977.
pect ed t h a t Japan
w i l l
be
i mpor t i ng
6 1
pe r c e nt of h e r
o i l
re-
qui r ement s i n 1990. The r e f or e, t h e obs e r va t i on of J a pa n's suc-
c e s s f u l t r a d e ba l a nc e i n l i g h t of heavy o i l i mpor t s s houl d l e a d
one t o look
a t
o t h e r f a c e t s of t h e U.S. t r a d e f o r ways
t o
ameliorate
t he'U.S. t r a d e d e f i c i t s i t u a t i o n.
I t
i s
ex-
Upon
closer
i ns pe c t i on of t h e components of t h e U.S. ne ga t i ve
t r a d e
balance,
one f i n d s an uni mpr essi ve U.S. e xpor t growth
r at e
dur i ng t h e p a s t s e v e r a l ye a r s.
government o f f i c i a l s t h a t t h e r e c e nt f a i l u r e of
U.S.
e xpor t s t o
expand, r a t h e r t ha n t he 4i nc r e a s e i n pet r ol eum i mpor t s, ha s been
a
major
f a c t o r r e s pons i bl e f o r t h e t r a d e d e f i c i t.
grew onl y 5.2 pe r c e nt i n c o n t r a s t t o an 18 pe r c e nt growt h i n non-
o i l i mpor t s.
4
I t
has been pos i t e d by s e v e r a l
I n 1977 e xpor t s
The
U.S.
bal ance o f
trade,
viewed on
a
b i l a t e r a l b a s i s f o r t h e
With t h e non-OPEC devel o-
ye a r 1978, shows t h e f ol l owi ng: t h e U.S. t r a d e d e f i c i t wi t h t h e
OPEC
n a t i o n s narrowed, t o $14.05 b i l l i o n.
pi ng n a t i o n s, t h e U.S. t r a d e d e f i c i t decr eas ed
t o
$4.33 b i l l i o n.
The ba l a nc e wi t h Japan weakened f u r t h e r
as
t h e d e f i c i t on t h e
U.S.
s i d e r os e from $8.1 b i l l i o n
t o
$11.57 b i l l i o n.
vi s - a- vi s Canada changed s i g n i f i c a n t l y
as
t h e d e f i c i t grew t o $5.16
b i l l i o n. Moreover, t h e t r a d e s'urpl us wi t h t h e West ern European
c o u n t r i e s f e l l from
$6.2
b i l l i o n t o $3.45 b i l l i o n.5
The U.S. p o s i t i o n
Var i ous f a c t o r s i nvol ved i n t h e d e t e r i o r a t i n g e xpor t
a bi l i t i e s
of
t h e U.S. and t h e growing bal ance of payments probl ems
are
examined
below.
I MP OR T A N C E
OF
E X P O R T S
Even t hough
America's
major
t r a d i n g p a r t n e r s have not ke pt
pace wi t h t h e r e c e n t
U.S.
economic growt h, t hus s t a g n a t i n g f or e i gn
demand f o r
U.S.
e x p o r t s, t h e absence
of
a
d e f i n i t i v e U.S. "e xpor t
promot i on pol i cy". c o n t r i b u t e s f u r t h e r t o t h e ne ga t i ve t r a d e bal ance.
America
has never viewed e xpor t a t i on a s an economic n e c e s s i t y.
With e xpor t s account i ng f o r appr oxi mat el y
7
pe r c e nt of
U.S.
compared t o
1 4
and
22
pe r c e nt
of
J a pa n's
GNP
and Germany's
GNP
r e s p e c t i v e l y, t h e r e has been an obvi ous d i f f e r e n c e i n t h e amount of
GNP
as
I
~~~
4.
Nightmare," National
Journal,
Jul y
29,
1978,
p.
1201.
Robert
Samuelson, "The
Move
to
Push U.S.
Exports
Becomes
a Bureaucratic
5.
1978
fi gures obtained
from
the Department
of
Commerce.
.
4
emphasis pl aced on export promotion by
the
vari ous governments.
While not advocat i ng t h a t t he
U.S.
government adopt
t he
exact pol i -
cies
of vari ous f or ei gn governments, t he char t
below
r eveal s
what gai ns t he
U.S.
might expect i n quant i t i es of export s
i f
gov-
ernment support
of
some
t ype
wa s
i ncreased.6
EXPORTS
FOR
1977
PERCENTAGE
OF EXPORTS
SUPPORTED
U.S.
$
BILLIONS
BY
THE
GOVERNMENT
Japan
81
Br i t a i n
57
France
65
Germany
119
U.S.
1s
0
Canada
43
42
34
30
12
7
6
Acknowledging
what
t he above f i gur es
i l l us t r at e,
Pr esi dent
Carter
i n h i s
1977
I nt er nat i onal Economic Report
st at ed
t hat
i n
1975
America's
major
t r adi ng par t ner s spent an average of
SO
percent more
t han t he U.S. f or t he promotion of manufactured export s.
Examination of t he fol l owi ng
selected
s t at i s t i cal
data
r eveal s
the
importance of expor t s
t o
t he domestic economy. One out of every
t hr ee
acres
of cul t i vat ed farmland i n
America
is
used f or export s.
I n
1977,
t he
U.S.
export ed
45
percent of
its
wheat product i on,
60
.
percent of
i t s
soybeans,
and
57
percent
of i t s
milled
rice.
E s t i -
m a t e s
for
FY
1978
show
f a r m expor t s i ncr easi ng by t en percent above
t he
1977
l evel s wi t h t he gr eat es t
rise
i n expor t s t o
t he
USSR,
Taiwan, and t he developing count r i es of Sout heast and
E a s t
Asia.7
According
t o
C.
Fred
Bergsten, As s i s t ant Secr et ar y
of
t he Treasury
f or.I nt er nat i ona1
A f f a i r s,
one out of
three
dol l ars
of
U.S.
corporat e
p r o f i t
is
gained through t he
overseas
a c t i v i t i e s
of
American
f i r m s'
from expor t s
or
direct
busi ness investment
abroad.
One out
of
every
t en
jobs
i n
America
is
r el at ed t o export commodities, and i n manu-
f act ur i ng t he percent age
i s
gr eat er, one out of s i x. The Bureau
of
Labor
St at i st i cs
estimates
t ha t
f or every one b i l l i o n
dollars
of
real
U.S.
expor t s,
30,000
new
jobs
are
cr eat ed.
The
Comerce
Department report ed t h a t U.S. expor t growth has
averaged
7
per cent annual l y s i nce
1974,
w h i l e
imports have si mul t a-
neously averaged an annual growth
rate
of
13.5
percent.
A
more
6.
Export-Import
Bank
statistics
c i t e d i n Business Week, September 25, 1978,
p. 62.
7.
U.S.
Department
of Agriculture,
World Economic Conditions
in
Relation
to
Agricultural
Trade,
December
1978,
p.
8.
5
p e s s i mi s t i c p i c t u r e appear s i n
a
r e c e nt r e p o r t by t h e Nat i onal
As s oci at i on of Manuf act ur er s. Thi s
report
r e ve a l e d no
real
e xpor t
growth i n 1977,
a
year wi t h r e l a t i v e l y hi gh domest i c growt h, and
i n which i mpor t s grew by
1 2
per cent.8 Fur t he r, t h e
U.S.
s h a r e of
f r e e worl d e xpor t s de c l i ne d from
18.2
pe r c e nt i n 1960
t o
11.8 per -
c e n t i n 1977. With appr oxi mat el y 200 f i r ms account i ng f o r sevent y-
f i v e
t o
e i g h t y pe r c e nt of
t ot a l
U.S.
export s,
a
comprehensi ve
ex-,
p o r t promot i on pol i c y
i s
needed
t o
c a p i t a l i z e upon t h e f u l l p o t e n t i a l
of p r i v a t e i ndus t r y.
TABLE
1
--
U.S.
EXPORTS
OF
MAJOR
COMMODITIES, 1974-77
( Bi l l i o n s of Dollars, f.a.s. t r a n s a c t i o n va l ue )
Commodity
.
1974 1975 1976 1977
Export s, t ot a l 1
...............
$97.9
$107.1 $114.8 $120.1
0
Nonagr i cul t ur al pr oduct s
......
76.2 85.5 91.7 95.9
Tr ans por t equi pment,
t ot al....
12.7
15.0
1 6.2
16.2
Tot al
o f which manufact ured
goods
........................
63.5 71.0 77.2 80.5
Chemi cal s,
t ot a l
..............
8.8 8.7
10.0
10.8
Ot her nona gr i c ul t ur a l pro-
duc t s,
t ot a l
.................
30.4 32.7 33.5 35.6
Agr i c ul t ur a l pr oduct s,
t ot al..
22.3
2 2.1
23.3
2 4.2
1.
Tot al s
excl ude
--
commodities
i ncl ude
--
gr ant - ai d shi pment s.
Department
of
Commerce f i g u r e s t aken from Hear i ngs on Expor t Pol i cy-
P a r t
2.
U.S.
EXPORT P O L I C Y
The
U.S.
post-war e f f o r t s as p a r t i c i p a n t s on an i n t e r n a t i o n a l
l e v e l
t o
e s t a b l i s h
a
commercial
pol i c y advocat i ng t r a d e l i b e r a l i -
z a t i on began wi t h t h e s i gni ng i n 1947 of t h e General Agreement on
Ta r r i f f s and Trade
( GATT).
An i n t e r n a t i o n a l
commercial
pol i c y
set
8.
U.S. Congress, House,
Committee
on Banking, Finance, and Urban Af f ai rs,
Subcommittee on International Trade
,
Investment, and Monetary Policy
,
Trade
Policy and Protectionism,
95th
Congress, 2nd s es s i on, July
25,
26,
August
1,
1978,
p. 29.
6
f or t h under
GATT
gui del i nes i ncl udes a system of custom val uat i ons,
an uncondi t i onal most-favored nat i on cl aus e, quant i t at i ve
restric-
t i ons on
t he
use of t a r i f f s, and pr i nci pl es f or s et t l ement
of
t r ade
di s put es, arranged through i nt egr at ed
bi l at er al
agreements.
Pri or
t o
t he Mul t i l at e.ra1
Trade
Negot i at i ons cur r ent l y t aki ng
pl ace i n Geneva, s i x rounds of
trade
negot i at i ons
were
concluded
under t he auspi ces of
GATT.
Subs t ant i al gai ns
were
made i n t he
1967
Kennedy Round of agreements toward reduci ng
t ar i f f
l e ve l s
re-
s ul t i ng i n cur r ent average t a r i f f s of
9
percent i n t he
U.S.,
1 4
percent i n Canada,
11
percent
i n
Japan, and
9
per cent i n t he
European Comunity.9 Ta r i f f s, however,
are
onl y
t he
m o s t
vi s i bl e
t ype
of
r e s t r i c t i v e measure af f ect i ng expor t s. I ncr easi ng use by
t h e
me mb e r
par t ner s of
GATT
of nont ar i f f
barriers
t o
trade
( NTB's )
such
as subsidies,
cont er vai l i ng dut i es, custom r egul at i ons, and
pr ef er ent i al government purchasing,
has
generat ed
a
f eel i ng
sthat
pr ot ect i on
is
becoming
a
pr evai l i ng a t t i t ude i n i nt er nat i onal
trade
pol i cy consi derat i ons.
TRADE
ACT
OF
1974
The
Trade
A c t
of
1974
(PL
93-916) aut hori zed t he Pr esi dent t o
ent er i nt o negot i at i ons aimed
a t
f ur t her reducing t a r i f f and
NTB
r e s t r i c t i ons over
a
fi ve-year peri od and
also
i ncreased
hi s
aut hor-
i t y t o el i mi nat e and reduce vari ous t a r i f f r e s t r a i nt s. Under
t h i s
aut hor i t y
the
U.S.
i s
cur r ent l y engaged i n
t he
m o s t comprehensive
t al ks
t o
date,
at t empt i ng t o achieve l i be r a l i z a t i on of t r ade pol i ci es.
Th i s
Ac t,
never t hel ess, complicates e f f o r t s toward
trade
li-
ber al i zat i on by l egal i zi ng t he use of s i gni f i cant cont r ol s i n t he
fol l owi ng s i t uat i ons.
The
Pr esi dent
i s
grant ed aut hor i t y
t o
impose
cor r ect i ve measures, such
as
import
subsidies
and quot as, f or a
150 day peri od i n
a
t i m e
of extreme
U.S.
bal ance of payments
def i -
ci t.
Furthermore,
he
may resort t o r e t a l i a t or y act i ons agai ns t
unreasonable use
of
r e s t r i c t i v e measures by f or ei gn governments
t ar get ed a t U.S. goods.
The
most
cont r over s i al s ect i on
of
t he
Trade
A c t
deal s
w i t h
t he
ext ensi on
of
pr es i dent i al aut hor i t y
t o
of f e r any count ry
mo s t -
favored-nation
trade
s t a t us.
Th i s
broad
opt i on
i s
l i mi t ed
by t he
Jackson-Vanik amendment t o count r i es wi t h non-market economies who
do
not engage i n r e s t r i c t i v e emi grat i on pol i ci es.
9.
Raymond Ahearn and George Holliday, "Trade Negotiations: The
Tokyo
Round,"
Congressional
Research
Service, Library
of
Congress, November 14,
1978, p. 3.
7
Addi t i ona l l y, t h e
cri t eri a
e s t a b l i s h i n g e l i g i b i l i t y f o r
i n-
d u s t r i e s t o
claim
compensat i on from f or e i gn i mpor t compet i t i on
i n j u r y
w e r e
r e l a xe d, which coul d i n c r e a s e t h e p r o t e c t i o n a f f or de d
domes t i c i n d u s t r i e s.
U.S.
l oa ns, c r e d i t s, and i ns ur a nc e guar ant ees
t o Communist n a t i o n s
were
l i mi t e d, wi t hout new c ongr e s s i ona l
appr oval,
t o
$300
mi l l i on.
EXPORT A DMI NI S T RA T I ON ACT
The Expor t Admi ni s t r at i on Amendments o f
1977
(PL
95-52) r e pl a c e d
t h e Amendments of
1969,
which had been des i gned
t o
f u r t h e r
E a s t -
West
t r a d e. Thi s
l a w
st at es
t h a t i n a dmi ni s t e r i ng e xpor t c o n t r o l s
t h e Pr e s i de nt s houl d not bas e de c i s i ons s o l e l y on t h e Communist--
non-Communist s t a t u s of
a
c ount r y, b u t must c ons i de r t h e c o u n t r y's
h i s t o r y of f r i e n d s h i p t oward t h e
U.S.,
i t s
t r'ade r e l a t i o n s, and
i t s
i mpor t ance t o
U.S.
n a t i o n a l s e c u r i t y. Expor t c o n t r o l s f o r
n a t i o n a l s e c u r i t y r eas ons
are
banned from p r e s i d e n t i a l us e on
U.S.
pr oduct s which
are
a v a i l a b l e el s ewher e i n comparabl e q u a n t i t i e s
and q u a l i t i e s, unl e s s he can a s s ur e t h e absence of such c o n t r o l s
would be hazar dous
t o
U.S.
s e c u r i t y.
,
T i t l e
I1
of t h e s e Amendments d e a l s wi t h t h e c o n t r o v e r s i a l
f or e i gn boyc ot t r e gul a t i ons. While t h e pr ovi s i ons
are
complex and
unc l e a r,
it
may
be
ge ne r a l l y s t a t e d t h a t American f i r ms may not com-
p l y wi t h, o r i n any way s uppor t
a
boyc ot t f o s t e r e d
or
imposed by
a
f or e i gn count r y a g a i n s t
a
n a t i o n which
is
f r i e n d l y t o t h e
U.S.
Much di s c us s i on ha s sur r ounded t h i s pr ovi s i on,
as
r e l a t e d t o
U.S.
t r a d e i n t h e Middle
E a s t,
i n view of t h e
A r a b
boyc ot t of
Israel.
It
i s
d i f f i c u l t
t o
measure t h e
cost
of r e s t r i c t i n g
U.S.
e xpor t
growt h i n t h e Middle
E a s t
where
a
market newly g l u t t e d wi t h pe t r o-
d o l l a r s
i s
anxi ous l y l ooki ng f o r ways
t o
absorb
t h e growing weal t h.
These amendments i l l u s t r a t e t h e d i f f i c u l t y i n i mpl ement i ng
e xpor t c o n t r o l s based e x c l u s i v e l y
on
economic o r on n a t i o n a l s e c u r i t y
c ons i de r a t i ons. Ca r e f ul and bal anced judgement r e ga r di ng bot h of
t h e s e c ons i de r a t i ons
i s
v i t a l i n or de r
t o
y i e l d p o s i t i v e t r a d e
e f f e c t s on bot h
a
s hor t - t er m and l ong-t erm b a s i s.
THE EXPORT- I MPORT BANK
The Expor t - I mpwt Bank of t h e Uni t ed
St at es,
o r i g i n a l l y
es-
t a b l i s h e d i n 1934 by an e xe c ut i ve or de r
w a s
de s i gna t e d an i ndepen-
de nt government agency i n 1945. The Bank assists t h e expans i on of
U.S.
e xpor t s by f i na nc i ng t h e pur chas es of
U.S.
goods by f or e i gn
government s.
f o r p o l i t i c a l c ons i de r a t i ons. Si nce
1974
t h e Bank has been pr ohi bi t e d
The Bank ha s not been immune from r e s t r i c t i o n s imposed
.-
a
from
f i nanci ng any
trade
w i t h
non-market economic count r i es
which
pr act i ce r e s t r i c t i v e emi grat i on
policies.
PL
95-143
r equi r es
t hat
a
nat i on's human
r i ght s
pol i cy
be
consi dered
before
any t r ansac-
t i o n
w i t h t hat
nat i on
is
approved by
t he
Bank. Most r ecent l y
t he
Bank's approval of f i nanci ng
trade w i t h
any communist count ry
has
been
made
subject
t o
a pr es i dent i al det ermi nat i on
t hat
such
a
t r ans -
act i on
is
i n
t he
nat i onal i nt e r e s t.
The
Bank
is
cur r ent l y open
f or
trade
w i t h
Poland, Yugoslavia, Hungary and Romania. Additionally,.
t he
Bank
is
prohibited
from making cont r act s
or
expendi t i r es
for
expor t s
of
nucl ear equipment, f uel,
or
technology t o any count ry
not
deemed
el i gi bl e
for
such
receipt
under
t he
provi si ons
of
t he
Treat y on
t he
Non-Prol i ferat i on of Nuclear Weapons.
While
t he
i m-
pos i t i on
of
such
pol i t i cal
consi der at i ons upon
t he
Export-Import
Bank's f i nanci ng procedures could
be
const rued
as
cons i s t ent
w i t h
the
Admi ni st rat i on's f or ei gn pol i cy obj ect i ves, t hey never t hel ess
serve
t o
Gomplicate
t he
oper at i on of an i ns t i t ut i on
established
for
economic purposes
t o
promote
t he
expansion
of
U.S.
expor t s.
. U.S. TAX STRUCTURE
The
United
States
t a x s t r uct ur e regardi ng
both
corporate
and
personal t axes
of
those
involved
w i t h
expor t at i on
has
evoked
cr i t i -
c i s m.
DISC,
Do me s t i c
I nt er nat i onal
Sale
Corporat i ons, or i gi nat ed
i n
1 9 7 1
and
t hei r
oper at i onal r egul at i ons have been subsequently
amended i n
1974
and
1976.
The
DI SC
program,
which
is
the
onl y ex-
port
t a x i ncent i ve,
has
undergone r educt i ons i n
i t s
deferment pl an
and
is
now
t he
t arget
of
a three-year phase-out pl an
by
t he
Admini-
s t r a t i on.
DI SC
qrovides
t ha t
cor por at i ons
w i t h
95
percent of
their
assets
related
t o
expor t s and a minimum
of
19
percent of
their
gross
income deri ved
from
export
sales
or
lease
t r ans act i ons may
defer
a
proport i on of year l y cor por at e ear ni ngs
from
t axat i on
for
a
speci-
fi ed
number
of
years.
The
Admi ni st rat i on
does
not
wi s h
a
repeat
of
t he
FY
1977
$1
b i l l i o n revenue
loss from
DISC,
and
is
t her ef or e
advocating
its
t ermi nat i on.
DI SC,
as
t he
onl y t a x i ncent i ve i n
force,
acts
t o
count er
t he
VAT,
t he
val ue
added
t a x program used
i n
t h e
European Community, and
is
t hus viewed as a us ef ul program
by many expor t er s i n
t he
busi ness
community.
PL 95-615
amended
t he
provi si ons set
f or t h
i n
t he
Tax
Re f o r m
A c t
of
1976
regardi ng t axat i on of
U.S.
c i t i z e ns l e ga l l y r es i di ng
abroad.
For
these
c i t i z e ns
there
is
no l onger a
f l at
excl usi on
from t axat i on, i ns t ead excl usi ons
are grant ed
for
excess
cost
of
l i vi ng
i t e m s
i ncl udi ng housing, educat i on, and t r ans por t at i on
t o
t he
U.S.
for
home
v i s i t s.
These
deduct i ons
are
based
on excess
cost
of
l i vi ng expendi t ures over!
t he
cost
of
one person
w i t h
a
GS-14
income l evel of approximately
$34,442
t aki ng i n t o consi der at i on
t he
cost
of l i vi ng i n
t he
most
expensive
U.S.
c i t y.
-. .. ..
I
9
The
d e c l i n e i n
t h e
val ue of
t he
dol l ar
abroad
combined
w i t h.
fewer
t a x exempt i ons f o r
U.S.
ove r s e a s workers have
decreased
t h e
a t t r a c t i v e n e s s of employing
U.S.
t e c hni c a l and manager i al per s onnel
i n
U.S.
f or e i gn s ubs i di a r i,e s
as
w e l l as
f or e i gn companies.
The
U.S.
t a x s t r u c t u r e r egar di ng American
wor ker s
ove r s e a s undul y
bur dens
t h e
compet i t i venes s
of
American bus i ne s s e s
abroad.
None
o f t h e
major
i n d u s t r i a l na t i ons wi t h
whi ch
we
compete r e q u i r e s any
t a x on f or ei gn- ear ned income
aft er
t he
f i r st
si x-mont hs.
With
t h e
c u r r e n t t a x s t r u c t u r e,
t he
U.S.
may
be
p r i c i n g American
wor ker s
o u t
of
f or ei gn
mar ket s,
as
it
is
becoming cheaper
t o
h i r e n a t i o n a l s
wi t hi n
a
f or e i gn count r y even i f t hey
are
less
e f f i c i e n t wor ker s.
THE FOREI GN CORRUPT PRACT I CES ACT
OF
1977
The For ei gn Cor r upt
Practices
A c t
of 1977
wa s
an at t empt
t o
h a l t
t he
us e
of
br i be r y
t o
f u r t h e r American bus i ne s s ve nt ur e s
abroad.
Hoyever, ambi gui t i es i n t h e
l a w
have r e s u l t e d i n an a t t i t u d e of
unc e r t a i nt y on
t he
p a r t
of
many American
f i r m s,
t hus a c t i n g
as
a
.
d i s i n c e n t i v e
f or
e xpor t expansi on.
The
A c t
f or bi ds t he
gr a nt i ng
of
payments
or
g i f t s by American c or por a t e o f f i c i a l s
t o
f or e i gn o f f i -
ci al s or
p o l i t i c a l pa r t y
members
w i t h
t he
i mpl i ed mot i vat i on bei ng
t o
o b t a i n
or
r e t a i n bus i ne s s. S t i f f p e n a l t i e s f o r v i o l a t i o n
of
t h e
A c t
i ncl ude
a
$ 1 mi l l i o n f i n e on
a
c or por a t i on
or
$10,000
on an
i ndi vi dua l.
The
A c t
f a i l s
t o
d e f i n e c l e a r l y
t he
scope
of
a c t i o n s
done "c or r upt l y" and
whet her
or
not American f i r m s
are
l i a b l e
f o r
t he
a c t i o n s of
t h e i r
f or e i gn s u b s i d i a r i e s and
local
a ge nt s used
as
i nt e r me di a r i e s i n ne got i a t i ng bus i ne s s
deal s.
T h i s
l ack
of
c l a r i t y
caus es
some
American bus i ne s s e s
t o
be r e l u c t a n t
t o
c ons i de r openi ng
new f or e i gn ve nt ur e s.
H I GH TECHNOLOGY EXPORTS
High
t echnol ogy e xpor t s, i nc l udi ng comput ers, engi nes,
elec-
t r o n i c s, a i r c r a f t, dr ugs, and pet r ochemi cal s
i s
an
area
of growing
i mport ance f o r
t h e
expansi on
of
U.S.
t rade,
and
w i l l
become
i n-
c r e a s i ngl y s i g n i f i c a n t
i f t h e
U.S.
wi s hes
t o
expand
trade
w i t h
t he
Sovi e t Union and Chi na.
These
goods,
i f
viewed i n i s o l a t i o n
f or
t he
p a s t f e w ye a r s, have pr ovi ded
a
s ur pl us on
t he
o v e r a l l t r a d e
bal ance,
w i t h t he
except i on
of
t h e
U.S.
bi l at er al
bal ance
w i t h
Japan. The aer os pace i n d u s t r over
t he
p a s t e i g h t ye a r s
ha s
pro-
vi ded
$52
b i l l i o n i n e xpor t s.
yo
The
ma j or i t y
of
these
t e c hni c a l -
i n t e n s i v e commodi t i es r e q u i r e an i ndi vi dua l va l i da t e d l i c e n s e
f r om
t he
Department of
Commerce.
N o t
onl y
has
t he
l i c e n s i n g pr oces s
be-
come
an e x e r c i s e i n bur e a uc r a t i c
t i m e
de l a ys, o f t e n caus i ng
t he
loss
of
a
c o n t r a c t f o r f a i l u r e
t o
meet
de a dl i ne s, but these pr oduct s
have r e c e n t l y
become
t he
c e n t e r of cont r over s y between
t he
va r i ous
government agenci es char ged
w i t h
appr oval
of
t h e i r
sal e.
10. Robert Hotz, "Carter's
Ex p o r t
Muddle," Aviation Week and Space Technology,
August
7,
1978,
p.
9.
--
. -. . .
10
I n
1978
t he
Departments of Commerce and
State
we r e a t
odds
over
the
sale
of t r ucks by
t he
Oshkosh
Truck Company
of
Wisconsin
t o
Libya. The
Commerce
Department had approved t he
sale
which
consi st ed of approximately
400
t r ucks
a t
a pr i ce of
$70
mi l l i on
wi t h t he pos s i bi l i t y of provi di ng an addi t i onal
100
t r ucks over a
t hree-year peri od. The
St at e
Department refused t o approve
t he
sale
on t he.grounds
t ha t
Libya,
a
support er of i nt er nat i onal
terrorist
groups such
as
t he Pal es t i ne Li ber at i on Organi zat i on,
might use t he heavy t r ucks
t o
t r ans por t Soviet t anks. I n such
cases
di s put es
are
ul t i mat el y s e t t l e d i n t he White House. Upon
r ecei pt of an "assurance" by t he Libyan government t h a t t he t r ucks
woQld not
be
used f or mi l i t ar y purposes Pr esi dent
Carter,
a t
t he
end
of
November, announced t h a t t he
sale
would go through.
It
i s
worth mentioning her e t ha t i n March
1973
t he United
States,
under
t he auspi ces of t he
Chase
Manhattan Bank, extended a
$86.5
mi l l i on
l oan
t o
t he Sovi et Uni ont o hel p fi nance t he const r uct i on of t he
Kama
River Truck complex, one of t he
world's
l ar ges t.
It
is
cur i ous t h a t
no
obj ect i ons
were
then r ai s ed by t he
U.S.
government,
f o r t he support gfven
t o
t h i s t r uck i ndust ry,occurred dur i ng t he
Vietnam
War
when t r ans por t at i on equipment wa s undoubtedly suppl i ed
from t he
Soviets
t o t h e North Vietnamese. Furthermore, i n t he
Libyan i nci dent, such i ndeci si on on t he pa r t of t he agenci es i n-
volved
creates
immeasurable uncer t ai nt y i n t he minds of business-
men
as
t o
whether
or
not
their
deals
w i l l
indeed
be
approved.
Ti me
f act or s
are cri t i cal
i n negot i at i ng cont r act s i n
a
compet i t i ve
8
market and del ays due
t o
i ndeci si on can r e s u l t i n i nadver t ent con-
t ract
losses.
Another i nci dent exposing waf f l i ng wi t hi n
the
Admi ni st rat i on
involved an expor t
deal
w i t h
t he Sovi et Union
w i t h
r es pect
t o
o i l
technology. .During t he di s s i dent
t r i al s
of Anatoly Shcharansky
and Alexander Ginzburg i n
t he
summer
of
1978,
Pr esi dent
Carter,
at t empt i ng
t o
use economic r e s t r a i nt s t o r el ay American discon-
t e n t, pl aced
a l l
expor t s of
o i l
technology t o t he USSR under
U.S.
government cont r ol.
A
deal
wa s
t hen underway between Dresser
.I ndus t r i es
of
Dallas
and
the
USSR
i nvol vi ng
metal
b i t s
for
d r i l l i n g
at
t he
cost
of
$144
mi l l i on.
The
sale
wa s or i gi na l l y
hel d
up
a t
t he
St at e
Department on human
r i ght s
consi der at i ons.
State
Department and
Commerce
Department f i na l l y agreed t o approve
t he t r ans act i on, Senat or Henry Jackson (D-Wash.) and t he Ener gy.
Department r ai s ed,obj ect i ons. The di s put e agai n
wa s
settled
i n
t he White House wi t h a September
6,
1978
announcement by
t he Presi-
dent
t hat
th'e
deal
had
been approved.
L a t e r
i n
t he f a l l
Secr et ar y
of
t he Treasury Blumenthal and Secr et ar y of
Commerce
Kreps approved
twenty-two l i cens es f o r energy pr oj ect s.
t h e
U.S.
from
a
$270
mi l l i on
deal.
Earl y i n
1978,
t he
Export-Import
A f t e r
t he
Human r i ght s consi der at i ons i n anot her
case
may have excluded
11
Bank
w a s
asked
by
the Allis-Chalmers Corporation
to
finance their
purchase
of
$270 million worth of power turbines and generating
equipment for use in a newly-planned hydroelectric plant to be
built on the border of Argentina and Paraguay. According to con-
gressional action the Bank, being forced to consider human rights
violations in each transaction, consulted with the State Department,
which'objected on the grounds of Argentina's human rights viola-
tions. Although no final decision has been made, the Allis-
Chalmers Corporation has stated they might be forced to turn else-
where
for
the needed supplies. Not only might the
U.S.
lose this
deal, but the time delays and uncertainty regarding the application
of human rights considerations will likely discourage American
business in this region.
.'
A
S P E C I F I C A P P L I C A T I O N
OF
E C O N O M I C
S A NCT I ONS
Economic sanctions, when judiciously applied, can be used
successfully to further American fo.reign policy'objectives abroad.
One such application, however, raising questions concerning the
tangible benefits accrued from the policy and implications for the
future
U.S.
trade balance, involves the territory of Namibia.
In 1966, the United States supported a United Nations Reso-
lution which revoked South Africa's mandate to rule the territory
of
Namibia.
This
resolution was upheld in 1971 by the Interna-
tional Court
of
Justice. In an attempt to expedite establishment
of a stringent timetable for Namibian self-dependence by South
Africa, the
U.S.
,government announced in May 1970 that future
U.S.
private investments in the territory would be officially discouraged.
Further, the Overseas Private Investment Corporation would no longer
guarantee
U.S.
investements in Namibia against future expropria-
tion. The Export-Import Bank was also prohibited from financing
credits for trade in South West Africa. American adherence to
the UN Security Council Resolution 310 of February 1972, which
required "all states whose nationals and corporations are operat-
ing in Namibia to use all available means to ensure that such
nationals and corporations conform in their policies
of
hiring
Namibian workers to the basic provisions
of
Universal Declaration
of
Human Rights" added another policy for Gerican businesses in
Namibia to factor into their operations.
The chart below was provided in 1976 by the Commerce Depart-
ment as an estimate of the existing mineral wealth in Namibia.
It is the acquisition and development of these minerals that
American investors are being discouraged from seeking.
12
Copper reserves are estimated at two million metric
tons with annual output totaling about 32,000 metric
tons.
Lead reserves are estimated to be relatively small.
Annual production is around 60,400 metric tons.
Diamond reserves total about five percent of the
total world reserves of diamonds. Annual production
is approximately
1.5
million carats
of
gem diamonds
and
80,000
carats of industrial diamonds.
production is estimated at 1.5 million troy ounces
annually.
annualsoutput reaching 40,000 metric tons.
Silver reserves are
15
million troy ounces, and
Zinc reserves are about
300,000
metric tons with
There are no'statistics on the production of
uranium, but it is
estimated
that Namibia has about
five percent of the total world reserves of that mineral.*
*
Resources in Namibia: Implications for U.S. Policy, hearings
before the Subcommittee on International Resources, Food, and Energy
of
the Committee on International Relations, House of Representatives,
June
10,
1976.
It has. been reported that between 1974 and 1976 five U.S. oil
corporations which possessed exploration rights withdrew their opera-
tions from the Namibian coast. The political uncertainties were
mentioned as a factor prompting these actions. More significantly,
it has been estimated that Namibia will be exporting approximately
'
$24 billion in uranium by the late 1980's. With U.S. corporations
not actively participating in the development of this uranium, the
British have entered the market and have invested large amounts in
the Rossing Uranium Mine, expected to become the world's largest.
The British company has rapidly been reimbursed for sales of techni-
cal equipment as part of a $175 million investment. The question
to be raised in this context is whether or not the U.S. might be
inflicting unnecessary economic sanctions against its own businesses
who specialize in mineral extraction equipment.
While a quantitative assessment of potential American benefits
derived from the ultimate political settlement in Namibia, as well
as potential economic losses from America's self-exclusion from the
mineral market is not available, once again the policies of the U.S.
13
toward Namibia exhibit the types of considerations which must often
be addressed in formulating a politically and economically sound
policy, an admittedly arduous task.
E N V I R O N M E N T A L C O N S I D E R A T I O N S
The growing concern over the necessity of implementing stricter
environmental standards within the U.S. has widened in scope
to
in-
clude the environmental effects of U.S. exports abroad. Many of the
U.S.
regulatory agencies, such as the Food and Drug Administration
and the Consumer Product Safety Commission, have authority to ban
exports
of
hazardous materials. The possibility of requiring the
Export-Import Bank to file Environmental Impact Statements on each
proposed transaction has been discussed.
On January 4,
1979,
President Carter issued Executive Order
12114, entitled "Environmental Effects Abroad of Major Federal
Actions."
taking actions "having significant effects on the environment out-
side the geographical borders of the United States" must be able
to implement the requirements set forth in the Order. Exempted
.
from this Order are actions taken by the President, arms transfers
and intelligence activities, the export licensing process, and
emergency disaster reli.ef. Agencies financing exports, such as the
Export-Import Bank, will be required to comply with the procedures.
While this Order is not expected to severely curtail the Bank's
financing of most commodity exports, project financing may be in-
volved. For example, will the financing of an industrial plant in
one country which might pollute a river flowing into a third coun-
try be prohibited?
Within eight mpnths of this order every Federal Agency
Although there has not been sufficient time for an assessment
of
the implications
of
this Executive Order, it can be assumed that
additional time delays resulting from paperwork will occur and
costly environmental impact statements, if required, could weaken
the price competitiveness of some exporters. It will first be
necessary to define what "significant effects" with respect to the
environment include. While the U.S. may be attempting to raise
the conciousness
of
foreigners to the environmental consequences of
their actions, the U.S. must also draw a line somewhere between
social responsibility and excessive bureaucratic interference.
Three additional statutes relevant to exportation must be
in-
cluded in this review. First, the United States antitrust laws
make the
U.S.
the only nation which prohibits firms from jointly
bidding on overseas operations, thus extending national antitrust
laws on an extra-territorial basis. Even while the Webb-Pomerene
Act, in existence since 1918, exempts the formation of Export Trade
14
Associations from the Sherman Antitrust Act provided that such
associations do not weaken competition within the U.S., the out-
dated wording of the Act discourages formation of such associations.
Secondly, most nations have some type of "buy-domestic" pre-
ference policy, whether invisible or visible. .The Buy American Act
of
1933 illustrates such a preference. The Department of Defense
now gives
50
percent preference to domestic products. Legislative
efforts to extend preference purchasing through restrictions attached
to federal grants awarded states and government agencies recently
failed, but are expected .to resurface. Such a restriction automa-
tically limits
U.S.
participation in the world trading market for
commodity items.
Thirdly, it is important to recognize that in the second session
of the 95th Congress,
HR
11711, which would have provided an exten-
sion of the waiving of countervailing duties by the President in.
conjunction with the Treasury Department, failed to pass. This
specific action has caused the European Economic Community to re-
fuse to complete the Multilateral Trade Negotiations. Unless action
on this measure is taken
by
Congress, the U.S. will be required to
impose countervailing duties on many export products from the EEC.
Of special concern to the Community are their agricultural products
which involve approximately $360 million in exports to the
U.S.
Should' these countervailing duties be imposed the consequence may
be more than stalled agreements, perhaps trade wars.
Finally, attention should be given to President Carter's Sep-
tember 26, 1978 announcement of a new policy
to
promote U.S. export
growth. In this statement the President committed himself to:
1. Seeking congressional approval to raise to $4.1 billion
(a
$500
million increase) the lending authority to the
Export-Import Bank in
FY
1980.
2.
Ordering all heads of governmental agencies and de-
partments, as well as independent regulEtory agencies,
"to takeinto account and weigh as a factor, the possible
adverse effects on our trade balance of their major
administrative and regulatory actions that have signi-
ficant export consequences."
3.
Directing the Small Business Administration to
allocate
$100
million of current authorizations for loans
to small exporters and requiring the Office of Management
and Budget to allocate
$20
million in annual resources
for export development programs conducted by the Depart-
ments of State and Commerce.
. . .-
15
4.
St r engt heni ng a g r i c u l t u r a l e xpor t s by addi ng $ 1 b i l l i o n
i n
FY
1978 f o r s h o r t
t e r m
e xpor t c r e d i t s.
5.
Re vi t a l i z i ng e f f o r t s d i r e c t e d
toward
t h e Mu l t i l a t e r a l
Trade Negot i at i ons i n l i n k i n g a g r i c u l t u r a l pr oduct s wi t h
i n d u s t r i a l goods.
6. Working
t o
r e s ol ve t h e t a x probl ems of Americans
worki ng abroad.
The Pr e s i d e n t's pol i c y s t at ement i ncl uded
a
r e f e r e nc e
t o
DI SC
as
a
"c os t l y and i n e f f i c i e n t i nc e nt i ve f o r expor t s" which s houl d be
i mmedi at el y r e vi s e d, f ol l owed by
i t s
ul t i ma t e e x p i r a t i o n. Speaki ng
about t h e U.S. a n t i t r u s t l a w s t h e Pr e s i de nt s t a t e d t h a t i n
some
i n-
s t a nc e s j o i n t vent ur es by i n d u s t r i e s would be advant ageous
t o
expor-
t a t i o n and t h a t he would i n s t r u c t t h e J u s t i c e Department
t o
c l a r i f y
t h e a c c e pt a bl e uses of t h i s p r a c t i c e.
U.S.
A N D C I V I L I A N AND GOVERNMENT ARMS
EXPORTS
Expanding t h e scope of t h e
U.S.
t r a d e bal ance, examined b r i e f l y,
t o
i nc l ude t h e
sal e
of def ens e
ar t i cl es
and
services
abroad and
t a ki ng
a
gl i mpse
a t
f or e i gn a i d, one f i n d s an
area
which has s i g n i -
f i c a n t i mpact on t h e
U.S.
c u r r e n t account bal ance.
The
Ar ms
Expor t Cont r ol
A c t
o f 1976
( PL
95-329) gui des t h e
a ut hor i z a t i on of weapon
sales
by t h e
U.S.
government a n d,c i v i l i a n
c ont r a c t or s. Chapt er
3
of t h i s
A c t,
e n t i t l e d Mi l i t a r y Expor t Con-
t r ol s,
s p e c i f i c a l l y
rest ri ct s
t h e use of Export -Import Bank funds
f o r f i na nc i ng of
lesser
devel oped c ount r i e s' mi l i t a r y pur chases
and
sets
c e i l i n g s on
sales
of
a r m s
t o
Af r i can na t i ons and underde-
vel oped c ount r i e s.
More
ge ne r a l l y, t h i s pr ovi s i on a ut hor i z e s t h e
Pr e s i de nt
t o
c o n t r o l t h e i mpor t and e xpor t of
ar t i cl es
he de s i gna t e s
as
"def ens i ve" i n na t ur e, which
are
s ubs equent l y pl aced on
a
U.S.
Muni t i ons
L i s t.
A l l
i t e m s
appear i ng
on
t h i s l i st r e q u i r e an i ndi -
vi dua l e xpor t l i c e n s e and
are
s u b j e c t
t o
a
c o n t r a c t
l i m i t of
under
$25 mi l l i o n f o r def ens e
ar t i cl es
and
services
of $7 mi l l i o n f o r any
major def ens e equi pment; exempt from t he s e monet ary r e s t r i c t i o n s
are
member c ount r i e s
of
NATO,
J apan,
Ne w
Zeal and, and Aus t r a l i a. Every
U.S.
c i t i z e n i nvol ved wi t h e i t h e r t h e manuf act ur e, i mpor t,
or
ex-
p o r t of def ens e
i t e m s is
r e qui r e d
t o
r e g i s t e r wi t h t h e a ppr opr i a t e
government agency and submi t
a
r e que s t f o r an e xpor t l i c e n s e
f or
each t r a n s a c t i o n wi t hi n t h e j u r i s d i c t i o n of t h e above gui de l i ne s.
On May 19, 1977, Pr e s i de nt
Carter
r e i t e r a t e d h i s d e s i r e
t o
cur b
t h e worldwide
sal e
of armaments. With r e s pe c t
t o
e xpor t s he
st at ed
t h a t t h e
U.S.
would not devel op any weapons f o r t h e
sole
purpose
of e xpor t nor would t h e
U.S.
be t h e f i r s t na t i on
t o
i nt r oduce new
-. . ..
~
... ....
16
. .. . . . .. . . . .
advanced equipment i nt o a r egi onal
area.
obj ect i ve t he Admi ni st rat i on
set
a c e i l i ng f or
FY
1978
of $8.515
bi l l i on
on t he
sale
of weapons and
services
abroad,
t he aforemen-
.
t i oned exemptions
s t i l l
val i d. The f i gur es
released
f or act ual
FY
1978
sales
t o
a l l
nat i ons t ot al ed $13.6 b i l l i o n
as
compared
t o
$11.4 b i l l i o n f o r
FY
1977.
The
announced c e i l i ng f or
FY
1979
is
$8.434 b i l l i o n f or
sales
t o
a l l
nat i ons excl udi ng
America's
c l os e s t
allies.
Pr esi dent
Carter
has s t a t e d t h a t
t he
c e i l i ng f or 1980 w i l l
be
determined by "t he degree of cooperat i on
we
r ecei ve i n t he
coming year from
ot her
nat i ons, par t i cul ar l y i n t he
area
of
speci -
f i c achievements and evidence of concret e progress of ar ea t r ans -
f e r s r e s t r a i nt."
Consi st ent wi t h t h i s
The Carter Admi ni st rat i on has
created
anot her overseer
of
c i vi l i a n ai rcraft
sales
i n
the
Of f i ce of
C i v i l
Rights i n
t he St at e
Department. Thi s of f i c e has been given vet o power over c i vi l i a n
ai rcraft
sales
i f t he r eci pi ent nat i on involved
does
not
m e e t
t he
c i v i l r i ght s st andards of
t he
Pr esi dent.
To
f ur t her complicate
t he processi ng
of
a r ms expor t l i cens es,
an
i nt eragency
Ar ms
Export
Cont rol
Board
has been
established
under Lucy Benson, t he Under
Secr et ar y of
State
f or Secur i t y
As s i s t a n c e.
Th i s
Board
has
di vi ded
its
aut hor i t y among t en agenci es
w i t h
f i ve working groups added f or
addi t i onal .research funct i ons.
An
example of t he f r us t r a t i ng nat ur e of t he recently-imposed
cont r ol s
is
seen i n t he
sale
of C-130's by Lockheed's Georgia
Company. Af t er s e l l i n g over 1500 of t hes e pl anes t o over 45 coun-
t r i e s,'t h e C-130 has been
cl assi fi ed
under
t he
Ar ms
Export Control
Ac t
of
1976
as "s i gni f i cant combat equipment," t hus pl aci ng
it
on
t he
U.S.
Munitions
L i s t.
More
i mport ant l y,
t he
sale
of
t h i s
equip-
ment
is
now
subject
t o
t he monetary l i m i t s on cont r act s t o each
nat i on, l i mi t i ng t he
sal e
t o probably one
or
t wo
C-130's t o
a
na-
t i o n per - year,
as
t he
cost
of each pl ane runs around $8 mi l l i on wi t h
t he maintenance
costs
i n addi t i on.12
An
even
more
poignant i nconsi st ency
lies
i n t he Admi ni st rat i on's
h a l t
of
Swedish
Saab
Viggen f i ght er s
t o
I ndi a because t hey cont ai n
some
U.S.
l i cens ed components. According t o
t he
Secr et ar y of
St at e,
t h i s
sale
wa s pr ohi bi t ed
so
as
not
t o
i nt roduce new weapons i nt o t he
unst abl e Indi a-Paki st an regi on. However,
the
engi ne;i nvol ved i s
cur r ent l y i n widespread
commercial
use. Curi ousl y, t h i s sale wa s
stopped af t er - t he Admi ni st rat i on pushed s t r ongl y f or
t he
sale of
F-15 and
F-16
f i ght er s t o
t he
Ar a b
and
Israeli
governments, c e r t a i nl y
.
a less
stable
area.
12.
Katherine Johnson,
"U.S.
Policies
Hamper
Exports
of C-130,"
Aviation
Week
and
Space Technology, November
13, 1978,
p.
57.
1 7
The r e c e n t d e c i s i o n announced by I r a n t o c a nc e l an e s t i ma t e d
$7 b i l l i o n of
a
$11.56 b i l l i o n weapons or de r pr e vi ous l y pl aced wi t h
t h e
U.S.
has s e r i o u s i mpl i c a t i ons f o r any i mmedi at e hopes o f a l l e v i a -
t i n g t h e
U.S.
t r a d e i mbal ance. The Pent agon, i n a t t e mpt i ng t o down-
pl a y t h e economic
losses
i nvol ved, has announced t h a t c o n s t r u c t i o n
on weapons
t o
d a t e has been f i nanced by monthly I r a n i a n payments.
Never t hel es s, t h e Uni t ed S t a t e s has
l os t
a
maj or weapons buyer due
t o
t h e f a i l u r e of t h e
Cart er
Admi ni s t r at i on t o f or mul at e
a
s u c c i n t
and a ppr opr i a t e
U.S.
p o l i c y v i s
a
v i s I r a n. Once a ga i n, t h e econo-
m i c
r a mi f i c a t i o n s o f p o l i t i c a l f or e i gn pol i c y i nde c i s i ve ne s s must
be d e a l t wi t h.
r e s t r i c t i o n of such
sales
by t h e U.S. poses
a
d i f f i c u l t que s t i on
r e ga r di ng t h e f e a s i b i l i t y of s uch a c t i o n s.
Is
it
i n t h e n a t i o n a l
i n t e r e s t of t h e U.S.
t o
r e f u s e t o s uppl y
arms
t o c o u n t r i e s when
t he y
are
r e a d i l y a v a i l a b l e from o t h e r s our ces? Fur t her mor e,
can
t h e U.S. "a f f or d" t o p r o h i b i t t he s e
sal es a t
a
t i m e
when e f f o r t s
are
bei ng made t o s t r e ngt he n t h e
economic
p o s i t i o n of t h e
U.S.
t hr ough improvement of t h e d o l l a r's p o s i t i o n on t h e i n t e r n a t i o n a l
c a p i t a l market? The Fr ench, Br i t i s h, and t h e Sovi e t Union
are
not
l i ke l y'
t o
agr ee t o h a l t
sales
of weapons, e s p e c i a l l y
as
t h e Sovi e t
Union needs t h e har d cur r ency and t h e European na t i ons need t h e
sales
t o mai nt ai n
a
def ens e pr oduct i on bas e which
i s
economi cal l y
vi a bl e. The
U.S.
p o l i c y
of
arms
s a l e s r e duc t i ons i n La t i n American
c o u n t r i e s which r e s u l t e d i n
$ 2
b i l l i o n i n
sales
by t h e Br i t i s h and
French, and Per u t ur ni ng
t o
t h e USSR f o r equi pment s houl d be an
adequat e example
of
t h e consequences f ol l owi ng
a
U.S.
wi t hdr awal
from t h e
arms
market. 13
Expor t c o n t r o l s on
arms sales
and t h e p o s s i b l e u n i l a t e r a l
CONCL US I ONS A ND I M P L I C A T I O N S
The l e g i s l a t i v e and pol i c y a c t i o n s sur veyed above do not pro-
vi de
a
compl et e i nvent or y
of
e x i s t i n g
U.S.
e xpor t c o n t r o l p o l i c i e s.
For exampl e, t h e U.S. c u r r e n t l y embargoes t r a d e wi t h Cuba, Vietnam,
Cambodia, Nor t h
Korea,
Rhodesi a, and Uganda. However, from t h e
summary a n a l y s i s pr e s e nt e d s e v e r a l concl us i ons can
be
st at ed.
t h e U.S. merchandi se t r a d e bal ance
i s
c ont i nui ng t o d e t e r i o r a t e
wi t h no evi dence t h a t c ondi t i ons
w i l l
change f o r t h e b e t t e r under
c u r r e n t U.S. r e g u l a t i o n s and p o l i c i e s. The r e c e n t pol i c y
st at e-
ment by t h e Pr e s i de nt o f f e r s hope f o r improvement,
b u t
even i f i m-
pl ement ed h i s a c t i o n s merel y r e pr e s e nt s t opgap measures wi t h l i mi t e d
t emporary b e n e f i t s. Moreover,
some
el ement s of h i s'p o l i c y s t a t e me nt
are
so
ge ne r a l l y s t a t e d t h a t
it
is
d i f f i c u l t
t o
det er mi ne what
t h e i r
real
i mpact mi ght be.
The f i r s t and
m o s t
obvi ous poi nt which must be accept ed
i s
t h a t
Secondl y,
it is
cl ear
t h a t t h e r e
are
t o o many s e p a r a t e pi e c e s
of l e g i s l a t i o n and t o o many government al a ge nc i e s, commi ssi ons, and
t h e l i k e wi t h d i v e r s e r e gul a t or y powers a f f e c t i n g
U.S.
e xpor t s.
13.
For
a detailed examination of
U.S.
a m
sales
i n
a specific region, see
Heritage Backgrounder No.
36,
"Limiting
Arms
Sales and the Iranian
AWACS
Pro-
posal,
''
September
20
,
1977.
18
I
The
s pl i nt er ed monitoring of expor t cont r ol s
i s
demonstrated by
t he
1
Secr et ar y of Agr i cul t ur e having r es pons i bi l i t y
for
expor t s
of
agri-
\
c ul t ur a l
commodities,
t he
Department of
State
watching
t he
exporta-
I
t i on of s t r a t e g i c
and
wa r
material,
t he Nuclear Regulatory Commission
I
surveyi ng nucl ear energy
material
expor t s, and t he
Federal
Power
Commission r egul at i ng nat ur al gas and electrical energy export s.
Thi s hi ghl y fragmented s i t ua t i on r e s ul t s i n an uncoordinated ar r ay
of requirements which col l ect i vel y
creates.a
major.barrier t o ex-
por t t r ade.
A
November
1977
survey conducted by t he I ndust r y and
Trade
Commission of t h e Department of Commerce s ubs t ant i at ed
t h i s
by s o l i c i t i n g opi ni ons
f r o m
a random sample of nation-wide indus-
tries,
concerning t he impediments t hey encounter i n t h e i r expor t
a c t i vi t i e s.
A
t ot al
of
1596
impediments
were
mentioned, and of
t hose
40
percent
were
l i st ed
as
induced by t he
U.S.
government.
Included i n
t h i s
l i st
of government-induced impediments
we r e
the
following: del ays due t o bur eaucr at i c procedures, boycot t of
U.S.
goods, l ack of
U.S.
government f i nanci ng and i ncent i ves, t he
U.S.
tax
s t r uct ur e, and s pe c i f i c expor t procedures.
1 4
I
Q
The di s per s i on
of
r egul at or y aut hor i t y among t he many agenci es
of
t h e government and
the
impediments r e s ul t i ng t herefrom
works
in-
opposi t i on t o t he achievement of what Warren Chri st opher, Deputy
Secr et ar y
of
State,
pronounced as
the
U.S.
pol i cy
towards
expor t s.
I n a
November
13,
1978
speech Chri st opher
st at ed
For
t he va s t maj or i t y of our expor t s,
we
have onl y
Qne
basic
f or ei gn pol i cy, t o encourage and assist them.
For
expor t s,
there
are
no
other
competing f or ei gn pol i cy
i nt e r e s t s
t hat
must
be
t aken i nt o account, and our
effort s
can
be
concent rat ed on a s s i s t i ng
U.S.
expor t er s i n s e l l i n g
abroad
and on working
t o
reduce f or ei gn
trade
barriers.
When t h e cur r ent s t a t u s
of
U.S.
expor t s
is
reviewed i n
t he
con-
t e x t of condi t i ons
described
above an important phi l osophi cal ques-
t i on can
be
raised.
Do
t he many execut i ve and l e gi s l a t i ve act i ons
which adversel y impinge upon
U.S.
expor t s r e f l e c t a t r end toward
an e r a
of
"new prot ect i oni sm" and i f
so
what
are
the
i mpl i cat i ons
f o r t he f ut ur e t r ade bal ance of
t he
U.S.?
A
st udy wr i t t en by
s o me
members
of
t he
Secretariat
of
GATT
has defi ned prot ect i oni sm as a "pol i oy
of
i ncr eas i ng t he l evel of
pr ot ect i on r el yi ng heavi l y on quant i t at i ve r e s t r i c t i ons,
and of t en
cr eat i ng addi t i onal uncer t ai nt y by imposing and admi ni st eri ng t hes e
obs t acl es t o
trade
i n a non-uniform, di scr i mi nat or y manner."
Furthermore, t he st udy
st at ed
t hat
"every pol i cy i nt er f er ence
w i t h
t he economic process which
l i m i t s
i t s
ef f i ci ency
creates
a vest ed
i nt e r e s t, and
a
precedent i nvi t i ng ot her i nt e r e s t s
t o
organi ze and
e xe r t t h e i r col l ect i ve power
t o
a
si mi l ar
purpose.
"15
14.
Hearings on
Export
Policy,
Pa r t
6, p. 253.
See
footnote
2
above.
15.
Richard
Blackhurst, Nicolas Marian, Jan Tumlir, Trade Liberalization,
Protec-
tionism
and
Interdependence,
GATT,
Geneva, November 1977.
19
Melvyn Kr a u s s,.i n
a
r e c e nt book,
The
New
Pr ot ect i oni s m:
The
Wel fare
St at e
and I n t e r n a t i o n a l Tr ade, t he or i z e s
t h a t t h e
i nc r e a s e
i n p r o t e c t i o n i s t p o l i c i e s
aimed a t
pr ovi di ng economic s e c u r i t y and
i ncr eas ed
soci al
consumpt i on, w i l l i n
t i m e
s t r a n g l e
t he
welfare
economy, pr event i ng
it
from
making neces s ar y adj us t ment s
t o
t he
changi ng envi ronment. Accordi ng
t o
Krauss
t he
end r e s u l t s
of
such
a
pol i c y w i l l
be
economic s t agnat i on.16 I n e s s e nc e,
GATT
and
Krauss
are
r e f e r r i n g
t o
t he
age
ol d
debate
between f r e e
traders
and
p r o t e c t i o n i s t s,
or
t he
c o n f l i c t between
t he
pr oponent s of
publ i c
i n t e r e s t s and
t he
pr oponent s
of
ves t ed i n t e r e s t s.
I d e a l l y,
as
t h e Uni t ed
St at es
a d j u s t s
t o
an emergi ng econo-
mi cal l y i nt er dependent worl d or de r,
i t s
t r a d e p o l i c i e s s houl d i n-
c r e a s i ngl y i nc or por a t e
t h e
phi l osophy o f
Ad a m
Smi t h
as
pronounced
i n
The
Wealth
of Nat i ons,
whi ch
w a s
l at er
espoused by David
Ricardo
i n
h i s
t heor y of compar at i ve advant age. Adherence
t o
t h e
p r i n c i p l e
'of
compar at i ve advant age would enabl e
t he
domestic
economy
of
t he
Uni t ed
St at es
t o
r e a p
t h e
f u l l b e n e f i t s
of
i n t e r n a t i o n a l t rade.
Re a l i s t i c a l l y, however, economic p o l i c i e s must
f r o m
t i m e
t o
t i m e
be
f or mul at ed
t o
f ur t he r'U.S. p o l i t i c a l f or e i gn pol i c y o b j e c t i v e s,
t h e r e f o r e pr ecl udi ng
a
t o t a l
acr oss- t he- boar d f r e e t rade pol i c y.
I t
i s
cr i t i cal f or
t h e Uni t ed
States
t o
f u l l y under st and
t h a t
.f or ei gn trade
i s
more
t han an i n t e g r a l component
of
U.S.
f or e i gn
pol i c y,
it
is
an economic ne c e s s i t y.
The
na t i on can no l onger r e l y
on
i t s
own a b i l i t y
t o
s uppl y
a l l
t he desi r ed
soci al
consumption
i t e m s,
nor
a
s u f f i c i e n t qua nt i t y
of
r a w
mat eri al s
r e qui r e d
t o
s uppor t
a
f unc t i oni ng economic i n f r a s t r u c t u r e.
The
c ha l l e nge,
therefore,
c onf r ont i ng
t he
execut i ve and l e g i s l a t i v e deci si onmaker s
is t o
c ons t r uc t wi t hi n
t he
framework
of
sound f or e i gn pol i c y
ob-
j e c t i v e s
a
comprehensi ve and c o n s i s t e n t e xpor t pol i c y
t o
gui de
t he
i n t e r n a t i o n a l commercial a c t i v i t i e s
of
t h e
Uni t ed
St at es.
Susan
P.
Woodard
Pol i cy Anal yst
16. Melvyn
B.
KTauss, The
New
Protecti oni sm:
The
Welfare
State
and Internati onal
Trade
(New
York:
New
York Uni versi ty Press,
19781,
pp.
105-114.