As you know, Senator Capehart has not been well. His personal physical requirements impose some limits on the continuation of these hearings.

Tomorrow morning at 10 o'clock the Subcommittee on Banking and Securities will begin a series of hearings on proposed amendments to the Securities and Exchange Act, under the chairmanship of Senator Bush of Connecticut.

If there are any additional statements or if there is additional evidence that anyone feels should be added to the material that we have been able to develop in the last week, that material may be submitted to the staff of the committee, and if satisfactory, will be included in the record.

At this moment, then, I will recess the hearings, to be continued again at the call of the chairman. I appreciate the contributions all of you have made.

(Whereupon, at 3:55 p. m., the hearings were recessed, subject to the call of the chairman.)

APPENDIX

The following documents were inserted in the record as referred to in the testimony of E. V. Huggins, page 76.

THE UNITED STATES AND ITS FOREIGN TRADE POSITION

A special study prepared by the National Industrial Conference Board, Inc., for the National Electrical Manufacturers Association

SUMMARY OF FINDINGS

The highlights of the factual data, charts, and tables of this report-a large portion of which has never before been available for general public use-may be summarized as follows:

1. The dollar value of total sales of United States corporations manufacturing electrical products, as well as the dollar value of both exports and imports of such products, have risen sharply in the postwar years, 1946 to 1953, inclusive, but at widely varying rates.

(a) Total sales during the postwar years have averaged 6.6 times their average for the prewar years (1935 to 1939, inclusive).

(b) Exports have averaged in the postwar years 4.9 times their prewar average. (c) Imports have averaged in the postwar years 4.6 times their prewar average. (Details in secs. I and II.)

2. While total sales in 1952 were 9 times their prewar average, imports in 1952 were 12 times their prewar average. In contrast export sales in 1952 were only 6 times higher than their prewar level.

The foregoing data are expressed in tabular form below:

3. The rate of increase of imports of electrical equipment reflects the rehabilitation of foreign industry and its approach toward a surplus position.

The rate of increase in imports has accelerated significantly in more recent years, as compared with a slowing down in the growth of exports.

This divergence in trends became far more marked in 1953, as is shown by the following table:

United States imports.

United States exports--

First half of 1953 over

first half of 1952, percent increase

50

9

Excluding Canada, exports for the first 6 months of 1953 were 7 percent below those of the first 6 months of 1952 (secs. I and II).

4. Competition from foreign countries for third markets has also grown much keener, especially during the past 2 years, and is now threatening further inroads upon United States exports of electrical equipment, particularly in South America.

399

For example, a comparison of European and United States price quotations of heavy electrical equipment, publicly opened within the past 18 months in Latin American and Asian countries, shows that of 124 different quotations 80 percent were less than the United States bid (sec. IV, exhibits B, C, D).

5. Foreign manufacturers of electrical products have very large labor cost advantages over United States competitors. These advantages are greater now than ever before.

(a) In 1952 total monetary hourly wages and wage supplements (converted into United States dollars at official exchange rates) of the 9 nations covered by the survey ranged between only 10 percent of United States wages (and supplements) in Japan to 33 percent in Belgium and Sweden. In 1938, the range was from 7.3 percent in Japan to 46.6 in Germany.

Wage supplements have now become a significant factor in any wage comparisons among nations. For example, in France and Italy such supplements exceed one-third of the cash wages of their workers.

The wage ranges for 1938 and 1952 in the 9 countries were as follows:

The wage differentials between the United States and these 9 countries have widened substantially in the postwar years. Only Japan, of the nine countries, has increased its wage rates relative to the United States since 1938. Germany, as shown by the above table, has moved from her prewar position of the highest wage country among the 9 nations to the fourth lowest in 1952.

(b) By 1952 industrial production in 7 of the 9 countries had recovered to levels which were 33% percent or more above their 1938 levels. Japan was only 1 percent above her 1938 level.

West Germany's production in 1952 was 44 percent higher than in 1936, while her production of electrical machinery and equipment was 188 percent above 1936, but a substantial portion of these gains has been the result of transfers of industrial capacity from East to West Germany rather than overall increases in West German production.

(c) The legal work week (before overtime payments become due) ranges between 44 and 48 hours in most European countries. Overtime payments are not generally more than 25 percent above regular wages.

(d) During the postwar period, labor costs as a percentage of production value have decreased considerably more in the various foreign countries than they have in the United States. Three of the 4 countries for which comparison with a prewar year is possible also show a much steeper decline for that period than does the United States. The reason for the more rapid postwar decrease in labor costs abroad is a combination of increases in productivity, which was very low at the beginning of the postwar period, and in value of production both rising considerably faster than wage rates (including wage supplements). In the United States, on the other hand, money wages and wage supplements approximately kept pace with increases in productivity and in value of output. These factors are mainly responsible for the increased disparity in labor costs between the United States and the various European countries.

(e) Statistical limitations make it impossible accurately to compare the output per man-hour between particular industries of various nations. However, it is both proper and possible to compare trends in productivity of particular industries of various countries, since substantiating data are available for certain nations over certain periods.

The following table shows changes in productivity of the electrical manufacturing indsutries in 6 nations over certain years for which comparable data are available.

Qualified representatives of a United States manufacturer of electrical equipment recently made a study of prevailing labor rates and general efficiency in the use of labor and materials in that industry in seven foreign countries. This study concluded that labor costs of various electrical products in the countries ranged between 20 and 78 percent of United States labor costs of the same products. In Germany, where there is a combination of low wage rates, a high workweek, and efficiency of both labor and equipment, labor costs excluding relatively moderate supplements in the industry are shown to be only about one-third of United States labor costs. (Details in sec. IV.)

6. Foreign exporters almost universally enjoy the benefits of many and varied kinds of both domestic and export subsidies, as well as a rather wide variety of other types of aid from their government. United States industrial producers enjoy much less assistance of this sort. (Details in sec. V.)

7. Postwar conditions have led to the establishment (or intensification where they already existed) of numerous import restrictions and exchange controls abroad. Many of these restraints on international trade are far more effective barriers to its expansion than are protective tariffs. Most such restraints are not practiced by the United States Government and, where practiced, are not generally applied to the electrical equipment industry.

Since dollars in the postwar years have been, and still are, scarce in most foreign countries, such restrictions have fallen more heavily on goods offered abroad for dollars and upon United States exporters selling for dollars than upon foreign exporters who can sell for their soft (nondollar) currencies. There has been a very considerable relaxation of many such controls and restrictions, as they apply to other currencies, but relatively little as they apply to the United States dollar. (Details in sec. VI.)

8. Substantial losses of foreign investment income and smaller profits from various services since World War II have tended in the postwar years to create heavily adverse balance-of-payment positions among European countries and Japan, particularly with respect to the United States. This state of affairs, due

primarily to lack of multilateral convertibility of most foreign currencies, and the need for goods often available only in the United States, has led to dollar drives and other efforts by foreign governments to subsidize and otherwise stimulate their exports to the United States. (Details in sec. III.)

9. There has been a dramatic improvement, however, in almost all foreign countries over the last year and a half toward balancing off their respective dollar sales with their dollar purchases. Figures for France for 1952 were not available in time for inclusion in the report. Except for Italy and France all other seven countries (covered in the survey) whose payment balances have been causes of concern show substantial credit balances in their current accounts for 1952 and to date in 1953.

If the dollar gap be defined as the excess of the dollar value of United States exports of goods and services over United States imports of goods and services, then the gap has vanished, at least for the time being. During the year ended June 30, 1953, United States imports for the first time since prewar days substantially exceeded United States exports for which we were paid. The United States has been called upon in this 12-month period to settle these adverse accounts by deliveries of gold bullion and transfers of United States (dollar) bank balances and Federal Government bonds or other obligations.

Foreign nations nonetheless, during this 12-month period, received economic and military aid from the United States in larger sums than during any previous 12-month period since the war.

This general reversal of the world's balance-of-payment position with the United States was even more remarkable during the first half of 1953, when

United States gold, bank balances, and government securities-earned net by other nations would have more than paid for all economic aid extended by the United States in the period. (Details in sec. III.)

10. Qualified opinion differs as to the probable durability of this dramatic change, but there is substantial support for the view that this improvement in balance-of-payment positions now rests on more solid foundations than did a similar improvement in 1950, after which conditions were rendered highly abnormal by the outbreak of war in Korea. (Details in sec. III.)

11. To a major degree the postwar progress abroad has been due to United States aid, but full credit should be given to those nations which have adopted policies that have been successful in ending inflation, expanding production, and reducing restraints on domestic and foreign trade.

Germany is now outstripping all others in return to normal peacetime operations despite loss of East Germany.

Keplacement of bombed-out and dismantled machinery and equipment in Germany and Japan has given these countries more technologically efficient industrial plants than they had prewar. Because of their more efficient industrial plants, trade taking the place of aid might well benefit Germany more than any of our World II allies. However, both Germany and Japan must expand their exports outside the Iron Curtain or they will be forced to do so inside that curtain to support normal employment and feed their peoples. (Details in sec. III.)

12. In all foreign countries, duties on imports produce much larger percentages of their respective total revenues than they do in the United States, where customs duties produce approximately 1 percent of total Federal revenues, compared with sharply higher percentages of total revenues produced by import duties in most foreign nations. In 1951 the combined individual and corporate income taxes produced 71 percent of total Federal revenues in the United States, while abroad no nation collected more than 49 percent and the majority collected not more than 35 percent on an average from their income taxes- France only 25.6 percent; West Germany, 23.3 percent; Italy, 11.9 percent; Switzerland, 31.0 percent; and the United Kingdom, 49.0 percent. All National, State, and local government receipts in the United States (mostly taxes arising directly or indirectly from the domestic operation of the economy) come to about 26 percent of gross national product.

Foreign nations, therefore, make up this difference in income tax receipts primarily from general sales taxes or excises which importers into these countries must absorb in addition to their own income tax costs. The general sales tax ranges from 26.4 percent in France to 7.3 percent in the United Kingdom.

Consequently, foreign competitors selling into the United States or third markets have sharply lower tax costs than American competitors selling into their own or foreign markets. (Details in sec. VII.)

13. In summing up:

(a) The wage differentials in postwar years between United States electrical equipment manufacturers and their foreign competitors have broadened compared to prewar years.

(b) Domestic and export subsidies and aids by foreign nations exceed those enjoyed by their United States competitors. In the postwar years, the differentials in this respect have substantially increased.

(c) There has been an increase in the number, and intensification in the use, of various types of exchange controls and other restraints on foreign trade since World War II which discriminate against the United States.

(d) The so-called dollar gap in foreign balance-of-payment positions has disappeared in the last 18 months. It has been replaced by a dollar surplus.

(e) Because of Germany's more efficient industrial plants, trade taking the place of aid might well benefit Germany more than our World War II allies. (f) Foreign competitors selling into their own, United States, or third markets have sharply lowered tax costs than United States manufacturers selling in their own or any foreign market.

SECTION I. UNITED STATES IMPORTS OF ELECTRICAL PRODUCTS FROM PRINCIPAL COUNTRIES IN WESTERN EUROPE AND JAPAN, PREWAR AND POSTWAR

SUMMARY

Imports of electrical machinery and equipment are small relative to both United States domestic production and United States exports of this equipment. For the postwar years, they have averaged 4.6 times higher than their prewar level. In the last 2 years, however, imports of electrical machinery and equipment have been increasing rapidly, doubling in value in 1951, and increasing an addi