[Congressional Record Volume 149, Number 136 (Tuesday, September 30, 2003)]
[Senate]
[Pages S12181-S12183]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 DEFENSE PRODUCTION ACT REAUTHORIZATION

  Mr. DODD. Mr. President, later today, or at some point, I gather that 
the Defense Production Act reauthorization bill will be before the 
body. It expires today, so there is a sense of urgency, I gather, in 
getting this bill done.
  When the bill comes up, my intention is to offer an amendment to the 
Defense Production Act, the reauthorization bill, for the consideration 
of my colleagues. I gather from conversation my staff and others have 
had that there will be possibly some objections to this amendment over 
jurisdictional grounds.
  My hope is something can be worked out on this amendment, so that we 
can avoid that particular situation. Let me tell you why I say that. 
This bill, if reauthorized, would reauthorize the Defense Production 
Act for 5 years.
  Presently there is a system in place which allows defense contracts 
to go to prime contractors, where, as a result of a provision that 
existed since World War II, offset agreements are permitted in such a 
way that despite the amount of money we will allocate for these defense 
contracts, these offset agreements basically wipe out the dollar 
amounts that would go to subcontractors and others. The net result is 
that each year we are losing about 10,000 jobs in the manufacturing 
sector because of these offset agreements, which were written 
primarily--I am almost quoting--to provide assistance to war-torn 
Europe at the end of World War II. It made a lot of sense to try to get 
resources into those struggling countries so they could get on their 
feet after the devastation that occurred during World War II.
  So these offset agreements were principally designed to assist 
struggling nations to get back on their feet. There are a lot of ways 
you might want to describe the European Community today but ``war-
torn'' is hardly one we would use to describe it. These provisions have 
existed for almost 50 years, and their usefulness is long over.
  This really hurts smaller contractors in the U.S. I want to lay out 
what this amendment will do, if I get a chance to offer it today. I 
would have offered it in committee but I was told to wait until we got 
to the floor to have an opportunity to offer it here. Now I am being 
told I cannot offer it here because we must get the bill done, it 
expires today, and we don't have time to deal with it.
  If I have to wait 5 more years to bring this up, and if we are losing 
10,000 jobs in the manufacturing sector each and every year as a result 
of that, not to mention the dollar loss, and losing subcontractors on a 
manufacturing base, then I am hard pressed to understand why we would 
not find a way to accommodate that which is rather modest language here 
in this proposal. I will explain why.
  The amendment is about one thing--saving jobs. Since the Banking 
Committee began consideration of this important legislation, I have 
been discussing an issue of great importance to manufacturers in my 
State of Connecticut and around the country.

  I am referring to the issue of foreign offset contracts. Under these 
arrangements, a foreign nation will agree to buy products from U.S. 
defense companies only if our manufacturers outsource a considerable 
amount of work to that country's labor force. This goes back to the end 
of World War II, as I mentioned. On the face of it, these arrangements 
might seem relatively benign, promoting a prosperous defense trade 
among the U.S. and its military allies.
  However, as I have learned over the last number of months, these 
arrangements may, in fact, be weakening the U.S. defense industrial 
base and producing considerable job losses throughout our Nation. These 
arrangements are a relic of World War II, when our Nation decided that 
offset arrangements were one aspect of rebuilding war-torn Europe. I do 
not think anybody could call me bold or rash if I were to say that the 
economic infrastructure of Europe as a whole is no longer war-torn in 
the beginning of the 21st century. On the contrary, it is highly 
developed and very advanced.
  Yet some of our allies on that continent continue to insist that 
offset arrangements remain a condition of contracting with American 
firms, particularly defense firms. This is not an issue of trade or 
protectionist policies. As most colleagues are aware, I have long 
supported both bilateral and multilateral trade agreements, such as the 
ratification of GATT and the establishment of fast-track authority for 
the American President. I am a believer in international trade. That is 
not what this amendment is about.
  This amendment is about outdated practices that, by and large, have 
caused needless transfer of a countless number of U.S. jobs to our 
trading partners and our allies, particularly in Europe.
  I must confess that when I first began to look at this issue, I was a 
skeptic. I thought this migration of American jobs abroad was simply 
the painful but unavoidable byproduct of international trade, and I 
thought these losses were outweighed by the benefits of trade. But upon 
further study, I have come to the conclusion that these offset 
agreements are resulting in the needless loss of American jobs with 
little or no compensating benefits. Let me explain why.
  What impact do these agreements have on our country, on our 
businesses, and on our workers? The answer is, by and large, a highly 
negative one. This is not just the opinion of this Senator. It is the 
well-considered conclusion of nonpartisan, highly informed sources at 
the General Accounting Office and the Department of Commerce under this 
administration, I might add. It is also the opinion of business 
leaders, many of whom think offset agreements are little more than a 
form of coercion. Business leaders in my own State have told me they 
see offsets as no better than a necessary evil, a tax on their ability 
to export their goods and services.
  The Commerce Department recently reported that in the year 2000--I 
hope my colleagues will listen to this--the Commerce Department 
reported in the year 2000, out of $5.6 billion exported by the U.S. 
aerospace and defense industries, $5.1 billion was offset by these 
arrangements. In other words, offset arrangements imposed on contracts 
with American firms amounted to nearly 90 percent of their export 
value.
  In the year 2002, 2 years later, and 2003, this year, the total value 
of offsets is projected to be close to 100 percent by the Department of 
Commerce on the value of these contracts, virtually eliminating any 
gains from U.S. exports of these goods.
  Moreover, the Commerce Department says offsets are displacing between 
9,000 and 10,000 American workers annually, and that is a conservative 
estimate, I might add. With these kinds of figures, it is difficult to 
see how the United States could benefit at all from these offset 
contracts.

[[Page S12182]]

  Let me repeat the numbers. According to the Department of Commerce, 
of the $5.6 billion exported by the U.S. aerospace and defense 
industries, $5.1 billion was offset by arrangements to these countries. 
Lately, in 2002 and 2003, the Department of Commerce estimates that 
close to 100 percent of the value of these contracts will be 
eliminated, the gains will be eliminated from the export of these 
goods, and losing almost 10,000 jobs a year is something that ought to 
concern each and every Member.
  What makes this issue even more distressing is that as a result of 
these arrangements, we are not only losing these jobs unnecessarily, in 
my view, given the long outdated necessity for offset agreements with 
the European Community, but we are losing our Nation's military 
industrial capacity, and that ought to be a serious matter to all of us 
here. We need to be vigilant in maintaining an industrial base when we 
can in these critical industries.
  Essentially, U.S. contractors are helping other nations build up 
their strategic industries at the expense of the United States's 
defense manufacturing base, and the U.S. Government is doing nothing, 
unfortunately, to stop this from happening. Our prime contractors admit 
this is an unfortunate trend and insist they are being forced to follow 
these arrangements to stay competitive in their foreign contract bids.

  As I see it, these offsets amount to unfair trade practices, plain 
and simple. While U.S. prime contractors may be selling their defense 
system abroad, they are being coerced--against their wishes--into 
laying off U.S. workers and domestic suppliers in favor of foreign 
workers and suppliers. In turn, as the U.S. Defense Department decides 
to buy these same weapons systems, we are now even more frequently 
turning to these newly established foreign suppliers.
  In several recent reports, the General Accounting Office and the 
Commerce Department have repeatedly tried to alert Congress to the 
disastrous effects these arrangements are having on America's economic 
and defense security, but their warnings have gone unheeded. In fact, 
the two major governmental bodies established by the Defense 
Procurement Agency to monitor and coordinate U.S. policy on foreign 
offsets have been effectively dissolved. The most important of these 
bodies is the interagency team on foreign offsets whose job it was--is 
or was--to engage with foreign countries in an effort to mitigate the 
effects of these offsets.
  My colleagues should be alarmed to know that this interagency team, 
headed by the Department of Defense, has reported no activity since the 
year 2000. In fact, this team has been stripped of resources and staff. 
They don't exist.
  Certainly, we all understand that the Defense Department has been 
preoccupied with other priorities--I understand that--over the last 
couple of years; namely, the effort to wage and win wars in Afghanistan 
and Iraq. No one can seriously claim the Department of Defense should 
have any higher priorities than those. That is not my point. That is 
why I think this amendment is critically important to shift to the 
Department of Commerce the principal responsibility of monitoring and 
mitigating these offset arrangements.
  It is an economic issue fundamentally, and the fact the Defense 
Department has not financed or staffed this interagency team says to me 
we ought to shift that responsibility, considering the economic 
implications of not trying to reduce these archaic and outdated offset 
arrangements with the European nations and others.
  For this reason, my amendment would transfer the authority over the 
interagency team--this is what the amendment does; it is not a radical 
amendment at all. The amendment would transfer the authority over the 
interagency team to the Commerce Secretary and would require the 
Secretary to negotiate with foreign countries toward the reduction and 
eventual elimination of all foreign offsets.
  In addition, it would expand the Commerce Department's data 
collection system to include the effects of offset on America's second- 
and third-tier subcontractors. I believe these provisions would greatly 
enhance America's response to the growing specter of foreign offset 
arrangements and provide a clear picture of the total impact these 
arrangements are having on our economy. But I think we ought to do 
something more.
  As I said before, offset arrangements have essentially allowed 
foreign governments to coerce U.S. contractors into laying off American 
workers and shifting their jobs to foreign employees. This is an unfair 
trade practice, in my view, and must be addressed as such. For this 
reason, this amendment further directs the U.S. Trade Representative to 
designate offsets that exceed the total value of the underlying 
contract as unjustifiable and burdensome on U.S. commerce, subjecting 
the country to U.S. sanctions accompanying such a designation.

  Already various important policy and trade organizations and 
associations have expressed their support for the proposal I wish to 
offer to the Defense Production Act, including the International 
Association of Machinists and Auto Workers, the American Shipbuilding 
Association, the AFL-CIO, the Manufacturing Alliance, as well as the 
Aerospace Components Manufacturers. This is a unique combination of 
industries, business, and labor saying this World War II proposal is no 
longer justified.
  Let me explain how it works. These offset agreements they insist on--
Holland is the biggest offender, by the way. They say to a corporation 
in the United States: You want to sell your products. Fine. But you 
have to provide a certain amount of workers here. So instead of looking 
around for the best subcontractor to provide, say, ball bearings by a 
firm in Ohio or Connecticut, they then have to hire the firm in Holland 
or some other European country. This was designed, as I say, to help 
Europe at the end of World War II. It made a lot of sense. But 70 years 
later, the idea that I have to say to a manufacturer in the United 
States you cannot get this bid because I have to do it to win the 
contract in Holland--if it was 5 percent or 10 percent, I might think 
that is unfair. But they are getting 300 percent in Holland--300 
percent.
  According to the Department of Commerce, the average is now between 
90 and 100 percent in every European country. If I thought this bill 
was going to be authorized for 3 months, I would wait and try to build 
support. This bill is a 5-year authorization bill. Almost 10,000 jobs a 
year are going to be lost, not to mention small manufacturing firms 
that go out of business.
  Then when we need those ball bearings, to use that example, we no 
longer have a firm in Ohio or Connecticut, and I have to deal with a 
firm in Holland or Sweden or some other place. It is dangerous to lose 
that industrial base in critical technologies.
  This provision of offset contracts has no relevancy in today's world, 
particularly with the European community. It did maybe 50, 60, or 70 
years ago, but not today. I am being told I cannot offer the amendment 
because I am dealing with a proposal on trade, but if I do not do it 
here, where do I do it? I have to wait until some trade bill comes 
along?
  Normally, a Senator cannot offer amendments on trade bills. So when 
do I do it and where do I do it, if I want to make a point? Maybe the 
proposal will get defeated, but at least I would like to raise the 
awareness of my colleagues. If there are provisions that do not make 
sense, let somebody bring up a better idea, but I think it is wrong to 
continue a situation where 10,000 American jobs get lost because we are 
sitting around with an archaic idea that has no value and no relevancy.
  The manufacturers will tell us that and labor tells us that. They do 
not like doing it. It is like the Foreign Corrupt Practices Act where 
we were told over and over we have no choice, but our firms in the 
United States do not like having to do this. They are being forced to 
do it in order to win these contracts.
  We need to have some ability to negotiate the elimination of these 
deals, and when they cannot get rid of them, at least to consider it as 
an unfair trade practice so we can try to work it out so we do not have 
to rely on them any longer. That is really what the amendment would do.
  Again, this whole Defense Production Act goes out of existence 
tonight, I am told. As I said earlier, I wanted to offer

[[Page S12183]]

this amendment in the committee, but I was told not to do it there, to 
wait until we go to the floor. Now I am on the floor and I am being 
told do not do it here. So I am sort of stuck in a way. I do not want 
to tie up a bill. I think defense production is important, but to have 
to wait 5 more years to come back with this idea is something I do not 
want to do, either. So I am using this time to encourage people who may 
have a better idea on how we can resolve this to make some suggestions 
so we can avoid holding up this legislation.
  I do not need to remind my colleagues, I would just say at the end of 
all of this, that since 2001 we have lost 2.7 million manufacturing 
jobs in the United States. In Connecticut, we have lost more than 14 
out of every 100 manufacturing jobs in the past 3 years. I have 5,400 
small manufacturers in my State of over 240,000 people. A lot of them 
are what we call mom and pop, with 5, 6, 8, 10 people. Some of them are 
second and third generation.
  I see my colleague from New Hampshire, as well as my colleague from 
Ohio. They have similar situations with small firms in their own 
States. Many of them provide critical technologies to our major defense 
contractors. If I thought the offset agreements had some great 
relevancy today, I would be the first to say we have to live with this; 
it is an unfortunate reality. But taking an idea we used at the end of 
World War II to help our allies get on their feet and to still 
perpetuate it in the year 2003 I think is wrong.
  We better say something about it soon and try to do something about 
it before we just continue the way we are going and seeing a further 
loss of jobs and a loss of a manufacturing base in critical 
technologies which I think we will regret deeply in the years to come.
  When this bill comes up, if it does come up, I would like to offer 
the amendment or have someone work out something so we might address 
this issue in some way that would not delay the enactment of the 
Defense Production Act but would give me some sense of hope that we 
could resolve this kind of problem.
  I yield the floor.

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