industry/Business
Carbide defends multinational companies Report attacks claims that multinational firms are diluting U.S. exports, transferring jobs overseas, and evading U.S. taxes Union Carbide, whose $907 million in sales from foreign operations and whose $262 million worth of exports last year certainly qualify the company as a mul tinational corporation, has joined the growing ranks of companies, trade as sociations, and government agencies that have issued studies on multina tional company operations. Last week, at the prestigious Interna tional Club in Washington, D.C., Car bide unveiled a thick, chart-laden report detailing the favorable impact that the company's international operations have had on the domestic economy and domestic employment. Armed with the report and an arsenal of flip charts, Car bide officials are thus throwing the com pany into the growing counteroffensive against organized labor, which claims that U.S.-based multinational compa nies are diluting U.S. exports, transfer ring jobs overseas, evading U.S. taxes, and throwing water on a drowning U.S. balance of payments. The chief weapon of the antimultinationals is the now famous HartkeBurke bill. Heavily backed by labor, the bill was introduced last year by Sen. Vance Hartke (D.-Ind.) and Rep. James Burke (D.-Mass.). Among other things, the Foreign Trade and Investment Act of 1972, as the bill is officially called, would eliminate credits for taxes paid to foreign countries, tax overseas earnings immediately rather than when they are returned to the U.S., restrict the use and licensing of U.S. patents, and limit U.S. direct overseas investment. Like its many predecessors, the Car bide report attacks what it calls the mis information, misconceptions, and myths concerning multinational operations. Contrary to one myth, according to the report, Carbide, as a matter of policy, never makes a significant foreign manu facturing investment until it becomes infeasible to supply and maintain the market with exports. Nor, as a matter of policy, does it build plants overseas simply to export back to the U.S. The single exception is a $250,000 invest ment in a Mexican electronics assembly plant that was built to meet increasing 8
C&EN Oct. 23, 1972
competition from the Far East and which saved, rather than eliminated, 150 U.S. jobs. Another myth, according to the Car bide report, is that foreign investment displaces U.S. exports. From 1951 to 1970, the period covered by the report, Carbide's exports increased 6.7 times while total manufacturing sales in creased only fivefold. In 1951, the com pany's exports amounted to only 5% of domestic production. Last year its $262 million in exports accounted for 11% of domestic production. In fact, Carbide's exports of $253 mil lion in 1970 were $90 million higher than they would have been without the com pany's foreign investments and, be tween 1951 and 1970, the cumulative in crease in exports as a result of overseas investment was $517 million. Carbide attributes this gain to the "pull effect" that its overseas presence has on U.S. exports. If Carbide, rather than a foreign
Union Carbide maintains strong trade surplus . . . 300 Union Carbide exports 200
1001 Union Carbide imports
0
1964
1966
1968
1970
. . wmie saies οτ roreign operations continue to grow sou
700
600
500 t
400< 0
1964
1966
1968
1970
ι Sales of Union Carbide's foreign manufacturing operations.
competitor, builds a plant overseas, says the company, the pull effect in the form of allied, intermediate, or accessory products that aren't manufactured abroad eventually develops and this re sults in increased exports from the U.S. This pull effect on U.S. exports is en hanced by the presence of a strong, lo cal, Carbide organization that can pro vide a broader, more effective marketing effort than can an export operation. Ex ports to areas where there are invest ments tend to be higher and have grown about as rapidly as exports to areas where there are no investments, says the company. In fact, Carbide claims that fully 57% of its 1970 exports went to for eign affiliates. The report emphasizes that organized labor is wrong in assuming that, if U.S. plants overseas were shut down, U.S. exports would automatically supply the market. Instead, Carbide's experience shows that the business would fall to a foreign competitor. And labor is wrong when it says that overseas investment destroys U.S. job opportunities, claims Carbide. Instead, the pull effect on Carbide's exports has created an estimated 2000 domestic jobs —jobs that would not exist had not the company's foreign investments pulled exports upward by $90 million in 1970. And Carbide thinks that the benficial effect on U.S. employment may be even higher than this. Its calculations are based on sales dollars. On a sales volume basis, which can't readily be calculated because of product mix, the employ ment effect may even be greater because Carbide's average selling price in 1970 was more than 20% lower than its 195759 average. Not only has the pull effect of foreign investment helped to create domestic jobs within Carbide, it also has helped the company to compile a favorable trade surplus and a favorable company balance of payments. Compared to $253 million worth of exports in 1970, Car bide's imports were only $41 million, which is less than 4% of total domestic purchases. Moreover, these imports are beneficial because they are raw materi als that go into job-creating finished product manufacture. And equally im portant, the excess of exports over im ports gave Carbide a $211 million trade surplus in 1970. A major element in Carbide's balance of payments and analysis is the amount of money it sends overseas for plant ex pansion. In 1970, that amount was $8.7 million and for the past 10 years the total was $84 million. However, in the
past decade, Carbide's foreign affiliates invested a total of about $600 million, most of it from foreign sources, retained earnings, and depreciation. Throughout the sixties, less than 11% of total foreign investment funds came from the U.S. During the same period, total worldwide (including domestic) construction expenditures were $3.2 billion and only 2.6% of this amount represented U.S. funds sent out of the country. Balancing this outflow of U.S. funds, Carbide receives a much higher return flow from its foreign investments. In 1970, Carbide's return after taxes from dividends, service fees, and royalties exceeded investment outflow by $19.9 million. Between 1966 and 1970, the five-year return from foreign operations exceeded outflow by $71 million. Overall, Carbide's own balance of payments surplus in 1970 was $236 million and, for the sixties as a whole, Carbide estimates that it bolstered the country's balance of payments position by about $1 billion. In its report, Carbide takes a verbal swipe at the tax provisions of the Hartke-Burke bill. They would, says Carbide, produce double taxation contrary to international principles and treaties. In Carbide's own case, these provisions would have meant, in 1970, that about 79% of all foreign income before tax would have been paid out as tax. Obviously, says Carbide, this rate would kill existing investments and make future investment impossible. As it is, the company's share of total income and withholding taxes paid to foreign governments by its international affiliates between 1966 and 1970 was $196 million, equivalent to an average rate of 52.5%. This is slightly higher than the domestic U.S. rate, and says the company, indicates that multinational companies do not invest abroad just to escape U.S. taxes.
Microbial pesticides: cooperation urged With broad-spectrum chemical insecticides coming under increasingly heavy attack from environmentalists and conservationists—and also coming under increasingly strict regulation by government agencies—the possibility of manufacturing safe, highly selective microbial agents would seem to offer a golden opportunity for beleaguered pesticide makers. Research has turned up hundreds of bacteria, viruses, fungi, protozoa, and nematodes that afflict insects. Many of these show promise—in the laboratory— of being useful weapons in the fight against insect pests. Yet there are, today, only a very few microbial control agents commercially available in the U.S. And no others are near commercialization. High development costs and apparently limited markets are retarding the
development of microbials. One approach to alleviating this situation was offered at a recent conference on microbial pesticides held in New York City and sponsored by the New York Academy of Sciences. Dr. Martin I. Rogoff, who works on microbials for International Minerals & Chemical Corp., suggested at the meeting that the government share some of the development costs with industry, that industry have a greater role in their regulation, and that there be greater governmentindustry cooperation in testing them. First of all, Dr. Rogoff says, R&D in the pesticide industry in general is becoming more costly and also more timeconsuming. He cites a study made by Richard Lindstead, director of marketing for Elanco, Inc. Mr. Linstead's survey of pesticide makers shows, for example, that the discovery-to-market time for a candidate pesticide rose from an average 60 months in 1967 to 77 months in 1970. In the same period, costs increased some 60% to an average $5.5 million, and the average number of compounds screened to yield one commercial product went from 5500 to 7500. "Against this background, let's look at the situation for the development of a microbial insecticide," Dr. Rogoff says. "There is no indication at all that the costs of developing and clearing a microbial will be in any way less than for a chemical; they may well be higher." And "even if we assume that the prospects for a chemical insecticide—let us suppose one of a selective nature—are something less than optimistic at the moment, such a compound is at least patentable." The microbial, being a preparation of a natural organism, is not patentable. From the marketing standpoint, one of the microbial's chief virtues—selectivity—is really a drawback. For a chemical insecticide, Dr. Rogoff says, minimum annual sales of somewhere between $2.5 million and $10 million are needed to provide a worthwhile return on investment. These figures are just as applicable to a microbial—which may have even higher manufacturing and inventory costs—but the market for a highly selective microbial may be considerably smaller than for a broadspectrum chemical. And without assurance of a sufficient market, producers are naturally reluctant to commit themselves to large expenditures on products six or seven years away from returning their first sales dollar. The results of current regulatory activity also play a role, Dr. Rogoff points out. "We are faced with a requirement for an increasing amount of field work for demonstrating efficacy. The requirements for pharmacological and toxicological data to demonstrate product safety also have increased. Both add to the cost of bringing an insecticide to market." In addition, he says, reexamination of existing registrations has sidetracked manpower normally in-
Rogoff: middle ground must be sought volved in new product R&D "into a defensive type of research effort required simply to retain current registrations." What, then, can be done to alleviate the situation? "First, all concerned sectors must admit that it is rapidly becoming impossible for industry to carry the ball alone. We must also admit that the Federal Government can't do the whole job either. Some middle ground must be sought, " he says. For one thing, Dr. Rogoff suggests, it might be possible to reduce one of the major expenses to industry in the development of microbial insecticides— the cost of the safety evaluation required to obtain clearance. If part of that cost were borne by the Government, "then both the economic and time-tomarket aspects of microbial insecticide ventures might become more attractive." It might also be beneficial, Dr. Rogoff adds, if industry had a greater voice in formulation of regulations for microbials. Although there are good reasons for considering microbials in the same light as chemical pesticides, he says, there are also reasons for giving them special consideration, especially as certain microbials prove useful as single specific factors in integrated programs—for example, cotton pest management. "It may be," Dr. Rogoff told the conference, "that a cooperative pattern is emerging informally." He cites the recent introduction of Bacillus thuringiensis to control the gypsy moth in the Northeast—a new use for an "older" microbial. That effort required largescale field trials, he notes, extremely difficult for a single registering party or individual company to carry out. "The pattern that emerged was the assumption by a federal agency of the role of overall coordination. State agencies cooperated in physically performing the trials. Industrial people worked to provide suitable formulations for low-volume applications to forests. Evaluation was a joint effort of state agencies and university investigators." Thus, the costs were spread. Also, Dr. Rogoff observes, "A pattern for cooperation in at least one phase of microbial insecticide development may have been pointed out for future products." Oct. 23, 1972 C&EN
9
