FOREIGN TRADE:TAKING OFF FROM DFW AIRPORT

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sked in a Senate hearing recently to assess this country’s foreign trade sit uation, Bob Strauss replied, “Bum.” For elaboration, Strauss ventured, “Real bum.”

Strauss’ pessimism wasn’t difficult to understand. It’s very difficult to deal successfully from a position of weakness, and the U.S. position in world trade is without question the worst it has been since World War II – probably since the Civil War.

Strauss, the President’s Special Trade Negotiator with cabinet rank (now Ambassador at Large), had been neck deep in something called multilateral trade negotiations (MTN). It’s a subject practically nobody fully understands. Surveys have shown, in fact, that the average businessman understands little of it even after careful explanation.

Simply put, MTN is a continuing attempt by the industrialized nations of the world to set down rules for trading among themselves. Nations have a long history of protecting their own industries by taxing imported goods to the hilt. Since World War II, however, there has been a growing tendency to view the world as one large trading community. The resulting trend has been toward a lessening of tariff barriers.

The first codification of this trend came with the General Agreement on Tariffs and Trade (GATT) after World War II. The Kennedy Round of negotiations that followed in the Sixties was the first big breakthrough toward liberalization of trade practices. It was the most ambitious trade negotiation in all history, involving efforts by 14 nations to cut tariffs in half. The effect of these agreements on world trade has been similar to the effect of a stone thrown into a pool of still water – ever-widening ripples. Free world trade has grown from $164.9 billion in 1965 to $1.149 trillion last year, an increase of 600 percent.

Many believe we got outbargained in the Kennedy Round under the leadership of chief negotiator (now Treasury Secretary) Michael Blumenthal. Whatever the verdict there, it is true that while U.S. trade has grown greatly in recent years, our position in the world trade has steadily worsened. For the past three years we have consistently imported far more goods than we exported, running deficits of $9 billion, $31 billion, and $34 billion. By contrast, our trade balance between 1946 and 1971 was consistently positive. Only in the Seventies have we run in the red; the deficit this year will probably exceed $20 billion.

Further, the dollar is no longer worth as much as it once was, either at home or abroad. The dollar floats now and has been devalued by as much as 40 percent against the Japanese yen and 32 percent against the German mark, though that situation has improved slightly in the last six months.

Our petroleum imports, costing $2.9 billion as late as 1970, have run $35 billion, $44 billion, and $42 billion in the past three years. “Although the U.S.’s unfavorable trade balance is a combination of many factors,” said Ed Vetter, a former Undersecretary of Commerce and now a Dallas management consultant, at an Industrial Trade Conference in April, “probably the most important factor in international trade today is the effect of energy costs resulting from the dramatic increase in OPEC pricing in late 1973.”

It is clear that increased American exports would be beneficial, yet events have fallen against us. The 1971 Smithsonian Agreement, by which President Nixon allowed the dollar to float in relation to foreign currencies, and the 1973-74 embargo on petroleum exports by OPEC have been the two biggest shocks to our economic system in recent history; their effects are still being felt.



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ot withstanding the diminution of America’s position, the U.S. is the largest exporter in the world, with about $140 billion in annual sales. One out of every nine American workers is producing for export. One big reason for this is the State of Texas. In 1976 the state was the sixth-largest manufacturer of export goods in the country; in 1977 it was the fourth-largest exporter of agriculture products. Nearly 100,000 jobs in Texas involved the production of export-related goods. Perhaps nowhere in the country is the future for export growth brighter than in Texas.

Our major export products are chemicals, nonelectric machinery, transportation equipment, cotton, and feed grains. More than half the state’s foreign chemical sales and 70 percent of its nonelectric machinery sales overseas come from Houston, which produced $2.3 billion in export goods in 1976. Dallas and Fort Worth together had export sales of $1.3 billion that year, and led the state in the production of transportation equipment.

Texas leads the nation in the exportation of cotton, and all the state’s agricultural exports are growing. Exports of feed grains, wheat, and flour grew seven times between 1972 and 1977. Half the increase in farm sales in those years was due to export sales.

There is growth in industry, too. Two-fifths of the increase in transportation equipment production and nearly one-third of the nonelectric machinery growth was generated by exports in those years. The 162-percent growth in exports between 1972 and 1976 easily outstripped the increase in production.

In the past, exports were deemed so unimportant in Dallas and Fort Worth that we have not known until recently what and how much we export. But the investment in the regional airport in the 1960’s is beginning to pay off. Dallas and Fort Worth manufacturers export to nearly every country in the free world, about 125 nations.

Dr. Lawrence Ziegler of the University of Texas at Arlington, in conjunction with the North Texas Commission, has chronicled the growth in exports in the area. In 1977, according to Dr. Ziegler, more than 600 kinds of products were exported for a total of about $1.4 billion. If air travel, banking, and defense contract shipments to foreign governments are included, the total exceeds $2 billion. It is further estimated that because of a “ripple effect” that surrounds all industries, the actual impact of exports is far greater than $1.4 billion annually; they probably have a total job impact in excess of 50,000, out of a metropolitan work force of about 1.4 million.

The biggest export item locally is transportation equipment, at about $600 million annually. Bell Helicopter of Hurst, E-Systems of Garland and Greenville, and Vought Corp. of Grand Prairie lead in this area.

Forney International, General Dynamics, Teledyne Geotech, and Varo Inc. are among the major contributors in the exportation of electrical and electronic equipment, an industry totaling $282 million in exports annually. Nonelectric machinery amounts to $270 million annually; that segment of the industry is represented by Core Laboratories, Gardner-Denver, Otis Engineering, and the Oil Well Division of U.S. Steel.

These three sectors account for 90 percent of the dollar volume of exports in Dallas and Fort Worth.

The financial community has also moved strongly into exports of late. In 1977, the volume of foreign exchange transactions made by local banks having international departments was more than $9 million a day, according to Ziegler.

Local banks lent foreign governments $929 million in 1977 and the figure is growing. Loans to foreign firms are even higher and growing at a rate that is explosive. Foreign loans from Dallas and Fort Worth totaled $473 million in 1976, $811 million in 1977, and $810 million during the first half of 1978.

The Dallas/Forth Worth area is enjoying the fruits of exports to an increasing extent. This is for a variety of reasons, including a favorable business climate and the largest airport in the country. But until recently not much of the growth had been due to our efforts toward going out and promoting business.

Trade liaison with the Japanese began eight years ago with the establishment of the Japan-Texas Association. That was instituted by the Japanese, who knew even then that there is no substitute for established representation and close personal contacts abroad. A big move in the other direction came in 1977, when Governor William Clements, then chairman of SEDCO, led the Japan-Texas Association mission to Japan. The contacts made then opened doors for Texas goods.

“The Japan-Texas Association has been great for us as well as the Japanese,” says Ralph Young of the World Trade Center. “The important thing is making the key contacts in Osaka and Tokyo so that when the time comes to deal, we can get it done.”

The Center for International Business, housed in the World Trade Center, held its sixth annual seminar in April of this year and attracted about 500 corporate executives and speakers, including Treasurer Blumenthal, former FEA administrator John Sawhill, and myriad government and industry leaders. Executive director Mark Winchester indicates that Dallas and Fort Worth are steadily becoming more active in promoting exports.

Groups like the CIB are busy trying to awaken the area in general to the advantages of international trade,” Winchester says. “Our growth in trade has been good but we need more, much more.

“The point with groups like CIB is that we are building an export infrastructure that is steadily moving this area toward a position where we can really take advantage of the wide-open export market.”



The United States has never, in recent history, been a ball of fire in marketing its goods abroad. The U.S. itself is a vast market, larger than all of Europe, constituting one-fourth of the world’s Gross National Products – plenty of market for the average American company. Add to that the isolation of two large oceans and the lack of trade barriers between the states and you get an ideal trading milieu. The U.S. has never had to develop its foreign trade; thus exports make up less than 7 percent of our GNP, while the European countries average around 20 percent.

In contrast to the benefits of this huge market, serious inflation in the last few years and the steadily declining productivity of the American worker have helped to render much of America’s output un-competitive in world markets.

Yet because one must export in order to pay for imports, our national export policy has suddenly become important. On September 26, 1978, President Carter announced his national export policy, the professed intent of which was to provide increased direct assistance to U.S. exports, and to reduce domestic and foreign barriers to our exports. Unfortunately, the Carter administration has followed through on virtually none of its intentions.

If the government wanted to reduce trade barriers, it might direct its attention to the Foreign Corrupt Practices Act, for example. This attempt to end bribery of foreign officials by U. S. companies, though laudable in intent, is baffling for those who have to grapple with it on a daily basis. “Sometimes,” says Jon Bauman, an attorney specializing in international trade for Jenkens & Gilchrist, “it gets down to whether the guy you are paying a commission to is too closely related to the officials you are going through to get the contract. If he’s a first cousin, it’s a bribe. If he’s a second cousin it’s a commission. It’s my job to make sure the trades go through and I have to pay attention to those things. Let me assure you that they are a great deterrent to trade.” The corrupt practices act, restrictions on the export of strategic technology and arms, blacklisting of foreign countries for human rights violations – these federal restrictions have effects on trade that are more broad, confused, and inconsistent than intended. And needless to say, their economic impact on international trade locally can be enormous. E-Systems, a Dallas electronics firm, recently spent thousands of dollars and man-hours bidding for the sale of $47 million in electronic equipment to Argentina, only to lose it when that country was abruptly placed on the restricted list because of human-rights violations. Executives at E-Systems probably take little comfort in the fact that the same contract would have been approved for the Soviet Union.

Incentives for foreign trade fall into two large categories: aid in handling the practical problems of foreign marketing and measures that make it financially more attractive to sell abroad.

David Anderson, senior vice president in Republic National Bank’s international department, points out that it is difficult for small companies to sell abroad.

“Only after a company gets past the functional change from a single manager/entrepreneur to a comptroller-manager-marketer form of operation, can it have the structural maturity to move internationally,” says Anderson. “Then, there is a duality of problems. The small firms have mostly mechanical, procedural problems – how to ship their products, how to get paid, what are the exchange rates, and the like. Large companies have this in hand and are concerned with the bigger issues, such as trade barriers.”

The Department of Commerce has programs to help with the nuts and bolts of getting into overseas markets. But an additional problem is obtaining financing. Though Texas banks are growing rapidly in the international arena, at present only 20 or so Texas banks can really facilitate international transactions.

One way to help companies with financing is to make export loans more profitable to commercial banks. This could be achieved by widening the spread between interest rates charged by the Export-Import Bank for small discount loans. Also the guarantees provided by the Exlm Bank against credit and political risks on export loans capital could be expanded.

An obvious stimulant to exports would be a reduction in the cost of maintaining personnel abroad. Recent Commerce Department studies show that there is a direct correlation between the quality of staff abroad and the amount of sales abroad; yet recent changes in our tax laws have cut the exemptions allowed expatriate employees, making it more expensive to maintain an employee overseas.

The most important local stimulant to international trade is our huge international airport. The water ports at Houston, Galveston, and Corpus Christi and the international airport at Houston are responsible for the biggest share of the almost $9 billion in products exported from Texas in 1976, but D/FW airport is a facility of tremendous potential. It is as important to the growth of the area today as the railroad was 100 years ago. One development that enhanced that facility’s potential was the establishment of a Free Trade Zone last year.

Free Trade Zones (FTZ’s) are usually secured areas that, for the purposes of customs regulation, are treated as outside the United States. The FTZ is a device for reducing customs duties and encouraging the flow of goods in and out of the country. Foreign and domestic merchandise, according to the enabling legislation, can be “stored, sold, exhibited, broken up, repacked, assembled, distributed, sorted, graded, cleaned, mixed with foreign or domestic merchandise or otherwise manipulated, or manufactured and exported, destroyed or imported” in a Free Trade Zone. Customs duties are not paid on foreign merchandise that comes into the zone if the goods are re-exported; duties on imports are not paid until the goods leave the zone for official entry into the U.S.

Further benefits offered by the FTZ are pointed out in the recent study by two University of Texas at Dallas professors, Jay Cummings and Wayne Ruhter:

●It allows deferment or avoidance ofduty payments even though goods in thezone are augmented with domestic partsor packaging.

●Damaged goods can be disposed ofbefore duty is charged and there is no duty on wastes resulting from manufacturing or assembly.

●Heavily taxed parts can be assembled in an FTZ and enter the country asassembled duty-free equipment, as is thecase with typewriters.

●Restricted parts can be assembled into components not restricted by importquotas.

●Ad valorem taxes on inventories canbe avoided because goods stored in FTZ’sare not technically within the U.S.

●Duties can be paid at any time during the stay of merchandise in the FTZ, soimporters can wait until exchange ratesare most favorable.

As an inland port, the FTZ at D/FW International Airport is part of a trend. Drs. Ruhter and Cummings indicate that FTZ’s have been in existence since 1934, but of the 21 approved prior to 1977, only two were located at or adjacent to airports. Nineteen locations were approved in 1977-78, nine of them at or near airports. Further, while waterborne exports grew by 249 percent in 1966-76, airborne exports grew by 522 percent.

Among FTZ’s the D/FW facility appears to be better off than most. First of all, it enjoys a location that is actually within the airport and has direct taxiway access. Also, D/FW airport ranked ninth in the nation in freight revenue in 1977.

Furthermore, many prior zones were small, especially when compared with foreign FTZ’s. Hamburg, Germany has an FTZ that measures 15 million square feet. New Orleans certainly an important U.S. port, has an FTZ of only 643,000 square feet. The D/FW FTZ has been approved at 10 million square feet (about 10 times the size of the First International Building) – considerably larger than the average of 1.3 million square feet for the six newest FTZ’s.

For Dallas / Fort Worth the transition from a regional marketing center in the Southwest into an international trading center is about to occur. The transportation facility is in place. The business climate is excellent. The financial institutions are large enough and capable. And the trade infrastructure is growing.

Trade might be “bum” in the rest of the country, but the prospects here are much better. What would you call it? “Un-bum”?