Mr. BONKER. Thank you for an excellent statement, Mr. Trowbridge.

We shall now move to Mr. Jenkins who represents both Armco and the coordinating group on this act for the chamber of com

merce.

STATEMENT OF KEMPTON JENKINS, VICE PRESIDENT, GOVERNMENT AFFAIRS, ARMCO, INC., AND CHAIRMAN, COORDINATING GROUP ON THE EXPORT ADMINISTRATION ACT, U.S. CHAMBER OF COMMERCE

Mr. JENKINS. I am pleased you have given me the opportunity to return to this hall and testify on behalf of the chamber on this most important subject.

As you are aware, the chamber is the world's largest business association with a membership of over 237,000 small, medium, and large businesses, trade and professional associations, and State and local chambers.

The refinement of this act is a major priority of the U.S. Chamber of Commerce. I would like to emphasize in the beginning of my testimony, Mr. Chairman, that no responsible member of the business community would tolerate the diversion of critical technologies to the military use of our adversaries. In this regard, we applaud the efforts of both the administration and the Congress to strengthen the enforcement of export controls in order to put a halt to the illegal acquisition of controlled items by our adversaries.

I would like to add special praise for those administration efforts as outlined by the Department of Commerce in testimony before the Senate Banking Committee on February 3, and, specifically, the personal efforts of Under Secretary Olmer, whose judgment has been a steadying factor during export administration problems of the past 2 years.

We applaud the past and present efforts of this subcommittee. In particular, Chairman Bonker deserves recognition for his ongoing efforts, which include a thoughtfully drafted bill to modify the present Export Administration Act.

This bill includes a number of extremely important provisions related to such principles as contract sanctity and extraterritorial application of controls. It is our hope that, following these hearings, provisions will be added to provide for other important principles and judicial review.

PRINCIPLES FOR REAUTHORIZATION PROCESS

The chamber favors a number of changes in the act. Through experience since the enactment of the 1979 act, five important principles have emerged which reflect the problems that have arisen in the export control process. These principles relate to:

First, sanctity of contract,

Second, multilateral controls,

Third, extraterritorial application,

Fourth, advanced consultations, and

Fifth, cost/benefit analysis.

They are inherent in the expressed dual purpose of the present export control legislation: Protection of national security and promotion of American export competitiveness.

U.S. POSITION IN INTERNATIONAL TRADE

During this year's reauthorization process it is important that we dispel certain myths regarding our position in the world.

First is the view of the United States as the predominant supplier of equipment and technology. This view is a residue of the days when the United States was the preeminent economic power of the world. Although this no longer is the case, policymakers in this country have exhibited an increasing tendency to use trade as a means to further political ideals without a careful assessment of foreign availability and, consequently, the costs or effectiveness of these decisions.

Second is the misconception that the Soviets and other potential adversaries are uniquely dependent upon Western technology. In fact, they are part of a real world in which we are, to differing degrees, all interdependent.

The third myth is the mistaken notion that the United States can continue to depend upon domestic economic demands to increase economic growth. Without active participation in world trade and significant export earnings, the United States will lag in research and development and fall behind our Japanese and European trade competition, a process we can already discern.

Fourth, corporations are not merely institutions. They encompass the workers, shareholders, and communities in which they are located.

Finally, we should deal with the myth that unilateral action by the United States is an act of strength and leadership. The most important historic advantage we retain over the U.S.S.R. is the nature of our alliances. The so-called Warsaw Pact is composed of occupied nations whose forces are not full partners and are not trusted with the top of the line of Soviet military equipment. Most of the post-World War II crises have consisted of efforts by the Pact members to free themselves from Soviet domination. These are not polemics; they are factors of history. The NATO alliance is a voluntary association of free peoples who not only share our modern weapons, but participate in the development and costs of these

weapons.

Any unilateral action by the United States which weakens the alliance unity thus erodes a most important strategic Western advantage and sends a signal to Moscow of weakness, not strength.

COST OF UNILATERAL CONTROLS

Let us take a look at the cost of United States unilateral embargo actions. The United States has lost important shares of the world agricultural markets in recent years as a result of imposition of unilateral agricultural export controls.

Through such controls, the United States has provided incentives for the creation of permanent foreign competition. This was as evident 10 years ago when an embargo on U.S. soybean exports led Brazil to increase substantially its soya production and become a

major force in world markets, as it is today following the 1980 agricultural embargo against the Soviet Union.

As President Reagan pointed out on January 11, before the American Farm Bureau Federation following the 1980 grain embargo, our 73-percent share of the Soviet market plummeted to 30 percent.

Key leaders in the agricultural sector agree that the cumulative cost of the grain embargo to the United States has already exceeded $40 billion, and continues to grow. Coming at a time of perilous balance in the fragile agricultural marketplace, the unprecedented and ill-considered grain embargo of 1980 sparked a financial chain reaction. It affected planting, rail transportation, grain storage facilities, agricultural equipment purchases-International Harvester points to it as a major catalyst in its decline-farm-belt banking and insurance, grain mills, and on, and on.

The recent Caterpillar experience mentioned by Dick Kahler is another dramatic example. I hope he has a chance to give you some specifics on that.

The U.S. aerospace industry has incurred substantial costs as a result of imposition of foreign policy controls. One U.S. manufacturer alone estimates that it has lost a billion dollars in the Middle East because the company is viewed as an unreliable supplier due to the proliferation of U.S. policy export controls since enactment of the 1979 act. We must recognize that transfer of business from U.S. aircraft producers to European competition does not advance U.S. foreign policy; it erodes U.S. aerospace capacity.

The experiences of my own company, Armco, point to similar conclusions. After almost 4 years of technical and commercial negotiations, Armco and Nippon Steel Corp. signed in December 1979 a contract with the Soviets valued at $353 million. The contract provided that Armco and Nippon would supply technology, engineering services, and equipment to build a plant in Novolipetsk for the manufacture of electrical steel. The U.S. portion of the contract was valued at $100 million. At the time of the contract signing, Armco had received 94 percent of all necessary licenses from the U.S. Government.

In January 1980, following the Soviet invasion of Afghanistan, President Carter suspended all export licenses for the Soviet Union. In April, the Armco contract was terminated by the Soviets because Armco's export licenses had not yet been reinstated.

In August, Creusot-Loire of France signed a substantially similar contract with the Soviets despite assurances from the French Government that they would not take over contracts from American firms. As a result, Armco lost $6.5 million in negotiating expenses, $16.7 million in profits, and $20 to 30 million in future spare parts orders, as well as the possibility to participate in the next phase of the plant development. Most importantly, the United States lost $100 million in exports and some 4,000 jobs.

We believe it is essential that refinements be made in the Export Administration Act. The changes we propose will both enhance national security, in our judgment, and contribute to American export competitiveness.

RECOMMENDATIONS ON NATIONAL SECURITY CONTROLS

Let us look at national security export controls specifically. The chamber recognizes that national security requires effective export controls on goods and technologies which would make a significant contribution to the military capability of adversary countries.

On the other hand, the chamber would oppose expanding the scope of the national security controls in a vain effort to wage unilateral economic warfare. I underline the word "unilateral." An effective national security control system requires multilateral agreement with our allies. Consequently, the chamber proposes that the Export Administration Act require advanced consultations and agreement with our allies and other principal sources of supply and rely on the addition of products/technologies to the Coordinating Committee [Cocom] restricted list rather than the establishment or adoption of unilateral U.S. embargo lists. An effective multilateral system would permit reduction in license requirements on goods and technology exported to Cocom countries and subsequently reexported.

Similarly, there should be a reduction in U.S. security licensing requirements on countries which agree bilaterally to place national security controls on exports and reexports paralleling Cocom con

trols.

Your question to Dick Kahler, Mr. Chairman, I think deserves a rather detailed response. None of us in the private sector, and I am sure Dick agrees with that, would suggest that we are the ones to designate the countries.

Could I ask Dick to expand a bit on his reply to your question at this point?

Mr. BONKER. If he is prepared to.

Mr. KAHLER. I would prefer to come back, as the chairman has suggested, with some further thoughts. I would echo the point that you just made that it is more appropriate that our Government leaders be the ones that guide us in determining those countries. We should certainly have some input from the private sector.

Mr. BONKER. That was an unfair question because even Congress is reluctant to identify countries in statute. We leave it up to the executive branch.

That is why in the control list itself these countries are identified by categories. We have worked out unique arrangements with Yugoslavia, for instance, which ought to be a basis for other similar arrangements.

So, if Congress is not prepared to name countries, I should not expect the private sector to do so.

Mr. JENKINS. We do feel very strongly there is ample opportunity out there with a number of countries to further reduce unnecessary licensing procedures.

We do support the establishment of a new comprehensive operations license which you have included in your own legislation, Mr. Chairman, for the use of U.S. parent companies in their transactions with foreign affiliates. This would eliminate the need of specific approval of each shipment to U.S. subsidiary firms abroad.

We believe these actions would serve to expedite the export licensing process, facilitate transactions with our Western trade

partners and thereby contribute to this country's reputation as a reliable supplier. Equally important, these actions would allow licensing and enforcement resources to be focused on the truly important goods and technologies, which could make a significant contribution to the military capabilities of our adversaries.

RECOMMENDATIONS ON FOREIGN POLICY CONTROLS

The chamber recognizes that the President must be able on his own-without further congressional action-to restrict exports in order to fulfill obligations of the United States pursuant to international agreements to which the United States is a party. By their nature, controls imposed under this authority are multilateral in character.

In addition to this export control authority, the 1979 act provides the President with authority to restrict the export of crime control and detection instruments to certain countries. The chamber supports these controls, which together with those provided for under separate legislative authority, constitute a body of law well understood by both American exporters and their foreign purchasers.

However, the Export Administration Act of 1979 also provides broad authority to control exports in order to further significantly the foreign policy of the United States. I put that phrase in quotes in my own mind.

In recent years this authority has been arbitrarily invoked with inadequate justification without significant consultation and without consideration of the effectiveness of the export sanctions or the long-term cost to the U. S. economic well-being.

To remedy this situation, in the absence of an international emergency, Congress should require that, prior to the imposition of foreign policy controls, meaningful consultations with the private sector and the Congress must be undertaken to determine the full extent of the costs of these controls to the United States.

The act should prohibit the extension of export controls for foreign policy purposes to foreign companies, including U.S. foreign subsidiaries and the licensees of U.S. corporations. It should prohibit the imposition of foreign policy export controls so as to impair existing contracts, and, above all, it should prohibit the imposition of unilateral export controls, given the futility and costs of such actions.

One way to achieve these principles would be to require that the President seek specific legislative authority, along the lines of the crime equipment controls, prior to the imposition of any new foreign policy controls.

Special legislation-such as occurred with the Uganda sanctions in 1978-could give the President clear authority to draw upon the full range of economic interactions, including imports and financial transactions, as well as exports. This would relieve the vital and vulnerable export sector from carrying the brunt of economic sanctions.

This would also provide business, labor and other affected groups the full opportunity to express their views to their representatives during the legislative process. It would also produce a solidly based