“Welcome — we like Americans and your products but where have you been?” This seemed to be the general comment of most leading merchants and government officials in five countries and eight cities visited by a recent Building and Construction Trade Mission to the Middle East.

The 12 Mission members found a genuine interest in reversing the limited U.S. presence in a market that is growing at astounding rates occasioned by increasing oil revenues in a stronghold of free enterprise philosophy. Specific opportunities were found in areas of design and consultancy, construction, maintenance and service of existing and future facilities and industrial joint ventures.

Construction projects abound in areas of housing, airports, hospitals, communications systems, universities and Schools. While in some countries initial major projects such as port facilities have been or are nearing completion, development planning continues at a rapid pace.

Emphasizing the potential market for U.S. goods and services, Mahmoud A. Taiba, Deputy Minister of Commerce and Industry for Saudi Arabia, pointed out to mission members that “made in U.S.A.” still represents quality in Saudi Arabia and that quality is in many cases as important a factor as price.

Time for U.S. initiative

The Mission found that U.S. building materials and equipment generally were in good demand. In the Gulf States, due to long British official presence, the first sources of supply still are predominantly British. However, contractors and merchants indicated a strong interest and desire for U.S. participation in the market particularly for highly technically designed products.

The United Arab Emirates, with its more recent increase in revenues, is just beginning to open ip for high quality design services and construction supervision. "Architectural and engineering opportunities for U.S. firms should increase when one or two major buildings are built under new U.S. concepts." according to Louis McMillion, President of The Architects Collaborative of Cambridge, Mass..

While the Middle East markets are expanding at an outstanding rate, so is the competition. A number of leading Chamber of Commerce and Government officials pointed out that while there is high respect for the quality of American equipment and services, many jobs and opportunities have gone to other competing nations primarily due to their attention to the mar ket. Some of the key suggestions made and reiterated by U.S. Embassy Officers in each of the countries visited are:

• Personal contacts - The Arab world works on personal friendship and trust. Personal attention can not be overemphasized as a means of developing a local market for goods or services. Frequent visits and diligent followup by company representatives to their agents and customers is a must.

• A good agent : In each of the countries visited the importance of a local agent was stressed; indeed in many countries it is mandatory.

• After-sales service : Successful firms in the marketplace attributed much of their success to meticulous attention to maintenance and after-sales service. This is not only necessary to meet the competition but to maintain the reputation of a product in a market which is increasingly able to de mand after-sales service and parts availability as a condition of sale. Strong, on-the-ground agent Support and training pays big dividends.

Mission members met with over 200 potential representatives during the trip and expect to appoint a total of 58 local agents or representatives. In most countries one agent for the country was deemed adequate. However in Saudi Arabia, because of the nature of the mar ket, many firms appoint several agents with specific territories such as Jidda, Riyadh and the Eastern Province.

Ross P. Wright, President of Reed International Sales Co., Erie, Pa., summed it up this way: “I accomplished about 300 percent more than expected on this trip in signing agents for my products. Alone, on a personal mission to the area, these agency contacts would have taken over three months or more, if I could have made them at all.”

The Mission was comprised of 11 U.S. company executives, four of whom are presidents of their own companies. Their product and services lines included architectural and engineering planning, public utility and environmental engineering, heavy construction equipment, building materials, concrete pipe and brick, steel tools and special lubricants, household specialty equipment, communications and field product management systems. After visiting Kuwait, Saudi Arabia, Qatar, the U.A.E. and Bahrain, the mission estimates resulting sales and services at $20 million, following establishment of agency agreements.

Mission members were J. S. Rossetti, Allis Chalmers Overseas, Milwaukee; Theodore A. Arapoglou, Arpol Petroleum Co., New York; Luis Arias, Besse Overseas Corp., Alpena, Mich.; Walter Edgington, General Telephone and Electronics Sylvania, Washington, D.C.; Sebouh Toukhanian, KDT, Inc., Huntington Woods, Mich.

Also, Frank La Due, McCracken Concrete Pipe Machinery Co., Sioux City, Iowa; W. A. Cheney, Metcalf and Eddy, Boston; Hassan Abu Middain, J. I. Case Co., Racine, Wis.; Ross P. Wright, Reed International Sales Co., Erie, Pa.; Louis A. McMillan, The Architects Collaborative, Cambridge, Mass., and William S. Lord, U.S. Steel International, New York. James H. LeFeaver, Director of the U.S. Regional Trade Development Office, Beirut, was Mission Director.

STATEMENT OF WALTER R. EDGINGTON, INTERNATIONAL COMMITTEE, NATIONAL SECURITY INDUSTRIAL ASSOCIATION

The CHAIRMAN. Mr Edgington.

Mr Edgington. Mr. Chairman, I am Walter Edgington. I am here today as the chairman of the National Security Industrial Association [ NSIA], which is a non profit, non political, and non lobbying association of approximately 300 manufacturing, research, engineering, educational, and service organizations.

At the outset, let me state that NSIA supports the current policy in the new conventional arms transfer both in objectives and in approach.

We welcome this latest assessment of the world as it exists today and the steps to be taken to restore America's leadership role. The enhancement of the state of readiness of our friends and allies, the revitalization of our alliances, the establishment of more coherent East-West policies and strategies, the reinvigoration and strengthening of our own defense production capabilities all are realistic objectives which we can achieve and whose achievement will contribute to the security of the world.

We in industry are regularly involved with multiple European and Canadian corporations m various business opportunities, joint ventures, licenses, and marketing activity. Because of this close association, our constant interchange, travel, and intergovernmental relationship, we too are very anxious about major international tensions both in Europe and the Middle East.

In Europe, the North Atlantic Treaty Organization is our major alliance, and within the North American military industrial community NATO clearly provides the framework for discussion of many common needs. Economic bases, employment, multinational projects, military sales, arms transfers, export licenses, and Third World nations as markets have become our buzz words.

During the last few ;rears, though, the nations, their national industrial bases, their political parties, NATO and the EEC, have been in a constant ferment. The gradual erosion of our military strength, the significance of our national industrial bases, the growing pressure of various forms of social democratic concepts, and the focus on materialism are apparent.

NATO governments are anxious to increase exports, pressing their industries for international sales, both military and commercial, in all the world's marketplaces-their objective being to develop and maintain a strong industrial base, strong employment, strong currency, and to insure major offsets to the energy costs.

It is against this background that U.S industry and Government must combine to strengthen our will, our purpose, our management, our productivity, and our talents both at home, within the NATO alliance, and competitively in the Third World markets.

The NSIA concurs in this point of judicious use of arms transfer and a flexible, pragmatic approach to arms sales which can strengthen the U.S. economy and industrial base and contribute to the resolution of some of the economic problems of our allies and friends and enhance deterrence.

Last year I appeared before this committee to give an industry view of the status of Mr. Carter's arms transfer policy nnd its direct impact upon the U.S. exporting business opportunities and employment in this countrv. I sought to clarify or placP in perspective the military, political, and economic advantages which accrue to the Government. These advantages still hold true and. in fact, are even more important today as this country seeks to improve its industrial base and strengthen and maintain international peace and security.

From an industry standpoint, the sale of military products contributes to a higher employment at home; maintenance of a secure industrial base: an improves balance of payments; added profits for capital formation and, hence, technology and productivity investment; potentially lower unit costs for DOD; and the much enhanced opportunity to expand our commercial activities with those countries purchasing defense items and services to include logistics and support.

There are also pluses for American foreign policy goals as well, such as reassertion of America's predominant position as guardian of the democratic values, a reduction in the need for direct U.S. military involvement, and, in many cases, increased political influence in those countries receiving equipment. Many of last year's key points, were addressed in today's statement.

From an industry viewpoint, we would usually prefer commercial sales over military sales because they are quicker, simpler, n.nd provide for more direct contact with the foreign buyer who may have additional needs not always recognizable when dealing through a third party. Industry experience is that the U.S. Government management controls over commercial arms sales are equally as stringent as in the case of foreign military sales. Therefore, it seems advantageous to permit each sovereign country to choose whether it desires to acquire goods and services through foreign military sales or via commercial sales.

We are pleased to see that the current arms transfer policy has, in essence, responded to our recommendations or acknowledged the basic issues of concern to us, such as co-production agreements and thirdcountry transfers with pledges to study the issues and to consult with Members of Congress, industry, and others to seek guidelines for the future.

We welcome the opportunity to work with Government in this vital nrea of security and offer at this time the following recommendations and comments:

Regarding co-production, future co-production agreements. be they with our NATO allies or other friendly nations, should be supported by the Government. but details of the actual agreements should be left to the companies actually involved.

Regarding third-country sales, the related issue of third-country sales should be worked out by the companies involved in their sales co-production agreements in conformance with existing laws and controls. Obviously, there will be a particular constraint to prevent any East-West loss of technology. I would emphasize that U.S. corporations are highly sensitive to the national security problems and all aspects thereof.

Regarding the commercial ceiling, there is no apparent advantage to retaining the commercial ceiling. Our experience m the last administration proved that very few, if any, requests were denied. We applaud this committee's recommendation to do away with the ceiling and would hope that the House of Representatives would follow a similar course of action.

Regarding critical technologies, with regard to the issue of the transfer of sensitive technology, U.S. industry is in agreement with the need to protect the technology base and its applications from certain nations. To insure that this critical military technology is protected while encouraging trade of high-technology products, we would recommend that industry continue to work with Government in clarifying the technologies which should be restricted and the process and procedures required.

Concerning marketing- abroad, we welcome the reversal of the former policy limiting assistance to be provided by overseas U.S. personnel to defense firms marketing abroad.

Let me skip on down to the point of tax. In tax legislation the thorny problem of taxation of U.S. citizens working abroad is being addressed. We feel that in the national interest, taxes on the first $i5,000 of salary base should be excluded. Redress of this tax problem is important to improving the military sales position of U.S. companies participating in the overseas markets.

Concerning international sales profitability, this is an old issue revisited, and, in our view, it is m the national interest and will strengthen our industrial base to improve the profitability of defense industry both domestically and in international sales.

Typically, new international sales of large scope take two to four years to develop. The cost of market development and the risk in overseas sales was previously recognized, and when properly justified. was compensated. Several years ago this adjustment mechanism was dropped. We in NSIA have just commenced an analysis of the whole problem of international sales, their risks and profitability and what improvements should be made both by governments and industry. "When complete, we will be pleased to share our recommendations with your committee.

In conclusion. U.S. industry believes that the current policy and its approach are well thought out, pragmatic. and flexible. a policy within which U.S. industry can meet its goals and responsibilities to this country and to the world community.

Thank you.

The CHAIRMAN, Mr. Edgington. we appreciate your statement.

[Mr. Edgington's prepared statement follows:]

PREPARED STATEMENT OF WALTER R. EDGINGTON

Mr. Chairman, members of the committee: I am Walter R. Edgington. vice president, Government Relations, Sylvania Systems Group for GTE Products Corporation but I am appearing here today as chairman of the International Committee of the National Security Industrial Association.

The National Security Industrial Association is a nonprofit. nonpolitical. non-lobby association of approximately 300 manufacturing, research. educational and service organizations of all types and sizes, comprising all segments of defense industry in all parts of the United States. Our essential role and purpose is to foster good and effective communications and a close working relationship between industry and those establishments of the Government whose functions relate in whole or in part to national security to the end that the national security is protected and advanced.

I am delighted to have this opportunity to discuss the current conventional arms transfer policy, the anticipated role tor U.S. Industry and the significance ot what we see as an evolving change In the Government/Industry relationship.

At the outset, let me state that NSIA supports the current policy In Its new conventional arms transfer objectives and approach. We welcome this latest assessment of the world as it exists today and the steps to be taken to restore America's leadership role. The enhancement of the statement of readiness of our friends and allies; the revitalization of our alliances; the establishment of more coherent east-west policies and strategies; and the reinvigoration and strengthenIng our own defense production capabilities are realistic objectives which we can achieve end whose achievement will contribute to the security of the world.

We find the statement as presented to this committee by Mr. James Buckley, Under Secretary of State tor Security Assistance, Science and Technology, as a clear enunciation of the current policy which is a pragmatic approach based on meeting security needs and which recognize arms transfer as a vital and constructive Instrument of American foreign policy. It ls a policy aimed at strengthening other nations with common security Interests and complementing V.S. defense efforts.

We in U.S. industry are regularly Involved with multiple European and Canadian corporations in various business opportunities, joint ventures, licenses and marketing activity. Because of this close association, constant interchange, travel, and intra-government relationship, we too are very anxious about major International tensions both in Europe and the Middle East. In Europe, the North Atlantic Treaty Organization (NATO) Is our major alliance. Within the North American military/Industrial defense community, NATO clearly provides the framework for discussion of many common needs. Economic bases, employment, multi-national projects, military sales, arms transfer, export licenses and Third World nations as markets have become our buzz words. During the la11t few years, the nations, their national Industrial bases, their political parties NATO and EEC have been In a constant ferment. The gradual erosion of military strength, the significance of national industrial bases, the growing pressure ot various forms of social democratic concepts and the focus on materialism are apparent.

NATO governments are anxious to increase exports, pre11sing their industries for international sales, both military and commercial, In all the world market• places-their objective being to develop and maintain a strong Industrial base, strong employment, strong currency, and to Insure major offsets to the energy costs.

It Is against this background that U.S. Industry and Government must combine to strengthen our will. our purpose. our management, our productivity and our talents both at home, within the NATO alliance, and competitively in the Third World markets.

The National Security Industrial Association concurs that the judicious use of arms transfer, and a flexible, pragmatic approach to arms sales, can strengthen the U.S. economy and Industrial base, contribute to the resolution of some of the economic problems of our allies and friends, and enhance deterrence and world-wide peace.

Last year I appeared before this committee to give an Industry view of the status of Mr. Carter's arms transfer policy and its direct Impact upon U.S. exporting business opportunities and employment In this country. I sought to clarify or place In perspective the military, political. and economic advantages which accrue to the United States In assisting a country in meeting Its legitimate defense requirements.

These advantages still hold true, and in fact, are even more important to the United States today as this country seeks to improve its industrial base, and strengthen and maintain International peace and security.

From the industry viewpoint, the sale of military products abroad contributes to higher employment at home, maintenance of a secure industrial base, an improved balance of payments. added profits for capital formation/technology and productivity investment, potentially lower unit prices for the Department of Defense and the much enhanced opportunity to expand our commercial activities with those countries purchasing defense items and services, to include logistics support and training. There are pluses for American foreign policy goals as well, such as reassertion of America's predominant position as guardian of the democratic values; a reduction In the need for direct U.S. military support and. In many cases, increased political influence in those countries receiving military equipment.

In testimony before your committee last year, I recommended six specific, pragmatic changes In the then current arms transfer policy to Include:

Eliminating the annual dollar volume limits on FMS and MAP.

Removal of the restriction of the sale of weapons abroad if they are not operationally deployed with U.S. forces and the prohibition of development or modification of a system solely for export.

Recognition that our allies and In some cases the Soviet Union, can and do Introduce advanced weapons systems Into regions where the U.S. refusal to be the first supplier forced countries, normally dependent upon the United States, to look elsewhere for their support.

Instruction of Embassy and military representatives abroad to assist U.S. manufacturers In their execution of the foreign military sales program and ln competing for commercial contracts lo the host country. (Now corrected by the Department of State letter In April 1981).

Reinstatement of the allocation of Justifiable costs lo procurement regulations for foreign sales where they are undertaken In support of American foreign policy.

Permitting U.S. companies to compete freely for military contracts In countries that are recognized as friends of the United States without unnecessary preauthorization at the policy level by the State Department.

I also questioned the administration's prohibition on coproduction agreements to all countries other than NATO, Japan, Australia, and New Zealand.

The adjustment of the dollar limits which now force some sales into the foreign military sales category and the limitation of the commercial arms sales celling was also advocated. As regards this latter point, from an Industry viewpoint, we would usually prefer commercial sales over foreign military sales because they are quicker, simpler, and provide for more direct contact with the foreign buyer who may have additional needs not always recognizable when dealing through a third party. Industry experience ls that U.S. Government management controls over commercial arms sale!! are equally as stringent as In the case of foreign military sales. It, therefore, seems advantageous to permit each sovereign country to choose whether It desires to acquire goods and services through foreign military sales or via commercial sales.

We are pleased to see that the current arms transfer policy has, in essence, responded to our recommendations or acknowledged the basic Issues of concern to us such as coproduction agreements and third-country transfers with pledges to study the Issues and to consult with Members of Congress, Industry and others to srek workable guidelines for the future.

We welcome the opportunity to work with Government In this vital area of national security and offer, at this time, the following recommendations and comments:

Co-production, - Future co-productlon agreements, be they with our NATO allies or other friendly nations, should be supported by the Government, but details of actual agreements should be left to the companies actually involved.

Third-country sales. - The related Issue of third country sales should be worked out by the companies involved in their sales/co-production agreements in conformance with existing laws and controls. Obviously, there will be particular constraints to prevent any East-West loss of technology. I would emphasize that U.S. corporations are highly sensitive to the national security problems, and all aspects thereof.

Commercial ceiling. - There ls no apparent advantage to retaining the commercial ceiling. Our experience In the last administration proved that very few, If any. requests were denied.

We applaud this committee's recommendation to do away with the celling and would hope that the House of Representatives would follow your course of action.

Critical technologies. - With regard to the Issue of the transfer of sensitive technology, U.S. industry is in agreement with the need to protect the technology base and Its applications from certain nations. To Insure that this critical military technology ls protected, while encouraging trade of high technology products, we recommend that U.S. Industry continue to work with Government In clarifying the technologies which should be restricted and the process and procedures required.

Marketing abroad. - We welcome the reversal of the former policy limiting assistance to be provided by overseas U.S. personnel to defense firms marketing abroad. The new policy directing U.S.G. overseas representatives to provide the same courtesies and assistance to firms that have obtained licenses to market Items on the U.S: munitions list as they would to those marketing other American commercial products abroad reflects a mature understanding or the realities or today's markets. In other tax legislation, the thorny problem of taxation of U.S. citizens working abroad is being addressed. We feel that, In the national interest. taxes on the first $75,000 of salary base should be excluded. Redress of this tax problem Is important to improving the military sales position of U.S. companies participating in the overseas markets.

International sales profitability. - An old issue revisited is that. In our view, it is in the national interest and will strengthen the U.S. industrial base to Improve the profitability of defense industry, both domestically and In International sales. Typically, new international sales of large scope take 2 to 4 years to develop. The cost of market development and the risk In overseas sales was previously recognized, and when properly justified. was compensated. Several years ago this adjustment mechanism was dropped. We in NSIA have just commenced an analysts of the whole problem of International sales, their risks and profitability, and what improvements should be made both by Government and industry. When complete, we will be pleased to share our recommendations with your committee.

Conclusion. - U.S. industry believes that the current policy and Its approach are well thought out, pragmatic and flexible; a policy within which U.S. industry can meet its goals and its responsibilities to this country and to the world community.