One election issue I hear this year is globalization and how it has cost loss of jobs and tax income.  I repeat, globalization has been the greatest push to world economic development ever.  We have seen the two largest transfers of wealth from the wealthy nations to the less privileged courtesy of globalization, the massive transfer of wealth to oil producing countries when they took their oil fields back from private companies and the huge flow of funds into China and other major exporting Asian countries. 

Now a major goal of the Peace Corps is to help less fortunate peoples of the world so I would expect RPCVs to cheer globalization.  But I hear too many grousing about loss of US jobs and spreading of “materialism.”   Nothing done by any development agency or program has come close to raising the living standards of  the poorer countries of the world as has globalization. 

Funny the extreme left and the extreme right agree on at least one thing, both sides clamor for companies to bring back jobs they have sent abroad.    I wonder if there are Japanese equivalents demanding that Honda, Toyota and Nissan bring back the jobs that were sent from Japan to the USA? 

Anyone who has been as steeped in international trade as have I recognizes a certain growth pattern for companies in one country selling in another national market.   At first the company sells his products or services in the recipient country though a commercial organization in that country.  ‘As sales progress and grow the “exporter” establishes his own sales outfit in the “importing” country and becomes the “importer.”  Finally when the exporter-come-importer sees his business grow to a certain size he begins to make the product or service in the “importing” country.  I have seen this happen over and over again. 

There are many reasons for following this well established path, lower transportation costs, better access to markets, faster adaption of products to the needs of the ultimate buyers, less loss, better acceptance by the buyers and more.   But whatever the reasons, this trend that I have actually witnessed and in which I have played a role, is well established. 

Now there is another “globalization” effect on transfer of labor.   In business one has a “cost” center and a “profit” center.  Obviously the more successful company is one that places his cost centers in low cost places and markets his products in the wealthiest markets.   In international trade, however, there is a small, but key, extra link in this chain.  There is a cost center and a sales center but the “profit” center is in a third country.  While the first reaction is to say, “they are doing this to avoid taxes,” and that could be true.  But in reality there are a whole host of reasons for doing this including access to financing, legal protection, and ease of doing business. 

And here I should address the charge that companies are moving their businesses offshore to avoid paying US taxes.  As I said earlier, the observed tend for a company is to move his operation closer to his market to gain larger market share, e.g. Honda, Toyota and Nissan.  Taxes are a small consideration.

More importantly, there is a rule in US taxation, no double taxation of the same income.  Of course this is why many argue to do away with taxes on dividends, the company has already paid taxes, why should I also pay?  One answer to this complaint are the “S” corporations that are widespread in the USA. 

In the international context the US does not tax money earned by a US citizen or corporation if it has already been taxed by a foreign government.   The way it works is for the US entity to report his earnings and taxes paid to a foreign government.   If that is more than he or it would owe to the US government, he or it owes nothing to the US government.  However, if the tax paid is less than what would be due the US government, then the person or corporation has to pay the difference between what he paid abroad and what is due the US government.

Many people mistakenly believe that this is due to the bilateral tax treaties we have with most foreign governments.  Not true, it is in the US tax law itself.   The tax treaties are mainly for Uncle Sam to gain access to information on his citizens and corporations abroad and take care of some items that “fall between the cracks.”  Believe me, I have negotiated these agreements.

Another rule that plays here is that the money earned by a foreign subsidiary of a US firm remains under the laws and rules of the country where the subsidiary is incorporated.  It is not added to the American parent’s income until it is sent to the American parent, not when earned by the foreign subsidiary.  This has two obvious reasons, one the foreign country has control over the subsidiary and two the US firm has no claim to the funds until they are sent to it after paying all taxes due,  and adhering to the rules of,  the host country.

I hope these fundamentals of international trade and globalization are given proper acknowledgement and understanding when debating the merits of “globalization.?