A Florida manufacturer will petition President Reagan today to invoke an obscure provision in the tax code to deny U.S. companies tax breaks on two types of machine tools made in Japan.
Houdaille Industries says a provision in the 1971 Tax Reform Act empowers the president to suspend eligibility for the investment tax credit--which is now 10 percent--on purchases from overseas if he determines that a foreign government has unjustifiably restricted U.S. commerce by tolerating "international cartels."
Houdaille, which spent months interviewing Japanese officials and poring over Japanese laws and documents, charges that the Japanese government has fostered the development of a huge cartel of machine tool producers that are also the recipients of special government favors, from concessionary loans for research and development to surreptitious investment of portions of the proceeds realized from wagering on bicycle races.
Houdaille said that if the president invoked the provision in the 1971 law, Japanese producers would be forced to cut prices by 15.2 percent to keep the effective cost of buying these products the same for U.S. companies that would lose the tax credit.
Richard Copaken, of the law firm Covington and Burlington, who said his firm discovered the provision in the 1971 law, said Japanese manufacturers probably could not cut prices that much and remain profitable.
Machine tools are used by manufacturers to cut metal and make parts. Houdaille, a $500 million manufacturer makes two such products: numerically controlled machining centers and numerically controlled punching machines.
Houdaille, in a 714-page filing with the office of the U.S. Special Trade Representative, said that in 1976 U.S. manufacturers supplied 95.1 percent of the machining centers purchased in the United States, while Japanese imports had 3.7 percent of the market. Today Japan supplies 50.1 percent of the machining centers, while the U.S. share has tumbled to 48.7 percent.
Japanese penetration of the punching machine market has shown similar growth, from 4.7 percent of the U.S. market in 1976 to 37.6 percent in the first nine months of last year.
In its petition, Houdaille charges that the Japanese Ministry of International Trade and Industry first weeded out small and inefficient producers of machine tools using a special law passed in the 1950s that exempted the industry from general provisions of that nation's antitrust laws.
More important today, Houdaille said, is the "free hand" MITI gives machine tool makers to undertake joint actions to increase exports as long as they agree to abide by "guidelines" issued by the Japanese ministry.
The petition said that when a number of practices were documented to the officials responsible for enforcing Japan's antitrust laws, the officials agreed that they seemed to be violations of the law, but also said they would do nothing about them.
Houdaille said that its research documents that while permitting the cartel to exist is the most significant subsidy to machine tool makers, "the government of Japan has also backed this cartel with tax advantages, concessionary loans, research grants and other direct and indirect subsidies."
The petitioners said that two quasi-governmental bodies receive a portion of the wagers on popular motorcycle and bicycle races. Disbursement of these funds is approved by MITI.
"We confirmed in meetings with MITI officials that in recent years nearly $500,000 of this money has been given annually to the Japanese machine-tool cartel."
Houdaille, a $500 million manufacturer that also makes other engineering products, said that in an attempt to recoup some of the costs it incurred researching its position in Japan and the United States it will sell copies of the filing to other companies for $1,250.