PAGENO="0001" FOREIGN TRADE AND TARIFF PROPOSALS HEARINGS BEFORE THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES NINETIETH CONGRESS SECOND SESSION ON TARIFF AND TRADE PROPOSAL (Administration officials testified before the committee on June 4, 5, and 10, 1968, and such testimony is contained In Parts 1 and 2. Subsequent volumes will be published containing testImony of public witnesses appearing before the committee through July 3, 1968.) PART 1 Contains June 4, 1968 Printed for the use of the Committee on Ways and Means o'-i(~ `Y2~ U.S. GOVERNMENT PRINTING OFFICE 95-1590 WASHINGTON : 1968 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price $1.50 PAGENO="0002" CECIL R. KING, California HALE BOGGS, Louisiana FRANK M. KARSTEN, Missouri A. S. HERLONG, Ja., Florida JOHN C. WATTS, Kentucky AL ULLMAN, Oregon JAMES A. BURKE, Massachusetts MARTHA W. GRIFFITHS, Michigan GEORGE M. RHODES, Pennsylvania DAN ROSTENKOWSKI, Illinois PHIL M. LANDRUM, Georgia CHARLES A. VANIK, Ohio RICHARD H. FULTON, Tennessee JACOB H. GILBERT, New York JOHN W. BYRNES, Wisconsin THOMAS B. CURTIS, Missouri JAMES B. UTT, California JACKSON E. BETTS, Ohio HERMAN T. SCHNEEBELI, Pennsylvania HAROLD H. COLLIER, Illinois JOEL T. BROYHILL, Virginia JAMES F. BATTIN, Montana BARBER B. CONABLE, Ja., New York GEORGE BUSH, Texas WILLIAM H. QUEALY, Minority Counsel COMMIPPEE ON WAYS AND MEANS WILBUR D. MILLS, Arkansas, Chairman JOHN M. MARTIN, Jr., ChiJf Counsel J. P. BAKER, Assistant Chief Counsel (II) PAGENO="0003" CONTENTS FOR ADMINISTRATION OFFICIALS TESTIMONY Part 1 1968: Page Tuesday, June 4 1 Part 2 Wednesday, June 5 439 Monday, June 10 649 Press release dated Thursday, May 9, 1968, announcing public hearings on tariff and trade proposals 2 Proposed "Trade Expansion Act of 1968", committee print 5 Message of the President - 8 Draft bill (H.R. 17551, introduced by Chairman Mills on May 28, 1968, at the request o?the administration) 13 Section-by-section analysis 19 WRITTEN COMMUNICATION SUBMITTED BY GOVERNMENT OFFICIAL Fowler, Hon. Henry H., Secretary of the Treasury, letter dated June 6, 1968, to Chairman Mills 666 ORAL STATEMENTS BY GOVERNMENT OFFICIALS Agriculture, Department of: Freeman, Hon. Orville L., Secretary 649, 654 loanes, Raymond A., Administrator, Foreign Agriculture Service~ 439, 649 Labor, Department of: Wirtz, Hon. W. Willard, Secretary 28, 37 Blackman, Herbert N., Administrator, Bureau of International Labor Affairs 439 Commerce, Department of: Smith, Hon. Cyrus R., Secretary 28 Garland, Allen H., Director, Trade and Commercial Policy Division. 439 McQuade, Hon. Lawrence C., Assistant Secretary 28, 439 Consumer Affairs, Special Assistant to the President for, Miss Betty Furness 649, 662 Interior, Department of, Hon. Stewart L. Udall, Secretary 28, 33 State, Department of: Rusk, Hon. Dean, Secretary 649 Solomon, Hon. Anthony M., Assistant Secretary for Economic Affairs, Bureau of Inter-American Affairs 649 Trade Negotiations, Office of Special Representative for: Roth, Ambassador William M., Special Representative for Trade Negotiations 28, 42, 439, 446, 649 Gates, Theodore R., Assistant Special Representative 439 Malmgren, Harald B., Assistant Special Representative 28, 439 Rehm, John B., General Counsel 28, 439 Treasury, Department of: Petty, Hon. John, Deputy Assistant Secretary, Office of International Affairs 439 Smith, Fred B., general counsel 28 (III) PAGENO="0004" Iv MATERIAL SUBMITTED FOR THE RECORD PURSUANT TO APPEARANCE OF GOVERNMENT OFFICIALS Burke, Hon. James A., a Representative in Congress from the State of Massachusetts, material relating to the importation of footwear from Page foreign countries 727 Freeman, Hon. Orville L., Secretary of Agriculture, Department of Agricul- ture inspection of meat exports from foreign countries to the United States 696 Furness, Miss Betty, Special Assistant to the President for Consumer Affairs, lettei dated June 10, 1968, to Chaiiman Mills 664 Roth, Ambassador William M., Special Representative for Trade Negotia- tions: Absolute increase in imports of principal commodities 1960-67 107 Agricultural concessions received by United States in Kennedy round~. 710 Comparisonofwatchprices 699 DyeexportsfinancedbyAlD 574 Establishmentof5TRandTlC 560 European tax systems (including exhibits A through E) 53 Experience to date with the 1968 investments under the mandatory investments restraint program and relationship of this program to exports 386 Inteinational Grains Arrangement, 1967_ - - - 394 Justification for adjustment assistance program ielated to increased imports_ - - - - - 559 Nonrubberfootwear 701 Outline of trade policy study and supporting computer program 442 Preliminary inventories of nontariff barriers 122 Preliminary inventory of nontariff barriers affecting U.S. trade in agriculturalproducts 123 Preliminary inventory of nontariff barriers affecting TJ S trade in industrial products 220 Inventory of alleged U.S. nontariff barriers 308 Nontariff barriers, by William B. Kelly, Jr - 313 Production of ASP chemicals by one two or three firms - 599 Progre s in the elimination of foreign nontariff barriers - - 609 Recent changes in the use of nontariff barriers by other countries 721 Retaliatory action by United States 645 Selected industries with tariff reduction greater than the overall aver age reduction of 35 percent 580 Selectivity of the German added value tax - 115 STR consideration of the representations of interested groups 566 Table 1-Chemicals and allied products 521 Table 2-Benzenoid chemicals 522 Table 3-Intermediates 523 Table 4-Dyes and azoics 524 Table 5-Pigments 525 Table 6-Medicinals 526 Table7-Otherbenzenoidproducts 527 Table 8-Comparison of U.S. and EEC tariff rates for large-volume benzenoid intermediates 528 Table 9-U.S. chemical exports, imports, and tade balance by prin- cipal destination and source, 1961-67 529 Table 10-Benzenoid chemical rates of duty, ad valorem equivalents, and 1964 imports 531 Table 11-Chemicals and allied products; new capital expenditures by selected industries and industry groups, 1958-67 547 Table 12-Annual plant and equipment expenditures abroad by U.S. manufacturing companies: all manufacturing and chemicals and allied products 547 Table 13-Estimates of plant and equipment expenditures by foreign affiliates of U S companies, by area and industry 1965-68_ - 547 Table 14-Chemicals and allied products sales by American-owned enterprises abroad and exports from the United States. - 548 Table 15-Research and development expenditures, by industry, 1958-66 548 PAGENO="0005" V Roth, Ambassador William M.-Continued Table 16-Selected employment data for chemicals and allied prod- ucts industry, intermediate coal tar products industry, and all manu- Page facturing industries, 1958-68 549 Table 17-Selected economic indicators for the intermediate coal-tar products industry, 1958~-66 550 Table 18-Index of industrial production (1957-59 equals 100) 550 Table 19-Selected economic data: comparisons of chemicals and allied products industry with all manufacturing industries, 1958-67 551 U.S. exports, excluding military grant aid, in current and constant dollars, 1960-67 587 U.S. exports financed under the Public Law 480 and AID programs, 1960-67 575 U.S. imports and exports by major industries 100 Rusk, Hon. Dean, Secretary of State: Analysis of U.S. exports to Europe, 1957-1967 725 Allied efforts in Europe.. 674 Letter dated June 13, 1968, from H. G. Torhert, Jr., Acting Assistant Secretary for Congressional Relations, to Chairman Mills re plac- ing before the Federal Maritime Commission the views of the United Kingdom Government 689 Smith, Hon. Cyrus R., Secretary, Department of Commerce: Annual value of U.S. exports, imports, and merchandise balance 83 Commerce export promotion activities-relation to private efforts and measurement of results 380 Major commodity increases in U.S. domestic exports from 1960 to 1967 98 Major commodity increases in U.S. imports from 1960 to 1967 97 Selected data on foreign transactions of the United States in the 1st quarter of 1968 available as of the middle of May 1968 88 Trends in U.S. foreign trade, 1960-67 and January-April 1968 95 U.S. balance of payments in the first quarter 1968 84 U.S. trade by end-use categories, 1960-67 93 Wirtz, Hon. W. Willard, Secretary, Department of Labor: Automotive Products Trade Act of 1965 (APTA) 554 International Labour Organisation (ILO) and working conditions.....~. 377 PAGENO="0006" PAGENO="0007" FOREIGN TRADE AND TARIFF PROPOSALS TUESDAY, ~1UNE 4, 1968 HOUSE OF REPRESENTATIVES, CoMMImii~ ON WAYS AND MEANS, Washingto'n, D.C. The committee met at 10 a.m., pursuant to notice, in the committee room, Lon'gworth House Office Building, Hon. Wilbur D. Mills (chair- man of the committee) presiding. The CHAIRMAN. The committee will please be in order. The committee is today beginning public hearings on the general subject of the balance of trade between the United States and foreign nations. The hearings will encompass not only the administration pro- posal, which was transmitted to the Cc~ngress on May 28 last, and is in bill form, H.R. 17551, but also the series of subjects which were men- tioned in the press release of May 9' announcing the hearings. Without objecttion, a copy of that press release will be placed `in the record following this statement. Also, without objection, a copy of the President's message of May 28, a copy of H.R. 17551, embodyin~g the administration's proposal, and a section-by-section analysis of that proposal prepared by the executive branch, as printed in the committee print entitled "Pro- posed `Trade Expansion Act of 1968" will be placed in the record. A large number of requests to be heard have been received. It is our expectation that this hearing must be completed not later than July 3, 1968, if it is at all possible. This makes. it very important that all organizations and individuals coordinate their testimony to the maxi- mum extent possible and even condense their statements. Of course, full statements may be included in `the record. In general, this week will be devoted to testimony from administra- tion officials; the week of June 10 will be devoted to receipt of general testimony; and the last 2 weeks will be devoted `to receipt of testimony on a commodity-by-commodity or industry-by-industry basis. Our witnesses today will be the Secrotary of Commerce, the Honor- able Cyrus R. Smith; the Secretary of the Interior, the Honorable S'tewar~ L. Udall; the Secretary of Labor, the Honorable W. Willard Wirtz; and the Special Representative for Trade Negotiations, Ambas- sador Wilhiam~ M. Roth. Tomorrow we will hear testimony specifically on the administra- tion's proposal from Ambassador Roth. On Thursday we will receive statements from the Secretary of State, the Honorable Dean Rusk; the Secretary of Agriculture, the Honorable Orville L. Freeman; and Spe- cial Assistant to the President for Consumer Affairs, Miss Betty Furness. (1) PAGENO="0008" 2 We will leave Friday of this week available in the event it is needed for further interrogation of the admimstr'ition offici'tls It is suggested that the four witnesses be permitted to sit as a panel and complete their statements in their entirety as a group prior to interrogation. Is there any objection to that procedure? None is heard. I believe that this will make it possible for us to obtain a more orderly presentation. I understand that all the members of the panel will be available during the afternoon session, if necessary, for interrogation except for a brief period when the Secretary of the Interior will have to be elsewhere (The material follows:) [Press Release, Thursday, May 9, 1968] CHAIRMAN WILBUR D. MILLS, DEMOCRAT, OF ARKANSAS, COMMITTEE ON WAYS AND MEANS, ANNOUNCES PUBLIC HEARINGS ON TARIFF AND TRADE PROPOSALS Chairman Wilbur D. Mills (D., Ark.), Committee on Ways and Means, today announced that public hearings would be held by the Committee beginning on Tuesday, June 4, 1968, on the general subject of the balance of trade be- tween the United States and foreign nations The hearings will encompass the following subjects (1) Such proposals as may be made by the Administration relative to- (a) the extension of the President s trade agreement authority under the Trade Expansion Act; (b) amendment of the adjustment assistance criteria for firms and w orkers adversely affected by imports; (o) the elimination of the American selling price valuation on benzenoid chemicals and certain other products; and (4) other related trade agreement matters. (2) Proposals relative to imposition of quotas, either on an across-the-board basis or on named; items or commodities. (3) Proposals for increasing our exports. (4) Proposals relative to antidumping, countervailing duties, and related matters. (5) Proposals on tariff matters generally. (6) Results of Kennedy Round agreement (7) Measures directed at maintaining our favorite balance of trade and other matters related to the balance of trade in the context of our balance of payments problems. It is expected that the Administration proposals will be transmitted to the Congress prior to the hearing. As soon `as they are received, they will be made available to the public so that the general public will be in a position to testify on that subject. The hearing will begin on Tuesday, June 4, 1968. The lead-off witnesses will be representatives of the Administration who will testify during the first few days. Administration witnesses will be followed `by witnesses from the general public. Requests to be heard must be submitted not later than the close of business Monday May 27 1968 In due course witnesses will be advised as to when they are scheduled. Details relative to the scheduling of witnesses and the information required in connection `therewith are set forth below. Lead-Off Witnesses.-As indicated, the first witnesses to appear at the hearings will be representaties of the Administration. This testimony will be followed by interested public witnesses. Cut-off Date for Requests to be Heard.-The cut-off date for requests to be heard is not later than the close of business Monday, May 27, 1968. The requests should `be submitted to John M. Martin, Jr., Chief Counsel, Committee on Ways and Means, 1102 Longworth House Office Building, Washington, D.C~ 20515. Witnesses will be advised as promptly as possible after the cut-off date as to when they have been scheduled to appear. After receipt of all requests to be heard, an attempt will be made to organize the hearings so that persons request- ing to be heard on the same subject will be scheduled during the same time period Coordination of Testimony -In view of the broad scope of the hearings the PAGENO="0009" 3 Committee requests that all persons and organizations with the same general interest designate one spokesman to represent them so as to conserve `the time of the Committee and the other witnesses, prevent repetition and assure that all aspects of `the proposals can be given appropriate attention. The Committee will be pleased to receive from any interested organization or persons a written statement for consideration for inclusion in the printed record of the hearing in lieu of a personal appearance. These statements will be given the same full consideration as though the statements had `been presented in person. In such cases, a minimum of three (3) copies of the statement should be submitted by a date to be specified later. Contents of Requests to be Heard.-In order to eliminate repetitious testimony and to properly schedule witnesses, it will be necessary for the request to be heard to specify- (1) the name, address, and capacity in which the witness will appear; (2) the list of persons or organizations the witness represents and in the case of associations or organizations, their total membership and where possible a membership list; (3) the amount of time the witness desires in which to present his direct oral testimony (not including answers to questions of Committee Members) (4) an indication of whether or not `the witness is supporting or opposing the proposal or proposals on which he desires to testify; and (5) a topical outline or summary of the comments and recommendations which the witness proposes to make. If a prospective witness has already submitted a request to be heard on any of the subjects covered by this hearing, the request should be re-submitted fur- nishing the above Information and otherwise conforming to the rules' set forth for conducting this hearing. Written ~tatemonts.-In the case of those persons who are scheduled to appear and testify, it is requested `that 75 copies of their written statements be submit- ted 24 hours in advance of their scheduled appearance. If it is desired, an addi- tional 75 copies may be submitted for distribution to `the press and the interested public on the witness' date of a~ppearance. Persons submitting a minimum of three written statements in lieu of a per- sonal appearance may also, if they desire, submit an additional 75 copies of their statements for distribution to the Committee Members and the interested de- partmental and legislative staffs, pending the printing of the public hearings, which will include such statements along with the oral testimony of those per- sons who appear in person. An additional 75 copies may be submitted for the press and the interested public, if it is desired. Format of All Written ~tatements.-To more usefully serve their purpose, all written statements (those for the ~purpose of personal appearance and those submitted In lieu of a personal appearance) should contain- (1) a summary of comments and recommendations, and (2) subject headings in their main body. PAGENO="0010" PAGENO="0011" 90th Congress } COMMITTEE PRINT COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES PROPOSED "TRADE EXPANSION ACT OF 1968" MESSAGE OF THE PRESIDENT, DRAFT BILL*~ AND SECTION-BY-SECTION ANALYSIS As SUBMITTED TO THE CONGRESS AND REFERRED TO THE * COMMITTEE ON WAYS AND MEANS ON MAY 28, 1968 *Int~uced by Chairman Mills at the request of the Administration on `May 28, 1968, as H.R. 17551, so as to make the language widely available for comment during the course of the public hearings to begin on June 4, 1968, before the Committee on Ways and Means. NOTE: This document is printed for information only so as to make it generally available, and is not to be construed as the state- ment or position of the Committee on Ways and Means or any member thereof. U.S. GOVERNMENT PRINTING OFFICE 94-534 0 WASHINGTON 1968 (5) PAGENO="0012" 6 COMMITTEE ON WAYS AND MEANS WILBUR D. MILLS, Arkansas, Chairman CECIL R. KING, California HALE B000S, Louisiana FRANK M. KARSTEN, Missouri A. S. HERLONU, Ju., Florida JOHN C. WATTS, Kentucky AL ULLMAN, Oregon JAMES A. BURKE, Massachusetts MARTHA W. GRIFF1THS, Michigan GEORGE M. RHODES, Pennsylvania DAN ROSTENKOWSKI, Illinois PHIL M. LANDRUM, Georgia CHARLES A. VANIK, Ohio RICHARD H. FULTON, Tennessee. JACOB H. GILBERT, New York JOEN M. MARTIN, Jr., Chief Counsel J. P. BAKER, Assist ant. Chief counsel (II) JOHN W. BYRNES, Wisconsin THOMAS B. CURTIS, Missouri JAMES B. UTT, California JACKSON B. BETTS, Ohio HERMAN T. SCHNEEBELI, Pennsylvania HAROLD R. COLLIER, Illinois JOEL T. BROYHILL, Virginia JAMES F. BATTIN. Montana BARBER B. CONABLE, Ju., New York GEORGE BUSH, Texas WILLIAM H. QUEALY, Minority Counsel PAGENO="0013" 7 CONTENTS Page Message of the President - 1 Draftbill 6 Section-by-section analysis 12 (III) PAGENO="0014" 8 MESSAGE OF THE PRESIDENT GREATER PROSPERITY THROUGH EXPANDED WORLD TRADE To the Congress of the United States: A nation's trade lines are its life lines. Open trade lines and active commerce lead to economic health and growth. Closed trade lines end in economic stagnation Frank D Roosevelt recognized these truths more than thirty years ago, when the nation and the world were in the grip of Depression. On that March day in 1934 when he asked the Congress to pass the historic Reciprocal Trade Act, he pomted to America's declming world trade and what it meant to the nation "idle hands, still machines, ships tied to their docks." That Act set in motion three and a half decades of descenting tariff barriers and rising world trade Our producers and farmers found new markets abroad, and American exports multiplied twenty-fold This era of commercial progress was capped by the Kennedy Round Agreements reached at Geneva last year-the greatest success in all the history of international trade negotiations. When I reported to the Congress last November on the Kennedy Round, I said it would mean new factories, more jobs, lower prices to families, and higher incomes for American workers and for our trading partners throughout the world. Already, through these Agreements, tariff barriers everywhere are falling, bringing savings to consumers, and opening new overseas markets for competitive producers. But the problems and the promises of world trade are always changing We must have the tools not only to adjust to change, but to turn change to our advantage. To prepare for the era of world trade unfolding before us now, I submit to the Congress today the Trade Expansion Act of 1968. This measure will: Maintain our negotiating authority to settle-advantage- ously-trade problems and disputes. Carry out the special Geneva agreement on chemicals and other products. Improve the means through which American firms and workers can adjust to new competition from increased imports. OUR INTERNATIONAL RESPONSIBILITIES The Trade Expansion Act of 1968 will strengthen relations with our trading partners in three ways First, it will extend through June 30, 1970 the President's authority to conduct negotiations for tariff reductions. This authority was con- tained in provisions of the Trade Expansion Act of 1962 that have expired. (1) PAGENO="0015" 9 Most of this authority was used in negotiatiiig the Kennedy Round. The unused portion of that Authority will give the President the flexibility to adj ust tariff rates as future developments might require. For example, the United States might find it necessary to increase the duty on a particular article-as the result of an "escape clause" action or a statutory change in tariff classification. In such event, we would be obliged to give other nations compensatory tariff adj ustments for their trade losses. Without this authority, we would invite retaliation and endanger American markets abroad. I recommend that the President's authority to make these tariff adjust- ments be extended through June 30, 1970. Second, the Trade Expansion Act of 1968 will eliminate the American Selling Price system of customs valuation. This action is necessary to carry out the special agreement reached during the Kennedy Round. The American Selling Price system has outlived its purpose. It should be ended. The generally accepted method of ~raluing goods for tariff purposes- which we and all our trading partners emp1oy-~is to use the actual price of the item to the importer. But many years ago, to protect a few of our fledgling industries, we imposed on competing foreign goods-in addition to a substantial tariff-the special requirement that their tariff value be determined by American prices. Today this unusual system often produces tariff protection or more than 100 percent of the import cost of the product. Such excessive protection is both unfair and unnecessary. This system is unfair because it: -Gives to a few industries a special privilege available to no other American business. -Rests on an arbitrary method of valuation which no other nation uses. -Diverges from the provisions of the General Agreement on Tariffs and Trade. -Imposes an unjustified burden on the U.S. consumer. This system is unnecessary because the few industries which it covers no longer need special government protection. It applies primarily to the chemical industry in the benzenoid field. Yet chemicals, and benzenoids in particular, are among our most efficient and rapidly expanding industries. They have done well at home. They have done well in the international market. They are in a strong position to face normal competition from imports. A supplementary agreement was negotiated at Geneva which will lower foreign tariffs on American chemicals and reduce certain non- tariff barriers-road taxes and tariff preferences-on American auto- mobiles and tobacco. To receive these important concessions, the United States must eliminate the American Selling Price valuation system and thereby give foreign producers of chemicals and a few other products normal access to our markets. This bargain is clearly in our national interest-good for our industries, good for our workers, and good for our consumers. I recommend that the Congress eliminate the American Selling Price system to remove inequities in our tariffs and enable us to take advantage of concessions negotiated in the Kennedy Round. 2 PAGENO="0016" 10 Third, the Trade Expansion Act of 1968 will provide for specific funding of our participation in the General Agreement on Tariffs and Trade. This is the procedure we follow in meeting our financial responsi- bilities to all other international organizations The General Agreement on Tariffs and Trade has become the most im~)Oi t mt forum for the conduct of international trade relations The Kennedy Round took place under its auspices Yet since 1947, we have financed our annual contribution to this Agreement through genei al contingency funds rather than through a specific authorization I recommend that the Congress authorize specific appropriations for the American share of the expenses for the General Agreement on Tari:ffs and Trade. OIJR NEEDS AT HOME When trade barriers fall, the American people and the American economy benefit Open trade lines -Reduce prices of goods from abroad -Increase opportunities for American businesses and farms to export their products This means expanded production and more job opportunities. -Help improve the efficiency and competitive strength of our industries. This means a higher rate of economic growth for our nation and higher incomes for our people Some firms, however, have difficulty in meeting foreign competition, and need time and help to make the adjustment Since international trade strengthens the nation as a whole, it is only fair that the government assist those businessmen and workers who face serious problems as a result of increased im~ports The Congress recognized this need-in the Trade Expansion Act of 1962-by establishing a program of trade adjustment assistance to businessmen and workers adversely affected by imports. Unfortunately, this program has been ineffective. The test of eligibility has proved to be too rigid, too technical, and too com- plicated. As part of a comprehensive trade expansion policy, I propose that we make our adjustment assistance program fair and workable I recommend that Congress broaden the eligibility for this assistance. The test should be simple and clear relief should be avail- able whenever increased imports are a substantial cause of injury I intend to pattern the administration of this program on the Automotive Products Trade Act of 1965 Determinations of eligibility will be made jointly by the Secretaries of Labor, Commerce and Treasury The adjustment assistance provisions of Automotive Product Trade Act of 1965 have been successful They have well served American automobile firms and their workers as we have moved to create an integrated U S -Canadian auto market These provisions will expire on June 30 I recommend that the Congress extend the adjustment assistance pro- visions of the Automotive Products Trade Act through June 30, 1971 3 PAGENO="0017" 11 TRADE INITIATIVES FOR THE FUTURE The measures I have recommended today will help us carry forward the great tradition of our reciprocal trade policy. But even as we consolidate our past gains, we must look to the future. First and foremost, we must ensure that the progress we have made is not lost through new trade restrictions. One central fact is clear. A vicious cycle of trade restrictions harms most of the nation which trades most. And America is that nation. At the present time, proposals pending before the Congress would impose quotas or other trade restrictions on the imports of over twenty industries. These measures would cover about $7 bfflion of our im- ports-close to half of all imports subject to duty. In a world of expanding trade, such restrictions would be self- defeating. Under international rules of trade, a nation restricts imports only at the risk of its own exports. Restriction begets restriction. Tn reality, "protectionist" measures do not protect any of us: -They do not protect the American working man. If world markets shrink, there will be fewer jobs. -They do not protect the American businessman. In the long run, smaller markets will mean smaller profits. -They do not~protect the American consumer. He will pay more for the goods he buys. The fact is that every American-directly or indirectly-has a stake in the growth and vitality of an open economic system. Our policy of liberal trade has served this nation well. It will continue to advance our interests in the future. But these are critical times for the nation's economy. We have launched a series of measures to reduce a serious balance of payments deficit. As part of this program, I have called for a major long-run effort to increase our trade surplus. This requires that we push ahead with actions to keep open the channels of trade. Many of our trading partners have indicated a willingness to cooper- ate in this effort by accelerating some of their tariff reductions agreed to in the Kennedy Round, and by permitting the United States to defer a portion of our tariff reductions. Furthermore, a number of Western European countries are now taking more active steps to achieve a higher rate of economic growth. This promises to increase the demand for our exports and improve our trade position. To take full advantage of the expanded trading opportunities that lie ahead, we must improve the competitive position of American goods. Passage of the anti-inflation tax is the most critical action we could take now to strengthen our position at home and in world markets. The tax measure I hare recommended will help prevent destructive price increases-which can sap the vitality and strength of our economy. Continued rapid increases in our prices would mean fewer exports and higher imports. Second, other nations must jc~in ~with us to put an end to non-tariff barriers. Trade is a two-way street. A successful trade policy must be built upon reciprocity. Our own trade initiatives will founder unless our trading partners join with us in these efforts. 4 95-159 0-68-pt. 1-2 PAGENO="0018" 12 The Kennedy Round was an outstanding example of international cooperation. But major non-tariff barriers continue to impede the free flow of international commerce These barriers now block many U S products from competing for world markets Some non-tariff barriers violate provisions of the General Agree- ment on Tariffs and Trade We will step up our efforts to secure the prompt removal of these illegal restrictions. Other non-tariff barriers may not be ifiegal, but they clearly hamper and hinder trade Such barriers are found in all countries, the American Selling Price system is an example of one of our non-tariff barriers We have initiated a major international study to assess the effect of non-tariff barriers on world trade We have already begun action in the General Agreement on Tariffs and Trade and other international oi'ganizations to deal with some of these non-tariff barriers Efforts such as these are an important element in our trade policy. All sides must be prepared to dismantle unjustified or unreasonable barriers to trade. Reciprocity and fair play are the essential standards for inter- national trade America will insist on these conditions in all our negoti- ations to lower non-tariff barriers. Third, we must develop a long-range policy to guide American trade expansion through the 1970's. I have directed the President's Special Representative for Trade Negotiations to make an intensive study of our future trade require- ments and needs. I would hope that Members of the Congress and leaders of Labor, Business and Agriculture will work with the Executive Branch in this effort. To help develop the foundations of a far-reaching policy, I will issue an Executive Order that establishes a wide basis for consultation and assistance in this important work AN EXPANDING ERA IN WORLD TRADE The proposals in this message have been shaped to one purpose- to develop the promise of an expanding era in world trade We started on this road three and a half decades ago. In the course of that journey, the American farmer, the businessman, the worker and the consumer have benefitted. The road ahead can lead to new levels of prosperity and achieve- ment for the American people. The Trade Expansion Act of 196~ will speed us on the way. I urge the Congress~ to give this important measure its prompt and favorable consideration. LYNDON B JOHNSON THE WHITE HOUSE, May 28, 196'8 5 PAGENO="0019" 13 PROPOSED "TRADE EXPANSION ACT o~ 1968" A BILL To continue the expansion of international trade and thereby to promote the general welfare of the United States, and for other purposes Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, TITLE I-SHORT TITLE AND PURPOSES SEC. 101. SHORT TITLE. This Act may be cited as the "Trade Expansion Act of 1968". SEC. 102. STATEMENT OF PURPOSES. The purposes of this Act are- (1) to continue and strengthen the trade agreements program of the United States; (2) to establish a viable program of adjustment assistance for firms and workers affected by imports; and (3) to promote the reduction or elimination of non-tariff barriers., to trade. TITLE Il-TRADE AGREEMENTS SEC. 201. BASIC AUTHORITY FOR TRADE AGREEMENTS. (a) Section 201 (a) (1) of the Trade Expansion Act of 1962 (19 U .S.C. sec. 1821(a)(1)) is amended by striking out "July 1, 1967" and insert- ing in lieu thereof "July 1, 1970". (b) The limitations set forth in section 201(b) of the Trade Expan- sion Act of 1962 (19 U.S.C., sec. 1821(b)) shall be applicable, without exception other than as provided in section 254 of that Act (19 U.S.C., sec. 1884), to proclamations issued pursuant to the authority granted under subsection (a). SEC. 202. GENERAL AGREEMENT ON TARIFFS AND TRADE. Chapter 5 of title II of' the Trade Expansion Act of 1962 is amended by inserting immediately after section 243 (19 U.S.C., sec. 1873) the following new section: "SEc. 244. GENERAL AGREEMENT ON TARiFFS AND TRADE. "Theie are hereby authorized to be appropriated annually such sums as may be necessary for the payment by the United States of its share of the expenses of the CONTRACTING PARTIES to the General Agreement on Tariffs and Trade." TITLE ~I-ADJU5TMENT ASSISTANCE TO FIRMS AND WORKERS SEC. 301. PETITIONS AND' DETERMINATIONS. Section 301 of the Trade Expansion Act of 1962 (19 U.S.C., see. 1901) is amended as follows: (6) PAGENO="0020" 14 (a) The title is amended to read "PETITIONS AND DETERMINATIONS". (b) Subsection (a)(2) is amended by striking out "Tariff Commis- sion" wherever it appears and inserting in lieu thereof "President". (c) Subsection (a)(3) is amended by striking out "this subsection" and inserting in lieu thereof "paragraph (1)". (d) Subsection (c) is amended to read as follows: "(c)(1) In the case of a petition by a firm for a determination of eligibility to apply for adjustment assistance under chapter 2, the President shall determine whether increased quantities of imports of an article directly competitive with an article produced by the firm have been a substantial cause of serious injury, or the threat thereof, to such firm. "(2) In the case of a petition by a group of workers for a determination of eligibility to apply for adjustment assistance under chapter 3, the President shall determine whether increased quantities of imports of an article directly competitive with an article produced by such workers' firm, or an appropriate sub- division thereof, have been a substantial cause of unemployment or underemployment, or the threat thereof, of a significant number or proportion of the workers of such firm or subdivision. "(3) In order to assist him in making the determinations referred to in paragraphs (1) and (2) with respect to a firm or group of workers, the President shall promptly transmit to the Tariff Commission a copy of each petition filed under subsection (a)(2) and, not later than 5 days after the date on which the petition is filed, shall request the Tariff Commission to conduct an investigation relating to questions of fact relevant to such determinations and to make a report of the facts disclosed by such investigation. In his request, the President may specify the particular kinds of data which he deems appropriate. Upon receipt of the President's request, the Tariff Commission shall promptly institute the investigation and promptly publish notice thereof in the Federal Register." (e) Subsection (d)(2) is amended to read as follows: "(2) In the course of any investigation under subsection (c) (3), the Tariff Commission shall, after reasonable notice, hold a public hearing, if such hearing is requested (not later than 10 days after the date of the publication of its notice under subsection (c)(3)) by the petitioner or any other person showing a proper interest in the subject matter of the investigation, and shall afford interested persons an opportunity to be present, produce evidence, and to be heard at such hearing." (f) Subsection (f)(1) is amended by inserting "under subsection (b)" after "in each report" in the first sentence. (g) Subsection (f)(3) is amended to read as follows: "(3) The report of the Tariff Commission of the facts disclosed by its investigation under subsection (c)(3) with respect to a firm or group of workers shall be made at the earliest practicable time, but not later than 60 days after the date on which it re- ceives the request of the President under subsection (c)(3)." SEC. 302. PRESIDENTIAL ACTION AFTER TARIFF COMMISSION RE- PORTS. Jr PAGENO="0021" 15 Section 302 of the Trade Expansion Act of 1962 (19 U.S.C., sec. 1902) is amended as follows: (a) The tiUe is amended to read "PRESIDENTIAL ACTION AFTER TARIFF COMMISSION REPORTS". (b) Subsection (b)(1) is amended by striking out "have caused serious injury or threat thereof" and inserting in lieu thereof "have been a substantial cause of serious injury, or the threat thereof,". (c) Subsection (b)(2) is amended by striking out "have caused or threatened to cause unemployment or underemployment" and inserting in lieu thereof "have been a substantial cause of unemploy~ ment or underemployment, or the threat thereof,". (d) Subsection (c) is amended to read as follows: "(c)(1) After receiving a report of the Tariff Commission of the facts disclosed by its investigation under section 301 (c)(3) with respect to any firm or group of workers, the President shall make his determination under section 301(c)(1) or (c)(2) at the earliest practicable time, but not later than 30 days after the date on which he receives the Tariff Commission's report, unless, within such period, the President requests additional factua' information from the Tariff Commission. In this event, the Tariff Commission shall, not later than 25 days after the date on which it receives the President's request, furnish such additional factual information in a supplemental report, and the President shall make his determination not later than 15 days after the date on which he receives such supplemental report. "(2) The President shall promptly publish in the Federal Reg-~ ister a summary of each determination under section 301(c) with respect to any firm or group of workers. "(3) If the President makes an affirmative determination under section 301(c) with respect to any firm or group of workers, he shall promptly certify that such firm or group of workers is eligible to apply for adjustment assistance. "(4) The President is authorized to exercise any of his functions with respect to determinations and certifications of eligibility of firms or workers to apply for adjustment assistance under section 301 and this section through such agency or other instrumentality of the United States Government as he may direct." SEC. 303. TAX ASSISTANCE TO FIRMS. Section 3 17(a)(2) of the Trade Expansion Act of 1962 (19 U.S.C., sec. 1917(2)) is amended by striking out "by the increased imports which the Tariff Commission has determined to result from concessions granted under trade agreements" and inserting in lieu thereof "by the increased imports identified by the Tariff Commission under section 301(b)(1) or by the President under section 301(c)(1), as the case may be". SEC. 304. ADJuSTMENT ASSISTANCE TO WORKERS. Section 337 of the Trade Expansion Act of 1962 (19 U.S.C., sec. 1977) is amended by inserting ", including training not otherwise available," after "adjustment assistance". PAGENO="0022" 16 TITLE IV-NONTARIFF BARRIERS TO TRADE SEC 401 ELIMINATION OF AMERICAN SELLING PRICE SYSTEM (a) The President is authorized to proclaim such modifications of the Tariff Schedules of the Umted States (19 U S C, sec 1202) as are required or appropriate to carry out- (1) part II of the Agreement Relating Principally to Chemicals, Supplementary to the Geneva (1967) Protocol to the General Agreement on Tariffs and Trade, and (2) the Agreement effected by an exchange of notes between the Umted States and Japan relating to certain canned clams and wool-knit gloves, both of which agreements were concluded on June 30, 1967, and are set forth in House Document No 322, 90th Congress, 2d Session (b) With respect to certain footwear presently provided for in item 700.60 of the Tariff Schedules of the United States, the President is authorized- (1) to enter into an agreement providing for the replacement of item 700 60 by the new items which are designated 700 60A and 700.60B in the report of the Tariff Commission to `the Special Representative for Trade Negotiations on investigation number 332-47 under section 332 of the Tariff Act of 1930 and whose rates of duty shall be applied to values determined in accordance with the methods of valuation, other than American selling price, provided for in section 402 of the Tariff Act of 1930 (19 U S C, sec 1401a), and (2) to proclaim such modifications of the Tariff Schedules of the United States as are required or appropriate to carry out such agreement, so long as such modifications do not become effective earlier than January 1, 1971, and the rates of duty for column numbered 1 proclaimed thereby are not lower than "20% ad val." for the item designated 700.60A nor lower than "25~ per pair + 20% ad val. but not less than 58% ad val." for the item designated 700.60B. (c) In a proclamation issued pursuant to this section, the President is authorized to simplify the Tariff Schedules of the United States by consolidating article descriptions, without changing rates of duty, with respect to articles which will be subject to full concession rates of duty that are identical to one another in column numbered 1 and to rates of duty that are identical to one another in column numbered 2 Any such consolidation shall become effective on the date the full concession rates of duty become effective for such articles (d) The President is authorized at any time to terminate, in whole or in part, any proclamation issued pursuant to this section SEC 402 APPLICATION OF RELATED PRovIsIoNs (a) For purposes of section 256(4) of the Trade Expansion Act of 1962 (19 U S C, sec 1886(4)), each full concession rate of duty pro- claimed pursuant to section 401 of this Act increased by 100% thereof shall be treated as the rate of duty existing on July 1, 1962 (b) For purposes of section 301(b) (1) and related provisions of title III of the Trade Expansion Act of 1962 (19 U.S.C., sec. 1901- 1991), a rate of duty pro~laimed `pursuant to section 401 of this Act shall be treated as a concession granted under a trade agreement 9 PAGENO="0023" 17 (c) For purposes of general headnote 4 of the Tariff Schedules of the TJmted States, a rate of duty proclaimed pursuant to section 401 of th.is Act shall be treated as a rate of duty proclaimed pursuant to a concession granted in a trade agreement. SEc. 403. CONSEQUENTIAL AMENDMENTS OF TARIFF SCHEDULES OF UNITED STATES. As of the effective date of a proclamation issued pursuant to section 401(a) or 401(b) of this Act, the Tariff Schedules of the United States are amended by those of the following paragraphs which apply to the articles to which such proclamation relates: (1) Part 3E of schedule 1 as amended by striking out the rate of duty in column numbered 2 for item 114.05 and by inserting in such column "35~ per lb." and "35% ad val." for the articles provided for in items 114.04 and 114.06, respectively, proclaimed pursuant to section 401(a) of this Act, and by striking out head- note 1 and the headnote heading preceding it. (2) Part 1 of schedule 4 is amended by striking out the rates of duty in column numbered 2 in subparts B and C and by insert- ing in such column "7~ per lb. + 75% ad val." for the articles provided for in each item proclaimed pursuant to section 40 1(a) of this Act, and by striking out headnotes 4 and 5 and inserting in lieu thereof: "4. The ad valorem rates provided for in this part shall be applied to values determined in accordance with the methods of valuation provided for in section 402(a) through (d) of this Act (19 U.S.C: 1401a(a) through (d))." (3) Part 1A of schedule 7 is amended by striking out the rate of duty in column numbered 2 for item 700.60 and by inserting in such column "35% ad val." and "40ç~ per pair + 35% ad val. but not less than 90% ad val." for the articles described in the items designated 700.60A and 700.60B, respectively, referred to in section 401(b) of this Act, and by striking out headnote 3(b) and inserting in lieu thereof: "(b) The ad valorem rates provided for in the items pro- claimed in such proclamation as may be issued pursuant to section 401 (b)(1) of the Trade Expansion Act of 1968 shall be applied to values determined in accordance with the methods of valuation provided for in section 402(a) through (d) of this Act (19 U.S.C. 1401a(a) through (d))." (4) Part 1C of schedule 7 is amended by striking out the rate of duty in column numbered 2 for item 704.55 and inserting in lieu thereof "40~ per lb. + 35% ad val.", and by striking out headnote 4 and inserting in lieu thereof: "4. The ad valorem rates provided for in item 704.55 shall be applied to values determined in accordance with the methods of valuation provided for in section 402(a) through (d) of this Act (19 U.S.C. 1401a(a) through (d))." SEC. 404. CONSEQUENTIAL AMENDMENTS OF OTHER PROVISIONS OF TARIFF ACT OF 1930. As of the date the American selling price system of customs val- uation is eliminated, pursuant to sections 401 and 404 of this Act, for all articles now subject to that system- 10 PAGENO="0024" 18 (1) Section 336 of the Tariff Act of 1930 (19 U.S.C., sec. 1336) is amended by striking out (A) subsection (b), (B) "and in basis of value" in subsection (c), (C) "or in basis of value" in subsections (d) and (f), and (D) subsection (j). (2) Section 402 of the Tariff Act of 1930 (19 U.S.C. sec., 1401a) is amended by striking out everything in subsection (a) which follows "constructed value" and precedes the period, and by striking out subsection (e) (3) Section 402a of the Tariff Act of 1930 (19 U.S.C., sec. 1402) is amended by striking out everything in subsection (a) which follows "cost of production" and precedes the period, and by striking out subsection (g) TITLE v-ADJUSTMENT ASSISTANCE TO FIRMS AND WORKERS IN AUTOMOTIVE INDUSTRY SEC 501 ADJUSTMENT ASSISTANCE TO FIRMS AND WORKERS IN AUTOMOTIVE INDUSTRY Section 302(a) of the Automotive Products Trade Act of 1965 (19 U.S.C., sec. 2022(a)) is amended by striking out "July 1, 1968" and inserting in-heu thereof "July 1, 1971" 11 PAGENO="0025" 19 SECTION-BY-SECTION ANALYSIS OF THE "TRADE EXPANSION ACT OF 1968" The Trade Expansion Act of 1968 consists of five titles. Title I (secs. 101-102) is entitled "Short Title and Purposes," title II (secs. 201-202) "Trade Agreements," title III (secs. 301-304) "Adjustment Assistance to Firms and Workers," title IV (secs. 401-404) "Non- Tariff Barriers to Trade," and title V (sec. 501) "Adjustment Assist- ance to Firms and Workers in Automotive Industry." TITLE I-SHORT TITLE AND PURPOSES Section 101. Short title This section provides that the short statutory title of the act is the "Trade Expansion Act of 1968." Section 102. Stcttement of purposes This section sets forth the three basic purposes of the act. The first purpose is to continue and strengthen the trade agreements program of the United States. The second purpose is to establish a viable program of adjustment assistance for firms and workers affected by imports. The third purpose is to, promote the reduction or elimination of nontai~jff barriers to. trade. TITLE lI-TRADE AGREEMENTS Section 201. Basic authority for trade agreements Subsection (a) amends section 201(a)(1) of the Trade Expansion Act of 1962 (TEA) so as to authorize the President to enter into trade agreements with foreign countries until July 1, 1970. Subsection (b) makes clear that, in proclaiming any reduc4 ion in a rate of duty pursuant to a trade agreement, the Presider t is limited by section 201(b)(1) of the TEA to a reduction of not more than 50 percent of the rate existing on July 1, 1962. As a result, the President may exercise whatever portion of his authority to reduce rates by as much as 50 percent which he did not use by the close of the Kennedy round of trade negotiations. He is not given any authority to eliminate rates of duty pursuant to section 202, 211, 212, or 213 of the TEA. In fact, the authority provided by section 201 of the bill will not be used in any major bilateral or multilateral tariff negotiation. Instead, it is intended primarily for cases where the United States finds it necessary to increase a rate of duty which is subj ect to a tariff concession. In such cases, the United States would offer com- pensatory tariff concessions to the countries affected by the rate increase, since failure to do so would probably lead to retaliatory action on the part of such countries. All the requirements of the TEA normally applicable to the exercise of the authority in section 201 of the TEA will apply, including the (12) PAGENO="0026" 20 prenegotiation requirements of chapter 3 of title II of the TEA and the staging requirement of section 253 of the TEA. Section 20~. General agreement on tariffs and trade This section amends the TEA by adding a new section 244 This new section authorizes annual appropriations to finance each year's U S contribution to the budget of the GATT This contribution is presently financed from the appropriation made to the Department of State and entitled "International Conferences and Contingencies." TITLE Ill-ADJUSTMENT ASSISTANCE TO FIRMS AND WORKERS Section 301. Petitions and determinations In general, section 301 amends section 301 of the TEA in two respects. First, it liberalizes the criteria of eligibility of individual firms and workers to apply for adjustment assistance. Among other changes, injury will be related to increased imports whether or not a trade agreement concession was involved. Second, it provides that, instead of the Tariff Commission, the President will make the sub- stantive determinations of eligibility The Tariff Commission's func- tion will be to gather and supply to the President the relevant facts to assist him in making such determinations. Subsection (a) amends section 301 of the TEA to change the title of the section from "Tariff Commission Investigations and Reports" to "Petitions and Determinations," consistent with the subsequent amendments to section 301. Subsection (b) amends section 30 1(a)(2) of the TEA by substituting "President" for "Tariff Commission" in the two places it appears. Accordingly, petitions for a determination of eligibility to apply for adjustment assistance which are filed by a firm or a group of workers are to be filed with the President. It is expected that the President will delegate this function and his other functions under this section In the case of a group of workers, it is intended that a group of three or more workers in a firm may qualify as a petitioner. Subsection (c) amends section 301 (a) (3) of the TEA so as to provide that the Tariff Commission shall tI ansmit to the Secretary of Com- merce copies only of petitions for tariff adjustment, since the Tariff Commission will no longer be receiving petitions for adjustment assistance. Subsection (d) amends section 301(c) of the TEA so as to provide new criteria of eligibility of firms and workers to apply for adjust- ment assistance and to substitute the President for the Tariff Com- mission for the purpose of determining whether the criteria are satisfied Under the amendment, new section 301(c)(1) of the TEA provdes that in the case of a petition by a firm for a determination of eligi- bility to apply for adjustment assistance under chapter 2 of title III of the TEA, the President shall determine whether increased quanti- ties of imports of an article directly competitive with an article produced by the firm have been a substantial cause of serious injury, or the threat thereof, to such firm. Similarly, new section 301(c)(2) of the TEA provides that in the case of a petition by a group of workers for a deteimination of eligi- bility to apply for adjustment assistance under chapter 3 of title III 13 PAGENO="0027" 21 of the TEA, the President shall determine whether increased quanti- ties of imports of an article directly competitive with an article produced by such workers' firm, or an appropriate subdivision thereof, have been a substantial cause of unemployment or underemployment, or the threat thereof, of a significant number or proportion of the workers of such firm or subdivision. The term "increased quantities of imports" is intended to require that, if quantities of imports in a recent period reflect an absolute in- crease over quantities of imports in a representative base period, the total quantity of imports in such recent period shall be taken into account. Thus, if quantities of imports in a representative base period were 8 mfflion units and the quantities in a recent period were 10 mfflion units, the quantities of imports to be considered would be 10 million units. The "directly competitive" imported article is intended to mean either an article which is like the domestic* article and is therefore necessarily directly competitive with it, or one which is unlike the domestic article but nevertheless competes directly with it. In cases where there is more than one directly competitive imported article, it is intended that the quantities of imports of the several im- ported articles shall be taken together for purposes of determining whether there have been increased quantities of imports. By the use of the words "have been," it is intended that the in- creased quantities of imports shall have occurred in the recent past. With respect to the causal relationship between increased quantities of imports and injury, or the threat thereof, the term "substantial cause" is intended to require the demonstration of an actual and considerable cause. A substantial cause in any specific case need not, however, be greater than all other causes combined nor even greater than any other single cause. In the case of a firm, in determining serious injury, it is intended that all relevant economic factors shall be considered, including idling of productive facilities, inability to operate at a level of reasonable profit, and unemployment or underemployment. In the case of a group of workers, it is intended that in most cases unemployment or underemployment shall be found where the unem- ployment or underemployment, or both, in a firm, or an appropriate subdivision thereof, is the equivalent of total unemployment of 5 percent of the workers or 50 workers, whichever is less. At the same time, there are many workers in plants employing fewer than 50 work- ers. Accordingly, there may be cases where as few as three workers in a firm, or an appropriate subdivision thereof, would constitute a significant number or proportion of the workers. It is intended that an "appropriate subdivision" of a firm shall be that establishment in a multiestablishment firm which produces the domestic article in question. Where the article is produced in a distinct part or section of an establishment (whether the firm has one or more establishments), such part or section may be considered an appro- priate subdivision. New section 301(c)(3) of the TEA provides that the Tariff- Com- mission shall assist the President in making determinations with respect to petitions filed by firms or groups of workers. That is, the President shall promptly transmit to the Tariff Commission a copy of each petition filed by a firm or group of workers under new section 14 PAGENO="0028" 22 301 (a)(2) of the TEA Not later than 5 days after the date on which the petition is filed, the President shall request the Tariff Commission to conduct an investigation relating to questions of fact relevant to h~s determinations under new sections 301(c) (1) and (2) of the TEA and to make a report of the facts disclosed by such investigation In his request, the President may specify the particular kinds of data which he deems appropriate. This is not intended, however, to preclude the Tariff Commission from making an investigation of, and including in its report, such additional data as it considers relevant Upon receipt of the President's request, the Tariff Commission shall promptly initiate the investigation and promptly publish notice thereof in the Federal Register It is intended that the President, and not the Tariff Commission, shall make the determinations under sections 301(c)(1) and (c) (2) with respect to firms and groups of workers Accordingly, the Tariff Commission is not to include in its report conclusions, opinions, or ~udgments which are tantamount to the determinations Instead, it is to present the facts and in a manner which will render the report useful to the President It is recognized that the Tariff Commission will have to reach conclusions with respect to such subsidiary questions as what constitutes the firm or an appropriate subdivision thereof, what product is directly competitive, and what is the appropriate base period, in order to gather the relevant facts In any case, however, the President has the final authority to make a decision with respect to any element which enters into the determinations under sections 301(c) (1) and (c) (2), and 302 (c), (d), and (e) Subsection (e) amends section 301(d) (2) of the TEA to provide that, in the course of any investigation under new section 301(c)(3) of the TEA, the Tariff Commission shall hold a public hearing if requested by the petitioner or any other person showing a proper interest. How- ever, such a request must be made not later than 10 days after the date of the publication of its notice under section 301 (c)(3) The Tariff Commission is to afford interested persons an opportunity to be pres- ent, to produce evidence, and to be heard at such hearing. It is under- stood that a public hearing may be held in any case on the Tariff Commission's own motion Subsection (f) amends section 301(f)(1) of the TEA to provide that the Tariff Commission shall be under an affirmative obligation to in- clude any dissenting or separate views only in its reports concerning petitions for tariff adjustment. Subsection (g) amends section 301(f) (3) of the TEA to provide that the report of the Tariff Commission of the facts disclosed by its investi- gation under new section 301(c)(3) of the TEA with respect to a firm or group of workers shall be made at the earliest practicable time, but not later than 60 days after the date on which it receives the request of the President under new section 301 (c)(3) Section 302 Presidential action after Tariff Commission reports In genera], section 302 amends section 302 of the TEA to provide for Presidential action following receipt of the Tariff Commission's factual report with respect to a petition for adjustment assistance Subsection (a) amends section 302 of the TEA to change the title of the section from "Presidential Action After Tariff Commission Determination" to "Presidential Action After Tariff Commission Reports," consistent with the amendments to section 301 of the TEA 15 PAGENO="0029" 23 Subsections (b) and (c) each makes a similar amendment to section 320(b) (1) and (2), respectively, of the TEA in order to conform with the criteria of eligibillity in new sections 301(c) (1) and (2) of the TEA. Under section 302(a) of the TEA, if the Tariff Commission makes an affirmative finding with respect to a petition for tariff adjustment ified on behalf of an entire industry, the President may furnish in- creased import protection (e.g., increased tariffs or quotas) to the industry involved, and/or provide that the firms and workers in the industry may request the Secretaries of Commerce and Labor, respectively, for certifications of eligibility to apply for adjustment assistance. Under section 302(b) of the TEA, a firm or group of workers in the industry must be certified as eligible to apply for adjustment assistance if it demonstrates that the increased imports (which the Tariff Commission has determined in the case of the industry to result from concessions granted under trade agreements) have caused serious injury to the firm, or unemployment or underemployment of the workers, or the threat thereof, as the case may be. The amendments to sections 302(b) (1) and (2) of the TEA make it clear that it shall be sufficient, for purposes of section 302(b) of the TEA, for the firm or group of workers to demonstrate that the in- creased imports have been a substantial cause of serious injury or unemployment or underemployment, or the threat thereof. In this way, whether a firm or group of workers files an original petition for adjustment assistance under section 301(a) of the TEA, or seeks to become eligible under section 302(b) of the TEA for adjustment as- sistance following an affirmative finding of the Tariff Commission with respect to an industry under section 301(b) of the TEA, the same degree of causality to be ascribed to increased imports will apply. Subsection (d) amends section 302(c) of the TEA to provide four new paragraphs. New paragraph (1) provides that, after receiving a factual report of the Tariff Commission, the President shall make his determination under new section 301(c)(1) or (c)(2) at the earliest practicable time, but not later than 30 days after the date on which he receives the Tariff Commission's report, unless, within such period, the President requests additional factual information from the Tariff Commission. In this event, the Tariff Commission shall, not later than 25 days after the date on which it receives the President's request furnish such additional factual information in a supplemental report. The President shall then make his determination not later than 15 days after the date on which he receives such supplemental report. New paragraph (2) provides that the President shall promptly publish in the Federal Register a summary of each determination under new section 301(c) of the TEA with respect to any firm or group of workers. New paragraph (3) provides that, if the President makes an affirm- ative determination under new section 301(c) of the TEA with respect to any firm or group of workers, he shall promptly certify that such firm or group of workers is eligible to apply for adjustment assistance. New paragraph (4) provides that the President is authorized to exercise any of his functions with respect to determinations and cer- tifications of eligibility of firms or groups of workers to apply for adjustment assistance through such agency or other instrumentality of the U.S. Government as he may direct. Such agency or instrumen- 16 PAGENO="0030" 24 tality may issue rules or regulations pursuant to section 401(2) of the TEA. Section 303. Tax assistance to firms Section 303 amends section 317(a)(2) of the TEA to conform to the new section 301(c)(1) of the TEA. Section 304 Adjustment assistance to workers Section 304 amends section 337 of the TEA to provide that sums appropriated pursuant to section 337 for adjustment assistance for workers may be used to pay the cost of training provided to adversely affected workers entitled to trade readjustment allowances under chapter 3 of title III of the TEA, to the extent that training resources provided under any Federal law would not otherwise be available to such workers TITLE IV-NONTARIFF BARRIERS TO TRADE Section 401 Eliminatwn of American selling price system In general, this section provides for the elimination of the American selling price (ASP) system as a method of customs valuation The products now subject to the ASP system are benzenoid chemicals, canned clams, wool-knit gloves, and rubber-soled footwear As a re- sult of the elimination of this system, these products will no longer be subject to ASP, if competitive with a domestic article, or, in the case of benzenoid chemicals, to U.S. value as the next basis of value, if not so competitive. Instead, they will be subject to export value (or alternative bases of value in the absence of export value) in accordance with the provisions of section 402 of the Tariff Act of 1930 (19 U S C 1401a) Subsection (a) authorizes the President to proclaim such modifica- tions of the Tariff Schedules of the United States (TSUS) as are required or appropriate to carry out two agreements concluded as part of the Kennedy round. The first agreement is the multilateral Agreement Relating Principally to Chemicals, Supplementary to the Geneva (1967) Protocol to the General Agreement on Tariffs and Trade. Under this agreement, the President undertakes to use his best efforts to obtain promptly such legislation as is necessary to enable the United States to eliminate the ASP system of valuation, as provided in part II of the agreement Part II provides new column 1 rates for benzenoid chemicals, which shall be based on the first three alternative bases of valuation (export value, U S value, or constructed value) provided for in section 402 (as opposed to sec 402a of the Tariff Act of 1930 (19 U S C 1402)) Part II also provides additional tariff concessions by the United States on chemical and related articles not subject to the ASP system Parts III, IV, and V of the agreement provide the concessions with respect to tariff and nontariff barriers which the other parties to the agreement have undertaken to make if the ASP system is eliminated. The second agreement is the bilateral agreement with Japan, which consists of an exchange of notes The U S note provides that the President is prepared to use his best efforts to obtain promptly such legislation as is necessary to enable the United States to eliminate the ASP system of valuation as it relates to canned clams and wool-knit gloves The attachment to the U S note sets out the new column 1 I 17 PAGENO="0031" 25 rates for these products, which shall be based on export value (or alternative bases of value in the absence of export value) in accordance with section 402 of the Tariff Act of 1930. The Japanese note provides the tariff concession which Japan is prepared to make if the ASP system is eliminated. Subsection (b) concerns the last class of products now subject to the ASP system-rubber-soled footwear. These products were not included in any Kennedy round agreement providing for the elimina- tion of ASP. Accordingly, paragraph (1) authorizes the President to enter into an agreement with respect to rubber-soled footwear. This agreement would provide for two new items in the TSUS to replace the present single item covering such footwear. The two new article descriptions were set forth by the Tariff Commission in its report of August 1966, concerning investigation No. 332-47. In addition, the agreement would provide that the rates of duty for the two new items shall be based on export value (or alternative bases of value in the absence of export value) in accordance with section 402 of the Tariff Act of 1930. Paragraph (2) authorizes the President to proclaim such modifica- tions of the TSUS as are required or appropriate to carry out such agreement, so long as two conditions are met. First, the modifications must not become effective earlier than January 1, 1971. Second, the new rates of duty for column 1 must not be lower than the rates specified in the act. Subsection (c) provides that, in a proclamation issued pursuant to section 401, the President is authorized to simplify the TSUS by consolidating article descriptions, but without changing rates, with respect to articles which will be subject to full concession rates of duty (i.e., the final rates set out in the applicable agreements) that are identical to one another in column No. 1 and to rates of duty that are identical to one another in column No. 2. Any such consolidation shall become effective on the date the full concession rates become effective for such articles. This subsection is designed to insure that the President has the authority to consolidate provisions bearing the same rates of duty following the elimination of the ASP system and thereby to simplify customs administration. Subsection (d) authorizes the President at any time to terminate, in whole or in part, any prdclamation issued pursuant to section 401. Section 4O?~. Application of related provision8 In general, this section provides for the treatment of column 1 rates of duty proclaimed pursuant to section 401 under three related pro- visions of law. Subsection (a) is intended to insure that the present rates of duty based upon ASP will not continue to qualify as rates existing on July 1, 1962, for purposes of the tariff-reducing authority in the TEA even after the ASP system is eliminated. In order to avoid such a possibility, subsection (a) deals with section 256(4) of the TEA, which defines the term "existing on July 1, 1962" as it applies to the 50 percent limita- tion on tariff reductions under section 201 of the TEA. Subsection (a) provides that for purposes of section 256(4) of the TEA the column 1 rates existing on July 1, 1962, shall, in effect, be two times the full concession rates (i.e., the final rates set out in the applicable agree- ments) proclaimed pursuant to section 401. Accordingly, if, for example, one of the new column 1 rates were increased and the President subse- 18 PAGENO="0032" 26 quently wished to reduce it under section 201 of the TEA, he could reduce it to a level no lower than the actual full concession rate Subsection (b) provides that a rate of duty proclaimed pursuant to section 401 shall be treated as a concession granted under a trade agreement for purposes of the provisions of title III of the TEA related to tariff adjustment In particular, this would permit an industry to file a petition with the Tariff Commission alleging, in effect, that a rate of duty proclaimed pursuant to section 401 has been the major cause of increased imports and that such increased imports have been the major cause of serious injury to that industry. Subsection (c) provides that a rate of duty proclaimed pursuant to section 401 shall be treated as a rate of duty proclaimed pursuant to a concession granted in a trade agreement for purposes of general headnote 4 of the TSUS. As a result, by operation of paragraph (b) of general headnote 4, during such time as a column 1 rate proclaimed pursuant to section 401 is, for a few benzenoid chemicals, higher than the column 2 rate, the column 2 rate will in effect be increased to the level of the column 1 rate Moreover, by operation of paragraph (d) of general headnote 4, if, for example, a full concession rate proclaimed pursuant to section 401 were terminated under section 402, the column 2 rate would apply Section 403 Consequential amendments of Tariff Schedules of United States In general, this section makes three kinds of amendments to the TSUS which are consequential upon the elimination of the ASP system These statutory amendments relate to the four parts of the TSUS providing for the four categories of articles subject to the ASP system and complement the President's proclamatory modifications of the TSUS under section 401 with respect to column 1 rates of duty First, all four paragraphs of section 403 estabhsh new column 2 rates for the four categories of articles now subject to ASP and, by an increase over the present column 2 rates in certain cases, adjust for the lower bases of customs valuation that wifi apply. Second, all four paragraphs of section 403 delete the headnotes in the TSTJS which now provide for the application of the ASP system to both column 1 and column 2 rates applicable to the four categories of articles Third, the last three paragraphs of section 403 in effect remove benzenoid chemicals, rubber-soled footwear, and wool-knit gloves, respectively, from the so-called final list, whereby these articles are valued for customs purposes on the basis of section 402a of the Tariff Act of 1930 (canned clams are not subject to the "final list"). They do so by substituting for the ASP headnotes new headnotes providing that b1oth column 1 and column 2 rates shall be based on export value (or alternative bases of value in the absence of export value) in accordance with section 402 of the Tariff Act of 1930 Section 404 Consequential amendments of other provisions of Tariff Act of 1930 In general, this section makes several amendments to the Tariff Act of 1930 which relate to three sections of that act dealing with the ASP system and which are consequential upon the elimination of the ASP system These amendments all become effective as of the date the ASP system is eliminated pursuant to section 401 with respect to the last of the articles now subject to that system 19 PAGENO="0033" 27 Paragraph (1) amends section 336 of the Tariff Act of 1930 to remove from that section the authority to use ASP in equalizing costs of production between a domestic article and a like imported article. Section 336 can be applied only to the few articles in the TSUS which are not subject to a tariff concession. This amendment insures that, once the President has eliminated the ASP system with respect to all the articles now subject to that system, the ASP system cannot be established by Executive action with respect to any article. Paragraphs (2) and (3) amend sections 402 and 402a, respectively, of the Tariff Act of 1930, in order to eliminate ASP as an alternative basis of valuation. This is a formal amendment eliminating the pro- visions concerning ASP in sections 402 and 02a which will in any case have become inoperative by virtue of the President's proclamations pursuant to section 401 and the amendments to the TSTJS made by section 403(a). TITLE V-ADJUSTMENT ASSISTANCE FOR FIRMS AND WORKERS IN AUTOMOTIVE INDUSTRY Section 601. Adjustment assistance for firms and workers in automotive industry Section 501 amends section 302(a) of the Automotive Products Trade Act of 1965 in order to extend the adjustment assistance pro- gram under that act for firms and workers in the automotive industry for another 3 years, i.e., until July 1, 1971. Accordingly, petitions for a determination of eligibility to apply for adjustment assistance may be tiled at any time during such additional 3-year period. 20 95-159 0-68-pt. 1-3 PAGENO="0034" 28 The CHAIRMAN. We are pleased this morning to have you gentlemen with us and we will ask the Secretary of Commerce to make the opening statement, and I want to take the occasion this morning to welcome back to the committee in his present capacity the Secretary of Commerce. I remember he has testified before the Ways and Means Committee in the past as a very distinguished businessman and at that time head of one of our very fine American airlines. Mr. Smith is to me the type of individual that has made America great in that he had a dream one time, and I don't know how you accomplished it except by hard work and maybe by borrowing from aJi your friends to ~et an airline started, but certainly you have made your mark in business, and I am certain that you will go down as a very fine Secretary of Commerce. We appreciate having you with us. STATEMENTS OP HON. CYRUS R. SMITH, SECRETARY OP COM- MERCE; HON. STEWART L. UDALL, SECRETARY OP THE IN- TERIOR; HON. W. WILLARD WIRTZ, SECRETARY OF LABOR; AMBASSADOR WILLIAM M. ROTH, SPECIAL REPRESENTATIVE FOR TRADE NEGOTIATIONS; ACCOMPANIED BY HON. LAWRENCE C. McQUADE, ASSISTANT SECRETARY FOR DOMESTIC AND INTER- NATIONAL BUSINESS, DEPARTMENT OP COMMERCE; HERALD B. MALMGREN, ASSISTANT SPECIAL REPRESENTATIVE, AND IOHN B. REHM, GENERAL COUNSEL, OFFICE OP SPECIAL REPRESENTA. TIVE FOR TRADE NEGOTIATIONS; AND FRED B. SMITH, GENERAL COUNSEL, DEPARTMENT OF THE TREASURY Secretary SMITH. Thank you, sir. The CHAIRMAN. Y~u are recognized, sir. Secretary SMITH. Thank you. Mr. Chairman and members of the committee, this committee will be examining in this hearing a number of proposals of great consequence to the future course of our trade policy. Before turning directly to that issue, could I give you a brief review of our foreign trade account in recent years, to provide a background which I hope will be helpful to you in your considera- tions? EXPORTS When we view the total of our exports, some refreshing figures are available, indicating a substantial growth. In the first 4 months of 1968, our trade advanced to new records, with exports at an annual rate, seasonally adjusted, of $32.7 billion, 6 percent above the value for 1967. Exports have been growing strongly since 1960. The annual rate of growth from 1960 through 1967 was 6.7 percent. Expressed in dollars, our exports in 1960 were $19.6 billion and $30.9 billion in 1967. At the end of 1967, exports exceeded imports for all of our principa] trade areas of the world with the exception of Japan. PAGENO="0035" 29 When we examine the detail of our exports, it is clear that the composition of our export trade has been shifting, so that capitai goods with a high technology content are much more important. Last year exports of capital goods reached $10.3 billion, compared to $5.9 billion in 1960. These exports included $790 million in aircraft, $432 million in computers and parts, $555 million in broadcasting and related equipment, $519 million in measuring and control instruments, $408 million in office machines, $463 million in machine tools and metalworking machinery and $302 million in heavy electric equipment. In industrial materials, which include raw materials as well as semifinished goods, exports advanced strongly between 1960 and 1967. In the area of consumer goods, other than automobiles, the total value of exports. has grown from $1.4 billion in 1960 to $2.1 billion in 1967, an increase of about 50 percent. IMPORTS Our imports have grown even more rapidly than our exports, in- creasing from $15 billion in 1960 to $26.8 billion in 1967. The aver- age annual rate of increase was 8.6 percent. The increase in imports over the last several years has been caused in large part by an inflat- ing domestic economy. In the last several quarters the copper strike and the threat of a steel strik~ later this year contributed to the sharp rise in imports. As a result of the copper strike, imports surged ~tnd our trade balance was reduced by some $500 million. Total imports of cotton, wool and manmade fiber textiles represent about 8'/2 percent of `domestic consumption. Imports of these yarns, fabrics and apparel increased from $450 million in 1961 to over $1 billion in 1967. Exports appear to have leveled out at around $450 million. OVERALL EFFECT In 1960 the United States had 18.1 percent of the total free world exports. This declined to 16.6 percent in 1967. Various factors con- tributed to this development. Some of our principal expo'rt markets, such as Latin America, have grown slowly in this decade. The export capabilities of several of our major industrial competitors have been built up rapidly. WHAT ARE THE BASIC PROBLEMS? Nearly everything we do in our economic life ha's some effect on our desire and ability to export, and our `desire and ability to import. 1 am not wise enough to list `and discuss all of the contributing ele- ments. And, if I were, time would not permit an adequate discussion of all o'f them today. One of the principal elements is that our foreign trade is paying a part of the cost of rising inflation. For quite some time now wage in- creases and price increase's have been chasing each other around in a vicious circle. Recent wage increases, on the whole, have outstri~ped gains in pro- ductivity. In the manufacturing sector, compensation per man-hour went from an index of 135.5 in 1966 to 143.6 in 1967 and to 150.3 for the first quarter of 1968. PAGENO="0036" 30 Output per man-hour went from 131.7 for 1966 to 132.1 for 1967 and to 134.3 for the first quarter of 1968. As a result, unit labor costs increased from 102.9 in 1966 to 108.7 in 1967 an to 111.3 in the first quarter of 1968. These increaisest in cost contributed, of course, to price increases. And price increases stimulate further wage increases. Inflationary tiends hit foreign commerce with great impact First, they raise our own selling prices and nan ow our competitive ability Second, increased prices m our domestic markets make it easier foi foreign competitors to invade U S markets In many areas of the world and in certain product lines we are pricing ourselves out of world markets Our selling prices are ce'ising to be competitive The United States has been moving ahead toward full employment and :a boom-time economy, conditions which lift the demand for im- ports and inhibit exports. Our increasing prosperity has put us in shape to be able to afford the purchase of imported products. And the strength of demand in the domestic market has removed some of the incentive for our manu facturers to bake on the often more difficult and more competitive markets overseas Why go overseas when profitable production `and sales can be realized in the domestic market ~ WHAT ARE THE ANSWERS 1. We must slow down the rate of inflation. The passage of the tax bill will aid but, even with that, the route back to price stability will be long and difficult. 2 We must endeavor to be more productive, hoping that the gains in output-increases in productivity-will more nearly equal increases in compensation. 3. We have done a good job in whittling down the tariff barriers to the free interchange of trade. But we must do a better job in eliminat- ing nontariff barriers which limit our ability to compete and to export. Free trade is never really free trade unless there is reasonable freedom, or at least equitable treatment, in the access to markets. 4. We must become more competitive and more ambitious. The U.S. industrial machine is too big to be supported by domestic commerce alone. We must seek new markets abroad, and U.S. industry must be able to compete abroad on the basis of quality and price. 5. We should not permit conditions to originate or to continue which are likely to provoke world trade wars We are the world's largest mer chant; trade wars would damage us more than any of our competitors. TRADE POLICY Since the days of President Roosevelt, without exception, each suc- ceeding President h'as recommended to the Congress and to the country that we continue our efforts,. with the help and friendship of our trading partners, to reduce the impediments to freedom of trade be tween participating nations We h'tve m'ade some real progress in the i eduction of barriers to free trade and other opportunities lie immediately ahead We are on the right course, I believe, and I know of no good reason to support a belief that a~ e should now depart from our policy or abandon our long desired objectives PAGENO="0037" 31 I do recognize the danger to our com'merce in nontariff barriers. We must make an even greater effort to minimize their impact. There are too many of these, some well concealed. They should be brought out into the open and eliminated as quickly as possible. We have, of course, some nontariff barriers of our own and they may fall in the general rearrangement. But, on the whole, we should come out on the plus side, perhaps substantially so. IMPORT RESTRICTIONS A widespread adoption `of import restrictions would represent, in net effect, a confession that we cannot compete with other nations and we retire from the field. As the leading trading nation of the world, I doubt that we could do this, even if we were willing, without serious and lasting damage to our national welfare. If there are situations where some element of protection is needed and proof of that need is made, we already have a number of legal powers which can provide a degree of protection and assistance. And the ability to provide that aid is enhanced by the provisions of the leg- islation now before you. We have some quotas now in existence but we should approach with caution the creation of others. A quota system says, in effect, that we will fence off a very substantial part of a domestic market and shield that part from the direct effects of foreign competition. It may not be a good omen for the future of TJ.S. foreign trade if a substantial proportion of our industry seeks to reserve for itself, through quotas, a significant part of the domestic market. We have the further question, and the more important one: Will we ever create a stron.g, growing and competitive U.S. industry if each year there must be additions to the list of those who seek protection from competition? THE. TRADE BILL PROPOSED The Department of Commerce supports the provisions of the trade bill before you, as providing the tools for creating a world trading environment in which American business and American labor can participate equitably in the great benefits of expanding world trade. I will not now discuss the detailed provisions of the legislation, be- cause others, on behalf of the administration will do that. Likewise, others who will appear before your committee will dis- cuss the American selling price with you in detail. It may suffice for me to say that if some other country had an identical provision in its trade policy, we would believe it unjust, discriminatory and a bit nonsensical in the world climate of today. There is no good reason, in my opinion, for its retention in our trade policy. As a result of our negotiations, we are now in a position to trade it for something more logical and more profitable, provided Congress agrees. I hope that you will favorably consider this legislation and pass it at this session of the Congress. PAGENO="0038" 32 WHAT IS THE DEPARTMENT or COMMERCE DOING TO STIMULATE FOREIGN TRADE ~ The Commerce Department's export expansion program includes a variety of tried and proven overseas promotion'il techniques, com mercial information services and programs for direct stimulation of U S business interest in exporting Our major overseas promotions return about $15 in export sales for each Government dollar spent. About half of these funds are spent in the United States, for promotional material, giving a bal- ance of payments return of about $30 in export sales for every Gov ernment dollar spent abroad. We calculate that these programs gen- eiated over $100 million worth of export sales in 1967 Increased emphasis on export promotion is critical to the success of the President's balance of payments program announced on Jan nary 1 For this purpose the President asked Congress to support a 5 year, $200 million Commerce Department program for systematic long- term development of export markets~ The President also asked the Congress to establish in the Export-Import Bank a $500 million set- aside account to equalize U.S. Government assisted financing arrange- ments for foreign trade with those~ available in other competitive countries. As the first phase of the new 5 year tr'ide promotion program, the President requested supplemental funds for fiscal year 1968 and funds for fiscal year 1969 which would double the Department's budget for export expansion activities The impetus originally conceived for this program will have to be moderated in view of the current budget reductions. Yet the longer range plan remains. Over the 5-year period the Commerce program calls for -A doubling of our commercial exhibitions in our trade f'nrs and trade centers overseas, wit:h a trebling of business participation. -A substantial increase in other trade promotion activities such as trade missions -A new Joint Export Association program for cooperative Gov ernment industry export market development -The development jointly with industry sectors of ~ year export target objectives to meet the national export expansion goal The objective of this program is to make exports grow `it a i ate faster than the general growth of our economy If the United States can raise the proportion of exports to gross national product from the recent average of 4 percent to 4.3 percent by 1973, without a parallel use in imports, this would go far toward bringing our international accounts into balance and thereby lessen or eliminate the need for restrictive balance of payments measures Export promotion does make a valuable contribution toward as sisting our declining trade surplus, even in the short run. Yet the more important impact of such efforts will be long range To he successful, export promotion activities need to be stepped up and to evoke concerted and sustained efforts by U.S. business and Government. PAGENO="0039" 33 CONCLUSION We are at a stage when it is important to the Nation that we focus on our role in international trade. We have the opportunity, as businessmen, Members of Congress, and officials of the Government, to deal with the need to increase our national trade balance by either positive or negative means. I strongly believe that the right course for the country is the positive course. Therefore, as I urge each American businessman to make greater efforts in export markets, I urge the Congress to enact the President's trade bill and to turn aside the many proposals seek- ing to deal with our current trade problem in negative terms. The CHAIRMAN. Thank you, Mr. Secretary. Our next witness is the Secretary of the Interior, a longtime friend of many members of our committee and former Member of the House, the Honorable Stewart L~ Udall. We appreciate having you back with us. You are recognized. STATEMENT OP HON. STEWART L. UDALL, SECRETARY OP THE INTERIOR Secretary UDALL. Thank you, Mr. Chairman. Mr. Chairman and dis- tinguished members of this committee, thank you for giving me the opportunity to comment on the vital issues before you. The Nation owes a debt of gratitude to the committee for its wisdom in exploring at this time all aspects of future U.S. trade policy. The timeliness of your review of the Nation's trade policies and trade programs cannot be too strongly underscored: A highly successful tariff negotiation has been concluded in the so-called Kennedy round. Since the conclusion of the Kennedy round, the United States has been laying the groundwork -for a substantial attack on nontariff barriers to its trade in world markets. At the request of the President, the Special Representative for Trade Negotiations, Ambassador William M. :Roth, is conducting an intensive review of our trade policies and programs. Just last week, President Johnson sent to the Congress a trade bill with essential authorities to carry forward our trade program. I strongly urge enactment of that bill. This c~mmittee now has be-fore it a host of so-called quota bills. All of the foregoing emphasizes the importance of the work on which your committee is embarking. The direction we choose or the direction in which we appear to be headed will greatly affect our ability in the coming months to influence our trading partners and to reassure them of the stability of our course. At the same time, your hearings are a natural counterpart to the executive branch studies headed by Ambassador Roth. I am convinced that out of these simul- taneous efforts the essential reassessment of our trade policy will be soundly made and the Nation's course soundly set. - As for matters under my authority, I am particularly concerned `that action to erect more barriers at this time would incite retaliation from abroad with respect to commodities which we export. PAGENO="0040" 34 There are two commodities, Mr. Chairman, that my Department has particular interest in and responsibility for Coal is one and oil is the other I want to mention the~n specifically Coal is a good case in point We have ample reserves of coal which can compete efFectively in the world marketplace, provided `trtifici'il trade barriers are not erected. But if we place impediments in the path of international trade, are we not inviting-indeed insuring-simil'ri action by other countries ~ Exports of U S coal earn about one half billion dollars annually as a credit toward U S balance of payments During the past 5 ye'rrs coal exports have stabilized at approximately 50 million tons an nually-an unprecedented level in ~t nonemergency period This re markable record has been achieved despite the existence of coal tride barriers in several major importing countries To most nations in which barriers do not exist or have been relaxed, U.S. coal has regis- tered significant gains There are positive indications of further relaxa tion, we believe, in the next few years Recent studies of foreign market potentials for U S coal indicate possibilities for increasing exports to 80 million tons or more annuafly, provided we are not prevented from competing because of reta1i'~toi~ restrictions To be sure, however, restriction of imports of products to this coun try would tend to create more restrictive coal import policies in other countries More importantly, such action would encourage the ~dop tion of restrictive policies by countries which are now increasing their imports of U S coal As a conservationist, I am struck by the w'rstefulness of quotas and other types of import restrictions As a consumer, I am appilled by the damage they cause me and millions of other consumers These serious deficiencies of quotas were forcefully driven home to me in a recent release which passed over my desk, issued by the American Importers Association-"Here's What's Wrong With Import Quotas" The "wrongs' of quotas may be briefly summarized as follows Quotas increase inflationiry pressures by restricting competition and thus increasing prices here at home Quotas weaken American balance of payments by decreasing the ability of foreign countries to earn dollars to buy U.S.~ goods and by decreasing U.S. firms' ability to compete because of higher prices of U.S. goods. Quotas limit the consumer's choice Quotas restrict American manufacturers' sources of supply Quotas disrupt supply and demand Quotas favor special interest Quotas inject more politics and Government control into the economy Quotas require more Government administritors Quotas proliferate and endure Quotas are arbitriry nd discriminatory Quotas will hurt American relations `ibroid and could start a worldwide tride war Quotas make the least economic sense irnong the ~ `irious wiys of helping industries `idjust to import competition They provide an absolute limitition upon tride As such, they interfere fir more dras PAGENO="0041" 35 tically with market forces than do tariffs. The foreign exporter cannot surmount quotas no matter how much he increases his efficiency, reduces his costs, or otherwise improves his product. Quotas would tend to place domestic producers in a monopolistic position and remove the competitive spur to search for and to supply technological developments. We could expect higher material costs to domestic consuming industries producing goods for domestic consump- tion and export. In the final analysis this would require higher domes- tic prices to ultimate consumers and a less competitive position for goods exported by the United States. I would like to comment on one other serious drawback as it appears to me of quotas as they affect my area of responsibility and that is their inflexibility. For example, if quotas on lead and zinc were required by law, situations would likely arise that would result in chaotic on-and-off quota determinations out of phase with requirements. Similarly, under the present system of regulating petroleum imports the President can mage changes as needed to cope with problems as they arise, such as those originating from changing supply-and-demand conditions. En- acting petroleum import control regulations into law would freeze the system into a rigid, inflexible pattern which could not be modified ex- cept by further act of Congress. Trade restrictions have been covered in general; however, I should expand on one point. I am speaking of an exception under the General Agreement on Tariffs and Trade. Quotas are illegal under GATT except for certain specified circumstances. One of these exceptions is the national security of the nation involved; oil falls under this ex- ception. Imports of oil from abroad are controlled-and are permitted entry only within a quantitative restriction. I would like to state here my firm view after administering this program for the last seven and a half years that in the present world petroleum situation oil imports should be controlled in the interests of our national security. That is the paramount-the only-reason why such imports are controlled. In no sense does this position alter my views with respect to opposing trade barriers generally. But in the case of oil, our security would be jeopardized unless we have a strong, healthy, domestic oil industry, capable of meeting any demand. Ade- quate domestic supplies depend upon exploration and discoveries and these activities will not be carried on in the absence of an adequate market for domestic production. The relationship between our national security and adequate sup- plies of oil is clear. On this score, it suffices to point out that oil is practically the sole source of energy for transportation-both civilian and military. As members of this committee well know, after an experience with a voluntary program a mandatory oil quotas program was instituted in 1958. We had 10 years of experience under three Presidents and three administrations with this program. It was with these circumstances in mind that in 1957 the President's Special Committee To Investigate Crude Oil Imports reported to President Eisenhower as follows: Your committee recognizes that there are important foreign policy aspects to the problem of limiting petroleum imports. The oil reserves and production capacities of other free nations, as well as our own, are important to our national security. A number of countries Inevitably depend in varying degree upon access PAGENO="0042" 36 to our domestic market for their petroleum exports and it must be recognized that it is also in the interest of our national security that our allies and friends have healthy and expanding economies It is believed however that taking all factors into consideration, our national security requires the maintenance of some reasonable balance between imports and domestic production at this time. In light of the foregoing considerations our recommendations are framed with the ob)ective of bmiting imports in order to maintain such a balance and yet to allow other nations to participate in the growth of our domestic demand to a degree consistent with our national security An attempt was made to attain a reasonable balance through the voluntary program recommended by the committee. The attempt failed. The President was advised by the Director of the Office of Civil Defense and Defense Mobilization that in his opinion "crude oil and the principal crude oil derivatives and byproducts are being imported in such quantities and under such circumstances as to threaten to im- pair the national security," and mandatory controls were imposed under the authority of the Trade Agreements Extension Act of 1958. In my judgment, the recent Mideast crisis had no harmful impact on our economy or on our ability to carry on the conflict in Vietn'im largely because the TiTrnted States w'ts not dependent upon foreign oil Our oil industry was healthy and capable of meeting the increased demands placed on it, including assistance to Canada and Western Europe. Shortly after the mandatory program began, it was felt that the national security aspects of the program made it necessary to recog- nize the relative security of Western Hemisphere oil production which could be delivered directly to the United States by land. Recognizing this fact of life, the Presidential proclamation was almost immediately amended to exempt from licensing requirements oil imported overland from the country of origin. Even imports from Canada and Mexico, however, have been controlled. Flexible controls on oil imports maintained through administrative techniques under the mandatory program have worked extremely well for nearly a decade in my opinion. I submit that experience under three Presidents shows clearly that the flexibility inherent in the present program has enabled us to achieve its national security objectives. I wish to stress that the national security foundation of the man- datory oil import control program requires that we preserve to the greatest extent possible a vigorous, healthy, petroleum industry in the United States, while we, at the same time, prevent serious dislo cations in oil industries elsewhere which also have an impact bearing on our own security. Our security also includes the security of other areas. This philosophy, most recently, was the basis for activating the voluntary agreement under the defense production act to assure adequate petroleum supplies to Western Europe and other free coun- tries of the world a year ago during the Middle East crisis. Other oil producing areas, particularly those in the Western Hemi- sphere, are our good customers `for exports of all products, Canada and Venezuela most notably. We are convinced and emphasize there- fore that imposition of rigid controls pursuant to fixed formula would not only result in serious repercussions in our foreign relations, but would adversely affect continued growth of our exports by nviting retaliatory action on the part of our major trading countries. PAGENO="0043" 37 We have maintained imports administratively over the whole period of the program at about 12.2 percent of domestic production. That is in the whole eastern part of the country. We have a special program on the west coast. Our principal concern in Interior is a means of increasing our reserves, and maintaining our productive and refining capability looking toward the future ever increasing demand for petroleum energy. A review of the past indicates we have succeeded in maintaining a healthy petroleum industry which within the past year has demon- strated its ability to meet an international petroleum emergency. This has been done under the existing program. We believe that enact- ment of restrictive legislation would serve no beneficial purpose but would only make it more difficult to meet unexpected contingencies. I would like to conclude my remarks by saying that the opportuni- ties before us to contribute to the welfare of this country through trade are great. We will all agree that trade in products of commerce is a vital goal contributing to peaceful relations among nations. I am convinced that the distinguished members of this committee will not let temporary aim.s get in the way of this admirable long-term goal. This goal is within our reach and can be attained through the adminis- tration's trade legislation that President Johnson proposed to Con- gress last week. Thank you, Mr. Chairman. The CHAIRMAN. Thank you, Mr. Secretary. Our next witness is the Secretary of Labor, the Honorable W. Wil- lard Wirtz. We appreciate having you back with us, and you are recognized. ST'ATEMEi~T OP RON. W. WILLARD WIRTZ, SECR~1TAB~Y OP LABOR Secretary WIRTZ. Thank you, Mr. Chairman. I will be glad to handle this is whatever way best meets the committee's convenience. I believe I can summarize the statement quite shortly and ask that it be included in its entirety in the record. The OIIAIRMAN. With2ut objection it will be included in the record following your summation. Secretary WIRTZ. Our position picks up from our discussion before this committee some 6 years ago and so there is relatively little new involved here. The position which I present, Mr. Chairman and mem- bers of the committee, is this: that the Trade Expansion Act of 1968 does represent basically a continuation of the previous policies of the country, that it represents an affirmative contribution to those poli- cies; and that the situation does not require or warrant resort to the quota approaches or proposals which are before the committee. There- fore I testify in support of ER. 17551 and in opposition to the quota proposals. I can. be of most value, to the committee in connection with the iden- tification in the clearest possible terms of the relationship of this legis- lation to employment which is my particular responsibility. Our employment in this country depends to the extent of approxi- mately 7 percent as far as manufacturing industries are concerned, upon exports. The total number of jobs which are involved in U.S. exports of goods and services has increased by about 150,000 between 1960 and 1965. PAGENO="0044" 38 it is my position, strongly urged upon the committee, that although restrictive provisions of one kind or another might decrease unemploy- ment in particular industries they would increase unemployment in American industry as a whole because of the reciprocal effect against our exports. Putting it differently, and emphasizing the point as strongly as I can, I think employment in this country will be maximized by a reduc- tion in trade barriers and that net unemployment will be increased by the imposition of trade barriers. That will obviously not be true in particular industries. I think this is important, exceedingly important, as far as the total picture is concerned I would, therefore, urge upon the committee, as strongly as I can, the meeting of particular problems which are pre ser~ted as a result of imports through the adjustment assistance pro- ~ isions of the Trade Expansion Act modified `is it is proposed thit they be modified in H R 17551, such procedures will have no negative effect upon exports, would increase our employment, and will meet the prob lems of particular unemployment in `i ~ay which is limited to those particular situations. We urge very strongly in this connection changes in the adjustment assistance provisions of the Trade Expansion Act of 1962. We do that for this reason It was emphasized in 1962 that provision would be made to meet individual situations which developed under that act and which resulted in dislocation Twenty five times American industry, firms, and American v~ orkers have, in the intervening years come to the Tariff Commission with requests for tariff adjustments, and other adjustment assistance under these provisions and 25 times they have been denied Twelve of those applications were on the part of industries as a whole. Seven of them were on behalf of individual firms. Six of them were on behalf of groups of workers. In every single instance the relief requested has been denied. I believe th'it we have played false with the expectations of those who were the subject ot oui representations in 1962 It is therefore urged ~ ery strongly th'it the provisions of sections 301 and 3O~ of the Trade Expansion Act be modified in these respects First, that the standard for the granting of relief for firms and groups of workers be modified Summarizing `tnd shortening the words of the statute, the present act requires that in order for there to be relief the increased imports affecting employment must be the result, in major part, of t'triff concessions `tnd the imports must constitute, in effect, the major c'iuse of the unemployment or of the injury to the firm We propose substituting for th'tt st'rnd'trd one which is not limited to the effect of concessions but which `tpplies to any case of incre'ised imports, and one in which the rule is not one of imports `is the major cause of the unemployment or the injury but rather `isubstantial c'iuse of the unemployment or of the injury to the firm The second major change involves procedures Where the present Trade Exp'insion Act requires th'tt these m'itters `ill go to the T'triff Commission, the propos'il in H R 17551 is th'tt the present procedure be followed in the c'ise of `ipplic'itions on the p'irt of industries as `i whole but that the procedure be changed insofar as `the applications come from groups of v~ orkers or p'irticul'tr firms for `tdjustment PAGENO="0045" 39 assistance. It is proposed that where the applications come from groups of workers or particular firms the application be addressed to the President instead of to the Tariff Commission. This procedure was put into effect in 1965 to implement the United States-Canadian Automotive Agreement. This provides that the apph- cation he to the President and that upon its receipt the President shall request the Tariff Commission to make such investigation of the facts as may be appropriate in the particular case but that he act then upon the application. In practical operating effect the pattern proposed, as indicated by the President in his message, is the procedure which has been followed in the case of the Automotive Products Trade Act. This calls for the establishment of an Adjustment Assistance Board, including the Sec- retary of the Treasury, the Secretary of Commerce, and. the Secretary of Labor, to whom the President delegates the authority for acting upon these cases. We also propose a change in the criteria for determining eligibility of firms and workers for adjustment assistance. At present eligibility can be found only if a tariff concession is found to be a major cause of the injury. H.R. 17551 changes this to increased imports whether or not directly traceable to tariff concessions as a substantial cause of the injury or threatened injury. Although not identical to the criteria under the act, yet, it is more nearly like it. To give you some impression of the way in which this procedure will work as contrasted with the procedure in the Trade Expansion Act of 1962, there have been in the last 3 years, since the enactment of the Automotive Products Trade Act of 1965, 21 applications for assistance on behalf of workers. There has been favorable action taken in 14 of the 21 cases. `The number of employees involved is not large. It is about 2,500 over this period, but the effect of it seems to us to be of very great significance. I should note in comparing the criteria in H.R. 17551 with the criteria established in the Automotive Products Trade Act that they are different. We are not proposing the same standard. The "substan- tial cause" standard is not a repetition of the Automotive Act. In short, therefore, Mr. Chairman and members of the committee, what we are proposing is that the procedure here in FLR. 17551, be the procedure which was adopted in the Automotive Products Trade Act as far as firms and groups of workers are concerned and that the stand- ard for relief be a substantial cause standard rather than the major cause standard as in the 1962 legislation. Beyond that, Mr. Chairman, members of the committee, I testify in support of what is proposed in H.R. 17551 as far as the American sell- ing price provisions are concerned. Finally, Mr. Chairman and members of the committee, I urge strongly the extension for an additional 3-year period of the adjust- ment assistance provisions of the Automotive Products Trade Act of 1965 in its present form and without modifications. It is our judgment that that procedure is working well and we urge that it be extended for a period which would carry it to July 1, 1971. Thank you, Mr. Chairman. (Secretary Wirtz prepared statement follows:) PAGENO="0046" 40 STATEMENT OF HON W WILLARD WIRTZ SECBETAI~Y OF LABOR Thank you Mr Chairman ind Members of the Committee for the opportunity to express my ~ iews on our foreign ti ade policies I will confine my remarks largely to the employment aspects of our trade policy and the proposed revision of the criteria for eligibility of firms and ~% orkers to apply for assistance in adjusting to increased import competition The Ti ade Expansion Act of 1968 (H R 17551) is a continuation of policies which over the years have contributed to the creation of job opportunities in a growing economy The lowering of world wide trade barriers will provide improved access to foreign markets and stimulale jjob opportunities in our major export industries It has long been recognized that increased imports are a necessary concomitant of expanded exports. Furthermore, in today's economy, imports have a clear relationship to the issues of economic stabilization which we face In general-although obviously not m particular situations viewed separately- the lowering of trade barriers mcreases rather than reduces net employment In recent years expanded trade and high employment have gone hand in hand. Our current employment problems result in large measure from the inadequate development of our own human resources. There are too often jobs available but no qualified workers available to fill them In a competitive society such as ours we do not in my judgment need the kind of broad import controls incorporated in the quota proposals before thi'~ Committee Existing trade policy with the modifications proposed in H R 17551 provides the means to safeguard industry and workers against adverse import competition We have better direct measures of the effects of exports than of imports In the case of manufacturing almost seven percent of total employment is directly related to exports. In some industries exports account for better than one out of every ten jobs For example in 1965 almost 45000 jobs-one out of every four-in the construction anti mining machinery industry could be attributed to exports. In aircraft there were 60,000 jobs resulting from export activities. In the machinery industry as a whole almost 350 000 jobs-or slightly better than 10 percent of the total-were traceable to exports For paper industries thi figure was 10 percent. In the chemicals and synthetic materials the ratios are 16 percent and 14 percent Agricultural exports account for one out of every nine jobs in agriculture Wages in our major expoit industries such as chemicals and machinery arc 10 to 25 percent higher than the average for all maufacturing Unfortunately, we are not able to cite in the same manner the employment consequences of imports We recognize that some importsi may cause dislocation That is why we urge liberalizing the adjustment assistance criteria so as to deal effectively with employment dislocations resulting from import competi tion. But taking import and export factors together, it appears certain that a tightening up of foreign trade policy would result in fewer, not more, jobs. Adjustment assistance provisions were included in the Trade Expansion Act of 1962 to help firms and work rs faced with problems caused by the competitiv challenge of increased imports That Act represented the first United States ef fort to help individual firms and w orkers in adjusting to increased import competition. Assistance a~ailable to workers includes monetary payments to tide them over training to help prepare for alternative employment job counseling and referral and if desired relocation to places w here jobs are available To be eligible to apply for adjustment assistance under the 19~32 Act a corn pany or its employees must demonstrate that tariff concessions have been the major cause of increased competitive imports and that these increased imports have been the major cause of the injury. These provisions have not had the effect intended by the legislation and antici- pated by American workers and firms. In practice the tests have proven to be too rigorous and too complicated. Under the Trade Act of 1962 not one petition has been approved to date. The bill now before you proposes that the criteria for eligibility to apply for adjustment assm'~tance be made more realistic and equitable. To accomplish this we propose elimination of the requirement that tariff co~i cessioii~s be shown to have been the mci~or cause of increased imports Relief should be available whenever increased imports have been a substantial cause of injury Since the Trade Agreements Act was first passed in 1934 we have pur PAGENO="0047" 41 sued a policy aimed at enlarging world trade and U.S. exports by reducing tariffs and other trade restrictions on the basis of reciprocity. Through this policy we have effectively reduced one or more times the duties on almost everything we import. The relationship between increased imports and the multiplicity of duty reductions and other factors affecting trade patterns make it virtually impossible to demonstrate clearly that tariff concessions have been the most important ele- ment in the import increase. The proposal that eligibility to apply for adjustment assistance be based on a finding that increased imports have been "a substantial cause" of the injury would mean that it would not be necessary that the effect of the increased im- ports be greater than that of all other causes, or greater than any other single cause-but rather that they be an actual and considerable cause. I want to emphasize that only the eligibility requirements for groups of work- ers would be changed. The conditions that Individual workers must meet to receive assistance would remain unchanged. For example, to qualify for adjustment assistance a worker would still be required to have been gainfully employed for at least half the preceding three years and have worked for an adversely affected firm for half the previous year. Finally, we are recommending that determinations of eligibility for firms and workers to apply for adjustment assistance be made by the President on the basis of a factual investigation by the Tariff Commission. The President has indicated his intention to pattern the administration of this program on the Automotive Products Trade Act of 1965. Determinations of eligibility will be made jointly by the Secretary of Labor, Commerce, and Treasury. The adjustment assistance program does not have a direct effect on the agree- ments with trading partners or on our exports. It avoids, therefore, the Issue of compensatory duty chances or retaliatory action. It is our belief that these changes in the criteria and procedures will insure that the intent and promise of the program can be realized. That these changes will work can be seen in the results of the Automotive Products Trade Act of 1965. There the criteria and procedures were designed to reflect the particular nature of the U.S-Canadian Automobile Agreement and the, industry involved. Under the terms of that act certifications have been issued in 14 of 21 cases- covering approximately 2,500 workers. The cost over 3 years has been about $3.5 million. It is difficult to estimate the caseload that would develop under the proposed revised standards in 11.11. 17551. The pattern of increase in imports and their impact on firms and workers are influenced by factors other than tariff changes. Such variables as the general level of economic activity and the flexibility of U.S. producers are important. We estimate that about 10,000 workers per year would become eligible to apply for adjustment assistance. The gross annual costs for adjustment assistance to workers will be around $10 million. The net costs will, of course, be less since workers who draw trade readjustment allow- ances would not usually collect Unemployment Insurance. These estimates reflect. our experience under the Automotive Products Trade `Act and the record of applications for certification filed by groups of workers under the' Trade Expan- sion Act of 1962. `HR. 17551 proposes the elimination of the American Selling Price system of import valuation. This system now applies to rubber-soled footwear, certain benzenoid chemical products, canned clams, and one extremely low-priced type of woolen glove. The elimination of the ASP system would result in important reciprocal concessions from our trading partners. These would include further reductions of chemical tariffs abroad and impor- tant concessions in some foreign non-tariff barriers to our exports. Our judg- ment is tha't implementation of this proposal would, in the long run, result in a net increase in U.S. employment. Such dislocation as results in particular industries will `be handled under the revised adjustment assistance program for firms and workers. * * * * * *` * I urge the extension for three years of the adjustment assistance provisions of the Automotive Products Trade Act of 1965. These provide assistance for the kinds of dislocation resulting from the tT.S.-Canadian Automotive Products Agreement. Special assistance provisions of the Automotive'1~roducts Trade Act were con- sidered necessary because of these factors: PAGENO="0048" 42 1. The tI.S.-Canaclian Agreement required immediate, complete elimination. of duties on certain automotive products shipped between the two countries 2 The transitional adjustment assistance procedures in the Act which will be extended by the bill take into account the fact that dislocation may result not only from an increase in imports from Canada but from a loss of the exports of a specific product 3 Dislocations and temporary injury may occur under the Agreement as parts and component supply sources are shifted either within each country or between countries to take advantage of the lower costs and potential improvements in efficiency made possible by the Agreement and to carry out the temporary under takings made by the Canadian producers. Many of the auto cases handled to date would not be covered by the proposed assistance provisions of the Trade Expansion Act of 1968, which are geared solely to injuries arIsing from increased imports. The U.S.-Canadian Agreement was an innovative action in the field of inter- national economic relations when it was signed in January 1965. It continues to demonstrate the mutually beneficial results which two coutnries can achieve in improving their trade relations The maximum benefits of this program have not yet been realized The Agree ment has not been in effect long enough for the rationalization program of shifts of production to be fully completed In addition the slow down in United States vehicle sales in model year 1967 inhibited transfers of production among plants as well as between the U S and Canada Manufacturers may be expected to con tinue to rearrange their production and purchating patterns to participate more efficiently in the expanded U S Canadian market This promising outlook for the future carries with it the need to assure that dislocated firms or workers are not ignored while the industry as a whole con tinues to develop and prosper The adjustment assistance provisions terminate July 1 1968 We should be able to continue to offer assistance if even a few cases of dislocation should occur I therefore urge that these special provisions be extended for three years-to July 1 1971 In order to stimulate the healthy economic growth of the U S and maintain and enlarge foreign markets for the products of our businesses mines and farms we must strengthen our economic relations with foreign countries through the development of open and non discriminatory trading in a free world This kind of trade policy holds the best promise for expanding employment opportunities in the wide range of industries involved in international trade The CHAIRMAN Thank you, Mr Secretary, and our next witness is the special representative for trade negotiations, Ambassador Wil hamM Roth We appreciate having you back with us, Ambassador You are i ecognized STATEMENT OF HON WILLIAM H ROTH, SPECIAL REPRESENTA TIVE FOR TRADE NEGOTIATIONS Ambassador ROTH Thank you, Mr Chairman and members of the committee, for giving me this opportunity to present some general ~ iews to this committee at this time Tomorrow I hope to have the opportunity to go into further and, of necessity, rather exhaustive det'ul These hearings `ire t'iking place 1 yeai after what was probably the most critic'il period in the negoti'ttion of the Kennedy round Just a year ago, no one could be certain th'tt the negotiators would re'~ch agreement But a few weeks later we had the satisfaction of concluding it I was convinced then and am today that wh'Lt we ob tamed was `t v'tluable bargain for the United States-not only in terms of the long run promotion of American interests but in terms of our trade prospects in the immediate future PAGENO="0049" 4~ Let me mention a few highlights. The external tariff of the Euro- pean Economic Community was reduced on over $10 billion of its import trade, including reductions on 87 percent of its dutiable im- ports from the United States. Sixty-three percent of the tariffs in- volved in the reductions on U.S. trade were cut by 25 percent or more, and 43 percent were cut at least in half. In the Kennedy round, we made deep inroads into the trade advantages that each of the member states of the European Economic Community has in the markets of the others. In addition to $2.7 billion of our exports to the European Economic Community that will receive more favorable treatment, $11/2 billion of our exports to Canada will benefit-$886 million to Japan, $888 million to .the United Kingdom, and $700 million to other EFTA countries. Altogether, as a result of the Kennedy round, more than $7~2 billion of U.S. exports will receive more favorable tariff treat- ment in the markets of the world. While a few of the Kennedy round participants put the first 20 percent of their tariff reductions into effect on January 1 of this year, including ourselves, most of the concessions we obtained will begin to take effect on the first of this July, when the other countries will put into effect the first 40 percent; that is, two steps, of each of their tariff reductions. Improved tariff treatment, however, is not the only benefit we will receive. We obtained agreement on an antidumping code that will insure American exporters against arbitrary antidumping action or procedures in other countries. If Congress accepts the conditional chemicals agreement which is here before this committee as a part of the bill, we will also obtain the removal of nontariff barriers restrict- ing American automobile exports and improved treatment for our exports of tobacco. We obtained a number of other concessions on non- tariff barriers: by Austria, elimination of the discriminatory aspect of her automobile taxes; by Canada, elimination of a restriction af- fecting fruit imports and better tax treatment for aircraft engines repaired in the United States; and liberalization of the licensing systems of c~rtain developing countries. Finally, we obtained agree- ment on an international grains arrangement that will bring higher prices for American wheat exports and commit other countries to share in the ~ost of food aid to needy countries. What did we pay for these benefits to our exports ~ In posing, this question I am not accepting the view that the U.S. economy losses when we op~n our markets to more imports from others. Without imports we would all be the poorer. But the question is relevant be- cause it has been our policy to use liberalization of our trade restric- tions in order to obtain liberation by others. We gave and we receive~l reciprocity. Before the Congress enacted the Trade Expansion Act of 1962, the administration made clear to this committee that it proposed to adopt a new method of tariff negotiation-an across-the-board tariff cut, with a minimum of'exceptions. The old method of n~egotiation, item by item, could notpossibly have brought the results that the admini- stration and `the Congress considered essential. The new approach was accepted by the GATT ministers as the basic rule for the negotia- tion. One result, of course, was that reciprocity must `be measured in overall terms. Except for a few industries where negotiations were 95-159 0-68-pt. 1-4 PAGENO="0050" 44 conducted `by sector because the `important participants were both large exporters and large importers, no effort was made to exchange comparable reductions on similar products When we decided what products to except from our linear offers, we not only held out those products explicitly reserved by the act but took great care to avoid injury to domestic industries In making these decisions we had the benefit of the `idvice of business and labor groups `and the expert advice of the Tariff Commission. Thousands of pages of testimony were submitted and analyzed. But care in making our own offers ~ as not enough to insure reci procity In the closing months, indeed even the closing days of the negotiation, when it became clear that some other countries were not able to match the traiff reductions we w ere prep'ired to make, ~i e sub stantially reduced concessions we had offered And where the economic conditions of domestic industries htd changed since our initial offers, we withdrew concessions in order to be sure that the intent of the Trade Expansion Act was fully carried out For example, in the final few weeks we withdrew 80 percent of oui original offer in the steel sector and sharply reduced our offer covering fabric'ited aluminum products We drastically scaled down our entire offer on agricultur'il products and our original offers on cotton textiles and textiles of man made fibers The benefits of these negotiations will reach every person in the United States the millions of woikmen and f'irmers who produce goods for exports, the port workers and service industries th'tt benefit from trade, industries that use imported materials, `md consumers who benefit from lower prices and a wider choice of goods And the entire economy, we believe, will benefit from the incentive to more effi cientt production provided by competition. In the Kennedy round, the United Stites took its greatest step for ward toward the objectives that have been the goal of American com mercial policy for three decades-a policy adopted consciously by the Congress and the executive branch under both Democr'utic `md Repub lican administritions and one in which, of course, this committee has played a leading role That policy helped to pull us and the world out of the depths of depression and has been pursued by every admimstra tion since the first Trade Agreements Act was enacted in 1934 But we cannot afford to relax If we hesitate in our for~ ird movement tow trd an orderly trading world we are certain to slip backward. The admin- istration bill you have before you will help to keep us he ided in the right direction This bill is not designed, ho~iever, like the Trade Expansion Act of 1962, to present a complete program for future action At the direction of the President, the executive branch is studying the whole area of international trading relations so that ~me can mike at i later dite overall recommendations concerning our future policy Our policy recommendations, when they ire made, will reflect the knowledge and the concerns of Congress, business, labor, `mud profes sional groups But in the meantime there `ire certain steps thit cannot wait These are incorporated in the toil thit the President his isked your committee and the Congress to consider The bill contains provisions in three bisic fields authority that will permit the United States to continue its participation in the GATT PAGENO="0051" 45 with the necessary degree of power and flexibility; approval of the supplementary agreement concerning chemicals, arrived at during the Kennedy round; and, finally, the liberalization of the adjustment assistance provisions of the Trade Expansion Act. I should like to introduce each of these subjects briefly at this point, though I am look- ing forward to testifying later in greater detail. For nearly a year, the administration has had no authority to nego- tiate even minor adjustments in tariffs. Although this has not proven a serious handicap so far, it is a potentially dangerous position. Restora- tion of the unuSed tariff-cutting authority, which expired last June 30, would provide the administration with the flexibility needed to protect its interests in the GATT. If the President should take action under section 351 of the act to increase a tariff bound in the GATT-or if a tariff rate should be increased because of a customs reclassification, it is important that he have `the power to offer compensation. If he has no negotiating authority, we can only submit to retaliatory action by the countries adversely affected-action that could be much more damag- ing in economic terms to the United States than compensation. - There remains sufficient unused authority to meet this need if the expiration date in section 201 (a) is extended. We are asking that it be extended until July 1, 1970. Although it is not our intention to engage in any major negotiations under such an extension, all the requirements relating to use of the authority would continue to apply. Also related to o~Ir participation in the GATT is the proposed new section 244 of the TEA, which would provide continuing authority for the annual U.S. contribution to the GATT budget. Such a continuing authority would place our participation in the GATT on a business- like basis. After 20 years of experience with this organization, I think we can now afford to take this step. In terms of the size of the economic stakes involved, our contribution to the GATT budget is certainly a modest one. So that we can obtain the full benefits of the Kennedy round, the President has asked the Congress. to approve the supplementary agree- ment concerning chemicals-general known as the ASP package. There will be more detailed testimony on this subject later. As you know, one of its principal features is the elimination of the American sel1in~ price system. of tariff valuation on imports of th6se benzenoid chemicals, and a few other items, that are also produced in the United States; That system applies to a very small part of our total chemical imports, but it is arbitrary and unfair and has become a symbol to other countries of the worst kind of nontariff barrier. It cannot be in the interest of our economy to grant this unique privilege to one small and healthy segment of our chemical industry- and a few other producers-at the expense of consumers, farmers, and other industries. While ASP stands on our statute books, our ability to negotiate the removal of nontariff barriers by other countries will be seriously impaired. But we did obtain some very valuable concessions in return for its removal. The largest beneficiary would be the American chemical industry itself, taken as a whole. In the chemical sector, both in the Kennedy round and in the supplementary agreement, it is clear that the United States obtained at least as much as it gave. In the noncondi- tional Kennedy round settlement on chemicals, the United States ob- PAGENO="0052" 46 tamed from the EEC, the United Kingdom, Japan, and Switzerl'tnd a combined average tariff reduction of 26 percent on their $900 million of imports from us. We, in turn, beginning from much higher rates, cut our duties by an average of 43 percent, but on only $325 million of imports from them, while still retaining the ASP method of valuation for benzenoid chemicals In the ASP package, our major trading partners will make such larger additional tariff cuts than will the United States For its part, the United States would ehmin'ite ASP `rnd gi `int an `idditional 5 percent average tariff reduction, thereby raising the average U S chemical cuts to about 48 percent, or approxim'itely the s ime `is th~t of the other countries, for the two packages combined Let me empha size again that the total reductions by others apply to a much largei volume of our exports to them than do those of the United States to their exports to us. There is a good deal more to be said about these chemical results, but I will postpone further detail until my testimony tomorrow The United States will receive further benefits from the ASP package The EEC countries now impose automobile road taxes that bear much more heavily on American types of autos than on the smaller European types These discriminatory features will be dim mated And U S agriculture stands to gain-principally from a 25 percent reduction in the tariff preference that tobacco from Com monwealth sources now en~joys in the United Kingdom Finally, as Secretary Wirtz has indicated, the administration bill will liberalize the criteri'i and procedures for extending adjustment assistance to firms or groups of workers, in order to enable them to adjust to increased import competition We are also asking that the special adjustments assistance provisions of the Automotive Products Trade Act of 1965 be extended to July 1, I 9~'1 We believe that both the groups needing assist'ince and the country as a whole will be best served by `iction designed eithei to `nake margm'tl firms more competitive or to help t)hem and their workers to shift to more profitable lines of production. As the President made clear in his New Year's Day message, the `idministr'ition is determined to find ways of improving the trade iccount as one of the means of restoring equilibrium to our interna tional balance of payments Secretary Smith his commented on some of these measures But I want to stress t~io `ispects of the trade prob 1cm that seem to me to be paramount First, we have recently suffered `ideterior'ition in the U S trade balance, caused primarily by high domestic demand and price in fiation, but aggravated of course by special but temporary f'ictors, such `is the copper strike We should not let that f'ict le'id `is to the conclusion that a basic structural change has robbed U.S. business Of its traditional ability to compete with the rest of the world. What- ever else we may do to improve the trade balance, the lasting solution is to stop the inflation To do so is essenti'il to the basic health of our economy But it is also essential if ~ e `ire not to lose the he'ilthy competitive position we have long held in ~ orid markets Secondly, any direct action such `is tr'tde restrictions could at best result in `i temporary improvement in the b'il'ince of p'tyments Nevertheless, we have given careful consideration to the possibility PAGENO="0053" 47 of some direct action to affect our trade balance. But under close examination and after exploring a number of courses with our trad- ing partners, we caine to the conclusion that all of them involved serious longer term risks and none of them carried enough assurance of even a temporary net gain to justify the risks-at least on the basis of the present outlook for our trade balance. One difficulty is that because of the dominant position of the United States in world trade, most countries would feel compelled to follow our lead. In fact, many of them, such as Canada, the United Kingdom, and Japan, have bal- ance-of-payments problems of their own. But there are ways in which other countries-especially those that are presently in a. surplus position, can assist the adjustment process by their own policies. We have held intensive discussions with these countries. Germany has already begun to adopt expanionist policies, and we may receive further assistance as a result of the proposal of most European countries and Canada and Japan to accelerate their Kennedy round cuts. On balance, it appears that at present we have more to lose than to gain from any unilateral action of our own on the trade account. I have been talking about action that could be justified under the GATT. We would have much less chance of even temporary gains if our action were contrary to our international obligations. The adverse effects of restrictive action could be with us permanently or at least for much longer than I would care to contemplate. The damage to our domestic economy could be lasting. And if we tear down the world structure we have erected with so much difficulty over the past 20 years, the world might not be as ready a second time to follow our leader~hip back in the direction of international trade disarmament. This brings me to the subject of the protective quota bills that are presently before this committee. At this time I won't try to speak about them in detail. But I do want to raise some fundamental consid- erations that seem to me vitally important to the future direction both of our international relations and our domestic economy. The use of protective import quotas would have, we believe, serious consequences for our balance of payments. The imposition of protec- tionist quotas or increased tariffs in breach of our commitments would be met by heavy retaliation against our exports. In 1962 when the United States, by escape clause action, imposed higher tariffs on car- pets and glass, the European Common Market immediately withdrew concessions of value to us. They didn't negotiate-they acted. And they acted on items designed to hurt our trade-as they had. a legal right to do under the GATT. Later, when the Common Market in 1963 denied access to our chickens we acted in the same way-with a sharp increase in our tar- ]ffs against Volkswagen trucks, starches, and French cognac. If any of the more important quota bills before you should pass, there isn't the slightest doubt that the retaliation that will follow will, of a neces- sity, be massive. Many times as much trade would be involved and many times as many countries would be affected as in all the escape clause actions we have taken. in the history of the trade agreements program. But, most important of all, our action in this case would not be a legal one-for which the compensation is limited-but an illegal one in PAGENO="0054" 48 which the affected countries ar not obliged to limit their retaliation to the amount of trade directly affected A quota policy, therefore, would have equally serious effects on our domestic economy and our longer run ability to compete. Import quotas can have only one effect on domestic prices-to make them higher than they would otherwise be. Is any action designed to raise prices at this time a rational one An immediate increase in prices would be only the beginning of the damage. As the secondary effects of quotas are felt, they will be very different from those of tariffs. A fixed tariff permits competition from those imports that are able to surmount it. Such competition stimu- lates domestic producers to keep ahead of the foreign manufacturer- to improve their efficiency, to lower their costs A quota, of course, per mits none of these effects The domestic producer knows that no matter how high his costs or his selling price he can lose only a specified part of his market to imports But without the spur of import competition, he will eventually lose his ability to compete with the same foreigners for the markets of third countries In fact, even industries not pro tected by quotas will find that their own costs have risen and their ability to compete diminished because of increases in the cost of mate- rials they use. On the surface, quotas that simply guarantee domestic producers a fair share of the market may sound attractive. But what is a fair mar- ket share ~ In the American tradition it is the share anyone is able to win by producing a better or cheaper product That is why our over whelming share of the world's computer market, for example, is a fair share The United States has been especially successful in the development and marketing of products involving new `technology. We would be the heaviest loser if we should lead the world in freezing present patterns of trade. Such a course means stagnation-higher costs to the consumer, loss of our international ability to compete, and loss of many other qualities that have made us a strong economic force in the world marketplace. Some who advocate the extraordinary protection of quotas prob- ably honestly believe thit the United States has no choice but to adopt distasteful measures bec'tuse we are faced by unfair trading pr'tctices of other countries I agree, as has alre'tdy been mentioned here today, that the practices of other countries are not alw'iys what we would like them to be. Where I do not agree is that we are helpless before them Both under our international commitments `md our domestic law we have remedies for many of them. We have the power to impose antidumping duties and countervailing duties to offset unfair pricing practices and subsidies. And we have authority to protect domestic producers seriously injured by imports even where foreign practices are perfectly fair This includes the authority to increase t'mriffs under the escape clause `mud to impose quotas to protect domestically sup ported farm prices Finally, m~ e will have, if the Congress enacts the administration's tr'tde bill, an adequ'mte means for the first time for dealing with the problems of individual firms and groups of workers We have used and will continue to use these powers where. justified. For ex'tmple, ~ e have recently imposed countervailmg duties against the subsidies of others We are subsidizing poultry exports in order to regain our market in Switzerland that was lost because of EEC and PAGENO="0055" 49 Danish export subsidies. But competitive subsidies are not a permaueiit solution. We have therefore begun intensive discussions in the GATT of the whole poultry problem. We have also made a good start to- ward reaching an agreed solution ,to the problem of the rules govern- ing border taxes and are working in a special GATT group on the many problems that remain in other nontariff barriers. Finally, let me say that the request for tariff negotiating authority in the administration's bill is limited, in part, because of a strong be- lief that a thorough review of our trade policy is required. For exam- ple, new insights into the complex problems of nontariff barriers, of regional bloc trade, of the relationship between American investment abroad and exports, and of the problems of the trade of developing countries are necessary before there can be a major new negotiation. These and other new developments will require an intensive review- both within this Government and in the GATT. Indeed, I believe that this has aliso been the point of view of the Congress, as evidenced by recent hearings be.fore the Joint Economic Committee, the Senate Fi- nance Committee, and, above all, the hearings beginning here today. Such a review can lead to new approaches. But the basic objectives of our trade policy should not be in questioii. That policy-developed with the aid of the Congress, and especially of this committee, has been pursued by every American administration for over 30 years. It is vigorously supported by this one, and it forms, we believe, the es- sential basis for the continuing expansion of world-and particularly of American trade. Thank you, Mr. Chairman. The CHAIRMAN. Thaiiit you, Mr. Ambassador. Mr. Tfllm:an. Mr. ULLMAN. Thank you, Mr. Chairman. I want to say, Mr. Am- bassador and Secretaries, you have made an imposing case, but I am not sure you have addressed yourselves as completely to some of these problems as some of us would want. I am worried about several things that are happening on the world scene. I have always supported the reciprocal trade program. I think all of us recognise that increased trade throughout the world is ab- solutely mandatory if we are to continue a free world, a strong free world, but there are new developments on the world scene during re- cent years that give us great cause for concern. Sometimes we worry that we are attempting to follow old patterns where thei actual situation is changing around the world, and the old formulais don't fit. I am concerned about the Common Market. It has been~ said that the whole concept of the Common Market can very well undermine the basis of the reciprocal trade patterns. Would you address yourself, Ambassador, to the basic issue of the Common Market and the fact that the internal barriers are being broken down within the Common Market? This is bound to have a very strong impact upon the individual countries and their trading situation with the United States; this is bound to replace imports from America by imports from those countries because of those greatly reduced barriers within the market itself. Ambassador ROTH. Mr. Congressman, I think the point you raise is a valid one. As I indicated in my testimony, the administration felt, really for the very reason that you raise, that it was not appropriate PAGENO="0056" 50 to immediately come to the Congress with a major new trade bill fol lowing the old pattern of t'triff reductions Many of the developments since 1962-and one of the most important is the development of major trading blocs such as the EEC, LAFTA, EFTA, et cetera-h'id to be carefully studied before setting a major new trade direction Having said that, let me comment directly on the problem of the EEC. It is true that as tariffs have gone down and will continue to go down within the EEC, it has made it easier for the six nations to trade with each other to the disadvantage of third country exports. This was one reason why the Kennedy round itself was of critical importance, in order to narrow the disadv'intage that other countries- this country and the EFTA countries, for instance-~ ould have in that market In tariff terms, in m'iny areas this disadvant~ge fris become quite narrow, so that looking to the future tariffs will play much less important a pirt than in the past This is in a way why so much focus since the end of the Kennedy round h'ts of `i necessity shifted to the problems of nontariff barriers In November at a GATT ministerial meeting, the United States 1 equested the beginning of `i discussion and ultimately `i negotiation on the whole range of nont'trift barriers At a more recent date, v~e asked for a specific negoti'ttion on the very complex and very difficult prob lems of the border tax problem and the relationship between fiscal systems and trading policies. Finally, let me just comment briefly on perhaps the most difficult problem as it relates to the European Economic Community, and that is its common agricultural policy. This is, we believe, a restrictive one. During the Kennedy round we were able to obtain some very important agricultural concessions from the EEC, but we were not able and we did not expect under the cir- cumstances to dismantle the common agriculture policy. So it is true that an important segment of European agriculture is protected by the so-called variable levy system, which gives it very strong protection and leads in many c'tses to uneconomic production of agricultural products in Europe. We have found in the p'ist subsidized frozen poultry from Europe competing ag'imst ours in the world m'trket, and more recently heavily subsidized barley competing in the Japanese market. So we have been concerned in two ways, one in terms of that system as it relates to our exports to Europe, which by the way in agriculture have been grow- ing, and also because the system allows a subsidization of uneconomic agricultural production exported to third countries. Therefore, we are pursuing this with increasing intensity. The exam- ple I used in my testimony ~i `is in poultry Although ~ e `ire against subsidizing exports as `~ gener'il `ipproich, we are determined th~t where this is necess'iry-as in the c'~se of `i product such `is poultry- in order to reg'tin our nvtrket, in this c'tse Switzerl'ind, we will do it At the same time, we are insisting on intensive discussion and nego- tiation in the GATT. We have problems ahe'id of us in tobacco `ind c'inned fruit, and from the `idmimstration's point of view it is of p'ir'tmount importance that we push very hard in this direction. Let me say finally that in terms of long range problems within the EEC, the CAP is `t very expensive system for those countries that have to pay for it, in effect PAGENO="0057" 51 Germany perhaps pays the largest part of the bill and because of this I would think as time goes on there will be some adjustment. But we must push to be sure that we can continue to get our own share of that market. Finally-I apologize for this long discourse-it is true, however, from a purely selfish American economic point of view that the de- velopment of a large market has meant the possibility of greater exports from this country. As the EEC grew and became more prosperous, this became an important market to us, and when looking at our trade figures, the fact that 1966-67 was a poor economic year in Germany had a major impact on our exports. In fact, this year I think their growth rate is in excess now of 5 percent. This should have a major impact on our exports. Mr. ULIJMAN. But, Ambassador, you are asking us to proceed with the trade package and just pin our faith on your ability to negotiate against the tide, which is in effect what we are doing. These are new practices being put into effect. This is the trend over there. The trend is toward trade subsidy as you have just mentioned, in the field of agricultural products, but it is toward subsidy in other areas too, which is the very antithesis of everything that our trade policy has stood for. This has been the basis for retaliatory action. If any one nation subsidizes its exports then under our general trade policy this has allowed retaliatory action by other nations and yet that is the trend over there, is it not? Ambassador Roni. First, Mr. Congressman, I would like to say that there is, I think as you indicated, a difference between agriculture and industry. In agriculture we have a long way to go before we reach really liberal trade, if we ever do. In industry we do have, as I indicated, the means presently to take action where there has been subsidization of manufactured products- under our countervailing duty law, and we have used this. Recently we countervailed against Italy on transmission towers. There is another case presently under consideration. Even more recently in agriculture we took action against Italy on canned tomato products. Our countervailing duty law actually does not have an injury requirement as it nominally should under the GATT, but it is a law that we had before the GATT came into being and therefore we are in a position to move quickly where it is found that a subsidy exists. Mr. TJLLMAN. There are other means of subsidies, too, that are more indirect. Certainly one is the tax structure. The next area of great concern to me is the tendency among other nations of the world toward the value-added tax approach to taxation with a direct and immediate tax upon imports and a direct subsidy on exports. This is a very widespread practice not only in the Common Market countries but in country after country all over the world. It has a double-edged effect upon trade relationships and an advers~ effect in both instances on our trade balance to the point there is in this country some growing sentiment that we eventually go to some kind of a value-added tax. This seems to be fair game around the world. You can put a tax on imports if you do it the value-added way or you can subsidize your exports if you do it that way, but if you do it directly then it is not fair. PAGENO="0058" 52 How do you compensate for this and where does this new element in the world picture that is interfering with our regular trade processes fit in with your pattern of negotiations? Ambassador ROTH. Mr. Congressman, . I think I understand your question more clearly, because, leaving the border-tax problem aside, theie have been no recent new European subsidies on industrial products that I know of The border tax prcthlem that we are currently negotiating on in Geneva is, as you know, a terribly complex one Mr ULLMAN In the border tax concept `Lre you including the value added tax approach to this problem ~ Ambassador ROTH That is right Under the GATT, when it was put together 20 years ago, it was felt at that time by economists that an indirect tax is fully passed on into price It was therefore con sidered legitimate to offset that completely at the border and to rebate that amount on any exports If the indirect tax went into price 100 percent, then the imported product was not at a disadvantage by also having to pay the same tax At the same tune, it was felt that a direct tax, such as a corporate tax, did not go fully into price and therefore should not be offset As you said, we have one tax and the Europeans have another Over the years people have begun to wonder whether this absolute dichotomy exists, whether perhaps not all the indirect tax goes into price and perhaps some of the direct tax does, but you still cannot find agreed economic opinion on this A couple of months ago~. Stan Surrey had a number of the most prominent tax economists in to discuss this They still felt that this dichotomy, as it were, was perfectly justified and that although it paid this tax which was also paid by the domestic supplier, over a period of years our trade to Europe was not dis~dvantaged, and I think this is true. In the past, our trade has not been disadvantaged partly because the border tax was undercompensated. Recently, Germany has changed to an added-value tax and has gone to full compensation at the border It could be th~tt in this interim period of the changeover our trade could be affected, md this is wh'it w e are investigating ~tnd discussing in Geneva But the question mark I want to raise `tround this whole problem is that, while we feel that there is a disadvantage th'mt the system c'tn produce in terms of our ti `ide, it is not e'isy to define `mud it is certainly not the loose disacivan t'tge that cert'un industries describe when they say, "We pay a border tax in Europe of 10 percent" Some industries `md cert'un companies h'mve made a more detailed mn'mlysis of what this might me'mn to their products, `mud I hope liter they will present their results to this committee, bec'muse it is a very difficult problem. Mr TJLLMAN Didn t the President expiess quite `m lot of concern ibout this problem in his mess'tge to Congress ~ Ambassador ROTH Absolutely, and this is why, although 1'tst ye'u our trading p'mrtners refused to enter into negoti'ttions on this m'mtter, they have more recently `igreed to do so `md, `is I s'tid, mi e hive had one meeting The GATT secretariat is presently preparing m'mteri'ml on the whole issue We will have another meeting in a few weeks PAGENO="0059" 53 Mr. TJLLMAN. I just can't accept the conclusion that this tax is being paid by their industry as well as by ours. We pay an income tax. Our tax is in the form of an income tax. They don't have a comparable rate of income tax or applied in the same way. They take their tax in the form of a value-added tax. This is more true of some countries than others but certainly very true of a lot of `countries. That is their form of taxation in lieu of income taxes and to the extent that is true then they are not paying an equivalent tax for that commodity. We need to do some real serious study on the actual economic conse- quences of this approach to taxation at the border. Ambassador ROTH. Well, you are quite right that a great deal more work has to be done. A great deal has already been done. I think members of the committee might like to see a very good discussion of this done by Stan Surrey some months ago and maybe we could submit it. I would like to say that the European added-value tax is not in lieu of an income tax. They use that and a corporate tax as well. Mr. TJLLMAN. In France to what extent is that true? Ambassador ROTH. Actually in France it is about the same.. Of course, a much greater proportion of taxation in Europe falls on the consumer, and actually, as you know, the added-value tax is levied in the final sale to the consumer. You have the price of the goods and then you have added to it the 10 percent added-value tax. Mr. TJLLMAN. I would like to have a more thorough analysis of this in the record than the general statements that we have had here be- cause it has been my distinct impression that the European nations are relying more and more heavily on the value-added approach to taxa- tion to carry the heavy burden o'f their tax structure. Ambassador ROTH. This is true., but they also have a. very heavy cor- porate tax and, Mr. Congressman. Mr. Chairman, I would like to sub- mit for the record some very detailed analysis of `this whole problem that we have, and `then we would be glad to discuss it in great detail with you because it is a very complex problem. The CHAIRMAN. Without objection that will be made a part of the record. (The following information was received by the committee:) EUROPEAN TAX SYSTEMS The information submitted on this subject consists of the following: PJrhjbit A.-Phe three tables referred to in the Committee `hearing: Table 1.-Maximum Tax Rates by Central Governments on Undistributed Corporate Profits, 1968. Table 2.-Taxation by Central Governments of Corporate Profits Distrib- uted as Dividends. Table 3.-Taxes as a Percent of GNP in Selected Industrial Countries, 1959, 1961, 1963, and 1965. Ecohibit B.-Address by Stanley Surrey to the National Industrial Conference Board, February 19, 1968. Ecehibit C.-Article by Stanley Surrey, "The Wonderful World of Taxes" in The Columbia Journal of World Business, Vol. III, No. 3, May-June 1968. Ecehibit D.-"Border Tax Adjustments", by Kenneth Mesere, in The OBUD Observer, October 1967. Ecehibit E.-Table prepared by the Office of Tax Analysis, U.S. Treasury De- partment: Indirect Business Taxes in Selected European Countries not Related on Exports or Imposed on Imports. PAGENO="0060" 54 Tables 1 and 2 of Elxhibit A are based on tax rates and do not show the net corporate tax burden as a percentage of corporate earnings Therefore they do not pui~port to make a comparison between the corporate tax burden in these countries and that in the U.S. Unfortunately, data that are comparable as be- tween countries and that would show this net tax burden do not exist Because of differences in accounting practices and in allowable deductions for business ex- penses, depreciation allowances, etc., we have not been able to obtain these data. Tables 1 and 2 are of value primarily as an indication that there exist significant direct corporate taxes that foreign countries could adjust for at the border. They do not show what countries would obtain a net competitive advantage as a result. Table 3 of Exhibit A shows that the share of corporate profits taxes in GNP differs widely among countries, with the U.S., Canada, and Japan ranging between 4 and 5 percent and the EEC countries between 2 and 3 percent. Again, these figures do not reflect effective tax rates on those companies engaged in or affected by international trade. Exhibits B C and D provide useful analyses of the differing economic effects of sales taxes turnover taxes and value added taxes with an explanation of the domestic reasons the EEC countries are converting from turnover taxes to value-added taxes. Finally Exhibit E tabulates the indirect business taxes of European countries that are not compensated at the border It throws some light on the additional charges that might be imposed on U.S. exports if the international rules govern- ing compensation for indirect taxes at the border were to be liberalized. ExHIBIT A TABLE 1.-Mawimum ta~c rates by central governments on undistributed corporate profits, 1968 Percenr Austria 53. 24 Germany 52.58 Canada 50. France 50.98 United States 48. Netherlands 46 United Kingdom 42. 50 Australia 42 50 Sweden 40. Belgium 35. Japan 135~ Norway 30. Italy 227 50 Switzerland 7 20 `There is an addstional tax In Japan up to 20 percent on retained profits of closely held corporations.. `In addItion, In Italy there is a 16.5 percent tax on profits in excess of 6 percent of taxable assets. Source: First National City Bank Monthly Economic Letter, May 1968. TABLE 2-TAXATION BY CENTRAL GOVERNMENTS OF CORPORATE PROFITS DISTRIBUTED AS DIVIDENDS lIn percentj Maximum rate Credit allowed paid and with- individual held by cor- shareholder poration France 50.00 50.00 Switzerland 35. 04 1 30 Belsium 44 2 29 Netherlands 59. 50 1 25 Germany 3 43. 11 1 25 Canada 50 20 Japan 37.10 115 Italy 20.68 1 5 United Kingdom 41. 25 0 1 Deducted at source and credited to individual shareholder. 2 Of this, 20 percent is deducted at source. 3 Ignoring the variable effect on the tax base of property tax on net worth Source First National City Bank Monthly Economic Letter May 1968 PAGENO="0061" -4 C,, C,) C) -4 0 C) C,, C) -4 0 CD C CD ~ C,) CD CD ~ $~DP~ OPPNC~3$C~ ~C3~)p$~1 r~N9D~-~ ~.JCDC)CC)~) -~N$~1 ~ ~OD ON~D )~J~N5CCr~ ~"r r'P~P' ~ c~©~CDC~ ~JC~) ~CDC~CDCOCD ~D~C~1CO~ ~ ~ ~oo ~ U~CD)CDCO ~ -J~J~r~ ~CO-~ ~ ~ C) 0 -4 coN~cT)~ ~~cJ~C.' ~-`~C~ ~CC~)(~OO J~CC3N) ~ 00 ~CC3~JCD amc,~ ~3Z~c,,r~ ~~-c~a Co 0o~c,)~ ~Za ~0CO 0Q4~P~ C) ~Z~coco C,)~CCC~ co~u~ ~t~~00C-~0)-4 C,~ C C~-~O) C0-JC0CC~CC) COt~)0) ~ ~C)N)~-JCO ooI~~)~ -~C)~o) COF.~00~~400 C)0oC)C~.J~ C0C0~0000 oC)-JooCor~ 00~JCC3CoCC3I~3 000)0) 0) ~ CC3r~3CC3~00~-J ~CJ1C)0-~~J)N) 0)0)~-~00 ~JCDC0C)0) *~4C~300~ 00 C)CD'~CON)C) 00U10)C71~-J N)0)~0)00 0)C-~ ~ CO0000t~)0)C.71 WCC3U1COO)U) ~0)~J0) PAGENO="0062" 56 TAXES AS A PERCENT OF GNP IN SELECTED INDUSTRIAL COUNTRIES, 1959, 1961, 1963, AND 1965-Continued f In percenti 1959 1961 1963 1965 United Kingdom: Social security contributions 3. 70 3. 90 4. 26 4. 76 Personal taxes 7. 32 8. 19 8. 21 9. 18 Corporate profits taxes 3. 84 2. 75 2. 64 1. 90 Total direct taxes 11. 16 10. 94 10. 85 11. 08 Indirecttaxes 13.19 13.27 13.23 14.10 Total taxes 28. 05 28. 11 28. 34 29. 94 United States: Social security contributions 3.58 4.06 4.48 4.22 Personal taxes 9. 18 9. 64 9. 89 9. 27 Corporate profits taxes 4.82 4.37 4.39 4.50 Totaldirecttaxes 10.00 14.01 14.28 13.77 Indirect taxes 8.67 9. 29 9. 39 9.31 Total taxes 26. 25 27. 36 28. 15 27. 30 1 Not available broken down. Source: National Accounts Statistics, 1956-65, Organization for Economic Cooperation and Development, 1967. EXHIBIT B REMARKS BY HON STANLEY S SURREY ASSISTANT SECRETARY OF THE TREAS- URY BEFORE THE NATIONAL INDUSTRIAL OONFER.ENCE BOARD IMPLICATIONS OF TAX HARMONIZATION IN THE EUROPEAN COMMON MARKET The subject of European tax harmonization has evoked a misty glamour in the Uni'ted States. Any movement that goes by the description of "harmonization" is attractive in these `troublesome days. We also hear about a new tax that is sweep- ing across Europe the value added tax which has the intriguing and also dis concerting for us, shorthand label of TVA. Certainly the question, "Is the TVA good for the USA ?" can throw one of my generation off stride for a moment, as he wonders if he is back in the 1930's with the shade of Senator Norris of Nebraska and hearing a replay of Senate debates on our Tennessee Valley Authority. As a consequence, many are apt to believe the Europeans have suddenly dis- covered a wondeful new tax system and that the rest of the world should rush to emulate them. The reality is quite the contrary. The Europeans for years have had a serious tax problem on their hands. With the advent of the European Economic Community they have had `to face the fact that this tax problem was a serious obstacle to achieving an effective Common Market and the desired economic unity. They have `therefore started on the difficult task of correcting that problem. Background of taa~ harmonization in Europe What is this serious tax problem? The tax systems of the EEC countries were all characterized by high rate sales taxes, whose structures were extremely com- plicated, highly discriminatory and economically inefficient. As to rates, France until this year imposed a 25 percent tax on a value-added basis, and the present rate is 20 percent. The other countries had multi-stage, cumulative `turnover taxes (also called "cascade taxes") at basic nominal rates of 4 to 6 percent (Luxembourg was at 3 percent, and Italy at 3.3 percent). These nominal turnover tax rates do not tell the whole story however since they were levied at each stage of the production and distribution process. Thus, `the German 4 percent turn- over tax rate was equivalent to an average rate of 12 percent on the value of the final product. As to complexity, consider, for example, the French system where in addition to `the 25 percent value-added tax (TVA) on manufacturers, wholesalers, and some retailers of goods, there was also a retail sales tax covering other retailers and handicrafts at 2.83 percent, and a sales `tax on services at 13.66 percent- along with a whole miscellany of specific excise taxes on such items as enter- tainment, wines, meat, gasoline, transpor't. Each tax was characterized by a lengthy list of special rates, exemptions, and options. Thus, the French TVA covered mining and building along with manufacturing-but not farming and fishing and allied processing, or handicrafts. These complexities of basic rates followed by innumerable special rates and exemptions were charac'teristic of all f he European taxes. PAGENO="0063" 57 As to di's'crimination and economic inefficiency, consider, for example, the German system: Its turnover tax of 4 percent applied at each stage of the business process-iproducer, manufacturer, wholesaler, retailer. (Hence the de- scriptive term "cascade tax" applied to these turnover taxes.) And at each stage the tax was built into the price and thus became pyramided and swollen as each sector turn applied its markup on price plus tax and then added its own tax. The consequence was acute differences in treatment between vertically integrated and non-integrated industries and `concerns, between companies which performed some services for themselves and those which hired the services from others. In the other EEC countries a similar situation prevailed under their turnover taxes. Sales taxes that run as high as 25 percent, or even 10 to 15 percent, are not to be treated casually or lightly. They have, at such levels, a high potential for economic mischief. But the exigencies of the past, the encrustationu that any tax system accumulates, and `the lethargy engendered by a familiarity with the status quo produced for the Europeans indirect tax structures that, at these high rates, were seriously defect'ive. The catalytic agent for change was `the formation of the EEC. If Europe was to become a genuine common market in which goods and capital could move freely, `a prerequisite was as much uniformity-harmony-as possible among the tax systems of the member countries. The problem was clear: How to obtain uniformity out of this maze of high but disparate rates and complicated but disparate `structures that characterized the sales taxes of these countries when seen as a whole. The solution chosen was a two-step `approach-tind a common sales tax structure that each could adopt and then move `to uniformity in rates. The `tax changes we are now seeing in Europe are in response to the first step', that of a common structure for these sales taxes. The value-added ta~c in Europe For this first step, the EEC had `to. answer this question: What type of sales tax structure is best suited in their economies to support `a high `tax rate? The choices w-ould be among the single stage sales taxes-a manufacturers tax (Can- ada), a wholesale tax (Switzerland, Australia, United Kingdom), a retail tax (States in the United States, Norway), or a multi-stage tax of the value-added type (France). The multi-stage turnover type tax was not a possible choice, since it was essentially the villian in the existing picture. A manufacturers tax has its problem of pyramiding through subsequent mark- ups. It also has its problems of definition-what is "manufacture" and how far does it reach into assembly, packaging, bottling, etc.? The tax at this stage also discriminates against certain forms of distribution (such as manufacturers sell- ing at retail), unless complex `adjustments in prices are made for tax purposes. A wholesale tax involves many of the problems that beset a manufacturers tax, though in a different degree or form. There is the aspect of pyramiding; the problem of how to handle industries in which retailers perform certain whole- sale or manufacturing functions and hence buy at cheaper prices; the problem of wholesalers who also sell at retail or manufacturers who skip the wholesale stage and sell at retail. While these considerations may point to a retail tax, the success of a retail tax can test severely the enforcement capabilities of a country, since the tax offers the largest number `of taxpayers to police. In addi- tion, these European countries already had turnover taxes under which each stratum of the economic process was presently being taxed, so that placing a tax at one stage only, say on the retailers, could well arouse difficult political problems. The Europeans therefore turned to the value-added tax, which essentially is a multi-stage sales tax that achieves `the end effect of a retail tax on personal consumption (consumption by households as contrasted with businesses). In choosing a value-added tax, they desired however to avoid *the accumulated complexities of the French approach to a value-added tax-indeed `the French themselves already started on their own reform. The Germans this year were the first to adopt a new value-added tax to replace their turnover taxes and we can refer to it for understanding of the emerging European picture. The German tax is imposed at a 10 percent rate (11 percent on July 1, 1968) on almost all sales of goods and services by any business. Let us start with a manufacturer: He applies a 10 percent rate to his total sales to find the pre- liminary `tax due. From this he subtracts the `taxes he has paid on his purchases PAGENO="0064" 58 and the net is payable to the Government. In essence, the tax is thus on the "value added" by him as represented by the difference between the value of his total sales and the value of his tota~ pureba~es. "Purchases" include all types of goods and services-components either as raw materials or semi-processed goods ; capital goods, such as plant machinery and equipment ; goods used up iii manufacture business furniture etc The manufacturer of course will bill his customer for the 10 percent tax on the sales price of the articles he sells, just as the manufacturer was earlier on `his purchases billed 10 percent by his sup- pliers. The tax is invoiced separately on all sales and is thus not hidden in the sales price. The process is repeated at the wholesale stage-the wh'~lesale'r pays the Gov- erument 10 percent of his sales less the taxes paid previously by the wholesaler on his purchases-and the wholesaler then bills the 10 percent tax to his cus- tomers. But of course no pyramiding should occur since the taxes paid by the wholesaler are kept apart from the price of the goods he purchased and he can subtract this tax cost. The process is repeated once again at the retail stage- the retailer pays the Government 10 percent of his sales, less the taxes the re- tailer paid-and of course the retailer charges his customer for the 10 percent tax. The process ends there if the retail sale is for personal consumption-food, an automobile furniture clothing But if a business concern buys the article for use in its business-say an automobile or a desk-the process begins again as the concern will subtract the tax on the automobile or desk from its tax bill There is one additional important facet to note: lJnder the German system, tax is due each month Suppose a concern has paid more tax on its purchases than is due on the sales to its customers-its sales may be slow, for example. The Gov- ernnient here makes a refund each month of any excess tax paid, so that the cost of carrying the value-added tax is not borne by the concern beyond a month or two. .&ll this adds up to a 10 percent retail sales tax on personal consumption-the 10 percent value-added levy is designed to be passed along from concern to con- cern until the consumer is reached and he is left with the tax. The 10 percent tax is not intended to enter into the price structure until that final sale-until then it is a tax item that accompanies each sale, is kept separate on the books, and is so indicated. If the tax item is not promptly moved along the business chain, the Government refunds it promptly. (If a concern has to finance the tax during this month or two, this cost would enter into the price structure.) Since the economic effect is that of a retail tax, the distortions due to pyramid- ing, differential burdens on integrated or non-integrated firms and industries, and differences in distribution patterns that beset a manufacturers tax or a whole- sale tax, are essentially avoided. At the same time the pressure for strong policing at the retail level that would exist under a retail tax is eased, since under the value-added approach the tax will have been partially collected at a prior level. If a retailer evades the tax, the Government has at least taxed the value at the wholesale level. And the chances of retail evasion are lessened, since the whole- saler has notified the Government of his sales to the retailer. Parenthetically, it is quite likely, however, that countries underestimate their capacity to enforce a retail tax. Even some developing countries are finding they can adequately administer such a tax if care is paid to its design and structure.1 The Royal Commission (carter) Report on Taxation in Canada (1966) recommended a re- tail tax to replace its present manufacturers tax and chose the retail tax in preference to a value-added tax. The mechanics of the value-added tax are designed to keep the tax from entering into business costs even when a concern buys goods; at retail that are used in its business; activities'. (A. retail tax can meet this problem by exempting such purchases through a registration system; the value-added tax provides a refund of tax instead of exemption.) Of course, the value-added tax does involve pushing every concern into the act, and there is a `lot more bookkeeping, tax paying and tax refunding, and paper passing than would occur under a retail tax. Moreover, the fact that every stage in the production process; is nominally taxed can result in pressure drives for rate reductions by industries or groups concerned about their ability to keep passing the tax along. The; value-added tax thus has an inherent potential for breeding exceptions and special treatment. But if a country feels it can't efficiently handle a retail tax, then a value-added tax is the next best thing. 1 Due rrlie Retail Sales Tax in Honduras in Bird and 01dm in Readings on Taxation in Developing Countries (Rev. Ed., 1967), 326. PAGENO="0065" The value-added tax is thus a useful solution to the sales tax structural problems that beset the Europeans and blocked their economic unity. As a conse- quence, Denmark adopted the tax on July 1, 1967; Germany did so on January 1, 1968; the NetherIand~ and Sweden plan to do so on January 1, 1969, and Austria is also hoping to change on that date; Belgium and Luxembourg will presumably go to the TVA on January 1, 1970; Italy may not be prepared to' switch to' TVA by January 1, 1970. The changes in tax structure do not appear for the most part to be designed to bring a'bout significant changes in the total revenue yield of the various tax systems or of the sales `taxes themselves. France 15 reforming its indirect tax structure to achieve a similar application of the TVA. Hence it is fair to say that the Europeans, by comparison to their present situation, have evolved a far more workable sales `tax capable of application at a high rate-more complicated than is needed where a retail tax would work, but still a workable mechanism. If a country is in the market fo'r a high rate sales tax and if it really believes it cannot handle a retail tax, it should look `the European model over. Should the United States be in the market for such a tax? A value-added tao, in the United States? We can first consider this matter in terms of our domestic tax structure and domestic economy, and then in terms of international aspectS. Certainly we hope that the long-term trend in the United States at the Federal level is not that of tax Increase but of tax reduction. There is indeed justification for us to look forward after Vietnam to being able to use ourr fiscal dividends- the increase in Federal tax revenues that comes from growth in the econ- omy-partly to meet our needed expenditure increases and partly for tax reduc- tion or debt reduction. As a nation we have not, since the Depression, so'ught to increase our Federal taxes except for fiscal policy reasons in times of hostilities'. So we should not want a high rate sales tax on the groirnd o'f increasing our tax take. Do we want it as a substitute for an existing tax? Here there are some-the Committee fo'r Economic Development fo'r example-that have for some time urged we should have a sales tax at the Federal level as a substitute for part of the co'rporate tax. The' CED first urged a retail tax and now a value~adde'd tax. Here we reach, of course, a classic split in tax philosophy-between those who favor maintaining a progressive tax structure at the Federal level and those who would, by shifting to a sales tax, lessen that progressivity. Economists on the whole would agree that the' corporate tax is a factor working for progressivity in our tax system even tho'ugh, as will be discussed later, there is some difference as to whether part o'f that tax is shifted forward in price or perhaps backward in wages and raw material prices'. And there is general agreement that a retail tax, either o'f the single' stage type or that achieved thro'ugh a value-added tax, would increase the p'rice level and largely be pas'sed o'n to consumers, though as will be discussed later' there can be uncertainty as to how fully this forward shifting is accomplished. The CED itself states that, "While' it is true that the tax burden is distributed differently under a tax system with a value-added tax, we believe that the other effects of the tax are such as to compensate the nation in larger output and more growth.2 There is not the time here to examine in detail the validity of that latter belief, either as to the effect of the tax itself in our economy or the need for fur- ther incentives to investment that the statement implies. We must remember that the 7 percent investment credit and depreciation reform operate to provide incen- tives to investment under our present income tax system. At an~~ event, the literature demonstrates that very many, presumably the majority, of our fiscal economists would disagree with the CED belief that we would be better off with the substitution of a sales tax for a part of our corporate tax. The Ccnfer- ence Report of the Natienal Bureau of Economic Research and the Brookings institution in 1964 on the subject of "The Role of Direct and Indirect Taxes in the Federal Revenue System" ends with the thought: "It is hard, then, to find much support for more reliance on indirect taxation in the record of the confer- ence, even though some participants came, and left, with a disposition toward this view." (313) Professor John Due, an acknowledged authority on sales taxes, has concluded: "On the whole, the sales tax must be regarded as a second-best tax-one to be employed only if various circumstances make complete reliance on income and other more suitable taxes undesirable. A carefully designed sales tax Is not 2 CED, A Better Balaisee in, Federal Taxes on Business (1966), 28. 95-159 0-68-pt. 1-5 PAGENO="0066" 60 perhaps as objectionable as it was once regarded ; it offers definite advantages over widespread excise tax systems, with their inevitable discrimination among various consumers and business firms and their tendency to distort consumption patterns and it is definitely superior to high rate business taxes with uncertain incidence and possibh~ serious economic effects. But it must be regarded as secondary to income taxation, in terms of usually accepted standards of taxa- tion."3 Recommendations for a sales tax at the Federal level in the United States generally overlook the fact that the States, supplemened by the cities, are gradually evolving a sales tax structure for the United States, and one at sig- nificant rates-44 States and the District of Columbia have sales taxes (there are municipal sales taxes in 15 States), the usual rate is presently around 3 percent but some taxes reach to levels of 5 percent and 6 percent (the usual municipal rate is 1 percent), and the trend is of course upwards. While this structure is not at the Federal ieve1 its basic economic consequences are not different from a Federal sales tax. Recommendations for a value-added tax also gloss over the complexities in volved in adding a sales tax to our national system No one should be misled into thinking a value added tax is a simple levy with a few pages of statutory text It is a highly complex instrument4 It is considerably better than what most European countries have today-but no one should ask a country to adopt it unless there is a very clear real gain to be achieved Moreover anyone who thinks a value-added tax sounds simple should just suppose he was back in the ~past and someone were to say Here s a simple ~ay to tax people-you 3ust add up their total income and then you subtract their total expenses and then you 3ust tax the difference. It's called an income tax." Well, you know the story of that tax! No mass tax can be a simple tax-as anyone acquainted with a State retail tax will agree-and a value-added tax is more complex than a retail tax. These are among the factors that have in the past kept Congresses, Democratic or Republican, from legislating a national sales tax. If the past is prophesy, a pragmatic view of this question would appear to be that the Congress is not likely to change it course One may ask why the Europeans have high rate sales taxes. History plays a very large part. Most of the Eureopeans mass sales taxes were adopted in World War I or the period just after it, and were borne of financial necessity. This was a time when no country had attempted to apply the income tax on a mass basis, and in addition the income tax itself was only in its developing stage. It was not until World Wor II that the United States demonstrated the income tax could be made into a mass tax. Moreover, the United States has been more successful than other countries in developing a truly mass individual in- come tax effectively administered. The European countries, having started on a different route through the choice of the sales tax as the mass tax, devoted more energy to working on their mass sales ta~es than on their income taxes. We must also remember that European countries are high tax countries com- pared to the Umted States In 1965 our total tax burden (Federal State and local) came to 27 percent of our GNP, whereas Italy and the United Kingdom came to 30 percent; Germany and the Netherlands to 34 ~erecnt; and France to 38 percent. If indirect taxes, principally these mass sales taxes, are treated as the "last taxes," the differences between the lower level of United States indirect taxes and the higher European levels would generally be reflected in these dif- ferences in total tax burdens. Thus, if we subtract the differences between in- direct tax levels, so that European indirect taxes would be included at our level, the total tax burdens become: United States 27 percent; United Kingdom 25 percent; Italy 26 percent; Germany 29 percent; France 30 percent; Netherlands 33 percent. If we consider direct taxes alone as a percent of GNP, and thus leave out both indirect taxes and Social Security contributions the comparisons are United States 18 percent; United Kingdom 16 percent; Italy 17 percent; France and Germany 20 percent; and the Netherlands 24 percent. The Europeans have high rate mass sales taxes and as a consequence are countries that impose a heavier tax burden overall on their peoples. The United States does not have sales taxes at those high rate levels, and consequently impose a lower total tax burden. It is difficult to see why United States taxpayers should urge that we emulate the Europeans. Due, Sales Taxation (1957), 41. See the discussion by Prof. Francesco Forte on "The Feasibility of a Truly General Value-Added Tax: Some Reflections on the Frkinch Experience," 19 National Tax Journal 3J7 (1966)4 PAGENO="0067" 61 This is not to say that continued study of the value-added tax is not useful. At the very least we should know what the Europeans are doing. But the studies should be tough-minded and straight-forward. They should not `be content just to admire the outside wrappings and never examine the contents of the package. They should not become bemused with semantics and fail to make clear that the European value-added taxes are in fact sales taxes in their structural design and economic effects. Hence, to substitute a value-added tax for the corporate income tax does not involve just another way of taxing corporations. The issue is not, despite the way it is sometimes put in the United States, of economic and techni- cal judgments over two methods of taxing corporate business. The basic issue still remains that between substituting a sales tax on personal consumption for an income tax on corporate profits. However appealing to some may be the semantic gain, the issue should not be allowed to be blurred by omitting the term sales tax when we discuss `the value-added tax. If we are to study the adoption of a sales tax in the United States we shoflid extend the studies to encompass the retail sales tax as well. The studies should also recognize there are many issues to be explored in addition to that of re- gressivity and the allocation of the tax burden between consumers and investors. Thus, there are considerable shifts in burden among the various sectors of the economy when a value-added tax or any sales tax is substituted for a corporate tax: e.g., banks and financial institutions are generally exempted (that is, the tax does not reach their services but may reach their purchases) ; the activities and profits of foreign investment are not reached; unincorporated business gets swept into the structure of a value-added `tax; the tax falls on unprofitable con- cerns as well as profitable concerns so that if the tax cannot be shifted forward the former concerns will suffer; the coverage of Government-provided services becomes an issue. All in all, there is much more to be Studied than the calls for study have generally indicated. In pursuing such studies we must also remember we already possess a "com- mon market" and economic unity within the United States and so do not have the sales tax problems that the Europeans must solve to achieve their economic unity. As stated above, we do have retail sales taxes in most of the various States, but they do not produce any serious economic distortions or competitive effects. There may be some irritating compliance problems for interstate business, but even these are moving, albeit slowly, to improvement. Hence we do not have any sales taxes to "harmonize" as do the EuroDeans. In this regard the same story may be told for what may some day be the next major step in tax harmonization for the EEC-the harmonization of corporate income taxes. We in the United States `invest and our businesses operate in our "common market" under our Federal corporate rate, which applies uniformly throughout the United States'. While State corporate income taxes exist and differ as to rates', their deductibility from the Federal corporate tax greatly lessens their effective rate, although irritating compliance and bookkeeping aspects remain. But Europeans in their common market must invest and operate under as many different high rate corporate tax systems as' there are countries involved-systems that differ both as to rates and structure. So if Europe finally decides on a com- mon corporate tax, it will, as respects economic unity, merely be reaching the stage the United Statesi has enjoyed fo'r many years.5 Europea'a border ta~ a4ju~stments-Their backgrowiut Let us turn now to an aspect of the European sales tax systems that has been highlighted in recent years as a result of our balance o'f paymexits problems-the aspect o'f export rebates and compensatory import taxes that characterize the Other aspects of harmonization that have a similar consequence may briefly be noted: A common market implies a relatively free flow of capital within the market area and will th~efo'r'e require removal of existing restraints on capiltal movements. There will be increasing concern among European countries' on the extent to which differences in, ~th,er aspects of direct taxes affect capital flows. Low withholding taxes In, a given country would attract poritfollo investments from other countries, particularlyi In the light of the widespread use of bea'rer shares and bonds. Consequently uniformity in withholding taxes Is important. `There ma~ also be a reappraisal of attitudes towa,rd the foreign tax credit approach as a means of eliminating double taxation in contrast to' the tax exemtptio'n approach presently us~ed In m,any European, I~o'untrles. With' more volatile capital move- ments the consequences of tax exemption of foreign, income will appear more serious than In the past. A common market with in,creased fluidity In capital movements requires the removal o'f barriers to corporate mergers, reorganizations and the lil~e. Con'sequenrtiy th,e tax treatment of capital gains, for example, will have to be' modified so as to remove a barrier toward, Integration of ln,dustries and reorganizations in line' with the emerging needs of an enlarged market area. But again, the United' States does net have' these problems.. PAGENO="0068" 62 EurGpean sales tax systems. All countries With signfflcai~t sales taxes or excise tax system~s automatically structure those systems to attempt to keep the taxes from affecting exteimal export prices and to ensure the application of the taxes to in~ported goods. If the tax is a manufacturers tax on the final product-an auto- mobile, a refrigerator, cigarettes, liquor, and so on-then exports are not made subject to the tax, or if taxed, can secure a rebate. Imported goods, on the other hand, are subjected to the same tax as is imposed on domestic manufactured goods, so that both goods' will compete on equal terms in the domestic market in thi.s respect. The United States! does this for its few manufacturers taxes'; Canada does the same under its ii percent broad manufacturers tax. If the tax is imposed at the wholesale stage or the retail stage, such rebates and import taxes are not needed: a manufacturer selling goods whether for internal consumption or export is not subject to these taxes a wholesaler import ing goods will pay the tax on his subsequent sale. The sales for export that a wholesaler or retailer may make will be exempted from tax. The essential principle under which all these taxes are structured is that sales and excise taxes are intended to be paid by domestic consumers in the form of higher prices-that is the purpose of the levy and that is the intended dis- tribution of the tax burden. But at the same time it is intended that a coun- try's exports should not be handicapped by these taxes-and imports into the country should not be favored. The European turnover taxes followed the same principle but ran. into addi- tional complexities It was simple of course to say to a German manufacturing firm that it need not pay the 4 percent turnover tax on an export sale. But what about the 4 percent taxes paid by the manufacturer on purchases from its sup pliers of materials of almost every sort-these 4 percent taxes were built into the costs of the manufacturing operation, just as the 4 percent taxes the sup- pliers had to pay on their purchases were built into their costs and also passed along as part of the prices charged by the suppliers For that is the vice of turn over taxes-they pyramid in prices throughout the economy. The economic effects of these taxes were significant at the high rate levels applied in Europe. The principle of protecting exports therefore required a rebate of these taxes previously imposed in the production chain and which cumulated as costs for the manufacturer on its purchases, or for the wholesaler if he was the exporter. But how much should be rebated? Here these countries had to compute the amount through an estimating procedure, for these high rate taxes were hidden in the price structure and, moreover, their total would vary with the extent of integration of productive activities in the prior stages The European coun tries therefore carefully developed average figures and used them for the rebates. Corresponding figures were used for the import charges. A common market ideally requires a tax system that does not have complex border adjustments. A common retail tax would accomplish this-as pretty much occurs in the United States-if care is taken to keep the tax from applying to purchases for business purposes Failing that if border adjustments are to exist their calculation should be made with as much precision as possible. It is here that the value-added tax provided an extra advantage for the Europeans. For just as the value-added tax eliminated for internal sales the distortions resulting from pyramidi'ng and differences in integration of~ business activities, it also by the same token and procedure offered a ready measure of the taxes that the exporting firm had to pay because of its purchases. Indeed, under the German value-added tax, a firm is given a "rebate" through refund or credit for all of the taxes it has to pay on its purchases whether its goods are sold internally or externally. The structure of the tax thus readily enables the Government to de- termine the amount of export rebate needed to reflect the exporter's book costs representing the taxes paid on its purchases And it similarly permits the fixing of the amount of import charge to reflect the taxes paid by domestic copcerns In time, of course, if Europe can achieve uniform value-added rates, then it could abandon these border adjustments, export exemptions and import charges for intra-EEO trade, and simply go to the rule that the country of origin taxed the stale. It would be a matter if indifference-within the Common Market-as far as import and export competitiveness are concerned, whether the exporting country were to grant an exemption or rebate and the importing country impose an identical import equalization tax (the "destination" approach), or whether the exporting country taxed the export and the importing country did not impose its import tax (the "origin" approach). There would be some effect on national revenues to the extent that trade is not in balance, but this would be minor. The PAGENO="0069" 83 border adjustments would, of course, remain applicable to trade by the E~iO with other countries. But the day of uniform sales tax rates will take some time to arrive in Europe. In the meantime the shift to value-added taxes has brought about a precise system of border tax adjustments given the structure of the taxes, and this will facilitate economic unity within, the Common Market. In this setting our discus- sion can turn `to the effect on the external trade of the Common Market countries, especially as respects the United States. Border taco adjustments! and internationaZ trade In the German situation, the rebates for taxes paid on goods purchased by the exporter and import charges under the value-added tax are turning out to be higher than the averages used under the previous turnover taxes. This' varies, ef course, from product to product `but the over-all result is higher. In effect, it would appear that some German exporters had presumably not been receiving rebates at `the level that their tax costs under the turnover taxes appeared to call for.° Of course German exporters presumably had adjusted to that situation and effect of the undereompensation if it existed could no longer `be traced through all the prior history of exchange rate changes, devaluations, and `the like. Hence viewed as of today as the starting point in time-which is the proper way to consider the effects of the change-tbis sudden increase in export rebateS under the value-added tax, while the internal overall burden of the tax remains un- changed, becomes an advantage to German exporters. And equally, the rise in the import charges can be an added competitive burden to imports.~ What is happening in Germany Is', and will be, reflected elsewhere in Europe as the countries shift to value-added taxes. The Netherlands, Austria, Belgium, and Italy are even raising their rebates and import charges under their existing turnover taxes' in advance of a later shift to a value-added tax. S'weden is shifting to a value-added tax because it realizes that its previous "retail tax" had been levied on. producers' goods and hence was in effect a turnover tax to that extent but it had not been rebated to expo'rters. As a consequence, European exporters in general Will get an added lift in most countries. There is an additio'nal feature of the shift to a value-added tax that operates to increase this' lift to exporters. Countries with a value-added tax seek to achieve as broad a base for the tax as' possible, since it operates effectively to prevent pyramiding as compared with specific excises. In France, for example, the reforms of the value-added tax have been in the direction of increasing its coverage and eliminating other taxes. Any commodity previously taxed under a specific excise `tax but now swept into a value-added tax immediately falls into the rebate process, under the structure of the latter tax, so that the tax paid on the purchase of the commodity is rebated whether the business concern at that stage is selling internally or abroad. Hence, the result is that a number of bidden, and hitherto unre'ba'tèd taxes, in effect come to light and now are rebated-and also included in the import charge. But what about `the rest of the world? The United States does not have a high rate sales tax and therefore only rebates' its specific manufacturers taxes on final products. The United Kingdom has a purchase tax at the wholesale level which over-all does not require rebates for tax costs since essentially it did not apply tQ business purehasesL Canada also does not apply its manufacturers' tax to most business purchases and likewise does not need rebates except for any tax paid on the final products that are exported; similarly neither does Japan for its variety of manufacturers excise taxes.. Thus, unlike the European countries whose high rate turnover taxes entered into `the costs of exported goods through the cost of the goods purchased by the exporter and thus necessitated export rebates and import charges, these countries did no't apply their sales takes to business purchases and thus did not have high sales tax costs imbedded in their exported goods. As a consequence they have not been as rigorous in seeking fully to eliminate indirect taxes fro'm export costs' and hence do' not have a system of export pebates for tax costs or import charges. 6 As Professor Due has pointed out, Gei~man businesses had earlier suspected this: "German firms argue that the failure to obtain full sales tax refund~ places them at a disadvantage, particularly In competition, with American and British firms not subject to a similar tax Due, `Sales Taxation (1957), ~2. ` The Germans assert that these trade a,thran,tages are oaset by transItory tax arrange- ments outside the value-added tax airecting investments In plant a,nd equipment, and state that in any event any calculations are to a large extent hypothetical. PAGENO="0070" 64 Similarly, the United States has not sought in the past to see how much of the Federal gasoline tax, the passenger motor vehicle tax, the trust tax, the telephone tax, or the alcohol tax, for example, paid by a manufacturer who exports some of his goods is allocable to those exports and thus increases their costs Nor has it sought similarly to see what part of State and local sales taxes paid, for example, on office equipment and other goods purchased by a business increase its export costs In contrast under the European systems the value added taxes on such products since they are all in the base of the tax auto matacally are rebated This was likewise the situation under the turnover taxes since in large part such goods were under the base of those taxes and figured accordingly in the average rebates (There are of course some specific European excise taxes outside the scope of turnover and value-added taxes that are not being rebated.) The United Kingdom, several years ago, initiated rebates for its special excise taxes-principally the gasoline taxes, motor vehicle license taxes, and purchase taxes on office supplies-on goods purchased by its exporters, and essentially used averages to determine the rebates. In the United States it has been estimated that the costs attributable to our Federal, State and local taxes on goods bought by manufacturers represent on the average an amount equal to about 2 percent of eiport sales prices The impact on product lines differs of course with the range running from about 11/2 percent to 4 pereent of export sales prices. A rebate of these tax costs and a similar import charge administered through our Customs organization would reflect for the United States an approach that corresponds to the principal applicable under the value-added and turnover taxes of attempting to keep sales and similar taxes at prior stages of production from increasing export costs and export prices. Au approach by the United States to deal with its indirect taxes on a rebate and compensatory import charge mechanism would involve the use of product aver- ages, and this use would be similar to the procedure followed by the Europeans under their turnover taxes. Consideration of this approach in the United States would therefore reflect principles and practices underlying the treatment of in- direct taxes in Europe. Moreover, it would parallel the attention to, and conse- quent changes in, bonier tax adjustments now generally resulting in Europe from the shift to value-added taxes Sales tacees and international trade But the European efforts to stabilize their sales taxes and border adjustments and then to harmonize them raise even larger issues of trade policy interlocked with tax policy The European practice of rebates and import charges for turn over and value-added taxes reflects the basic assumption that such taxes are passed along through channels of trade so that their burden is borne by house- holds buying goods for personal consumption. This is the assumption behind the exemption of exports from a manufacturers tax. It is the assumption of legis- lators who enact wholesale or retail taxes or other sales taxes. As a working assumption for domestic legislation and for general judgments on the distribu tion of the burden of a tax system or of a new excise or sales tax it is a useful operational device. But the balance of payments world of today, with its fixed exchange rates and the attention that must be focused on both the over-all bal- ance and its component parts including the trade portion requires much more attention to specifics than ever before This need for such attention is also heightened by the high levels of tax rates that now obtain under modern tax systems compared with an earlier period a development that contrasts with the shift to lower levels of tariff barriers that has occurred. If thagenerality is only a generality and the specific situations show a different posture, then the matter must require a sharper focus. If sales taxes or other indirect taxes-whether they be value-added, turnover, retail or other tax forms--cannot be fully passed on in price, then a manufacturer selling in his domestic market must lower his prices and reduce his profits. But if the full rebate of the tax cost and the exemption of exports from the tax make it unnecessary to change his export prices, then he is not concerned about passing anything along on an export sale, he need not lower his export price, and his export profits would not suffer as would his domestic profits. The business of exporting becomes that much more attractive, and the sales tax system has become an incentive to export activity Similarly on the import side the un porter to meet the competition of lowered domestic prices must reduce his price, his profits decline and he is less interested in pushing those imports. In essence, one gets to the question of tax incidence and whether these sales taxes are fully shifted forward in price or only partly shifted PAGENO="0071" 65 Put another wa~v, a value-added tax is carefully structured to pass the tax along in an accounting sense. Its effect on international trade, however, depends on whether the economic effects follow the accounting structure. If the tax is not fully shifted forward in an economic sense, then the international trade of the country using the tax will be favored regardless of the accounting structure. It is not the levels of rebates per se and the differentials between them that measure the competitive effects of border tax adij,ustments. If Country A has a value-added tax of 10 percent and rebates to' an exporter the total of the taxes, at a 10 percent level, that he has paid on his purchases it is because Country A does not want his tax costs, which are real, to enter into export prices. If Country B has no value-added tax or other sales tax, then there are in this respect no com- parable tax costs to rebate to' its exporters. But knowing only these facts does not really inform us about trade competitiveness between these countries. We cannot conclude that Country A grants a 10 percent subsidy to exporters while Country B has no subsidy. Nor can we conclude that the goods of Country A have a great advantage entering into Country B because they face no Import charge in the latter country whereas the goods of Country B face a 10 percent charge on entering Country A and hence are a great disadvantage in Country A. If sales' taxes were fully shifted forward, then the goods of both countries would, as respects sales taxes and border adjustments, be on an equal competitive plane despite the different levels of adjustment. But if such taxes are not fully shifted, then in this regard the exporters oiL' Country A have been advantaged as against the exporters of Country B-not necessarily to the full extent of the differentials in border adjustments' but only to the extent to' which the tax in Country A is not shifted forward. Of course, questions of incidence can be raised as `to other taxes. The working assumption of legislators for domestic legisl~:tion when they consider a corporate income tax is that it is borne by shareholders and not passed forward in higher prices or backward in lower wages' or lower raw materials prices. Again, as a working assumption this view of the incidence of the corporate tax is a useful generality. But if it is' only a generality and if there is some forward shifting in prices, an exporter ha~s added costs, due to the corporate tax entering into product costs, which are not being rebated and hence which affect his export prices and his external competitive position. Of course, this' would be true for an exporter in any country with a corporate tax, including European countries. We should note that the effective rates of corporate income tax in major European countries do not appear to be significantly different from the United States effective r'ate. Certainly, if a differential does exist between European corporate taxes in rela- tion to the United States corporate tax, it is far less than, the differential between European indirect taxes and our indirect taxes. In, addition-though there may be no studies on this point-the conditions that may influence a shift forward of the corporate tax into prices, if such shifting doe's occur, would presumably not differ between Europe and the United States.8 These are difficult, intriguing-and highly important-questions. This matter of tax incidence and tax shifting is murky, and it has kept economists busy for decades. Their papers have contributed many volumes to the economic litera- ture'-and nevertheless I suspect that the summaries in Economics I are still inconclusive and uncertain. Moreover, one may have to move from incidence and shifting on to levels of taxation and then to levels and allocation of Government expenditures'. But clearly the area requires exploration and analysis beyond the generalities. The problem will become more acute if `the `Europeans take the next step of harmonizing `their indirect tax rates, for this could mean an increase in the value-added taxes-perhaps to 15 percent or more-for all countries except France, which today is at 20 percent (on the value of the product excluding tax). Certainly, to the extent that the generalities are not fully valid, the disparity in indirect tax levels can only be working to the disadvantage of the United States in world trade. The extent of `that disadvantage and `the extent to which it has been adjusted for in prior exchange rates and devaluatiomi may be difficult to measure, but the direction is that of disadvantage for the United States. For a discussion of the possible effects, considering the various theories of tax incidence, on the balance of payments o'f a shift in the United States to' greater reliance on~ indirect taxes and less on direct taxes, a'n,d the rielart'ionship' of thos'e effects to the effects on domestic policies and conditions, see Salant, the Balance of Payments Deficit and the Tax Structure (Brookings Institutin, Reprint 80), 1964. PAGENO="0072" 66 The harinonSzation of diverse tax sy8tems As a consequence, these basic aspects ocf domestic tax systems in their inter- national settings require full international discussion and consultation looking to a solution-a process that is already under way It is here that we reach an important implication for the United States of European tax harmonization The promises and rules of GATP with respect to export subsidies and border tax adjustments rest on the generalities of incidence and shifting that I have de- scribed. Under those premises and rules the European countries have almost entirely kept their high sales taxes from. increasing their export costs and prices. The shift to value-added taxes will underscore this effort and make it easier of accomplishment. In addition, to the extent that the incidence of these taxes in the actual economic world is at variance with those premises and rules, the European tax systems operate in t.he direction of providing a trade advantage for the Europeans. Looking ahead, most European countries may well be moving to higher sales taxes in the tax harmonization steps needed to perfect their Common Market Given European tax harmonization the larger question becomes that of harmonization of their ta'si systems with those of the United States and other countries in a broad sense This harmonization of tax systems does not, however, mean the uniformity of taxes that harmonization connotes within the EEO Rather it means the process whereby national tax systems that may differ both in kind and in burdens imposed can coexist in the world without creating difficulties for each other-can coexist in harmony The full exploration of this question within the GATT and in other ways can take us into many facets of international trade, including those of non-traiff barriers. It can take us into the mechanisms for reaching adjustments between countries in a balance of payments surplus position and those in a deficit position Clearly such exploration is needed to preserve freedom of action for countries to establish their domestic tax systems and the distribution of their tax burdens in keeping with their notions of economic growth and tax equity without at the same time prejudicing their international trade position The essential question is how many countries which desire to rely on a progressive tax structure or countries which do not wish to place heavy overall tax burdens on their people and hence have no need for high rate sales taxes, continue in these domestic goals and still maintain in their international trade full competitiveness~ with the European countries which have a different domestic tax philosophy? FOr surely a better answer can be found than that the rest of the world to protect its trade position must simply emulate the Europeans and their domestic tax phi- losophies, whatever may be the impact of that emulation on the tax systeni~ and internal economies of the other countries. The United States-and the rest of the world-thus has a high stake in a full exploration of these issues-issues which are made both more pertinent and more important by the process of tax harmonization in Europe EXHIBIT C [From the Columbia Journal of World Business-May--June 1968] Set the rates high and cover as many people as' possible The value added tax will do all this and something more: it will favor exports. It is the latest European position in THE WONDERFUL WORLD OF TAXES (By Stanley S Surrey) An attorney and Professor of Law Stanley S Surrey has had exten sive experience in government service Since 1961 he has been Assist ant Secretary of the Treasury for Tax Policy He is particularly interested in international tax programs and policies and has served on tax and fiscal missions to Japan Venezuela and Argentina Mr Surrey's commen:ts are adapted from his' address at a recent meet- ing of the National Industrial Conference Board. The tax systems of European Common Market countries have for years been characterized by high, rate sales taxes, whose structures were extremely com- plicated highly discriminatory and economically inefficient France until this year imposed a 25% tax on a value-added basis' the present rate is 20% The PAGENO="0073" 67 other countries had multi-stage, cumulative turnover taxes (also called "cascade taxes") which were levied at each stage of the production and distribution proc- ess. The German 4% turnover tax rate was thus equivalent to an average rate of 12% on the value of the final product. The French system illustrates the com- plexities of basic rates followed by innumerable special rates and exemptions characteristic of all European taxes'. In addition to the 25% value-added tax (TVA) on manufacturers, wholesalers, and some retailers of goods, there was also a retail sales tax covering other retailers and handicrafts at 2.83%, and a sales tax on services at 1a66%-along with a whole miscellany of specific excise taxes on such items as' entertainment, wines, meat, gasoline, transport. Each tax was characterized, by a lengthy list of special rates, exemptions, and options'. The German turnover tax of 4% applied at each stage of the business process- producer, manufacturer, wholesaler, retailer-was discriminatory and economi- cally inefficient. At each stage the tax was' built into' the price and became pyra- mided and swollen as each sector in turn applied its markup on price plus tax and then added its own tax. The consequence was acute differences in treatment between vertically integrate'd and non-integrated industries and concerns, between companies which performed some services for themselves and those which hired the services from others. A similar sttuation prevailed in the other EEC countries under their turnover taxes. Sales taxes that run as high as 25%, or even 10 to 15%, are not to' be treated casually or lightly. They have, at such levels, a high potential fo'r economic mischief. They are also seriously defective. The catalytic agent for change was the formation, of the EEC. If Europe was to become a genuine common market in which goods and capital could move freely, a prerequisite was as much uniformity-harmony-as possible among the tax systems of the member countriea The problem was clear: How to' obtain uniformity out of this maze of high but disparate rates and complicated but disparate structures that characterize the sales taxes of these countries when seen as a whole. The solution chosen was a twe-step approach-find a common sales tax structure that each could adopt and then move to uniformity i'n rates. The tax changes' taking place in Europe are iu~~ response to the first step, that of a common structure for these sales taxes. For this first step, the EEC had to answer a question: What type of sales tax structure is best suited in their economies' to support a high tax rate? The choices would be among the single stage sales' taxes-a manufacturers tax (Canada), a wholesale tax (Switzerland, Australia, United Kingdom), a retail tax (states in the United States, Norway), o'r a multi-stage tax of the value-added type (France). The multi-stage turnover type tax was not a possible choice, s'ince it was essentially the villain in the exis'ting picture. A manufacturers tax has the problem of pyramiding through subsequent mark- ups. It also has problems of definition-what is "manufacture" and how far does it reach into assembly, packaging, bottling, etc? The tax at this stage also dis- criminates against certain forms of distribtition (such as manufacturers selling at retail), unless complex adjustments in prices are made for tax purposes. A wholesale tax involves many of the problems that can be found in a manufactur- ers tax, though in a different degree or form. There is the aspect of pyramiding: the problem of how to handle industries in. which retailers perform certain wholesale or manufacturing functions and hence buy at cheaper prices; the prob- lem of wholesalers who also sell at retail or manufacturers who skip the whole- sale stage and sell at retail. While these considerations may point to a retail tax, the success of a retail tax can test severely the enforcement capabilities of a country, since the tax involves the largest number of taxpayers to police. In addition, these European countries already had turnover taxes under which each stratum of the economic process was presently being taxed, so that placing a tax at one stage only, say on the retailers, could well create difficult political problems. The Europea'n choice The Europeans, therefore, turned to the value-added tax, which essentially is a multi-stage sales tax that achieves, the end effect of a retail tax on personal con- sumption (consumption by households as contrasted with businesses). The Ger- mans this year were the first to adopt a new' value-added tax to replace their turn- over taxes, and it provides an understanding of the emerging European tax picture. PAGENO="0074" 68 The German tax is imposed at a 10% rate (11% on July 1 1968) on almost all sales of goods and services by any business. Let us start with a manufacturer: he applies a 10% rate to his total sales to find the preliminary tax due From this he subtracts the taxes he has paid on his purchases and the net is payable to the Goverument. In essence, the tax is thus on the "value added" by him as repre- sented by the difference between the value of his total sales and the value of his total purchases. "Purchases" include all types of goods and services-components either as raw materials or semi processed goods capital goods such as plant machinery and equipment; goods used up in manufacture; business furniture, etc. The manufacturer, of course, will bill his customer for the 10% tax on the sales price of the articles he sells )ust as the manufacturer was similarly billed 10% by his suppliers on his purchases The tax is invoiced separately on all sales and is thus not hidden in the sales price The process is repeated at the wholesale stage-the wholesaler pays the Gov ernment 10% of his sales less the taxes paid previously by the wholesaler on his purchases-and the wholesaler then bills the 10% tax to his customers No pyramiding should occur since the taxes paid by the wholesaler are kept apart from the price of the goods he purchases and he can subtract this tax cost The process is repeated once again at the retail stage. The retailer pays the Govern- mont 10% of his sales, less the taxes the retailer paid, and charges his customer for the 10% tax. The process ends there if the retail sale is for personal consump- tion-food, an automobile, furniture, clothing. But if a business concern buys the article for use in its business, the process begins again as the concern will subtract the tax on the item from its tax bill There is one additional important facet to note Under the German system tax is due each month. If a concern has paid more tax on its purchases than is due on the sales to its customers (sales may be slow for example) the Government makes a refund each month of any excess tax paid so that the cost of carrying the value added tax is not borne by the concern beyond a month or two All this adds up to a 10% retail sales tax on personal consumption The 10% value-added levy ta designed to be passed along from concern to concern until the consumer is reached, and he is left with the tax. The 10% tax is not intended to enter into the price structure until the final sale. If the tax item: `is not promptly moved along the business chain, the Government refunds it promptly. If a concern has to finance the tax during this month or two, this cost would enter into the price structure. Since the economic effect is that of a retail tax the distortions due to pyramid ing differential burdens on integrated or non integrated firms and industries and differences in distribution patterns that are part of a manufacturers `tax or a wholesale `tax, are essentially avoided. At the same time `the pressure for strong policing at the retail level that would exist under a retail tax is eased, since under the value-added approach the tax will have been partially collected at a prior level. If a retailer evades the tax, the Government has at least taxed the value at the wholesale level. And `the chances of retail evasion are lessened, since the wholesaler has notified the government of his sales' to the retailer. Not part of business costs The mechanics of the value-added tax,are designed to keep the tax from enter- ing in'to business costs even when a concern buys goods at retail that are usbd in its business activities. (A retail tax can meet this problem. by exempting such purchases through a registration system the value added tax providesi a refund of tax instead of exemption) Of course the value added tax does involve push ing every concern into `the act, and there is a lot more bookkeeping, tax paying and refunding, and paper passing than would occur under a retail tax. Moreover, the fact that every stage in the production process is nominally taxed can result in pressure dHve~ for rate reductions by industries or groups concerned about their ability to keep passing `the tax along. The value-added tax thus has an inherent potential for breeding exceptions and special treatment. But if a country feels it can't efficiently handle a retail tax, then a value-added tax is the next best thing. The Royal Commission (Carter) Report on Taxation in Canada (1966) recommended a retail tax to replace the present manufacturers tax and chose the retail tax in preference to a value-added `tax. The value-added tax is a useful solution to the sales tax structural problems that beset the Europeans and blocked their economic unity. A,s a consequence, Denmark adopted the tax on July 1, 1967; Germany on January 1, 1968; the Netherlands and Sweden plan to do so on January 1, 1969, and Austria is also hoping `to change on that date; Belgium and Luxembourg will presumably do so PAGENO="0075" on January 1, 1~TO; Italy may not be prepared to switch to PVA by that date. The changes in tax structure do not appear, for the cost part, to be designed to bring about significant changes in the total revenue yield of the various tax systems or of the sales taxes themselves. France has reformed its indirect tax structure to achieve a similar application of the PVA. It is fair to say that the Europeans, by comparison `to their present situation, have evolved a far more workable sales tax capable of application at a high rate- more complicated than is needed where a retail tax would work, but still a work- able mechanism. If a country is in the market for a high rate sales tax and if it really believes it cannot handle a retail tax, it should consider the European model. Rebates Another aspect of European sales tax systems that has been highlighted in recent years asi a result of the U.S. balance of payments problem., is the export rebate and compensatory import tax that characterizes those systems. All coun- tries with significant sales taxes or excise tax systems automatically structure those systemsi to attempt to keep the taxes from affecting external export prices and to insure the application of the taxes to imported goods. If the tax is a manu- facturers tax on the final product, exports are not subject to the tax, or if taxed, can secure a rebate. Imported goods, on the other hand, are subjected to the same tax as i~ imposed on domestic manufactured goods, so that both goods will compete on equal terms' in the domestic market in this respect. The United States does this for its few manufacturers taxes; Canada does the same under Its 11% broad manufacturers tax. If the tax is imposed at the wholesale stage or the retail stage, such rebates and import taxes are not needed: a manufacturer selling goods whether for inter- nal consumption or export is not subject to these taxes; a wholesaler importing goods will pay the tax on his subsequent sale. The sales for export that a whole- saler or retailer may make will be exempted from tax. The essential principle under which all these taxes are structured is that sales and exdise taxes are intended to be paid by domestic consumers in the form of higher prices without handicapping exports or favoring imports. European turnover taxes followed the same principle but found additional complexities. It was simple to say to a German manufacturing firm that it need not pay the 4% turnover tax on an export sale. But what about the 4% taxes' paid by the manufacturer on purchases from: its suppliers of materials of almost every sort; these 4% taxes were built into' the costs) of the manufacturing operation, just as the 4% taxes the suppliers had to pay on their purchases were built into `their costs and passed along as part of the prices! charged by the suppliers. This is the vice of turnover taxes; they pyramid in prices throughout the economy. The economic effects of these taxes were sign~flcant at the high rate levels applied in Europe. The principle of protecting exports, therefore, required a rebate of those taxes previously imposed in the production chain and which cuthulated as costs for the manufacturer on, its purchases, or for the wholesaler if he was the exporter. But how much should be rebated? The experts had to estimate the amount as high rate taxes were hidden~ in the price structure and their total would vary with the extent of integration of productive activities in the prior stages. The European countries carefully developed average figures! and used them for the rebates. Corresponding figures' were used for the import charges. A common market ideally reqtiires a tax system that does not have complex border adjustments. A common retail tax would accomplish this-as pretty much occurs in the United States-if care is taken to keep the tax from applying to purchases for business purposes. Failing that, if border adjustments are to' exist, their calculation should be made with as muc'h precision as possible It is here that the value-added tax provided an extra advantage for the Europeans. The value-added tax eliminated for internal sales the distortions resulting from pyramiding and differences in integration of business activities, and offered a ready measure of the taxes! that the exporting firm had to pay~ because of its purchases. Under the German value-added tax, a firm is given a "rebate" through refund or credit fo'r all of the taxes it has to pay on its purchases, whether its goods are sold internally or externally. The structure of the tax enables the government to' determine the amount o'f export rebate needed to reflect the exporter's book costs representing the taxes paid on its purchases. It similarly permits the fixing o'f the amount of import charge to reflect the taxes paid by domestic concerns'. PAGENO="0076" 70 If Europe achieves uniform value-added rates, it could abandon these border adjustments, export exemptions and import charges for intra-E'EIC trade, and simply go to the rule that the country of origin taxed the sale. It would be a matter of indifference within the Common Market, as far as import and export competitiveness are concerned whether the exporting company were to grant an exemption or rebate and the importing country impose an identical import equalizations tax (the destination approach) or whether the exporting coun try taxed the export and the importing country did not impose its import tax (the "origin" approach). There would be some effect on national revenues to the extent that trade is not in balance, butt this would be minor. The border adjust- ments would, of course, remain applicable to trade by the EEC with other countries. The day of uniform sales tax rates will take some time to arrive in Europe. In the meantime the shift to value-added taxes has brought about a precise system of border tax adjustments, given the structure of the taxes, and this will facilitate economic unity within the Commbn Market. It is in this setting that the question of the external trade of the Common Market countries, par- ticularly with the United States, can be discussed. In the German situation, the rebates for taxes paid on goods purchased by the exporter ahd import charges under the value-added tax are turning out to be higher than the averages used under the previous turnover taxes Presumably some exporters had not been receiving rebates at the level that appeared to be called/ for under the turnover taxes. German exporters presumably had ad- justed to this situation over the years, and the effect of the undercompensation, if it existed can no longer be traced through all the prior history of exchange rate changes, devaluations, and the like. The net effect of this sudden increase in export rebates under the value-added tax, while the internal overall burden of the tax remains unchanged, is an advantage to German exporters. Equally, the rise in the import charges is an added competitive burden to imports. What is happening in Germany is, and will be, reflected elsewhere in Europe as the countries shift to value-added taxes. The Netherlands, Austria, Belgium, and Italy are raising their rebates and import charges under their existing turnover taxes in advance of a later shift to a value-added tax. Sweden is shiftmg to a value added tax because it realizes that its previous retail tax had been levied on producers' goods and was, in effect, a turnover tax to that extent, but it had not been rebated to exporters. As a consequence, European exporters in general will get an added advantage in most countries. Coverage increased There is an additional feature of the shift to a value-added tax that operates to increase this advantage to exporters. Countries with a value-added tax seek to achieve as broad a base for the tax as possible, since it operates effectively to prevent pyramiding as compared with specific excises. In France, for ex- ample, the reforms of the value-added tax have tended to increase its coverage and eliminate other taxes. Any commodity previously taxed under a specific excise tax but not swept into a value-added tax immediate falls into the rebate process, under the structure of the latter tax, so that the tax paid no the pur- chase of the commodity is iehated whether the business concern at that stage is selling internally or abroad. The result is that a number of hidden, and hither- to unrebated taxes, in effect come to light and are rebated and included in the import charge. What about the rest of the world? The United States does not have a high rate sales tax and only rebates its specific manufacturers taxes on final products. The United Kingdom has a purchase tax at the wholesale level which over-all does not require rebates for tax costs since essentially it - does not apply to business purchases Canada does not apply its manufacturers tax to most bum ness purchases and does not need rebates except for any tax paid on the final products that are exported similarly neither does Japan for its variety of manufacturers excise taxes. Unlike European countries whose high rate turn- over taxes entered into the costs of exported goods through the cost of the goods purchased by the exporter and thus necessitated export rebates and import charges, these countries did not generally apply their sales taxes to business purchases. A high sales tax was therefore not a part of the cost of their ex- ported goods. As a consequence, they have not been rigorous in seeking fully to eliminate indirect taxes from export costs, and do not have a system -of export rebates for tax costs or import charges. PAGENO="0077" 71 The United States, for example, has not sought in the past to determine how much of the Federal gasoline tax, the passenger motor vehicle tax, the truck tax, the telephone tax, or the alcohol tax paid by a manufacturer who exports some of his goods, is allocable to those exports and thus increases their costs. Nor has it sought to determine what part of state and local taxes paid on goods purchased by a business increases Its export costs. In contrast, under the Eure- pean systems the value-added taxes on such products, since they are all in the base of the tax, automatically are rebated. (There are, of course, some specific European excise taxes outside the scope of turnover and value-added taxes that are not being rebated.) The United Kingdom, several years ago, initiated rebates for its special excise taxes-principally the gasoline taxes, motor vehicle license taxes, and purchase taxes on office supplies-on goods purchased by its exporters, and essentially used averages to determine the rebates. In the United States it has l~een estimated that the costs attributable to our Federal, state and local taxes on goods bought by manufacturers represent on the average an amount equal to about 2% of export sales prices. The impact on product lines differs, with the range running from about 11/2 to 4% of export sales prices. A rebate of these tax costs and a similar import charge, adminis- tered through our Customs organization, would reflect, for the United States, an approach that corresponds to the principle applicable under the value-added and turnover taxes of attempting to keep sales and similar taxes at prior stages of production from increasing export costs and export prices. An approach by the United States to deal with its indirect taxes through a rebate and compen- satory import charge mechanism would involve the use of product averages, and would be similar to the procedure followed by the Europeans under their turn- over taxes. Consideration of this approach in the United States would reflect principles and practices underlying the treatment of indirect taxes in Europe. It would parallel the attention to, and consequent changes in, border tax adjust- ments, now generally resultIng from the shift to value-added taxes. Trade and ta~v policies European efforts to stabilize their sales taxes and border adjustments and then to harmonize them raise even larger issues of trade policy interlocked with tax policy. The European practice of rebates and import charges for turnover and value-added taxes reflects the basic assumption that such taxes are passed along through channels of trade so that their burden is borne by households buying goods for personal consumption. This is the assumption behind the exemption of exports from a manufacturers tax. It is the assumption of legislators who enact wholesale or retail taxes or other sales taxes. As a working assumption for domestic legislation and for general judgments on the distribution of the burden of a tax system, or of a new excise or sales tax, it is a useful operational device. But the balance of payments world of today, with its fixed exchange rates and the attention that must be focused on both the over-all balance and its com- ponent parts, including the trade portion, requires much more attention to specifics than ever before. This need for such attention is also heightened by the high levels of tax rates that now obtain under modern tax systems compared with an earlier period, a development that contrasts with the shift to lower levels of tariff barriers. If the generality is only a generality and the specific situations show a different posture, then the matter must require a sharper focus. If sales taxes or other indirect taxes-whether they be value-added, turnover, retail or other tax forms-cannot be fully passed on in price, then a manu- facturer selling in his domestic market must lower his prices and reduce his profits. However, if the full rebate of the tax cost and the exemption of exports from the tax make it unnecessary to change his export prices, he is not con- cerned about passing anything along on an export sale, and he need not lower his export price. The business of exporting becomes that much more attractive, and the sales tax system has become an incentive to export activity. Similarly, on the import side, the importer to meet the competition of lowered domestic prices must reduce his price, his profits decline and he is less interested in push- ing those imports. In essence, one gets to the question of tax incidence and whether these sales taxes are fully shifted forward in price or only partly shifted. Put another way, a value-added tax is carefully structured to pass the tax along in an accounting sense. Its effect on international trade, however, de- pends on whether the economic effects follow the accounting structure. If the tax is not fully shifted forward in an economic sense, then the international trade of the country using the tax will be favored regardless of the accounting structure. PAGENO="0078" 72 C04npetitive effect It is not the levels of rebates and the differentia1~ between them that measure the competitive effects of border tax adjustments If Country A has a value added tax of 10% and rebates to an exporter the total of the taxes at a 10% level that he has paid on his purchases it means that Countr~y A does not want hi~ tax costs winch are real to enter into export prices If Country B has no value added tax or other sales tax then there are no comparable tax costs to rebate to its exporters:. However, knowing only these facts does not really explain trade competitiveness between these, countries. It is not B has no subsidy. Nor can it be concluded that the goods of Country A have an advantage entering into Country B because no import charge is imposed whereas the goods of Country B face a 10% charge on entering Country A and are at a disadvantage there If sales taxes were fully shifted forward the goods of both countries would, in terms of sales taxes and border adjustments, be on an equal competitive basis in spite of the different levels of adjustment. When such taxes are not fully shifted, the exporters of Country A have an advantage over the exporters of County B-not necessarily to the full extent of the differentials in border adjustments but rather to the extent to which the tax in Country A is not shifted forward. U.s. disadeantoge These are difficult, intriguing-and highly important-questions. They will become more acute if the Europeans take the next step of harmonizing their in- direct tax rates; this could mean an increase in the value-added taxes~-perhaps to 15% or more-for all countries except France, which today is at 20% (on the value of the product excluding tax). Certainly, to the extent that the generalities are not fully valid, the disparity in indirect tax levels can only work to the disadvantage of the United States in world trade. The extent of that disadvantage and ~he extent to which it has been adjusted for in prior exchange rates and devaluations may be difficult to measure, but the direction is disadvantageous,to the United States. A's a consequence, the basic aspects of domestic tax systems in their inter- national settings require full international discussion and consultation looking to a solution-a process that is already under way, The premises and rules of GATT with respect to export subsidies and border tax adjustments rest on the generalities of incidence and shifting. Under those premises and rules, the European countries have almost entirely kept their high sales taxes from in- creasing export costs and prices. The shift to value-added taxes will underscore this effort and make it easier of accomplishment. To the extent that the in- cidence of these taxes in the actual economic world is at variance with those premises and rules, the European tax systems tend to provide a trade advantage for the Europeans Looking ahead most European countries may well be moving to higher sales taxes in the tax harmonization steps needed to perfect their Common Market. Given European tax harmonization, the larger question is really "harmonization" of their tax systems with those of the United Sates and other countries in a broad sense. This "harmonization of tax systems" does not mean the uniformity of taxes that harmonization connotes with the EEC. Rather, it means the process whereby national tax systems that may differ both in kind and in burdens imposed, can coexist in harmony. The full exploration of this question within GATT and in other ways involves many aspects of in- ternational trade, including those of nontariff barriers, and the mechanisms for reaching adjustments between countries in a balance of payments surplus po- sition and those which are in a deficit position Clearly, such exploration is needed to preserve freedom of action for countries to establish their domestic tax systems and the distribution of their tax burdens in keeping with their notions of economic growth and tax equity without at the same time prejudicing their international trade position. The essential question is how may countries which desire to rely on a progressive tax structure or coun- tries which do not wish to place heavy overall tax burdens on their peoples and have no need for high rate sales taxes continue with these domestic goals and still maintain in their international trade full competitiveness with the European countries which have a different domestic tax philosophy? Surely a better answer can be found than that the rest of the world, to protect its trade position, must simply emulate the Europeans and their domestic tax philosophies, whatever may be the impact of that emulation on the tax systems and internal economies of the other countries PAGENO="0079" 73 ExuiBiT D [From the OECD Observer-October 1957] BORDER TAX ADJUSTMENTS During the last four years there has been much discussion within and outside the OJIJUD concerning the effects on international trade of the different taco structures and taco systems of Member countries. These effects are determined largely by the border taco adjustment practices at present in ecoistence. Among the questions provoked are whether some indirect taco sys- tems are more balance-of-trade advantageous than others, whether reliance on consumption rather than income tacoes is likely to im- prove a country's balance.of-trade position and whether changes in domestic tacoation may as a result of the border taco adjustment mechanism have devaluation effects, and if so what should be done about it. This article was written by Mr. Kenneth Messere, Secretary of the Fisoal Committee of OECD. THE PROBLEMS CREATED BY BORDER TAX ADJUSTMENTS As export subsidies are disallowed under GATT regulations and tariff barriers are being reduced, either as a result of measures taken by regional groupings such as the EEC or EFTA or as a result of GATT negotiations, attention has become concentrated more on other possible barriers to international trade. In recent years there has been a great deal of discussion on border tax adjustments, which are believed by some to lead to the same devaluation effects as an export subsidy or import duty, even though their avowed purpose is to put exports on the same footing as similar goods produced in other countries on the one hand. and imports on the same footing as home-produced goods on the other. Arrangements have always been made to ensure that goods exported from one country to another are not subject to the same taxes in both countries, on the one hand, and do not escape taxation altogether, on the other. Avoidance of double taxation or nontaxation may be broadly effected in two ways: the goods may be subject to the taxes of the exporting country (the so-called country of origin principle) or to the taxes of the importing country (the country of destina- tion principle). While border tax adjustments may be defined in various ways, it is most con- venient for dealing with the problems which they present to regard them as the fiscal adjustments which are necessary ta put into effect the destination principle. That is to say they cover both the exemption from tax, or the repayment of tax already paid in the exporting country, and the imposition of taxes corresponding to the internal taxes of the importing country, whether such imposition .takes place at the time the goods are imported or subsequently. Under present inter- national practices, which are based on the rules formulated in GATT, indirect taxes on goods themselves, whether known as sales taxes, turnover taxes, value- added taxes, excise taxes or resulting from State monopolies are considered eligible for border tax adjustments while other taxes such aa income taxes, profits taxes, payroll taxes, social security and property taxes are not gen- erally regarded as eligible; to put it differently' the principle of destination generally applies to indirect taxes on particular goods while the principle of origin applies to other kinds of taxes. While the main question remains how far border tax adjustments are neutral in their effects on international trade and how far they favour some countries at the expense of others, further analysis indicates that there are three entirely different kinds of questions involved. The technical question.-Do some countries make greater border tax adjust- ments than others in relation to the domestic tax burden because of the way in which their systems of tax adjustments are operated? This involves the study of the types of indirect tax system in operation, the way in which border tax adjustments operate under each system and' the treatment of indirect taxes on capital equipment, auxiliary materials or services used in the production of goods (see below under "taxe occulte"). The theoretical question.-Do countries relying for their revenue predomi- nantly 6n taxes eligible for border tax adjustments have a balance of trade PAGENO="0080" 74 advantage over countries relying to a greater extent on ineligible taxes? This is primarily a question of economic theory centering upon the controversial question of how taxes are shifted into prices. The practical question.-Can changes in border tax adjustments within the existing permitted practices affect competitive trading positions of countries? And, if so, what should be done about it? This further question involves con- siderations of international trading relations (should existing practices be modified?) international fiscal questions (should tax systems be harmonised?) and international co-operation (what action cay be taken to counter any harmful trading effects flowing from changes in border tax adjustments) of a particular country? THE TECHNICAL QUESTION Apart from excise taxes stamp duties and State monopolies which in the main present only minor problems there are two questions to be resolved in determining whether or not the practical operation of border tax adjustments influences competitive trading positions. Are border tax adjustments likely to be greater or less according to which system of indirect taxation is in operation9 What is the extent of "taxe occulte" in the indirect tax system and how much of it is eligible for border tax adjustments? To answer the first of these questions it is necessary to describe briefly the three kinds of indirect tax system in operation i e Single stage or sales tax; Multi stage non cumulative or value added tax (TVA) Multi-stage cumulative or turnover or cascade tax. Taxes are levied sometimes at manufacturer level sometimes at wholesale level and sometimes at retail level The normal method of administering these taxes is to register traders who are made responsible for paying the tax. Registered traders may import or buy taxable goods from other registered traders without having to pay the tax, which in most cases becomes due when the goods are sold to an unregistered person. It usually becomes due also if a registered trader uses the goods for his own business, but materials for making goods can usually be bought by manufacturers free of tax. T'aZue added tao, (TVA)1 The main characteristic of the value added tax is that although tax is collected each time an article (or its components) is sold, it is assessed only upon the value that has been added at the particular stage The sum of the values added at successive stages is equal to the final price of the product so that the sum of the tax paid at the different stages will equal the tax which would have been payable if it had been collected instead as a single payment at the final stage Thus TVA is like a multi stage tax as regads its methods of collection and like a single stage tax as regards the amount finally collected Cascade taos Tax is generally chargeable whenever a sale is made by one firm to another. Rates of tax are generally low but large yields result from this multiple applica- tion, by which tax falls not only on the finished products, but also on their con- stituents at each separate stage of production. Tax enters into cost at each stage as it is charged so that apart from any variations in rate the tax element in final prices will vary from one article to another according to the number of stages through which production has passed and the overhead costs and profit margin at each stage It is not clear for any given class of product what is the tax burden, since this varies according to the number of times components are bought and sold during the process from a raw material or component to finished product The significance of this as regards border tax adjustments is that in fixing the amount to be repaid to an exporter or the amount to be charged to an importer to compensate for tax borne on similar products on the home market, it is necessary to base calculations upon an assumed average tax burden for the class of product in question Comparison between taw systems In the light of the above descriptions Table 1 can be constructed to show first how the border adjustment mechanism works for each tax system and secondly the amount of the border tax adjustment under each system The table is simpli fled in that it does not deal with the relatively minor question of the varying PAGENO="0081" 75 values on which tax is assessed, nor with the more important problem of "taxe occulte", which is, however, discussed below. Two conclusions may be drawn from this table. In the first place, contrary to statements sometimes made in countries with sales taxes, a TVA. tax has no advantage over a sales tax from the point of view of increasing border tax adjustments. It is true that under the TVA tax it happens more often than under a sales tax that an exporter pays tax and then has it refunded instead of not paying tax at all, but even under a PVA tax exporters more often than not are exempt from tax rather than paying it and having it repaid. The widespread notion that PVA means larger border tax adjustments than sales taxes is prob- ably due to the fact that existing sales taxes such as the British purchase tax or Swiss sales tax are of less wide coverage and/or lower rate than the French TVA or other contemplated PVA systems, and it may be politically feasible to extend the scope of a sales tax or to raise the rate only by changing to a TVA tax. But while an increase in coverage or rates will increase border tax adjustments, this has nothing to do with the mechanism of the tax. On the import side the main difference between a sales tax and a TVA tax is that the TVA tax is paid at the time of importation, while the sales tax, more often than not, is paid subsequently at the time when the goods are sold by a registered trader to an unregistered trader or consumer, *but this difference in the mechanism of the border tax adjustment does not affect the amount of the adjustment. The second conclusion is that the important difference is between the cascade system where the amount of tax rebated on export or charged on import has to be estimated and other systems where the amount is exactly known. The question then arises whether, in countries operating a cascade tax, export rebates and import surcharges are higher or lower than would be the case if they could be calculated exactly. While the answer to this question varies from country to country, product to product, industry to industry and enterprise to enterprise, it can be said that the border tax adjustments of countries operating cascade systems are more likely to be too low to compensate for the home tax burden that too high. 1. BORDER TAX ADJUSTMENT MECHANISM EXPORTS Category and system (and member. countries operating it) Method of adjustment Amount refunded A-Sales tax at manufacturer level (Canada, Exporter does not normally pay tax Usually none, but if so, actual Japan, United States). but sometimes tax already paid is tax paid. refunded. B-Sales tax at wholesale level (Portugal, do Do. Switzerland and United Kingdom). C-Sales tax at retail level (Iceland, Ireland, Exporter does not pay None. Norway, Sweden) D-TVA tax (France, and sInce July 1967, Exporter does not usually pay tax but Actual tax paid. Denmark). . often tax already paid is refunded. E-Cascade tax (Austria, Belgium. Germany, Tax already paid by exporter is re- Estimated tax paid. Italy, Luxembourg, Netherlands, Spain.) funded. IMPORTS Category and system Method of adjustment Amount charged A-Sales tax at manufacturer level Tax normally paid at time of import- ation but sometimes subsequently. B-Sales tax at wholesaler level Tax normally paid subsequently to importation when tax is due on similar domestic products but some- times paid at importation. C-Sales tax retail level do Tax borne on similar domestic products. Do. Do. D-TVA tax Tax paid at time of importation E-Cascade tax do Do. Estimated tax borne on similar domestic products. Among the reasons for coming to this conclusion are first that more of the countries operating cascade systems belong to the European Economic Community and it is among the tasks of the EEC Cicommission to ensure that on average border tax adjustments are not too high, and the EEC Commission have, in fact, esti- 95-159 0-68-pt. 1-6 PAGENO="0082" 76 mated that in Belgium, the Netherlands and Germany border tax adjustments represent about 60% to 70% `of the permitted amount (for Luxembourg the percentage is lower and for Italy it is higher) ; secondly these figures have been confirmed to some extent by Germany's prospective change-over from a cascade to TVA tax, for a 4% cascade tax is expected to produce the same revenue as a 10% TVA tax, so that for a consumption tax producing this amount of revenue the appropriate rate of border tax adjustments would be 10%, whereas under the existing cascade system Germany s border tax adjustments are usually in the region of 6 per cent thirdly in calculating the tax paid at previous stages on a class of products to be rebated on export or equalised on import certain indirect taxes paid on `such products or on their components or on the capital equipment m'aterialis `or services used in their production are not included in the calculation. "Taa,e ocoulte" This third reason leads naturally to the consideration of "taxe occulte" which may be defined as the indirect taxes on capital equipment (e.g. machinery and vehicles) auxiliary materials (e g hydrocarbon oils and packing) or services (e.g. transport and advertising)~ used in the production of goods. Its significance as regards border tax adjustments is first that there is considerable variation as between countries both in the amount of taxe occulte and in the proportion of it subject to border tax adjustments and secondly that like a cascade tax the amount attributable to individual exports or imports cannot be known exactly so that any rebate or equalisation charge has to be calculated either according to the average rate borne by the class of article exported or imported or according to the average rate paid by the industry manufacturing the exported or imported article. While the situation varies from country to country, those countries operating cascade systems probably have the highest amount of "taxe occulte", first because the coverage of such systems is generally very wide and secondly because the cascade system results in a proportion of the tax on the capital equipment, auxiliary materials and services being taxed again each time the article produced is sold A varying proportion of this taxe occulte is however rebated on export and imposed on import. The value added tax has also a wide coverage but eliminates much taxe occulte" by a fiscal device known as "financial deductions" under which manu- facturers are reimbursed certain "taxe occulte" paid. In France, the only country with much experience of a value added tax such reimbursements do not cover however the `taxe occult on hydrocarbon o]1 on motor vehicles or on services so that much remains Under the value-added tax systems at present in force there has been no border tax adjustment, either on export or import, to take account of "taxe occulte" borne on the home market. The amount of "taxe occulte" under sales tax is much more variable, since the coverage of sales tax varies considerably. Apart from the British export rebate scheme which provides for border adjustment in respect of taxe occulte on exportation, there have been no border adjustments to take account of "taxe occulte borne on the home market in countries applying sales taxes Apart from taxe occulte in respect of cascade taxes value added taxes and sales taxes the most important element of taxe occulte is probably due to the excise tax on hydrocarbon oil, which is required for transporting goods. The British export rebate scheme takes account of this in computing the rate of export rebate, but otherwise border tax adjustments are not made, either on export or on import to take account of taxe occulte in respect of excise duties The variations `between Member countries both as regards the amount of "taxe oceulte in the tax system and the treatment of it with regard to border adjust ments is summarised in Table 2 Uonc~unions on the technscat question The foregoing description indicato~ that it is possible to come to provisional conclusions o'n the question of whether the amount of border tax tax adjust- ment in relation to the indirect tax burden is likely to vary according to the ~ay in which the adjustment system operates The first conclusion is that overall `the border adjustments of countries `operating cascade taxes are likely to be relatively lower than those of countries operating value added taxes or sales taxes, though they may be higher for particular products or particular industries The second conclusion is that thei e is likely to be variation between countries due to variations in the amount of taxe oceulte caused by the tax structure and variations in the amount of such "taxe occuite" which is ad- justed at the border. PAGENO="0083" 77 THE THEORETICAL QUESTION It has been argued that countries relying predominantly for their revenue on taxes eligible for border tax adjustments (that is to say indirect taxes on goods) have a balance of trade advantage over other countries, since the effect of border tax adjustments is to make exports cheaper and imports more expensive. It has been generally agreed that the existing system of border tax adjustments would be neutral only if taxes eligible for border adjustments were fully shifted into prices, while ineligible taxes were not shifted at all-- that is to say that an increase in an indirect tax on an article would result in an equivalent increase in the price of the goods, while an increase in other taxes would have no effect at all on prices. For if a tax is fully reflected in the price of a home-produced article it appears justifiable to put an equivalent tax on a similar imported article and not put a tax on such an article which is to be exported. If, on the other hand, the tax is not fully reflected in the price of the domestic article, it is arguable that to the extent that the tax is not shifted forward, an import equalisation tax has the effect of an additional customs duty and remission of the tax on exportation has the effect of an export subsidy. Despite this agreement on what would constitute a neutral system, there remain dif- ferent opinions on whether or not the existiug system is neutral. The tacv shifting controversy The tax shifting controversy has centred on the relative degree of shifting of consumption taxes (which are eligible for border adjustment) on the one hand and profits taxes (which are ineligible for the border tax adjustment) on the other. According to classical theory, consumption taxes are treated as costs and fully reflected in prices. This conclusion has been challenged on the grounds that rising costs result in a fall in demand, and that to maximise total profits the seller will reduce his profit (i.e. bear part of the tax himself) on each individual article in order to prevent the total demand from falling too greatly. The theoretical argument becomes more and more complicated because various reasons can be adduced for suggesting that such taxes are not fully shifted (e.g. government expenditure on transport, social scurity benefits, etc. out of revenue derived from the tax help to reduce, business costs; the effective tax rate is less than the nominal rate because of tax-evasion, etc.), while other argu- ments can be suggested for believing that a rise in such taxes may lead to an even greater rise in prices than the rise in tax itself (e.g. the initial influence of an increase in indirect taxes on prices will involve wage increases which will increase costs, which will result in further price increases; sellers tend to take the opportunity of tax increases to put prices up additionally to cover other rising costs). Further complications arise because shifting will vary from article to article depending upon their elasticity of supply and demand and according to the state of the economic and governments' monetary and pricing policies. At first sight it might seem that this controversy could be settled by examining the facts. One is after all simply asking in general terms, if an article priced at 10 units is taxed an additional 2 units, will the new price be 11 or 111/~ or 12 or 121/2? While it is true that further factual enquiries may help to shed light on the question; there still would remain a great deal of interpretation to be done. For while it may be agreed that the object is to compare pre-tax prices with post-tax prices, it is not clear what period should be taken. In the very short term the full effects of the tax change may not have time to make them- selves felt (e.g. the seller may begin by trying to pass the total increase to the buyer but later reduce his prices) while, in the longer term, factors totally unconnected or only remotely connected with the tax change may also affect prices. The above simplified account suggests that the problem of the extent to which prices are affected by changes in consumption taxes is difficult to resolve. The question of the effect of business profits taxes on prices of goods is even more difficult, for the theoretical arguments in favour of a particular view of the shifting of these taxes are more abstract and the verification of the facts more complicated. Consequently it is not altogether surprising that some writers appear to think that an increase in profits tax will have no effect on the price of the goods produced by the taxpaying companies, while others think that the PAGENO="0084" 78 effect ~on ~ such prices is even greater than that of an equivalent increase in a consumption tax. Even those who are of the opinion that consumption taxes are not fully shtfted into prices and that profits taxes are appreciably shifted so that the GATT rules are not entirely logical and their effects not entirely neutral as regards international trade tend to recognise t ertain offsetting factors The first is that while these writers consider that it is primarily countries with a relatively high reliance on profits taxes (e.g. United States) which are placed at a disadvantage by existing border tax adjustment practices, they accept to varying degrees that the same kind of tax shifting argument which they apply to profits tax may also be applied to social security charge's (especially that part paid by employers), which are also inelegible for border tax adjustment, and it so happens that countries relying most heavily for their revenue on consumption taxes also have some of the heaviest social security charges (in particular France and Italy). Secondly, while some countries rely more heavily than others for their revenue on profits taxes, there is not a great deal of difference between relative rates of profits tax between Member countries of the OECD, so that to allow border adjustments to be made in respect of profits taxes-apart from the difficulty in devising a means of5 calculating them, which is a separate question-would be unlikely to affect greatly competitive positions Finally, it has been suggested that any advantage accruing as a result of borde'r tax adjustment practices to countries relying predominantly on con- sumption taxes may have been largely offset over the years by changes in exchange rates and general price levels Conclusion on the theoretical question The theoretical question of whether existing `border tax adjustment arrange ments favour some countries at the expense of others as a consequence of their different tax structures remains unresolved largely because the question of the extent to which various kinds of tax affect prices of articles also remains un resolved. Consequently it cannot be determined whether a more neutral result could `be obtained by some `other border tax adjustment arrangement which either restricted or extended the taxes to which the principle of destination ~pplied. It is, however, generally considered that even if existing arrangements have some dis'torting effect on international trade, this is likely to be slight, an'd it is not generally believed that any alternative border tax adjustment arrangements would effect sufficient improvement in present practices as to warrant the sub- stantial political and practical difficulties that their introduction would cause. Changes in border tax adjustments within the existing arrangements, whether or not resulting from changes in the structure or rates of internal taxation, present an entirely different set of questions however and this leads to the prac tical question now to be discussed. THE PRACTICAL QUESTION The practical problem is what can or should he done about the effects on coun- tries' international trading positions following from changes in border tax ad- justments. It is immediately clear that changes in border tax adjustments unaccompanied by changes in domestic taxation will affect the trading position of a country, since such changes affect the prices of exports and im'ports without affecting the price of domestic products. Such changes usually occur in practice because countries operating cascade systems on revising their calculations consider that the export rebate or import equalisation tax on particular products is too low to compen sate for the home burden Whether or not this view is justified exports of the product in question become cheaper and imports more expensive, so that the traci- ing relationship with other countries is affected. A more important, because more general, example of ch'anges in tax adjust- men'ts unaccompanied by changes in domestic taxation, is the possibility of a country deciding to compensate for taxe occulte when it has not hitherto done so. In some countries full compensation for such "taxe occulte" would probably amount to something approaching 5 to 10 per cent of `the value of certain products. The possibility of an increase of an amount of this magnitude Son imports by way of `border tax adjustment illustrates the potential importance of the ques- tion since it could, for example, nulify some of the tariff reductions negotiated during the Kennedy Round. PAGENO="0085" 79 In practice, greater consequences to international trade will probably follow from changes in border tax adjustments resulting from changes in domestic taxa- tion. The most important of these are likely to result from the change from. the cascade tax to a value-added tax by the countries of the EEC. While it should be emphasised that the change of the EEC countries to a value-added tax is partly to harmonise the indirect tax system of the Six and partly because the cascade system favours integrated enterprises and allows border tax adjustments to be calculated only on an approximate basis, so that the probable devaluation effects of the change will be largely accidental, they may nevertheless be considerable. It has unofficially been estimated, for example, that the proposed change in Germany, which will take effect on 1st January, 19~8, may have the effect of a 3 to 4 percent devaluation of the mark. Apart from the changes contemplated by EEC countries changes in interna- tional trading positions may also occur through the effect of increased border tax adjustments, resulting from a reduction in rates of direct taxes or social security charges combined with an increase in consumption taxes. The effects this time are less clear, however, because they depend upon suppositions about tax shifting discussed aibove. Extreme remedies to these probable disturbances in `trading positions have been generally considered to be out of place. Fiscal changes may he made to raise revenue, for growth or income distribution or other purposes, and to attempt to restrict fiscal freedom in the interests of maintaining existing border tax adjust- ments seemed undesirable as well as impractical. Solution by general harmonisa- tion of tax systems of Me~n'ber countries appears unrealistic at this stage for similar reasons, and. as mentioned above, so does the formulation of entirely new border tax adjustment rules to replace those accepted in the GATT. 2. SIMPLIFIED ANALYSIS OF TAXE OCCULTE (Tax on goods and services used in the production of other goods) Auxiliary materiats Capital equipment Services Country Whether taxed Whether any tax ~ equalisalion tax en Imports Whether taxed Whether any tax ~ equalisatien tax en imports Whether taxed Whether any tax ~ equatisation on imports AUSTRIA 0 * 0 * 0 0 BELGIUM 0 * 0 a 0 a CANADA (Federal) * .1 a * a FRANCE a .1 ~a ,1 a GERMANY 0 * 0 0 0 ICELAND 0 a 0 a a IRELAND ITALY 02 0 a * 02 0 * D2 ~ * * JAPAN - U a a LUXEMBOURG 0 ~3 £~ 0 NETHERLANDS 0 * 0 a 0 a NORWAY 0 a o a * a PORTUGAL - a a SWEDEN S a 0 a 0 SWITZERLAND , - a o a a UNITED KINGDOM 0 A 0 ~A UNITED STATES (Federal) a a a a a * yes ano O esually 0 rarely *sometimen a never ~_ 7. Taxable; bat wit/a certain exceptions taxis subsequently dejected. 2 Normally taxed: but taxis not paid when used by registered traders. 3. There is a smali refund to cover tax previously borne, which may covet ID pail "tax. occuite £ enty for exports PAGENO="0086" 80 Work u~ OEUD on th4s question In March. 196~ a Working Party of the `OECD Council was set up to consider the questions raised by border tax adjustments in the light of a fact-finding report on the subject `by the Secretariat and a discussion of the economic rationale of existing border tax adjustment `arrangements, by a symposium of economists. Broadly they came to the conclusions outlined above that while it was unclear whether or not existing border tax adjustment arrangements placed countries with certain tax structures at `a competitive disadvantage as regards interna- tional trade, `permitted changes in border tax adjustments could have repercus- sions on trading positions. For the reasons indicated above, the Working Party did not eon;sider themselves justified in recommending such radical proposals as harmonisation of the tax structures of Member countries or changes in existing border tax adjustment practices, but they agreed that a country should have the right to request con- sultation when it considered that its trade interests were affected as a result of a `change or proposed change in the border `tax adjustments of another Member country. The Working Party accordingly recommended tha't a consulta'tion pro- cedure be established for an experimental period of two years. While recognising that the question of consultation before a change was put into effect could raise political and constitutional difficulties, the Working Party considered that such prior consultation should take place whenever possible, so that `the views of governments who felt that they would be adversely affected by the proposed `change could be fully taken into account by the government pro- posing the change It was agreed that such consultation should be confined to the general policy implications concerning the international `trade and payments effects of changes in border tax adjustments and that the domestic reasons for changes in taxation should be outside the scope of the consultation procedure. The Working Party also recommended `that all important changes in border tax adjustments should be notified to `ODOD as soon as they were made known to the public of the country concerned and that `the Secretariat should `bring up-to-date their 1964 fact-finding report. These recommendations were endorsed by the Fiscal Committee and Trade Committee of OECD and adopted by the Council on 21st February, 1967. EXHIBIT E INDIRECT BUSINESS TAXES IN SELECTED EUROPEAN COUNTRIES NOT' REBATED ON EXPORTS OR IMPOSED ON IMPORTS 1 BELGIUM Tax Base Rate 1. National and local property tax Cadastral income from real property - Total range 20 to 25 percent of base. (not clear whether considered a property or an income tax). 2. Tax on royalty agreements Contracts made in Belgium for licens- 7 percent. ing of intangible assets as patent rights and trademark. 3. Tax on transport contracts Contracts for transport and certain Do. other ancillary services to transport in Belgium. 4. Excises. Beer, spirits, tobacco, mineral oil, Do. sugar, etc. 5. Local tax on motive power. Indicated power of electric motors_ - - - 150 to 250 frs. per kilowatt. 6. Local tax on numbers employeth -- Number of employees on fixed annual Generally 200 frs. date. 7. National and local motor vehicle Horsepower Varying amounts. tax. 8. Registration duties Business capital 2.5 percent. 9. Do Real property 12.5 percent. See footnote at end of table. PAGENO="0087" 81 EXHIBIT E-Oonttnued INDIRECT BUSINESS TAXES IN SELECTED EUROPEAN COUNTRIES NOT REBATED ON EXPORTS OR IMPOSED ON IMPORTS `-Continued BELGIUM-Continued Tax Base Rate 1. Land tax (Federal and local) Presumed income from land as de- National rates, land 6% building termined by 19th century surveys. 4.86%. Provincial surcharge of up to 60%. Municipal surcharge of up to 60% on buildings, 30% on land. 2. Motor vehicles 3. Registration duties Capital of companies and parternships 2.5 percent on subscribed and paid-up limited by shares. capital. 4. Stamp duty Legal documents, domestic bonds, and Varying rates. debentures. 5. Excise taxes Beer, spirits, tobacco, sugar, and gasoline. UNITED KINGDOM 1. Selective employment tax (not Employees Varying rates (the tax is entirely re- clear whether or not part of - funded with a premium to some social insurance), industries; refunded entirely in others; not refunded for service and construction forms). 2. Automobile tax Automobiles 173'~ pounds annually. 3. Local rates Annual rental value including certain Varying rates. machinery. 4. Stamp duties Documents (not transactions) Do. ITALY 1. Registration tax Registration of deeds, formation of Varying rates. companies and partnerships. Contribution of industrial assets or 3.15 percent. buildings. Contributions of other real property 7.5 percent. and an increase of capital. 2. Tax on bonds and debentures Value of instrument issued 0.5 percent except 0.125 for credit institutions and holding companies. 3. Mortgage tax Registration of mortgages 2.5 percent of sum registered. 4. Insurance tax Premiums on insurance policies Varying rates. 5. Stamp duty Wide variety of documents as bills of Do. exchange, cheques (includes export invoices). 6. Advertising tax Advertising In any medium Varying rates. 7. Motor vehicle fees Motor vehicle registration horsepower - Varying amounts. GERMANY 1. Insurance tax Insurance payments in Germany 5 percent of amount of insurance paid. 2. Land purchase tax Purchases of real estate and other 7 percent. property. 3. Local trade tax Business profits, capital, and pa~jrolls - Varying rates. 4. Local realestate taxes Land and buildings Rates vary from 0.5 percent to 3.0 percent. 5. State general property tax Property (including capitalized value Varies but is estimated at 1 percent of patents). on the average. 6. Motor vehicle tax.. 7. Capital transactions tax Issuance of new shares 2.5 percent. 8. Excises Tobacco, gasoline, and fuel oils 9. Net wealth tax All corporate capital assets 1 percent. 10. Bill of exchange tax Face value of bills drawn in Germany 0.15 percent. and first German holder of bills drawn abroad. See footnote at end of table. PAGENO="0088" 82 ]~XHIBIT E-Oontjnued INDIRECT BUSINESS TAXES IN SELECTED EUROPEAN COUNTRIES NOT REBATED ON EXPORTS OR IMPOSED ON IMPORTS ~-Continued FRANCE Tax Base Rate 1. Registration tax New subscription of capital 1 percent. Capitalization of reserves 12 percent. 2. Local business tax Annual rental value of buildings, Varying rates. plant, and numbers employed. 3. Local property tax Annual rental value of buildings and Do. land employed by a business. 4. Motor vehicle taxes Annual and special use taxes, annual axle tax, one-time license tax, parking fees. 5. Gasoline taxes Internal consumption 47 cents per gallon. TVA 10 cents per gallon. 6. Employer tax on wages Payrolls (85 percent for local govern- ment uses and not for social insurance). 7. Transfer tax Transfers of property Varying rates. 8. Apprentice tax Gross wages and salaries 0.4 percent. 9. Housing contributions Gross payroll of employers of 10 or 1 percent. more people. I Excludes social insurance taxes. Source: Office of the Secretary of the Treasury, Office of Tax Analysis. Mr. TJLLMAN. Thank you. I am not going to take any additional time except just to make a general statement that the general figures that. you present, and you figures, Mr. Secretary, with respect to the general balance of trade problem are I am sure accurate, but they do show, do they not, that the trend line between exports and imports, even when you look at the overall picture, is toward a declining ~urp1us of trade? Is that not true? Secretary SMIra. That is correct. Mr. ULLMAN. You have just given us the comparison between 1960 and 1967 but I would hope that you might do that on a year by year basis so we would know how it proceeded each year. Secretary SMITH. We will be glad to provide it. (The following table was received by the committee:) PAGENO="0089" 83 ANNUAL VALUE OF U.S. EXPORTS, IMPORTS, AND MERCHANDISE BALANCE fin millions of doiiarsj U.S. exports --- Domestic and foreign Domestic Miiitary Excluding merchan- Totai grant aid military dise grant aid U.S. mports For con- General sumption Gross merchan- dise baiance Year - Foreign merchan- dise 1967 31,534 592 30,942 31,147 387 26,816 26,732 4,126 1966 30,320 940 29,379 29,884 436 25,542 25,360 3,837 1965 27,478 779 26,700 27,135 343 21,366 21,283 5,334 1964 26,508 818 25,690 26,156 352 18,684 18,600 7,006 1963 23,347 920 22,427 23,062 285 17,140 17,002 5,287 1962 21,700 727 20,973 21,431 269 16,392 16,253 4,581 1961 20,999 810 20,189 20,754 245 14,716 14,660 5,473 1960 20,584 949 19,635 20,383 201 15,019 15,015 4,616 1959 17,645 1,227 16,418 17,461 184 15,629 15,416 789 1958 17,916 1,543 16,373 17 751 165 13,262 13,218 3,111 1957 20,862 1,355 19,507 20,682 180 13,261 13,229 6,246 1956 19,095 1,757 17,338 18,945 150 12,777 12,677 4,561 1955 15,547 1,256 14,291 15,419 128 11,495 11,448 2,796 1954 15,110 2,255 12,854 14,981 129 10,295 10,320 2,559 1953 15,774 3,511 12,262 15,652 122 10,914 10,820 1,348 1952 15,201 1,997 13,203 15,049 152 10,753 10,782 2,450 1951 15,032 1,065 13,968 14,879 153 10,998 10,848 2,970 1950 10,275 2282 9,993 10,142 133 8,874 8,765 1,119 Balance represents exports excluding military grant aid valued f.a.s. iess imports which are vaiued generaiiy at the market value in the foreign country. Export values include both commercially financed shipments and shipments under government-financed programs such as AiD and Public Law 480. 2 includes data from April when shipments under the program began. Mr. T5LLMAN. But when you make application of this general prill- ciple to individual industries then you may have a totally different picture, may you not? Secretary SMITH. That is correct. Mr. IJLLMAN. And when we have the individual industries and com- modities coming before us I am sure they are not going to show us the same general trend, even the moderate decline. In some cases industries have suffered a drastic decline in trade bal- ance, have they not? Secretary SMITH. I think that would probably be true. Mr. ULLMAN. And some of these industries are rather key indus- tries in this Nation and I think that we can't adopt the general philos- ophy, that we can sacrifice some industries for the general good. The problem is, How do industries survive? We are finding that some of these industries arc at the point now where they can't afford the technological innovations that would make them competitive. Would you think that that might be true? Secretary SMITH. I don't know. I would imagine you will have some of these individuals in to testify here. We will follow it with great interest. Mr. TJLLMAN. If the immediate threat to their market situation be- cause of increased imports is such that they can't afford to go forward* with technological innovations, then we become less and less competi- tive and the industry becomes more and more marginal. Ambassador ROTH. Mr. Chairman, may I just make one comment on the fact of our declining trade balance? We do have the figures available and will make these a part of the record. When you look at our trade balance we too ofte~j look at, I think it was 1964, when we were up in excess of $7 billion and we have come PAGENO="0090" 84 down since then. But looking at it over 10 years, you find a pattern of ups and downs and no consistent direction, because our trade surplus depends so entirely on our ability to control inflation and to have stable prices and costs in this country, and increases in demand in other countries. (See p. 83.) Mr. ULLMAN. Mr. Ambassador, the thing that concerns me is that general figures are confusing. Isn't it true that on one end of the spectrum we may have a more favorable situation and on another end we may have a very deteriorating situation, and these are all covered up by the general statistics that are presented ~ Ambassador RoTH You are absolutely right and this is why we have to look at the problem of each industry This is why in terms of our own trade policy study, we are now having hearings lasting over 2 months to find out what are the problems of individual i ndustr ies This is what we have to look at The CHAIRMAN Mr Byrnes Mr BYRNES Thank you, Mr Chairman First, Secretary Smith, there are a few items that I would like to clarify in your statement. Would you supply for the record the latest. table on the U.S. balance of international trade as compiled by your department. I lmow you do compile and release this data periodically-the mer- chandise exports and imports, the balance on investment earnings, and travel, and similar information When did you last compile this data2 Was it for the full year 1967, or have you compiled this data for part of 1968? Secretary SMITH. The first quarter is available. Mr. BYRNES. You have the first quarter. Secretary SMITH. Yes. (The information was received by the committee:) [U S Department of Commerce news release Tuesday May 14 1968] THE TI S BALANCE OF PAYMENTS IN THE FIRST QUARTER 1968 Preliminary figures on international transactions of the United States in the first quarter of 1968 indicate that the balance of payments measured on the liquidity basis was adverse by about $600 million, after seasonal adjustment, the Department of Commerce announced today. This compares with a seasonally adjusted adverse balance of about $1,850 million in the fourth quarter of last year, and an adverse balance of close to $3.6 billion in 1967 as a whole'. The balance measured on the liquidity basis represents the changes in JJ5 official reserve assets and in liquid liabilities to all foreign residents reported by U.S. official agencies and U.S. banks. Before seasonal adjustment this balance was adverse by $230 million, reflecting a decline of about $900 in official reserve assets and a decline of $670 in liquid liabilities to foreign residents The first quarter balance measured on the official reserve transactions bas.is w as favorable by about $90 million but after seasonal ictjustment it was ~dverse by $520 million. In the fourth quarter of last year this balance after seasonal adjustment was adverse by about $1,220 million, and for 1967 it was adverse by `ibout $34 billion (The balance measured on this basis represent the changes in TI S official reserve `issets and in liquid and nonliquid liabilities to foreign monetary authorities reported by U S official agencies and TI S banks) PAGENO="0091" 85 MAJ01~ DEVELOPMENTS On the basis of data now available for the first quarter, the Office of Business Economics reported the following major developments in internationaL trans- actions during this period. A. Changes in official reserve assets and in liquid liabilities (1) Official reserves declined about $000 million. This change consisted of a $1,360 million drop in official gold holdings, which was partly offset by a $400 million rise in holdings of convertible currencies and a $60 million increase in the U.S. gold tranche position in the IMP. The major part of the gold sales was made to meet the demand on principal foreign gold markets in order to help in pre- serving the officially established price of gold. The large losses of reserves of the United States and other countries participating in the London gold pool opera- tions resulted in an agreement among the financial authorities of these countries on March 17, "that officially-held gold should be used only to effect transfers among monetary authorities", that it no longer be supplied to the London or any other gold market, and that the price of gold used in transfers among monetary authorities and in the valuation of official reserves remain unchanged, but that the price of gold traded by others be free to reflect market conditions. (2) Liquid liabilities to foreign residents declined $670 million in first quarter. This decline was the net result of a $1,360 million drop in liquid dollar assets held in the U.S. by foreign official agencies, and a rise of about $000 million in those held by foreign banks and other private residents. After adjustment for seasonal variations, and for investments by foreign official agencies in long-term certificates of deposits and medium-term, nonconvertible, nonmarketable govern- ment securities and in government agency bonds, dollar liabilities to foreign official agencies declined less than $400 million. This was less' than a third of the dollar amounts required to pay for the foreign gold purchas~s from the United States. Liquid liabilities to foreign private residents, seasonally adjusted, continued to rise during the first quarter, but by a considerably smaller amount than either of the two preceding quarters. The very large increases in those quarters had reflected the exchange crisis of the British pound. In the first quarter of this year, large scale but short-lived speculation against the Canadian dollar may also have contributed to a shift of dollar liabilities from foreign official to foreign private accounts. B. Major changes in other transactions (1) Non-military merchandise exports, adjusted for seasonal variations, in- creased about $460 million from the last quarter of 1967, the first major rise in a year. Seasonally adjusted merchandise imports increased $680 million. This rise continued the sharp upward movement that was resumed in the previous quarter, following a period of about one year during which imports had declined slightly. The balance on nonmilitary merchandise trade declined about $220 million from the previous quarter to only $100 million in the first quarter. This com- pares with a quarterly average nonmilitary merchandise balance of about 1 billion in the first three quarters of last year. Strikes affecting New York port operations and the production of copper, and hedging against shortages of steel resulting from an anticipated strike in the steel industry retarded the rise in exports and contributed to the increase in imports. These developments may have reduced the trade balance $450 million to $500 million. (2) Net purchases of foreign securities amounted to about $400 million, after seasonal adjustment, as compared with about $315 million in `the previous quarter. Purchases of newly-issued foreign securities rose about $35 million, and net purchases of outstanding securities, about $45 million. The latter includes $35 million of U.S. purchases of IBRD bonds sold by a foreign government to strengthen its foreign exchange reServes. (3) U.S. banks reported net capital inflows of $300 million (after seasonal adjustment) resulting from a reduction in foreign assets held by themselves and for domestic customers. About half of the reduction was in outstanding long-term bank loans. In the previouS quarter, banks reported net capital inflows of $85 million, and in 1967 as a whole, net capital outflows of about $470 million. The PAGENO="0092" 86 large increase in capital inflows reported by banks may in part be attributed to~ the guidelines established early this year under the intensified program to improve the balance of payments. (4) Net sales of U S securities to foreign residents amounted to about $675 million. This exceptionally large amount includes about $560 million of newly- issued bonds-most of which are convertible into stock&-sold by 13. S. corpora- tions to finance their foreign investments.. (These amounts do not include securi- ties sold abroad by foreign subsidiaries of U.S. corporations.) These funds are either transferred to foreign subsidiaries or pending such transfers invested in short term assets abroad The disposition of these funds is not yet known it is included among the net debits on "ether transactions" (shown on line 16 of the table). The total amount of such new issues during the first quarter was far above the quarterly average of about $115 million in 1967. The large increase resulted from the new regulations issued on January 1 restricting capital outflows for direct investment, particularly to the developed countries in continental Western Europe. Other transactions in U.S. securities include net sales by foreigners of U.S. bonds amounting to about $160 million (including $40 million sold by interna- tional agencies) and net purchases of U.S. stocks amounting to $275 million. (In addition, about $210 million of stocks newly issued by a U.S. subsidiary of a foreign corporation were purchased by the foreign parent company. This transac- tion is not included in the figure for security sales but is considered a foreign direct investment in the U.S. Since other reports on such foreign direct invest- ments are not yet available, the capital inflow of $210 million is still included among the "other transactions" (line 16 of the table).) Foreign purchasesi of outstanding U S stocks declined during the quarter from about $160 million in January to $80 million in February and about $35 million in March. Foreign purchases of U.S. stocks had risen sharply last year, from a quarterly average of $65 million in the first half of the year to $335 million in the second half. (5) Net foreign investments-mainly by foreign official agencies and inter- national organizations-~-in time deposits or certificates with an original maturity of one year or more, and in nonconvertible, nonmarketable medium-term gov- ernment bonds amounted to over $310 million, nearly as much as in the previous quarter. These investments do not affect the balance measured. on. the official re- serve transactions basis but improve the balance measured on the liqmdity baSis. Foreign purehases of such bonds include the quarterly receipt of $125 million from. Germany to offset partly U.S. military expenditures in that coun- try. The remainder of these investments frequently approaches in liquidity those classified as liquid liabilities (6) Other transactions for which data are not yet available, but for which the balance can be derived as a residual between receipts and payments on those transactions for which data are available, resulted in net payments (after sea- sonal adjustment) of about $1,600 million. This is less than the quarterly average of over $2.2 billion in 1967. These transactions include military sales and expenditures services trans actions, investment incomes received and paid, private remittances, government pensions, government grants and capital transactions, capital transfers by U.S. corporations for direct and other investments (including the transfers of the $560 million borrowed abroad m the first quarter) foreign direct investments in the United States (including the $210 nullion mentioned above) changes in corporate liabilities to foreigners (other than those created through the new bond issues) and those transactions that are usually reflected in Errors and Omissions". SPECIAL TRANSACTIONS Special financial transactions' and large temporary transactions im.proved the balance measured on the liquidity basis by about $250 million, and the balance measured on the official reserve transactions basis by about $50 million. Following is a summary of such transactions that improved the liquidity balance: (1) The $360 million liquidation of bank-reported assets, which cannot be repeated over the long run. (2) Receipts of about $210. million from the new stock issue by a U.S. subsidiary of a foreign corporation. PAGENO="0093" 87 (3) Net receipts of $190 million from foreign official and international investments in medium-term time deposits and special government bonds (excluding the quarterly purchase by Germany). In contrast, special adverse developments affecting the liquidity balance were: (4) The $450 to $500 million reduction in the trade balance resulting fro.m actual and anticipated strikes. (5) The $35 million sale of IBRD bonds by a foreign government. Data for selected items now available on a preliminary basis are shown in the attached table. Complete balance of payments tables and analyses of them will be published in the June Sur'i~e~j of Current Business. The magazine is avail- able from Field Offices of the D~partment of Commerce, or from the Superin- tendent of Documents, U.S. Government Printing Office, Washington, D.C. 20402, at an annual subscription price of $6.00, including weekly supplements; single copy, 45 cents. PAGENO="0094" SELECTED DATA ON FOREIGN TRANSACTIONS OF THE UNITED STATES IN THE 1st QUARTER OF 1968 AVAILABLE AS OF THE MIDDLE OF MAY 1968 [In millions of dollarsj Merchandise, excluding military: 1. Exports 26,244 29,176 30,468 7,589 7,911 7,146 7,822 7,900 7,660 7,703 7,627 7 478 7,933 2. Imports -21,516 -25,541 -26,984 -6,646 -6,622 -6,430 -7,286 -7,742 -6,686 -6,605 -6,541 -7 152 -7 830 3 Foreign securities newly issued in the United States -1 206 -1 210 -1 598 -352 -412 -473 -361 -366 -352 -373 -540 -333 -366 4. Redemptions 222 405 469 100 130 137 102 100 100 130 137 102 100 5. Other transactions in foreign securities, net pur- chases(-) 226 323 -123 -10 44 -73 -84 -130 -10 44 -73 -84 -130 Claims reported by U.S.banks, net increase (-): 6. Long term -232 337 285 153 188 -70 14 204 1 8 4 7. Shortterm 325 -84 -742 -18 -390 -77 -267 211 - - 8. U.S. Government cash receipts associated with mili- tary sales contracts 1,098 947 1,048 350 418 112 168 140 350 418 112 168 140 9. Nonscheduled repayments on U.S. Government credits 221 428 5 (3) 5 (3) (5) (5) 5 (5) (3) 10. Transactions in U.S. securities other than Treasury issues, net sales (+) 357 909 994 120 319 549 6 677 120 319 549 6 677 11. Long-term liabilities reported by U.S. banks, net in- crease 203 981 1,004 371 604 -160 189 52 371 604 -160 189 52 12. Transactions in nonmarketable, nonconvertible, medium-term, U.S. Government securities not as- sociated with specific transactions, net sales (+)_ - -7 -49 470 (5) (5) 335 135 260 (3) (5) 335 135 260 13. Liquid liabilities to foreign accounts other than official agencies, and to international organizations other than the I MF,4 net increase (+) 131 2,384 1, 454 -709 96 1, 304 763 688 -959 276 1,218 919 435 Credits (+) and/or debits (-) 1965 1966 1967 1968,1st 19675 1968 - quarteri Year 1st 2d 3d 4th 1st 2d 3d 4th 1st quarter quarter quarter quarter quarter quarter quarter quarter quarter1 Adujsted for seasonal variations PAGENO="0095" ~`T Liquid liabilities (including nonmarketable, con- vertible, medium-term U.S. Treasury securities) to foreign official agencies,4 net increase (+) -18 -1, 595 2,063 -80 546 282 1,315 -1, 359 } 15. Decrease (+) or increase (-) in U.S. official reserve 1,492 277 -580 926 165 assets 1,222 568 52 1,027 -419 -375 -181 904 (a) IMF gold trenche position 5 -94 537 -94 -31 -10 -5 -48 -57 (b) Convertible currencies -349 -540 -1,024 1,007 -424 -462 -1,145 -401 (c) Golds 1,665 571 1,170 51 15 92 1,012 1,362 16. Other transactions (derived as residual) -6,556 -7,979 -8,855 -1,895 -2,413 -2,212 -2,335 -1,539 -2,165 -2,595 -1,656 -2,439 -1,795 MEMORANDUM ITEMS A. Balance on liquidity basis: Increase in U.S. official reserve assets and de- crease in liquid liabilities to all foreigners (lines 13, 14, and 15 with sign reversed) -1,335 -1,357 -3,569 -238 -223 -1,211 -1,897 -233 -533 -533 -638 -1,845 -600 B. Balance on basis of official reserve transactions: Increase in U.S. official reserve assets and de- crease in liquid and certain nonliquid liabilities to foreign official agencies (lines 14 and 15, and parts of lines 11 and 12, and certain other nonliquid liabilities to foreign central banks and official agencies with sign reversed) -1,304 220 -3,413 1,280 -689 -39 -1,405 92 -1,817 -832 456 -1,220 -520 1 Preliminary, organizations also includegold liabilitiestothe IMF. The distinction between liquid liabilitiesto foreign lXS 2 Revised, private and those to foreign official accounts is based on records of banks located in the United ~ Less than $500,000. quarter of 1965. Liquid liabilities include foreign deposits in U.S. banks, private marketable debt obligations such as certificates of deposits and bankers acceptances, with an original maturity of less than 1 year, Source: U.S. Department of Commerce, Office of Business Economics. and marketable or convertible U.S. Government obligations. Government liabilities to foreign official PAGENO="0096" 90 Ambassador Ro'rn. And tentative through April. Mr BYRNES In your statement you noted that while exports have been growing imports have been growing at a faster rate so that we have almost reached a point of balance, have we not, at the present time? Secretary SMITH. That is right. Mr. BYRNES. I dcxn't understand Ambassador Roth's statement that there is no trend. As I look at the figures on imports it would seem to me there is a very definite trend upward, just as there was a very definite trend up in exports over the last 10 years. The difficulty is that imports are moving up faster than exports, but there is certainly a trend; isn't there? Ambassador ROTH Mr Congressman, the figures on our merclian dise balance going back to 1958 and coming up to 1967, starts 3.6, 1.2, 4.6, 5.5, 4.6, 5.3, 7, which was that good year, 5.3, 3.8, 4.1. Mr. BYRNES. Are you giving the increases? Ambassador ROTH. No; this is the net trade balance. Mr. BYRNES. Oh, the net trade balance. Ambassador ROTH. Finally, in 1967,4.1. Mr. BYRNES. But the trend is up, isn't it, on both imports and exports? Ambassador ROTH. The trend in both imports and exports is up. Mr. BYRNES. And the trend on imports is going up faster than on exports; is it not? Ambassador ROTH. The trend on imports, as these figures show, goes up faster at a period when you have inflation in this country Mr. BYRNES. Well, we have had inflation every recent year. We have it now and the Secretary of the Treasury told us that it is going to continue in the next year, no matter what the Congress does. We were also told this by the Chairman of the Federal Reserve Board. We can expect apparently even a greater increase in imports with this inflation, which we are told will continue, even with the tax increase and even with the cutback in expenditures. We are told that there is still going to be an unusually high degree of inflation. Not long ago we had a $7 billion favorable merchandise balance and now we don't have any. It was this surplus that offset our Government expenditures abroad, providing a measure of equilibrium in our balance of payments. Ambassador Ro'rii. I think the critical point is that we had that $7 billion plus in 1964 because we had done a good job in containing these pressures at home and markets were opening up abroad. The way our ti ade works, when there is inflation in this country, imports go up disproportionately; and, when the reverse happens, they go down disproportionately. It is quite true that if we continue along an inflationary path this year our trade account will suffer no matter what we do Mr. BYRNES. All right. Now let me refer to the i)epartment of Coni- merce figures, the Overseas Business Report of May 1968. On the front cover is the average annual rate of change in U.S. trade from 1961 to 1967. I can't give you the precise figure from this chart, but it shows that the average annual rate of change in exports was up about I per- PAGENO="0097" 91 cent. The chart also shows that the average annual rate of change in imports is above 10 percent. Is this an accurate chart, Mr. Secretary? I assume it is. Secretary SMITH. Yes, sir. Mr. BYRNES. It seems to me that Ambassador Roth and your people should reconcile your views. There is certainly an inconsistency in this chart and Ambassador Roth's generalization that exports and imports have been increasing at about the same rate, Mr. Secretary. Ambassador ROTH. No; that was not my intent to say- Mr. BYRNES. Will you accept the conclusion, then that imports have been increasing at an annual rate of change exceeding the average annual rate of change of exports? Ambassador ROTH. Over a period of 10 years? Mr. BYRNES. Well, from 1961 to 1967, which happens to be the chart that I have. Ambassador ROTH. It is true this has happened over that period. Mr. BYRNES. All right. Mr. Secretary, your statement calls attention to the growing percentage of our export trade composed of capital goods exports. It appears that what we seem to be developing is an exporter of capital goods and an importer of consumer goods. I find this disturbing, and I wonder if you agree that this is disturbing. We are not importing very much by way of capital goods; are we? Secretary SMITH. Yes; a substantial amount. We have the figures on it. Mr. BYRN1~S. I can't hear you, Mr. Secretary. Secretary SMITH. Yes; we have substantial imports in that area and would be glad to give you the figures on it. We will give you a chart on both exports and imports in the capital goods area. (See p. 94.) Mr. BYRNES. Mr. Secretary, on page 2 of your statement, you made the point that the growth in the amount of our exports is attributable to capital goods. It appears from the figures you cited that capital goods now are about a third. of our exports, while in 1960 they were about a quarter of our exports. We are moving in the direction of greater and greater emphasis on capital goods exports; aren't we? Secretary SMITH. No doubt about it. Mr. BYRNES. My point is what happens when a country on a long- range basis becomes dependent on consumer goods in terms of import- ing, and relies in its exports on capital goods? Can we maintain that posture in reference to capital goods? Secretary SMITH. No; I don't think so. Mr. BYRNES. There is no question we will have to export consumer goods. Secretary SMITH. I don't think it necessarily follows always; but I think we should make a great effort to be more competitive in the consumer goods field. Mr. BYRNEIS. But the point is, we are not in the export area. Isn't that the point at which we are having a deterioration or a problem internally? . Aren't industries that are feeling the pinch of imports basically the consumer industries? Secretary SMITH. That is not a substantial part of the total figures but I think your statement is correct. Mr. BYRNES. But you don't t.hink this is anything to be concerned about? 95-159 0-68-pt. 1----7 PAGENO="0098" 92 Secretary SMITH. Wait just a minute. Let me give you the figures on it and then we will have something to talk about. Mr. BYRNES. That is what I would like to get. Mr. MCQUADE. I will see if I can supply those. Capital goods exports other than automobiles in 1967 were $9.9 billion and capital goods imports for the same period were $2.4 billion. For consumer goods, the exports in 1967 were $2.1 billion and the imports were $4.2 billion. That is consumer goods, nonfood, other than automotive, in both cases, Mr. BYRNES. In other words, you don't include automobiles as con- sumer goods? Mr. MOQUADE. That is just categorized separately. Mr. BYRNES. You like to have that separately. If you include that I assume you would have a little different picture. Most of us consider automobiles a consumer item. Ambassador ROTH. It is a consumer item. Mr. BYRNES. I thought he gave the figures exclusive of automobiles. Mr. MOQUADE. I left out automobiles in both instances, but I would be happy to give you the numbers. Mr. BYRNES. That is what I am suggesting. What would the figures be with autos included, Ambassador Roth? I think they are consumer items. Will you try and provide the committee with a picture of what the trend has been in capital goods and consumer goods, both in exports and imports, and include autos in consumer goods. Then we can see the trends. I don't know why you leave autos out. Why are they left out? Mr. MOQUADE. It is just interesting to be able to look at automobiles separately, but I think you can add them in. You can make one chart. You make another. We have broken them out so it would be more illuminating as to what happened to automobiles separately. Mr. BYRNES. I would like to know what happens to automobiles too, but I would like an overall picture of capital goods versus consumer goods. Anything which should go into consumer goods, put it in. Also include anything that legitimately belongs in capital goods. Let's not have a lot of separate items out on the side because they are interesting to look at by themselves. Ambassador ROTH. Congressman Byrnes, just for the present clis- cussion let me give you very briefly the trend of some of the major categories in ur principal exports, 1960-67. Nonagricultural products go from $15 to $24 billion. This breaks down into machinery, which is engines, agricultural machinery, office machines, et cetera, from $4.5 to $8.3 billion; transport equipment, which is automobiles, trucks, civilian aircraft, aircraft parts, from $2.5 to $4.3 billion; chemicals, from $1.8 to $2.8 billion; and other non- agricultural products from- Mr. BYRNES. We can get those figures, but what I want is an overall picture. I don't know why you can't chart an overall picture to show where the trend lines are. Secretary SMITH. We will draw you up a chart and have it for you tomorrow for a 10-year period. (The following information was received by the committee:) PAGENO="0099" (D(OCDCOCOCO 3 3- I, -I rn DC - ~ ~. = m COQ1QO~-JC)CO 3- w 3. 3. -< 3 3 ~ DC 3 3- ~ ~- ~cn C~ C) a ~ DCG) ~ a a ZCO~ CD 3 3 ~.1 * rn C) C-, 3 - CD 3 g PAGENO="0100" 94 U S EXPORTS AND IMPORTS BY END USE CATEGORY 960 and 1967 FOOD, FEED, and ~EVERAGES J.. -.:. INDUSTRIAL MATER I ALS 8 9 10 II 12 " Includes autos and auto parts. Bureau of International Con Exporti 1960: `.~ 1967. Imports i960 r~"~Ø/// /`~`~`-`,`7~27///7'///%~ CAPITAL EQUIPMENTe. WJJI//ItL7//JJJJJJ~/JJ/J/JjJJjJfflJJJJJJJJJJJ/j/J////////JJ/~///A /~////~j CONSUMER 000DSeS Billion I- I I dollars 0 I 2 5 17. S. Department of Commerce -4. 5 6 7 * Includes trucks. PAGENO="0101" 95 TRENDS IN U.S. FOREIGN TRADE, 1960-67 AND JANUARY-APRIL 1968 1960-67 TJ.S. trade has expanded strongly in both directions during the 1960's. Rising at an average annual rate of 6.7%, exports, excluding military grant-aid, climbed from $19.6 billIon' in 1960 to $30.9 billion in 1967. Our purchases from abroad Increased by roughly the same amount during this period, from $15.0 billion to $26.8 billion. This represented an average growth rate of 8.6% a year. The gross merchandise trade balance totaled $4.1 billion in 1967, about half a billion dollars less than in 1960. In the intervening years, the surplus fluctuated widely, reaching a high of $7.0 billion in 164 and dropping to a low of $3.8 billion in 1966. During the eight-year period between 1960 and 1967, the trade balance averaged $5 billiop. The strong increase in U.S. exports in the sixties was characterized by sizable shifts in commodity composition. Solid gains in sales of machinery and transport equipment, products which have a high technological content, helped boost fin- ished manufactures to 61% of the total in 1967 from 54% in 1960. In the last three years, rapidly growing shipments of automotive products to Canada under the duty-free provisions of the 1965 U.S-Canadian Automotive Agreement have con- tributed significantly to the expansion. As the share of finished manufactures in our exports increased, there was a corresponding decline in the proportion of total U.S. shipments accounted for by semimanufactures and crude materials. Both, however, were higher in value in 1967 than in 1960. In the case of semim.anufactures, the advance was slowed by reduced shipments of steel and by a large dip in copper sales in 1967 as the long strike reduced quantities available for export. Exports of crude materials were retarded by sharply lower deliveries of cotton. The share of foodstuffs remained at 14% of the export total. Government assistance programs have played a relatively minor role in the $11 billion growth in our exports from 1960 to 1967. Shipments of agricultural products under Government programs, largely wheat and other grains to various developing countries, amounted to $1.5 billion in 1967. This level of assistance was only 5% higher than in 1960. In that year, these programs accounted for 30% of our domestic agricultural exports; by 1967, their share dropped to 24% as commercial exports expanded at a considerably faster rate than government- financed shipments. Disbursements for merchandise exports under AID programs last year totaled $1.3 billion, a sharp rise from the $0.4 billion of goods sent abroad in 1960. This expansion, however, primarily represented the tying of our economic assistance to purchases in the United States after 1960. Around three-fifths of AID-financed shipments in 1967 involved machinery, chemicals, and transport equipment to countries in Asia and Latin America. (Estimated exports under these programs continued in the first quarter at about the same $2.8 billion rate as last year.) Exports to both the developed and developing countries rose strongly in 1960-67, Increasing by $8.3 billion over the eight-year period, shipments to the former group accounted for 68% of the export total last year, up from 65% in 1960. About three-fourths of the gain represented greater sales to Canada and Western Europe. Shipments to the developing areas expanded by $3.0 billion, or by nearly a half. Increasing relatively rapidly were shipments to East and South Asia, the Near East, and Africa, while those to Latin America, our latest market among the developing areas, lagged. Stimulated by the expansion of the domestic economy in recent years, U.S. imports have also increased rapidly. The change in import composition betw-een 1960 and 1967 was even more marked than that in exports. Although imports of all major types of goods purchased abroad expanded, the faster growth in capital equipment and consumer goods increased the share of these products in our total imports. Arrivals of capital equipment, mostly machinery, accounted for 10% of our imports in 1967, more than twice the ratio in 1960. These imports increased particularly rapidly in the last few years as the pressure of demand strained domestic capacity and stretched the delivery schedules of U.S. manufacturers. 1 The statistics used here are official U.S. trade statistics as published by the Bureau of the Census. They differ somewhat from the adjusted figures presented in balance of payments statements. The most important adjustments in the payments figures are the exclusion of shipments and receipts of military goods and the inclusion of silver. PAGENO="0102" 96 Buoyant demand in this country for cars and other foreign consumer products such as clothing radios and motorcycles raised the share of these imports from 17% to 24% Arnvals of automobiles and parts from TI S subsidiaries in Canada advanced rapidly in recent years climbing from practically nothing in 1960 to $16 billion in 1967 Industrial materials remained overwhelmingly our m'tjor import but receded from 52% of the import total to only 44% To a large extent the decline in the share of industrial materials reflected advances in developing substitutes im proved uses of basic materials and releases from national stockpiles Pm chases of foreign food and beverages also slipped in relati~ e importance to 17% Purchases from the developed countries more than doubled in these years accounting for more than four fifths of the $11 8 billion import rise The sharpest gain was in arrivals from Japan which climbed from $1 1 billion to nearly $30 billion from 1960 to 1967 Also expanding iapidly were purchases from Canada which in 1967 totaled $7 billion and from Western Europe which reached $~ billion As a result of the steep rise in purchases from industrial suppliers abroad their share of our total imports climbed from 60% to 71% Reflecting the shift in the composition of our imports to a higher proportion of finshed manufacturers arrr~ als from the develoning countries expanded relatively slowly The increase of $1 7 billion or 29% represented less than a seventh of the overall import growth Goods arriving from developing Africa East and South Asia and the Caribbean countries were the most expansive while ~irnvals from the 19 American Republics, our major source of developing area imports, grew only moderately. JANUARY-APRIL 1968 In the first four months of 1968, our trade advanced to new records. Exports were valued at a seasonally adjusted annual rate of $327 billion 6% above the 1967 total Stimulated by rising business activity and special strike related pur chases imports rose 17% to $31 4 billion Because of the much faster growth in imports than exports the gross merchandise trade balance dropped to an annual rate of $13 billion from $23 billion in the fourth quarter 1967 and an average of $47 billion in January-September of that year Greater exports of transport equipment accounted for much of the $473 million or 45% advance in January-April 1968 over the same period a year ago Ship ments of automobiles trucks and parts to Canada and of civilian aircraft were the major gainers.. Chemical exports also recorded a significant increase in Jan- uary-April as shipments of fertilizers plastic materials and organic and in organic compounds expanded rap!dly. Machinery exports showed only a slight increase while deliveries of steel aluminum and copper fell substantially below levels in the corresponding period of 1967 The drop in copper shipments was related to the strike which was settled in &pril Among agricultural commodi ties exports of wheat rice and corn were especially expansive but shipments of grain sorghum and oils and fats fell A large part of the $16 billion or 175% increase in U S imports in January- April 1968 as compared with the first four months of last yeer was in copper steel and automotive vehicles and parts-both from U S subsidiaries in Canada and our overseas suppliers The advance in copper purchases reflected the import stimulating effects of the strike while the increase in steel arrivals was mostly due to stockbuilding in anticipation of an industry wide strike later this year Significant increases were also recorded in the first four months in imports of capital equipment and other consumer goods. Purchases of coffee rose strongly, reflecting inventory building and receipts under larger import quotas for the 1968 marketing year PAGENO="0103" 97 MAJOR COMMODITY INCREASES IN U.S. IMPORTS FROM 1960 TO 1967 tin millions of dollarsi 1960 1967 increase imports, total 15,019 26,816 +11,797 Food, feed, and beverages, total 3,286 4, 586 +1, 300 Meat and preparations 314 645 +331 Alcoholic beverages 273 528 +255 Fish 308 522 +214 Fruits and nuts 218 360 +142 Vegetables 96 195 +99 Other food, feed, and beverages 2,077 2,336 +259 Industrial materials, total 7,833 11,780 +3, 947 lrbn and steel-mill products 431 1,289 +858 Nonferrous base metals 775 1,477 +702 Petroleum and products 1,537 2,088 +551 Ores and metalscrap 723 974 +251 Textiles, other than clothing 1 - 562 812 +250 Organic and inorganic chemicals 194 435 +241 Finished metal shapes 98 319 +221 Newsprint 688 864 +176 Other industrial materials 2,825 3, 522 -1-697 Capital equipment, total 592 2,677 -1-2,085 Machinery Trucks and buses Civilian aircraft and parts Consumer goods, total 2, 504 Automobiles and parts, including engines 603 Clothing 304 Radios, television receiving sets, and radio-phonographs 91 Gem diamonds 166 Musical instruments, sound recorders, and parts 47 Toys, games, and sporting goods 84 Footwear 148 Other consumer goods 1, 061 Military aircraft, U.S. goods, returned, and other transactions, total 508 2 253 +1, 745 30 295 +265 54 129 6,553 +4,049 2,332 +1,729 649 +345 369 +278 389 +223 225 +178 213 +129 263 +115 2,113 +1, 052 804 1,220 +416 1 Includes rugs and textile consumer items other than clothing. PAGENO="0104" 98 Domestic exports, total Food, feed, and beverages, total Soybeans Corn Wheat Animal feed Grain sorghums Rice All other food, feed, and beverages Industrial materials, total Organic and inorganic chemicals Paper and manufactures Wood in the rough Manufactured fertilizers Plastic materials and resins Coal Unmanufactured tobacco All other industrial materials Capital equipment total Nonelectric machinery 1 excluding auto engines Electric machinery,1 excluding domestic household equipment Aircraft and parts Aircraft flight and other nonelectrical measuring and controlling instruments All other capital equipment Consumer goods total 2 271 Automobiles engines and parts Printed matter All other consumer goods Military goods and other transactions MAJOR COMMODITY INCREASES IN U S DOMESTIC EXPORTS FROM 1960 TO 1967 [Millions of dollars[ 1960 1967 Increase 20,383 31,147 +10,764 3,170 5,002 +1,832 336 772 +436 285 704 +419 857 1,120 +263 87 332 +245 108 299 +191 151 319 +168 1,346 1,456 +110 7,899 9,876 +1,977 470 1,047 +577 255 466 +211 38 202 +164 72 231 +159 315 473 +158 354 482 +128 379 498 +119 6,016 6,477 +461 5,902 10, 322 +4, 420 3 371 5 955 +2 584 978 1,976 +998 1,024 1,518 +494 123 364 +241 406 509 +103 4,481 +2,210 1,281 2,596 +1,315 137 279 +142 853 1,606 +753 1,141 1,466 +325 1 Includes some consumer machines and appliances Mr BYRNES Fine Thank you very much, Mr Secretary While I am on this, Secretary Wirtz, can we make any jucigement as to whether workers in the capital goods industry, tend to be mori highly skilled than workers in the consumer goods industries? Secretary WIRTZ. Yes, we have that. Mr. BRYNES. What is the generalization? Secretary WIRTZ. The generalization is that those industries which are most affected by imports today coincide to a considerable extent with those industries in which there is the largest number of 1o~ skilled and unskilled workers That is not true across the board but it is true, characteristically, of textiles That is the general picture We can give you that on an in dustry basis, but that is what it shows in general Mr BYRNES (an you generalize and say that for the most part the consumer goods industry utilizes a lower degree of skill as far as the overall workers are concerned than the capital goods industry? Secretary WIRTz. Not when you put in automobiles. Mr BYRNES Not when you put in automobiles Secretary WIRTz Leaving those out, the answer would be substan tially yes, but it is a pretty broad generalization and the automobile picture would affect that very markedly PAGENO="0105" 99 Mr. BYRNES. Well, I know we keep getting hack to the automobile being a separate animal. Of course we did treat it as a separate animal, didn't we, when we considered the Canadian-American auto agree- ment. Secretary WHiTZ. I don't mean that point. I mean that the general- ization would be true if you excluded automobiles. It would be much less true if you include automobiles. Mr. BYRNES. When we talk about the need to find 2 million addi- tional jobs, we know that we are trying to find these jobs for people who are basically very `short of skill's now. We want programs to up- grade their skills to a degree in order to find a job for them. Isn't that one of the basic economic objectives we all must have? Secretary WIRTZ. It sure is. Mr. BYRNES. If that is the case, don't we have to be concerned when we see a trade policy that has an adverse impact on these kind's of jobs? Secretary WIRTZ. Yes2 we do and especially when we come to the discussion o'f textiles. T'his is always in mind. Mr. BYRNES. I was told, for instance, by a shoe manufacturer that they are in trouble from imports. His point was that he could take people with little or no training and train them. Some of them were farmers in Wisconsin. I visited one of the plants and there were men and women that came off the farms. Here is an industry that is able to train unskilled people rather rapidly and give them a job. Yet that is also the kind of an industry that suffers the impact of this growing increase' in imports. Secretary WIRTZ. Let me just say this: That what we are talking about here is dead clear as far as the textile industry is concerned. It gets less clear from there on. Now, we have a large problem as far as steel is concerned and it gets less clear there because the steel industry would be over on the automobile side as far as both wage rates and the amount of skill involved are concerned. I believe the generalization is relevant but is dangerous. I should rather leave it on the basis of the fact that it seems to me a considered policy in this area necessarily takes that element into account and does look with a somewhat different view on those industries in which there is a concentration of low paid, unskilled work. I agree with you that in those industrie's there is an additional reason for being very careful about disrupting the domestic market. Ambassador ROTH. Mr. Congressman, I just want to add to that because of this concern that Secretary Wirtz has indicated. In preparing f~r the Kennedy round, for instance, and in looking at possible exceptions to the 50-percent rule, we took particular care to look at employment problems. But it is true, however, that you have to look at specific cases. In the textile industry, for instance, you look particularly at the apparel group, while in the man-made sector you often find very highly skilled labor. The. question of shoes, as you know, is being studied by the Tariff Commission. It is very complicated. PAGENO="0106" 100 One major problem there is a few large domestic shoe companies dominating the industry and what is happening in terms of the tech- noio~y of the industry. So all I am saying is that an overall generaliza- tion is perhaps difficult. Mr. BYRNES. Has either Commerce, Labor, or Ambassador Roth's office made any study of the relationship of the export and import; growth as it affects specific types of items in an industry? For example, take shoes, or if it is possible to do so, breakdown the products within the textile industry. Take the computer industry as an export industry. In other words, consider the items within an industry. Which industries `have increases in exports but also have a tremen- dous increase in imports so that overall they are falling behind in terms of their basic position. Ambassador Ro'rii. This is the kind of analysis we tried to do over several years and through public hearings during the 4 years of preparation for the Kennedy round. Mr. BYRNES. Well, that was before 1962. Ambassador ROTH. That is rigtit. Between 1964 and 196~T. Mr. BYRNES. We have had a shift since 1962 that has been pretty drastic. Ambassador Ro~ra. Absolutely and that is why we are having our current hearings in order to update this. In addition, in certain areas that are so complex, in shoes, in textiles, the Tariff Commission has made a study. The shoe study they are still involved in. Mr. BYRNES. But you haven't used a computer to try to find out the details and determine where we are going? Ambassador RYrH. Well, we do it on a continuing basis. Mr. BYRNES. Then you have the information so you can tell me what industries are predominantly growing on an export basis, and what industries, for instance, have a growth in exports but a greater growth in imports? You can give us a breakdown on those? Ambassador ROTH. I think we could on a selective basis. (The following table was received by the committee:) U.S. IMPORTS AND EXPORTS BY MAJOR INDUSTRIES There follow (1) a table (Table 1) of U.S. exports and imports of major manufactured products (1960-1967), and (2) three tables concerning imports and exports of textiles (Table 2) and employment in the textile industry (Tables 3 and 4). During the Kennedy Round much detailed work was done concerning the effect of possible tariff reductions on particular industries. This included, of course, analyses of employment effects. The purpose of this Office's proposed study of the impact of imports on U.S. employment would be to place this kind of intensive analysis on a con~tinuing basis. We believe this is an important tool in the formulation of trade policy. Unfortunately, the House Appropriations Committee recently deleted the funds necessary for this work in FY 1969. Meanwhile, there are set out below three tables which illustrate some of the sort of detailed information on imports, exports, and employment that it is possible to assemble. These tables were a part of the Tariff Commission's study on textiles, but similar information would also be compiled by this Office under the proposed impact study and on a more detailed, product or product group basis. Indeed, it would also be possible to go considerably further in such studies and to analyze the inter-relationships among imports, exports, and employment. PAGENO="0107" 101 TABLE 1. U.S. EXPORTS AND IMPORTS OF MAJOR MANUFACTURED PRODUCTS, 1960-67 (In millions of dollarsj Commodity 1960 1961 1962 1963 1964 1965 1966 1967 INDUSTRIAL MATERIALS Organic and inorganic chemicals: Exports 470 593 615 722 889 927 973 1,047 Imports 194 180 198 217 273 318 429 435 Plastic materials and resins: Exports 315 308 316 323 402 425 473 473 ljnports 11 8 13 16 31 41 60 60 Manufactured fertilizers: Exports 72 79 99 92 137 153 221 231 Imports 77 81 88 90 105 112 131 142 Iron and steel mill products: Exports 635 454 455 505 664 607 537 539 Imports 431 346 457 598 715 1,140 1183 1,289 Copper metal: Exports 291 271 222 208 228 293 307 209 Imports 353 280 297 331 400 425 611 656 Aluminum: Exports 154 93 115 126 159 159 178 197 Imports 107 131 174 195 200 264 301 244 Fabrics, yarns, and made up articles of cotton, wool, and manmade fibers: 1 Exports -~ (2) (2) 358 295 350 317 339 336 Imports (2) (2) 357 346 343 447 543 466 Paper and manufactures: Exports 255 280 286 312 374 389 443 466 Imports 756 752 774 765 827 870 985 962 Rubber manufactures: Exports 152 140 146 148 161 162 168 156 Imports 44 46 56 52 42 47 64 92 CAPITAL EQUIPMENT Aircraft and parts: Exports 1,024 903 980 817 874 1,137 1,097 1~518 Imports 54 137 123 91 83 140 273 248 Trucks, including chassis: Exports 339 282 227 229 290 279 301 338 Imports 29 13 16 18 10 22 162 231 Engines, turbines, and parts: I Exports 432 492 556 560 578 756 855 950 Imports 24 35 28 49 136 195 331 383 Electric power machinery and switchgear: Exports 250 255 264 326 356 472 488 510 Imports 23 28 25 22 41 67 105 133 Agricultura tractors, machinery, and parts: Exports 250 252 266 320 418 434 448 451 Imports 3135 3115 3152 3172 182 224 296 317 Tractors and parts other than agricultural: Exports 314 290 292 324 408 431 412 392 Imports (4) (4) (4) (4) 13 25 29 24 Materials handling equipment: Exports 193 212 218 262 298 397 432 446 Imports 4 6 16 11 18 24 35 40 Electronic computers and parts: Exports 48 110 136 187 218 223 295 432 Imports - 4 5 8 10 4 4 15 20 Office machines other than computers: 1 Exports 160 200 188 175 216 248 262 275 Imports 64 70 77 88 100 132 176 205 Electrical measuring and controlling instru- ments: Exports 141 172 187 225 240 197 240 290 Imports 9 10 13 16 18 24 37 45 Aircraft flight instruments, other measuring and controlling instruments and parts: Exports 123 153 192 192 208 288 332 364 Imports 14 15 18 22 37 43 49 60 Construction, excavating, and maintenance equipment: Exports 270 276 311 322 383 323 319 349 Imports 2 2 4 6 14 12 15 21 Metalworking machinery: Exports 293 391 435 347 408 332 338 339 Imports 37 34 41 48 40 63 135 203 Air conditioning and refrigeration equipment:1 Exports 135 138 144 160 193 210 251 288 Imports (4) (4) (4) (4) (1) 3 ~ 4 Electronic components: 1 Exports 80 69 86 90 109 140 202 229 Imports 13 18 27 31 34 63 102 101 See footnotes at end of tables: p. 102. PAGENO="0108" Pumping equipment: Exports Imports Mining and well drilling machinery: Exports - Imports Photographic and motion picture equipment and supplies:' Exports Imports CONSUMER GOODS Automobiles, new: Exports Imports Automotive parts, excluding engines: Exports Imports TV s radios and radio phonographs Exports Imports Footwear: Exports Imports Medicinal and pharmaceutical products: Exports Imports Apparel: Exports Imports 1 Includes some consumer goods. 2 Data comparable with later years are not available. 3 Includes small amountsof nonagricultural tractors. 81 85 94 103 110 143 170 185 (4) 3 4 4 7 12 18 20 113 121 113 129 141 145 165 3 4 5 14 12 15 21 109 122 129 154 184 233 29.0 328 31 65 82 82 94 95 111 120 237 228 265 286 347 393 564 812 514 307 422 449 579 658 1,236 1,695 524 529 636 726 848 875 1,023 1,110 54 48 66 78 70 99 199 263 20 . 24 34 29 42 46 52 50 76 95 110 120 151 208 300 365 10 10 9 10 10 9 10 9 148 123 133 124 140 160 190 263 238 234 240 238 235 256 269 288 47 56 56 50 41 58 75 72 (2) (2) 80 84 92 103 114 119 (2) (2) 292 332 374 458 518 561 102 TABLE 1. U.S. EXPORTS AND IMPORTS OF MAJOR MANUFACTURED PRODUCTS, 1960-67-Continued [In millions of dollarsj Commodity CAPITAL EQUIPMENT-Continued 1960 1961 1962 1963 1964 1965 1966 1967 131 4 Data were not separately reported in these years. 3 Less than $500 000 PAGENO="0109" TABLE 2.-MANUFACTURES OF COTTON, WOOL AND MANMADE FIBERS: U.S. IMPORTS FOR CONSUMPTION AND EXPORTS OF DOMESTIC MERCHANDiSE OF YARN, FABRIC, APPAREL ,AND OTHER MANUFACTURED GOODS,' 1961-66 [Quanti Yarn Textile Imports Exports Imports ty in th Fabric ousands of pounds) Apparel Other manufa Exports Imports Exports Imports ctured goods Total Exports Imports Exports 1961 Cotton 16,042 11,596 80,898 170, 551 60,267 14,455 31,689 42, 579 188 896 239 181 WooL 25,429 2232 19,207 563 13,717 485 31,916 1,323 70,269 2,603 Manmade fiber 2 5,720 2 87, 152 8,212 31, 119 5,033 7,572 9,449 19,263 28,414 145, 106 Total 27, 191 98,980 108,317 202,233 79,017 22,512 73,054 63, 165 287,579 386,890 1962 Cotton 32,818 11,125 145,177 157,432 91,823 13,505 40,030 38,245 309,848 220,307 Wool 28,892 2221 22,108 654 22,790 399 35,180 1,360 88,970 2,634 Manmade fiber 27,880 2 113,696 12,321 39,352 10,443 6,299 6,609 22,844 37,253 182, 191 Total 49,590 125,042 179,606 197,438 125,056 20,203 81,819 62,449 436,071 405,132 1963 Cotton 26,576 9,891 148,360 142,265 94,204 14,354 35,172 41,297 304,312 207,807 Wool 29,802 2229 22,266 701 28,039 411 27,803 1,337 87,910 2,678 Manmade fiber 27,451 2101,462 14,265 44,130 12,847 6,618 7,715 24,509 42,278 176,719 1-' Total 43,829 111,582 184,891 187,096 135,090 21,383 70,690 67,143 434,500 387,204 1964 Cotton 18,837 11,535 137,173 142,574 107,578 17,432 36,577 41,694 300,165 213,235 Wool 27,808 2228 19,804 748 28,421 591 29,131 1,780 85,164 3,347 Manmade fiber 29,129 2 120,265 15,668 48,291 21,842 7,222 11,319 29,330 57,958 205,108 Total 35,774 132,028 172,645 191,613 157,841 25,245 77,027 72,804 443,287 421,690 1965 Cotton 24,738 10,173 178,287 110,301 119,891 18,035 37,684 35,299 360,600 173,808 WooL.... -- 2 10,890 2185 25,702 804 35,443 861 23,933 4,493 95,968 6,343 Manmade fiber 215,351 2102,125 26,068 62,739 30,798 7,475 20,347 33, 170 92,564 3205,509 Total 50,979 112,483 230,057 173,844 186,132 26,371 8, 1964 72,962 549,132 385,660 19664 Cotton 102,265 9,869 225;002 122,858 123,089 20,411 51,235 36,476 501,591 189,614 MooI 212,481 2273 24,834 586 33,019 948 17,796 4,028 88,130 5,835 Wanmade fiber 219,843 271,868 43,393 65,885 37,594 7,629 33,868 38,245 134,698 3 183,627 Total 134,589 82,010 293,229 189,329 193,702 28,988 102,899 78,749 724,419 379,076 1 Estimated raw fiber equivalent of cotton and manmade fiber products raw wool content of wool 4 Preliminary. pro lucts. Does not include tops, noils, and wastes. Source: U.S. Department of Agriculture, Wool Situation and Cotton Situation; and official statistics 3 Under revision. Includes unknown quantities of nontextile manmade fibers. of the U.S. Department of Commerce. PAGENO="0110" 0 I- oe~nc~ c'~co~ ~ ~~a~o~oo- ~-r~.~a~r% ~ooor-. ~ ~ o < o ~ = I- 20 2>~ Li. ~ 0 0 2 -~ I- ~0 2 a. - 2 E C0 C~ C~O~ (O0~0 - 0~ W1-C~)C0 ~ ~- C~) r~Lr)C~1~-Lt~ LC)C~J (OCDU~C~)0 RNR~R0o00~ ca~ ~r-. ,-~oc.i -r~ C~4 COW Ci)C?)C~)COCC) O~C~)CC)O)C!) L~, ,OCLC) 0000C'4 C0r-.u~ 0OC~4O~ - I~WC~JCON. O~cCOCaCa S I- >. >- S ci 2 C? 0) CO Li. ci S 2 ci 2 a. a. 0, -J I- >< I- 2 S >. 0 a. S -J CO I- COCQWWDCOW C,, .a -J 0) PAGENO="0111" 105 Mr. BYRNES. In each of these industries do you have their employ- ment in relation to total employment so that we can see where our employment picture is going, Mr. Secretary? For instance, we may be exporting items that have a lower labor content but a higher ex- pertise component and we may be importing items of a high labor ~ontent. It would seem to me that this is a matter that we should know as we look at this whole picture? Ambassador ROTH. Mr. Congressman, we do have a great deal of this information. The export and import data is not always compar- able but we can submit it. (See p. 100.) May I say on the effect of imports on employment, out office had been asked to undertake such a study next fiscal year. The House Appropri- ations Committee, however, recently took this out of our appropriation. Mr. BYRNES. But you just completed negotiations and it would seem to me that some of this information should have been developed before that. Secretary WIRTZ. As far as the textile industry is concerned, which has of course been a matter of special attention, all that information is directly available relating the amount of the imports to the amount, of exports, to the amount of total consumption. You do get all those factors on a particular industry basis as far as that industry is con- cerned. Ambassador Rom. We have this generally, and it is in theprocess of being updated. Mr. BYRNES. Well, what does it show about our growth of exports of the low-labor-content items? Is that where we are having the prin- cipal growth? Secretary SMITH. I don't think you can answer that question in that way. * Mr. BYRNES. He said he had this information, Mr. Secretary. That is what I am trying to ask him about now. Secretary SMITH. We can give you very easily a chart which will show the trend in exports and imports over the last 10-year period for 20 or 30 industries and give it to you tomorrow, but the labor content of those industries we do not ha~re. Mr. BYRNES. No, I am really not directing my comments to you, Mr. Secretary, but to Ambassador Roth because he said he had the data and it was constantly being updated. Ambassador ROTH. I was talking about specific studies about specific industries. The general figures I can give you now, Congressman Byrnes. Mr. BYRNES. Let me clarify for the record my discussion with Sec- retary Smith. I was inquiring about the broad categories of capital goods and consumer goods. In addition to the broad categories which I would like to have, have you done anything to break down the par- ticular items Ambassador Roth, so that your office would be alerted to problem areas. In order to be alerted to problem areas it would seem necessary to have much more detail than the broad categories that the Department of Commerce lists ii~ its general reports. Ambassador ROTH. We have to be able in general to discuss intelli- gently any industry that has a problem in the trade field, whether it is billiard balls or farm machinery. PAGENO="0112" 106 Mr. Byit~s. I know you have to be prepared to discuss it. I want to know whether you have the facts. I have heard discussions thwt you engaged in with other people and there seemed to be wide variance concerning whether an industry ~ `ts in trouble or not You remember a discussion with some textile people Your contention ~ as that they had no problems and the textile industry said they were overloaded with problems I wondered the degree to which you try to develop the facts cur iently, or whether in the Kennedy round you were depending upon facts that you developed in 1962 or 1963 when the arguments were being concluded in 1967 Ambassador RoTH. Absolutely not. We have to have these facts. In the last weeks of the Kennedy round, as I indicated in my testimony, because of changed circumstances over the intervening period in steel, iluminum, textiles, and one example I happened to mention before, billiard balls, we changed our offer at the very end We had to keep up to date Mr BYRNES That brings me to a point that I think we should focus on While you are engaged in negotiations you can change your offer in order to take care of a new situation You withdrew an offer that you made, didn't you, in steel ~ Ambassador RoTh That is correct Mr. BYRNES. But once you have entered into that agreement and cir- cumstances change, you tell Congress that we can't recognize this change, if we make any changes there is going to be retaliation We have flexibility while we are negotiating You pointed out the need to be flexible and the need to change during negotiations what you planned to do and you amended your offer But you tell us that any corrective action will throw the whole international trade picture into disarray and we will have a cycle of retahations This is the aspect of this question that I don't quite understand Ambassador RoThi But there you come back, I think, to the essential thing you raise, the question of facts We feel we do have the facts In the case you mentioned there are facts and facts, and they will always have to be looked at in terms of such factors as the base year, et cetera But there is the escape clause procedure, as you know, so that if an industry has been injured or is about to be injured because of any ieduction- Mr BYRNES Do you know the areas where we have had the biggest increases in imports~ Can you give me the items that make up the increase in imports of some $11 8 billion from 1960 to 1967~ What industries had the increase ~ What were the major items that made up this shift from $15 billion of imports in 1960 to $26 8 billion in 1967 ~ Can you supply that for the record ~ Ambassador RoTH Yes Do you want it for the record or do you ~ ant me to go over it ~ Mr BYRNES Give me the top five right now nd then we will take the i est of them for the record (The following information w as received by the committee ) PAGENO="0113" 107 Absolute increase in imports of principal commodities, 1960-67 Millions Total increase in imports, 1960-67 $11, 797 Food, feed, beverages 1,300 331 255 214 142 95 99 81 Industrial materials 3,947 858 551 302 241 240 176 137 122 114 96 91 80 80 Capital equipment - 2,085 Machinery 1,745 168 166 157 127 110 265 75 Consumer goods 4,049 Automobiles and parts 1, 729 Clothing 345 Radios, televisions, radio-phonographs 278 Gem diamonds 223 Musical instruments, sound recorders and reproducers 178 Toys, $ames, sporting goods 129 Footwear 115 Motorcycles and parts 91 Source: Department of Commerce. NoTs.-Figures do not total lue to rounding. Ambassador ROTH. In terms of volume or in terms of percentage change? Mr. BYRNES. Well, give them both ways if you have them. We can figure out which is the best later on. Ambassador ROTH. I can do this very quickly. Petroleum products, for instance, in terms of volume- 95-159 0-68-pt. 1-8 Meat and preparations Alcoholic beverages Fish Fruits and nuts Bananas Vegetables Sugar Iron and steel mill products Petroleum and products Copper Organic, inorganic chemicals Textile yarns, fabrics Newsprint Aluminum Iron ore Nickel Natural gas Wood pulp Lumber Bauxite Textile and leather Metalworking Office machines Agricultural Power machInery, switch gear Trucks and buses Civilian aircraft and parts PAGENO="0114" 108 Mr BYRNES Petroleum products Ambassador ROTH. Yes; petroleum and petroleum products. Mr BYRNES Does that include your petrochemicals ~ Ambassador ROTH No, it does not, although feed stocks would be in there. Mr BYRNES Give me an idea what would be included Is it just crude petroleum ~ Ambassador ROTH Crude petroleum Mr. BYRNE'S. Is that Secretary Udull's quota that he gives out? Secretary UDALL Congressman, this would not be included because the crude program generally is under a quota This would be mostly ~n increase in residual oil and other products, not in crude Mr BYRNES I see, residuals Secretary TJDALL. As a matter of fact, we have had a reduction in crude because of the Middle East crisis last year Mr BYRNES That is why I couldn't understand what they would be under petroleum and that would be the big item of relative increase in imports between 1961 and 1967 Ambassador ROTH Feed stocks ~ Secretary UDALL No, the residual oil, which is not under the pro gram. That is the big item in question. Ambassador Ro~m. Paper and paper-based stocks. Mr BYRNES Paper and what ~ Ambassador Ro'rii And paper based stocks Mr BYRNES You better emphasize that Ambassador Roi'ii Yes, sir Textile yarns, fabric and twine, chemi cals, iron and steel products, nonferrous oils, machinery, transport equipment, autos, clothing and footwear, radios, TV's, and other con sumer goods Coffee has gone down Meit and fish has gone down Mr BYRNES That has gone down ~ Ambassador ROTH I'm sorry Coffee has gone down between 1960 and 1967. Meat and fish has gone up, sugar almost the same, and other foods an beverages have gone up Mr Chairman, of course, some of these items are, particularly coffee and cocoa, noncompetitive Mr BYRNES I am not worried about coffee You know that We are not employing very many people growing coffee in this country Ambassador RcYrH This is the general picture Mr BYRNES I am trying to determine whether or not we are paying enough attention to maitaining a demand for low and semi skilled workers, Mr Secretary Whether our developing trade pattern favors the highly skilled labor product Our export import picture, whether it is deteriorating, whether it is in balance, or whether it is favorabh, may have some very serious labor aspects to it at a time when we must find jobs for low and semi skilled workers Secretary WIRTZ It will bear on the question, Mr Byrnes, if I tell you that during the last 2 weeks of the negotiations in Gene~ a, when there was almost daily contact between Ambassador Roth and the i arious agencies of Government, the Department of Labor was, through Assistant Secretary Weaver, giving our immediite reaction every day as those questions arose in terms of the job tags which h'id to be attached to each The answer to your question is that that matter PAGENO="0115" 109 was considered in those terms as actively as it could be pursued at that moment. I do not intend to suggest that the state of the art is so complete that you can immediately translate it because one cannot. But if your question is whether the job implications of the negotiations and the development of this policy are being taken into account, I mention that as an illustration of the immediacy with which they were taken into account this last year. Mr. BYRNES. I appreciate that during the negotiations you did give consideration to this labor factor. The problem that concerns me is what happens when we get into unforeseen circumstances, and steel may be the typical example. You made an offer you thought was safe, and you thought for a considerable period of time that you were safe to make a concession of reduced duty. Then all of a sudden within 6 months of the time you were ready to conclude the agreement, Mr. Ambassador, you decided this would be dangerous from an employment standpoint? Isn't that right? Ambassador Rorn. Total picture. Mr. BYRNE5. Now consider a situation that occurs a year later when your facts catch up to you after you have completed an agreement and action has been taken. We have to find some mechanism after the agree- ment is signed to take care of those situations just as you found a means in the negotiations to withdraw a concession. It seems to me that is one of the problems that we have to focus on. We are now apparently stalemated by the fact that you always insist that we don't dare take any action to correct a mistake, other than through the adjustment assistance approach because we may. face retaliation. This framework worries me because it is frozen. I am not sure that I agree all this retaliation will necessarily take place. Mr. TJLLMAN (presiding). The committee will stand in recess until 2 p.m. (Whereupon, at 12:25 p.m., the committee recessed to reconvene at 2 p.m., the same day.) AFTER RECESS (The committee reconvened at 2 p.m., Hon. Wilbur P. Mills, chair~ man of the committee, presiding.) The CHAIRMAN. When we adjourned at noon, Mr. Byrnes had not completed his interrogation. Mr. BYRNES. I suppose I should address this to Ambassador Roth I will have a general question later with respect to which I would like to have comments from the other witnesses. The bill before us, Mr. Ambassador, as I read the message of the President, has four provisions. Correct me if I am wrong. The first extends the President's authority to make tariff adjust- ments; that is, the unused authority, to June 30, 19'TO. The second eliminates the American selling price system of customs evaluation. The third authorizes specific appropriations for the American share of the cost of administering the General Agreement of Tariffs and Trade~ PAGENO="0116" 110 The fourth broadens the eligibility of adjustment assistance and in effect applies the adjustment assistance provisions of the Automo- tive Trade Act to the overall GATT items. Is there anything else contained in this legislation that is recom- mended at this time? Those are the four items. Is that the present package, or did I leave something out? Ambassador ROTH. You left out the extension of the adjustment assistance provision in the Automotive Products Trade Act. Mr. BYRNES. I see. There are two aspects of the adjustment assist- ance? Ambassador ROTH. That is right. Mr. BYRNES. So you have five items then. Now, we have a very serious balance-of-payments problem. Of course, a very important aspect of balance of payments is our balance of trade. I have pointed out that part of this problem, probably the heart of it, is the fact that our balance of trade is no longer producing the favorable balance that it has in the past. A favorable balance is necessary in some place, if we are going to offset the unfavorable aspects in our international payments. What does this bill do to help out our immediate balance-of-pay- ments problem, or are we considering this as fundamentally unre- lated to the current balance-of-payments problem? Let me add this one statement. This whole matter, as I understood it, became after the first of the year, an area for exploration and an area that we had to be concerned with because of the very serious balance-of-payments situation. Now, where does it stand today? Ambassador ROTH. That is correct, Mr. Byrnes. We started out at the beginning of the year concerned, as we still are, about our balance-of-payments situation as it relates to trade. We were concerned about looking at two areas of possible action. One, the area that Secretary Smith discussed `this morning, on export expansion. Mr. BYRNES. There is nothing in here that does anything on that, is there? Ambassador ROTH. No, this is a separate program. Mr. BYRNES. I want to find out in what context this was considered. Ambassador ROTH. There is nothing in this bill that goes directly to this problem. If I can, let me review the administration's thinking on the balance- of-payment problem, as it relates to trade, since we last discussed it. Mr. BYRNES. I would like to have that, but let me first clarify the context in which you are asking this committee to consider this legislation. IDo I understand that you are suggesting that we do not consider it as an integral aspect of the current, very serious problem that we have in the balance-of-payments situation? Ambassador ROTH. That is correct. We also are not asking you to consider it as a total trade program, which we are currently studying. It is an interim measure. As you said, there are five parts, but there are really three which are most important: the extension of tariff-reducing authority; the PAGENO="0117" 111 amendment of the criteria for adjustment assistance, which is really a correction of what the Congress did in 1962; and the ASP package, which was negotiated in the Kennedy round. Mr. BYRNES, It would be interesting to review the debates in 1962, when the Tra4e Expansion Act was presented to us. It was going to cure every problem we had, and certainly was going to cure the balance-of-payments problems which we had back in 1962. There has been a shortfall someplace. Now this legislation is not presented as a cure for the balance-of-payments problem? Ambassador ROTH. No. I think I can also predict in the future that no trade bill will ever be presented to you by any administration that could reasonably do that. Mr. BYRNES. That was my understanding at that time. If you read the debates in the House, the gentleman from Louisiana and I at that time had quite a discussion on the floor. He was carrying the ball for those who said the legislation was going to take care of everything. I suggested that I thought the administration was overselling it, as they have oversold too many measures, as to what it would accomplish. Now, when this committee met earlier this year the administration presented a prbgram to deal directly with the continuing serious prob- lem of our balance of payments. We were athised that there would be a trade package later on. Do 1 understand now that any recommendation in that area has been abandoned, other than the items that we had before us at that time? Ambassador Ro'rii. At least as of this moment, there is no present plan to submit a separate piece of trade legislation specifically diverted to our balance-of-payments problem. Mr. BYRNES. Now, there was something you said you wanted to add before. Ambassador ROTH. We had, as you remember, a discussion of this before this committee earlier this year. We said that we were then dis- cussing several possibilities with our trading partners to see if we wanted to recommend to you unilateral action on our part through the regular GATT procedures. Actually, there were three possibilities we were considering. As of now, we are not intending to present any of these to you. Mr. B~iii~ir~. The point is that we still have not received a particular recommendation in this area as it relates to the current problem of the balance of payments. Ambassador ROTH. I think as the discussions continued, and as we looked at our particular problems and the figures in greater depth, it seemed to us in the final analysis that the kind of measures we were speaking of-and the only kind that would have been accepted by.our trading partners were very temporary, moderate ones-that these would not have the net trade effect that would sufficiently offset what we would lose in the long run by using, say, an import surcharge. Mr. BYRNES. What about the surcharge? Ambassador Ro~m. We felt that any moderate, temporary, import `surcharge would not have enough of a net trade effect to offset the damage it could do on a longer range basis. Mr. BYRNES. Because of retaliation, you mean? Ambassador ROTH. No, not because of retaliation. We felt that a number of countries who were in a deficit position, as we are, or close PAGENO="0118" 112 to it, or threatened by it, such as Canada, Japan, and the United King dom, would have to follow us. There was a possibility that a number of European countries would not, at least for a period. Therefore, for a period of a year or two, we could have some net advantage out of it On the other hand, we were talking about a relatively small amount, a couple hundred million dollars I think there remains some danger when the largest economic power in the world undertakes measures like this, even though on a tempo 1 ary basis, that it does set a rather dangerous ex'tmple in terms of ti ade policies by other countries, for the future Mr BYRNES Don't you think also as the largest and most important country in the world, that we have some responsibility to set an exam pie and that we should have the courage to put our own house in order ~ What kind of example do you think we are setting today, with the adverse balance of payments that we have, and our accumulation of adverse balances over the years ~ Ambassador ROTH The answer is that you are absolutely right We have an obligation to set our own house in order When we first talked to our trading partners in Europe after Jan uary 1, the first point you remember in the President's message was that we. needed the tax bill. Mr BYRNES That is not going to correct the current balance of payments within the near future Ambassador ROTH That is right Still, if I may make a point, this, almost like ASP has become a symbol in Europe among the central bankers of the ability of this country to control its own economy. But it is not the answer to the immediate problem Nevertheless, the answer to our trade problem is basically one of controlling this economy, and having the surplus countries expand Mr BYRNES Controlling this economy ~ Ambassador ROTH. Of having economic stability in costs and prices. Mr BYRNES We are not doing that, though, are we Ambassador ROTH Not sufficiently Mr BYRNES I have some difficulty with the idea that the way we should have our problem cured is to look to "our trading partners" to embark on a program of inflation and get ahead of us in the infla tionary race That would improve it Is that what you mean by this expansionary program that you say some of them have agreed to undertake ~ Ambassador Roni Take the case of Germany Certainly you are not talking about encouraging an inflationary mood in that country Nevertheless, for a country in such a surplus position, it is perfectly reasonable that they have a growth rate in excess, say, of 4 percent. And it is unreasonable, getting back to this very complex problem of border taxes, when they go from under compensation to full compen- s'ttion, from 4 percent to 10 percent, as they did earlier this year Their own economists, some of them, will admit that this could have the equivalent effect of a devaluation of 1 or 2 percent For them to do that at a time when they are in a surplus position is not reasonable, in terms of what should happen in the adjustment process PAGENO="0119" 113 Mr. BmNi~s. Let us take the German situation. Explain, if you would, the new change that they made earlier this year in the appli- cation of their added value tax. Didn't they generalize the tax and apply a 10-percent rate, whereas before it had been a lower rate? Ambassador ROTH. They had before. Mr. BYRNE5. This is what they did with respect to exports, where they gave .a rebate, and imports, where they imposed the tax. Ambassador ROTH. Previously they had a turnover tax, under which each time a product changed hands, a tax was paid. Now, with that, it is very hard to calculate the tax paid in terms of the end prod- uct because in a vertically- Mr. BYRNES. What was the net effect of it, so far as it related to exports and imports? Ambassador ROTH. I am coming to that, but I have to state this: one item, say an automobile, in a vertical industrial situation might only go through one hand and might have a single tax while another item might change hands in the manufacturing process many times, so when you got to the end of that process, it was very hard on a product basis to calculate what the tax was. So, in effect, at the border, using the border-tax rationale, they undercompensated for what they thought the total tax was, and they come up with 4 percent. Mr. BYRNES. With how much? Ambassador ROTH. With 4 percent. So, to the extent that these taxes were passed through into price and the `border tax and export rebate were undercompensated on both the import and the export side, there was perhaps even an advantage to our exports. Then on January 1 they went to an added-value tax, 10 percent, and this very clearly indicated what the tax was at the end of the line-it was 10 percent. So this became the border-tax adjustment. Now, we feel that in the short run there could be-the extent we don't know-some harm to our trade in going from undercompensation at 4 percent to full compensation at 10 percent. But it is wrong to say that we are now disadvantaged as much as 6 percent, because the theory and the evidence in the long run is that a major part of the tax is passed on through into price, and there is not much of a disadvantage. Now, having said this merely to indicate the complexity of the prob- lem, we are nevertheless pushing very hard to try to find a better under- standing of this problem, and a better way of getting at this relation- ship between fiscal policy and trade. Mr. BYRNES. The net effect, though, of this whole thing has been a considerable increase in both the subsidy on their exports and the impo- sition of duty on imports, hasn't it? Ambassador ROTH. The net effect has been an extra charge for the American exporter to that market, and also for the domestic producer. Mr. BYRNES. The domestic producer within the market in Germany is what you are talking about? Ambassador ROTH. That is right. PAGENO="0120" 114 Mr. BYRNEa. There is also a bigger impact on the imports than the impact on the domestic producer producing for that market, isn't there? Ambassador RorrH. On the part of exports, the same theory would hold; namely, that you want to take out the price effect of that tax, which has been paid and passed forward. We ourselves, by the way, do this with a much more limited group of products. Mr. SMITH. I want to add to what Mr. Roth said. We have two types of tax remission of our own. We have the draw- back and customs duties, where a portion of the product has been imported, or raw material has been imported. That tax is rebated on export. Mr. BYRNES. Are you comparing that? Do you think this is an off- setting factor to the value-added tax? Mr. SMITH. I am just saying to this degree we are doing the same thing that they do, in a more limited way. We also rebate manufacturer's excise taxes upon export of automo- biles and tobacco. There are five products where we have tax rebates. Mr. BYRNES. You are not suggesting are you, that the situations are at all comparable? Are you comparing the basic German taxes to the limited situation where we do have a drawback and we do have a refund of the automobile manufacturer's excise tax? Ambassador R,orrH. There is no comparability. Mr. BYRNES. As far as I am concerned, it confuses the record to make it look like we are doing the same thing. Frankly, I am tired of people who expect Uncle Sam to go around saying "Mea culpa, mea culpa, mea maxima culpa," we are the only bad guys around. Ambassador ROTH. This is not the intent. My intent was to show that we have to attack the problem in a knowledgeable way. In the discussions going on in GATT, one of the problems is to get real hard evidence as to what the effect of a border tax in Europe has been on American products. At the beginning of the Kennedy round, we asked industries-in one case I asked four large industries-if they would finance such a study, because they would have to use confidential material that they might not want the Government to have. You would have to do it by taking a product and costing it right through into the German market. The material developed to date, including some of the work done by the chemical industry, has been inadequate. Just recently one chemical company, and I can perhaps discuss this when we are in executive session, has been able, by sending people abroad, to put together some meaningful data. I hope as these negotia- tions in Geneva go on, we can begin to get at the guts of this issue. It is not simple. Mr. BYRNES. They do not apply that, though, interestingly enough, to all items that come in. They don't apply the border tax on every- thing, do they? Ambassador ROTH. No. PAGENO="0121" 115 Mr. BYRN1~S. Yet it is supposed to be an outgrowth of a tax problem. Ambassador ROTH. They don't apply it to the same extent to cer- tain, as I remember, heavy products. Mr. MALMOREN. Mr. Congressman, as to the change over in the EEC to the tax on value added, all the countries are moving toward it. Once that tax is in force, they will tax all products crossing the border, in the same way they would tax their domestic products. Mr. BYRNES. But they apply it generally now, don't they, since the first of the yei~r, in Germany? Mr. MALMGREN. In Germany? Mr. BYRNES. Doesn't Germany also except some items? Mr. MALMGhEN. Not under the new TVA system. Mr. BYRNES. The new what? Mr. MALMGREN. The new tax on added-value system does not ex- empt products. Mr. BYRNES. For instance, does commercial aircraft pay the border tax? Mr. MALMGREN. I am sorry, Mr. Byrnes. We will check that. To our knowledge, the tax is paid unless the tax is not paid on the domestic product or its components coming through the system. We will check on that. Mr. BYRNES. I thought the tax was generalized to apply broadly as a part of German tax policy. It is then applied at the border, as part of tax policy. I also have some information that there is sometimes selectivity at the border. When they do that it, is very close to a duty or a tariff, rather than just a tax policy. Ambassador ROTH. In the previous system, the turnover tax, there was some selectivity, but the whole point of the new system, as I under- stand it, is that it will be generalized across the board. Mr. BYRNE5. It is not a question of what will be. It went into effect on January 1, as I understand it. Ambassador ROTH. Yes, it will be. We will check on this. Mr. BYRNES. I would like to know whether or not this applies on everything, or whether there is a selectivity. Can exemption be granted to the border tax? Ambassador ROTH. To the best of our knowledge, there is not, but we will check. (The following information was received by the committee:) SELECTIVITY OF THE GERMAN VALUE-ADDED TAX 1. There are only three cases In which commercial importation's are exempt from the German v'alue~added tax (TVA): (1) Sea-going vessels (Ex Tariff Nos. 89.01 8-8 and Ex 8902 of the German Tariff Schedule); (2) S~curities, shares in corporations and other associatioiis, legal cur- rency, and domestic official stamps; and (3) Blood plasma. These proch~cts are `also free from TVA internally. 2. Government purchases are not exempt from the TVA. The citation of com- mercial aircraft may be the result. of a misunderstanding between "Duty" and "Tax". Commerciai aircraft over 15,000. KG may be imported at present free of customs duty but not free of TVA into the Federal Republic. PAGENO="0122" 116 3. There is, of course, a group of mostly non-commercial commodities, such as heirlooms gifts advertising media diplomatic consignments etc which are not subject to on importation Ambassador ROTH M'iy I say that it is in Germany and France where the system has come into efFect It will follow with the other members of the community Mr BYRNES It also has the effect of a devaluation, and particularly in terms of the rehtionship to the international trade market Ambassador ROTH As I said earlier, the practical effect during this interim period, when you went from under compensation to full com pensation, in the case of Germany, is a devaluation of 1 or 2 percent This is one of the arguments that we are using Particularly in considering the adjustment process, they being a surplus country, we being deficit, this makes no sense Mr. BYRNE5. It certainly does not help us any. Yet we go around here iustifying it, really You come here and say this is just part of their business operation If we do something in our own best interest, it will apparently cause severe dislocations Because we are the leading country, we should not do anything to cope with our balance of payments prob lem, as serious as it is Ambassador ROTH Although we can understand why the EEC moves to a total added value tax It is a cleaner way for them to handle their taxation system But insofar as it hurts our trade, we certainly are not going to stand by idly This is why we have pressed, and are pressing, `this matter in the GATT. Mr BYRNES I get disturbed, Mr Ambassador, `because too many of our Government spokesmen always seems to be able to find a justifica tion and a rationale for `ictions taken by our "trading partners" We ought to be tolerant, and we ought to be reasonable, but when we propose similar action that we feel is essential to our well being, it is a grievious sin, and there is just no excuse for taking any action That disturbs me Ambassador ROTH `Congressman Byrnes, at least I feel that the position of the United States has changed very markedly in recent years. If we have not before, we certainly must now press very strongly where our exports are bthng discriminated against, no matter how good the rationaic may be on the other side This is why we have imposed countervailing duties on transmission towers and tomato paste from Italy Perhaps more importantly, in poultry, for example, we decided that where we have lost markets because `of sriThsidies by other countries, no matter how justified under the GATT, we are going to do the same We are going to get that market back We are always willing to talk about it, and negotiate about it in the GATT, but we are going to get our market back Mr. BYRNES. We'll, you were under certain instructions under the Trade Exp'insion Act of 1962, under section 262, weren't you ~ Ambassador ROTH That is correct, section 252 Mr BYRNES Yes, section 252 Congress said you were supposed to focus, give real attenion to re moving restrictions that other countries-our trading partners--had imposed, and were imposing PAGENO="0123" 117 I don't want to take the time of the committee now, but I would like to ask you to furnish to the committee in detail the specific steps taken to carry out the. directive of section 252. (See p. 609.) I would like to have a country-by-country analysis, of the particular restrictions these countries have that violate GATT. I don't want gen- eralized information, such as the 14 categories of "buy Japan" items that the Japanese have, which I understand is a violation of GATT. Ambassador ROTH. It is not quite clear. Mr. BYRNE'S. You don't know whether they violate GATT? Those categories were defined in 1963, weren't they? Mr. RERM. Mr. Byrnes, that is a matter with respect to, as we call it, "buy national." There is a provision of the GATT which does permit, under certain circumstances-it is not unconditional, a government to impose such requirements. As you know, we have a Buy America Act of our own. In general, I don't believe we are in a position to answer your question as to legality. We would have to look at how the Government of Japan is applying such a requirement and with respect to specific products. Mr. BYRNES. It was in 1963 that these 14 categories were established by Japan. Mr. REUM. Correct. Mr. BYRNES The net effect of that is that these products, so far as the Government is concerned, shall be bought locally, and not imported. Is that correct? Mr. REHM. That is certainly the intent of the order. Mr. BYRNES. In most of these categories, the purchases are restricted to purchases `by the Government itself. They buy it, if there are any purchases to be made, for the domestic needs, don't they? Mr. REHM. Yes, that is correct. That would be one of the questions that would `be germane to the issue of legality. If it is governmental procurement, it might be one thing. If it is for a private entity, in fact, it might be another. Mr. BYRNES. This was in 1963 `that this order was issued by the Japa- nese Finance Ministry. This is now June of 1968,. and we have not even decided whether this is legal or illegal under GAT'T. Where is our retaliation that you talk `about? I thought that action contrary to GATT would immediately result in withdrawal of con- cessions, in retaliation being taken. Here are 14 categories that are listed by `the Japanese Government. They have a right to do whatever is in their best interest. I am not angry with Japan, but I just want to find out how consistent we are. But 4~/2 years later, we still haven't decided whether this action is legal under GATT or not, whether we have any right to impose with- drawal of concessions, or impost retaliatory measures. Mr. REHM. As I understand `the situation, it is not yet clear, with respect to the 14 categories you mentioned, `that they have been imposed in a restrictive manner. Mr. BYRNES. Have you looked into computers, and can you say that has not `been done in a restrictive manner? I know you are going to say they are relaxing it. That proves it was restrictive to begin with, and still is restrictive. PAGENO="0124" 118 Mr. BERM. What objective evidence is there that it has been applied restrictively? Our exports, as I recall, have been increasing, increasing very sharply to Japan. Is that not right? Mr. BYRNES. They have increased, but we are also to the point where some of our computer manufacturers feel that the only way they are going to get into the Japanese market at all is by putting up a plant in Japan, and they are restricted from doing that. Mr. REHM. The only point I was trying to make-I certainly could be wrong on the facts in this case-is that normally, and I think this is the way governments behave, and private individuals--you don't get to the question of legality until you feel there is a serious trade problem. Mr. BYRNES. Even though they establish a restriction, you have to wait and see how restrictive it is before determining its legality. If your exports are going up by 10 percent, even though they might have gone up a hundred percent without the restriction, then you should not complain, or you should not take any action? Mr. REHM. All I was trying to suggest is that I think you have to wait until there is a substantial and significant restrictive effect, before you do take action in terms of exercising your legal rights under the GATT. Mr. BYRNES. I thought the Secretary was just saying that one of the reasons we were not taking remedial action is because it would not be too effective. Yet, at the same time we were hearing about re- strictive imports, spokesmen from this Government were saying this kind of action on our part would lead to retaliation. How is this consistent? Ambassador ROTH. That was not the point. Leaving the specific problem you mentioned, and going back to this question of illegal restrictions, and we will have a piece of paper for you, I would also like to put in a fuller paper for this coimffittee on nontariff barriers, illegal or not. Mr. BYRNES. I was coming to that. Ambassador ROTH. If I could just finish. In the case of Japan and some other countries, during the Kennedy round we pressed on the illegal restrictions, but not as strongly as legal restrictions, because by the terms of the Trade Expansion Act we could not offer tariff reductions to obtain their elimination. Since the end of the Kennedy round, however, and particularly since this country is in a changed position, there is no excuse for us not pressing as hard as possible. One example that is giving us great concern relates to one of our biggest export industries, and that is the automobile industry. Here the Japanese have clearly illegal restrictions. Mr. BYRNES. Legal, or illegal? Ambassador ROTH. Illegal. This has been under bilateral discussion since the beginning of the year. We have finally told them that unless they come up with a satis- factory solution, in a very short period of time, we will invoke article 23 of the GATT to take them to court, which in turn will most likely give us the ability to retaliate against them. PAGENO="0125" 119 Mr. BYRNES. On this automobile issue, when did Japan take this action, which was clearly illegal under the GATT agreement? Ambassador ROTH. If I am correct, they were probably residual quotas from the early 1950's, when they were legal. Mr. BYRNES. This has been going on for a number of years, at least since 1962. Is that correct? Ambassador ROTH. That is correct. Mr. BYRNES. I use 1962 because that is when we directed specifically that particular attention be paid to these kinds of matters* by our people. Fundamentally, the word was the President's, but there has been no withdrawal of concession, there has been no retaliatory action; has there? Yet in your statement you pointed out that would apply right away. Ambassador ROTH. A very good example of retaliatory action is what we did in poultry. Mr. BYRNES. I am talking about Japan. Did poultry have any relationship to the Japanese automobile situation? I am talking about a specific case, now, the Japanese automobile. You said it started in the 1950's. I said they have been violating GATT since at least 1962. Ambassador ROTH. That is right. Mr. BYRNES. Six years. Ambassador ROTH. Both Japan and, in effect, France have still some illegal restrictions. Mr. BYRNES. Yet we have never taken any retaliatory action on these items; have we? Ambassador ROTH. We have been pressing very hard. Mr. BYRNES. In the meantime, the industry that is being keep out of that market continue to be kept out of that market. Our trade suffers, as a result. Ambassador ROTH. That is correct. Mr. BYRNES. Are we in violation of GATT in connection with any actions we have taken relating to Japan? Ambassador ROTH. Not that I know of. Could I broaden this question of the automobile? Mr. BYRNES. If we did something tomorrow, I imagine that they would retaliate the next day; or very shortly. They would not wait 6 years. Ambassador ROTH. When I spoke in my written statement of mass retaliation, I was talking in respect to a number of these quota bills which affect tremendous volumes of trade. Mr. BYRNES. These things are also cumulative. This can also be pretty important. Maybe you think you only have to be dealing with mass items before you have to be concerned about it, but this is not so for the people who are restricted. I might read for the record the 14 categories that are under this restriction: Four-wheel vehicles. I know they didn't list two-wheeled vehicles. I suppose that is because they have the corner on the market, not only here but in Japan, on Hondas, Yamahas, and so forth. They did not have to restrict that. PAGENO="0126" 120 Digital computers, office equipment, air conditioners, scales and measuring equipment, civil engineering and construction equipment, agricultural equipment, communications apparatus and radio equip inent, electric wire and insulating cable, aircraft, thermal electric gen eratrng equipment, pumps, blowers, and air compressors, printing and bookbinding machines, machine tools They are pretty broad categories Machine tools covers quite an area Ambassador ROTH. Could I also, for the record, Congressman, broaden the question on automobiles? Mr. BYRNES. Certainly. I want all the information we can get, be- cause I think we need it Ambassador ROTH I agree This is terribly important Certainly where you have a situation, as you do in automobiles, where you have a rapid increase of imports from a particular country, which happened last year in the case of Japan, we feel it is absolutely essential that our industry has a chance to compete in that market This is why, if need be, we ~ ill go to article 23 in the GATT on the illegal import restrictions on automobile parts and engines But the problem goes beyond that The Japanese have, as the Euro peans have, a road tax which we feel is discriminatory. They argue it is not. They also have, as you know, restrictions against American investment in many sectors of their economy, and this includes the automobile industry Certainly our industry is very anxious to export to this market They feel they also ought to be able to invest in it I would like to put this on the record, because I think this is the kind of problem that we have to key into rather strongly Mr BYRNES That is what you said you would do in 1962, in the Trade Expansion Act. The committee pUt in a lot of time during the discussions we had in 1962. You remember the concern we all had, that this was being ig- nored, that getting rid of these nontariff restnctions requned greater attention. That is why I want to find out what the situation is now I think it would be helpful to have the information on a country by country basis for those countries that are members of the GATT. We don't have to worry at this point about the ones that aren't. (Sec p 609) I would like to know in each of these countries the actions they have taken `that you believe are questionable under GATT. Apparently there is no use in asking you whether it is illegal because you wouldn't know that. There have been some actions that are contrary to GATT, but they have been waived I would like that information filed on a country by country basis I don't ~ ant to pick out any country, as I am not anti Japan or anti British, or anything else But I want to find out what they are doing And then list the other restrictions on trade practiced by those countries that affect our potential exports to that country or other countries' exports to them I assume there are some restrictions that GATT does not cover. Does GATT cover the specni ~ eight tax that is applied on automobiles in PAGENO="0127" 121 some countries in order to make sure that the American automobile pays a penalty? Ambassador ROTH. No. Mr. BYRNES. That would not be considered a restriction that was in violation of GATT; would it? Ambassador ROTH. No. The governments that have those taxes in effect have a rationale for them. Mr. BYRNES. But it is certainly recognized, is it not, that this is not a device to raise revenue, but to restrict the sale of American auto- mobiles? Ambassador ROTH. Absolutely. Mr. BYRNES. I would like those kinds of items, also, so that we can see. - Frankly, I am going to want to have this disseminated to the public, so that if anyone else knows of other items they can add them. I also want to find out from this list how diligent you people have been to find out what is being done to harm our trade abroad. Ambassador ROTH. May I comment on the diligence? As a part of this study which, as I said, we felt should be done with- in the Government, in November in Geneva, I asked that the GATT countries put together an overall analysis of nontariff barriers around the world, and that we begin negotiations when that was completed. As a result, we in this country, for instance, put together a list of nontariff barriers in other countries. Other countries, of course, in- cluded our nontariff barriers. These are to be submitted to the GATT Secretariat, so that they will have an overall document. When we put our total list together, we sent it out to each of our embassies and asked them to improve on it. Then, at the beginning of our own Trade Information Committee hearings, which started this March, we asked American industry if at all possible to tell us what their problems were. If I could go back to the Congress's interest in 1962, in nontariff barriers, over the 4 years of the Kennedy round, we tried to get from industry as much specific data as we could in this area. Many times you will find that, although companies spoke of nontariff barriers abroad, they did not have the concrete, specific information we needed, and we have been trying to get this. We have been improving what we have received. Sometimes there is confidential material which they feel they can't give us. In the case of one major industry that was concerned about European government procurement policies, they felt they could not give us their confidential information. If their name were used, it might hurt their reputation with the governments in particular. So it has been a long, slow process, but it is absolutely essential when you talk in this area that you have very specific information from the people in the business. Often the people in the company do not know what is happening. Mr. BYRNES. I would like to have the cooperation of the business community in developing this information. It seems to me they should bend over backward to be of every possible help to you. Ambassador ROTH. It is not lack of cooperation so much as the need for them to think through this problem, and to be willing to give us the information. In many areas over the last year or two, we have begun to get it. PAGENO="0128" 122 Mr. BYRNES. In dealing with governments both here and abroad, I knew we have the fear that you do not dare to offend the powers that be. Ambassador ROTH. That is right. Mr. BYRNES. When people are afraid of what the consequences are if they do what they think is right, it is one of the worst trends we have. Ambassador ROTH. As a marginal note, I may say I came up against the same thing on the other side. A member of one of the European governments was complaining about American selling price, saying, "This is the symbol of all of America's nontariff barriers." I said, "What nontariff barriers did you have in mind?" He said, "I don't know but you have a bt of them." So often they don't know specifically. There is need for specifics. Mr. BYRNES. Along with the other data requested, I would like to have a list of what you consider nontariff barriers on a country-by- country basis. I think we had better know what we are doing, where, and why, and the people should know. Ambassador ROTH. That is available. (The following material was received by the committee:) PRELIMINARY INVENTORIES OF NON-TARIFF BARRIERS There follow preliminary inventories of (1) other countries.' industrial non- tariff barriers, (2) other countries' agricultural non-tariff barriers, and (3) al- leged U.S. non-tariff barriers raised by other countries. In addition, there is set out an article by William B. Kelly, Jr., entitled "Non- tariff Barriers". Mr. Kelly is presently with the Office of the Special Representa- tive for Trade Negotiations. This article di:sbusses some of the more important non-tariff barriers on industrial products in~posed by countries of the EEC and the European Free Trade Association, Canada, Japan, and the United States. PAGENO="0129" PRELIMINARY INVENTORY OF NON-TARIFF BARRIERS AFFECTING UNITED STATES TBADE IN AGRICULTURAL PRODUCTS Variable Levy. Quantitative Restriction . Licensing Import Calendars State Trading Conditional Imports Mixing Regulation Minimum Import Price Supplementary Charge Bilateral Agreement Exchange Restrictions Advance Deposits Internal Duties and Taxes. . Administrative Procedures. . Health and Sanitary Regulation Marketing Standards CLASSIFICATION OF NTB's VL .QR L IC ST CI MR MP SC BA. AD DT AP HS MS. (123) 95-159 0-68-pt. 1-9 PAGENO="0130" Imports prohibited (except as permitted by Minister for scientific or other reasons) Imports prohibited Imports prohibited Imports prohibited, except from New Zealand .Imports prohibited, except from New Zealand, UK and Ireland Same as above Imports prohibited Imports prohibited HS Imports prohibited, except from New Zealand, UK and Ireland HS Imports prohibited, except from New Zealand HS Same as above `.. Australia Agricultural Nontariff Barriers Australia Tariff Number Commodity Description Type of Restriction - 001.10.00 Cattle, including buffalo HS 001.20.00 001.30.00 001.40.00 Sheep, lambs, and goats Pigs Poultry HS HS HS 001.50.01 Horses HS 001.50.09 001.90.01 cx. 001.90.09 cx. 001.90.09 Asses, mules and hinnies Birds Other live animals, excluding rabbits Rabbits HS HS HS 011.10.00 Meat of bovine animals, fresh, chilled or*frozen 011.20.00 Meat of sheep,. lambs and goats, fresh, chilled or frozen 011.30.00 Meat of pigs, fresh, chilled or frozen HS Imports prohibited PAGENO="0131" 011.60.00 011.81.00 011.89.00 012.10.01 012.10.Q9 012 .90.0~ 023 .00 .00 Australia Agricultural Nontariff Barriers Australia Type of Tariff Number Commodity Description Restriction Remarks 011.40.00 Poultry, including offals, ES Imports prohibited, except from except liver, fresh, New Zealand chilled or frozen 011.50.00 Meat of horses, asses and ES Same as above mules, etc., fresh, chilled or frozen Edible offals of cattle, HS Same as above sheep, etc. Poultry liver ES Same as above Meat and edible offals, HS Same as above nes Bacon and ham, dried, ES Imports prohibited smOked or salted Other pigmeat, dried, HS Same as above smoked or salted Meat and offa1s~ nes, ES Imports prohibited, except from dried, smoked or salted New Zealand Butter ES Imports are restricted by operations of the quasi-governmental Dairy Pro- duce Board and the provisions of the Au~tra1ia~New Ze~1and Free Trade agreement, as well as by quantitative against other supplier countries. PAGENO="0132" HS Imports prohibited except from New Zealand HS Imports prohibited, except seed, which requires a permit. The Wheat Board is the sole constituted authority of wheat market within Australia Imports prohibited, except seed Same as above Same as above Same as above Requires certificates that shipments originated in a country free from citrus canker and that the fruit was effectively fumigated. Subject *to import permit issued by quantitative authorities and special regulations for Western Australia. Can be imported only for research. Imports permitted under special authorization usually from New Zealand Imports prohibited except under special authorization Agricultural Nontariff Barriers Australia Australia Tariff Type of Number Commodity Description 025.00.00 Eggs 041.00.00 Wheat, unmilled 044.00.00 Maize, unmilled H5 :~O45.lO.00 Rye, unmilled HS 045.20.00 Oats, unmilled ES 045.90.09 Sorghums, broomcorn, etc. HS 051.10 and Fresh and dried HS 051.20 citrus fruit * 051.72.17 Walnuts HS 054.10.00 Fresh potatoes ES 054.40.00 Fresh tomatoes ES PAGENO="0133" Australia Agricultural Nontariff Barriers Australia Typeof Tariff Number Corn modity ]Yescrimtion Restriction Remarks 054.50.01 Fresh onions HS Must be certified free of onion smut, white rot and neck rot ex. 054.50.09 Fresh broccoli, cauli- HS Imports prohibited (lettuce only from flower, lettuce, radishes, countries where cabbage worms are and turnips known to exist) 054.84.00 Hop cones HS Must be certified as coming from a country where downy mildew is not known to exist. 061.10 and Raw and OR Importation of sugar is prohibited 061.20 refined sugar 091.40.00 Margarine .HS Must be colored pink 121.00.00 Tobacco, unmanufactured, CI, MR To qualify for concessional rates on and refuse imports -- and all imports are bought at these rates -- manufacturers must use a mixture of 50 percent domestic leaf and buy enough Australian tobacco * to last them until the next crop. 221.10.00 Peanuts HS, CI Import permit required. Imports under by-law provisions favored. Domestic production increasing. 221 .40.00 Soybeans HS Imports prohibited except under * ~- permit. PAGENO="0134" Type of Restriction Remarks HS Imports prohibited except under permit Permit required Australian manufacturers must buy the domestic lint cotton before they can qualify for tariff concessions on imports Bean, butterfly peas, and tomato seeds require permits. Hyancinth bean seed must be free from blights, wilts and viruses. Requires permit Australia Agricultural Nontariff Barriers Australia Tariff Number Commodity Desàription 221.50.00 Linseed 221.60.00 Cottonseed HS 263.10.01 Raw cotton, extra short CI staple (less than 3/4 inch) 263.10.02 Raw cotton, short staple CI (3/4-7/8 inch) 263 10 03 Raw cotton medium staple CI (7/8 - 1-3/8 inch) 263 10 04 Raw cotton extra long CI staple (over 1-3/8 inch) 263.20.00 Cotton llnter CI 263.30.00 Cotton waste, not carded CI or combed 263 40 00 Cotton carded or combed CI cx 292 50 49 Vegetable seeds other HS than beet carrot celery lettuce melon and onion 292 50 22 White sweet clover seed HS PAGENO="0135" Australia Agricultural Nontariff Barriers Australia Tariff Number Commodity Description Type of Restriction Remarks cx. 292.50.39 Grass and field seeds HS Alfalfa or lucerne, barley, coffee, grain sorghum, maize, oats, flax or linseed, peanut, rice, rye, soybean and tobacco seed require permits cx. 292.50.59 Fruit seeds HS Chestnut and citrus seeds require permits cx. 292.61 and Bulbs, tubers, corms, HS Imports prohibited: alfalfa and Z92.69 crowns, rhizomes and lucerns, avocado, banana, barley, live plants cactus, chestnuts, citrus, coffee, gooseberry, hops, potato, rice, sorghum, tobacco and tomato plants; also stone fruit trees and nursery stock, rosaceous, etc. 422.90.03 Safflower oil CI Subject to provisions of by-laws. PAGENO="0136" Austria Agricultural Nontariff Barriers Austria EXPLANATORY NOTES ~/ The five percent premium on Soviet barley is not an import subsidy in the sense that the Austrian Government actually pays the importer an amount equivalent to five percent of the value of Soviet barley imported into Austria What the five-percent clause in barley tenders actually means is that the contract will go to the bidder on Soviet barley as long as the price for such barley does not exceed the lowest bid on non-Soviet barley by more than five percent ~ Under sugar law, effective October 1, 1967, and contingent upon the issuance of the relevant ordinances establishing levels of the levies and other adminisErative matters. Charges are not to exceed tariff rates bound in GATT or EFTA agreement ~/ Under starch law effective October 1967 and contingent upon the issuance of the relevant ordinances establishing the levels of the levies and other administrative matters BTN Nos 17 02 A 19 04 38 l9C2 and 39 O6C2b are subject to equalization fees as well as the variable import levy Charges are not to exceed tariff rates bound in GATT or EFTA agreement PAGENO="0137" Austria Agricultural Nontariff Barriers Austria GUIDE TO RESTRICTIVE CODES MP~.- Minimum price systems: Under the Austrian price equalization system for specific agri- cultural staples, an import subsidy in the strict sense of the word would be required only if the value of the imported farm product. exceeded the fixed "gate price'. SC - Supplementary import charges, generally used in conjunction with minimum price systems~ (Thus, 3,4 shown together indicate the existence of a form of variable levy system in which the minimum price acts as a trigger for the application of the supplementary import charge.) Normally, a variable levy is charged by th~ Austrian Marketing Boards not in addition to, but in lieu of, the statutory tariff. Only in those cases where no variable levy is applied, the statutory tariff (weight basis or ad valorem) auto- matically takes effect. Hence, the variable levy such as is imposed on most grains' and specific, kinds of live- stock products and dairy products, is .equivalent to ~the full difference between the minimum import price ("gate price') and the invoiced value of the import shipment, cif Austrian border. It is, therefore, not quite correct to refer to the type of variable levy applied.by the Austrians as a "strnDlementarv import charge". However, No. 4, will be utilized to identify this type of charge noting the above differences in the case of Austria. MR - "Mixing-in" regulations: "Mixing-in" regulations exist ~ for commercial wheat mil- lings for which the Grain Marketing Board allocates domestic and foreign high-protein wheat to individual flour millers in varying percentages, according to the quality of the domestic bread wheat crop. ` Quantitatwe restr~.ct3.ons: The quantitative restriction system is implemented by licensing and may be a global or country quota upon which public import tenders are issued. ST - State Trading PAGENO="0138" Austria Agricultural Nontariff Barriers Austria GUIDE TO RESTRICTIVE CODES (con~,j * - Commodities for which there is de facto discrimination against imports from the U.S. Where method of discrimination is not indicated by footnotes it derives from the practice (with few exceptions) of specifying Eastern European Countries as sources of supply on the tenders which are issued for imports. This discrimination against the U.S. may be variable. For example, eligible sources in the case of feed grains are sometimes limited to Eastern Bloc countries to help clear bilateral accounts. In other cases procurement is on a much wider basis, including the United States. PAGENO="0139" Austria Agricultural Nontariff Barriers Austria Tariff Number Commodity Description Typeof Restriction . Remarks 01.01 Live horses, for slaughter NP, SC, QR* Live bovine cattle including buffalo, for slaughter Live pigs, for slaughter Meat and edible offals of NP, SC, the animals falling within QR*, ES headings No. 01.01 (horses), 01.02 (Bovine cattle), 01.03 (Swine) Killed poultry of No. 01.05 QR*, ~ meat and edible offals (except liver), fresh, chilled, frozen 02.05 A TJnrendered poultry fat, fresh, chilled, frozen, salted, dried or smoked 02.06 Meat and edible offals (except poultry liver), salted, dried or smoked NP, SC, QR* Imports of raw pork from the U.S. are prohibited. Poultry is liberalized for GATT countries except the U.S. and Canada. Imports from the U.S. are limited by an annual quota for different classes of birds. Agreement with Finland and five Eastern European countries pro- viding for imports of poultry meat. 01.02 01.03 02.01 02 .02 NP, SC, QR* NP, SC, QR* NP, SC, QR* PAGENO="0140" 04.01 Milk and Cream, fresh, not concentrated or sweetened 04.02 04.03 Butter 07.01 Vegetables, fresh or chilled 07.01 A Ware Potatoes B 2,3,4 Tomatoes C lb,.c,d Cauliflower C 2b Brussels Sprouts C 3 Kohlrabi C 4b,c,d Headed Cabbage C 5b,c,d Other Cabbage D lb,c,d Spinach D 2 Cabbage lettuce D 3b,c,d Endives E lb,c,d French beans E2b,c,d Garden Peas NP, SC, OR Cow's milk in any form, and milk products are covered by the import levy and minimum pricing system Austria frequently makes use of a sliding scale tariff for these items Tariff schedules are on an IC basis on all fresh vegetables except artichokes, horseradish, celery, garlic, olives, truffles, and mushrooms QR applies from: Year round QR applies from: 7/16 - 10/31 QR applies from: 6/1 - 12/15 QR applies from: 8/1 - 2/28 * OR applies from: 6/16 - 2/28 QR applies from: 6/16 - 1/31 * QR applies from: 4/1 - 11/30 QR applies from: 8/1 - 2/15 OR applies from: 6/1 - 10/15 QR applies from: 5/16 - 9/30 Austria Agricultural Nontariff Barriers Austria Ta~jff Number Commodity Description Typeof Restriction Remarks Milk and cream, preserved, NP, SC, QR concentrated or sweetened 04.05 Shell eggs NP, SC, QR SC IC OR, IC QR, IC QR, IC QR, IC QR OR, IC QR, IC OR, IC OR OR, IC OR, IC OR, IC PAGENO="0141" Austria Agricultural Nontariff Barriers Austria Type of Tariff Number Commodity Descrintion Restriction Remarks 07.01 F 1 Gherkins and Cucumbers QR of all kinds F 3 Fresh Paprika QR H ] b,c,d Carrots QR, IC QR applies from: 6/1 2/28 H 2 b,c,d Celeriac QR, IC QR applies from: 8/1 - 2/28 H 3 Common Radishes QR H 4 b,c,d Red Beetroot QR, IC QR applies from: 7/1 - 3/31 K 2 b,c,d Onions and shallots QR, IC QR applies from: 8/1 - 3/15 08.02 Lemons HS Citrus fruit treated with diphenyl and flavor seal waxes is considered an adultrated food product and must be labelled accordingly. If the surface is shemically treated, the label must warn against the use of peels for food purposes 08.04 A Grapes, fresh, also QR, IC QR applies from 8/21 - 10/10; tariffs pulp on IC basis 08.06 A Apples QR, IC QR year round; enters free 4/1 - 7/15 B Pears QR, IC QR applies 8/1 - 12/31; enters free 1/1-7/31 08.07 A Apricots . QR, IC Subject to OR 7/1 - 8/31; enters free 9/1 - 6/30 B Peaches - QR, IC Subject to QR 7/16 - 9/30; enters - free 10/1 - 7/15 Cherries QR. IC Subject toQR 5/26 - 7/31 H Plums and Prunes QR, IC Subject to QR 8/I - 10/31; enters free 11/1 - 7/31 PAGENO="0142" Austria Agricultural Nontariff Barriers Austria Tariff Number Commodity Description Type of 08.08 A Strawberries QR, IC Strawberries subject to QR 6/1 - 7/13 08.08 C Currant (black and red) QR Subject to QR year round 10.01 Wheat and mixed wheat NP, SC, ML Austrian wheat tenders usually and rye QR*, ST specify Canada as sole source of supply for high-protein, bread wheat and durum wheat, but specification - to type and grade may vary. The US may become an eligible source of supply with the introduction of new US wheat standards 10.02 Rye NP, SC, QR*,ST 10.03 Barley NP, SC, QR*, Austrian feed grain tenders carry a * ST 5% premium for barley imported from USSR L1 10.04 Oats NP, SC, QR, Simplified importing procedure w/o source specification or import. levies - at present. 10.05 Maize NP, SC, QR*,ST 10.07 Millet and durra NP, SC, QR, ST 11.01 Cereal flours... - . NP, SC, QR, ST Implementation of existing mill rehabili- tation law pre-supposes rigid curtailment of ~fiour imports (wheat) which in absence of NTB's would be effected through high tariffs PAGENO="0143" Austria Agricultural Nontariff Barriers Austria -~- TarIff Number Commodity Description Typeof Restriction Remarks ll.02B Cereal groats and cereal NP, SC, QR, meal, other worked cereal ST grains (rolled or flakes, etc., cxc. husked, glazed and broken rice), edible germs- of cereals 11.07 A Malt, unroasted ST ll.OS Starches and starch NP, SC, QR ~J Quota - flour, inulin 12.d4 A Sugar beets, including NP, SC beet cuts 15.01 A Lard, lard oil NP, SC, QR* 15.02 Raw and rendered tallow NP, SC, QR* Inedible technical tallow bound free, of cattle, sheep, and liberalized vis-a-vis dollar area. goats, other than techni- Quota on the rest. - ~ tallow such as prime - tallow, fancy tallow, and - yellow - 16.01 Sausages and the like of NP, SC, QR meat or meat of fals 16.02 `3 Other prepared or pre~- NP, SC, QR* served meat and meat offals except pate de foie gras - - PAGENO="0144" Austria Agricultural Nontariff Barriers Austria Tariff Number Commodity Descriotion Type of Restriction Remarks 16.03 Meat extracts, soups NP, SC, QR* and broths 17.01 White sugar, solid except QR Quota crude or sugar candy Sugar raw or refined from NP, SC beets or cane 17.02 A Glucose (starch sugars) NP, SC, QR ~/ Quota less than 98% purity 17.02 D Artificial honey NP, SC 17.02 E Colored sugar NP, SC 2/ 17.02 F Invertsugar NP, SC 2/ ~.O2 G Other Sugar NP, SC 2/ 17.03 Molasses, also decolored NP, Sc 2/ 17.05 Sugar, syrup, molasses, 2/ mixed w/aromas or colors, excluding fruit juices w/sugar added 19.04 Tapioca and sago, md. NP, SC similar preparations - from potato starch PAGENO="0145" Austria Agricultural Nontariff Barriers Typeof Remarks Tariff Number Commodity Description Restriction 20.07 A (Concentrated) juices of QR Quota apples and grapes whether or not containing sugar, but unfermented and not containing alcohol 20..0i B Juices of apples and QR Quota grapes whether or not containing sugar but unfermented and not containing alcohol 22.04 Grape must, in fermen- QR Quota tatiôn or with fermen- tation arrested other- wise than by addition of alcohol 22~05 Wine of fresh grapes, QR Quota including grape must with added alcohol 22.06 Vermouths and other QR Quota wines flavored with aromatic essences 2.3.02~ Bran QR, ST 23.07~ Forage, in so far as ST it contains, cereal products PAGENO="0146" Austria Agricultural Nontariff Barriers Austria Type of Restriction Remarks Tariff Number Commodity Description 24.01 Unmanufactured tobacco; ST Monopoly administration `full" tobacco refuse 24.02 Manufactured tobacco; ST Monopoly administration "full tobacco extracts and - essences 38.19 C Core binder used in MP, SC foundry work on basis of starch and dextrine 39.06 C 2 b Starch-ether soluble in NP, SC watez and starch ester PAGENO="0147" Tariff Numbsr of.oi-oi .05 02.01 04.02 04.03 04.04 06. 10.01 10.03 10.04 11.01 Livestock Meat Skim milk powder Butter Colby and Cheddar Cheese Plants Wheat Barley Oats Wheat flour HS, L MS L L L HS Canada Agricultural Nontariff Barriers Canada Commodity Description Type of Restriction Remarks Must comply with provisions of the Animal Disease and Meat Instpection Act Must conform with regulations of .the Insect and Pest Act ST, L L L L PAGENO="0148" Denmark Agricultural Nontariff Barriers Denmark Type of Tariff Number Commodity Description Restriction Remarks ex. 01.02 Live animals of the bovine L, HS species except breeding animals cx. 01.04 Live sheep and goats L, HS except breeding animals ex. 01.05 Live poultry (fowls, L, HS ducks, geese, turkeys and guinea fowls) except breeding animals 02.01 Meat and edible offals Q, L, HS of the animals falling within heading Nos. 01.01, 01.02, 01.03, 01.04, fresh, chilled, or frozen 02.02 Dead poultry (fowls, L, HS ducks, geese, turkeys and guinea fowls) and edible offals thereof (except liver), fresh, chilled or frozen 02.03 Poultry liver, fresh, L, HS chilled, frozen, salted or in brine PAGENO="0149" Denmark Agricultural Nontariff Barriers Denmark Tariff Number Commodity Description Typeof Restriction . Remarks 02.05 Unrendered pig fat free L, HS of lean meat and un- rendered poultry fat, fresh, chilled, frozen, - salted in brine, dried or smoked cx. 02.06 Meat and edible meat Q, L, HS offals (except poultry liver) of animals falling within heading Nos. 01.01, 01.02, 01.03, 01.04, salted, in brine, dried * or smoked 04.01 Milk and cream, fresh, L not concentrated or sweetened 04.02 Milk and cream, pre- L Minimum import price, enforced by a served, concentrated levy applies to skim milk powder for or sweetened feed 04.03 Butter L 04.05 Birds' eggs and egg L yolk, fresh dried or - otherwise preserved, sweetened or not 04.06 * Natural honey Q Global quota PAGENO="0150" Denmark Agricultural Nontariff Barriers Denmark Type of Tariff Number Commodity Description Restriction Remarks Bulbs of tulips, narcissus Q and hyacinth also in growth or in flower Cut flowers and flower buds of a kind suitable for bouquet or for orna- mental purposes, fresh, dried, dyed, bleached, impregnated or otherwise prepared ex. 07.01 Vegetables, fresh or chilled, gherkins and cucumbers; celery and celeriac; cauliflower, broccoli, Brussel sprouts and cabbage; carrots, horseradish and beetroot; potatoes except seed potatoes; sweet capsicum (caps icum grossum) leeks and onions except onions for planting with a maxi- mum cross section of 21 mm; spinach, chicory (chicho- rium intybus) and lettuce (lactucia sative); tomatoes and peas L, IC Global quota Import licenses are issued freely during that period of the year in which imports are admitted under the calendar system. cx. 06.01 06.03 Q, L PAGENO="0151" Denmark Agricultural Nontariff Barriers Denmark Tariff Number Commodity Description Type of Restriction Remarks cx. 07.02 Vegetables (whether or L, Q not cooked) preserved by freezing; the fol- lowing: peas, beans, asparagus, spinach and red cabbage and mixtures containing any of these vegetables 07.03 The following vegetables, L, Q provisionally preserved in brine, in sulphur water or in other pre- servative solutions, but not specially pre- pared for immediate con- sumption: gherkins and cucumbers; celery and celeriac; cauliflower, broccoli, Brussel sprouts and cabbages; carrots, horseradish and beetroot; potatoes; sweet capsicum (capsicum grossum): leeks and onions; spinach, chicory (cichorium intybus) and lettuce. (lactuca sativa); tomatoes and peas; mixtures containing any of these vegetables PAGENO="0152" Denmark Agricultural Nontariff Barriers Denmark Tariff Number Commodity Description Type of Restriction Remarks Marrow of sago palm, manioc, arrowroot, sweet potatoes and other similar roots and tubers with high starch or inulin content, fresh or dried, whole or slices; except salep and Jerusalem artichokes 08.06 Apples and pears, fresh L, IC ex. 08.07 Stone fruits, fresh, except peaches and apricots The following berries, fresh: raspberries, elder-berries, straw- berries, red or white, and black currants 08.09 Netted melon, fresh 1, IC Import licenses are issued freely during that period of the year in which imports are admitted under the L, IC ) calendar system. L,IC ) ex. 07.06 L cx. 08.08 PAGENO="0153" Denmark Agricultur al Nontariff Type of Barriers Denmark Tariff Number Commodity Description Restriction Remarks 08.10 Fruits (whether or not L cooked), preserved by freezing, not containinq added sugar: Pears, cherries, raspberries, strawberries, and mixtures containing 30 percent or more of these fruits, regardless of the size of the packings. Apples, all kinds of plums, red or white currants, black currant and mistures of these fruits - in packings with a gross weight of more than two kilograms each 08.11 Fruits, provisionally pre- L served in brine, in sulphur water or in other preservative solutions, but not specially prepared for immediate con- sumption. Apples, pears, plums, raspberries, elder- berries, strawberries, red or white currants, black currants, and mixtures of these fruits 09.01 Coffee, whether or not Q roasted or freed of caf- * feine, coffee substitutes containing coffee in any proportion PAGENO="0154" Denmark Agricultural Nontariff Barriers Denmark Tartff Number Commodity Description Type of Restriction Remarks 10.01 Wheat and meslin (mixed ) )Minimum price and levy applies only to wheat and rye) ) )feed wheat and feed rye. The proportion )of domestically produced wheat and rye NP, Sc MR, .)in bread grains was raised to 100% for )wheat in July 1960 and for rye in Sep- ).tember 1959, thus in effect excluding 10.02 Rye ) )imports for milling, except in certain ) )years. 10.03 Barley )Np,sC,L 10.04 Oats 10.05 Maize NP, SC, L Import licenses issued freely only during 11/1-5/31 period. 10.07 Buckwheat, millet, NP, SC, L canary seed and grain sorghum, other cereals 11.01 Cereal flours, except NP, SC, MR, rice flour L 11.02 Cereal groats and cereal NP, SC, NR, meals, except corn grits, L buckwheat and millet; other worked cereal grains (for example, flaked, polished, pearled or kibbled, but not further prepared) except husked, glazed, polished or broken rice, buckwheat and millet; germ of cereals, whole, rolled, flaked or ground PAGENO="0155" Flour, meal and flakes of potatoes L, HS Flour and meal of sago; manioc root, arrowroot and roots and tubers fal-) ling within heading No. 07.06 except for animal feeding and salep 11.08 Starches, except salep; inulin )L 11.09 Gluten and gluten flour, roasted or not cx. 12.01 Rapeseed, whole or broken Q 12.04 Sugar beet, whole or L sliced, fresh, dried, or powdered; sugar cane Mangolds, swedes, other L fodder roots products and sugar canes Lard and other rendered L, US pig fat; rendered poultry fat, except for technical purposes P~ri Ntimb~r 11.05 Denmark Agricultural Nontariff Barriers Denmark Type of Commodity Description Restriction Remarks 11,06 12.10 cx. 5.0l PAGENO="0156" Denmark Agricultural Nontariff Barriers Denmark Tariff Number Commodity Description Type of Restriction Remarks cx. 15.02 . Unrendered fats of bovine L, HS cattle, sheep or goats; tallow (including `Premier Jus") produced from those fats except for technical purposes cx. 15.03 Lard stearin, oleostearin L, HS and tallow stearin; lard oil, oleo oil and tallow oil, not emulsified or mixed or prepared in any way, except for technical purposes cx. 15.13 Imitation lard and other L prepared edible fats 16.01 Sausages and the like, Q, HS Global quota of meat, meat offal or animal blood cx. 16.02 Other prepared or pre- Q, HS Global quota served meat or meat offal except pate de foie gras 17.01 Beet sugar and cane sugar, L solid PAGENO="0157" Denmark Agricultural Nontariff Barriers Denmark , Typeof Tariff Number Commodity Description Restriction Remarks cx. 17.02 Other sugars, except milk L sugar (lactose); sugar syrups; artificial honey (whether or not mixed with natural honey); caramel cx. 17.03 Molasses, whether or not L decolorized, except for animal feeding cx. 17.04 Fondant, pastes, creams L and similar intermediate products, in bulk, with an added sweetening matter content of 80% or more cx. 17.05 Flavored or colored sugars, L syrups and molasses but not including fruit juices containing added sugar in any proportion, except vanilla sugar and vanillin sugar 19.03 Macaroni, spaghetti and Q Global quota similar products 19.04 Tapioca and sago; tapioca L and sago substitutes oh- tamed from potato or other starches except salep grain and flakes PAGENO="0158" Denmark Agricultural Nontariff Barriers - Denmark Type of Tariff Number Commodity Description Restriction Remarks 20~02 The following vegetables Q, L prepared or preserved otherwise than by vinegar or acetic acid: Peas, beans, asparagus, spinach, red cabbage and potatoes, and mixtures containing these vegetables 20.03 Fruits, preserved by freezing, Q containing added sugar: Pears, cherries, raspberries, strawberries and mixtures con- taining 30% or more of these fruits - regardless of size of the packings. Apples, all kinds of plums, red or white currants, black currants, and mixtures of these fruits - in packings with a gross weight of more than two kilograms each 20.06 Fruit otherwise prepared or Q preserved, whether or not con- taining added sugar or spirit; Pears, cherries, raspberries, strawberries, and mixtures con- taining 30% or more of these fruits - regardless of size of the packing. Apples, all kinds of plums, red or white currants, black currants and mixtures of these PAGENO="0159" Denmark Agricultural Nontariff Barriers Denmark Type of Tariff Number Commodity Descriotion Restriction Remarks 20.06 (cont.) fruits - in packings with a gross weight of more than two kilo- grams each 20.07 The following fruit Q juices, whether or not containing a~dded sugar, made from: Apples, pears, cherries, raspberries, elder-berries, straw- berries, red or white currants, black currants, and mixtures containing juices of these fruits cx. 21.07 Sweet fat (sugar/fat mix- Q Global quotas tures) 22.05 Wine of fresh grapes; Q grape must with fermen- tation arrested by the addition of alcohol 22 * 06 Vermouths, and other wines Q of fresh grapes flavored with aromatic extracts 22.07 Other fermented beverages Q (for example, cider, perry and mead) PAGENO="0160" Denmark Agricultural Nontariff Barriers Denmark Type of Tariff Nunther Commodity Description Restriction Remarks 22.08 Ethyl alcohol or natural L spirits, undenatured, of a strength of eighty degrees or higher; denatured spirits (including ethyl alcohol and neutral spirits) or any strength ex. 22.09 Ethyl alcohol, undenatured, L of a strength under eighty degrees 23.02 Bran, sharpes, and other L residues derived from the sifting, milling, and working of cereals and of leguminous vegetables' cx. 23.03 Maize gluten feed L PAGENO="0161" EEC Agricultural Nontariff Barriers EEC EXPLANATORY NOTES Abbreviations F - France N - Netherlands G - ~Germany I - Italy B - Belgium, Luxembourg Notes ~/ France does not admit poultry from any country that does not by law forbid the feeding of estrogens, arsenicals, and antimonials to poultry (poultry liver is excepted from this regulation.) 2/ According to the proposed fruit and vegetable Regulation (12/31/67), quantitative restrictions by Member States on products covered by the FRUIT AND VEGETABLE CAP are to be abolished by July 1, 1968 with the exception of these products, for which final liberalization is scheduled on January 1, 1970. ~/ Germany prohibits pickles containing alum. 4/ The extremely difficult standards set for EEC CLASS EXTRA fruit (their top grade) made it almost impossible for American exporters to obtain this classification; it is believed that this hinders our sales of citrus fruit, apples and pears. 5j The basic French law governing country of origin marking calls for the name of the country of origin to be embossed in can ends. Although this requirement is sometimes satisfied by stamping with indelible ink, it causes considerable additional trouble and expense to U.S. exporters of canned food. PAGENO="0162" EEC Agricultural Nontariff Barriers Type of EEC Tariff Number Commodity Description Restrictioi~ Remarks 01.01 AIla Foals for butchering QR(B) ex. AIlI Other foals QR(B) 01.02 All Live animals of the VL, QR BEEF CAP. Reduced or suspended when bovine species domestic market prices exceed guide price. except breeding stock Annual quota of 5,000 head in Schwyz, Simmenthal and Frebourg stock. A~ual quota of 20,000 head on heifers and cows other than for slaughter, of the ~mountain races. 01.03 All Live animals of the VL, L PORK CAP. porcine species, except breeding stock Ol.O4AIb Live sheep, other than ST(G), purebred, for breeding QR(G,F) 01.05 Live poultry VL, ES (F) ~J POULTRY CAP 02.01 Al Horse and mule meat QR(F), HS(F) Imports of meat and offals of horses, donkeys and mules are prohibited. 02.01 Al Foal meat, fresh, QR(B) chilled PAGENO="0163" EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks 02.01 All Bovine meat, fresh, VL, L, OR, BEEF CAP. Reduced or suspended when chilled, frozen (beef HS(G) market prices exceed guide price. and veal) Levy not to exceed G~TT binding on frozen beef. Frozen beef -- annual quota of 22,000 MT. Impoit license mandatory for frozen beef imports; licensing requirements may be applied by Member States on: ex. 02.OlBIl, beef offals; ex. 02.06 C, salted beef; ex. 16.01, sausage containing neat or .bovine offals; ex. 16.02 All, other prepared or preserved meats containing liver of bovine; ex. 16.02 BIl, other prepared or preserved meat containing meat or offals of bovine, unspecified. Imported beef cuts not permitted by Germany. 02.01 AllIa Meat of domestic swine, VL, HS(G), L PORK CAP. Imports of U.S. pork are fresh, chilled or frozen prohibited by Germany. Levy not to exceed GATT binding. 02.01 AIV Mutton, fresh, chilled QR(G), ST(G) or frozen 02.01 BIll Edible sheep offalg QR(G), ST(G) 02.01 BII Pork offals, fresh, VL, L PORK CAP. chilled or frozen - PAGENO="0164" EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks 02.02 Poultry meat, and edible VL, HS(F) jj POULTRY CAP offals (except liver), fresh, chilled, or frozen 02.03 Poultry liver, fresh, VL POULTRY CAP. Levy not to exceed chilled, frozen or in GATT binding. brine 02.05 Unrendered pig or poultry VL, L PORK CAP, POULTRY CAP fat, free of lean, fresh, chilled, frozen, salted or in brine, dried or smoked 02.06 B Meat and edible offals `VL, L PORK CAP of pork, salted or in brine, dried or smoked ex. 02.06 C Beef, salted or in brine VL BEEF CAP. Effective 10/16/67, subject to levy at least equal to the corres- ponding levy on frozen beef (Regulation 617/67) 04.02 Milk and cream, pre- VL, L DAIRY CAP. Whole milk powder in served, concentrated, hermetically sealed packages, con- or sweetened taming not more than 1 kg. net weight - of powder are excluded from the licensing requirements. 04.03 Butter VL, L DAIRY CAP. PAGENO="0165" EEC VL DAIRY CAP. Levy should equal duty bound in GATT for Ennuenthal, Guyere, Schabzieger and cheddar cheese ex. 04.05 A Poultry eggs, in shell, fresh or preserved ex. 04.05 BI Poultry eggs not in shell and egg yolks, for human consumption ex. 05.15 ex. B Animal sperm QR(F) ex. 06.01 B Bulbs, onions, tubers, QR(F) Sanseverias liberalized. etc., in growth or in flower S Other live plants and roots, etc.: Apple trees and all forms coming from seedlings or seeds Budding or flowering indica azalea Other budding or flowering azalea Vine slips, grafted or rooted Hot or cold greenhouse plants, flowering or budding 04.04 Cheese and curd Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks VL EGG CAP. VL EGG CAP. ex. 06.02 ex. 06.02 B cx. 06.02 C11b2 QR(G) QR(F) QR(F) PAGENO="0166" EEC Agricultural Nontariff Barriers EEC Tariff Number Commodity Description Typeof Restriction Remarks 06.03 Cut flowers and flower QR(G) buds: Dianthers, roses, onion flowers, other 06.03 Cut flowers and flower QR(F) buds suitable for bouquets or ornamental purposes 06.03 A Fresh cut flowers and QR(B,N), IC flower buds suitable for bouquets or orna- mental purposes 07.01 Al Seed potatoes QR(G) Potatoes (07.01 A) are not included All Early potatoes QR(G,B,F), IC in the FRUIT AND VEGETABLE CAP as Alli Other potatoes QR(G,F) presently constituted 07.01 BI Cauliflower IC 07.01 D Lettuce and endives QR(G,F,B) 11/15-3/31 07.01 DI Cabbage, lettuce IC 07.01 Fl Peas IC 07.01 FIl Beans IC 2J Beans (not including QR(G,F,B) beans to be shelled and shelled beans), 6/1-9/30 PAGENO="0167" EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks 07.01 GI Celeriac IC 07.01 GIl Carrots and turnips IC 07.01 L Artichokes, 3/15-6/30 QR (F) 2/ 07.01 M Tomatoes, 5/15-12/31 ML SC, IC 2/ FRUIT AND VEGETABLE CAP. QR (G,F,B) 07.01 N Olives, fresh or chilled VL `FATS AND OILS CAP. Levy applies to the oil content of olives imported for purposes other than canning. 07.01 0 Cucumbers IC 07.02 Vegetables, frozen QR (F) ex. 07.03 A Olives, preserved in VL FATS AND OILS CAP. Levy would apply brine or other to the oil content of olives imported solutions for purposes other than canning. ex. 07.03 C Pickles ES (G) ex. 07.04 B Olives, dried L FATS AND OILS CAP PAGENO="0168" EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks ex~. 07.04 A Dried onions QR(F) 07.04 BlI Dried potatoes except QR(F) products covered by BTN 11.05 07.04 BIll Other dried vegetables QR(F) except olives ex. 07.05 A Beans intended for sowing) Kidney or horse beans ) B Lentils , ) QR(G) Peas imported for sowing Forage peas ex. 07.06 Roots of manioc, arrow- VL, L GRAIN CAP. root, salep, and other similar roots and tubers with high starch content except sweet potatoes cx. 08.01 ex. A Dates, except packaged QR(I) 500 gr. or less 08.01 B Bananas QR(F,I), ST(F,I) 08.01 C Pineapples QR(F) PAGENO="0169" Citrus fruits, fresh or MS, ES dried The use of diphenyl in treating citrus fruit is limited to 70 ppm (U.S. tolerance is 110 ppm); labeling of the retail product is also required. In addition, Germany requires that peels of products so treated be labeled as not f it for eating. FRUIT AND VEGETABLE CAP. FRUIT AND VEGETABLE CAP. FRUIT AND VEGETABLE CAP. 21 Upon implementation of the PROPOSED WINE CAP, the QR will be abolished. Germany restricts the use of sulphur dioxide in treating fruits. This restriction has hampered our sales of bleached raisins 4/ FRUIT AND VEGETABLE CAP. Post harvest treatment of apples and pears is not specifically permitted by German regulations. As a consequence, U.S. exports of these products have been stopped. EEC Agricultural Nontariff Barriers EEC Type of Commodity Description Restriction Remarks Tariff Number 08.02 08.02 A 08.02 B 08.02 C cx. 08.04 A 08.04 AIb,bb Oranges NP, SC, IC Mandarins and clementines NP, SC Lemons NP, SC Table Grapes NP, SC, IC Table Grapes QR (F,B) Fresh grapes production for wine QR (I) B Raisins ES (G) 08.06 A Apples ) ) NP, NS, SC, IC, B Pears ) . PAGENO="0170" Apricots, 6/15-7/31 Peaches Cherries Plums Strawberries IC Melons, 7/1-10/15 Fruit preserved by freezing without sugar Fruits provisionally pre- QR (F) served in brine or other preservative solutions Dried fruit HS (I) C Prunes ex.EII Fruit mixtures more than 20% prunes Coffee neither roasted nor caffeine free Roasted, caffeine free Roasted, not caffeine free EEC Agricultural Nontariff Barriers EEC Commodity Description Type of Restriction Remarks Tariff Number 08.07 A B C D 08.08 A ex. 08.09 ex. 08.10 QR (F) 2/ NP, SC, IC ) FRUIT AND VEGETABLE CAP. QR (F) QR (F) 08.11 ex. 08.12 cx. 09.01 2/ Cherries are liberalized. The use of sulphur dioxide on dried `cut" fruit is restricted by Italy. QR (F) QR (G,B,N) OR (G) 10.01 . Wheat and meslin VL, L GRAIN CAP. PAGENO="0171" EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks 10.02 Rye VL, L GRAIN CAP. 10.03 Barley VL, L GRAIN CAP. Imports to Italy subject to special rules allowing for reduced levies until 7/31/72. 10.04 Oats VL, L GRAIN CAP. Imports to Italy subject to special rules allowing for reduced levies until 7/13/72. 10.05 Corn VL, L GRAIN CAP. Imports to Italy subject `to special rules allowing for reduced levies until 7/31/72. 4% binding on seed corn (10.05 A). 10.05 Rice VL, L RICE CAP. 10.07 Buckwheat, Millet, VL, L GRAIN CAP. Imports to Italy subj~ct canary seed, grain to special rules allowing for reduced sorghum, other cereals levies until 7/31/72. 11.01 Cereal flours VL, L GRAIN CAP, RICE CAP 11.02 Cereal groats and meal, VL, L GRAIN CAP, RICE CAP other worked cereal grains except brushed, glazed, polished or broken rice; germs of cereals including flours thereof PAGENO="0172" EEC ________ Agricultural Nontariff Barriers Type of m~riff Miimh~~r ~f-~ n4-,~, .~-4~- ~ 11.06 11.07 Flour and meal of sago, VL, L manioc, arrowroot, salep and other roots and tubers falling within BTN 07.06 Malt, roasted or not EEC VL, L VL, L QR (F) 11.08 A Starches B Inulin 11.09 Gluten and flour, QR (G) roasted or not 12 03 A Sugar beet seeds Rutabaga seeds Seed of sugar beets for fodder and other seeds f~or fodder B White clover seeds Ryegrass seeds, perennial Italian ryegrass, ) QR (G) perennial Westewaled ryegrass, perennial French ryegrass perenn Timothy seeds Orchard grass seed Meadow fescue seed Red fescue seed GRAIN CAP. GRAIN CAP. GRAIN CAP,RICE CAP :~ PAGENO="0173" EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks 12.04 Sugar beets and sugar VL, L SUGAR CAP. Levy applied on the basis cane of the saccharose content of the imported product. 12.05 Chicory roots, unroasted QR (F,B) 12.06 Hop cones and lupulin QR (F,B) ex. 12.08 A Locust beans, fresh or QR (I) dried ex. 12.10 Luciene flour QR (G) ex. 13.03 vegetable saps and extracts AIV Of hops R F B Pectin ) 15.01 Al Lard for industrial use QR (F) 15.01 All Rendered lard and other vL, L PORK CAP pig fat, not for indus- trial use -15.01 B Rendered poultry fat VL POULTRY CAP 15.02 Tallow, rendered or MR (G) unrendered ex. 15.03 Other oils and stearins QR (F) not designated, except oleo oil and tallow PAGENO="0174" EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks ax. 15.03 (cont) Oleo stearin and lard ST (G) stearin, for nutrition BI Lard oil ST (F) ax. 15.07 Olive oil, crude, refined VL, L FATS AND OILS CAP. or purified ex. 15.10 Acid oils from refining QR (I) 15.13 Margarine, shortening MR (G) ax. 15.17 Residues containing oil, VL, L FATS AND OILS CAP. Levy collected on having the character- the basis of the olive oil levy, istics of olive oil according to the oil content of the imported product. Not to exceed GATT binding. ax. 16.01 Pork sausages, and the VL, L PORK CAP. Levy not to exceed GATT like, of meat, offal or binding. blood Sausages of sheep and QR (G) sheeps liver Sausages except those OR (B, N) containing pork or ox meat or offals PAGENO="0175" Other prepared or pre- served meat or offal containing pork liver 16.02 BI Other prepared or pre- served neat or offal of poultry 16.02 BIll Prepared or preserved sheep or sheep of fals Other prepared or pre- served meat excluding chicken, pork, & oxen 17.01 Beet and cane sugar, solid ex. 17.02 Other sugars, syrups, artificial honey, caram lized sugar and molasses and their syrups Except: 17.02 A Lactose and lactose syrup BIl . Glucose and glucose syrup VL ~/ POULTRY CAP. Levy not to exceed GATT binding. SUGAR CAP. Levy applied on the basis of the saccharine content of the im- ported product. Levy on maple sugar and syrup not to exceed GATT binding. ex. 16.02 All EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks VL, L ex. 16.02 BlI PORK CAP. Levy not to exceed GATT binding. Other prepared or pre- served pork or pork offal VL, L PORK CAP. QR (G) QR (B,N) VL, L SUGAR CAP. VL, L VL VL, L DAIRY CAP.. GRAIN CAP. PAGENO="0176" EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks 17.03 Molasses VL, L SUGAR CAP cx. 17.04 Sugar confectionary not VL PROCESSED FOOD CAP S containing cocoa B Chewing gum C Other ex. 17.05 Flavored or colored VL, L SUGAR CAP. Levy applied on the basis sugars and molasses of the saccharine content of the (ex. lactose and glucose) imported product 18.06 Chocolate and other food VL, MS (B,F, PROCESSED FOODS CAP. Belgium, Nether- preparations containing G,N) lands and Germany do not allow imports cocoa of this product containing corn syrup; France maintains a percentage list. 19.01 Malt extract VL PROCESSED FOOD CAP 19.02 Preparations of flour, VL PROCESSED FOOD CAP starch or malt extract of a kind used as infant food or for dietetic or culinary purposes, con- taining less than 50% by weight of cocoa 19.03 Macaroni, spaghetti, and VL PROCESSED FOOD CAP similar products 19.04 Tapioca and sago; tapioca VL PROCESSED FOOD CAP and sago substitutes S obtained from potato or other starches PAGENO="0177" Prepared foods obtained VL by the swelling or roasting of cereal and cereal products Popcorn, cornflakes, etc. ST (G) Communion wafers, sealing VL wafers, etc. Bread, ships' biscuits, and other ordinary bakers' wares ) VL, MS (G) Pastry, biscuits, cakes and other fine bakers' wares. Other prepared fruits QR (F), and vegetables in air- MS (F) tight continers, except other preserved in vinegar Vegetables and fruits, prepared or preserved by vinegar or acetic acid 3J Quantitative restrictions of products under headings 2.Q~.Q.1. and 20.02, containing added sugar, are prohibited by Council Regulation No. 689/67, effective 11/1/67. EEC Agricultural Nontariff Barriers EEC Type of Tariff Number Commodity Description Restriction Remarks 19.05 ex. 19.05 19.06 19.07 19.08 cx. 20.01 20.01 PROCESSED FOODS CAP. PROCESSED FOOD CAP. PROCESSED FOOD CAP. PROCESSED FOOD CAP.. Germany places a percentage limit on the amount of corn syrup permissible in baked~ goods. Gherkins in airtight containers QR (G), ES (G) QR (F), MS (F) PAGENO="0178" Vegetables, otherwise MS (F) prepared or preserved: Mushrooms other than those QR(F) grown in woods Asparagus with heads QR(G) Sauerkraut in containers QR(G) under 5 kg. Gherkins in containers QR(G), HS(G) under 5 kg. Early June peas QR(G) Beans QR(G) Other vegetables, inclu- QR(G) ding mixed, under 5 kg., except frozen spinach or artichokes Frozen fruit with added VL, L sugar Fruit, fruit peel, plants VL, L and parts of plants pre- served with sugar; except ginger Fruit purees and pastes, VL, L, MS jams, jellies, marma- (I,G,N) lades, cooked with added sugar `Imports tenders for green beans are issued after the. U.S. pack is completed, causing difficulties in meeting canning specifications of Germany. 51 Subject to sugar added levy. Import certificate required if levy fixed in advance. Italy does not permit imports of this product containing corn syrup. Germany and the Netherlands maintain a percen- tage limit. EEC Agricultural Nontariff Barriers EEC Tariff Number Commodity Description Type of Restriction Remarks * ex.A ex * D ex .E ex * G ex. 20.02 20.03 ex. 20.04 ex. 20.05 _3. PAGENO="0179" Fruit purees and pastes, QR (F) etc., whether or not con- taining added sugar Applesauce Date, dried fig, and grape pastes, whether mixed or not Fruit otherwise pre- VL, L served with or without addition of alcohol, with added sugar Fruit otherwise prepared MS (I,N,F) or preserved, etc., with or without added sugar 31 Containing alcohol in immediate packages of net weight under 4.5 kg. except citrus fruit, apricots, pineapples, figs, fruit cocktail, fruit salad, and maraschinos Quantitative restrictions on products under headings 20.03 through 20.07 containing added sugar are prohibited by Council Regulation 789/67, effective 11/1/67. Italy and the Netherlands do not allow imports of canned fruits containing corn syrup. EEC Agricultural Nontariff Barriers Type of Remarks Tariff Number Commodity Description Restriction 20.05 ex. 20.06 20.06 QR (G) QR (I) 5/ Subject to sugar levy. Import *certificate required if levy is fixed in advance. :~ QR(G) PAGENO="0180" 20.06 B Net weight less than 4.5 kg: Plums Cherries Strawberries Raspberries ex. 20.06 B Other berries QR (G) QR (G) QR (G) OR (G) QR (G) QR (G) Other fruit, including QR (G) mixtures III Otherwise preserved or OR (G) prepared Fruit juice (including VL grape must) or vegetable juice, not fermented, without alcohol with added sugar PROPOSED WINE CAP. Subject to sugar added levy. 20.07 Al and BI to be placed under jurisdiction of proposed CAP. ex. 20.07 Fruit juices, etc., whether or not con- taining added sugar OR (I), MS (F, I, N, G) ~/ France, Italy, the Netherlands and Germany do not allow imports of fruit juices containing corn syrup. A Of a density exceeding OR (F) 1.33 at 15° C. EEC Agricultural Nontariff Barriers EEC Ta~riM Number Typeof Commodity Description Restriction Remarks ex. 20.07 Of a density less than 1.33 at 15°. C. PAGENO="0181" EEC Agricultural Nontariff Barriers EEC Tariff Number . Commodity Description Type of Restriction Remarks Of apples or pears Of tomatoes VII~ Mixtures except of citrus and pineapple juice VIlIb Mixtures of apples or pears 21.01 ex A Roasted chicory roots VL and other roasted coffee substitutes B Extracts of above Natural active yeasts for VL baking Food preparations, nes., VL, MS (F,G) containing sugar, milk products, cereals or cereal products Lemonade, flavored spa VL, HS (N) waters a.nd other non- alcoholic beverages except juices under 20.07, containing added sugar Beverages with a milk base PROCESSED FOODS CAP. PROCESSED FOODS CAP. PROCESSED FOODS CAP. France does not allow imports of ice cream containing corn syrup; Germany places a percentage limit on the allowable amount. Subject to sugar levy. The Netherlands prohibits imports of fruit juice drinks from the U.S. because of a general pro- hibition against the addition of arti- ficial colors to such drinks. ex. 20.07 BIV V QR (G) QR (F) QR (G) QR (G) ex. 21.06 All ex 21.07 ex. 22.02 VL PAGENO="0182" EEC Agricultural Nontariff Barriers EEC Tariff Number Commodity DescriBtion Type of Restriction Remarks 22 03 Beer MS (B F I G) Belgium and France place a percentage limit on the amount of corn syrup permissable in beer. Italy and Germany prohibit imports of beer containing corn syrup 22 04 Grape must partially QR (F I) PROCESSED FOODS CAP fermented 22.05 Ethyl alcohol Wine of fresh grapes; grape must with fermen- tation arresting alcohol 22.08 ST (F), cx. 22.09 Other spiritious bever- VL ages containing sugar A Ethyl alcohol of less QR (F) than 80% Vinegars and substitutes QR (F,G) for vinegars QR (G, F, I) The PROPOSED WINE CAP calls for the application of supplementary levies on imports of these products. and also for import certificate requirements upon its implementation. Member State& QR s are to be abolished QR (F) 22.10 :~ Implementation of the PROPOSED WINE CAP would prohibit `S on the import of wine vinegars PAGENO="0183" EEC Agricultural Nontariff Barriers EEC Type of Tariff Nutr~ber Commodity Description Restriction Remarks ex. 23.02 Bran, sharps, and other VL, L GRAIN CAP. residues derived from sifting, milling, or other processing of cereal grains Other residues besides from QR (F) cereal Beet pulp and other waste QR (G), of sugar manufacture ST (G) ex. 23.04 Olive oil cake VL, L FATS AND OILS CAP. Levy applied on the basis of the olive oil levy according to the content of the imported product. ex. 23.07 Sweetened forage and feeds; other preparations used in animal feeding; Containing cereals or VL, L similar products GRAIN CAP. Containing not less than VL 50% of milk powder or other dairy products DP~IRY CAP~ Certain other feed pre- QR (F,G), parations not covered ST (G) by the GRAIN CAP or DAIRY CAP PAGENO="0184" EEC Tariff Number Agricultural Nontariff Typeof Barriers EEC . 24.01 Unmanufactured tobacco QR (F), MR (G), State monopoly in France and Italy. and tobacco refuse ST (F,I) 24.02 Manufactured tobacco, QR (F), ST (F,I) State monopoly in France and Italy. tobacco extracts and PROPOSED CAP for tobacco imposes essences licensing requirements on imports. ex. 33.01 Essential citrus oils QR (I) containing terpenes ex. 35.01 Unhardened casein impor- QR (G) ted for the manufacture of food and forage pro- ducts 35.01 A Casein and casein de- VL PROCESSED FOODS CAP. Implementation rivatives delayed until 4/1/68. 35.05 Dextrin and dextinous VL PROCESSED FOODS CAP. Implementation glues; soluble or delayed until 4/1/68. roasted starches, starch glue 38.12 Al Prepared glazings or VL PROCESSED FOODS CAP. Implementation dressings with bases delayed until 4/1/68. of starchy substances PAGENO="0185" Japan Agricultural Nontariff Barriers Typeof Japan Tariff Number Commodi ty Desctiption Restriction Remarks ex. 01.02 Live horses, excluding QR asses, mules, and hinnies Live animals of the bovine QR species, excluding buffa- loes Live swine QR cx. 02.01.1 Meat and offals of bovine QR animals, fresh, chilled, or frozen, excluding tongue and internal organs ex. 02.01.2 Meat and offals of pigs, QR, CI fresh, chilled, or frozen, excluding tongue and internal organs cx. 02.05 Unrendered pig fat, free QR of lean meat, fresh, chilled, frozen, salted in brine, dried or smoked 02 .06.1 Ham and bacon QR, CI A 10 percent duty on pork is reduced or suspended when the domestic market price exceeds its fixed price limitS and the price of imported pork is higher than the domestic price. A 10 percent duty on pork is reduced or suspended when the domestic market price exceeds its fixed price limit and the price of imported pork is. higher than the domestic price. cx. 01.01 01.03 PAGENO="0186" Meat and edible offals QR, CI of bovine animals and pigs, salted in brine, dried or smoked Sterilized milk and cream, OR and other cream with fatty content, 13 percent or more fresh, not concen- trated or sweetened Milk and cream, preserved, OR, ST concentrated, or sweetened (excluding sugared, con- densed wholemilk; sugared, condensed skimmed milk powder; wholemilk powder, buttermilk powder; and whey powder A 10 percent duty on pork is reduced or suspended when the domestic market price exceeds its fixed price limit and the price of imported pork is higher than the domestic price. The Livestock Industry Promotion Corporation is the sole importer of sugared, condensed wholemilk; sugared, condensed skimmed milk; skimmed milk powder; wholemilk powder; buttermilk powder, and whey powder. The Corpo- ration imports on a non-discriminatory basis to keep domestic prices from going above the guarantee price by more than a given amount. These pro- ducts are not covered by the quanti tative restriction. The Livestock Industry Promotion Corpo- ration is the sole importer of butter. It imports on a non-discriminatory basis to keep domestic prices from going above the guarantee price by more than a given amount. Japan Agricultural Nontariff Barriers Japan Tariff Number Commodity Description Type of Restriction ax. 02.06.2 ex. 04.01 ex. 04.02 04.03 Butter ST PAGENO="0187" Processed cheese QR Other cheese, excluding QR natural cheese and curd Small red beans QR Broad beans and peas, ex- OR cluding seeds for growing vegetables ex. 07.05.4 Other dried leguminous QR vegetables excluding seeds for growing vegetables ex. 07.06 Manioc, sales, Jerusalem QR artichokes, sweet potatoes excluding fresh sweet potatoes, and other similar roots and tubers with high starch or inulin content, fresh or dried, whole or sliced; sago pith Dates, dried QR Limes, fresh OR Oranges, fresh - QR Grapefruit, fresh QR Tangerines, fresh QR Japan Agricultural Nontariff Barriers Tariff Number Commodity Description Type of Restriction Remarks 04 .04 .1 ex. 04.04.2 07.05.1 ex. 07.05.2 ex. 08.01.3 ex. 08.02.1 ex~ 08.02.2 cx. 08,02.3 ex. 08.02.4 PAGENO="0188" Japan Agricultural Nontariff Barriers Japan Tariff Number Commodity Description Type of Restriction ex. 08.04.1 Grapes (vitas vinifera), OR fresh ex. 08.06 Apples, fresh OR ex. 08.09 Papayas HS Imports are prohibited. cx. 08.10 Pineapples, whether or QR not cooked, preserved by freezing and not contain- ing added sugar ex. 08.11.2 Oranges, provisionally pre- OR served by sulphur dioxide gas or other preservative gases cx. 08.11.3 Limes, grapefruit, tanger- OR ines, grapes and apples, provisionally preserved by sulphur dioxide gas or other preservative gases cx. 09.01.12 Other coffee, roasted, QR excluding such in ~con- tainers less than 400 grams net 09.02.11 Black tea for retail sale OR 09.02.13 Other black tea OR PAGENO="0189" The Government issues import permits to private traders, who must sell to the Government. The Government selling prices of imported wheat is somewhat higher than its price for home-grown wheat because the im- ported wheat is higher quality. ST The Government issues import permits to private traders, who must sell to the Government. ex. 10.05 Corn, unmilled, for industrial use Imports within the quota, 520,500 m.t. in 1967-8, enter at a 10% duty; imports over the quota enter at a 25% duty. For 1968-9, imports above an estimated 899,000 m.t. quota might fact a specific duty of Y8.60 per kg., amounting to about 40% ad valorem. The Government issues import permits to private traders, who must sell to the Government. The Government selling price for imported rice is generally lower than that for home-grown rice because the imported rice is lower quality. Japan Agricultural Nontariff Barriers Japan Type of Tariff Number Commodity Description Restriction Remarks 10.01 Wheat and meslin ST 10.03 Barley QR 10.06 Rice ST PAGENO="0190" Japan ex. 10.07.3 Kao-Liang and other grain QR sorghums, excluding such purchased by the Govern- ment and such to be used as material for compound feeds under the supervision of the customs 11.01.1 Wheat flour QR Most imports in this category are not covered by the quantitative restriction. cx. 11.01.2 Rice flour, barley flour QR (including naked barley flour) and flours of Kao-Liang and other grain sorghums 11.02.1 Groats and meal of wheat QR and rice, excluding germs thereof; other worked wheat and rice, except husked, glazed, polished or broken rice, excluding germs thereof 11.02.2 Groats and meal of barley QR (including naked barley) and Kao-Liang and other grain sorghums; other worked barley (including naked barley), and Kao- Liang and other grain sorghums Agricultural Nontariff Barriers Japan Tariff Type of PAGENO="0191" 11.04 * Fruit flours 11.05 FLour, meal, and flakes of potato 11.06 Flour and meal of sago and of manioc, arrowroot, salep, and other roots and tubers 11.07 Malt, roasted or not 11.08 Starches, inulin 11.09 Gluten and gluten flour, roasted or not ex. 12.01.1 Soybeans 12.01.2 ex. 14.05.4 15.07.10 15 .07.20 15.07.30 ex. 15.07.50 Japan Agricultural Nontariff Barriers Japan Tariff Number Commodity Description Type of Restriction Remarks QR QR QR QR QR QR BA, S Bilateral agreements with Communist China QR QR QR QR QR QR Groundnuts Dates, denatured Soybean oil Groundnut oil Rapeseed oil and mustard seed oil Cottonseed oil, excluding such to be used for manu- facturing PAGENO="0192" Japan Agricultural Nontariff Barriers of Japan Tariff Number Commodity cx. 15.07.14 Corn oil, safflowerseed QR oil and sunflowerseed oil 15.13.10 Margarine QR cx. 15.13.20 Shortening QR 16.01 Sausages and the like of QR meat, meat offal, or animal blood ex. 16.02.2 Other prepared or pre- QR served meat and offals of bovine animals or pigs; other preparations chiefly consisting of meat and - offals of bovine animals and pigs 17.01.100 Rock candy, cube sugar, QR loaf sugar, and similar sugar 17.01.220 Other beet and cane sugar, QR refined 17.02.100 Grape sugar, not containing QR added sugar. 17 .02.200 Malt sugar, not containing QR added sugar PAGENO="0193" Milk sugar, not containing QR added sugar, less than 90 percent pure milk sugar content 17 .02 .410 Rock candy, cube sugar, loaf QR sugar, and similar sugar 17.02.420B Other sugar QR 17 .02.500 Sugar syrup QR 17 .02.600 Caramel QR 17.02.700 Artificial honey QR 17.02.800 Sugars and syrups, other QR 17.03.000 Molasses QR 17 .04.100 Chewing gum QR 17 .04.220 Other sugar confectionary QR excluding medicine and cough drops 17.05 Flavored or colored QR sugars, syrups, and molasses, but not inclu- ding fruit juices con- taining added sugar in any proportion U' 9 `0 Tariff Number ex. 17.02.300 Japan Agricultural Nontariff Barriers Type ~ Commodity Description Restriction of Remarks 4 PAGENO="0194" Japan Agricultural Nontariff Barriers Tariff Number Type of Japan 18.06.100 Chocolate confectionary QR ex. 18.06.210 Other food preparations OR containing cocoa and added sugar, in powder, plate, or lump ex. 19.02 Cake mixes QR ex. 19.03 Macaroni, spaghetti, QR vermicelli, and noodles 19.04 Tapioca and sago, and QR substitutes obtained from potato and other starches ex. 19.05 Prepared food obtained by QR the swelling or roasting of cereals or cereal pro- ducts (puffed rice, corn flakes, etc.), excluding preparations other than those of rice, wheat, barley (including naked barley) and corn flakes cx. 19.08.1 Cookies, biscuits, and QR crackers, containing added sugar ex. 19.08.2 Cookies, biscuits, and QR crackers, other PAGENO="0195" Agricultural Nontariff Barriers Type of Commodity Description Restriction Remarks Tomato puree and tomato QR paste Mashed potatoes and potato QR flakes Pineapples, preserved by QR freezing, containing added sugar Fruit puree and fruit QR. pastes Pineapples, containing QR added sugar or spirit Fruit pulps containing OR added sugar or spirit Pineapples, other QR Other fruit pulps and QR roasted groumdnuts Fruit juices, containing OR added sugar Other fruit juices, ex- - QR cluding sloe bases Japan Japan Tariff Number 20.02.210 cx. 20.02.220 ex. 20.03.000 ex. 20.05.000 20.06.110 cx. 20.06.120 20.06.210 cx. 20.06.22-0 20.07.110 cx. 20.07.120 PAGENO="0196" Japan Agricultural Nontariff Barriers Japan Type of Tariff Number Commodity Description Restriction Remarks ex 20 07 200 Tomato juice the dry QR weight content of which is less than 7 percent 21 04 110 Tomato ketchup and tomato QR sauce 21.07.100 Food preparations con- QR taming added sugar, ex- cluding rations, peanut butter, and Korean ginseng tea ex. 21.07.210 Bases for beverages, non- QR alcoholic, excluding Korean ginseng tea ex. 21.07.220 Ice cream powder, prepared QR milk powder for infants, and other preparations chiefly consisting of milk; food preparations of seaweed; `mochi" (rice cake), cooked rice, roasted rice flours, enriched rice with vitamin and other similar food preparations of rice, wheat, and barley (inclu- ding naked barley) PAGENO="0197" Japan Agricultural Nontariff Barriers Japan Type of Tariff Number Commodity Description Restriction Remarks ex. 22.02 Lemonade, flavored spa QR waters, flavored aerated waters, and other non- alcoholic beverages, con- taining added fruit juices not including fruit and vegetable juices falling within heading 20.07 22.05 Wine of fresh grapes; QR grape must with fermen- tation arrested by the addition of alcohol 22.06 Vermouths and other wines OR of fresh grapes flavored with aromatic extracts 22.09.120 Brandy, including cognac QR 22.09.210 Liquers, excluding elixer QR Korean ginseng ex. 23.03 Residues of starch manu- QR facture from manioc, arrowroot, salep, Jeru- salem artichokes, sweet potatoes and other similar roots and tubers, or sago PAGENO="0198" Japan Agricultural Nontariff Barriers Japan Tariff Number Commodity Description Type of 23.04-1 Oilcake and other residues QR, ST resulting from the ex- traction of soybean oil ex. 23.04-2 Oilcake and other residues QR resulting from the ex- traction of rapeseed oil or mustard seed oil ex. 23.04-2 Compound feeds QR 24.01 Unmanufactured tobacco ST 24.02 Manufactured tobacco ST The Japan Monopoly Corporation has the sole right to produce manufactured tobacco. Only the corporation or an individual entrusted by the corporation can import leaf or manufactured tobacco. Leaf tobacco is imported chiefly to up- grade domestic leaf in their blends for the manufacture of their better quality American type blend cigarettes. When an individual imports manufactured tobacco for his personal use, with the corporation's permission, a duty of 355 percent (200 percent for cigars) is levied on the amount in excess of a certain quantity. The amount collected is close to the incidence in the case of manufactured tobacco imported and sold by the corporation. PAGENO="0199" Japan Agricultural Nontariff Barriers Japan . Tariff Nuither Commodity Description Type of Restriction Remarks ex. 33.01.130 Peppermint oil, excluding QR peppermint oil of mitcham type, and crude peppermint oil ex. 33.04.100 Fruit flavors of an QR alcoholic strength of 10 degrees or higher, containing fruit juices ex. 33.04.200 Other fruit flavors con- QR taming fruit juices 35.05 Dextrins and dextrin glues QR soluble or roasted starches; and starch glues PAGENO="0200" Live horses, asses, mules, and hinnies Live animals of the bovine species Live swine Live sheep and goats Live poultry Other live animals Meat and offals of bovine animals, lambs, sheep, goats, swine, horses, asses, mules, and hinnies Dead poultry Poultry liver, fresh, chilled, frozen, salted, or in brine Other meat and edible offals, fresh, chilled or frozen Unrendered pig fat; un- rendered poultry fat Smoked and salted pork and other meats New Zealand Agricultural Nontariff Barriers New Zealand Commodity Description Type of P~L1ff Nuinh~ 01.01 01.02. 01.03 01.04 01.05 01.06 02.01 02.02 02.03 02.04 02.05 HS HS HS HS HS HS HS HS HS HS HS :* 02.06 HS PAGENO="0201" arriers New Zealand New Zealand Agricultural Nontariff B Tariff Number Commodity Description Type of Restriction Remarks 04.05 Eggs ES, ST The egg marketing authority recommends a ceiling price on eggs and egg pulp to the price tribunal. The authority arranges for imports of egg pulp when local supplies are inadequate. 05.02 Bristles for brushes ES 05.03 Horsehair ES 05.04 Sausage casings ES The regulations are not, at present, ~being enforced. p-I 05.05 Fish waste ES 05.06 Sinews and tendons of HS raw hides or skin 05.07 Skins and other parts ES of birds 05.08 Bones and horn cones ES 05.09 Hooves and horns ES 06.01 Bulbs, tubers, tubdrous ES roots, corms, crowns, and rhizomes 06.~Y2 Trees, shrubs and bushes ES 06.03 * Cut flowers ES PAGENO="0202" Commo~4~y~pescr ipt ion Foliage ?eas, raw, frozen Beans for sowing, not packed for retail sale Herbs other than in retail packs Peas for sowing, not packed for retail sale Dried, dehydrated or evaporated vegetables, other than tomatoes Split peas not packed for retail sale Other peas Other beans Lentils, not packed for retail sale Other dried leguminous vegetables not packed for retail sale Agricultural Nontariff Barriers Type of ~ ~ New Zealand New Zealand Tariff Number 06.04 07.02.01 07.05.12 ex. 07.04.01 07 .05 .06 07 .04.09 07 .05 .02 and .03 07 .05 .09 07.05.19 07 .05 .29 07 .05 .99 HS BA Do not require Australia. license if produce of BA Do not require Australia. license if produce of BA Do not require Australia. license if produce of BA Do not require Australia. license if produce of BA Do not require Australia. license if produce of BA Do not require Australia. license if produce of . BA Do not require Australia. license if produce of BA Do not require Australia. license if produce of BA Do not require Australia. license if produce of BA Do not require license if produce of 1~ PAGENO="0203" Fruit Distributors Limited, a registered company owned by wholesale fruit mer- chants and established by agreement with the Government has sole authority to import and market bananas as well as other tropical fruits. 08.01.31 Fresh pineapples 08.02.11 Fresh whole oranges 08.02.12 Fresh whole tangerines, mandarins, and clementifles ST Fruit Distributors Limited has sole authority to import and market pine- apple. ST Fruit Distributors Limited has sole authority to import and market citrus fruit. ST Fruit Distributors Limited has sole authority to import and market citrus fruit. ST Fruit Distributors Limited has sole authority to import and market citrus fruit. ST Fruit Distributors Limited has sole authority to import and market citrus fruit. ST Fruit Distributors Limited has sole authority to import and market citrus fruit. New Zealand Agricultural Nontariff Barriers Type of Restriction Remarks Tariff Number Commodity Description 08.01.10 Fresh bananas and plantains ST cc 08.02.19 Fresh oranges, not whole 08.02.21 Fresh whole lemons 08.02.22 Fresh whole grapefruit PAGENO="0204" New Zealand Agricultural Nontariff Barriers New Zealand Type of Tariff Number Commodity Description Restriction 08 02 23 Other fresh whole citrus ST FrLit Distributors Lirrited has sole fruit authority to import and market citrus fruit. 08.02.29 Citrus, other than oranges, ST Fruit Distributors Limited has sole not whole authority to import and market citrus fruit. 08 04 Fresh grapes ST Fruit Distributors Limited has sole authority to import and market grapes 08.08.01 Fresh whole strawberries BA ~Do not require license if produce of Australia 10.01.01 Wheat ST The Wheat Board, composed of repre- sentatives of wheat growers, flour millers, and the Department of Industries and Commerce, is responsible for hll imports of wheat and flour The board maintains prices for wheat and flour regardless of source at the same level 10 07 01 Canary seed millet HS grain sorghum 11 01 01 Wheat flour ST The Wheat Board is responsible for and 19 all imports 12 01 20 Copra 12.01.30 Palm nuts and kernels HS PAGENO="0205" New Zealand Agricultural Nontariff Barriers Type ~R~st~r~ of ct4on~ ~ma;~..__._.__ i~i~f Nu~pber Con~mo~Lty, D~ J~p.ti~p~i ` 12 .01.40 Soya beans HS 12.01.60 Cotton seed HS 12.01.70 Castor seed HS 12.01.80 Other oilseeds and HS oleaginous fruit 12.02.01 Soya bean flour and meal HS 12.02.09 Other flours and meals of HS oil seeds and oleaginous fruit 12.03.01 Subterranean clover HS 12.03.02 Other clover HS 12.03.03 Grass HS 12.03.04 Other fodder seeds HS 12.03.05 Flower seeds HS 12.03.06 Tree seeds HS 12.03.07 vegetable seeds HS PAGENO="0206" Unmanufactured tobacco MR for cigarettes and snuff Unmanufactured tobacco MR for other purposes New Zealand Tobacco products manufactured in New Zealand must have a minimum domestic leaf content of 32 percent. Tobacco products manufactured in New Zealand must have a minimum domestic leaf content of32 percent. Tobacco products manufactured in New Zealand must have a minimum domestic leaf content of 32 percent. New Zealand Type of Tariff Number eommndit~, flc~rir~inn a~tri~(-ir~n Pemark~ Agricultural Nontariff Barriers 24.01.01 24.01.02 24.01.09 Unmanufactured tobacco MR for cigars C C PAGENO="0207" Sweden Agricultural Nontariff Barriers Sweden EXPLANATORY NOTES NP, VL - Sweden employs a form of variable levy system in which the minimum price acts as a trigger for the application of supplementary import charges. In the case of some __ commodities, the application of import charges (arid their amount) is determined by domestic market prices. Commodities encompassed by the NP, VL system are also subject to enabling regulations providing for quanti- tative restrictions and mising regulations under certain circumstances. These provisions have not been used in recent years. . PAGENO="0208" 01.01 02.03 Live horses Live cattle, at the most one year Other live cattle Live hogs Live sheep Live poultry Meat and edible offals of animals falling under BTN 01.01 through 01.04 --Horsemeat --Pork Dead poultry and edible offal thereof Poultry liver (except goose liver) MP, VL NP, VL, HS NP, VL, HS All imports of meat require a doctor's health certificate from the country of origin stating that all employees in L packing plants processing meat are free L from 250 types of salmonello. The U.S. considers only 6-8 types harmful to humans. NP, VL, 115, See 02.01 L NP, VL, HS, See 02.01 tJnrendered poultry and pig fat (except lard) Sweden Agricultural Nontariff Barriers Swec~en Tariff Number Commodity Description Type of Restriction Remarks NP, VL NP, VL NP, VL, HS NP, VL 01.02 01.02 01.03 01.04 01.05 02.01 02.02 02.05 NP, VL, HS See 02.01 PAGENO="0209" Commodity Description Meat and edible meat offals, salted, in brine, dried or smoked --Pork, salted, dried or smoked 04.01 Milk and cream, fresh, not concentrated or sweetened 04.02 Milk and cream, preserved concentrated or sweetened Butter, margarine Cheese and curd Eggs not in shell, egg yolks Poultry eggs with shells Potatoes (excluding fresh potatoes harvested 6/6-7/5) 07.05 Peas, beans, and lentils, edible, dried, also peeled and cut 07.06 Manioc and arrowroot 08.06 A . Fresh apples Fresh pears Tariff ~ G2.06 Sweden Sweden Agricultural Nontariff Barriers Type of i~j~ti r~n NP, VL, ES .~__-~ Remarks 04.03 04.04 ex. 04.05 ex. 04.05 07.01 See 02.01 L NP, VL NP, VL, L NP,VL NP, VL NP, VL, L NP, VL NP, VL NP, VL NP, VL IC IC PAGENO="0210" Sweden Agricultural Nontariff Barriers Sweden Tariff Number Commodity Description Type of Restriction Remarks 10.01 Wheat ~, VL, MR 10.02 Rye MP, VL 10.03 Barley NP, VL 10.04 Oats NP, VL 10.05 Corn MP, VL lO.Q7 Sorghum and millet NP, VL 11.01 Cereal flours (except NP, VL rice) 11.02 Cereal, groats, meal NP, VL and similar grain pro- ducts 11.05 Meal, groats or flakes, NP, VL manufactured direct from potatoes 11.06 Floui and groats manu- NP, VL Included in 11.08 factured direct from sago, manioc, arrowroot or salep root or other roots, stems or root tubers referred to in 07.06 PAGENO="0211" 11.07 Malt, also roasted MP, VL ex. 11.08 Starches NP, VL, L 12.01 Hemp seed NP, VL 12.02 Hemp seed meal, not NP, VL not defatted 12.04 Sugar beets, fresh NP, VL 12.10 Alfalfa meal and other NP, VL hay meal 15.01 Lard NP, VL, HS 15.13 Artificial lard and NP, VL other processed, edible fat, containing butter 16.01 Sausage and similar NP, VL products from meat, pork, or other animal parts or of blood (ex- cluding gooseliver sausage) Pork and poultry meat, preserved or prepared in airtight containers Beet and cane sugar, solid Sweden Agricultural Nontariff Barriers Type of Tariff Number Commodity Description Restriction ex. 16.02 NP, VL, L NP, VL, L Licensing requirement applied to all countries. 17.01 PAGENO="0212" Sweden Agricultural Nontariff Barriers Sweden Type of Tariff Number Commodity Description Restriction 17.02 Other sugar, excluding NP, VL inverted sugar, malt sugar; syrup and other sugar solutions; sugar coloring 17.03 Molasses, also decolored NP, VL 17.04 Sugar fondants, pastes, NP, VI, and other similar semi- manufactures containing at least 80 percent of sugar or syrup, in bulk ex. 18.06 Ice cream, ice cream NP, VL powder and pudding powder containing cocoa 19.04 Groats and flakes, manu- NP, VL factured from tapioca, sago, potato or other starch PAGENO="0213" Sweden Agricultural Nontariff Type of Barriers Sweden Tariff Number Commodit y Description Restrictip n Remarks 21.07 processed food products, MP, VL not referrable to other customs tariff numbers (excluding fat emulsions and baking aids, also sweetfat, containing more than 10 percent fat, and non-alcoholic preparations for manufacturing beverages): ice cream, ice cream powder, ice cream paste and pudding powder; sweetfat; ravioli, macaroni, spaghetti, and similar products, cooked; coffee paste and other kinds of processed food products 22.05 Wines ST 22.06 Vermouths ST 23.02 Bran and other Offals, ML VL derived through sifting, milling or processing of grain or pulses 23.03 Beet pulp and other offal NP, VL from sugar production; - mash and other offal from * * breweries or distilleries; * rests from starch produc- tion and similar remains PAGENO="0214" Sweden Agricultural J~ontariff Barriers Sweden 23.04 Oil cakes and other rests NP, VL from extractions of vegetable oils, excluding sediment, rests from de- mucilaging processes and almond bran Vegetable products for MP, VL feed, not referrable to other numbers 23.07 Feed containing molasses NP, VL or sugar and other pro- cessed feeds, excluding dog biscuits and such vitamin and mineral feeds, which do not contain dry milk 24.01 Unmanufactured tobacco Tobacco -- private monopoly with no State interference. 35.02 Egg albumen NP, VL 35.05 Dextrin; soluble starch NP, VI, and roasted starch; starch glue: containing more than 20 percent starch or starch products Type of Tariff Number 23.06 ST PAGENO="0215" Sweden Agricultural ` Nontariff Barriers Sweden Tariff Number Commodity Description Type of Restriction Remarks 57.01 Hemp, other than manila IvIP, VL and cantal hemp, unpre- pared or prepared, but not spun PAGENO="0216" 01.01 Live horses, asses, mules and hinnies Live animals of the bovine species Live swine Live sheep and goats Meat and edible offals of the animals listed in 01.01-01.04, fresh, chilled or frozen 02.06.10 Meat and edible meat offals of the animals falling within heading Nos. 01.01- 01.04, salted, dried or smoked CI, QR ) Restriction applies to slaughter animals of horse, bovine, swine and sheep. Bovine, swine and CI, QR ) sheep for slaughter subject to domestic minimum price. CI, QR CI, QR ) Quota restrictions on imports of sheep and lamb for slaughter and CI, OR ) meats of these animals have been eliminated. However, importers are ) .required to take over, *at fixed prices, local production. of sheep, goats, lahibs for slaughter. SC 04.02.10 Dried milk, whole 04.03 Butter 04.05.10 Eggs in the shell 06.02 Young fruit trees and vine stock ci Sc, QR, ST IC, QR No restrictions during winter months Switzerland Agricultural Nontariff Barriers Switzerland Tariff Number commodity Description Type of Restriction Remarks 01.02. 01.03 01.04 02.01 -I Ci Subject to domestic minimum price QR 06.03 . Fresh cut flowers PAGENO="0217" Tomatoes, onions (other IC, CI, QR than seed onions), asparagus, Spanish pepper, artichokes, eggplant, broccoli, greenhouse chicory, green salads, spinach, cauliflower, Brussels sprouts, kale, celery roots, chives, parsley, carrots and red beets 07.01.32 Seed onions IC 07.01.40-42 Seed potatoes and potatoes CI, QR for food 08.06.10 Apples and pears, for cider QR manufacturing Np for apples and pears for cider manufacturing. Both fresh and for cider subject to domestic minimum price. 08.06 Other apples and pears, IC, CI, QR fresh 08.07 Apricots, plums, and cherries, fresh 08.08 Strawberries, raspberries IC, CI,QR blackberries, and currants 10.01.10 Wheat and m~es1in, unde- SC, MR, ST natured, for food and seed Emergency stocks of government state- traded, undenatured wheat subject to domestic minimum price. 07.01 Switzerland Agricultural Nontariff Barriers ` Switzerland Type of Tariff Number Commodity Description Restriction Remarks Subject to domestic minimum prices IC, CI, QR Subject to domestic minimum price. PAGENO="0218" Switzerland Agricultural Nontariff Barriers Wheat and meslin, denatured Rye, undenatured, for food and seed Rye denatured Barley, for feed and SC1 QR, CI seed Oats, for feed and seed SC, Maize, for feed and seed SC, Rice, except husked, SC, whether or not polished or glazed, ündenatured broken rice, for animal consumption f or human consumption OR Buckwheat, millet, SC, CI, QR canary seed, and grain sorghum; other cereals Undenatured rice and maize flour and de- natured flour Maize, groated, peeled split; pearled barley, semoline, groats Import authorization bound to the maintenance of emergency stocks by the importers Tariff Number Commodity Descrimtion Type of Switzerland SC, CI Emergency stocks of government state- traded, undenatured wheat subject to minimum price. SC, MR, QR Subject to domestic minimum price SC, CI, QR 10.01.12 10.02.10 10.02.12 10.03 10.04 10.05 * 10.06 10.07 11.01 11.02 CI, OR CI, OR CI, OR :~ SC, CI, QR SC, CI, OR Bilateral (maize and germs cereals) ofall PAGENO="0219" 11.05 Flour, meal and flakes of potato for human con- sumption Oilseeds, oleaginous fruits, walnut kernels, for animal consumption Vetch, for animal con- sumption Seed for sowing 12.04.01 Sugar beet, beet chips SC 15.01.10 Lard for animal consumption QR human consumption SC Tallow, for human consumption SC Soybean and cottonseed oil, crude SC QR R~striction applies only for a part of the seed species. Imports are bound to the maintenance of emergency stocks by the importer. Switzerland Agricultural Nontariff Barriers Switzerland Tariff Number Commodity Description Type of Restriction Remarks . ~ 12.01 12.03 ex. 12.03 QR SC SC 15.02 15.07 16.01 16.02 Sausages and the like, of SC meat, meat offal, or animal Other prepared and preserved SC meat or neat offal except those based on liver PAGENO="0220" 22 .07.10 Cider of apples and pears 22.08 Ethyl alcohol or neutral ST spirits undenatured of a strength of 80 degrees or higher; denatured spirits (including ethyl alcohol and neutral spirits) of any strength 22.09 Ethyl alcohol, undenatured, ST of less than 80 degrees 23.02 Bran 23 03 Waste in sugar and maize SC manufactured draff 23 04 Oil cakes and oil cake SC meal, carob bean meal, for animal consumption 23.07 Sweetened forage SC 35.01.10 Milk casein (milk acid and CI rennet) Switzerland Agricultural Nontariff Barriers Switzerland Type of Restriction Remarks Tariff Number "~~" `~~" 20.07 Grape juice, in casks, sweet cider and other, completely clarified and preserved 22.04 Grape must QR 22.05 Wine in casks SC, QR QR SC CI, QR PAGENO="0221" United Kingdom Agricultural Nontariff Barriers United Kingdom EXPLANATORY NOTES Abbreviations QR - Quantitative restrictions (QR* indicates that the system is discriminatory in application) MP - Minimum import price system Sc - Supplementary import charge (levy) which may be imposed in conjunction with minimum price system Notes For import licensins purposes in the United Kingdom, the world is divided into Live areas. These are: 1. The Dollar Area, comprising: Bolivia, canada, colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Republic of Honduras, Liberia, Mexico, Nicaragua, Panama, Philippines, United States and Venezuela. 2. The Eastern Area, comprising: Albania, Bulgaria, Czechoslovakia, Germany (Soviet Zone) Hungary, North Korea, North Viet-Nam, the Peoples Republic of China, Outer Mongolia, Poland, Rumania, and the Union of Soviet Socialist Republics. 3. Japan 4. The Relaxation Area, which comprises the rest of the world and includes the Scheduled Territories as defined below. PAGENO="0222" EXPLANATORY NOTES (Cont.). 5 The Scheduled Territories comorising British Commonwealth (except Canada and Rhodesia) the Irish Republic British Trust Territories British Protectorates and Protected States Burma Iceland, the Hashemite Kingdom of Jordan, Kuwait, Libya, South Africa, South West Africa, and Western Samoa. Muscate and Oman are treated as being within the Scheduled Territories for import licensing purposes. :~ PAGENO="0223" 02.01 Pigmeat (excluding offals) 04.01 Fresh milk 04.02 Milk, preserved, concen- trated, or sweetened (SITC 023) Butter oil 08.02 08.06 Fresh grapefruit Fresh apples and pears QR UK sanitary regulations re hog cholera prevents US shipments QR QR* Licensing control at present without effective restriction from the Relaxation Area of all types of processed milk. prohibited from Dollar Areas. QR* Bilateral quotas with traditional sopplying countries QR Imports currently prohibited (11/1/67- 3/31/68) QR* Global quota from Dollar Area. QR*,BA Global quota from Dollar Area and bilateral quota from Cuba. Dollar area quota of 1.15 million pounds sterling in period 12/1-9/30. Maintained for the benefit of the West Indies. QR* Global quota from Relaxation and Dollar Areas and Japan. Apple quota divided into two period with smaller portion being allocated July/December period which is our main shipping season. United Kingdom Agricultural Nontariff Barriers United Kingdom Type of Tariff Number Commodity Description Restriction Remarks 04.03 Butter 08.01 Bananas PAGENO="0224" United Kingdom Agricultural Nontariff Barriers United Kingdom Tariff Number Commodity Description Type of Restriction Remarks 10.01 Wheat and meslin NP, Sc Minimum import price system forms part of an agreement with major exporting countries. If necessary, a specific or a general levy (in the case of a co- operating or a non-co-operating country) can be imposed to safeguard the minimum price. 10.03 Barley NP, SC 10.04 Oats NP, SC 10.05 Maize other than sweet NP, SC corn on the cob 10.06 Grain sorghum NP, SC 11.01 Cereal flours other NP, SC than rice flour 11.02 Cereal groats, cereal NP, SC meals, other worked cereals and germs of cereals other than: (a) Rice groats, meal, - rice germ and other worked rice (b) Blocked, pot and pearled barley PAGENO="0225" ~- ~`~di~" Description C1over~ and grass seeds Hops Sugar Canned grapefruit, and mixtures containing apples Grapefruit and orange juice, citrus juices blended except frozen orange concentrate Rum QR* Bran, sharps and other NP, SC residues derived from the sifting, milling or working of cereals other than rice, and excluding the residues of leguminous vegetables Animal feed stuffs containing QR* 80% milk solids Manufactured tobacco (cigars) Global quota from Dollar Area ($1,260,000) maintained for benefit of the West Indies Global quota from Dollar Area ($840,000) `~0 r (`C 9 United Kingdom Agricultural Nontariff Barriers United Kingdom Type of Restriction Remarks QR QR QR QR* QR* Tariff Nunther l2.0~ 12.06 17.01 20.06 20.07 22.09 23.02 23.07 24.02 Global quota from Dollar Area QR*, BA Bilateral quota from Cuba. Global quota from rest of Dollar Area. PAGENO="0226" Prior dcposit of 40% c.i.f. Minimum credit terms Differential tax for imports Statistical tax of 1.5%, levied on c.i.f. value of im ports only Surcharge of 4% on o~ean freight charges (a) Consular fee of 1.5% levied on f.o.b. value of imports (b) Payment regulation Held without interest for 180 days. Payment schedule prescribed by Central Bank for shipments ex- ceeding $10,000. Minimum pay- ment terms range from 2 years for goods valued up to $30,000 to 5 years for goods valued up to $1,000,000. Imported products do not enjoy the investment tax credit of up to 60% of total liability granted on purchases of do- mestically produced tractors. If the good is exempted from import duty the statistical tax charge is .3% c.i.f. (a) As the value of the ship- ment increases, the amount charged is out of line with service performed. (b) Fee must be paid by the ex- porter to the consulate within whose jurisdiction the coin- mercial invoices to be notarized are issued. Products made of iron and steel Forest prodicts Special steel fuod tax of .20 to 2.00 pesos per net kilo Special tax of 4% to 10% of c.i.f. value 220 PRELIMINARY INVENTORY OF NON-TARIFF BARRIERS AFFECTING UNITED STATES TRADE IN INDUSTRIAL PRODUCTS ARGENTINA ARGENTINA -~ _ftoduct Type of Restriction Remarks Quantitative Restrictions Embargo Embargo Automotive products Tractors of from 12 to 120 horsepower Valuation and Taxes Nearly all imports except raw materials and capital goods Capital goods Tractors of any horsepower All products All products All products PAGENO="0227" Quantitative Restrictions Aluminum and aluminum products, knitted coats, jumpers, cardi- gans, sweaters and the like, roller and ball bearings, second- hand or disposals machinery or equipment and parts for earth- moving or construction purposes, and second-hand four-wheel drive vehicles Other Restrictions Motion picture films Arbitrary weights and measures limitations Licenses issued on ad hoc basis. Quota is applied In New South Wales which represents approximately half the theater seating capacity of Australia, requiring by law that 157. of all films shown be British and 27. be Australian. 221 l~roduct -- Valuation and Taxs (cont'd) Type of Restriction - `Remarks Minimum official valu- ation on which import duty levied The Executive has the authority to establish minimum values. Various, depending on official designation Various products Sales tax of 1O-20T, levied on elf. duty-paid value . Various products ~ Excise tax, levied on c.i.f. duty-paid value Tax is specific on some products and ad valorem on others. AUSTRALIA , AUSTRALIA Produc; Type of Restri~tion Remarks Licensing Screen- time quota All packaged products PAGENO="0228" Casein, caseinate and derivates; Albumin, albuminate and derivates; Dextrine and dextrin glue; Soluble or roasted starch; Gums made from starch; Preparations for the tex- tile, paper, and leather industries, or for similar industries, containing starch or starch derivates Cor b nder used in foundry work on basis of starch and dextrine Starch-ether soluble in water, and starch esters Border taxes ranging from 6.25 to 13.0% In lieu of customs duties, skimming charges may be col- lected. They consist of a fixed protective element plus a vari- able levy. Levies currently in force: Import levy of 20% a.v. plus AS 549.00 per 100 kgs. Import levy of 20% a.v. plus AS 525.00 per 100 kgs. 222 AUSTRIA AUSTRIA Product Type of Restriction Remarks Quantitative Restrictions Lignite, except bituminous coal Penicillin, thyrothrlum (in bulk and individually packaged) Antibiotics and medicaments containing antibiotics (in bulk and individually packaged) Cinematographic film, exposed and developed; except film for toy projectors Wine, except sparkling wines in bottles Valuation and Taxes All importa Variable Levies Licensing Quotas Quotas Licensing Quotas Levies on imports of Skimming charges are based on sugar, starch, and of price di~férentials between: products made of these threshold and gate prices.' and other agricultural They consist of a fixed pro raw materials: tective element, i.e. 20% ad valorem, plus a variable amount depending on the con- tent of pI~otected material in the imported product. PAGENO="0229" 223 AUSTRIA - *. Product Type of Restriction Remarks Government Procurement All products and services ONORM Article 1/34, Bidding time often too short regulating government for foreign firms to react to purchasing, provides `. public tenders. No uniform "If circumstances per- rules for procurement pro- mit, only Austrian cedures and no central pur- products shall be used chasing authority. Regulat- and Austrian firms ions do not apply to national- shall he engaged." ized industries. EFTA members have equal opportunity with domestic firms under Article 14 of the Stockholm Convention. Other Restrictions All imports Antidumping p1gb- Government authorized to es- cedures tablish "guiding" or "minimum" prices for products which cause market disruptions. Both prices are calculated on Austrian export prices and production costs. At present, minimum prices are in force for: cotton yarn, cotton fab- rics, woolen fabrics, cardi- gans and pullovers made of wool. Salt and products contain- State Monopoly Although imports of salt and ing salt products containing salt aro formally liberalized, imports must be approved by the Ad-. ministration of the Austrian Salt Monopoly (Finance Miolstry). Tobacco products State Monopoly The monopoly has the sole right to import, produce and sell raw and processed tobac- co and tobacco products of any kind. Industrially-produced raw State Monopoly These spirits must be sold to spirits the "Verwertungsstelle" of the monopoly which has them re- fined at commercial ref iner- ies. The refined product is then sold to authorized usurs at government - control led prices. PAGENO="0230" Product Quantitative Restrictions Fish, plastic bags, detergents, some pharmaceuticals, shirts (not knitted), lumber, artificial sweeteners, toilet soap and batteries Valuation and Taxes All imports Aitomobi les 224 RAPflAOAC Tvoe of Restriction Remarks Licensing Package tax Initial registration tax of 207., levied on c.i.f. value Excise taxes, levied on c.i.f. duty-paid value Rum, beer, gasoline and diesel fuel Certain products exempted by the tariff schedule. - 12 - PAGENO="0231" 225 BEJ4IUM-LUXEMBQURG!' -~ BELGIUM-LUXEMBOURG - Product Type o~ Restriction Remarks Quantitative Restri.ction~g Anthracite Quota, imports are licensed Penicillin, its salts and compounds, and products thereof (BLEU) Lignite; coke; semicoke; petro- leum and products; certain chemicals; basketwork; a number of textile fibers, yarns and fabrics; women's synthetic hose; jute sacks; natural and synthetic precious and semi- precious stones and dust; tube, pipe, and hollow bars of gold; zinc plate, sheet and strip; mineral or chemical fertilizers, nitrogenous excluding natural sodium nitrate; X-ray appara- tus; firearms, other arms and parts; ammunition and military ordnance (BLEU) Benelux global quota Coking coal Valuation and Taxes ~All imported goods Automobiles Quota, imports ar, licensed Transmission tax or lump-sum tax, gen- erally 7E but may vary on certain com- mod~ties from 17. to 15E Road-tax- based on fiscal horsepower Quota reduced each of last two years. More burdensome on high horsepower automobiles - Government Procurement All products and services (Belgium) Foreign bids may be rejected if "for economic reasons it is essential that the contract should go to Belgian industry, sub- ject however to the price differential not exceeding certain limits." Price differential believed. to be lO7~ normally. Benelux agreement provides for no procurement discrimination between the three countries- Licensing PAGENO="0232" All products and services (Luxembourg) Article 19 of Decree of 12/29156 stipulates that "in principle, products of foreign origin shall not be used if producers in Benelux Customs Union are able to supply the same quality at prices ,~hich are sub- stantially the same." Products of Benelux origin believed given 10% margin of preference. The license to trade, which foreign bidders must have, is issued only to nationals of coun- tries having reciprocal arrangements. 1/ The foreign trade of Belgium is combined with that of Luxembourg within the framework of the Belgium-Luxembourg Economic Union. Yet, while the 2 countries have a common system of foreign trade controls, they also maintaifl separate regulations which are applied only domestically. Items applicable to both countries are marked herein with the symbol, BLEU. 226 BELGI UM.LUXEMBOURGY BELGIUM-LUXEMBOURG Product Type of Restriction Remarks Government Procurement (cont'di PAGENO="0233" Certain automobiles and motorboat s Wide variety of processed or manufactured goods Many products Other Restrictiofl5 Motion picture films Licensing and quota Licensing Embargo Port improvement tax of 1% levied on c.i.f. value of im- ports Merchant Marine im- provement tax of 107. of freight charges Industrialized prod- ucts tax of 47. to 307. levied on c.i.f. duty-paid value Minimum valuation system Licenses are based ~h proof of purchase of a certain amount of domestic caustic soda. Imports not authorized t~hen goods can b~ obtained from national suppliers. importation of automobiles and motorboats priced in the country of origin at above $3,500 including accessories not authorized- 227 BRAZIL - BRAZiL - Product Type of Restriction Remarks Quantitative Restrictions Licensing Caustic soda Phthalic anhydride Machinery and capital go~ds Packaged lubricating oil and petroleum Petroleum products Valuation and Taxes All products Embargo Prior authorization Screen- time qti~ota - 12% State monopoly Rubber PAGENO="0234" 228 BURMA H~ BURMA Government procure- ment practices Government purchasing agencies often issue tender notices with advance bid de5dlines of 30 days or less, making it difficult, if not impos- sible, ~o transmit specifi- cations to foreign firms in time to submit bids ahead of the deadline. Other Restrictions All imports State trading Government is the sole im- porter. BURUNDI BURUNDI Product Type of Restriction Remarks Quantitative Restrictions All imports Valuation and Taxeá All imports Licensing Government Procurement All products purchased for the public account Product Type of Restriction Remarks - Statistical tax PAGENO="0235" 229 CANADA CANADA Product T~ype of Restriction Remarks Quantitative Restrictions Aircraft - Used Import prohibition Prohibited, with some ex- ceptions. Automobiles - Used Import prohibition Vehicles of all kinds menu- factored prior to calendar year in which importation is made are, with some ex- ceptions, prohibited. Valuation and Taxes All products Arbitrary valuation Legislation permits appli- cation of arbitrary value for duty and antidumping duties whenever authorities believe actual values do not reflect "normal" price. Health, Sanitary anc~ Sefety Restrictions Electrical equipment Safety regulations Certificate of Canadian Standards Association re- quired for electrical equip- ment sold and used in Ontario Province. No other provinces require CSA approval. Other Restrictions Alcoholic beverages Monopoly operated by Canadian provinces reluctant Canadian Provinces to carry U.S. liquor brands in Government operated monopoly stores. Canned products Imports are per- mitted only if in cans of sizes es- tablished by the Canadian Government PAGENO="0236" 230 CAMEROON CAMEROON Product Type of Restriction Remarks All imports Licensing For licensing purposes all trade is classified into three categories: the Franc Zone (free of restrictions); Common Market countries (separate import quotas are established); all other countries (more restrictive "global import" quotas are establiShed). Licenses are not ordinarily issued for commodities available from Franc Zone. All imports Exchange quotas To be eligible for foreign exchange, commercial enter- prises must: (I) be inscribed in Trade Register and have valid import license; (2) must possess in Cameroons a regular, permanent trading establishment; (3) have had during preceding year a turnover of imports of at least 5 million franca CFA (approx. $20,000) based on CIF value of imports, or a turnover in internal trade of at least 15 million francs (approx. $60,000). Valuation and Taxes All imports Revenue tax up to 50% All dutiable imports Turnover tax of 10% Discriminatory in that cer- levied on CIF duty- tam countries are exempt paid value from customs duties. - 19 - PAGENO="0237" 231 CAMEROON CAMEROON Product Type of Restriction Remarks Valuation and Taxes (cont'd) Many products Additional tax of 5% to 35% levied on imports Used clothing Minimum valuation Government Procurement Products purchased for public Government procurement account practices Other Restrictions Various products Bilateral trade Trade agreements generally agreements provide licensing guaran- teesto specified amounts of goods. CENTRAL AFRICAN REPUBLIC CENTRAL AFRICAN REPUBLiC Product Type of Restriction Remarks Quantitative Restrictions All imports Licensing and cx- For licensing purposes all change quotas trade is classified in three categories: the Franc Zone (free *of restrictions); Common Market countries (separate Import quotas are established); all other countries (more restrictive "global import" quotas are established). Used clothing Quota Shirts Embargo Valuation and Taxes All inports Revenue tax up to 50% All dutiable imports Turnover tax of 10% Discrimination In that levied on CIF duty- certain countries are cx- paid value empt from customs duties Textiles, men's and used Additional tax of clothing, radios, autos, 5% to 15% levied lorries, eyeglasses on imports PAGENO="0238" 232 Domestic product must be purchased in specified ratio to imported product. Products must conform to British Pharmacopoeia, inter- national Pharmacopoeia, or the British Pharmaceutical Codex. CEYLON Product Tvoe of RestrictIon CEYLON Remarks All Imports Licensing and exchange quotas Numerous products includ ng Embargo sunglasses cigarette lighters cigarette lighter fI nts per fumery bangles and beads wall paper waste paper and oil paper floor t les domesti wa e ballpo nt pen pla t sheets w th floral d s gns floor overing b cycle parts electr lamps photographic and c nematographic apparatus watches and clocks footwear and automobiles Other Restrictions Textile products Mixing requirement Drugs and pharmaceutical Discriminatory preparations regulation Fish, cement, textiles, newsprint, paper and paperboard, petroleum products4 and caustic soda State trading - 22 - PAGENO="0239" 283 `CHAD CHAD - Product Type of Restriction Remarks Quantitative Restrictions All imports Licensing and exchange For licensing purposes all quotas trade is classified into three categories: the Franc Zone (free of restrictions); Common Market countries (separate import quotas es- tablished); all other countries (more restrictive `global import" quotas are established). Valuation and Taxes All imports Revenue tax up to 507. All dutiable imports Turnover tax of Discriminatory in that cer- l0~, levied on tam countries are exempt c.i.f. duty-paid from customs duties. value Selected items Additional tax of 57. to 457. on imports 23 - PAGENO="0240" Special ad hoc quotas for govern sent procurement and certain pre- ferred activities Impotters required to reg- ister (license) all imports with the Central Bank through authorized com- mercial bank. Central Bank maint~ins strict control over license applications and authorization of imports~ Advance deposit of varying rates levied depending on the essentiality of the product. The deposit is returned in not less than 90 day~. These products may be is- ported on case by c~ase basis through free ports, but shipment to the remainder of Chile is not permitted until sUch goods are pro- cessed or assembled at these ports. Numerous special quotas are established from time to time for official government purchases, import monopolies or government-favored activities. p234 CHILE Prndt,~~t CH1TI~ Type of Restriction Remarks * Registry and licensing system * Advance deposit 5% to 10,000% Embargo Conditionally emlargoed All imports Many imports (Permitted List) Many imports (Prohibited: List) Imports not on permitted or prohibited lists* Numerous products - 24 PAGENO="0241" Licensing and exchang)~ quotas import revenue tax of up to 50% Turnover tax of 10% on c.i.f. duty-paid value Additional tax of 5% to 15% levied on imports State trading CONGO (3RAZ~AV1LLE) Remarlcs For licensing purposes all trade is classified into. three categories: the Franc Zne (free of restrictions); Common Market countries (separate import quotas es- tablished); all other countries (global import quotas established). Office National duCommerce is sole buyer and seller of all merchandise destined for `northern regions" of Congo-Srazzavi 1 le. 235 T.,.~. ,.C R~.-4.-i4.~n CONGO (BRA Product Quantitative Most imports* Valuation and Ta~tes All imports All dutiable imports Selected items 0th~r Restrictions Certain imports Discriminatory in that certain countries are exempt from customs duties. - 25 - 95-159 0-68-pt. 1-16 PAGENO="0242" 236 CYPRUS CYPRUS Product Type of Restriction Remarks Quantitative Restrictions common soap and detergents; boot and shoe cream; certain chemicals; wooden boxes, cases, and parts thereof; builders' woodwork; cardboard and paper containers; certain textiles including bed- spreads, tablecloths, .etc.; embroideries; portland cement; certain mosaic floor tiles; iron wire, wire netting, and wire nails; buckets for house- hold use of iron and steel; crown corks; steam generating boilers; metal and woodworking machinery; centrifugal pumps; paper mill and pulp mill machinery; machinery for paper manufactures; printing machinery; textile machinery; industrial sewing machines; certain other non-electrical machinery (excluding domestic app- liances); wood furniture and f ix- tures; table, household and dec- orative articles of plastics for domestic, hotel, or restaurant use; stockings and hose; under- wear and nightwear knitted or made of knitted f~brics; outerwear; footwear; refrigerating equipment for cold storages; matches Import licensing Imports other than those listed are imported under open general license in any quantity and from any coun- try other than those with which Cyprus has trade agreements of a clearing type. - 26 - PAGENO="0243" 237. Statistical tax of 17., levied on c.i.f. value Fiscal duty 107.-15%, lueled on c.i.f. value Fiscal tax of 2 CFA per 1,000 CFA on goods valued over CFA 25,000 Stamp Duty of 37. of all above taxes and dull es Turnover tax of 1.87~ of c.i.f. value plus duty paid Discriminatory tax of 5'1. to 1117, Licenses required for all imports originating outside the Franc Zone. DAHOMEY DAMOMEY Product Type of Restriction Remarks Quantitative Restrictions Licensing Embargo All imports Matches, alcohol, alcoholic beverages, diamonds, canned fish in tins over 1 kg. Valuation and Taxes All import3 All imports Not levied on imports originating in EC countries. - 27 PAGENO="0244" DENMARK DENMARK -- Product Type of Restrictiop kemarks Q~iantitative Restrictions Oysters (except spat); ethyl alcohol or neutral spirits, Un- denatured, of a strength of eighty degrees or higher, de- na~ured spirits of any strength; ethyl alcohol, un- denatured, of a strength under eighty degrees Wine of fresh grapes, grape- must with fermentation arrested by addition of alcohol; Ver- mouths, and other wines of fresh grapes flavored with aromatic extracts Other fermented beverages (e.g. cider, perry, and mead) Valuation and Taxes Nearly all manufactured goods Quota Value-Added Tax of l2~i, levied on c.i.f. duty- paid value Denmark agreed in the Kennedy Round to liberalize these re- strictions by December 31, 1969. Government Procurement Discrimination favoring do- mastic pz~ocurement is ac- complished by administrative action. EFTA members have equal opportunity with do- mestic firms under Article 14 of the Støckholm Convention. 238 Licensing Quotas All products Administrative practices - 28 - PAGENO="0245" All imports Passenger cars valued at over $2,000 Wide range of food items and household goods, and smaller number of manu- factured goods Wide range of products Wide range of products Importable only under prepaid letter of credit Prior import de- posit of 20 or 40% of f.o.b. value for 3 months' period 239 DOMINICAN REPUBLIC DOMINiCAN REPUBLIC Product Type of Restriction Remarks Quantitative Restrictions Exchange control Certain produots subject to exchange quotas. Embargo Embargo - 29 - PAGENO="0246" Mineral tar, coal tar distil- lation products; solvent gasoline; aviation gasoline; bitumen; unwrought. silver; gold and platinum Coal; coke; petroleum and shale oils, crude and refined; gasoline; aviation and heat- ing kerosene; gas-oil and fuel Valuation and Taxes Nearly all manufactured goods Automobiles and motorcycles Alcoholic beverages and crude pet roleua Passenger cars Indiv~dual import 11 cen:sing Turnover tax - 12.4% Excise tax - 140% of c.i.f. duty-paid value minus Fmk 2,500 ($595). 12.4% turnover tax applied also. Excist tax levied on c.i.f. duty-paid value of imports State trading Credit restrictions For imported cars from certain bilateral trading countries, minimum down-payment 40% with 18 months to pay balance. For imports f~rom Other countries, 60% down-payment with 9 months to pay remainder. Dc Facto State Imports of compound fertilizers Trading require a Ministry of Agricul- ture permit. Two state-owned companies in practice appear to control imports and marketing. 240 FINLAND FINLAND Product Type of Restriction Remarks Quantitative Restrictions Global quotas - Alcoholic beverages; matches; auto- mobile tires; tobacco products-; mineral waters; liquid fuels Other Restrictions Higher tax incidence on higher-priced cars. Fertilizers - PAGENO="0247" Assemblies of parts of radio- electric apparatus containing crystal diodes, triodes, in- cluding transistors. Crystal diodes, triodes, includ1~ng transistors and parts. Aircraft and parts Wine Rosin Annual use tax (vi~pette). Tax depends on fiscal horsepower and age of car. Registration tax. Tax depends on fiscal horsepower of car. Border Tax. Normal rate applicable to most industrial prod- ucts is 20%. For imports, tax is levied on duty-paid c.t,f. value. Restricted to all sources, but liberalized de facto for EEC and Greece. Since restriction restored in January 1964, liberalization date postponed several times, most recently to December 31, 1968. Standard U.S. cars fall in highest tax bracket liable to payment in first year of $200, while European cars generally pay $30. Increase in tax rates, effective January 1, 1968, affected all U.S. cars sold in France, but in effect, exempted all French- manufactured vehicles. 241 FRANCE FRANCE Product Type of Restriction Remarks * Quantitative Restrictions Licensing Licensing Licensing Licensing Quota Watches and parts Valuation and Taxes Aitomobi les (passenger cars) Automobiles (passenger cars) All imports PAGENO="0248" 242 FRANCE ________ FRANCE Product Type of Restriction _______ Valuation and Taxes (contd) Whiskey and other grain spirits Government Procurement Excise taxes Tax falls more heavily on whiskey than on brandy. All products purchased for public account * Administrative practices, not codified Procurement offices may ad- ministratively stipulate French suppliers for purchase of current supplies, and materials for public works projects; regulations of a "social character provide for domestic preferences. ~j~,~anitary and Safety Regulations Pharmaceutical products Pharmaceutical reg- ulations. (With a few exczeptions~ a "visa--required be- fore distribution of pharmaceutical specialties packaged for retail sale is permitted- - is not granted for imported products.) Regulations are primarily designed to protect public health, but also serve to protect the domestic in- dustry. Other Restrictions Cigarettes and other manu- factured tobacco State Monopoly Following move toward CXT, re- tail prices of U.S. cigarettes have been increased proportion- ately more than on comparable domestic brands. This action contravenes undertaking on pricing which U.S. obtained from France in 1947. Coal Paper for periodicals (paper in general is liberalized) State tradi~~ State trading - 32 - PAGENO="0249" 243 FRANCE _!RANCE * Product Type of Restriction Remarks Other Restrictions (cont'd) Petroleum products State trading Whiskey and other grain Prohibition on Wines and fruit-distilled spirits adve:tising whiskey spirits may be advertised and other grain in France. spirits CANON - (.ABON - Product Type of Restriction Remarks ~ant1 tative Restrictions All imports Import licensing and For licensing purposes all exchange quota trade is classified into three categories: the Franc Zone and Comaon Market coun- tries (free of restrictions); the Far EaSt (imports not to exceed 10% of total imports from all countries combined during a given year); all other countries (quotas es- tablished annually on basis of lists submitted by all important importers). Valuation and Taxes All imports Revenue tax up to 50% All dutiable imports Turnover tax of 10%, Discriminatory in that certain levied on c.i.f. countries are exempt from duty-paid value customs duties. Petroleum fuels, lubricants, Additional tax firearms PAGENO="0250" 244: FEDERAL REPUBLIC OF GERMANY FEDEP~AL REPUBLIC OF GERMANY Product Type of Restriction Remarks Q~ntitative Restrictions Carps, fresh or chilled; herring and herring fillets, salted or in brine; shrimps, dried; wine of fresh grapes, grape must with fermentation; natural red wines for mixing; woven fabrics of jute; tableware and household articles of porcelain; table- ware and household articles of other ceramic materials; statuettes, fancy articles, etc. of porcelain and other ceramic materials; insulators of ceramic material Valuation and Taxes All manufactured products Other Restrictions Pit coal, briquettes of pit coal and similar solid fuels manu- factured from coal except for bunkering of seagoing vessels, and for the production of coke under processing contracts Value-added tax of lOZ, levied on c.i.f. duty-paid value Imports within tariff quota must be consumed in area north of the Mittelland Canal Quotas - 35 - PAGENO="0251" 245 GHANA Product Quantitative Restricjjs Most imports Licensing Valuation and Taxes Vehicles Purchase tax of 5% to 100% on imports Most imports Sales tax of 11½%, levied on c.i.f. duty-paid value Selected items Excise tax of 2~% to 75% ad valorem, levied on sales price which includes c.i.f. duty-paid value 36 - PAGENO="0252" 246 GREECE _________________________________ - GREECE Product Type of Restriction Remarks ~g~titative Restrictions List `A": Products such as cos- Import licensing metics; textiles, including used clothing; T.V. receivers; auto- mobiles, trucks buses, jeeps, special purpose vehicles and truck and passenger trailers List "B": Products such as agri- Import licensing cultural, mining, food processing and electrical machinery and spares; used machinery and spares except used earthmoving and road-building equipment Valuation and Taxes All products Turnover tax on im- ports 2.25%-8.75%, levied on c.i.f. duty-paid value Many products Luxury tax, levied on the c.i.f. value of imports; consumption tax, levied either in a specific amount or on the c.i.f. duty- and-tax-paid value Government. Procurement All products Principle of non- Under Act of Council of discrimination is Ministers No. 163/1958: (t) administratively purchases in excess of linited $50,000 may be limited to Greek suppliers; (2) no in- ternatioiel bidding if pur- chases can be made from countries with which Greece has bilateral clearing ar- rangements; (3) foreign firms may be required to bid in association with a Greek firs,; (4) guarantees of partici- pation and performance applicable to foreign bids may be waived for domestic fisms; (5) Law 3215/1955 grants a preference of 8% to Greek goods. PAGENO="0253" 247 GREECE GREECE Prod!jct Type of Restriction Remarks Other Restrictions Passenger cars used as taxis Maximum permissible length for taxis is 5.0 meters, and maximum per- missible horsepower is 20 (Greek horsepower) Cigarette paper, kerosene alcohol, matches, salt, playing cards, and saccharine Motion picture films Limit on terms of credit, or advance cash deposit requirements. First-run theaters in Athens and Thessalonike area must show local films at least one week per quarter. Other theaters in these and other areas required to show a number of Greek films per quarter equal to their number of program changes. Requirement is more severe for luxury items and less stringent for products con- sidered essential. Payment terms for purchase of machin- ery and parts limited to 36 months (extensions possible). Advance cash deposits of up to 140% of c.i.f. value re- quired for such items as textiles, meat preparations, confectionery, and furniture. State trading Screen-time quota All imports - 38 - PAGENO="0254" 248 GIJYANA - GUYANA Product Type of Restriction Remarks Quantitative Restrictions Alcoholic beverages, cigars Licensing and cigarettes and tobacco extracts Valuation and Taxes All imports of chairs; foot- Special tax For prolectioo f home wear parts industries. HAITI HAITI Product -- Type of Restriction - Remarks Quantitative Restrictions Various products Import licensing All products Exchange controls Detergents and plastic Prior authorization Imports allowed only to the artitles extent that domestic pro- duction fails to meet local demand. Christmas trees; used clothing, Embargo rags, hats, shoes, household linens and furnishings Other Restrictions Tobacco, matches, soap, deter- State trading gents, cosmetics, textiles, tires and tubes, cement, various agricultural chemicals, house- hold appliances, wine, beer, whiskey, rum, toilet articles, and non-agricultural machinery Television sets State licensed PAGENO="0255" 249 ICELAND --___________________ ICELAND * Product Type of Restriction Remarks, quantitative Restrictions Electric transformers, building board, certain furniture, ladies' stockings, brooms and brushes, works of art, re- constituted wood, fishing lines and cords,and ropes Paperboard cartons and con- tainers Gasoline Tubes and tires Cement, timber, reinforce- ment iron for construction Products subject to import licensing Other Restrictions All imports except petroleum, fishing gear, fertilizers, and industrial raw materials Sales tax of 8.257., levied on c~i.f. duty-paid value Special licensing fee of 907. of price of automobiles; 307. of price of jeep-type vehicles Special import tax Special import tax of 9 kronur per kilo Special foreign ex- change fee of 0.57. of the declared customs value Foreign exchange fee of 0.57. of the import price as stipulated by the license Tobacco, fertilizers, wine and liquor, perfumes, and safety matches State trading Global quotas Licensing Valuation and Taxes All products except footwear, aviation gasoline, packaging, fishing equipment, aircraft Motor vehicles Prior deposit Deposits must be placed with bank selling exchange equal to 15-257. of amount of foreign exchange purchased; deposit held for at least 3 months. PAGENO="0256" 250 INDIA ____________________________ ________ INDiA - Prothict Type of Restriction Remarks Q~gntitative Restrictions All commercial imports Licensing, exchange controls, quotas, embargo Capital goods, heavy elec- trical p1aii~, and machine tools valued at $100,000 or more Special licensing terms Impotts are permitted if: coveted by long-term (10 year) foreign loans or Investments, private or governmental; fi- nanced by the National Small Industries Corp. of India, a government institution: im- ports against earmarked ex- ports; imports against medium- term lredits related to export promotion; imports for main- tenance aad replacement and purposes requiring small cash payments; or provided under a bilateral trade payments agreement. Valuation and Taxes All commercial imports Numerous products Government Procurement Licensing fees Discriminatory excise tax Fee to be paid for application for import license. Fee is 50 rupees for license of not over 50,000 rupees and one rupee for every 1,000 rupees In value of licenses over 50,000 rupees. Maximum fee 5,000 rupees. (1R.133i1) Domestically produced items manufactured under certain con- ditions or for a certain use are granted preferential rates. Products purchased for public account Government procure- ment practices Price pe~eferenee of up to 401 is accorded indigenous prod- ucts. P~-actices are adminis- trative in nature consisting of issuitig bid invitationson short deadlines, failing to identify source of finaacing, restricti-ig quotations or specifications to British and indian standards, and renegoti- ating bids. PAGENO="0257" Other Restrictions ArtificiaL silk yarn and thread, State trading caustic soda, soda ash, news- print, cement, fertilizer, petroleum products, mercury, sulphur, tractors, printing and textile machinery, tires and other items as might be determined from time to tise such as capital goods and in- dustrial raw materials Motion picture films 251 iNDIA INDIA - - Product Type of Restriction Remarks Restriction on trans- 25i of the net earnings say fer of film earnings be remitted while balance is held in blocked accounts and may be withdrawn only for specific uses, - 43 - 95-159 0-68-pt. 1-17 PAGENO="0258" 252 INDONESIA INDONESIA Product Tyi~e of Restriction Remarks Quantitative Restrictions All products Imports require an exchange certificate Automobiles valued over $2000 Embargo f.o.b. new-car value; television sets 21" or above; luxurious cabinet-model radios and record changers, batik-motif textiles Valuation and Taxes All products 1% tax on letters of credit All products 11 import tax, levied on c.i.f. duty-paid value All products l/2~ customs charge Few products Excess Profit Levy of RP25orRP5OpertJS$ value of import Other Restrictions Some essential items, including State trading cainbrics, weaving yarn and thread, textiles and dyes, tinplate, paper cement, re- inforcing rods and other capital goods - 44 - PAGENO="0259" 25~3 IRELAND IRELAND Product, Type of Restriction Remarks Quantitative Restrictions Licensing Tobacco products Superphosphates, certain hosiery, certain footwear, laminated spring for vehicles, spark plugs and metal com- ponents, certain electric filament light bulbs, certain brushes, brooms, and mops Quotas .` Valuation and Taxes Most products Wholesale tax of 57, or turnover tax of 2~7,; levied on c.i.f. duty-paid value One or the other is paid at time of importation, depend- ing on category of importer's registration. ISRAEL , ISRAEL Type of Restrictlon,,,,, Remarks Quantitative Restrictions About 50 percent of all imports Licensing Countries with which Israel has bilateral agreements are favored in issuing li- censes for goods available from these sources. Valuation and Taxes Most Imports Purchase tax of 57. to over 1007,, levied on c.i.f. duty-paid value Automobiles Discriminatory pur- chase taxes Automobiles Discriminatory annual property tax Other Rest -ictions Tractors Mixing requirement Certain percentage of con- tent of imported tractors required to be Israeli produced. PAGENO="0260" Citric acid and crude calcium citrate Tetraethyl lead and anti- knock preparations Elemental sulphur Wine Sulphur of all kinds, other than elemental Essential oils, other than terpeneless, obtained from citrus Cork and cork products Motor vehicles for the trans- port of persons, etc., and special purpose motor lorries and vans, etc. Chassis fitted with engines and bodies (including cabs) for the motor vehicles fall- ing within heading Noa. 87.02 or 87.03 Valuation and Taxes Practically all products 254 ITALY Product Type of Restriction Quantitative Restrictions ITALY Remarks Automatic licensing to EEC countiies. Import licensing Quota Embargo Embargo Discretionary licensing Licensing Licensing Licensing Majority of imported items Licensing Turnover tax of 4%, levied on c.i.f. duty-paid value Compensatory import tax of up to 7.8%, levied on c.i.f. duty-paid value Ta~c applies h~.avily on vehi- cles with large cylinder displacement. At the recent Kennedy Round negotiations an agreement was reached to con- sider elimination of the die- criminatory features of the tax in return for US. modification of American val- uation system for imports. Automobiles Road tax PAGENO="0261" 255 ,,... ITALY Product Type of Restriction Remarks. All products Other Restrictions Motion picture films Cigarettes 30% cf Government pur- chasing reserved to Southern Italy and Is- lands for development purposes. Ministry of Defense has recourse to foreign products only if domestic sources are unavail- able or not suitable to needs Screen-time quota - 38% State monopoly Government departments do not in principle have, any relations with foreign firms or suppliers but only with firms legally established in Italy. Exhibitors must show Italian features at least 100 days per year. Italian short sub- jects must be included in each performance far at least 180 days per year. The monopoly, excise taxes and fixed retail prices are major factors in keeping italian cigarette price significantly lower than foreign prices. Nicotine products, salt, matches, flint, cigarette lighters State monopolies - 48 - PAGENO="0262" 256 * IVORY COAST ______ IVORY COAST Product - Type of Restr ction - Remarks ~uantitat ye Restr ctions All imports Quotas Goods from France. and Franc Zone countries enter freely Separate quotas apply to products from EC countries and to rest of world. All imports Licensing Goods from all countries out side the Franc Zone must be licensed. Paint, detergents, matches, Embargo coffee-husking machines Valuation and Taxes All imports Fiscal tax ofIO%- 15% of c.i.f. value; Statistical tax of 1% of c.i.f. value; Value Added Tax of 81-43%, normally 18% of duty-paid value; Special import tax of 10% of c.i.f. value Used clothing Arbitrary valuation Other Restrictions Pharmaceuticals Discriminatory pricing formula and visa re- quirements - 49 - PAGENO="0263" 257 JAMAICA P~oducts Type of Restriction Remarks -- Quanti CLO Many products, including the licensing following: Asbestos cement pipes, earthenware pipes, metal structural forms, tiles roofing materials, cement rubber prod- ucts, metal furniture, aluminum holloware, ladies and misses garments, mens and boys gar- ments, hoisery, detergents -50- PAGENO="0264" 258 Product Quantitative Restrictions i Coal; gas oils, heavy fuel and raw oils, and other petroleum oils; some chemicals and pharma- ceutical products; leathers (excluding raw) and leather prod- ucts, especially footwear; large steam boilers and turbines, some types of diesel engines, and certain large electric generat- ors; office machinery, including digital type computers and parts; and other products Machinery, chemicals, drugs, processed foods and other prodicts Valuation and Taxes Whiskey Automobiles State trading * Prior deposit Labeling require- ments JAPAN - - Remarks Type_of ~ Quotas and ticensing Automatic import Licenses are freely granted licensing but importer'must submit imports' for approval. Internal tax of 1507. De facto discrimination on high-priced against `imports since corn- whiskies and brandies peting Japanese whiskies are subject to lower rates of taxation due to lower prices. Commodity (sales) Taxes levied according to' tax and annual road cylinder capacity and wheel tax base thereby subjecting most U.S. cars to highest rate. Government procure- Permission for procurement ment practices without open bidding granted by Cabinet Order 336 of September 25, 1963. Government ProcurementZ Many products Other Restrictions, Cigarettes, ethyl alcohol, salt Imports Certain imports Rate varies; presently 17. or 57.. Weights must be indicated in metric measurements ~ 1 See enclosure following this section for full listing of quantitative restrictions. 2 See enclosure following this section for full list of product categories subject to "Buy-Japan" requirement. PAGENO="0265" 259 NOTIFICATIONS OF Th~ORT_RESTRICTIONS A?PLIED INCON5ISTE~N~Y WITH ~HE PROVISIONS OF GATT AND NOT COVERED BY WAIVERS JAPAN 1. repchres1~J~~l~tion ~&1~he areas o~c~ieSj~ y~4ph each ~ ~ach residual import restriction of Japan takes the foraLof a glob~l quota open to imports from all countries. 11 2~ Precise description oL ~ ~estriotiQ~ * See the following list. 3.' The~J~nte _d~j~Lp.f each residual import re~t~~D Since moving to the status ~f Article XI.of GATT in February of 1963, Japan has vigorously promoted the liberalization of its imports and as a result, the liberalization percentage of `Japan's imports has been increased from 88 per cent in.February 1963, when Japan became an Article XI country, to 93 per cent in l96~. While Japan wIll continua to pursuo the liberalization of its imports, Japan * strongly requests ~he early abolition of the discrimination ap~liad again~st Japan's exports by many countries, because the existence of such widespread discrimination is deterring Japan's efforts for trade liberalizatiom. . i7Yn addition, the jtems listed oz~ page 15 are subject to State ~ràding. PAGENO="0266" * Live horses Live animals of the bovine species c-xcluding buffaloes Live swine Meat and offals, of bovine animals, fresh, chilled or frozen, excluding tongue and internal organs * Meat and offals, o~ pigs, fresh, obilled or frozen, excluding tøngue and internal organs tlnx'endered pig fat free of lean neat, fresh, chilled, frozen, salted, in brine, dried or smoked Ham and bacon Meat and edible offals, of bovine animals and pigs, salted, in brine, dried or smoked ** Herring, cod (including Alaska poIlack), yellow-tail, mackerel, sardines, horse-mackerel and sauries excluding * - *roes.of yellow-tail, of mackerel, of sardines, of horse- mackerel and of sauries, fresh (live or dead), chilled * or.frozen 260 Tarii't -item No. Description of goods cx 01.01 cx 01.02 01.03 cx 02.01-1 ex 02,01-2 ex 02,05 * Q2,Q6~~1 cx 02.06-2 cx 03,Ql-2-(2) cx 03,02-1 ex Q3.~2-2-(l) ex 03.02-2-(2) cx 03.03-2-(i) Hard roes of cod (including Alaska pollaàk) and of herring, salted, in brine, dried or smoked Cod. (including Alaska pollack), herring, yellow-tail, iâa~i~rel, sardines, horse-mackerel and sauries, salted, in brine, or dried; "Niboshi" (small boiled and dried fish for s9asonlng use) Cod (including Alaska pollack), herring, mackerel, sardines, yellow-tail, horse-mackerel and sauries, smoked - -** Scallops and Cuttlefish, live; scallops, addüctors of shellfisI~ ~tnd cuttlefish, fresh, chilled or frozen cx 03.03-2~~2) Scallops, adduotors of shellfish and cuttlefish, salted, * -. : in brine or.dried ex 0~.0l * * Sterilized milk and creani and other cream with fatty content 13 per cent or more, fresh, not concentrated or sweetened PAGENO="0267" * Milk and , preserved,, conecntrated or swectened * (excluding sugared condensed wholemilk, sugared condensed skimmed milk, skimmed milk powder, wholemilk powder, buttermilk powder and whey powder) Processed cheese `* * Other cheese (excluding natural cheese) and cm'd Small red beans Broad beans and peas, excluding seeds for growing vegetables .* Other dried iegumii~ious.vegetables, excluding seeds for growing vegetables * Manioo, arrowroot, salep, Jerusalem artichokes, sweet potatoes (excluding fresh sweet potatoes) and ~ther similar roots and tubers with high starch or inulin * content, fresh or dried, while or sliced; sago pith Dates, dried 261 Tariff Description of goods Item No. ax 011.02' 011.011-1 ex 011.011-2 07.Q5-1 cx 07.05-? cx 07.05-11 cx 07.06 cx 08.01-3 ex 98.02-1 ax 08.O2~-2 cx 08.02-3 ox 08.02-k ax 08.0k-i cx 08.06 *ex 08.10 cx 0841-2 cx 08.11-3 * * Limes, fresh * Oranges, fresh ** * S Grapefruit, fresh * * * * - * Tangerines, fresh * ~* * * Grapes (Vitis vinifera), fresh * - Apples, fresh * * * * * Pineapples (whether or not cooked), pr~.~rved by freezIng, not containing ad4ed s~gar Oranges, provisionally preserved by sulphur dioxide gas or other preservative ~ases Limes, grapefuit, tangerines, grapes (Vitis vinifera) and apples, provisionally preserved by sulphur dioxide * gas or other preservative gases * * PAGENO="0268" 262 ~ariff item No Dt~scriotion of guds cx 09 0) l-(2) Other coffee excluthn&, such in containers of n t / coat nt less than ~t00 gr~.mrn~s 09 02..1-(l) Black tct put up for sole by retail 09 02 1 (3) Othcr black tea 10 07-3 Kno lianb ann other 0rein sorghums cxcluding such * purchased by the Government and such to be used as materials for compound feeds under the supervision of the customs 11 01-1 Wheat flour cx 11 01-2 Rice flout btrley floui (including nakt~d barley flour) ~.nd flours of k~.o-liang and other grain sorghums cx 11 02-1 Groats anc' meal of wheat ar4 rice excluding germs thereof other workcd whe,t and rice (for example rolled, flaked, polished, poarled or kibbled, but not further prepared), except husked, glazed, polished or broken rice exc1udin,~ gerus thereof cx 11.02-2 Greats and meal of barley (including naked barley) .and kao-liang and othex grain sor~hums other worked barley (including naked barley) and kao-lieng and other grain sorghums (for example rolled flaked polished pearled ox' kibbled but not further prepared) 11 04 Flours of the fruit f,.3.ling within any heading in Chapter 8 of th. Customs Tariff Schedules 11 05 Flour meal and fltkts of potato 11 06 Flour and meal of si,o anc3 of m~nioc errowroot ealep and other roots and tubers f llin& within heading No 07 06 of thc Custo~ns Triff Schedul..s 11 07 Malt, roasted or not 11 08 Starches inulin 11 09 Gluten and gluten flour roasted or not 12.01-2 GrourLdnuts PAGENO="0269" 263 * Tariff * item No. 12.O1~.3 12.08-?- (i) .12.08-2-(2) ox 12.08-2-(3) :1'L05~ exL4.05-2-(2) ex 14.05-4 15.07-1 15.07-2 15.07-3 ox 15.07-5 ex 15.07-14 * 15.13-1 cx 15.13-2 16.01 ex 16.02-2~ ex 16.04-2 DescriptIon of goods Eapesoeds arid mustardsecds . . Edible seaweeds, formed Into rectangular papery sheets not more then 430 square centimetres per piece Soaweods of genus Porphyra and other seaweeds mixed with gehus Porphyra, edible, excluding those falling within heading No. 12. 082: (1) of the Cu~toms Tariff * Schedulos . . . .. * Other cdi~lo seaweeds (genu~ Enteromorpha, Monostroma, Ejelimenlella and Lawtharia) * Tuberri of Ko~inyaicü (r~r~orphop~ia~lus) whether or not cut, * dried or powdered Other seaweeds (genus ?orphyra, Enteromorpha , Monostroma, KJellmaniella and Leinlnaria) * . * Dates, denatured . . . * Soyabean oil * . Groundnut oil . * Eapeseed odl and mu~tard seed oil Cottonseed oil, excludIng ruch to be used for menu- facturi~g mayonnaise Corn oil, safTlower seed oil e.nd sunflower seed oil Margarine * . *. . Shortening . *.* . . . r~d ~e like, of meat, meat offal or animal blood . . . Other prepared or proserved moat and offals ~ of bovine animals or pigs; dthei~ p~'eparatioris chiefly consisting * of meat and offale of bovine animals or pigs * PreparatIons of roe.~ of cod (including Alaska pollack) * and herring, excluding those ~terilized by heating in airtight contai~ters PAGENO="0270" 264 Tari~t itam No Description of g~ocis cx 16 05-i So flops ~c1ductors of sheilfisri arid cuttlefish / smoked 17 01-1 Rook cand~r cube sugar loaf sugar and similar su~ar of beet su&ar arid cane sugar 17 0l-2-(2) Other beet sugar and canc sugar 17 02-1 Gr-~pc sugar not contelni% added sugar 17 02-2 Malt sug-ir not containing added suQar ex 17 02-3 Milk sugar (not centaining added sugar) less than 90 per c~nt pure milk sugar content 17 02-4~(l) Rook candy cube sugar loaf sugar and similar sugar 1 ( 02-4- (2) -B Other sugar 17 02-5 Sugar syrup 17 02-6 Caramel 17 02-7 Artificial honey 17 02-8 Sugtrs md syrups other 17 03 Molasses whether or not decolourized 17 04-1 Chewing gum 17 04 2-(2) Other sugar confectionery (excluding cough drops) 17 05 Flavoured or coloured sugars syrups and molasses but not including fruit juices àontaining added sugar in any propoi tion 18 06 1 Chocolate confectionery ex 18 06 2-(l) Other food preparations containing cocoa and added sugar in powder plate or lump cx 19 02 Cake mixes ex 19 03 // Macaroni spaghetti vermicelli and noodles 19 04 Tapioca and sago tapioca and sago substitutes obtained trom potato or other starches / PAGENO="0271" Prepared foods obtained by the swelling or roasting of ôereals orcere~l prcklucts(puffed rice, corn flakes and similar products) excluding preparations other than those of rice, wheat, barley (including naked barley) ai4 corn;flakos * Cookies, biscuits and ~rackers, containing added sugar Cookies, biscuits and crackers, other * Tomato purge and tomato paste Mashed potatoes and potato flakes Pineapples preserved by freezing, containing added sugar * Fruit pur~o and fruit pastes Pineapples containing added sugar or spirit Fruit puips containing added sugar oi' spirit Pineapples, other Other fruit pulps and roasted groundnuts * Fruit juices containing added sugar Other fruit juices, excluding sloebases * * Tomato juice, the dry weight content of which is less * than 7 per cent .. . S * Tomato ketchup and tomato sauoó . . Mixed seasonings chiefly consisting of sodium glutamate Food preparations containing added sugar, exc.uding rations, peanut butter and Korean ginseng tea * Bases for beverages,~ nan-alcoholic, excluding Korean ginseng tea * * * Ice-cream powder; prepared milk powder for infants and other preparations chiefly consisting of milk; food * preparations of. seaweeds (genus Porphyra, Enteromorph, Monostorama, lCjellmaniella ~nd Laminaria); "mcchi" (rice cake), coOked rice, roasted rice flours,Cflriched * ** rice with vitamin and other similar food preparations of rice, wheat and barley (including naked barley) 265 -- ** * * S * . . Description of goods ., Tariff * itomNo. * ex 19.05 ex l9~08-l exl~.08-2 `2d.02-2-(l) ax 2O.0~-2-(2) cx 20.03 cx 20.05 2ó.06-l-(l) ex ~O.O~-l-(2) * 20.06-2-(l) cx 20.06-2- (2) * 20.07-1- (1) cx 20.07-1- (2) cx 20.07-2 cx 2l~Ok-2-(2) * cx 21.07-1 ox 21.07-2- (1) cx 21.07-2-(2) 5;. PAGENO="0272" D,.scription of goocia * lemonade, flavoured spa waters and flavoured aerated waters., and* othei~ non-alcoholic bevcz'ages, containing added fruit juices, not including fruit and vegetable juices falling within heading No. 20,07 of the Customs T~,riff Schedules Grape must in fermentation or with ferm~ntation arrested otherwise than by the addition of alcohol Wine of fresh grapes grape must with fermentation arrested by the addition of alcohol Vermouths and other wines of fresh grapes flavoured with aromatic extracts Ethyl alcohol or neuj~ra1 spit'its, undenatured, of en * alcoholic strength of less than 90 degrees but not less than 80 degrees Denatured spirits including ethyl alcohol arid neutral spirits of an alcoholic strength of less than 90 degrees Whisky Brandy (lncludl% cognac) Liqueurs (excluding clixir Korean ginseng) Flours and meals of whale meat or of fish and nesidues of fish, .tffiflt.tor human consumption . . . Reaidues of starch manufacture from manioc arrowroot salep, Jerusalàm artichokes, sweet potatoes and other similar roots and tubers, or sago * Oiloake and other residues resulting from the extrattion of soyabean oil* * . *. * Olloake and other r~.sidues resulting from the ertracti~.n of rapese-'d oil or must"rd sccct oil Compound feeds and fish soluble unfit for human consunption Unroasted iron pyrites Sulphur of all kinds (excluding insoluble sulphur), other than sublimed sulphur, precipitated sulphur and colloidal sulphur . Other nature], graphite, amorphous 266 Tariff item No. cx 22.02 22.0~l. 22.05 22.06 22.08..l-(2) cx 22.08-2 22.09.l-(l) 22.09-l-(2) ex 22.09-2-(l) cx 23.01 cx 23.03 23.0~&-l *` cx 23.Ok-2 cx 23.07-2 25.02 / cx 25.03 cx 25.Ok-2 PAGENO="0273" . Tariff . . . . item No: . Description of goods - ~* Tungsten ore - - Coal; briquettes, ovoids and similar solid fuels manufactured from coal Lignite, whether or not agglomerated . Coke and semi--coke of coal, ~f lignite or of peat Gas oils, excluding those in ~ontainers of a capacity less than 300 litres Heavy fuel oils and raw oils, excluding those in containers of a capacity less than 300 litres and..x~e oils for refining Other petrole~th oils and oils obtained from , bituminOus mineralS, excluUng those. in containers of a capacity less. than 300 litres - : Soda ash Menthol - Sodium glutamate .- * Malt sugar * . . Sorbose * Other sugars (hexoses and disaccharides) Antibiotics,, other, (chidramphenicol, tetracycline and * cycloserine, excluding erivatives of chloramphenicol * and tetracycline) Preparations of penicillin or' streptomycin, excluding * preparations Qf synthetic penicillin Preparations with `a basis of antibiotics, other * (preparations of chlo~-amphenicol, tetracycline and cycloserino, excluding preparations of derivatives of obloramphenicol or tetracycline) Peppermint oil (excluding peppermint, oil of mitcham type) and crude peppex~mint oil 267 26.c$l-5 27,01 / **27*02i 27.0k, ex 27.104l-(3) cx 7.lO.-l-(k), ex 27.lO-l-(6) ?8.'~2-l - ix 29.05-?--(l) 29.23-3 29.~t3-1 29.~3-2 - - cx 29.k3-3 *. ex 29.kk-2 ex3Q.03-l-(l) - cx 30.03-l-(2) cx 33.Ol-i--(3) 95-159 0-68-pt. 1-18 PAGENO="0274" 268 * Fruit f1avours~ of an alcoholic strength of 10 degrees or higher, containing fruit juices Other fruit flavours, containing fruit juices Dext~rins and d~xtrin glues, soluble or roast~.d starches, starch glt~es Cinoinatograph colour film Othar colour film Prepared dressings for starching Bovine cattle leather. (including buffato leather).and equine leather, except leather falling within heading No. 41.06, 41.07 `or 41.08 of the Customs Tariff Schedules . * 8he~p and lamb. skin leather, dyed, coloured, stamped or embossed * Goat and kid skin leather, dyed, coloured, stamped or * embossed ,. . Patent leather and imitation patent leather, excluding imitation patent leather manufactured from leather falling within heading No. 41.05 of the Customs Tariff Schedules Articles of appare) of leather or of cortposition leather, containing furskin or. combined Or trimmed with precious reta.s, rolled pr~cious metals, metals plated with precioub metals, precious stones, semi-precious * atones, pearl, coral, elophants' tusks or "B.~kko". Articles of apperal of leather or of composition leather, other Tariff item No. Description of good.~ ox 33.04-1 ex 33.04-2 35.05 37.O2-l-(l)~ 37.02-2-(2) ex 38.12-2 41.02 41 ~O3-l 41.04-1 cx 41.08 *ex42.03-l cx 42.03-2 PAGENO="0275" 269 * Tariff item No. . . .. Description of goods ex 46.02-1 ex 46.03-2 ox 53.11 * 54.02 5&.10 ex.64.02-1 ox 44.02 Wood charcoal (including shell and nut charcoal), agglomerated or not, excluding coconut-shell charcoal "Wara mushiro" (a kind of straw mat) "Wara kajiasu" (a kind of straw sack used for the packing of goods) Woven fabrics, of sheep's o~. lambs' wool or of fine animal hair, containing not lees then 30 per cent `by. weight of sheep's or lambs'.. wool or fine animal hair, excluding those used, for pianos Ramie, raw or processed bitt not spun, raiaie noils and waste (including pulled or garnetted rags) iI~nbroidery, in the piece, in strips or in motifs Foetwear (excluding thcse for sports end slippers), with the uppers of whole leather or of furskin and leather impart Footwear (excluding those for sports and slippers), with outer soles of leather and with the uppers of leather impart Parts of' footwear of leather . Cast, rolled, drawn or blown glass (including flashed or wired glass), in rectangles, surface ground or polished, but not further worked ox 11.03-2 * Synthetic precious or semi-precious stones, .. other * . (other than polished, perforated or similarly worked) * ex 64.02-2-(l) ox 64.05-1 70.06 PAGENO="0276" 270 Tariff item No Description of goods ex 73 15 l-(3) Alloy tool steel free cutting steel and alloy hollow mining drill steel 82 07 ~Lool-tips and plates sticks and the like for tool-tips -. unmounted, of sintored metal carbidés (for example, carbides of tungsten molybJenuin o~ vanadium) cx 8k 01-i Steam generating boilers with a ge~ierat!ng capacity of more than 1 300 tons per hour cx Bk 05-l-(1) Steam turbines with a rating of more than koo 000 1-ilowatts ex Bk o6-i-(l) Internal combuStion piston engines for motor vehicles (those for motor velucles (e~v'ludin& three wheeled motor voaicles) falling within heading No 87 02 and No 87 03 of the Customs Tariff Schedules) cx 8k 064-(3) Outboard motors with a rating of not less than 10 h p but less than 20 h p cx 8k.o6-i-(k) Water cooling diesöl engines, with a rating of.more than 100 h p but less than 1 000 b p cx 8k 06-2 Parts of internal coirbustion pas~-on engines (pistons connec~ting rods and cylinder blocks for internal combustion piston engines) cx Bk 35-i Automatic printing machines of the relief and lithographic sheet-feed t,rpe excluding offset press with a size not more than 36k mm x 515 mm cx Bk kl-l-(2) Other sewing machines (excluding straight line rock- stitching industrial sewing mechines of not less than us$ko 00 per set in o i f value) cx Bk i~5.3~(l) Lathes manufactured one year or more ago cx 8k 45-l-(2) Drillinc machines and boring machines m~.nufactured one year or more ago cx 8k.k5-1-(3)-A Universal tool-milling machines, manufactured one year or more ago PAGENO="0277" . of goods Tariff . . item No. .~T - Description Profile, milling machines (including die-sinking machines), equipped with one oi~ two milling spindle, of a working surface less than 1 square , excl~ding hand-operated type machines and cam type, manufactured one year or - more ago . - * Piano-millers, with a tabl~ not more than 2,000 mm. in - width, manufactured one year or more ago'~ Other plano-millers; other milling machines manufactured one year or more ago, excluding otharplano-millers in the foregoing Planers, with a table not more than 2,000 mm. in width, manufactured one year or'more ago Other planers . Grinding machines, manufactured one year or more ago * éx 8k.45-l-(6) : Gear-cutting machines and gear-finishing machines, * manufactured one year or more ago * Machine tools, other, manufactured one year or more ago ~ypewriters designed to work in electrical connexion with digital type electronic computors ex 811.51_l_(2) Other typewritets, western type .8k .52-l-(l) Digital type electronic computere and the machines. of folló~ing descriptions, if imported with digital type * . . . * *electr~nic computers: input units, output. units, input- .~ütput units and memory units, designed to work in electrical connexion with the computers above, and * . . *, controllers belonging to .the machines of all the foregoing . 8k.53-i Digital type electronic computers and the machines of following descriptions, if imported with digital type el~otron1c computers, excluding electronic calculating punches with self-contained mechanism for reading and punching cards: input units, output units, input-output units and memory units, designed to work in electrical connexion with the computers.above, and controllers b~longing.to the machines of all the foregoing 271 ex .84.k5-i-,(3)-B 84.45-l-(3)-C. ex 8k.k5-l-(3)-D cx 8k.45-l-(k)-B `ex 8k.k5-l-(5) cx 8k.k5-l-(7) 8k.5l-l-(l) PAGENO="0278" 272 !jaritf item No Description of goods 84 53 2 Input units output units and input-output units designed to work in electrical conne.4cn with digitc.l type electronic computer~i (other tha~i those specified S *. in heading N~. 84.53-1 of the Customs Tariff 8ohedu1e~) 84.54-1 Input units,. output units, inpui-output units and memory units designed to work in electrical connexion with digital type electronic compvters magnotic tape converters and magnetic tape printers used together with those machines cx 84 55 Parts suitable for use solely or principally witb maohine~ of a kind falling ~ithin heading No 84 51 1-(1) 84 52-1 (1) 84 53-1 84 53 2 or 84 54-1 of the Customs Tariff Schedules ex 84 63-2 Cran1~ shafts ex 85 01-1 Electric generators with a rating of more than 400 000 kilowatts cx 85 13 Telephone s ritchhoards and exchanges (electionic system) cx 85 21-1 Thernionic valves and tubes of not less than US$5 00 per piece in c i f value (excluding cathode ray tubes for television receivers) cx 85 21-2 Mounted transistors and similar mounted devices incorporating semi-conductors (digital tjpe integrated circuits linear type integra~ed circuits with not less than 35 elements in circuit) 85 22-1 Controllers for digiti type el~.ctroriic computers or for the machines df following descriptions: input unit~ output units input-output unit~ or merrory units dcsigned to work in electric-Ll conne"ion with the computers above and magnetic t~pe converters or magnetic tape printers usLd together with tho machines of all the fort.going cx 85 22-2 Other electric~d goods and app~r tus (those suitable for use solely or principally with r~chines of a kind falling within ~ieading No 85 22 1 of tn~ Customs Tariff Sch~tules) PAGENO="0279" Motor vehicles for the transport of persons (including racing cars, passenger jeeps and combined passenger cargo cars, but not including buses falling within heading No. 87.02-2 of the Customs Tariff Schedules, special transport vehicles such as ambulances and motor vehicles o~ track-laying typo) (those once purchased by end-users) (excluding three- -* wheeled passonger motor cars) * Chassis fitted with engines and cabs* (those for t~e transport of persons) Chassis fitted with engines, for the motor vehicles * falling within heading No. 87.01 or 87*02-i of the Customs Tariff Schedules 273 Tariff item No. Description of goods ox 87.02-1 ox 87.o2-k-(3Y cx 87.011 * Note: Items subjeöt to State trading * .e~ 011.02 Sugared condensed wholemilk, sugared condensed skimmed milk, skimmed milk powder, wholemilk powder, buttermilk jowder and whey powder 011.03 10.01 10.03 10.06 cx 12.07-11 * cx 13.03-9-(2)-B ex22.0& 211.01 211.02 ex 25.01 Butter Wheat and meslin Barley. (including naksd barley) Rico . ~Poppy straw Raw opium . Alcohol, of an. alcoholic strength of 90 degrees or h1~her * * * Unmanufactured tobacco; tobacco refuse Manufactured tobacco; tobacco extracts and~osseocor Co~nmon salt (including rock salt, sea salt eM table salt); pure sodium chloride; salt liquqrs PAGENO="0280" 274 CATEGORIES OP PRODUCTS SUBJECT TO "BUY~'JAPAN" REQUIREMENT 1. Four.'vhe~led vehicles 2. Digital computers 3. Office equipment 4. Air~conditioners 5. `Scales and measuring equipment 6. Civil engineering and construction equipment 7. Agricultural equipment 8. Cotanunication apparatus and radio equipment 9. Electric wire and insulating cables 10. Aircraft 11. Thermo~~electric generating equipment 12. Pumps, blowers and air compressors 13.' Printing and bookbinding machines 14. Machine tools PAGENO="0281" 275 TANZANIA AND UGANDA KENYA. Product ~Typ~ of Restriction Remarks KENYA Quantitative Restrictions Many products Specific import Other imports enter uflder licensing open general license Certain clothing items Quotas Government Procurement All products Procurement Overseas procurement for practice Kenya Government handled through Crown Agents in London, giving British suppliers a strong ad- vantage. Other Restrictions Dye-in-the piec~ fabrics, khaki State trading drill, colored fabrics, second- hand clothing, soap, detergents and salt 35mm cinematographic films, State trading developed TANZANIA Quantitative Restrictions Various products Specific import Other imports enter under licensing open general license. Other Restrictions Textiles, bicycles, motion pic- State trading ture films, cement, matches UGANDA ~~ntitative Restrictions Many products Specific import Other imports enter under licensing open general license. Motor cars, station wagons, Quota motorcycles PAGENO="0282" 276~ KOREA KOREA Product T,pe of Restriction Remarks QUantitative Restrictions Miscellaneous manufactured Embargo products 134 SITC classifications Quotas Including plastics, iron and steel structures, glass, and manufactures of metal Numerous raw materials and Licensing manufactured products KUWAiT KUWAIT Product Type of Restriction Remarks Quantitative Restrictions Alcoholic beverages, used trucks, Embargo sp~Iral weld steel pipe, medicines containing cobalt'salts, in- dustrial and medical oxygen gas Other Restrictions Asbestos pipe Private monopoly Monopoly on imp rts granted to local producers. PAGENO="0283" MALAGAsyR~Llc~.~.,,,,,~. ~1REP~LI~__ Produc~ç__ Type of Restricti~n Remarks - Q~~titative Restrictiofl~ Annual import program provides quotas for specified corn- modities from EC countries, other than France; global quotas for all other countries outside the Franc Zone. Batteries for electric accumulators, alcoholic beverages Used .netal casks and drums, used clothing, alcoholic beverages, used sacks and bags New sacks and bags Cement Import tax of 0-50%, levied on c..i.f. value Consumption tax of 10%- 1357. Charge of 2,000 francs per metric ton - Procurement Short notification and ad- practices ministrative discrimination. Other Restrictions Beer Stringent require- ments regarding container sizes; beer under 4 degrees alcohol prohibited. 277 All imports Exchange quotas and licensing Quotas Prior authorization Embargo Embargo on imports into part of west coast Valuation and Taiç4g Most imports Some consumer goods, such as tobacco, footwear, and alcoholic beverages Cement Government Procuregep~ Purchases for public account PAGENO="0284" 278 Overseas procurement for Malawi Government handled through Crown Agents in London, giving British suppliers a strong advantage. MALAYSIA None for Commonwealth origin~ 157. for non- Commonwealth origin. Government departments are directed to procure locally manufactured goods at a differential up to 5~ above foreign-produced goods. ~!±~1~1 MALAWI Product Type of Restriction Remarks Q~a~,titative Restrictions Various products Government Procurement Spectfy import licensing Procurt~nent practice Other products enter under open general licensing. Sterling countries not subject to license. Product Type of Restriction Remarks All products MAI.avel A *Valuation and Taxes Trucks.and buses used for business or public purposes Government Procurement Products purchased for the public account ~ Restrictions Motion picture films Discriminatory registration fee `Buy National" policy Screen-time~quota PAGENO="0285" 279 !~i~&i~__________________________ Type of Restriction MALTA Product Remarks Machinery for the production of stockings, refrigeration machin- ery, motor buses, water pumps, cement floor tiles, bags of paper or polyethylene of the type manufactured locally, baths exceeding 5'ó" in length, gold and siliver filigree work, liq- uified petroleum gas, natural gas, collaosible iron gates, hand- made lacewbich imitates Malta lace; machinery for producing aerated water, filigree and tools, gas; ticket-issuing machines, metal dolphin articles, cement floor tiles, used tires (moulded and retreaded) Electrical wiring accessories, men's trousers, steel wool, ladies nylon stockings, plastic or leather handbags, basket- ware of cane, willow or wicker, bituminous emulsions, floor brooms, buttons, candles, candle- sticks, crucifixes, cotton wad- ding, wooden crates for soft drinks and beer, worked marble, inner spring mattresses, glass wall mirrors, nails and screws of iron, paintings, smokers' pipes, printed matter, sanitary towels, shirts with collars attached, shopping bags of plastic and/or polyethylene, safety matches Licenses issued according to previous imports. For several of these products of minor importance import licenses may be granted under exceptional circumstances. Embargo Licensing PAGENO="0286" 280 * All imports Valuation and Taxes All imports Other Restrictions Percales, guinea cloth Exchange quotas and licensing All goods imported freely * from France and Franc Zone countries. Quotas for im- ports of other EC countries. Global quotas for rest of world. Fiscal Tax of 10%- 15%. levied on c.i.f. value Standard Import Tax of 20%-30%, levied on c.i.f. plus duty-paid value MAURITANIA Quantitative Restrictions -- Tvoe of Restriction MAURITANIA Remarks All imports All imports Turnover Tax of 10%- 22%, levied on c.i.f. plus duty- paid plus standard tax plus fiscal tax value All imports Statistical tax generally 4 CFA per unit State trading PAGENO="0287" Alcoholic and certain other indust- Licensing rial chemicals; penicillin; coal and coke; certain cotton fabrics, artificial textile fibers and certain fabrics thereof; wool and fine hair; flax; hemp; zinc sheets and strips; and mineral or chemical fertilizers, nitro- genous excluding natural sodium nitrate Licenses for coal and coke are restricted to amounts over specified domestic supplies. Penicillin, its salts and com- pounds, and products thereof Benelux global quota A quota of 2,550 billion Ox- ford units per year for imports of these items for the entire Benelux area from non-EC sources for the year 1966. Valuation and Taxes All items except "necessities of life--food, fuel, medicine, clothing, etc. Manufactured tobacco products; ethyl, propyl and isopropyl alcohol; beer; petroleum products; and wine Turnover tax. Rates vary from 1-18%, the majority being at 5%, levied on c.i.f. duty-paid value Excise tax levied on c.i.f duty-paid value Licensing based on past trade favors British goods. 281 NETHERLANDS - NETHERLANDS - Product Type of Restriction Remarks Quantitative Restrictiopg Q~nt i tatitTjCtj0fl5 Most imports NEW ZEALAND * Product Type of Restriction Quotas or licensing PAGENO="0288" *~282 * Cotton ginning plants; indu~t- rial plants for pasteurizing and sterilizing milk; equipment for the slaughter of cattle and hogs, and other slaughter house equipment Valuation and Taxes Plastic articles Valuation and Taxes Used clothing Perfumery goods, cotton and knitted goods, household utensils of aluminum Cigarettes * Arbitrary, valuation Transactions tax of 10%, levied on c.i.f~ value Discriminatory excise taxes NICARAGUA `Rsm*rks' Franc Zone exempt gradual removal for EEC. No licenses issued when goods available within Franc Zone at a reason- able price. Country and global quotas. NICARAGUA Product ________ Qp~j~tative Restrictions Typeof Restriction All imports NTC.FSR Prior authorization Consular fee of 7% - NIGER Tvoe of Restriction Remarks Product Most imports E'cchange quotas and licensing Prior authorization All imports Fiscal tax of 10%- * 15%, levied on c.i.f. value S S Statistical tax of " 11, levied on c.i.f. value Standard tax of `25%, levied on c.i.f. value S Turnover tax of 10%- 22%, levied on c.i.f. value PAGENO="0289" 283 NIGERiA -~ _______________________ N1GER1~~ Product Type of Restriction Remarks -~ guantitative Restrictions Pharmaceuticals Specific licensing All other imports enter under Op4n General License. Discriminatory regulation Products conforming to specifications of the British Pharmacopoeia o: the British Pharmaceutical Codex and so labeled enter duty free Products conforming to the U.S. Pharmacopoeia but not meeting the above require- ments pay a 20% duty. * NORWAY NORWAY Product Type of Restriction Remarks Ships, boats, and other vessels, (except pleasure boats and craft, and the contracting of normal dry cargo ships) Valuation and Taxes Licersing Nearly all products All imported products Turnover tax of 13.64%, levied on c.i.f. duty-paid value Traffic tax Domestic goods moving in in- ternal trade are not taxed. Motor vehicles Excise Tax: 35% on first $840, 60% of amount over $840. Rates will change July, 1968 Progressive nature of auto- mobile tax weighs more heavily on expensive models. Governiient Procurement All products purchased for public account Preference is given to domestic bidders for products for public works Preference margin up to 15% provided for in Decree of 3/11/27 in effect as of 1966. Preferential system is ex- tended to other EFTA countries in conformity with Article 14 of the Stockholm Convention. Other Restrictions Alcohol, alcoholic beverages, medicines and pharmaceuticals, fishing gear Shoes Requirement that the binding sole, of all shoes be made of a single piece of natural leather. Artificial leathers such as "Corfais" are not presently acceptable for use in the binding sole, although they are permissible elsewhere in the shoe. Many products Other Restrictions State trading 95-159 0-68-pt. 1-19 PAGENO="0290" Nearly all commercial imports Automobi lea Valuation and Taxes Most products imported for sale 284 Product Typ~e of Restriction Remarks Quantitative Restrictions Import and exchange licensing Virtual embargo Sales tax of 15% in most instances, levied on c.i.f. duty-paid value Only. autos with a landed cost of up to $2331 may be imported Single-point sales tax, gener- ally levied on both imported and domestically produced goods, levied at import,. manufacturer, or wholesale point (but only one of these). Exemption for capital goods and certain other items. On a few items, tax is levied on imported but not on do- mestically produced goods. Equalization surcharge is levied on products from the cheaper of vatious foreign sources equal to the dif- ference between lower priced and highest priced imports. Equalization payments on landed cost of im- ports Import and remittance restrictions Varying exchange rates State trading Iron and steel, Cement, coal, edible oils, electrical and pumping equipment, and diesel engines Other Restrictions Motion picture films Most imports lron and steel, nonferrous metals, sulphur, and rubber Rates vary among commodities according to periodic import policy announcements. PAGENO="0291" 285 P~RU - PERU Product Type of Restriction Remarks ~g~titative Restrictions New textile machinery Used machinery and equip~nent Import license Virtual embargo Imports allowed under special circumstances but require licenses. Various products Valuation and Taxes Approximately 80 tariff classifications All products Minimum valuation Statistical tax of 1.5%, levied on c.i.f. duty-paid value Importation prohibited for 3 months, beginning March 1, 1968. If the good is exempted from import duty the surcharge is 3% c.i.f. All products Government Procurement Surcharge: 4% of ocean freight charges All products Other Restrictions Government procure- ment practices Regulations prohibit govern- ment agencies and institutions receiving government funds from importing goods produced domestically. Supreme Decree 139-A provides preference in the award of government pur- chase contracts to countries which acquire Peruvian coffee for use in new msrket~ (as defined in the international Coffee Agreesient). Pharmaceuticals, pharmaceutical specialities, biological prod- ucts; chemical-medicinal, galenic preparations, veterinary pharma- ceuticals, cosmetics, toilet articles Prior authorization requi red Products must be registered; importation denied if priced higher than similar do- mestically-produced items. Temporary embargo PAGENO="0292" 286 Prior authorization Imports require prior authorization froa the Ministry of Finance and Commerce. POLAND Type of Restriction Remarks PERU Product PERU Type of Restriction Remarks Other Restrictions (cont'd) Matches POLAND Product All products All products All products State trading Bilateral Under bilateral agreements,. balancing Polax~d channels its purchases to a ,certaii~ degree on the basis, of country of origin rather than on the basis of price, quality and terms. Marketing Foreign businessmen and firms practices are restricted in gaining access to potential buyers. PAGENO="0293" Certain natural or processed raw materials, some textile fibers, automotive vehicles and apparatus, miscellaneous manufactured goods All shipments into Portugal, including Made.ira and the Azores, valued over 2500 Escudos ($87.50) About 62 tariff items are non- liberalized and thus subject to quota; application for im- port licensemade on individ- ual basis. However, imports in excess of quotas may be licensed if Ministry of Economy determines such im- ports to be in interest of national economy. Certain of these items may be imported freely from EFTA countries. import license Licenses usually granted automatically for liberalized goods. Saccharine and food and other products containing saccharine Prior authorization Sale of food or other products containing saccharine are not considered to be in public in- terest by Ministry of Health; however, saccharine in powder or tablet form may be imported under license with approval GOP health'authorities. Valuation and Taxes All purchases for public account Decree 22037 of 12/27/32 requires government depart- nents "to give pref- erence to Portuguese products when other cond~:tets of the bids areequal." EFTA members have equal op- portunity with drssestic firsts under Article 14 of the Stockholm Convcnt~ on. 287 PORTUGAL PORTUGAI~ Product Type of Restriction Remarks Quantitativc Restrictions Global or bilatera1~ quotas Most products Automobiles Transaction tax of 7S (20% on luxuries) levied on 140% of c.i.f. d'~ty-paid value Sales tax Praetirnment Salem tax on automobiles, which is progressive, is particularly burdensome to the higher priced product. PAGENO="0294" 288 ~QUTHERN RHODESIA SOUTHERN R000ESI A - Product Type of Restriction Remarks Quantitative Restrictions Various products Specific licensing Host other goods enter under Open General License. Light and built-up Embargo heavy commercial vehicles RWANDA RWANDA Product Type of Restriction Remarks Quantitative Restrictions All imports Licensing Valuelion and Taxes Most products Fiscal tax of 10%. 30%, levied on c.i.f. value Alcoholic beverages, petroleum Consumption tax products and tobacco products All imports Statistical tax of 3%, levied on c.i.f. value PAGENO="0295" 2~9 SENEGAL SENEGAL Product Type oE Restriction Remarks 9~antitative Restrictions Most imports Exchange quotas Annual import program pre- pared.for all countries out- side Franc Zone for non- liberalized goods; separate quotas allocated to EEC; re- maining quotas are global. Liberalized imports Import certificate Matches, cotton yarn and fabrics, Embargo certain men's clothing, blankets, certain footwear, certain con- struction materials, vehicles over 5 tons Valuation and Taxes All imports Fiscal tax of 107.- 157., levied on c.i.f. value Most imports Standard tax of Levied on c.i.f. plus tariff 20Z-30% plus fiscal duty plus statistical tax. All imports Turnover tax of Levied on c.i.f. plus tariff 107.-227. plus fiscal plus statistical plus standard taxes. All imports Statistical tax 4 F per case or bundle Petroleum products Tax of CFA 15.5- 25.5 per litre * Health, Safety and Sanitary ~es~ri~i.w~ie Pharmaceuticals Visa requirement Visa may be denied when similar or.identical products are already legally sold in Senegal. Fee fat visa application high, PAGENO="0296" 290 SIERRA LEONE SIERRA LEONE Product Type of Restriction Remarks - Quantitative Restrictions Various products Specific licensing All others enter under Open Geaeral License. Valuation and Taxes Automobiles Discriminatory Valuation based on engine valuation base size which discriminates againSt high horsepower vehicles. REPUBLIC OF SOUTH AFRICA REPUB~IC OF SOUTH AFRICA Product Type of Restriction Remarks ___________ Quantitative Restrictions Most imports Licensing -Other Restrictions All imports Antidumping Antidumping duties of procedures specific amounts are in- corporated In S. Africa~s tariff schedule for specific products from certain countries and sometimes remain in effect for long periods of time. PAGENO="0297" 2.1 SPAIN SPAIN -________ Product .~vpe of Restriction Remarks O!e~,,titst-1ve All liberalized goods (includes raw materials, capital goods and equipment, manufactured and consumer goods) All used machinery and equip- ment, and second quality goods Import declaration Import license Declarations are usualiy issued freely for liberalized goods. Imports can be re- stricted through administra- tive slow-down in processing import declarations. Licenses generally not granted. Motion pictures All imports other than those listed above Import Licensing Screen-time quota Global quota, im- port licensing, or bilateral import regime Compensatoty Import Tax Range: 37. to 157. Average: 57. to 107. Assessed on c.i.f. duty-paid value Import licenses allocated according to~ weighted index for each foreign country. One Spanish film must be exhibited for every three Spanish dubbed foreign films. Global quotas in effect on about 65 categories. Quotas for some goods open all year, for others once or twice a year. Licenses may be issued freely up to amount of quota, and for many commodities, for amounts greater than quota. Occasionally licenses are not issued up to quota limit, and in rare instances none issued under a quota. Licenses granted first for imports from country with which Spain has bilateral ttade agreement. License avai~ab1 lily always uncertain, which discourages imports for which a continu- ing supply is essential. Valuation an~ Taxes All imports PAGENO="0298" 292 SPAIN SPAIN Product Type of Restriction Remarks Valuation and Taxes (cont'd) Motion pictures Dubbing tax Tax varies with country of origin, the charge on U.S. films being the highest. Article 10 of the law for the Co- ordination and Defense of National Industries of 11/24/39 prohibits use of imported prod- ucts in projects in- volving state or other local government funds, including national or quasi- national firms By alleging "abnormal prices" the Government can suspend all imports of the questioned good until the investigation is completed. By threatening an "abnormal price" investi- gation, the Government can induce importers to import goods at a price higher than the world price causing low cost producers to lose their advantage. Application for import li- cense may be made when Spanish products are unavail- able or do not meet necessary specifications. Short bid deadlthes often have effect of excluding foreign com- petitors. Other Restrictions Certain types of coal, petro- leum and derivatives State trading Synthetic fibers, Customs Headings: 51.01 A-i; 51.02 A-i; 56.01 A-2; 56.01 A-3; 56.02 A-2; 56.02 A~3; 56.04 A-2; 56.04 A-3 Must come directly from the producing factory Minimum value All products Government Procurement All products PAGENO="0299" 293 SWEDEN ______________________________________ SWEDEN Product - Type of Restriction - Remarks Quantitative Restrictions Autoaobiles, including special Import license vehicles Valuation and Taxes All imports Turnover tax of liAR, levied on c.i.f. duty- paid value Certain rugs, articles of Sales tax, levied on gold and silver, precioUs c.i.f. duty-paid stones, phonograph mecha- value nisms and records Certain furs Fur tax of 2-10%, levied on c.i.f. duty- paid value Toilet articles, cosmetics, Commodity tax of 20-65%, and similar preparations levied on c,i.f, duty- paid value Other Restrictions Spirits and wines State trading PAGENO="0300" Valuation and Taxes Motor vehicles All products Other Restrictions Ethyl alcohol of a strength of 8O7~ or more, whiskey and gin in casks, brandy and liqueurs Specific quotas are granted to traditional suppliers (e.g., France, Germany) or to cOuntries with which Switzerland has bilateral quota agreeaents. Wine in. barr~ls from all other countries enters under the global quota. 294 ~W1 T7PSI ~wLkarIcLa1lL) Product ~~itative Re Trucks, cotton fabrics, jute textiles, clothing, of all kinds certain carpets and various minerals and chemicals Wine in barrels Tvne of Restriction Remarks ` Licensing Quota Road taxes and auto insurance Turnover tax of 5.4%, levied on c.i.f. duty- paid value State trading Road tax and compulsory in- surance rates based on horsepower. PAGENO="0301" 295 TOGO TOGO - Product - Tvpeof Restriction Remarks Quantitative Restrictions All imports Licensing Licenses requited for all im- ports origihating in non- Franc Zone countries. Valuation and Taxes All imports Transactions tax, levied on 17% c.i.f. value, plus all taxes All imports Statistical tax of 19%, levied on c.i.f. value All imports Warehouse tax of 1%, levied on c.i.f. value Fiscal stamp tax of 2% on all customs invoices All imports Special import tax of CFA 5 per 100 kg. Textiles, alcoholic Luxury tax of CFA 40 beverages and perfumery goods Tobacco manufactures, Phytosanitary tax of jute goods CFA 125 per ton All imports Lighthouse tax of CFA 20 per ton All imports Bert1~age tax of CPA 125 to CFA 510 per kg. PAGENO="0302" 296 TRINIDAD AND TOBAGO TRINIDAD AND TOBAGO - Product Ty~e of Restriction Remarks Quantitative Restrict ions Many products, including tex- Licensing tiles, leather and plastic goods, automobile accessories, paints, chemicals, soaps, paper products, building materials, furniture, consumer durables, tires and tubes, and certain motor vehicles PAGENO="0303" 297 TURKEY VVV TURKEY - product I~ype of Restriction Remarks V Quantitative Restrictions All imports Licensing Special consideration is V given items to b9~traded with bilateral agreement countries. Some chemicals, paints and pharma- Quotas ceuticals; explosives; some photo- graphic equipment; plastics and V certain rubber goods; somewood, V paper and textile products; some V glass products and most manu- V factures of copper, aluminum and zinc; certain tools; some tractors and trucks, trailers, V and motorcycles; planes for spraying; clocks and watches; musical instruments; tape re- corders and tape; certain scien- tific and technical instruments; many types of industrials agri- cultural, and electrical V machinery and apparatus; office machines, V certain iron and steel products; asbestos; and certain V petroleum products Valuati~~g~d Taxes All.goods imported by sea Port tax of 5%, levied on c.i.f. plus duty, surtax and customs clearance costs All imports Stamp tax of 15%, levied on c.i.f. value MoSt imports Discriminatory pro- Some manufactured goods pro. duction tax ranging duced domestically are not V from 10% to 75% of subject to this tax. sum o~ c.i.f. value, customs duty, cus- toms surtax, port tax and customs clearing expenses PAGENO="0304" 298 * TURKEY TURKEY Type of Restriction Remarks Valuation and Taxes (cont'd) All imports Consular invoice f em ranging from O.3T to O.57..of f.o.b. value Motion picture films Discriminatory film Foreign films-7O7~; tax Domestic films-25~. Other Restrictions Tobacco products; cigarette State trading paper; various alcoholic beverages All im1'orts Advance deposit Full Turkish lire equivalent must be deposited in advance for goods on the liberation list and fot quota list goods imported against letter of credit. Deposit is 507. for quota. list items imported cash against documents. Dc- posit period for bilateral agreement imports i~s shorter. All imports Guarantee deposit Guarantee deposits at 10, 30, 70 or 100% depending on the import list, in addition to advance deposit. PAGENO="0305" 299. Perfume, soap, tires, petroleum products, gunpowder. explosives Stpte T~jj~g Playing cards, matches, tobacco and tobacro products Pharmac~4ica1 products, raw materials used in manufacture of certain products hooks, periodicals, phonograph records, cultural items Has system of global and bilateral quotas. Licenses required for all goods from non-Franc Zone countries. tONI ~1A `I~o.. .,f 5.mr,-letioh rust si a Remarks P roduct~_ ~auUtaLLve Rest r i c tions Most imports All imports Variety of imports Valuation and Taxes All imports All lmp~t.~ All imports All imporçs Not applied when consumption duty Is assessed. Soap and perfume subject to both h3wever. Quota Licensing Embargo Production Tax of 15.1 to 19.9%, levied onduty-paid value Consumption Tax of 9.25 to 31.97., levied on duty-paid value National Defense Fund Tax of 107. of either the Consumption Tax or Duty Customs Formality Tax of 1.817. of landed cost Consumption Duty of Il to 88% Imparted solely by Tobacco Monopoly Imported solely by Pharmacie Centrale Imported solely by Societe Tunisienne de Diffusion 95-159 O-68-pt. 1-20 PAGENO="0306" 300 TUNISiA TUNISiA . Product Type of Restriction Romarks State Tradlng(cont'd) Timber, paper, hardwood, imported by import fertilizer, construction group associations materials, iron, glass and earthenware, yarn and spun goods Js,d clothing Imported by Societe d' Articles Populaires, a semi-public agency PAGENO="0307" 301 UNITED ARAB PePITRI.TC. UNITED ARAB REPUIILIC - Beverages and tobacco manufac- tures (unless approved by Tourism Department); acetylene gas; per- fuisery and cosmetics; toilet soap; shoe polishes and creams; certain plastics manufactures; saddlery and harness; leather travel goods; ready-made furs; manufactures of wood; wall paper, paper and paper- board cut to size or shape, and calendars; footwear (except pro- tective); tiles; manufactures of asphalt (except flooring tiles); asbestos cement; ceramic products; certain glass products; certain manufactures of iron and steel; rolled copper wire; aluminum and copper denestic utensils; certain aluminum manufactures; lead pipes, tubes, hollow bars, and joints for pipes and tubes; self contained air conditioners; domestic re- frigerators; domestic water heaters and dishwashers; various types of industrial and electrical sia~hinery and apparatus; motorcars for personal use; bicycles; watches; household furniture; brooais and brushes; playing cards. Imports in general Valuation and Taxes Import trade is nationalized, with importing limited to government ministries, public organizations and government controlled import companies. Numerous other items in most comsodity categories also are prohibited unless specifically approved by the concerned government ministry. Exchange allocations Currency area restrictions are Imposed to meet commit- ments under bilateral agree- ments. All imports Statistical tax of * 1O~i, levied on c.i.f. value Quantitative Rest rictions All imports Typg~o~Restrlc~tipfl Remarks State trading Embargo PAGENO="0308" 302 UNITED ARAB 1~EPUBLIC - - U~41TED ARAB REPUBLIC -- - Product Type of Restriction Remarks Valuation and Taxes (cont'd) AU imports Pavement tax Tax of 3% of the sum of the customs duty, statistical tax and, where applicable, excise taxes. All imports Porterage fee PAGENO="0309" 303 UN1 tED KINGDO~L ___________________________________ UNITED KINGDOM Product _______ Type of ~ Remarks Q~uantitative Restrictions Coal coke, and solid fuels License required, and manufactures of coal or coke none issued Cigars Quota Jute cloth (exceeding 18 inches Global quota in width) and new sacks and bags (other than heavy bags, common sacking and wool sacks) Rum Dollar 4rea quota Motion picture films Screen-time qupta TV films Screen-time quota 14% for imported films Government Procurement All products Administrative While no procedures have been practices published, purchasing depart- ments when intending to place orders abroad try to find out whether the products can be obtained on competitive terms within the Commonwealth. Some 4dministrative measure of preference is given to firms in development dis- tricts. Preference is also specifically given to com- puters of UK manufacture. EFTA macbets have equal op- portunity with domestic firms under Article 14 of the Stockholm Convention. Timber (Douglas Fir) Government British Admiralty requires procurement that lumber for which tenders invited must originate in British Colombia. PAGENO="0310" 304 UNIT ED KINGDOM UNITED KINGDOM Product Type of Restriction Remarks Other Restrictions Certain steel products Rebates for domestic So-called loyalty rebate of users of certain the British Steel Corporation domestic steels provides for a rebate to British users of certain categories of steel who can show that they have not uscd imported steels of the same type in the preceding six months. PAGENO="0311" 305 UPPER VOLTA UPPER VOLTA Product Typ~ of Restri~ti9n - Remarks Quantitative Restrictions All imports Import and exchange An import license and an cx- licenses change license is required for all imports from coun- tries outside of the Franc Zone. Licenses are not ordinarily issued for the im- port of commodities which are available from within the Frar~c Zone. Goods originat- ing within the EEC receive more liberal treatment than do pon-EEC goods. Used clothing Embargo Valuation and Taxes All imports Fiscal tax - 0-30% Standard tax - 0-25% Temporary development tax - 10% Statistical tax - 1% Contractual tax - 2.25-25% Temporary maintenance tax - 1.5% Compensatory tax - 3.5% Other Restrictio~ Medicaments Discriminatory Medicaments not appearing regulation in the French Codex or authorized by the Central Pharmaceutical Service are prohibited. PAGENO="0312" 306. * URUGUAY - URUGUAY - Product Type of Restriction Remarks ~antitative Restrictions All imports (except capital goods which may be exempted on a case by case basis), unless by public organizations Most capital goods Advance deposits (returOed aher 8 months) Three-year foreign financing required Advance deposits are required of frofli 200 to 400% on im- ports axceeding a given per- cent (averaging 80%) of past import levels. Kits (completely knocked down) for assembling of autos Valuation and Taxes Embargo Most goods except essential items of an industrial, agricultural or medicinal nature All imports Surcharges of 10% to 300% Port handling fee: $.025 per 100 kg. of gross weight or $.33 per 100 pesos of valuation. Consular invoice charge: 12% f.o.b. value. Port charge: 12~i c.i.f. Global customs charge: 18t Imports aresubject to sur- charges to conserve foreign exchange. PAGENO="0313" Salt, coke, asbestos, tobacco waste, coal, certain chemical raw materials, pig iron and selected iron and steel manu- factures A variety of products, including coke, certain iron and steel semi-manufactures, and certain chemicals Other Restrictjppg Allocated according to past imports. Distinction is made between hard currency and clearing currencies. Major exporters (producers exporting more than 517, of their production) may freely import raw materials on this list. Commodity quotas Quotas set by speciat regu- lations of the Federal Executive Council. Commodity quotas Additional restriction on im- ports established by agree- ment between the domestic producer and importer. Granting of a license does not include an allocation of foreign exchange; allocations under the global foreign exchange quota must be used. Exporters are permitted to retain only a percentage of hard currency earnings, with which to import non-quota goods. Many products Raw materials and semi-manu- factures used in the ship- building, electric, textile, and food industries Commitments tb import from certain supplying countries Export incentive End-users must purchase cer- tain amounts from Yugoslavia's bilateral partners. After these commitments have been met, end-users may purchase these goods freely from other sources. End-users in these industries receive foreign exchange for the import of these products in a fixed ratio to exports. 307 YUGOSLAVIA YUGOSLAVIA Product Type of Restriction Remarks - Qpgj$ilative Restric~~.! Nearly all machinery and equip- ment, most consumer goods and some raw materials Global exchange quotas Passenger and cargo aircraft, Licensing tractors, railroad locomotive and rolling stock and wines All imports not subject to Exchange control quotas PAGENO="0314" 308 INVENTORY OF ALLEGED UNITED STATES NONTARIFF BARRIERS This list includes laws, government regulatibns, and administrative practices that have been the subje~t of complaints or protests by foreign officials or exporters or by U.S. importers, alleging that they are restrictive of trade. The list is divided into : (I) quantitative import restrictions and (II) other measures by the Federal Government, such as customs valuation procedures, procurement policies, countervailing duties, and health and safety regulations. I. Quantitative Restrictions A. Under Section 22 of the Agricultural Adjustment Act of 1933, as amended, the President is empowered, after a Tariff Commission investigation to apply quantitative restrictions or fees on imports of agricultural commodities when he finds that imports materially interfere with domestic price Support programs. At present, import restrictions are imposed on wheat and wheat products, cottOn, peanuts, butter, certain cheeses, and other specified dairy products. B. The Long-Term Cotton Textile Agreement ~L~A) is a multilateral arrangement in which most of the world's leading cotton textile importing and exporting countries participate. Under a provision ofthe LTA the United States controls imports of cotton textiles under separate bilateral agreements with 22 countries whose shipments account for more than 80 percent of all U.S. cotton textile imports. C. Petrpleum Controls (Section 232, Trade Exp*nsion Act) Section 232 of the Trade Expansion Act authorizes the President to adjust the imports of any article so that theywill not threaten to impair the national security. Imports of crude petroleum and its derivatives are restricted under this provision. Imports of these products are limited to about 12 percent of domestic production. PAGENO="0315" 309 -2 U. The Sugar Act of 1948, as amended, provides a quota formula whereby United States sugar require- ments are shared between domestic and foreign suppliers. United States producers are allocated about 65 percent of the domestic market, while 35 percent is reserved to foreign suppliers. E. The Meat Import Act of 1964, authorizes the President to limit imports of fresh, chilled or frozen beef and veal, sheep (except lamb) and goat meat. The law does not actually establish quotas for meat imports; rather it prescribes contingency quotas to be applied only when estimated imports exceed levels based on imports during 1959-63. Quotas have not been `triggered' to date. F. Fur Embargq Imports of ermine, fOx, kolinsky, marten, mink, muskrat, a~d weasel furskins, which are the product of the Soviet Union or of Communist China, are prohibited under the trade agreements legislation. II. Other United States Measures A. Valuation Practices (1) American Selling Price, This method of valuation is applicable primarily to benzenoid chemicals, but also to certain kinds of rubber footwear, canned clams, and wool knit gloves. In the Kennedy Round the United States agreed to seek legisla- tion to eliminate ASP. (2) Section 402a This valuation provision applies to a long list (the so-called Final List) of specifi- * cally enumerated products, the valuation of which in 1956 would have varied by more than .5 percent from the new n~ethod of valuation established in the Customs Simplification Act of 1956. The provision requires that appraisement of these products be based on the old set of PAGENO="0316" 310 -3 valuation provisions applicable to all products prior to 1958. Imports subject to the list comprised about 7 percent of U.S. dutiable imports in 1966. B. Government Procurement Policy (1) All Federal Government procurement for use within the United States is subject to the provisions of the Buy American Act of 1933, which provide that only domestic materials can be purchased unless (a) the required supplies are not available domestically, (b) their purchase would be inconsistent with the public interest, or (c) the cost would be unreasonable. Under Executive Order 10582 of December 17, 1954, unreasonable price is defined as a price "more than 6 percent higher than the foreign bJ~d". An additional 6 percent differential is'appJ~ied in favor of the domestic bid if the materials will be produced in an area of substantial labor surplus or the low domestic bidder falls within the category of "small business'. The Department of Defense is temporarily applying a 50 percent differential because of our balance-of-payments difficulties. (2) The Defense Department appropriation acts since 1954 have included a prohibition on funds for the procurement of any article of food, clothing, cotton, . wool, silk and spun silk yarn for cartridge cloth which has, not been grown or produced in the United States. This prohibition was broadened in the Appropriation Act of 1968 to include synthetic and coated synthetic fabrics. C. Countervailing Duty practices The countervailing duty provision of the Tariff Act of 1930 provides for the imposition of countervailing duties when the Treasury Department finds that a dutiable import i's benefitting from a bounty or grant. There is no injury requirement (as GAPT requires) and no room for administrative discretion if a bounty or grant is found to exist. PAGENO="0317" 311 -4 D. Safety Standards (1) Motor Vehicles The Motor Vehicle Safety Act of 1966 has been considered by some foreign auto producers as a potential nontariff trade barrier because it may have more restrictive effects on foreign cars than on American cars. The concern of exporters of motor vehicles, equipment, and tires to the United States has been that some safety standards might be more appropriate for the type of automobiles generally produced by the large American manu- facturers than for imported automobiles, many of which are smaller or of quite different design. (2) Gas Cylind~~ The Department of Transportation presently requires that cargo tanks and cylinders used for transport of compressed gases be tested and analyzed for compliance with Code of Federal Regulations specifications within the limits of the United States. Inspection is required during the process of manufacture and the CFR does not provide for such inspection to be performed outside the United States. H. Health Stgndards (1) ~arantine and Food and Drug Laws and Regulatio~ Certain provisions of U.S. sanitary and health laws and regulations are sometimes viewed by foreign suppliers as trade barriers. One of the best-known examples is a provision in the Tariff Act of 1930 prohibiting any imports of meat from any country having hoof and mouth disease. In other cases, regulations specify standards of wholesomeness or purity that are equally applicable to imports and to the domestic product but that foreign suppliers may consider unnecessarily strict or burdensome. For example, a regulation of the Food and Drug Administration prevents the use of fish oil in the manufacture of margarine in the United States, though herring oil is used for that purpose in many other countries. PAGENO="0318" 312 -5 (2) The Wholesome Meat Act (PL 90-201) is designed to protect the health and welfare of consumers by assuring that meat and meat food products distributed to them are wholesome not adulterated and properly marked labeled and packaged This legislation is not intended to restrjct trade, although plants in some countries with relatively low health and sanitary standards may have difficulty complying with the stsndards set forth in the Act F Other Nontariff Barriers (1) Distilled Spirits Under the wine gallon/proof gallon system used by the United States to assess import duties and excise taxes on alcoholic beverages imported bottled spirits of less than 100 proof are assessed as though they were 100 proof so that in effect a bottle of 86 proof Scotch is assessed for an additional 14 proof Alcoholic beverages imported in bulk at 100 proof or more are treated the same as domestically produced spirits which are assessed before the bottlinq process while they are still 100 proof (2) United States Manufacturing Clause in copyright Act Prevents entry into the United States of more than 1,500 copies of English language books with an exception for books authored by nationals of countries adhering to the Universal Copyright Convention This list inter alia does not include foreign assets control regulations which control the trade with Communist China North Korea North Vietnam and Cuba voluntary export controls which may be imposed by foreign countries to avoid disruption of the U S market state and local measures that may restrict imports and private restrictive practices PAGENO="0319" 313 NONTARIFF BARRIERS BY WILLIAM B. KELLY, JR. In this paper, the terms "Atlantic area countries" and "industrial countries" refer to the European Economic Community, the European Free Trade Association (less Portugal and Finland), the United States, Canada, and Japan PAGENO="0320" 314 Reprinted from: ÷-÷.>~ >> >. >~>-> >~>-~-*>~>> >-> >~> >~ >~>->- . STUDIES IN TRADE LIBERALIZATION * Problems and Prospects for the Industrial Countries +-~--~<--<-~<- *-*-*-~-~<--*-~-*-4-4-< < <-4< 4-< < < <4-4 Bela Balassa The Johns Hopkins University In collaboration ~with: M. E. Kreinin, Michigan State University R. J. Wonnacott, University of Western Ontario F. Hartog, University of Groningen S. J. Wells, University of Salford, Lancashire S. B. Under, Stockholm School of Economics Kiyoshi Kojima, Hitotsubashi University Douglas Dosser, University of York W. B. Kelly, Jr., Washington, D.C. The Johns Hopkins Press, Baltimore, Maryland 21218 Copyright © 1967 by The Johns Hopkins Press PAGENO="0321" 315 CHAPTER IX NONTARIFF BARRIERS William B. ~ Kelly, Jr.1 -~l-+~4+-*-*-*~<~+-4_<---< ~-<_.<- Introduction Apart from eliminating virtually all quantitative restrictions on nonagricultural products, postwar trade negotiations among the industrial countries have primarily concerned tariffs. The 1947 GATT agreement did establish international rules on a number of nontariff barriers; and in tariff negotiations, non- tariff barriers were considered in evaluating the benefits to be gained from tariff concessions. But because of the height of tariff levels, it was generally not thought essential to deal directly with nontariff barriers. Also, their negotiation is much more complex and difficult. However, with further reductions in tariffs, whether they be accomplished through establishing a free trade area, or through multilateral trade negotiations, such as the Kennedy Round, nontariff measures will become increasingly important barriers to trade and will demand greater attention. Such lowering of tariffs would be analogous to a lowering of the water level of the Atlantic Ocean-the mountains of the ocean floor that had hitherto been submerged would now become navigation hazards. Existing nontariff measures that may only marginally affect trade when coupled with tariff protection could become formi- dable obstacles if tariffs were eliminated or further reduced. More important, in order to compensate domestic producers for loss of tariff protection, it is likely that many nontariff measures, now dormant, would be rigorously applied, new measures introduced, and old ones amended to make them more effective in restricting trade. Consequently, the improve- ment sought in the flow of international trade would not fully materialize. i When this chapter was written, the author was a member of the US. delegation to the Kennedy Round trade negotiations. (The views expressed here are his own, and not those of the U.S. government.) 95-159 0-68-pt. 1-21 PAGENO="0322" 316 It is already recognized that nontariff restrictions are not merely residual obstacles to trade that would have to be nego tiated after the successful reduction or ehnirnation of tariffs, but that they are an integral part of liberalizing trade In both the European Economic Community (EEC) and the European Free Trade Association (EFTA), they are taken up in one form or another They aie an important part of the Kennedy Round negotiations where in some instances countries have conditioned their taiiff cuts on other countries actions on nontariff bamers The EEC the United Kingdom, and Swit zerland, for example, have linked their tariff cuts on chemi cals to U S action on the American seihng price basis of cus- toms valuation. rn the broadest sense, a nontariff barnei is any law regula tion, policy, or practice of a government other than an import duty, that has a restrictive effect on trade 2 Usually, however, only government actions that have the puipose and/rn effect of protecting particular domestic pioducers from foreign competition are regarded as noi~tariff barriers The nor tauff barriers with which this chapter is concerncd are as follows quantitative restrictions and state tiading, government pro curement, customs classification and valuation, antidumping legislation and practices, and various internal and other meas ures that restrict tiade These are the nontariff bairiers relat ing to nonagricultural products that have been the puncipal subject of complaints among Atlantic aiea countries in recent years, and in the Kennedy Round trade negotiations Other nontariff measures exist but they have not bcen the subject of complaints and it may be assumed that they do not restrict trade to an appreciable extent However the space devoted to particular nontiriff barriers does not neccssarily reflect their trade importance; lengthy treatment is given some restrictions only because of their complexity oi because of the publicity that they have ieceived 2 This defimtion does not include restrictive private business practices or such natuial barriers as language diffeiences and cultural affim ties v~hich may be quite important ~ Governments monetary and fisc~il policies for example can have restricti~ c trade effects but they are not usually iegarded as nontariff trade barriers Also nontauff measuies imposed by goveinments to protect public health, morals, national security, and for other reasons unrelated to protection from foreign competition are not rcgarded as nontauff barriers unless they are abused PAGENO="0323" 317 Nontariff barriers on agricultural products4 are omitted from this discussion but not because they lack importance; in fact, they limit trade much more than those on industrial products. However, in the Atlantic area, nontariff restrictions on agricultural products are largely a by-product of domestic agricultural policies. They cannot be abolished or modified unless these policies are abandoned or changed. While domes- tic agricultural systems are central to any discussion of non~ tariff barriers on agricultural products, such a discussion re- quires separate treatment that is beyond the scope of this chapter.5 There are many misconceptions and some misleading infor- mation about nontariff barriers that, on the one hand, over- state their importance and, on the other, understate it. In large part, this is due to the difficulties in estimating the trade effects of nontariff as opposed to tariff restrictions. While price comparisons can be made to estimate the tariff equiva- lent of some nontariff barriers dn standardized products that have comparable world market and domestic prices, such esti- mates are possible chiefly with respect to fuels, raw materials, and agricultural products. Furthermore, "world" and "domes- tic" price comparisons can usually be made only in relation to a few nontariff barriers, such as import quotas, that are im- posed on particular products. Such comparisons are virtually impossible to make for iiontariff barriers that apply to all imports, such as complex customs regulations. Estimates of the trade effects of nontariff barriers must be based in most instances on the educated guesses of corninod- ity or other specialists who have a "feel" for the subject.6 In some cases, even guesses are not possible. For example, a "guesstimate" can be made of how much coal might be im- ~ Most items in Chaps. I to 24 of the Brussels Tariff Nomenclature are treated here as agricultural products. However, some of these products, such as whiskey and cigarettes, are regarded as industrial. ~ See, for example, John 0. Coppock, North Atlantic Policy-The Agricultural Gap (New York: The Twentieth Century Fund, 1963). ~ An example of a study based on such estimates is Howard S. Piquet, Aid, Trade, and the Tariff (New York: Thomas Y. Crowell Co., 1953), particularly Chap. 8. See, also, Robert M. Stern, "The U.S. Tariff and the Efficiency of the U.S. Economy," The American Economic Review, LIV, No. 3 (May, 1964), pp. 459-70. This article, which relates to Piquet's estimates, evaluates the economic significance of U.S. tariffs and import quotas. PAGENO="0324" 318 ported into the United Kingdom if the embargo on imports were removed. However, any reliable estimate of the trade- restnctivc effect of the Canadian antidumping law is impossi ble Like similar measures that apply to all or most imports, its restrictive effect cannot be estimated by commodity special ists-not because of the range of commodities involved, but because the principal restrictive effect of such a nontariff barrier is its uncertainty and consequent discouragement of imports. The importance of this element of uncertainty inherent in most nontariff barriers, should not be underestimated In fact, it is the most restrictive aspect of some nontariff measuies Traders must know where they stand if goods are to be ex- changed Unlike tanffs, the effects of nontariff measures on importers and exporters sales and profits may not be calcula- ble Because of such open ended risks the effort necessaiy to de velop a foieign market may never be made Another source of misunderstanding about nontariff bar- riers is a fundamental diffeicnce between U S and other countries restrictions that make the latter much more difficult to evaluate In general, U S restrictions aie specifically stated in legislation and in detailed regulations, and officials are given relatively little discretion in their admrnistiation In most other countries, legislation tends to be less specific, and administrative regulations, if any, may be veiy gi nei al mak ing it much more difficult to identify nontariff restrictions and to evaluate their effects. Such nontariff measures are not, thereby less restrictive indeed their lack of specificity may increase then trade inhibiting effect This diffcrence between U S and other countries nontariff restrictions has resulted in much more attention being given to the foimer Because it is easier to identify and to cite U S nontariff restrictions most publications tend to emphasizc them and unavoidably to give the impression th'it they are more import~tnt than those of other countrics This is true in some instances but is not a valid generalization In this con nection it may be noted that the EEC and EFTA are dealing Several publications deal specific'illy with U S nontariff barriers See for example Craig Mathews Non T'iriff Imp~it Restrictions Remedies Available in United States La\% Michigan I aw Review Vol 62 No 8 (June 1964) pp 1295-4356 and Noel Hemmendinger PAGENO="0325" 319 with nontariff problems among member countries within these regional trade arrangements, and presumably will con- tinue to do so until these barriers are eliminated or substan- tially reduced. However, in the absence of common EEC and EFTA policies on nontariff barriers, third countries continue to have nontariff problems with the individual member states. Quantitative Restrictions and State Trading Quantitative restrictions usually apply to specific products and are the most easily identifiable of all nontariff barriers. They range from a complete prohibition of trade to a system under which licenses, although required, are granted liberally. Quantitative restrictions are absolute limitations on the quantity or value of imports (or exports). Restrictions that permit stipulated amounts to be imported during a given pe- riod of time are called quotas. Those that do not provide for stipulated amounts may grant special permission to import specified amounts through the issuance of licenses. Licenses may also be required for individual transactions even though a quota is established. During the postwar period when balance-of-payments diffi- culties were experienced by almost all nondollar countries, quantitative restrictions were used widely to restrict imports. After the Marshall Plan became effective, the Organization for European Economic Cooperation (OEEC) initiated a program to reduce and eliminate these restrictions among Western Eu- ropean countries, and then later between them and the dollar Non-Tariff Trade Barriers of the United States (Washington, D.C.: United States-Japan Trade Council, 1964). Even when publications do not directly relate to U.S. nontariff restrictions, they frequently focus on them because of their ease in identification. See, for example, Mark S. Massel, "Non-Tariff Barriers as an Obstacle to World Trade," Reprint of The Brookings Institution, June, 1965. U.S. and Canadian nontariff barriers are treated in several publica- tions, some of which are cited below, n. 71. A discussion of U.S. and European nontariff barriers is contained in two articles in the April 22 and 29, 1965 issues of Opera Mundi Europe, published by the Times Publishing Co., Ltd. Excerpts from these articles are reprinted in the July and August, 1965 issues of European Coinmu- nity, a publication of the European Community. Information Service. Neither of these articles, however, is very accurate. Le Cornité Européen pour le Progrès Economique et Social (CEPES), an organization of French, German, and Italian businessmen that is affiliated with the U.S. Committee on Economic Development (CED), plans future publication of a study of North American and European nontariff barriers. PAGENO="0326" 320 area Similar effoits were made by the GATE and the Interna tional Monetary Fund Gradually these restrictions were re duced, and they have been practically eliminated on mdustrial products Except for coal and restrictions ielating to Japdn, which are discussed separately, remaining quantitative re strictions among Atlantic area countues on nonagricultural products are of minor impoitance, because import licenses are usually granted freely when they are required Under the Treaty of Rome, all quantitative restrictions among EEC countries are to be abolished and, in fact, have virtually disappeared However, licenses and quotas still apply to a few industrial imports of individual member states from other countries of the Atlantic aiea ~ But these restrictions are relatively minor trade deterrents. Of some importance are French licensing controls on transistor assemblies, transis- tors, and parts, and on helicopters and light aircraft, which primarily affect the United States Penicillin and penicillin products are subject to quotas in Benelux Italy embargoes all imports of sulphur, even from other EEC countries Imports into Italy of tetraethyl lead and anti knock preparations aie hcensed automatically to EEC countries, but a quota applies to imports from the United States and the United Kingdom Ital ian licensing controls on citric acid, crude calcium citrate, and essential citrus oils also havc a restrictive trade effect ~ Pursuant to the Stockholm Convention, quantitative restric tions among EFTA countries on industrial products have been virtually eliminated, and remaining restrictions on thud- country impoi ts are of relatively little trade importance In the United Kingdom, imports of airplanes from the dollar area are 8As part of the contemplated EEC common commercial policy na tional quantitative restrictions are to be replaced by Community meas ures by the end of the transitional period However little progress has been made in establishing a common commercial policy because mem ber states particularly France ha~ e been reluctant to relinquish mdc pendence in this area Even a modest proposal by the EEC Commission for the gradual introduction of common procedures for the administra tion of import quotas is still being studied by the Council a listing of quantitative restrictions maintained by EEC coun tries see the following GATT documents L/2740/Add 8 April 25 1967 (Germany) Add 6 April 6 1967 and Coir 1 May 17 1967 (Benelux) Add 2 March 15 1967 (Italy) and L/2336 February 26 1965 pp 40- 63 (France) PAGENO="0327" 321 subject to discretionary individual licensing. Quantitative re- strictions are still maintained by Austria on lignite, penicillin and other antibiotics, and motion picture films. Restrictions by other EFTA countries on nonagricultural products are either nil or negligible.10 Canada prohibits the importation of used automobiles and used aircraft.11 Although both restrictions are nondiscriminatory, they have their greatest impact on the United States. In addition, Canada restricts exports of logs and pulpwood by licensing controls.12 Their purpose and effect is to furnish protection to Canadian saw mills and pulp and paper producers by restricting the raw material supplies of competing producers, primarily U.S. producers located along the U.S.-Canadian border. Japan is also adversely affected by export restrictions on logs. The United States maintains quantitative restrictions on imports of petroleum and petroleum products. However, ex- cept for Canada, the only industrial country that is an impor- tant supplier of petroleum, the effect of these restrictions on the exports of countries in the Atlantic area is negligible.13 The most important quantitative restrictions on nonagricul- tural products among countries of the Atlantic area relate to coal. Although fuels are not discussed elsewhere in this volume, 10 See the following GATT documents: L/2740/Add. 9, April 21, 1967 (United Kingdom); Add. 10, May 11, 1967 (Sweden); Add. 5, March 29, 1967, and Corr. 1, April 28, 1967 (Austria); Add 3, March 30, 1967 (Denmark); L/2568/Add. 11, July 20, 1966, and L/2675/Add. 2, January 16, 1967 (Norway); and L/1862, October 17, 1962 (Switzerland). 11 See GATT document L/2740/Add. 7, April 14, 1967. 12 These restrictions, which are of long standing, are administered by Federal authorities in co-operation with Canadian provinces, which have jurisdiction over Crown lands on which most forests are located. For example, under present regulations in British Columbia, a permit issued by tile British Columbia Forest Service is required for all log exports. Such permits are not usually given unless the applicant can present three letters from prospective Canadian purchasers indicating that they have no need for the logs. See article in The Financial Post, Toronto, April 9, 1966. See also, U.S. Tariff Commission, transcript of hearings on softwood lumber, Investigation No. 7-116 (TEA-1-4), Octo- ber, 1962, pp. 908-11. 13 United States also prohibits the importation of more than 1,500 copies of most books in the English language for which the U.S. copyright is obtained. This restriction affords protection to the U.S. publishing industry by virtually requiring that books with a U.S. copy- right be manufactured in the United States. See GATT document L/2568/Add. 6, March 22, 1966. PAGENO="0328" 322 an exception is made in this instance because of the impor tance of restuctions on coal and because of the part they have played in the Kennedy Round discussions of nontariff barriers Within the EEC, only Italy has no restrictions on coal im ports Geimany imposes a prohibitive tariff of 20 DM ($5) pci ton on all coal imports in excess of a duty free global quota, which has averaged about 6 million metric tons annually Because no imports enter at this piohibitive rate, this tariff quota is comparable to an absolute limitation of impoits Belgium imposes quotas on coal that are administered through the issuance of licenses Imports into the Netherlands are also licensed, and imports of anthracite are subject to a quota that discriminates against the United States in favor of the United Kingdom and the U S S R, the traditional suppliers In France, a de facto state tiadmg company Association Tech- nique de 1 Importation Chai bonniere (ATIC), has a monopoly on the importation of non EEC coal Imported coal is then sold at a price fixed by the French government that limits the competition of foreign coal 15 The United Kingdom prohibits imports of coal from Atlan tic aiea countries At the same time the United Kmgdom is an important coal exportei 10 The National Coal Board, es tabhshed in 1946 when the coal industry was nationalized, prices expoits so that they can compete in woild markets Because export prices are related to prevailing woild prices rather than to domestic puces, such a pucing policy consti tutes a subsidy Instead of quantitative iestrictions, Canada 14 Germany also prohibits all imports of non-EEC coal south of the Mzttelland Kanal where most of the German steel industry is located The effect of this geographical restriction is to limit the use of imported coal under the duty free quota to the produc~tion of coal gas the generation of power and other non steelmaking purposes Germany also grants tax advantages and cash subsidies to power plants that use Community instead of thud countiy coal 15 All EEC pioducing countries subsidize domestic production in some form In 1965 induect and direct subsidies ranged from $ 80 per ton in the Netheilands to $6 20 pci ton in Belgium See Bulletin de ici Commit nauté Européenne du Charbon et dc l'Acier Haute Autorité, No. 61 (Luxembourg: April, 1966), p. 21. 16 In 1964 the United Kingdom expoited 6 0 million metiic tons or coal, of which 4.9 million tons were exported to Atlantic area countries. The Netherlands, France, Denmark, Germany, and Belgium were the principal purchasers. 17 See CATT docu~nent L/2593/Add 6 May 20 1966 pp 2 and 3 PAGENO="0329" 323 subsidizes the transportation of coal, which enables coal mined in Nova Scotia and the other maritime provinces to compete with imported U.S. coal in eastern and central Can- ada,~ A similar subsidy is paid to enable coal mined in western Canada, primarily Alberta, to compete with U.S. and other coal exports to Japan.'9 Japan licenses imports of coal, which consist largely of low-volatile metallurgical coking coal necessary for blending with high arid medium volatile coals from domestic sources to meet the requirements of the steel industry. The United States, as the world's largest producer and ex- porter of coal, has been most affected by these various restric- tions. U.S. commercial exports of coal in 1964 totaled 44.9 miffion metric tons, valued at $463.3 miffion. Of this total, 40.3 million tons, valued at $413.1 million, were exported to industrial countries. Canada was the most important pur- chaser, followed by Italy and Japan. U.S. exports in 1964 to those industrial countries that re- strict imports totalled 32.0 million metric tons valued at $324.,8 million. It has been estimated that if restrictions were liberalized, U.S. coal exports to these countries in 1970 could increase by 50 to 200 per cent and earn an additional $180 to $740 million of foreign exchange depending on the extent to which import barriers and other protective measures were relaxed.2° These estimates include normal growth of exports, as well as growth resulting from the relaxation of restrictions. On the other hand, they assume continued protection of indig- 18The amount of the subsidy depends upon the delivered cost of Canadian as compared with imported coal to the same market. The total cost of subventions in 1963 was C$15.2 million and averaged C$5.49 per short ton. This assistance provided a market for 2.8 mfflion tons of Canadian coal, most of which, in the absence of the subsidy, would have been supplied by the United States. See GATT document L/2326, January 13, 1965, pp. 31 and 39. `91n 1963 such subventions totaled C$2.3 million and averaged C$3.24 per short ton and enabled 0.7 million tons of Canadian coal to be exported to Japan. See ibid., p. 33. Canada also pays a subsidy of C$.495 per ton on bituminous coal mined in Canada and converted into coke to be used in the manufacture in Canada of iron or steel. This subsidy, which is paid to the coke producers, totaled C$239 thousand in 1963. See ibid., pp. 34-35. 20 These estimates are derived from forecasts contained in Robert R. Nathan Associates, Inc., The Foreign Market Potential for United States Coal, Report to the U.S. Department of the Interior, 4 Vols. (Washing- ton, D.C.: U.S. Government Printing Office, 1963). PAGENO="0330" 324 enous coal production but at a lower level. If this protection were removed entirely, estimated U.S. export potential would be considerably greater than indicated. Apart from coal, the major application of quantitative re- strictions on trade among industrial countries relates to Japan. When Japan became a member of the GATT in 1955, France, Belgium, Luxembourg, the Netherlands, the United Kingdom, and Austria (and some nonindustrial countries) invoked Article XXXV of the GA'IT, thereby declining to apply the most-favored-nation clause and other obligations under GATT to Japanese exports. Of these countries, only Austria continues to invoke Article XXXV against Japan, but as a price for disinvocation, the other countries usually obtained com- mitments from Japan that permit discrimination against cer- tain Japanese products. Although Italy, Germany, and the Scandinavian countries never formally invoked Article XXXV against Japan, they, too, impose discriminatory quantitative restrictions on many Japanese products.21 Japanese exports to the :industrial countries are also limited by "voluntary" export controls, which are usually imposed at the specific request of an importing country and are fre- quently included in negotiated bilateral agreements. Thus, although neither Canada nor the United States applies dis- criminatory quantitative restrictions to imports from Japan, they, along with other industrial countries, have formally and informally pressured Japan to control exports of a number of products. These controls have the same purpose and effect as discriminatory import restrictions.22 Under the "Long-Term Ar- 21 Actions under Article~i 15 of the Rome Treaty have resulted in still more restrictions against Japan. Under this article, which is a transi- tional measure to be used until the adoption of an EEC common commercial policy, member countries may deviate from intra- community free trade to deal with trade disruption caused by a third country because of a different commercial policy of another member country. For example, if France limits imports of a product from Japan and Germany does not, France may apply to the EEC Commission for authority to limit imports of the product that are transshipped through Germany. At the beginning of 1964, there were 138 EEC tariff positions subject to Article 115 actions. Most of these actions stemmed from differences in member-country commercial policies toward Japan or the Soviet bloc. 22 Export controls, however, permit the realization of "quota profits" (higher prices resulting from the imposition of quotas) by traders in the exporting country instead of by those in the importing country. PAGENO="0331" 325 rangernent Regarding International Trade in Cotton Textiles," all EEC countries and Austria, Denmark, Norway, and Sweden impose quotas on imports from Japan of cotton yarns, piece goods, made-up articles, garments, and other cotton-textile manufactured products.23 In turn, under bilateral arrangements concluded under this agreement with the United Kingdom, the United States, and Canada, Japan limits exports of cotton textiles to these countries.24 Under the cotton textiles agreement, import and export restrictions have been applied to the trade of a number of less developed countries as well as to that of Japan. However, between 1961, the year before the agreement entered into force, and 1964, exports of the cotton textiles covered by this agreement of the thirteen participating less developed coun- tries increased from $485 to $675 million or by 39 per cent. Exports of the fifteen participating developed countries (ex- cluding Japan) increased by 9 per cent from $1,360 to $1,480 million. Japanese exports, however, declined by 2 per cent from $465 to $455 million.25 It would appear, therefore, that this agreement has had its most significant impact on Japan. However, under the agreement's bilaterally negotiated quotas, Japanese exports may now be larger than if they competed with the exports of the Jess developed countries under a global quota. Japan, on its part, maintains quantitative restrictions on imports, both to protect certain domestic industries and to bargain for the removal of other countries' restrictions against Japan. Japanese restrictions apply to products that constituted 23 See GATT, Long-Term Arrangement Regarding International Trade in Cotton Textiles (Geneva, 1963). Twenty-nine countries, including all industrial countries except Switzerland, are signatories of this agree- inent, which entered into force on October 1, 1962. For the products subject to quotas and the size of these quotas, see GATT document COT/W/51, December 6, 1965, pp. 20-24. 24 See GATT documents COT/53, September 23, 1965, p. 7 (United Kingdom); COT/il, November 21, 1963, Add. 1, August 30, 1965, and Add. 2, May 18, 1966 (United States); and COT/Si, July 28, 1965 (Canada). The only other restrictions among industrial countries ap- plied to cotton textiles under the long-term agreement are limitations by Italy on exports of cotton velveteens to the United States (see GATT document COT/39, November 18, 1964) and quotas by Italy on imports of grey and bleached cotton fabrics from the United States (see GATT document COT/46, February 10, 1965, and Add. 1, April 28, 1965). 25 GATT, A Study on Cotton Textiles (Geneva: July, 19ç6), p. 21. PAGENO="0332" 326 about 7 per cent of the value of all imports in 1959 2~ Quotas on nonagricultural products apply to all or part of 86 tariff items.27 Because quotas are usually imposed on categories of products rather than on individual items, licensing officials have wide discretionary authority, which creates uncertainty for imports of particular products. These Japanese import restrictions, as well as the restrictions applied by the other industrial countries on Japanese exports, are discussed further in Chapter VII of this volume Closely related to quantitative lestrictions and sometimes almost inseparable from them is the pioblem of state trading When a government agency (or monopoly) is given the exclu- sive right to import a product for resale domestically, its deci- sions relating to purchases and domestic resale may have the same trade effects as quantitative restrictions (or tariffs). Only if the state trading agency bases these decisions on corn- meicial considerations would they have a neutral effect on trade But even with the best intentions it may be very diffi cult, if not impossible for a state trading agency to act as if it ~rere a private trader No industrial country conducts all or most of its foreign trade through state-trading agencies as do countries of the Soviet Bloc and a few others, such as the United Arab Re- public. Nevertheless, some of them resort to state trading in such nonagricultural products as ethyl alcohol and alcoholic beverages, salt, manufactured tobacco, matches and coal Apart from coal, which, as indicated above, is state-traded 26Thus, it is alleged that Japan has liberalized 93 per cent of its imports Although such a liberalization standard has been widely used particularly by OEEC countries, to measure the liberalization of postwar balance-of-payments restrictions, it is obviously unsatisfactory, because imports in the base period were subject to restrictions. Under this standard, little or no liberalization credit is given for the elimination of restrictions that permitted little or no trade in 1959, but much credit is given for the ehrnmation of restrictions that allowed a large volume of trade 27 Restricted items are heavily concentrated in machinery and include machine tools (mostly used) industrial sewing machines large corn puters outboard motors boilers and typewriters Other items are sul phur graphite iron pyrites tungsten ores coal petroleum soda ash menthol sodium glutamate certain antibiotics flavor' cosmetics starches and glues color film leather certain textiles footwear glass alloy tool steel, electric generators, telephone switchboards, and ther- mionic tubes See GATT document L/2740/Add 1 February 9 1967 PAGENO="0333" 327 in France, the protective effect of state trading in the EEC is important on petroleum products, including lubricants and waxes, in France and on cigarettes in Italy and France. State trading in most other products is largely for fiscal and social reasons and has relatively little effect on trade.28 Under Article 37 of the Treaty of Rome, EEC member states are progressively to adjust state monopolies so that all dis- crimination between nationals of member states in the mar- keting of state-traded products will be eliminated. In effect, this means that state-trading activities by member countries must be given up or include all of the Community; but rela- tively little progress has been made toward this objective. The most important state-trading restriction in the EFTA countries relates to coal in the United Kingdom. Technically, the U.K. National Coal Board has no legal monopoly on the importation of coal but, in practice, only the Coal Board has imported quantities of any importance. However, as indicated above, imports from industrial countries are embargoed.29 Ex- cept for tobacco products in i~ustria and pharmaceutical prod- ücts and fishing equipment .in Norway, state trading in non- agricultural products by other EFTA countries has little importance for international trade.3° In Japan only imports of manufactured tobacco appear to be restricted by state-trading 28 Imports into France of petroleum, coal and petroleum gases, elec- tric current, newsprint and paper for periodicals, potash, matches, and propellant powders and explosives are also state-traded. Ethyl alcohol, spirits, brandy, and matches and other inflammables are state-traded in Germany. State-trading enterprises exist in Italy for salt, cigarette paper, lighter flints, matches, and tobacco products. For a description of state-trading enterprises in Germany and Italy, see GATT documents L/2741/Add, 5, April 27, 1967 (Germany); and L/2593/Add. 16, Feb- ruary 27, 1967 (Italy). France has never reported its state-trading enter- prises to the GATT. 29 State trading, which also applies to jute goods, protects the jute industry in Dundee again ~ports from India and Pakistan, but it has no significance for trade among industrial countries. See GATT docu- inents L/2741/Add. 4, April 6, 1967, and L/2593/Add. 6, May 20, 1966. 30 Austria also conducts state trading in salt, ethyl alcohol, spirits, and brandy; Norway and Sweden in alcoholic beverages; and Switzer- land in ethyl alcohol, spirits, and brandy. ~ee GATT documents L/2741/Add. 2, March 29, 1967, L/2593/Add. 10, June 8, 1966, Add. 13, July 7, 1966 and L/1949/Add. 21, June 12, 1963 (Austria); L/2593/ Add. 3, April 27, 1966, L/2313/Add. 10, May 6, 1965, and L/1949/Add. 17, April 17, 1963 (Norway); L/2593/Add. 7, May 18, 1966 (Sweden); and L/2313/Add. 8, March 25, 1965, and L/1949/Add. 23, October 23, 1963 (Switzerland). PAGENO="0334" 328 practices" Neither Canada nor the United States engages in state trading in nonagricultural products 32 Government Procurement Somewhat analogous to state trading is goveinment pro curement However, while in state trading the government acts as a middlemin between producer and consumer, in the case of procurement the government purchases goods and services for its own use Government procuiement like state trading, is not ~ non- tariff barrier, per se Trade is restricted only when govern- ments favoi domestic over foreign sources of supply Such favoritism is so widespiead, however, that the term govern- ment procurement has acquired the connotation of a trade restriction Prcfeiences to domestic pioduceis in addition to normal tariffs, are a common practice in government procurement This distinction between purchases for goveinment and pri vate purposes is even reflected in the GATT, which specifically exempts goods imported for government use from the national treatment rules relating to internal taxes and regulations that apply to imports for private consumption. The means by which domestic producers are favored over foreign producers are numeious Prefeiences may be specifi- cally provided for in legislation and administered according to detailed regulations Alternatively, preferences may be granted under general legislation and/or administrative proc'e dures in which procuring authorities ~ire given much discre tionary power But the absence of legislation or regulations does not necessarily constitute hberahty, it may afford the widest possible latitude for restricting trade. The United States is the outstanding example of specific preferences to domestic producers in government procure ment The well known Buy Ameiican Act of March 3 1933 requires that goods of domestic origin" be purchased by fed ~1 Salt and ethyl alcohol are also state traded in Japan See GATT document L/2593/Add 12 June 28 1966 32 The Canadian provinces however have a monopoly on the sale of alcoholic beverages, and provincial authorities have exclusive authority to import. ~ Goods are considered to be of domestic origin if the cost of their domestic components exceeds 50 per cent of the cost of all components PAGENO="0335" 329 eral agencies for use in the United States except when domes- tic cost is unreasonable, domestic materials are not available in sufficient quantity or satisfactory quality, or domestic pro- curement is inconsistent with the public interest.34 The unreasonable-cost exception has given rise to much controversy. Executive Order 10582 of December 17, 1954, which implements the "Buy American" Act, provides that domestic cost shall be considered unreasonable if it exceeds by 6 per cent the foreign bid price, including applicable duty. An additional 6 per cent or a total of 12 per cent applies if the domestic product is produced in an area of substantial unem- ployment or by a small business firm. U.S. procuring agencies have generally used the 6/12 per cent differential. However, since-July, 1962, the Defense De- partment has utilized a "national-interest" exception in the Executive Order and has applied higher differentials (50 per cent is used as a "bench mark") in order to lessen expendi- tures affecting the U.S. balance of payments.35 As indicated above, the "Buy American" Act applies only to procurement for use in the Unifed States. Procurement for use outside the United States in connection with military forces abroad and foreign aid programs has been more closely linked to U.S. purchases.36 Other qountries resort to the same prac- tice. France, for example, ties substantially all of its foreign aid loans and grants to procurement within France. The EEC European Development Fund ties its assistance to procure- ment from Community sources. Most industrial countries other than the United States are more subtle in granting preferences to domestic producers in ~ Under international agreements the "Buy American" Act does not apply to certain military supplies when procured from Canada or to procurement in Panama for use in the Canal Zone. ~ For a discussion of the "Buy American" Act and its early adminis- tration, see Laurence A. Knapp, "The Buy American Act: A Review and Assessment," Columbia Law Review, LXI (March, 1961). 36 Most procurement for use outside the United States is by the Defense Department and the Agency for International Development (AID). In July, 1962, as part of the U.S. balance-of-payments program, the Defense Department increased the price preference given domestic producers in procurement for use overseas from 25 to 50 per cent. Sub- ject to exceptions, AID requires that commodity procurement financed by loans under its assistance programs be made in the United States. Foreign procurement of commodities financed b.y AID grants is re- stricted to the United States and developing countries. PAGENO="0336" 330 government procurement. These preferences most often result from the exercise of broad admimstrative discietion because theie are usually no specific buy national laws or regula tions In addition to admrnistiative discretion, piactices that limit or deny the opportunity to compete for goveinment con tracts include little or no advance publicity, eligibility and other regulations that preclude foreign bidding, and closed lists of suppliers Specific cases of preferential treatment are difficult to cite because, given the bioad administrative discretion that is so common, disappointed foreign bidders are reluctant to com- plain publicly lest such complaint be held against them in future bidding Also, after a few such disappointments, for eign exporters may be discouraged from seeking such govern ment business The following discussion illustrates a few of these preferential policies As part of the common commercial policy envisaged in the Tieaty of Rome, goveinment procuiement policies of the EEC countries are to be harmonized As a first step, the EEC Corn mission has proposed, to the Council two draft directives on the awaiding of contracts for public woiks and is pieparing directives relating to contracts for supplies The puipose of these directives is to eliminate discrimination in government procurement among member countries Perhaps the best evidence of restrictive government pro curement policies in the EEC countries is a report37 of the European Parliament commenting on the Commission's draft directives and explaining why Community rules aie needed This report says that in the EEC membei states many dis criminations to be found in legislative or statutoiy texts oi even in administrative piovisions or practices result from the universal tendency to keep public funds within the country and points out that almost all public work contiacts have so far been assigned to national contractors The repoit then comments on various EEC country prac tices It notes that the procedure in France of inviting ceitarn contractors to submit theii bids gives almost exclusive prefei ence to contiactors known by the administiation in other ~ Parlement Europeen Documents de Seance 1965-66 Document 1 March 22 1965 The quotations cited in the following paiagiaphs are translated from pp 3 and 4 of this report PAGENO="0337" 331 words, to French contractors, and that foreign applicants are usually not invited to bid." In Italy, "theoretically, foreign contractors may always participate in public call for bids," but there is "a provision by virtue of which the contractors to be taken into consideration must figure on so-called trusted firms lists." Although the purpose of such lists is to prevent awards to contractors who are not technically and professionally qual- ified, "these lists may only include Italian contractors or for- * eign firms established in Italy." In the Netherlands, "only persons domiciled in the Netherlands may be admitted as contractors," In Belgium, a January 1, 1965 law on public works contracts permits procedures under which bidding is limited to "Belgian companies or to companies whose capital is two-thirds in the hands of Belgian contractors." In 1960, Germany guaranteed equal terms to foreign and national ap- plicants in regard to public works contracts. However, this guarantee "includes a clause under which it may be immedi- ately suspended in case the economic situation should change." Moreover, "the procedure applied in Germany leaves the adjudicating authority much freedom." The report also cites several examples of discrimination, but the EEC countries involved are not identified. It indicates that "in one Member State, the general administrative provi- sions of the Minister of Postal and Telegraph Services pre- scribe, in particular, that all persons or companies of foreign origin shall be excluded from the assignment of public works contracts." A letter to "a large public company by the compe- tent minister of a Member State" is cited as an example of broad administrative discretion. The min.ister explains that "due to the difficulties presently faced by our national electric construction industry, I decided not to approve, as a rule, the import of electrical equipment, since the latter can be manu- factured in our country. However, an exception is being made for orders of an exceptional nature. I therefore ask you to submit your case to me prior to taking any other steps." A letter to a Belgian contractor from the Minister of Public Works of another member state advised: "I am in a position to let you know that, on principle, foreign contractors are author- ized to submit offers in my country; however, the administra- tion of public works does not take any foreign firm into consid- eration." 95-159 0-68-pt. 1-22 PAGENO="0338" 332 Under Article 14 of the Stockholm Convention, discrimina tion among EFTA countries in government procurement (and in state tiading practices) was to be abolished by the end of 1966. However, after a two-year EFTA study by a committee of experts, it was found that in many cases changes would have to be made in the practices of some member states in order to fulfil the obligation of reciprocal non discrimination Subsequently, agreement was reached at a ministerial meeting in October, 1966 on how Aiticle 14 was to be inteipieted and implemented so that competition among EFTA countries could be increased by removing protection n The United Kingdom furnishes a few publicized examples of preferential procurement practices Under the policy of allowing government departments virtually full discretion to follow whatever purchasing practices best suit their needs, the Post Office purchases most of its telephone apparatus and exchange equiprncnt fiom a group of eight U K suppheis which share the orders between them on a noncompetitive basis.39 In another case, where no discretion was allowed, Brit- ish European Airways (BEA) was required by the U K gov ernment to purchase Butish instead of U S airci aft In a statement on this decision, the Minister of Aviation explained that BEA "would have preferred on purely commercial grounds to buy American aircraft."1° Since 1965, the U.K. government has followed a similar policy with respect to com- puters provided that there is no undue price differential and that the United Kingdom produced model is technically suit able and rio undue delay would be involved ~ Canadian piocurement policy is reflected in a report of the 38EFTA Bulletin, March-April, 1967, pp. 2 and 6. ~° See The Financial Times, February 22, 1965. Another ~xamp1e of a discriminatory purchasing policy by the Post Office appears to be re- flected in the following excerpt from an advertisement that appeared on the front page of the April 4, 1966 edition of The Times (London): "The Postmaster General invites offers forthwith for the supply of telegraph poles . . . from the following home-grown species of timber: scots pine, larch, Douglas fir, Japanese larch and/or hybrid larch." (Emphasis pro~ided) ~° Statement by the Minister of Aviation in the House of Commons August 2 1966 See also The Economist August 6 1966 p 574 41 OECD, Government Purchasing (Paris: 1966), p. 105. This publi- cation is a compilation of all OECD countries' procurement regulations and procedures. PAGENO="0339" 333 Tariff Board, which states that "in making government pur- chases it is customary to grant a preference to domestically produced goods." Though "the nature and the extent of such preferences varies from time to time and from one depart- ment to another," a 10 per cent margin is the norm for defense equipment. Preferences are given "especially to Cana- dian suppliers who offer higher proportions of Canadian con- tent."42 A "Buy Japan" policy is contained in a Japanese Cabinet Order of September 25, 1963 that permits the chief of any ministry or agency "for the purpose of encouraging the use of domestic products" to resort to "limited competition" in the procurement of certain designated goods. The "designated" goods domprise fourteen categories of equipment that include automobiles, computers, office machines, air conditioners, measuring instruments, construction machinery, communica- tion apparatus, aircraft, electric generators, pumps, printing machines, and machine tools~43 The above discussion relates to procurement by central gov- ernment authorities, but preferences are also granted to na- tional and/or local producers by provinces, municipalities, and other government bodies. For example, according to a 1963 survey, fourteen states in the United States restricted some or all foreign purchases.44 Canadian provinces have simi- lar practices.45 42 Report by the Tariff Board, Radio, Television, and Related Prod- ucts, Reference No. 123 (Ottawa: 1965), PP. 28-29. ~ See U.S. Congressional Record, House, August 12, 1965, pp. 19566-19567. This issue of the Congressional Record contains 68 pages of material (inserted by Congressman Saylor) on the laws, regulations, and practices of foreign countries relating to government procurement. `~ The states reporting restrictions on foreign purchases were Ala- bama, California, Colorado, Connecticut, Indiana, Maine, Massachu- setts, Montana, New Jersey, New Mexico, Oklahoma, Pennsylvania, Virginia, and West Virginia. Puerto Rico restricts all foreign (non-U.S.) purchases. This survey was conducted by The National Association of State Purchasing Officials of The Council of State Governments. See also, United States-Japan Trade Council, State "Buy American" Restric- tions, Council Report No. 75, December 6, 1965. 45The Canadian province of Quebec provides a good example. Under its "Buy Quebec" policy, the Hydro-Electric Commission, a semi- autonomous government organization that controls virtually all produc- tion and distribution of electricity in the province, will pay up to 10 per cent more for a product made in Quebec than for the equivalent item manufactured elsewhere in Canada, and up to iS per cent more than PAGENO="0340" 334 It is extremely difficult to evaluate the restiictive trade ef fects of preferential government piocurement policies, paitic ularly because, as is so often the case with nontariff barrieis, the most significant effect is to deter potential trade rather than to restrict existing trade A possible method of measuiing such effects would be to compare foreign procurement as a percentage of total government procurement with commercial imports of similar goods as a percentage of total domestic production of such goods Unless additional protection is af- forded domestic producers in preferential procurement poh cies, there should be a reasonably close rulationship between these ratios. As part of its examination of member countries' procuiement practices, initiated in 1963, the OECD attempted to make a similar comparison, but was unable to obtain the necessary information Customs Classification and Valuation Before a tanif can be imposed, an imported pioduct must be classified under a tariff nomenclatuie so that the rate of duty can be determined If this rate of duty is either an ad valoi em or a combination of ad valoi em and specific duty, the pioduct must be valued before the duty can be calculated ~° Legislation or regulations relating to classification and valuation become nontariff barriers when they create uncertainty, necessitate costly and time consuming litigation or otherwise have a re strictive effect on trade Such restrictions are sometimes referred to as paratariff barriers because they aie directly related to taiiffs All EEC and EFTA countries are ~ignatories to the "Conven- tion on Nomenclature for the Classification of Goods in Cus for a foreign product Furthermore when the article cannot be obtained in Quebec the Commission favors firms in other provinces with a 5 per ent differential o~er foreign suppliers The Provincial Purchasing Serv ice follows essentially the s ime guidelines as the Commission A private Montreal organi7ation would go even further This organi ration the Quebec Council for Economic Expansion has sponsored a campaign to induce Quebeckers to bu) only fiom firms with at least 51 per cent I rench Canadian ownership For additional examples of pro vincial preferential practices see U S Congressional Record House August 12, 1965, p. 19561. ~ Valuation may also be necessary. if classification is in terms of value brackets For example in the United States pocket knives are subject to six different rites of duty depending upon their value per dozen PAGENO="0341" 335 toms Tariffs," usually referred to as the Brussels Tariff No- menclature (BTN) and to the "Convention on the Valuation of Goods for Customs Purposes," widely known as the Brussels Definition. These countries and Japan are also members of the Customs Co-operation Council, which was established to maintain uniformity in the application of these conventions. Although Japan is not a signatory of either convention, it has adopted the BTN, and its valuation system is not very differ- ent from that of the EEC or the EFTA.47 Tariff classification problems among the countries that have adopted the BTN have been greatly reduced. A common nomenclature has also facilitated international comparisons of tariff levels and trade statistics. This is not to say that these countries have identical tariff classifications, since they often use different subdivisions under the same general headings. Tariff classification differences among the countries ap- plying the BTN are minor, however, as compared with the United States and, Canada. The "Tariff Schedules of the United States" (TSUS), a major nomenclature revision, be- came effective in September, 1963. Although this revision was influenced by the BTN, it is markedly different from it.48 The Canadian classification system differs from both the BTN and the TSUS~49 ~ In Japan, valuation is normally on the basis of c.i.f. invoice prices and presents few problems. If value cannot be determined on the basis of invoice prices, it is based on the wholesale price of similar Japanese goods minus customs duties that would be imposed on such goods and expenses incidental to delivery from the port of entry to the domestic wholesale market. 48 For a report on this revision, see U.S. Tariff Commission, Tariff Classi#cation Study (Washington, D.C.: U.S. Government Printing Of- fice, 1960). ~ A complicating factor in Canadian classification is the deterrnina- tion of whether certain imports are of a "class or kind made in Canada." If 10 per cent of Canadian consumption of a product is supplied from Canadian sources, it is regarded as "made in Canada," and imports are assessed higher `rates of duty. For example, the most-favored- nation rate on machinery is 22.5 per cent for items "made in Canada". and 7.5 per cent for items "not made in Canada." For a discussion of problems involved in the administration of, provi- sbus relating to "class or kind made in Canada," see Francis Masson and H. Edward English, Invisible Trade Barriers Between Canada and the United States (Canadian-American Committee of the National Plan- ning Association [U.S.A.] and the Private Planning Association of Can- ada, 1963), pp. 18-22. PAGENO="0342" 336 These differences in tariff classification systems among countries of the Atlantic area do not restrict trade, per se, but they do increase uncertainty. Even uniform systems would not eliminate uncertainty, because disagreements between cus- toms officials and traders over the chssiflcation of imports will exist as long as there are tariff schedules However, if deci- sions in such disputes are time consuming, involve expensive legal proceedmgs, or otherwise inhibit trade which is some- times, the case, particularly in the United States, this admin- istrative aspect of customs classification constitutes a nontariff barrier. A basic difference in valuThon of imports among Atlantic area countries is that the EEC, the EF'IA, and Japan include insurance and freight as part of the value of imports (c i f system), while the United States and Canada do not (f o b system) This means that ad valorern tariff rates in the coun tries using a c.i.f. system are applied to higher valuations, resulting in import duties that on the average are about 10 per cent higher than the same rates on identical products in coun tries using an f.o.b. system. But such differences in valuation systems do not constitute nontariff trade barricis and tariff levels can be compared by expressing duties on a common basis. Other aspects of these countries' valuation systems, however, may act as trade impediments. As already indicated, the EEC and EF I'A countries adhere to the Brussels Definition of valuation, which uses "normal price" as the basis for levying ad valorem duties. "Normal price" is defined as "the price which they [imports] would fetch at the time when the duty becomes payable on a sale in the open market between buyer and selici independent of each other ° This is a theoretical value, but in most cases, it corre sponds to the c i I invoice price The principal problem of the Brussels Definition stems from trade transactions between related parties i e, buyers and sellers that are not independent of each other. When the importer is a subsidiary, branch, sole distributor, or exclusive agent of a foreign firm, customs officials assume that invoice prices undeistate the dutiable value because of discounts ~° Customs Co operation Council The Brussels Definition of Value for Customs Purposes (Brussels April 1964) p 41 PAGENO="0343" 337 granted the importer for advertising, warranty, and other selF- ing expenses. Consequently, an "uplift" or percentage increase in the invoice price is applied for valuation purposes. This "uplift" ranges between 1 and 10 per cent and varies among countries; it is sometimes negotiated between customs au- thorities and traders, and it may be arbitrary.5' Customs valuation in the United States is more complex than in any of the industrial countries. The United States has two sets of valuation provisions containing nine different bases of valuation, and their complexity undoubtedly has a restrictive effect on trade.52 According to a 1961 study,53 ap- proximately 91 per cent of U.S. import invoices were ap- praised under the new set of valuation provisions introduced in 1958. More than 96 per cent of these invoices, or 87 per cent of all invoices, were appraised on the basis of "export value," which is very similar to "normal price" under the Brus- sels Definition, as both contemplate transactions between in- dependent buyers and sellers for export to the country con- cerned. In transactions between related parties, "export value" may be adjusted in a manner similar to uplifts applied under the Brussels Definition. The principal difference between the two is that "normal price" includes all charges to the port of importation (c.i.f.), but "export value" is the ex-factory or port-of-shipment price in the country of exportation (f.o.b.). 51 Arbitrary valuation is particularly true in cases of the "sole buyers" i.e., cases where a related firm is the only importer of a product. In such cases, the customs appraiser has no other transactions to guide his determination of "normal price." The International Chamber of Com- merce has concluded that "of all the difficulties created by the Brussels Definition of Value, the most widespread and important is that of its application [uplift) to goods imported by `sole buyers.'" See Interna- tional Chamber of Commerce, The Brussels Definition of Value, The Case of the "Sole Buyer" (February, 1963), p 5. See also, International Chamber of Commerce documents 131/128 and 131/129, March 4 and 20, 1964, which contain the Customs Co-operation Council's criticism of this brochure, and the reply of Marcel Dreyfus of the International Chamber of Commerce. For a critical discussion of other aspects of the Brussels Definition, see International Chamber of Commerce, Customs Valuation of Imported Goods, a Review of the Brussels Definition and of its Application (February, 1959). 52 For an explanation of U.S. valuation and other customs provisions, see U.S. Treasury Department, Bureau of Customs, Exporting to the United States (Washington, D.C.: U.S. Government Printing Office, March, 1965). ~ See U.S. Treasury Department, Bureau of Customs, An Evaluation of: Mission, Organization, Management (December, 1964), p. \~I-24. PAGENO="0344" 338 If export value cannot be determined, because goods are sold on consignment or for other reasons, United St'ites value and constructed value are alternative valuation bases These little used alternatives prescube methods designed to approxi mate export value ~ Pursuant to the Customs Simplification Act of 1956, a list of products comprising about 9 per cent of U.S. import in- voices in 1961 aie appraised under the old set of valuation provisions, which were applicable to all products prior to Feb ruary 27, 1958 This final list of pioducts, as it is generally known, consists of 1,015 tariff items whose dutiable value would have been reduced by 5 per cent oi more under the new valuation provisions The final list contains a wide variety of articles, including coal tar and other chemicals, certain ma chinery and parts, automobiles and other vehicles, and various textiles.55 Among the alternative bases of valuation under the old piovisions, foreign value is the most frequently used The principal difference between foieign value and export value is that the former is the price for home consumption in the country of exportation instead of the price for expoit "Foreign value is usually higher than export value be cause it includes internal producer taxes, such as turnover taxes, from which expoits are exempted It is this fcatuie of foreign value, in addition to difficulties in its determination, about which tradeis have complained The other old valuation bases, less frequently used, are export value, United States value, and cost of production They often result in dutiable values that are higher than then counterparts in the new pro visions The U S method of valuation that has received the most attention and that has become a cause celebre in the Kennedy Round negotiations is the American selling price (ASP) ~ ASP ~ United States value is the wholesale price of the impoited uioduct in the United St'ites less commissions profits customs duty tr'msporta tion costs insui'rnce and other expenses fiom place of shipment to place of delivciy Constiucted value is the estimited cost of produc tion in the exporting country ~ A complete list of these products is contained in U S Treasury Exporting to the United States, March, 1965, pp. 65-77. 56 For an indication of European views on ASP in relation to the Kennedy Round negotiations, see the pamphlet, Trade Expansion PAGENO="0345" 339 is defined under both the new and old valuation provisions with relatively minor differences. Unlike the other bases of valuation, it is not the f.o.b. price (or equivalent) of the imported article but the wholesale price of a comparable U.S.-produced article. It is not an alternative to other bases of valuation, but it is applicable to two categories of imports: (1) competitive benzenoid chemicals and certain products of these chemicals, which have been subject to ASP by statute since 1922, and (2) competitive rubber footwear, canned clams, and low-value knit wool gloves, which have been subject to ASP under Presidential proclamations issued during the 1930's under the cost-equalizing provisions of the 1930 Tariff Act (see Table 9.1). TABLE 9.1. U.S. TARIFF ITEMS SUBJECT TO ASP VALUATION Number Value of of tariff TSUS 1964 imports~ Product items numbers (thousand $) ~ Benzenoid chemicals intermediates 17 403.02-403.09 9,206 finished products . 53 405.05-409.00 13,559 Rubber-soled footwear 1 700.60 13,416 Canned clams 1 114.05 223 Knit wool gloves and mittens valued at $1.75 or less per dozen pairs 1 704.55 0 Total 73 36,404 .~ *.~_~_~~__ ._: ~ ~ ---- *..*____ ~- Imports of benzenoid chemicals and of rubber fo,otwear are foreign invoice values, and they include only competitive imports to which ASP applied. Imports of canned clams are estimated foreign export values of competitive imports to which ASP applied. Sources: U.S. Tariff Commission, Imports of Benzenoid Chemicals and Products, 1964, TC Publication 159 (Washington, D.C.: July, 1965); U.S. Bureau of the Census, U.S. Imports, Tariff Schedules Annotated by Country, 1964 Annual (Washington, D.C.: July, 1965); and U.S. Tariff Commission, Products Subject to Duty on the American Selling Price Basis of Valuation; Conversion of Rates of Duty on Such Products to Rates Based on Values Determined by G'onventional Valuation 2~fethods (Including corrections to August 15, 1966), TC Publication 181 (Wash- ington, D.C.: July, 1966). Act-Yes, American Selling Price System-No, prepared by Verband der Chemischen Industrie e. V. in September, 1963. The Synthetic Organic Chemical Manufacturers Association of the United States has published two pamphlets giving the U.S. industry's views: The Case for American Selling Price and The Future of the American Dye Industnj. PAGENO="0346" 340 ASP was made applicable to benzenoid chemicals after World War I to give additional protection to the coal-tar sector of the war born U S chemical industry It is applied to impoits of benzenoid intermediates and to certain finished products, such as dyes and pigments, medicinals and pharmaceuticals, flavor and perfume materials, synthetic rubbeis, pesticides, and plastics and resin materials, when they are competitive with domestic production ~ Determining the competitive sta tus of imports is anothei problem, in addition to ascertaining the American selling puce Although impoits are regarded as competitive whenever there is domestic production of similar articles, uncertainty still exists because it is not uncommon for articles to change from competitive to noncompetitive sta- tus and vice versa within short periods of time. In 1964, the foreign invoice value of imports of benzenoid chemicals was $49 million, of which $23 million were compet- itive and therefore subject to ASP Imports came almost ex- clusively from industrial countries, with the EEC supplying the largest quantity and Geirnany being the principal ex porter.58 The $23 million of competitive bcnzenoid chemical imports to which ASP applied amounted to 3.2 per cent of total U.S. chemical imports of $710 million and to about 0.7 per cent of U S sales of benzenoid chemicals of around $3,400 million Because of the trade inhibiting effect of ASP resulting from high duties and uncertainty such comparisons are not a good index of restrictiveness Better perspective may be gained from the fact that sales of benzenoid chemicals are around 10 per cent of total sales of the U.S. chemical industry-ASP, therefore, relates to about this proportion of the U.S. chemical industry. The effect of ASP valuation on duties collected varies widely For example a 40 per cent tariff rate applying to the American selling price of a particular group of dyes results in a duty that has an average ad valorem equivalent of 172 per ~ If imports of benzenoid chemicals are not competitive with domes tic production, "United States value" applies. If this is not ascertain- able, then the other alternative bases of valuation under the applicable new. or old valuation provisions apply. ~ See U.S. Tariff Commission, Imports of Benzenoid Chemicals and Products 1964 TC Pubhcation 159 (Washington D C July 1965) PAGENO="0347" 341 cent when compared with conventional appraisement of these dyes. On the other hand, in a few instances the application of ASP results in a lower duty, because foreign prices are higher than U.S. prices.'~ But neither of these examples is typical. On the average, ASP about doubles the duties that would normally be collected.6° Under Section 336 of the U.S. Tariff Act of 1930, the Presi- dent is authorized after an investigation by the Tariff Comrnis~ * sion to raise or lower a statutory rate of duty by up to 50 per cent in order to equalize foreign and domestic production costs.6' If a 50 per cent increase is not sufficient to equalize such costs, then imports may be valued on the basis of ASP. The trade-agreements legislation exempts articles upon which tariff concessions have been negotiated from the appli- cability of Section 336. Beginning in 1934, the United States ~ See U.S. Tariff Commission, Products Subject to Duty on the American Selling Price Basis of Valuation; Conversion of Rates of Duty on Such Products to Rates Based on Values Determined by Conventional Valuation Methods (Including corrections to August 15, 1966), TC Publication 181 (Washington, D.C.: July, 1966). Most of the conver- sions made in this report lump competitive and noncompetitive items, i.e., items that are, and are not, subject to ASP valuation. Consequently, this report does not usually indicate the ad valorem equivalent, based on conventional valuation, of rates that are actually applied to ASP. However, some of these ad valorem equivalents can be calculated on the basis of information relating to the competitive status of items that is contained in the Commission's report on Imports of Benzenoid Chemi- cals. 60 According to official U.S. trade statistics,, dutiable values (both conventional and ASP) of imports of benzenoid chemicals in 1964 totaled $79 million. The U.S. Tariff Commission has calculated that conventional valuation of these imports would have been $53 million, of which $28 million was noncompetitive and $25 million was competi- tive. Consequently, the ASP value of the $25 million of competitive imports was $51 million ($79 million minus $28 million) or appro~ci- mately double conventional valuation. See U.S. Bureau of the Census, U.S. Imports, Tariff Schedules Annotated by Country, 1964 Annual (Washington, D.C.: July, 1965); and U.S. Tariff Commission, Products Subject to ASP; Conversion of Rates, ibid. 61 The principle of equalizing production costs as a basis for tariff making and the practical difficulties of ascertaining "foreign" and "domestic" costs of production are beyond the scope of this study. However, because trade is based in great part on cost differences, the effect of equalizing costs would be to end much trade. Also, even if the terms "foreign" and "domestic" production costs are satisfactorily de- fined, obtaining such cost information is extremely difficult, if not impossible. PAGENO="0348" 342 progressively extended the coverage of its trade agreement concessions to include most tariff items Consequently, in re- cent years there have been very few investigations under Sec- tion 336, and even fewer involving ASP Only three caEes in which ASP valuation is applied remain in effect rubber soled footwear with fabric uppers canned clams, and knit wool gloves and mittens valued at $1 75 or less per dozen pairs These cases date from 1933, 1934, and 1936, respectively In 1964, the foreign invoice value of U.S. imports of rub- ber-soled footwear was $16.9 million, of which $13.4 million was competitive and valued on the basis of ASP.62 Imports of competitive footwear, more than 80 per cent of which was supplied by Japan, constituted less than 5 per cent of U S pioduction of approximately $285 million The duty on rubber footwear of 20 per cent applied to ASP valuation has an average ad valorem equivalent of 58 per cent when compaied with conventional appraisement 63 The estimated foreign cx port value of 1964 imports of canned clams, almost all of which came from Japan was $0 4 million of which $0 2 million was (ompetitive and valued on the basis of ASP The 20 pci cent duty on these clams has an average ad valoi em equivalent of 57 per cent of conventional valuation °~ In recent years there have been no imports of the knit wool gloves that are subject to ASP valuation Both imports and domestic pro duction have been insignificant since the mid 1930s, because the rncreased price of wool and other production costs have made it uneconomical to produce gloves in this low value category While tariff rates applied to ASP usually result in much higher duties than would norma~lly be the case, these higher duties do not constitute nontariff barriers The aspect of cus toms valuation that constitutes a nontariff barne~ is uncer tainty, which in the case of ASP is considerable Domestic producers may influence the extent of their tariff protection 62 During most of 1964, other rubber footwear was also subject to ASP valuation However the rariff Schedules Technical Amendments Act of 1965 substituted higher duties for ASP valuation of certain rubber footwear. Only imports of rubber footwear that remain subject to ASP valuation are included in the statistics cited above. ~ See U.S. Tariff Commission, Products Subject to ASP; Conversion of Rates TC Publication 181 ~ See ibid PAGENO="0349" 343 both by going into competitive production with imports and thus making ASP applicable and by adjusting their prices and thus changing the amount of duty collected. On the other hand, changes in export prices by foreign suppliers have no effect on the duty. Related to the application of ASP to benzenoid chemicals is the standard-of-strength provision applied to imports of cer- tain colors, dyes, and stains. Under this provision65 specific duties are based on the actual strength of these products as compared with an established standard of strength. For exam- ple, the standard concentration or standard of strength of the dye vat blue I is 20 per cent. A shipment of this dye that had a concentration greater than 20 per cent would be duti- able on the computed weight of a 20 per cent concentration rather than on its actual weight. In practice, this provision applies to only three tariff items, two of which have negligible imports.66 Of greater importance is the application of the standard-of- strength principle to the valuation of all benzenoid chemicals. Under U.S. customs regulations ASP is adjusted in propor- tion to the comparative strengths of the imported and com- petitive domestic article.67 Although it would seem reasonable that duties should vary according' to the potency of an im- ported item, such an adjustment is inequitable if, as is some- times the case, the prices of benzenoid chemicals increase less than proportionately with their strength. Canadian valuation practices are almost as complex as those of the United States. The usual basis of valuation is "fair market value," which is the price in the country of export of like goods sold for home consumption, and is similar to "for- eign value" under U.S. practices.°8 If the quality, quantity, or 65 See Tariff Schedules of the United States Annotated (1965), Sched- ule 4, P. 1, Subpart C, headnote 6. 66 In 1964, imports of vat blue 1 (TSUS 406.04) totaled $798 thou- sand. Imports of sulfur black (TSUS 406.02) and of natural alizarin and indigo colors, dyes, and stains (TSUS 406.60) were negligible. ~ See Code of Federal Regulations, Title 19, 14.5 (f). For an example of such an adjustment, see R. Elberton Smith, Customs Valuation in the United States (Chicago, Ill.: University of Chicago Press, 1948), pp. 229-30. 68 However, "fair market value" excludes infernal taxes that are not borne by exported merchandise while, as indicated above, "foreign value" includes such internal taxes. PAGENO="0350" 344 conditions of sale of the exported goods differ from those for like goods sold for home consumption, appropriate adjust ments are made. However, dutiable values may be higher but not lower than f.o.b. prices to Canadian importers. Adjust- ments for differences in conditions of sale are very important because of the large volume of Canadian imports, particularly from the United States, that result from ultra-company and similar shipments. Although seldom used, some Canadian valuation provisions resemble escape clauses from tariff concessions. If imported goods prejudicially or injuriously affect the inter sts of Ca nadian producers, even though sold at fair market value, the Minister of National Revenue may determine the value of such goods for duty purposes.69 Furthermore, if, because of end-of-season sales, the market price of any manufactured good in the country of export declines to a level that the Minister does not regard as "normal," he determines dutiable value on the basis of average prices during a previous period. Similarly, if the same circumstances apply to any fresh fruit or vegetable of a class or kind produced in Canada the Minis- ter determines valuation on the basis of average export prices to Canada during the previous* three years. The possibility of dutiable values established by the Minis- ter of National Revenue creates uncertainty because they can be arbitrary, and at very high levels. Style fabrics, dresses, and other garments are goods that have received higher valuations under these provisions. Such revaluations have also applied to strawberries, peas, potatoes, and cut flowers. In 1962, the valuation of potatoes received international consideration when the United States successfully protested to the GATT 70 Canadian valuation not only affects ad valorem impoit du ties but, as discussed in the next section, determines whether and. to what extent antidumping duties are levied. Conse- quently, for purposes of this antidumping legislation, dutiable 69This provision does not apply to goods entitled to entry under the Bntish preferential tariff 70 See GATT Basic Instruments and Selected Documents 11th Sup plement (Geneva March 1963) pp 55 and 88-94 Potatoes were again revalued during the summer of i966. See GATT document~ L/2682, August 5, 1966. PAGENO="0351" 345 values may be determined for imports, even when they are subject to specific duties or are duty-free.7' Antidumping Legislation and Practices Dumping, or international price discrimination, is the prac- tice of selling abroad at a -price lower than that charged do- mestically (or selling in different export markets at different prices). In the real world of imperfect price competition, many exporters in developed countries, particularly of chemi- cals, metals, and other standardized products, try to maximize their profits by charging different prices in markets with dif- ferent demand elasticities. When, as is frequently the case, demand abroad is more price elastic than demand at home, a lower price is charged on foreign sales. On the supply side, once a firm has covered its overhead costs in one market, it can then sell profitably in another market at any price above marginal costs. Although there is no consensus among economists, the argu- ment has been made that, the economic advantages of dump- ing may outweigh the disadvantages.72 Consumers of dumped goods benefit by the lower prices paid for imports. Consumers in the exporting country are discriminated against, but the prices they pay may be higher, the same, or lower than if dumping had not occurred.73 Even if prices are higher, they must be weighed against the increased profits of producers. Only in the rare case of predatory dumping, where the purpose is to drive a competitor out of business, does the economic balance appear to weigh clearly against this practice. 71 For a comparison of Canadian and U.S. valuation practices and other nontariff barriers, see Masson and English, Invisible Trade Bar- riers. Other useful sources of Canadian and U.S. nontariff barriers published by the Canadian-American Committee are Constant South- worth and W. W. Buchanan, Changes in Trade Restrictions Between Canada and the United States, 1960; and Francis Masson and J. 13. Whitely, Barriers to Trade between Canada and the United States, 1960. ~ There is no recent comprehensive treatment of dumping. The standard work is Jacob Viner, Dumping: A Problem in International Trade (Chicago, Ill.: University of Chicago Press, 1923). ~ See Gottfried von Haberler, The Theory of Inter-national Trade, translated by Alfred Stonier and Frederic Benham (London: Wffliarn Hodge and Co., Ltd., 1936), pp. 302-17, PAGENO="0352" 346 The economic objection to dumping (and to other discumi natory piicing) is not dumping per se but to the monopoly conditions that enable and encourage it Dumping can only occui when there aie monopoly or oligopoly conditions in the home market accomp'imed by tariffs and/or tiansportation costs that prevent dumped goods fiom being shipped back again Dumping is the result of, not the cause of, such condi tions It appears that effective antitiust legislation and lower tariffs are better v'~ ays to combaj2monopoly practices than are antidumping measures Governments concein with dumping has been the low prices of dumped impoits rather than the discriminatory high prices to home consumers of dumped exports Also the teim dumping has an emotional, ~nticompetitive, and unfair' connotation Consequently, many countries have legislation or regulations that authorize the imposition of antidumping du ties to compensate for the lower export prices of dumped imports This legislation is somewhat compaiable to iesale puce maintenance oi fair trade laws, which regulate domes tic sales prices Under the GATT countries may impose antidumping duties on imports of dumped products if such imports cause or thre"ten material injury to a domestic industry (or retard the establishment of an industry) Until recently, howevei anti dumping legislation in most Euiopean countries has been frag mentary or nonexistent Canada is the only mdustual country that has frequently used antidumping duties But if tariffs are substantially lowered in the Kenhedy Round negotiations, countries may be tempted to use antidumping duties to par- tially compensate for the loss of protection Furthei more if the introduction of duty fice treatment for pioducers within the EEC. and the EFTA leads to increased incidences of dump- ing by third country exporteis in ordcr to meet the prices of these mteinal pioduceis, greater resort to antidumping meas ures may be anticipated In Canada, antidumping duties aie imposed on imported goods, if they are of a class or kind pioduced in Canada and the export price of such goods is less than their fair market or other value that is established for duty puiposes As mdi cated in the previous section, these dutiable values can be higher than invoice prices. Also, Canada is the only country in PAGENO="0353" 347 the Atlantic area that does not require that dumped goods cause or threaten injury to a domestic industry as a condition for imposing antidumping duties.74 While goods may be ex- empted and the duty itself may not exceed 50 per cent of the "fair market value," an antidumping duty, equal to the differ- ence between export price and dutiable value, is automatically imposed. Although Canada does not maintain separate cus- toms records on antidumping actions, it is estimated that around $2 million of antidumping duties are levied annually.75 About two-thirds of these duties are levied against imports from the United States. However, the trade-inhibiting effect of antidumping restrictions is far more important than the in- cidence of duties. actually imposed. U.S. antidumping legislation and regulations are the most specific and detailed of any of the Atlantic area countries. They have also been subject to the most complaints. In most instances, the complaints have concerned administrative prac- tices and the time consumed in investigations rather than the imposition of antidumping duties. U.S. antidumping legislatkn conforms with the GATT rules that both price discrimination and injury must be present before antidumping duties may be imposed.76 Since 1954, the Treasury Department has made the determinations with re- spect to price discrimination or sales at less than "fair value," and if price discrimination is found, the Tariff Commission ~ Although Canadian antidumping legislation is inconsistent with CATT provisions, it is not in legal violation of the CATT because it predates Canada's obligations under the CATT. For a discussion of this point, see below, p. 307. ~ According to a study of the Canadian-American Committee, "in 1959 and 1960, $1.8 million and $1.6 million, respectively, were paid in dumping duties, which result from arbitrary valuations on goods of a class or kind made in Canada." However, it is not possible to estimate the number of cases, the products, or the value of trade involved. See Masson and English, invisible Trade J3arriers, p. 59. 76 Unlike most countries, the United States has separate legislation relating to antidumping duties and to countervailing duties to offset the subsidization of exports. There is no injury requirement in Section 303 of the U.S. tariff act relating to countervailing duties. But countervail- ing duties have been imposed infrequently and, when imposed, have usually applied to agricultural products. However, the desire to avoid the imposition of countervailing duties on imports of automobile parts from Canada led to the 1965 U.S.-Canadian automotive agreement. For a list of the products to which countervailing .duties apply, see U.S. Treasury, Exporting to the United States, pp. 16-17. 95-159 0-68-pt. 1-23 PAGENO="0354" 348 TABLE 9.2. U.S. ANTIDUMPING CASES Calendar year Number of cases No price discrirni- nation Price revision No injury Injury Appraise- snent withheld 1959 37 23 13 1 0 15 1960 29 19 7 2 1 24 1961 38 25 5 5 3 10 1962 23 9 12 2 0 11 1963 30 19 4 6 1 16 1964 37 13 12 9 3 13 Total 194 108 53 25 8 89 - Source: Derived from tables, based on data supplied by the U.S. Treasury Department, published in the U.S. Congressional Record, June 1, 1965. then finds whether or not such discrimination is causing or threatening injury to a domestic industry.77 Table 9.2 shows that between 1958, when the legislation was last amended, and 1965 there were 194 antidumping investigations. However, in only 8 instances, or 4 per cent of the cases, were antidumping duties imposed as the result of a finding of injury or likelihood of injury by the Tariff Commis- sion.78 In the remaining 186 cases, Treasury found no price discrimination in 108; 53 were terminated because the foreign exporter adjusted his prices; and the Tariff Commission found no injury in 25. The restrictive element in U.S. antidumping practices is not the imposition of duties but the possibility that antidumping procedures will be instituted, the large number of cases ac- tually initiated, and the withholding of appraisement in a!- niost half of these cases. Apart from' costs incurred by foreign exporters and domestic importers in an antidumping investi- gation, the uncertainties inherent in the initiation of an in- vestigation are bound to have some trade-deterrent effects. These effects are enhanced by the practice of withholding ap- ~ Between 1921 (when the U.S. Antidumping Act was legislated) and 1954, the Treasury Department made both the price discrimination and injury determinations. 78 eight cases in which antidumping duties were imposed and the countries affected were as follows: bicycles (Czechoslovakia, 1960), Portland cement (Sweden, 1961), Portland cement (Belgium, 1961), Portland gray cement (Portugal, 1961), Portland cement (Dominican Republic, 1963), chromic acid (Australia, 1964), steel reinforcing bars (Canada, 1964), and carbon steel bars and shapes (Canada, 1964). In April, 1965, the Tariff Commission also found injury in the case .of azobisformamide (Japan), and subsequently, antidumping duties were imposed. PAGENO="0355" 349 praisement, i.e., final determination of customs duties, when- ever price discrimination is. suspected during the course of an investigation. After appraisement is withheld, imported mer- chandise may be released under bond from Customs' custody, but importers do not know their profits on sales, or whether there will be profits, until after the antidumping investigation is completed. Furthermore, in a withholding action, no consid- eration is given to whether or not suspected price discrimina- tion might cause or threaten injury. As indicated in Table 9.2, appraisement was withheld in 89 cases or eleven times the number in which antidumping duties were imposed. It might be expected that because of profit uncertainty, imports would decline after the withholding of appraisement. However, this is not always the case; while imports often decrease and even stop, there are instances when imports have not declined. Nevertheless, traders may be adversely af- fected because of the failure of imports to increase and be- cause of the time consumed in investigations, which averages well over a year. One case took more than three years. Under the law, the Tariff Commission must make injury determina- tions within 90 days, but there is no time limit on Treasury determinations relating to price discrimination.79 A GATT study in 1957 found that, except for Canada and the United States, industrial countries made little use of anti- dumping measures.8° In iecent years, however, several coun- tries have enacted or revised antidumping legislation and have initiated a number of antidumping actions. For example, in the United Kingdom, the most active of these countries, there ~ In January, 1965, after consultations in 1964 with domestic inter- ests and with other OECD countries, the U.S. Treasury Department revised its ~ntidumping regulations. But these revisions only partly satisfied the complaints of foreign exporters and domestic importers, on the one hand, and domestic producers, on the other. For a comprehensive account of the administration of U.S. antidump- ing legislation, see Alexis C. Coudert, "The Application of the United States Antidumping Law in the Light of a Liberal Trade Policy," Columbia Law Review, Vol. 65, No. 2 (February, 1965), pp. 189-231. See also James Pomeroy Hendrick, "The United States Antidumping Act," The American Journal of International Law, Vol. 58, No. 4 (October, 1964), pp. 9 14-34. 80GATT, Anti-Dumping and Countervailing Duties (Geneva: July, 1958). GATT document MGT (59) 122, November, 1959, updates this publication somewhat. See also, GATT, Anti-Dumping and Countervail- ing Duties, Report of Group of Experts (Geneva: March, 1961). PAGENO="0356" 350 were 29 antidumprng cases during calendar years 1961 through 1964 In 23 of these cases, full investigations were instituted, 4 of which were pending at the end of 1964 Of the remaining 19, 11 were dismissed, exporters agreed to adjust their puces in 3, and antidumping duties were imposed in 5 As part of the EEC common commercial policy, the Corn mission has proposed to th.e Council a draft Community anti- dumping regulation to deal with third-country dumping. After duties are ehminated within the EEC, a Community anti dumping policy will be necessary if the dumping of third country exports from one member state to another is to be regulated effectively Because duty free treatment within EFTA countries applies only to goods of EFTA origin, no similar problem arises 81 Antidumping legislation in these countnes and the pro posed Community regulation conform with the GATT princi- ples of price discrimination and injury, but administrative procedures do not adequately assure that these principles will be followed. In the absence of specific legislation and/or de- tailed regulations, antidumping actions sometimes resemble star chamber proceedings in which exporters are pressured to adjust their prices under threat of antidumping duties. A de- termination of whether dumping prices are injurious may not play a prominent part in such proceedings-injury is often assumed.82 81 Unlike government procurement, dumping among countries of the EEC and of the EFTA is not treated differently from third country dumping However both the Treaty of some (Article 91) and the Stockholm Convention (Article 17) provide that prior to completion of the customs union and free trade area, no duties or quotas will be applied to goods upon reimportation from another member state. Such free reimportation is often an effectis e deterrent against dumping because, if transportation and other costs do not exceed the dumping margin, dumped goods can be shipped back again into the dumping country. 82 A recent antidumping action by the United Kingdom is illustrative. On March 25, 1966, the Board of Trade imposed an antidumping duty of £ 114 per ton on imports of a chemical mixture of diphenyl ether and diphenyl exported from the United States by the Dow Chemical Corn- pany This action which was based on a threat of injury resulted from a complaint on March 10 by Imperial Chemical Industries the only U K producer which was expanding its production facilities The case was never discussed with the U.K. importer or the U.S. exporter before the antidumping duties were imposed The duties were rescinded two months later, when Dow agreed to cease all exports of the mixture PAGENO="0357" 351 Other Nontariff Barriers There are a number of other nontariff barriers that do not lend themselves to easy classification. They relate to certain internal taxes and regulations, safety and other standards, marks of origin, labeling requirements, and other measures that can and often do have a restrictive effect on trade. Only *those that have been the subject of recent complaints will be discussed in any detail. The possible trade effects of differences in taxation policies among Atlantic area countries are discussed in Chapter VIII. However, it should be reiterated here that border taxes im- posed on imported goods to compensate for indirect taxes borne by domestic products are not necessarily trade-neutral, nor are the rebates of indirect taxes when products are ex- ported. Such border tax adjustments can have trade-distorting effects that are comparable to those of tariffs and export subsi- dies. This is particularly true with respect to changes. in border tax adjustments, whether or not accompanied by changes in internal taxes.83 Another problem relating to internal taxes is annual auto- mobile road-use taxes imposed by France, Belgium, Italy, and Austria. The effect of these taxes, which are sharply progres- sive and are assessed on the basis of certain physical character- istics rather than on the value of the vehicles, is to discriminate against larger automobiles, principally those of U.S. manu- facture. France, Belgium, and Italy assess road taxes according to fiscal horsepower, which is calculated from a tax formula that differs in each country but relates to such vehicle characteris- tics as number of cylinders, cylinder capacity, and weight. Austria imposes a road tax based on cylinder capacity. French, Belgian, and Austrian taxes decline with the age of the car, but the Italian tax is collected every year without any diminution. The following schedule of road taxes i~ France is illustra- tive of the discriminatory effects of these countries' taxes. The to the United Kingdom. See~ U.K. Board of Trade press release, March 24, 1966. ~ The EEC objective of harmonizing tax policies and border tax adjustments will involve far-reaching changes in both the method of assessing taxes and the\tax rates. PAGENO="0358" 352 Fiscal horsepower French francs U S dollars 4hp or less 60 12 Sto7hp 90 18 8 to 11 h.p. 120 24 l2tolGhp 150 30 Over 16 h p 1,000 200 French tax is gradually progressive, but it jumps by 567 per cent on automobiles over 16 fiscal horsepower This much higher tax on larger engined vehicles applies principally to impoited U S automobiles, it does not apply to any French production line vehicle nor does it apply to most other Euro pean cars 84 The progressive nature of this tax is defended on the grounds that largei, more expensive cars should bear higher taxes However, because fiscal horsepower has no nec essary relationship to value, largei engined U S cars bear a highei tax than smaller engined Euiopean cars, even though the latter may be more expensive For example, a Poische 356 C/Carrei a (retailing in France for 45,000 francs with a rating of 11 h p) bears a road tax of 120 francs, while a Chevrolet Chevelle (retailing at 22,490 francs, with a rating of 18 h p) bears a road tax of 1,000 francs 85 The Chevrolet, costing half as much as the Porsche, is subject to a tax more than eight times greater Japan imposes a commodity tax, payable only once, that is levied on the manufacturei s sales price of domestically pro- duced cars and on the c i f duty paid value of imported vehi- cles The tax rates are 40, 30 and 15 per cent, depending on engine capacity, wheelbase, and body width of the vehicle. All standard size U S cars are subject to the 40 per cent rate, almost all Japanese cars fall in the 15 per cent rate category.86 It is not possible to estimate the trade-deterrent effects of these taxes, because they cannot be isolated from other factors ~ France also imposes a registration fee based on fiscal horsepower On January 1 1967 this fee was to be increased from 13 2 to 20 0 francs per unit of fiscal horsepower on automobiles having a horse power rating of 13 or more. There is no French production of automo- biles that will be subject to the increased fee ~ These prices are taken from L'Argus de l'Automobile, May 28, 1964 86 In addition to the commodity tax Japanese piefectures levy an annual automobile tax graduated on the basis of cylinder capacity and wheelbase. PAGENO="0359" 353 that have discouraged sales of imported U.S. automobiles. For example, increased automobile production in Europe and Japan and higher gas consumption of larger-engined U.S. au- tomobiles, coupled with high taxes on gasoline, have also been very important. Nevertheless, the basis for the assessment of these European road taxes and the Japanese commodity tax `has a discriminatory effect on imports of U.S. automobiles. The method of assessment acts as a nontariff restriction in the case of United States internal revenue taxes and import duties on distilled spirits. Both the excise tax and import duty are assessed on a proof-gallon basis when the distilled spirits are 100 proof (50 per cent alcohol) or more but on a wine- gallon basis when less than 100 proof. This distinction means that the excise tax and duty on distilled spirits of 100 proof or more vary proportionately with the alcoholic strength of the spirits but that distilled spirits of less than 100 proof are treated for tax and duty purposes as if they were 100 proof. Most distilled spirits imported into the United States are bottled abroad at less than 100 proof, and consequently, they pay excise tax and duty on a wine-gallon basis. Almost all spirits produced domestically are taxed on a proof-gallon basis when they are withdrawn from bond at 100 proof or above before dilution and bottling. This results in a tax differential in favor of the domestic product. For example, a gallon of imported Scotch whiskey bottled at 86 proof pays an excise tax of $10.50 (based on wine-gallon assessment). A gallon of Bourbon whiskey bottled after dilution to 86 proof bears a tax of $9.03 (based on proof-gallon assessment). In addition, the imported whiskey pays a duty of $1.02 (based on wine-gallon assessment) that is $ .14 higher than if the duty were based on proof-gallon assessment. In effect, the wine-gallon basis of assessment fOr the excise tax and duty results in a levy on the water contained in the imported product of $1.61. It is esti- mated on th~ basis of 1965 imports that the additional reve- nue to the U.S. Treasury resulting from the wine-gallon basis of assessment is around $70 million. The tax and duty differential resulting from wine-gallon assessment can be avoided by importing distilled spirits in bulk at 100 proof or above, paying the tax and duty at the proof-gallon rate, and bottling the spirits in the United States at whatever proof desired. In recent years, there has been a PAGENO="0360" 354 shift from bottled to bulk imports largely for this reason. For example, between 1960 and 1965 bulk imports of Scotch more than quadrupled in value and increased from less than 4 per cent to almost 11 per cent of imports. Foreign exporters, however, prefer not to ship in bulk, because there is prestige value in foreign bottling, and because they are better able to control quality if the bottling is done abroad. Furthermore, the value added in the bottling and labeling of the spirits abroad is lost in bulk exports. The wine-gallon system, therefore, affords protection not only to domestic producers of distilled spirits but also to domestic bottlers of spirits in bulk.87 The countries most affected by the wine-gallon system are the United Kingdom, Canada, and France. In 1965, U.S. im- ports from the United Kingdom of bottled Scotch whiskey were $165 million and imports of gin were $10 million; im- ports of bottled Canadian whiskey were $99 million; and im- ports of bottled brandy from France were $9 million. Bottled liqueurs were also imported at less than 100 proof from the United Kingdom ($4.6 million), France ($4.3 million), Italy ($2.9 million), and Denmark ($1.4 million). Various nontariff restrictions on motion picture films and recorded television (TV) programs are of a unique character, because such films and programs, although subject to duties, are normally rented. Tariffs do not afford the same kind of protection as for products that do not generate invisible trans- fers. For both economic and cultural reasons many industrial countries require that a certain proportion of theater and TV screen time (screen quotas) be used for films and programs of national origin. Also, production is often subsidized or monop- olized by governments, and requirements for domestic dub- bing, subtitling, and printing are sometimes employed. Re- strictions relating to TV programs tend to be more severe, probably because the viewer does not buy a ticket, and there- fore, consumer preference has a less direct effect upon deci- sions of exhibitors. Among industrial countries screen quotas for motion pie- 87 Most other industrial countries afford similar protection to domes- tic bottlers by charging a higher duty on bottled imports. For example, the EEC imposes an additional duty of $10.00 per hectoliter on bottled spirits, which for 100 proof whiskey increases the total duty by 20 per cent. PAGENO="0361" 355 ture ifims are not very restrictive, because they tend to approx- imate the commercial demand for foreign and domestic films. In addition to screen quotas, France requires a special permit for films dubbed in the French language and requires that the dubbing be done in France. Italy, the other EEC country that maintains screen quotas, rebates part of the theater admission tax to exhibitors when they show films of Italian origin.~ U.K. screen quotas on motion picture films are of little or no trade importance, but similar quotas on TV programs are both important and discriminatory. Under the Television Act. of 1964, the Independent Television Authority (ITA), which, unlike the British Broadcasting Corporation (BBC), operates a national television service on a commercial basis, must as- sure that "proper proportions" of the material included in television programs are of British origin. Accordingly, the ITA requires that 86 per cent of TV screen time be reserved for domestic material. Thus, imported material has access to only 14 per cent of ITA screen time, or about 8 hours per week.89 Further restrictions relate to the prime evening time period during which no more than two of five programs shown be- tween 8:00 and 8:55 P.M. on weekday evenings may be of U.S. origin, and no moie than three of these five may relate to crime or Western subjects regardless of national origin.90 The United States is the only country on which the U.K. quota on recorded TV programs has any practical effect. The 86/14 ratio of domestic to imported material not only reduces the quantity of U.S. sales to the United Kingdom but also de- presses the prices of the material sold; the discriminatory restriction on the showing of U.S. material during prime eve- fling time enhances the price-depressing effects. Requirements by industrial countries for marks of origin or ~ Under the EEC Commission's proposed common policy for the film industry, films produced by other EEC countries are to be treated like national films under the French and Italian screen quotas. Similarly, other film restrictions by France and Italy were no longer to be applied to EEC countries after December 31, 1966. 89 Material of Commonwealth origin and certain other material do not apply against the 14 per cent quota for imported material. No similar legislation or regulations apply to the BBC. In fact, however, BBC purchases of imported material have not exceeded 14 per cent of screen time. 90 Press statement of the Independent Television Authority, August 18, 1965. PAGENO="0362" 356 labeling of imported products become nontariff barriers when compliance is difficult or excessively costly. For example, Japan requires that the labels on canned goods contain only metric weights, and that imported products indicate the name of the importer and the date of importation. In order to meet these requirements, importers apply stickers containing this information over the avoirdupois weight on the can label. Similarly, Canadian restrictions on can sizes for fruits and vegetables prohibit the use of the standard vegetable can em- ployed in the United States. Furthermore, certain can sizes may be used only for asparagus and corn; other sizes are allowed for general use but not for asparagus. Safety and other standards and regulations relating to foods and drugs have an unavoidable deterrent effect on trade, which is increased when standards and regulations differ among countries. But, they become nontariff barriers only when trade is unnecessarily restricted. For example, differ- ences among countries of electrical current voltages and equipment, such as t~wo- and three-pronged plugs, are natural trade barriers. These barriers are enhanced by differences in electrical safety standards, which may even differ among states and provinces. However, only when such standards or other regulations become impossible or unreasonably difficult or expensive to comply with do they become nontariff barriers. For example, in the United States imports of boilers and pres- sure vessels are effectively excluded from some states and local communities by requirements that they be stamped with the seal of the American Societ~r of Mechanical Engineers, which is not issued to manufacturers located outside the United States and Canada. Imports of gas cylinders are simi- larly excluded by a requirement of the Interstate Commerce Commission that they be inspected in the United States. Among a number of miscellaneous nontariff restrictions, France prohibits the advertising of spirits distilled from grain but permits the advertising of spirits distilled from fruit. This prohibition is justified on health grounds, but protects French production of brandy from imports of whiskies and gin. In Germany, unless beer is made only from malt, yeast, hops, and water, it cannot be sold as "beer." This restriction effec- tively excludes imports of beef made from corn or rice. Can- ada prohibits imports of regional or "split run" editions of PAGENO="0363" 357 periodicals containing advertising directed primarily to the Canadian market, and imports of periodicals of which more than 5 per cent of advertising space indicates Canadian sources of supply. The purpose of this prohibition is to divert advertising revenue from foreign (primarily U.S.) to Cana- dian publications and thereby to encourage publication in Canada.91 Conclusions *As already suggested, the reduction or elimination of tariffs among industrial countries will increase the importance of nontariff barriers as obstacles to trade. But the problems that nontariff barriers present are so diversified that no single solution is possible. Efforts being made in the GATT, the OECD, and the Ken- nedy Round negotiations are only beginning to deal effectively with nontariff barriers. Although the GATT prohibits many nontariff barriers, it is generally less effective in dealing with them than with tariffs. Under the Protocol of Provisional Ap-. plication and subsequent protocols under which countries apply the GATT to their commercial policy, legislation exist- ing prior to a country's membership is exempt from its provi- sions. Because many nontariff barriers are embodied in legis- lation of long standing, they are legally maintained under the GATT even though they are inconsistent with its provisions. In the OECD, countries have few legal obligations in regard to nontariff barriers, but through a series of confrontations an effort has been made to remove or reduce them, ~with relatively little success in recent years. A major attempt is being made in the Kennedy Round to negotiate on nontariff barriers. How- ever, many of them cannot be easily negotiated, and the Ken- nedy Round is already burdened with difficult tariff issues. In this section, possible ways of dealing with nontariff barriers will be examined. As already indicated, quantitative restrictions among indus- trial countries on nonagricultural products are a minor prob- lem except those relating to coal and to Japan. GATT prohibits their imposition except for balance-of-payments and a few 91 Time and Reader's Digest magazines, whose. Canadian editions are published entirely in Canada, are exempt from this prohibition. PAGENO="0364" 358 other purposes Consequently, the few remaining restrictions that can no longer be justified on balance of payments grounds are illegal and should be dealt with under appropri ate GATT provisions However, irrespective of their legal status, quantitative and other nontariff restrictions on coal could not, realistically, be handled in the same way Restrictions on coal are similar in nature to those on agricultural products, because they reflect deep rooted economic ana social problems affecting politically important segments of the population In all countiies main taming nontariff restrictions, efforts are being made to solve these problems, which are becoming smaller as the number of mines and miners declines The problem of coal restrictions is furthei complicated by its relationship to competing fuels and sources of eneigy Domestic coal not only competes with imported coal but with petroleum, natural gas, hydroelectric power and nuclear en ergy One of the objectives of the Common Market is to de velop a common energy policy that would allocate Community eneigy requirements among competing energy sources and between domestic and foreign suppliers Such a policy has been under consideration since 1957, but it is unlikely to develop before the merger of the three communities 92 In var ying degrees other industrial countries have energy policies that determine or influence the tariff and nontariff restrictions on coal and competing energy sources ~ Consequently, restric tions on coal can probably be handled effectively only within the context of countries energy policies in which the compara tive economic and social costs of alternative impoi ted and domestic energy sources are considered Any removal of coal restrictions would have to be undertaken gradually so as to provide an opportunity for adjustments, particularly on the part of affected miners. 92 The European Coal and Steel Community is responsible for coal the EEC for petroleum gas and hydroelectric power and the European Atomic Energy Community for nuclear energy For a discussion of developments in the Communities common energy policy see European Coal and Steel Community 13th General Report Maich 1965 pp 74-92~ . ~ See for example the United Kingdom White Paper on Fuel Policy published by the Ministry of Power October 21 1965 (Command 2798). This paper outlines energy policy for the next five to ten years. PAGENO="0365" 859 The problem of quantitative import restrictions by Japan on the one hand and restrictions (including Japanese voluntary export controls) by industrial countries vis-à-vis Japan on the other suggests the need for a negotiated settlement. Japan maintains import restrictions in part as a bargaining lever against the discriminatory restrictions of other countries. In any Atlantic free trade area that included Japan, such a settle- ment would have to be made on the basis either of mutual * elimination of these restrictions or agreed exceptions to free- trade treatment. Mutual elimination would necessitate a will- ingness on the part of the other industrial countries to adjust to increased competition from Japanese exports, which might involve assistance to affected factors of production. However, most industrial countries already have legislation to help in the adaptation or relocation of factors adversely affected by imports. Although state trading is not a major problem among in- dustrial countries, it would ~ievertheless have to be consid- ered in any free trade area or a substantial reduction of tariffs. In a free trade area, national state-trading regimes would probably have to be ~eliminated or extended to include all industrial countries, just as the EEC envisages such elimi- nation or extension. However, if tariffs were only reduced rather than eliminated, state trading could be treated in the same way as in GATT tariff negotiations. Unless otherwise agreed by the parties to the negotiation, a GATT tariff conces- sion on a state-traded product limits the markup that may be charged by the state-trading agency (exclusive of expenses incurred and a reasonable profit) over the landed price of the imported goods. Such a commitment may be supplemented by agreement of the state-trading agency to purchase stipulated amounts of imports.94 * Preferences to domestic producers in government procure- * °` For example, in 1947 France granted the United States a conces- sion on wheat, stipulating that the resale price should not exceed by more than 15 per cent the average duty-paid value of the imported grain. Italy made the same concession in 1949 on both wheat and rye. Also, in 1947 France agreed to purchase minimum annual quantities of cigarettes and leaf tobacco and to charge a price on imported cigarettes that would preserve the prewar ratio between the selling prices of foreign cigarettes and the best French brands sold by the state monop- olv. * PAGENO="0366" 360 ment often iesult in restricting trade to a considerable ex- tent In the event of substantial reductions in tariffs, such preferences may become more restrictive to compensate do mestic producers for loss of protection in the private sector. Because there are virtually no international rules relating to government piocurement, this is an area where an interna tional agreement or code might be successfully concluded Such an agreement appears to be negotiable, because all in dustrial countiies grant preferences to domestic producers in one form or another The purpose of an international agreement would be to eliminate these preferences or to make them uniform Any effective arrangement would have to provide for standard procedures relating to publicity, submission of bids, awarding of contracts, and similar matters ~` Unless this were done, the varying preferences inherent in the present procedures of many countries would continue Any favoritism to domestic producers should be granted through margins of preference clearly stated in percentage terms Such prefeiences could then be made uniform among countries and could be reduced over a period of time or in subsequent negotiations It might be too ambitious to include all government pro curement in one agreement; nonmilitary, military, and for- eign aid procurement could be dealt with separ'itely For example the United States and Canada have mutually elimi- nated preferences on certain military supplies This arrange ment logically could be extended to include all NATO countries and Japan Similarly, efforts now being made in the OECD to co ordinate member countries foreign aid programs might include an agreement under which this aid would be progres- sively untied so that recipient developing countries could purchase on a global basis from the most economical sources Preferences in procurement by provinces, municipalities, and other government bodies are more difficult to deal with, particularly because of the federal systems of some industrial countries However, national governments could make efforts to standardize piocedures and to eliminate such preferences In an Atlantic Free Trade Area, customs classification and ~ Work on the possible harmonization of government procurement procedures is now taking place in the OECD. PAGENO="0367" 361 valuation would disappear with tariffs. Correspondingly, the greater the tariff reduction the less important are the con- sequences of classification and valuation. As indicated earlier, even though there is no uniform customs nomenclature among the industrial countries, this is not, by itself, an obstacle .to trade. It would be desirable, however, if the United States and Canada were to adopt the BTN and to Join the Customs Co-operation Council.96 Also, procedures in the United States for making classification decisions and for handling disputes could be expedited. Valuation is not a serious problem among those countries subscribing to the Brussels Definition. As in the case of tariff classification, there are always valuation problems relating to individual shipments, particularly in transactions between re- lated parties. Any general problems can be worked out within the Customs Co-operation Council. U.S. and Canadian valua- tion practices, however, are out of line with those of other industrial countries. Their cdmplexity, uncertainty, and in some instances opportunity for arbitrary valuation undoubt-' edly deter trade. Adoption .of the Brussels Definition is a possible solution to such valuation problems. The U.S. Tariff Commission is now investigating the methods of valuation used by the United States and other countries, and the feasibil- ity and desirability of U.S. adoption of the Brussels Definition.OT A Treasury Department study has recommended elimination. of the "final list,"93 and ASP is under consideration in the Kennedy Round. Adoption of the Brussels Definition by the United States and Canada would result in a higher c.i.f. system of valuation, so that rates bound in tariff negotiations would have to be low- ered in order to compensate for the higher valuations. But 96Because of the introduction of a new tariff nomenclature in 1963, it may be some years before the United States is ready to make the considerable effort necessary to adopt the BTN. Separate negotiations with twenty-nine countries to compensate them for any impairment of previous tariff concessions caused by the 1963 nomenclature `revision are still not completed. 97 preliminary report has already been published. See U.S. Tariff Commission, Customs Valuation, Preliminary Report to the Committee on Finance of the United States Senate, TC Publication 180 (Washing- ton, D.C.: July, 1966). 98 U.S. Treasury, An Evaluatian, p. VI-24. PAGENO="0368" 362 since insurance and freight costs to the many U.S. and Cana- than ports of entry vary considerably among countries, lower rates that would afford the same degree of protection to domestic producers would favor nearby countries and penalize distant ones. Dumping and antidumping measures are becoming increas- ingly important problems in international trade. Antidumping measures may become more extensive as European countries introduce and amend legislation and regulations. However, multilateral tariff reductions as well as a free trade area would deter dumping by making it easier for dumped goods to be shipped back again into the dumping country. But even in a *free trade area, transportation costs among many of the in- dustrial countries are large enough to make this a limited deterrent. Furthermore, governments might be hard pressed to use antidumping measures to compensate domestic produc- ers for the elimination or reduction of tariff protection. Although the GATT requires that both price discrimination and injury be established before antidumping duties are im- posed, it does not define what is meant by injury nor does it prescribe procedures to be followed in antidumping determi- nations. Consequently, GATT is not now adequate to regulate antidumping measures. As in the case of government procure- ment, an international agreement or code appears to be an appropriate and negotiable solution. Logically, a code would implement the GATT by including criteria for injury determi- nations and procedures for insuring that antidumping investi- gations would not inhibit trade and would treat all interested parties equitably. Such a code, which was discussed in the OECD and which is now being explored in the Kennedy Round, should eliminate the present and future nontariff bar- rier aspects of antidumping measures. The elimination of such miscellaneous nontariff barriers as European and Japanese road and commodity taxes that have a discriminatory effect on imported automobiles, the U.S. wine- gallon method of assessing excise taxes and import duties, and the U.K. screen quota on recorded TV programs might be possible as part of a free trade area arrangement. If tariffs were only reduced, these and similar restrictions might best be handled through negotiations. Whatever their justification, unilateral complaints seldom result in satisfaction when diffi- PAGENO="0369" 363 cult or important issues are involved.99 Bilateral negotiations on such nontariff barriers may be impracticable when there is no basis for reciprocity. For example, the United States is in- terested in Austrian action on automobile road taxes, but Austria has no particular interest in any U.S. nontariff re- strictions. Consequently, a multilateral package to which all *,coUntries contribute might be the best way to negotiate on such miscellaneous nontariff barriers. But even a multilateral pack- age would be unbalanced for certain countries and, therefore, would not be reciprocal. Such a package would most easily be concluded within the framework of a general tariff reduction, such as the Kennedy Round, so that deficiencies in some countries' contributions could be made up by tariff conces- sions.10° Short of a general trade negotiation, both tariff and nontariff barriers affecting trade in a particular industry might be negotiated. In chemicals, for example, an effort has been made in the Kennedy Round to exchange tariff concessions for elimination of the American selling price basis of customs valuation. The misuse of standards and similar measures designed to regulate trade can best be treated within various international organizations dealing with these matters. The International Organization for Standardization and the International Elec- trotechnical Commission are ideally suited for this purpose with respect to industrial products. The Codex Alirnentarius, which is being devel9ped under the auspices of the Food and Agriculture Organization and the World Health Organization, is designed to cope with problems relating to agricultural prod- ucts. The Codex Alimentarius will not only include health standards for food but also the standardization of can and other container sizes. As indicated in the introductory section, this discussion 90 For example, a U.S. complaint on European road taxes was consid- ered by the OECD Trade Committee in 1963, but no changes in these countries' tax measures resulted. 1001t might be possible to negotiate satisfactorily on recorded TV programs in connection with the OECD Code of Liberalization of Cur- rent Invisible Operations, part of which relates to liberalizing interna- tional transactions in motion picture films and recorded TV programs. However, neither the OECD code nor the GATT, which contains some- what similar provisions, applies specifically to TV screen quotas, and their applicability to such quotas is a matter of contention that has not been resolved. 95-159 0-68-pt. 1-24 PAGENO="0370" 364 does not presume to encompass all nontariff barriers among industrial countries, but it does include the principal restric- lions on nonagricultural products that have been the subject of recent international complaints It is evident that in any ehmmation or further substantial reduction of tanffs the prob lems relating to these nontaiiff restrictions would be con- siderable 1-lowever, it is unlikely that any Atlantic free trade area or significant multilateral reduction of tariffs will develop until after the question of U K and other EFTA countries entrance into the EEC is settled one way or the other This key question to the future of Atlantic commercial pohcy may not be resolved for anothei few years In the meantime, much greater attention is hkely to be given to nontariff restrictions PAGENO="0371" 3.5 Mr. BYRNES. Then we can compare it. Would this also include the quantitative quotas on the items that any country has? Are quantitative quotas approved under GATT? They are, under certain circumstances; aren't they? Ambassador RoTH. Yes, under article 12 of the GATT. After the Second World War countries were able to have across-the-board quotas, to the extent that it was proven necessary because of balance- of-payments problems. The residual quantitative restrictions-there are still a few in France and, of course, in Japan-are the result of that. Then, of course, you have agricultural trade, which is an entity in itself. Mr. BYRNES. Yes; I understand that. That is really a problem. Do you have a list of the items on which Japan today imposes a quantitative quota? Ambassador ROTH. These are the residual restrictions. We do have a list, and I will have that for you. Mr. BYRNES. When you say residual, I am not sure that I under- stand what you mean. Ambassador ROTH. After the Second World War- Mr. BYRNES. They may be left over? Is that what you mean? Ambassador ROTH. That is what I mean by residual. Mr. BYRNES. What is the status today? Ambassador ROTH. They are illegal. These are the items we were talking about. Mr. BYRNES. Will you send me a list of these items? I did not count them all, but there are at least 14 pages, with at least 10 or 12 on a page, so there would be at least 140 items. Ambassador ROTH. This includes both agriculture and industry. Mr. BYRNES. Would that be part of the list that I have asked you to furnish? Ambassador ROTH. That is right. Mr. BYRNES. That would be a restriction that is illegal under GATT? Ambassador ROTH. That is right. Mr. BYRNES. But we have never taken any action on these; have we? Ambassador ROTH. No. We have pressed very `hard. If I may present an example, 2 years ago `we were prepared to do the same thing against the French that we now may have to do `with the Japanese on automc~bile parts-to go to article 23 of the GATT. This was mostly in agriculture, canned fruit, and `other `products iike that. were willing, however, at that point, to liberalize, and did. They still `have some remaining quotas. We `are again actin'g `in the same way. We hope those will be cleaned up shortly. Mr. BYRNES. I hope `we have `made some progress. In my mind, not very much progress ha's been `made, in that area. Yet we are told we don't dare to do anything. If they rem'ove a restriction, do `we have to `bargain `that elimination by making `a `concession of some kind? Ambassador ROTH. No, `we don't, under GATT. Of course, under the Trade Expansion Act we can't. We can't pay for the removal of an illegal restriction. Mr. BYRNES. You cannot? Ambassador Ro'rn. We cannot. But the `nontariff barriers in the ASP packages are not illegal. For instance, we were talking about t'h.e PAGENO="0372" 366 European road taxes, which they flow are willing to change within the ASP package~ If they had been illegal under the GATT, by the terms `of the Trade Expansion Act, we could not pay for them. Mr. BYRNES. Why, then, don't `we press to `have these actions deter- mrined illegal? Press the question so that we don't `have to make some concessions. We don't `have to buy our way out of having them s'top doing something that is illegal? Ambassador ROTH. That is what we did in Fran'ce several years ago, saying you either liberalize these, or we go to GATT. This is what we are now doing to the Japanese on automobile parts. Take another area, the area `o'f subsidies, which our countervailing duty law does not allow us to accept. When the Italians subsidized exports last year of transmission towers, `we countervailed and rai'sed our duties. One of the last offers `we `made. in the Kennedy round was, ironically enough, on canned tomatoes and tomato paste. Shortly thereafter it beca'me clear that the Italian's `had put into effect a regulation which they said did not permit them to subsidize their exports to' thi's country but in fact allowed them to do so on a retroactive basis. The Treasury Department., under our law, felt we had nothing to do except to countervail. We did, and the duties have been increased. Mr. BYRNES. The law says you have to do it? Ambassador ROTH. That is right. Mr. BYRNES. You mean here is an area where you did carry out what the law says? The Trea'sury found it was a subsidy, so the Treasury imposed a countervailing duty? Maybe the law had some effect, then. On one particular point. We have not imposed very many, though, have we? Ambassador Ro#rij. We have not. Mr. Bmio~s. We h'ave had plenty of cases, haven't we? Do you have to find injury there, too? Ambassador ROTH. No. Our countervailing duty law would be illegal under the (3ATT, except it was in `being before we entered the GATT. We have said, when our trading partners have `complained about this, that we were perfectly willing to discuss the problem of injury, if we can discuss the whole su'bsidy problem. If we can get some gen- eral understanding on subsidies worldwide, that is applicaible to every- body, we will talk about our countervailing duty law, as well. Mr. SMITH. Would you like some figures on countervailing duty cases? I would say first that of course we operate on the basis of corn- plaints. Mr. BYRNES. Right. Mr. SMITH. From 1935 to date, we processed 191 cases, and have issued 30 countervailing duty orders. Currently in effect there are 13 countervailing duty orders, affect-j ing eight countries. . We have three decisions in the last year-four decisions in the last year. Prior to that, the last countervailing duty order was, I believe, in 1959. `There have been four in the last year. PAGENO="0373" 367 Mr. BYRNES. And in the other cases, the finding w:as that there had not been a subsidy? Mr. SMITH. Either that, or they terminated the subsidy before the case was complete. Mr. BYRNE'S. That is all, Mr. Chairman. The CHAIRMAN. Mr. Burke will inquire. Mr. BURKE. Mr. Ambassador, the figures that I would like to have for the committee are the total imports for the first quarter of this year, in comparison with the first quarter of last year, and the total figures of the exports for the first quarter of this year in comparison w~th the total exports of the first quarter of last year. I understood you to say earlier that you had those available. Ambassador ROTH. Yes, Mr. Chairman. The export figure for the first quarter of 1967 is $31.1 billion, annualized. Mr. BURKE. I don't want the annual figure. I want the actual quarter figure. Ambassador ROTH. While we are looking those up, let me do it, if I may, on an annualized basis, because I think it is an interesting comparison. The imports on an annualized basis were $26.7 billion, for a net $4.3. Now, this $31 in 1967 compared with $32.2 in the first quarter of 1968. Mr. BURKE. The exports are higher? Ambassador ROTH. Higher in 1968, by about $1 billion, on an annual- ized basis. Mr. BURKE. Imports? Ambassador ROTH. Imports were from $26.7 to $31.3, a very sizable increase, so that the net effect went from $4.3 to $0.7. It is probably easier to take the January-April figures for 1967. Exports were $10,428 million. Imports, $8,914 million, or a net plus $1,514 million. The same period, 1968, January-April, exports, $10,901 million. Imports, $10,470 million or a net figure of plus $430.8 million. I think what this shows, among other things, is that if you take out the special circumstances of the copper strike, which may have cost us anywhere between a half billion and a billion dollars in our balance of payments, and probably closer to the higher figure, you had this continuing- Mr. BURKE. Half a what? Ambassador ROTH. Half a billion to a billion dollars, because of the copper strike, and closer to the higher figure. In the last quarter of 1967 to the first quarter of this year, you have the continuing pur- chasing for steel inventory, because of a possible steel strike. You have more deterioration of agricultural exports, perhaps at the end of last year than this. But beyond anything else, in fact, this was a period of rapid demand and growth in this economy. Mr. BURKE. I have a letter here. I would like to take up my favorite subject, footwear. As you know, the shoe industry is the second or third highest employer of my State. I have a letter here from the footwear peopk. I will just read part of it. I would like to have your comment on it. You might be interested to know that we just received the April figure on shoe imports. For the first four months, we imported ~9 million pairs, worth about $112.7 million. In other words, imports are up 47.5 percent this year over last year, and 48.4 percent in dollars. PAGENO="0374" 368 This is for the first 4 months Just imagine what this will do to the State of Massachusetts, if it keeps on for 2 or 3 more years, and there is every sign that it will continnue Retailers are making fantastic profit margins on these imported shoes In other words, it not only points out that there is a terrific in crease here on imports, but the letter counteracts the statement made here this morning, that these imports are resulting in lower prices to the consumers I find out, in checking around, myself, that the retailers are not passing on these low prices to the consumers, but instead are reaping profits of 6,7, and 800 percent. Some of these shoes are being sold in some of our urban areas, where we have some real problems In other words, they are paying something like $5 50 for a pair of shoes, wholesale, and then they are gouging the public, the American public, for an amount as high as $19 or $20 for that same pair of shoes, an unconscionable profit Now, I would like to have you comment on that, and comment on the statements that were made here this morning, indicating that these imports are resulting in lower prices for the consumer Ambassador Rorii. Congressman Burke, I think as a general rule it is true that 1mports as a competitive factor bring prices down I would like to comment on the shoe industry, because I think this is a very important industry, and is a difficult problem I think this relates a little bit to the discussion that Congressman Byrnes had with us this morning This is a substantial industry and employs around 240,000 workers In other words, the problems of the shoe industry are ones that we have to take very seriously. However, it is very complicated to get the facts, for a number of reasons On a value basis, at least until this point, imports have not made a serious penetration You have the fact, and I think this probably fits into some of the things you were saying, Congressman Burke, that major American shoe companies are themselves importing a great many shoes from other countries You have small shoe manufacturers who are under intense com petition not just from imports, but from the large integrated companies You have a situation where certain types of shoes are becoming less popular and new types of materials are coming in We felt, just as you do, that there is a serious problem here with an important industry that we must look at But we are not satisfied that we have the facts within the Government, or in terms of ma terial that has been submitted to us The President and Chairman Mills therefore asked the Tariff Commission for an intensive study Mi BURKE When do you think the results of that study will be forthcoming ~ After we adjourn this year ~ Ambassador Ro'rn It will be after you adjourn Mr BURKE There will be very little ~`ie c'in do about it The CHAIRMAN May I interject a question ~ You say after we adjourn What day are we going to adjourn ~ Ambassador ROTH. I will defer my answer. PAGENO="0375" 369 Mr. BURKE. Someone suggested this morning, or testified, that if the quota system was put in, it might result in a massive retaliation. Could you tell me whether or not the countries who are shipping shoes to this country would object to setting a quota, say 5 to 10 per- cent above the amount of shoes or footwear that they shipped in the year before? Or do they expect to continue to pyramid these imports until they drive every shoe company here in the country out of business? Ambassador ROTH. To turn the question around, I think it would be as if the Europeans were to ask whether our computer industry would mind if we set a quota level not on the basis of present imports, but a little bit above. The answer is, that industry would object `very strongly. Now, it is true that if you have a quota bill where the quota is trig- gered at some future point, there is-although the legal question is open-probably no immediate retaliation. Retaliation only comes at that point where the quotas come into effect, and where trade is affected. Mr. BURKE. Don't you believe it would be reasonable to expect these countries to understand what the situation might be here in this country if these imports continue to glut the market, as they are with shoes? I think in ,January their imports were raised 73 percent. This is an unreasonable amount for them to expect that this country here should absorb. I think they ought to be reasonable enough, and be able to take a reasonable amount of business, and not expect to get it all. I think the whole trouble in some of these foreign countries, with possibly some of our negotiators, although I am not complaining about you, but I think what they fail to realize is that Congress has the power to enact strong quota legislation, and if there aren't reason- able steps taken by those countries, then this legislation might be forthcoming. I voted for the trade bill. I am for the trade expansion bill, but I certainly realize that no country should expect to come in here and capture the entire footwear market in this country. No two or three countries should expect that. I think we are reasonable enough to expect them to expand a bit, but when they start expanding to the point where they are increas- ing their imports 73 percent in 1 month, then Congress certainly will act. Now, you and I know there are 250-some odd Members of Congress who have shoe factories in their districts, and there are some other products that are affected, textiles, and steel, and others. Now, if we don't have some reasonable action on the part of these negotiators, and let `these people know just how far they can go, I am afraid your whole trade program will go down the drain. I would not want this to happen, but we keep appealing and appeal- ing to them to use judgment, and they are just sweeping `that aside, and they continue to glut the market with these shoes. It has been on a steady rise up since the trade bill was passed. Once the Kennedy round `took effect, then they came in here with a 73-per- cent increase in 1 month.. PAGENO="0376" 370 Certainly back in by home State, the shoe industry is the second or third highest employer in that State. We don't exj?ect to stand idly by. It won't be just one party support, it will be bipartisan support of quotas. What I am doing here is trying to appeal to you and also to appeal to the negotiators to get this story across to the foreign countries, that there is a saturation point, and once we reach that, watch out, because your whole trade program could go right down the drain. One of the items that hafls reached the saturation point is footwear. I also have complaints from the seafood people in my State, and the textile people. I am merely transmitting that to you because I know you are looking for this legislation and other legislation, but we are faced with some real problems. You take the shoe industry. What better industry is there for train- ing the untrained worker? With the Government spending billions of dollars trying to wipe out poverty, what better program could we establish here in this country than to go into the ghettos and train some of these young men and young women into this type of work, create jobs for them? These are things that we have to keep in mind. I would hope that we would get some honest answers here, and some good answers, about what is going to be done, because certainly we are not going to tolerate an average of 50-percent increase in imports month after month. I am not going to stand idly by and see the entire shoe industry of, Massachusetts wiped out, which according to this letter might take place within 4 or 5 years, if the imports continue that way. Ambassador Ro~ii. This is why, Mr. Congressman, I felt it impor- tant to know whether the concerns voiced in that letter can actually be based on fact, or not. It is not necessarily true that a sharp increase in imports in any particular month, or any particular period, is going to continue on up. You have great concern with this industry, and with other indus- tries that have problems. But yours is also a great exporting State. This Congress has the power to put quotas into effect in any area they wish. Their answer is, of course, that their own congresses have that right, as well. This is our basic concern, that we do not, looking to the future, get into a situation where the future growth in our exports, in agriculture as well as industry, is stopped. Ag'~in let me add that I think this study will be important, and on the basis of it, I hope that this matter can be directly discussed with the Congress again. Mr. BURKE. I don't want to bring up further the sectional problems that we have up here, because our good Secretary of the Interior has been helpful to New England, but we seem to have quotas on oil up there, and no quotas on shoes. What we need, we can't get, and what we don't need, we get plenty of. The CHAIRMAN. Mr. Byrnes. Mr. Byrnes has not yet completed his interrogation of Secretary Udall. Mr. BYRNES. I just have a couple questions, Mr. Secretary. PAGENO="0377" 371 On page 8 of your testimony you refer to the exemption in the administration of the oil quotas for overland shipment. What are you doing about the situation where they bring a ship in, unload it in bond onto a truck, drive the truck over into Mexico, and then import it overland, thus avoiding the quota? Are you familiar with that? Secretary TJDALL. Yes, I am very familiar with that, Congressman. It is one of those embarrassments that I inherited. I still have never been able to resolve it, as an issue. We did, if I may explain the rationale of it, at least the way we have always justified it. Since the oil import program was based entirely on national security considerations, and since national security considerations are also very compelling with regard to our neighbors, Canada and Mexico, the movement of petroleum overland from either of these countries, they being adjacent countries, is presumably and indeed is in the national interest, obviously, and therefore, after the program was put into effect, one of the first things that was done was to make an exemption for Canada and Mexico. That exemption still exists. At that time, in 1959, when the adminis- tnttion put the program into effect, there was a shipment of petroleum into Brownsville, Tex., but it came overland only indirectly, it was coming by tanker to Brownsville from Tampico and is, of course, Mexican-produced oil. When the overland exemption was put in, this gimmick was de- veloped to truck it over the border in bond2 and back, again as an overland movement. This legally complied with the regulations. It is rather ridiculous. At various times I have brought it up with my people, and we have taken it up, because over the years it has been singled out as something that was not a very businesslike way to run a program. But it represents a vested interest. It represents the only oil that comes in in this fashion, from Mexico. Mexico basically is an im- porter, as you know, themselves; and it involved a lot of special cir- cumstances with the result that we have never done anything about it. By agreement with Mexico, the quantity is limited to 30,000 barrels per day. It was not my idea in the first place. That is the only defense I have. I inherited it. We have preserved it. We have not enlarged it in the last seven and a half years, however. Mr. BYRNES. Is this a Mexican company that is doing this? Secretary TJDALL. It is U.S. companies. The oil is Mexican oiL It is a special arrangement. Mr. BYRNES. In other words, it is a loophole they have created. As far as you are concerned, it is all right? Secretary TJDALL. It is a legal loophole-there is no question about it, that it is a legal loophole-and we have allowed it to exist, because of the circumstances I have described. Mr. BYRNES. Because Mexico is involved? Secretary UDAIL. Yes; because Mexico is involved, and because of the vested interest~- Mr. BYRNES. Our national interest is not tied in with the amount of oil that is coming in in this way; is it? PAGENO="0378" 372 Secretary 1JDALL. Our national security is not tied up in the sense that this is a pipeline movement, which has the implications of national security, as anybody might believe it does have. Mr. BYRNES. I was trying to find out what the real interest was that we have as a nation in permitting thi,s f1outin~ of the fundamental restrictions by a gimmick that is apparent on its face. All you have to do is sa.y that we are not going to let it be unloaded in bond, I would think, for the purpose of then importing it through an exempt device. I don't know whether it should come in or not. That is not my point; but when I see these loopholes develop, I don't see why there is such reluctance to close them. We have had it in the dairy industry, under section 22 of the Agri- cultural Adjustment Act.. We just turn our back when these very intelligent, able people-and I am not criticizing them, I give them credit for being damn smart-find soñie ways of circumventing aim order. But when they do find a way to circumvent it, it seems `to me our best interest is to make people understand that when we have an order, we mean for it to be carried out. If they find some way to get around it, we will close that door. Secretary UDALL. `Congressman, of course, with any program of quotas, when you put the quotas into effect, whatever the time period is, there are always some odd situations, or there usually are. This is one of the few odd situations that involved Mexico. The Mexicans said, "Why don't you treat us the same way you are treating Canada?" Our reply, I suppose, should have been at that time, "Well, we are going to exempt overland movements; but this is not an overland movemeflt." But it was there. It was coming in, and this loophole was created in respect of vested interest. It has been there. It ha~ been operating for 10 years, now. It is a loophole. I can't deny that. Mr. BYRNES. L~t me come down to the quotas, and the way they are administered. This is not necessarily involved in. the legislation before us, but every barrel of the quota that is given to som~body is worth a~bout a dollar and a quarter a barrel; isn't it? Secretary UDALL. There is a value. It depends on the special cir- cum~tances. This is the figure that is usually used, yes, in District I-TV. Mr. BYRNES. Is there a. quarrel a'bout `that figure being materially inaccurate? Secretary TJDALL. No; but there are special circumstances that exist. I don't want to quarrel with you. I think `that is the figure that is commonly accepted; yes. Mr. BYRNES Why should we just give away a dollar and a quarter a barrel to people on a quota basis? rrhere is no formula for it, is there, in the law? You are recognizing what almost amounts to a quota by letting these people import whatever they can get. through during a 12- month period. That is really a quota that they have got:ten; isn't it? Secretary UDALL. You are talking about the Mexican loophole? PAGENO="0379" 373 Mr. BYRNES. Yes. Secretary TJDALL. Yes. Mr. BYRNES. So whoever gets that is getting about a dollar and a quarter a barrel. You say this is justified on the basis of a vested interest somewhere. What about these other quotas that are given out? Frankly, I have difficulty in understanding why we should not sell the quotas. Uncle Sam ought to get some of the $1.25, it seems to me. Secretary UDALL. Congressman, we are studying this very inten- sively, right at the present time. This was, I believe, mentioned in the President's budget message this year. Some in the Council of Economic Advisers and others in the White House, the Executive Office, have been advocating this for some time. My Department has taken a rather negative view about it. We are in the process of analyzing the possible sale of all or part of the oil import quota tickets. This is under active consideration. Mr. BYRNES. I understand an individual may not `have a refinery, but may have a historic quota. All he has to do is draw the check for the value of this quota that he turns over to somebody else. It goes through him. He just collects a dollar and a quarter a barrel. I don't get the point. Secretary UDALL. Let us look at it just a moment. Let us turn it around. At the time the oil import program, the quota, was instituted, these people at Brownsville-and all the other cumpanies, most of whom have the quota tickets today-they were bringing oil in. They were importing it. This is not something that we gave them. They were all bringing it in; `but we instituted a quota system, and we instituted formulas to decide who gets the quotas, and we passed the tickets out. It is not as though the Government suddenly came along and said to someone, "Look, we are going to give you a right to do something that you were not doing heretofore"; because when the program was put into effect, in 1959, we were importing substantial quantities of petroleum into this country at that time. This is the argument on the other side. There are two good argu- ments on. this question, as I see it. Mr. BYRNES. I am not quarreling with the proposition that our national security requires a limitation on the amount `of oil coming in. I am not quarreling with that, at all. But part of the reason for this value I assume is the limitation of the amount of imports that come in. When you put a quota on that has this kind of value, it just seems to me that there isn't any inherent right in perpetuity in any party to be able to have the enrichment. If imports came in, if there were no restrictions, no quotas, all the prices would fail, so there would not be this differential of a dollar and a quarter. Why should not Uncle Sam or somebody get the advantage of the fact that that price is held up, and that these people are getting this benefit? How much oil can you move by boat from Mexico to Brownsville, and then put in a truck and run over the line and back again? That PAGENO="0380" 3)74 is an open ended quota, depending how many ships can be used, and how many trucks can be unloaded. Secretary TJDALL. No, there is a limit on that; 30,000 barrels a day, as I recall. What they were bringing in in 1958 has remained the same. It is not open ended, not at Brownsville. Mr. BYRNES. But they come in under a proposition that has no limitation on it. Secretary UDALL. As a practical matter, they understand it is 30,000 barrels a day, and that is all. Mr. BYRNEs. Excuse me, Mr. Secretary. This is not a grievance I hare with you. It is whoever is Secretary of Interior. Some individual simply makes a decision that Mr. X can have this kind of windfall, and he enters into an understanding with them: "Don't bring in more than 30,000 barrels, otherwise, it is going to look bad." I don't think that is the way to run a country, or a railroad. Secretary TJDALL. When the program was put into effect, and they were importing 30,000 barrels a day, and are continuing to do it today, nothing was given to them-it was simply recognized that they could continue to do what they were doing. That is where the vice of the thing began. It is the only one of its kind, too, may I say. Mr. BYRNES. You have given it to people who have never been in the business. People have more than they were bringing in, people who were not bringing in any. Secretary UDALL. We have tried to have quotas for newcomers, for new refineries, for example, so that we just don't freeze in all the big companies, or all the old companies, so that there is a growth factor in it, and we tried to make the program responsive so that the small refineries get more. This is a sort of small business bias we have built in. We have built in a bias for newcomers, too; not a bias, but we let them into the pro- gram, so we simply are not freezing it with an existing group of com- panies that get the quota tickets, and that is all. Mr. BYRNES. I know it is being passed out as others come along, and they get a quota. Is there a formula for who gets what, when, and how much, or is this an administrative determination? Secretary UDALL. An administrative determination. Mr. BYRNES. With a valuation of approximately a dollar and a quarter a barrel. Secretary UDALL. It has that value. That is correct. It is like, if I might point out, if we ~Were to' decide this year, and put into effect next year, as we are studying seriously now, a program to sell part of the quota tickets, I think it is reasonable to assume that all or part of that would be passed on to the consumer, because of the essential economics. Mr. BYRNES. The essential economics? The essential economics is the overall suppTy. Here is a limited additional amount that comes in, which has a valuation, because it automatically moves up into the normal market. I assume that is the difference between the dollar and a quarter that comes in. So how does the consumer get that? PAGENO="0381" 375 Secretary TJDALL. The overall economics of the industry fixes the prices for wholesale and retail, and in the main there has been as much price stability in petroleum, generally, or more, perhaps, than in the economy generally. Mr. BYRNES. Do you know how many of these people that have these quotas really see the oil themselves because it is automatically sold? Secretary tTDALL. Generally you can't sell quota tickets. You either have to use the imported oil or exchange it for domestic oil. Mr. BYRNES. Do you know the volume of the quotas where the guy never sees the oil, but simply sells the ticket? Mr. SCHNEEBELI. Is there one individual who has a quota of 5,000 barrels a day, who operates in this fashion-he does not see the oil, he does nothing about it, and he capitalizes it by selling his quota? Is this correct? Secretary TJDALL. Yes. As a matter of fact, some of the inland refiners, refiners in places like Minnesota and Missouri, places like that, they can't import-some of them can by barging it, but we feel all refiners ought to participate in the program. Mr. SCHNEEBELI. Will you answer that question with regard to Brownsville? There is an individual, not a refiner, who operates on a basis of 5,000 barrels a day quota, who never sees the oil, never has anything to do with the transaction, he merely sells the quota? Secretary TJDALL. It is not correct as to Brownsville. Mr. SCHNEEBELI. In Texas? Secretary TJDALL. There are individuals who get quotas who do not see the import oil. They make trades. This is the way business is done in this industry. As to the one case you mention, it is based on a "grand- father" clause in the proclamation, preserving a nonrefiners importing history. Mr. BYRNES. That is all, Mr. Chairman. The CHAIRMAN. Mr. Curtis. Mr. CURTIS. Thank you, Mr. Chairman. I think the colloquy that has beei~ going on regarding oil quotas could go on in regard to any other imports, for example, sugar or coffee. It ought to spell out what happens when we go to a quota system of this nature. In a way, I am pleased to have the colloquy develop in this fashion. A quota is sort of like opium-it may be necessary to ease various pains, but it can become a habit, and a very dangerous one. Mr. Chairman, first I would like to call not only the attention of the Government officials we have here today, but others who might be in the audience, to the committee staff print, "Selected Provisions of Tariffs and Trade Laws of the Ijnited States and Related Materia],'~ published June 4, 1968. I think a very good job has been done by the staff. I am most anxious for witnesses who will be appearing in the future to refer to this docu- ment and criticize it where they feel the staff might have missed material that is important, or has interpreted or explained certain information incorrectly. I think it might be very helpful iii the future to refer to this document. PAGENO="0382" 376 Incidentally, on quotas, on page 253, they have a list of quantita tive import restrictions of the United States there I would like to be certain that this list is `ill inclusive In this material most of the statutes are linked to laws that affect imports Yet they are not collected together as nicely as the Steel Import Problem, published by the American Iron and Steel Institute in October 1967, has them listed beginning on page 43 I want to read these very quickly Section 801 of the Revenue Act of 1916 Countervailing duties, section 303 of the Tariff Act of 1930 Tariff adjustment and other adjustment assistance, sections 301, 302, of the Trade Expansion Act of 1962 Adjustments for cost differences, section 336 of th( Tariff Act of 1930. Orderly marketing agreements, sections 351 and 352 of the Trade Expansion Act of 1962 National security clause, section 232 of the 1962 Trade Expansion Act Unfair practices in import trade, section 337 of the Tariff Act of 1930 Section 73 of the Wilson Tariff Act Section 802 of the Revenue Act of 1916 Section 252 of the Trade Expansion Act of 1962 Preventing discriminatory practices, 1890 Anti-Discrimination Act. This last one I do not find listed in this compendium compiled by the Ways and Means staff Federal antitrust laws which include the Webb-Pomerene Act among others Treaties of friendship, commerce, and navigation I do not find some of these items of material in the staff document I would like for the purpose of the record here to read further Again, I am reading now from the publication of the American Iron and Steel Institute. After World War II the United States entered into treaties of friendship commeree and navigation with several countries which contained a provision that the countries that were s~gnatotry to the treaty would consult with one another upon request of one of the nations that the others were engaging in business practices which restrained competition limited access to markets caused monopolistic control or as the result of agreements among business enterprises had harmful effects on commeree between the two countries They are talking now a~bout the fact that the steel producing coun tries with which we have negotiated such treaties are Japan, Ger many, and Italy, and they go on to point out that these treaties provide the vehicle whereby our Government can consult with any of these nations with respect to the prescribed business practices I simply wanted to get this material in, because, as the hearings progress, I am hopeful that we will `be able to, before we are finished, have them complete, so any of the D~partments here represented can check these documents and criticize them, and add to them where they feel there needs to be additional material Now I have just one or two specifics I want to add my request to those of Mr Byrnes for updating the study of these nontariff tr~ide barriers, `md again appeal to the Department heads here to assist in PAGENO="0383" 377 getting these nontariff harriers, particularly our own, but also those abroad, fully spelled out. The Joint Economic Committee in 1961 published a compendium of trade restraints in the Western community, which was a beginning of the listing of nontariff barriers. What I want to point out is that many of these come under the guise of health measures. They can be legitimate health measures, hut they can be overextended. Some have to do with conservation and may be either justified or not justified. Pest control is another measure often taken. Subsidies have already been mentioned in many varieties. Purity and other kinds of standards are often used. Again, I think we want to have as many of these available as we can to get into this area in depth. We have a problem in the Congress in trying to bring to bear all of the various factors that affect international trade. I have identified 13 out of our 20 standing committees in the House that have important jurisdictional aspects that deal with interna- tional trade: (1) Banking `and Currency, which has jurisdiction over our various development banks, including the World Bank, the Inter-American Bank, Asiatic Bank, and others. (2) Agriculture, of course. (3) The Armed Services Committee, which has many of the defense programs abroad. Because they are called military programs they are often not identified in the economic field, and yet they are primarily economic. (4) Interior and Insular Affairs, which has to do with what Secre- tary Tjdall talks about. (5) Labor and Education becomes, in my judgment, Secretary Wirtz, one of the very difficult problems we have in trade. I would be most interested in having further information from your Department on the manner in which ILO and other international organizations deal with the problems of wage rates, wage conditions, child labor laws, et cetera, and how such conditions might be used as barriers to trade. (The following information was received by the committee:) THE INTERNATIONAL LABOUR ORGANISATION AND WORKING CONDITIONS In its almost 50 years of history the International Labour Organisation (ILO) has adopted 128 Conventions and 131 Recommendations related to establishing standards for minimum wages, hours, working conditions, safety and health, social security, and other social legislation including the right of workers to or- ganize and bargain collectively. These Conventions and Recommendations are adqpted at ILO conferences by votes of the Government, Employer and Worker delegate.s of the member countries (now 118). ILO instruments are not binding upon an individual member country until the country takes appropriate imple- menting action. However, reports on law and practice with respect to Conventions and Recommendations are required from all member countries. The ILO relies primarily on persuasion and the weight of public opinion as the means of achieving improvements. The Convention's and Recommendations are designed to achieve .social justice and to improve the condition's of workers throughout the world. Another major activity of the ILO influencing the development and promotion of improved conditions for workers is the collection, analysis, and dissemination of data re- lating to employment, wages, and working conditions throughout the world. The ILO also conducts a wide-ranging and comprehensive technical t~ooperation pro- gram for the same goals. PAGENO="0384" 378 Other international and United Nations' organizations are not active in setting standards in the labor area. Where some such activity might be taking place, the ILO generally sets the pattern and is looked to by these other organizations as the appropriate body to deal with the issues. We do not know of any cases where implementation of ILO Conventions and Recommendations have been used as a barrier to U.S. exports. Mr. CuRTIS. (6) Judiciary Committee, on patents, copyrights, and antitrust laws. (7) Interstate and Foreign Commerce. (8) Merchant Marine and Fisheries. (9) Of course, the various subcommittees of appropriations deal in these areas. (10) And Government Operations among other committees. Now, to Secretary Smith, first let me make this general observation. I thought the papers prepared by the witnesses were excellent and have gotten us off to a good start, so if I pick up something critical it is not because I don't appreciate the other data. On page 10, you report how the President is trying to increase the `amount of money that the Government spends abroad to promote ex~ ports. The thing that bothers me, Mr. Secretary, is that at the same time the administration, through your own Department, is restricting private investment abroad. I h'ave the impression that private money spent abroad does a much better job promoting exports than Government money. Would you care to comment? Secretary `SMITH. I think you can make a good argument that re- strictions on foreign investment over a reasonable period of time do not restrict exports of the country. I would not like to see restrictions on foreign investment last for- ever. In fact, we look forward to the day when we don't have them. But the recent figures on the bal'ance of payments have been such that we had to do something to get it back as promptly as possible, `to save a billion dollars in foreign investment. I don't think it is going to have much effect on foreign investment this year, or next year because of the large am'ount of the total invest- ment being financed `abroad. As you know we are controlling only new capital flows from the United States and reinvested earnings not borrowings abroad by U.S. firms. Mr. CuiiTls. Mr. Secretary, you have to put it in context. You are cutting back on the private sector, but you are not cutting back on the Government sector. You are increasing the Government sector in trying to promote exports. Secret'ary SMITH. That is right. There is a difference in that. Mr. `CURTIS. I know there is a difference. That is what I want to talk about. What is `the difference? What is the difference between using public money and using private money to encourage exports? I would argue `that concerning the balance of payments, the use of Government money tends to be more deleterious on the balance of pay- ments than the use o'f private money. Secretary SMITH. We are trying to' encourage people to export, and become interested in exports, and to tell them where the markets are, and to develop offices where they can get acquainted with people abroad. PAGENO="0385" 379 Mr. OtrRrls. Don't you think, Mr. Secretary, they can do that better with their own money I Secretary SMITH. Yes. I think the average corporation, such as the United States Steel Corp., is big enough, but this country has hundreds of thousands of small potential exporters, and they don't know foreign markets. Some of them have not been abroad in their life. They don't know what people abroad want. They don't know what people abroad will buy. We have become a clearing house to find places where American products can be sold abroad. That is our principal chore. Mr. CURTIS. In this area, you are not necessarily talking about large volume. I am very concerned about small business, too. We are talking about balance of payments. We are talking about increasing the amount of money that the Government spends abroad to increase exports in sufficient quantity to justify the expenditure. Then we must relate Government spending to what spending by the private sector would do to increase exports. Secretary SMITH. If you will read my `testimony this morning, you will find a specific figure in there. We believe we can prove that for every dollar we have spent in the trade promotion program, we have gotten $30 effect on the balance of payments plus. Mr. CURTIS. That is where I want to see the working papers, I might say. I have been trying for years to get some of the working papers of the AID, to try to find out where they get their tie-in figures. I `have tried, unsuccessfully, I might add. Secretary SMITH. We have no objection. We can't be accurate down to the dollar on a calculation like that, but we have no objection. Mr. CURTIS. Mr. Secretary, no one is asking for figures accurate to the dollar. This is the kind of response, I regret to say, I so often receive from Government witnesses. No one asked that. All I ask for is general figures. I still pose the question, because the Ways and Means Committee has gone into this problem of how to encourage our exports and how private investment relates to it. The question of whether Government money is spent as well in increasing exports as is pivate money, is an important question. Now, we can't pursue a subject of this importance here in any detail at this time. I hope that there will be more discussion of it in the future. I would hope that the Department of Commerce would prepare a paper on this matter, submit it to the committee, so that we can inter- rogate on the details that would then be in the record. Secretary SMITH. You are talking really about the money we `have spent for our trade program overseas, and how much we get back on that investment. We will be glad to give you a paper on it. (See p. 380.) Mr. CURTIS. I want to relate it, also, to private investment, because this administration has cut back on private investment, and increased public investment. Secretary SMITH. As a matter of fact, we have, put a restriction on authorization of private investment which really has had no great effect in the substantial amount of money that will be spent abroad. We will be glad to submit figures on that. Mr. CURTIS. I have been trying to get it for some time, Mr. Secretary. Secretary SMITH. You will get them next week. (See p. 380). 95-159 0-68-pt. i-25 PAGENO="0386" 380 Mr. CURTIS. I was disappointed when the Ways and Means Com- mittee early this year held hearings on the President's package of balance of payments, and we did not get into this kind of discussion, because, frankly, I think the Department of Commerce was acting illegally, ultra vires, in restricting private investment abroad. You have no authority to do it. You cite an act back in 1917, which in my judgment is very questionable authority for this kind of action. I want to get to the practical proposition of why the administration cuts back on private investment, and yet increases its own investment abroad, and in fact comes to Congress asking for further increases in the amount that the Government can invest abroad. Secretary SMITH. We are not making an investment abroad. We have a sales program to try to sell American products overseas. Mr. CURTIS. I know the Department of Commerce does. When I said the other, I refer, for example, to the request to increase the capitaliza- tion of the Inter-American Bank by a billion dollars, which was sub- mitted to the Congress by this administration. There is another request for authority to increase the capitalization of the Asiatic Bank. Now, I happen to favor these programs, generally, but I want to put them in context with private investment, where we are restrict- ing capital outflow. I want to see how Government programs fit into the overall balance of payments. Now, I am relating my immediate question to you in regard to this business of promoting exports. We have the same type of situation in a minor way on the travel tax. There was a request by the administration to increase the amount that the U.S. Travel Service was spending abroad to promote travel to the United States by foreigners. I asked the very obvious question: Why wouldn't money spent by the private sector to promote travel abroad-the private sector is al- ready spending a hundred million dollars-be better spent in increas- ing travel to the United States than having the Government do it? I got very few answers. But I am seeking the answers on this ques- tion as to why the Department of Commerce thinks it can do a better job in promoting exports than can the private sector. This is what I really want to know. Secretary SMITH. To answer you fully, I would have to write you a volume, but I will do the best I can to get you a report on it next week. (The information was received by the committee:) COMMERCE EXPORT PROMOTION ACPIVITIES-RELATJON TO PRIVATE EFFORTS AND MEASUREMENTS OF RESULTS * The export promotion programj~ of the Department of Commerce-part of the overall effort of the U.S. Government to increase exports-are of a varied nature. They include, for example, overseas, promotions, trade missions, informational services, workshops and seminars to help orient businessmen toward exports (carried out in cooperation with Regional Export Expansion Councils) and policy-oriented activities aimed at improving the international trading climate. In all of these activities, the Department's aim is to assist business-not to do for business what it can best do itself. In our international commercial informa- tion program, for example, the Department concentrates on providing data on foreign economies, foreign Government regulations, market statistics, lists of companies abroad, which business cannot develop as efficiently, leaving wide areas to private enterprise. PAGENO="0387" 381 The largest part of Commerce's current export promotion expenditures are for overseas promotion activities which are designed to assist businesathen in entering new markets through the technique of displaying their export goods at overseas exhibitions of several types. Commerce's role i~ that of: (1) arranging for or supplying the facility for such displays; (2) identifying those products and exhibitions with high potential for U.S. export goods; and (3) assisting in the identification of potential customers and sales representatives and attracting them to the display events. The actual sales and the signing up of agents to make future sales are carried out, of course, by the private firms. Commerce's role, thus, is that of a catalyst. Also, the firms participating in Commerce-sponsored promotion events overseas pay certain fees. They do not get a free ride at the taxpayer's expense. We share your concern about the U.S. Government spending money for what private firms can do themselves. We have found, however, that exporting is somewhat of a stepchild in the case of many U.S. firms. They are not export- minded and need encouragement to spend some of their marketing dollars on export sales. This encouragement is what we provide. I believe that an expansion of our activities to encourage exporting is necessary at this time to get firms not now exporting into export and to get many firms which are now exporting to increase their exports. With respect to measuring the results of export promotion activities, we naturally do this in order to set priorities for the use of our appropriations for those export promotion activities which produce the best results. It is not possible to quantify results of certain of our activities, such as informational programs, but we have kept careful records on our overseas promotions and are measuring their effectiveness. For the three major overseas promotions (Trade Center exhibitions, Trade and Industrial Exhibitions, and America WeekS displays) we find that each $1 of Commerce-expended funds results in about $15 of export sales. This is based on signed reports from participating firms and includes only sales and made at the exhibitions or clearly resulting from participation in the exhibitions, i.e., sales in the following year by agents appointed as a result of the exhibition. Also, since only about half of the Commerce expenditures are overseas, the ratio of expenditures to sales results on a balance-of-payments basis is about 30:1. The attached summary on the evaluation of our overseas export promotion activities provides data on these three major overseas promotion programs and the cost-effectiveness ratios we have derived for them. EVALUATION or DEPARTMENT OF COMMERCE MAJOR OVERSEAS EXPORT PROMOTION ACTIVITIES The Department of Commerce conducts several export promotion activities overseas which are designed to assist in introducing new exporters to foreign markets and present exporters to new markets. The principal programs are Trade Oenters and Trade and Industrial Exhibitions. In addition, the Department promotes the export sales of U. S.-produced consumer goods through America Week promotions in cooperation with foreign retailers. The effectiveness of these three activities can be measured by two related cost-effectiveness ratios based on operating experience. COST-EFFECTIVENESS RATIOS AND OTHER PROGRAM MEASURES The first ratio compares confirmed export sales reported by the exhibiting firms at the promotional events and show-related sales to the market in the 12-month period immediately thereafter in relation to the Commerce-appropriated costs of the activities. This cost-effectiveness ratio has averaged about 15 to 1, that is, $15 in export sales for every Commerce dollar spent on these programs. The second ratio compares the same export sales results of Commerce-sponsored export promotion activities in terms of the direct impact of related costs upon our balance of payments. Since only about 45 percent of the funds for these programs are spent overseas, the cost-effectiveness ratio on a balance-of-payments basis has averaged about 30 to 1. This means that $30 in export sales have resulted from every Commerce dollar spent overseas for these activities. Export sales data upon which these ratios are based are reported to the Department by the exhibiting U.S. firms at the end of each exhibition and 12 months thereafter in the case of those at Trade Centers and Trade and Industrial Exhibitions. Attached are copies of the forms used in reporting `the sales results. PAGENO="0388" 382 In the case of the America Week program, confirmed export sales include only the foreign retailers' initial purchase of U.S. goods for sale during those promotions. Other measures of program effectiveness are also available. Most important among these is the number of new sales representatives for U.S. products resulting from the promotional activities. The sales of these representatives are included in the 12-month confirmed sales data which provide the basis for the cost- effectiveness ratios. It should be noted, however, that additional export sales by these representatives continue on, an~l often increase, in subsequent years. These results, which cannot be measured easily, would raise the level of sales above that used in the present cost-effectiveness ratios. To improve further the scope of the present measure of program effectiveness, techniques are now being developed to measure some of the side effects of these promotional programs. For example, increases in exports of spare or replacement parts and product service follow the initial sales achieved through the exhibi- tions, but are not included in present program measurements. With respect to America Week promotions, the Department now asks participating foreign retailers to provide reports on additional sales in the first 12 months following these promotions in order to acquire data more comparable to that available for other programs. EVALUATION BY PROGRAM Trade and IndustrialPkthjbjtjo~js The program was initiated in Fiscal Year 1963. These exhibitions, generally known as U.S. Commercial Exhibitions, take place in established international trade fairs and, since March 1966, as solo exhibitions in particularly promising fliarkets where no suitable fair exists. Their primary purpose is to increase U.S. exports by assisting U.S. manufacturers in distributing and selling their products abroad. These exhibitions are aimed almost exclusively at trade audiences. A customer identification and market promotion campaign precedes each exhibition to assure that the market's best business prospects are attracted to the exhibition. Analysis of costs and results for Trade and Industrial Exhibitions shows a greatly increased cost-effectiveness ratio between Fiscal Years 1964 and 1966, when the ratio increased from 8 to 1 to 18 to 1. In 1967 further improvement was registered. Several factors are involved in this improvement: (1) in recent years careful research has been conducted to identify market opportunities of high potential; (2) intensive market promotion work was instituted during Fiscal Year 1966; and (3) costs have been reduced. TRADE AND INDUSTRIAL EXHIBITIONS-COSTS AND ACCOMPLISHMENTS, FISCAL YEAR 1964-67 Confirmed Number of Commerce sales Ratio of total Fiscal year exhibitions appropriated costs show and for 1 year after 1 confirmed sales to appropriated costs 1964 1965 1966 19672 12 13 22 20 $2,092 2,463 3,316 3,682 $16,491 16,188 43,368 51,566 8tol. 7tol. l3tol. l4to 1. 1 Confirmed sales are computed on the basis of sales reported by exhibitors in response to a followup survey made 1 year after close of exhibition. 2 Partial projection. Trade Centers U.S. Trade Centers provide permanent exhibition facilities in major corn- inercial areas abroad. Their purpose is to assist U.S. manufacturers in establish- ing and selling their products in these markets. The six Trade Centers now operating average seven to nine product exhibitions a year, with an average of 30 to 35 U.S. firms participating in each major show. B~tween these regular exhibitions, the Centers are used by individual firms, associations and other groups for a variety of promotional purposes, such as product demonstrations, window displays and sales conferences. These "between-shows" activities add significantly to the sales returns from the Centers. For example, in the table PAGENO="0389" 383 below between-show promotions accounted for over $14 million of the 1966 sales and $4.5 million of the 1967 sales. (Such figures are not available for 1964 and 1965.) TRADE CENTER COSTS AND ACCOMPLISHMENTS, FISCAL YEARS 1964-67 (Dollar amounts in thousandsj Fiscal year Number of trade centers Number of exhibitions Commerce- appropriated costs Confirmed sales at show and for 1 year after 1 Ratio of total Confirmed sales to appropriated costs 1964.... 1965 1966 19672 5 6 6 6 30 41 43 43 $1,796 1,826 2, 044 2,248 $30,532 33,951 58, 702 41,421 17 to 1. l9tol. 29 to 1. l8to 1. 1 Confirmed sales are computed on the basis of sales reported by exhibitors in response to a followup survey made 1 year after close of exhibition. 2 Partial projection. America Weeks The America Week program was launched in the spring of 1966. It is designed to promote the overseas sale of U.S. consumer goods. The Department provides assistance, primarily in the form of special exhibits, to foreign retailers staging promotions that feature these U.S. goods. Generally, a $100,000 minimum, initial purchase of U.S. goods is required of the foreign retailer as a condition of Com- merce participation. Export sales properly attributable to America Week promo- tions may be considerably larger than stated below because this data covers only the initial purchases of goods. New product lines successfully introduced through an America Week promotion will generate subsequent sales, usually exceeding initial purchases. AMERICA WEEK PROMOTIONS-COSTS AND ACCOMPLISHMENTS, FISCAL YEAR 1966-67 (Dollar amou nts in thousandsj Ratio of Number of Commerce- Initial initial Fiscal year promotions appropriated costs purchases purchases to appropriated costs 1966 1967 3 9 $110 243 $2, 500 2,700 23 to 1, 11 to 1. Ba~a4we-of-Payme~vt8 Ratios Since only part of the Commerce costs of these programs is spent overseas, the cost/effectiveness ratio relatives to direct impact on the balance of payments is much more favorable than the overall cost/effectiveness ratio. The table below shows overseas Commerce expenditures, sales and a composite ratio derived on a balance-of1payments basis for 1966 and 1967. The 1967 ratio is preliminary since it iS estimated on the basis of confirmed sales of 1966 program results. BALANCE-OF-PAYMENTS RATIOS FOR MA JOR PROGRAMS, FISCAL YEA RS 1966 AND 1967. Fiscal year 1966 1 Fiscal year 1967 2 Commerce Confirmed overseas sales expenditures Commerce Confirmed overseas sales expenditures Trade and industrial exhibitions Tradecenters America weeks Total $1, 497, 000 $43, 368, 000 1,147,000 58,702,000 9,000 2,500,000 $1, 768, 000 $51, 566, 000 1,020,000 41,421,000 7,000 2,700,000 2,653,000 104,570,000 2:795,000 95,687,000 1 Balance-of-payments ratio, 39 to 1. 2 Balance-of-payments ratio, 34 to 1. Preliminary partially projected. PAGENO="0390" Commerce Fiscal year Number of trade centers Number of exhibitions Number of exhibitors Total direct cost 1 appropriated funds 1964 1965 5 6 30 41 1 080 1 374 $1 885 000 1 943 000 $1 796 000 1 826 000 4 7 6 0 1966 1967 6 6 43 43 - 1,441 1 390 2,275,000 2 544 000 2,044,000 2 248 000 10.2 11 6 1 Total direct cost equals the sum of appropriated cost and industry contributions 1964 1965 1966 1967 12 13 22 20 403 538 970 964 $2,229 2,687 3,722 4,306 $2,092 2,463 3,316 3,682 6.1 8.3 12.1 14.5 384 Rek~tionship of Fees to Other Ea'hib~tson Costs Recognizing that firms should bear a share of the costs of the export promotion programs since they are direct beneficiaries Oomxnerce collects fees from partici pating firms (often referred to as industry contribuitions ) The following tables show the relationship of exhibitors fees in relation to exhibition costs for Trade Oenters and Trade and Industrial Exhibitions (These costs do not include expenses borne directly by exhibitors such as the cost of packing shipping and insuring the exhibits nor the expenses of providing sales representatives at exhibits) RELATIONSHIP OF FEES TO OTHER EXHIBITION COSTS-TRADE CENTERS Percent of industry con- tributions to total cost RELATIONSHIP OF FEES TO OTHER EXHIBITION COSTS-TRADE AND INDUSTRIAL EXHIBITIONS [Dollars in thousandsj Fiscal year Commerce Percent of Number of Number of Total direct appropriated industry con- exhibitions exhibitors cost 1 funds tributions to total cost 1 Total direct cost equals the sum of appropriated cost and industry contributions. NOTES 1. Report filled out by exhibitor at conclUsion of exhibit. 2 Followup report completed by exhibitor a year after the promotional event PAGENO="0391" 385 Inca Approve): i'uttoet Prtenu Nt'. ~ Ys* D N. 0 11, Comments, suggestions fpr Improvemear, of descrIption of ways in which exhibition helped pour export ac4yWes;snc~s,* Improved soles axxaitgemeots, leads fo;prodncts not shows', dc. (CooEin500nge,egue side Uute;essuj,) j~rsnIA.941A OLD °~!~ ~ 1. Name, dates and location of exhibition EXHIIIITOR'S REd'ORT This report is required is parnuance of the "Conditions of Par- ticipation". All information will be kept confideotial unions yor' authorize its release. If you are an Export Agent Combixoviort ~. Type of participation Export Manager, etc., please complete a sepsrs's espeet for each D Nec so ~ Newts 3 Old no ompany whose products you exhibited. exporting oaskrt market 3. Company name and address d, Products exhibited Yes N. o. Were any belag 1ntrodueedt~ i:i 0 the market? a it. Wasagent soogist for the infodildIx [1 C3 being introduced? 4. The compaay is: - ~j large (Nor terrrlt $1 artfllae at rest.) Small (N.e teoeth andre SI x,sllros) 6. Compaay ropeesratative(a) at nbc exhibition (II Suport Agesr, CEM. oto., 51cr ocx. cad .dder.. .1 erpear.stativo'. organS. Son) /. Sales (S US, P.0.5. US port of export) ~ a. Sales made at exhibition its Eutimato of addlnloaal sites durIng next 12 months that will result from year paetlcts potion Is .xhIbltl op. ` g5. Names and addresses of Agencien/Diatribstoeokips estabiisirttt as resofpaxdclpstlos it. Number of agencies or dlstributorshlpe still under negotietIonatExblbitiok'stiost Ps. Primary objective in participatixa (Cheek one ONLY) .kppoistment of Agent or Distjibanor ...xssa..nn.aa.a ( Selection of LIoexoee/~xixt Venture Partset ~ C] Exposure to New Bssiae5e Prospects oae..st.s.sn,,e 0 Product Testing/Market Reseatch ,..e.asr.o.oe.sann 2tnmediate~aies.' oanoe.oone..ne 0 Other .,...a......nasasrsr.nsassa eeaaease,~ obiectlve achieved? WesC] ~ PazttajIpj~ e. ?as exposure to newbusloess prospects autlsIac;o17? Yes 0 No 0 10. On the basis of yósr experience is this exhibition, would exhihitioaa suitable to pourprodact lines In other ixexjccts? ysurecoigses4chatyeugZltiRparglclpoSalnistoar000.nfcjs& 12. May we use this ioformatioa for publication? 0 Yes C] No 13. REPORT PREPAREDBY Sigaaturu title PAGENO="0392" 386 U.S. DEPARTMENT OF COMMEi~CE, BUREAU OF INTERNATIONAL COMMERCE, Wa$h~ngton D U Approximately a year ago your firm took part in an overseas Commercial Ex hibition sponsored by the Bureau of International Commerce We are now trying to determine the results of the exhibition, and would like to know if your busi- ness estimates made at the show's close have been fulfilled. A brief form is provided below, which contains the information you supplied approximately a year ago Please complete it Your information will be held in strict confidence by this group A copy of this inquiry is attached for your files Sincerely yours, JAMES E MURRIN Director Program Evaluation Group 1 Exhibition 2 Dates 3. Sales made at Exhibition: 4 Original estimate of sales resulting from show for 12 months following exhi bition close 5. Present estimate of sales in U.S. dollars resulting from show for the 12 months following exhibition s close $ 6. Number of agents or distributors appointed: 7 Primary ob)ective in participating (Check one only) Appointment of Agent or Distributor Selection of Licensee/Joint Venture Partner Exposure to New Businass Prospects Product Testing/Market Research Immediate Sales Other (specify) 8 Was primary objectis e achieved'? Yes No Partially - 9 Please estimate the sales that you expect during the next 12 months as a re sult of your participation $ Executives Name & Title EXPERIENCE TO DATE WITH THE 1968 INVESTMENTS UNDER THE MANDATORY INVESTMENTS RESTRAINT PROGRAM AND RELATION- SHIP OF THIS PROGRAM TO EXPORTS a The L968 direct investment picture The Office of Foreign Direct Investments (OFDI) which administers the mandatory investment restraint program instituted in January 1968 has received to date almost 900 applications for specific authorization The applications show planned foreign direct investments amounting to over $14 billion above the allow able amounts in the Regulations (excluding Canada) The Foreign Direct In vestments Program is designed to reduce new capital flows and reinvested earn ings by $1 billion in 1968 from the amount invested in 1967 in these two cate- gories. The third category available to the companies is to finance the projects represented by this $1.4 billion abroad directly, or indirectly through their subsidiaries To date all available reports show that companies have been and will be successful to a very large extent in financing abroad Thus we estimate that the total amount of funds going into U S investments abroad in 1968 from all sources should show an increase over 1967 b. Investment restraint program and e~rports Although it is generally recognized that there is a relationship between ex port trade and overseas investment, there is much less agreement as to the exact nature of this relationship and the impact of direct investments abroad on the U S balance of payments While it is clear that over the long run direct invest ments abroad are advantageom~ to the balance of payments there is disagree ment over the short run impact especially short run effects on trade There is reason to believe that some overseas investments drain away investments and exports from the United States, having a short-run adverse effect on our balance of iayments. Some observers,' however, maintain that the creation of over~ea~ investments not only directly increase exports but also produce indirect exports even within a few years and that although these cannot be measured adequately they are sufficiently large to produce a beneficial short run effect on the balance of payments The latter is the contention of a number of firms and also is the finding of a study prepared by the National Industnal Conference Board several PAGENO="0393" 387 years ago. Unfortunately, the available data on the investment-export relation- ship are far from complete and they do not provide conclusive answers to many of the questions needed to accurately determine the overall investment-export re1ation~hip. The mandatory investment restraint program administered `by OFDI is designed as a temporary program and is primarily aimed at arresting new capital outflows and reinvested ea'rnings and encouraging U.S. firms to make further use of funds available abroad in their investments overseas. In administering this program, every possible effort is being made not to inter- fere with the decisions of U.S. companies to invest abroad but to limit the effects of these decisions on the balance of payments over the near term. We are continu- ally reviewing the program and seeking ways to reduce any adverse effects which it may have on exports. Mr. CURTIs. Very good. Up to date `the administration has not shared with the Congress or the people its reasoning in this area. Now, the other point I would like to ask you, Mr. Secretary is this: You are advocating a tax increase. Is it not true that increasing taxes is going to further encourage imports, and also `be a deterren't to exports? Secretary SMITH. No. I think you can argue tha't ,b~oth ways. Cer- tainly I think we can make `a good `argument that the `tax bill will decrease imports. Mr. CURTIS. Increasing taxes to that point does become a deterrent to exports. I am not arguing how much, but it is a deterrent to exports, and is an encouragement ~o imports. Back in 1962, the Secretary of the Treasury `argued that by reducing taxes, we would encourage exports, and to a degree make ourselves more competitive on imports. Isn't this true? Secretary SMITH. To the extent that taxes `have gone in the cost of j)roduction, you increase the cost of producing the article that y~u export. On the other hand, one of our problems is that the purchasing power in the hands of our citizens is so high now that they have a great ability to purchase imports, which they would not have. Certainly it would be diminjshed with the passage of the tax bill. I would expect the imports to decrease after passage of the tax bill. Mr. CURTIS. What you are really saying is that our tremendous def- icits that lie behind inflation and that the inflation is a deterrent to exports and an encouragement to imports. On that I could uot agree with you more. There are two ways of overcoming a deficit.. One, and the preferable way, I would argue, is getting Federal expenditures down. The deficit in the balance of payments also adds to the national deficit which lies at the basis of our inflation. That is why I pointed out that using the tax increase has a detri- mental aspect that cutting expenditures does not have. This is why I raise the point. Secretary SMITH. I presume it will do both. Mr. CURTIS. The trouble is that we are getting nowhere on cutting expenditures. We have had the administration fight us every inch of the way. Secretary SMiTH. It has been decided. Mr. CURTIS. It has not been. PAGENO="0394" 388 I made a speech on the floor last night, pointing out that fiscal 1969 begins in 27 days. If we are going to do any cutting for the first month of fiscal 1969, we have to have our plans ready right now and know what they are. We have no plans. only 6 months of fiscal 1969 is under this administration. The other 6 months are under a succeeding administration. There has been no spelling out of line-item cuts. If these cuts are made in troops in Europe, or in foreign aid, then it has a bearing on what we are talking about here. I don't know where the cuts would be, but I think we need to know. If we make the line-item cuts of $6 billion or more in the domestic area, those also have an economic bearing. I am not trying to argue the tax increase, and the expenditure cut package, other than to relate it to the problem that we are here faced with-the fact that you mentioned the tax increase, but said nothing about expenditure cuts. Certainly we are still at a loss to know what the expenditure cuts might be. Secretary SMITH. I am rather certain now that the tax bill and the expenditure cut are going to be very closely joined together. Mr. CURTIs. It could be a complete sham, as far as this administra- tion is concerned. The administration could accept the $6 billion cut, and continue expenditure levels at the same rate they now are, in fact, could increase them, because only 6 months `of the fiscal year are under this administration. You can smile- Secretary SMITH. I don't think there is any intention of doing that. Mr. CURTIS. If there isn't why doesn't the President spell out where the cuts will be made? Let me tell you something. The President told us in August that he cut $4 billion out of the expenditure level for fiscal 1968, and when we examined it, we `found that far from a $4 billion cut, there was a net $7 billion increase. So if he cut $4 billion, he must have increased $11 billion elsewhere. So I don't think that you can smile at this, Mr. Secretary, and just say we can't expect this type of thing to happen again. I am saying that time has run out, and fiscal 1969 begins now in 26 days, and we still have no information from the Executive on where these cuts are going to occur. There has been no sitting down with the congressional leaders to figure out where these cuts are going to occur. Where these cuts are made has real economic import, and it is important to know where they will be. This is nothing to be cute about. Let me say this if you are going to cut in the month of July, you have to start doing it now. You can't just do it beginning July 1. It is probably already too late to cut back expenditures levels in July. So I am afraid this Congress, as well as this country, is being flim- fiammed. Yes, I question whether or not the President will really cut back on expenditures. Particularly when you come in today with your paper saying we need a tax increase, and say nothing about ex- penditure cuts. PAGENO="0395" 389 You don't say anything about expenditure cuts, do you, in the way of cutting back on our `international balance-of-payments deficit? Secretary SMITH. The tax increase and expenditure cut go along with each other. I think that would be the result. Mr. CURTIS. You say that, in spite of the fact we went through this bloodletting on `the floor of the House last week as to whether it will be $4 or $6 billion, and the administration fought the spending cuts/ tax surcharge package when it Was put on as an amendment in the Senate? How can you say you accept it? Secretary SMITH. I am convinced if you decree a $6-billion cut, you will get a $6-billion cut. Mr. CURTIS. You have more faith than I do. I have had a little more experience with this administration. Secretary SMITH. I am sure of that. Mr. CURTIS. Regretably. So have the people of this country. I suspect, in the light o.f your answer, and what I have heard from the administration, there is only one date to look to, and that is No- vem'ber. That is when we will get a change in fiscal policy, and hope- fully that is when we might get a change in trade policy as well. I find in this business of your wanting Government to spend more money abroad, in contrast with cutting back on private money that this is not the kind of action that in my judgment is going to increase exports or to liberalize international trade. I will make one other general observation for further comment. I have been doing some writing and talking on this subject, particu- larly in the last ~ years. What I have been trying to say, if anything, is: do we really mean trade, not aid? Because if we do, we had better start facing up to the hard reality of what that expression means. I am not sure that the administration policies are such that we do mean trade, not aid, when I see this continued increase in govern-, mental expenditures, both in the so-called investment area, if you call these soft loans investments, as well as in the area you talk about of export promotion. I hope that witnesses from the general public, private witnesses, when they testify, will be prepared to discuss this to some degree. Yet it is difficult to ask a specific industry to have this broad outlook on trade matters when our governmental officials are not putting it into this kind of context. None of the papers here has discussed what I think is one of our most crucial problems: do we mean trade, not aid? How do we fit in trade with less developed countries? This is some- thing that the GATT, the Kennedy round of negotiations, attempted to move iiito, but we barely touched upon it. It does involve heavily the problems in agriculture, but I would say also in Secretary Udall's area of raw materials. I merely pose the question, hoping that there will be something forthcoming from the administration.' Maybe the Secretary of State will have something to say on this very important problem of trade in relation to aid. Ambassador ROTH. Congressman Curtis, I think the committee should enter into a discussion of the problem of developing countries. We made a start in the Kennedy round. We didn't go far enough. PAGENO="0396" 390 Within our total study, we will look into the developing country problem, which is worsening. Also the whole problem of generalized preferences to developing countries is under study in the OECD and TJNCTAD. I would suggest that on Thursday, when Secretary Rusk will be here, we can perhaps at that time, after his statement, go into some depth on this. Mr. CURTIS. Yes. Ambassador ROTH. I would like to go back, however---- Mr. CURTIS. Before you go back, I would like to relate this to the Secretary of Commerce. In export promotion you run into this very problem we are talking about in LDC's-now do we promote this kind of trade'? It does mean that they are going to export goods to us, or at least somewhere, if they are going to be able to buy our exports from us. I think we need some better mechanism for synthesizing these prob- lems that become proliferated into different departments and in the Congress. Ambassador RoTh. This is one of the things I want to go back to, in terms of what you earlier said. In one of the areas of study, the increasing concern, for instance, relates to the relationship between fiscal policy and trade policy, the relationship between investment policy and trade. As we get along in our own study, we have to be increasingly concerned about such things. You mentioned that compilation of Federal laws, which is a useful document. You do read the items in the American Steel Institute re- port. It is my understanding that those are Federal laws. Mr. CURTIS. Yes. Ambassador ROTH. I would hope that this committee would concern itself with something that has become increasingly a concern to us, and that is the possible proliferation of restrictive State laws. One of them is new before the Legislature of Massachusetts. Among other industries, it deals with the steel as well as the glass industry. Mr. CURTIS. You mean the State "Buy America" Act? Ambassador ROTH. Yes. This, in terms of nontariff barriers, could be one of the most serious, if it got out of hand. There could be an increasing proliferation of them, and I think the committee., as well as the Federal Government should perhaps consider the implication of these laws. Mr. CURTIS. I also hope that we look to the "Buy British," the "Buy French," and other such laws, because these restrictions in other coun- tries almost put us to shame, I think, in the "buy domestic" regulations. Ambassador ROTh. Only to the extent that they are better at it. Mr. CURTIS. That is my point. Again, as Mr. Byrnes said, we have a tendency, I regret to say, of talking about our sins, and without putting it into context. Regret- ably :this is what other nations do, too, and in one sense we probably don't do as much of it. I do have one other question that I want to direct to Secretary Wirtz. It goes back to when ~ve put these trade adjustment features into the law. I worried at that time about putting something in the law saying that if we could prove a person became unemployed as a re- sult of imports, we did something special for him, and we made a dis- PAGENO="0397" 391 tinction between his unemployment and someone who is unemployed for another reason whatever it might be. I would think that our unemployment insurance, our Manpower Development and Training Act, these general laws that are supposed to be hitting at the problems of unemployment, would be the way to take care of any unemployment that is created as a result of imports, rather than trying to do something special Do you have any reason, Mr. Secretary, why you think it is neces- sary for us to treat unemployment which results from imports diff- erently than we treat unemployment for another reason? Secretary WIRTZ. I have nothing to add to the record of 6 years ago. Mr. CUiiTIs. Well, we have had some experience since then. Secretary WIRTZ. We have had no experience. Twenty-five applica- tions have all been turned down, every single one of them. Mr. CURTIS. That is what I mean. We have had that experience. Now, in the light of that experience, was it because we didn't treat the prob- lem of unemployment resulting from imports correctly or was it be- cause there wasn't any reason to treat the problems differently because they were being adequately taken care of under unemployment insur- ance and the Manpower Development and Training Act? Secretary WIRTZ. It is my judgment because we put the wrong words in the statute, and create~I an impossible burden of proof. Mr. CURTIS. In other words, what you are saying is that you do think that in light of experience there is a reason why we should treat unemployment resulting from imports in a different way than we treat unemployment that is caused by other reasons? Secretary WIRTZ. I think the provision in the law is correct in that respect. Mr. CURTIS. Could you explain why you think there is a special problem in unemployment that results from imports, as opposed to unemployment resulting from other causes? Secretary WIRTZ. I only note, Mr. Curtis, that we went around and around on that, 6 years ago, I don't believe I have a word to add to it.. With due respect to the committee, and the recognition of the in- advisability of repeating it, I don't believe that argument has changed a bit.. Mr. CURTIS. This committee is a different committee in membership from 6 years ago. This is a different Congress. It is hard for me to believe that the administration stands pat. on what it did 6 years ago. I can believe it, though. Mr. FULTON (presiding). Mr. Battin. Mr. BATTIN. Mr. Smith, in your statement, on page 2, you say, and Iquote: In the area of consumer goods, other than automobiles, the total value of exports has grown from $1.4 billion in 1960 to $2.1 billion in 1967, an increase of about 50 percent. In arriving at that figure, are we talking about constant dollars, 01 is this an adjustment figure? Secretary SMITH. That is the dollar in whatever year. There is no adjustment of dollar value. Mr. BATTIN. To get a true picture of the constant dollar, this fig- ure would have to be adjusted? PAGENO="0398" 392 Secretary SMITH. That is correct. Mr. BATTIN. Ambassador Roth, I think you shocked me the last time you were here before the committee by telling me that the United States was not a member of GATT. That really did give me quite a shock, because that is all we have talked about in trade associations for a long time. That situation still exists, does it not? We are not a member of GATT? Ambassador ROTH. As you know, it is an agreement we have signed by Executive action pursuant to legislative authority in section 350 of the Tariff Act-the Trade Agreements Act. Mr. BATTIN. It has not been ratified? Ambassador ROTH. It has not been ratified by the Congress. We have been a part of it by Executive action, pursuant to previous legislative authority. This, if I may say, relates in part to the pro- vision thwt is in the trade bill. The appropriation for GATT each year has been a part of a catchall appropriation which the State Department administers and which includes a number of other con- tributions. This is why, at this point, after 20 years of effective working with GATT, we felt it appropriate to bring this out, so that it could be seen. Mr. BATTI1N. Is there any reason why there has never been any at- tempt to have it ratified as a treaty by the U.S. Senate? Mr. REHM. I think it has been the position of the administration now for some 20 years that this is a valid Executive agreement, as Ambassador Roth was saying, pursuant to statutory authorization. Specifically, section 350 of the Tariff Act of 1930, which is the prede- cessor of the Trade Expansion Act of 1962. I think normally, in the case of such an executive agreement, it is felt to be unnecessary to present it to the Senate for its advice and consent. Mr. BATTIN. It seems rather strange. The last time you were be- fore the committee, we talked about the final details of the provisions of the Kennedy round, which relate to agricultural products, had to be worked out by committee. Have all the details of that been worked out? Ambassador ROTH. Yes. I was referring specifically to the Inter- national Grains Arrangement. The details of the various parts, in~ eluding the multilateral food aid package, have been worked out in the form of a treaty. Therefore, we have submitted it to the Senate, to the Foreign Relations Committee. It has been considered in a subcommittee, and we are hoping for action by the full committee in the immediate future. Mr. BATTIN. This, as I recall, deals with wheat, basically, the Inter- national Wheat Agreement. Ambassador ROTH. That is right. Mr. BATPIN. I think Under Secretary Schnittker testified on be- half of the treaty, that it conceivably could result in a loss of a market of approximately 200 million bushels of wheat that the United States formerly sold abroad. Do you know anything about that? PAGENO="0399" 393 Ambassador ROTH. It is not our feeling that this will mean any loss in U.S. sales of wheat. The price is higher than under the old agreement but nevertheless sufficiently low that we would hope, given a rise in agricultural cost, that for the most part the world price would float over the minimum price. The important thing about the agreement, though, as it relates to our trade, is that a consultant mechanism among the exporters and importers comes into effect as the price goes down toward the minimum. It is the obligation of all the exporters to see that that price re- mains up. If, however, the price of a wheat which is competitive with ours comes down, in spite of consultation, then we would have the right to break the minimum. In other words, the agreement is flexible enough that we can fully maintain our competitive position. The other part of the agreement, you will remember, provides that approximately four and a half million tons will be given as food aid on a multilateral basis. We feel this is important, because this is the first time we have been able to get other producers, and importers, too, to assist us in the food aid; in addition, speaking quite frankly, this takes that amount. of wheat off the market. Mr. BATTIN. Is it possible to furnish the committee-I haven't seen a copy of the treaty-the proposed treaty? I would like to look it over to see if there are any further questions, so that either now or in executive session I can go into it with you in perhaps more detail. Ambassador ROTH. We will get this to you tomorrow. Then, on Thursday, Secretary Freeman will be here, and I am sure he would like to expand on it. (The following information was received by the committee:) PAGENO="0400" 394 INTERNATIONAL GRAINS ARRANGEMENT, 1967 PREAMBLI~ The signatories to this Arrangement, Considering that the International Wheat Agreement of 1949 was revised, renewed or extended in 1953, 1956, 1959, 1962, 1965, 1966 and 1967, Considei~ng that the substantive economic provisions of the International Wheat Agreement of 1962 expired on 31 July 1967, that the administrative provisions of the same Agreement expire on 31 July 1968 or on an earlier date to be decided by the Inter national Wheat Council and that it is desirable to conclude an Arrangement for a new period, Considering that the Governments of Argentina, Australia, Canada, Denmark, Finland, Japan, Norway, Sweden, Switzer- land, the United Kingdom, the United States of America and the European Economic Community and its Member States agreed on 30 June 1961 to negotiate an Arrangement on Grains, on as wide a basis as possible, that would contain provisions on wheat trade and food aid, to work diligently for the early conclusion of the negotiation and upon completion of the negotiation to seek ac~ ceptance of the Arrangment m conformity with their constitu tional and institutional procedures as rapidly as possible Considering that these Governments and the European Eco- nomic Community and its Member States, in accordance with these prior mutual comnutme~its, shall w~n both the Wheat Trade Convention and the Food Aid Convention and that other Gov- ernments should have the possibility of joining either one of the Conventions or of )oming both Conventions, Have agreed that this International Grains Arrangement 1967 shall consist of two legal instruments, on the one hand a Wheat Trade Con vention, and on the other hand a Food Aid Convention, and that each of these two Conventions, or either of them as appropriate, shall be submitted for signature and ratification, acceptance or approval in conformity with their respective constitutional or institutional pro cedures, by the Governments concerned and the European Economic Community and its Member States PAGENO="0401" 395 Wheat Trade Convention PART I-GENERAL ARTICLE 1 Objectives The objectives of this Convention are: (a) To assure supplies Of wheat and wheat flour to importing countries and markets for wheat and wheat flour to exporting countries at equitable and stable prices; (b) To promote the expansion of the international trade in wheat and wheat flour and to secure the freest possible flow of this trade in the interests of both exporting and importing coun- tries, and thus contribute to the development of countries, the economies of which depend on commercial sales of wheat; and (c) In general to further international co-operation in connec- tion with world wheat problems, recognizing the relationship of the trade in wheat to the economic stability of markets for other agricultural products. ARTICLE 2 U Definitions (1) For the purposes of this Convention: U (a) "Balance of commitment" means the amount of wheat which an exporting country* is obliged to make available at not greater than the maximum price under Article 5, that . is, the amount by which its datum quantity, with respect to importing countries exceeds the actual ,commercial purchases from it by those countries in the, crop year at the relevant time; U . (b) "Balance of entitlement" means the amount of wheat which an importing country is entitled to. purchase at not greater than the maximum Uprice'under Article 5, that is,' the amount by which its datum quantity with respect'to the exporting country or coun- tries concerned, as the context requires," exceeds `its actual corn- mercial purchases from those' countries in' the crop year at the U, relevant time U U U (c). "Bushel" means `in" the case of `wheat sixty pounds avoir- dupois or T.2155 kilogra~mmes';" `` ` ` `` (d) "Carrying: charges" `i~ans the costs incurred for storage, interest and insurance in holding wheat;, ` (e) "Certified seed w'heat" .mean's'wh~at which has been U offi- cially certified according to the custOm of the country, of origin `and which conforms to recognized specification standards for seed wheat in that country; (f) "c. & f." means `cost and freight; (g) "Council" means the International Wheat Council estab- lished by the International Wheat Agreement, 1949 `and continued in being by Article 25; (h) ~~Country'~ includes the European Economic Community; (i) "Orop year" means the period from, 1 July to 30 June; (j) "I~atum quantity" means 95-159 0-68-pt. 1-26 PAGENO="0402" , 396 ( i) In the case of an exporting country the average an- nual commercial purchases from that country by importing countries as established under Article 15, (ii) In the case of an importing country the average an nual commercial purchases from exporting countries or from a particular exporting country, as the context requires, as established under Article 15; and includes, where applicable, any `tdjustment m'ide under paragraph (1) of Article 15, (k) "Denatured wheat" means ~ heat ~i hich has been denatured so as to render it unfit for human consumption, (1) "Executive Committee" means the Committee established under Article 30, (m) "Exporting country" means, as the context requires, either (i) the Government of a country listed in Annex A which has ratified, accepted, approved or acceded to this Conven tion and has not withdrawn therefrom, or (ii) that country itself and the territories in respect of which the rights and obligations of its Government under this Convention apply; (n) "f a q "means fair average quality, (o) "f.o.b." means free on board; (p) "Grains" means wheat, rye, barley, oats, maize and sor ghum; (q) "Importing country" means, as the context requires, either (i) the Government of a country listed in Annex B which has ratified, accepted, approved or acceded to this Conven tion and has not withdrawn therefrom, or (ii) that country itself and the territories in respect of which the rights and obligations of its Government under this Convention apply, (r) "Marketing costs" means all usual charges incurred in marketing, chartering and forwarding, (s) "Maximum price" means the maximum prices specified in or determined under Article 6 or or one of those prices, as the context requires, (t) "Maximum price declaration" means a declaration made in accordance with Article 9, (u) "Member country" means: (i) the Government of a country which has ratified, ac cepted, approved or acceded to this Convention and has not withdrawn therefrom, or (ii) that country itself and the territories in respect of which the rights and obligations of its Government undei this Convention apply, (v) "Metric ton", or 1,000 kilogrammes, means in the case of wheat 36 74371 bushels, (w) "Minimum price" means the minimum prices specified in or determined under Article 6 or `1 or one of those prices, as the context rectuires, (x) "Price range" means prices between the minimum `tnd maximum prices specified in or determined under Article 6 or 7 including the minimum prices but excluding the maximum prices, PAGENO="0403" 397 (y) "Prices Review Committee" means the Committee estab- lis1~ed under Article 31; (z) (i) "Purchase" means a purchase for import of wheat ex- ported or to be exported from an exporting country or from other than an exporting country, as the case may be, or the quantity of such wheat so purchased, as the context requires; (ii) "Sale" means a sale for export of wheat imported or to be imported by an importing country or by other than an importing country, as the case may be, or the quantity of such wheat so sold, as the context requires; (iii) Where reference is made in this Convention to a purchase or sale, it shall be understood to refer not only to purchases or sales concluded between the Governments concerned but also to purchases or sales concluded between private traders and to pur- chases or sales concluded between a private trader and the (xOV- ernment concerned. In this definition "Government" shall be deemed to include the Government of any territory in respect of which the rights and obligations of any Government ratifying, accepting, approving or acceding to this Convention apply under Article 42; (aa) "Sub-Committee on Prices" means the Sub-Committee established under Article 31; (bb) "Territory" in relation to an exporting or importing country includes any territory in respect of which the rights and obligations under this Convention of the Government of that country apply under Article 42; (cc) "Wheat" includes wheat grain of any description, class, type, grade or quality and, except in Article 6 or where the con- text otherwise requires, wheat flour. (2) All calculations of the wheat equivalent of purchases of wheat flour shall be made on the basis of the rate of extraction indicated by the contract between the buyer and the seller. If no such rate is indi- cated, seventy-two units by weight of wheat flour shall, for the purpose of such calculations, be deemed to be equivalent to one hundred units by weight of wheat grain unless the Council decides otherwise. ARTICLE 3 Com'nwrcial pv.~rcha8es and special transactions (1) A commercial purchase for the purposes of this Convention is a purchase as defined in Article 2 which conforms to the usual com- mercial practices in international trade and which does not include those transactions referred to in paragraph (2) of this Article. (2) A special transaction for the purposes of this Convention is one which, whether or not within the price range, includes features intro- duced by the Government of a country concerned which do not con- form with usual commercial practices. Special transactions include the following: (a) Sales on credit in which, as a result of government inter- vention, the interest rate, period of payment, or other related terms do not conform with the commercial rates, periods or terms prevailing in the world market; PAGENO="0404" 398 (b) Sales in which the funds for the purchase of wheat are obtained under a loan from the Government of the exporting country tied to the purchase of wheat; (c) Sales for currency of the importing country which is not transferable or convertible into currency or goods for use in the exporting country; (d) Sales under trade agreements with special payments ar- rangements which include clearing accounts for settling credit balances bilaterally through the exchange of goods, except where the exporting country and the importing country concerned agree that the sale shall be regarded as commercial; (e) Barter transa~tions (i) which result from the intervention of governments where wheat is exchanged at other than prevailing world prices, or (ii) which involve sponsorship under a government pur- chase programme, except where the purchase of wheat results from a barter transaction in which the country of final desti- nation was not named in the original barter contract; (f) A gift of wheat or a purchase of wheat out of a monetary grant by the exporting country made for that specific purpose; (g) Any other categories of transactions that include features introduced by the Government of a country concerned which do not conform with usual commercial practices, as the Council may prescribe. (3) Any q~uestion raised by the Executive Secretary or by any exporting or importing country as to whether a transaction is a com- mercial purchase as defined in paragraph (1) of this Article or a special transaction as defined in paragraph (2) of this Article shall be decided by the Council. PART IT-COMMERcIAL ART[OLE 4 ConvnierciaZ p'wrclla8e8 and supply com~mitments (1) Each member country when exporting wheat undertakes to do so at prices consistent with the price range. (2) Each member country importing wheat undertakes that the maximum possible share of its total commercial purchases of wheat in any crop year shail be purchased from member countries, except as provided in paragraph (4) below. This share shall be not less than a percentage established by the Council in agreement with the country concerned. (3) Exporting countries undertake, in `association with one another, that wheat from their countries shall `be maclie available for purchase by importin~ countries in `any crop year at prices consistent with the price range in quantities sufficient to satisfy on a regular and con- tinuous basis the commercial requirements `of those countries subject to the other provisions of this Convention. (4) Under extraordinary circumstances a member country may be granted by `the Council partial exemption from the commitment con- th.m~d in p'~ragraph (2) of this Article upon submission of satisfactory supporting evidence to the Council. PAGENO="0405" 399 (5) Each member country when importing wheat from non-member countries undertakes to do so at prices consistent with the price range. (6) Prices shall be regarded asconsistent with the price range when wheat is being made available or when sales and purchases an~ taking place: (a) at or above the maximum prices provided for in Article 6 when such `actions are not in conflict with the provisions of Articles 5,9 and 10, or (b) at prices consistent with the minimum prices provided for in Article 6 or with the provisions concerning the role of minimum prices as set out in ArticleS. ARTICLE 5 Purchases at the maximlurn, price (1) If the Council makes a maximum price declaration in respect of an exporting country, that country shall make `available for purchase by importing countries at not greater than the maximum price its balance of commitment towards those countries to the extent that the balance of entitlement of `any importing country with respect to all exporting countries is not exceeded. (2) If the Council makes `a.maximum price declaration in respect of all exporting countries, each importing country shall be entitled, while the declaration is in effect, (a) to purchase from exporting countries at. prices not greater than the maximum price its balance of entitlement with respect to `all exporting countries; and (b) to purchase wheut from any source without being regarded as committing any breach of paragraph (2) of Article 4. (3) If the Council makes a maximum price declaration in respect of one or more exporting countries, but not all of them, each import- ing country shall be entitled while the declaration is in effect. (a) to make purchases under paragraph (1) of this Article from such one or more exporting countries and to purchase the balance of its commercial requirements within the price range from the other exporting cotintries, and (b) to purchase wheat from any source without being regarded as committing any breach of paragraph (2) of Article 4 to the extent of its balance of entitlement with respect to such one or more exporting countries as at the effective date of the declara- tion, provided such balance is not larger than its balance of entitlement with respect to all exporting countries. (4) Purchases by any importing country from an exporting coun- try in excess of the balance of entitlement of that importing country with respect to~ all exporting countries shall not reduce the obligation of that exporting country under this Article. Any wheat purchased from an importing country by a second importing country which originated during that crop year from an exporting country shall be deemed to have been purchased from that exporting country by the second importing country provided the balance of entitlement of the second importing country with respect to all exporting countries is not thereby exceeded. Subject to the provisions of Article 19, the preceding sentence shall apply to wheat flour only if the wheat, flour originated from the exporting country concerned. PAGENO="0406" (5) Tn determining whether it has fulfilled its required percentage under paragraph (2) of Article 4, purchases made by any importing country while a maximum price declaration is in effect, subject to the hmit'~tions in p'tiagr'tphs (2) (b) and (3) (b) of this Article, (a) shall be taken into account if those purchases were made from any member country, including an exportmg country in respect of which the declaration w'ts made, and (b) shall be entirely disregarded if those purchases were made from a non member country (6) Wheat made available in accordance with the provisions of this Article shall so far as practicable be of types and qualities that would enable the trade in that crop year between the two countries to con- form to the usual pattern Arrangements to give effect to this should be agreed upon as necessary between the countries concerned ARTICLE 6 Prices of wheat (1) The Schedule of minimum and maximum prices, basis fo b Gulf ports, is established for the duration of this Convention as follows: (U.S. dollars per bushell Minimum price Maximum price tanada Manitoba No 1 1 953/i 2 35~ Manitoba No. 3 1. 90 2. 30 United States of America Dark Northern Spring No 114 percent 1 83 2 23 Hard Red Winter No 2 (ordinary) 1 73 2 13 Western White No. 1 1.68 2. 08 Soft Red Winter No 1 1 60 2 00 Argentina Plate 1 73 2 13 Australia Fair average quality 1 68 2 08 European Economic Community Standard 1 50 1 90 Sweden 1.50 1.90 Greece 1.50 1.90 Spain: Fine wheat 1.60 2. 00 Common wheat 1 50 1 90 (2) The minimum prices and maximum prices for the specified Canadian and US wheats, fo b Pacific north west ports shall be 6 cents less than the prices m paragraph (1) of this Article (3) The minimum and maximum prices for Mexican wheat on s~mp1e or description fo b Mexican Pacific ports or at the Mexican border, whichever is applicable, shall be US dollars 1 55 and 1 95 per bushel respectively (4) The minimum prices under this Article may be `idjusted in accordance with the provisions of Articles 8 and 31 (5) The minimum price and maximum price for f a q Australian wheat f o b Australian ports shall be 5 cents below the price eqmva lent to the c and f price in United Kingdom ports of the minimum price and maximum price for US Hard Red Winter No 2 (ordin'try) wheat f o b Gulf ports, specified in paragraph (1) of this Article, computed by using currently prevailing transportation costs (6) The minimum prices and maximum prices for Argentine wheat f o b Argentine ports, for destinations borderrng the Pacific and 400 PAGENO="0407" 401 Indian Oceans shall be the prices equivalent to the c. and f. prices in. Yokohama of the minimum prices and maximum prices for US Hard Red Winter No. 2 (ordinary) wheat f.o.b. Pacific north-west ports, specified in paragraph (2) of this Article, computed by using cur- rently prevailing transportation costs. (7) The minimum prices and maximum prices for the specified US wheats, f.o.b. US Atlantic, Great Lakes and Canadian St. Lawrence ports, the specified Canadian wheats, f.o.b. Fort William/Port Arthur, St. Lawrence ports, Atlantic ports and Port Churchill Argentine wheat, f.o.b. Argentine ports, for destinations other than those specified in paragraph (6) of this Article, shall be the prices equivalent to the c. and f. prices in Antwerp/Rotter- dam of the minimum prices and maximum prices specified in para- graph (1) of this Article computed by using currently prevailing transportation costs. (8) The minimum prices and maximum prices for the European Economic Community standard wheat shall be the prices equivalent to the c. and f. price in the country of destination, or the c. and f. price at an appropriate port for delivery to the country of destination, of the minimum prices and maximum prices for US Hard Red Winter No. 2 (ordinary) wheat f.o.b. United States, specified in paragraphs (1) and (2) of this Article, computed by using currently prevailing trans- portation costs and by applying the price adjustments corresponding to the agreed quality differences set forth in the scale of equivalents. (9) The minimum prices and maximum prices for Swedish wheat shall be the prices equivalent to the c. and f. price in the country of destination, or the c. and f. price at an appropriate port for delivery to the country of destination, of the minimum prices and maximum prices for US Hard Red Wmter No. 2 (ordinary) wheat f.o.b. United States, specified in paragraphs (1) and (2) of this Article, computed by using currently prevailing transportation costs and by applying the price adjustments corresponding to the agreed quality differences set forth in the scale of equivalents. (10) The minimum prices and maximum prices for Greek wheat shall be the prices equivalent to the c. and f. price in the country of destination, or the c. and f. price at an appropriate port for delivery to the country of destination, of the minimum prices and maximum prices for US Hard Red Winter No. 2 (ordinary) wheat f.o.b. United States, specified in paragraphs (1) and (2) of this Article, computed by using currently prevailing transportation costs and by applying the price adjustments corresponding to the agreed quality differences set forth in the scale of equivalents. (~1) The minimum prices and maximum prices for Spanish wheat shall be the prices equivalent to the c. and f. price in the country of destination, or the c. and f. price at an appropriate port for delivery to the country of destination of the minimum prices and maximum prices for US Hard Red Winter No. 2 (ordinary) wheat f.o.b. United States, specified in paragraphs (1) and (2) of this Article, computed by using currently prevailing transportati~m costs and by applying the price adjustments corresponding to the agreed quality differences set forth in the scale of equivalents. (12) In relation to other wheats of countries referred to in para- graph (1) of this Article, the ways of computing minimum and maxI~ PAGENO="0408" 402 mum prices set out in paragraph (2) or the equivalents thereof set out in paragraphs (5) to (11) of this Article shall apply in the same way as they apply to the wheats referred to in those paragraphs. (13) The Prices Review Committee may in consultation with the Sub-Committee on Prices: (a) determine the equivalent minimum and maximum prices for wheats at points other than those referred to in paragraphs (1), (2) and (3) and paragraphs (5) to (11) of this Article, and (b) specify, basis f.o.b. United States Gulf ports, minimum and maximum prices for any description, class, type, grade or quality of wheat other than those specified in paragraphs (1) and (3) of this Article, provided that the difference between the minimum and maximum prices so specified shall be 40 cents per bushel, and in the case of wheat of a country not menfioned in those para- graphs the Committee shall act in accordance with the preceding sub-paragraph if it has not already done so in respect of that wheat. (14) In the case of any wheat for which minimum and maximum prices have not been specified, the minimum and maximum prices for the time being, basis f.o.b. United States Gulf Ports, shall be derived from the minimum and maximum prices of the description, class, type, grade or quality of wheat specified in paragraphs (1) and (3) or under paragraphs (13(b)) of this Article, which is most closely com- parable to such wheat by the addition of an appropriate nremium or by the deduction of an appropriate, discount. Such premiums or dis- counts may he fixed and adjusted as necessary by the Prices Review Committee. The Prices Review Committee shall act in accordance with this paragraph at any meeting called under paragraphs (1), (3) or (6) of Article 9. (15) No minimum or maximum price, basis f.o.b. United States Gulf ports, s~peci'fied under the provisions of paragraph (13) (b) of this Article, shall respectively be higher than the minimum or maximum price for Manitoba Northern No. 1 wheat specified in paragraph (1) of this Article. (16) The equivalent minimum and maximum prices referred to in paragraphs (5) to (11) of this Article shall be computed at regular intervals by the Secretariat of the Council with the assistance of the Sub-Committee on Prices, having regard to the costs of ocean trans- portation which reflect the current method of movement generally employed and on the most comparable basis between the ports concerned. (17) For the purposes of comparing the price of any wheat quoted in other than United States currency with the minimum aird maximum prices or the equivalents thereof comnuted in accordance with the pro- visions of this Article, that price shall be converted into United States currency at the prevailing rate of exchange. Any dispute as to the conversion of prices shall be decided by the Prices Review Committee. (18) The minimum and maximum prices and the equivalents there- of shall exclude such carrying charges and marketing costs. as may be agreed between the buyer and the seller, provided that carrying charges shall accrue for the buyer's account only after an `agreed date specified in the contract under which the `wheat is sold. PAGENO="0409" 403 (19) Durum~wheat and certified seed wheat shall be excluded from the provisions relating to maximum prices and denatured wheat from the provisions relating to minimum prices. (20) Without prejudice to the operation of Article 8 if any member country represents to the Prices Review Committee that any computa- tion of an equivalent minimum or maximum price under the provisions of paragraphs (5) to (11) or paragraph (13) of this Article is, in the light of current transportation costs, no longer fair, that Committee shall consider the matter and may in consultation with the Sub-Com- mittee on Prices make such adjustments as it considers desirable. (21) All decisions of the Pri~es Review Committee under para- graphs (13), (14), (17) or (20) of this Article shall be binding on all menTher countries, provided that any member country which con- siders any such decision is disadvantageous to it may ask the Council to review that decision. (22) Each country which has one or more wheats listed in this Article shall provide to the Council each crop year a copy of the cur- rent official specifications, standards or descriptions for those wheats where they exist. Upon request by. the Secretariat, countries which export wheat shall provide to the Council the current official specifica- tions, standards or descriptions of wheats, where they exist, not listed in this Article. ARTICLE 7 Prices of wheat flour (1) Commercial purchases of wheat flour will be deemed to be at prices consistent with the prices for wheat specified in or determined under Article 6, unless a statement to the contrary, with supporting information, is received by the `Council from any member country, in which case the `Council shall, with the assistance of any countries con- cerned, consider the matter and decide whether the price is so con- sistent. (2) if one or more member countries deem that certain practices in the field of international trade have in certain cases distorted the consistency which must exist between the prices for flour and the prices for `wheat, and consider that their interests have been seriously hurt by these practices, they may ask for consultations with the mem- ber country or member countries concerned. (3) The Council may in co-operation with member countries carry out studies of the prices of wheat flour in relation to the prices of wheat. ARTICLE 8 RoZe of n~inimium prices The purpose of the schedule of minimum prices is to contribute to market stability by making it possible to determine when the level of market prices for any wheat is at or approaching the minimum of the range. Since price relationships between types and qualities of wheat fluctuate with competitive circumstances, provision is made for review of and adjustments in minimum prices. (1) If the' Secretariat of the Council in the course of its continuous review of market conditions is of the opinion that a situation has arisen, or threatens imminently to arise, which appears to jeopardize PAGENO="0410" 404 the objectives of this Convention with regard to the minimum price provisions, or if such a situation is called to the attention of the See- retariat of the Council by any member country, the Executive Secre- tary shall convene a meeting of the Prices Review Committee within two days and concurrently notify all member countries ( 2) The Prices Review Committee shall review the price situation with the view to reaching agreement on action required by member participants to restore price stability and to maintain prices at or above minimwn levels and shall notify the Executive Secretary when agreement has been reached and of the action taken to restore market stability (3) If after three market days the Prices Review Committee is unable to reach agreement on the action to be taken to restore market stability, the Chairman of the Council shall convene a meeting of the Council within two days to consider what further measures mi~'ht be taken If after not more than three days of review by the Council any member country is exporting or offering wheat below the minimum prices as determined by the Council, the Council shall decide whether provisions of this Convention shall be suspended and if so to what extent (4) When any minimum price has been adjusted in accordance with the foregoing, such adjustments shall terminate when the Prices Re- view Committee or the Council finds that the conditions requiring the adjustments no longer prevail ARTICLE 9 Ma~rnmuim price dec?aration~i (1) The Executive Secretary, who shall keep the prices of ~ heit under continual review, shall immedi'~tely convene a meeting of the Prices Review Committee if he is of the opinion, or the Sub Com mittee on Prices or any member country informs him that it is of the opinion that a situation has arisen in which an exporting country is making any wheat available for purchase by importing countries at a price near the maximum price If the Prices Review Committee decides that such a situation has arisen, the Executive Secretary shall imme- diately inform all member countries (2) As soon as any of its wheat is made av'ulable for purchase by importing countries at prices not less than the maximum price, an exporting country shall notify the Council to that effect On receipt of such notification the Executive Secretary acting on behalf of the Council shall, except as otherwise provided in paragraph (6) of this Article and paragraph (6) of Article 16 make a declaration accord ingly, referred to in this Convention as a mtximum price declaration The Executive Secretary shall communicate that maximum price dec- laration to all member countries as soon as possible after it has been made (3) In making a notification under paragraph (2) of this Article, the exporting country shall (a) if any of the wheats in respect of which the notification is made is not one for which a maximum price is specified in, or has been specified under the provisions of, Article 6, state what it considers the maximum price for the time being, basis f o b United~ States Gulf ports, for any such wheats to be, and PAGENO="0411" 405 (b) in the case of all wheats in respect of which the notification is made, state what it computes the maximum prices to be on the date of notification at the points from which those wheats are commonly exported, and the Executive Secretary shall inform all other member countries accordingly. If any member country represents to the Executive Secretary that any of the prices referred to above are not the maximum prices of the wheats concerned, he shall immediately convene a meeting of the Prices Review Committee which shall decide the maximum prices in respect of which representations have been made in consultation with the Sub-Committee on Prices. (4) As soon as all of its wheat which has been made available at not less than the maximum price is again made available for purchase by importing countries at prices less than the maximum price, an exporting country shall notify the Council to that effect. Thereupon, the Executive Secretary, acting on behalf of the Council, shall termi- nate the maximum price declaration in respect of that country by making a further declaration accordingly. He shall communicate such further declaration to all exporting and importing countries as soon as possible after it has been made. (5) The Council shall in its rules of procedure, prescribe regula- tions to give effect to paragraphs (2) and (4) of this Article, includ- ing regulations determining the effective date of any declaration made under this Article. (6) If at any time in the opinion of the Executive Secretary an exporting country has failed to make a notification under paragraph (2) or (4) of this Article, or has made an incorrect notification, he shall without prejudice in the latter case to the provisions of para- graph (2) or (4), immediately convene a meeting of the Sub-Com- mittee on Prices. If at any time in the opinion of the Executive Secre- tary an exporting country has made a notification under paragrajh (2) but the facts relating thereto do not warrant a maximum price declaration, he shall not make such a declaration but shall refer the matter to the Sub-Committee at a meeting immediately convened for *this purpose. If the Sub-Committee advises either under this para- graph or in accordance with Article 31 that a declaration under para- graph (2) or (4) should be or should not be made or is incorrect, as the case may be, the Prices Review Committee may make or refrain from making a declaration accordingly, or cancel any declaration then in effect, whichever is appropriate, without delay. The Executive Sec- retary shall communicate any such declaration or cancellation to all member countries as soon as possible. (7) Any declaration made under this Article shall specify the crop year or crop years to which it relates, and this Convention shall apply accordingly. (8) If any exporting or importing country considers that a declara- tion under this Article should be or should not have been made as the case may be, it may refer the matter to the Council. If the àouncil finds that the representations of the country concerned are well founded, it shall make or cancel a declaration accordingly. (9) Any declaration made under paragraphs (2), (4) or (6) of this Article which is cancelled in accordance with this Article shall be re- garded as having full force and effect until the date of its cancellation, PAGENO="0412" 406 and such cancellation shall not affect the validity of anything done under the declaration prior to its cancellation (10) For the purpose of this Article "wheat" excludes durum wheat and certified seed wheat ARTICLE 10 Status of Et~ropeoiii Economic Comnvunity (1) The European Economic Community which regularly and con tinuously engages in import and export operations on the mterna tional market is listed simultaneously in Annex A and m Annex B of this Convention as an exporting country and as an importing country with all the rights and obligations deriving therefrom (2) In regard however to the obligations of the European Economic Community as an exporting country in a situation of a maximum urice declaration concerning the wheat of the European Economic Com- munity, the European Economic Community shall make wheat avail- able to importing countries which are members of this Convention at a price which shall not be greater than the maximum price More- over, it shall take all useful measures in conformity with the regula- tions resulting from its common agricultural policy to channel its quantities available for export in an equitable way to importing coun tries which are members of this Convention ARTICLE 11 Ad7uetnzent in case of short crop (1) Any exporting country which fears that it may be prevented by a short crop from carrying out its obligations under this Conven- tion in respect of a particular crop year shall report the matter to the Council at the earliest possible date and apply to the. Council to be relieved of a part or the whole of its obligations for that crop year An application made to the Council pursuant to this paragraph shall be heard without delay. (2) The Council shall, in dealing with a request for relief under this Article, review the exporting country's supply situation and the extent to which the exporting country has observed the principle that it should, to the maximum extent feasible, make wheat available for purchase to meet its obligations under this Convention (3) The Council shall also, in dealing with a request for relief under this Article, have regard to the importance of the exporting country's maintaining the principle stated in paragraph (2) of this Article (4) If the Council finds that the country's representations are well founded, it shall decide to what extent and on what conditions that country shall be relieved of its obligations for the crOp year concerned. The Council shall inform the exporting country of its decision (5) If the Council decides that the exporting country shall be re- lieved of the whole or part of its obligations under Article 5 for the crop year concerned, the Council shall increase the commitments as' represented by the datum quantities of the other exporting countries to the extent agreed by each of them If such increases do not offset the relief granted under paragraph (4) of this Article, it shall reduce PAGENO="0413" 407 `by the amount necessary the entitlements, as represented by the datum quantities of the importing countries to the extent agreed by each of them. (6) If the relief granted under paragraph (4) of this Article can- not be entirely offset by measures taken under paragraph (5), the Council shall reduce pro rata the entitlement as represented by the datum quantities of the importing countries, account being taken of any reductions under paragraph (5). (7) If the commitment as represented by the datum quantity of an exporting country is reduced under paragraph (4) of this Article, the amount of such reduction shall be regarded for the purpose of establishing its datum quantity and that of all other exporting coun- tries in subsequent crop years as having been purchased from that exporting country in the crop year concerned. In the light of the cir- cumstances, the Council shall determine whether any adjustment shall be made, and if so in what manner, for the purpose of establishing the datum quantities of importing countries in such subsequent crop years as a result of the operation Of this paragraph. (8) If the entitlement as represented by the datum quantity of an importing country is reduced under paragraph (5) or (6) of this Article to offset the relief granted to an exporting country under paragraph (4), the amount of such reduction shall be regarded as hav- ing been purchased in the crop year concerxied from that exporting country for the purposes of establi~hing the datum quantity of that importing country in subsequent crop years. ARTICLE 12 Adjustm~ent in case of necessity to safeguard baZa~we of payments or monetary reserves (1) Any importing country which fears that it may be prevented by the necessity to safeguard its balance of payments or monetary reserves from carryhig out its obligations under this Convention in respect of a particular crop year shall report the matter to the Council at the earliest possible date and apply to the Council to be relieved of a part or the whole of its obligations for that crop year. An application made to the Council pursuant to this paragraph shall be heard without delay. (2) If an application is made under paragraph (1) of this Article, the Council shall seek and take into account, together with all facts' which it considers relevant, the opinion of the International Monetary Fund, as far as the matter concerns a country which is a member of the Fund, on the existence and extent of the necessity referred to in paragraph (1). (3) The Council shall, i~i dealing with a request for relief under this Article, have regard to the importance of the importing country's maintaining the principle that it should to the maximum extent feasi- ble make purchases to meet its obligations under this Convention. (4) If the Council finds that the representations of the importing country concerned are well founded, it shall decide to what extent and on what conditions that country shall be relieved of its obligations for the crop year concerned. The Council shall inform the importing country of its decision. PAGENO="0414" 408 ARTICLE 1 ~3 Adju~tm~ents and additwnal purc/ia~e~ in cc~e o/ critical need ( 1) If a eritic'tl need has arisen or threatens to arise in its territory, `in importing country may appeal to the Council for assistance in obtaining supplies of wheat With a view to relieving the emergency created by the ci itical need, the Council shall give urgent consideration to the appeal and shall make appropriate recommendations to export ing and importing countries regarding the action to be taken by them (2) In deciding what recommendation should be made in respect of an appeal by an importing country under the preceding paragraph, the Council shall have regard to its actual commercial purchases from member countries or to the extent of its obligations under Article 4, as may `tppear appropriate in the circumstances (3) No action taken by an exporting or importing country pursuant to a recommendation made under paragraph (1) of this Article shall `iffect the datum quantity of any exporting or importing country in subsequent crop years ARTICLE 14 Other ad2ustments (1) An exporting country may transfer part of its balance of commitment to another exporting country, and an impoiting country may transfer part of its balance of entitlement to another importing country for a crop year, subject to approval by the Council. (2) Any importing country may at any time, by written notification to the Council, increase its percentage undertaking referred to in paragraph (2) of Article 4 and such increase shall become effective from the date of receipt of the notification (3) Any importing country which considers that its interests in respect of its percentage undertaking under paragraph (2) of Article 4 are seriously prejudiced by the withdrawal from this Convention of any exporting country holding not less than 50 votes may, by written notification to the Council, apply for a reduction in its percentage undertaking In such a case, the Council shall reduce that importing country's percentage undertaking by the proportion that its maximum annual commercial purchases during the years determined under Article 15 with respect to the withdrawing country bears to its datum quantity with respect to all countries listed in Annex A and shall then further reduce such revised percentage undertaking by subtracting two and one half (4) The datum quantity of any country acceding under paragraph 2 of Article 38 shall be offset, if necessary, by appropriate adjustments by way of increase or decrease in the datum quantities of one or more exporting or importing countries, as the case may be Such adjust ments shall not be approved unless each exporting or importing coun try whose datum quantity is thereby changed has consented (5) The Council may at the request of any country delete that country from either Annex to this Convention and transfer it to the other PAGENO="0415" 409 ARTICLE 15 E$tablishnlent of datum quantities (1) Datum quantities as defined in Article 2 shall be established for each crop year on the basis of average `annual. commercial purchases during the first four of the immediately preceding five crop years. In the case of steadily expanding markets where, taking the same period, the `average annual commercial purchases are in excess of the average ~datum quantity figures calculated by the above method, the datum quantities shall `be adjusted by the addition of the difference of the two averages. For `the purpose of this paragaph a steadily expanding market is `a market in which the commercial, imports were higher than the datum quantity figures calculated under the first `sentence of this paragraph `in `at least 3 `out of the 4 years"used in such calculation and the percentage undertaking of such a country is not 1e~s than eighty per cent. (2) Before the beginning of each crop year, the Council shall estab- lish for that crop year the datum quantity of each exporting country with respect to all importing countries `and the datum quantity of each importing `country with respect to all exporting cQun'trieS and to each such country, except that in calculating datum quantities exports by oi~ imports from the European Economic Community `shall be disregarded. (3) The datum qu'antities established in `accordance with the preced- ing paragraph shall be re-established whenever a change in the mem- bership of this Convention occurs, regard being had where appropriate to any conditions of accession prescribed by the Council under Article 38. ARTICLE 16 Recording and reporting (1) The `Council shall keep separate records for each crop year (a) for the purposes of the operation of this Convention and in particular of Articles 4 `and 5, ofall commercial purcha'ses by mem- ber countries from other member and non-member countries and of `all imports by member countries from other member and `non- member countries on term's which render them special transac- tions, and (b) of `all commercial sales by member countries to non-member countries and of `all exports `by member countries to non-member countries on terms which render them special `transaction's.. (2) The records referred to in the preceding paragraph shall be kept so `that (a) records of special transactions are separate fom records of commercial transactions `and (b) at `all times during a crop year `a statement of the balance of commitment of each exporting country with, respect to all im- porting `countries and of the ba~ance of entitlement of each `im- porting country with respect to `all exporting countries and to each such country is maintained. Statements of such balances shall, at intervals prescribed by the Council, be circulated to all export- ing `and importing countries. PAGENO="0416" 410 (3) In order to facilitate the operation of the Prfces fleview Corn- mitte~ under Article 31 the Council shall keep records of international market prices for wheat and wheat flour and of transportation costs. (4) In the case of any wheat which reaches the country of final destination after re-sale in, passage through, or transshipment from the ports of, a country other than that in which the wheat originated, member countries shall to the maximum extent possible make avail- able such information as will enable the purchase or transaction to be entered in the records referred* to in paragraph (1) and (2) of this Article as a purchase or transaction between the country of origin and the country of final destination. In the case of a re-sale, the provision of this paragraph shall only apply if the wheat originated in the country of origin during the same crop year. (5) For the purposes of paragraph (2) of this Article and of para- graph (2) of Article 4, commercial purchases by a member country from another member country entered in the Council's records shall also be entered as against the obligations of each of the two member countries under Articles 4 and 5 respectively, or those obligations as adjusted under other Articles of this Convention, provided that the loading period falls within the crop year and, in relation to obliga- tions under Article 5, that the purchases are by an importing èountry from an exporting country at prices not in excess of the maximum price. Commercial purchases of wheat flour entered in the Council's records shall also be entered as against the obligations of member countries under the same conditions. (6) Where a customs union, or a special association status with a customs union, exists between any member country and one or more other countries which permits or obliges wheat to be purchased at prices above the maximum price, any such purchases shall not be regarded as a breach of Article 4 or 5, and shall be entered against the obligations, if any, of the member country or countries concerned. No maximum price declaration shall be made in respect of such pur- chases from an exporting country, nor shall they in any way affect the obligations of the exporting country concerned to other importing countries under Article 4. (7) In the case of durum wheat and certified seed wheat, a purchase entered in the Council's records shall also be entered as against the obligations of member countries under the same conditions whether or not the price is above the maximum price. (8) Provided that the conditions prescribed in paragraph (5) of this Article are satisfied, the Council may authorize purchases to be recorded, for a crop year if (a) the loading period involved is within a reasonable time up to one month, to be decided by the Council before the beginning or after the end of that crop year, and (b) the two member countries concerned so agree. (9) For the purpose of this article * (a) member countries shall send to the Executive Secretary such information concerning the quantities of wheat involved in commercial sales and purchases and special transactions as with- in its competence the Council may require, including, (i) in relation to special traiisactions, such detail of the transactions as will enable them to be classified in accordance with Article 3; PAGENO="0417" 411 (ii) in respect of wheat, such information as may be avail- able as to the type, class, grade and quality, and the quanti- ties relating thereto; (iii) in respect of flour, such information as may be avail- able to identify the quality of the flour and the quantities relating to each separate quality; (b) member countries when exporting on a regular basis, and such other member countries as the Council shall decide, shall send to the Executive Secretary such information relating to prices of commercial and, where available, special transactions in such descriptions, classes, types, grades and qualities of wheat and wheat flour as the Council may require. (c) the Council shall obtain regular information on currently prevailing transportation costs and member countries shall to the extent practicable report such supplementary information as the Council may require. (10) The Council shall make rules of procedure for the reports and records referred to in this Article. Those rules shall prescribe the frequency and the manner in which those reports shall be made and shall prescribe the duties of member countries with regard thereto. The Council shall also make provision for the amendment of any records or statements kept by it, including provision for the settle- ment of any dispute arising in connexion therewith. If any mem- ber country repeatedly and unreasonably fails to make reports as re- quired by this Article, the Executive Committee shall arrange con- sultations with that country to remedy the situation. ARTICLE 17 Estimates 0/ requiren~ents and availability of wheat (1) By 1 October in the case of Northern Hemisphere countries and 1 February in the case of Southern Hemisphere countries, each importing country shall notify the Council of its estimate of its commercial requirements of wheat from exporting countries in that crop year. Any importing country may thereafter notify the Coun- cil of any changes it may desire to make in its estimate. (2) By 1 October in the case of Northern Hemisphere countries and 1 February in the case of Southern Hemisphere countries, each exporting country shall notify the Council of its estimate of the wheat it will have available for export in that crop year. Any exporting country may thereafter notify the Council of any changes it m4y de- sire to make in its estimate. (3) All estimates notified to the Council shall be used for the purpo~e of the administration of this Convention and may only be made available to exporting and importing countries on such condi- tions as the Council may prescribe. Estimates submitted in accordance with this Article shall in no way be binding. (4) Exporting and importing countries shall be free to fulfill their obligations under this Convention through private trade channels or otherwise. Nothing in this COnvention shall be construed to exempt any private trader from any laws or regulations to which he is other- wise si~bject. (5) The Council may, at its discretion, require exporting and im- porting countries to co-operate together to ensure that an amount of 95-159 0-68--pt. 1-27 PAGENO="0418" 412 ~heat equal to not less than ten per cent of the datum quantities of exporting countries for any crop year shall be available for purchase by importmg countries under this Convention after 31 January of that crop year ARTICLE 18 Considtatzo1Z~9 (1) In order to assist an exporting country in assessing the extent of its commitments if a maximum price declaration should be made and without prejudice to the rights enjoyed by any importing country, ar exporting country may consult with an importing country regarding the extent to whicn the rights of that importing countiy under At tides 4 and 5 will be taken up in any crop year (2) Any exporting or importing country experiencing difficulty in making sales or purchases of wheat under Article 4 m~y refer the matter to the Council In such a case the Council, with a view to the satisfactory settlement of the matter, shall consult with any exporting or importing country concerned and may make such recommendations as it considers appropriate (3) If an importing country should find difficulty m obt'uning its balance of entitlement in a crop year at prices not gre tter than the maximum price while `i maximum price declar ition is in effect, it m'ty refer the matter to the Council In such a case the Council sh'iJl in vesti~ate the situation and shall consult with expoi ting countries re garcling the manner in which their obligations shall be c'trried out ARTICLE 19 Performance nnder Articles 4 and 5 (1) The Council shall as soon as practicable after the end of each crop year review the performance of exporting and importing coun tries in relation to their obligations under Articles 4 and 5 during that crop year (2) For the purpose of this review each member country may be permitted in the fulfillment of its obligations a degree of tolerance to be prescribed by the Council for th'Lt country on the basis of the extent of those obligations and other relevant factors (3) In considering the performance of any importing country in relation to its obligations in the crop year: (a) the Council shall disiegard any exceptional import'ttion of wheat from non member countries provided that it can be shown to the satisfaction of the Council that such wheat has been or will be used only as feed and that such importation was not `it the expense of quantities normally purchased by that importing country from member countries, (b) the Council shall disregard any importation of denatured wheat from non member countries PAGENO="0419" 413 ARTICLE 20 Defaults `under Article 4 or 5 (1) If, on the basis of the review made under Article 19, any country' appears to be in default of its obligations under Article 4 or 5, the Council shall decide what action should be taken. (2) Before reaching a decision under this Article, the Council shall give any exporting or importing country concerned the opportunity to present any facts which it considers relevant. (3) If the Council finds that an exporting. country or an importing country is in default under Article 4 or 5, `it may deprive the country concerned of its voting rights for such period as the Council may de- termine, reduce the other rights of that country to the extent which it considers commensurate with the default, or expel that country from participation in this Convention. (4) No action .taken by the Council under this Article shall in any way reduce the obligation of the country concerned in respect of its financial contributions to the Council unless that country is expelled from participution in this Convention. ARTICLE 21 Action in cases of serious prejudice (1) Any exporting or importing country which considers' `that its interests as a party to this Convention have been seriously prejudiced by actions of any one or more exporting or importing countries affect- ing the operation of this Convention may bring the matter before the CounciL In such a case, the Council shall immediately consult with the countries concerned in order to resolve the matter. (2) If the matter is not resolved through such consultations, the Council may refer the matter to the Executive Committee or the Prices Review Committee for urgent investigation and report. On receipt of any such report, the Council shall consider the matter further and may make recommendations to the countries concerned. (3) If, afte.r action has or has not been taken, as the case may be, under paragraph (2) of this Article, the country concerned is not satisfied that the matter has been satisfactorily dealt with, it may apply to the Council for relief. The Council may, if it deems appro- priate, relieve that country of part of its obligations for the crop year in question. Two-thirds of the votes cast by the exporting countries and two-thirds of the votes cast by the importing countries shall be required for a decision granting relief. (4) If no relief is granted by the Council under paragraph' (3) of this Article and the country concerned still considers `that its interests as a party to this Convention have suffered serious prejudice, it may withdraw from th'is Convention at the end of the crop ye'ar `by giving written notice to the Government of `thern United States of America. If the matter was brought before the Council in one crop year and the `Council's consideration of `the application for relief was concluded in the subsequent crop y'ear the withdr~val ~f the country `conce~n~d may be effected within thirty days of ~t~ch eonclusion,1y giving similar notice. PAGENO="0420" 414 ARTICLE 22 Disputes and com~piaints (1) Any dispute concerning the interpretation or application of this Convention other than a dispute under Articles 16 and 20 which is not settled by negotiation shall, at the request of any country party to the dispute, be referred to the Council for decision. (2) In any case where a dispute has been referred to the Council under paragraph (1) of this Article, a majority of countries, or any countnes holding not less than one-third of the total votes, may require the Council, after full discussion, to seek the opinion of the advisory panel referred to in paragraph (3) on the issues in dispute before giving its decision. (3) (a,) Unless the Council unanimously agrees otherwise, the panel shall consist of: (i) two persons, one having wide experience in matters of the kind in dispute and the other having legal standing and experi- ence~ nominated by the exporting countries; (ii) two such persons nominated by the importing countries; and (iii) a chairman selected unanimously by the four persons nominated under (i) and (ii) or, if they fail to agre~ by the Chairman of the Council. (b) Persons from countries whose Governments are parties to this Convention shall be eligible to serve on the advisory panel. Persons appointed to the advisory panel shall act in their personal capacities and without instructions from any Government. (c) The expenses of the advisory panel shall be paid by the Council. (4) The opinion of the advisory panel and the reasons therefore shall be submitted to the Council which, after considering all the relevant infoi~nation, shall decide the dispute. (5) Any complaint that any exporting or importing country has failed t.ø fulfill it~s obligations under this Convention shall, at the re- quest of the country making the complaint, be referred to the Council, which shall make a decision on the matter. (6) Any finding that an exporting or importing country is in breach of this Convention shall specify the nature~ of the breach and if the breach involves default by that country in its obligations under Ar- ticle 4 or 5, the extent of such default. (7) Subject to the provisions of Article 20, if the Council finds that an exporting country or an importing country has committed a breach of this Convention it may deprive the country concerned of its voting rights until it fulfills its obligations or expel that country from participation in this Convention. ARTICLE 23 Avnuai revww of the `world grain.~ sitnation (1) (a) in the furtherance of the objectives of this Convention as set forth in Article 1, the Council shall annually review the world grains situation and shall inform member countries of the effects upon the international trade in grains of the facts which emerge from the PAGENO="0421" 415 review, in order that these effects be kept in mind by these countries in determining and administering their internal agricultural and price policies. (b) The review shall be carried out in the light of information ob- tainable in relation to national production, stocks, consumption, prices and trade, including both commercial and special transactions, of grains. (c) Each member country may submit to the Council information which is relevant to the annual review of the world grains situation and is not already available to the Council either directly or through the, Food and Agriculture Organization of the United Nations. (2) In carrying out the annual review, the Council shall consider the means through which the consumption of grains may be increased, and may undertake, in co-operation with member countries, studies of such matters as: (a) factors affecting the consumption of grains in various countries; and (b) means of achieving increased consumption, particularly in countries where the possibility of increased consumption is found to exist. (3) For the purposes of this Article, the Council shall pay due regard to work done by the Food and Agriculture Organization of the United Nations and other intergovernmental organizations, in order in particular to avoid duplication of work, and may, without prejudice to the generality of paragraph (1) of Article 35, make such arrangements regarding co-operation in any of its activities as. it considers desirable with such intergovernmental organizations and also with any Governments of Members of the United Nations or the specialized agencies not parties to this Convention which have a sub- stantial interest in the international trade in grains. (4) Nothing in this Article shall prejudice the complete liberty of action of any member country in the determination and adminis- tration of its internal agricultural and price policies. ARTICLE 24 Gv~ic1eline$ relating to conce~sional trafl$cwtion8 (I) Member countries undertake to conduct any concessional trans- actions in grains in such a way as to avoid harmful interference with normal patterns of production and international commercial trade. (2) To this end member countries shall undertake appropriate measures to ensure that concessional transactions are additional to commercial sales which could reasonably be anticipated in the absence of such transactions. Such measures shall be consistent with the Prin- ciples of Surplus Disposal and Guiding Lines recommended by the Food and Agriculture Organization of the United Nations and may provide that a specified level of commercial imports of wheat, agreed with the recipient country, be maintained on a global basis by that country. In establishing or adjusting this level full regard shall be had to the commercial import levels m a representative period and to the economic circumstances of the recipient country, including in par- ticular, its balance of payments situation PAGENO="0422" 416 (3) Member countries when engaging in concessional export trans actions shall consult with exporting member countries whose commer cial sales might be affected by such transactions, to the maximum possible extent before such airangements are concluded with recipient countries (4) The Executive Committee shall furnish an annual report to the Council on developments in concessional transactions in wheat PART Ill-ADMINISTRATION ARTICLE 25 Constitution of the Council (1) The International Wheat Council, established by the Interna tional Wheat Agreement 1949, shall continue in being for the pu~rpose of administering this Convention, with the membership, powers and functions provided in this Convention (2) Each member country shall be a voting member of the Council and may be represented at its meeting by one delegate, alternates, and advisers (3) Such intergovernmental organizations as the Council may de cide to invite to any of its meetings may each have one non voting representative in attendance at those meetings (4) The Council shall eject a Chairman and Vice Chairman who shall hold office for one ciop year The Chairman shall have no vote and the Vice Chairman shall have no vote while acting as Chairman ARTICLE 26 Powers and functions of the Council (1) The Council shall establish its rules of procedure (2) The Council shall keep such records as are required by the terms of this Convention and may keep such other records as it considers desirable (3) The Council shall publish an annual report and may also pub hsh any other information (including, in particular, its annual review or any part or summary thereof) concerning matters within the scope of this Convention (4) In addition to the powers and functions specified in this Con vention the Council shall have such other powers and perform such other functions as are necessary to carry out the terms of this Con- vention (5) The Council may, by two thirds of the votes cast by the export ing countries and two thirds of the votes cast by the nnporting coun tries, delegate the exercise of any of its powers or functions The Coun cii may at any time revoke such delegation by a majority of the votes cast Subject to the provisions of Article 9, any decision made under any powers or functions delegated by the Council in accordance with this paragraph shall be subject to review by the Council at the request of any exporting or importing country made within a period which the Council shall prescribe Any decision, in respect of which no request for review has been made within the prescribed period, shall be bind- ing on all member countries PAGENO="0423" 417 (6) In order to er~able the Council to discharge its functions under ihis Convention, member countries undertake to make available and supply such statistics and information as are necessary for this purpose. ARTICLE 27 Votes (1) The exporting countries shall together hold 1000 votes and the importing countries shall together hold 1000 votes. (2) At the beginning of the first session of the Council held under this Convention, the exporting countries which have by that date deposited instruments of ratification, acceptance, approval or accession or declarations of provisional application shall divide the votes of the ~exporting countries among them as they shall decide and the import- ing countries fulfilling the same condition shall similarly divide their votes. (3) Any exporting country may authorize any other exporting ~country, and any importing country may authorize any other import- ing country, to represent its interests and to exercise its votes at any meetin~ or meetings of the Council. Satisfactory evidence of such authorizatiøn shall be submitted to the Council. (4) If at any meeting of the Council an importing country or an ~exporting country is not represented by an accredited delegate and~ has not authorized another country to exercise its votes in accordance with paragraph (3) of this Article, and if at the date of any meeting any country has forfeited, has been deprived of, or has recovered its votes under any provisions of this Convention, the total votes to be exercised by the exporting countries shall be adjusted to a figure equal to the total of votes to be exercised at that meeting by the importing countries and redistributed among exporting countries in proportion *to their votes. (5) Whenever any country becomes or ceases to be a party to this Convention subsequent to the date of the Council session referred to in paragraph (2) of this Article, the Council shall redistribute the votes of the other exporting or importing countries, as the case may be, proportionally to the number of votes held by each such country or, ~with respect to exporting countries, as otherwise agreed. (6) No member country shall have less than one vote and there shall he no fractional votes. ARTICLE 28 Seat, sessions and quorum (1) The seat of the Council shall be London unless the Council ~decides otherwise. (2) The Council shall meet at least once during, each half of each ~crop year and at such other times as the Chairman may decide, or as .otherwise required by this Convention. (3) The Chairman shall convene a Session of the Gouncil if so re- quested by (a) five countries or* (b) one or more countries holding. a total of not less than ten per cent of the total votes or (c) the Execu- tive Committee. PAGENO="0424" 418 (4) The presence of delegates with a majority of the votes held by the exporting countries and a majority of the votes held by the im- porting countries prior to any adjustment of votes under Article 27 shall be necessary to constitute a quorum at any meeting of the Council. ARTICLE 29 Decisions (1) Except where otherwise specified in this Convention, decisions of the Council shall be by a majority of the votes cast by the exporting countries and a majority of the votes cast by the importing countries, counted separately. (2) Each member country undertakes to accept as binding all deci- sions of the Council under the provisions of this Convention. ARTICLE 30 Eceecv~tzve Corninizttee (1) The Council shall estabhsh an Executive Committee The mem- bers of the Executive Committee shall be not more than four exporting countries elected annually by the exporting countries and not more than eight importing countries elected annually by the importing countries. The Council shall appoint the Chairman of the Executive Committee and may appoint a Vice Chairman (2) The Executive Committee shall be responsible to and work under the general direction of the Council It shall have such powers and functions as are expressly assigned to it under this Convention and such other powers and functions as the Council may delegate to it under paragraph (5) of Article 26.. (3) The exporting countries on the Executive Committee shall have the same total number of votes as the importing countries The votes of the exporting countries on the Executive Committee shall be divided among them as they shall decide, provided that no such exporting country shall have more than forty per cent of the total votes of those exporting countries. The votes of the importing countries on the Ex- ecutive Committee shall be divided among them as they shall decide, provided that no such importing country shall have more than forty per cent of the total votes of those importing countries. (4) The Council shafl prescribe rules of procedure regarding vot- ing in the Executive Committee and may make such other provision re- gardin~ rules of procedure in the Executive Committee as it thinks fit A decision of the Executive Committee shall require the same majority of votes as this Convention prescribes for the Council when making a decision on a similar matter. (5) Any exporting or importing country which is not a member of the Executive Committee may participate, without voting in the dis cussion of any question before the Executive Committee whenever the latter considers that the interests of that country are affected PAGENO="0425" 419 ARTICLE 31 Prices Review Com,mittee' (1) The Council shall establish a Prices Review Committee con- sistrng of a maximum of 13 members. The members of the Committee shall include the European Economic Community and at least five other importing countries and five other exporting countries chosen an- nually by the importing and exporting countries respectively. Any ad- ditional importing and exporting countries shall be similarly chosen. The Council shall `appoint the Chairmanof the Committee and may ap- point a Vice-Chairman. (2) Any member country `which is not a m~rnber of the Committee may participate in the discussion of any question before the Committee whenever the latter considers that the interests of that country are di- rectly affected. (8) The Prices Review Committee shall have such powers and func- tions as are expressly assigned to it under this Convention and such other powers and functions as the Council may delegate to it under paragraph (5) of Article 26. ` (4). The Committee shall reach its conclusions by agreement. Agree- ment on a matter under discussion by the Committee shall be under- stood to have been reached if the conclusion is not, disputed by any member of the Committee having a direct interest in the matter. A. con- clusion shall be regarded as disputed if the country challenging the conclusion declares its intention to refer the matter to the Council. (5) The Committee's conclusions shall be communic.atedto all mem- ber countries. (6) If the Committee fails to reach agreement, a meeting of the Council shall be convened. All decisions of the Council on issues aris- ing out of the Prices Review Committee shall be by a two-thirds major- ity of the votes cast by the exporting countries and a two-thirds major- ity of the votes cast by the importing countries, counted separately. (7) The Prices Review Committee shall establlsh a Sub-Committee on Prices, which shall consist of representatives of not more than four exporting countries and not more than four importing countries. Mem- ber countries shall have particular regard to the technical qualifica- tions of representatives nominated by them. The Chairman of the Sub- Committee shall be appointed by the Council. (8) The Sub-Committee on Prices shall assist the Secretariat liT keeping market prices for wheat under continuous review and in com- puting minimum and maximum prices as provided for under this Convention. The Sub-Committee shall give, technical advice to The Prices Review Committee .and the Counc4Lin accordance. with the relevant Articles of this Conyention, and on such other matters .~s that Committee or the Council may refer to it. .~e, Snb-Committee $haxll in particular immediately inform the Executive Secretary whenever' in its opinion an exporting country is making any wheat available for' purchase by importing countries at a price, near the maximum price.. The Sub-Committee shall, in the exercise of its functions under this paragraph, take into account any representations made by any member country. PAGENO="0426" 420 ARTICLE 32 The Secretariat (1) The Council shall have a Secretariat consisting of an Executive Secretary, who shall be its chief administrative officer, and such staff as may be required for the work of the Council and its Committees. (2) The Council shall appoint the Executive Secretary who shall be responsible for the performance of the duties devolving upon the Secretariat in the administration of this Convention and for the per- formance of such other duties as are assigned to him by the Council and its Committees. (3) The staff shall be appointed by the Executive Secretary in accordance with regulations established by the Council. (4) It shall be a condition of employment of the Executive Secretary and of the staff that they do not hold or shall cease to hold financial interest in the trade in wheat and that they shall not seek or receive instructions regarding their duties under this Convention from any Government or from any other authority external to the Council. ARTICLE 33 Privileges and Immunities (1) The Council shall have in the territory of each member country, `to the extent consistent with its laws, such legal capacity as may be necessary for the exercise of its functions under this Convention. (2) The Government of the territory in which the seat of the Coun- cil is situated (hereinafter referred to as "the host Government") shall conclude with the Council an international agreement relating to the status, privileges and immunities of the Council, its Executive Secre- tary and its staff and of representatives of member countries at meet- ings convened by the Council. (3) The agreement envisaged in paragraph (2) of this Article shall be independent of the present Convention. It shall however terminate: (a) by agreement between the host Government and the Council, or (b) in the event of the seat of the Council being moved from the territory of the host Government, or (c) in the event of the Council ceasing to exist. (4) Pending the entry into force of the agreement envisaged in paragraph (2) of this Article, the host Government shall grant exemp- tion from taxation on the assets, income and other property of the Council and on remuneration paid by the Council to its employees other than nationals of the member country in whose territory the seat of the `Oouncil is situated. ARTICLE 34 Finance (1) The expenses of delegations to the Council and of representa- tives on its Committees and Sub-~ommittees shall be met by their respective Governments. The other expenses necessary for the adminj~- tration of this Convention shall be met `by annual contributions from PAGENO="0427" 421 the exporting `and importing countries. The contribution of each such country for each crop year shall be in the proportion which the num- ber of its votes bears to the total of `the votes of the exporting `and importing countries at the beginning of `thw~ crop year. (2) At its first Session after this Convention comes into force, the Council shall approv~ its budget for the period ending 30 June 1969 and assess the contribution to be paid by each exporting and importing country. (3) The Council shall, at `a `Session during the second half of each. crop year, approve its budget for the following crop year and assess the contribution to be paid by each exporting and importing country for that crop year. (4) The initial contribution of any exporting or importing country acceding to this Convention under paragraph (2) of Article 38 shall be `assessed by the Council on the basis of the votes to be distributed to it `and the period remaining in the current crop year, but the `assess- meats made upon other exporting and importing countries for the' current crop year shall not be altered. (5) Contributions shall be payable immediately upon assessment. Any exporting or importing country failing to pay its contri'butiom within one year of its assessment `shall' forfeit its voting rights until its contribution is paid, but shall not be relieved of its obligations under this Convention, nor sh'all it be deprived of `any of `its rights~ under this Convention unless the Council so decides. (6) The `Council shall, each crop year, publish an `audited statement of its receipts and expenditures in the previous crop year. (7) The council shall, prior to its dissolution, provide for the settle- ment of its liabilities `and the disposal of its records `and assets. ARTIOLE 35 Co-operation with other intergovernmental orgainisatons (1) The Council may make whatever `arrangements `are desirable for consultation and co-operation with the `appropriate organs of the' United Nations and its specialized agencies and with other intergov- ernmental organizations. (2) If the Council finds t'hat any terms of this Convention are mate- rially inconsistent with such requirements as may be laid down by the United Nations or through its appropriate organs and specialized' agencies regarding intergovernmental commodity agreements, the in- consistency shall be deemed to be a circumstance affecting adversely the operation of this Convention and the procedure prescribed in para- graphs (3), (4) and (5) of Article 41 shall be applied. PART TV-FINAL PROVThI0NS ARTICLE 36 Signature This Convention shall be open for signature in Washington from 15 October 1967 until and including 30 November 1967 (a) by the Governments of Argentina, Australia, Canada, Den- mark, Finland, Japan, Norway, Sweden, Switzerland,, the United PAGENO="0428" 422 Kingdom, the United States and by the European Economic Corn- munity and its Member States provided they sign both this Con- vention and the Food Aid Convention, and (b) by other Governments listed in Annexes A and B if they so wish. ARTICLF 37 Ratification, acceptance or approval This Convention shall be subject to ratification, acceptance or ap- proval by each signatory in accordance with its respective constitu- tional or institutional procedures, provided that any Government re quired to sign the Food Aid Convention as a condition to signature of this Convention also ratifies, accepts or approves the Food Aid Con- vention Instruments of ratification, acceptance or approval shall be deposited with the Government of the United States of America not - later than 17 June 1968 except that the Council may grant one or more extensions of time to any signatory that has not deposited its instru- ment of ratification, acceptance or approval by that date. ARTICLE 38 Acces$ion (1) This Convention shall be open for accession (a) by the European Economic Community and its Member States or by any other Government listed in Article 86 (a) pro- vided the Government also accedes to the Food Aid Convention, and (b) by other Governments listed m Annexes A and B. Instruments of accession under this paragraph shall be deposited not later than 17 June 1968 exc~pt that the Council may grant one or more extensions of time to any (.xovernment that has not deposited its in- strument of accession by that date (2) The Council may by two thirds of the votes cast by exporting countries and by two-thirds of the votes cast by importing countries approve accession to this Convention by the Government of any Mem- ber of the United Nations or its speciaiized agencies on such conditions as the Council considers appropriate. (3) If any Government not listed in Annex A or B wishes to apply for accession to this Convention prior to its entry into force, and the Council chooses to receive and act on such application in accordance with the provisions of this Article, the approval and conditions estab lished by the Council shall be as valid under this convention as if that action had been taken by the Council under this Convention after' its entry into force (4) Accession shall be effected by deposit of an instrument of acces- sion with the Government of the United States of America (5) Where, for the purposes of the operation of this Convention,. reference is made to countries listed in Annexes A or B, any country the Government of which has acceded to this Convention on condi- tions prescribed by the Council in accordance with this Article, shall be deemed to be listed in the appropriate Annex. PAGENO="0429" 423 ARTICLE 39 Provi$ional Application The European Economic Community and its Member States and any ~other Government listed in Article 36(a) may deposit withthe Gov- ernment~ of the United States of America a declaration of provisional application of this Convention provided it also deposits a declaration of provisional application of the Food Aid Convention. Any other flovernment eligible to sign this Convention or whose application for accession is approved by the Council may also deposit with the Govern- .rnent of the United States of America a declaration of provisional ap- plication. Any Government depositing such a declaration shall pro- visionally apply this Convention and be provisionally regarded as a party thereto provided that any Government listed in Article 36(a) ~shall only be regarded as a provisional party to this Convention as long as it provisionally applies the Food Aid Convention. ARTICLE 40 Entry into force (1) This Convention shall enter into force among those Govern- ~m~nts that have deposited instruments of ratification, acceptance, ap.. proval or accession as follows: (a) on 18 June 1968 with respect to all provisions other than A4rticles 4 to 10 and (b) on 1 July 1968 with respect to Articles 4 to 10 provided that the European Economic Community .and its Member States and all other Governments listed in Article 36(a) have deposited such instruments or a declaration of provisional application by 17 Jnue 1968 and that the Food Aid Convention will enter into force on 1 July 1968. (2) This Convention shall enter into force for any Government :th~;t deposits an instrument of ratification, acceptance, approval or accession after 17 June 1968 on the date of ~uch deposit except that `no part of it shall enter into force for such a Government until that part enters into force for other Governments under paragraph (1)' or (3) of this Article. (3) If this Convention does not enter into force in accordance with paragraph (I) of this Article the Governments which have deposited instruments of ratification, acceptance, approval or accession or decla- rations of provisional applicatiOn may decide by mutual consent that it shall enter into force among those Governments that have deposited * instruments Of ratification, acceptance, approval or accession, pro- vided the Food Aid Convention enters into force on the first date.that all the provisions of this Convention are in force, or they may take whatever other action they consider the situation requires. (4) The Council may before this Convention enters into force estab- lish for an~~y country, in agreement with that country, the percentage referred to in paragraph (2) of Article 4 in accordance with that `paragraph, and shall at its first session after any part of this Con- vention comes into force so establish the percentage for any member country for which a percentage has not been established. PAGENO="0430" 424 ARTICLE ~ 41 Diuration~ a~imendrn~nt and withdrawal ( 1) This Convention shall remam in force until and mcluding 30 June 1971 ( 2) The Council shall, at such time as it considers appropriate, corn municate to the member countries its recommendations regarding re newal or replacement of this Convention The Council may invite any Government of a Member of the United Nations or the specialized agencies not party to tins Convention which has a substantial interest in the international trade in wheat to participate in any of its dis cussions under this paragraph (3) The Council may recommend an amendment of this Conven- tion to the member countries. (4) The Council may fix a time within which each member country shall notify the Government of the United States of America whether or not it &~eepts the amendment. The amendment shall become effec- tive upon its acceptance by exporting countries which hold two-thirds of the votes of the exportmg countries and by importing countries which hold two thirds of the votes of the importing countries (5) Any member country which has not notified the Government of the United States of America of its acceptance of an amendment by the date on which such amendment becomes efiective may, after giving such written notice of withdrawal to the Government of the United States of America as the Council may require in each case, withdraw from this Convention at the end of the current crop year, but shall not thereby be released from any obligations under this Con vention which have not been discharged by the end of that crop yeai Any such withdrawing country shall not be bound by the provisions of the amendment occasioning its withdrawal (6) Any member country which considers its interests to `be seri- ously prejudiced by the non participation in this Convention of any Government listed in Article 36(a) may withdraw from this C'onven tion by giving written notice of withdrawal to the Government of the United States of America before 1 July 1968 If an extension of time has been granted by the Council under Article 37 or 38, notice of withdrawal in accordance with this p'rr'tgraph may be given before the expiry of 14 days after the extension granted (7) Any member country which considers its national security to be endangered by the outbreak of hostilities may withdraw from this Convention by giving thirty days' written notice of withdrawal to the Government of the United States of America or may `apply in the first instance to the Council for the suspension of any or all of its obhgaitions under this Convention (8) Any exporting country which considers its interests to be sen ously prejudiced by the withdrawal from this Convention of any im porting country holding not less than 50 votes or any importing country which considers its interests to be seriously prejudiced by the withdrawal from this Convention of any exporting country holding not less than 50 votes may withdraw from this Convention by giving written notice of withdrawal to the Government of the United States of America before the expiry of 14 days from the withdrawal of the country which is considered to cause such serious prejudice PAGENO="0431" 425 ARTICLE 42 Territorial Application (1) Any Government may, at the time of signature or ratification, acceptance, approval, provisional application of or accession to this Convention, declare that its rights and obligations under this Conven- tion shall not apply in respect of all or any of the non-metropolitan territories for the international relations of which it is responsible. (2) With the exception of territories in respect of which a declara- tion has been made in accordance with paragrah (1) of this Article, the rights and obligations of any Government under this Convention shall apply in respect of all non-metropolitan territories for the inter- national relations of which that Govermnent is responsible. (3) Any Government may, at any time after its ratification, accept- ance, approval, provisional application of or accession to this Conven- tion, by notification to the Government of the United States of America, declare that its rights and obligations under this Convention shall apply in respect `of all or any of the non-metropolitan territories regardmg which it has made a declaration in accordance with para- graph (1) of this Article. (4) Any Government may, by giving notification of withdrawal to the Government of the United States of America, withdraw from this Convention separately in respect of all or any of the non-metropolitan territories for whose international relations it is responsible. (5) For the purposes of the establishment of datum quantities under Article 15 and the redistribution of votes under Article 27, any change in the application of this Convention in accordance with this Article shall be regarded as a change in participation in this Convention in such manner as may be appropriateto the circumstances. ARTICLE 43 Notification by depo$itary authority The Government of the United States of America as the depositary authority will notify all signatory and acceding Governments of each signature, ratification, acceptance, approval, provisional application of, and accession to, this Convention, as well as each notification and notice received under Article 41 and each declaration and notification received under Article 42. ARTICLE 44 Relationship of Preamble to Convention This Convention includes the Preamble to the International Grains Arrangement 1967. IN WITNESS WHEREOF the undersigned, having been duly authorized to this effect by their respective Governments, have signed this Con- vention on the dates appearing opposite their signature. The texts of this Convention in the English, French, Russian and Spanish languages shall all be equally authentic. The originals shall be deposited in the archives of the Government of the United States of America, which shall transmit certified copies thereof to each signa- tory and acceding Government. PAGENO="0432" 426 ANNEX A Argentina Spain Australia Sweden Canada Union of Soviet Socialist European Economic Community Republics Greece United States of America Mexico PAGENO="0433" 427 ANNEX B Afghanistan Korea, Repubik of Algeria Lebanon Austria Libya Barbados Malaysia Bolivia New Zealand Brazil Nigeria Bulgaria Norway Ceylon Pakistan Chile Panama Colombia Peru Costa Rica Philippines Cuba `Poland. Czechoslovakia Portugal Denmark Romania Dominican Republic San Marino, Republic of Ecuador Saudi Arabia El Salvador Sierra Leone European Economic Community South Africa Finland Southern Rhodesia Ghana Switzerland Guatemala Syrian Arab Republic Haiti Trinidad & Tobago Iceland Tunisia India Turkey Indonesia United Arab Republic Iran United Kingdom Ireland Uruguay Israel Vatican City Japan Venezuela Kingdom of the Netherlands Viet-nam, Republic of (with respect to the interests of Western Samoa Netherlands Antilles and Sun- Yugoslovia nam) For Afghanistan: For Algeria: For Argentina: A C ALSOGARAY 29/XI/1967 For Australia: KEITH WALLER 27-X-67 For Austria: 95-159 0-68-pt. 1-28 PAGENO="0434" 428 For Barbados: For Bolivia: For Brazil For Bulgaria For Canada A EDGAR RITOmE November 2, 1967 For Ceylon: For Chile For Colpmbia: For Costa Rica For Cuba For Czechoslovakia For Denmark FEMMING AGERUP Subject to ratification 24 November 1967 For the Dominican Republic: For Ecuador For El Salvador For the European Economic Community L G RABOT November 28, 1967 Belgium: BARON SCHEYvEN November 17, 19~7~ France: CHARLES LUCET November 27th 1967 Federal Republic of Germany K H KNAPPSTEIN 17 November 1967 Italy: Eoimo ORTONA 20 November 1967 Luxembourg: M `SI1~tNMETZ 16 November 1967 Kingdom of the Netherlands C SOHTTRMANN Subject to ratification 16 November 1967 PAGENO="0435" 429 For Finland: Pi~iu~ MALINEN November 27, 1967 Finland reserves full freedom to continue the imports of grain in accordance with her traditional trade pattern. Con- sequently, `Finland makes a reservation as to the obligation put forward under paragraphs 2 and 4 of Article 4 of the Wheat Trade `Convention. For `Ghana: For Greece: CHRISTIAN XANTHOPOULOS-PALMAS Subject to ratification November 29, 1967. For Guatemala: For Haiti: For Iceland: For India: BRAJ KUMAR NEHRU 30.11.1967. For Indonesia: For Iran: For Ireland: WILLIAM P. FAT Subject to ratification. November 29, 1967. For Israel: S. SrrroN Subject to ratification. Nov. 29, 1967 For Japan: T. SHIMODA November 9, 1967 For the Republic of Korea: DONG Jo Km.t Nov. 80, 1967 For Lebanon: I Ajmht~ Sous r6serve de ratification 30 November 1967 For Libya: For Malaysia: For Mexico: HUGO B. MARGAIN 29th November 1967 For the Kingdom of the Netherlands (With respect to the interests of the Netherlands Antilles and Surinam): PAGENO="0436" 430 For New Zealand: For Nigeria: For the Kingdom of Norway: ARNE G~o Subject to ratification November 29, 1967 For Pakistan: AFTAB AHMAD KHAN 28th November, 1967 For Panama: For Peru: For the Republic of the Philippines: For Poland: For Portugal: VASCO VIEIRA GARIN Subject to ratification. 27th November 1967 For Romania: For the Republic of San Marino: For Saudi Arabia: IBRAHIM Ar.~-SowA~n~ November 30th 1967 For Sierra Leone: For the Re~public of South Africa: H L T TASWELL 28 Nov 1967 For Southern Rhodesia: For Spain: Mr~mnr D~ VAL Nov. 28, 1967. For Sweden: HUBERT DEBESCHE Subject to ratification of the Riksdag. Nov. 22, 1967 For Switzerland: F. SCHN-YDER Sous reserve de ratification 28 November 1967. For the Syrian Arab Republic: For Trinidad and Tobago: For Tunisia: S. ABD1u~AH 24th October 1967 For Turkey: PAGENO="0437" 431 For the Union of Soviet Socialist Republics: For the United Arab Republic: For the United Kingdom of Great B~ritain .and Northern Ireland: PATRICK DEAN. 28 November 1967. At the time of signing the present Agreement I declare in accordance with paragraph (1) of Article 42 thereof, that my signature is in respect of the United Kingdom of Great Brit- am & Northern Ireland only, & that the rights & obligations of the Government of the United Kingdom under the Agree- ment shall not apply in respect of any of the non-metropoli- tan territories for the international relations of which. they are responsible. For the United States of America: JOHN A. SCHNITTKER Nov 8, 1967 For Uruguay: For the Vatican City State: Lun~i RAIMONDI Nov. 13, 1967 For Venezuela: For the Republic of Viet-Nam: For Western Samoa: - For Yugoslavia: Food Aid Convention ARTICLE I Objective The objective of this Convention is to carry out a~ food `aid:' pro- gramme with the help of contributions for the benefit of dev~loping countries. ARTICLE II Zntei'~nationcd food aid (1) The countries party to this Convention agree to contribute wheat, coarse grains, or the cash equivalent thëreof~ as aid to the developing countries, to ~n amount of 4.5 million metric tons of grain annually. Grains covered by the programme shall be suitable for human consumption and of an acceptable type and quality. PAGENO="0438" .432 (2) The minimtim contribution of each country party to this Con- vention is fixed as follows: Percent tons (thousands) United States 42. 0 1,890 Canada 495 Australia 0 225 Argentina 5 23 European Economic Community 23.0 1,035 United Kingdom 5. 0 225 Switzerland 7 . 32 Sweden 1.2 54 Denmark 6 . 27 Norway . 3 14 Finland 3 . 14 Japan 5.0 225 Countries acceding to this Convention shall make contributions on such a~ basis as may be agreed. (3) The contribution of a country making the whole or part of its contribution to the programme in the form of cash shall be calculated by evaluating the quantity determined for that country (or that por- tion of the quantity not contributed in grain) at US$1.73 per bushel. (4) Food aid in the form of grain shall be supplied on the following terms: (a) sales for the currency of the importing country which is not transferable and is not convertible into currency or goods and services for use by the contributing country.1 (b) a gift of grain or a monetary grant used to purchase grain for the importing country. Grain purchases shall be made from participating countries. In the use of grant funds, special regard shall be had to facilitating grain exports of developing member countries. To this end priority shall be given so that not less than 25 per cent of the cash contribution to purchase grain for food aid or that part of such contribution required to purchase 200,000 metric tons of grain shall be used to purchase grains produced in developing countries. Contributions in the form of grains shall be placed in f.o.b. forward position by donor countries. (5) Countries party to this Convention may, in respect of their contribution to the food aid programme, specify a recipient country or countries. ARTICLE III Food Aid Committee (1) There shall be established a Food Aid Committee whose mem- bership shall consist of countries listed in Article VI of this Conven- tion and of other countries that accede to this Convention. The ~Jcm- mittee shall appoint a Chairman and Vice-Chairman. (2) The Committee may when appropriate invite representatives of the Secretariats of other international organizations whose member- ship is limited to Governments that are also Members of the United Nations or its specialized agencies to attend as observers. 1 Under exceptional circumstances an exception of not more than 10 percent could be granted. PAGENO="0439" 433 (3) The Committee shall: (a) receive regular reports from contributing countries on the amount, content, channelling and terms of their food aid contribu- tions under this Convention; (b) keep under review the purchase of grains financed by cash contributions with particular reference to the obligation in the second paragraph of Article II (4) concerning purchase of grain from developing participating countries. (4) The Committee shall: (`a) examine th~ way in which the obligations undertaken under the food aid programme have been fulfilled; (b) exchange information on a regular basis on the function- ing of the food aid arrangements under this Convention, in par- ticular, where information is available, on its effects on food production in recipient countries. The Committee shall report as necessary. (5) The Committee may at any time make arrangements for an exchange of views, particularly in order to deal with emergency con- ditions. (6) For the purposes of paragraphs (4) `and (5) of this Article the Committee may receive information from recipient countries and may consult with them. ARTICLE IV Adn't~inistrative p?OD8iOfl~ The Food Aid Committee as set up according to the provisions of Article III shall use the services of the Secretariat of the International Wheat Council for the performance of `such administrative duties as the Committee may request including the processing and distribu- tion of documentation `and reports. ARTICLE V De/a~1t8 and di8p~te8 In the case of a dispute concerning the interpretation or applica- tion of this Convention or of a default in obligations under this Convention, the Food Aid Committee shall meet and take appropriate action. ARTICLE VI Big~at~re This Convention shall be open for signature in Washington from 15 October 1967 until and including 30 November 1967 by the Govern- ments of Argentina, Australia, Canada, Denmark, Finland, Japan, Norway, Sweden, Switzerland, the United Kingdom, the United States `and by the European Economic Community and its Member States, provided they sign `both this Convention `and the Wheat Trade Convention. PAGENO="0440" 434 ARTICLB VII Ratification, acceptance or approval This Convention shall be subject to ratification, acceptance or ap-. proval by each signatory in accordance with its respective constitu- tional or institutional procedures, provided that it also ratifies, accepts or approves the Wheat Trade Convention. Instruments of ratifica- tion, acceptance or approval shall be deposited with the Government of the United States of America not later than 1 July 1968 except that the Food Aid Committee may grant one or more extensions of time to any signatory that has not deposited its instrument of ratification, ~icceptance or approval by that date. ARTICLE VIII Acce88ion (1) This Convention shall be open for accession by the European Economic Community and its Member States or by any other Govern- ment listed in Article VI provided the Government also accedes to the Wheat Trade Coxwention. Instruments of accession under this para- graph shall be deposited not later than 1 July 1968 except that the Food Aid Committee may grant ope or more extensions of time to any Government that has not deposited its instrument of accession by that date. (2) The Food Aid Committee may approve accession to this Con- vention by the Government of any Member of the United Nations or its specialized agencies on such conditions as the Food Aid Committee considers appropriate. (3) If any Government not referred to in Article VI wishes to apply for accession to this Convention prior to its entry into force, the sigTla- tories to this Convention may approve accession on such conditions as they consider appropriate. Any such approval and conditions shall be as valid under this Convention as if this action had been taken by the Food Aid Committee after the entry into force of this Convention. (4) Accession shall be effected by deposit of an instrument of acces- sion with the Government of the United States of America. ARTICLE Ix Provi8ional application The European Economic Community and its Member States and any other Government listed in Article VI may deposit with the Government of the United States of America a declaration of provi- sional application of this Conventiofl, provided it also deposits a declaration of provisional application of the Wheat Trade Conven- tion. Any other Government whose application for accession is ap- proved may also deposit with the Government of the United States of America a declaration of provisional application. Any Govern- ment depositing such a declaration shall provisionally apply this Convention and be provisionally regarded as a party thereto. PAGENO="0441" 435 ARTICLE X Entry into force (1) This Convention shall enter into force on 1 July 1968 among those Governments that have deposited instruments of ratification, ac. ceptance, approval or accession by that date provided that the Euro~ pean Economic Community and its Member States and all other Gov- ernments listed in Article VI have deposited such instruments or a declaration of provisional application by that date and that all the provisions of the Wheat Trade Convention `are in force. This Con- vention shall enter into force for any other Government that deposits an instrument of ratification, acceptance, approval or accession after the (knvention enters into force on the date of such deposit. (2) If this Convention does not enter into force on 1 July 1968 the Governments which by that date have deposited instruments of' ratification, acceptance, approval or accession or declarations of pro- visional application may decide by mutual consent that it shall enter into force among those Governments that have deposited instruments. of ratification, acceptance, approval or accession, provided that all the provisions of the Wheat Trade Convention are in force, or they may take whatever other action they consider the situation requires. ARTICLE XI Duration This Convention shall be effective for a three-year period. ARTICLE XII Notification by depositary authority The Government of the United States of America as the depositary authority will notify all signatory and acceding Governments of each signature, ratification, acceptance, approval, provisional application of, and accession .to, this Convention. ARTICLE XIII Relationship of Pream,ble to Convention This Convention includes the Preamble to the International Grains Arrangement 1967. IN WITNESS WHEREOF the undersigned, having been duly authorized to this effect by their respective Governments, have signed this Con- vention on the dates appearing opposite their signatures. The texts of this Convention in the English, French, Russian and Spanish languages shall all, be equally authentic. The originals shall be deposited in the archives of the Government of the United States of America, which .shall transmit certified copies thereof to each signatory and `acceding Government. PAGENO="0442" 436 For Argentina: A C ALSOGARAY 29/XI/1967 For Australia KEmI WALLER 27-X-.67 For Canada A. Eixi~ RITOHIE November 2, 1967 For Denmark FLEMMING AGERUP Subject to ratification 24 November 1967 For the European Economic ComT~hunity LGR~~io~ November28 1967 Belgium: BARON SOHEYVEN 17 November 1967 France: CHARLES LUcET November 27th 1967 Federal Republic of Germany K. H.' KNAPPSTEIN 17 November 1967 Italy: EGIDIO ORTONA 20 November 1967 Luxembourg: M STEINMETZ 16 November 1967 Kingdom of the Netherlands: C. SOHURMANN Subject to ratification 16 November 1967 For Finland PEXKA MALINEN November27, 1967 For Japan: T. SHIMODA November 9,1967 The Government of Japan reserves the acceptance of the pro- visions of Article II For the Kingdom of Norway: AIti~E GUNNENG Subject to ratification November 29, 1967 PAGENO="0443" 437 For Sweden: HUBERT DEBESOHE Subject to ratification of the Riksdag. Nov. 22, 1967 For Switzerland: F. SCHNYDER Sous reserve de ratification 28 November 1967 For the United Kingdom of Great Britain and Northern Ireland: PATRICK DEAN 28 November 1967 For the United States of America: JOHN A SOHNrI'TKER Nov 8, 1967 PAGENO="0444" 438 Mr BATTIN Secretary Wirtz, you have made a comparison between the provisions of the Trade Expansion Aot of 1962 and the Canadian Automotive Agreement, that there had been 21 applications, and 14 favorable decisions dealing with the compensation due people as a re suit of change in their working status because of the agreement I forget now-I knew at the time-who decides the applications ~ Secretary WIRTZ That act puts the responsibility in the President, who receives the applications He in turn has delegated to what is called an Automotive Agreement Adjustment Assistance Board, which i' composed of the Secretary of the `1 reasury, the Secretary of Corn rnerce, and the Secretary of Labor, so that the action is by that board on behalf of the President. Mr. BATTIN. If a person is denied an application, does he have t.he right of appeal ~ Secretary WIRT7 There is no provision spelled out in this bill for right of appeal Mr. BATTIN. When does that act expire? Secretary WIRTZ July 1, 1968, next month Mr BATTIN The only thing you are asking for at this time is Secretary WIRTZ Straight extension, with no changes at all The part of the act that expires is the part relating to adjustment assistance only The act is based on an international agreement, so that the rest of the arrangement will go ahead The simple answer to your auestion is that, specifically, the adjust ment assistance provisions will expire the 1st of July, this year Mr FULTON Mr Conable ~ Mr CONABLE Mr Chairman, I have a couple of questions to Am bassador Roth. I note from the schedule he will be with us tomorrow. Would it not be more appropriate to ask the questions then ~ The CHAIRMAN. I think Ambassador Roth would agree with me it would be better to do that tomorrow Mr CONABLE Thank you, Mr Chairman I have no questions The CHAIRMAN. Are there any further questions? We thank you gentlemen for coming to the committee, and ~ e con gratulate you on the manner in which you have presented your testi mony and responded to our questions. We appreciate your being here. Without objection, the committee adjourns until 10 o'clock in the morning (Whereupon, at 4 30 p rn, the committee `Ldjourned, to reconvene `tt 10 a m, Wednesday, June 5, 1968) 0 PAGENO="0445" PAGENO="0446"