until we have the funds available to do it. It does not pay us to invest if the risks are too great and the incentive too little. (Supplementary letters from Mr. Goodman :) Senator CLAIR ENGLE, GETZ BROS. & Co., INC., San Francisco, Calif., May 31, 1963. DEAR SENATOR ENGLE: With reference to our recent conversation on export bonus given by various countries in Europe, I have just received a reply from our Milan office and am momentarily expecting a reply from our Hamburg and London offices. The reply from Milan is rather sketchy but it does give a certain amount of information, which will give you something to use. I would suggest that you might consider an approach to the American consulate for more details as to the IGE tax in Italy. I am given to understand there is a sort of drawback and reimbursement of the IGE tax recognized by the customs authorities at the time of shipment, which amounts to from 2 to 6 percent according to the type of goods. For example, for machinery it is 6 percent, for textiles it is 3 percent, etc. Further on machinery there is also reimbursement for part of the duty which is about 20 lires or in other words approximately 3 cents per kilo. There is also a reimbursement of duty for cotton and woolen goods but Milan did not give the exact amount. The Italian Government (unlike the German Government) takes a considerable amount of time before clearing and therefore Italian exporters do not count too much on the bonus. I should say while they count on it, they do not take it into their costs as is done by the German exporters who get prompt service. However, there is an export bonus and just as soon as I get further information as to what is being done in Germany in particular, and in England should there be an export bonus, I will of course pass this along to you. Kindest regards. Sincerely yours, LESTER. GETZ BROS. & Co., INC., Senator CLAIR ENGLE, Senate Building, Washington, D.C. DEAR SENATOR ENGLE: In line with the promise I made you, I have now heard from both our office in Barcelona and Hamburg as well, regarding the Government export bonus set up in their respective countries. The report from Barcelona advises that Spain has an export bonus designated as "desgravacion fiscal." This subsidy ranges from 1 percent up to 25 percent dependent upon the commodity and based on the f.o.b. value. This subsidy is applicable to all exporters who formally receive an export license for their products for shipment abroad. In order to apply for a subsidy, after the merchandise has been exported, quite a number of forms have to be filled out giving details of the merchandise, price per unit or per kilo, packing, destination, etc., as well as the currency or foreign exchange paid for the merchandise. Along with this, the following documents must also be presented: 1. Written petition in triplicate. 2. Export invoice certification from the customs. 3. Two copies of our commercial invoice. 4. Two copies of purchase invoice (from supplier). 5. Copy of B/L. 6. Three copies of declaration drawn up before the merchandise leaves the warehouse. These must be presented 3 days before actual shipment takes place. 7. "Impuesto sobre el Gasto" (taxes on expenditure) statement. We are given to understand that these subsidies take from 3 months to approximately 1 year's time before payment is granted. We are also advised that in many cases when the value of the export shipment is small, such as $100, it does not pay to apply for a subsidy as one has to pay additional expenses to apply for a subsidy entry. This takes away time, and one has to wait for a long period to get final payment. Our office in Barcelona did not give us the percentage of subsidy applied to all merchandise for export, as this is quite a long list and the percentages vary from commodity to commodity, however should you wish to have such a list they can mail us a copy of the publication "Comercio y Navegacion" issued by the Barcelona Chamber of Commerce. This is in Spanish, there are no publications in English. As you will understand, there is definitely an export bonus in Spain but to be practical and if some such export bonus would be available in the United States, machinery should be prepared for the export bonus to be paid in a prompt manner, otherwise it does not do much good for the exporter. Now, regarding Hamburg, I am quoting from a letter received from our Hamburg office as follows: "What is generally called export bonus is not exactly the correct translation of the benefits we have in our exports. The following points may clarify the correct meaning. "1. What is the export bonus? "The export bonus consists of a turnover tax refund and an export sales promotion. Both these repayments are refunded by the German tax authorities. "As you perhaps know, on any merchandise sold in Germany, a turnover tax has to be paid if the merchandise is turned over locally for utilization on the domestic market. Depending on the classification of merchandise, different percentages of turnover tax are to be paid by manufacturer or by any party selling any merchandise to any local buyer. So, e.g., readymade merchandise irrespective of the kind of commodity, whether machinery is concerned, household goods, textile, paper, pharmaceuticals, etc., the turnover tax is 4 percent. "For any semiproduct like chemicals, iron, and steel (billets) etc., 3 percent. "Turnover tax on absolute raw materials is only 2 percent. "if any producer-manufacturer intends to sell the merchandise not for local consumption but for exports and sells it directly to a foreign company and is invoicing directly to foreign companies with its domicile abroad, then he is exempted from paying the turnover tax: i.e., he can save either 4, 3, or 2 percent. "If the manufacturer sells to a domestic export company and invoices the merchandise accordingly, then this turnover means for the manufacturer/producer a local turnover, on which he has to pay the turnover tax as outlined before. In such a case the exporting company has the right to claim for the tax refund, but not on the full amount of the manufacturer's export price but only on 90 percent of invoice value, consequently it turns out Percent 3.6 "(a) 4 percent on 90 percent of invoice value (if the manufacturers had paid 4-percent turnover tax)_ "(b) 3 percent on 90 percent of invoice value (if the manufacturers had paid 3-percent turnover tax)-- 2.7 "(c) 2 percent on 90 percent of invoice value (if the manufacturers had paid 2-percent turnover tax). "2. What additional refund is paid? 1.8 "In addition to the above turnover tax refund our Government pays an export bonus of 3 percent, irrespective of the merchandise exported. This means that also the German manufacturer is entitled to claim for this 3 percent bonus if he exports directly. If an exporter is doing the sale then the export is entitled to claim for the 3 percent. "3. To what total percentage does the refund come up? F.o.b. value (percent) "(a) For readymade products, 3.6 percent plus 3 percent_. 6.6 5.7 4.08 "It is further to be mentioned that the application for refund can only be made on basis of domestic cost. If we for example are shipping German merchandise from a German port the full free on board value can be taken for application less deduction of commission included for the foreign company exceeding 3 percent. "If the German made merchandise is shipped from a port like Antwerp or Rotterdam we must further deduct the expenses included in the merchandise value for delivery up to a German border and from German border to the foreign port. For this portion of expenses no application can be made. So it happens that in one case the actual percentage based on the free on board value is 6.6 as standard or 6.4 or less and for this reason we normally calculate our experience rate of 61⁄2 percent. "4. When is such a bonus paid? "At the end of the month when shipments are recorded all necessary export documents are collected and certified, invoices are issued and negotiated, we can file our application for turnover tax refund and export promotion bonus. Supported by all necessary information, our tax authorities check our application and almost a month later we receive either the remittance to our bank account or if there are any payables left with the tax authorities, we get these amounts credited." You will note from the above that Germany has a very fine system of securing prompt payment for the exporter of the export bonus. We are also advised that the regulations with the tax authorities state "that the company is entitled to claim for the bonus, which has brought the merchandise to the foreign country"-this means the exporters. Since the free port of Hamburg and other outerbound areas according to the customs rule is considered as a foreign territory, it can also happen that if a manufacturer is transporting the merchandise by their own trucks to the free port area, we cannot claim for the bonus but the manufacturer evidently can. Consequently, the exporter always has to see that in the case of arrangements with manufacturers the merchandise is always transported by a third party; that is, by an independent forwarding company which is acting on the exporters behalf. This only happens in Hamburg and not in other ports, from which the export shipment is sent. If there is any other information you would like to have in this connection, we would be pleased to get it for you at your request. Kindest regards. Sincerely yours, L. L. GOODMAN. Senator ENGLE. Thank you very much. You have been very helpful. The committee will stand in recess until 2 o'clock. (Whereupon a recess was taken at 12:30 to 2 p.m., this same day.) AFTERNOON SESSION Senator ENGLE. The committee will be in order for continuation of the hearings on Pacific trade patterns, and our next witness is Mr. William R. Hewlett, executive vice president of the Hewlett-Packard Co. Mr. Hewlett, we are sorry we couldn't get you on earlier today, but we welcome you here, and we will be glad to have your statement. Now, just off the record a minute. (Discussion off the record.) Senator ENGLE. Now, if you want to read your statement, you can proceed to do so, or you can put the statement in as if read and summarize, if you wish, but we would be glad to have you read it if you would prefer to do so, because I know you worked hard on it. STATEMENT OF WILLIAM R. HEWLETT, EXECUTIVE VICE PRESIDENT OF HEWLETT-PACKARD CO., PALO ALTO, CALIF., ON BEHALF OF WESTERN ELECTRONIC MANUFACTURERS ASSOCIATION Mr. HEWLETT. Thank you, Mr. Chairman. Senator Bartlett, it is a great privilege to be here. I certainly enjoyed hearing some of the previous testimony. I certainly have added to my education. I have been asked, as a representative of the Western Electronic Manufacturers Association, to give some indication to this committee about the steps being taken by the electronics industry in the West to increase its share of trade in the Pacific area. The western electronics industry is so diffuse in character that it would be difficult to give a detailed analysis of its export program without a tremendous amount of research. Time has prevented such a study, and I will therefore be forced to deal in either broad generalizations about the industry or by means of specific references to the experience of my own company. Electronics in California is the seventh ranking industry in this State in terms of export. Although it stands well behind such giants as the aircraft industry, food products, and petroleum, it is still an important and significant phase of the State economy. It is very difficult to draw truly definitive conclusions about the character of the export electronic market even from such useful sources as the U.S. Department of Commerce Report FT 410, "U.S. Exports of Domestic and Foreign Merchandise Commodities by Country of Destination," since many of such exports are special category items such as radar equipment, radio navigation equipment, and the like, where no detailed breakdown is given. It can be stated, however, that as far back as 1957, the most current data available, California was the third-ranking State in the export of electronic equipment in the United States. Although it may be very difficult to obtain an exact estimate of the distribution of the export of U.S. electronic products, it is possible to make a reasonable estimate based on the very close correlation that exists between the sale of precision electronic test and measuring equipment and the total electronic market. This is exactly the field in which my company, the HewlettPackard Co., is engaged and thus a study of the U.S. Department of Commerce classifications covering this category of products as well as our own experience, gives a reasonable clue to the relative importance of various world trade areas for U.S. electronic products. Using the most currently available complete data of the Department of Commerce, that of 1961, one finds the following approximate breakdown of the market areas of the world: Europe, 50 percent; Canada, 20 percent; the Pacific area, including India and Pakistan, 15 percent; and the rest of the world, 15 percent. A more careful scrutiny of the 15 percent of the exports that go to the Pacific area reveal that 75 percent of the product goes to three countries, Japan, Australia, and India, and the remaining 25 percent to the other 15 countries listed in the Department of Com merce survey. A cross check on these figures, based on studies by the Electronic Industry Association for 1961, shows that 20 percent of the U.S. exports go to Canada, a very close correlation with the above figures, and about 7 percent to Japan, again a reasonable correlation. This report also shows that about 20 percent of the world TV sets, exclusive of those in the United States, are in the Pacific area. An analysis of our own exports shows a higher proportion of sales to Europe than the above-quoted figures due primarily to a very aggressive marketing campaign which we have been carrying on for the past 5 years. The committee is quite conscious of the fact that up to recently, U.S. industry in general has not been particularly export minded. It is really only in the past decade that the full importance and potentialities of the export market are being appreciated by American industry. And if I could just digress a moment and comment in passing that the changes in 1962 to the Internal Revenue Act, as it affected the taxation of foreign income, were in my opinion most unfortunate at a time when every effort should be made to encourage trade, these revisions I am afraid will have exactly the opposite effect. It certainly abuses the law on foreign trade. I see no reason to try to carve a chicken with a meat cleaver. Senator ENGLE. What you are saying is that in many instances they are killing the goose that lays the golden egg. Mr. HEWLETT. Exactly, at a time when the Government should be trying to encourage foreign trade, they are revising laws to in fact discourage it. Senator ENGLE. We had some very high smelling examples of tax dodges of one kind or another that were used, but testimony before our committee indicated that these investments overseas very often supplied a great deal of business for American industry. What was the company's name? Mr. LEVIN. Joy Manufacturing Co. Senator ENGLE. It was Joy Manufacturing Co. from Pennsylvania that came in. They sell mining equipment, and they told us that 25 percent roughly of their plant production and their management and work hours were spent in supplying parts for their subsidiary outfits, plus supplying to those organizations technical and managerial knowhow, and they disputed the philosophy that if you get overseas, that you necessarily will supply us with some business. Very often you get business you couldn't get otherwise, and the reason that is true is foreign companies whose technology is pretty highly developed in those areas make it pretty difficult for us to compete, because we are competing with higher wage scales and corporate taxes, and this, that and the other thing. Now, if we get into situations and illustrations where the Common Market simply blocks us off, we are going to have plants going over that wall just as fast as they can get over in order to get inside. Mr. HEWLETT. We have one plant in the Common Market, and one plant within EFTA. Senator ENGLE. Where is the EFTA plant? Mr. LEVIN. EFTA is the European Foreign Trade Association. Mr. HEWLETT. And we also have one of those base companies in Switzerland, but I would like to point out that it is primarily because of this sales promotion program that we have been able to put forth in Europe that in the past 5 years we have showed a total increase of 46 percent, whereas our total domestic business has been about 28, so that there has been a substantial increase on business due to this marketing program. I have just returned from Europe and looked quite carefully at the manufacturing figures of our two plants, and at present they are purchasing 80 percent of their parts from the United States, and they have made a projection that shows that within the next 2 or 3 years |