ADMINISTRATION'S BALANCE-OF-PAYMENTS PROPOSALS TUESDAY, FEBRUARY 20, 1968 HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, D.C. The committee met at 2 p.m., pursuant to notice, in the committee room, Longworth House Office Building, Hon. John C. Watts presiding. Mr. WATTS. The committee will come to order. Mr. Wilcox, you are recognized. Will you please state your name, address, and the capacity in which you appear. STATEMENT OF THOMAS R. WILCOX, VICE CHAIRMAN, FIRST NATIONAL CITY BANK OF NEW YORK; ACCOMPANIED BY SOMERSET WATERS, TRAVEL CONSULTANT, AND FRED STECHER, VICE PRESIDENT Mr. WILCOX. Mr. Chairman, my name is Thomas R. Wilcox. I am vice chairman of the First National City Bank of New York. If I may, I would like to have with me at the table two associates. On my right, Somerset Waters, the president of Child & Waters, Travel Consultants, and they are consultants to the bank. On my left, Fred Stecher, who is the vice president of the bank, working largely in this travel area. Mr. WATTS. They are both welcome. We are delighted to hear from you. Mr. WILCOX. May I thank you for the opportunity you have provided for a banker to comment on the proposals to impose certain restraints on an important sector of America's foreign commerce. Tourism has been called our invisible industry. In thinking about it, we find ourselves in the looking-glass world of Alice in Wonderland. Everything seems backward. When American tourists are exported, they represent an import. When we import foreign visitors, we are creating an export. Today travel represents the largest single item in the world's international trading in goods and services. This year spending for international travel throughout the world will total about $18.5 billion. The world's largest exporter of travel services is the United States. I am defining travel as an export from the point of view of the money we earn in serving foreign visitors. In view of the export 89-749-68—pt. 2- 11 earnings and the importance of these earnings to our balance-of-payments position, we should be extremely cautious in any attempt to introduce into the world any new inventions in the field of trade restrictions. First let me emphasize that I fully agree with the administration that something must be done to bring our balance of payments under control. The orthodox way for a country to improve its balance-of-payments position is to increase taxes, reduce Government spending, and slow down the creation of money by firmer monetary policies which the foregoing will make possible. Because we have failed to take these orthodox steps, we are now faced with the problem of finding other emergency measures to bring our payments into balance. The President has shown great wisdom in suggesting a positive approach to the problem of the so-called "travel gap." a Presidential Task Force, under the chairmanship of Ambassador Robert M. McKinney, has prepared a plan for greatly expanding the flow of foreign visitors to the United States. This plan will unquestionably include a number of recommendations for congressional action and for action on the part of the executive branch of the Government, as well as for the travel industry. This, in my judgment, is the proper path for our country to follow. Constructive action to increase the reception of foreign visitors, rather than limiting the travel of U.S. citizens, is in keeping with our national policy of increasing world trade through minimizing those artificial barriers which clog the channels of international commerce. In addition, the administration has proposed certain tax measures which it states are necessary to restrain the travel of Americans who desire to move outside the limits of the Western Hemisphere. The proposal to extend the present 5 percent excise tax on airline and steamship tickets seems reasonable under present circumstances. At present, we have an unusual situation where we have a 5 percent excise tax on domestic air tickets, but do not have such a tax on international tickets. To treat both domestic and international travel in the same manner seems reasonable. In addition, the 5 percent excise tax could provide the revenue needed to finance a strong promotional campaign to attract foreign visitors to our country. The other proposals for tax restraints, for the purpose of limiting travel, seem contrary to America's historic policy of championing the forces of liberalism in world trade. I am opposed to these new taxes, as well as any lowering of the duty-free allowances. These proposals are negative in intent, and are designed to restrict rather than to unfetter international commerce. I would go so far as to say that we must resist all temptations to join forces with those throughout the world who advocate new controls and restrictions to solve balance-of-payments problems. Such forces must. be resisted at all cost. THE TYRANNY OF STATISTICAL INVENTIONS In the first place, it is difficult to understand why, out of our total imports of goods and services, amounting to $38 billion, one import, that is, travel, was selected to be the sacrificial goat. I suspect that the reason can be traced to the way we keep our books. Economicts, who study our balance of payments, live under the tyranny of the statistical inventions of the accountants who originally established our bookkeeping system. Certain accounts, such as travel, are segregated, and thus subject to easy analysis. The accounting system itself encourages selective finger pointing. To say that we have a trade surplus but a travel deficit is statistical double talk. Much of the travel deficit becomes the foreign exchange used to buy American goods, which is reported as trade surplus. If our balance-of-payments report had separate accounts for petroleum, coffee, and textiles, we would hear more about our oil gap, coffee gap, or textile gap. To suggest that we solve our problem by limiting foreign travel makes no more sense than suggesting we drive our cars less to reduce consumption of imported petroleum. U.S. PER CAPITA SPENDING FOR TRAVEL IS LOWER THAN OTHER COUNTRIES Back in 1963, foreign travel represented 7.9 percent of all imports of goods and services. In 1964, travel dropped to 7.7 percent, and by 1965, it was down to 7.6 percent. In 1966, the United States spent $38 billion for imported goods and services, which included $2.7 billion spent by U.S. travelers in foreign countries. Thus tourist spending was down 7 percent of the total import figures. Although total travel expenditures increase each year, so do all other imports, at an even greater rate. Since the percent of total imports charged to the travel industry shows a continuing decline, there seems to be no logical reason to select this particular industry as the target for damaging tax measures. When we compare the United States with other industrialized countries, we find we are exceedingly thrifty when it comes to spending our money for traveling in foreign countries. The United States per capita spending for foreign travel amounts to $15.70. This is lower than the per capita spending of Canadians, Germans, French, Scandinavians, Swiss, Belgians, Australians, and New Zealanders. TRAVEL STIMULATES U.S. EXPORTS Spending for travel, like spending for other imported products, provides foreign nations with dollars needed to pay for their essential purchases of U.S. goods and services. In many countries in the middle East, Africa, Asia, and the Pacific. area, U.S. tourist dollars are particularly important, because other methods of earning dollars are limited. As appropriations for foreign aid programs have been reduced, the need for the tourists' dollars has become more urgent. In 1966, the U.S. aircraft manufacturing industry was able to sell to foreign airlines $1.4 billion of aircraft, which provided muchneeded foreign exchange, as well as employment throughout the United States in factories making airframes, engines, electronic equipment, and other aircraft components. Another fairly recent development helping our exports has been the introduction of U.S.-designed and managed hotels in foreign cities and resort areas. When one of these American hotels opens its doors in a foreign country, it becomes a local showcase for a wide range of U.S. products. During the construction of these hotels, the latest American kitchen appliances, laundry equipment, air-conditioning systems, elevators, electrical appliances, and other U.S. exports are introduced to local building contractors, architects, and hotel owners. These hotels would not be profitable without the patronage of American tourists. Any substantial reduction in U.S. visitors could lead to bankruptcies and would certainly discourage the introduction of new American-managed hotels. New demands for American products are often instigated by the tourist himself by requesting American soft drinks, liquors, tobacco products, and other consumer items. In catering to the demands of U.S. tourists, the local restaurants and retail shops often introduce American items which soon become popular with local inhabitants. REDUCING THE "TRAVEL GAP” On examining the so-called "travel gap," it is obvious that this sector of our international trade would not be in the present spotlight if foreign travel expenditures in the United States were in balance with U.S. travel expenditures abroad. The problem then becomes one of bringing about a better balance, rather than limiting the growth of American travel. Our true target, in line with our national policy of encouraging the expansion of world trade, should be a moving forward in better balance. For this reason, I fully support measures to increase the flow of foreign visitors to the United States. In this light, I believe history will show that the President's call for narrowing the travel gap will result in new Government and industry policies of far-reaching economic significance. By calling attention to the major role of travel in international commerce, the President has shown leadership in a field of foreign trade which has received too little attention at the policymaking level of Government. In both industry and Government, it is often observed that when problems become urgent, policymaking becomes inventive. We seem to be entering a period of inventiveness in travel policymaking which, if applied constructively to increasing our travel earnings, can have significant impact on improving our balance-of-payments position. These new policies, however, will only be meaningful if they receive strong support from Congress. THE IMPORTANCE OF TRAVEL AS A MAJOR EXPORT INDUSTRY Except for the export of automotive vehicles and parts, which amounted to $2.2 billion in 1966, no other single commodity exceeds tourism as an earner of foreign exchange. The aircraft manufacturing industry earned $1.4 billion, exporters of wheat earned $1.5 billion, but tourism produced earnings of $1.8 billion. In view of the importance of attacking our balance-of-payments problem through the expansion of exports, it is respectfully suggested that the findings of the President's Industry-Government Travel Task Force should get priority attention at this session of Congress, in light of tourism's position as a leading export industry. WHY TRAVEL RESTRICTIONS ARE NOT APPROPRIATE With a strong and rapidly expanding world travel industry contributing about $18.5 billion to world trade in 1968, and producing an estimated $2.1 billion in earnings for the United States, it would seem dangerous to tamper with our travel relations with other countries. As the world's leading exporter of travel services, it would seem unwise to set in motion restrictive measures which might be copied by other countries, to our detriment. In Europe, our three largest customers, Britain, Germany, and France, all show travel deficits in their balance-of-payments accounts. Last year, more than 7 million Canadians visited the United States. We also received more than 400,000 Mexican visitors. Most surprising, however, was a 17.6-percent increase in visitors from the United Kingdom. These 231,000 British visitors arrived in the United States in record numbers, despite the fact that their Government had imposed rigid currency restrictions on travelers. We might do well to study this phenomenon before we consider restricting our own citizens. It is also interesting to note that of all the countries in Europe, France showed one of the largest percentage increases in sending travelers to the United States. The 116,000 French visitors represented an 85.2-percent increase in 1967 over the number of French arrivals in 1966. During the past two decades, the United States has played a leading role in the progressive liberalization of international trade. The recent conclusion of the Kennedy round of trade agreements. represents the most extensive liberalization of trade ever achieved, and was the result of long and difficult negotiations. Prior to World War II, most of the leading industrialized nations followed a beggar-thy-neighbor policy in international trade relations. During the past 20 years, the United States has provided world leadership in a bipartisan national policy calling for continuing reductions in trade barriers as a means for increasing opportunities for world trade. As a result, free world exports rose from less than $50 billion in 1946 to more than $180 billion in 1966. This remarkable expansion in trade has been accompanied by the most rapid increases in domestic growth rates ever experienced in the industrialized nations of the world. To turn the clock backward and set an example of Governmentimposed restrictions for an export category in which we are the world's leading exporter seems to fly in the face of 20 years' successful foreign trade experience. EDUCATIONAL AND POLITICAL IMPORTANCE OF TRAVEL In addition to economic considerations, there are other powerful reasons for encouraging Americans to travel to the developed and |