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AGENDA REGIONAL MEETING OF THE MCA BOARD OF DIRECTORS 9:00 a.m., Wednesday, March 13, 1974 Del Monte Lodge, Pebble Beach, California j Opening Remarks and Introduction of Guests < Minutes of Meeting of February 12, 1974, Including Financial I Statement for Eight Months ended January 31, 1974 jU< t Business Items: (a) Report of the Membership Committee (1) NIPRO, INC. (2) Weyerhaeuser Company, Chemical Division (b) Proposal to Retain Economic Consultant to Supply Chemical Industry Data in Reference to the Pending Industrial Reorganization Act (c) Proposed MCA Position Paper on Multinational Chemical Companies (Mailed to Directors on January 22, 1974) (d) Appointment of Committee Members IV. Special Report Relating to EPA Effluent Limitations Guidelines for Chemical Manufacturing - Mr. George J. Hanks, Jr. V. Report on Meeting of Executive Committee Members with EPA Administrator Train VI. Report of Director of Government Relations | VII. Report of the President VIII. Remarks of Guest Speaker - Mr. Charles de Bretteville, Chairman and Chief Executive Officer, The Bank of California (Attachment) (Attachment) (Attachment) ^'ext Meeting of the Board of Directors - 3:30 p. m. , Monday, April 8, 1974, 7he Madison, Washington, D. C. CMA 036319 1456 MINUTES of the two hundred twenty-ninth meeting of the Board of Directors of the Manufacturing Chemists' Association, Inc. , held at the Del Monte Lodge, Pebble Beach, California, Wednesday, March 13, 1974, at 9:00 a.m. There were present: Directors Warner C. Brown, Chairman Harold E. Thayer, Vice Chairman Warren M. Anderson Harry W. Buchanan James A. Hughes William W. Huisking C. C. Candee Edward R. Kane E. E. Chipman Lloyd G. Lillico Thomas C. Dabovich Robert H. Malott George S. Dillon Harry D. McNeeley William C. Douce Robert L. Mitchell William J. Driver Carl A. Gerstacker Robert M. Morris Donald D. Pascal James M. Gill John R. Hall Robert T. Powers Peter C. Reilly John W. Hanley George W. Russell John M. Henske Jack B. St. Clair Alternates: l James G. Affleck (for George W. Russell) William H. Bricker (for James A. Hughes) J. Earl Burrell (for Joseph A. Neubauer) Orell T. Collins (for Robert T. Powers) C. Preston Cunningham (for John W. Hanley) Leo H. Johnstone (for William C. Douce) Gordon Kiddoo (for Donald G. Stevens) James E. Magoffin (for Harry D. McNeeley) John M. Martin (for Werner C. Brown) Thomas E. Reilly, Jr. (for Peter C. Reilly) William S. Sneath (for Warren M. Anderson) Raymond C. Tower (for Robert H. Malott) E. A. Von Doersten (for John R. Hall) General Counsel: Lloyd Symington Secretary-Treasurer: George E. Best By invitation: David B. Barlow, Chevron Chemical Company R. L. Brandenburger, Monsanto Company David N. Clark, Neville Chemical Company E. Philip Comer, Foote Mineral Company Herschel H. Cudd, Amoco Chemicals Corporation B. B. Daily, The Dow Chemical Company CMA 036320 Lee V. Dauler, Neville Chemical Company Charles de Bretteville, The Bank of California T. P. Dougan, The Upjohn Company K. R. Fitzsimmons, Shell Chemical Company William J. F. Francis, Kerr-McGee Chemical Corp, John L. Gillis, Monsanto Company Roger W, Gunder, Stauffer Chemical Company G. J. Hanks, Jr. , Union Carbide Corporation Norman J. Hearn, Union Carbide Corporation T. G. Hughes, Chevron Chemical Company Emerson Kampen, Great Lakes Chemical Corporation James W, Kent, Chevron Chemical Company A. T. Look, The Dow Chemical Company H. Barclay Morley, Stauffer Chemical Company John Morrisroe, Pilot Chemical Company Thomas B. Nantz, The B. F. Goodrich Company R. E. Nippes, PPG Industries, Inc. , Chemical Division Donald C. Oskin, FMC Corporation, Chemical Group William K. Park, E. I. du Pont de Nemours & Company George L. Parkhurst (Retired), Chevron Chemical Company D. C. Phinney, Productol Chemical Company L. John Polite, Jr. , Essex Chemical Corporation George F. Polzer, Witco Chemical Corporation R. Prideaux-Brune, Chevron Chemical Company Luther S. Roehm, Merck 8t Co. , Inc. Fred Rosewater, FMC Corporation, Chemical Group John Rutherford, Hooker Chemical Corporation Walter H. Sachwitz, Airco, Inc. R. Thorn Savage, Standard Oil Company of California Burwell G. Shepard, Jr. , Rohm and Haas Company William M. Stover, MCA H. O. Thomas, Stauffer Chemical Company Norman J. Travis, United States Borax & Chemical Corporation E. A. Viatica, Witco Chemical Corporation Harry B. Warner, The B. F. Goodrich Company Chairman Brown welcomed all to the Board's West Coast Regional Meeting, thanked the host companies and committees for their part in making it a most enjoyable occasion, and called for self-introduction of those present in turn. CMA 036321 1458 I. MINUTES OF FEBRUARY 1Z, 1974, MEETING Minutes of the February 12th Board meeting, as distributed, which included the financial statement for eight months ended January 31, 1974, were duly approved. II. REPORT OF THE SECRETARY-TREASURER Exhibit A, attached hereto. m. BUSINESS. ITEMS (a) Report of the Membership Committee As chairman of the Membership Committee, Mr. Candee reported the committee has examined the qualifications of two applicants and recommends their election. ON MOTION, duly made and seconded, it was, VOTED: That the following be elected to membership in the Association: NIPRO, INC. Weyerhaueser Company, Chemical Division (b) Proposal to Retain Economic Consultant to Supply Chemical Industry Data in Reference to Pending Industrial Reorganization Act Subject proposal, made jointly by the Economic Policy Review Committee and the Legal Advisory Committee, was furnished in advance with the tenta tive agenda. In reporting on the Executive Committee's favorable recom mendation, Chairman Brown indicated members of the Executive Committee place principal emphasis on updating the chemical industry statistics assem bled some years ago by Jules Backman for general use as needed, rather than primarily in connection with pending legislation. ON MOTION, duly made and seconded, it was, VOTED: That the proposal to retain an economic consultant to supply chemical industry data as outlined in Exhibit B, attached hereto, be approved. CMA 036322 1459 (c) Proposed MCA Position Paper on Multinational Chemical Companies This proposed position paper was mailed to Directors on January 22, 1974. Chairman Brown reported it has been considered and favorably recommended by the Executive Committee. ON MOTION, duly made and seconded, it was, VOTED: That the position paper, "Multi national Chemical Companies - A Positive Economic Force for the Nation," attached hereto as Exhibit C, be approved. (*) Appointment of Committee Members approved as listed in Exhibit D, attached hereto. Appointments were IV. REPORT ON MEETING OF EXECUTIVE COMMITTEE MEMBERS WITH EPA ADMINISTRATOR TRAIN Distributed with the agenda was a record of the meeting of Execu tive Committee members with Russell E. Train, Administrator, Environmental Protection Agency, at his invitation, on February 21, 1974. This record, in cluding Dr. Kane's prepared remarks and Mr. Driver's follow-up letter dated February 27, is attached hereto as Exhibit E. Replying to a question about Mr. Train's reaction to the forceful industry presentation, Chairman Brown assessed it as sympathetically favor able, but with little inclination to depart from a relatively rigid pattern for ef fluent guidelines. Mr. Train's professed ignorance of MCA past criticism and recommendations was taken to manifest faulty internal communication within EPA. Mr. Train was said to be undisturbed by the possibility of legal challenge in this connection. V. SPECIAL REPORT RELATING TO EPA EFFLUENT LIMITATION GUIDELINES FOR CHEMICAL MANUFACTURING As indicated in Exhibit F, attached hereto, Mr. G. J. Hanks, Jr. (Union Carbide Corporation) reported on circumstances leading to legal action by a number of chemical companies, collectively and separately, contesting the present course of effluetit guidelines development and seeking judicial review. Specifically, the suits already entered pertain to guidelines for inorganic chemicals manufacturing, already published, with similar action contemplated for the organic chemicals and plastics categories when these guidelines issue if they are likewise unacceptable. CMA 036323 1460 Mr. Hanks expressed conviction that there is ample basis for challenging the inorganic chemicals guidelines on technical grounds, and that a sufficient number of companies is involved to bring out all of the points of criticism to be made. Chairman Brown indicated there is no present plan to have MCA enter into this litigation. Comments of several Directors from companies not now participating made it clear that they would appreciate an arrangement whereby other MCA members can be apprised of developments. Accordingly, ON MOTION, duly made and seconded, it was, VOTED: That Mr. Symington establish liaison with the legal firm handling the companies' suits against EPA on effluent limitation guide lines for chemicals manufacturing, in order to serve as a point of reference for information and guidance to interested member companies. Chairman Brown also urged that member companies inform Mr. Driver of actions taken on this matter. VI. REPORT OF DIRECTOR OF GOVERNMENT RELATIONS Mr. Stover's report is attached hereto as Exhibit G. Referring to pending trade legislation and, in particular the aspect of export controls, Chairman Brown indicated that if queried at Senate hearings, the Chemical Industry Trade Advisor plans to respond that the chem ical industry opposes all types of control. VII. REPORT OF THE PRESIDENT Mr. Driver supplemented his Staff Report, attached hereto as Exhibit H, with a brief description of research projects - concerning environ mental or occupational aspects of fluorocarbons, phosgene, and vinyl chloride, funded by voluntary subscriptions from both member and non-member com panies, being conducted under MCA administration. Findings in each case will be publicly disclosed. VIII. REMARKS OF GUEST SPEAKER As arranged at the behest of the Program Committee, Mr. Charles de Bretteville, Chairman and Chief Executive Officer, The Bank of CMA 036324 1461 California, addressed the Board on the current and prospective economic cli mate on the West Coast. His prepared remarks are attached as Exhibit I, &$* Chairman Brown adjourned the meeting with an expression of appreciation to Mr. de Bretteville and to all in attendance for their participa tion. / ~,CC L.j i. } ') .V * * George E. Best Secretary-Treasurer Certified correct: Werner C. Brown Chairman of the Board CMA 036325 EXHIBIT A REPORT OF THE SECRETARY-TREASURER March 11, 1974 Dollar amounts rounded from tabular details ($000) INCOME & EXPENSE June 1, 1973 - February 28. 1974 - 9 months (757.) Income - Membership Fees Other $1,767 263 $2,030 Expense - Operations Projects $1,362 136 $1,498 Percent of budget 100.113% 103.14% 100.49% 73.74% 47.89% 70.30% ASSETS (As of February 28. 1974) Cash Investments Miscellaneous I $ 71 2,230 4 $2,305 CMA 036326 A BALANCE SHEET Assets Cash national Saving* A Trust - Commercial Account National Saving* & Trust - Payroll Account Imprest Funds (Patty Cash, Chem. Forum Luncheon Fund A Postage) Investments Bank Certificate of Deposit U. S. Government Securities U. S. Government Agency Securities Corporate Securities 'Deposits U. S. Government Printing Office American Airlines Accounts Receivable Travel Advances 0C1TA MANUFACTURING CHEMISTS ASSOCIATION SUitMLNI OJ KIMf\Nt;|l KUMliON February 20, 1974 63,556 6,000 1,800 71,356 $ 100,000 997,373 777,109 355,300 2,229,782 200 425 62S 663 2,159 2.822 $2,304,585 1NC0KE A EXPENSE To Date 9 Months INCOME Membership Dues A Entrance Fees Income from Investments Publication Sales *{l)Meetings A Special Funds (Schedule I (d)) Miscellaneous Total Income $1,767,156 126,631 69,368 66,653 193 $2,030,001 EXPENSE Management *(2)Technical - General Technical * Chemtrec Public Relations Government Relations Information Service Office Administration Total Expense *(3) Income less Expense $ 303,155 429,565 119.708 303,451 153,232 53,020 135.708 $1,497,839 $ 532,162 Budget Foe Year $1,765,000 120,000 82,000 53,000 $2,020,000 $ 371,690 664,420 158,490 442 ,050 235,270 75,480 183,290 $2,130,690 $ (110,690) CMA 036327 Liabilities D. C. Use Tax Reserve Deferred Compensation Liabilities A Fund Balances $ 75 100,000 Fund Balances Restricted (Schedule I (e)) $ 350,192 Unrestricted - From Previous Fiscal Years $1,322,156 - Current Fiscal Year ,, - 532,162 1,854,318 2,204,510 $2,304,585 FOOTNOTES: *(i) Net Income on Completed Projects *(2) Budget increase approved by Board of Directors October 1973, for support of the Office of the Chemical Industry Trade Advisor (OCITA) $70,000 *(3) Total General Program Expense to Date Fiscal Year 1973-74 Budget Program Expense (above) Expenditures from Project Funds carried over from previous Fiscal Year (Schedule 1 (c)) $1,497,839 t ,000 $1,498,639 SCHEDULE I RESTRICTED FUNDS & MEETING ADVAHCES February 28, 1974 Carrv-Over of Budgeted Funds Information Service Hon-Budaeted Funds & Meetings Meetings, Workshops & Symposia Tank Car Mileage Compensation Epidemiological Investigation Odor Threshold Determination fund Mercury in the Environment Vinyl Chloride Research - Inhalation Vinyl Chloride Research - Epidemiological Riosgene Safety Research Fluorocarbons Research Phthalate Esters Research Total - Non-Budgeted Funds &Meetings Plastics Croup Financial Package Balance June 1. 1973 U> $ 1,000 Receipts <b) $1 Current Fiscal Year Expenditures (c) $ 1.000 Transfers To Income (*> ii Balance February 28.1974 (e) $ $ 71,928 27,395 4,797 3,632 62,852 34,095 6,000 16,000 $226,699 $ 80,502 $141,794 1,148 (2.667) 1,400 (3,114) 62,500 91,940 3,500 104,000 2,000 $402,501 $ 60,000 $126,544 4,195 2,130 1,400 518 42,307 49,213 17,087 67,110 2,676 $313,180 $ 66,653 - $ 66,653 $ 39,677 $ f $ 20,525 24,348 83,045 42,727 20,508 42,890 15,324 $249,367 $100,825 CMA 036328 SCHEDULE II BUDGET PROCRAH EXPENSE ,,,, , Actual Employee* ( AuthotU(wJ MANAGEMENT EXPENSE 10 BUDGET 10 TECHNICAL GENERAL CHEKTREC EXPENSE BUDGET EXPENSE BUDGET 19 7 18 7 PimiTr REI-ATltlKK EXPENSE 12 BUDGET 12 OOlt'rEELATIONS EXPENSE 9 BUDGET 8 INFO SERVICE EXPENSE 3 BUDGET 3 OFFICE EXPENSE 11 ADMIN BUDGET 11 TOTAL TO DATE 9 MONTHS EXPENSE BUDGET 71 69 OPERATING EXPENSE Salaries A Related Expeme letiriacnt Plea Hoep. In*. 4 Health plan U|l Faa* 4 Expense Consultants&lnveatment Serv. Audit Rant 4 Premises Expenaa Taxea 4 Insurance Supplies 4 Gen. Office Exp. Furniture 4 Equipment Printing Telephone 4 Telegraph Poetag* Travel 4 Entertainment Heating Expense $181,761 $iei,*ia 20,014 14,942 1,549 2,451 $8,294 19,875 - 1,875 $255,558 $253,312 21,141 32,236 1,042 4,200 1,090 7,500 "" $ 76,610 $ 74,775 -- 486 1,560 -- -- 2,750 8,488 4,961 4,106 520 1,725 8,558 5,917 1,750 750 . 16,696 9,509 12,429 1,003 16,911 10,672 10,275 1,050 . 4,835 22,400 1,796 499 a. 4,882 18,397 2,400 750 2,128 1,506 1,640 4,485 5,429 1.S00 4,065 1,687 3,750 8,250 . 8,885 14,249 15,168 507 . 7,545 14,625 18,000 675 10,732 161 1,671 . 11,028 675 2,063 - $140,760 $142,650 8,914 1,693 . 11,325 2,715 . -- $ 96,840 $111,000 6,319 12,757 838 2,025 11,208 11,250 -- $ 15,736 $ 16,075 6,342 7,778 471 885 . a. -- _ 14,326 5,760 6,243 124 _ 14,415 7,132 6,450 562 _ 8,285 4,535 4,248 - 8,348 4,755 4,875 175 5,231 1,496 488 56 5,243 1,770 525 517 1,363 6,117 24,878 18,018 S3 2,511 5,228 24,750 16,875 547 417 4,265 3,777 5,618 1,380 525 T ,480 4,125 4,875 1,500 42 1,005 515 533 - 1,162 900 750 - $ 94,945 $ 90,225 4,530 6,693 1,380 2,385 -- 12,319 6,054 4,695 5,587 _ 12,405 6,525 6,187 4,635 $ l ,009 1,526 1,515 39 - 750 4,642 750 150 - 882,210 $ 69,280 9,459 70,592 - 2,750 70,180 54,717 34,005 7,789 7,159 38,216 46,935 45,532 7,399 889,275 99,751 16,221 38,625 1,875 1,725 70,763 55,169 34,462 8,639 5,588 19,150 47,512 46,463 10,972 Periodicals, Books, etc. Organisational Memberships Contingency 2B2 1,421 1,619 300 2,063 3,750 992 2,575 ** 1,125 1,912 - 260 261 1,071 1,125 5,226 5,625 1,066 975 58 75 752 750 276 937 39 10 - "- -- 34 60 8,931 9,473 75 60 5,196 5,827 - - 1,619 3,750 Operating Expense Totals $101,155 $278,768 $164,844 $180,040 $119,708 $118,868 $212,122 $217,017 $153,232 $176,452 $ 53,020 $ 56,610 $135,708 $137,467 $i .161,969 $1 ,385,242 raojEcrs Technical Mr Quality Water Resource Kult1-CoMaittee Transportation Mult 1-Co--it tea Publication! * Trade Advlaor 227 10,000 1,474 23,020 10,000 15,000 11,250 2,025 17,500 52,500 227 10,000 1,474 23,020 30,000 15,000 11,250 2,025 37,500 52,500 Public RelatL^nq Co--unity galat Iona Consumer Information Environmental Quality Internal tab 1 ice t ion* Madia Relatione Audio/Visual Academic - Indue try Study Collage 4 High School Awards Education Exhibits Education Publications 8,910 11,209 15,881 14,959 5,619 - 1,621 1,225 1,953 7,750 9,750 18,000 18,000 16,500 4,500 2,250 1,500 9,750 3,000 11,250 8,910 11,209 15,883 14,959 5,619 - 1,621 3,225 1,953 7,750 9,750 18 ,000 18,000 16,500 4,500 2,250 1,500 9,7 50 3,000 11,250 Project Totals $$ $ 64,721 $118,275 $ -$ - $ 71,129 $ 94,500 $ -$ -$ -$ -$ $ $ 135,650 $ 212,775 COMBINED TOTALS o > oC0l $101,155 $278,768 $429,565 $498,115 $119,708 $118,868 $103,451 $111,517 $153,212 $176,452 $ 53,020 $ 56,610 $135,708 $137,467 $i ,497,039 $1, 598,017 * Reflects budget increase approved by Board of Directors October 19, 1971, Cor support of the Office of the Chemtcel industry Trade Advisor $70,000 * } EXHIBIT B Proposed Retention of Economic Consultant to Supply the Economic Data for the Chemical Industry's Position on the Industrial Reorganization Act (Hart Bill - S. 1167) LEGAL ADVISORY COMMITTEE ECONOMIC POLICY REVIEW COMMITTEE Senator Hart has introduced a bill (S. 1167) intended to facili tate the breaking-up of large corporations in a number of industries, including the chemical industry. Hearings before his Subcommittee cn Antitrust and Monopoly of the Senate Judiciary Committee began L?st year and will continue during this year and next. There have already been two series of hearings on the general merits or demer its of the bill, and one series devoted to communications, parti cularly the Bell System. A series on the automobile industry will begin February 26. The chemical industry is not likely to have its day in court for many months to come. While there is little prospect of the enactment of S. 1167 in its present form, there is a danger that some elements of it may become law. Moreover, the Hart hearings are a forum in which major industries are under public attack, and the chemical industry should be ready to defend itself. It is not possible at this point to pre dict the character of the hearings on our industry. As in the case of the Bell System, one major company may be chosen for attack. Or, =s seems likely to be the case with the motor industry, our entire industry may be exposed to rigorous review. It is not known at pre sent whether MCA will be asked to appear--nor has it been decided whether, if not asked, MCA would choose to volunteer its testimony. However, it seems to the above Committees the course of prudence to be prepared for ail contingencies. Accordingly, we propose that MCA engage Prof. Steven Lustgarten of Baruch college as a consultant to assemble and organize data demonstrating that the chemical indus try is not in need of deconcentration under Senator Hart's proposed "Industrial Reorganization Act" - that it is, in fact, highly com petitive, open to new entrants, and a force restraining rather than sustaining inflation (the detailed proposal of Prof. Lustgarten is appended) . The proposal is budgeted for a cost of $17,637. This figure does not include the cost of printing. The decision whether to print the study and in what form is a separate question, to be decided when it is completed. MCA EC - 2/12/74 BD - 3/13/74 CMA 036330 T EXHIBIT C MULTINATIONAL CHEMICAL COMPANIES A POSITIVE ECONOMIC FORCE FOR THE NATION CMA 036331 p. ?, The Multinational Company -A Positive Force in World Trade World trade has exerted, an increasing influence over all our lives in recent years. Although it is highly complex and difficult to understand, the world of exports and imports... of balance of payments... of exchange rates for the world's currencies... has a direct influence on our jobs, on our taxes, on the prices we pay for the things we buy, on the inflation ' that eats into our paychecks. The complexities of world trade today have brought with them the development of w'hat is generally ` called the "multinational company", or MNC. There are many definitions of the MNC, but for our purposes v/e have defined it here simply as a company which owns and operates manufacturing facilities in one or more countries outside its home country. In the pages that follow we attempt to explain the importance of the MNC and world trade by focusing on one industry -the chemical industry -- and by analyzing the world trade and investment activities of this important industry. We believe the facts show that the building and operation of overseas chemical plants by U.S. companies has been good both for the U.S. and for the host countries within whose CMA 036332 T U. S. Mu] i nut ion a 3 Chemical Companies . * ' ' * 1966 1970 (dollars in millions) They sold (in the U.S. and for export): $ 22,103 $ 28,213 They earned (after taxes): (which included, from foreign affiliates): 2,102 312 1,753 462 Their total assets were: 21,606 28,696 They exported: 1,640 2,143 (up 31ps) (about half of these exports were shipped to their own affiliates): 768 1,110 (some of these were intended for resale): 316 440 (some for further processing): 265 283 (and some was capital equipment for use by affiliates): S3 NA At the same time, they imported: 764 832 (up 9?) (of this, about one-third came from their own affiliates): 287 254 (and of the amount imported from other than their affiliates): 477 578 (two-thirds was raw material for further processing): 353 391 (and only one-third was manufactured goods); CMA 036334 123 188 Finished manufactured goods imported from the overseas affiliates of U.S. multinational chemical companies for resale in the U.S. thus amounted to: Less than 1% ' of the industry's domestic and export sales In the process of all this, they employed in the U.S, 665,000 . Nhile employing foreign nationals in their , overseas facilities numbering: 220,000 725.000 (60,000 new U.S. jobs) 250.000 (30,000 new jobs overseas) Source: Special Survey of U.S, Multinational Companies, 1970, U.S, I "Apartment oi Commerce, ha~s h~ington, 1). C., Tables 1, 2 , T~, 4 and 5, | *966 and 1970 (November, 1972). Data is for 41 U.S. chemical companies Classified as multinational companies. OnTy data for these 41 companies ls included in this tabulation. p. 4-1 Why Do Companies Become MNC's? i Typically, a U.S. chemical company takes the first step to < becoming a "multinational" corporation when it perceives a market: abroad for a product it makes and decides to export , that product, usually employing sales agents or brokers to do the selling. If the product fills a need, the export volume grows, resulting in increased production and more American jobs. (If it doesn't fill a need, the company soon drops out of that market). As the market grows, competitors are attracted; success 1 ,* spawns competition. To serve the newly developing market, the U.S. manufacturer then either tries to increase his exports., depending on his sales agents or brokers (and competing less and less successfully against aggressive local man ufacturers) , which is most often a losing fight, or is obliged, to continue participating, to establish local production and sales facilities of his own, becoming a true local supplier, able to offer the same (or better) service v and delivery as other competitors in that nation. The companies called "MNC's" have elected to go the, latter i route when exports from the U.S. are no longer competitive. Somewhat suprisingly they have discovered that establishing their own sales force and manufacturing facilities in a country almost always increases the expert of U.S. products to that country. CMA 036335 4. P- 4-2 Why do exports from the U.S. increase when a chemical company builds a plant abroad? Because *The company then has a more aggressive sales force devoting time to a single firm's products *These salesmen sell a variety of other products made and exported by the company in the U.S. so they can offer "a complete line" t9 *The local manufacturing plant often imports semi-manufactured r materials from the U.S. parent company for further processing. *The parent company and other suppliers send machinery and equipment for the new plant. These factors combined more than offset what would otherwise cause a decrease in exports as the result of foreign manufacture Thus, exports from a U.S. chemical company generally rise following the opening of an overseas plant, creating domestic jobs in the United States rather than eliminating them. When a Company Refuses to "Go Multinational" When a company decides not to build a plant in another country to supply the market it has helped develop, what happens? Usually local competitors *- firms from other countries, or firms native to the host country -- step in to take advantage of the situation; one or more such competitors build local CMA 036336 p- 4-3 plants and make and sell the product in question as a local supplier, outdistancing the exporter on a variety of counts. The volume of his exports dwindles; and often he is forced to withdraw from the market entirely. Many specific examples of the effect of a "no-go" decision of this sort have been docu mented. The net effect invariably is a reduction of the U.S. jobs involved in making the exported product. Fact: Most countries pursue policies aimed at providing jobs for their own populations. They therefore not only offer incentives to companies to build plants locally but adopt laws (tariffs, import quotasr deposit guarantees, and the like) which in effect force the building of local plants as the "entry ticket" required for participating in local markets. Thus building local production facilities is often the only means of participating in a given market on a permanent basis. Fact: Most U.S. chemical companies prefer to serve foreign markets by exporting the products of American plants, as long as foreign government regulations and competitive factors permit. Exports of chemical products from the U.S. grew by some 311 between 1966 and 1970 (see chart, p. 3). A substantial proportion of these exports are to overseas affiliates -- materials shipped to these affiliates for further processing. CMA 036337 i p. S-l How Important Are I'mports? Imports are as important as export:, in the overall economy of every country. Imports to the U.S., for example, pro vide foreign countries with dollars to buy American exports. And where these imports are injurious to the jobs of U.S. workers, safeguards are available. The U.S. chemical industry imports much less than it exports; it thus makes a positive contribution to the nation's balance of trade. But it does import a variety of key products, especially raw materials, without which it could not operate. The United States is lacking or deficient in important min erals such as chromium, manganese, and platinum, for example, and relies heavily on other # V CMA 036338 p. 5-2 countries for petroleum-based raw materials as well. The bulk of these imports is processed further in U.S. plants, providing jobs for American workers even us they also pro vide products for domestic sale anc exports. Imports, in sum, are important to U.S. jobs and to the U.S. standard of living. Are imports of Finished Goods By the U.S. Chemical Industry Significant? U.S. chemical companies typically import raw materials and some semi-finished products for further processing. They r also buy some semi-finished or manufactured goods for resale in the U.S. Raw materials make up about two-thirds of these ,t imports, and semi-finished or finished goods the other third. In total, however, imports of finished goods by the U.S., chemical industry amount to less than one per cent of their total sales. Another factor is "third country exports" -- products made in a second country by an affiliate of an American MNC and ex ported to a third country. Third country exports typically amount to 15 to 20 per cent of a foreign affiliate's sales-arid such sales often precede the establishment of another affiliate as a local supplier to another new market. CMA 036339 P- 6 DuPont ICI Hoechst BASF Bayer Union Carbide Montedison Akzo Rhone-Poulenc Dow Chemical Monsanto Ciba-Geigy I Shell Chemical Hoffmann-La Roche Allied Chemical Celanese Corp. Cyanamid Exxon Chemical Solvay Pfizer 1 OSM Merck Co. Hercules I Sandoz I Occidental Top 25 Chemical Companies 1972 (Dollars in millions) Sales $ 4,366 3,972 3,758 3,707 3,493 3,261 2,777 2,SSI 2,443 2,404 2,225 2,139 1,548 1,538 1,501 1,38S 1,359 1,327 1,180 1,093 1,056 958 932 901 ' 831 Net Profit $ 414 253 105 128 142 205 (782) 58 56 189 122 27 na 261 65 44 109 na 51 103 35 148 70 62 43 Capital Spending RGD $ 516 324 459 286 355 1 244 384 157 389 359 $ 255 145 141 124 3,75 70 95 90 124 105 168 92 194 135 249 na na 186 128 29 128 72 na 171 86 ' 90 69 7781 50 52 44 na 32 . 44 a 16 80 28 80 na \ (Identify foreign companies t printing in second color) CMA 036340 p. 7-1 How Competitive is the World Chemical Bu:;incss? Since most chemicals are sold in bull; ns commodities they are different from automobiles, sewing machines, and shoes because they arc not subject to changes in style, operating preferences CMA 036341 p. 7-3 Chemical MNC's and the U.S. balance of Payments U.S. chemical exports traditionally exceed imports, helping to compensate for deficits in other trade areas. In fact, the industry as a whole has been one of the leading positive contributors to the U.S. balance of trade for a generation. The chemical industry's contribution to the nation's balance of trade rose from about $1.7 billion in 1966 to $2.1 billion in 1972, and has totaled a whopping $19 billion over the past 10 years, according to the Department of Commerce. In addition, other overseas activities of the industry also ' contribute substantially to the nation's balance of payments (total outgo in funds from the U.S. compared to total income in funds to the U.S.). In I960, the 1 topartment of Commerce says, the chemical industry provided the U.S. with additional income (aside from trade) of $302 million for fees and royalties, $178 million for patents and lenow-how, and $124 million for service charges and rentals. Although firm figures for recent years are not available, indications arc that the income from these sources is growing at about 14 per cent, compounded annually, which would place the 1972 contribution at well over $1 billion. CMA 036342 p. 7 h Do r-'oieign Currency Trans;.ctions by C'ncnicajs MN'C's weaken the U,S. Dollar? U.S, chemical companies keep only enough funds available abroad to conduct their business. Most of their money is in plants, inventories, and accounts receivable -- not in cash or other forms that lend themselves to speculative practices. They simply dc not keep largo amounts on hand with which they could speculate. It i_s common practice to manage these funds defensively to try to avoid losses due to currency adjustments, but under today's system of almost daily adjustment of the dollar's value, there is little or no chance to profit from speculating on future rcvalnations. However, as a number of responsible governmental studies have already confirmed, multinational companies are not causing weakness of the U.S. dollar abroad. CMA 036343  p. 8 Do Chemical MNC's Get a 'Tax Ureal;' By Producing Abroad? No. MNC'S are .subject to all. the taxes imposed by the countries in which they operate. As indicated in the table on page 9, the effective corporate income tax rate in a group of the leading trading partners of the.United States is quite comparable to. that of the U.S. -- 4 8 per cent. t The U.S. MNC i.s allowed a credit against its U.S. tax on foreign income for the foreign taxes paid. Thus, the U.S. MNC pays , taxes based on whichever is highcr, the U.S. or foreign rate. In other words, if the tax in-a foreign country is less than the tax in the U.S. on the same income, 1 he total tax payment equals what the tax would have been if the income had been earned in the U.S. This ''evening up" -- equalizing the tax load -- is a basic principle of traditional U.S. tax policy, which has aimed at a "policy of neutrality" -- that is, the principle that income should bear the same tax burden regardless of where it is earned. In applying this policy the U.S. has long allowed a U.S. parent corporation to deduct the amount of foreign income tax it paid from its U.S. income tax. Otherwise income earned abroad would be subject to double taxation. The U.S. tax system recognizes that the country in whic.li income is earned should have first call on taxing that income. The tax politics of most major nations today are based on the avoidance of double taxation. * CNiA 036344 p. 8 (cent.) If MNC's Leave Their Profits Abroad, Aren't Those 'Tax Havens'? No -- and ..his is widely misunderstood, foreign operations need to exnand, they need more working capital because of inflation and other factors -- and funds for these needs are usually derived from earnings, Tlius it is usually impossible^ for a parent company to bring back to the U.S. all the earnings of a foreign subsidiary. If the parent company were required to pay U.S. income taxes on the current retained earnings of its foreign subsidiaries, the added tax burden would either jeopardize the financial position of foreign subsidiaries (by forcing them to repatriate funds needed for normal business operations), or require the tax on earnings staying abroad to be paid out of domestic U.S. funds. CMA 036345 P. 8-2 In the latter case funds would bo diverted at least in part from capital ordinarily used to finance plant expansion in the U.S. The effect could thus be a reduction in U.S. plant expansion, the result of forcing U.S. parent companies to commit more U.S. funds to keep their foreign subsidiaries competitive. The effect of requiring U.S. income tax on current earnings abroad and eliminating the credit on U.S. income tax for income taxes paid abroad would be to increase the effective rate on most foreign earnings to more than 70 per cent. Dis crimination against foreign operations of this type would seriously injure the ability of U.S. corporations to compete in world markets, seriously restrict U.S. investment abroad, and in consequence reduce the flow of foreign earnings to this country, among other effects. The U.S. Congress has periodically reviewed the method of com puting foreign tax credits, and by law (the Revenue Act of 1952) has long since eliminated any practical advantage to the use of "tax haven" operations by U.S. business to avoid income taxes. CMA 036346 i p.9 Canada France Germany Italy Japan Netherlands IT 17 UtiVf Average for Group Foreign Income Tax 51% 50 44 46 44 47 40 . 45.9%. Foreign Withholding Tax on Dividends* $ 4.40 1.50 5.10 1.60 3.40 1.60 5.40 $ 3.29 Effective Foreign Income Tax Rate 55.4% 51.5 49.1 47.6 47.4 48.6 45.4' 49.3% ^Per $100 earnings net after taxes assuming 60% payout as dividends CMA 036347 p. 10 Why Export U.S. Know-How? Why not Keep It in the U.S. and Make U.S. Jobs? This kind of proposal is based on tne notion that any know how worth having originates in the United States, and that if this know-how were simply restricted to the U.S. it would result in the creation of jobs in the U.S. and not elsewhere. It is a popular misconception. In the years immediately after World War II U.S. science was dominant in the world. But in the world of 1973 the pendulum has swung the other way -- U.S. scientific discoveries are now only a fraction of the world, total. Here are some facts about research in the chemical industry -and know-how today results primarily (and almost exclusively) from organized research efforts; -- Based on their expenditures for research and development, only three of the top ten chemical research organizations belong to U.S. companies; the other seven belong to non-U.S. companies. The $1.7 billion spent by the U.S. chemical industry in a recent year represented 40 per cent of the total spent in the free world for research and development of new chemicals and related products. --A study of 30 great innovations of the past 30 years, of which 19 were chemical, showed that 11 were based on foreign CMA 036348 p. 10 (cont.) discoveries or developments. Technology is usually not sold or exported when it is new, exclusive, and unique; generally it is used in the U.S. first. Typically, one U.S. chemical company found that foreign investments to produce new products occurred an average of **" 10 years after the first U.S. plant construction. To protect their heavy investment in research, companies take out patents, in the U.S, and abroad, on their discoveries. It is a little know'n fact, however, that in most countries, if a patent is unused in that country for a number of years it becomes subject to compulsory licensing or lapses, and can be used by anyone in that country so inclined. Because of the high cost of research, multiple use of the result -- the building of second and third plants based on the same technology -- is often necessary to defray the costs, usually to supply markets in CMA 036349 p. 10-2 parts of the world not accessible to products from the first plant. These second or third plants may be built by the company which performed the research, or by a foreign licensee. Finally, it should be pointed out that all technology quickly becomes available worldwide -- through publication in the scientific literature, through communication between individual scientists, through licensing. Technology is for sale worldwide and the market is highly competitive. If e a buyer in a foreign country cannot buy know-how advanta geously from the U.S., he can usually buy it in Europe or Japan. The licensing abroad of U.S. inventions brings income back to the United States, so the refusal to license usually means that this income goes to some other country. Likewise, build ing a plant abroad means income in increased exports of equipment, parts and materials for the plant as well as raw materials and intermediates for the manufacturing operation once it is built. If the plant is built by a foreign company, this income goes to another country. A flat refusal to "export" U.S. technology would hurt the U.S. as much as anyone. CMA 036350 p. 11 Examples of ''foreign" technology important to U.S. industry: Penicillin Radar Synthetic rubber Urethanes Polyester Low-density polyethylene Radial tires Basic oxygen steel process Float glass Wankel engine CMA0363S1 "Why Not Bar U.S. Companies from Investing Abroad and Building Plants There? Then We Could Export U.S. Products to Those Markets and Keep the Jobs in the U.S." This notion is built on a false premise -- the presumption that if U.S. companies did not build plants abroad, those markets could be supplied by U.S. exports. In reality, the economics of competing in a foreign country generally favor local manufacturers and discourage imports -- so that if U.S. companies do not build plants for local manufacture, companies from some other nation will. Foreign countries are interested in creating jobs for their own people, not for U.S, citizens -- just as Americans are interested in creating jobs in the U.S. rather than elsewhere. For this reason, often the only effective way to market U.S. chemical products in a foreign country is by building a chemi cal plant there; and as noted, in the experience of the U.S. chemical industry this invariably stimulates exports to that country of other chemical products. "Let's Stop U.S. Companies from Building Plants Abroad, using Cheap Labor, and then Sending the Products Back to the'U.S., Putting U.S. Workmen Out of Work". The vast majority of U.S. multinational companies don't do this. Let's look at the facts: CMA 036362 p. 12-13-2 In 1970, according to a U.S. Department of Commerce study, the overseas affiliates of U.S. MNC's produced $ 11S billion worth of goods overseas. Of this total only $7.5 billion was re-exported bock to the U.S.: -- $2.6 billion represented transportation equipment covered under the U.S.-Canadian Automobile Agreement; -- $3.1 billion represented petroleum products and other raw materials either unavailable or in short supply in the U.S.; and -- $1.8 billion represented the re-export of manufactured items back to the U.S. -- 1.5% of total MNC overseas produc tion. (In the chemical industry, less than 1% of overseas production was re-exported back to the U.S.; see page 3). Legislation to halt so-called "runaway plants" would not be opposed by the major multinational chemical companies, but slapping punitive taxes on all overseas operations to stop this relatively rare occurrence would be misguided and severely injurious, to U.S. business world-wide. Rapid surges of imports have had a serious impact on some U.S. domestic markets. These problems, serious as they are, and injurious as they are to those whose jobs are affected, should be resolved by trade measures, trade negotiations, and adjustment assistance, not by attempts to "punish" the MNC's, which are a major force for developing U.S. exports, major balance-of-payments contributors, and whose overseas CMA 036353 p. 12-13-3 activities arc only a minor factor in U.S, imports. Why Don't MNC's Build Plants in the U.S.? If They Build Abroad, What Money Is Left to Build Plants Here? A 1972 study showed that between 1960 and 1970 major U.S. chemical companies increased their worldwide assets by $17.2 billion -- $14.2 billion representing increases in U.S. plant and equipment, and $3.0 billion representing plant investment in a foreign country. The study also showed that the chemical industry actually overinvested in U.S. plant capacity during the 1960-1970 period; only 76 per cent to 8S per cent of total U.S. chemical plant capacity was used during that period. Do Chemical MNC's Generate Jobs in the U.S.? Commerce Department figures show that U.S. multinational chemical companies employed 665,000 Americans in 1966 and 725,000 in 1970, thus generating 60,000 new jobs in the U.S. in four years. Another study -- involving only the larger multinational companies, whose sales accounted for 46 per cent of the indus try's total sales -- showed that these internationally active companies increased their U.S. employment over a 10-year period (1960-1970) by 134JJ00. The study showed that in 1970 these companies shipped 57 per cent of their exports to their overseas affiliates, indicating CMA 036354 p. 12-13-3 (cont.) that overseas affiliates are a major factor in exports and thus in generating U.S. jobs. In fact, a number of independent studies indicate that over the long pull companies engaged in international trade and manufacturing generate substantially more jobs than those who confine their activities strictly to the U.S. I CMA 036355 p. 14 MULTINATIONAL CHEMICAL COMPANIES -- THEIR ROLE IN INTERNATIONAL UNDERSTANDING When an American chemical company builds a man-made fibers plant in Indonesia, or a plastics plant in Colombia, or a chemical complex in Germany, the economic contribution of that plant is only the tip of the iceberg. In terms of U.S. dollars invested, jobs provided (in the host country and in the U.S. as well), contribution to the U.S. balance of payments, taxes paid (both to the host country and to the U.S.) and other contributions, manufacturing plants built abroad by the multinational chemical companies do make a major economic contribution to both nations. But their social impact is perhaps even greater. The effect on a developing society of agricultural chemicals which dramatically increase crop yields has been amply documented. Even in advanced societies the impact of chemi-cal technology can be significant, as for. example in the development of the rocket fuels that enabled man to reach the moon. Chemicals serve all industries and are an integral part of any effort to raise the standard of living, anywhere in the world. One little-noticed effect of building chemical plants in other countries is the effect they have on international understar.din CMA 036366 4 tin p. 14-2 The employees of multinational chemical companies frequently move from one country to another -- Costa Ricans to Brazil, Mexicans to Argentina, Americans to South Africa, South Africans to Switzerland, Swiss to England, English to Japan -- and as know-how is passed from one nationality to another and one person to another, the peoples of one nation get to know those of another, and to understand their needs and their ways. How can we measure the breadth of international understanding built up in the world by the daily commerce of the multinational companies? If international understanding is a bulwark for peace, then the multinational companies are a powerful force for peace in the world, and their ability to operate on a people-topeople rather than government-to-government level should be fostered, and protected. CMA 036357 p. 15 Multination;] 1 Chemical Companies.. .A Positive Economic Force for the Nation * Exports Chemical MNC's generate massive sales of U.S. products abroad; 57 per cent of the exports of these companies are shipped to their overseas affiliates * Jobs Chemical MNC's generate jobs in the U.S. -- 60,000 new U.S. jobs between 1966 and 1970 -- and abroad -- 30,000 new overseas jobs between 1966 and 1970 * Balance of Payments Chemical MNC's have long provided one of the few positive balances in the U.S. trade picture -- a positive balance of $2.1 billion in 1972, a total positive balance of $19 billion for the past 10 years * World Competition Chemical MNC's have compiled this record in spite of rugged worldwide competition in the industry. Only three of the world's 10 largest chemical companies are U.S. companies. Ths severity of the competition is measured by the fact that the number of U.S. chemical companies among the biggest SO in the world shrank from 21 in 1963 to only 16 in 1971 CMA 036358 p. IS-2 * International Understanding In convcyirg modern know-how from nation to nation, operating on a basic people-to-peoplc level, chemical and other MNC's generate ai. untold amount of international understanding that government-to-government contacts cannot. CMA 036359 COMMITTEE MEMBER APPOINTMENTS exhibit d (a) Education Activities Committee Robert- C. Busch, Diamond Shamrock Corporation -- As Chairman* J. Richard White, Merck &t Co., Inc. - As Vice Chairman* Edwin A. Butenhof, Eastman Kodak Company (b) Industrial Relations Advisory Committee Peter M. Alexander, E. I. du Pont de Nemours & Company Clair L. Brandrup, American Cyanamid Company (c) Insurance Committee Michael R. Imbriani, Philadelphia Quartz Company Win C. Zacharias, The Dow Chemical Company (d) Solid Wastes Management Committee W. C. Holbrook, B. F. Goodrich Chemical Company Romuald Michalek, Engelhard Minerals & Chemical Corporation (e) Transportation and Distribution Committee L. L. Dintiman, Union Carbide Corporation I. C. Dickerson, Phillips Petroleum Company L. G. Kuntz, Amoco Chemicals Corporation * Effective June 1, 1974 MCA BD-3/13/74 CMA 036360