55

electronic measuring devices, facsimile equipment, color video tape recorders, integrated circuits, and passive components.

It is evident that the success achieved by the Japanese Government in promoting the technological advance, capacity expansion, and competitive strength of the Japanese electronic industry under the initial fourteen-year program motivated a renewal of that program for seven additional years. The new seven-year program embraces as its targets the most sophisticated electronic equipment and component parts now seen on the technological horizon. From such data as are available concerning the costs of the initial fourteen-year program, it appears that the Japanese Government expended more than $50 million in grants, made available more than $300 million in low-interest loans, and accorded to electronic manufacturers incentives in the form of tax benefits valued at approximately $1.4 billion.

The available data concerning this subsidy program, its

administration, and the estimated value of the subsidies for the initial fourteen-year period, and the budgeted spending of the Japanese Government for the ensuing seven years fill a volume more than 1 inches thick. It is difficult to identify with precision the true cost to the Japanese Government of the subsidy program, though it is believed that the estimate cited above is helpfully indicative of the probable range of costs.57

57 This volume of documents will be presented separately to the staff of the Commission for its use in the investigation.

56

It is sufficient for the purpose of this brief to draw attention to the fact that the subsidies extended to the Japanese electronics industry under this program were substantial and comprehensive. To these benefits there was joined the shield interposed by the Government of Japan between the Japanese industry and its competitors in the form of the trade barriers described in part I of this brief. Thus protected and thus subsidized, the Japanese electronics industry experienced a phenomenal expansion in production and in the range and sophistication of its products, as the value of shipment data in Tables 2 through 5 of this brief adequately

indicate.

The effect on foreign trade of the subsidization of the Japanese electronics industry by its government has been precisely as described in the quotations at the outset of this section of the brief. While the Japanese Government severely restricted access for U. S. exports to the Japanese home market, the advance in technology and expansion in capacity accompanied by a reduction in production costs in Japan strengthened the competitive position of the Japanese industry against the products of the U. S. industry; simultaneously, the program of tax incentives conjoined with the extension of the product line and the reduction in production costs conferred upon the Japanese industry by the total program enormously strengthened the competitive position of Japanese products in the United States market, for which the low level of U. S. duties did not provide even a token defense.

57

CONCLUSION

The combined effect of the program of the Japanese Government for the restriction of U. S. exports of electronic products to Japan, and for the rapid penetration of the United States market for Japanese exports of such products, fortified by the extraordinarily comprehensive and prolonged subsidization of the Japanese electronics industry by government funds, has been the virtual exclusion of U. S. electronic products from the Japanese market in those categories in which Japanese production of directly competitive products has become established, and an abnormal restriction of the volume of U. S. exports in even the technologically advanced product categories in which the Japanese industry lacked on a short-term basis adequate capabilities. The dimensions of this impact are fairly measured, though significantly understated, in Table 6 above, where the shortfall in U. S. exports to Japan in four major categories of electronic products in 1971 is shown to have exceeded $1 billion.

Respectfully submitted,

ELECTRONIC INDUSTRY COMMITTEE FOR

FAIR INTERNATIONAL TRADE

By:

EUGENE L. STEWART, SPECIAL COUNSEL

Mr. GIBBONS. Despite my apparent hostility at times, I admire your skill. I am not trying to trick you but I am trying to get information. Now, as I understand it, the list of people that you represent does not include multinationals. Is that correct?

Mr. STEWART. That is not correct, sir.

Mr. GIBBONS. There are some multinationals? Would Teledyne be a multinational?

Mr. STEWART. If you would spare me the embarrassment of identifying them in public I will be glad to point them out to you.

Mr. GIBBONS. I don't know which ones are the multinationals. By and large, most of them are not multinationals?

Mr. STEWART. Correct.

Mr. ULLMAN. Mr. Gibbons, did you ask that be placed in the record? Mr. GIBBONS. I just asked him if any of them were multinationals. Then I was going to go through the list. I really don't know who some of these people are. For instance I don't know what Teledyne does. I have seen their ad some place but I have forgotten what they do. Could you just tell me, what do they make?

Mr. STEWART. Electronic products.

Mr. GIBBONS. As I see it, the people you are representing are in the glass and china business; in the footwear business; in the steel business; copper, bearings, deck tiles, cycles-I guess that is bicycles and motorcycles hand tools-if I am wrong in any of these tell me. I am just trying to figure out who is hurting here-fasteners, pencils, and chairs-I don't know how they got on the list but that is interestingoptical ware, rubber goods, and so forth. Is there any major classification that I may have left out?

Mr. STEWART. I did not recall your referring to flat glass.

Mr. GIBBONS. What is that?

Mr. STEWART. Flat glass.

Mr. GIBBONS. Yes, glass and china.

Mr. STEWART. Other glass products, metal manufacturers, machinery. If I may point out, they do not belong to the Trade Relations Council because they are hurting, but, rather, because they have faith that our program will ultimately have value to the Government.

Mr. GIBBONS. Then the same people that you represented yesterday are part of this council also?

No, yesterday you and I had a dialogue about the cost of labor in the chemical industry in foreign countries and in the United States. I really give you these figures not to argue with you, but figures are hard for me to come by and they are hard to develop and maybe you can at your leisure refute these for me. I think you said yesterday as I tried to pin you down, that labor costs in the chemical industry were two to three times higher in Europe or Germany than they were in the United States.

Just for the record, the best figures that I have been able to develop using the 1972 levels of pay in the chemical industry and taking into consideration the current status of the dollar-in other words, today's exchange rate-I come up with a figure for West Germany of $4.12 per hour per person involved in the chemical industry, and in the United States, $5.29 an hour. I don't ask you to refute those figures or to argue about them right now, but I wanted to include these figures in the record.

If you have any better information than that, I would like to have it, because my figures are apparently nowhere near the "two to three times" that we talked about yesterday.

Now I am not making any accusatory statement against you, you understand. I am trying to edvelop information. My figures are $4.12 an hour in the chemical industry for Europe, or for West Germany, to be specific, and $5.29 an hour in the United States.

Mr. STEWART. Mr. Gibbons, my commitment yesterday was, which will be honored, to submit to you the wage rates for production workers in the synthetic organic or dyestuff industries, as close as I could get to the subject matter of our colloquy, for the principal producers in Europe, which does indeed include Germany. I expect to submit that to you and I expect it to be accurate.

Mr. ULLMAN. The record will be held open for that purpose. Mr. GIBBONS. Could you compare the wage rates to the United States?

Mr. STEWART. Yes, I expect to do that.

Mr. GIBBONS. The trouble is that I haven't been able to find from Government agencies the figures that would pin this down better. I realize you have access to some sources other than Government. Could you explain to me the significance of what you are trying to point out on page 13 of your statement? I find those charts there very interesting. Mr. STEWART. To my mind it is significant, looking at the bottom row of data that unit labor cost in the United States in 1971 on an index of 1967 equals a hundred, was 113.9 whereas all of the other countries, except France and Switzerland were at higher numbers. And that when you look at France in terms of her national currency, the next tier immediately above, her unit labor costs were higher than those of the United States.

The point I was making is that this table to my mind establishes that United States industry and its workers have managed to control the unit cost of labor, labor cost per unit of production, as well as or better than its principal trading competitors and therefore that the disastrous trends in our imports and exports could not fairly be said to be the result of inefficiency on the part of United States industry in controlling its cost.

Mr. KARTH. Would the gentleman yield to me at this point? Mr. GIBBONS. Yes, but I want to come back to that point. Mr. KARTH. If that is true, Mr. Stewart, then your second answer to my question for the second reason out of those three major reasons I asked you to give, is not a correct one.

Mr. STEWART. I believe that you misunderstand the index.

Suppose that in 1967 these are the foreign costs and these are the United States [indicating with hands]. The index shows that the percent increase for the United States was lower than the percent increase of the other countries but after that increase took place their unit costs were still less than the United States because their wages are less on these products.

Mr. CONABLE. So this index bears no relation to the actual relative values in the two countries, only to the percentage of increase over 1967. Isn't that right?

Mr. STEWART. And in my testimony I speak of the ability of American industry to control its costs against increases. The table in my opinion certainly establishes that.