Mr Chairman, let me close by commending the efforts of Ambassador Askew in holding firm on the NTT procurement issue. As the December 31 deadline for concluding the procurement code agreement draws nearer, we know the pressures will be intensifying for our negotiators to "sign off" on the matter, simply to clear the deck. We have been encouraging the U.S. Trade Representative to continue the efforts, and we support a procurement code that provides genuine access with real performance. We would be unable to support our country's accession to the Government Procurement Code which does not lead to reciprocity of access in the real meaning of the term. We believe that the present trade situation demands we hold firm for both symbolic and substantive meanings of the Government Procurement Code. American equipment makers can meet the standards of NTT in exactly the same manner as the Japanese manufacturers have been able to meet the American standards. Thus we do not believe any valid objections can be raised to NTT's buying American goods.

If our negotiators are unable to reach agreement on a realistic government Procurement code, we should reconcile ourselves to rejecting it.

Mr. VANIK. Thank you very much.

Our next statement will be by Mr. Frank J. Austin, member of the National Tool Builders.

I would like to announce that it is the plan of the Chair to proceed to the conclusion of the panel before we go. I hope that Ambassador Hormats will not be adversely affected by the delay. We will finish the work of the panel.

STATEMENT OF FRANK J. AUSTIN, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER, GIDDINGS & LEWIS, INC., A MEMBER OF THE NATIONAL MACHINE TOOL BUILDERS ASSOCIATION

Mr. AUSTIN. Good morning. My name is Frank J. Austin. I am executive vice president and chief operating officer of Giddings & Lewis, Inc., located in Fond du Lac, Wis. Giddings & Lewis, Inc. is one of over 370 member companies of the National Machine Tool Builders Association (NMTBA).

I am pleased to testify today before this Subcommittee on the vital subject of United States-Japanese bilateral trade.

Before describing Gidding & Lewis' experience in the export market, it is significant to note that while the domestic U.S. machine tool market has been oscillating with very little real growth since the mid-1960's, the world market has grown substantially. Unfortunately, most of this worldwide expansion has been absorbed by our foreign competitors, eroding our market share.

Whereas, in the middle of the 1960's, the American machine tool industry supplied approximately one-third of the total global market, according to American Machinist, as of the end of 1979 that portion has fallen to only 17.1 percent. In short, over the past 13 years our share of the world market has plummeted by almost 50 percent.

From these statistics it is obvious that export sales must play an increasingly significant role in the marketing strategy of American machine tool builders specifically, and all U.S. businesses generally. To this end, NMTBA and its member companies have devoted considerable time and effort to increasing exports.

Working toward similar goals, over the years Giddings & Lewis, Inc. has conducted an aggressive and forward looking export policy, the result of which has been continued success in foreign markets even in the face of increasingly difficult export market conditions.

However, having proudly noted the generally superior overall export performance of Giddings & Lewis we must acknowledge that when we focus more narrowly on only our Japanese machine tool sales, Giddings & Lewis exports to Japanese industry have, unfortunately, been in decline for some time. In fact, although no one campany can serve as the perfect barometer of this trade relationship, Giddings & Lewis' record is similar to that registered by many other American machine tool builders in their export efforts in Japan. While overall U.S. machine tool exports to Japan have generally followed Japan's business cycles, exporters of certain specific product types have seen their Japanese export market all but evaporate.

Beginning with the period 1961 through 1965, Giddings & Lewis' Japanese sales totaled 74 units at a value of approximately $5.9 million. This comparatively large sales lume appears to coincide with the formative stages of Japan's modernization of its industrial base.

However, the next 5-year period shows a substantial decline in sales to Japanese buyers by Giddings & Lewis. During the years 1966 through 1970, only 17 units were sold, for a sum total of approximately $1.8 million. The sales volume reduced further during the next 5-year period from 1971 through 1975, with 18 units sold at a combined value of about $942,000. Significantly, the Japanese were buying a substantially different type of machine tool from this point forward.

Finally, the years 1976 through the present reveal a drastic decline in U.S, machine tool exports to Japan, with Giddings & Lewis having sold only six units in 5 years with a total value of only $172,000, virtually nothing compared to the substantial purchases of the early 1970's.

We also observe that the general trend in U.S. machine tool export trade with Japan has been in the same direction is that of Giddings & Lewis' experience in this market. From 1975 through 1979 U.S. machine tool exports to Japan totaled only $174.9 million, a decrease of approximately 25 percent from the $233.3 million worth of U.S. equipment exported to Japan during the first half of the decade-1970-1974.

The inverse relationship between Japanese imports of foreign machine tools and Japanese exports of their own machine tools is also quite striking. For example, we note that imports of foreign made machine tools into Japan have generally adhered to the fluctuations of the overall business cycle. However, in contrast, Japanese exports during these two decades have been rapidly on the increase, from a total of $10 million in 1960 to over $1.2 billion during 1979, well over a hundredfold increase.

Although it is dangerous to attribute such a tend to any one factor, it appears rather evident that as the Japanese machine tool industry itself became more competitive Japan reduced its imports of U.S. machinery-as well as that from other countries-at the same time that it began a very aggressive export marketing program of its own.

Of course the most striking and highly publicized example of this aggressive Japanese export policy is seen in the automobile indus

try, with the extraordinarily high volume of Japanese imports in the United States.

We are, of course, aware that many in U.S. industry have called for import quotas on such Japanese goods in the interest of protecting U.S. workers from "foreign-born" unemployment. Although we certainly sympathize with the objective of keeping as many American workers employed as possible, we have seen the unfortunate consequences of restrictive trade practices in the past, and do not offer them as a solution to the current United States-Japanese trade imbalance.

Moreover, we would urge caution in suggesting that we adopt wholesale the business and Government practices employed in Japan in the hope that their use in the United States will yield results similar to those now enjoyed by our Japanese counterparts. Rather, we urge support for the following proposals which we believe would be most effective in interacting with the current variables of the U.S. economy toward stimulating productivity and enhancing U.S. exports.

First, and foremost, we strongly support and urge the adoption of more rapid capital cost recovery for investment in capital goods. In this regard, we take this opportunity to commend the far-sighted leadership of Congressmen Jones and Conable in sponsoring H.R. 4646, the "Capital Cost Recovery Act of 1979." We also applaud those other Congressmen who have also lent their support to this proposal which would enable American industry to make the massive investment necessary to modernize the aging industrial base of the United States.

Improving the cash flow of industry through the changes provided in H.R. 4646 has never been more important than it is in today's inflationary times. The key feature to any of these changers in depreciation allowances is that charges generate by capital spending would be treated more rationally as a true cost of doing business rather than simply as a tax allowance for the wear and tear on equipment which is now effectively the case.

Focusing our attention on the area of research and development, we commend Congressman Vanik for his insightful leadership in sponsoring H.R. 6632, the "Research Revitalization Act of 1980." H.R. 6632 recognizes that R. & D. spending can result in economic benefits similar to those brought about by capital investment, and is an essential factor in returning domestic and international economic strength to the United States.

The benefits of H.R. 6632 are numerous. We would especially emphasize that measures to revitalize our R. & D. efforts as exemplified by Congressman Vanik's bill are extremely important in strengthening the United States international economic and technological position.

In conclusion, we believe that the productivity improving types of policies we have described above are the most effective means of meeting the increasing challenge of imports in our domestic market and of increasing our own export sales efforts.

Over the past decade we have seen the adverse effects of allowing our machine tool producing capacity to fall behind the domestic, let alone the foreign, demand for such equipment. Clearly, every time U.S. capacity becomes inadequate to meet U.S. domestic

demand, a certain percentage of the domestic market seeks foreign sources of supply.

Although most of this segment of the market returns to U.S. builders when demand subsides and domestic capacity is again adequate, a certain share of the market remains with its new found foreign source of supply, and is thus permanently lost to U.S. machine tool builders. Therefore, we strongly urge measures that will allow the U.S. industrial base to expand its capacity in conformity with expanding demand. This in conjunction with improved R. & D. efforts is vital to the reindustrialization of the United States and the reestablishment of the United States as the world leader in the global machine tool market.

Thank you for the opportunity to testify on this most important subject. We would be pleased to answer any questions you may have at this time.

[The prepared statement follows:]

STATEMENT OF FRANK J. AUSTIN, EXECUTIVE VICE PRESIDENT AND CHIEF
OPERATING Officer, GIDDINGS & LEWIS, INC.

I. INTRODUCTION

Good morning. My name is Frank J. Austin. I am Executive Vice President and Chief Operating Officer of Giddings & Lewis, Inc., located in Fond du Lac, Wisconsin. Giddings & Lewis, Inc. is one of over 370 member companies of the National Machine Tool Builders' Association (NMTBA).

I am pleased to testify today before this Subcommittee in the dual capacity of corporate spokesman and industry representative on the subject of U.S.-Japanese Bilateral Trade, a subject of vital interest to both my own company and the U.S. machine tool industry as well as the American economy generally.

Before describing Giddings & Lewis' experience in the export market, it is significant to note that while the domestic U.S. machine tool market has been oscillating with very little real growth since the middle 1960's, the world market has grown substantially. Unfortunately, most of this worldwide expansion has been absorbed by our foreign competitors, eroding our market share.

In the middle 1960's, the American machine tool industry supplied approximately one-third of the total global market. In other words, one out of every three machine tools consumed in the world was produced by an American machine tool builder. However, according to American Machinist, as of the end of 1979, that portion has fallen to only 17.1 percent. In short, over the past 13 years, our share of the world market has plummeted by almost 50 percent.

This dramatic decline is the result of two factors. First, our domestic market has been invaded by foreign competitors on a scale never before dreamed of. For example, since 1964, America's imports of foreign machine tools have more than tripled, growing from 7 percent of total consumption 15 years ago to 24 percent in 1979. It is obvious that because the United States is the largest open machine tool market in the world, our foreign competitors have pulled out the stops and are aiming their export marketing efforts at America.

Second, and this is the aspect that we wish to focus on at this time, our share of the export market has also declined. When we look at the dollar value of our exports, the results of our efforts look encouraging. But if we look at American exports as a percentage of all of the machine tool exports in the world, the results are, indeed, discouraging. We have been losing export market share at an alarming rate. Our share of the world's machine tool exports fell from 21 percent in 1964 to just 7 percent last year, placing ús well behind West Germany and Japan as a machine tool exporting nation.

Finally, and perhaps most alarmingly, in 1978 the United States suffered its first machine tool trade deficit in history, with imports exceeding exports by some $155 million. And, to make matters even worse, this deficit trend continued through 1979. Even though our exports grew by 15.8 percent over 1978 levels, imports soared by more than 45 percent to produce an even larger trade deficit of almost $400 million.

II. NATIONAL MACHINE TOOL BUILDERS' ASSOCIATION EXPORT PROMOTION ACTIVITIES

From these statistics it is obvious that export sales must play an increasingly signficiant role in the marketing strategy of American machine tool builders specifically, and all U.S. businesses generally. To this end, NMTBA and its member companies have devoted considerable time and effort to increasing exports. The Association has three people who spend virtually their full time overseas promoting United States machine tool exports with considerable assistance from the Department of Commerce.

NMTBA develops seminars and workshops to train our members' people on international financing, export licensing, or any other subject that will benefit a machine tool builder. We conduct market research to locate new and promising markets for industry development. We have conducted twenty-four Industry Organized, Government Approved (IOGA) trade missions to help gain a foothold in these new markets, and more are planned for 1980 and 1981. We sponsor foreign exhibitions so that our members will have more opportunities to display their products overseas. In addition, we often work in close conjunction with the Commerce Department on such activities as recruiting exhibitors for export promotion events such as catalog shows, video tape shows and technical seminars. We organize reverse trade missions to bring foreign buyers to our plants. And we bring large groups of foreign visitors to the Intenational Machine Tool Show in Chicago every two years. The Commerce Department has worked closely with us in the development and implementation of these programs, as have the commercial officers in our embassies and trade centers around the world.

III. EXPORT EXPERIENCE AND PERFORMANCE OF GIDDINGS & LEWIS, INC.

Working towards similar goals, over the years Giddings & Lewis, Inc. has conducted an aggressive and forward looking export policy, part of which has included the formation, acquisition or licensing of foreign affiliates and associates, as well as the expansion of our worldwide distribution system. The result of this aggressive and forward looking export-conscious corporate attitude has been continued success in foreign markets even in the face of increasingly difficult export market conditions. However, having proudly noted the generally superior overall export performance of Giddings & Lewis, we must acknowledge that when we focus more narrowly on only our Japanese machine tool sales, Giddings & Lewis exports to Japanese industry have, unfortunately, been in decline for some time. In fact, although no one company can serve as the perfect barometer of this trade relationship, Giddings & Lewis' record is similar to that registered by many other American machine tool builders in their export efforts in Japan. While overall U.S. machine tool exports to Japan have generally followed Japan's business cycles, exporters of certain specific product types have seen their Japanese export market all but evaporate.

Beginning our analysis in 1961, we see that for the period 1961 through 1965, Giddings & Lewis' Japanses sales totaled 74 units at a value of approximately $5.9 million. This comparatively large sales volume appears to coincide with the formative stages of Japan's modernization of its industrial base.

However, the next five year period shows a substantial decline in sales to Japanese buyers by Giddings & Lewis. During the years 1966 through 1970, only 17 units were sold, for a sum total of approximately $1.8 million, a significant decline from the preceding five year period.

This reduced sales volume appears to have remained fairly stable during the next five year period from 1971 through 1975, with 18 units sold at a combined value of about $942 thousand.

Finally, the years 1976 through the present reveal a drastic decline in U.S. machine tool exports to Japan, with Giddings & Lewis having sold only six units in five years with a total value of only $173 thousand, virtually nothing compared to the substantial purchases of the early 1970's.

IV. UNITED STATES-JAPANESE MACHINE TOOL TRADE

Looking at U.S. machine tool export trade with Japan from an overall U.S. machine tool industry standpoint, we observe that the general trend has been in the same direction as that of Giddings & Lewis' experience in this market. From 1975 through 1979 U.S. machine tool exports to Japan totaled only $174.9 million, a decrease of approximately 25 percent from the $233.3 million worth of U.S. equipment exported to Japan during the first half of the decade (1970-1974).

The inverse relationship between Japanese imports of foreign machine tools and Japanese exports of their own machine tools is also quite striking. For example, in 1965, total Japanese machine tool exports were only $31.4 million as compared to imports from all nations of approximately $51.1 million. However, in sharp contrast,