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oranges, lemons, grapefruit, tangerines, and limes. The fruit is marketed in both fresh and processed forms.
The league speaks on behalf of the California-Arizona citrus fruit industry on matters of general concern such as legislative, foreign trade, and other similar topics. Representatives of the league have devoted much time and effort to the promotion of exports and have concerned themselves with international trade prob lems since early in the 1920's.
The league wholeheartedly endorses the spirit and the letter set forth in House Concurrent Resolution 376. For many years the league and its members have continually, with minor successes, striven to increase the amount of U.S. citrus imported into Japan. It is significant that gains have recently been achieved and Japan has signalled a willingness to cooperate further. Nonetheless, barriers remain which hinder trade and contribute to our own deficit with Japan.
FRESH ORANGES Japan has erected dual impediments to the importation of fresh oranges from the United States: high import duties combined with quantitative limitations. While the league is well aware of Japan's desire to assure maximum protection for its own citrus industry, these trade barriers effectively frustrate an open market situation.
The duty on fresh oranges imported into Japan is 40 percent from December 1 through May 31, and 20 percent from June 1 through November 30. This is an unrealistic level. The U.S. import duty for fresh oranges (including Japanese mikans) is 1 cent per pound, resulting in an ad valorem equivalent of approximately 10 percent (based upon a conservative value of 10 cents per pound). The Japanese import duty should be harmonized with the U.S. import duty.
In addition to this high duty, Japan has placed a quantitative limitation on the importation of fresh oranges. Although Japan recently agreed, in the Multilateral Trade Negotiations, to increase its import quota to 82,000 tons by 1983, this remains minimal. The 82,000 tons is equivalent to less than 3 percent of the Japanese mikan (tangerine) production.
The Western citrus industry has two varieties of oranges: valencia or summer oranges, and navel or winter oranges. In conjunction with its quota system, Japan has implemented a license system which requires that the bulk of the fresh orange imports enter Japan during the late spring or mmer. This virtually precludes Western navel growers from participating in Japanese markets.
Fresh oranges, thus, are scarce during the spring and summer in Japan. Increasing the amount of imports in conjunction with a lowering of the duty to realistic levels would result in larger quantities of fresh U.S. oranges being available to Japanese consumers throughout the year. It is believed this will increase the overall demand for fresh citrus which should be beneficial to both Japanese and U.S. citrus producers. It is further believed that, in accordance with the goals of House Concurrent Resolution 376, this would also evidence Japan's willingness to cooperate with the United States in reducing the trade imbalance between our two nations.
CONCLUSION The California-Arizona Citrus League feels that some headway is being made in negotiations with the Japanese to eliminate the existing trade barriers to the importation of fresh oranges from the United States. The recent MTN agreements to gradually increase the quotas is definitely a significant step forward.
Nonetheless, the barriers remain and remain at unacceptable levels. Japan could do much to encourage further trade in U.S. citrus by the accelerated removal of these barriers. Doing so would be clear signal to the United States that the Japanese Government recognizes the seriousness of our present trade imbalance situation and, in accordance with the spirit of House Concurrent Resolution 376, is willing to pursue steps to ameliorate that imbalance.
STATEMENT OF ARTHUR G. ALBERTSON, WASHINGTON REPRESENTATIVE, CBI INDUSTRIES, INC., ON BEHALF OF CHICAGO BRIDGE & IRON Co., OAK BROOK, ILL.
Mr. Chairman and members of the committee, you have asked for comments on Japanese and U.S. trade relations, and this statement is submitted accordingly. I appreciate having this opportunity to present to you a serious situation that has occurred, will continue for the duration of the synfuels program and will be extremely detrimental to our economy unless corrected.
My name is Arthur G. Albertson, Washington representative, CBI Industries, Inc., which is the parent company of Chicago Bridge & Iron Co. (CBI), with executive offices at 800 Jorie Boulevard, Oak Brook, Ill.
Chicago Bridge & Iron Co. was incorporated in Illinois in 1889 as a structural steel fabricator and erector and has continued in this area of business, specializing in plate work. CBI designs, fabricates, and erects metal plate structures and related systems that are used in the nuclear; hydroelectric power; liquefaction, vaporization and storage of natural gas; and transportation, storage, and processing of petroleum and chemical products; pulp and papermaking; aerospace research and operation, fuelmaking, water, and waste water treatment, and marine and offshore production and drilling equipment. The company has extensive supportive research facilities located at Plainfield, Ill.
One of the company's major product lines has been the design and production of pressure vessels. The fabrication of these vessels requires the highest degree of skill. Ongoing research, particularly welding, testing, and quality control procedures, massive tooling so that the rigid specifications are met insuring the vessel will perform withstand the tremendous pressures and temperatures as applied in the required process. The company has been one of the major fabricators of such vessels in the United States. Of particular note is the fact that CBI has and is furnishing equipment for the huge Sasol coal gasification plant in South Africa with the major items being pressure vessels. Therefore, CBI's competence and reputation in this field is unchallenged and is so recognized within the industry.
As you are aware, to endeavor to attain our Nation's goal of energy independence you men and others in the Congress are commiting huge sums of money to develop a synthetic fuels industry for this Nation. The goal is the production of 1.5 million barrels of synfuels per day by 195; $20 billion has been programed to encourage a diversity of pertinent technologies. A synfuels corporation will manage and develop this program and plans are to invest an additional $68 billion on further synfuel development.
The first commercial synfuels plant is now approved to be built at Beulah, N.D., estimated to cost $1.4 billion. This is an undertaking by ANG Coal Gasification Co. being a group of five companies and approved by the Department of Energy. This plant will produce synthetic gas from coal and will use a Lurgi process similar to the one employed in the Sasol, South Africa, plant previously mentioned for which CBI is furnishing pressure vessels. It should be noted that the Lurgi Corp. is acting as agent for ANG Coal Gasification Co.
I stress that in reporting this activity the details are based upon sources believed to be reliable. CBI representatives have not examined the bidding records. Some details have been public knowledge within the industry for some time, and we know of no challenge or refutation by anyone concerning their reliability.
In February 1980, based upon solicitations from ANG, CBI, and others submitted bids for the fabrication of 14 pressure vessels for this project. The initial bids were submitted on an FOB plant basis. On July 17, 1980, as requested by ANG, CBI requoted this job including estimated freight charges in addition to the base price of approximately $10 million.
The freight charges from CBI's Memphis plant was estimated to approximate between $700,000 and $950,000 depending upon the handling of the shipment. At this point and even now CBI was and is the lowest USA bidder for the procurement of these vessels.
In procuring_the vessels and other facilities for this first synfuels plant, the Department of Energy, ANG or someone made the decision to resort to "worldwide" purchasing and the procurement for this facility proceeded accordingly. Hatachi, Ltd. of Japan also submitted a bid on these vessels and their freight charters from Japan were estimated to approximate $3 million.
At that point, the CBI and Hitachi bids were comparable and competitive and it would appear that CBI was the low bidder. On or about July 17, on a revised bid, Hitachi's freight charges were reduced to $1 million, thereby making Japan the low bidder by approximately $2 million-about 20 percent. On August 6, 1980 CBI was advised that a letter of intent had been issued to Hitachi, Ltd. for the procurement of these vessels. This ANG plant is the first commercial plant
to be approved by the Department of Energy and the Federal Energy Regulatory Commission. The DOE has provided $20 million to get this project underway and a $250 million loan guaranty and, based upon recent statements, plans to extend this guaranty to $1.4 billion being the full estimated cost of the entire plant.
This contract is of particular importance because it is the first major procurement in the synfuels program. This applied policy of "worldwide” procurement raises many serious questions and poses a real threat to our economy and the well being of the Nation. Some of the more important questions are:
QUESTIONS 1. Is it reasonable to assume that Hitachi, Ltd. will be able to ship 14 pressure vessels from Japan, across the Pacific, through the Panama Canal, up the east coast, to the St. Lawrence Seaway and then transship from Duluth, Minn. to the site at Beulah, N. Dak. for $1 million?
The answer seems obvious for if the first figure of $3 million represented a valid estimate then this drastic reduction is not realistic but a device used to obtain the contract. Further, it would seem that such a substantial reduction might have been subject to question at the time the final decision was made.
2. Will it be the policy of the Government to encourage offshore procurement to stimulate foreign employment to the detriment of U.S. industry, jobs, balance of payments, advancing technology, loss of skills, and the common good of the Nation?
It is no secret that employment is a current major problem and CBI's situation is no exception. The Cordova, Alabama plant is closed. The Birmingham plant is operating at about 40 percent, and the Memphis, Tenn. plant-which formerly specialized in nuclear reactor pressure vessels-at about the same level. All three plants manufacture pressure vessels and related items. Before any such decision is made to go "worldwide,” at some time during the process real consideration should have been given to areas of unemployment and the utilization of American industrial facilities.
3. Is it important for the United States to retain its skilled workforce, advance its technology, not export it, continue to modernize its facilities and research capabilities, and provide jobs through this program?
Of course it is. There are some three U.S. companies that are capable of fabricating this hardware. The possibility distinctly exists that skilled personnel needed for the fabrication of pressure vessels and nuclear hardware will be lost along with the capability to provide such hardware in the future. Exporting our technology and providing such access on a "worldwide basis only complicates further the competitive position of U.S. companies in the foreign markets.
4. Is it the policy of Japan to solicit bids on Government or Government-sponsored projects when the items needed can be produced or supplied by Japanese firms?
Insofar as it can be determined the answer is no. CBI would not be afforded to bid on such vessels or hardware and based on Japanese policy we do not expect such consideration in the future.
5. Is there a solution to this problem?
In the passage of the synfuels legislation and subsequent thereto much as been made of the fact that its implementation would provide thousands of jobs, put people to work again, promote industrial growth and modernization of our plants and at the same time substantially help achieve the goal of energy independence. This first major procurement falls far short of such intentions. The continuation of this "worldwide” procurement policy can only cripple the country's ability to produce for itself.
In the debates and discussions during the passing of this synfuels legislation there was no serious or full consideration of this problem and therefore, no so-called buy, America provisions designed to meet this problem were enacted. The "worldwide procurement concept now part of the synfuels program exporting U.S. jobs is contary to representation made at the time the legislation was passed. A remedy can only come from appropriate legislation or administrative determination that will assure that, in the awarding of contracts under the synfuels program, real consideration is given to the problem of unemployment and depressed industries and other economic factors that may apply. You are probably aware of a study by the Library of Congress regarding the Buy American Act (analysis of S. 2318, the Buy America Act-dated February 28, 1978). This study was requested by the Honorable Senator John Heinz from Pennsylvania. This study shows conclusively that, for Japanese prices to be the economic equal of American prices, after considering all economic factors, the foreign price must be 50 percent lower than the American price.
When we look at the net cost to the American economy of buying Japanese goods, we see a different total picture. Any U.S. expenditure with U.S. companies produces revenue returned to the Government in the form of State and Federal corporate income taxes, employee income taxes, other benefits from full employment, reduction in unemployment.payments and other items. Therefore, for Government assisted procurement, we must assume that the cost is not merely the initial purchase price but instead the purchase price plus the lost tax revenue, unemployment payments and other lost benefits that would accrue from domestic purchasing.
Unless these actual factors are taken into account in contract awards U.S. contractors, fabricators and suppliers will find it virtually impossible to compete as shown in this pressure vessel transaction, because the Japanese are assessing these costs to their economy in establsihing their price levels.
There is attached hereto a copy of the mentioned study for reference purposes. 6. What is the attitude of the Department of Energy in matters such as these?
The Department of Energy supports the concept of worldwide” procurement and encourages such policy. In a similar course of action it was stated 'We believe that discussions with foreign firms may be a prudent course of action due to the estimated cost-and potential for significant savings.” Further, under loan guaranties DOE takes the position this relationship does not give them "authority over project equipment procurement activity" and therefore they are helpless in this situation. They view this as a private venture but do acknowledge they are obligating U.S. Government funds.
Also DOE insists that no more than 7 percent of the installed costs (the ANG Plant) are projected to go for foreign sources”. That small percentage still multiplies out to $100 million going overseas! If we assume a more realistic 10 percent figure, then we have a total of some $140 million U.S. dollars going “worldwide”. Applied to the projected expenditure for the total Synfuels program, should this percentage prevail this figure becomes a whopping $8.8 billion of overseas purchases. This demonstrates the impact on our economy. How many jobs would that sum provide?
According to current reports DOE is about to commit to ANG a loan guaranty of some $1.4 billion being the estimated cost of the plant. It would seem reasonable that the DOE should stipulate that the economic and social impact upon U.S. industries and workers must be considered before offshore procurement is approved.
CBI's interest is based upon the belief that a viable and workable solution to this problem must be forthcoming to support the Synfuels program now and in the future. CBI's lost contract brings into focus at the start of the Synfuels program the impact on the people and the economy. This may be only the beginning, even though major industries have already been crippled or destroyed. That trend will continue until something is done about it. We don't want this to happen to CBI and others in our industry.
We do not propose nor would we support a ban on foreign competition, but we do insist that U.S. industry be allowed to compete for the jobs on a fair and equitable basis. We do not ask for subsidies but we object to subsidization of our foreign competitors when taxpayer money is backing the Synfuel program. Although we do not desire to impede the progress of the ANG plant, those concerned with the project should recognize that this is not an isolated instance but rather a matter of continuing concern and they should act accordingly.
Mr. Chairman and Members of the Committee, in my experience I have never before witnessed the anger and disgust, or the desire to act, exhibited by our employees, shareholders and others that came forth when they learned that “energy independence” may not mean more jobs and business for Americans. They want a workable solution now.
Thank you for the opportunity afforded me to present this most important matter.
THE LIBRARY OF CONGRESS,
Washington, D.C., February 28, 1978.
In reference to your letter of January 24, 1978, we have carefully examined the data regarding the effects of the Buy American Act. Regarding your first question, "What is the tax effect of purchasing goods from American suppliers rather than foreign suppliers,” we have roughly estimated the ultimate tax effect using the following assumptions:
1. $1,000=the amount of the original domestic procurement;
2. 1.7=the multiplier (how many times the original expenditure increases the GNP). Estimates of the GNP multiplier vary from 1.5 to 1.7; we used the high estimate for this analysis;
3. 10 percent=non-farm business profits before tax as a percent of sales;
6. 65 percent of non-farm business profits are taxed at the corporate rate and 35 percent at the personal income tax rate (about the percentages that corporate profits and non-farm proprietors' income represent);
7. About 90 percent of the total procurement minus corporate profits represents wage and salary payments (the remainder is rental and net interest);
8. 11.7 percent=social security tax on both employers and employees; 9. 4 percent=average state sales tax; and
10. Since states and localities do not collect sales taxes on their own procurements, state sales taxes apply only to the multiplied effects of the procurement ($700 in our example). Also, only about 70 percent of expenditures bring in sales tax revenues (due to exemptions by many states and localities on food purchases, certain services, etc.). Calculating the tax revenues for a $1,000 procurement:
$1,000x1.7 (the multiplier)=$1,700.
$170 x 35 percent x 20 percent=$12 taxes on unincorporated non-farm business income.
$1,700 – $170=$1,530.
$1,530 x 20 percent=$306 personal income tax payments on wages, salaries, rent and interest.
$700 x 70 percent x4 percent=$20 state sales tax. Summarizing: Corporate profits taxes....
$53 Taxes on unincorporated non-farm business income
12 Social security tax payments..
161 Personal income taxes on wages, salaries, rent and interest.
306 State sales taxes ...
Total taxes per $1,000 domestic procurement............
552 The $552 in tax revenue added per domestic procurement of $1,000 is probably an overestimate because the foreign procurement it replaces often contains many American-made components, which are currently being taxed. For example, a Portuguese firm recently was awarded a contract for railroad cars, but only the shell was made abroad all the components were U.S. produced.
Your second question was, “How much would be paid in primary (i.e., unemployment compensation) and secondary (medicaid, welfare, etc.) benefits by Federal, State and local sources if a foreign purchase resulted in the loss of American jobs?' The variation in unemployment compensation, medicaid and welfare payments among States, as well as the virtual impossibility of knowing how many of the unemployed quality for these benefits, made it impossible to estimate the amount of government payments made to the unemployed if a foreign purchase resulted in the loss of American jobs.
Regarding your third question, "What is the effect of a domestic versus foreign procurement on the Gross National Product,” the effect would depend on whether or not the economy is at full employment. If the economy were at full employment, a domestic purchase would only increase price levels, leaving the real GNP (the GNP in constant-dollar terms) unchanged. If, however, unemployment and idle capacity were widespread, the real GNP would increase by $1,700 for a $1,000 domestic procurement ($1,000 X the multiplier of 1.7 discussed previously). In reality, the change in GNP would probably be somewhere between these two extremes.
In answer to your fourth question, “What additional cost would be incurred by Federal, State and local governments if the bill were enacted,” we have no data on which to base an estimate, nor have we been able to discover any aggregate data in any other government agencies.
ARLENE WILSON, Analyst in International Trade and Finance.
CHICAGO BRIDGE & IRON Co. The purpose of this display is to show the net cost to the U.S. Government of purchasing goods from foreign sources as opposed to purchasing from U.S. sources.
Any U.S. Government expenditure of funds for goods and services with U.S. companies produces revenue return to the Government in the form of taxes paid on income earned from the sale of these goods and services. Additionally, placing these funds into the U.S. economy where a company will be paying wages and purchasing other goods and services will produce additional tax revenues to the Government through the feedback effect. Therefore, we can assume that the cost to the Government for the goods purchased is not the initial purchase price but instead that