Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

184. Memorandum From the Assistant Secretary of Commerce for Domestic and International Business (McQuade) to the President’s Special Assistant (Goldstein)¹

Washington, February 29, 1968.

SUBJECT

• 5-Year Commerce Export Expansion Plan

I think you will want to read the attached staff paper which sets forth the conceptual basis for our 5-year export expansion plan. I am also sending a copy to Charlie Zwick and John Petty.

I have become increasingly worried that the Balance of Payments program announced by the President on January 1 is coming under attack, particularly the restrictive programs involving foreign investment and travel, while the most positive feature of the program—export expansion—seems to be stalled. Legislation has not been sent up with respect to the new “Export Expansion Fund” for the Export-Import Bank, nor has the proposed improved rediscount facility of the Exim been explained to business or the public. Commerce’s Joint Export Association plan has received favorable business comment but we necessarily must advertise it with some restraint since no funds have been made available for this program. Our supplemental budget request for Fiscal Year ′68 contains half a million dollars for JEA’s and the ′69 budget estimate $2–1/2 million, but it is not possible even to refer to the funds in the supplemental publicly since the supplemental has not been submitted to Congress.

Congressman Rooney has tentatively scheduled our FY ′69 budget hearing for the Bureau of International Commerce on March 22. If the supplemental budget is not submitted to Congress within the next few days I doubt that Mr. Rooney will be willing to take up the supplemental at the March 22 hearing. This is probably our only real opportunity to obtain additional funds in Fiscal Year ′68 in sufficient time to be of practical value to us.

I wish you would do what you can to speed up action on these three items of immediate and direct importance to the export expansion program. I think prompt action is essential, particularly with the increasingly pessimistic comments being made in the press with respect to the declining trade account surplus developing so far this year.

Larry

Attachment

Washington, February 28, 1968.

Paper Prepared by the Bureau of International Commerce, Department of Commerce²

THE FIVE YEAR EXPORT EXPANSION PROGRAM—CONCEPT AND SCOPE

I. General Plan

A. The General Premise

The underlying premise of the 5-year export expansion plan is the need to make U.S. business export minded. In order to do this, we must a) understand more clearly the basic economic reasons why the United States continues to have the lowest ratio of exports to GNP of any major industrialized Western (non-Communist) country; b) how to motivate American industry to alter its basic assessment of domestic marketing versus international marketing so as to induce an allocation of corporate resources to export; and c) to devise the tools, factual and analytical analyses, and other resources at the command of the Government (including appropriate and flexible types of export credit) to sustain a significant shift in business marketing plans toward exports. In essence, therefore, the approach of the 5-year strategic export plan is to help create the conditions which will induce and sustain an alteration in the composition of our GNP in the private sector.

Over the past decade or so U.S. exports have remained fairly constant at about 4% of GNP. If exports could be raised to 4.3% GNP, at current rates of GNP, this would amount to an addition of approximately $2.5 billion in exports above the trend line in export growth. If imports could be held to the secular trend line of growth, approximately 3.1% GNP over the past ten years, the net addition of $2.5 million in exports could provide the additional foreign exchange earnings necessary to bring us within striking distance of equilibrium in our international accounts. Assuming reasonable progress in other aspects of the Balance of Payments program (i.e., travel account, Government expenditures overseas, etc.), the projected improved trade surplus could presumably provide the necessary margin of increased foreign exchange earnings to “solve” the U.S. Balance of Payments problem.

B. Export Targets

1. The Export Goal

The overall goal of the 5-year program (January 1, 1969–December 31, 1973) is to raise U.S. exports as a proportion of GNP from 4.0% to 4.3%. Specifically, at the current GNP level, this means about $2.5 billion in commercial exports above the trend line.

2. Industry Targets

Export targets for the 5-year plan are to be set on an industry or sectoral basis. These targets will at first be developed on a fairly broad basis, possibly initially on a three digit SIC basis, and then refined and made more specific, ultimately perhaps on a six or seven digit SIC basis. The Department of Agriculture will be consulted and targets for the agricultural sector will be determined in conjunction with that Department. Similarly, targets will be established in the minerals area in conjunction with Interior (coal, for example). Official status for these goals will be established through the Cabinet Committee on Export Expansion or the Cabinet Committee on Balance of Payments.

The exports targets by major industry sector would be reviewed from time to time in relation to export performance. Progress in attainment of the overall export goal, as well as the major sectoral targets, would be reported to the President through the designated Cabinet Committee. The targets would be adjusted as necessary and presumably the necessary resources, e.g., Export-Import Bank credit, and other relevant resources, would also be considered.

II. Operational Plan

A. Existing Commerce Trade Promotion Program

Export expansion efforts to date have been based on more or less unrelated but useful individual overseas promotional events, commercial information and economic analyses of foreign country developments and market potentials, and a fairly comprehensive system of foreign service reports on individual export opportunities and reports on individual foreign firms likely to be useful to American companies seeking export outlets. Much of the information on foreign firms has now been automated. Additionally, the American International Traders Index has been established on an automated basis and contains information on some 20,000 firms now engaged in exporting or definitely wishing to be so engaged. The state of the art permits selected electronic matching of foreign market opportunities, foreign firms appropriate as agents or export representatives of U.S. firms, and the U.S. firms at home interested or potentially interested in exploiting foreign markets through export. Lack of funds has limited a reasonable degree of utilization of the existing data.

Cost effectiveness analyses have indicated a high degree of pay-out for certain individual export promotional activities. For example, within 12 months of the particular show at a trade center or a trade fair, U.S. firms exhibiting at these events have reported and we have verified sales results approximately amounting to $15 for every $1 of Commerce budg-eted expenditures. Since about half of the Commerce funds are spent in the United States, the Balance of Payments returns are in the order of 33 to 1. These results, based on present techniques and relatively modest promotional expenditures in support of particular individual trade promotion events overseas, have already established a limited basis for measuring the value of export results in relation to specific forms of export promotion. There is a presumption, as yet unproved, that a more systematic approach would produce greater results—by inducing more U.S. firms to participate in Commerce Department sponsored trade promotion activities and more importantly by inducing U.S. business firms to devote a larger portion of their marketing resources to overseas sales.

B. The New Program: Integrated or Systematic Approach

The basic innovation to be introduced by the new export expansion program is the systematic or integrated approach based on a 5-year planning cycle. Corporate management plans marketing efforts at least 5 years ahead. To a degree still undetermined there is a presumption that major segments of U.S. industry do not plan export sales efforts with the precision and the necessary allocation of company resources as is done in the case of domestic marketing efforts. As a result, of course, the natural ease of selling in the United States market, the buoyancy and growth in the U.S. market, and similar factors tend over the 5-year company planning period, we think, to limit even further the allocation of company resources to the export markets even in those cases where companies have indeed included export markets in their 5-year overall marketing plan. Major companies, of course, plan for overseas marketing as a mix of export sales from the United States and investment in foreign plants (and sales in third country markets from foreign production). The requisite of success of the Commerce 5-year export expansion plan is the general introduction into corporate planning of the export marketing program as an integral and identifiable element in the total marketing and growth plan of the company.

How is this to be done? A variety of techniques and methods will be employed—but the unifying element will be a 5-year export target for an industry, yearly targets or 2-year targets as appropriate, and a schedule of export promotional events for the particular industry in the particular markets for which targets have been set. In other words, overall industry targets will be broken down as practicable, to identifiable foreign country targets for as narrow product groups as possible. In this way an industry generally and the Director of Marketing of a particular company can plan long-range foreign sales programs with full knowledge and reliance on supporting trade center, trade fair, trade mission and other overseas promotional events sponsored by the Department of Commerce. Additionally, research on overseas markets, analyses of changes in foreign markets, including changes in domestic production in those markets as well as changes in import shares being provided by particular foreign countries, will be provided.

New promotional techniques will be introduced as they are needed and in accordance with the nature of the markets to be served and the needs of the U.S. firms interested in exploiting these markets. For example, the Joint Export Association (JEA) will be used as a means of stimulating interest in and defraying part of the cost of entering new markets. Initially Commerce would let contracts with a group of firms forming the JEA for a 2-year period for a stated market objective. The export growth target for the JEA would be established in conjunction with the target. Progress would be assessed periodically toward the attainment of the target, and cost effectiveness analyses would determine whether contracts would be extended or terminated or modified. As experience is gained with the JEA program, it is contemplated that for certain markets, possibly in Latin America and other developing areas, contracts would be let for longer periods up to 5 years where the nature of the marketing problem necessitates longer term efforts. Initially, however, JEA efforts would be more heavily concentrated in product areas and country markets offering more immediate payout possibilities.

Implicit in the approach just outlined is a “commitment” by the Government to follow through on the necessary supporting efforts directed toward the elimination of unreasonable or unfair foreign barriers to the expansion of our trade. Our trade policy work, in conjunction with State Department and the Office of the President’s Special Trade Representative (STR) will take this into account, both for shorter term and longer term trade expansion objectives.

Also implicit in this approach is a “commitment” by our Government to take the necessary steps with respect to domestic policy measures to place U.S. exports in a reasonably competitive position with foreign exporters. Controlling inflation is of central importance. But also the Government must do its part to provide competitive export credit facilities, improved transportation and other supporting services and facilities necessary to an economical and competitive export effort.

C. Stimulating Interest in Exports—The Task in the United States

To accomplish the goal of a reallocation of resources from domestic to foreign marketing, by the small but crucial 3/10 of 1%, will require a major sustained promotional program throughout the United States. Mainly this program should address itself to trade associations or other groups of firms already in existence. The structure of trade associations in the United States generally limits the activities of such associations to information purposes. The trade associations can become a major vehicle for exploiting the concept of the export goal, the 5-year targets, and the 1 or 2-year specific promotional plans for particular industries and particular product lines. Association meetings can be used in a number of ways to stimulate interest and motivate American companies to meet or exceed the export targets. For example, after Commerce has set a target for Product X in Market Y, the industry will be informed of the target, the trend in U.S. exports of Product X to Market Y over a period of years, the degree of export penetration by foreign countries and share of the growth of that market, and domestic consumption in that market in relation to domestic production and imports. Additionally, each firm will be informed as to the proportion of the U.S. industry shipments going into export. In this way the individual company will know whether or not the company is exporting as much as the average firm in the industry. In addition, of course, each company will be able to judge the degree to which Japanese and Italian firms for example have been able to exceed the export growth rate for the U.S. industry as a whole or for their company in particular in relation to the particular market. The essence of the scheme, of course, is to provide enough information to stimulate the interest of the industry in exporting by providing foreign market analysis and growth trends and by providing the information which will permit the individual U.S. firm to judge whether or not its own export performance is commensurate with its competitors in U.S. industry, as well as that of foreign competitors for the particular market.

Obviously Department of Commerce promotional efforts will be framed for particular industries in relation to the nature of the foreign market potentials for that industry and the degree of difficulty in achieving those potentials. Analyses of domestic U.S. industry growth trends will be made so that the export target aspect can be related to trends in domestic growth and available or excess plant capacity in the United States.

Finally, the 5-year export plan will be directed and monitored by an export planning staff in Commerce. This staff will be guided by an advisory group of business executives, marketing specialists, and business economists. Ad hoc industry groups will be used in framing particular industry export targets and special industry promotional programs.

III. Measuring Results

It has not been proved, of course, that it is possible to achieve a reallocation of resources by U.S. industry directed toward increased export effort. It is possible that structural factors in the U.S. economy make attainment of the goal impossible. We know that the two basic factors which determine the general level of U.S. exports, of course, are the buoyancy of foreign markets (particularly Western Europe, Canada and Japan) and the buoyancy of the domestic U.S. market. Excessive demand at home not only serves as a magnet to attract imports but also causes U.S. firms to neglect relatively unknown foreign markets in favor of known and proven domestic sales opportunities. Additionally, if as some U.S. businessmen assert, domestic sales are indeed more profitable generally than export sales, attainment of the export goal may indeed be impossible if we assume continued highly vigorous growth in the domestic economy.

A basic feature of the 5-year export planning effort provides for economic research and analysis to illuminate the structural factors affecting the long term U.S. position in world trade. The comparative studies of foreign economies and their export growth will also be made. Conclusions will be drawn as to what steps are necessary to assure an adequate degree of export growth for the U.S. relative to the export performance of other countries. Should it appear to be impossible to achieve the export goal by a wide margin, or if the import growth trend should be so great as to wash out on a net basis most of the positive gains in the trade account envisaged by the program, these conclusions will be brought to the attention of the Cabinet Committee on Balance of Payments and the President. The policy implications of such a conclusion are obviously very serious, particularly if our balance of payments deficit cannot be significantly moderated as a result of programs undertaken outside of the trade account.

The cautionary words in the paragraph above are necessary since available data do not demonstrate whether or not present conditions in the United States and the nature of international trade, which is highly competitive and in part subsidized by some national governments, indicate that the objective is attainable. It will be attained, presumably, only if the profit potential in export sales is at least commensurate with the return on capital and other company resources put to alternative uses. In the period 1960 through 1966 Italy has increased its exports as a proportion of GNP by 2.3 percentage points, from 10.8 to 13.1 percent; Germany by 1.5 percentage points, from 15.4 to 16.9 percent; and Japan by 0.5 percentage point, from 9.6 to 10.1 percent. The U.K. has been unable to increase its export ratio. Obviously structural factors within these countries help to provide clues to the success or failure of their export programs. In certain respects the problem facing the U.S. economy in achieving a reallocation of resources from domestic sales to export sales may be considerably more difficult and intractable than in many foreign countries.

Finally, whether or not the export goal can be achieved, it seems necessary and desirable that a major export expansion effort along lines described above be undertaken. Such an effort will make some impact in our trade account even if the goal itself may not be achieved. Since the problem is a long term problem of reallocation of industry resources, more than the 5-year period may be necessary to achieve the goal. In this respect structural changes may be taken into account. In any case the Commerce Department 5-year plan will be built around concepts of export targets which can be costed out in terms of budgetary expenditures. Cost effectiveness measurement techniques will be built in to the various export activities and will be useful tools in fashioning program objectives and related budgetary expenditures. The program mix, therefore, can be altered in future years to emphasize those activities which produce the best results for the budget dollar expended and in terms of balance of payments gains. A different system of cost effectiveness will have to be introduced to permit adequate judgment for export objectives in the developing countries since returns here will be of a longer term nature. Initially, however, program emphasis will be on the best return in the short-run and will concentrate most heavily on hard currency markets.

1. Source: Johnson Library, Office Files of Ernest Goldstein, Export Program-2, Box 7. No classification marking.
2. No classification marking.