Deukmejian Tells British About Trade Policy Risks

Gov. George Deukmejian cautioned British business leaders Tuesday that Europe’s Common Market is risking U.S. retaliation because of “unfair” trade policies.

Deukmejian specifically mentioned three European industries that he contended are being unfairly protected against California competitors: agriculture, aerospace and telecommunications.

“The world trade system is under tremendous strain,” he admonished the London Chamber of Commerce. “Non-tariff barriers, global market-sharing arrangements, export subsidies and predatory pricing practices are disrupting and distorting the free flow of goods and services. . . .

“Our nations can ill afford to allow the bridges of commerce to burn between us.”

The governor delivered a similarly stern message Tuesday to 22 business leaders at a private luncheon of the Confederation of British Industries, according to Deukmejian aides.

Major Address

The chamber speech was Deukmejian’s major address of an 11-day trip to London, Brussels and Paris to promote California trade and investment, with a little sightseeing on the side. He will fly to Brussels today.

Deukmejian’s basic message--free trade but fair trade, cooperation or retaliation--is the same one he repeatedly delivered three months ago to the Japanese in Tokyo and Osaka. President Reagan since then has made the governor look like a soothsayer by deciding to impose punitive tariffs of 100% on Japanese electronics products, a move that Deukmejian has said he “understands” but has stopped short of endorsing.

There was more shock value to Deukmejian’s harsh words in Japan, where public criticism and contention are far less common than they are in the United Kingdom. Additionally, although trade relations are seriously strained between the United States and Japan, they are relatively relaxed between the United States and Great Britain.

Deukmejian’s complaints Tuesday were aimed primarily at the 12-nation European Economic Communities, normally called the Common Market. The Common Market policies are often controversial, even among business leaders in Great Britain, which is a member.

One chamber member rose after Deukmejian’s speech to praise his condemnation of “wasteful subsidizing” and below-cost pricing--or “dumping”--of European agricultural products.

The governor said “it is very difficult for California farmers” to sell produce, “not only here in Europe but throughout the world in nations where surplus (European) commodities are sold below production costs.”

In America’s view, the crucial difference between U.S. and Common Market agriculture subsidies is that American farmers primarily are paid not to produce, and their European counterparts are encouraged to overproduce and dump the surplus.

Deukmejian also attacked “massive (government) subsidies” by the United Kingdom, France and West Germany to Airbus Industrie, a consortium of commercial aircraft manufacturers. He said the consortium “unfairly competes” against California’s aerospace industry.

He urged that California companies be allowed to participate in the writing of standards for telecommunications equipment to be purchased by British Telecom, which has been virtually shutting out foreign suppliers.

“I know that Europe is looking anxiously toward the United States right now, wondering whether the tide of protectionism will wash away progress achieved during several decades of international cooperation,” the Republican governor said.

‘Driving Up Prices’

“The interests of (California) clearly lie in a stronger, freer world trading system. Protectionism is a failed experiment that invites retaliation, drives up prices, kills jobs and defeats economic growth. This is the message I am carrying directly to congressional leaders who are now drafting major trade legislation. But to do that effectively, we need your assistance and cooperation.”

Some British businessmen had complaints about California’s recently revised unitary method of taxing multinational companies. Reacting to pressure from foreigners, primarily the British and Japanese, the Legislature and Deukmejian last year enacted a compromise bill that, starting next January, permits multinational firms to be taxed on the basis of their U.S. profits, rather than on worldwide profits as under the old system.

Deukmejian was repeatedly urged Tuesday to scrap a so-called “election fee” that companies must annually pay to take advantage of the revision. Even more onerous than the fee, the British said, is a requirement that they lock in whatever taxing method they choose for a 10-year period.

The governor advised the businessmen not to expect “any substantial tinkering” with the new law for “the first couple of years.” He cautioned that if Europeans do not take advantage of the tax revision to increase their investments in California, “there’s a danger subsequent administrations and Legislatures” may decide to go back to the old system.

But Deukmejian, who raised eyebrows in Japan when he made similar comments to the news media, reassuringly told the British business leaders, “I don’t expect that to happen at all.”

Although a lot of corporate wealth was represented at the mid-afternoon chamber meeting, the audience was small--roughly 50 people. About half were Californians, mainly state chamber members and some gubernatorial aides.

If the Californians were supposed to make up a cheering section for the governor, they were a disappointment. Many of them, having just returned from a heavy lunch, fought to stay awake during his remarks and periodically nodded off.

Deukmejian received a respectful applause at the end.