Conversation 122-001

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trade we have is particularly important to Latin America.

The Latin American countries are really very about this, because they feel that they should have this opportunity.

And the way Latin America, for example, are in trade with Latin America is greater than it is in, I understand, other developing countries.

But I should point out that this is a particular moment that we have.

No, I read the letters every time we meet and say, what are you going to do about this?

Now, how much it means is going to mean to them.

I don't know.

But they think it certainly means a great deal to them symbolically.

Yes, sir.

In addition, our generalized preferences are designed to be particularly attractive to the Latin American countries, whereas those of the community in Japan are more attractive to Africa and Asia.

So it is doubly important for the Latin American countries.

The second authority requested under this section has to do with the authority of the president to grant most favored nation status to communist countries.

But this authority would be subject to the veto by either house of the Congress for 90 days.

If we get it and if the Congress sees fit to veto it, we then, of course, can put into effect the trade agreement that's been negotiated with the Soviet Union and also keep in effect the repayment of the Lend-Lease debt that has been negotiated with the Soviet Union.

The final authority under this

Section has to do with changes in the Webb Bombering Act.

Currently, associations of American exporters are limited by virtue of an antitrust threat in competing with people abroad.

As an example, when bidding on major programs abroad, we like to put together an association of perhaps an architect, a contractor, a machinery exporter.

Currently, there is a threat to their activities.

Their ability to act together is limited by some of the application of our antitrust laws.

Together with the Justice Department, these changes have been drafted and are being sent to you under separate legislation, which will allow our people to compete on a more even basis than people abroad.

Mr. President, that's a very brief description of the bill, but before

I turn over the podium.

I'd like to read a letter, part of a letter, which will indicate how effective actions in this area can be on behalf of American workers.

This letter comes from Joe Reitman, who's the chairman of the Zeman Radio Corporation.

And that, as you know, is part of the consumer electronic business, which is supposed to be something the Americans can't compete in and we've just got to give away.

to the situation in which our consumer electronic industry and our company found ourselves just two years ago.

The year 1970 was a disaster for our industry.

At the end, our employment was down by 5,000 jobs here in the U.S. over 2068.

We shut down some U.S. plants and were planning on closing at least two more major facilities by the end of 71.

We constructed a plant in Taiwan to produce black and white TV receivers.

We purchased a plant in Hong Kong to produce audio and radio.

We also got started on a Mexican border operation for certain components.

We were engaged in site selection processes for major production facilities.

in the far east for small screen color.

Our internal plan told us that by 1975, 75% of our production facilities serving the U.S. would be outside the United States.

Two things happened which completely turned this situation around, and I'm happy to tell you now that we've been able to scrub our plants to close down for the U.S. plants.

As a matter of fact, we're building new facilities here.

Our plumbing is backed up by nearly 4,000 jobs in our factory workforce in the U.S., and while the level of import in consumer electronics hasn't dropped, the domestic manufacturers have accounted for all of the industry growth in the past year.

the import market share, which had been increasing at an extremely rapid rate, actually declined slightly.

The principal reason for this dramatic turnaround were the President's insistence on a revision of the completely unfair 360 to 1 ratio at the end of the dollar, and the administration's insistence on investigating and proceeding against dumping of our industry products and investigating Japanese government export subsidies.

We're extremely grateful.

for the high priority which the administration has given to these trade problems and to the very bold and effective measures which have been employed.

On Monday of next week, we're making our 10 million-color TV set, every one of them U.S.-made.

I speak for every one of the more than 20,000 people in our organization in saying that we'd like to present this set to the President

and appreciation for the dramatic turnaround in government policy, which has had so great an impact on our employment and progress.

Send it down to the Congress.

Thank you.

May I ask before we move forward, do you think anything in the message that has to do with the question of the legality of the first spiel of racialism that was worked out

Is there anything in to legalize that?

No, sir.

I'd suggest you leave it out.

But I do think if the Circuit Court of Appeals has held against us, that we should be prepared to include something in the bill as we legislate, which does legalize that relation.

Brother, the Supreme Court is correct, Mr. Chairman.

Yes.

You are correct.

There is nothing in the bill to regard it with, because it is currently in the courts.

We hold that it's neutral.

But it isn't legal.

It doesn't now not be legal.

We would certainly like to have the results.

We don't want to do it, but we'll just pray for it.

We really don't know what the court may act on it.

And certainly I think it should be legalized.

But we agree with that conclusion.

Peter, may I make an observation on your first chart, labor and cost?

That reflects a percentage of in-reason.

It does not reflect unit cost.

No, sir.

From that charge, you would think that the West German unit costs are higher than ours.

We are still 50% higher than the West Germans, but it reflects only the difference in the percentage change, not unit costs.

That's correct.

Well, I think you should be aware of this.

But it does compare it to a time in which we were very competitive and had a very substantial share of losses.

But the point is, we're making a certain right because the West German is still out there.

Yeah, from the chart .

That's right.

We're still behind.

Don't be misled.

That's right.

But another thing on that chart, too, it shows the British ship where they are.

And the British rate of inflation is higher than ours.

So that's probably due, I suppose, to the fact that their monetary thing doesn't have a break.

So it's the British are outside this whole deal .

I mean, it's very exciting to find out that those charts don't prove that, well, we've got to make it.

No, no, no.

Because we're still 50% higher than what's determined.

And the monetary changes have been very important.

We've had enough evaluation now.

That's behind us.

And we want to achieve further gains through changes in trade arrangements and changes in our own.

uh competitive threat as we would expect from now on the power of anything will be value itself whether in a floating system or whether in a in a managed system of some kind i think the only factor here that's important is that all this period our costs were going up faster than theirs as of now by virtue of these things at least we're more competitive

This is a very complicated matter and the committee is going to have to kick it around.

There's one point which I know will inevitably be raised and I want to raise here, if you can get our position.

I have mentioned this in my conversations with some of you that I've talked to.

This whole message, it looks like you're creating a grab for if you wanted to put up for presidential power and so forth.

Let me say what it does.

Whoever is president has put the money on the back of whoever's here in this field.

And as far as the grab for power is concerned, or the more and more power, discretion, et cetera, that the president can have, it has only been

where we think it is necessary for that power to be there in order to deal effectively with nations abroad.

We have a curious situation where

In many areas, the President of the United States, as you know, under our Constitutional system, has more power than, say, a Prime Minister of Britain, or under a parliamentary system, or a Chancellor of Germany, or what have you.

But in the trade area, apparently, in the trade area, we have situations where the white places are making here, where we are not able to deal effectively due to the fact that the President and

that we ought to submit it to the Congress for 90 days or something like that, if you think that needs to be in there.

The only reason we're asking for it is that we can't make the deals unless we are able to deal on the spot with the same flexibility that they can deal with.

That's why we've asked for this legislation.

I agree with everything you say.

This will be a big problem.

No question about it.

But what you're asking for

is not only an authority to make it possible for other countries to get their goods into our country, which is what we've asked for in the past already, but now you're asking for the authority to ensure that there is a typical treatment on their part in allowing our goods to go into their markets.

And we have given the president in the past the authority that he needs in order to protect against these

or offensively in the area where a trade is on the tariffs themselves.

We have the third party countries, too.

That's right.

You have to have this authority in order to protect our trade to see that it's fairly handled by the other countries.

Like the ability to negotiate up as well as down.

Oh, sure.

And you've got to have authority to retaliate, which you don't have except in the instance of anger.

We have this situation oversimplified.

World War II.

Right after World War II, we had all the chips.

One Latin American president told me when I took that rather rocky trip down to Latin America, he said, look, he said, what you have to realize is that you, the United States, you've got all the chips.

And he said, what you have to do is pass out all your chips or the rest of them is going to play in the game.

Now, first, the Latin still say that.

The difficult point was, immediately after we were ordered, we did have all the ships, and we had to pass them out, and we did, through the Marshall Plan and so forth.

We helped Japan, we helped Europe, and we helped everybody else around the world.

But what has happened is that over the past five years, perhaps it's even, you could say, six, eight years, the situation has changed.

The Japanese have got ships, the Germans have got ships, the Europeans generally have got ships.

I mean, for example, with the Prime Minister of Singapore today, Lee Kuan Yew, they got a few chips in, Mr. Vice President.

They got ready to compete.

And what we're trying to say here today is that the day of the one-way street is gone, but we go in and be around and so forth, was perfectly proper for a man right for his time.

In the United States, we went and negotiated down.

We were the ones that took the leadership.

Let's open up and have a trade and so forth.

Now we have to be in a position where we can make it a two-way street where, sure, we'll take your goods calls, but we've got to open up for ours.

That's particularly important, incidentally, with the Japanese.

It's not to be, we don't want to get anyone's imposter being anti-Japanese because we need them in the world just as they need us.

On the other hand, the negotiations with the Japanese in terms of, in many areas, not just

such that we just don't get it and people break it all.

But to take it to the next level, I was talking to an insurance executive here the other day, and he was pointing out this study.

He said, you can't sell an American insurance policy in Japan.

You can't sell one.

And you know, well now that's, so they run a tight little shop over there.

I'm not suggesting this is going to answer that problem, although when we get into some of these negotiations, it might have some effect.

So what we're really saying, not demagoguery, that isn't perfect, what we're really saying is that as we look at the numbers and what has happened,

between recent years, this change in the balance.

What has really happened is that all of the nations that were on their backs and that were not in competitive equal are now on their feet and are highly competitive.

And therefore, we, who have been very generous and helped them become competitive, have got to compete with them on an equal basis.

And in order to do so, you've got to put the power in the presidency, in the president, whoever he is, so that his negotiators

don't, in effect, go in there with one hand tied behind their back.

Bill, would you like to say a word on this?

You've been going through the deliberative drag back of this there.

Do you think you need this sort of thing or not for these negotiations?

President, it would be most useful if we had this, because we get in these negotiations where we can solve an immediate problem.

Tobacco was an example in the community, where they've agreed that if we could have lowered one tariff by just 1%, they would have taken off the tobacco tariff and brought it down.

There's no authority to do it.

Japan, we have the same kind of problems.

We could make these deals, which are not important in the sense of any one.

They're terribly important to each individual industry or agriculture.

We could make a lot more progress than we have today.

This is not true.

As far as your people, they can make the deal right there.

They have more power to make the deal than you have.

That is correct.

They have some restrictions, too, but they don't have as many restrictions as we apparently have.

We also had a dramatic example recently, Mr. President, of what it means to be a little aggressive in defending our interests.

The Canadian government attracted to Canada by some fairly substantial concessions the plan of the Michelin tire company from France, who located there for the purpose of shipping 85% of their output to the U.S. in competition with our industry.

the Treasury countervailed against that and imposed a duty equivalent to the tax and other concessions that were made.

The result of that was that Mifond has now decided to locate its major production facility serving the U.S. market in the United States.

They're investing $250 million here to produce tires and to do their research and so forth there.

So this...

A little bit of a jab produced a result.

And just as the letter Peter wrote, read from Joe Wright in England, I think suggests the same thing.

If we put up a little bit of a fight, that's going to make quite a difference in the way people behave inside.

Mr. President, do these changes fulfill our obligations to the GATT?

Will we conform to our GATT responsibilities?

Mr. Steggling, some of these.

Requested authorities would allow us to go beyond GAAP authorities.

Some of them would allow us to do things that we can now do under our GAAP authority.

Do we have to get their permission?

And some of them know, for instance, in this compensation procedure, we can't now grant compensation.

We do know GAAP permits it.

With regard to the withdrawal of concessions, we have the right to withdraw certain concessions, but under our domestic law,

Well, there would be, there could be in some of them, but for instance, the GATT rules say that when you put on a restriction for balance of payments purposes, it should be in a quota.

Nobody does that.

We didn't, in August 61, we put it on as a tariff.

We still have it on.

I recall in August, he had some serious doubts about the general surcharge.

He requested for legislation to provide a general surcharge or selective surcharge, as I understand it.

will sort of legalize the situation as far as GATT is concerned?

No, sir.

We'll legalize it from our own domestic point of view, particularly with regard to selective.

But under the GATT, there's a question as to whether we could impose these selective certifications.

We think they'll change those rules, but that's in accordance with our balance of benefits, with our monetary subscription.

I've had many discussions in the last two years

three or four at least, with Mr. Long, who was the original representative of GATT.

He says that the membership of GATT would be perfectly willing to entertain suggestions from our government that we look into the fundamental rules of GATT.

If there are provisions of GATT which are not contrary to our best interest, then that gives proof that they'd be willing to sit down to negotiate changes within the structure of GATT itself and the rules of GATT.

And I think that is one of the things that we have to do if we are going to authorize you.

Because much of what is being suggested here, and a lot of them, will be challenged by GAS under the rules of GAS if we don't get changes in those rules.

The GAS is looking to barge out your selected surcharge.

And a few other things I think, Peter, you would agree and must agree with me, that there is some question of

from my own point of view, but long since, that we should make that presentation to the other nations of the world at a gas station and get from them the changes that are required for us to get our policy payments, policy trade in shape.

But if they sympathize with us, it won't help us.

Mr. Chairman, we think that the appropriate thing to do is to first get our own domestic law team to go to GAAP and make sure that we can do those things.

We have some special problems in an area like this

safeguarding our markets against sudden inundation by imports from abroad which will wipe out businesses and wipe out jobs in a rush, particularly when they target something.

And they target in on something as they have.

Now, we find that all these European countries have a safeguard system.

Some of them are on the books.

Some of them are sort of implicit, but it's no accident

The Europeans won't let those goods in.

They have a safeguard system.

So we're laying one out here and saying, here's ours.

This is the way it's going to work.

And we would like to have an explicit, internationally understood safeguard system that everybody operates under.

And we'd be glad to negotiate that.

And we're having a hard time getting them to negotiate it.

But in the meantime, we feel as though we're sitting here, sit there.

They're safeguarding their places, so let's safeguard ours and then negotiate it.

President, to answer the chairman's question here, we do plan to propose specific changes in the GATT.

The only way we'll get those, though, is either to get our own house in order, where we can take actions ourselves, and two, to insist that this be done in the GATT, such as the Search Act, which both of those are provided for in the bill.

And for the first time, we can go to the GATT,

and be considerate in all seriousness that we want changes and I think we'll be successful.

There's no way we can do it.

Before we leave this, we've been all talking about what we're going to do is basically on the protective side.

And while I realize that we're all in the political area, that's really the only thing that has much appeal with the folks.

Let us also recognize that, however, the responsibilities that we have, that this legislation is not legislation that goes in the direction of simply raising a lot of barriers around the United States.

This legislation is directed toward not less trade, but more trade and fair trade.

When I talked to the AFL-CIO council right after around the first year, they were very interested in the third party and so forth and so on, and I said, you know, it's very easy to talk about the fact that we're exporting all our jobs, in fact, exporting our jobs by taking in all these imports.

They said that a lot of people said that $50,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,

And if you cut out, if you're going to stop those jobs, you're going to have a problem there.

So the question is, there are $50 billion worth of jobs of companies in the United States and exporting abroad, and we want to save those jobs.

And also, in addition to that, we don't want to lose the jobs of people that those who are being exported into the United States might take away.

So what we have is a delicate balance here.

But what we want is to recognize that, first, from an economic standpoint, our interests are certain as the most powerful, and we think that the most powerful and potentially the most efficient

from a foreign policy standpoint, from a foreign policy standpoint, and I say this from the Foreign Relations Committee, the Foreign Affairs Committee here, we could not move toward a highly restrictive and discriminatory policy.

It should be one where we bargain tough, where we're fair, because from a foreign policy standpoint, for us to move in that highly restrictive way will mean a confrontation with Western Europe,

first and something else later.

So I emphasize here that while I've been one of the strongest proponents, you know, for not only these, all these provisions which will provide the safeguards for American goods that should be provided for American workers,

that the other side of the coin is that we want to build an affair in terms of the legitimate trade with Congress abroad.

Do you agree with that?

I do completely.

I would so much, Mr. President.

I think it works.

What you're trying to do is to enable us to have a trade policy that will continue to enlarge the volume of world trade, including us.

But you want it so geared that we can assure Americans involved in the production events that as we move in that direction, we'll provide greater security for their jobs and their operations here at home.

I think that's what you want.

Yes, you're not going to allow this development or trade to eliminate in the future industries as have been eliminated in the past.

We're going to protect against that under this story.

Also, from the standpoint of the American consumer, just to put my free trade hat on for a moment, standpoint of the American consumer, it's a good thing for American industries to have to compete with industries abroad.

But it's not a good thing, Mr. President, for us to become dependent.

Mr. President, may I add one final thing?

In the legislation you set up today, we did not presume to suggest a means by which the Congress would join with us in the negotiations in the GAC.

and cooperating with them in any mechanism that you and the Congress think is appropriate, whether it's the same mechanism that you had in the 62 Act or some revision of that, we'd be delighted to see that because we recognize the appropriateness of negotiating together.

I think our Congress should consider that if you can work out a mechanism.

Mr. President, I'd like to cooperate with Mr. King.

It seems to me the presentation we've had here today

Just continue to emphasize the overwhelming power of the State Department over everybody else in this great area.

Now, just to listen, we're told that we've got a $7 billion deficit.

All right, that's if you leave out the freight and you put the giveaways in as a plus.

Poor farmers are made to take less.

farm product because we're charging public law 480 to the farmers.

So that's a giveaway to farmers, although we're giving their product to these farm countries.

And so it goes down as though it's costing zero on the part A budget.

It goes down as a minus on the farm budget, so the poor farmers got to take a left.

And it goes down to a plus on the trade budget.

And so we made, if we gave away $2 billion of the farm price, so we made a profit of $2 billion.

So as a subsidy, he traded for us.

Now, if you could take the giveaways off of that,

and put the freight on, and you got a deficit of $14 billion.

So if you think what your debt is, just from my point of view, and from those of us who recognize these facts, your debt, it shouldn't be about a $7 billion deficit.

It ought to be about a $14 billion deficit.

And sitting on that basis, I don't think it can be negotiated away.

Henry's father, one time, had picked me up to go to White House down in Texas, and he kind of coached me and his four people who got there.

At that point, the denizen was less than half of what I did now.

He said, no.

Russell, when you're this far behind, you can't negotiate this thing away.

You could have $500 million in front of you, something like that, and you could do it, but you can't do it this far behind.

You're going to have to act unilaterally and then negotiate after that.

Well, he took a beating from the State Department down there, and I did that, so the deficit just got worse and worse, even though he did manage to do some fancy bookkeeping and temporary things a little better.

But it looks to me as though we're going to have to take some

pretty strong measures to make those guys buy from us in the condition of selling to us.

And to do what you hope to do, I think that you're going to have to sort of take the approach that you did when you had John Cunningham or something of acting unilaterally and then negotiating after that to give yourself a bunch of weapons to work with.

Because I don't think those people are going to give up that kind of product they're making to us.

Each one of them is going to want us to balance a book, but by being tough with yellow color, it looks to me as though to balance this thing out, we're going to, if we ever do it, somebody's going to have to start out by saying, well, here, fellas, here's how we're going to have to do this from now on, and now we'll negotiate, because I think it's going to take that approach.

Russell, don't overlook the fact that in 1962, we had this same proposition.

involving the State Department and their past activities in the negotiation of these agreements.

And we answered that argument by establishing under the President the Office of Chief Negotiator.

That is still the law.

And I feel strongly about retaining it in the present right here in the White House.

The State Department can advise.

Any other department can advise.

But we don't want, and I agree with you, Russell, the State Department taking over again the negotiation of these things.

Of course, that isn't contemplated under your policy.

You don't need to worry about that as long as .

The point that I made to you, Russell, is that we could get the tools

We'll use it very effectively.

I have some ideas about how you understand.

Now, for example, when I talk to the OAS ministers on Friday and so forth and so on, we talk to all these visitors and so forth and so on.

We naturally, as all of you do, we try to be as conciliatory as we can.

But the days of the one-way street, the days when

Basically, we look at it from the standpoint of the other thought and not from our own are gone.

And they're gone for some of the reasons that you mentioned and some of the reasons that have been covered here.

It doesn't mean we're going to do things that are destructive of our relationship with other country necessarily or destructive of our eventual goal of a world in which nations trade more with each other.

But U.S. products have got to be

They've got to get the proper protection.

They've got to get the proper share of the market.

And we're in this business where other countries, because they have more power and more discretion and more flexibility to negotiate with people, where they get around us and they get in here.

That isn't going to happen anymore.

But we do need legislation.

We need the power to do it.

We don't have it today, because every time we act,

that we gotta figure out, like, everybody has to negotiate something.

Like this tobacco business and so forth, well, he can't move here because we don't have the whole thing.

Let's be sure he's got the power, he is involved in this, and he's got the power so he can sit there.

You know how their contracts are made.

They really can be made right on the spot, but they can't be made whenever he says, oh, wait, I'll have to go check the Congress.

Now, you know, checking the Congress is very important, but it takes time, and we don't.

the administration accepted the chairman's estimate of about 14 billion, and nobody commented on that.

You've said this point in the committee several times, and I've been puzzled about it as to whether I should accept the $7 billion figure of the administration or the $14 billion of Senator Law.

Well, that's the issue, don't go on.

and all the rest of the department.

I think if you look at it in a, as foreign countries might look at it, you would say yes.

It's a practical matter.

We just can't get rid of that much right now.

So we're gonna try to fight off as much as we can, but you won't object to making a difference in that direction.

No, not the way you're thinking.

When we set out the $7 billion debt problem, assuming the same argument that we can negotiate that away,

That's all that needs to be done.

And that might be enough for your turn, but we're going to have to go back and negotiate again.

We're going to have to go back and negotiate again.

Let me say this.

In those areas, too, Russell, first you've got the problem of burden sharing, which also must be negotiated like burden sharing.

So in speaking, I answered Bill's question facetiously.

We are very much in line with the fact that

in the whole field of foreign assistance and the rest of it.

It must be more furniture than there has been.

We're going to negotiate hard in that area.

But we're trying to, we've got to move this trade area down, get these tools.

And then we link things on that.

A lot more of this has been done previously.

Mr. President, Senator Long has made his case so effectively that starting in June we're going to be publishing the

deficit figures, both on his basis and on the old basis.

The figure that we're really disturbed about is our deficit in our basic balance.

And that deficit includes all the things that Senator Long is talking about.

And that's why I talked about this $9 billion deficit in our basic balance.

That shows how we're dealing with other countries across the board.

The last year was $20 billion.

How did you get it down to $9 billion?

You were in 1971, I believe, Senator, and I was referring to that.

This last year, we had about $12.5 billion.

About $10 billion in moving short-term.

Now, many of you people think Russell will put the ring on this.

You ought to talk to his fellow Louisiana out of passion.

We'd better go ahead, because we've heard we'll have to make your surrender.

Well, I'll go through things very rapidly, Mr. President, although they're long.

Of course, I am in their own right, as well as in their relationship with them.

First, some comments on...

in this area, and I also want to say something about things that are not proposed.

But the first one proposed has to do with a situation where, let's say, an oil company goes abroad, spends money exploring.

During that period of time, it has no income in that host country, only expenses, so it loses money.

It takes those losses and writes them off against current profits in the United States.

Subsequently, those efforts start paying off and it begins to profit in the foreign countries.

The foreign country then taxes those profits without regard to these prior losses.

And when that money is

It may be that the losses are not taken into account.

We feel that they should be taken into account, that the U.S. Treasury should have a piece of that profit to the extent that this loss offsets it.

So we would propose that on a no more than 25% per year basis,

the prior losses be counted against the substance of profit in computing that long income.

Now, we think on the one hand, this has the effect of benefiting the Treasury, benefiting the US taxpayer.

And on the other hand, it has the effect of removing a situation where you tend to favor exploration for oil abroad over exploration

Consistent with both our balance of income problem and consistent with our energy problem, we feel that we at least ought to neutralize the situation, and this provision is intended to get at that.

Second, we find that more and more, we will be importing raw materials from abroad, and that is typically done

buying a company that is integrated, that is, that it owns the raw material base abroad, it finds it, it processes it to some extent, and then it comes into the United States.

The point at which it comes into the United States, it has an internal price, not a market price, but an internal price that the company decides to charge itself in moving the material from the most country to the United States.

The higher that price is, the greater the amount of the total profit is counted in the other countries, and the less is counted in the United States.

And we have endless disputes in the Treasury that go on for 10, 12 years over what the right internal transfer price is, and there's just a tremendous amount of money involved in this.

And the companies all do it on a negotiating basis.

That is, they tend to put the price way up high

in the host country, which is what the host country wants, because that puts more money into their country, less into the U.S. Treasury.

And then we negotiated, we always negotiate it now, but it takes forever, and of course the starting price has quite an impact on where you end up, inevitably, as in any bargaining situation.

So we would propose, as an administrative matter, to, and with the Justice Department, to try

and have that be the basis for the income tax returns.

If we are not able to do this on a voluntary basis, we will be seeking legislation to make it happen.

Third, we have been concerned with this point that investment abroad may, in some circumstances, result in loss of jobs here at home.

And we think, on the overall, that is certainly not the case.

that the multinational corporation benefits the United States and produces jobs here.

It produces a flow of income back to the United States in the past year on the order of $14 billion, helping our balance of pay.

And so on the whole, this has been a very good thing.

There are some circumstances that trouble us, and we have tried to take two rifle shots at that problem.

One is the situation where a country abroad

gives a tax holiday in order to attract investment into that particular country.

And that tax holiday tends to distort or affect the flow of investment and may affect the decision on the part of the company whether to locate their factory here or whether to locate it under that tax holiday.

gain the deferral of earnings in the tax holiday situation, and thereby, in effect, making the company consider the investment opportunities on the basis of the same tax year and abroad in order to deal with the potential of a runaway plan.

The other situation where this can be a factor is where you find a company operating, investing abroad,

primarily for the purpose of shipping goods back into the United States.

And so we would say, where you have 25% or more of your output from a planned road shipped back into the United States, we would end deferral of tax aid on that income.

Now, these are two rifle shots that deal with the general problem

of potential for loss of jobs through investment abroad.

But I would assert again, we are against the change of a tax credit

We have a great deal of gain from the operations of these countries and companies abroad, both in terms of jobs created here and in terms of this gigantic flow of annual income to the United States resulting from their operations.

Senator, what's going to be in the trade bill?

We will be sending this out with the trade bill.

As was noted in the discussion earlier, there will also be a tax

and I think, obviously, it's up to you people if you want to handle it with the trade bill or whether you want to handle it with the tax bill.

We've had a doubt on two bills.

How's that for a bill?

Would you do it any way you want?

Well, I would say, Mr. President, that whichever bill comes out of the state first has to treat the taxation of these former subs.

I mean, if the trade bill comes out first, would you have to open it up and see a part of it or not?

But we will have, by the time you're considering the trade bill, we will have in front of you the trade bill, foreign tax material, pension bill, unemployment insurance bill, all these are related, energy proposals, and domestic tax proposals.

And I mention these because, in a sense, all these things are related together.

As it seems to us, while you're considering the one thing

At least you're entitled to know what the administration's position is, the president's position on all these related things.

Same thing we do and you do in your state.

We're agreed about what's going to be next.

Would you repeat that investment abroad as it would be consenting, let's say, to Kansas Goods?

How many of our Kansas shoot people have plants here and plants in Japan and send the same products back?

How would that affect them?

If their plant in Japan shifts more than 25% of its output back into the United States, then the earnings of that plant would be taxed currently, whether they're repatriated or not, under the U.S. tax.

You require, apparently, a consolidated return.

That would be their plan, not by hand, Mr. Preston.

I went to an electronics shop here.

One of our major producers and the salesman told me every one of their products of this type were made in Singapore.

Their entire plant in Singapore.

Would they have to?

They would have to think, if they had a plant abroad,

All right, then you've got to pay income tax in the United States on your earnings from that plan.

Your earnings, whether they come back or not, Carl.

It's going to be difficult to trace that for you.

There are, I, this business of getting into the tax area has been the most frustrating thing I've ever done in my life.

There are complications with everything, and lawyers can give you reasons why you can't do anything.

But I think that the conversation can be overcome.

I didn't mean to make a nasty remark about lawyers.

Could I just go on and mention some of these things in the area of security for the American workers?

Given all of the things about expanding our exports and so on that we have said here, nevertheless, it remains the truth that when you have expanding trade, you have expanding imports, and you do have some adjustments that have to be made.

And we have tried to think of that problem very carefully.

I think the first way of dealing

We're not going to let the flow of imports take place on a flood basis.

It is going to have to be moderated so that we can safeguard against this flood over a five-year period.

Now, that provides time.

And I think any of you who have worked on the problems of adjustment of workers in the plant

There is time for people to reassess their situation to see if they want to work somewhere else to assess whether or not that factory can be made more competitive, whether or not it can do something else, and so on.

So the safeguard system provides time, and that's a very important element here.

Then we have considered, in addition to the training and job search things that Peter mentioned, that the two big elements

providing some security to a worker are, on the one hand, security in terms of an income stream if he is displaced, and security in terms of protecting the implicit savings involved in a pension plan that he thought he had but which he might just lose completely if a plan is closed.

So we have worried about those two things, and we have

having started out saying we should worry about them with respect to somebody displaced by an import.

And then we said to ourselves, well, what's the difference between a fellow who is displaced because somebody declared the cause was an import and a fellow who is displaced because we decided not to spend as much money on defense and a plant got closed, a defense plant got closed, or because an environmental regulator

of some old plant that was perfectly okay beforehand now is an obsolete plant and can't be operated anymore.

We couldn't see that as far as that worker is concerned it makes any difference to him why he was displaced.

He's displaced.

And he needs a way to readjust.

He needs income maintenance.

He needs to have his pension rights looked after the same no matter what.

So if our system is deficient, let's correct it for everybody.

And in the process,

look to the transition problem with respect to trade adjustment.

Therefore, the President has decided to, first, in the area of unemployment insurance, to take a, what I know all of you will agree is a very major and important sentence that debated about for years, and that is to propose federal standards

for benefit levels for unemployment compensation.

Now, you all remember that President Eisenhower, President Kennedy, President Johnson, and President Nixon all have recommended that, and our system is based on the idea, that most workers, say 80% of the workers, ought to be able to get half their regular wage in benefit levels.

But it would be no to do that every time each one of these people would propose it.

This stuff has really hit the bank.

And again, if I had thought that through, I want you to know that I've been surrounded by some states, and I know the problems it presents with you, but I have thought it through, and I think this is the time to do it.

But I'm under no illusions about the difficulty you'll have, the difficulty all of us will have.

There'll be certain things that some Christians and others will oppose, and so on.

Go ahead, Mr. President, if I may interrupt.

Yeah.

At one point, we succeeded in getting the state directors of unemployment compensation to come out for this idea at 66 and two-thirds of the manufacturing wage within the state.

We do it again.

It enabled us to pass the proposition to the House at that time.

Then they showered down on the Senate, and it's my recollection, Russell, that you ran into all manner of static in your committee.

But if we can get these unemployment directors within the states to endorse it, then we've got a real leg up on it.

George, I think the Secretary of Labor should get busy on that.

The Secretary of Labor would be here today and say he wants a presentation, but he is testifying before a congressional committee right now on the minimum wage.

Aren't all the people in the executive department spending about half the time doing that?

has been very interested in this, of course.

But just to give some numbers here.

In 1945, the proportion of income replaced in bio-employment insurance was 42%.

In 1972, it was 36%.

Now, since the president's recommendations in 1969,

that the states would have to do something about this problem or else there would have to be federal action.

There has been some improvement, but it's quite moderate.

So now, if you figure that the benefit maximum has to be around two-thirds of the average wage in order to make the standard come into effect, so two-thirds is the right general principle, we have only 15% of the covered workers

60% or more, the benefit maximum of 60% or more of the average wage.

So we're way below this standard, even though some progress has been made.

I think it should be noted also that if you ask who benefits from this step, it tends to be the middle income

skilled workers who benefit.

This is a high-income person because he's not going to have 50% of his wage covered in any case.

The low-wage worker does have 50% covered, the benefit maximum.

It's all right for him.

It's the middle-income, skilled worker who is taking it out of the chin because we haven't been able to achieve a standard that I think pretty much across the board, employers who oppose this will tell me

Well, they don't oppose the idea.

They believe the system should operate like this.

They just don't want to see the federal government messing around with it.

Well, we have had it that way for years.

The system hasn't corrected itself, and the president decided he has some time to come down on it.

Now, this will be coupled with something else that's controversial, namely that if we're going to raise these benefit levels,

And we're going to tell the employers that they have to pay the taxes in order to provide those benefit levels.

We also must say that the benefits cannot go to people on strike.

Now, that affects two states principally.

It affects New York and Rhode Island.

And we have seen some very tough things in those states.

In New York, we had the New York telephone strike.

the longshore strike, we had the GED strike, and I think it's pretty clear that the existence of payment of unemployment compensation, the strike has certainly prolonged the strike.

The government has managed for the Sub-Secretary of Labor, Pete Brennan, to swallow because he supports the compensation as the way

The way these things work out is all of you know, it's like in the workouts, your votes in committees are in the Congress and the same in the administration.

We don't win them all.

And so, it's not a particular instance, so you just can't, because I could never bring myself to have a big extension of unemployment insurance compensation and say it's gonna go to strikers.

There it is.

The president will also send up again the proposal he made in 1969 on the coverage of the UI system of large farms, about 7% of the total.

We went through that in 1969 and went through that before.

It has a lot of growing support, I find.

That's a relatively non-controversial item compared to some of these others.

But this is by way of income security for the purpose.

It's related to trade, but it's by no means exclusively a trade problem.

We felt that it was important to get this position out so you can see it while you're considering the trade bill.

All parts are just less.

George, are you not proposing any type of adjustment assistance in the trade bills that you've had in the other bills?

We have, Mr. Chairman, we have the relocation assistance, job searches.

have found that the business adjustment assistance has not been particularly worthwhile.

And we might as well just drop that.

And we propose that in the trade bill, the adjustment assistance be changed so that it's more open.

Right now, it hasn't worked at all because people haven't had access to it.

And that the benefit levels

be geared to the same thing as is being proposed in general.

But then as soon as you pass the unemployment insurance program, then that particular income maintenance business would go out of existence and would go on a general bill.

I'm thinking about the timing of it, though.

If we go to the floor of the House with a bill that doesn't provide for this shift, and it doesn't have anything to do with adjustment assistance, automobile agreement,

or anti-trade, generally, we may want to consider the consolidation of this into the trade program because it is... That's dangerous, isn't it?

I know it is, but... We're going to recognize the trade bill by putting in this...

I'm not concerned about it.

I'm not concerned about what's coming on the pipeline.

Well, actually, we've got to let it open.

We're not completed with our trade bill.

Let's open it.

Are you going to have to...

Behind this, if I can get you to come back, I hope you guys...

For everybody who is concerned about the trade deal and concerned about the problems that may arise from trade, to ask yourself again, you're a big advocate of adjustment assistance.

How do you feel about deluging with federal RGS somebody declared out of work because of an import?

Whereas across the street from somebody out of work because of a change in procurement policies or environmental change or something like that, it's nothing.

You can't answer that.

How do you answer that?

You can't answer that.

Mr. President, I think there was an answer.

I think the chairman misunderstood it.

We will have adjustment assistance in the trade bill.

We will continue so that there won't be any period in which they'll be faster than that.

And it also will be extended off.

But it isn't much good.

We don't leave it out, but we recognize that this is an extension.

Because if you talk about adjustment, after all has been said about

That's catastrophic.

There's no way the individual can get that replaced.

So we can come forward with a bill similar to, but changed somewhat, from the pension bill the President sent out last year.

It provides vesting under the so-called rule of pittance.

It provides funding where the funding requirement is current service costs plus interest

of the required investment.

So investment and funding is in there as a way of protecting these rights.

And third, we again have the proposal for the ability of employees to make tax-free contributions to their own pension on an individual basis.

It must be recognized that 53% of all workers are not covered by a private pension plan, so it's one thing to protect the private pension plan, but what about the fellow who isn't covered under a collectively bargained or an employer plan?

The employer's contribution to the plan on behalf of the employee is tax-free.

On the other hand, if you as an individual set up a plan for yourself or want to make a contribution to your annuity, you first pay tax on that income, then you pay it, so it discriminates against that situation.

So we would change it to make it possible for individuals to, in effect, save themselves under the same conditions in terms of taxes as a collective plan.

And it can be noted that if a person saves, beginning at age 40, under this kind of narration, from $500 to $1,500 per year,

beginning at age 40, he could accumulate an annuity of between $2,500 and $7,500 per year.

The average annuity under private pension plans is $1,750.

So it is down in reach.

It is down in the ballpark.

It is a doable thing.

And furthermore, in collective bargaining situations, and I've seen this personally as a mediator in working in these things, you often find situations where the workforce has a bunch of older workers

And it has a bunch of younger workers.

And there's terrific tension on the pension issue between them.

And under this arrangement, you can have a general plan, and then you can say to the older worker, well, OK, if you want to have more, as older workers tend to do, then you can do it on an individual basis.

And the tax status

is the same as it would be if it were done on a collective basis.

And so you can ameliorate some of these intense disputes between the generations in these plants, and some of them aren't as fierce.

Any ceiling on that?

Yes, there is a ceiling, I think, of 20% of your income.

to $1,500 per year.

So it is not a rich man's bonanza.

It is designed to meet these particular problems.

Well, those things, Mr. Secretary, the security is out of here.

Did the individual worker make a contribution to the fund of the employer's plan?

He could, if the plan were negotiated so that it could receive those contributions.

We won't be in touch with the leaders with regards to the attendance.

And if, to the extent that those who are not in the regular leadership, strong feelings about being in this .

We're trying to work out the deal now.

I'm sure everybody's here.

It's going to go across the border.

It's going to, as I said, border, there's an interior department, and the tonic energy, and a lot of other things, the environment, and so forth.

Second question.

We have not mentioned the MFN thing.

It's a very challenging matter, I know.

I just want to leave this one thought that goes, I realize that an overwhelming number of the Senate, but you as well, Mike, and the rest of the press, have indicated that we should not go forward with MFN, Mr. Grenation, unless...

I have respectfully suggested I understand how important that is in the domestic political situation.

I'm keeping aware of that because I've talked to all these people, too.

I would also respectfully suggest, however, that I, and this is not examined currently, but I recall that

When I went to China, and then later when Mike went later, and Jerry Ford and Hill Boxwick, that there remained this country that thought that the China initiative should be on there to reduce some downfall.

Now let me say, have we publicly ever said that downfall would still be there?

Let me say also that we publicly indicated that that was something we were conditioning.

I did relationships on it.

It not only wouldn't be there, but I would go forward on the relationship, which is, as I said, is still a dialogue, an enunciation, so to speak.

But he stopped it.

But they had to make that decision, not any.

You look at the Jewish immigration thing, nobody could feel more strongly than I do about not only that kind of policy of the communist government, the Soviet Union, and of the most communist government, but others, not only with regard to the Jewish minorities, but of any other minorities as well.

But if you condition, if you condition publicly

the Congress does, acting in the field of most favored nations, on the basis of what they do internally about Jewish immigration, you're going to do three things.

One, the door will come down hard and there will be no Jewish immigration.

None.

Because we, the major advocates, the major proponents of it, will have no voice there.

And they can't do it with the Congress saying, look, you do this or else.

It's like we wouldn't be able to do it if the Soviet Union wouldn't say to us, look, we're not going to buy your grain unless you have a better program of equality of opportunity for black people in the United States.

That's an internal matter for us.

We're both probably wrong, but the point is it's our problem just sits there.

But that's not our data.

First, the public redoing it isn't going to help the Jewish immigration.

Second, it will mean that the initiative with regard to arms limitation, which we're going to discuss this year, it means that the discussions we're going to have with MA need to end with regard to the Mideast.

the discussions that we're going to have with them and other countries later on in the year, and this is the subject Bill was raising with regard to the NBFR, Inter-Battle Sports Reduction, will be seriously jeopardized.

Now, what is the alternative?

All that I can say is this, and I mentioned this to a couple of the leaders that have raised it, and all I can say is that, believe me, we are doing everything that we can, not only on these public institutions, but on matters like this,

But I respectfully suggest that before the Congress specifically puts down a condition of that sort, thinking about what effect it's going to have on our foreign policy generally and these other fields, and also think of the counterproductive effect it will have without question in terms of helping those who are trying to help.

I will only say finally, too, that progress has been made in this field.

I won't say what at this point.

We expect some more.

But it's progress that they will have to make rather than doing it because we demanded it.

And that's what we've been through, too.

Now, I haven't talked quite frankly with you about this, and I know how strongly others feel about it, but I think you should know how we feel and what we're trying to do.

After I did, Ms. Stephanie came to visit me from the Russian government.

She was most interested in learning just one thing.

Now, if we actually do this on our own, before you legislate, are there going to be other conditions that you have put on us later?

because that has been the history of all this situation.

We've had one condition this year, another condition next year, so on.

I assured him that if his government would move on its own with this situation, that I would do everything within my power to get the House to pass the most favorite nation, or Russia.

There will be no further conditions, and I will resist any further conditions being imposed by anybody in the Congress or in the administrations.

He left me saying that he was going back to the Bureau of whatever it's called to assess that they make this change and do it over a period of a few weeks.

before we could get to final consideration of most favored nation treaties.

Now, I think, George, you probably found that to be the case when you were in Russia, didn't you?

That they wanted to make a straight deal.

It was very much on their minds.

It was not only substantive, but symbolic.

But I told them that this matter of extending most favored nation treaties was not in favor of what they give them to our government.

I called her to this, the fact that they belong to the Yellow Rights Organization of the U.N. And my guess is why they're committed under it.

To do exactly what we're asking them to do.

I think they ought to do it.

I thought I was going to suggest a less reserved judgment on this, so we can see what happens.

And then in order to be in a position where we don't judge.

In effect, Turkey will hold foreign policy because of this one issue.

That's all.

Oh, I don't want this.

All right.

Thank you.

I didn't realize

Thank you.

I didn't want to take your objective, I got you this morning.