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important new market access opportunities for U.S. firms, and that its inclusion was therefore necessary for reciprocity.
Japan's second argument was that the addition of NTT would result in a lack of balance with other countries, since no other country has offered its telecommunications agency. In response we pointed out that entity negotiations under the Government Procurement Code had been designed to avoid meaningless entity comparisons. The approach taken was to compare overall balance. This approach was designed to provide the flexibility necessary to work towards roughly comparable aggregate market access opportunities.
Third and finally, Japan has argued that the procedures of the Government Procurement Code are not suitable to telecommunications purchases. They argue that purchases in this area are so complex and special in nature that they require procurement methods specifically tailored to their needs. We are convinced that this is not the case, and we have been working with the Japanese to explain why. The Government Procurement Code was designed to provide the flexibility which procurement officers need in meeting the full range of possible procurement situations. The Code was not designed to require a set of inflexible procurement procedures. Rather, the Code provides guidelines which permit a broad range of procedures. The guidelines assure that any of these procedures will provide for maximum competitive opportunities with the openness necessary to allow firms, regardless of nationality, to be certain they are being treated in an equitable manner. We are not asking Japan to adopt procurement procedures which would lead to a reduction in the quality of its telecommunications system. Quite the contrary, we believe that the adoption of Code procedures by NTT could lead to an improvement in NTT's services by creating an avenue for the introduction of the best and most competitive telecommunications technology which the world market can offer.
I believe that the discussions which we have had to date with the Japanese have been useful. Through these discussions we have gained a deeper mutual understanding of our respective telecommunications markets. In particular we have taken this opportunity to stress the importance we attach to improved market access opportunities in Japan for our high technology products. In addition, we have had useful discussions on the flexibility of the Government Procurement Code. Differences in interpretation of the Code have been narrowed.
We have made some progress with the Japanese. Up until recently NTT has been adamantly opposed to any changes in its purchasing procedures. It appears that NTT is willing now to work towards developing procedures which will permit international access to its purchases.
In order to come to agreement with Japan, all of NTT's purchases must be subject to the obligations of the Government Procurement Code. This continues to be the firm position of this administration. I cannot overemphasize the importance which we attach to the resolution of this issue. It is our strongest hope that it will be resolved well before our year-end deadline. However, there is still a considerable distance between us and we must recognize the possibility that agreement may not be reached.
Japan and the United States have a great deal to gain in resolving this issue and we are continuing to work toward this end.
VANIK. Do we have much telecommunications apparatus which is really competitive? Haven't they leaped over us and bypassed us?
Ambassador HORMATS. There is no evidence at all to that effect. They have sold in certain areas of the United States.
Mr. VANIK. I asked this question because in the Government study last week on U.S. competitiveness, it appears that over the last 20 years the U.S. telecommunications industry has lost a significant part of its competitiveness and has gone from one of comparative advantage, to one of disadvantage. Is this true? I think you have that study. What is your response in view of that study?
Ambassador HORMATS. We have spent many hours with our industry, and we have also spent many hours trying to figure out in what areas NTT will be purchasing over the next several years. We have every reason to believe, for instance, from all of our discussions, excluding those with neutral experts, that our industry can sell in a key telecommunications area such as visual switching equipment.
I don't know the field in great detail. I can only rely on those experts who do, and the judgment they provide is that, in fact, we will be able to sell—not simply sell, but sell important mainstream items.
Let me say, also, that the point here is that we are asking for the opportunity and, in fact, we can't guarantee-no one can guarantee—that we will be able to sell X item or Y item. We want the opportunity to have a fair shot at these sales; and if American industry can sell, which I believe it can, we will do well. If it can't, and it is competing on fair terms, it will have to improve its product.
I don't believe that the latter is the case. I think it can do it now.
Mr. GIBBONS. I can't answer the question you posed, but I think the best evidence is that we must be able to compete or the Japanese wouldn't be resisting so strongly. We have never had any formal vote on this, but certainly we have discussed this a number of times among ourselves, and the committee backs you up 100 percent in this negotiation. We think that this is the bottom line, crucial negotiation.
I hope that it can be successfully and fully completed by the deadline that we mutually set.
I can't really understand the Japanese position on this. Mr. MOORE. I agree with everything that the gentleman from Florida has just said.
I would like to ask one question: This disaggregation of procurement, is that one of their intentional barriers that they have thrown up, like they did standards in the past?
Ambassador HORMATS. I don't think so. I think it is the product of the way the system has evolved. It precedes the debate over this code or trade in general. I haven't gone into the origins of it, but it is rooted deeply in the way the Japanese ministries govern themselves. Each little ministry and office buys its own things. I don't think there is any evidence that this is an intentional way of getting around the code.
Mr. MOORE. Thank you.
Mr. GIBBONS. That concludes our hearing for today, and the hearing record will be open until September 26 for receipt of additional statements and for materials for inclusion in the subcommittee records.
Thank you very much. (Whereupon, at 1:15 p.m., the hearing was adjourned.] [The following was submitted for the record:] STATEMENT OF HON. RICHARDSON PREYER, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF NORTH CAROLINA Chairman Vanik and members of the subcommittee are to be commended for considering the unfair trade restrictions faced by American exporters of tobacco products to Japan. I wish to state my full support for any efforts the subcommittee may initiate to see that U.S. tobacco manufacturers are allowed to compete fairly in the Japanese market.
As we become more aware of the need to increase U.S. exports in order to maintain a high level of economic prosperity, the importance of the tobacco industry to the American economy strikes us with renewed force. Tobacco and tobacco products are natural U.S. exports. According to Fortune magazine, three tobacco companies-Philip Morris, R. J. Reynolds Industries, and Universal Leaf Tobaccowere among the top 30 U.S. corporations in export sales in 1979. These three corporations alone had export revenues of over $1.3 billion last year. There can be no question that tobacco is already one of our major export industries, and that there is potential for even greater sales of tobacco and tobacco products abroad. We must do all we can to encourage development of this potential.
U.S. governmental action is, of course, particularly appropriate when foreign governments unfairly restrict access to their markets, and this
has clearly been the case in Japan's treatment of U.S. exports of tobacco products. Cigarette retail prices are set by the Japanese Government, and imported brands, subject to a 90 percent import duty, are now priced over 60-percent higher than domestic ones. Yet American manufacturers are forced by the government monopoly to sell at prices below their worldwide export prices. In addition, even under tentative agreements now being worked out, imported cigarettes could be sold at only 8 percent of the retail cigarette outlets in Japan. Finally, imported cigarette brands face severe restrictions with regard to advertising and a mandatory test-market period for new brands.
Imported cigarettes now hold 1.2 percent of the Japanese market. Industry sources estimate that if the present trade barriers were eliminated, imported cigarettes could be expected to account for 10 percent of that market. This increase could improve our balance-of-trade position with Japan by nearly one-half billion dollars a year, according to an industry figure, and would mean that U.S. manufacturers would be urchasing an additional 45 million pounds of leaf tobacco from American farmers.
Progress has been made in negotiations with the Japanese regarding American exports of tobacco products, but we must continue to work until all the unfair trade barriers now imposed by Japan are eliminated. The U.S. Congress must make its position clear-that we expect Japan to deal fairly with our export industries, just as we have done with theirs.
STATEMENT OF HON. CHARLES ROSE, A REPRESENTATIVE IN CONGRESS FROM THE
STATE OF NORTH CAROLINA Mr. Chairman, I appreicate the opportunity to express my concerns regarding the status of trade relations between the United States and Japan. I am especially interested in the efforts to correct the discriminatory practices imposed by the Japanese on U.S. tobacco products. Ambassador Askew has made some progress thus far to correct this unfortunate situation, I commend and thank him, however, we are still quite a distance from achieving equitable consideration for our tobacco products.
In view of the sizable trade deficits with Japan, the tobacco situation is extremely disheartening. In Japan, the distribution and marketing of manufactured tobacco products are controlled by a government monopoly, Japan Tobacco and Salt (JTS), under the jurisdiction of the Ministry of Finance. Imported cigarettes have been limited to 1.2 percent of the Japanese market as a result of trade barriers in the areas of pricing, distribution, and marketing. Absent these restrictions, imported cigarettes could reasonably be expected to hold 10 percent of the Japanese market.
Traditionally, prices in Japan have been established for domestic as well as imported cigarettes by the JTS. The price differential has averaged around 100 yen for domestic tobacco products over imported. Effective April 1, pricing policies were transformed into a 90 percent import duty. This import duty will increase the retail price of imported cigarettes from 250 yen to 290 yen per pack. Concurrently, the retail price of domestic cigarettes in Japan was increased from 150 yen to 180 yen, effectively maintaining the 100 yen discriminatory price differential and controlling competition.
Despite the concession permitting higher retail prices, the Japanese force U.S. tobacco manufacturers to sell to the JTS monopoly at prices below worldwide export prices. This price includes a 17 percent manufacturers increase granted only after extensive negotiation.
The distribution mechanism for imported cigarettes distresses me further. Sale of imported tobacco products are limited to a fixed number of retail outlets. Advertisement has been confined to newspapers that are striclty printed in the English language. The Japanese have printed new, less restrictive advertising guidelines that would allow foreign tobacco companies to conduct limited advertising and promotional activities under supposedly equal rules. However, the alleged equality could be contended since these guidelines are applicable only to imported tobacco products and would not apply to JTS products.
The introduction of new imported tobacco products is curtailed by a requirement that all of these products be market "tested” prior to entrance into “normal” distribution channels. During this testing period, distribution is currently limited to 40 retail outlets, the number of test centers may be raised to 60 if the present negotiations congeal. Presently, these products must remain at these test centers for a l-year period, however, a reduction to 6 months is also pending the outcome of the current negotiations.
Mr. Chairman, I realize these hapless circumstances are recognized by you and the members of your committee, as well as Ambassador Askew. I feel I must emphasize the extent of these problems so the suitable steps will be taken to achieve a more equitable trade relationship for tobacco with Japan. If these differences cannot be resolved in a more befitting arrangement, the United States is confronted with the possibility of losing a substantial share of the already sliding Japanese market.
American tobacco sales contribute meaningfully to the positive side of our balance-of-payments ledger. Three tobacco firms rank among the 30 leading exporters for 1979, exporting approximately $1.3 billion worth of tobacco. These figures cannot be ignored, our Nation's economic welfare hinges on the success of our exports. Favorable negotiation with Japan not only would enhance our unstable trade relationship with that country, but also would represent the purchase of approximately 45 million pounds of additional U.S. leaf tobacco by Ù.S. companies from U.Š. farmers.
Again, I thank you, Mr. Chairman and your subcommittee for your interests and action toward improving our trade relations with Japan, and especially for your demonstrated concern in regard to tobacco. Ambassador Askew's progress to date pleases me, and I am looking forward to the successful completion of the current United States-Japan trade negotiations.
STATEMENT OF THE BETHLEHEM STEEL CORP., D. SHELDON ARNOT, EXECUTIVE VICE
PRESIDENT High technology industries can be a significant source of jobs and economic growth, now and in the years to come. But in order to realize the full potential of these industries, government policy must recognize that the technologies in these industries will evolve rapidly. Consequently, those who start first will have an opportunity to “move up the learning curve” and acquire an advantage that their competitors will be hard-pressed to overcome.
The synfuels industry is a critical case in point. It represents technologies that will evolve and at the same time stimulate related technological development within supplying industries. Products will be invented and refined. Processes will be developed and enhanced. Jobs will be created and expanded. Skills will be learned and upgraded. Commercial relationships will be established and strengthened. In short, it will serve as a technological and economic catalyst.
There is no question that this will happen. The central question is Where will it happen? In the United States, where industries have been declining; where jobs all too often appear threatened; where real incomes are actually shrinking. Or elsewhere?
This is not the time to dissipate the economic and technological stimulus that the synfuels program represents. Yet, fears that this stimulus will benefit others, not our own existing and future industries, are real and well founded.
There is in the United States today only one synfuels project that promises to yield commercial quantities of energy during this decade. It is the Great Plains coal gasification project, and its construction began during the summer of 1980 near Beulah, N. Dak.
Unfortunately, this encouraging and exciting beginning has been accompanied by a development that raises Bethlehem's concern that our country may already be squandering the technological and economic stimulus of this and future snyfuels projects. Specifically, it now appears likely that the pressure vessels that will be a crucial part of this project are to be supplied by a foreign, rather than a domestic, company.
This important, first move up the learning curve will not be taken by an American firm. But even more immediately, wages and salaries that could be earned by American workers will be lost, as will potential tax revenues of governments at the local, State, and Federal levels.
CBI Industries, Inc., the lowest American bidder on the pressure vessels, would have constructed them at its Birmingham and Memphis plants—both of which are currently operating with only about 40 percent of their normal work force.
Bethlehem is among the companies that supply the American firms like CBI Industries that are capable of providing the equipment that will be needed to produce synfuels in this country. We have, in other words, a "commercial interest.” The 2,000 tons of steel plate required for the 14 pressure vessels that will convert coal into synthetic natural gas, and the 20,000 tons of steel that will be used by the entire project would provide much-needed employment in the American steel industry.
But there is a broader concern that we share, and it is that an opportunity is being wasted. Our sense of dismay is compounded by the fact the U.S. Government is a party to the squandering of this critically important chance to provide jobs and an impetus to technological development and economic growth in our Nation.
The Great Plains coal gasification project is going forward with a loan guarantee from the Department of Energy. In fact, it would not be going forward at this time without the guarantee. The American people, through their Government, are providing assistance to a project that is vital to our energy future and has the potential of playing a significant role in relieving current unemployment and in shaping our economic future. The American people provide the support, yet a major benefit-the technological and economic stimulus-is realized by others.
We believe that a useful step to correct this situation would be a meaningful bid preference for domestic materials in future synfuels construction projects that are federally aided. The benefits will be both immediate and long term as workers are employed, wages, and salaries are earned, taxes are paid, the steel balance of trade is strengthened, further dependence of foreign steel producers is avoided, and stimulus is provided to future technological and economic development in our country.
We believe that this is of such great importance that a domestic bid preference amendment is worthy of consideration. This amendment would be made to the Federal Nonnuclear Energy Research and Development Act of 1974. While this legislation does not fall within the purview of the Committee on Ways and Means, we call it to your attention and hope that you will support the amendment at the appropriate time.
A copy of the proposed amendment is attached:
NONNUCLEAR ENERGY RESEARCH AND DEVELOPMENT ACT OF 1974 We recommend that a new subparagraph be added to title 42, section 5919, paragraph (x), and that it should read as follows:
"(3/A) The Administrator shall not approve any financial assistance under this section unless the recipients agree that only domestic articles, materials, and supplies shall be used by contractors or subcontractors in the performance of construction work financed in whole or in part with assistance under this section.
“(B) The provisions of subparagraph (A) of this paragraph shall not apply where the Administrator determines
(i) their application would be inconsistent with the public interest;
(ii) domestic articles, materials and supplies of the class or kind to be used in the performance of the work are not reasonably available; or
(iii) the use of domestic articles, materials, and supplies will increase the cost of the overall project contract by more than 15 per centum (25 per centum, if the domestic articles, materials and supplies are produced in a "Substantial Labor Surplus Area" as defined by the United States Department of Labor).”
STATEMENT OF THE CALIFORNIA-ARIZONA CITRUS LEAGUE, WILLIAM K. QUARLES,
JR., PRESIDENT This statement is submitted by the California-Arizona Citrus League in conjunction with the August 26, 1980, hearings held by this subcommittee on House Concurrent Resolution 376, a sense of Congress resolution relating to the Japan-United States trade imbalance.
Citrus is specifically mentioned in House Concurrent Resolution 376 as an area "where Japanese trade barriers and practices prevent or restrict the importation or sale of American goods, thus contributing to the extraordinary trade imbalances between the two nations * (H. Con. Res. 376). The purpose of this statement is to elucidate the current situation as it specifically pertains to the U.S. fresh citrus trade with Japan, and to suggest avenues to be pursued by that country that would enable it to, as is stated in the resolution, take such steps in cooperation with the United States as are required to help correct the deficit now growing between our two countries.
The California-Arizona Citrus League (the league) is a voluntary, nonprofit trade association composed of marketers of California and Arizona citrus fruit. Members are farmer cooperatives and independent shippers which represent over 90 percent of the 10,500 citrus fruit growers in Arizona and California. These growers produce