quality and retention in both the Active and Reserve forces. We are particularly interested in legislation that includes educational benefits for Reserve service, such as those contained in Senator Armstrong's S. 691. We believe it is important to look beyond today's excellent recruiting statistics. When the economy starts to improve, we'll have a recruiting problem. The benefits of a G.I. Bill could help our Armed Forces Active and Reserve recruit and retain qualified personnel. We should not wait until the roof leaks again in order to fix it. - Thank you for the opportunity to appear before you. Your support for the men and women in uniform, Active and Reserve, is noteworthy and sincerely appreciated. I will be happy to answer any questions that you might have on these issues. F-4 RADAR Senator STEVENS. Senator Rudman made an inspection out in North Dakota over the weekend and he came back with the information that the F-4's did not have the modern radar so that the Reserve units could not transition from F-4's to F-16. Has your organization looked into that at all? Captain MOODY. We understand that there is a plan if they get the F-4's that they are going to have to spend approximately $1 million per plane. I believe that is the figure. Senator STEVENS. $150,000 he said. Captain MOODY. There is a certain amount that they have to spend per plane to upgrade the radars and the other avionics gear in the F-4's, that is true, because right now the F-4's that they would be getting are not really capable to do the job. Senator STEVENS. They have the F-4's coming and we do not have enough F-16's unless we order some new ones? Captain MOODY. Unless we order some more, that's right. Senator STEVENS. I would suggest maybe you might want to visit with him because he is prepared to make some substantial recommendations to the committee about what to do about the Air Re serve. Captain MOODY. I appreciate your recommendation and we will certainly do that, sir. Senator STEVENS. Thank you, very much. Captain MOODY. Thank you, sir. Senator STEVENS. We appreciate your testimony. U.S. COUNCIL FOR AN OPEN WORLD ECONOMY STATEMENT OF DAVID J. STEINBERG, U.S. COUNCIL FOR AN OPEN WORLD ECONOMY BUY AMERICAN Senator STEVENS. David Steinberg, U.S. Council for an Open World Economy. Good morning, Mr. Steinberg. Mr. STEINBERG. Good morning, Mr. Chairman. I am David J. Steinberg, president of the U.S. Council for an Open World Economy. The council is a private, nonprofit organization engaged in research and public education on the merits and the problems of achieving in an open international economic system in the overall national interest. It does not act on behalf of any private interest. Senator STEVENS. Did you testify last year, too? Mr. STEINBERG. I did, sir. I want to point out, sir, that, as in the past, my testimony is limited to the Buy American requirements of defense procurement. I do understand, Mr. Chairman, that other committees in Congress have jurisdiction over this question. But I believe that your committee also has an interest in this issue and I shall speak for only a few moments to highlight some of the points made in the statement that I have presented to your committee. Senator STEVENS. We will print your statement in full in the record. Mr. STEINBERG. I appreciate that, Mr. Chairman. I am not absolutely opposed to Buy American requirements. What I am opposed to is the present pattern of Buy American requirements. This present pattern, in my view, constitutes a hodgepodge of subsidies which the Congress and the executive branch ought at long last to reassess and reform to make sure that whatever Buy American policy we have affecting defense procurement is a coherent policy that is systematically reviewed as to justification and effectiveness. PATTERN OF BUY AMERICAN STRICTURES Now, the present pattern of Buy American strictures is not related in any way to a coherent policy addressing their real problems of those particular industries that are beneficiaries of this Buy American policy. For example, the textile Buy American requirement which has been on the statute books for almost 30 years is not related to any coherent comprehensive policy that addresses the real problems and the real needs of the textile industry. I say the same thing with respect to the specialty metals Buy American requirement. There is no coherent specialty metals strategy that addresses the real problems of this important sector of the U.S. defense mobilization base. And so it is our view that if there are to be Buy American requirements with respect to particular industries, they ought to be related to coherent policies that address the real problems of these industries. Moreover, Mr. Chairman, there are general Buy American requirements affecting defense procurement and also requirements dealing with specific industries. I think the question should be asked: Why do we need Buy American strictures affecting textiles, specialty metals, and other specific products when we have a comprehensive Buy American requirement with respect to defense procurement? What I am advocating, as I have in the past, Mr. Chairman, is not that the Congress this year terminate Buy American requirements. I would oppose that. There is a right way and a wrong way to impose Buy American requirements. There is a right way and a wrong way to remove them. All I am suggesting is that this year in preparation for next year, in preparation for the defense budget of fiscal 1985, the Congress this year ask the Secretary of Defense and the President to report to the Congress next year on the whole subject of Buy American requirements. How do these Buy American requirements relate to other things the Government is doing to assist those industries that are the beneficiaries of these strictures? What do these Buy American requirements cost the Nation in financial and other terms? How essential are these requirements? Are they more, or less, than what is needed? Then perhaps we can get a clear picture of where we are going on this issue, the cost effectiveness of, these requirements and how much longer we can expect to have these requirements with respect to defense procurement. Thank you, Mr. Chairman. [The prepared statement of David J. Steinberg follows:] U.S. Council for an Open World Economy PREPARED STATEMENT OF DAVID J. STEINBERG PRESIDENT (The U.S. Council for an Open World Economy is a private, nonprofit organization engaged in research and public education on the merits and problems of developing an open international economic system in the overall national interest. The Council does not act on behalf of any private interest.) Congress and the Executive Branch for too long have neglected the need to reform the disjointed array of Buy American requirements affecting defense procurement. Combatting inflation, making the most effective use of scarce financial resources, and finding real solutions to the real problems of ailing industries should highlight the aims of this policy overhaul. These procurement strictures consist of (1) the Buy American Act (affecting government procurement across the board), supplemented by a 1962 executive order giving a 50 percent advantage, for balance-of-payments purposes, to domestic suppliers in defense procurement, and (2) an assortment of more-restrictive rules, established by Congressional initiative, mandating procurement of certain products from domestic industries alone (except for extraordinary circumstances). The best known of the specific-industry mandates involve textiles (since 1956) and products containing specialty metals (since 1972), including stainless steel (and stainless steel flatware per se). Some products have been exempted from the general Buy American stricture by a multilateral trade agreement negotiated in the late 1970's, others by Congressional waivers in the interest of NATO standardization and interoperability. In addition, the Department of Defense obtained Congressional authority to purchase certain textile products from foreign sources in the interest of these NATO objectives. Waivers for NATO purposes (and generally to help "offset" foreign purchases of military equipment from the United States) were also obtained in 1977 for certain products containing specialty metals, but these waivers were terminated in the defense appropriations act of 1981 under pressure from labor and management in the specialty-steel industry. The defense authorization bill for fiscal 1983, as passed by the Senate, restored these waivers, but this provision failed in the House and a less-than-adequate substitute was adopted by Congress. I urge Congress to restore these waivers. But more than this is needed in the interest of a strong, durable specialtymetals industry, and of sensible utilization of Buy American regulations in defense procurement. The "sacred cow" subsidies in the considerable number of products covered by Buy American strictures in defense procurement should be carefully reassessed and reformed. The government, at long last, must find more-enlightened ways to address the problems of industries it feels require and deserve government assistance. The Buy American rules are examples of the shortsighted shortcomings of Congressional and overall government performance in this respect. Last year's effort to restore the specialty-metals waivers revealed worthy concern with the need for a more cohesive, cooperative military alliance between the United States and friendly nations. But there has been no evidence anywhere in government of reassessing and reforming government assistance to industries, including defense-related industries, that need and merit assistance at public expense. Lack of Coherent Industrial Policy Buy American strictures in defense procurement are a policy hodgepodge. They are not components of coherent, well-designed policies of government aid to ailing industries. There is no periodic reassessment of these strictures in the interest of sound policy formation and the most efficient use of financial resources in this major sector of the government's budget. Nor is any Buy American requirement concerning the products of specified U.S. industries linked in any way to anything identifiable as coherent attention to the real problems and needs of the respective industries. For example, there is no coherent textile policy of this description, of which the Buy American requirement on textiles is a part; nor a coherent specialty-metals policy, of which the Buy American rule on specialty metals is a part. Nor does the government know what the Buy American strictures in defense procurement cost, their contribution to the strength of these industries, how long these measures may be needed, what alternative or supplementary measures may merit adoption, and why "micro", specific-product Buy American requirements are needed over and above the "macro" rules of overall Buy American standards. Instead of coherent, cost-efficient strategies addressing the real problems of industries meriting government help, we have simplistic, costly concessions to political pressures for government protection against foreign competition -- and (with some exceptions) retention of these measures year-in and year-out, no matter the need for an all-out effort to solve industrial problems, increase industrial productivity, reduce subsidies, combat inflation and use most efficiently and productively the funds provided by American taxpayers. The cost-increasing, inflationary implications include the tendency of Buy American strictures to increase costs for U.S. manufacturers who (to the extent that these strictures do not deter them from using imported materials in the production of such items) are determined to bid on defense contracts for any of the affected products and may find it necessary to incur special inventory and other expenses where production for defense contracts must be kept separate from nondefense production. To the extent that these industries are essential to national security, there is all the more reason to deal incisively with their real problems. Subsidizing such industries through the Buy American requirements now in effect is thus, not only bad economics and shabby politics, but badly conceived attention to the mobilization base. To the extent that these industries need government help, such assistance should take the form of redevelopment strategies designed so to strengthen these sectors of the mobilization base that these industries might become viable without barriers against foreign competition (assuming they are not in this condition now). To the extent that any of these industries cannot survive without import barriers of some kind, yet must be preserved for legitimate national-security purposes, the American people have a right to know how, and how effectively, these import restrictions are helping to cure whatever problems warrant such government aid, and at what cost to the taxpayer. Easy recourse to import restrictions tends to divert attention from the tougher, more responsible task of carefully diagnosing the real problems and needs of industries that may need and merit government help. It is policy laziness we can no longer |