1980 in telecommunications goods, may be a somewhat misleading figure, Mr. Chairman, because we do not know whether these are wholesale prices at the factory or whether they include customs, insurance, freight, and various stateside costs. We would like to know considerably more about those figures.

The Japanese Government has been resistant to opening up NTT for outside tender. One argument regularly used, and we encounter it quite often, is that A.T. & T. has its own "special relationship" with Western Electric Co., a wholly owned subsidiary. But the Japanese negotiators are also aware of pending proceedings at the Federal Communications Commission-two dockets which would put the U.S. Government very squarely into the A.T. & T. procurement process, in our view.

The FCC is intending to force A.T. & T. to go beyond Western Electric for telecommunications goods. We do not yet have the FCC order setting out the issues for that proceeding so we don't know how far it will go.

In our view this change in A.T. & T. purchasing policies is an analog to Government procurement, but with a twist that may turn out to be detrimental to American equipment makers and their American employees.

We note with regret that during the mid 1970's four Western Electric manufacturing plants were closed down with layoffs exceeding 30,000-and it was painful for us. So we are skeptical about the prospective benefit that may flow from the new FCC proceeding, essentially if the end result of that FCC order would be to force the purchase of goods either made abroad or in U.S. based branches of foreign companies.

Mr. Chairman, let me close by commending the efforts of Ambassador Askew in holding firm on the NTT issue. We know that there will be intensified pressures to sign off as December 31 comes closer, simply to clear the deck and move on to other things. We would be unable to support our country's access to the code which does not lead to a reciprocity of access in the real meaning of the term.

If our negotiators are unable to reach an agreement on a realistic Government_procurement code we should all reconcile ourselves to rejecting it. In our view noagreement is better than a substandard one.

Thank you.

[The prepared statement follows:]

STATEMENT OF JOHN MORGAN, ASSISTANT TO EXECUTIVE VICE PRESIDENTLEGISLATIVE AND GOVERNMENT AGENCIES, COMMUNICATIONS WORKERS OF AMERICA Mr. Chairman, thank you for asking me to appear today on trade issues. My organization, the Communications Workers of America, represents more than onehalf million American men and women in the telecommunications industry. Many of these members of our union-perhaps 200,000—are employed in jobs involving the manufacture, supply and repair of equipment.

Through the several advisory committees established pursuant to the 1974 trade legislation, we have been involved in watching the flow of trade in telecommunications equipment as affected by the MTN. We have been most interested in two "Codes" included in the MTN-Standards and Government Procurement. In telecommunications, these codes are distinguishable but of necessity interrelated.

For the last 2 years, CWA and its Japanese counterpart telecommunications union, Zendentsu, have been engaging in discussions more or less collateral with the official negotiations of our governments. On a union-to-union basis, we have been

educating one another on the trade situation as it is developing. From our vantage point, we have urged our respected Japanese colleagues to use their persuasive powers on their government, to accept the Government Procurement Code and resolve this major and very highly exposed and emotional issue, so that we all can set about our business of putting real order into international trade.

The link between CWA and Zendenstu is our common and long-time membership in PTTI-Postal, Telegraph and Telephone International—the worldwide organization of free communications trade unions in the non-Communist world. In our meeting last December, we pressed on Japanese colleagues to do all they could to help conclude the procurement code by the end of June, well in advance of the December 31 deadline. We stressed that the key benefit of such a course would be to have this matter behind us before our political party conventions. We believed our mutual interests would be best served by keeping this important aspect of trade out of our domestic politics. Unfortunately, the Japanese Government fell last spring, and we sensed the inability to resume our trade unionists' talks unitl the situation in Japan had settled down. We plan to meet again next month.

Our discussions have centered arount Nippon Telephone and Telegraph Public Corporation's procurement policies. Several times in the last 2 years, Mr. Chairman, your subcommittee and the Joint Economic Committee have addressed United States-Japan trade, with considerable stress on the NTT telecommunications entity. Repeatedly, these congressional studies have shown that the "closed circuit" procurement of NTT is a major impediment to concluding the procurement code. Because of the size of its annual purchasing-about $3 billion-NTT is vital both in substance and symbol. An open and realistic procurement policy in NTT would help to symbolize that Japan is willing to live with international trade policy which goes two ways. We believe such moves would be essential to the direction of trade for years to come. We believe the United States and Japan need each other in an improved trade relationship. We hope that Japan will act promptly, and not repeat a much-criticized action.

In 1978, Japan suspended its auto tariffs; but by that time, the Japanese automotive industry had become so advanced that the tariff nullification was devoid of meaning. To CWA, this attitude does not help to cement relationships between nations, but instead hardens protectionist attitudes.

The figures in you subcommittee's recent report show rather sizable increases of the telecommunications equipment from Japan, both in imports and negative trade balance. We certainly are alarmed over the 60-percent increase in the negative balance of trade, when comparing the first halves of 1979 and 1980.

The total of imports, $56,476,000 for the first half of 1980, could be a misleading figure. In our several years of following these trade statistics, we have been cautioned that such figures may be quite low; one well known consultant estimated for us that the actual market value of the goods can be three to four times the Bureau of the Census figures. This would be the case if the value of the goods, that is, the $56 million, represented the invoice price ex works. To the ex works prices must be added "CIF" plus various stateside markups. Thus, that $56,476,000 in goods could mean U.S. market prices of $160 million to $220 million. Let me leave this point by saying we would welcome more detail on these figures.

The Japanese Government has been resistant to open up NTT for outside tender. One of the arguments regularly used is that American Telephone & Telegraph Co. has its own "special relationship" with Western Electric Co., its wholly owned subsidiary. However, the Japanese negotiators are aware of pending proceedings at the Federal Communications Commission-originally Docket 19129 and not CC Docket 80-53-which would put the U.S. Government squarely in the AT&T procurement process. The FCC intends to require AT&T to go beyond Western Electric for telecommunications goods; since the FCC's order setting out the issues for CC Docket 80-53 has not been adopted, it is impossible to estimate how much "open tender" would be required in AT&T. In our view, this proposed change of AT&T purchasing policy is an analog of "government procurement," but with a twist that may turn out to be highly detrimental to American equipment makers and their American employees. We do not want to see Americans lose their jobs in telecommunications manufacturing as a direct result of U.S. Government intervention in what has been up to the present a matter of corporate management decision. We are greatly concerned because Western Electric Co., permanently closed four manufacturing plants in the mid-1979's; the layoffs exceeded 33,000.

We are at this point rather skeptical about the prospective benefits to flow from the CC Docket 80-53 proceeding, especially if the end result of the FCC's order is to force the purchase of goods made abroad or in U.S.-based branches of foreign companies.

Mr Chairman, let me close by commending the efforts of Ambassador Askew in holding firm on the NTT procurement issue. As the December 31 deadline for concluding the procurement code agreement draws nearer, we know the pressures will be intensifying for our negotiators to "sign off" on the matter, simply to clear the deck. We have been encouraging the U.S. Trade Representative to continue the efforts, and we support a procurement code that provides genuine access with real performance. We would be unable to support our country's accession to the Government Procurement Code which does not lead to reciprocity of access in the real meaning of the term. We believe that the present trade situation demands we hold firm for both symbolic and substantive meanings of the Government Procurement Code. American equipment makers can meet the standards of NTT in exactly the same manner as the Japanese manufacturers have been able to meet the American standards. Thus we do not believe any valid objections can be raised to NTT's buying American goods.

If our negotiators are unable to reach agreement on a realistic government Procurement code, we should reconcile ourselves to rejecting it.

Mr. VANIK. Thank you very much.

Our next statement will be by Mr. Frank J. Austin, member of the National Tool Builders.

I would like to announce that it is the plan of the Chair to proceed to the conclusion of the panel before we go. I hope that Ambassador Hormats will not be adversely affected by the delay. We will finish the work of the panel.

STATEMENT OF FRANK J. AUSTIN, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER, GIDDINGS & LEWIS, INC., A MEMBER OF THE NATIONAL MACHINE TOOL BUILDERS ASSOCIATION

Mr. AUSTIN. Good morning. My name is Frank J. Austin. I am executive vice president and chief operating officer of Giddings & Lewis, Inc., located in Fond du Lac, Wis. Giddings & Lewis, Inc. is one of over 370 member companies of the National Machine Tool Builders Association (NMTBA).

I am pleased to testify today before this Subcommittee on the vital subject of United States-Japanese bilateral trade.

Before describing Gidding & Lewis' experience in the export market, it is significant to note that while the domestic U.S. machine tool market has been oscillating with very little real growth since the mid-1960's, the world market has grown substantially. Unfortunately, most of this worldwide expansion has been absorbed by our foreign competitors, eroding our market share.

Whereas, in the middle of the 1960's, the American machine tool industry supplied approximately one-third of the total global market, according to American Machinist, as of the end of 1979 that portion has fallen to only 17.1 percent. In short, over the past 13 years our share of the world market has plummeted by almost 50 percent.

From these statistics it is obvious that export sales must play an increasingly significant role in the marketing strategy of American machine tool builders specifically, and all U.S. businesses generally. To this end, NMTBA and its member companies have devoted considerable time and effort to increasing exports.

Working toward similar goals, over the years Giddings & Lewis, Inc. has conducted an aggressive and forward looking export policy, the result of which has been continued success in foreign markets even in the face of increasingly difficult export market conditions.

However, having proudly noted the generally superior overall export performance of Giddings & Lewis we must acknowledge that when we focus more narrowly on only our Japanese machine tool sales, Giddings & Lewis exports to Japanese industry have, unfortunately, been in decline for some time. In fact, although no one campany can serve as the perfect barometer of this trade relationship, Giddings & Lewis' record is similar to that registered by many other American machine tool builders in their export efforts in Japan. While overall U.S. machine tool exports to Japan have generally followed Japan's business cycles, exporters of certain specific product types have seen their Japanese export market all but evaporate.

Beginning with the period 1961 through 1965, Giddings & Lewis' Japanese sales totaled 74 units at a value of approximately $5.9 million. This comparatively large sales lume appears to coincide with the formative stages of Japan's modernization of its industrial base.

However, the next 5-year period shows a substantial decline in sales to Japanese buyers by Giddings & Lewis. During the years 1966 through 1970, only 17 units were sold, for a sum total of approximately $1.8 million. The sales volume reduced further during the next 5-year period from 1971 through 1975, with 18 units sold at a combined value of about $942,000. Significantly, the Japanese were buying a substantially different type of machine tool from this point forward.

Finally, the years 1976 through the present reveal a drastic decline in U.S, machine tool exports to Japan, with Giddings & Lewis having sold only six units in 5 years with a total value of only $172,000, virtually nothing compared to the substantial purchases of the early 1970's.

We also observe that the general trend in U.S. machine tool export trade with Japan has been in the same direction is that of Giddings & Lewis' experience in this market. From 1975 through 1979 U.S. machine tool exports to Japan totaled only $174.9 million, a decrease of approximately 25 percent from the $233.3 million worth of U.S. equipment exported to Japan during the first half of the decade-1970-1974.

The inverse relationship between Japanese imports of foreign machine tools and Japanese exports of their own machine tools is also quite striking. For example, we note that imports of foreign made machine tools into Japan have generally adhered to the fluctuations of the overall business cycle. However, in contrast, Japanese exports during these two decades have been rapidly on the increase, from a total of $10 million in 1960 to over $1.2 billion during 1979, well over a hundredfold increase.

Although it is dangerous to attribute such a tend to any one factor, it appears rather evident that as the Japanese machine tool industry itself became more competitive Japan reduced its imports of U.S. machinery-as well as that from other countries-at the same time that it began a very aggressive export marketing program of its own.

Of course the most striking and highly publicized example of this aggressive Japanese export policy is seen in the automobile indus

try, with the extraordinarily high volume of Japanese imports in the United States.

We are, of course, aware that many in U.S. industry have called for import quotas on such Japanese goods in the interest of protecting U.S. workers from "foreign-born" unemployment. Although we certainly sympathize with the objective of keeping as many American workers employed as possible, we have seen the unfortunate consequences of restrictive trade practices in the past, and do not offer them as a solution to the current United States-Japanese trade imbalance.

Moreover, we would urge caution in suggesting that we adopt wholesale the business and Government practices employed in Japan in the hope that their use in the United States will yield results similar to those now enjoyed by our Japanese counterparts. Rather, we urge support for the following proposals which we believe would be most effective in interacting with the current variables of the U.S. economy toward stimulating productivity and enhancing U.S. exports.

First, and foremost, we strongly support and urge the adoption of more rapid capital cost recovery for investment in capital goods. In this regard, we take this opportunity to commend the far-sighted leadership of Congressmen Jones and Conable in sponsoring H.R. 4646, the "Capital Cost Recovery Act of 1979." We also applaud those other Congressmen who have also lent their support to this proposal which would enable American industry to make the massive investment necessary to modernize the aging industrial base of the United States.

Improving the cash flow of industry through the changes provided in H.R. 4646 has never been more important than it is in today's inflationary times. The key feature to any of these changers in depreciation allowances is that charges generate by capital spending would be treated more rationally as a true cost of doing business rather than simply as a tax allowance for the wear and tear on equipment which is now effectively the case.

Focusing our attention on the area of research and development, we commend Congressman Vanik for his insightful leadership in sponsoring H.R. 6632, the "Research Revitalization Act of 1980." H.R. 6632 recognizes that R. & D. spending can result in economic benefits similar to those brought about by capital investment, and is an essential factor in returning domestic and international economic strength to the United States.

The benefits of H.R. 6632 are numerous. We would especially emphasize that measures to revitalize our R. & D. efforts as exemplified by Congressman Vanik's bill are extremely important in strengthening the United States international economic and technological position.

In conclusion, we believe that the productivity improving types of policies we have described above are the most effective means of meeting the increasing challenge of imports in our domestic market and of increasing our own export sales efforts.

Over the past decade we have seen the adverse effects of allowing our machine tool producing capacity to fall behind the domestic, let alone the foreign, demand for such equipment. Clearly, every time U.S. capacity becomes inadequate to meet U.S. domestic