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KEY POLICY ISSUES 142 invoke the argument for national security with the same force that applies to large transports. Helicopters represent a special area of technology. Their importance to national security is clear. The growing success of foreign competitors, which is based partly on U.S. technology, is also clear. It would appear that foreign nations have been more adroit at stabilizing military procurement and phasing it with civilian sales. In the United States, military helicopter development has diverged from dual-use concepts, and although the state of the art has been maintained, the cost of commercial development has increased. Attainment of dual-use capability warrants reexamination for military helicopters that are designed for transport use. This study has identified six key policy issues to which attention should be given by government, industry, and organized labor. TRADE POLICY International competition in aircraft production has crossed a watershed; it has moved from being almost a contradiction in terms to something of major concern. As this study has noted, the U.S. aircraft industry is now often in virtual competition with governments, not just with private commercial enterprises. Foreign governments are deeply involved in the financing of design, development, production, marketing, and sale of aircraft. They assume some or all of the financial, technological, and market risk associated with these endeavors. In parallel, they exert political pressures during the purchase of aircraft by their own and other airlines. Furthermore, they do not necessarily judge success or failure by the normal commercial standards of market acceptance and return on investment that apply to the U.S. private sector. Their criteria include national prestige, creation of an indigenous technology and production base, provision of employment and training of the work force, substitution for imports, evolution from a low-technology to a high-technology economy, and preservation of foreign currency. These directed efforts apply to commuter aircraft, helicopters, and business jets as well as to large commercial transports and their engines and components. The increased competitive strength of foreign manufacturers is appearing at a time of declining U.S. dominance and leadership in world markets and is fostering disturbing U.S. pressures to increase protectionism. In the coming decade 60 percent or more of the world aircraft market for large civil transports will be outside the United States. These export markets were previously dominated by U.S. manufacturers. This fact alone supports the
KEY POLICY ISSUES 143 conclusion that pursuing an effective U.S. trade policy to permit U.S. manufacturers to enter and compete on a fair basis is essential. Developing countries represent one of the major growth markets for aircraft. The general trend of increasing the barriers for exports from developing countries to the United States and other industrialized nations may result reciprocally in a severe impact on U.S. aircraft exports to these markets. The ability of developing countries to import is critically dependent on their ability to finance the purchases with exports. Otherwise they cannot generate the foreign currency to purchase aircraft and other goods and services. This increases the importance of trade for the developing countries and demonstrates the significance of financing as a competitive weapon. Thus, there is the need to increase the priority for a well- articulated, comprehensive, timely foreign trade policy toward developing as well as developed nations. U.S. international trade policy in high-technology industries is being forced to focus on a new set of issues. The central issues in earlier multilateral negotiations in the postwar period, e.g., the Kennedy and Tokyo Rounds, were tariff reductions (however, Tokyo did address nontariff issues as well). Tariffs are not now the central trade policy issues in aircraft and other high-technology industries. Instead, nontariff barriers to market accessâsuch as governmentally directed procurementâor more subtle forms of foreign government subsidy are the central issues. This new form of international competition in high-technology industries was the basis for the Agreement on Trade in Civil Aircraft that was negotiated in parallel with the final set of Tokyo Round talks. However, nontariff barriers and some forms of subsidy are far less visible and much more difficult to monitor than are tariffs, e.g., cross-trading, grants, deferred paybacks, special grants and services with no costs or below-market costs, and contingent sale of military aircraft. The position of the United States on subsidizing higher-technology development provides competing nations with a basis for justifying their forms of subsidy. The long, productive relationship of NASA, its predecessor NACA, and the aircraft industry is one example. Similarly, historical examples of spinoff to the civilian sector from military development and procurement provide further ammunition to other nations in the negotiation over trade. U.S. trade policy for aircraft, and other industrial products as well, has focused on defining the frameworkâthe rules of conductâunder which both industry and governments are expected to operate. In that process, the U.S. government has had as its primary objective insuring that U.S. industry had the opportunity to compete on fair terms in the international markets.
KEY POLICY ISSUES 144 The new impediments to trade admit of a virtually infinite variety of obstacles. Thus, continued focus of U.S. trade policy on a careful specification of the ''rules of the game" is open to difficulties in today's operating environment. The high visibility of tariffs in the past meant that enforcement of trade agreements was a relatively simple undertaking. Faced with a broad and constantly changing array of foreign nontariff barriers, U.S. trade policy now must devote a much higher level of resources and attention to the monitoring and enforcement of multilateral agreements on the rules and actual practice of the gameâand with a growing list of competitor nations. The relative ease with which nontariff barriers may be altered and manipulated means that U.S. trade negotiators, and the agencies that support them, need the resources to delineate acceptable and unacceptable practices in an arena where international competitors are continually seeking ways of avoiding the restrictions of multilateral agreements in order to gain commercial advantage. This administrative support structure must also have the resources to marshal evidence regarding practices being followed. Recent steps to strengthen the resources for monitoring compliance and for discussing problems with trading partners are a hopeful signal of increased priority on trade issues. In order to insure stability and consistency it is important for the value of the work to be so broadly accepted that it will not be undone by a subsequent administration. The present staff is to be commended for its competence and commitment, but it faces a monumental task in monitoring, data gathering, and analysis. An effective trade policy must include institutional arrangements to insure that balance is achieved among differing and conflicting policy objectives, and that mechanisms exist for rationalizing and coordinating the policy balancing process. Consideration should also be given to the development of a broader arsenal of response mechanisms, such as temporary tax, financial support, or import limitations, that would permit more carefully targeted responses. The development of greater flexibility in timeliness of responses also warrants study. This step requires greater foresight by the private sector and continuing effective relationships between the trade administration and the private sector. The rapid pace of commercial transactions can easily render an eventual response useless unless administrative action matches the pace of commerce. The situation with respect to Eximbank policies and procedures reflects the greater ambivalence and lower priority associated with international trade in the United States. The commitments of the bank represent a potential drain on the U.S. Treasury, and in a time of huge deficits all such potentials warrant careful scrutiny, Nevertheless, competition over the terms of financing
KEY POLICY ISSUES 145 is often central in international sales of aircraft. The present ingenuity being demonstrated by both financial institutions and aircraft manufacturers in devising new financial instruments, new leasing conditions, creative use of insurance, increased use of international sources of capital, and conversion into currencies that aid repayment is to be commended and should be continued. However, the importance of Eximbank as a lender and guarantor requires that it have both the lending conditions in terms of payback period, interest charged, percent of assets covered, frontend money, etc., and the administrative practices, especially with respect to support of smaller transactions, that can match competition. In order to be effective, Eximbank needs to have available mechanisms and administrative practices that provide a credible force for achieving the basic U.S. position, which is to insure that international market rate and market terms apply equitably to all transactions. The more evident and credible the arsenal of responses available, the more likely that the market will discipline itself. One especially troublesome aspect of financing involves competition with international suppliers for domestic sales. If the mechanisms permit it, domestic airlines will seek to stimulate below-market financing from foreign vendors to force better terms from domestic suppliers. Mechanisms and policies must be developed to uncover and counter such practices. The development and administration of an effective trade policy requires that all involved interests be balanced to resolve policy issues facing our government. The panel supports the recent consensus expressed by the National Research Council Panel on Advanced Technology Competition and the Industrialized Allies that recommended in part that "the federal government should initiate a biennial, cabinet-level review to assess U.S. trade competitiveness..." and that this review "...should be supported by a continuing mechanism that would draw on expertise both from within the government and from outside.1 Beyond the restructuring of the policy process, however, the panel supports the scrutiny and political debate now beginning on the entire subject of trade policy. A more strategic approach may well be necessary for the United States to achieve both better focus and better differentiation among industrial sectors regarding their importance to international trade and the differences in competitive environment within which they operate. In so doing, it is important to include in the deliberations an informed awareness of the balances achieved by our international commercial competitors. It is apparent that the governments of the countries in which they operate have attached greater weight to trade success than has the United States.
