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Mr. VANIK. In Japan, isn't the Government putting up the money?

Mr. INGERSOLL. Yes, the Government did for the starting up of the semiconductor industry.

Mr. VANIK. You don't advocate that process for our country?

Mr. INGERSOLL. I oppose the targeted industrial approach. I think we should have macro-tax-and-incentive policies that will permit any industry to make a return on its investment where it sees an opportunity. Then we are not telling the industry exactly what is coming up, because sometimes we might make a mistake.

Mr. VANIK. Japanese policy is directed to what the government thinks are going to be the winners?

Mr. INGERSOLL. I appreciate it, but they are not always right.

Mr. VANIK. They are not always right, but they are killing us because they are more right than wrong.

Mr. INGERSOLL. One of the recommendations that we are going to make is that foreign companies doing business in Japan should have access to those same subsidies that any Japanese company gets.

Mr. VANIK. I can't imagine any member running for the Diet and having to face up to that problem.

Mr. INGERSOLL. We have the same thing in this country. When we give adjustment assistance, we provide it to a foreign company as well as to an American company.

Mr. VANIK. We do what we do to the injured; we don't go to the seat of the trouble; we apply your medication to heal the festering wound that develops.

Mr. INGERSOLL. We provide tax incentives to any foreign company that is here, as well any American company. We think the Japanese should do the same thing, because they have picked out certain companies; not all Japanese companies get the benefit of these subsidies. We think it ought to be widespread. If anyone gets it, all ought to get it. This is one of the recommendations we are going to be making.

Another one, Mr. Congressman, is that I think the energy issue is going to be extremely critical. Should there be a disruption-and there is probably bound to be some disruption from time to time from the Middle East-the scramble for the available oil could be extremely serious. Since Japan and the United States are the two largest importers of oil, we should take the leadership in trying to manage any crisis that may arise.

Mr. VANIK. Giving you a report on their recent buying mission, in my community, I suggested that with their tremendous part of the American market—which I thought was secure, would not go away and was there by consumer preference-I suggested that in order to preserve that market, not for today or tomorrow but for the long term, they ought to try to produce 25 or 30 percent of that demand here in American plants.

I think we ought to have on the American scene a good experimental run, a good demonstration of what management from overseas can do with our own labor force and our own resources.

Then I suggested that with component parts they try to get half of them here or else they are going to face the risk of some content law by the Congress which would be very easy to pass. I think this sort of thing is in the cards.

The third thing I suggested is the point I have talked about many times; that is, the business of replacement parts. I suggested they be bought in this country, because that business would be spread over the small business sector which would be a tremendous political force in support of the trade policy.

They reported that they would rather buy basic components and then develop the replacement business on those components. But it seems to me it would make a lot more sense to provide licensing of a development of widespread components and replacement parts and avoid the necessity of shipment overseas, storage, inventory.

I think one of the problems with the import business in America is that frequently they don't have the parts on hand to take care of the automobile that has to be repaired, and this will be an $8 billion business within the next 3 or 4 years.

Mr. INGERSOLL. I fully subscribe to that, Mr. Chairman.

Mr. VANIK. I want to say, when I am not busy, when I am in Japan trying to find a place where I can afford to eat, I go to the department stores. I search through the items. I take my computer along. I am always shocked by the fact that everything I see made in Japan sold in the Japanese department store sells for tremendously higher prices than it does in the United States.

We ought to be able to sell everything there-toasters, razors, knives, forks, everything I see in the Japanese department store; taking the computer out and getting the price exchange difference-everything I see is much more expensive.

I searched for hours and hours. I spent 4 days looking around for things and comparing prices. The thing that amazes me is that there should be any representation that markets are open, when I can just bring things, myself, buy them at retail in America and take them there at probably 25 percent less than the prices at which they are being sold in the Japanese department stores.

I was looking for hand tools. I found only one hand tool, for example, in Tokyo, which was one that they don't produce, sort of a gripper-vise that was made somewhere in Iowa. That was about the only thing that carried a “Made in U.S.A.” label on it.

Do we have any list of the cost of things in the Japanese department stores? Do we have a litany of what the consumer in Japan is paying for the things he needs in his daily life? Are there consumer price indexes of things that are sold in Japan that we can look at?

Mr. INGERSOLL. I think in the food area they spend considerably more than we do in this country.

Mr. VANIK. I am talking about mixers, pots, and pans.

Mr. INGERSOLL. When I was Ambassador, Sears Roebuck started a mail-order system with one of the Japanese firms. For a while they could ship U.S. products out of this country and undersell Japanese products. Then inflation hit us and this is no longer possible.

Japanese products and Japanese inflation was less than ours. Since that time, we are not competitive on shipping American appliances, refrigerators, washing machines, into Japan.

Mr. VANIK. You think they are sold cheaper in Japan than they are here? You have not checked on that? You can buy a 14-foot frost-free refrigerator in the United States, double doors, for $299. I'll bet you the same thing is not available in Japan under $500.

Mr. INGERSOLL. You get down to the 4- or 5-foot box, which is a more feasible volume in Japan, and we can't compete. Those are the sizes most of them use in their houses because they have less space than we do.

Mr. VANIK. I would hope somehow somebody could fund, for the benefit of the Congress and the American people, an ongoing study of the consumer prices paid in the department stores of Japan for the things that people regularly need, so that we have a real comparison of what the consumer is paying there and what he is paying here, so that we can really determine whether the prices are sane, whether or not we are getting a two-tier system, one for export and one for domestic use.

I think the only way to check that is to go to the litany of 500 general consumer goods and find out where we are.

Mr. INGERSOLL. They have another problem, in that they have a very extensive distribution system, multitiered, and this is a tradition in Japan, although it is breaking down by the discount stores that are being established.

I think that as they follow the pattern that was followed in this country of establishing mass merchandising, they will begin to bring down the cost to the consumer. At the present time their distribution costs are much higher than ours; their manufacturing costs are probably lower. So, to the consumer, they may be paying more for some of those items, but it would be the same way if a foreign product came in there, because it has to go through the same distribution system.

Mr. VANIK. You mean they don't pay the wages and high salaries that we do for distribution?

Mr. INGERSOLL. I am referring to the multilayers. We have much more direct distribution.

Mr. VANIK. When the truckdriver who drives goods is a $25,000 man, I don't know that that can make much of a difference between America and Japan when you get down to the bottom line. I just hope that your group will somehow consider the funding of an ongoing research program.

Mr. Fisher?

Mr. FISHER. Just this, Mr. Chairman: Pursuing the line that you were on a moment ago, I would like to have our staff press the appropriate executive agency simply to draw up a list of prices of 20, 30, or 50 different department store items in two or three Japanese cities and lay that beside the prices in two or three U. S. cities, just see what it looks like-no index, just some items.

Mr. VANIK. The trouble with that research program, Mr. Fisher, is that we could probably do that for about $20,000. You can't get anything done unless you have a research program that involves $1 billion.

Mr. FISHER. That is an awkward necessity, but we might be able to rise above the usual principles that govern in these matters, Mr. Chairman.

Mr. DESTLER. It seems to me that such a list would be very useful, but the key question is the one you raised toward the end, Mr. Chairman, whether there is a two-tiered system in which imports are penalized, or whether the Japanese-produced goods cost more too because of the

Mr. FISHER. I don't wish you to push this aside so quickly. I want you to pursue this very simple, ingenious approach. What does the consumer face by way of prices in Japan as compared to here for the same items.

Mr. VANIK. A very simple test-this will be very easy; we can do it within government-let us find out what the customs receipts are on individual imports from Japan. I don't think anybody buys anything in Japan if they can't afford it. This is one test. It would give some indication what things people find in Japan that are competitive in our own country. They bring things from all over the world, but they come out of Japan with very little.

On the other hand, a good part of our exports, a good part of our sales, are to the Japanese visitors who come into our country and buy everything but the counters. When they come to America, they buy America.

Every time I see them leaving the Port of San Francisco, it is with a tremendous amount of American goods to the practical limit of their capacity. There are purchases made in our country identical to what is produced in their country, because they are cheaper here than they are there. I can't understand it.

Mr. FISHER. Perhaps we could suggest, Mr. Chairman, that our staff draw up a very brief specification of what we want and send it to the appropriate agency on the Executive side, Commerce Department, and simply ask for the information.

Mr. VANIK. I want to tell the Ambassador and Dr. Destler, we very much appreciate your time and your extended colloquy. You have the resources; you are the ongoing force in this problem. We rely very heavily on the kind of work you are doing. We want to maintain and continue the very cordial, warm interchange of ideas and objectives that characterize the work of your organization.

Thank you very much.

Mr. INGERSOLL. Thank you very much, Mr. Chairman, for giving us the opportunity.

Mr. DESTLER. Thank you.

Mr. VANIK. The next panel is: Mr. Tom Campobasso, vice president, international and government relations, Rockwell International; Mr. John Morgan, assistant to executive vice president, legislative and governmental agencies, Communications Workers of America; Mr. Frank J. Austin, executive vice president and chief operating officer, Giddings & Lewis, Inc., and member, National Machine Tool Builders Association; Mr. Tom Skornia, vice president and general counsel, Advanced Micro Devices, and Mr. Joseph Willet, vice president of policy group, Chase Financial, New York, on behalf of the Semiconductor Industry Association; and Hon. Frank Weil, former Assistant Secretary of Commerce for Domestic and International Business.

Gentlemen, your entire statements will be entered in the record as submitted. I would suggest that you excerpt or read from your prepared statements, whichever will most expeditiously give us the points involved.

We will take all your statements. After your statements, we will commence the questioning period.

Mr. Campobasso, we will be happy to have your statement. STATEMENT OF TOM CAMPOBASSO, VICE PRESIDENT, INTER

NATIONAL AND GOVERNMENT RELATIONS, ROCKWELL INTERNATIONAL, AND CHAIRMAN, ELECTRONIC INDUSTRIES ASSOCIATION

Mr. CAMPOBASSO. I am Tom Campobasso, vice president, international and governmental relations for Rockwell International and also national chairman of the Electronic Industry Association for the current year.

I have some notes which I have prepared. As you asked, I will excerpt from them and have them formalized for the committee.

First of all, I would like to thank the committee for the opportunity to be here and express some of our views on United StatesJapan trade.

I think that one of the first things I would mention is that in having read through the committee's report, I would congratulate them on the work that is being done. I think it is a very vital issue, not just with Japan but also with trade across the board as far as the United States is concerned; specifically with Japan, there are many examples of things that I think need to be further examined and recitified.

I want to give some reasons why Japan has been so successful in penetrating the telecommunications market, while U.S. industry has not enjoyed equal success in Japan:

There is a difference in philosophy between U.S. and Japanese industries. These differences are functions of market systems and governmental philosophy in the two countries. The free enterprise system in the United States and the method by which we pursue it fosters competition; it also fosters a need for short-term returns in order to get the funding and capital from the marketplace.

This is not true in Japan. Their viewpoint is more a long-term one and one that can really develop market share over a period of time. That is the basic structure of the problem, which we can't do too much about; it is something that needs to be addressed.

The other thing that I would criticize U.S. industry for is that because of the large U.S. market, a lot of our international business is looked upon as incremental to our base business. To many of the foreign manufacturers, especially in Japan and other industrialized countries like that, the international market is survival, and that attitude difference is a big stimulus on their side which we must generate here as well.

In Japan, the public-private sector relationship is a partnership with joint government-industry planning under which favored sectors receive liberal benefits. That relationship is strengthened by generous investment guarantees and concessionary financing for overseas ventures. In Japan, industries do not have to contend with many of the restrictive regulations, in contrast to those that are imposed on U.S. industry.

Mr. VANIK. What do you refer to?

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