US funds for Swiss-built flour mill in China? Critics cry foul

Does Uncle Sam sometimes help foreign firms beat out their American competitors? That's a question President Reagan's recently announced commission on international competitiveness might want to ask.

Case in point: flour mills for China.

The Monitor has learned that a contract to build a prototype flour mill in Peking was awarded to a Swiss firm - and will be paid for largely with US government funds.

A grant of $900,000 from the Foreign Agricultural Service of the US Department of Agriculture (USDA) has been earmarked for use by the United States Wheat Associates (USWA), a trade group representing wheat producers in 13 states.

Winston Wilson, executive director of USWA, confirmed that the contract was awarded to Buhler Brothers of Uzwil, Switzerland. A spokesman for the firm's American subsidiary, Buhler-Miag Inc., of Minneapolis, acknowledged that the engineering design work and subcontracting will all be done in Switzerland. Buhler-Miag has a manufacturing facility in Minnesota, but group vice-president Hans Wanzenried said ''It really hasn't been finally determined how much of it (equipment for the Chinese mill) will be manufactured here (in Minnesota).''

The announcement surprised and annoyed some American manufacturers and state trade officials, who say more federal supervision is necessary to help job-hungry US firms.

But Robert Svek of the Foreign Agricultural Service says ''It was left to US Wheat to make the decisions'' regarding the contract. His office, he confirms, laid down no formal stipulations concerning the use of US manufacturers, either as major contractor or subcontractors, in the project.

American wheat has captured 60 percent of the Chinese market in the last two years, and USWA, eager to increase wheat sales in a nation whose traditional grain is rice, has already built a demonstration bakery in Peking and an instant-noodle plant in Shanghai.

USWA has now agreed to construct the flour mill later this year - to be used largely as a training facility, and to serve as a prototype for what some observers say may be as many as 2,000 more mills scattered across the world's most populous nation.

The USWA will raise some of the money for the prototype.But the bulk of the cost will come from the USDA. ''The whole purpose is to develop markets overseas ,'' says USDA assistant administrator Jimmy Minyard. He adds that such grants, while frequent, are rarely this large.

The major reason for choosing Buhler Brothers, Mr. Wilson says, was that ''there is no American company that produces a complete flour mill.''

''We were very interested in getting a turnkey operation (a plant built entirely by one firm),'' he said, adding, ''You need someone who has total responsibility for making the thing run after you've finished.'' Buhler Brothers has an office in Peking.

But Ming Hsu, director of the state Division of International Trade in New Jersey, disputes USWA's claim that no US flour-mill contractors can be found.

She became involved in the project when a New Jersey-based firm, Henderson Industries of West Caldwell, bid on weighing scales for the mill. The firm's president, Henry F. Henderson, presented his bid after meeting officials on a trade mission to Peking and Hong Kong last November. He says they were ''enthusiastic'' about his project, and assured him that his price was ''very competitive'' with that of European suppliers.

The bid, however, was later rejected. Mr. Henderson says he was told by Buhler officials in Switzerland that the contract with USWA carried no stipulation that American suppliers be used. He was also told that most of the machinery, including the scales, would be of Swiss or West German manufacture.

Ms. Hsu, who has taken Henderson's side in the fray, says that ''the US federal agencies have an obligation,'' before letting such contracts to foreign firms, to make sure that the project ''cannot be sourced from US manufacturers.'' She and several manufacturers contacted contend that, since federal funds are involved, USWA and the Agriculture Department should have been much more rigorous in two areas:

1. Searching for ''turnkey'' suppliers. While there are apparently no American-owned firms capable of building entire flour mills abroad, several US-based subsidiaries of foreign firms have that capacity. One, Henry Simon Inc. of Kansas City, Kan., whose parent company is British, bid on an earlier version of the Chinese mill. Company spokesman John Brown says that his firm was waiting for USWA to allow it to rebid when he heard of the award to Buhler Brothers.

''Certainly Henry Simon Inc. can do turnkey plants in China,'' he said. Normally, he added, such plants would include 30-40 percent British-built equipment. But if the contract had required American sourcing, he said, most of the equipment could have come from American suppliers - and all the engineering design work could have been done in Kansas City.

Another potential US source is Buhler-Miag, which has built turnkey plants in the US since the early 1950s. Mr. Wanzenried confirmed that Buhler-Miag could handle the complete Chinese contract through its Minnesota office. He said that the work went to Uzwil because that was the firm's international headquarters.

Federal officials, however, maintain they are blameless. In a letter dated Feb. 1 to Henderson (who had written to Agriculture Secretary John R. Block complaining about the handling of the contract), USDA official Donald J. Novotny replied that ''USWA, operating under a contract arrangement with the Foreign Agricultural Service, was free to make its own decision in choosing the firm.''

2. Requiring American subcontractors. USWA's Mr. Wilson says, ''We have an understanding (with Buhler Brothers) that there will be a significant amount of equipment of US manufacture'' in the Chinese plant. That point is echoed by Mr. Novotny, who wrote Mr. Henderson that ''a significant amount of US equipment'' was to be used.''

Questioned on this point, however, Wilson admitted that the ''understanding'' was ''not spelled out per se'' in the contract, and that it was currently under negotiation. He claims, however, that ''we did specify that some equipment had to come from the US.''

That, says Ms. Hsu, is ''not sufficient.'' To be effective, she says, ''the stipulation has to be in writing,'' it should specify the percentage of participation by American firms, and it should cover future plants as well as the prototype.

Paul Witt, president of Witt Corrugating Inc., a maker of roller mills in Wichita, Kan., agrees. He, along with Henderson, has protested the contract award in a letter to the USDA. ''No one contacted us at all as to whether we could supply any of this material,'' he says. What concerns him, he insists, is ''the principle of the thing.''

''We know [America] can compete,'' he adds, ''and then to get slapped in the face by this kind of thing - it just doesn't set very well.''

But federal officials insist that, in the bigger picture of trade relations with China, no wrong has been done. ''You have to realize why this thing is being done - to sell wheat,'' says USDA's Mr. Svek.