APPENDIX F-COMPARISON OF CERTAIN UNITED STATES-JAPAN TAX POLICIES ANSWER TO QUESTION FROM CONGRESSMAN MOORE AT SUBCOMMITTEE AUTO HEARING, MARCH 18, 1980, PREPARED BY OASIA Q. Please submit comparative data on taxation (including depreciation and capital formation for U.S. and Japanese auto producers). A. The following elements of income tax affect the cost of capital for U.S. and Japanese auto producers: United States: Nominal Tax Rate_____ Japan: Investment Credit_____ 0.46. (a) 45 percent of machinery and equipment (M&E) may be depreciated in 3 years. (b) 55 percent of M&E depreciated in 8 years. 10 percent for (b) above; 3% percent for (a) above. 0.35 (average of retained earnings at 40 percent, All M&E depreciated in 10 years, but 1⁄2 is eligible In general, the depreciation allowances received by producers in each country are fairly comparable and do not seem to be a source of competitive advantage. The corporate income tax rate is, of course, lower in Japan (35 percent vs 45 percent) but there is no investment credit in Japan as there is in the U.S. Any benefit accruing to producers in the U.S. and Japan as a result of differences in the tax structure would be limited by the extent of capital costs. Based on the 1972 Census of Manufacturers, capital costs only represent about 17 percent of operating costs for auto producers. Material costs represent 73 percent and labor costs represent the remaining 10 percent. (The effect of income tax policies affecting other sectors would, of course, be reflected in the cost of materials.) Thus, it seems reasonable to conclude that tax policies affecting capital costs in the auto sector would not be a major source of advantage for producers in either country. (87) CRITICAL FEATURES OF DEPRECIATION RULES IN THE UNITED STATES, CANADA, THE UNITED KINGDOM, WEST GERMANY, FRANCE, AND JAPAN 1 These estimates reflect "normal" allowances. In Japan, "special" allowances are much more common than in other countries. Source: Office of the Secretary of the Treasury, Office of Tax Analysis, Nov. 14, 1979. APPENDIX G-REQUEST TO GAO FOR STUDY ON QUALITY Hon. ELMER B. STAATS, SUBCOMMITTEE ON TRADE, U.S. HOUSE OF REPRESENTATIVES, Comptroller General of the United States, General Accounting Office, Washington, D.C. DEAR MR. STAATS: During the past several years, the Subcommittee on Trade of the Committee on Ways and Means has been particularly concerned about the problems of bilateral trade between Japan and the United States. Clearly, in recent years, our exports to Japan have suffered from a perception in Japan that they lack quality. Japanese electronic and auto goods, on the other hand, have commanded a premium because of their reputed high quality. The quality issue is extremely important and restoration of quality production in American goods could be a key to help moderate our current trade imbalances. Yet it also appears that American workers working in the U.S. in Japanese owned plants under Japanese management methods have been able to make products of high quality, perhaps better than those produced in Japan. See, for example, the enclosed pages from the Subcommittee's recent report entitled Auto Situation: 1980. There are several issues here: -Are the products made here in Japanese firms really of high quality? It is unlikely that Japanese plant managers or PR firms would say that what they were producing in the U.S. was often defective. Therefore, is there any objective measurement of defects, recalls, etc., that can be compared to defects, recalls, or warranty expenses in the rest of the (domestic) industry or in Japan? -If there is a genuine quality difference, why? If there is a genuine quality difference, then determining why and publicizing the reasons, could be of enormous importance in encouraging increased productivity, quality, and trade competitiveness in American firms, without costly tax breaks, etc. Therefore, I would like to request the assistance of the General Accounting Office (and its regional offices) in conducting interviews at a number of Japaneseowned plants in the United States, in those cases in which the Japanese firms are amenable to the request for interviews. The study must, of course, be totally voluntary and this point must be made clear to the businessmen concerned. Basically, I would like to suggest a series of interviews at twenty Japaneseowned plants in the U.S. producing several different types of products. The interviews should seek to obtain objective data on that plant's quality performance (and if possible, the performance in the industry and/or in Japan). Interviews with both management and workers should seek to determine what accounts for the quality performance. In the case of workers who have had previous assembly line work under domestic firms, what is different between the Japanese-owned plant and American-run plant. The data from this servey will be used by the Subcommittee either in a report or in hearings. Because of the few remaining days of the 96th Congress, we would like to request that this survey be completed by August 20. I would like to propose a meeting between the Subcommittee staff and the GAO staff to decide on the plants to be invited to participate in the survey and the questions to be asked. At least two Subcommittee staffers will be available to work on this project more or less full time during the summer months. Thank you for your early assistance on this request. Sincerely yours, JIM JONES APPENDIX H-MEMORANDUM OF UNDERSTANDING OCTOBER 26, 1979 (REVISED DRAFT) Re: The Group on United States-Japan Economic Relations [Wise Men's Group]. 1. BACKGROUND In their Joint Communique of May 2, 1979, the President of the United States and the Prime Minister of Japan expressed agreement that "the time has come for a more constructive approach to Japan-U.S. economic relations." Stressing the "very strong economic interests which link Japan and the United States" and the intertwinement of their welfare and futures, the President and the Prime Minister stated the need for joint actions "that will make it possible to remove contentious bilateral issues from the forefront of [United States-Japan] relations and to mount cooperative efforts to resolve problems common to their societies, while ensuring a sustained, mutually productive relationship among their people." Within this context the President and the Prime Minister agreed upon a number of joint actions, including the following. A small group of distinguished persons drawn from private life will also be established, and will submit to the President and the Prime Minister recommendations concerning actions that the group considers would help to maintain a healthy bilateral economic relationship between the United States and Japan. Subsequently, the President and the Prime Minister requested Robert S. Ingersoll and Nobuhiko Ushiba, respectively, to establish the group referred to in the Joint Communique, to be known as the Group on United States-Japan Economic Relations (the "Group"). II. NATURE OF THE GROUP The Group hereby established under the Joint Chairmanship of Robert S. Ingersoll and Nobuhiko Ushiba, acting at the behest of the President of the United States and the Prime Minister of Japan, is an informal and unofficial group of private citizens of the two countries who share wide knowledge and experience of bilateral economic affairs, outstanding reputations for sound and thoughtful judgment, and an abiding commitment to a close and enduring relationship between their two countries. III. PURPOSE AND FUNCTIONS The Group shall prepare and submit to the President and the Prime Minister recommendations concerning actions that it considers will help to maintain a healthy bilateral economic relationship between the United States and Japan in accordance with the principles of productive partnership set forth in the Communique. Pursuant to the shared determination of the President and the Prime Minister to "remove contentious bilateral economic issues from the forefront" of United States-Japan relations, the Group shall study and consider existing and emerging economic problems that might become matters of substantial bilateral contention and shall seek to provide "early warning" of such problems and timely and appropriate recommendations for their solution. Moreover, recognizing that in a healthy, market-oriented economic relationship some problems are bound to arise, the Group shall also specifically direct its attention to finding and recommending new or improved mechanisms and institutions for managing bilateral economic problems in a regular and businesslike manner. For this purpose, the Group shall examine the processes through which some bilateral economic issues became the focus of contention in the past with a view to avoiding similar problems in the future. Further, in fulfillment of the behests of the President and the Prime Minister, the Group shall seek to identify opportunities for cooperative efforts by the two countries to deal with international economic issues of a bilateral or multilateral nature, including for example, possible cooperative efforts to deal with the problem of energy, to help ensure a healthier world economy based on free and expanding trade, and to assist developing countries. (91) |