Intrigue fairly leaps off the pages of the classified U.S. government report. A German electronics giant pays bribes to win export sales. France demands 20% of Vietnam's telecommunications market in exchange for aid. A European aerospace company threatens to block European Union membership for Turkey and Malta unless their national airlines purchase its planes.
It's all part of a nasty, multibillion-dollar war being waged over global markets. A secret Commerce Dept. study, newly prepared with the help of U.S. intelligence agencies, catalogs scores of incidents of bribery, aid with strings attached, and other improper inducements by America's trading partners. In the case of strings-attached foreign aid, the deals may violate international trade pacts. And the cost of such practices to the U.S. economy appears enormous. In 1994 alone, U.S. intelligence tracked 100 deals worth a total of $45 billion in which overseas outfits used bribes to undercut U.S. rivals, the study says. The result: Foreign companies won 80% of the deals.
SANCTIMONIOUS? Among the main culprits are some of America's staunchest political allies: France, Germany, and Japan. The corporations involved aren't cited by name in the study, which has been in the works for months and key parts of which were reviewed by BUSINESS WEEK. But government sources identify premier European high-tech companies--including Germany's Siemens, France's Alcatel Alsthom, and the European airframe consortium Airbus Industrie--as among the major practitioners. Foreign governments and companies, of course, gripe that the Clinton Administration has been doing lots of aggressive advocacy of its own to win deals for U.S. business. "Each time we win a deal, it's because of dirty tricks," says an Airbus official with bitter sarcasm. "Each time Boeing wins, it's because of a better product."
Indeed, many officials overseas view the U.S.'s holier-than-thou attitude about shady business practices as naive and hypocritical. As word of the report's contents gradually leaks (some 50 copies recently were distributed to Congress and key agencies), U.S. trading partners may be angered to learn how closely American spies are tracking their dealings. Indeed, the growing role of the CIA and its sister shops in commercial information-gathering already is controversial, with critics contending that the spies are inappropriately trying to justify a $28 billion budget in the post-cold-war era. But former CIA General Counsel Elizabeth J. Rindskopf says the CIA is simply responding to demands from other U.S. government agencies for information to help level the global playing field.
There's more to it than that. "As the importance of geopolitical struggle has declined, conflict has found a new home," says Edward N. Luttwak, senior fellow at the Center for Strategic & International Studies. "Commercially, the atmosphere has become envenomed." Economic trends tell the tale: The U.S. is more dependent than ever on exports to fuel its economic growth. Europe and Japan are saddled by slow growth.
Heightened global competition adds to the temptation to seek advantages through questionable tactics--particularly in key sectors such as aerospace, where demand is weak. "Companies and governments are more willing to resort to unconventional methods to make a sale because any sale is precious," says Joel Johnson, international vice-president for the Aerospace Industries Assn. of America.
During the next decade, the pervasiveness of such practices spells trouble for U.S. companies girding to compete for an estimated $1 trillion worth of overseas infrastructure projects. American business already is handicapped by the U.S.'s comparatively puny spending on export promotion. The Commerce report, which also reviews legitimate competitive practices such as trade missions and financial aid to exporters, reveals a stark gap. In 1994, for every $1,000 of gross domestic product, France spent more than 17 cents on export-promotion programs; Japan, more than 12 cents. In contrast, the U.S. spent 3 cents.
Even so, Republican trade hawks on Capitol Hill want to slash funds for Commerce's trade programs. Commerce officials hope the competitive-practices report will help derail those moves. It's certainly a timely showcase for Commerce Secretary Ronald H. Brown to reemphasize his role as roving advocate for American business. "The findings are alarming," Brown told BUSINESS WEEK. "There is no question that we have been dramatically outgunned by our global competitors, and many of those competitors use, to be kind, unsavory practices."
WADS OF CASH. But to some European executives, the Clinton Administration doesn't shy away from questionable arm-twisting. An Airbus official calls President Clinton's 1993 phone call to King Fahd of Saudi Arabia to lobby for Boeing Co. and McDonnell Douglas Corp. a "blatant" disregard for the rules. "The power of the American government is far greater than any European government," the official says. Too bad, retorts one U.S. official: "If we're going to provide a security umbrella for a country, it's reasonable to expect our companies to get treated fairly."
Certainly, not all U.S. companies have clean hands. In October, a former vice-president at Lockheed Martin Corp. was sentenced to 18 months in prison and a $125,000 fine for bribing a member of the Egyptian Parliament to win an order for three C-130 cargo planes. The case is surprising because Lockheed was at the center of a bribery scandal in Japan nearly 20 years ago and has signed a consent decree to refrain from such practices. That paved the way for the 1977 Foreign Corrupt Practices Act, which bars U.S. companies from paying bribes to win business.
Some U.S. companies find creative ways to skirt the law. To secure a mining venture in a developing nation, an American company recently flew officials from the country to the U.S., put them up in a fancy hotel for a week, and gave them a wad of cash for a shopping spree. A U.S. intelligence source says the trip is problematic: "What's the difference between giving an official shopping money and handing him an envelope of cash in his office?"
But U.S. and other trade experts have little doubt that overseas companies are more likely to offer bribes because their cultures and legal systems permit it. In France, foreign payments to middlemen are considered legitimate business tax deductions. Germany has similar rules, though officials in Bonn say they might junk them if there were an international accord to outlaw bribery.
Even so, there's little U.S. support for easing antibribery laws. Instead, many American executives are urging the Administration to mount an aggressive campaign to get foreigners to play more by U.S. rules. For starters, open up to public scrutiny the contracting process for projects funded by multilateral development banks, says Calman J. Cohen, vice-president of the Emergency Committee for American Trade, a group of 60 chief executives of America's leading exporters.
U.S. officials vow to fight for reform. And foreign trading partners may find that a good idea. As long as everyone--including the U.S.--promises to play by the rules.
PULLED LOANS In 1993, France warned an African government that it would withdraw government guarantees on outstanding loans if Alcatel didn't win a $20 million telecom switching contract. Alcatel declined comment. Government officials couldn't be reached.
BRIBES A German high-tech company, identified by sources as Siemens, allegedly offered bribes in connection with bids on 11 contracts from 1987 to 1994. It won 7 of the deals. Siemens won't comment.
POLITICAL THREATS Officials of Airbus Industrie, the European airframe consortium, threatened to block entry to the European Union for Turkey and Malta if those nations' carriers bought U.S. planes. Airbus denies the charge.
TIT-FOR-TAT AID Former French President Franois Mitterrand, leading a trade mission to Hanoi, demanded a 20% share of Vietnam's telco market as a condition of French foreign aid. Neither governments' officials could be reached.
DEBT FORGIVENESS To help a Japanese company win a $30 million supercomputer order from Brazil, the Bank of Japan said it would credit the purchase against Brazil's debt to Tokyo. Bank of Japan says it knows nothing of the incident, but NEC did win such a contract.