President's authority to impose foreign policy controls retroactively and extraterritorially. They would also reduce licensing requirements to COCOM countries and to U.S. subsidiaries and affiliates abroad. Hopefully our witnesses have received advance copies of these proposals and may choose to comment on them in their testimony; if not, perhaps in the question and answer period.

Before I proceed with the witnesses I would like to call upon the ranking minority member of the subcommittee. He is as new at this as I am since this is my first term as chairman of the subcommittee. This is Mr. Roth, the new ranking minority member of the subcommittee, replacing Mr. Lagomarsino who has served in that position in the past.

Mr. Roth, I wonder if you have any opening comments at this time.

Mr. ROTH. Thank you very much, Mr. Chairman.

As you have mentioned, you are a new chairman, but I also know you are a quick study, so I am sure that we will have the necessary facts and information marshaled in order to examine this complex issue.

I want to thank you for taking the initiative to call these hearings on the Export Administration Act. I think it is one of the most important pieces of legislation we will examine this session of Congress. Over the next several weeks our attention will be focused on renewal of the Export Administration Act.

At the same time, I think we must look at the larger picture of American exports and the role they play in our Nation's economy. Economic indicators demonstrate America is now marching out of the recession, but we must be certain that congressional action enhances rather than weakens our return to a robust economy and full employment. Increased exports are the sort of raw material that is needed to fuel our coming economic recovery and the Export Administration Act can be used as one vehicle to drive a robust and comprehensive American trade policy.

As far as I am concerned, for all too long our Government has exerted through this act a negative function, telling industry what cannot be exported. We have done very little to promote exports. This is an area in which we can make major positive contributions. I hope we can work together toward development of a comprehensive trade policy regarding export controls in the forthcoming weeks.

As you may know, Mr. Chairman, I have a strong interest in international trade. Each year in my district I hold a special conference on exports. At last year's meeting, some 300 Great Lakes business executives attended. There is a real interest on the part of the American businessman in finding out more about international trade opportunities, however, the Export Administration Act is always something of a mystery to the business community.

On the one hand, our Government tells the businessman to go out and sell in new markets, but when the sale is made, the company soon finds that, in many cases, to complete the sale, the contract has to run the gauntlet posed by the Export Administration Act. Through these hearings, and the amendments that we'll be proposing, I hope that we'll be able to eliminate many of the roadblocks, and bring the law up to date.

We will, I feel, need to retain control over our exports but we can remove much of the uncertainty. In exchange, I feel that the Federal Government owes it to the business community to provide them with a comprehensive package of trade promotion and assistance. Our biggest need in this country at the moment is more jobs-and real, private sector employment can be created through expansion of our exports.

The work that this subcommittee will be doing constitutes some of the most vital work that will be done by the 98th Congress. I look forward to working with you, Mr. Chairman, and with our colleagues here on the committee and in the House as we draft an international trade policy for America.

I want to commend our chairman, who has taken some real initiatives in this area and for adding a positive flavor to this act rather than the negative ones.

Thank you, Mr. Chairman.

Mr. BONKER. Thank you, Mr. Roth. I appreciate your reference to the positive approach.

H.R. 1566 proposes adding a new title concerning export promotion to the Export Administration Act. This is the one statute that deals primarily with export policy, and it turns out to be a litany of don'ts.

We feel that export promotion is very important and we will be laying the foundation in this legislation to build upon in the future.

Mr. MICA. Will the chairman yield?

Mr. BONKER. Mr. Mica.

Mr. MICA. I would like to join in the positive comment. As a new member of this subcommittee, there is nothing I would like to see more. Particularly being from Florida, we intend to lead this Nation in international trade and economic affairs, to see a positive emphasis in this legislation.

Hopefully, throughout the work of this subcommittee and with the chairman and ranking minority member as we have here, no doubt we will turn this world upside down in a positive way.

Mr. BONKER. Thank you.

I would also like to introduce other members of the subcommittee.

Mr. Berman is a new member of the subcommittee from California.

Mr. MICA. He is going to be second to Florida.

Mr. BONKER. Mr. Ed Zschau also represents California. Because his district produces high technology goods, he wanted very much to be on this subcommittee, but the competition was very stiff. He serves on the full Committee on Foreign Affairs, and he will be sitting with the subcommittee for these hearings because of his interest in this subject.

I think everybody recognizes that Congress has a real challenge in attempting to balance on the one hand, the need to be more competitive in world markets, to maintain our dominant position in international trade, and on the other hand, to develop the necessary restraints to make sure that we don't have critical military technology making its way into potential adversarial hands. That

is the task before us. Gentlemen, you are here to help us with that task.

At this time I would like to introduce today's witnesses. Then we will proceed with each witnesses' oral statements and then we will open up to questions.

I understand that you are prepared to summarize your statements so that we can allow time for questions and answers. Your entire text, of course, will be included in the official record.

I want to apologize to those people who have to stand. We tried to obtain the full committee room for today's hearing, recognizing the interest, but were unable to do so.

Mr. Richard Kahler is manager of government affairs for the Caterpillar Tractor Co., which has a stake in the legislation. He will be representing both the Emergency Committee for American Trade and the Business Roundtable. Mr. Richard W. Roberts is president of the National Foreign Trade Council. Mr. Kempton Jenkins is vice president of government affairs, Armco, Inc., and chairman of the Coordinating Group on the Export Administration Act for the U.S. Chamber of Commerce. Mr. Alexander B. Trowbridge is president of the National Association of Manufacturers. Each of the witnesses represents distinguished groups which have members with a tremendous interest in this legislation. We are pleased they are with us.

Mr. Kahler, we will begin with you.

STATEMENT OF H. RICHARD KAHLER, MANAGER OF GOVERNMENTAL AFFAIRS, CATERPILLAR TRACTOR CO., REPRESENTING THE EMERGENCY COMMITTEE FOR AMERICAN TRADE, AND THE BUSINESS ROUNDTABLE

Mr. KAHLER. Thank you, Mr. Chairman.

As you said, I am Dick Kahler of Caterpillar Tractor Co. I am pleased to be here today representing the two very fine organizations that you referenced, the Emergency Committee for American Trade (ECAT) and the Business Roundtable.

I would like to say by way of introduction I am very pleased to hear the opening comments of you and your associates regarding the positive approach you intend to take on renewal of the Export Administration Act because we think that is very important.

My remarks today are going to focus on the Executive's authority to impose foreign policy and national security controls and on the administration of such controls.

I will, as you requested, summarize my prepared remarks, but I would like to invite your attention to a complete discussion of both the Business Roundtable's and the Emergency Committee for American Trade's views which will give you complete documentation on the subjects of my remarks. I would ask the inclusion of those papers in the record of today's hearing.

Mr. BONKER. If there is no objection, those documents will be included in the record.1

Mr. KAHLER. Thank you, sir.

1The statements referred to appear on pp.15-67.

Mr. Chairman, the declining U.S. share of worldwide exports is in substantial part due to what we feel is the capriciousness of U.S. export control policy which brands American businessmen as unreliable suppliers, investors, and licensors. This is contrary, we believe, to the intent of Congress.

In amending the Export Administration Act in 1979, Congress clearly expressed its desire to emphasize the importance of exports to the U.S. economy and confine use of export control authority to instances where controls are essential. Controls are not, says Congress, "to be used except when they are necessary and will clearly further fundamental national security, foreign policy, or short supply objectives."

RECOMMENDATIONS ON FOREIGN POLICY CONTROLS

Specifically in the area of foreign policy controls the Export Administration Act includes several provisions designed to limit their use. Included are prior consultation with Congress and industry and automatic expiration of controls after 1 year.

Second, the requirement that certain criteria, including the likely effect of controls on the U.S. export performance, international competitiveness and reputation as a supplier of goods and technology be considered before controls are imposed. Then a limitation based on foreign availability and a reporting requirement by the President to Congress.

These provisions indicate a clear and strong congressional intent to limit the use of export controls. Unfortunately, this intent has been often ignored. The use of foreign policy controls seems actually to be expanding. Instead of considering controls as a foreign policy tool of last resort, they are increasingly viewed as the opening shot.

In the recent past foreign policy controls have been applied to exports ranging from pipelayers for the Siberian pipeline to stuffed animals for the Moscow Olympics. The result has generally been damage to the U.S. commercial interests with little or no impact on the target country.

Mr. Chairman and members of the subcommittee, we acknowledge that instances will arise which beg prudent use of controls in the pursuit of well defined and balanced foreign policy concerns, but we believe further constraint must be imposed on the use of such controls. Controls must be imposed on a multilateral basis to be effective. The reason: virtually all products manufactured by American companies are available from many foreign competitors. Unilateral controls succeed only in diverting important export business from the United States to those foreign competitors. For U.S. exporters, lost sales translate into reduced production, profit, and reinvestment. For employees of American firms, export controls mean reduced wages or increased unemployment.

I

If during the question and answer period it is of interest to you, will be glad to elaborate on Caterpillar's own corporate experience concerning lost jobs and sales related to export control.

International political relationships and the rules governing international trade and investment are also adversely affected by the unilateral application of foreign policy export controls. The ex

traterritorial application of U.S. law to prevent the reexport of U.S. products by unrelated foreign companies-and even the export of foreign-made products by overseas subsidiaries and licenses of U.S. companies-has created resentment and counteraction in foreign capitols. These factors argue strongly for a limitation on the President's authority to impose foreign policy controls.

The Business Roundtable and the Emergency Committee for American Trade thus propose that the following recommendations be reflected in the Export Administration Act, as amended, in 1983.

First, a series of specific conditions must be met before unilateral foreign policy export controls can be imposed. The existing criteria would be strengthened and new criteria added so that the President would be required to make a more compelling showing of need, effectiveness, economic impact, and foreign unavailability.

Second, the procedures required to be followed prior to imposition of export controls for foreign policy purposes should be made more stringent, especially with respect to two factors.

First, consultation with Congress and the business community, and second, the submission to Congress of detailed reports evidencing that each of the criteria established in the Export Administraton Act have been met.

Third, controls imposed in violation of the act's requirement should automatically be invalidated.

Fourth, export controls for foreign policy purposes should not have retroactive application.

Fifth, export controls for foreign policy purposes should not be applied extraterritorially.

Sixth, all export controls for foreign policy purposes should expire after 180 days unless extended by the President.

RECOMMENDATIONS ON NATIONAL SECURITY CONTROLS

Moving to national security export controls, they involve a substantially different set of problems. Exports to adversarial regimes of goods and technology that would make a significant contribution to the military potential of those countries profoundly affect the national interests and should be controlled.

Yet, national security controls applied to goods or technologies that are not militarily critical work only to disadvantage U.S. economic interests and do not provide a countervailing benefit to national security. The challenge is how to focus the national security controls mechanism on only those goods and technologies that need to be controlled.

The present system does not provide that critical control. The list of controlled items includes numerous products and technical data that are either available from foreign competitors, are militarily insignificant, or both. This overly broad application of national security controls needlessly costs the U.S. Government and domestic industries millions of dollars in administrative costs each year.

Moreover, the delays and uncertainties involved in obtaining validated licenses leads to loss of export orders and distrust of American businesses as reliable suppliers. A recent study by the General Accounting Office highlights these problems. According to