Testimony of Robert Thayer
Executive Council Member/General Vice President,
International Association of Machinists and Aerospace Workers
before the U.S.-China Commission
August 2, 2001

I. Introduction

The International Association of Machinists and Aerospace Workers (IAM) represents over 730,000 workers in North America in a variety of industries, including aerospace, shipbuilding and ship repair, electronics, woodworking, defense, and transportation, just to name a few. The IAM represents more aerospace workers than any other union in the world. IAM members work for prime and sub-tier contractors producing, assembling, and maintaining almost every imaginable product that is involved in the aerospace industry. IAM members have helped build some of the world's most successful aerospace companies -- like Boeing, Lockheed Martin, Pratt & Whitney, and General Electric, just to name a few.

Given our membership in the aerospace industry, the IAM has a vested interest in ensuring the competitiveness of the U.S. aerospace industry and in preserving the jobs of our members in this highly competitive industry. We are also mindful that healthy and vibrant aerospace employment in the U.S. contributes to our nation's economic security as well as our defense.

Sadly, for years we have witnessed the decline in stature of the U.S. aerospace industry as foreign competitors rise. While there are many factors for this decline, one of them is the increasing transfer of our jobs and the technology, which we have developed as workers and paid for as tax payers, to other countries by the U.S. aerospace industry.

One of the countries who is building a vibrant aerospace industry - partially on the basis of transferred production and joint ventures with U.S. aerospace - is China. In the coming years, the increasing competition from China and the related transfer of our aerospace jobs and technology to China will result in serious security concerns as U.S. workers in this vital industry are laid off and as China's demands for transfers of vital production and technology from the United States increase.

China's well-documented violations of human rights and its disrespect for internationally recognized labor standards also cannot be overlooked. In keeping its workforce from enjoying fundamental human rights - like the right to join a free and independent union - and other basic democratic rights, China also undermines the basic rights enjoyed by workers in the U.S.

At the IAM, we are very aware that U.S. companies "profit" from the moral and economic deprivation endured by China's workers. As stated before this Commission earlier this summer, AFL-CIO Secretary-Treasurer Richard Trumka explained, "They [U.S. multinationals] can pay workers depressed wages, force them to work long hours, and expose them to unsafe working conditions without having to worry about organizing drives in their factories or the prospect of facing independent workersí representatives at the bargaining table."

II. IAM's first-hand look at China's Aerospace Activities

The IAM offers this Commission its conclusions based on personal, first-hand observations of China's aerospace industry. In October 1998, the IAM sent 15 of its top representatives on a fact-finding labor delegation to China. The delegates included four of the IAM's top officers, one of whom is responsible for the IAM's overall aerospace activities and the IAM's Overall Boeing Coordinator. They were joined by IAM staff and business representatives from almost every location in North America where the IAM represents workers from Boeing.

This IAM delegation was made up of machinists who actually build airplanes. They possess the expertise of journeymen who know with intimate detail all htmects of aerospace manufacturing. Their first-hand accounts of whey they saw in China combined with their knowledge of both manufacturing and the processes involved greatly add to our knowledge of the aerospace industry in China.

Together with counterparts from the Boeing Corporation, the IAM visited facilities of the Shenyang Aircraft Corporation, Xian Aircraft Corporation and the Shanghai Aviation Industrial Corporation.

These visits included "walk throughs" of selected sites. During the Mission, our delegation also heard presentations from senior officials at each of these companies. We participated in meetings between senior officials, the company, and, of course, the IAM. On several occasions during these meetings, IAM delegates heard calls for the transfer of work to facilities in China. "Requests" were often combined with not-so subtle reminders that competitors were only too willing to make special ideals" in return for China's purchase of its aircraft.

During our Mission, we also made special note that in general China's aerospace workforce was paid a fraction of that which was paid to U.S. workers. Additionally, we noted that there were no signs of any visible independent trade unions in any of the facilities we visited. Nor were there signs of any meaningful collective bargaining activity.

The IAM delegation met a few weeks later after returning home from our Mission. During that meeting, participants discussed what they had learned first-hand from the Mission. These observations are summarized by the following five points:


China seeks to add to its developing aerospace industry;
China has the capacity to greatly improve its already functioning aerospace industry;
China continues to demand that U.S. aerospace companies transfer their production and technology to it in return for market sales/access;
China's use of offsets and offset-like arrangements increasingly have negative consequences for the U.S. workforce; and
The U.S. government continues to effectively do nothing about the situation, to the detriment of U.S. aerospace and aerospace related workers and our national security.

III. Observations
A. China seeks to add to its developing aerospace industry

During our Mission in 1998, IAM participants couldn't help but notice the massive facilities that had been built specifically for the aerospace industry in China. It was also clear through material that was shared with us that China is sincerely intent upon greatly expanding its aerospace industry.

This should come as no surprise. After all, the Chinese aerospace industry dates to the 1930s.(1) As noted by the U.S. International Trade Commission (USITC), ". . . the nation's aviation sector intends to pursue a principal role in commercial aircraft manufacturing."(2)

China's aerospace objectives are not limited to manufacturing single products. While China aerospace already performs a great deal of work for U.S. aerospace concerns, it is looking for increased work (e.g. see attached table). For example, Chinese "manufacturers indicate a willingness to take on a variety of tasks from assembly work to component and subassembly manufacture. . . ."(3) Further, aviation industry leaders want "China to secure more work in the fabrication of complex assemblies such as body sections and nose subassemblies."(4) China's aerospace "hopes to strengthen its role as a supplier with the addition of resources for manufacturing and development and increased subcontract work from Western aircraft producers."(5)

China has the capacity to greatly improve its already functioning aerospace industry

There is no question that China has the capacity and the ability to become a major aerospace producer. As one IAM participant on the tour of China's aerospace facilities concluded, "China can do anything they want. They have the technology, the manpower and the research capacity." Another IAM participant noted that China's aerospace industry was capable of "integrating most technologies into the manufacturing process."

IAM delegates also noted the sophistication of the apprenticeship and training programs at China's aerospace companies. IAM participants viewed this as a commitment by China's aerospace companies that they were willing, ready, and able to train a workforce to meet the challenges of the future in the aerospace industry. In viewing China's commitment to training in the industry, IAM participants noted that U.S. aerospace companies have virtually abandoned apprenticeship and training programs. These participants openly wondered if this lack of commitment on the U.S. aerospace industry for training U.S. workers was indicative of their view of the future for U.S. aerospace workers.

Although the IAM delegation only toured a fraction of the aerospace industry in China, the industry itself is enormous. According to the USITC, the Aviation Industries of China (AVIC) estimates in 1997 at $3.1 billion in ì18 factories involved in the production of aircraft and components, 34 related equipment manufacturers, 29 aeronautical research institutes, 4 aeronautical universities, and 8 trading companies."(6) In addition, according to USITC, AVIC employs "a total of 500,000" people.(7)

China's capacity for aerospace production is significant. According to the Boeing Company, China aircraft factories are currently working on a number of projects with Boeing, including:

Shanghai: 737 horizontal stabilizers
Xian: 737 vertical fins and 747 trailing edge ribs
Chengdu: under contract with Northrop Grumman, produces the 757 empennage (horizontal stabilizer, vertical fin and tail section)
Shenyang: 757 cargo doors and 737 tail section (8)


In addition, Boeing lists three joint ventures with China:
Taikoo Aircraft Engineering Company Ltd, Xiamen: Airplane overhaul and repair.
BHA Aero Composite Parts Co. Ltd, Tianjin: Beginning in late 2001, will manufacture composite parts for interiors and secondary structures for commercial aircraft.
Boeing Spares Services Center, Beijing: Center for airline logistics, training support and services, with 30,000 part numbers available.(9)

The Chinese aerospace industry is also poised to accommodate changes in the market: "AVIC has guided the industry towards civil aviation in response to a decline in military orders and as a strategic move to advance China's capabilities in the commercial aircraft sector."(10) China has also set up another government organization, the China National Aero-Technology Import and Export Corporation (CATIC), which "oversees foreign subcontract work and joint ventures, as well as trade and aerospace products."(11)

Perhaps the best summary of China's capacity to produce aerospace products is found in the USITC's 1998 Report "The Changing Structure of the Global Large Civil Aircraft Industry and Market: Implications for the Competitiveness of the U.S. Industry."(12)

. . . Chinese producers are capable of supplying quality products that conform to strict Western standards. Moreover, the industry has an advantage over other Asian htmirants in its many years of experience in building complete aircraft.(13) . . . In addition, China's more experienced and modernized suppliers understand quality assurance.(14) Although industry sources stress that time and close cooperation are necessary to ensure Chinese reliability on new programs, once a foundation is in place and workers are trained to the standards and production practices of Western producers, China's aircraft factories are able to produce high-quality parts, components, and subassemblies.(15) For example, while Boeing always begins with dual sources of supply when placing work in China,(16) Chinese factories have achieved the status of sole supplier on certain Boeing parts and complex assemblies,(17) an indication of Western LCA manufacturers" growing level of confidence in China's subcontracting abilities. Further, Chinese factories indicate an awareness of their weaknesses in quality assurance and are attempting to improve product quality through manufacturing experience with Western producers and by emulating the practices of successful Chinese suppliers.(18)

China continues to demand that U.S. aerospace companies transfer their production and technology to it in return for market sales/access

As mentioned at the outset of this statement, IAM participants on the Mission were struck by how blunt China's aerospace industry representatives spoke about transfers of production from U.S. aerospace companies. Indeed, at several meetings in China, transfers of production were raised.

This too should not be surprising. As concluded by the USITC's Assessment of the Economic Affect on the United States of China's Succession to the WTO, "China is particularly explicit and aggressive in demanding civil offsets in the commercial aerospace industry."(19)

Aerospace offsets demanded by China continue to grow. China's direct offset requirements include transfer of production to China in addition to the requirement of technology transfer. These transfers are "often an implicit requirement of doing business in China."(20)

Offsets have been addressed in U.S. bilateral agreements, such as the 1992 U.S.-E.U. agreement on Trade and Large Civil Aircraft.(21) An "offset policy" with respect to "defense purchases has been in effect in China since 1988."(22) As noted by the USITC, however, "China aggressively seeks offset compensation when negotiating non-military purchases and often includes an expressed preference for offsets in bidding documents for nationally and internationally funded procurement."(23)


China's use of offsets and offset-like arrangements increasingly have negative consequences for the U.S. workforce

The serious negative impact that offsets are having on the U.S. workforce are overwhelming. Since 1989, over 500,000 jobs have been lost in the aerospace industry. During the same time period, close to one million jobs have been lost in the U.S. alone in the aerospace and related industries. Several thousand of these jobs have been lost directly due to offset agreements.(24)

As China increasingly determines to capture part of the aerospace market using transfers of production and technology as leverage for market access, more and more U.S. workers" jobs will be at stake. Indeed, economists predict that in the coming years "an additional 469,000 jobs in aerospace and related industries could be at risk by 2013 because of offset policies and increased foreign competition."(25)

Even extremely conservative figures on the loss of jobs due to offsets are significant.(26) At the IAM alone, thousands of our members" jobs continue to be lost as company after company moves production offshore. And China continues to be the recipient of many of these jobs.

Adding to these numbers are the dire effects that these transfers are having on the U.S. supplier base -increasingly relied upon by prime contractors.(27) In other words, "the use of offsets will increase posing serious risks for the U.S. supplier base."(28) Moreover, offsets have resulted in "over-production capability" which, for the defense industry "negatively affects production in the commercial aerospace industry" as "sub-tier producers that employ thousands of aerospace workers are also affected."(29)

When it comes to China, the issue of overcapacity and competition is exacerbated since U.S. workers must compete with a workforce that does not enjoy fundamental human rights and that earns far less than their U.S. counterparts. As noted by the USITC, "[A]n additional advantage China enjoys over htmiring airframe competitors is a large pool of experienced aerospace workers with wages,(30)an estimated 30 to 50 percent below those in Western Europe." (31)

The competition that China gives the U.S. in the aerospace industry will also have profound effects in terms of national security. Indeed, as more and more U.S. aerospace workers are laid off and production is moved offshore, U.S. aerospace workers will undergo a "de-skilling." In addition to the obvious national security implications of a vital defense industry leaving our shores, when the U.S. will have to reemerge in the defense industry, it will be time consuming and expensive as workers will have to be trained and new facilities built.

Other national security interests are present with respect to China and transfers of U.S. technology. Recall the arrangement with respect to McDonnell Douglas' sale of machine tools to the China National Aero-Technology Import and Export Corporation to be used for production of commercial aircraft.(32) Some of the tools were transferred to the Nanchang Aircraft Company which produces Chinese military equipment.(33)

The U.S. government continues to effectively do nothing about the situation, to the detriment of U.S. aerospace and aerospace related workers and our national security

The IAM has been raising the dangers of the U.S. aerospace industries' reliance on offsets for a number of years with industry and our government. Last year, the Presidential Commission on Offsets was established to address offsets in both the defense and commercial industries. Unfortunately, the Commission only met once. Although the Commission is required by law to issue a final report later this year, no future meetings have yet been scheduled.

Other than the Commission which was created by Congress and Executive Order, our government has done very little to establish a comprehensive policy regarding offsets. Currently, the U.S. government appears to be content to "relegate to U.S. private interests the sole responsibility of negotiating with other nations" government over offset issues."(34) Abandoning the government's responsibility for setting a policy on offsets has proven to have been a disaster for industries like machine tool and ship building and repair. Its inaction is also posing a serious threat for the aerospace and related industries. This threat is greatly enhanced when it comes to countries such as China and the granting of PNTR and their "accession" to the World Trade Organization. Indeed, China represents a dangerous example of what can happen when the U.S. government ignores its role in developing a comprehensive policy on offsets that protects U.S. workers, the economy, and our nation's security.

IV. Conclusion

The IAM learns about U.S. companies that move our jobs offshore on almost a daily basis. Our members, who have built those companies, are then left behind to figure out how a company they have devoted their lives to could do this to them.

Many of the jobs we have seen disappear in this country ñ only to reappear in another country are in the aerospace industry. Instead of working on a way to protect the workers that have been so loyal to them, U.S. companies are only too willing to give their jobs away.

It's been said that today's multinational companies have no heart and no soul ñ many of them have no conscience either. Why else would they move our work offshore? Moreover, why would they move our work to a country like China, which tortures its citizens merely for speaking about fundamental human rights ñ like forming a free trade union? Still, they do it and the fact that our government not only permits it ñ but encourages it is outrageous.

U.S. aerospace workers are the best in the world and they will compete with any workers in the world. But the fact remains, how can they compete in any industry ñ including aerospace ñ when their work is being transferred to satisfy "offset" agreements? How can they compete with workers whose fundamental rights are denied? And how can they compete when their own industry and government turns their back on them?

These are the fundamental questions that IAM delegates who observed first-hand China's aerospace companies asked themselves when they returned to the United States from China. They are still asking the same questions three years later.

_______

(1) U.S. International Trade Commission, The Changing Structure of the Global Large Civil Aircraft Industry and Market: Implications for the Competitiveness of the U.S. Industry, Investigation No. 332-384, November 1998 (hereinafter referred to as Investigation No. 332-384), at 5-1, citing Leslie Symons, "The Rise and Fall of Soviet Influence on the Chinese Aircraft Industry and Air Transport," ch. 16 in Transport and Economic Development ñ Soviet Union and Eastern Europe (Berlin: Osteuropa-Institut, 1987), p. 450.
(2) Ibid, 5-4 citing Aviation Industries of China officials, interviewed by USITC staff, Beijing, China, May 5, 1998.
(3) Ibid, 5-7 citing China National Aero-Technology International Supply Corporation officials, interview by USITC staff, Beijing, China, May 4, 1998.
(4) Ibid.
(5) Ibid, 5-4 citing China National Aero-Technology International Supply Corporation, Xiían Aircraft Company, and Shanghai Aircraft Manufacturing Factory officials, interviews by USITC staff, Beijing, Xiían, and Shanghai, May 4-8. 1998.
(6) Ibid, 5-2 citing Aviation Industries of China, Survey of Chinese Aviation Industry 1997/1998 (Beijing: Aviation Industry Press, 1997).
(7) Ibid.
(8) The Boeing Company, The Boeing Company and China, "http://www.boeing.com/companyoffices/aboutus/Boechina97.html"
(9)Ibid.
(10) Ibid, 5-2 citing Ibid.: "Aircraft Maker AVIC to Restructure," Paul Jackson, ed., Jane's All the World's Aircraft 1996-97 (Surrey, UK: Jane's Information Group Limited, 1997), p. 55; and "Aviation Industries of China to Enhance Competitiveness," Beijing China Daily, Sept. 27, 1997.
(11) Ibid, 5-4 citing Jackson, ed., Jane's 1996-97, p. 54.
(12) Ibid, 5-9.
(13) Citing. U.S. and Korean industry officials, interviews by USITC staff, Beijing, China and Changwon, Korea, Apr. 30 and May 8, 1998.
(14) Citing U.S. Government official, interviewed by USITC staff, Beijing, China, May 4, 1998.
(15) Citing U.S. industry officials, interviewed by USITC staff, Xiían, China, May 7, 1998.
(16) Citing U.S. industry officials, interviewed by USITC staff, Seattle, WA, Feb. 10, 1998
(17) Citing For example, Xiían is currently sole supply on the 737 forward access door and 747 trailing edge ribs. Chengdu became sole supplier for the MD-82 nose structure
(18) Citing Chinese industry officials, interviewed by USITC staff, Shanghai, China, May 8, 1998.
(19) U.S. International Trade Commission, Assessment of the Economic Affects on the United States of China's Succession to the WTO, Investigation No. 332-403, Sept. 1999 (hereinafter referred to as ITC Investigation No. 332-403) at 3-22, citing International Association of Machinists and Aerospace Workers, written submission to the Commission, Mar. 9, 1999; National Research Council, Policy Issues in Aerospace Offsets; Report of a Workshop, p. 24; and National Research Council, Trends and Challenges in Aerospace Offsets, p. 107.
(20) Ibid, 3-27 citing Daniel H. Rosen, "Technology and Research and Development Requirements," Behind the Open Door: Foreign Enterprises in the Chinese Marketplace, p. 71.
(21) Ibid, 3-21, citing IV:3 of the GATT Agreement on Trade in Civil Aircraft.
(22) Ibid, 3-20 citing Trade Promotion Coordinating Committee, National Export Strategy: Toward the Next American Century, fourth annual report to Congress, Oct. 1996, p. 160.
(23) Ibid, 3-20 citing National Research Council, Policy Issues in Aerospace Offset: Report of a Workshop, p. 37; and USTR, 1998 National Trade Estimate Report on Foreign Trade Barriers, p. 52.
(24) Investigation No 332-403 at 3-23, see also Robert Scott, "The Effects of Offsets, Outsourcing and Foreign Competition on Output and Employment in the U.S. Aerospace Industry," in National Research Council, Trends and Challenges in Aerospace Offsets, pp. 133-157.
(25) Randy Barber and Robert E. Scott, Jobs on the Wing: Trading Away the Future of the U.S. Aerospace Industry, Economic Policy Institute, Washington, DC, 1995.
(26) See, "Status Report of the Presidential Commission on Offsets in International Trade," January 2001.
(27) Summary of Comments of Dr. Kirk Bozdogan, Workshop, pp. 27-28; Policy Issues in Aerospace Offsets: Report of a Workshop (hereinafter, referred to has "Workshop"), National Academy Press, Washington, DC, 1997.
(28) Owen Herrnstadt, "Role of the U.S. Government on Offset Policy," Trends and Challenges in Aerospace Offsets, National Research Council, 1999, p. 202 ("Role of U.S. Government"), citing the comments of Dr. Kirk Bozdogan.
(29) Bozdogan, Workshop, at 202.
(30) USITC Investigation No. 332-384, 5-10 citing Aviation Industries of China officials, interviewed by USITC staff, Beijing, China, May 5, 1998.
(31) Ibid, 5-10 citing Lewis, "Time Out in Asia," p. 39.
(32) U.S. General Accounting Office Report to Congressional Requesters, Export Controls: Sensitive Machine Tool Exports to China, November 1996.
(33) Ibid.
(34) Herrnstadt, "Role of the U.S. Government" at 211.