[Congressional Record Volume 144, Number 49 (Tuesday, April 28, 1998)]
[Senate]
[Pages S3728-S3729]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




NEW STUDY SHOWS HOW MINNESOTA'S CARGILL AND 3M COMPANIES BOOST THE U.S. 
           STANDARD OF LIVING THROUGH THEIR GLOBAL ACTIVITIES

 Mr. GRAMS. Mr. President, last week, a Washington-based trade 
association, the Emergency Committee for American Trade (ECAT), 
released an important new study on how American companies with global 
operations increase the U.S. standard of living and strengthen the 
domestic economy. The study is entitled ``Global Investments, American 
Returns'' and I highly recommend it to every Member of the Senate
  I am proud that two of my state's most successful companies have 
contributed case studies to this compelling report. Cargill, 
Incorporated and 3M Company are examples of why America's economic 
future and an improved standard of living for all Americans depend upon 
our ability to operate, sell, invest and compete in the global 
marketplace.
  Cargill, Incorporated operates in some 72 countries as a marketer, 
processor and distributor of agricultural goods and services. The 
company has been so successful in selling to foreign markets that some 
of Cargill's fertilizer facilities operate 24 hours a day, 365 days a 
year. This allows the plants to achieve lower unit operating costs and 
thereby allows Cargill to deliver a more competitively priced product. 
If these plants served only the U.S. market, they would sit idle most 
of the year because fertilizers are required only during very short 
periods of growing seasons. Cargill's global presence helps generate 
demand for its fertilizers all year round by serving different parts of 
the world during different growing seasons.
  3M Company produces a large and continually evolving range of 
technologies and products. For example, the company currently offers 
more than 900 varieties of tapes alone. More than 53 percent of the 
company's total sales are from outside the United States. 3M Company's 
success in operating abroad has meant growth here at home. Efficient 
foreign distribution, sales, and technical support, and research and 
development generate increased U.S. production and research and 
development here at home. For example, 3M's $2.6 billion in Asian-
Pacific sales contributes more than $182 million to the company's 
annual research and development budget of $1 billion--much of which is 
spent in Minnesota. In addition, finished and semifinished goods that 
are manufactured in the United States and then exported help support 
overseas sales.
  Cargill and 3M Company are just two of the American companies 
profiled in Global Investments, American Returns. The study uses data 
and business cases to illustrate the importance of operating globally. 
For example, the study shows that:
  Global activities by American companies actually increase investments 
here at home rather than substitute for them.
  The global presence of U.S. firms helps to increase export sales and 
create additional purchases from U.S. suppliers.
  American companies with global operations account for most of the 
nation's research and development capital investments, and export 
sales.
  American companies with global operations also rely heavily upon U.S. 
suppliers. These companies purchase more than 90 percent of their 
supplies--amounting to $2.4 trillion annually--from American companies.
  American manufacturers with global operations pay higher wages than 
do purely domestically-focused firms. For production or blue-collar 
workers, the difference is 15 percent higher earnings.
  I urge all of my colleagues to review carefully ``Global Investments, 
American Returns.'' It is an important study that should guide 
America's tax and trade policies. I am especially pleased to learn that 
ECAT--and companies like Cargill and 3M that contributed to the 
report--will launch a trade education campaign to help spread the facts 
and dispel the misconceptions about trade and investment. I am proud 
that these Minnesota companies are a part of this effort.
  I ask that the Executive Summary of the study be printed in the 
Record.
  The Executive Summary follows:

                           Executive Summary

       In public and private-sector debates over U.S. trade and 
     investment policies, the role in the U.S. economy of 
     Americans companies with global operations \1\ has often been 
     misunderstood. Although there is no doubt that the United 
     States plays an important role in the world economy, most 
     Americans are unaware of the critical contributions that 
     trade and foreign direct investment (FDI) of American 
     companies with global operations make to the U.S. economy.
       To broaden public understanding of the positive role of 
     these companies, this study expands upon the research in 
     ECAT's previous Mainstay studies in two important ways. 
     First, it focuses on the key issue of the U.S. standard of 
     living. Second, it broadens the scope of the study to include 
     all three major sectors of the economy: manufacturing, 
     agriculture, and services.
       There are two key points in Mainstay III. First, by raising 
     U.S. worker productivity, American companies with global 
     operations help raise the U.S. standard of living. Second, 
     because the U.S. and foreign activities of these companies 
     tend to complement each other, the ability of these companies 
     to help raise the U.S. standard of living depends crucially 
     on their ability to undertake foreign direct investment 
     abroad.
       Mainstay III is based upon analysis of the investments, 
     research and development, exports, imports, and purchases 
     from suppliers of American companies with global operations 
     and many other data from 1977 through 1994. The primary data 
     source is surveys of such companies conducted by the Bureau 
     of Economic Analysis (BEA) within the U.S. Department of 
     Commerce.
       The following sections summarize the major findings and 
     conclusions of the study:


  1. setting the stage: the world economy in which American companies 
                     with global operations compete

       American companies today operate in a world economy that is 
     increasingly concentrated outside the United States and that 
     is rapidly expanding its international linkages through FDI 
     and international trade.
       The U.S. share of the global economy is shrinking. For 
     decades, the U.S. economy has been growing more slowly than 
     the rest of the world, such that the U.S. share of total 
     world output has been declining. This share was approximately 
     50 percent in 1945, but is down to only 20 percent today.
       FDI and trade help U.S. integration into the global 
     economy. American companies with global operations have 
     helped integrate the United States more closely into the 
     growing world economy. Average annual outflows of FDI from 
     the United States quadrupled from the 1960s through the 
     1980s, and total trade as a share of U.S. output rose from 
     5.6 percent in 1945 to 24.7 percent in 1995.
       By participating in the world economy, American companies 
     with global operations maintain a significant presence in the 
     United States.
       Most employment is in the United States, not abroad. In 
     1977, U.S. parent companies accounted for 72.8 percent of 
     total worldwide employment of American companies with global 
     operations and by 1994, they accounted for 74.3 percent of 
     the total.
       Profits earned by foreign affiliates are mostly 
     repatriated. In 1989 (the most recent year for which these 
     data are available), U.S. parents repatriated 72.8 percent of 
     their foreign affiliates' net income.
       Most intermediate inputs are purchased from domestic 
     suppliers, not foreign suppliers. From 1977 through 1994, 
     more than 90 percent of all intermediate inputs purchased by 
     U.S. parents came from American suppliers, not foreign 
     suppliers.
       Overseas, American companies with global operations are 
     located primarily in developed countries, and the sales from 
     these operations are overwhelmingly in local markets.
       Most affiliate activity abroad is in developed--not 
     developing--countries. In 1994, developed countries hosted 
     nearly two-thirds of U.S. foreign affiliate employment and 
     accounted for more than three-quarters of foreign affiliate 
     assets and sales.
       Foreign affiliate sales are mostly abroad, not back to the 
     United States. In 1994, only 10 percent of total U.S. 
     affiliate sales went to

[[Page S3729]]

     the United States. The other 90 percent stayed abroad, and 
     fully 67 percent of all sales were within the host countries 
     of the foreign affiliates.


ii. the importance of american companies with global operations to the 
         u.s. standard of living: generating high productivity

       American companies with global operations contribute in 
     several important ways to the U.S. standard of living, and 
     this contribution is larger than that of purely domestic 
     firms.
       Investment in Physical Capital. American companies with 
     global operations undertake the majority--57 percent in most 
     years--of total U.S. investment in physical capital in the 
     manufacturing sector.
       Research and Development. American companies with global 
     operations perform the majority--between 50 percent and 60 
     percent--of total U.S. research and development.
       Exports. American companies with global operations ship the 
     large majority--between 60 percent and 75 percent--of total 
     U.S. exports. Their foreign affiliates are important 
     recipients of these exports; their share has increased to 
     over 40 percent today.
       Imports. American companies with global operations also 
     receive a sizable share of U.S. imports--roughly 30 percent. 
     These imports benefit the U.S. economy in many ways, 
     including giving U.S. companies access to foreign-produced 
     capital goods and technologies.
       All these activities help increase U.S. productivity and 
     thereby enhance the U.S. standard of living.


iii. the importance of american companies with global operations to the 
              u.s. standard of living: paying higher wages

       American companies with global operations pay their workers 
     higher wages than those paid by comparable American companies 
     without global operations.
       A study of 115,000 U.S. manufacturing plants indicated that 
     U.S. parent plants pay comparable workers higher wages than 
     purely domestic plants. Production workers receive an average 
     of 6.9 percent less at comparable domestic plants employing 
     more than 500 employees and 15.2 percent less at comparable 
     domestic plants employing fewer than 500 employees.
       Non-production workers receive an average of 5.0 percent 
     less at comparable domestic plants employing more than 500 
     employees and 9.5 percent less at comparable domestic plants 
     employing fewer than 500 employees. These results control for 
     possible wage differences attributable to variations across 
     plants in age, industry, location, and size. In light of all 
     these controls, it seems likely that these wage differences 
     are attributable to workers at U.S. parents being more 
     productive than workers at comparable domestic plants.


iv. the importance of american companies with global operations to the 
        u.s. standard of living: linkages to american suppliers

       In addition to directly raising the U.S. standard of living 
     themselves, American companies with global operations may 
     also raise the U.S. standard of living through their 
     interactions with domestic U.S. suppliers.
       Evidence exists that companies benefit from being exposed 
     to other dynamic, successful firms. Exposure to ``worldwide 
     best practices''--whether those best practices are in the 
     same country or abroad--tends to foster innovation, cost 
     control, and other improvements that boost firm productivity.
       The very large amount of purchases of intermediate inputs 
     from domestic suppliers by U.S. parents of American companies 
     with global operations suggests the possibility that U.S. 
     domestic suppliers have sufficient exposure to these high-
     productivity parents to realize some productivity gains. For 
     the past 20 years, U.S. parents have purchased over 90 
     percent of their intermediate inputs--$2.4 trillion in 1994--
     from domestic, not foreign, suppliers.


v. how foreign direct investment abroad complements u.s parent activity 
   and contributes to a high standard of living in the united states

       Because the U.S. and foreign activities of American 
     companies with global operations tend to complement each 
     other, the ability of these companies to raise the U.S. 
     standard of living depends crucially upon their ability to 
     undertake FDI abroad.
       Analysis of BEA data, academic research, and case studies 
     of 10 major American companies demonstrates that U.S. FDI 
     generally complements rather than substitutes for U.S. parent 
     activity. Within American companies with global operations, 
     affiliate expansion generally triggers in U.S. parents 
     additional investment, research and development, trade, and 
     input purchases from domestic suppliers. As stated earlier, 
     these activities are key determinants of the U.S. standard of 
     living.
       Restrictions on FDI that prevent U.S. companies from 
     expanding abroad generally will reduce U.S. parent activity 
     and thus, lower the U.S. standard of living.


               vi. conclusions and policy recommendations

       The United States must continue to strengthen the open 
     system of global trade and investment in order to maximize 
     the contributions of American companies with global 
     operations to an improved standard of living for all 
     Americans. To that end, U.S. trade and investment policies 
     should take into account the following recommendations based 
     on the research and findings in this study:
       The U.S. government should maintain its open trade and 
     investment policies. Moreover, these policies should 
     recognize the ways in which trade and foreign direct 
     investment benefit the U.S. economy.
       The U.S. government should continue to negotiate 
     aggressively for more open foreign markets and should 
     persuade foreign governments to end restrictions on trade and 
     investment. Removing these restrictions will create a ``win-
     win'' situation that benefits both foreign countries and the 
     United States.
       The U.S. government should strive to continue to harmonize 
     its international trade, investment, and tax policies. In the 
     case of American companies with global operations, this 
     harmonization should take into account the many ways that 
     their foreign operations tend to complement their U.S. 
     activities.
       Given that most services are inherently nontradable, firms 
     in these industries must invest abroad to serve global 
     markets. Accordingly, efforts to liberalize trade and 
     investment should focus special attention on the unique needs 
     of U.S. services industries.

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